Exhibit 10.1
AMENDED AND RESTATED
STRATTEC SECURITY CORPORATION
STOCK INCENTIVE PLAN
(As amended and restated effective August 20, 2012)
1.
Purpose;
Definitions
. The purpose of the Plan is to advance the interests of the Company’s shareholders by enhancing the Company’s ability to attract, retain and motivate persons who make (or are expected to make) important contributions to the
Company by providing such persons with equity ownership opportunities and performance-based incentives and thereby better aligning the interests of such persons with those of the Company’s shareholders.
For purposes of the Plan, the following terms are defined as set forth below:
(a) “Board” means the Board of Directors of the Company.
(b) “Code” means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto.
(c) “Commission” means the Securities and Exchange Commission or any successor agency.
(d) “Committee” means the Committee referred to in Section 2.
(e) “Company” means STRATTEC SECURITY CORPORATION, a corporation organized under the laws of the State of Wisconsin, or any
successor corporation.
(f) “Director” means a member of the Board.
(g) “Disability” means permanent and total disability as determined under procedures established by the Committee for purposes
of the Plan.
(h) “Early Retirement” means, with respect to Employees, retirement, with the consent of and for
purposes of the Company, from active employment with the Company, a subsidiary or affiliate pursuant to the early retirement provisions of the applicable pension plan of such employer.
(i) “Employee” means any person, including Officers and Directors, employed by the Company or any affiliate or subsidiary of the
Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its subsidiaries, or any successor.
Neither service as a Director nor payment of a director’s fee by the Company shall be sufficient to constitute “employment” by the Company.
(j) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time
to time, and any successor thereto.
(k) “Fair Market Value” means, except as provided in Sections 5(k) and
6(b)(ii): (i) with respect to Non-Qualified Stock Options granted in connection with the distribution of Stock made by Briggs & Stratton Corporation to its shareholders, the average closing price of the Stock on the applicable NASDAQ
Stock Market during the five trading days after the effective date of such distribution; and (ii) in all other instances, the mean, as of any given date, between the highest and lowest reported sales prices of the Stock on the applicable NASDAQ
Stock Market or, if no such sale of Stock occurs on the applicable NASDAQ Stock Market on such date, the fair market value of the Stock as determined by the Committee in good faith.
(l) “Incentive Stock Option” means any Stock Option intended to be and designated as an “incentive stock option”
within the meaning of Section 422 of the Code.
(m) “Non-Employee Director” shall have the meaning set forth in
Rule 16b-3(b)(3)(i), as promulgated by the Commission under the Exchange Act, or any successor definition adopted by the Commission.
(n) “Non-Qualified Stock Option” means any Stock Option that is not an Incentive Stock Option.
(o) “Normal Retirement” means, with respect to Employees, retirement from active employment with the Company, a subsidiary or affiliate at or after age 65.
(p) “Officer” means a person who is an officer of the Company within the meaning of section 16 of the Exchange Act and the rules
and regulations promulgated thereunder.
(q) “Plan” means the Amended and Restated STRATTEC SECURITY CORPORATION
Stock Incentive Plan, as set forth herein and as hereinafter amended from time to time.
(r) “Restricted Stock” means
an award under Section 7.
(s) “Retirement” means Normal Retirement or Early Retirement.
(t) “Rule 16b-3” means Rule 16b-3, as promulgated by the Commission under Section 16(b) of the Exchange Act, as
amended from time to time.
(u) “Service Provider” means an Employee, Officer or Director.
(v) “Stock” means the Common Stock, $.01 par value per share, of the Company.
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(w) “Stock Appreciation Right” means a right granted under Section 6.
(x) “Stock Option” or “Option” means an Option or Leveraged Stock Option granted under Section 5.
In addition, the terms “Change in Control” and “Change in Control Price” have the meanings set forth in
Sections 8(b) and (c), respectively, and other capitalized terms used herein shall have the meanings ascribed to such terms in the relevant section of this Plan.
2.
Administration
. The Plan shall be administered by the Compensation Committee of the Board or such other committee of the Board, composed solely of two or more Non-Employee Directors, who shall
be appointed by the Board and who shall serve at the pleasure of the Board. If at any time no Committee shall be in office, the functions of the Committee specified in the Plan shall be exercised by the Board.
The Committee shall have plenary authority to grant to eligible Service Providers, pursuant to the terms of the Plan, Stock Options,
Stock Appreciation Rights and Restricted Stock.
In particular, the Committee shall have the authority, subject to the terms
of the Plan:
(a) to select the Service Providers to whom Stock Options, Stock Appreciation Rights and Restricted Stock may
from time to time be granted;
(b) to determine whether and to what extent Incentive Stock Options, Non-Qualified Stock
Options, Stock Appreciation Rights and Restricted Stock or any combination thereof are to be granted hereunder; provided, however, Incentive Stock Options may not be granted to Non-Employee Directors,
(c) to determine the number of shares to be covered by each award granted hereunder,
(d) to determine the terms and conditions of any award granted hereunder (including, but not limited to, the share price, any restriction
or limitation and any vesting acceleration or forfeiture waiver regarding any Stock Option or other award and the shares of Stock relating thereto, based on such factors as the Committee shall determine);
(e) to adjust the performance goals and measurements applicable to performance-based awards pursuant to the terms of the Plan;
(f) to determine under what circumstances a Stock Option may be settled in cash or Restricted Stock under Section 5(k); and
(g) to determine to what extent and under what circumstances Stock and other amounts payable with respect to an award shall be
deferred.
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The Committee shall have the authority to adopt, alter and repeal such administrative rules,
guidelines and practices governing the Plan as it shall, from time to time, deem advisable, to interpret the terms and provisions of the Plan and any award issued under the Plan (and any agreement relating thereto) and to otherwise supervise the
administration of the Plan.
The Committee may act only by a majority of its members then in office, except that the members
thereof may authorize any one or more of their number or any Officer to execute and deliver documents on behalf of the Committee.
Any determination made by the Committee pursuant to the provisions of the Plan with respect to any award shall be made in its sole discretion at the time of the grant of the award or, unless in
contravention of any express term of the Plan, at any time thereafter. All decisions made by the Committee pursuant to the provisions of the Plan shall be final and binding on all persons, including the Company and Plan participants.
3.
Stock Subject to Plan
. The total number of shares of Stock reserved and available for distribution under the Plan shall be
1,700,000 shares. Such shares may consist, in whole or in part, of authorized and unissued shares or treasury shares.
Subject
to Section 6(b)(iv), if any shares of Stock that have been optioned cease to be subject to a Stock Option, if any shares of Stock that are subject to a Restricted Stock award are forfeited or if any Stock Option or other award otherwise
terminates without a payment being made to the participant in the form of Stock, such shares shall again be available for distribution in connection with awards under the Plan.
In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, stock split or other change in corporate
structure affecting the Stock, such substitution or adjustments shall be made in the aggregate number of shares reserved for issuance under the Plan, in the number and option price of shares subject to outstanding Stock Options and in the number of
shares subject to other outstanding awards granted under the Plan as may be determined to be appropriate by the Board, in its sole discretion; provided, however, that the number of shares subject to any award shall always be a whole number. Such
adjusted option price shall also be used to determine the amount payable by the Company upon the exercise of any Stock Appreciation Right associated with any Stock Option.
4.
Eligibility
. Service Providers of the Company, its subsidiaries and affiliates who are responsible for or contribute to the management, growth and profitability of the business of the Company,
its subsidiaries or affiliates are eligible to be granted awards under the Plan; provided, however, Non-Employee Directors are not eligible to receive awards of Incentive Stock Options under the Plan.
5.
Stock Options
. Stock Options may be granted alone or in addition to other awards granted under the Plan and may be of two
types: Incentive Stock Options and
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Non-Qualified Stock Options. Any Stock Option granted under the Plan shall be in such form as the Committee may from time to time approve.
Subject to the limitations contained herein, the Committee shall have the authority to grant to any optionee Incentive Stock Options,
Non-Qualified Stock Options or both types of Stock Options (in each case with or without Stock Appreciation Rights); provided, however, Non-Employee Directors are not eligible to receive awards of Incentive Stock Options under the Plan.
Incentive Stock Options may be granted only to Employees of the Company and its subsidiaries (within the meaning of Section 425(f)
of the Code). To the extent that any Stock Option does not qualify as an Incentive Stock Option, it shall constitute a separate Non-Qualified Stock Option.
Stock Options shall be evidenced by option agreements, the terms and provisions of which may differ. An option agreement shall indicate on its face whether it is an agreement for Incentive Stock Options
or Non-Qualified Stock Options. The grant of a Stock Option shall occur on the date the Committee by resolution selects a Service Provider as a participant in any grant of Stock Options, determines the number of Stock Options to be granted to such
Service Provider and specifies the terms and provisions of the option agreement. The Company shall notify a participant of any grant of Stock Options, and a written option agreement or agreements shall be duly executed and delivered by the Company.
Anything in the Plan to the contrary notwithstanding, no term of the Plan relating to Incentive Stock Options shall be
interpreted, amended or altered nor shall any discretion or authority granted under the Plan be exercised so as to disqualify the Plan under Section 422 of the Code or, without the consent of the optionee affected, to disqualify any Incentive
Stock Option under such Section 422.
Options granted under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions as the Committee shall deem desirable:
(a)
Option
Price
. The option price per share of Stock purchasable under a Stock Option shall be equal to the Fair Market Value of the Stock at time of grant or such higher price as shall be determined by the Committee at grant.
(b)
Option Term
. The term of each Stock Option shall be fixed by the Committee, but no Incentive Stock Option shall be exercisable
more than 10 years after the date the Option is granted, and no Non-Qualified Stock Option shall be exercisable more than 10 years and one day after the date the Option is granted.
(c)
Exercisability
. Stock Options shall be exercisable at such time or times and subject to such terms and conditions as shall be
determined by the Committee. If the Committee provides that any Stock Option is exercisable only in installments, the Committee
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may at any time waive such installment exercise provisions, in whole or in part, based on such factors as the Committee may determine.
(d)
Method of Exercise
. Subject to the provisions of this Section 5, Stock Options may be exercised, in whole or in part, at
any time during the option period by giving written notice of exercise to the Company specifying the number of shares to be purchased.
Such notice shall be accompanied by the payment in full of the purchase price for such shares or, to the extent authorized by the Committee, by irrevocable instructions to a broker to promptly pay to the
Company in full the purchase price for such shares. Such payment shall be made in cash, outstanding shares of Stock, in combinations thereof, or any other method of payment approved by the Committee; provided, however, that the deposit of any
withholding tax shall be made in accordance with applicable law. If shares of Stock are being used in part or full payment for the shares to be acquired upon exercise of the Stock Option, such shares shall be valued for the purpose of such exchange
as of the date of exercise of the Stock Option at the Fair Market Value of the shares. Any certificates evidencing shares of Stock used to pay the purchase price shall be accompanied by stock powers duly endorsed in blank by the registered holder of
the certificate (with signatures thereon guaranteed). In the event the certificates tendered by the holder in such payment cover more shares than are required for such payment, the certificate shall also be accompanied by instructions from the
holder to the Company’s transfer agent with regard to the disposition of the balance of the shares covered thereby.
If
payment of the option exercise price of a Non-Qualified Stock Option is made in whole or in part in the form of Restricted Stock, such Restricted Stock (and any replacement shares relating thereto) shall remain (or be) restricted in accordance with
the original terms of the Restricted Stock award in question, and any additional Stock received upon the exercise shall be subject to the same forfeiture restrictions, unless otherwise determined by the Committee.
No shares of Stock shall be issued until full payment therefor has been made. Subject to any forfeiture restrictions that may apply if a
Stock Option is exercised using Restricted Stock, an optionee shall have all of the rights of a shareholder of the Company, including the right to vote the shares and the right to receive dividends, with respect to shares subject to the Stock Option
when the optionee has given written notice of exercise, has paid in full for such shares and, if requested, has given the representation described in Section 12(a).
(e)
Non-transferability of Options
. No Stock Option shall be transferable by the optionee other than by will or by laws of descent and distribution, and all Stock Options shall be exercisable,
during the optionee’s lifetime, only by the optionee or by the guardian or legal representative of the optionee, it being understood that the terms “holder” and “optionee” include the guardian and legal representative of the
optionee named in the option agreement and any person to whom an option is transferred by will or the laws of descent and distribution.
(f)
Termination by Death
. Subject to Section 5(j), if an optionee’s status as a Service Provider terminates by reason of death, any Stock Option held by such optionee may
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thereafter be exercised, to the extent then exercisable or on such accelerated basis as the Committee may determine, for a period of one year (or such other period as the Committee may specify)
from the date of such death or until the expiration of the stated term of such Stock Option, whichever period is shorter.
(g)
Termination by Reason of Disability
. Subject to Section 5(j), if an optionee’s status as a Service Provider terminates by reason of Disability, any Stock Option held by such optionee may thereafter be exercised by the optionee, to
the extent it was exercisable at the time of termination or on such accelerated basis as the Committee may determine, for a period of three years (or such shorter period as the Committee may specify at grant) from the date of such termination as a
Service Provider or until the expiration of the stated term of such Stock Option, whichever period is shorter; provided, however, that, if the optionee dies within such three-year period (or such shorter period), any unexercised Stock Option held by
such optionee shall, notwithstanding the expiration of such three-year (or such shorter) period, continue to be exercisable to the extent to which it was exercisable at the time of death for a period of 12 months from the date of such death or
until the expiration of the stated term of such Stock Option, whichever period is shorter. With respect to an Employee, in the event of termination of employment by reason of Disability, if an Incentive Stock Option is exercised after the expiration
of the exercise periods that apply for purposes of Section 422 of the Code, such Stock Option will thereafter be treated as a Non-Qualified Stock Option.
(h)
Termination by Reason of Retirement
. Subject to Section 5(j), if an Employee optionee’s employment terminates by reason of Retirement, any Stock Option held by such optionee may
thereafter be exercised by the optionee, to the extent it was exercisable at the time of such Retirement or on such accelerated basis as the Committee may determine, for a period of three years (or such shorter period as the Committee may specify at
grant) from the date of such termination of employment or until the expiration of the stated term of such Stock Option, whichever period is shorter, provided, however, that, if the optionee dies within such three-year (or such shorter) period any
unexercised Stock option held by such optionee shall, notwithstanding the expiration of such three-year (or such shorter) period, continue to be exercisable to the extent to which it was exercisable at the time of death for a period of
12 months from the date of such death or until the expiration of the stated term of such Stock Option, whichever period is shorter. In the event of termination of employment by reason of Retirement, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, such Stock Option will thereafter be treated as a Non-Qualified Stock Option.
(i)
Other Termination
. Unless otherwise determined by the Committee, if an optionee’s status as a Service provider terminates
for any reason other than death, Disability or Retirement, the Stock Option shall thereupon terminate, except that such Stock Option, to the extent then exercisable, may be exercised for the lesser of three months following such termination or the
balance of such Stock Option’s term in the event the Service Provider is not an Employee and may be exercised for the lesser of three months or the balance of such Stock Option’s term if the optionee is an Employee and is involuntarily
terminated by the Company, a subsidiary or affiliate without cause. Notwithstanding the foregoing, if an optionee’s status as a Service Provider terminates at or after a Change in Control (as defined in Section 8(b)), other
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than by reason of death, Disability or Retirement, any Stock Option held by such optionee shall be exercisable for the lesser of (x) six months and one day, and (y) the balance of such
Stock Option’s term pursuant to Section 5(b).
(j)
Incentive Stock Option Limitations
. To the extent required
for “incentive stock option” status under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the Stock with respect to which Incentive Stock Options granted after 1986 are exercisable for
the first time by the optionee during any calendar year under the Plan and any other stock option plan of any subsidiary or parent corporation (within the meaning of Section 425 of the Code) after 1986 shall not exceed $100,000.
The Committee is authorized to provide at grant that, to the extent permitted under Section 422 of the Code, if a participant’s
employment with the Company and its subsidiaries is terminated by reason of death, Disability or Retirement and the portion of any Incentive Stock Option that is otherwise exercisable during the post-termination period specified under
Sections 5(f), (g), or (h), applied without regard to this Section 5(j), is greater than the portion of such option that is exercisable as an “incentive stock option” during such post-termination period under Section 422,
such post-termination period shall automatically be extended (but not beyond the original option term) to the extent necessary to permit the optionee to exercise such Incentive Stock Option (either as an Incentive Stock Option or, if exercised after
the expiration periods that apply for the purposes of Section 422, as a Non-Qualified Stock Option).
(k)
Cashing Out
of Option; Settlement of Spread Value in Restricted Stock
. On receipt of written notice of exercise, the Committee may elect to cash out all or part of the portion of any Stock Option to be exercised by paying the optionee an amount, in cash or
Stock, equal to the excess of the Fair Market Value of the Stock over the option price (the “Spread Value”) on the effective date of such cash out.
Cash outs relating to options held by optionees who are actually or potentially subject to Section 16(b) of the Exchange Act shall comply with the provisions of Rule 16b-3, to the extent
applicable, and, in the case of cash outs of Non-Qualified Stock Options held by such optionees, the Committee may determine Fair Market Value under the pricing rule set forth in Section 6(b)(ii).
In addition, if the option agreement so provides at grant or is amended after grant and prior to exercise to so provide (with the
optionee’s consent), the Committee may require that all or part of the shares to be issued with respect to the Spread Value payable in the event of a cash out of an unexercised Stock Option or the Spread Value portion of an exercised Stock
Option take the form of Restricted Stock, which shall be valued on the date of exercise on the basis of the Fair Market Value of such Restricted Stock, determined without regard to the forfeiture restrictions involved. Notwithstanding any other
provision of this Plan, upon a Change in Control (as defined in Section 8(b)) other than a Change in Control specified in clause (i) of Section 8(b) arising as a result of beneficial ownership (as defined therein) by the Plan
participant of Outstanding Company Common Stock or Outstanding Company Voting Securities (as such terms are defined below), in the case of Stock Options other than Stock Options held by
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an Officer or Director of the Company (within the meaning of Section 16 of the Exchange Act) which were granted less than six months prior to the Change in Control, during the 60-day period
from and after a Change in Control (the “Exercise Period”), unless the Committee shall determine otherwise at the time of grant, an optionee shall have the right, in lieu of the payment of the exercise price of the shares of Stock being
purchased under the Stock Option and by giving notice to the Company, to elect (within the Exercise Period) to surrender all or part of the Stock Option to the Company and to receive cash, within 30 days of such notice, in an amount equal to
the amount by which the “Change in Control Price” (as defined in Section 8(c)) per share of Stock on the date of such election shall exceed the exercise price per share of Stock under the Stock Option multiplied by the number of
shares of Stock granted under the Stock Option as to which the right granted under this Section 5(k) shall have been exercised.
(l)
Leveraged Stock Options
. Any of the shares of Stock reserved and available for distribution under the Plan may be used for grants of “Leveraged Stock Options” pursuant to the
Company’s Leveraged Stock Option Program described below (the “LSO Program”).
(i)
Objectives
. The LSO
Program is designed to build upon the Company’s Economic Value Added Bonus Plan (“EVA Plan”) by tying the interests of certain senior executives (“Senior Executives”) to the long term consolidated results of the Company. In
this way, the objectives of Senior Executives will be more closely aligned with the Company’s shareholders. Whereas the EVA Plan provides for near and intermediate term rewards, the LSO Program provides a longer term focus by allowing Senior
Executives to participate in the long-term appreciation in the equity value of the Company. In general, the LSO Program is structured such that each year an amount equivalent to the Total Bonus Payout under the EVA Plan is invested on behalf of
Senior Executives in options on the Company’s Stock (“LSOs”). These LSOs become exercisable after they have been held for three years, and they expire at the end of five years. The LSO Program is also structured so that a fair return
must be provided to the Company’s shareholders before the options become valuable.
(ii)
Leveraged Stock Option
Grant
. For fiscal 1995 and subsequent years, the dollar amount to be invested in LSOs for each Senior Executive shall be equal to the amount of each Senior Executive’s Total Bonus Payout determined under the EVA Plan effective for the
applicable fiscal year. The number of LSOs awarded shall be determined by dividing (a) the dollar amount of such LSO award by (b) 10% of the Fair Market Value of Company Stock on the date of the grant, as determined by the Committee,
rounded (up or down) to the nearest 10 shares.
(iii)
Term
. All LSOs shall be exercisable beginning on the third
anniversary of the date of grant, and shall terminate on the fifth anniversary of the date of grant unless sooner exercised, unless the Committee determines other dates.
(iv)
Exercise Price
. The exercise price for LSOs shall be the product of 90% of the Fair Market Value per share as determined above, times the sum taken to the fifth (5th) power of (a) 1,
plus (b) the Estimated Annual Growth Rate, but in no event may the exercise price be less than Fair Market Value on the date of grant. The Estimated Annual
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Growth Rate is the average daily closing 10-year U.S. Treasury note yield rate for the month of April immediately preceding the relevant Plan year, plus 2%. So,
Exercise Price = (.9 X FMV) X (1 + Estimated Annual Growth Rate)
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Example:
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$15 share price; 9.75% Estimated Annual Growth Rate (7.75% 10-year U.S. Treasury note rate, plus 2%): $13.50 (90% FMV) X (1.0975)5 = $21.50
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(v)
Limitations on LSO Grants and Carryover
.
Notwithstanding subsection (l)(ii) above, the
maximum number of LSOs that may be granted to all Senior Executives for any Plan year, shall be 40,000. In the event that the 40,000 limitation shall be in effect for any Plan year, the dollar amount to be invested for each Senior Executive shall be
reduced by proration based on the aggregate Total Bonus Payouts of all Senior Executives so that the limitation is not exceeded. The amount of any such reduction shall be carried forward to subsequent years and invested in LSOs to the extent the
annual limitation is not exceeded in such years. LSOs may not be awarded to Non-Employee Directors under the Plan
(vi)
The
Plan
. Except as modified herein, LSOs are Incentive Stock Options to the extent they are eligible for treatment as such under Section 422 of the Internal Revenue Code. If not eligible for Incentive Stock Option treatment, the LSOs shall
constitute Non-Qualified Stock Options. Except as specifically modified herein, LSOs shall be governed by the terms of the Plan.
6.
Stock Appreciation Rights
.
(a)
Grant and Exercise
. Stock
Appreciation Rights may be granted in conjunction with all or part of any Stock Option granted under the Plan. In the case of a Non-Qualified Stock Option, such rights may be granted either at or after the time of grant of such Stock Option. In the
case of an Incentive Stock Option, such rights may be granted only at the time of grant of such Stock Option. No Stock Appreciation Rights may be granted to a Non-Employee Director if granted in conjunction with an Incentive Stock Option.
A Stock Appreciation Right or applicable portion thereof granted with respect to a given Stock Option shall terminate and no
longer be exercisable upon the termination or exercise of the related Stock Option, except that, unless otherwise determined by the Committee at the time of grant, a Stock Appreciation Right granted with respect to less than the full number of
shares covered by a related Stock Option shall not be reduced until the number of shares covered by an exercise or termination of the related Stock Option exceeds the number of shares not covered by the Stock Appreciation Right.
A Stock Appreciation Right may be exercised by an optionee in accordance with Section 6(b) by surrendering the applicable portion
of the related Stock Option in accordance with procedures established by the Committee. Upon such exercise and surrender, the optionee shall be entitled to receive an amount determined in the manner prescribed in
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Section 6(b). Stock Options which have been so surrendered shall no longer be exercisable to the extent the related Stock Appreciation Rights have been exercised.
(b)
Terms and Conditions
. Stock Appreciation Rights shall be subject to such terms and conditions as shall be determined by the
Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable only at such time or times and to the
extent that the Stock Options to which they relate are exercisable in accordance with the provisions of Section 5 and this Section 6.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee shall be entitled to receive an amount in cash, shares of Stock or both equal in value to the excess of the Fair Market Value of one share
of Stock over the option price per share specified in the related Stock Option multiplied by the number of shares in respect of which the Stock Appreciation Right shall have been exercised, with the Committee having the right to determine the form
of payment.
In the case of Stock Appreciation Rights relating to Stock Options held by optionees who are actually or
potentially subject to Section 16(b) of the Exchange Act, the Committee may require that such Stock Appreciation Rights be exercised only in accordance with the applicable provisions of Rule 16b-3.
(iii) Stock Appreciation Rights shall be transferable only when and to the extent that the underlying Stock Option would be transferable
under Section 5(e).
(iv) Upon the exercise of a Stock Appreciation Right, the Stock Option or part thereof to which such
Stock Appreciation Right is related shall be deemed to have been exercised for the purpose of the limitation set forth in Section 3 on the number of shares of Stock to be issued under the Plan, but only to the extent of the number of shares
issued under the Stock Appreciation Right at the time of exercise based on the value of the Stock Appreciation Right at such time.
7.
Restricted Stock
.
(a)
Administration
. Shares of Restricted
Stock may be issued either alone or in addition to other awards granted under the Plan. The Committee shall determine the Service Providers to whom and the time or times at which grants of Restricted Stock will be made, the number of shares to be
awarded, the time or times within which such awards may be subject to forfeiture and any other terms and conditions of the awards, in addition to those contained in Section 7(c).
The Committee may condition the grant of Restricted Stock upon the attainment of specified performance goals or such other factors or
criteria as the Committee shall determine. The provisions of Restricted Stock awards need not be the same with respect to each recipient.
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(b)
Awards and Certificates
. Each participant receiving a Restricted Stock award
shall be issued a certificate in respect of such shares of Restricted Stock. Such certificate shall be registered in the name of such participant and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to
such award, substantially in the following form:
“The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including forfeiture) of the STRATTEC SECURITY CORPORATION Stock Incentive Plan. Copies of such Plan and Agreement are on file at the offices of STRATTEC SECURITY CORPORATION,
3333 West Good Hope Road, Milwaukee, Wisconsin 53209-2043.”
The Committee may require that the certificates
evidencing such shares be held in custody by the Company until the restrictions thereon shall have lapsed and that, as a condition of any Restricted Stock award, the participant shall have delivered a stock power, endorsed in blank, relating to the
Stock covered by such award.
(c)
Terms and Conditions
. Shares of Restricted Stock shall be subject to the following
terms and, conditions:
(i) Subject to the provisions of the Plan and the Restricted Stock Agreement referred to in
Section 7(c)(vii), during a period set by the Committee, commencing with the date of such award (the “Restriction Period”), the participant shall not be permitted to sell, assign, transfer, pledge or otherwise encumber shares of
Restricted Stock. Within these limits and subject to Section 7(c)(iv), the Committee may provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions, in whole or in part, based on service,
performance and such other factors or criteria as the Committee may determine.
(ii) Except as provided in this
paragraph (ii), and Section 7(c)(i), the participant shall have, with respect to the shares of Restricted Stock, all of the rights of a shareholder of the Company, including the right to vote the shares and the right to receive any cash
dividends. Unless otherwise determined by the Committee, cash dividends shall be automatically deferred and reinvested in additional Restricted Stock and dividends payable in Stock shall be paid in the form of Restricted Stock.
(iii) Except to the extent otherwise provided in the applicable Restricted Stock Agreement and Sections 7(c)(i) and (iv), upon
termination of a participant’s status as a Service Provider for any reason during the Restriction Period, all shares still subject to restriction shall be forfeited by the participant.
(iv) Except to the extent that an award of Restricted Stock is issued in lieu of cash compensation or in settlement of the spread value
of Stock Options pursuant to Section 5(k), the Restriction Period for any grant of shares of Restricted Stock under this Plan shall comply with the following: (A) with respect to shares of Restricted Stock that vest or otherwise become
unrestricted based upon the participant’s continued status as a Service
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Provider with the Company, the minimum Restriction Period shall be three years from the date of grant and after the end of such three year period the restrictions may lapse as to shares of
Restricted Stock either immediately or in installments as determined by the Committee; and (B) at the discretion of the Committee, the remaining restrictions may be waived or lapse prior to the end of the Restriction Period in the event of the
participant’s death, Disability or Retirement or in connection with certain transactions that may involve a Change in Control as provided in Section 8 of this Plan. Shares of Restricted Stock that are awarded in lieu of cash compensation
or pursuant to Section 5(k) may have any Restriction Period as may be determined by the Committee. For purposes of this Section 7(c)(iv), shares of Restricted Stock shall be deemed to have been awarded in lieu of cash compensation to the
extent that the aggregate Fair Market Value of the shares of Restricted Stock on the date of grant is not greater than the amount of any cash compensation that the participant agrees to forego as a condition to the grant.
(v) In the event of hardship or other special circumstances of a participant whose status as a Service Provider is involuntarily
terminated (other than for cause), the Committee may waive in whole or in part any or all remaining restrictions with respect to such participant’s shares of Restricted Stock.
(vi) If and when the Restriction Period expires without a prior forfeiture of the Restricted Stock subject to such Restriction Period,
unlegended certificates for such shares shall be delivered to the participant.
(vii) Each award shall be confirmed by, and be
subject to the terms of, a Restricted Stock Agreement.
(viii) Notwithstanding the terms of Section 7(a), the maximum
number of shares of Restricted Stock that may be granted to all participants for any Plan year, shall be 25,000. Moreover, the maximum number of shares of Restricted Stock that may be granted to any one individual for any Plan year is 20% of the
total number of shares of Restricted Stock awarded in that Plan year.
8.
Change In Control Provisions
.
(a)
Impact of Event
. Notwithstanding any other provision of the Plan to the contrary, in the event of a Change in Control (as
defined in Section 8(b)):
(i) Any Stock Appreciation Rights and Stock Options outstanding as of the date such Change in
Control is determined to have occurred and not then exercisable and vested shall become fully exercisable and vested to the full extent of the original grant.
(ii) The restrictions applicable to any Restricted Stock shall lapse and such Restricted Stock shall become free of all restrictions and fully vested to the full extent of the original grant.
(b)
Definition of Change in Control
. For purposes of the Plan, a “Change in Control” shall mean the happening of any of
the following events:
13
(i) The acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either [a] the then outstanding shares of Stock of the Company (the “Outstanding Company Common Stock”) or [b] the combined voting power of the then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that the following acquisitions shall not constitute a Change in Control: (w) any acquisition directly from the Company, (x) any
acquisition by the Company, (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (z) any acquisition by any corporation pursuant to a
transaction described in clauses [a], [b] and [c] of paragraph (iii) of this subsection (b) of this Section 8; or
(ii) Individuals who, as of February 27, 1995, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to February 27, 1995 whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or
(iii) Approval by the shareholders of the Company of a reorganization, merger or consolidation (a “Business Combination”), in each case, unless, following such Business Combination, [a] all
or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be,
of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company through one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, [b] no Person (excluding any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or
the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and [c] at least a majority of the members of the board of directors of
the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
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(iv) Approval by the shareholders of the Company of [a] a complete liquidation or
dissolution of the Company or [b] the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (A) more than 60% of,
respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale
or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) less
than 20% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by any Person (excluding any employee benefit plan (or related trust) of the Company or such corporation), except to the extent that such Person owned 20% or more of the Outstanding Company Common Stock or
Outstanding Company Voting Securities prior to the sale or disposition and (C) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such sale or other disposition of assets of the Company or were elected, appointed or nominated by the Board.
(c)
Change in Control Price
. For purposes of the Plan, “Change in Control Price” means the highest price per share paid in any transaction reported on the applicable NASDAQ Stock Market
or paid or offered in any bona fide transaction related to a potential or actual change in control of the Company at any time during the preceding 60 day period as determined by the Committee, except that, in the case of Incentive Stock Options and
Stock Appreciation Rights relating to Incentive Stock Options, such price shall be based only on transactions reported for the date on which the Committee decides to cash out such options.
9.
Amendments and Termination
. The Board may amend, alter or discontinue the Plan but no amendment, alteration or discontinuation
shall be made (i) which would impair the rights of an optionee under a Stock Option or a recipient of a Stock Appreciation Right or Restricted Stock award theretofore granted without the optionee’s or recipient’s consent or
(ii) which, without the approval of the Company’s shareholders, would:
(a) except as expressly provided in the Plan,
increase the total number of shares reserved for the purpose of the Plan;
(b) except as expressly provided in the Plan,
decrease the option price of any Stock Option to less than the Fair Market Value on the date of grant;
(c) change or expand
the class of Service Providers eligible to participate in the Plan;
15
(d) extend the maximum option period under Section 5(b);
(e) otherwise materially increase the benefits to participants in the Plan; or
(f) amend Section 10 or this Section 9.
The Committee may amend the terms of any Stock Option or other award theretofore granted, prospectively or retroactively, but no such amendment shall impair the rights of any holder without the
holder’s consent.
Subject to the above provisions, the Board shall have authority to amend the Plan to take into account
changes in law and tax and accounting rules, as well as other developments.
10.
Repricing
. Except for adjustments
pursuant to Section 3, neither the per share option price for any Stock Option granted pursuant to Section 5 or the per share grant price for any Stock Appreciation Right granted pursuant to Section 6 may be decreased after the date
of grant nor may an outstanding Stock Option or an outstanding Stock Appreciation Right be surrendered to the Company as consideration for the grant of a new Stock Option or new Stock Appreciation Right with a lower exercise or grant price without
the approval of the Company’s shareholders.
11.
Unfunded Status of Plan
. It is presently intended that the Plan
constitute an “unfunded” plan for incentive and deferred compensation. The Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Stock or make payments; provided,
however, that, unless the Committee otherwise determines, the existence of such trusts or other arrangements is consistent with the “unfunded” status of the Plan.
12.
General Provisions
.
(a) The Committee may require each person
purchasing shares pursuant to a Stock Option to represent to and agree with the Company in writing that the optionee or participant is acquiring the shares without a view to the distribution thereof. The certificates for such shares may include any
legend which the Committee deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock
or other securities delivered under the Plan shall be subject to such stock transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Commission, any stock exchange upon
which the Stock is then listed and any applicable federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Company, a subsidiary or affiliate from adopting other or additional compensation
arrangements for its Service Providers.
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(c) The adoption of the Plan shall not confer upon any Service Provider any right to a
continued relationship as a Service Provider nor shall it interfere in any way with the right of the Company, a subsidiary or affiliate to terminate such relationship at any time.
(d) No later than the dates as of which an amount first becomes includable in the gross income of the participant for federal income tax
purposes with respect to any award under the Plan, the participant shall pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, any federal, state, local or foreign taxes of any kind required by law to be
withheld with respect to such amount. Unless otherwise determined by the Company, withholding obligations may be settled with Stock, including Stock that is part of the award that gives rise to the withholding requirement. The obligations of the
Company under the Plan shall be conditional on such payment or arrangements, and the Company, its subsidiaries and affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the
participant.
(e) At the time of grant, the Committee may provide in connection with any grant made under this Plan that the
shares of Stock received as a result of such grant shall be subject to a right of first refusal pursuant to which the participant shall be required to offer to the Company any shares that the participant wishes to sell at the then Fair Market Value
of the Stock, subject to such other terms and conditions as the Committee may specify at the time of grant.
(f) The Committee
shall establish such procedures as it deems appropriate for a participant to designate a beneficiary to whom any amounts payable in the event of the participant’s death are to be paid.
(g) The Plan and all awards made and actions taken thereunder shall be governed by and construed in accordance with the laws of the State
of Wisconsin.
(h) The reinvestment of dividends in additional Restricted Stock at the time of any dividend payment shall only
be permissible if sufficient shares of Stock are available under Section 3 for such reinvestment (taking into account then outstanding Stock Options and other Plan awards).
17
Exhibit 10.9
RESTRICTED STOCK GRANT AGREEMENT
THIS RESTRICTED STOCK GRANT AGREEMENT is dated
as of (the “Grant Date”) between STRATTEC SECURITY CORPORATION, a Wisconsin corporation (the “Company”), and
(“Recipient”).
RECITALS
A. The Company has adopted the STRATTEC SECURITY CORPORATION Stock Incentive Plan, as most recently amended and restated as of
August 20, 2012 (the “Plan”), to provide eligible participants with the opportunity to obtain a proprietary interest, or otherwise increase their proprietary interest, in the Company. Capitalized terms not defined herein shall have
the meanings assigned such terms in the Plan.
B. In Connection with Recipient’s provision of services to and for the
benefit of the Company, the Company has agreed to issue certain shares of its common stock, par value $0.01 per share (the “Common Stock”), to Recipient pursuant to the terms and conditions of the Plan.
C. As a condition to the issuance of the Common Stock to Recipient, the Company and Recipient desire to impose certain restrictions on
the shares of Common Stock granted pursuant to the terms of this Agreement.
AGREEMENTS
In consideration of the recitals and the mutual agreements which follow, the Company and the Recipient agree as follows:
1.
Grant of Restricted Shares
. The Company hereby grants and issues
shares of the Common Stock (the “Restricted Shares”) to Recipient, in accordance with this Agreement and the Plan. Promptly following the execution and delivery of
this Agreement by Recipient, the Company shall cause a certificate for the Restricted Shares to be delivered to Recipient containing the legend set forth in Section 7 below.
2.
Vesting and Forfeiture of Restricted Shares
.
(a)
General Vesting
. Subject to the forfeiture provisions of section 2(b) and the accelerated vesting provisions of section 2(c), all of the Restricted Shares shall vest on the earlier of
Recipient’s voluntary retirement as a Service Provider to the Company or the third anniversary date of the Grant Date
(as such date may be modified by application of section 2(c), the “Vesting Date”). All Restricted Shares which shall have vested are referred to herein as “Vested Shares.” All
Restricted Shares which are not vested are referred to herein as “Unvested Shares.” Upon vesting, the Restricted Shares shall no longer be subject to forfeiture pursuant to section 2(b) of this Agreement.
(b)
Forfeiture Rights
. The Unvested Shares shall immediately be forfeited to the Company if, prior to the Vesting Date, the
Recipient’s status as a Service Provider to the Company has terminated, other than in connection with his or her voluntary retirement or as described in section 2(c)(ii) below. Upon any forfeiture of the Restricted Shares pursuant to this
section 2(b), Recipient shall have no rights as a holder of such Restricted Shares and such Restricted Shares shall be deemed transferred to the Company, and the Company shall be deemed the owner and holder of such shares.
(c)
Special Vesting
.
(i)
Change in Control
. All Restricted Shares not otherwise vested shall automatically and immediately vest immediately prior to the effective date of a Change in Control. Immediately following a
Change in Control, this Agreement shall terminate and cease to be outstanding, unless assumed by the successor entity (or parent thereof) in connection with the Change in Control.
(ii)
Termination as a Result of Death or Disability
. Notwithstanding anything herein to the contrary, if Recipient’s status
as a Service Provider to the Company terminates (i) as a result of Recipient’s death or (ii) because Recipient suffers a Disability, then in each such case the Restricted Shares shall be deemed fully vested and shall become Vested
Shares.
(iii)
Preservation of Rights
. This Agreement shall not in any way affect the right of the Company to adjust,
reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
3.
Shareholder Rights
. Regardless of whether the Restricted Shares are considered Unvested Shares under the terms of this
Agreement, Recipient shall have all the rights of a shareholder (including voting and dividend rights) with respect to the Restricted Shares.
4.
Restrictions on Transfer
. Recipient shall not sell, assign, transfer, pledge, encumber or dispose of all or any of his or her Restricted Shares, either voluntarily or by operation of law, at any
time prior to the Vesting Date. Any
2
attempted transfer of any Restricted Shares in violation of this Section 4 shall be invalid and of no effect.
5.
Taxes
.
(a) The Company’s obligation to deliver the Restricted
Shares to Recipient shall be subject to the satisfaction, if applicable, of all applicable federal, state and local income and employment tax withholding requirements (“Withholding Taxes”). Recipient has reviewed with Recipient’s own
tax advisors the federal, state and local tax consequences of this investment and the transactions contemplated by this Agreement. Recipient is relying solely on such advisors and not on any statements or representations of the Company or any of its
agents. Recipient understands that Recipient (and not the Company) shall be responsible for Recipient’s own tax liability that may arise as a result of the transactions contemplated by this Agreement.
(b) RECIPIENT ACKNOWLEDGES THAT HE OR SHE HAS BEEN INFORMED THAT RECIPIENT MUST DECIDE WHETHER OR NOT TO MAKE AN ELECTION UNDER SECTION
83(b) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, WITH RESPECT TO THE RESTRICTED SHARES AND THAT RECIPIENT IS SOLELY RESPONSIBLE FOR MAKING OR NOT MAKING A TIMELY SECTION 83(b) ELECTION (AND OBTAINING TAX ADVICE CONCERNING WHETHER AND HOW TO
MAKE SUCH ELECTION). Recipient hereby agrees to deliver to the Company a signed copy of any document he or she may execute and file with the Internal Revenue Service evidencing a section 83(b) Election, and to deliver such copy to the Company
prior to, or promptly upon, such filing, accompanied by a cash payment in the amount the Company anticipates is required to fulfill the Withholding Taxes.
(c) Recipient agrees to promptly make a cash payment to the Company of any Withholding Taxes, if applicable, to the Company when due. Recipient further agrees, if applicable, that the Company may withhold
from Recipient’s wages or other remuneration the appropriate amount of Withholding Taxes (to the extent not covered by Recipient’s cash payment to the Company). Recipient further agrees that, if the Company does not withhold an amount from
Recipient’s wages or other remuneration sufficient to satisfy the withholding obligation of the Company, Recipient will make reimbursement on demand, in cash, for the amount underwithheld.
6.
Adjustments for Stock Splits, Stock Dividends, Etc
. If from time to time during the term of this Agreement there is any stock
split-up, stock dividend, stock distribution or other reclassification of the Common Stock, any and all new,
3
substituted or additional securities to which Recipient is entitled by reason of his or her ownership of the Restricted Shares shall be immediately subject to the forfeiture and other provisions
of this Agreement in the same manner and to the same extent as the Restricted Shares. If the Restricted Shares are converted into or exchanged for, or shareholders of the Company receive by reason of any distribution in total or partial liquidation,
securities of another corporation, or other property (including cash), pursuant to any merger of the Company or acquisition of its assets, then the rights of the Company under this Agreement shall inure to the benefit of the Company’s successor
and this Agreement shall apply to the securities or other property received upon such conversion, exchange or distribution in the same manner and to the same extent as the Restricted Shares.
7.
Legends
. The share certificate evidencing the Restricted Shares issued hereunder shall be endorsed with the following legend
(in addition to any legend required under applicable federal or state securities laws) and the Company may issue stop-transfer instructions with its transfer agent in connection with such legend:
“THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS
(INCLUDING FORFEITURE) OF THE STRATTEC SECURITY CORPORATION STOCK INCENTIVE PLAN. COPIES OF SUCH PLAN AND AGREEMENT ARE ON FILE AT THE OFFICES OF STRATTEC SECURITY CORPORATION, 3333 WEST GOOD HOPE ROAD, GLENDALE, WISCONSIN 53209-2043.”
The legend set forth above shall be removed from the certificates evidencing the Restricted Shares upon the Vesting Date
unless such Restricted Shares have been forfeited prior to the Vesting Date pursuant to Section 2 above.
8.
Miscellaneous
.
(a)
Severability; Binding Effect; Successors and Assigns
. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law. The provisions of
this Agreement shall inure to the benefit of, and be binding upon, the Company and its successors and assigns and Recipient and his or her legal representatives, heirs, legatees, distributes, assigns and transferees.
(b)
No Rights To Continued Service
. Nothing in this Agreement shall confer upon Recipient any right to a continued relationship as
a Service
4
Provider for any period of time or interfere with or restrict in any way the rights of the Company or Recipient to terminate such relationship of Recipient with the Company at any time for any
reason whatsoever, with or without cause.
(c)
Entire Agreement
. This Agreement constitutes the entire agreement
between the parties, and supersedes all prior agreements and understandings, relating to the subject matter of this Agreement.
(d)
Amendment
. This Agreement may be amended or modified only by a written instrument executed by both the Company and Recipient.
(e)
Governing Law
. This Agreement shall be governed by and construed in accordance with the laws of the State of
Wisconsin, without giving effect to any choice of law or conflict of law provision or rule that would cause the application of the law of any jurisdiction other than the State of Wisconsin.
(f)
Counterparts
. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
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[Name of Recipient]
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STRATTEC SECURITY
CORPORATION
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BY
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5
Exhibit 13
2012 ANNUAL REPORT STRATTEC SECURITY CORPORATION 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 for North American automotive customers. We also supply global automotive manufacturers through a unique strategic relationship with WITTE Automotive of Velbert, Germany and ADAC Automotive
of Grand Rapids, Michigan. Under this relationship STRATTEC, WITTE and ADAC market our products to global customers under the “VAST” brand name. Our products are shipped to customer locations in the United States, Canada, Mexico, Europe,
South America, Korea and China, and we provide full service and aftermarket support. CONTENTS LETTERS TO THE SHAREHOLDERS 2 FINANCIAL HIGHLIGHTS COMPANY DESCRIPTION STRATTEC EQUIPPED VEHICLE LIST MANAGEMENT’S DISCUSSION AND ANALYSIS FINANCIAL
STATEMENTS REPORT OF MANAGEMENT REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FINANCIAL SUMMARY FINANCIAL SUMMARY / PERFORMANCE GRAPH DIRECTORS / OFFICERS / SHAREHOLDERS’ INFORMATION 4 5 12 13 27 47 48 50 51 52 PROSPECTIVE
INFORMATION A number of the matters and subject areas discussed in this Annual Report (see above “Contents” section) 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,” “would,” “expect,” “intend,” “may,” “planned,”
“potential,” “should,” “will,” and “could.” These 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 the Letters to the Shareholders, Company’s Management’s Discussion and Analysis, and other sections of this Annual Report. The discussions
of such matters and subject areas are 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. These risks and uncertainties include, but are not
limited to, general economic conditions, in particular relating to the automotive industry, customer demand for the Company’s and its customers’ products, competitive and technological developments, customer purchasing actions, foreign
currency fluctuations, costs of operations and other matters described under “Risk Factors” in the Management’s Discussion and Analysis section of this report. In addition, such uncertainties and other operational matters are
discussed further in the Company’s quarterly and annual report filings with the Securities and Exchange Commission. 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 Annual Report 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 Annual Report.
LETTERS TO THE SHAREHOLDERS
Dear Shareholders:
Fiscal 2012 was a record sales year for STRATTEC. This
year’s net sales of $279.2 million exceeded fiscal 2011’s record net sales by 7%. In addition to the sales increase, our profitability substantially improved over 2011, resulting in a 63% year-over-year increase in net income. For the
first time in several years, we generated positive EVA. Although the actual EVA number was a modest $600,000 for 2012, it represented a $4.3 million improvement over the prior year.
The 2012 sales increase reflects an overall increase in the production and sale of new vehicles. However, as was the case last year, the
wider portfolio of products we sell also positively influenced our sales. The ADAC-STRATTEC joint venture contributed to the increase, as did our driver control products and increased latch sales. Our lock and key products represented approximately
46% of our total fiscal 2012 sales, reflecting a further reduction of our dependence on this traditional portion of our product portfolio.
The additional sales volume certainly had a positive influence on the increase in profits we experienced this year, but more importantly we benefitted from a very significant internally driven effort to
review every facet of our operating structure for cost reduction opportunities. Many of the identified opportunities were implemented during the fiscal year, resulting in improvements to the bottom line. This operating review and cost reduction
activity is continuing and we anticipate that fiscal 2013 will benefit from this effort as well. Overall, I am very pleased with the sales and profitability we achieved this year and the positive outlook our performance trends give us for fiscal
2013.
At the end of February, on our 17th anniversary as a stand-alone public company, STRATTEC announced that I would retire
effective September 1, 2012. I had been working with the Nominating and Corporate Governance Committee of our Board of Directors for several years in order to ensure a smooth management transition as I approached retirement. Having Frank Krejci
join STRATTEC as President and COO on January 1, 2010 was an important step in that process and he has now taken over as CEO, effective with my retirement on September 1st. Frank has brought a fresh perspective to our business that has
proven to be beneficial in many ways. I believe he is an excellent leader to move our Company to the next level of performance.
To provide continuity during the transition, I am remaining on STRATTEC’s Board of Directors as its non-executive Chairman. Although
I am now removed from day-to-day activities and responsibilities, in my new role I remain available to Frank and the rest of the management team to provide advice and counsel on strategic matters. Further, I am continuing on the Board of VAST LLC,
the cornerstone of the VAST brand, which STRATTEC and our strategic partners, WITTE and ADAC, created to establish a global footprint from which to serve our global customers with our combined vehicle access products.
At our Annual meeting coming up on October 9th, Bob Feitler, one of the original members of our Board of Directors, will be retiring
from the Board. In the nearly eighteen years Bob has been a director and enthusiastic supporter of our business, he has exercised his considerable business acumen and experience on behalf of STRATTEC and its shareholders. His advice and counsel have
been of immeasurable value to me, the other Board members and management as we have forged our way as an independent public company. On behalf of all of us who have benefitted from his participation on our Board, I express our high esteem and
sincere gratitude for his personal involvement in STRATTEC.
I am truly grateful for the opportunity I have had to lead
STRATTEC through seventeen-plus years, and for the support from you fellow shareholders during the many good times and the fewer difficult times we have encountered. My thanks go to you, our employees and our long-term customers, all of whom have
helped make our business a success.
Sincerely,
Harold M. Stratton II
Chairman of the Board of Directors
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2012 STRATTEC Annual Report
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LETTERS TO THE SHAREHOLDERS
Fellow Shareholders:
All of the team at STRATTEC would like to thank Harry
Stratton for his leadership in guiding what was a division of Briggs & Stratton Corporation into what is now a 17 year old public company. Through his vision and support from the Board, he was the driving force to form a unique global
partnership with two privately held companies, WITTE and ADAC. As VAST, we continue to make strides in winning business by more efficiently and effectively supporting our global customers.
Harry’s involvement in our business spans 35 years. For him, retirement represents major personal and professional transitions.
However, we who remain will continue to have access to him for his institutional knowledge, historical perspective and strategic insights. We look forward to that on-going relationship.
Our team is experienced and capable, as our progress has demonstrated in the last few years. It is even more exciting to know that we are
not running out of new ideas of what to do or how to do it.
We will continue to focus on serving the
automotive OEM’s and aftermarket. In addition, we are taking a fresh look at our people, assets, and technology which may take us into new, yet complimentary businesses where we can create value. We will continue to make decisions guided by a
philosophy that has served us well, Economic Value Added (EVA
®
).
Some focus will be on internal growth and some focus will be on acquisitions. As an example of internal growth, we have recently formed
STRATTEC Component Solutions. We are marketing our significant capabilities in zinc die casting, plating and stamping to companies who need parts made with a level of quality demanded by the automotive industry.
We have retained a merger and acquisition firm to help us identify and contact complimentary businesses. While the number of eventual
acquisitions may be small, we are talking to many people whom we would not have otherwise met. Opportunities, whether they become formal or informal relationships, are expected to be created as a result of those conversations.
I appreciate the confidence in our team demonstrated by the STRATTEC Board of Directors representing you, our shareholders. We are
excited to fulfill responsibilities and expand opportunities for the benefit of our shareholders, customers and employees.
Sincerely,
Frank J. Krejci
President & Chief Executive Officer
EVA
®
is a registered trademark of Stern, Stewart & Co.
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2012 STRATTEC Annual Report
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3
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FINANCIAL HIGHLIGHTS
(IN MILLIONS)
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2012
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2011
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2010
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Net Sales
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$
|
279.2
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$
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260.9
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$
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208.0
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Gross Profit
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50.3
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42.2
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33.0
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Income from Operations
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16.3
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8.7
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4.4
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Net Income
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8.8
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5.4
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3.4
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Total Assets
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166.0
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148.1
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145.0
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Total Debt
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—
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—
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—
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Shareholders’ Equity
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80.6
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86.2
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74.1
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ECONOMIC VALUE ADDED (EVA
®
)
We believe that
EVA
®
represents an accurate measure of STRATTEC’s overall performance and shareholder value. All U.S.
associates and many of our Mexico-based salaried associates participate in incentive plans that are based upon our ability to add economic value to the enterprise. The EVA
®
performance for 2012 was a positive $600,000 which represents a $4.3 million improvement from 2011. (For further explanation of our EVA
®
Plan, see our 2012 definitive Proxy Statement.)
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Net Operating Profit After Cash-Basis Taxes
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$
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8.7
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Average Monthly Net Capital Employed
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$
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80.8
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Cost of Capital
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10
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%
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Capital Charge
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8.1
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Economic Value Added
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$
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.6
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EVA
®
is not a traditional financial measurement under U.S. GAAP and may not be similar to EVA
®
calculations used by other companies. However, STRATTEC believes the reporting of EVA
®
provides investors with greater visibility of economic profit. The following is a reconciliation of the relevant GAAP financial measures to the non-GAAP measures used
in the calculation of STRATTEC’s EVA
®
.
Net Operating Profit After Cash-Basis Taxes:
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2012 Net Income as Reported
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$
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8.8
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Deferred Tax Provision
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.1
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Other
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(.2
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)
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Net Operating Profit After Cash-Basis Taxes
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$
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8.7
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Average Monthly Net Capital Employed:
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Total Shareholders’ Equity as Reported at July 1, 2012
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$
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80.6
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Long-Term Liabilities
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21.7
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Deferred Tax Asset
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(15.0
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)
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Other
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(6.9
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)
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Net Capital Employed at July 1, 2012
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$
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80.4
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Impact of 12 Month Average
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.4
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Average Monthly Net Capital Employed
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$
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80.8
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EVA
®
is a registered trademark of Stern, Stewart & Co.
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2012 STRATTEC Annual Report
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4
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COMPANY DESCRIPTION
BASIC BUSINESS
STRATTEC SECURITY CORPORATION 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 for North American automotive customers. We also supply global automotive manufacturers through a unique strategic relationship with WITTE Automotive of Velbert, Germany
and ADAC Automotive of Grand Rapids, Michigan. Under this relationship STRATTEC, WITTE and ADAC market our products to global customers under the “VAST” brand name. Our products are shipped to customer locations in the United States,
Canada, Mexico, Europe, South America, Korea and China, and we provide full service and aftermarket support.
HISTORY
STRATTEC formerly was a division of Briggs & Stratton Corporation. In 1995, STRATTEC was spun off from Briggs & Stratton through a tax-free distribution to the then-existing
Briggs & Stratton shareholders and has been an independent public company for seventeen years.
Our history in the
automotive security business spans over 100 years. STRATTEC has been the world’s largest producer of automotive locks and keys since the late 1920s, and we currently maintain a dominant share of the North American markets for these products.
PRODUCTS
Our historic traditional products are lock sets (locks and keys) for cars and light trucks. Typically, two keys are provided with each vehicle lockset. Most of the vehicles we currently supply are using
keys with sophisticated radio frequency identification technology for additional theft prevention. Keys with remote entry devices integrated into a single unit and bladeless electronic keys have been added to our product line and are gaining in
popularity.
Ignition lock housings represent a growing product line for us. These housings are the mating part for
our ignition locks and typically are part of the steering column structure, although there are instrument panel-mounted versions for certain vehicle applications. These housings are either die cast from zinc or magnesium, or injection molded plastic
and may include electronic components for theft deterrent systems.
We are also developing business for additional access
control products, including trunk latches, liftgate latches, tailgate latches, hood latches, side door latches and related hardware for this product category. With our acquisition of Delphi Corporation’s Power Products Group in fiscal 2009, we
are now supplying power access devices
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2012 STRATTEC Annual Report
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5
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COMPANY DESCRIPTION
for sliding side doors, liftgates and trunk lids. Through a joint venture formed with ADAC Automotive during fiscal 2007, we also supply door handle components and related vehicle access hardware.
To maintain a strong focus on each of these access control products, we have Product Business Managers
who oversee the product’s entire life cycle, including concept, application, manufacturing, warranty analysis, service/aftermarket, and financial/commercial issues. The Product Business Managers work closely with our sales organization, our
engineering group, and our manufacturing operations to assure their products are receiving the right amount of quality attention so that their value to STRATTEC and the market place is enhanced.
MARKETS
We are a direct supplier to OEM automotive and light truck manufacturers as well as other transportation-related manufacturers. Our largest customers are Chrysler Group LLC, General Motors Company and
Ford Motor Company. Our product mix varies by customer, but generally our overall sales tend to be highest in lock and key products, followed by power access products, ignition lock housings, the door handle and trim products produced by
ADAC-STRATTEC de Mexico and latch products.
Direct sales to various OEMs represented approximately 85% of our total sales for
fiscal 2012. The remainder of our revenue is received primarily through sales to the OEM service channels, the aftermarket, Tier 1 automotive supplier customers, and certain products to non-automotive commercial customers.
Sales to our major automotive customers, both OEM and Tier 1, are coordinated through direct sales personnel located in our Detroit-area
office. Sales are also facilitated through daily interaction between our Program Managers, Application Engineers and other product engineering personnel. Sales to other OEM customers are accomplished through a combination of our sales personnel
located in Detroit and personnel in our Milwaukee headquarters office.
The majority of our OEM products are sold in North America. While a modest amount of exporting is done
to Tier 1 and automotive assembly plants in Europe, Asia and South America, we are in the process of expanding our presence in these markets and elsewhere through the Vehicle Access Systems Technology (VAST) brand we jointly own with WITTE
Automotive and ADAC Automotive. VAST is described in more detail on pages 8 and 9.
OEM service and replacement parts are sold
to the OEM’s own service operations. In addition, we distribute our components and security products to the automotive aftermarket through approximately 50 authorized wholesale distributors, as well as other marketers and users of component
parts, including export customers.
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2012 STRATTEC Annual Report
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6
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COMPANY DESCRIPTION
Increasingly, our products find their way into the retail channel, specifically the hardware store channel. Our ability to provide a full line of keys to that channel has been accomplished through the
introduction of the STRATTEC “XL” key line. This extension to our line includes keys that we currently do not supply on an OE basis, including keys for Toyota, Honda and other popular domestic and import vehicles. This extended line of
keys enable automotive repair specialists to satisfy consumer needs for repair or replacement parts. Our aftermarket activities are serviced through a warehousing operation in El Paso, Texas.
CUSTOMER SALES FOCUS
To bring the proper focus to the relationships with our major customers, we have seven customer-focused teams, each with a Director of Sales, Engineering Program Manager and Customer Application
Engineers. In addition to customer teams for General Motors, Ford and Chrysler, we currently have teams for New Domestic Vehicle Manufacturers, Driver Control/Ignition Lock Housing customers, Tiered Products, and Service and Aftermarket customers.
Sales and engineering for ADAC-STRATTEC LLC are supported by our JV partner, ADAC Automotive.
Each Sales Director is
responsible for the overall relationship between STRATTEC and a specific customer group. Program Managers are responsible for coordinating cross functional activities while managing new product programs for their customers.
PRODUCT ENGINEERING FOCUS
To best serve our customers’ product needs, STRATTEC’s engineering resources are organized by product type. We currently have
six product groups: Locks and Keys, Aftermarket, Latches, Power Access Devices, Driver Control/Ignition Lock Housings and Electrical. Each group has a Product Business Manager, Engineering Manager and a complement of skilled engineers who design and
develop products for specific applications. In doing this, each engineering group works closely with the Customer teams, Engineering Program Managers, and application engineers.
Underlying this organization is a formalized product development process to identify and meet customer needs in the shortest possible
time. By following this streamlined
The Aston Martin DBS uses an electronic key fob and mating docking station developed by STRATTEC exclusively for
Aston Martin.
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2012 STRATTEC Annual Report
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7
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COMPANY DESCRIPTION
development system, we shorten product lead times, tighten our response to market changes and provide our customers with the optimum value solution to their security/access control requirements. STRATTEC
is also ISO/TS 16949 and ISO 14001 certified. This means we embrace the philosophy that quality should exist not only in the finished product, but in every step of our processes as well.
OPERATIONS
A significant number of the components that go into our products are manufactured at our headquarters in Milwaukee, Wisconsin. This facility produces zinc die cast components, stampings and milled key
blades. We have two owned production facilities in Juarez, Mexico operating as STRATTEC de Mexico. Plant No. 1 houses assembly operations for locksets and ignition lock housings. Plant No. 2 was built during fiscal 2009 to replace a leased
facility. It houses our key finishing and latch assembly operations as well as dedicated space for the assembly operations of STRATTEC POWER ACCESS de Mexico and ADAC-STRATTEC de Mexico.
ADVANCED DEVELOPMENT
Research and development activities are centered around a dedicated research engineering staff we call our Advanced Development Group. This group has the responsibility for developing future products that
will keep us in the forefront of the markets we serve. We primarily focus on electronic and mechanical access control products, and modularization of related access/security control components. Once our Advanced Development Group establishes a
proof-of-concept product utilizing new technology, further product development shifts to our engineering groups for commercialization and product applications.
(VEHICLE ACCESS SYSTEMS TECHNOLOGY)
In fiscal 2001, we entered into a formal alliance with
WITTE-Velbert GmbH, an automotive supplier based in Germany which designs, develops, manufactures and markets automotive access control products for European-based customers. This alliance consisted of two initiatives. The first was a set of legal
agreements which allowed STRATTEC to manufacture and market WITTE’s core products in North America, and WITTE to manufacture and market STRATTEC’s core products in Europe. The second initiative was a 50-50 joint venture, WITTE-STRATTEC
LLC, to invest in operations with local partners in
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2012 STRATTEC Annual Report
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8
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COMPANY DESCRIPTION
strategic markets outside of Europe and North America.
In February of 2006, we
announced the expansion of this alliance and related joint venture with the addition of a third partner, ADAC Plastics, Inc. ADAC, of Grand Rapids, Michigan, adds North American expertise in door handles, a part of WITTE’s core product line
that STRATTEC did not support, and an expertise in color-matched painting of these components.
With the expansion of the
alliance, we can offer a full range of access control related products available on a global basis to support customer programs. To identify this powerful combination of independent companies focused on working together, we renamed the joint venture
Vehicle Access Systems Technology LLC (VAST LLC). We now refer to the combination of the alliance structure and JV simply as “VAST”. WITTE is now called WITTE Automotive, and ADAC is now doing business as ADAC Automotive. We have adopted a
common graphic image in which we share a logo mark and colors, and a specific VAST logo used on the partners’ printed and electronic presentation materials. VAST made investments with a local partner in Brazil in September, 2001, and local
partners in China in March, 2002. VAST do Brasil remains a joint venture with our local partners there. However, during fiscal 2010, VAST LLC purchased the remaining 40 percent interest of its local partners in the China venture. VAST China is now
wholly owned by VAST LLC. This was an important step which gives STRATTEC a one-third interest in VAST China’s activities in the important growing Chinese/Asia market.
VAST is the embodiment of STRATTEC’s, WITTE’s and ADAC’s globalization strategy. We are developing VAST as a global brand with which we are jointly pursuing business with identified global
customers. Those identified customers are General Motors, Ford, Fiat/Chrysler, Volkswagen, Honda, Toyota, Renault/Nissan and Hyundai/Kia.
To manage our customer relationships and coordinate global ventures and activities, we have established a VAST Management Group led by a President. The Management Group includes three Vice Presidents, one
each from WITTE, STRATTEC and ADAC. With the focus provided by this Management Group, VAST is able to manage global programs
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2012 STRATTEC Annual Report
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9
|
COMPANY DESCRIPTION
with a single point of contact for customers, with the added advantage of providing regional support from the partners’ operating entities. Combined with VAST LLC’s ventures in China and Brazil,
and sales/engineering offices in Japan and Korea, this structure establishes our global footprint.
ADAC-STRATTEC de MEXICO
During fiscal 2007, we formed a joint venture with ADAC Automotive called ADAC-STRATTEC LLC including a wholly owned Mexican subsidiary,
ADAC-STRATTEC de Mexico (ASdM). The purpose of this joint venture is to produce certain ADAC and STRATTEC products utilizing ADAC’s plastic molding expertise and STRATTEC’s assembly capability. ASdM currently operates out of defined space
in STRATTEC de Mexico Plant No. 2 located in Juarez, Mexico. Products from this joint venture include non-painted door handle components and exterior trim components for OEM customers producing in North America. STRATTEC owns 51% of this joint
venture and its financial results are consolidated into STRATTEC’s financial statements. In our fiscal years ending 2012 and 2011, ASdM was profitable and represented $31.0 and $25.2 million, respectively of our consolidated net sales.
STRATTEC has introduced the BOLT line of products, the world’s first codeable padlock. In a simple one-step
process, users can code the padlock to their vehicle key. This provides significant convenience by reducing the number of keys users need to secure their lockers, storage sheds and vehicle accessories such as tool boxes, trailer hitches, etc. You
can buy this product direct at www.boltlock.com
STRATTEC POWER ACCESS LLC
During fiscal year 2009, we formed a new subsidiary with WITTE Automotive called STRATTEC POWER ACCESS LLC (SPA) to acquire the North
American business of the Delphi Power Products Group. WITTE is a 20 percent minority owner. SPA in turn owns a Mexican subsidiary, STRATTEC POWER ACCESS de Mexico. The purpose of this subsidiary is to produce power access devices for sliding side
doors, liftgates and trunk lids. STRATTEC POWER ACCESS de Mexico currently operates out of defined space in STRATTEC de Mexico Plant No. 2 located in Juarez, Mexico. Financial results for SPA are consolidated in STRATTEC’s financial
statements. For fiscal years ending 2012 and 2011, SPA was profitable and represented $62.7 and $62.8 million, respectively of our consolidated net sales.
SEASONAL NATURE OF THE BUSINESS
The manufacturing of components used in automobiles is driven by the normal peaks and valleys associated with the automotive industry. Typically, the months of July and August are relatively slow as
summer vacation shutdowns and model year changeovers occur at the automotive assembly plants. September volumes increase rapidly as each new model year
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2012 STRATTEC Annual Report
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10
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COMPANY DESCRIPTION
begins. This volume strength continues through October and into early November. As the holiday and winter seasons approach, the demand for automobiles slows, as does production. March usually brings a
major sales and production increase, which then continues through most of June. This results in our first fiscal quarter sales and operating results typically being our weakest, with the remaining quarters being more consistent. The recession of
2008-2009 abnormally altered this pattern resulting in dramatically reduced production levels throughout the period. We believe the more normal peaks and valleys have returned as the auto industry has emerged from the recession.
GLOBAL PRESENCE
1. STRATTEC — Milwaukee, Wisconsin
1
2. STRATTEC de Mexico — Juarez, Mexico
1
3. STRATTEC de Mexico — Key Finishing — Juarez, Mexico
1
4. ADAC-STRATTEC de Mexico — Juarez, Mexico
5. STRATTEC Power Access de Mexico — Juarez, Mexico
6. ADAC Automotive — Grand Rapids and Muskegon,
Michigan
1
7. ADAC Automotive, STRATTEC and STRATTEC POWER ACCESS
(Sales/Engineering Offices — Detroit, Michigan)
1
8. WITTE Automotive — Velbert, Germany
1
9. WITTE Automotive — Nejdek, Czech Republic
1
10. VAST do Brasil — Sao Paulo, Brazil
2
11. VAST Fuzhou — Fuzhou, China
2
12. VAST Great Shanghai Co. — Shanghai, China
2
13. VAST China Co. Ltd. — Taicang, China
2
14. VAST Japan — Tokyo, Japan (Branch Office)
2
15. VAST Korea — Anyang, Korea (Branch Office)
2
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1
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Members of VAST.
2
Units of VAST LLC joint venture.
|
ECONOMIC VALUE COMMITMENT
The underlying philosophy of our business and the means by which we measure our performance is Economic Value Added
(EVA
®
). Simply stated, economic value is created when our business enterprise yields a return greater than the
cost of capital we and our shareholders have invested in STRATTEC. The amount by which our return exceeds the cost of our capital is EVA
®
. In line with this philosophy,
EVA
®
bonus plans are in effect for all our U.S. associates, outside directors and many of our Mexico-based
salaried associates as an incentive to help positively drive the business.
STRATTEC’s significant market presence is the
result of over a 100-year commitment to creating quality products and systems that are responsive to changing needs. As technologies advance and markets grow, STRATTEC retains that commitment to meeting and exceeding the expectations of our
customers, and providing economic value to our shareholders.
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2012 STRATTEC Annual Report
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11
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following Discussion and Analysis should be read in conjunction with STRATTEC SECURITY CORPORATION’s accompanying Financial
Statements and Notes thereto. Unless otherwise indicated, all references to years or quarters refer to fiscal years or fiscal quarters.
EXECUTIVE OVERVIEW
Historically, a significant portion of our total net sales are to domestic automotive OEMs (General Motors, Ford and Chrysler). During the
past decade these customers continued to lose North American market share to the New Domestic automotive manufacturers (primarily the Japanese and Korean automotive manufacturers). In addition to our customers’ market share, our financial
performance depends in large part on conditions in the overall automotive industry, which in turn, is dependent upon the U.S. and global economies. During fiscal years 2012, 2011 and 2010, the domestic automotive OEMs together represented 68
percent, 66 percent and 67 percent, respectively, of our total sales.
Our financial results for fiscal year 2012 reflected
our significant continued improvement, as in fiscal 2011, compared to fiscal years 2010 and 2009. Fiscal 2012 net sales were $279 million compared to $261 million in 2011 and $208 million in 2010. Net income for fiscal 2012 was $8.8 million compared
to $5.4 million in 2011 and $3.4 million in 2010. The financial health of our three largest customers also improved during fiscal years 2012 and 2011. General Motors, Ford and Chrysler are now reporting profitable results after implementing
significant restructuring plans that modified their cost structures by closing manufacturing facilities, reducing benefits and wages and eliminating certain models and brands in 2009 and 2010.
Prior to 2009, the normal yearly vehicle production build in North America ranged from 15 to 16 million vehicles. As we look out
into the future, the July 2012 projections from our third-party forecasting service indicate that North American light vehicle production will show steady improvement for the next five years. By model year, we are expecting a 2012 build of
14.5 million vehicles, 14.9 million vehicles for 2013, 15.6 million vehicles for 2014, 16.5 million vehicles for 2015 and 17.3 million vehicles for 2016. As part of this forecast, General Motors Company and Ford Motor
Company are expected to experience modest increases in their production levels during this time period. Chrysler Group LLC is expected to decrease production in model years 2013 through 2016, primarily due to the forecasting uncertainty and risk in
Fiat’s future vehicle product plans for the Chrysler Group. Of course, all of these forecasts are subject to variability based on what happens in the overall economy, especially as it relates to the current level of high unemployment, continued
tight credit markets, relatively low home equity values, fluctuating fuel prices and other key factors that we believe could determine whether consumers can or will purchase new vehicles.
Focus and Strategy Going Forward
STRATTEC’s long-term strategy is
focused on maximizing long-term shareholder value by driving profitable growth. Our management believes productivity improvements and cost reductions are critical to our competitiveness, while enhancing the value we deliver to our customers. In
order to accomplish this, we have been pursuing, and continue to pursue, the following objectives as summarized below:
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•
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Streamline and standardize processes to increase productivity
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•
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Maintain a disciplined and flexible cost structure to leverage scale and optimize asset utilization and procurement
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•
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Maintain our strong financial position by deploying capital spending targeted for growth and productivity improvement
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•
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Leverage the “VAST Brand” with customer relationships to generate organic growth from global programs
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•
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Offer our customers innovative products and cost savings solutions to meet their changing demands
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•
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Explore and execute targeted mergers and acquisitions with a disciplined due diligence approach and critical financial analysis to drive shareholder
value
|
We use several key performance indicators to gauge progress toward achieving these objectives. These
indicators include net sales growth, operating margin improvement, return on capital employed and cash flow from operations.
RESULTS OF
OPERATIONS
The following is a discussion and analysis of our financial position and results of operations for the years
ended July 1, 2012 and July 3, 2011.
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2012 STRATTEC Annual Report
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13
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
2012
Compared to
2011
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Years Ended
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|
|
July 1, 2012
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July 3, 2011
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|
Net sales (in millions)
|
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$
|
279.2
|
|
|
$
|
260.9
|
|
Our 2012 fiscal year was the typical 52 weeks while our 2011 fiscal year was 53 weeks. The impact of the
additional week of customer shipments increased sales during our 2011 fiscal year by approximately $4.5 million. Aggregate sales to our largest customers overall increased in the current year compared to the prior year levels primarily due to
increased customer vehicle production volumes. Higher value content on certain products we supply also contributed to the net sales improvement. The prior year net sales were reduced by $650,000 resulting from an adjustment for certain agreed upon
customer price concessions. Sales to each of our largest customers in the current year and prior year were as follows (in millions):
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Years Ended
|
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July 1,2012
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July 3, 2011
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Chrysler Group LLC
|
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$
|
90.8
|
|
|
$
|
80.9
|
|
|
General Motors Company
|
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$
|
64.6
|
|
|
$
|
63.6
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Ford Motor Company
|
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$
|
33.9
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|
$
|
26.9
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Hyundai / Kia
|
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$
|
14.4
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$
|
15.7
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|
Included in the prior year sales to General Motors were $3.0 million of Sales to Nexteer Automotive,
formerly a unit of Delphi Corporation, which was owned by General Motors through December 2, 2010. Prior year sales to Nexteer Automotive subsequent to December 2, 2010 totaled $4.6 million. Sales to Nexteer Automotive in the current year
totaled $5.7 million.
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Years Ended
|
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July 1, 2012
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July 3, 2011
|
|
|
Gross profit as a percentage of net sales
|
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|
18.0
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%
|
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16.2
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%
|
The higher gross profit margin in the current year was primarily the result of favorable customer vehicle
production volumes which resulted in more favorable absorption of our fixed manufacturing costs, a favorable Mexican Peso to U.S. dollar exchange rate affecting the U.S. dollar cost of our Mexican operations, a reduction in warranty expense and
ongoing cost reduction initiatives. These favorable impacts were partially offset by a less favorable product content sales mix and higher purchased raw material costs for zinc and brass in the current year. The prior year gross profit margins were
also negatively impacted by a $650,000 adjustment we made in connection with certain agreed upon customer price concessions. The average U.S. dollar/Mexican peso exchange rate increased to approximately 13.12 pesos to the dollar in the current year
from approximately 12.25 pesos to the dollar in the prior year. This resulted in decreased U.S. dollar costs related to our Mexican operations of approximately $2.3 million in the current year compared to the prior year. Warranty provisions totaled
$2.1 million in 2012 compared to $2.8 million in 2011. Historically, we had experienced relatively low warranty charges from our customers due to our contractual arrangements and improvements in the quality, reliability and durability of our
products. More recently, our largest customers extended the warranty protection for their vehicles and have since demanded higher warranty cost sharing arrangements from their suppliers, including STRATTEC. The 2012 and 2011 warranty provisions
included additional accruals to address the warranty exposure related to the demand for higher warranty cost sharing. The 2011 provision also included $1.15 million related to our share of costs associated with a customer’s specific warranty
claim involving one of our products. The average zinc price paid per pound increased to $1.06 in the current year from $1.02 in the prior year. We have negotiated raw material price adjustment clauses with certain, but not all, of our customers to
offset some of the market price fluctuations in the cost of zinc. During the current year, we used approximately 10.8 million pounds of zinc. Increased zinc costs, net of raw material price adjustments received from certain customers, totaled
approximately $250,000 in the current year compared to the prior year. The average brass price paid per pound increased to $4.11 in the current year from $3.93 in the prior year. During the current year, we used approximately 905,000 pounds of
brass. This resulted in increased brass costs of approximately $170,000 in the current year compared to the prior year.
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
Engineering, selling and administrative expenses (in millions)
|
|
$
|
33.8
|
|
|
$
|
33.4
|
|
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
14
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
Increased operating expenses due to higher expense provisions for the accrual of bonuses earned under our EVA
®
Incentive Bonus Plans in the current year as compared to the prior year were offset by an additional week of expense
in the prior year as a result of the 53 week 2011 fiscal year.
Income from operations in the current year was $16.3 million
compared to $8.7 million in the prior year. This improvement was primarily the result of the increase in sales and gross profit margin as discussed above.
Equity loss of joint ventures was $1.1 million in the current year compared to equity earnings of $1.2 million in the prior year. During the current year our joint ventures in China and Brazil both
incurred relocation costs associated with moves to new facilities and start-up costs associated with a new product line. Both of these items resulted in STRATTEC incurring an equity loss from joint ventures in the current year compared to the prior
year in which STRATTEC had equity earnings from joint ventures. We anticipate these transition costs and related losses to continue during our 2013 fiscal year relating to our VAST China operations. In addition, the current year equity loss also
included a goodwill impairment charge relating to VAST China. STRATTEC’s portion amounted to $284,000.
Included in other
income, net in the current year and prior year periods were the following items (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
Foreign currency transaction gain (loss)
|
|
$
|
1,369
|
|
|
$
|
(836
|
)
|
|
Rabbi Trust gain
|
|
|
24
|
|
|
|
384
|
|
|
Unrealized (loss) gain on Mexican peso option contracts
|
|
|
(640
|
)
|
|
|
245
|
|
|
Realized (loss) gain on Mexican peso option contracts
|
|
|
(420
|
)
|
|
|
33
|
|
|
Other
|
|
|
249
|
|
|
|
394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
582
|
|
|
$
|
220
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency transaction gains and losses resulted from foreign currency transactions entered into by
our Mexican subsidiaries and fluctuations in foreign currency cash balances. In the current fiscal year, the Mexican peso devalued to the U.S. dollar creating both foreign currency transaction gains and unrealized losses on our Mexican peso currency
option contracts which we entered into in January and August 2011. Our objective in entering into these currency option contracts was to minimize our earnings volatility resulting from changes in exchange rates affecting the U.S. dollar cost of our
Mexican operations. Unrealized losses recognized as a result of mark-to-market adjustments as of July 1, 2012 totaled approximately $395,000, all of which may or may not be realized, depending upon the actual Mexican peso to U.S. dollar
exchange rates experienced during the balance of the contract period. Our Rabbi Trust funds our supplemental executive retirement plan. The investments held in the Trust are considered trading securities.
Our effective income tax rate for 2012 was 22.7 percent compared to 25.1 percent in 2011. Both the 2012 and 2011 tax rates were impacted
by a lower effective tax rate for income subject to tax in Mexico as compared to the effective tax rate for income subject to tax in the U.S. As of July 1, 2012, we have a valuation allowance of $177,000 related to our assessment of the future
realization of certain capital loss carry-forward benefits.
2011
Compared to
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
July 3, 2011
|
|
|
June 27, 2010
|
|
|
Net sales (in millions)
|
|
$
|
260.9
|
|
|
$
|
208.0
|
|
Our 2011 fiscal year was 53 weeks while our 2010 fiscal year was the typical 52 weeks. The impact of the
additional week of customer shipments during 2011 increased sales by approximately $4.5 million. Sales to our largest customers overall increased in 2011 compared to 2010 levels due to higher customer vehicle production volumes and the additional
week of customer shipments. Higher value content on certain new products also contributed to the net sales improvement. In 2011, net sales were reduced by $650,000 resulting from an adjustment for certain agreed upon customer price concessions. In
2010, certain historical customer pricing issues were resolved which increased our net sales during that period by approximately $1.2 million. This $1.2 million pricing issue related to a specific vehicle program and was fully resolved as of the end
of 2010. Sales to each of our largest customers in 2011 and 2010 were as follows (in millions):
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
15
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
July 3, 2011
|
|
|
June 27, 2010
|
|
|
Chrysler Group LLC
|
|
$
|
80.9
|
|
|
$
|
68.2
|
|
|
General Motors Company
|
|
$
|
63.6
|
|
|
$
|
51.7
|
|
|
Ford Motor Company
|
|
$
|
26.9
|
|
|
$
|
18.4
|
|
|
Hyundai / Kia
|
|
$
|
15.7
|
|
|
$
|
13.2
|
|
Included in 2010 sales to General Motors were $5.0 million of sales to Nexteer Automotive, formerly a
unit of Delphi Corporation, which was owned by General Motors from October 2009 through December 2, 2010. 2011 sales to General Motors included $3.0 million of Sales to Nexteer Automotive through December 2, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
July 3, 2011
|
|
|
June 27, 2010
|
|
|
Gross profit as a percentage of net sales
|
|
|
16.2
|
%
|
|
|
15.9
|
%
|
The above year over year gross margin comparison was favorably impacted by increased
customer vehicle production volumes which resulted in more favorable absorption of our fixed manufacturing costs, by reduced premium freight and overtime costs of approximately $2.8 million as compared to 2010 and by lower expense provisions of
approximately $270,000 for the accrual of bonuses under our Economic Value Added (EVA
®
) Incentive Bonus Plans.
Increased premium freight and overtime costs during 2010 were incurred during the months of September, October and November 2009 to meet significantly increased production requirements from our largest customers as they continued to rebuild retail
inventories following the U.S. Government’s “Cash for Clunkers” program that ended in August 2009. These favorable impacts to the year over year comparison were partially offset by a combination of the $650,000 adjustment for a
customer price concession noted above, increased warranty costs of approximately $200,000, higher purchased raw material costs for brass and an unfavorable Mexican Peso to U.S. dollar exchange rate which increased the U.S. dollar cost of our Mexican
operations. Warranty provisions totaled $2.8 million in 2011 compared to $2.6 million in 2010. Historically, we had experienced relatively low warranty charges from our customers due to our contractual arrangements and improvements in the quality,
reliability and durability of our products. More recently, our largest customers extended the warranty protection for their vehicles and have since demanded higher warranty cost sharing arrangements from their suppliers, including STRATTEC. The 2011
and 2010 warranty provisions included additional accruals to address the warranty exposure related to the demand for higher warranty cost sharing. The 2011 provision also included $1.15 million related to our share of costs associated with a
customer’s specific warranty claim involving one of our products. The average brass price paid per pound increased to $3.93 in 2011 from $3.29 in 2010. During 2011, we used approximately 1.0 million pounds of brass. This resulted in
increased brass costs of approximately $650,000 in 2011 compared to 2010. The average U.S. dollar/Mexican peso exchange rate decreased to approximately 12.25 pesos to the dollar in 2011 from approximately 12.96 pesos to the dollar in 2010. This
resulted in increased U.S. dollar costs related to our Mexican operations of approximately $1.9 million in 2011 compared to 2010. Also impacting the 2010 gross profit margin was a curtailment loss related to our qualified defined benefit pension
plan. An amendment to this plan, which became effective January 1, 2010, discontinued the benefit accruals for salary increases and credited service rendered after December 31, 2009. A curtailment loss related to unrecognized prior service
cost of $505,000 was recorded in the accompanying Consolidated Statement of Operations and Comprehensive (Loss) Income for 2010, of which approximately $375,000 increased our cost of goods sold and approximately $130,000 increased our engineering,
selling and administrative expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
July 3. 2011
|
|
|
June 27. 2010
|
|
|
Engineering, selling and administrative expenses (in millions)
|
|
$
|
33.4
|
|
|
$
|
29.9
|
|
The increase in operating expenses during 2011 was primarily attributed to higher spending for new
product development and an additional week of expense as a result of the 53 week fiscal year, partially offset by lower incentive bonus expense provisions of approximately $450,000 during 2011. Also, expenses in 2010 were lower due to temporary
actions implemented with respect to the U.S. salaried work force to help conserve cash during the 2009 and 2010 recession. These actions included reductions in wages and the Company 401(k) match, as well as cost savings related to several unpaid
work furlough days. As discussed above, a curtailment loss of $130,000 was included in 2010 costs.
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
16
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
An annual goodwill impairment analysis was completed during 2010 related to the goodwill recorded as part of the acquisition of STRATTEC
POWER ACCESS LLC (SPA) in November 2008. A $223,000 impairment charge to write off the goodwill balance was recorded in 2010 as a result of this analysis.
In 1995, we recorded a provision of $3 million for estimated costs to remediate an environmental contamination site at our Milwaukee facility. The site was contaminated by a solvent spill, which occurred
in 1985, from a former above ground solvent storage tank located on the east side of the facility. The reserve was originally established based on estimates to adequately cover the cost for active remediation of the contamination. Due to changing
technology and related costs associated with active remediation of the contamination, an updated analysis and estimate was obtained during 2010. The reserve was reduced during 2010 by approximately $1.1 million to reflect the revised monitoring and
remediation cost estimate. From 1995 through July 3, 2011, costs of approximately $400,000 have been incurred related to the installation of monitoring wells on the property and other ongoing monitoring costs.
In 2009, we recorded a $500,000 provision for doubtful accounts in connection with Chrysler LLC’s filing for Chapter 11 bankruptcy
protection for certain of their U.S. legal entities on April 30, 2009. All uncollectible receivables related to the bankruptcy were written off against the $500,000 reserve during 2010. However, as a result of subsequent payments received from
Chrysler, $421,000 of the $500,000 provision was recorded as a recovery of allowance for doubtful accounts in 2010.
Income
from operations in 2011 was $8.7 million compared to $4.4 million in 2010. This improvement was principally the result of the increase in sales and gross profit margin as discussed above.
Our effective income tax rate for 2011 was 25.1 percent compared to 29.7 percent in 2010. The reduction in the calculated effective rate
was primarily due to an increase in the non-controlling interest portion of our pre-tax net income. Both the 2011 and 2010 tax rates were impacted by a lower effective tax rate for income subject to tax in Mexico as compared to the effective tax
rate for income subject to tax in the U.S. As of July 3, 2011, we had a valuation allowance of $209,000 related to our assessment of the future realization of certain state operating loss carry-forwards and capital loss carry-forward benefits.
LIQUIDITY AND CAPITAL RESOURCES
Our primary source of cash flow is from our major customers, which include General Motors Company, Ford Motor Company, Chrysler Group LLC and Hyundai/Kia. As of the date of filing this Annual Report with
the Securities and Exchange Commission, all of our customers are making payments on their outstanding accounts receivable in accordance with the payment terms included on their purchase orders. A summary of our outstanding receivable balances from
our major customers as of July 1, 2012 was as follows (in thousands of dollars):
|
|
|
|
|
|
|
General Motors
|
|
$
|
10,230
|
|
|
Ford
|
|
$
|
5,738
|
|
|
Chrysler
|
|
$
|
14,157
|
|
|
Hyundai / Kia
|
|
$
|
1,497
|
|
We earn a portion of our operating income in Mexico, which is deemed to be permanently reinvested. As of
July 1, 2012, $7.1 million of our $17.5 million cash and cash equivalents balance was held by our foreign subsidiaries in Mexico. We currently do not intend nor foresee a need to repatriate these funds. We expect existing domestic cash and cash
equivalents and cash flows from operations to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities, such as regular quarterly dividends and capital expenditures, for at least the next
12 months and thereafter for the foreseeable future. Should we require more capital in the U.S. than is generated by our operations domestically, for example to fund significant discretionary activities, such as acquisitions of businesses and share
repurchases, we could elect to repatriate future earnings from foreign jurisdictions or raise capital in the U.S. through borrowings under our revolving credit facility. These alternatives could result in higher effective tax rates, increased
interest expense, or other dilution of our earnings.
Cash flow provided by operating activities was $17.2 million in 2012
compared to $8.4 million in 2011. The increase in cash flow provided by operating activities was primarily attributable to an improvement in our overall financial results and reduced working capital requirements in the current year as compared to
the prior year. Net income adjusted for non-cash items such as depreciation, unrealized losses on foreign currency contracts and foreign currency transaction gains and losses increased to approximately $20.4 million in the current year compared to
approximately $14.0 million in the prior year. Cash used for working capital requirements decreased approximately $2.5 million between the two periods. Our working capital requirements during the prior year were impacted by a significant increase in
our inventory balance, resulting from significantly increased sales levels during 2011. Current year operating cash flow was impacted by an August 2011 payment of approximately $4.3 million in bonuses, which were earned during fiscal 2011 under our
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
17
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
incentive bonus plans. Bonus payments totaled approximately $5 million in the prior year. Pension contributions to our qualified plan totaled $2.0 million during both the current year and prior year.
On February 26, 2009, our Board of Directors took action to suspend payment of our $0.15 per common share quarterly
dividend to conserve cash. On August 4, 2010, our Board of Directors declared a special one-time cash dividend of $1.20 per common share payable on October 29, 2010. The special dividend totaled approximately $4.0 million and was funded
with current cash balances. Although we believe the outlook for our business is generally positive, the uncertain strength of the economic recovery in North America, and the effect that this and the recent restructuring of our two largest customers
may have on STRATTEC, have resulted in both management and our Board being cautious about reinstating our regular quarterly cash dividend at the rate in place prior to the dividend suspension. However, our Board of Directors, on August 23,
2011, did reinstate a regular quarterly cash dividend at a level of $0.10 per common share. A quarterly cash dividend of $0.10 per common share was paid on each of September 30, 2011, December 30, 2011, March 30, 2012, and
June 30, 2012. Each quarterly dividend totaled approximately $335,000 and was funded by current cash balances.
Our
accounts receivable balance increased approximately $4.8 million to $44.5 million at July 1, 2012 from $39.6 million at July 3, 2011. The increase was primarily the result of the increased sales experienced in 2012 as discussed under
Results of Operations herein.
The accrued pension obligations balance includes our qualified plan and our supplemental
executive retirement plan (SERP). The change in the accrued pension obligations balance during 2012 is the result of the net impact of pension contributions, the actuarially calculated pension expense and the impact of the change in the funded
status of the plans due to weaker than projected returns on plan assets and a reduction in the discount rate between periods. The 2012 pre-tax funded status adjustment increased our accrued pension obligation balance by approximately $15.8 million
and our accrued payroll and benefits balance by approximately $2.5 million at July 1, 2012 compared to July 3, 2011. The resulting tax impact increased our deferred income tax asset balance by $7.0 million in comparison to the prior year.
During 2012, our portion of capital contributions made to VAST LLC in support of general operating expenses totaled $200,000.
During the current year, the VAST joint ventures in China and Brazil both incurred relocation costs associated with moves to new facilities and start-up costs associated with a new product line. These relocation costs and start-up costs have been
financed internally by VAST LLC. We anticipate these transition costs and related losses to continue for VAST China over the remaining 2012 calendar year. In addition, we anticipate that VAST China capital expenditures will be approximately $8
million to $9 million during calendar year 2012 (which includes a portion of our fiscal 2012 and fiscal 2013) in support of the new product line and new product programs. As a result, we estimate that our portion of additional capital contributions
to VAST LLC could be $1 million to $2 million during the remainder of calendar year 2012.
Capital expenditures were $13.6
million in 2012 compared to $9.5 million in 2011. Expenditures were primarily in support of requirements for new product programs and the upgrade and replacement of existing equipment. We anticipate capital expenditures will be approximately $9
million in fiscal 2013 in support of requirements for new product programs and the upgrade and replacement of existing equipment.
Our Board of Directors has authorized a stock repurchase program to buy back outstanding shares of our common stock. Shares authorized for buy back under the program totaled 3,839,395 at July 1,
2012. A total of 3,655,322 shares have been repurchased over the life of the program through July 1, 2012, at a cost of approximately $136.4 million. No shares were repurchased during fiscal 2012 or 2011. Additional repurchases may occur from
time to time and are expected to continue to be funded by cash flow from operations and current cash balances. Based on the current economic environment and our preference to conserve cash for other uses, we do not anticipate any stock repurchase
activity in fiscal year 2013.
STRATTEC has a $25 million secured revolving credit facility (“STRATTEC Credit
Facility”) with BMO Harris Bank N.A. The STRATTEC Credit Facility expires August 1, 2014. ADAC-STRATTEC LLC has a $5 million secured revolving credit facility (“ADAC-STRATTEC Credit Facility”) with BMO Harris Bank N.A, which is
guaranteed by STRATTEC. The ADAC-STRATTEC Credit Facility expires June 28, 2015. Any borrowings under the credit facilities will be secured by our U.S. cash balances, accounts receivable, inventory and property. Interest on borrowings under
these credit facilities is at varying rates based, at our option, on the London Interbank Offering Rate plus 1.0 to 1.75 percent or the bank’s prime rate. Both credit facilities contain a restrictive financial covenant that requires the
maintenance of a minimum net worth level. The ADAC-STRATTEC credit facility includes an additional restrictive financial covenant that requires the maintenance of a minimum level for its fixed charge coverage ratio. There were no outstanding
borrowings under either Credit Facility at July 1, 2012 or July 3, 2011. There were no borrowings under any third party debt facilities during 2012, 2011 or 2010. We believe that the credit facilities are adequate, along with existing cash
balances and cash flow from operations, to meet our anticipated capital expenditure, working capital, dividend and operating expenditure requirements.
Over the past several years, we have been impacted by rising health care costs. A portion of these increases have been offset by plan design changes and associate wellness initiatives. We have also been
impacted by increases in the market price of zinc and brass and inflation in Mexico,
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
18
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
which impacts the U. S. dollar costs of our Mexican operations. We have negotiated raw material price adjustment clauses with certain, but not all, of our customers to offset some of the market price
fluctuations in the cost of zinc. Moreover, beginning in January 2011, we entered into agreements with Bank of Montreal that provide for two weekly Mexican peso currency option contracts for a portion of our weekly estimated peso denominated
operating costs. Current contracts with Bank of Montreal extend through June 28, 2013. The two weekly option contracts are for equivalent notional amounts. The contracts that were effective during fiscal 2011 and 2012 expired July 6, 2012,
and provided for the purchase of Mexican pesos at a U.S. dollar / Mexican peso exchange rate of 11.85 if the spot rate at the weekly expiry date was below 11.85 or for the purchase of Mexican pesos at a U.S. dollar / Mexican peso exchange rate of
12.85 if the spot rate at the weekly expiry date was above 12.85. Additional contracts that are effective July 6, 2012 through June 28, 2013 provide for the purchase of Mexican pesos at an average U.S. dollar / Mexican peso exchange rate
of 12.40 if the spot rate at the weekly expiry date is below an average of 12.40 or for the purchase of Mexican pesos at an average U.S. dollar / Mexican peso exchange rate of 13.40 if the spot rate at the weekly expiry date is above an average of
13.40. Our objective in entering into these currency option contracts is to minimize our earnings volatility resulting from changes in exchange rates affecting the U.S. dollar cost of our Mexican operations. The Mexican peso option contracts are not
used for speculative purposes and are not designated as hedges. As a result, all currency option contracts are recognized in our accompanying consolidated financial statements at fair value and changes in the fair value of the currency option
contracts are reported in current earnings as part of Other Income, net. The premiums to be paid and received under the weekly Mexican peso currency option contracts net to zero. As a result, premiums related to the contracts did not impact our
earnings. The following table quantifies the outstanding Mexican peso currency option contracts as of July 1, 2012 (thousands of dollars, except average option contractual exchange rate):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Option
|
|
|
|
|
|
Foreign Exchange Gain/(Loss) From:
|
|
|
|
|
Notional
Amount
|
|
|
Contractual
Exchange Rate
|
|
|
Fair Value
|
|
|
10% Appreciation
of U.S. Dollar
|
|
|
10% Depreciation
of U.S. Dollar
|
|
|
Contracts Effective
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2, 2012 - July 6, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy MXP/Sell USD
|
|
$
|
684
|
|
|
|
11.85
|
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
|
Buy MXP/Sell USD
|
|
$
|
684
|
|
|
|
12.85
|
|
|
$
|
(26
|
)
|
|
$
|
(26
|
)
|
|
$
|
59
|
|
|
|
|
|
|
|
|
|
Contracts Effective
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 6, 2012 - June 28, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy MXP/Sell USD
|
|
$
|
10,200
|
|
|
|
12.40
|
|
|
$
|
80
|
|
|
$
|
(420
|
)
|
|
$
|
66
|
|
|
Buy MXP/Sell USD
|
|
$
|
10,200
|
|
|
|
13.40
|
|
|
$
|
(449
|
)
|
|
$
|
(268
|
)
|
|
$
|
651
|
|
The fair market value of all outstanding peso option contracts in the accompanying Consolidated Balance
Sheets was as follows (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
Not Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
Other Current Assets:
|
|
|
|
|
|
|
|
|
|
Mexican Peso Option Contracts
|
|
$
|
—
|
|
|
$
|
245
|
|
|
Other Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Mexican Peso Option Contracts
|
|
$
|
(395
|
)
|
|
$
|
—
|
|
The pre-tax effects of the peso option contracts on the accompanying Consolidated Statements of
Operations and Comprehensive (Loss) Income consisted of the following (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income, net
|
|
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
Not Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
Realized Gain
|
|
$
|
18
|
|
|
$
|
33
|
|
|
Realized (Loss)
|
|
$
|
(438
|
)
|
|
$
|
—
|
|
|
Unrealized (Loss) Gain
|
|
$
|
(640
|
)
|
|
$
|
245
|
|
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
Contractual obligations are as follows as of July 1, 2012 (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period
|
|
|
Contractual Obligation
|
|
Total
|
|
|
Less Than
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
More Than
5 Years
|
|
|
Operating Leases
|
|
$
|
1,382
|
|
|
$
|
552
|
|
|
$
|
830
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other Purchase Obligations
|
|
|
27,380
|
|
|
|
10,337
|
|
|
|
16,337
|
|
|
|
706
|
|
|
|
—
|
|
|
Pension and Postretirement Obligations
(a)
|
|
|
8,674
|
|
|
|
8,674
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
37,436
|
|
|
$
|
19,563
|
|
|
$
|
17,167
|
|
|
$
|
706
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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2012 STRATTEC Annual Report
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19
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MANAGEMENT’S DISCUSSION AND ANALYSIS
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(a)
|
As disclosed in our Notes to Financial Statements, estimated cash funding related to our pension and postretirement benefit plans is expected to total
$8.7 million in 2013. Because the timing of funding related to these plans beyond 2013 is uncertain, and is dependent on future movements in interest rates and investment returns, changes in laws and regulations, and other variables, pension and
postretirement outflows beyond 2013 have not been included in the table above.
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Liabilities recognized for
uncertain tax benefits of $1.7 million are not presented in the table above due to uncertainty as to amounts and timing regarding future payments.
JOINT VENTURES
We participate in certain Alliance Agreements with WITTE
Automotive (“WITTE”) and ADAC Automotive (“ADAC”). WITTE, of Velbert, Germany, is a privately held automotive supplier. WITTE designs, manufactures and markets automotive components, including locks and keys, hood latches, rear
compartment latches, seat back latches, door handles and specialty fasteners. WITTE’s primary market for these products has been Europe. ADAC, of Grand Rapids, Michigan, is a privately held automotive supplier and manufactures engineered
products, including door handles and other automotive trim parts, utilizing plastic injection molding, automated painting and various assembly processes.
The Alliance agreements include a set of cross-licensing agreements for the manufacture, distribution and sale of WITTE products by STRATTEC and ADAC in North America, and the manufacture, distribution
and sale of STRATTEC and ADAC products by WITTE in Europe. Additionally, a joint venture company, Vehicle Access Systems Technology LLC (“VAST LLC”), in which WITTE, STRATTEC and ADAC each hold a one-third interest, exists to seek
opportunities to manufacture and sell the companies’ products in areas of the world outside of North America and Europe.
VAST do Brasil, a joint venture between VAST LLC and Ifer do Brasil Ltda., services customers in South America. VAST Fuzhou, VAST Great
Shanghai and VAST China Co. (collectively known as VAST China), provides a base of operations to service our automotive customers in the Asian market. VAST LLC also maintains branch offices in South Korea and Japan in support of customer sales and
engineering requirements.
The VAST LLC investments are accounted for using the equity method of accounting. The activities
related to the VAST LLC joint ventures resulted in equity loss of joint ventures to STRATTEC of approximately $1.1 million during 2012, and equity earnings of joint ventures to STRATTEC of approximately $1.2 million during 2011 and $1.0 million
during 2010. During 2012 our joint ventures in China and Brazil both incurred relocation costs associated with moves to new facilities and start-up costs associated with a new product line. Both of these items resulted in STRATTEC incurring an
equity loss from joint ventures in 2012 compared to 2011 in which STRATTEC had equity earnings from joint ventures. We anticipate these transition costs and related losses to continue during our 2013 fiscal year relating to our VAST China
operations. In addition, the 2012 equity loss also included a goodwill impairment charge relating to VAST China. STRATTEC’s portion amounted to $284,000. Effective November 20, 2009, VAST LLC purchased the 40 percent non-controlling
interest owned by its former partners in the joint ventures in China. Initially, a loan of $2.5 million was made by each partner, STRATTEC, WITTE and ADAC, to fund a portion of the purchase price. In December 2009, $1 million of each partner’s
loan balance was repaid. During 2012, each partner’s outstanding principal and accrued interest balance of $1.5 million and $112,000, respectively, were terminated and converted to additional capital contributions by each partner in VAST LLC.
During 2012, cash capital contributions totaling $600,000 were made to VAST LLC in support of general operating expenses. STRATTEC’s portion of the cash capital contributions totaled $200,000. During 2011, cash capital contributions totaling
$1,350,000 were made to VAST LLC in support of general operating expenses. STRATTEC’s portion of the cash capital contributions totaled $450,000.
In fiscal year 2007, we entered into a joint venture with ADAC forming ADAC-STRATTEC LLC, a Delaware limited liability company. The joint venture was created to establish injection molding and door handle
assembly operations in Mexico. STRATTEC originally held a 50.1 percent interest in ADAC-STRATTEC LLC. Effective June 28, 2010, STRATTEC purchased an additional .9 percent interest from ADAC and now owns 51 percent. A Mexican entity,
ADAC-STRATTEC de Mexico, exists and is wholly owned by ADAC-STRATTEC LLC. ADAC-STRATTEC LLC’s financial results are consolidated with the financial results of STRATTEC and resulted in increased net income to STRATTEC of approximately $1.7
million in 2012, approximately $910,000 in 2011, and approximately $114,000 in 2010.
Effective November 30, 2008,
STRATTEC established a new entity, STRATTEC POWER ACCESS LLC (“SPA”), which is 80 percent owned by STRATTEC and 20 percent owned by WITTE. SPA operates the North American portion of the Power Products business which was acquired from
Delphi Corporation. The financial results of SPA are consolidated with the financial results of STRATTEC and resulted in increased net income to STRATTEC of approximately $2.6 million in 2012, approximately $2.5 million in 2011, and approximately
$545,000 in 2010.
OTHER MATTERS
Health care reform legislation was recently enacted by the Federal government. We are currently evaluating the legislation to determine its effects on our plan structure, future operating results and
financial position.
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2012 STRATTEC Annual Report
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20
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MANAGEMENT’S DISCUSSION AND ANALYSIS
CRITICAL ACCOUNTING POLICIES
We believe the following represents our critical accounting
policies:
Pension and Postretirement Health Benefits—
Pension and postretirement health obligations and costs are
developed from actuarial valuations. The determination of the obligation and expense for pension and postretirement health benefits is dependent on the selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions
are described in the Notes to Financial Statements and include, among others, the discount rate, expected long-term rate of return on plan assets, retirement age, rates of increase in compensation and health care costs. We evaluate and update all of
the assumptions annually on June 30, the measurement date. Refer to Notes to Financial Statements for the impact of the pension and postretirement plans on the financial statements.
We determine the discount rate used to measure plan liabilities using prevailing market rates of a large population of high-quality,
non-callable, corporate bonds currently available that, if the obligation was settled at the measurement date, would provide the necessary future cash flows to pay the benefit obligation when due. Using this methodology, we determined a discount
rate of 4.56 percent to be appropriate as of June 30, 2012, which is a decrease of 1.01 percentage points from the rate of 5.57 percent used at June 30, 2011. The impact of this change increased our year-end 2012 projected pension benefit
obligations by approximately $11.7 million, the year-end 2012 accumulated pension benefit obligations by approximately $11.6 million and the year-end 2012 accumulated postretirement obligation by approximately $150,000. This change is also expected
to increase our 2013 pension expense by $1.1 million and decrease our postretirement expense by $14,000. Our pension expense increases as the discount rate decreases. Lowering our 2012 discount rate assumption by 50 basis points would have increased
our 2012 pension expense by approximately $460,000.
As of June 30, 2010, we updated the termination rates for the
qualified pension plan and the postretirement plan. The impact of this change decreased our year-end 2010 projected pension benefit obligations by approximately $513,000 and our year end accumulated postretirement obligation by approximately
$38,000. This change also increased our 2011 pension expense by approximately $130,000 and postretirement expense by approximately $6,000.
As of January 1, 2010, the qualified defined benefit pension plan was amended discontinuing the benefit accrual for salary increases and credited service rendered after December 31, 2009. As a
result, a curtailment loss related to the unrecognized prior service cost of $505,000 was recorded during fiscal 2010.
As of
June 30, 2009, we decreased the salary scale applicable to our pension plans from 3.5% to 3%. The impact of this change decreased our year-end 2009 projected pension benefit obligations by approximately $652,000 and increased our year-end 2009
accumulated pension benefit obligations by approximately $253,000. This change also decreased our 2010 pension expense by $179,000.
A significant element in determining the pension expense is the expected return on plan assets. Our assumption for the expected return on plan assets is based on historical results for similar allocations
among asset classes and was 8.0 percent for 2010 and 2011, 7.8 percent for 2012 and 7.5 for 2013. The changes to this assumption reduced the expected return on plan assets by approximately $200,000 in 2010, had no impact in 2011 and reduced the
expected return on plan assets by approximately $165,000 in 2012 and $245,000 in 2013. Refer to Notes to Financial Statements for additional information on how this rate was determined. Pension expense increases as the expected rate of return on
plan assets decreases. Lowering the 2012 expected rate of return assumption for our plan assets by 50 basis points would have increased our 2012 pension expense by approximately $500,000.
The difference between the expected return and actual return on plan assets is deferred and under certain circumstances, amortized over
future years of service. Therefore, the deferral of past asset gains and losses ultimately affects future pension expense. This is also the case with changes to actuarial assumptions, including discount rate assumptions, pay rate assumptions,
mortality assumptions, turnover assumptions and other demographic assumptions. As of June 30, 2012, we had $49 million of net unrecognized pension actuarial losses, which included deferred asset losses of $3.5 million. As of June 30, 2012,
we had unrecognized postretirement actuarial losses of $7.6 million. These amounts represent potential future pension and postretirement expenses that would be amortized over average future service periods. The average remaining service period is
about 8 years for the pension and postretirement plans.
During fiscal years 2012, 2011 and 2010, we contributed $2 million,
$2 million and $4 million, respectively, to our qualified pension plan. Future pension contributions are expected to be approximately $2 million annually depending on market conditions. We have evaluated the potential impact of the Pension
Protection Act (the “Act”), which was passed into law on August 17, 2006, on future pension plan funding requirements based on current market conditions. The Act has not had and is not anticipated to have in future periods a material
effect on our level of future funding requirements or on our liquidity and capital resources.
A significant element in determining the
postretirement health expense is the health care cost
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2012 STRATTEC Annual Report
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MANAGEMENT’S DISCUSSION AND ANALYSIS
trend rates. We develop these rates based on historical cost data, the near-term outlook and an assessment of likely long-term trends. Changes in the health care cost trend rate assumption will have a
significant effect on the postretirement benefit amounts reported. As of January 1, 2011, we updated the health care cost trend assumption. The impact of this change increased our year-end 2011 accumulated postretirement obligation by
approximately $139,000. This change also increased our 2012 postretirement expense by approximately $20,000. Refer to Notes to Financial Statements for an analysis of the impact of a one percent change in the trend rate.
As of January 1, 2010, the postretirement health care benefit plan was amended to limit future eligible retirees’ benefits
under the plan to $4,000 per year for a maximum of five years. This change decreased the year-end 2010 postretirement benefit obligation by approximately $3.4 million and decreased 2011 postretirement expense by approximately $645,000.
While we believe that the assumptions used are appropriate, significant differences in the actual experience or significant changes in
the assumptions may materially affect our pension and postretirement health obligations and future expense.
Liability for
Uncertain Tax Positions
—
We are subject to income taxation in many jurisdictions around the world. Significant management judgment is required in the accounting for income tax contingencies because the outcomes are often difficult to
determine. We are required to measure and recognize uncertain tax positions that we have taken or expect to take in our income tax returns. The benefit of an uncertain tax position can only be recognized in the financial statements if management
concludes that it is more likely than not that the position will be sustained with the tax authorities. For a position that is likely to be sustained, the benefit recognized in the financial statements is measured at the largest amount that is
greater than 50 percent likely of being realized. A reserve is established for the difference between a position taken in an income tax return and the amount recognized in the financial statements. Refer to the discussion of Income Taxes included in
the Notes to Financial Statements included within this 2012 Annual Report.
Other Reserves
—
We have reserves
such as an environmental reserve, a warranty reserve, an incurred but not reported claim reserve for self-insured health plans, an allowance for doubtful accounts related to trade accounts receivable, an excess and obsolete inventory reserve and a
repair and maintenance supply parts reserve. These reserves require the use of estimates and judgment with regard to risk exposure, ultimate liability and net realizable value.
Environmental Reserve
—
We have a liability recorded related to the estimated costs to remediate a site at our Milwaukee
facility, which was contaminated by a solvent spill from a former above ground solvent storage tank occurring in 1985. The recorded environmental liability balance involves judgment and estimates. Our reserve estimate is based on a third party
assessment of the costs to adequately cover the cost of active remediation of the contamination at this site. Actual costs might vary from this estimate for a variety of reasons including changes in laws and changes in the assessment of the level of
remediation actually required at this site. Therefore, future changes in laws or the assessment of the level of remediation required could result in changes in our estimate of the required liability. Refer to the discussion of Commitments and
Contingencies included in the Notes to Financial Statements included within this 2012 Annual Report.
Warranty Reserve—We
have a warranty liability recorded related to our exposure to warranty claims in the event our products fail to perform as expected, and we may be required to participate in the repair costs incurred by our customers for such products. The recorded
warranty liability balance involves judgment and estimates. Our liability estimate is based on an analysis of historical warranty data as well as current trends and information, including our customers’ recent extension of their warranty
programs. Actual warranty costs might vary from estimates due to the level of actual claims varying from our claims experience and estimates. Therefore, future actual claims experience could result in changes in our estimates of the required
liability. Refer to the discussion of Warranty Reserve under Organization and Summary of Significant Accounting Policies included in the Notes to Financial Statements included within this 2012 Annual Report.
Incurred But Not Reported Claim Reserve for Self-Insured Health Plans—We have self-insured medical and dental plans covering all
eligible U.S. associates. The expected ultimate cost of claims incurred under these plans is subject to judgment and estimation. We estimate the ultimate expected cost of claims incurred under these plans based upon the aggregate liability for
reported claims and an estimated additional liability for claims incurred but not reported. Our estimate of claims incurred but not reported is based on an analysis of historical data, current trends related to claims and health care costs and
information available from the insurance carrier. Actual ultimate costs may vary from estimates due to variations in actual claims experience from past trends and large unexpected claims being filed. Therefore, changes in claims experience and large
unexpected claims could result in changes to our estimate of the claims incurred but not reported liabilities. Refer to the discussion of Self Insurance and Loss Sensitive Plans under Organization and Summary of Significant Accounting Policies
included in the Notes to Financial Statements included within this 2012 Annual Report.
Allowance for Doubtful Accounts
Related to Trade Accounts Receivable—Our trade accounts receivable consist primarily of receivables due from Original Equipment Manufacturers in the automotive industry and locksmith distributors relating to our service and aftermarket
business. Our evaluation of the collectability of our trade accounts receivable involves judgment and estimates and includes a
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2012 STRATTEC Annual Report
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22
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MANAGEMENT’S DISCUSSION AND ANALYSIS
review of past due items, general economic conditions and the economic climate of the industry as a whole. The estimate of the required reserve involves uncertainty as to future collectability of
receivable balances. This uncertainty is magnified by the financial difficulty recently experienced by our customers as discussed under Risk Factors-Loss of Significant Customers, Vehicle Content, Vehicle Models and Market Share included within this
2012 Annual Report. Refer to the discussion of Receivables under Organization and Summary of Significant Accounting Policies included in the Notes to Financial Statements included within this 2012 Annual Report.
Excess and Obsolete Inventory Reserve—We record a reserve for excess and obsolete inventory based on historical and estimated future
demand and market conditions. The reserve level is determined by comparing inventory levels of individual materials and parts to historical usage and estimated future sales by analyzing the age of the inventory, in order to identify specific
material and parts that are unlikely to be sold. Technical obsolescence and other known factors are also considered in evaluating the reserve level. Actual future write-offs of inventory may differ from estimates and calculations used to determine
reserve levels due to changes in customer demand, changes in technology and other factors. Refer to the discussion of Inventories under Organization and Summary of Significant Accounting Policies included in the Notes to Financial Statements
included within this 2012 Annual Report.
Repair and Maintenance Supply Parts Reserve—We maintain an inventory of repair
and maintenance parts in support of operations. This inventory includes critical repair parts for all production equipment as well as general maintenance items. The inventory of critical repair parts is required to avoid disruptions in our
customers’ just-in-time production schedules due to lack of spare parts when equipment break-downs occur. Depending on maintenance requirements during the life of the equipment, excess quantities of repair parts arise. A repair and maintenance
supply parts reserve is maintained to recognize the normal adjustment of inventory for obsolete and slow-moving repair and maintenance supply parts. Our evaluation of the reserve level involves judgment and estimates, which are based on a review of
historical obsolescence and current inventory levels. Actual obsolescence may differ from estimates due to actual maintenance requirements differing from historical levels. This could result in changes to our estimated required reserve. Refer to the
discussion of Repair and Maintenance Supply Parts under Organization and Summary of Significant Accounting Policies included in the Notes to Financial Statements included within this 2012 Annual Report.
We believe the reserves discussed above are estimated using consistent and appropriate methods. However, changes to the assumptions could
materially affect the recorded reserves.
Stock-Based Compensation—
Stock-based compensation cost is measured at
the grant date based on the value of the award and is recognized as expense over the vesting period. Determining the fair value of stock-based awards at the grant date requires judgment, including estimating future volatility of our stock, the
amount of stock-based awards that are expected to be forfeited and the expected term of awards granted. We estimate the fair value of stock options granted using the Black-Scholes option valuation model. We amortize the fair value of all awards on a
straight-line basis over the vesting periods. The expected term of awards granted represents the period of time they are expected to be outstanding. We determine the expected term based on historical experience with similar awards, giving
consideration to the contractual terms and vesting schedules. We estimate the expected volatility of our common stock at the date of grant based on the historical volatility of our common stock. The volatility factor used in the Black-Scholes option
valuation model is based on our historical stock prices over the most recent period commensurate with the estimated expected term of the award. We base the risk-free interest rate used in the Black-Scholes option valuation model on the implied yield
currently available on U.S. Treasury zero-coupon issues with a remaining term commensurate with the expected term of the award. We use historical data to estimate pre-vesting option forfeitures. We record stock-based compensation only for those
awards that are expected to vest. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially impacted.
RISK FACTORS
We recognize we are subject to the following risk factors
based on our operations and the nature of the automotive industry in which we operate:
Loss of Significant Customers,
Vehicle Content, Vehicle Models and Market Share—
Sales to General Motors Company, Ford Motor Company and Chrysler Group LLC represented approximately 68 percent of our annual net sales (based on fiscal 2012 results) and, accordingly, these
customers account for a significant percentage of our outstanding accounts receivable. The contracts with these customers provide for supplying the customer’s requirements for a particular model. The contracts do not specify a specific quantity
of parts. The contracts typically cover the life of a model, which averages approximately four to five years. Components for certain customer models may also be “market tested” annually. Therefore, the loss of any one of these customers,
the loss of a contract for a specific vehicle model, a reduction in vehicle content, the early cancellation of a specific vehicle model, technological changes or a significant reduction in demand for certain key models could occur, and if so, could
have a material adverse effect on our existing and future revenues and net income.
On April 27, 2009, General Motors
announced certain aspects of its Revised Viability Plan including assembly plant closures and reduced production volumes for calendar year 2009 and the subsequent five years. The announcement indicated that certain vehicle brands, including Pontiac,
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2012 STRATTEC Annual Report
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23
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MANAGEMENT’S DISCUSSION AND ANALYSIS
Saturn, Hummer and Saab, would be discontinued or sold. In addition, subsequent to Chrysler LLC’s filing for Chapter 11 bankruptcy protection on April, 30 2009, they announced certain vehicle models
planned for discontinuation (Jeep Commander, Jeep Compass, Jeep Patriot, Dodge Nitro, Dodge Avenger, Dodge Caliber, Dodge Durango, Dodge Dakota, Dodge Viper, Chrysler Sebring, Chrysler Aspen, etc.). Subsequently, most of the models were reaffirmed
for continued production over a two to three year period, or replaced during this period. We continue to evaluate the impact these evolving plans have on our business as more details become available.
Our major customers also have significant under-funded legacy liabilities related to pension and postretirement health care obligations.
The future impact of these items along with a continuing loss in our major customers’ North American automotive market share to the New Domestic automotive manufacturers (primarily the Japanese and Korean automotive manufacturers) and/or a
significant decline in the overall market demand for new vehicles may ultimately result in severe financial difficulty for these customers, including bankruptcy. If our major customers cannot fund their operations, we may incur significant
write-offs of accounts receivable, incur impairment charges or require additional restructuring actions.
Production
Slowdowns by Customers—
Our major customers and many of their suppliers were significantly impacted by the recession of 2008/2009. Many of our major customers instituted production cuts during our fiscal 2009 and 2010. While production
subsequently increased after the cuts made in 2009, additional economic slowdowns could bring about new production cuts which could have a material adverse effect on our existing and future revenues and net income.
Financial Distress of Automotive Supply Base—
During calendar years 2009 and 2010, the automotive industry conditions
adversely affected STRATTEC and our supply base. Lower production levels at our major customers, volatility in certain raw material and energy costs and the global credit market crisis resulted in severe financial distress among many companies
within the automotive supply base. During the above time frame, several automotive suppliers filed for bankruptcy protection or ceased operations. The potential continuation of financial distress within the supply base and suppliers’ inability
to obtain credit from lending institutions may lead to commercial disputes and possible supply chain interruptions. In addition, the potential for future and/or continued adverse industry conditions may require us to take measures to ensure
uninterrupted production. The continuation or worsening of these industry conditions could have a material adverse effect on our existing and future revenues and net income.
Shortage of Raw Materials or Components Supply—
In the event of catastrophic acts of nature such as fires, tsunamis, hurricanes and earthquakes or a rapid increase in production demands, either
we or our customers or other suppliers may experience supply shortages of raw materials or components. This could be caused by a number of factors, including a lack of production line capacity or manpower or working capital constraints. In order to
manage and reduce the costs of purchased goods and services, we and others within our industry have been rationalizing and consolidating our supply base. In addition, due to the recent turbulence in the automotive industry, several suppliers have
filed bankruptcy proceedings or ceased operations. As a result, there is greater dependence on fewer sources of supply for certain components and materials, which could increase the possibility of a supply shortage of any particular component. If
any of our customers experience a material supply shortage, either directly or as a result of supply shortages at another supplier, that customer may halt or limit the purchase of our products. Similarly, if we or one of our own suppliers experience
a supply shortage, we may become unable to produce the affected products if we cannot procure the components from another source. Such production interruptions could impede a ramp-up in vehicle production and could have a material adverse effect on
our business, results of operations and financial condition.
We consider the production capacities and financial condition of
suppliers in our selection process, and expect that they will meet our delivery requirements. However, there can be no assurance that strong demand, capacity limitations, shortages of raw materials, labor disputes or other problems will not result
in any shortages or delays in the supply of components to us.
Cost Reduction
—There is continuing pressure from
our major customers to reduce the prices we charge for our products. This requires us to generate cost reductions, including reductions in the cost of components purchased from outside suppliers. If we are unable to generate sufficient production
cost savings in the future to offset pre-programmed price reductions, our gross margin and profitability will be adversely affected.
Cyclicality and Seasonality in the Automotive Market—
The automotive market is cyclical and is dependent on consumer spending, on the availability of consumer credit and to a certain extent, on
customer sales incentives. Economic factors adversely affecting consumer demand for automobiles and automotive production, such as rising fuel costs, could adversely impact our net sales and net income. We typically experience decreased sales and
operating income during the first fiscal quarter of each year due to the impact of scheduled customer plant shut-downs in July and new model changeovers during that period.
Foreign Operations—
We own and operate manufacturing operations in Mexico. As discussed under “Joint Ventures”, we also have joint venture investments in Mexico, Brazil and China. As
these operations continue to expand, their success will depend, in part, on our and our partners’ ability to anticipate and effectively manage certain risks inherent in international operations, including: enforcing agreements and collecting
receivables through certain foreign legal systems, payment cycles of foreign
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2012 STRATTEC Annual Report
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MANAGEMENT’S DISCUSSION AND ANALYSIS
customers, compliance with foreign tax laws, general economic and political conditions in these countries and compliance with foreign laws and regulations. The success of the joint venture operations may
be impacted by our two partners’ ability to influence business decisions and operating results of the joint ventures. These influences, as well as conflicts or disagreements with our joint venture partners, could negatively impact the
operations and financial results of our joint venture investments, which would have an adverse impact on our financial results. In addition, failure of our partners to be able to continue to fund their portion of the joint venture operations could
have a material adverse effect on the financial condition and financial results of our joint venture investments, which could have a material adverse effect on our financial results. The joint venture investments in China and Brazil are currently
generating losses due to relocation costs associated with moves to new facilities and start-up costs associated with a new product line. We anticipate these transition costs and related losses to continue during our 2013 fiscal year, which may
result in the need for additional future capital contributions to fund the operations of these joint venture investments.
Currency Exchange Rate Fluctuations—
Our sales are denominated in U.S. dollars. We have manufacturing operations in Mexico,
and as a result, a portion of our manufacturing costs are incurred in Mexican pesos. Therefore, fluctuations in the U.S. dollar / Mexican peso exchange rate may have a material effect on our profitability, cash flows, financial position, and may
significantly affect the comparability of our results between financial periods. Any depreciation in the value of the U.S. dollar in relation to the value of the Mexican peso will adversely affect the cost of our Mexican operations when translated
into U.S. dollars. Similarly, any appreciation in the value of the U.S. dollar in relation to the value of the Mexican peso will decrease the cost of our Mexican operations when translated into U.S. dollars. As described in Derivative Instruments
under Organization and Summary of Significant Accounting Policies included in the Notes to Financial Statements contained herein, we have entered into weekly Mexican peso currency option contracts to minimize the volatility resulting from changes in
the exchange rates between the U.S. dollar and the Mexican peso. There can be no assurances that the peso currency option contracts will eliminate our exchange rate risk associated with our Mexican operations.
Sources of and Fluctuations in Market Prices of Raw Materials—
Our primary raw materials are high-grade zinc, brass, nickel
silver, aluminum, steel and plastic resins. These materials are generally available from a number of suppliers, but we have chosen to concentrate our sourcing with one primary vendor for each commodity or purchased component. We believe our sources
of raw materials are reliable and adequate for our needs. However, the development of future sourcing issues related to using existing or alternative raw materials and the global availability of these materials as well as significant fluctuations in
the market prices of these materials may have an adverse effect on our financial results if the increased raw material costs cannot be recovered from our customers.
Given the significant financial impact on us relating to changes in the cost of our primary raw materials, commencing with fiscal 2008, we began quoting quarterly material price adjustments for changes in
our zinc costs in our negotiations with our customers. Our success in obtaining these quarterly price adjustments in our customer contracts is dependent on separate negotiations with each customer. It is not a standard practice for our customers to
include such price adjustments in their contracts. We have been successful in obtaining quarterly price adjustments in some of our customer contracts. However, we have not been successful in obtaining the adjustments with all of our customers.
Disruptions Due to Work Stoppages and Other Labor Matters—
Our major customers and many of their suppliers have
unionized work forces. Work stoppages or slow-downs experienced by our customers or their suppliers could result in slow-downs or closures of assembly plants where our products are included in assembled vehicles. For example, strikes by a critical
supplier called by the United Auto Workers led to extended shut-downs of most of General Motors’ North American assembly plants in February 2008 and in 1998. A material work stoppage experienced by one or more of our customers could have an
adverse effect on our business and our financial results. In addition, all production associates at our Milwaukee facility are unionized. A sixteen-day strike by these associates in June 2001 resulted in increased costs as all salaried associates
worked with additional outside resources to produce the components necessary to meet customer requirements. The current contract with our unionized associates is effective through June 29, 2014. We may encounter further labor disruption after
the expiration date of this contract and may also encounter unionization efforts in our other plants or other types of labor conflicts, any of which could have an adverse effect on our business and our financial results. Labor contracts between
General Motors Company, Ford Motor Company and Chrysler Group LLC and their unionized associates under the United Auto Workers expire in September and October 2015. In addition, their respective labor agreements with the Canadian Auto Workers union
expire on September 17, 2012. Labor disruptions encountered during the contract period could have an adverse effect on our business and our financial results.
Environmental and Safety Regulations—
We are subject to Federal, state, local and foreign laws and other legal requirements related to the generation, storage, transport, treatment and disposal
of materials as a result of our manufacturing and assembly operations. These laws include the Resource Conservation and Recovery Act (as amended), the Clean Air Act (as amended) and the Comprehensive Environmental Response, Compensation and
Liability Act (as amended). We have an environmental management system that is ISO-14001 certified. We believe that our existing environmental management system is adequate for current and anticipated operations and we have
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
25
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
no current plans for substantial capital expenditures in the environmental area. An environmental reserve was established in 1995 for estimated costs to remediate a site at our Milwaukee facility. The
site was contaminated from a former above-ground solvent storage tank, located on the east side of the facility. The contamination occurred in 1985 and is being monitored in accordance with Federal, state and local requirements. We do not currently
anticipate any material adverse impact on our results of operations, financial condition or competitive position as a result of compliance with Federal, state, local and foreign environmental laws or other related legal requirements. However, risk
of environmental liability and changes associated with maintaining compliance with environmental laws is inherent in the nature of our business and there is no assurance that material liabilities or changes could not arise.
Highly Competitive Automotive Supply Industry—
The automotive component supply industry is highly competitive. Some of our
competitors are companies, or divisions or subsidiaries of companies, that are larger than STRATTEC and have greater financial and technology capabilities. Our products may not be able to compete successfully with the products of these other
companies, which could result in loss of customers and as a result, decreased sales and profitability. Some of our major customers have previously announced that they will be reducing their supply base. This could potentially result in the loss of
these customers and consolidation within the supply base. The loss of any of our major customers could have a material adverse effect on our existing and future net sales and net income.
In addition, our competitive position in the North American automotive component supply industry could be adversely affected in the event
that we are unsuccessful in making strategic investments, acquisitions, alliances or establishing joint ventures that would enable us to expand globally. We principally compete for new business at the beginning of the development of new models and
upon the redesign of existing models by our major customers. New model development generally begins two to five years prior to the marketing of such new models to the public. The failure to obtain new business on new models or to retain or increase
business on redesigned existing models could adversely affect our business and financial results. In addition, as a result of relatively long lead times for many of our components, it may be difficult in the short-term for us to obtain new sales to
replace any unexpected decline in the sale of existing products. Finally, we may incur significant product development expense in preparing to meet anticipated customer requirements which may not be recovered.
Program Volume and Pricing Fluctuations—
We incur costs and make capital expenditures for new program awards based upon
certain estimates of production volumes over the anticipated program life for certain vehicles. While we attempt to establish the price of our products for variances in production volumes, if the actual production of certain vehicle models is
significantly less than planned, our net sales and net income may be adversely affected. We cannot predict our customers’ demands for the products we supply either in the aggregate or for particular reporting periods.
Investments in Customer Program Specific Assets—
We make investments in machinery and equipment used exclusively to
manufacture products for specific customer programs. This machinery and equipment is capitalized and depreciated over the expected useful life of each respective asset. Therefore, the loss of any one of our major customers, the loss of specific
vehicle models or the early cancellation of a vehicle model could result in impairment in the value of these assets which may have a material adverse effect on our financial results.
Financial Industry / Credit Market Risk—
The U.S. capital and credit markets experienced significant volatility and disruption
during the 2008/2009 recession. In many cases this resulted in pressures on borrowers and reduced credit availability from certain issuers without regard to the underlying financial strength of the borrower or issuer. If financial market disruption
and volatility occur again in the future, there can be no assurance that such conditions will not have an adverse effect on our ability to access debt and in turn, result in a material adverse effect on our business, financial condition and results
of operations.
Warranty Claims—
We are exposed to warranty claims in the event that our products fail to perform
as expected, and we may be required to participate in the repair costs incurred by our customers for such products. Our largest customers have recently extended their warranty protection for their vehicles. Other automotive OEMs have similarly
extended their warranty programs. We are engaged in ongoing discussions with our customers regarding warranty information and potential claims. The results of these discussions could result in additional warranty charges / claims in future periods.
Depending on the nature of and the volume of vehicles involved in the potential warranty claims, these charges could be material to the financial statements. The extended warranty trend may also result in higher cost recovery claims by OEMs from
suppliers whose products incur a higher rate of warranty claims above an OEM derived nominal level. Historically, we have experienced relatively low warranty charges from our customers due to our commercial arrangements and improvements in the
quality, reliability and durability of our products. Due to our largest customers’ extension of their warranty protection programs and demands for higher warranty cost sharing arrangements from their suppliers, including STRATTEC, we increased
our provision to cover warranty exposures during fiscal years 2010, 2011 and 2012. Moreover, in 2011, our increased warranty provision was the result of our share of the cost associated with a specific warranty claim involving a product we supplied
to one of our largest customers. If our customers demand higher warranty-related cost recoveries, or if our products fail to perform as expected, it could have a material adverse impact on our results of operations and financial condition.
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
26
|
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(
IN
THOUSANDS
,
EXCEPT
PER
SHARE
AMOUNTS
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
June 27, 2010
|
|
|
NET SALES
|
|
$
|
279,234
|
|
|
$
|
260,933
|
|
|
$
|
207,964
|
|
|
Cost of goods sold
|
|
|
228,971
|
|
|
|
218,770
|
|
|
|
174,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
50,263
|
|
|
|
42,163
|
|
|
|
33,042
|
|
|
Engineering, selling, and administrative expenses
|
|
|
33,804
|
|
|
|
33,443
|
|
|
|
29,939
|
|
|
Impairment charge
|
|
|
—
|
|
|
|
—
|
|
|
|
223
|
|
|
Environmental Reserve Adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,125
|
)
|
|
Provision for (Recovery of) doubtful accounts
|
|
|
116
|
|
|
|
—
|
|
|
|
(421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM OPERATIONS
|
|
|
16,343
|
|
|
|
8,720
|
|
|
|
4,426
|
|
|
Interest income
|
|
|
69
|
|
|
|
119
|
|
|
|
86
|
|
|
Equity (loss) earnings of joint ventures
|
|
|
(1,071
|
)
|
|
|
1,246
|
|
|
|
1,008
|
|
|
Interest expense-related parties
|
|
|
(81
|
)
|
|
|
(175
|
)
|
|
|
(225
|
)
|
|
Other income, net
|
|
|
582
|
|
|
|
220
|
|
|
|
312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE PROVISION FOR INCOME TAXES AND NON-CONTROLLING INTEREST
|
|
|
15,842
|
|
|
|
10,130
|
|
|
|
5,607
|
|
|
Provision for income taxes
|
|
|
3,589
|
|
|
|
2,540
|
|
|
|
1,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
|
12,253
|
|
|
|
7,590
|
|
|
|
3,941
|
|
|
Net income attributable to non-controlling interest
|
|
|
3,460
|
|
|
|
2,172
|
|
|
|
520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME ATTRIBUTABLE TO STRATTEC SECURITY CORPORATION
|
|
$
|
8,793
|
|
|
$
|
5,418
|
|
|
$
|
3,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE (LOSS) INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
12,253
|
|
|
$
|
7,590
|
|
|
$
|
3,941
|
|
|
|
|
|
|
|
Change in cumulative translation adjustments
|
|
|
(2,080
|
)
|
|
|
1,777
|
|
|
|
503
|
|
|
Pension funded status adjustment, net of tax
|
|
|
(11,990
|
)
|
|
|
8,450
|
|
|
|
(1,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL OTHER COMPREHENSIVE (LOSS) INCOME
|
|
|
(14,070
|
)
|
|
|
10,227
|
|
|
|
(843
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE (LOSS) INCOME
|
|
|
(1,817
|
)
|
|
|
17,817
|
|
|
|
3,098
|
|
|
Comprehensive income attributed to non controlling interest
|
|
|
3,397
|
|
|
|
2,208
|
|
|
|
525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO STRATTEC SECURITY CORPORATION
|
|
$
|
(5,214
|
)
|
|
$
|
15,609
|
|
|
$
|
2,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
$
|
2.66
|
|
|
$
|
1.65
|
|
|
$
|
1.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED
|
|
$
|
2.64
|
|
|
$
|
1.63
|
|
|
$
|
1.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
|
3,300
|
|
|
|
3,285
|
|
|
|
3,271
|
|
|
DILUTED
|
|
|
3,330
|
|
|
|
3,323
|
|
|
|
3,280
|
|
The accompanying Notes to Financial Statements are an integral part of these Consolidated Statements of Operations and
Comprehensive (Loss) Income.
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
27
|
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS AND PER SHARE AMOUNTS)
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
17,487
|
|
|
$
|
17,250
|
|
|
Receivables, less allowance for doubtful accounts of $500 at July 1, 2012 and $400 July 3, 2011
|
|
|
44,496
|
|
|
|
39,649
|
|
|
Inventories, net
|
|
|
21,236
|
|
|
|
22,135
|
|
|
Customer tooling in progress, net
|
|
|
4,434
|
|
|
|
2,788
|
|
|
Deferred income taxes
|
|
|
5,219
|
|
|
|
4,026
|
|
|
Other current assets
|
|
|
8,419
|
|
|
|
8,554
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
101,291
|
|
|
|
94,402
|
|
|
DEFERRED INCOME TAXES
|
|
|
9,742
|
|
|
|
3,639
|
|
|
INVESTMENT IN JOINT VENTURES
|
|
|
8,139
|
|
|
|
7,276
|
|
|
LOAN TO JOINT VENTURE
|
|
|
—
|
|
|
|
1,500
|
|
|
OTHER LONG-TERM ASSETS
|
|
|
536
|
|
|
|
635
|
|
|
PROPERTY, PLANT AND EQUIPMENT, NET
|
|
|
46,330
|
|
|
|
40,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
166,038
|
|
|
$
|
148,088
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
24,149
|
|
|
$
|
22,851
|
|
|
Loans from related parties
|
|
|
—
|
|
|
|
1,850
|
|
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
|
Payroll and benefits
|
|
|
19,233
|
|
|
|
15,546
|
|
|
Environmental
|
|
|
1,436
|
|
|
|
1,478
|
|
|
Warranty
|
|
|
4,958
|
|
|
|
3,856
|
|
|
Income taxes
|
|
|
2,934
|
|
|
|
1,734
|
|
|
Other
|
|
|
4,263
|
|
|
|
3,673
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
56,973
|
|
|
|
50,988
|
|
|
COMMITMENTS AND CONTINGENCIES
—see note on page 40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BORROWINGS UNDER CREDIT FACILITY
|
|
|
—
|
|
|
|
—
|
|
|
ACCRUED PENSION OBLIGATIONS
|
|
|
18,202
|
|
|
|
3,447
|
|
|
ACCRUED POSTRETIREMENT OBLIGATIONS
|
|
|
3,465
|
|
|
|
3,589
|
|
|
SHAREHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
|
Common stock, authorized 12,000,000 shares, $.01 par value, issued 6,932,457 shares at July 1, 2012 and 6,920,557 shares at
July 3, 2011
|
|
|
69
|
|
|
|
69
|
|
|
Capital in excess of par value
|
|
|
80,621
|
|
|
|
79,767
|
|
|
Retained earnings
|
|
|
171,590
|
|
|
|
164,138
|
|
|
Accumulated other comprehensive loss
|
|
|
(35,757
|
)
|
|
|
(21,750
|
)
|
|
Less: Treasury stock at cost (3,628,673 shares at July 1, 2012 and 3,631,079 shares at July 3, 2011)
|
|
|
(135,971
|
)
|
|
|
(136,009
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total STRATTEC SECURITY CORPORATION shareholders’ equity
|
|
|
80,552
|
|
|
|
86,215
|
|
|
Non-controlling interest
|
|
|
6,846
|
|
|
|
3,849
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
87,398
|
|
|
|
90,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
166,038
|
|
|
$
|
148,088
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to Financial Statements are an integral part of these Consolidated Balance Sheets.
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
28
|
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(
IN
THOUSANDS
,
EXCEPT
PER
SHARE
AMOUNTS
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Common
Stock
|
|
|
Capital in
Excess of
Par Value
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
Treasury
Stock
|
|
|
Non-controlling
Interest
|
|
|
BALANCE June 28, 2009
|
|
$
|
72,557
|
|
|
$
|
69
|
|
|
$
|
79,247
|
|
|
$
|
159,285
|
|
|
$
|
(31,094
|
)
|
|
$
|
(136,089
|
)
|
|
$
|
1,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
3,941
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,421
|
|
|
|
—
|
|
|
|
—
|
|
|
|
520
|
|
|
Translation adjustments
|
|
|
503
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
499
|
|
|
|
—
|
|
|
|
4
|
|
|
Pension and postretirement funded status adjustment, net of tax of $825
|
|
|
(1,346
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,346
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Share of premium on equity method ownership
|
|
|
(409
|
)
|
|
|
—
|
|
|
|
(409
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Stock-based compensation and shortfall tax benefit
|
|
|
464
|
|
|
|
—
|
|
|
|
464
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Stock Option Exercises
|
|
|
35
|
|
|
|
—
|
|
|
|
35
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Employee stock purchases
|
|
|
44
|
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
42
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE June 27, 2010
|
|
$
|
75,789
|
|
|
$
|
69
|
|
|
$
|
79,339
|
|
|
$
|
162,706
|
|
|
$
|
(31,941
|
)
|
|
$
|
(136,047
|
)
|
|
$
|
1,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
7,590
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,418
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,172
|
|
|
Translation adjustments
|
|
|
1,777
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,741
|
|
|
|
—
|
|
|
|
36
|
|
|
Pension and postretirement funded status adjustment, net of tax of $5,178
|
|
|
8,450
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,450
|
|
|
|
—
|
|
|
|
—
|
|
|
Cash dividends declared ($1.20 per share)
|
|
|
(3,986
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,986
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Purchase of additional interest in Majority Owned Subsidiary
|
|
|
(22
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(22
|
)
|
|
Stock-based compensation and shortfall tax benefit, including tax benefit on restricted stock dividends of $15
|
|
|
364
|
|
|
|
—
|
|
|
|
364
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Stock Option Exercises
|
|
|
40
|
|
|
|
—
|
|
|
|
40
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Employee stock purchases
|
|
|
62
|
|
|
|
—
|
|
|
|
24
|
|
|
|
—
|
|
|
|
—
|
|
|
|
38
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE July 3, 2011
|
|
$
|
90,064
|
|
|
$
|
69
|
|
|
$
|
79,767
|
|
|
$
|
164,138
|
|
|
$
|
(21,750
|
)
|
|
$
|
(136,009
|
)
|
|
$
|
3,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
12,253
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,793
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,460
|
|
|
Translation adjustments
|
|
|
(2,080
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,017
|
)
|
|
|
—
|
|
|
|
(63
|
)
|
|
Pension and postretirement funded status adjustment, net of tax of $7,348
|
|
|
(11,990
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(11,990
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Cash dividends declared ($0.40 per share)
|
|
|
(1,341
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,341
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Cash dividends paid to non-controlling interests of subsidiaries
|
|
|
(400
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(400
|
)
|
|
Stock-based compensation and shortfall tax benefit, including tax benefit on restricted stock dividends of $7
|
|
|
806
|
|
|
|
—
|
|
|
|
806
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Stock Option Exercises
|
|
|
33
|
|
|
|
—
|
|
|
|
33
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Employee stock purchases
|
|
|
53
|
|
|
|
—
|
|
|
|
15
|
|
|
|
—
|
|
|
|
—
|
|
|
|
38
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE July 1, 2012
|
|
$
|
87,398
|
|
|
$
|
69
|
|
|
$
|
80,621
|
|
|
$
|
171,590
|
|
|
$
|
(35,757
|
)
|
|
$
|
(135,971
|
)
|
|
$
|
6,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Notes to Financial Statements are an integral part of these Consolidated Statements of
Shareholders’ Equity.
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
29
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
June 27, 2010
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
12,253
|
|
|
$
|
7,590
|
|
|
$
|
3,941
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity loss (earnings) in joint ventures
|
|
|
1,071
|
|
|
|
(1,246
|
)
|
|
|
(1,008
|
)
|
|
Depreciation and amortization
|
|
|
6,809
|
|
|
|
6,619
|
|
|
|
7,143
|
|
|
Foreign currency transaction (gain) loss
|
|
|
(1,369
|
)
|
|
|
836
|
|
|
|
283
|
|
|
Unrealized loss (gain) on peso option contracts
|
|
|
640
|
|
|
|
(245
|
)
|
|
|
—
|
|
|
Loss (gain) on disposition of property, plant and equipment
|
|
|
30
|
|
|
|
(6
|
)
|
|
|
50
|
|
|
Deferred income taxes
|
|
|
54
|
|
|
|
(177
|
)
|
|
|
3,428
|
|
|
Stock based compensation expense
|
|
|
825
|
|
|
|
621
|
|
|
|
468
|
|
|
Provision (recovery) for doubtful accounts
|
|
|
116
|
|
|
|
—
|
|
|
|
(421
|
)
|
|
Impairment charge
|
|
|
—
|
|
|
|
—
|
|
|
|
223
|
|
|
Environmental reserve adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,125
|
)
|
|
Loss on curtailment of employee benefits
|
|
|
—
|
|
|
|
—
|
|
|
|
505
|
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(5,394
|
)
|
|
|
(3,309
|
)
|
|
|
(18,301
|
)
|
|
Inventories
|
|
|
899
|
|
|
|
(5,049
|
)
|
|
|
(497
|
)
|
|
Other assets
|
|
|
(2,130
|
)
|
|
|
(183
|
)
|
|
|
3,181
|
|
|
Accounts payable and accrued liabilities
|
|
|
3,437
|
|
|
|
2,902
|
|
|
|
12,192
|
|
|
Other, net
|
|
|
—
|
|
|
|
18
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
17,241
|
|
|
|
8,371
|
|
|
|
10,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in joint ventures
|
|
|
(200
|
)
|
|
|
(450
|
)
|
|
|
(100
|
)
|
|
Restricted cash
|
|
|
—
|
|
|
|
2,100
|
|
|
|
(2,100
|
)
|
|
Loan to joint venture
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,500
|
)
|
|
Proceeds from repayment of loan to joint venture
|
|
|
—
|
|
|
|
—
|
|
|
|
1,000
|
|
|
Additions to property, plant and equipment
|
|
|
(13,558
|
)
|
|
|
(9,531
|
)
|
|
|
(6,903
|
)
|
|
Purchase of additional interest in majority owned subsidiary
|
|
|
—
|
|
|
|
(22
|
)
|
|
|
—
|
|
|
Proceeds received on sale of property, plant and equipment
|
|
|
19
|
|
|
|
111
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(13,739
|
)
|
|
|
(7,792
|
)
|
|
|
(10,582
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options and employee stock purchases
|
|
|
82
|
|
|
|
90
|
|
|
|
72
|
|
|
Excess tax benefits from stock-based compensation
|
|
|
4
|
|
|
|
12
|
|
|
|
9
|
|
|
Dividends paid to non-controlling interests of subsidiaries
|
|
|
(400
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Dividends paid
|
|
|
(1,341
|
)
|
|
|
(3,989
|
)
|
|
|
—
|
|
|
Repayment of loan from related parties
|
|
|
(1,850
|
)
|
|
|
(1,150
|
)
|
|
|
(225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(3,505
|
)
|
|
|
(5,037
|
)
|
|
|
(144
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOREIGN CURRENCY IMPACT ON CASH
|
|
|
240
|
|
|
|
(159
|
)
|
|
|
(236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
237
|
|
|
|
(4,617
|
)
|
|
|
(897
|
)
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
17,250
|
|
|
|
21,867
|
|
|
|
22,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
17,487
|
|
|
$
|
17,250
|
|
|
$
|
21,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid (recovered)
|
|
$
|
2,721
|
|
|
$
|
1,394
|
|
|
$
|
(2,963
|
)
|
|
Interest paid—related parties
|
|
$
|
115
|
|
|
$
|
188
|
|
|
$
|
250
|
|
The accompanying Notes to Financial Statements are an integral part of these Consolidated Statements of Cash Flows.
During the year ended July 1, 2012, a non-cash event was recorded whereby the outstanding loan to joint venture principal and accrued
interest amounts of $1.5 million and $112,000, respectively, were terminated and converted into additional capital contributions in the joint venture investment.
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
30
|
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
STRATTEC SECURITY CORPORATION 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 for primarily North American automotive customers. We also supply global automotive manufacturers through a unique strategic relationship with WITTE Automotive of Velbert, Germany and ADAC Automotive of Grand Rapids, Michigan. Under this
relationship, STRATTEC, WITTE and ADAC market our products to global customers under the “VAST” brand name (as more fully described herein). STRATTEC products are shipped to customer locations in the United States, Canada, Mexico, Europe,
South America, Korea and China, and we provide full service and aftermarket support for our products.
The accompanying
consolidated financial statements reflect the consolidated results of STRATTEC SECURITY CORPORATION, its wholly owned Mexican subsidiary, STRATTEC de Mexico, and its majority owned subsidiaries, ADAC-STRATTEC, LLC and STRATTEC POWER ACCESS LLC.
STRATTEC SECURITY CORPORATION is located in Milwaukee, Wisconsin. STRATTEC de Mexico is located in Juarez, Mexico. ADAC-STRATTEC, LLC and STRATTEC POWER ACCESS LLC have operations in El Paso, Texas and Juarez, Mexico. Equity investments in Vehicle
Access Systems Technology LLC (“VAST LLC”) for which we exercise significant influence but do not control and are not the primary beneficiary, are accounted for using the equity method. VAST LLC consists primarily of three wholly owned
subsidiaries in China and one joint venture in Brazil. We have only one reporting segment.
The significant accounting
policies followed in the preparation of these financial statements, as summarized in the following paragraphs, are in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).
Principles of Consolidation and Presentation:
The accompanying consolidated financial
statements include the accounts of STRATTEC SECURITY CORPORATION, its wholly owned Mexican subsidiary, and its majority owned subsidiaries. Equity investments for which STRATTEC exercises significant influence but does not control and is not the
primary beneficiary are accounted for using the equity method. All significant inter-company transactions and balances have been eliminated.
Reclassifications and Other Adjustments:
Certain
reclassifications have been made to the 2010 Consolidated Statement of Cash Flows to conform to the 2011 and 2012 presentation. The reclassifications were made to correct the 2010 presentation of net income in the Consolidated Statements of Cash
Flows to properly include net income attributable to non-controlling interest. The correction did not change previously reported net cash provided by operating activities.
Fiscal Year:
Our fiscal year ends on the Sunday nearest June 30. The years ended
July 1, 2012, July 3, 2011 and June 27, 2010 are comprised of 52, 53 and 52 weeks, respectively.
Use of Estimates:
The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses for the periods presented. These estimates and assumptions could also affect the disclosure of contingencies. Actual
results and outcomes may differ from management’s estimates and assumptions.
Cash and Cash Equivalents:
Cash and cash equivalents include all short-term
investments with an original maturity of three months or less due to the short-term nature of the instruments. Excess cash balances are placed in a money market account at a high quality financial institution and in short-term commercial paper.
Derivative Instruments:
We own and operate manufacturing operations in Mexico. As a
result, a portion of our manufacturing costs are incurred in Mexican pesos, which causes our earnings and cash flows to fluctuate as a result of changes in the U.S. dollar / Mexican peso exchange rate. Beginning in January 2011, we entered into
agreements with Bank of Montreal that provide for two weekly Mexican peso currency option contracts for a portion of our weekly estimated peso denominated operating costs. Current contracts with Bank of Montreal extend through June 28, 2013.
The two weekly option contracts are for equivalent notional amounts. The contracts that were effective during fiscal 2011 and 2012 expired July 6, 2012, and provided for the purchase of Mexican pesos at a U.S. dollar / Mexican peso exchange
rate of 11.85 if the spot rate at the weekly expiry date was below 11.85 or for the purchase of Mexican pesos at a U.S. dollar / Mexican peso exchange rate of 12.85 if the spot rate at the weekly expiry date was above 12.85. Additional contracts
that are effective July 6, 2012 through June 28, 2013 provide for the purchase of Mexican pesos at an average U.S. dollar / Mexican peso exchange rate of 12.40 if the spot rate at the weekly expiry date is below an average of 12.40 or for
the purchase of Mexican pesos at an average U.S. dollar / Mexican peso exchange rate of 13.40 if the spot rate at the weekly expiry date is above an average of 13.40. Our objective in entering into these currency option contracts is to minimize our
earnings volatility resulting from changes in exchange rates affecting the U.S. dollar cost of our Mexican operations. The Mexican peso option contracts are not used for speculative purposes and are not designated as hedges. As a result, all
currency option contracts are recognized in our accompanying consolidated financial statements at fair value and changes in the fair value of the currency option contracts are reported in current earnings as part of Other Income, net. The premiums
to be paid and received under the weekly Mexican peso currency option contracts net to zero, and as a result, premiums related to the contracts did not impact our earnings.
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
31
|
NOTES TO FINANCIAL STATEMENTS
The following table quantifies the outstanding Mexican peso currency option contracts as of
July 1, 2012 (thousands of dollars, except average option contractual exchange rate):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Dates
|
|
Notional
Amount
|
|
|
Average
Option Contractual
Exchange Rate
|
|
|
Fair Value
|
|
|
Buy MXP/Sell USD
|
|
July 2, 2012-July 6, 2012
|
|
$
|
684
|
|
|
|
11.85
|
|
|
$
|
—
|
|
|
Buy MXP/Sell USD
|
|
July 2, 2012-July 6, 2012
|
|
$
|
684
|
|
|
|
12.85
|
|
|
$
|
(26
|
)
|
|
Buy MXP/Sell USD
|
|
July 6, 2012-June 28, 2013
|
|
$
|
10,200
|
|
|
|
12.40
|
|
|
$
|
80
|
|
|
Buy MXP/Sell USD
|
|
July 6, 2012-June 28, 2013
|
|
$
|
10,200
|
|
|
|
13.40
|
|
|
$
|
(449
|
)
|
The fair market value of all outstanding Mexican peso option contracts in the accompanying Consolidated Balance Sheets
was as follows (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
Not Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
Other current assets:
|
|
|
|
|
|
|
|
|
|
Mexican peso option contracts
|
|
$
|
—
|
|
|
$
|
245
|
|
|
Other current liabilities:
|
|
|
|
|
|
|
|
|
|
Mexican peso option contracts
|
|
$
|
(395
|
)
|
|
$
|
—
|
|
The pre-tax effects of the peso option contracts on the accompanying Consolidated Statements of Operations and
Comprehensive (Loss) Income consisted of the following (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income, net
|
|
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
Not Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
Realized Gain
|
|
$
|
18
|
|
|
$
|
33
|
|
|
Realized (loss)
|
|
$
|
(438
|
)
|
|
$
|
—
|
|
|
Unrealized (loss) gain
|
|
$
|
(640
|
)
|
|
$
|
245
|
|
Fair Value of Financial Instruments:
The fair value of our cash
and cash equivalents, accounts receivable, accounts payable, and loans from and to related parties approximated book value as of July 1, 2012 and July 3, 2011. Fair Value is defined as the exchange price that would be received for an asset
or paid for a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must
maximize the use of observable inputs and minimize the use of unobservable inputs. There is an established fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable. Level
1—Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2—Inputs, other than quoted prices
included within Level 1, which are observable for the asset or liability, either directly or indirectly. These are typically obtained from readily-available pricing sources for comparable instruments. Level 3—Unobservable inputs, where there is
little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own assumptions of the data that market participants would use in pricing the asset or liability, based on the best information available in
the circumstances. The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of July 1, 2012 and July 3, 2011 (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rabbi Trust Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Index Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Cap
|
|
$
|
209
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
209
|
|
|
$
|
306
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
306
|
|
|
Mid Cap
|
|
|
206
|
|
|
|
—
|
|
|
|
—
|
|
|
|
206
|
|
|
|
294
|
|
|
|
—
|
|
|
|
—
|
|
|
|
294
|
|
|
Large Cap
|
|
|
640
|
|
|
|
—
|
|
|
|
—
|
|
|
|
640
|
|
|
|
776
|
|
|
|
—
|
|
|
|
—
|
|
|
|
776
|
|
|
U.S. Treasury Securities
|
|
|
2,512
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,512
|
|
|
|
2,601
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,601
|
|
|
Cash and Cash Equivalents
|
|
|
806
|
|
|
|
—
|
|
|
|
—
|
|
|
|
806
|
|
|
|
372
|
|
|
|
—
|
|
|
|
—
|
|
|
|
372
|
|
|
Mexican peso option contracts
|
|
|
—
|
|
|
|
80
|
|
|
|
—
|
|
|
|
80
|
|
|
|
—
|
|
|
|
414
|
|
|
|
—
|
|
|
|
414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
4,373
|
|
|
$
|
80
|
|
|
$
|
—
|
|
|
$
|
4,453
|
|
|
$
|
4,349
|
|
|
$
|
414
|
|
|
$
|
—
|
|
|
$
|
4,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexican peso option contracts
|
|
$
|
—
|
|
|
$
|
475
|
|
|
$
|
—
|
|
|
$
|
475
|
|
|
$
|
—
|
|
|
$
|
169
|
|
|
$
|
—
|
|
|
$
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
32
|
NOTES TO FINANCIAL STATEMENTS
The Rabbi Trust assets fund our supplemental executive retirement plan
and are included in Other Current Assets in the accompanying Consolidated Balance Sheets. The Rabbi Trust assets are classified as Level 1 assets. Refer to discussion of Mexican peso option contracts under Derivative Instruments above. The fair
value of the Mexican Peso option contracts are based on an option pricing model that considers the remaining term, current exchange rate and volatility of the underlying foreign currency base. There were no transfers between Level 1 and Level 2
assets during 2012.
Receivables:
Receivables consist primarily of trade receivables due from Original
Equipment Manufacturers in the automotive industry and locksmith distributors relating to our service and aftermarket business. We evaluate the collectability of receivables based on a number of factors. An allowance for doubtful accounts is
recorded for significant past due receivable balances based on a review of the past due items, general economic conditions and the industry as a whole. In 2009, we recorded a $500,000 provision for doubtful accounts in connection with Chrysler
LLC’s and General Motors Corporation’s filing for Chapter 11 bankruptcy protection for certain of their U.S. legal entities on April 30, 2009 and June 1, 2009, respectively. All uncollectible receivables related to the bankruptcy
filings were written off against the $500,000 reserve during 2010. However, as a result of subsequent payments received, $421,000 of the $500,000 provision was recorded as a recovery of allowance for doubtful accounts during 2010. Changes in the
allowance for doubtful accounts are as follows (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
Beginning
of Year
|
|
|
Provision (Recovery)
for Doubtful
Accounts
|
|
|
Net
(Write-Offs)
Recoveries
|
|
|
Balance,
End of
Year
|
|
|
Year ended July 1, 2012
|
|
$
|
400
|
|
|
$
|
116
|
|
|
$
|
(16
|
)
|
|
$
|
500
|
|
|
Year ended July 3, 2011
|
|
$
|
400
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
400
|
|
|
Year ended June 27, 2010
|
|
$
|
750
|
|
|
$
|
(421
|
)
|
|
$
|
71
|
|
|
$
|
400
|
|
Inventories:
Inventories are comprised of material, direct labor and manufacturing
overhead, and are stated at the lower of cost or market using the first-in, first-out (“FIFO”) cost method of accounting. Inventories consist of the following (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
Finished products
|
|
$
|
5,313
|
|
|
$
|
5,899
|
|
|
Work in process
|
|
|
5,659
|
|
|
|
5,557
|
|
|
Purchased materials
|
|
|
11,564
|
|
|
|
11,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,536
|
|
|
|
23,335
|
|
|
Excess and obsolete reserve
|
|
|
(1,300
|
)
|
|
|
(1,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Inventories, net
|
|
$
|
21,236
|
|
|
$
|
22,135
|
|
|
|
|
|
|
|
|
|
|
|
We record a reserve for excess and obsolete inventory based on historical and estimated future
demand and market conditions. The reserve level is determined by comparing inventory levels of individual materials and parts to historical usage and estimated future sales by analyzing the age of the inventory in order to identify specific material
and parts that are unlikely to be sold. Technical obsolescence and other known factors are also considered in evaluating the reserve level. The activity related to the excess and obsolete inventory reserve is as follows (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
Beginning
of Year
|
|
|
Provision
Charged to
Expense
|
|
|
Amounts
Written Off
|
|
|
Balance,
End of
Year
|
|
|
Year ended July 1, 2012
|
|
$
|
1,200
|
|
|
$
|
385
|
|
|
$
|
285
|
|
|
$
|
1,300
|
|
|
Year ended July 3, 2011
|
|
$
|
1,418
|
|
|
$
|
334
|
|
|
$
|
552
|
|
|
$
|
1,200
|
|
|
Year ended June 27, 2010
|
|
$
|
975
|
|
|
$
|
643
|
|
|
$
|
200
|
|
|
$
|
1,418
|
|
Customer Tooling in Progress:
We incur costs related to tooling used in
component production and assembly. Costs for development of certain tooling, which will be directly reimbursed by the customer whose parts are produced from the tool, are accumulated on the balance sheet and are then billed to the customer. The
accumulated costs are billed upon formal acceptance by the customer of products produced with the individual tool. Other tooling costs are not directly reimbursed by the customer. These costs are capitalized and amortized over the life of the
related product based on the fact that the related tool will be used over the life of the supply arrangement. To the extent that estimated costs exceed expected reimbursement from the customer we will recognize a loss.
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
33
|
NOTES TO FINANCIAL STATEMENTS
Repair and Maintenance Supply Parts:
We maintain an inventory of
repair and maintenance supply parts in support of operations. This inventory includes critical repair parts for all production equipment as well as general maintenance items. The inventory of critical repair parts is required to avoid disruptions in
our customers’ just-in-time production schedules due to a lack of spare parts when equipment break-downs occur. All required critical repair parts are on hand when the related production equipment is placed in service and maintained to satisfy
the customer model life production and service requirements, which may be 12 to 15 years. As repair parts are used, additional repair parts are purchased to maintain a minimum level of spare parts inventory. Depending on maintenance requirements
during the life of the equipment, excess quantities of repair parts arise. Excess quantities are kept on hand and are not disposed of until the equipment is no longer in service. A repair and maintenance supply parts reserve is maintained to
recognize the normal adjustment of inventory for obsolete and slow moving supply and maintenance parts. The adequacy of the reserve is reviewed periodically in relation to the repair parts inventory balances. The gross balance of the repair and
maintenance supply parts inventory was approximately $1.9 million at July 1, 2012 and $2.1 million at July 3, 2011. The repair and maintenance supply parts inventory balance is included in Other Current Assets in the accompanying
Consolidated Balance Sheets. The activity related to the repair and maintenance supply parts reserve is as follows (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
Beginning
of Year
|
|
|
Provision
Charged to
Expense
|
|
|
Amounts
Written Off
|
|
|
Balance,
End of
Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended July 1, 2012
|
|
$
|
695
|
|
|
$
|
200
|
|
|
$
|
395
|
|
|
$
|
500
|
|
|
Year ended July 3, 2011
|
|
$
|
680
|
|
|
$
|
78
|
|
|
$
|
63
|
|
|
$
|
695
|
|
|
Year ended June 27, 2010
|
|
$
|
630
|
|
|
$
|
78
|
|
|
$
|
28
|
|
|
$
|
680
|
|
Goodwill and Other Intangibles:
Based upon the annual goodwill
impairment review completed during 2010, we determined that goodwill related to STRATTEC POWER ACCESS LLC, which resulted from the purchase of the Delphi Power Products business in 2009, was impaired. Accordingly, a non-cash impairment charge of
$223,000 was recognized in 2010 to write-off the related goodwill amount.
Intangible assets that have defined useful lives
acquired in the purchase of the Delphi Power Products business in 2009 consist of patents, engineering drawings and software. The carrying value and accumulated amortization were as follows (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
Patents, engineering drawings and software
|
|
$
|
890
|
|
|
$
|
890
|
|
|
Less: accumulated amortization
|
|
|
(354
|
)
|
|
|
(255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
536
|
|
|
$
|
635
|
|
|
|
|
|
|
|
|
|
|
|
The remaining useful life of the intangible assets in the table above is
approximately 5.4 years. Intangible amortization expense was $99,000 for each of the years ended July 1, 2012, July 3, 2011 and June 27, 2010. Estimated intangible amortization expense for each of the next five fiscal years is
$99,000.
Property, Plant and Equipment:
Property, plant and equipment are
stated at cost. Property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets as follows:
|
|
|
|
|
Classification
|
|
Expected Useful Lives
|
|
Land improvements
|
|
20 years
|
|
Buildings and improvements
|
|
20 to 35 years
|
|
Machinery and equipment
|
|
3 to 10 years
|
Property, plant and equipment consist of the following (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
Land and improvements
|
|
$
|
2,809
|
|
|
$
|
3,078
|
|
|
Buildings and improvements
|
|
|
18,522
|
|
|
|
18,983
|
|
|
Machinery and equipment
|
|
|
130,683
|
|
|
|
119,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152,014
|
|
|
|
141,364
|
|
|
Less: accumulated depreciation
|
|
|
(105,684
|
)
|
|
|
(100,728
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
46,330
|
|
|
$
|
40,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
34
|
NOTES TO FINANCIAL STATEMENTS
Depreciation expense for the years ended July 1, 2012, July 3, 2011 and
June 27, 2010 totaled approximately $6.7 million, $6.5 million and $7.0 million, respectively.
The gross and net book
value of property, plant and equipment located outside of the United States, primarily in Mexico, were as follows (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
Gross book value
|
|
$
|
62,497
|
|
|
$
|
58,902
|
|
|
Net book value
|
|
$
|
20,434
|
|
|
$
|
19,360
|
|
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be
generated by the asset. If an asset is considered to be impaired, the impairment recognized is measured by the excess of the carrying amount of the asset over the fair value of the asset. Assets to be disposed of are reported at the lower of the
carrying amount or fair value, less estimated costs to sell. There were no impairments recorded in the years ended July 1, 2012, July 3, 2011 or June 27, 2010.
Expenditures for repairs and maintenance are charged to expense as incurred. Expenditures for major renewals and betterments, which
significantly extend the useful lives of existing plant and equipment, are capitalized and depreciated. Upon retirement or disposition of plant and equipment, the cost and related accumulated depreciation are removed from the accounts and any
resulting gain or loss is recognized in income.
Supplier Concentrations:
The following inventory purchases were made from major suppliers during each fiscal
year noted:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Percentage of
Inventory
Purchases
|
|
|
Number of
Suppliers
|
|
|
2012
|
|
|
41
|
%
|
|
|
14
|
|
|
2011
|
|
|
40
|
%
|
|
|
11
|
|
|
2010
|
|
|
34
|
%
|
|
|
8
|
|
We have long-term contracts or arrangements with most of our suppliers to guarantee
the availability of raw materials and component parts.
Labor Concentrations:
We had approximately 2,507 full-time associates of which
approximately 217 or 8.7 percent were represented by a labor union at July 1, 2012. The associates represented by a labor union account for all production associates at our Milwaukee facility. The current contract with the unionized associates
is effective through June 29, 2014.
Revenue Recognition:
Revenue is recognized upon the shipment of products, which is
when title passes, payment terms are final, we have no remaining obligations and the customer is required to pay. Revenue is recognized net of estimated returns and discounts, which is recognized as a deduction from revenue at the time of the
shipment.
Research and Development Costs:
Expenditures relating to the
development of new products and processes, including significant improvements and refinements to existing products, are expensed as incurred. Research and development expenditures were approximately $1.2 million in 2012, $1.5 million in 2011, and
$900,000 in 2010.
Other Income, Net:
Net other income included in the accompanying Consolidated
Statements of Operations and Comprehensive (Loss) Income primarily includes foreign currency transaction gains and losses, realized and unrealized gains and losses on Mexican peso option contracts and Rabbi Trust gains. Foreign currency transaction
gains and losses are the result of foreign currency transactions entered into by our Mexican subsidiaries and fluctuations in foreign currency cash balances. We entered into the Mexican peso currency option contracts to minimize earnings volatility
resulting from changes in exchange rates affecting the U.S. dollar cost of our Mexican operations. The Rabbi Trust funds our supplemental executive retirement plan. The investments held in the Trust are considered trading securities. The impact of
these items for the periods presented is as follows (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
June 27, 2010
|
|
|
Foreign currency transaction gain (loss)
|
|
$
|
1,369
|
|
|
$
|
(836
|
)
|
|
$
|
(283
|
)
|
|
Rabbi Trust gain
|
|
|
24
|
|
|
|
384
|
|
|
|
431
|
|
|
Unrealized (loss) gain on Mexican peso option contracts
|
|
|
(640
|
)
|
|
|
245
|
|
|
|
—
|
|
|
Realized (loss) gain on Mexican peso option contracts
|
|
|
(420
|
)
|
|
|
33
|
|
|
|
—
|
|
|
Other
|
|
|
249
|
|
|
|
394
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
582
|
|
|
$
|
220
|
|
|
$
|
312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
35
|
NOTES TO FINANCIAL STATEMENTS
Self Insurance Plans:
We have self-insured medical and dental plans covering all
eligible U.S. associates. The claims handling process for the self-insured plans are managed by a third party administrator. Stop-loss insurance coverage limits our liability on a per individual per calendar year basis. The per individual per
calendar year stop-loss limit was $150,000 in each calendar year 2009 through 2012. Prior to January 1, 2011, each covered individual could receive up to $2 million in total benefits during his or her lifetime. Effective January 1, 2011,
under Health Care Reform, there is no lifetime maximum for overall benefits.
The expected ultimate cost for claims incurred
under the self-insured medical and dental plans as of the balance sheet date is not discounted and is recognized as an expense. The expected ultimate cost of claims is estimated based upon the aggregate liability for reported claims and an estimated
liability for claims incurred but not reported, which is based on analysis of historical data, current trends and information available from the insurance carrier. The expected ultimate cost for claims incurred under the self-insured medical and
dental plans that has not been paid as of the balance sheet date is included in the accrued payroll and benefits liabilities amount in our accompanying Consolidated Balance Sheets.
Changes in the balance sheet amounts for self-insured plans are as follows (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
Beginning
of Year
|
|
|
Provision
Charged to
Expense
|
|
|
Payments
|
|
|
Balance,
End of
Year
|
|
|
Year ended July 1, 2012
|
|
$
|
320
|
|
|
$
|
4,148
|
|
|
$
|
4,148
|
|
|
$
|
320
|
|
|
Year ended July 3, 2011
|
|
$
|
320
|
|
|
$
|
3,077
|
|
|
$
|
3,077
|
|
|
$
|
320
|
|
|
Year ended June 27, 2010
|
|
$
|
300
|
|
|
$
|
3,041
|
|
|
$
|
3,021
|
|
|
$
|
320
|
|
Warranty Reserve:
We have a warranty liability recorded related to our exposure to
warranty claims in the event our products fail to perform as expected, and we may be required to participate in the repair costs incurred by our customers for such products. The recorded warranty liability balance involves judgment and estimates.
Our liability estimate is based on an analysis of historical warranty data as well as current trends and information, including our customers’ recent extension of their warranty programs. Recently, our largest customers have extended their
warranty protection for their vehicles and have since demanded higher warranty cost sharing arrangements from their suppliers, including STRATTEC. As a result of these actions, during 2012, 2011 and 2010 we increased our provision to cover these
exposures. Moreover, in 2011, the warranty provision was increased by $1.15 million as a result of our share of the cost associated with a customer’s specific warranty claim involving our product. As of July 1, 2012, $205,000 of the $1.15
million has been paid and the remaining balance of $895,000 remains accrued.
Changes in the warranty reserve are as follows (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
Beginning
of Year
|
|
|
Provision
Charged to
Expense
|
|
|
Payments
|
|
|
Balance,
End of
Year
|
|
|
Year ended July 1, 2012
|
|
$
|
3,856
|
|
|
$
|
2,050
|
|
|
$
|
948
|
|
|
$
|
4,958
|
|
|
Year ended July 3, 2011
|
|
$
|
1,718
|
|
|
$
|
2,807
|
|
|
$
|
669
|
|
|
$
|
3,856
|
|
|
Year ended June 27, 2010
|
|
$
|
221
|
|
|
$
|
2,560
|
|
|
$
|
1,063
|
|
|
$
|
1,718
|
|
Foreign Currency Translation:
The financial statements
of our foreign subsidiaries and equity investees are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and the average exchange rate for each applicable period for sales, costs and expenses.
Foreign currency translation adjustments are included as a component of other accumulated comprehensive loss. Foreign currency transaction gains and losses are included in other income, net in the accompanying Consolidated Statement of Operations
and Comprehensive (Loss) Income.
Accumulated Other Comprehensive Loss:
Accumulated other comprehensive loss
is comprised of the following (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
June 27, 2010
|
|
|
Unrecognized pension and postretirement benefit liabilities, net of tax
|
|
$
|
31,762
|
|
|
$
|
19,772
|
|
|
$
|
28,222
|
|
|
Foreign currency translation
|
|
|
3,995
|
|
|
|
1,978
|
|
|
|
3,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,757
|
|
|
$
|
21,750
|
|
|
$
|
31,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes have not been provided for the foreign currency translation adjustments.
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
36
|
NOTES TO FINANCIAL STATEMENTS
Accounting For Stock-Based Compensation:
We
maintain an omnibus stock incentive plan. This plan provides for the granting of stock options, shares of restricted stock and stock appreciation rights. The Board of Directors has designated 1,700,000 shares of common stock available for the grant
of awards under the plan. Remaining shares available to be granted under the plan as of July 1, 2012 were 170,743. Awards that expire or are cancelled without delivery of shares become available for re-issuance under the plan. We issue new
shares of common stock to satisfy stock option exercises.
Nonqualified and incentive stock options and shares of restricted
stock have been granted to our officers, outside directors and specified associates under the stock incentive plan. Stock options granted under the plan may not be issued with an exercise price less than the fair market value of the common stock on
the date the option is granted. Stock options become exercisable as determined at the date of grant by the Compensation Committee of our Board of Directors. The options expire 5 to 10 years after the grant date unless an earlier expiration date is
set at the time of grant. The options vest 1 to 4 years after the date of grant. Shares of restricted stock granted under the plan are subject to vesting criteria determined by the Compensation Committee of our Board of Directors at the time the
shares are granted and have a minimum vesting period of three years from the date of grant. Restricted shares granted have voting and dividend rights, regardless of whether the shares are vested or unvested. The restricted stock grants issued to
date vest 3 years after the date of grant.
The fair value of each stock option grant was estimated as of the date of grant
using the Black-Scholes pricing model. The resulting compensation cost for fixed awards with graded vesting schedules is amortized on a straight-line basis over the vesting period for the entire award. The expected term of awards granted is
determined based on historical experience with similar awards, giving consideration to the contractual terms and vesting schedules. The expected volatility is determined based on our historical stock prices over the most recent period commensurate
with the expected term of the award. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term commensurate with the expected term of the award. Expected pre-vesting option forfeitures are based primarily on
historical data. The fair value of each restricted stock grant was based on the market price of the underlying common stock as of the date of grant. The resulting compensation cost is amortized on a straight line basis over the vesting period. We
record stock based compensation only for those awards that are expected to vest.
As of July 1, 2012, there was $695,000
of total unrecognized compensation cost related to stock options granted under the plan. This cost is expected to be recognized over a weighted average period of 10 months. As of July 1, 2012, there was $466,000 of total unrecognized
compensation cost related to unvested restricted stock grants outstanding under the plan. This cost is expected to be recognized over a weighted average period of 11 months. Total unrecognized compensation cost will be adjusted for any future
changes in estimated and actual forfeitures.
Cash received from option exercises was $28,000 in 2012 and 2011. The related income tax benefit was $9,000 in 2012
and $18,000 in 2011, respectively.
The intrinsic value of stock options exercised and the fair value of stock options vested
are as follows (in thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
June 27, 2010
|
|
|
Intrinsic value of options exercised
|
|
$
|
26
|
|
|
$
|
44
|
|
|
$
|
35
|
|
|
Fair value of stock options vested
|
|
$
|
268
|
|
|
$
|
293
|
|
|
$
|
114
|
|
The grant date fair values and assumptions used to determine compensation expense in 2012, 2011 and 2010 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Granted During
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
Weighted average grant date fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options issued at grant date market value
|
|
|
n/a
|
|
|
|
n/a
|
|
|
$
|
8.95
|
|
|
Options issued above grant date market value
|
|
$
|
10.29
|
|
|
$
|
7.48
|
|
|
|
n/a
|
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk free interest rates
|
|
|
1.23
|
%
|
|
|
1.08
|
%
|
|
|
3.14
|
%
|
|
Expected volatility
|
|
|
59.88
|
%
|
|
|
59.89
|
%
|
|
|
49.73
|
%
|
|
Expected dividend yield
|
|
|
1.74
|
%
|
|
|
1.54
|
%
|
|
|
—
|
|
|
Expected term (in years)
|
|
|
6.0
|
|
|
|
4.0
|
|
|
|
6.0
|
|
No dividends were assumed in the grant date fair value calculations in 2010 as we did not intend to pay cash dividends
on our common stock as of the grant date.
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
37
|
NOTES TO FINANCIAL STATEMENTS
The range of options outstanding as of July 1, 2012 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Options
Outstanding/Exercisable
|
|
Weighted Average Exercise
Price Outstanding/Exercisable
|
|
|
Weighted Average Remaining
Contractual
Life Outstanding
(In Years)
|
|
|
$10.92-$26.53
|
|
244,800/104,700
|
|
$
|
17.93/$14.33
|
|
|
|
6.7
|
|
|
$44.93-$63.25
|
|
88,000/88,000
|
|
$
|
56.72/$56.72
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28.19/$33.69
|
|
|
|
|
|
INVESTMENT IN JOINT VENTURES
We participate in certain Alliance Agreements with WITTE Automotive (“WITTE”) and ADAC Automotive
(“ADAC”). WITTE, of Velbert, Germany, is a privately held automotive supplier. WITTE designs, manufactures and markets automotive components, including locks and keys, hood latches, rear compartment latches, seat back latches, door handles
and specialty fasteners. WITTE’s primary market for these products has been Europe. ADAC, of Grand Rapids, Michigan, is a privately held automotive supplier and manufactures engineered products, including door handles and other automotive trim
parts, utilizing plastic injection molding, automated painting and various assembly processes.
The Alliance agreements
include a set of cross-licensing agreements for the manufacture, distribution and sale of WITTE products by STRATTEC and ADAC in North America, and the manufacture, distribution and sale of STRATTEC and ADAC products by WITTE in Europe.
Additionally, a joint venture company, Vehicle Access Systems Technology LLC (“VAST LLC”), in which WITTE, STRATTEC and ADAC each hold a one-third interest, exists to seek opportunities to manufacture and sell the companies’ products
in areas of the world outside of North America and Europe.
VAST do Brasil, a joint venture between VAST LLC and Ifer do
Brasil Ltda., services customers in South America. VAST Fuzhou, VAST Great Shanghai and VAST China Co. (collectively known as VAST China), provide a base of operations to service our automotive customers in the Asian market. Effective
November 20, 2009, VAST LLC purchased the 40 percent non-controlling interest owned by its former partners in the joint ventures in China. VAST LLC also maintains branch offices in South Korea and Japan in support of customer sales and
engineering requirements.
The VAST LLC investments are accounted for using the equity method of accounting. The activities
related to the VAST LLC joint ventures resulted in equity loss of joint ventures to STRATTEC of approximately $1.1 million during 2012, and equity earnings of joint ventures to STRATTEC of approximately $1.2 million during 2011 and $1.0 million
during 2010. During 2012 our joint ventures in China and Brazil both incurred relocation costs associated with moves to new facilities and start-up costs associated with a new product line. Both of these items resulted in STRATTEC incurring an
equity loss from joint ventures in 2012 compared to 2011 in which STRATTEC had equity earnings from joint ventures. We anticipate these transition costs and related losses to continue during our 2013 fiscal year relating to our VAST China
operations. In addition, the 2012 equity loss also included a goodwill impairment charge relating to VAST China. STRATTEC’s portion amounted to $284,000. During 2012, cash capital contributions totaling $600,000 were made to VAST LLC in support
of general operating expenses. STRATTEC’s portion of the cash capital contributions totaled $200,000. During 2011, cash capital contributions totaling $1,350,000 were made to VAST LLC in support of general operating expenses. STRATTEC’s
portion of the cash capital contributions totaled $450,000.
In fiscal year 2007, we entered into a joint venture with ADAC
forming ADAC-STRATTEC LLC, a Delaware limited liability company. The joint venture was created to establish injection molding and door handle assembly operations in Mexico. STRATTEC originally held a 50.1 percent interest in ADAC-STRATTEC LLC.
Effective June 28, 2010, STRATTEC purchased an additional .9 percent interest from ADAC and now owns 51 percent. A Mexican entity, ADAC-STRATTEC de Mexico, exists and is wholly owned by ADAC-STRATTEC LLC. ADAC-STRATTEC LLC’s financial
results are consolidated with the financial results of STRATTEC and resulted in increased net income to STRATTEC of approximately $1.7 million in 2012, approximately $910,000 in 2011, and approximately $114,000 in 2010.
Effective November 30, 2008, STRATTEC established a new entity, STRATTEC POWER ACCESS LLC (“SPA”), which is 80 percent
owned by STRATTEC and 20 percent owned by WITTE. SPA operates the North American portion of the Power Products business which was acquired from Delphi Corporation. The financial results of SPA are consolidated with the financial results of STRATTEC
and resulted in increased net income to STRATTEC of approximately $2.6 million in 2012, approximately $2.5 million in 2011, and approximately $545,000 in 2010.
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
38
|
NOTES TO FINANCIAL STATEMENTS
EQUITY (LOSS) EARNINGS OF JOINT VENTURE
As discussed under Investment in Joint Ventures, we hold a one-third interest in VAST LLC, for which we exercise
significant influence but do not control and are not the primary beneficiary. Our investment in VAST LLC is accounted for using the equity method. The following are summarized statements of operations and summarized balance sheet data for VAST LLC
(thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
June 27, 2010
|
|
|
Net sales
|
|
$
|
76,373
|
|
|
$
|
78,002
|
|
|
$
|
67,711
|
|
|
Cost of goods sold
|
|
|
65,211
|
|
|
|
63,286
|
|
|
|
53,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
11,162
|
|
|
|
14,716
|
|
|
|
13,867
|
|
|
Engineering, selling and administrative expense
|
|
|
14,930
|
|
|
|
9,527
|
|
|
|
8,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(3,768
|
)
|
|
|
5,189
|
|
|
|
5,192
|
|
|
Other income (expense), net
|
|
|
246
|
|
|
|
(247
|
)
|
|
|
(620
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before provision for Income taxes
|
|
|
(3,522
|
)
|
|
|
4,942
|
|
|
|
4,572
|
|
|
(Benefit) provision for income taxes
|
|
|
(297
|
)
|
|
|
1,202
|
|
|
|
1,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(3,225
|
)
|
|
|
3,740
|
|
|
|
3,537
|
|
|
Net income attributable to non-controlling interest
|
|
|
—
|
|
|
|
—
|
|
|
|
(537
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to VAST LLC
|
|
$
|
(3,225
|
)
|
|
$
|
3,740
|
|
|
$
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STRATTEC’s share of VAST LLC net (loss) income
|
|
$
|
(1,075
|
)
|
|
$
|
1,247
|
|
|
$
|
1,000
|
|
|
Intercompany profit eliminations
|
|
|
4
|
|
|
|
(1
|
)
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STRATTEC’s equity (loss) earnings of joint ventures
|
|
$
|
(1,071
|
)
|
|
$
|
1,246
|
|
|
$
|
1,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
Cash and cash equivalents
|
|
$
|
5,622
|
|
|
$
|
6,658
|
|
|
Receivables, net
|
|
|
16,025
|
|
|
|
15,267
|
|
|
Inventories, net
|
|
|
17,756
|
|
|
|
13,084
|
|
|
Other current assets
|
|
|
10,207
|
|
|
|
7,153
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
49,610
|
|
|
|
42,162
|
|
|
Property, plant and equipment, net
|
|
|
20,753
|
|
|
|
13,278
|
|
|
Other long-term assets
|
|
|
3,585
|
|
|
|
3,136
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
73,948
|
|
|
$
|
58,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
37,843
|
|
|
$
|
35,802
|
|
|
Long-term liabilities
|
|
|
11,381
|
|
|
|
626
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
49,224
|
|
|
$
|
36,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets
|
|
$
|
24,724
|
|
|
$
|
22,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STRATTEC’s share of net assets
|
|
$
|
8,241
|
|
|
$
|
7,383
|
|
|
|
|
|
|
|
|
|
|
|
LOANS TO/FROM RELATED PARTIES
Effective November 30, 2009, VAST LLC purchased the 40 percent non-controlling interest owned by its former
partners in the joint ventures in China. Initially, a loan of $2.5 million was made to VAST LLC by each partner, STRATTEC, WITTE and ADAC, to fund a portion of the purchase price. In December 2009, $1 million of each partner’s loan balance was
repaid. During 2012, each partner’s outstanding principal and accrued interest balance of $1.5 million and $112,000, respectively, were terminated and converted to additional capital contributions by each partner in VAST LLC.
At July 3, 2011, loans from related parties (ADAC and WITTE) totaled $1.9 million and consisted of loans to ADAC-STRATTEC LLC and
STRATTEC POWER ACCESS LLC to fund working capital requirements of these entities. All related party loans were repaid during fiscal 2012. Working capital loans to these entities were made by each partner based on each partner’s ownership
percentage in the entity. The weighted average interest rate on these loans was approximately 7.6 percent in 2012 and 7.3 percent in 2011.
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
39
|
NOTES TO FINANCIAL STATEMENTS
CREDIT FACILITIES AND GUARANTEES
As of July 1, 2012, STRATTEC had a $25 million secured revolving credit facility (the “STRATTEC Credit
Facility”) with BMO Harris Bank N.A. The STRATTEC Credit Facility expires August 1, 2014. As of July 1, 2012, ADAC-STRATTEC LLC had a $5 million secured revolving credit facility (the “ADAC-STRATTEC Credit Facility”) with
BMO Harris Bank N.A, which is guaranteed by STRATTEC. The ADAC-STRATTEC Credit Facility expires June 28, 2015. Any borrowings under the credit facilities will be secured by our U.S. cash balances, accounts receivable, inventory and property.
Interest on borrowings under these credit facilities is at varying rates based, at our option, on the London Interbank Offering Rate plus 1.0 to 1.75 percent or the bank’s prime rate. Both credit facilities contain a restrictive financial
covenant that requires the maintenance of a minimum net worth level. The ADAC-STRATTEC credit facility includes an additional restrictive financial covenant that requires the maintenance of a minimum level for its fixed charge coverage ratio. There
were no outstanding borrowings under either Credit Facility at July 1, 2012 or July 3, 2011. There were no borrowings under any third party debt facilities during 2012, 2011 or 2010. We believe that the credit facilities are adequate,
along with existing cash balances and cash flow from operations, to meet our anticipated capital expenditure, working capital, dividend and operating expenditure requirements.
COMMITMENTS AND CONTINGENCIES
In 1995, we recorded a provision of $3 million for estimated costs to remediate an environmental contamination site at
our Milwaukee facility. The site was contaminated by a solvent spill, which occurred in 1985, from a former above ground solvent storage tank located on the east side of the facility. The reserve was originally established based on third party
estimates to adequately cover the cost for active remediation of the contamination. Due to changing technology and related costs associated with active remediation of the contamination, an updated analysis and estimate was obtained during fiscal
2010. As a result of this analysis, the reserve was reduced by approximately $1.1 million, to $1.5 million in 2010, to reflect the revised monitoring and remediation cost estimate. From 1995 through July 1, 2012, costs of approximately $440,000
have been incurred related to the installation of monitoring wells on the property and ongoing monitoring costs. We continue to monitor and evaluate the site with the use of groundwater monitoring wells that are installed on the property. An
environmental consultant samples these wells one or two times a year to determine the status of the contamination and the potential for remediation of the contamination by natural attenuation, the dissipation of the contamination over time to
concentrations below applicable standards. If such sampling evidences a sufficient degree of and trend toward natural attenuation of the contamination, we may be able to obtain a closure letter from the regulatory authorities resolving the issue
without the need for active remediation. If a sufficient degree and trend toward natural attenuation is not evidenced by sampling, a more active form of remediation beyond natural attenuation may be required. The sampling has not yet satisfied all
of the requirements for closure by natural attenuation. As a result, sampling continues and the reserve remains at an amount to reflect the estimated cost of active remediation. The reserve is not measured on a discounted basis. We believe, based on
findings-to-date and known environmental regulations, that the environmental reserve of $1.4 million at July 1, 2012, is adequate.
At July 1, 2012, we had purchase commitments for zinc, aluminum, other purchased parts and natural gas totaling approximately $10.3 million payable in 2013, $9.8 million payable in 2014, $6.5 million
payable in 2015 and $706,000 payable in 2016. Minimum rental commitments under all non-cancelable operating leases with a term in excess of one year are payable as follows: 2013-$552,000; 2014-$527,000; 2015-$303,000. Rental expense under all
non-cancelable operating leases totaled approximately $723,000 in 2012, $783,000 in 2011 and $553,000 in 2010.
INCOME TAXES
The provision (benefit) for income taxes consists of the following (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
Currently payable (refundable):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
2,116
|
|
|
$
|
1,181
|
|
|
$
|
(2,745
|
)
|
|
State
|
|
|
219
|
|
|
|
167
|
|
|
|
230
|
|
|
Foreign
|
|
|
1,200
|
|
|
|
1,369
|
|
|
|
753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,535
|
|
|
|
2,717
|
|
|
|
(1,762
|
)
|
|
Deferred tax provision (benefit)
|
|
|
54
|
|
|
|
(177
|
)
|
|
|
3,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,589
|
|
|
$
|
2,540
|
|
|
$
|
1,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
40
|
NOTES TO FINANCIAL STATEMENTS
The items accounting for the difference between income taxes computed at the Federal
statutory tax rate and the provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
U.S. statutory rate
|
|
|
34.1
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
State taxes, net of Federal tax benefit
|
|
|
(.1
|
)
|
|
|
0.4
|
|
|
|
4.1
|
|
|
Foreign subsidiaries
|
|
|
(3.7
|
)
|
|
|
(1.9
|
)
|
|
|
(4.1
|
)
|
|
Non-controlling interest
|
|
|
(7.3
|
)
|
|
|
(7.2
|
)
|
|
|
(3.5
|
)
|
|
Valuation allowance
|
|
|
—
|
|
|
|
0.5
|
|
|
|
2.8
|
|
|
Other
|
|
|
(0.3
|
)
|
|
|
(0.7
|
)
|
|
|
(3.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22.7
|
%
|
|
|
25.1
|
%
|
|
|
29.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of deferred tax assets and (liabilities) are as follows (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
Deferred income taxes-current:
|
|
|
|
|
|
|
|
|
|
Repair and maintenance supply parts reserve
|
|
$
|
190
|
|
|
$
|
264
|
|
|
Payroll-related accruals
|
|
|
1,589
|
|
|
|
1,504
|
|
|
Environmental reserve
|
|
|
546
|
|
|
|
562
|
|
|
Inventory Reserve
|
|
|
437
|
|
|
|
401
|
|
|
Allowance for Doubtful Accounts
|
|
|
190
|
|
|
|
152
|
|
|
Accrued Warranty
|
|
|
1,663
|
|
|
|
1,169
|
|
|
Method change for inventory valuation
|
|
|
—
|
|
|
|
(460
|
)
|
|
Other
|
|
|
781
|
|
|
|
588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,396
|
|
|
|
4,180
|
|
|
Valuation allowance
|
|
|
(177
|
)
|
|
|
(154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,219
|
|
|
$
|
4,026
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes-noncurrent:
|
|
|
|
|
|
|
|
|
|
Accrued pension obligations
|
|
$
|
(9,482
|
)
|
|
$
|
(9,080
|
)
|
|
Unrecognized pension and postretirement benefit plan liabilities
|
|
|
19,467
|
|
|
|
12,118
|
|
|
Accumulated depreciation
|
|
|
(3,023
|
)
|
|
|
(1,968
|
)
|
|
Stock-based compensation
|
|
|
842
|
|
|
|
693
|
|
|
Postretirement obligations
|
|
|
728
|
|
|
|
1,153
|
|
|
NOL/credit carry-forwards
|
|
|
153
|
|
|
|
216
|
|
|
Other
|
|
|
1,057
|
|
|
|
562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,742
|
|
|
|
3,694
|
|
|
Valuation allowance
|
|
|
—
|
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,742
|
|
|
$
|
3,639
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and
liabilities and their tax basis and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered.
State operating loss and credit carry-forwards at July 1, 2012 result in future benefits of approximately $196,000. These operating loss carry-forwards expire starting 2013 through 2024. A valuation
allowance of $177,000 has been recorded as of July 1, 2012 due to our assessment of the future realization of certain state operating loss carry-forwards and capital loss carry-forward benefits. Due to the change in certain state tax laws,
existing state loss carry-forwards will not be able to be utilized after the date of the tax law change. We do not currently anticipate having sufficient future capital gains to offset the capital losses. We believe that it is more likely than not
that the results of future operations will generate sufficient taxable income and foreign source income to realize the remaining deferred tax assets.
Foreign income before the provision for income taxes was $5.3 million in 2012, $3.6 million in 2011 and $2.9 million in 2010. No provision for Federal income taxes was made on earnings of foreign
subsidiaries and joint ventures that are considered permanently invested or that would be offset by foreign tax credits upon distribution. Such undistributed earnings at July 1, 2012 were approximately $8.7 million.
The total liability for unrecognized tax benefits was $1.7 million as of July 1, 2012 and July 3, 2011. This liability includes
approximately $1.5 million of unrecognized tax benefits at July 1, 2012 and $1.5 million at July 3, 2011 and approximately $187,000 of accrued interest at July 1, 2012 and $151,000 at July 3, 2011. This liability does not include
an amount for accrued penalties. The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was approximately $1.2 million at July 1, 2012 and $1.1 million at July 3, 2011. We recognize interest and
penalties related to unrecognized tax benefits in the provision for income taxes.
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
41
|
NOTES TO FINANCIAL STATEMENTS
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as
follows for the years ended July 1, 2012 and July 3, 2011 (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
Unrecognized tax benefits, beginning of year
|
|
$
|
1,500
|
|
|
$
|
1,125
|
|
|
Gross increases—tax positions in prior years
|
|
|
—
|
|
|
|
26
|
|
|
Gross decreases—tax positions in prior years
|
|
|
(2
|
)
|
|
|
—
|
|
|
Gross increases—current period tax positions
|
|
|
43
|
|
|
|
349
|
|
|
Tax Years Closed
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits, end of year
|
|
$
|
1,541
|
|
|
$
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
We or one of our subsidiaries files income tax returns in the United States (Federal), Wisconsin (state), Michigan
(state) and various other states, Mexico and other foreign jurisdictions. Tax years open to examination by tax authorities under the statute of limitations include fiscal 2006 through 2012 for Federal, fiscal 2008 through 2012 for most states and
calendar 2007 through 2011 for foreign jurisdictions. It is reasonably possible that certain unrecognized tax benefits may either be settled with taxing authorities or the statutes of limitations for these unrecognized tax benefits may lapse within
the next 12 months, causing our gross unrecognized tax benefits to decrease by a range of zero to $616,000. Over the next 12 months, we anticipate taking uncertain tax positions on various tax returns for which the related tax benefit does not meet
the recognition threshold. Accordingly, our gross unrecognized tax benefits may increase by a range of zero to $350,000 over the next 12 months for uncertain tax positions expected to be taken in future tax filings.
RETIREMENT PLANS AND POSTRETIREMENT COSTS
We have a qualified, noncontributory defined benefit pension plan covering substantially all U.S. associates. Benefits
are based on years of service and final average compensation. Our policy is to fund at least the minimum actuarially computed annual contribution required under the Employee Retirement Income Security Act of 1974 (ERISA). Plan assets consist
primarily of listed equity and fixed income securities. Effective January 1, 2010, an amendment to the qualified defined benefit pension plan discontinued the benefit accruals for salary increases and credited service rendered after
December 31, 2009. As a result of this action, a curtailment loss related to unrecognized prior service cost of $505,000 was recorded during 2010, of which approximately $375,000 increased cost of goods sold and approximately $130,000 increased
engineering, selling and administrative expenses.
We have a noncontributory supplemental executive retirement plan
(“SERP”), which is a nonqualified defined benefit plan. The SERP will pay supplemental pension benefits to certain key associates upon retirement based upon the associates’ years of service and compensation. The SERP is being funded
through a Rabbi Trust with M&I Trust Company. The trust assets had a value of $4.4 million at July 1, 2012 and $4.3 million at July 3, 2011. The Rabbi Trust assets are included in other current assets in the accompanying Consolidated
Balance Sheets. The projected benefit obligation was $7.2 million at July 1, 2012 and $4.7 million at July 3, 2011. The SERP liabilities are included in the pension tables below. However, the trust assets are excluded from the table as
they do not qualify as plan assets.
We also sponsor a postretirement health care plan for all U.S. associates hired prior to
June 1, 2001. The expected cost of retiree health care benefits is recognized during the years the associates who are covered under the plan render service. Effective January 1, 2010, an amendment to the postretirement health care plan
limited the benefit for future eligible retirees to $4,000 per plan year and is subject to a maximum five year coverage period based on the associate’s retirement date and age. The postretirement health care plan is unfunded.
Amounts included in accumulated other comprehensive loss, net of tax, at July 1, 2012, which have not yet been recognized in net
periodic benefit cost are as follows (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and SERP Benefits
|
|
|
Postretirement Benefits
|
|
|
Prior service cost (credit)
|
|
$
|
44
|
|
|
$
|
(3,136
|
)
|
|
Net actuarial loss
|
|
|
30,132
|
|
|
|
4,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,176
|
|
|
$
|
1,586
|
|
|
|
|
|
|
|
|
|
|
|
Included in accumulated other comprehensive loss at July 1, 2012 are prior service costs of $12,000 ($7,000 net of
tax) and unrecognized net actuarial losses of $4.5 million ($2.8 million net of tax) which are expected to be recognized in pension and SERP net periodic benefit cost during fiscal 2013.
Included in accumulated other comprehensive loss at July 1, 2012 are prior service credits of $764,000 ($474,000 net of tax) and
unrecognized net actuarial losses of $898,000 ($557,000 net of tax) which are expected to be recognized in postretirement net periodic benefit cost during fiscal 2013.
The following tables summarize the pension, SERP and postretirement plans’ income and expense, funded status and actuarial assumptions for the years indicated (thousands of dollars). We use a
June 30 measurement date for our pension and postretirement plans.
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
42
|
NOTES TO FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and SERP Benefits
|
|
|
Postretirement Benefits
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
COMPONENTS OF NET PERIODIC BENEFIT COST:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
150
|
|
|
$
|
70
|
|
|
$
|
1,006
|
|
|
$
|
11
|
|
|
$
|
10
|
|
|
$
|
124
|
|
|
Interest cost
|
|
|
4,784
|
|
|
|
4,692
|
|
|
|
5,047
|
|
|
|
227
|
|
|
|
275
|
|
|
|
701
|
|
|
Expected return on plan assets
|
|
|
(6,411
|
)
|
|
|
(6,445
|
)
|
|
|
(6,351
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Amortization of prior service cost (credit)
|
|
|
12
|
|
|
|
12
|
|
|
|
45
|
|
|
|
(764
|
)
|
|
|
(764
|
)
|
|
|
(388
|
)
|
|
Amortization of unrecognized net loss
|
|
|
2,414
|
|
|
|
2,504
|
|
|
|
727
|
|
|
|
673
|
|
|
|
645
|
|
|
|
685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
949
|
|
|
|
833
|
|
|
|
474
|
|
|
|
147
|
|
|
|
166
|
|
|
|
1,122
|
|
|
Curtailment loss
|
|
|
—
|
|
|
|
—
|
|
|
|
505
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net benefit cost
|
|
$
|
949
|
|
|
$
|
833
|
|
|
$
|
979
|
|
|
$
|
147
|
|
|
$
|
166
|
|
|
$
|
1,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and SERP Benefits
|
|
|
Postretirement Benefits
|
|
|
|
|
July 1,
2012
|
|
|
July 3,
2011
|
|
|
July 1,
2012
|
|
|
July 3,
2011
|
|
|
WEIGHTED-AVERAGE ASSUMPTIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.56
|
%
|
|
|
5.57
|
%
|
|
|
4.56
|
%
|
|
|
5.57
|
%
|
|
Expected return on plan assets
|
|
|
7.5
|
%
|
|
|
7.8
|
%
|
|
|
n/a
|
|
|
|
n/a
|
|
|
Rate of compensation increases—SERP
|
|
|
3.0
|
%
|
|
|
3.0
|
%
|
|
|
n/a
|
|
|
|
n/a
|
|
|
Net Periodic Benefit Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.57
|
%
|
|
|
5.41
|
%
|
|
|
5.57
|
%
|
|
|
5.41
|
%
|
|
Expected return on plan assets
|
|
|
7.8
|
%
|
|
|
8.0
|
%
|
|
|
n/a
|
|
|
|
n/a
|
|
|
Rate of compensation increases—SERP
|
|
|
3.0
|
%
|
|
|
3.0
|
%
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
CHANGE IN PROJECTED BENEFIT OBLIGATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
89,609
|
|
|
$
|
90,402
|
|
|
$
|
4,586
|
|
|
$
|
5,642
|
|
|
Service cost
|
|
|
150
|
|
|
|
70
|
|
|
|
11
|
|
|
|
10
|
|
|
Interest cost
|
|
|
4,784
|
|
|
|
4,692
|
|
|
|
227
|
|
|
|
275
|
|
|
Actuarial loss (gain)
|
|
|
12,663
|
|
|
|
(1,829
|
)
|
|
|
917
|
|
|
|
134
|
|
|
Benefits paid
|
|
|
(3,823
|
)
|
|
|
(3,726
|
)
|
|
|
(1,266
|
)
|
|
|
(1,475
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
103,383
|
|
|
$
|
89,609
|
|
|
$
|
4,475
|
|
|
$
|
4,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHANGE IN PLAN ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
83,023
|
|
|
$
|
68,768
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Actual return on plan assets
|
|
|
(1,683
|
)
|
|
|
15,981
|
|
|
|
—
|
|
|
|
—
|
|
|
Employer contribution
|
|
|
2,000
|
|
|
|
2,000
|
|
|
|
1,266
|
|
|
|
1,475
|
|
|
Benefits paid
|
|
|
(3,823
|
)
|
|
|
(3,726
|
)
|
|
|
(1,266
|
)
|
|
|
(1,475
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
79,517
|
|
|
|
83,023
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status-accrued benefit obligations
|
|
$
|
(23,866
|
)
|
|
$
|
(6,586
|
)
|
|
$
|
(4,475
|
)
|
|
$
|
(4,586
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMOUNTS RECOGNIZED IN CONSOLIDATED BALANCE SHEETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued payroll and benefits (current liabilities)
|
|
$
|
(5,664
|
)
|
|
$
|
(3,139
|
)
|
|
$
|
(1,010
|
)
|
|
$
|
(997
|
)
|
|
Accrued benefit obligations (long-term liabilities)
|
|
|
(18,202
|
)
|
|
|
(3,447
|
)
|
|
|
(3,465
|
)
|
|
|
(3,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(23,866
|
)
|
|
$
|
(6,586
|
)
|
|
$
|
(4,475
|
)
|
|
$
|
(4,586
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHANGES IN PLAN ASSETS AND BENEFIT OBLIGATIONS RECOGNIZED IN OTHER COMPREHENSIVE INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net benefit cost
|
|
$
|
949
|
|
|
$
|
833
|
|
|
$
|
147
|
|
|
$
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
|
|
20,756
|
|
|
|
(11,365
|
)
|
|
|
917
|
|
|
|
134
|
|
|
Amortization of prior service (cost) credits
|
|
|
(12
|
)
|
|
|
(12
|
)
|
|
|
764
|
|
|
|
764
|
|
|
Amortization of unrecognized net loss
|
|
|
(2,414
|
)
|
|
|
(2,504
|
)
|
|
|
(673
|
)
|
|
|
(645
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other comprehensive income, before tax
|
|
|
18,330
|
|
|
|
(13,881
|
)
|
|
|
1,008
|
|
|
|
253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit cost and other comprehensive income
|
|
$
|
19,279
|
|
|
$
|
(13,048
|
)
|
|
$
|
1,155
|
|
|
$
|
419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
43
|
NOTES TO FINANCIAL STATEMENTS
The pension benefits have a separately determined accumulated benefit obligation, which is
the actuarial present value of benefits based on service rendered and current and past compensation levels. This differs from the projected benefit obligation in that it includes no assumptions about future compensation levels. The following table
summarizes the accumulated benefit obligations and projected benefit obligations for the pension and SERP (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
SERP
|
|
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
Accumulated benefit obligation
|
|
$
|
96,167
|
|
|
$
|
84,902
|
|
|
$
|
6,629
|
|
|
$
|
4,158
|
|
|
Projected benefit obligation
|
|
$
|
96,167
|
|
|
$
|
84,902
|
|
|
$
|
7,216
|
|
|
$
|
4,707
|
|
For measurement purposes, an 8.5 percent annual rate increase in the per capita cost of covered health care benefits
was assumed for fiscal 2013; the rate was assumed to decrease gradually to 5 percent by the year 2018 and remain at that level thereafter relating to retirees prior to January 1, 2010.
The health care cost trend assumption has a significant effect on the postretirement benefit amounts reported. A 1% change in the health
care cost trend rates would have the following effects (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
1% Increase
|
|
|
1% Decrease
|
|
|
Effect on total of service and interest cost components in fiscal 2012
|
|
$
|
4
|
|
|
$
|
(4
|
)
|
|
Effect on postretirement benefit obligation as of July 1, 2012
|
|
$
|
85
|
|
|
$
|
(83
|
)
|
We employ a total return investment approach whereby a mix of equities and fixed income investments are used to
maximize the long-term return of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of short and long-term plan liabilities, plan funded status and corporate financial condition. The investment
portfolio primarily contains a diversified blend of equity and fixed income investments. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks, as well as growth and value style managers, and small, mid and large market
capitalizations. The investment portfolio does not include any real estate holdings, but has a small allocation to hedge funds. The investment policy of the plan prohibits investment in STRATTEC stock. Investment risk is measured and monitored on an
ongoing basis through periodic investment portfolio reviews, annual liability measurements and periodic asset/liability studies. The pension plan weighted-average asset allocations by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target Allocation
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
Equity investments
|
|
|
70
|
%
|
|
|
64
|
%
|
|
|
70
|
%
|
|
Fixed-income investments
|
|
|
30
|
%
|
|
|
32
|
%
|
|
|
26
|
%
|
|
Other
|
|
|
—
|
%
|
|
|
4
|
%
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary, by asset category, of the fair value of pension plan assets at the June 30, 2012 and
June 30, 2011 measurement date (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2012
|
|
|
June 30, 2011
|
|
|
Asset Catagory
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Cash and cash equivalents
|
|
$
|
3,411
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,411
|
|
|
$
|
630
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
630
|
|
|
Equity Securities/Funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Cap
|
|
|
10,707
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,707
|
|
|
|
13,770
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,770
|
|
|
Mid Cap
|
|
|
8,404
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,404
|
|
|
|
9,139
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,139
|
|
|
Large Cap
|
|
|
17,872
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,872
|
|
|
|
19,234
|
|
|
|
—
|
|
|
|
—
|
|
|
|
19,234
|
|
|
International
|
|
|
13,650
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,650
|
|
|
|
15,398
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,398
|
|
|
Taxable/Fixed Income Bond Funds
|
|
|
22,313
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22,313
|
|
|
|
21,157
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21,157
|
|
|
Hedge Funds
|
|
|
—
|
|
|
|
—
|
|
|
|
3,160
|
|
|
|
3,160
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,695
|
|
|
|
3,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
76,357
|
|
|
$
|
—
|
|
|
$
|
3,160
|
|
|
$
|
79,517
|
|
|
$
|
79,328
|
|
|
$
|
—
|
|
|
$
|
3,695
|
|
|
$
|
83,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the changes in Level 3 investments for the pension plan assets (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
June 30, 2011
|
|
|
Net Purchases
and Sales
|
|
|
Realized
and Unrealized
Gain (loss)
|
|
|
Fair Value
June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge Funds
|
|
$
|
3,695
|
|
|
$
|
0
|
|
|
$
|
(535
|
)
|
|
$
|
3,160
|
|
There were no transfers in or out of Level 3 investments during the year ended July 1, 2012.
The expected long-term rate of return on U.S. pension plan assets used to calculate the year-end 2012 projected benefit obligation was
7.5 percent. The target asset allocation is 70 percent public equity and 30 percent fixed income. The 7.5 percent is approximated by applying returns of 10 percent on public equity and 6 percent on fixed income to the target allocation. The actual
historical returns are also relevant. Annualized returns for periods ended June 30, 2012 were 1.28 percent for 5 years, 6.16 percent for 10 years, 5.72 percent for 15 years, 7.68 percent for 20 years, 7.75 percent for 25 years and 10.31 percent
for 30 years.
We expect to contribute approximately $2 million to our qualified pension plan, $5.7 million to our SERP and $1
million to our postretirement health care plan in fiscal 2013. The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (thousands of dollars):
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
44
|
NOTES TO FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and SERP Benefits
|
|
|
Postretirement Benefits
|
|
|
2013
|
|
$
|
9,860
|
|
|
$
|
1,010
|
|
|
2014
|
|
$
|
5,055
|
|
|
$
|
930
|
|
|
2015
|
|
$
|
5,577
|
|
|
$
|
836
|
|
|
2016
|
|
$
|
5,311
|
|
|
$
|
702
|
|
|
2017
|
|
$
|
5,522
|
|
|
$
|
557
|
|
|
2018–2022
|
|
$
|
31,756
|
|
|
$
|
1,271
|
|
All U.S. associates may participate in our 401(k) Plan. As of January 1, 2010, we contribute 100 percent up
to the first 5 percent of eligible compensation that a participant contributes to the plan. Prior to January 1, 2010, we contributed a fixed percentage up to the first 6 percent of eligible compensation that a participant contributed to the
plan. Prior to January 1, 2010, the fixed percentage contribution for all U.S. bargaining unit associates was 50 percent. The fixed percentage contribution for all U.S. salaried associates was 50 percent prior to January 1, 2009 and 20
percent from January 1, 2009 through December 31, 2009. Our contributions totaled approximately $1.4 million in 2012, $1.3 million in 2011 and $743,000 in 2010.
SHAREHOLDERS’ EQUITY
We have 12,000,000 shares of authorized common stock, par value $.01 per share, with 3,303,784 and 3,289,478 shares
outstanding at July 1, 2012 and July 3, 2011, respectively. Holders of our common stock are entitled to one vote for each share on all matters voted on by shareholders.
Our Board of Directors authorized a stock repurchase program to buy back up to 3,839,395 outstanding shares as of July 1, 2012. As
of July 1, 2012, 3,655,322 shares have been repurchased under this program at a cost of approximately $136.4 million.
EARNINGS PER SHARE (“EPS”)
Basic earnings per share is computed on the basis of the weighted average number of shares of common stock outstanding
during the period. Diluted earnings per share is computed on the basis of the weighted average number of shares of common stock plus the potential dilutive common shares outstanding during the period using the treasury stock method. Potential
dilutive common shares include outstanding stock options and restricted stock awards. A reconciliation of the components of the basic and diluted per share computations follows (in thousands, except per share amounts):
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
Net
Income
|
|
|
Shares
|
|
|
Per Share
Amount
|
|
|
Net
Income
|
|
|
Shares
|
|
|
Per Share
Amount
|
|
|
Net
Income
|
|
|
Shares
|
|
|
Per Share
Amount
|
|
|
Basic EPS
|
|
$
|
8,793
|
|
|
|
3,300
|
|
|
$
|
2.66
|
|
|
$
|
5,418
|
|
|
|
3,285
|
|
|
$
|
1.65
|
|
|
$
|
3,421
|
|
|
|
3,271
|
|
|
$
|
1.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
8,793
|
|
|
|
3,330
|
|
|
$
|
2.64
|
|
|
$
|
5,418
|
|
|
|
3,323
|
|
|
$
|
1.63
|
|
|
$
|
3,421
|
|
|
|
3,280
|
|
|
$
|
1.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 1, 2012, options to purchase 248,000 shares of common stock at a weighted-average exercise price of
$33.75 were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive. As of July 3, 2011, options to purchase 142,000 shares of common stock at a weighted-average exercise price of $43.57
were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive. As of June 27, 2010, options to purchase 207,650 shares of common stock at a weighted-average exercise price of $42.17 were
excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.
Net
earnings available to participating securities were not significant in any of the years presented. We consider restricted stock that provides the holder with a non-forfeitable right to receive dividends to be a participating security.
STOCK OPTION AND PURCHASE PLANS
A summary of stock option activity under our stock incentive plan is as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted Average
Remaining
Contractual Term (in years)
|
|
|
Aggregate
Intrinsic Value
(in thousands)
|
|
|
Balance at June 28, 2009
|
|
|
227,240
|
|
|
$
|
38.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
80,000
|
|
|
$
|
17.73
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,400
|
)
|
|
$
|
10.92
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(2,790
|
)
|
|
$
|
61.22
|
|
|
|
|
|
|
|
|
|
|
Terminated
|
|
|
(4,400
|
)
|
|
$
|
10.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 27, 2010
|
|
|
297,650
|
|
|
$
|
33.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
40,000
|
|
|
$
|
22.47
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,600
|
)
|
|
$
|
10.92
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(37,650
|
)
|
|
$
|
60.36
|
|
|
|
|
|
|
|
|
|
|
Terminated
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 3, 2011
|
|
|
297,400
|
|
|
$
|
28.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
40,000
|
|
|
$
|
26.53
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,600
|
)
|
|
$
|
10.92
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(2,000
|
)
|
|
$
|
37.58
|
|
|
|
|
|
|
|
|
|
|
Terminated
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 1, 2012
|
|
|
332,800
|
|
|
$
|
28.19
|
|
|
|
5.4
|
|
|
$
|
1,038
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2012
|
|
|
192,700
|
|
|
$
|
33.69
|
|
|
|
4.5
|
|
|
$
|
702
|
|
|
July 3, 2011
|
|
|
155,800
|
|
|
$
|
38.37
|
|
|
|
4.8
|
|
|
$
|
479
|
|
|
June 27, 2010
|
|
|
149,350
|
|
|
$
|
50.92
|
|
|
|
3.4
|
|
|
$
|
212
|
|
|
Available for grant as of July 1, 2012
|
|
|
170,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
45
|
NOTES TO FINANCIAL STATEMENTS
Options granted at a price greater than the market value on the date of grant included in
the table above totaled 40,000 at an exercise price of $26.53 in 2012 and 40,000 at an exercise price of $22.47 in 2011. No options included above were granted at a price greater than the market value on the date of grant during 2010.
A summary of restricted stock activity under our stock incentive plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Nonvested Balance at June 28, 2009
|
|
|
28,200
|
|
|
$
|
38.64
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
10,000
|
|
|
$
|
14.75
|
|
|
Vested
|
|
|
(9,000
|
)
|
|
$
|
40.00
|
|
|
Forfeited
|
|
|
(1,700
|
)
|
|
$
|
32.28
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested Balance at June 27, 2010
|
|
|
27,500
|
|
|
$
|
29.90
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
20,000
|
|
|
$
|
20.66
|
|
|
Vested
|
|
|
(8,600
|
)
|
|
$
|
47.78
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested Balance at July 3, 2011
|
|
|
38,900
|
|
|
$
|
21.19
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
20,000
|
|
|
$
|
23.01
|
|
|
Vested
|
|
|
(9,300
|
)
|
|
$
|
29.00
|
|
|
Forfeited
|
|
|
(200
|
)
|
|
$
|
23.01
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested Balance at July 1, 2012
|
|
|
49,400
|
|
|
$
|
20.45
|
|
|
|
|
|
|
|
|
|
|
|
We have an Employee Stock Purchase Plan to provide substantially all U.S. full-time associates an opportunity to
purchase shares of STRATTEC common stock through payroll deductions. A participant may contribute a maximum of $5,200 per calendar year to the plan. On the last day of each month, participant account balances are used to purchase shares of our
common stock at the average of the highest and lowest reported sales prices of a share of STRATTEC common stock on the NASDAQ Global Market. A total of 100,000 shares may be issued under the plan. Shares issued from treasury stock under the plan
totaled 2,406 at an average price of $22.17 during 2012, 2,323 at an average price of $26.78 during 2011 and 2,587 at an average price of $17.01 during 2010. A total of 73,351 shares are available for purchase under the plan as of July 1, 2012.
EXPORT SALES
Export sales are summarized below (thousands of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
Export Sales
|
|
$
|
102,022
|
|
|
$
|
103,232
|
|
|
$
|
79,144
|
|
|
Percent of Net Sales
|
|
|
37
|
%
|
|
|
40
|
%
|
|
|
38
|
%
|
These sales were primarily to automotive manufacturing assembly plants in Canada, China, Mexico and Korea.
SALES AND RECEIVABLE CONCENTRATION
Sales to our largest customers were as follows (thousands of dollars and percent of total net sales):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
|
|
Sales
|
|
|
%
|
|
|
Sales
|
|
|
%
|
|
|
Sales
|
|
|
%
|
|
|
General Motors Company
|
|
$
|
64,588
|
|
|
|
23
|
%
|
|
$
|
63,617
|
|
|
|
24
|
%
|
|
$
|
51,673
|
|
|
|
25
|
%
|
|
Ford Motor Company
|
|
|
33,854
|
|
|
|
12
|
%
|
|
|
26,930
|
|
|
|
10
|
%
|
|
|
18,435
|
|
|
|
9
|
%
|
|
Chrysler Group LLC
|
|
|
90,796
|
|
|
|
33
|
%
|
|
|
80,889
|
|
|
|
31
|
%
|
|
|
68,216
|
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
189,238
|
|
|
|
68
|
%
|
|
$
|
171,436
|
|
|
|
66
|
%
|
|
$
|
138,324
|
|
|
|
67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables from our largest customers were as follows (thousands of dollars and percent of gross receivables):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2012
|
|
|
July 3, 2011
|
|
|
|
Receivables
|
|
|
%
|
|
|
Receivables
|
|
|
%
|
|
|
General Motors Company
|
|
$
|
10,230
|
|
|
|
23
|
%
|
|
$
|
9,208
|
|
|
|
23
|
%
|
|
Ford Motor Company
|
|
|
5,738
|
|
|
|
13
|
%
|
|
|
4,372
|
|
|
|
11
|
%
|
|
Chrysler Group LLC
|
|
|
14,157
|
|
|
|
31
|
%
|
|
|
12,103
|
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,125
|
|
|
|
67
|
%
|
|
$
|
25,683
|
|
|
|
64
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
46
|
REPORTS
REPORT ON MANAGEMENT’S ASSESSMENT OF INTERNAL
CONTROL OVER FINANCIAL REPORTING
STRATTEC SECURITY CORPORATION is responsible for the preparation, integrity, and fair presentation of the consolidated
financial statements included in this annual report. The consolidated financial statements and notes included in this annual report have been prepared in conformity with accounting principles generally accepted in the United States of America and
necessarily include some amounts that are based on management’s best estimates and judgments.
We, as management of
STRATTEC SECURITY CORPORATION, are responsible for establishing and maintaining effective internal control over financial reporting that is designed to produce reliable financial statements in conformity with United States generally accepted
accounting principles. The system of internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by management and tested for reliability through a program of internal audits. Actions are taken
to correct potential deficiencies as they are identified. Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to
error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to
financial statement preparation.
The Audit Committee of the Company’s Board of Directors, consisting entirely of
independent directors, meets regularly with management and the independent registered public accounting firm, and reviews audit plans and results, as well as management’s actions taken in discharging responsibilities for accounting, financial
reporting, and internal control. Deloitte & Touche LLP, independent registered public accounting firm, has direct and confidential access to the Audit Committee at all times to discuss the results of their examinations.
Management assessed the Corporation’s system of internal control over financial reporting as of July 1, 2012, in relation to
criteria for effective internal control over financial reporting as described in “Internal Control – Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the
assessment, management concludes that, as of July 1, 2012, its system of internal control over financial reporting is effective and meets the criteria of the “Internal Control – Integrated Framework”. Deloitte & Touche
LLP, independent registered public accounting firm, has issued an attestation report on the Corporation’s internal control over financial reporting, which is included herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank J. Krejci
President
and
Chief Executive Officer
|
|
Patrick J. Hansen
Senior Vice
President and
Chief Financial Officer
|
|
|
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
47
|
REPORTS
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of STRATTEC SECURITY CORPORATION:
We have audited the internal control over financial reporting of STRATTEC SECURITY CORPORATION and subsidiaries (the “Company”) as of July 1, 2012, based on criteria established in
Internal Control
—
Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report on Management’s Assessment of Internal Control over Financial Reporting. Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s
principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors
of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to
future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 1,
2012, based on the criteria established in
Internal Control
—
Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated
financial statements as of and for the year ended July 1, 2012 of the Company and our report dated September 6, 2012 expressed an unqualified opinion on those consolidated financial statements.
Deloitte & Touche LLP
Milwaukee, Wisconsin
September 6, 2012
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
48
|
REPORTS
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of STRATTEC SECURITY CORPORATION:
We have audited the accompanying consolidated balance sheets of STRATTEC SECURITY CORPORATION and subsidiaries (the “Company”) as of July 1, 2012 and July 3, 2011, and the related
consolidated statements of operations and comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended July 1, 2012. These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of STRATTEC
SECURITY CORPORATION and subsidiaries as of July 1, 2012 and July 3, 2011, and the results of their operations and their cash flows for the three years in the period ended July 1, 2012, in conformity with accounting principles
generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of July 1, 2012, based on the criteria established in
Internal Control
—
Integrated Framework
issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 6, 2012 expressed an unqualified opinion on the Company’s internal control over financial reporting.
Deloitte & Touche LLP
Milwaukee, Wisconsin
September 6, 2012
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
49
|
FINANCIAL SUMMARY
FIVE-YEAR FINANCIAL SUMMARY
The financial data for each period presented
below reflects the consolidated results of STRATTEC SECURITY CORPORATION and its wholly owned subsidiaries. Fiscal years 2008 and 2009 have been retrospectively adjusted for the adoption of a new accounting standard issued by the Financial
Accounting Standards Board (FASB) related to non-controlling interests in consolidated financial statements. Fiscal year 2008 has been retrospectively adjusted for our change in 2009 from the last-in, first-out method of inventory accounting to the
first-in, first-out method. The information below should be read in conjunction with “Management’s Discussion and Analysis,” and the Financial Statements and Notes thereto included elsewhere herein. The following data are in thousands
of dollars except per share amounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
INCOME STATEMENT DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
279,234
|
|
|
$
|
260,933
|
|
|
$
|
207,964
|
|
|
$
|
126,097
|
|
|
$
|
159,642
|
|
|
Gross profit
|
|
|
50,263
|
|
|
|
42,163
|
|
|
|
33,042
|
|
|
|
13,240
|
|
|
|
24,767
|
|
|
Engineering, selling, and administrative expenses
|
|
|
33,804
|
|
|
|
33,443
|
|
|
|
29,939
|
|
|
|
25,480
|
|
|
|
23,962
|
|
|
Impairment charge
|
|
|
—
|
|
|
|
—
|
|
|
|
223
|
|
|
|
—
|
|
|
|
—
|
|
|
Environmental reserve adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,125
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Provision for (recovery of) doubtful accounts
|
|
|
116
|
|
|
|
—
|
|
|
|
(421
|
)
|
|
|
500
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
16,343
|
|
|
|
8,720
|
|
|
|
4,426
|
|
|
|
(12,740
|
)
|
|
|
805
|
|
|
Interest income
|
|
|
69
|
|
|
|
119
|
|
|
|
86
|
|
|
|
731
|
|
|
|
2,749
|
|
|
Equity (loss) earnings of joint ventures
|
|
|
(1,071
|
)
|
|
|
1,246
|
|
|
|
1,008
|
|
|
|
245
|
|
|
|
561
|
|
|
Interest expense—related parties
|
|
|
(81
|
)
|
|
|
(175
|
)
|
|
|
(225
|
)
|
|
|
(164
|
)
|
|
|
(31
|
)
|
|
Other income (expense), net
|
|
|
582
|
|
|
|
220
|
|
|
|
312
|
|
|
|
804
|
|
|
|
(300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes and non-controlling interest
|
|
|
15,842
|
|
|
|
10,130
|
|
|
|
5,607
|
|
|
|
(11,124
|
)
|
|
|
3,784
|
|
|
Provision (benefit) for income taxes
|
|
|
3,589
|
|
|
|
2,540
|
|
|
|
1,666
|
|
|
|
(4,222
|
)
|
|
|
977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
12,253
|
|
|
|
7,590
|
|
|
|
3,941
|
|
|
|
(6,902
|
)
|
|
|
2,807
|
|
|
Net income (loss) attributable to non-controlling interest
|
|
|
3,460
|
|
|
|
2,172
|
|
|
|
520
|
|
|
|
(780
|
)
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to STRATTEC SECURITY CORPORATION
|
|
$
|
8,793
|
|
|
$
|
5,418
|
|
|
$
|
3,421
|
|
|
$
|
(6,122
|
)
|
|
$
|
2,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.66
|
|
|
$
|
1.65
|
|
|
$
|
1.05
|
|
|
$
|
(1.87
|
)
|
|
$
|
0.80
|
|
|
Diluted
|
|
$
|
2.64
|
|
|
$
|
1.63
|
|
|
$
|
1.04
|
|
|
$
|
(1.86
|
)
|
|
$
|
0.80
|
|
|
Cash dividends declared per share:
|
|
$
|
0.40
|
|
|
$
|
1.20
|
|
|
$
|
—
|
|
|
$
|
0.30
|
|
|
$
|
1.60
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net working capital
|
|
$
|
44,318
|
|
|
$
|
43,414
|
|
|
$
|
43,777
|
|
|
$
|
41,710
|
|
|
$
|
72,835
|
|
|
Total assets
|
|
$
|
166,038
|
|
|
$
|
148,088
|
|
|
$
|
145,002
|
|
|
$
|
128,189
|
|
|
$
|
144,221
|
|
|
Long-term liabilities
|
|
$
|
21,667
|
|
|
$
|
7,036
|
|
|
$
|
22,982
|
|
|
$
|
24,784
|
|
|
$
|
12,389
|
|
|
Total STRATTEC SECURITY CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
$
|
80,552
|
|
|
$
|
86,215
|
|
|
$
|
74,126
|
|
|
$
|
71,418
|
|
|
$
|
97,940
|
|
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
50
|
FINANCIAL SUMMARY / PERFORMANCE GRAPH
QUARTERLY FINANCIAL DATA (UNAUDITED)
The following data are in thousands
of dollars except per share amounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
Attributable to
|
|
|
Earnings
Per
Share
|
|
|
Cash
Dividends
Declared
|
|
|
Market Price Per Share
|
|
|
|
|
Quarter
|
|
Net Sales
|
|
|
Gross Profit
|
|
|
STRATTEC
|
|
|
Basic
|
|
|
Diluted
|
|
|
Per Share
|
|
|
High
|
|
|
Low
|
|
|
2012
|
|
First
|
|
$
|
66,377
|
|
|
$
|
11,504
|
|
|
$
|
1,282
|
|
|
$
|
0.39
|
|
|
$
|
0.39
|
|
|
$
|
0.10
|
|
|
$
|
27.37
|
|
|
$
|
20.69
|
|
|
|
|
Second
|
|
|
65,886
|
|
|
|
11,240
|
|
|
|
1,548
|
|
|
|
0.47
|
|
|
|
0.47
|
|
|
|
0.10
|
|
|
$
|
25.71
|
|
|
$
|
19.18
|
|
|
|
|
Third
|
|
|
70,608
|
|
|
|
13,052
|
|
|
|
2,728
|
|
|
|
0.83
|
|
|
|
0.82
|
|
|
|
0.10
|
|
|
$
|
24.73
|
|
|
$
|
18.87
|
|
|
|
|
Fourth
|
|
|
76,363
|
|
|
|
14,467
|
|
|
|
3,235
|
|
|
|
0.98
|
|
|
|
0.97
|
|
|
|
0.10
|
|
|
$
|
23.24
|
|
|
$
|
19.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
279,234
|
|
|
$
|
50,263
|
|
|
$
|
8,793
|
|
|
$
|
2.66
|
|
|
$
|
2.64
|
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
First
|
|
$
|
59,849
|
|
|
$
|
10,153
|
|
|
$
|
1,418
|
|
|
$
|
0.43
|
|
|
$
|
0.43
|
|
|
$
|
1.20
|
|
|
$
|
24.56
|
|
|
$
|
17.94
|
|
|
|
|
Second
|
|
|
61,212
|
|
|
|
9,973
|
|
|
|
1,247
|
|
|
|
0.38
|
|
|
|
0.37
|
|
|
|
—
|
|
|
$
|
35.50
|
|
|
$
|
24.46
|
|
|
|
|
Third
|
|
|
65,650
|
|
|
|
9,119
|
|
|
|
55
|
|
|
|
0.02
|
|
|
|
0.02
|
|
|
|
—
|
|
|
$
|
38.07
|
|
|
$
|
27.12
|
|
|
|
|
Fourth
|
|
|
74,222
|
|
|
|
12,918
|
|
|
|
2,698
|
|
|
|
0.82
|
|
|
|
0.81
|
|
|
|
—
|
|
|
$
|
33.90
|
|
|
$
|
20.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
260,933
|
|
|
$
|
42,163
|
|
|
$
|
5,418
|
|
|
$
|
1.65
|
|
|
$
|
1.63
|
|
|
$
|
1.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered shareholders of record at July 1, 2012, were 2,006.
PERFORMANCE GRAPH
The
chart below shows a comparison of the cumulative return since July 1, 2007 had $100 been invested at the close of business on July 1, 2007 in STRATTEC Common Stock, the NASDAQ Composite Index (all issuers), and the Dow Jones U.S. Auto
Parts Index.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/1/07
|
|
|
6/29/08
|
|
|
6/28/09
|
|
|
6/27/10
|
|
|
7/3/11
|
|
|
7/1/12
|
|
|
STRATTEC
**
|
|
|
100
|
|
|
|
74
|
|
|
|
31
|
|
|
|
49
|
|
|
|
49
|
|
|
|
50
|
|
|
NASDAQ Composite Index
|
|
|
100
|
|
|
|
85
|
|
|
|
73
|
|
|
|
83
|
|
|
|
110
|
|
|
|
115
|
|
|
Dow Jones U.S. Auto Parts Index
|
|
|
100
|
|
|
|
74
|
|
|
|
54
|
|
|
|
70
|
|
|
|
117
|
|
|
|
90
|
|
|
*
|
$100 invested on July 1, 2007 in stock or index-including reinvestment of dividends. Indexes calculated on a month-end basis.
|
|
**
|
The fiscal year end closing price of STRATTEC Common Stock on June 29, 2007 was $46.97, the closing price on June 27, 2008 was $34.99, the closing price on
June 26, 2009 was $13.90, the closing price on June 25, 2010 was $22.01, the closing price on July 3, 2011 was $21.13 and the closing price on July 1, 2012 was $21.04.
|
|
|
|
|
|
2012 STRATTEC Annual Report
|
|
51
|
