STRATTEC SECURITY CORPORATION Reports Fiscal 2015 Fourth Quarter Operating Results

MILWAUKEE, Aug. 06, 2015 (GLOBE NEWSWIRE) -- STRATTEC SECURITY CORPORATION (NASDAQ:STRT) today reported operating results for the fiscal fourth quarter and year ended June 28, 2015.

Fourth Quarter

Net sales for the fourth quarter ended June 28, 2015 were $98.4 million, compared to net sales of $102.1 million for the fourth quarter ended June 29, 2014. Net income was $1.2 million in the current year quarter compared to $5.7 million in the prior year quarter. Diluted earnings per share for the 2015 fourth quarter were $0.33 compared to $1.58 in the prior year quarter.

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

Net sales to each of our customers in the current year quarter and prior year quarter were as follows (in thousands):

Three Months Ended
June 28, 2015 June 29, 2014
Fiat Chrysler Automobiles$25,980 $33,036
General Motors Company 20,145 30,308
Ford Motor Company 13,451 12,198
Tier 1 Customers 18,674 15,425
Commercial and Other OEM Customers 10,894 9,016
Hyundai / Kia 9,282 2,079
TOTAL$98,426 $102,062

Decreased sales to Fiat Chrysler Automobiles in the current year quarter were primarily due to the temporary shutdown of Fiat Chrysler's Windsor, Canada assembly plant during the quarter to re-tool the plant for production of the new Chrysler minivan, which decreased our net sales during the current year quarter by $10 million. The negative effect of this shutdown was partially offset by increased service sales in comparison to the prior year quarter. The decrease in sales to General Motors Company in the current year quarter was anticipated and primarily attributed to incremental service parts sales of $11 million that were shipped during the prior year quarter. These service part shipments were part of a short term program which ended during the first half in our current fiscal year. Sales to Ford Motor Company in the current year quarter were slightly higher due to increased product content. Sales to Tier 1 Customers during the current year quarter increased in comparison to the prior year quarter. These customers primarily represent purchasers of other vehicle access control products, such as latches, fobs, and driver controls, that we have developed in recent years to complement our historic core business of locks and keys. The increase in sales to Hyundai / Kia in the current year quarter was principally due to the continued ramp-up of the new Kia Sedona minivan for which we supply components.

Gross profit margins were 10.6 percent in the current year quarter compared to 20.0 percent in the prior year quarter. The decrease in gross profit margin in the current year quarter was primarily attributed to the $8.5 million pre-tax warranty provision as discussed previously. Items favorably impacting gross margin during the current year quarter were a favorable Mexican Peso to U.S. Dollar exchange rate affecting our operations in Mexico and lower expense provisions under our incentive bonus plans as compared to the prior year quarter.

Operating expenses were $8.0 million in the current year quarter and $10.8 million in the prior year quarter. As a percent of net sales in the current year quarter operating expenses decreased to 8.1% from 10.6% in comparison to the prior year quarter. The major contributor to the decreased spending on operating expenses during the current year quarter were lower expense provisions under our incentive bonus programs.

Included in Other (Expense) Income, Net in the current year quarter compared to the prior year quarter were the following items (in thousands of dollars):

June 28,June 29,
2015 2014
Equity Earnings of VAST LLC Joint Venture$ 432 $ 218
Equity Loss of STRATTEC Advanced Logic, LLC (1,082) (119)
Foreign Currency Transaction Gain (Loss) 71 (110)
Other 101 86
$ (478) $ 75

During the current year quarter STRATTEC contributed $3.0 million to its Defined Benefit Pension Trust to improve the overall funded status of the Plan.

Full Year

STRATTEC’s fiscal 2015 net sales and diluted earnings per share each reached a record high, exceeding the prior year record by approximately 18% and 23% respectively.

For the fiscal year ended June 28, 2015, net sales were $411.5 million compared to net sales of $348.4 million during fiscal 2014. Net income for fiscal 2015 was $20.7 million compared to net income of $16.4 million in the prior year period. Diluted earnings per share for the current year were $5.66 compared to diluted earnings per share of $4.59 in the prior year.

Frank Krejci, President and CEO commented: “After STRATTEC Associates performed at an exceptionally high level throughout the year, I am disappointed to end the year with poor reported earnings for the 4th quarter. The underlying business and performance remains strong. However, in addition to the Chrysler Windsor Assembly Plant shutdown, significant unusual charges drastically hurt the quarter. Despite all of that, we still chalked up a year of both record sales and record profits for STRATTEC.

Throughout the automotive industry there has been a heightened focus on supplier cost-sharing in vehicle manufacturers’ warranty repairs and vehicle recalls. The larger charge of $8.5 million of warranty expenses reflects this new reality. While we expect this trend to continue, we do not expect the magnitude of the impact on our financial results to continue. For example, one particularly impactful problem this past year was the result of a new vehicle launch with significant time pressures and customer-driven late design changes. We have learned from it and will make it an area of focus for this upcoming year. Some of the charges relate to our efforts to diversify our business. We recognized nearly $2 million of start-up and impairment costs in the current quarter relating to STRATTEC Component Solutions and STRATTEC Advanced Logic. We are still optimistic about these initiatives, but the birthing process has been more costly than we expected.

Lastly, this past quarter, along with our VAST partners, we acquired a 50% ownership interest in Minda VAST Access Systems. The company is based in Pune, India, has approximately $40 million in annual sales and will be an important strategic investment to support our global customers and future growth.”

STRATTEC designs, develops, manufactures and markets automotive Access Control Products, including mechanical locks and keys, electronically enhanced locks and keys, steering column and instrument panel ignition lock housings, latches, power sliding side door systems, power lift gate systems, power deck lid systems, door handles and related products. These products are provided to customers in North America, and on a global basis through a unique strategic relationship with WITTE Automotive of Velbert, Germany and ADAC Automotive of Grand Rapids, Michigan. Under this relationship, STRATTEC, WITTE and ADAC market each company's products to global customers under the “VAST” brand name. STRATTEC’s history in the automotive business spans over 100 years.

Certain statements contained in this release contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of forward-looking words or phrases such as “anticipate,” “believe,” “could,” “expect,” “intend,” “may,” “planned,” “potential,” “should,” “will,” and “would.” Such forward-looking statements in this release are inherently subject to many uncertainties in the Company’s operations and business environment. These uncertainties include general economic conditions, in particular, relating to the automotive industry, consumer demand for the Company’s and its customers’ products, competitive and technological developments, customer purchasing actions, changes in warranty provisions and customers’ product recall policies, foreign currency fluctuations, and costs of operations (including fluctuations in the cost of raw materials). Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date of this press release and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances occurring after the date of this release. In addition, such uncertainties and other operational matters are discussed further in the Company’s quarterly and annual filings with the Securities and Exchange Commission.

Condensed Results of Operations
(In Thousands, except per share amounts)
Fourth Quarter Ended Years Ended
June 28, 2015 June 29, 2014 June 28, 2015 June 29, 2014
(Unaudited) (Unaudited)
Net Sales$ 98,426 $ 102,062 $ 411,475 $ 348,419
Cost of Goods Sold 88,026 81,614 338,815 282,621
Gross Profit 10,400 20,448 72,660 65,798
Engineering, Selling &
Administrative Expenses 8,010 10,797 41,534 39,274
Income from Operations 2,390 9,651 31,126 26,524
Interest Income 59 42 185 106
Interest Expense (32) (8) (71) (45)
Other (Expense) Income, Net (478) 75 2,693 1,229
Income before Provision for
Income Taxes and
Non-Controlling Interest 1,939 9,760 33,933 27,814
Provision for Income
Taxes 4 3,372 9,382 8,674
Net Income $ 1,935 $ 6,388 $ 24,551 $ 19,140
Net Income Attributable
to Non-Controlling Interest 735 649 3,897 2,716
Net Income Attributable
CORPORATION$ 1,200 $ 5,739 $ 20,654 $ 16,424
Earnings Per Share:
Basic$ 0.33 $ 1.62 $ 5.80 $ 4.70
Diluted$ 0.33 $ 1.58 $ 5.66 $ 4.59
Average Basic
Shares Outstanding 3,525 3,476 3,515 3,428
Average Diluted
Shares Outstanding 3,609 3,571 3,604 3,513
Capital Expenditures$ 4,446 $ 3,431 $ 26,097 $ 12,812
Depreciation & Amortization$ 2,348 $ 2,054 $ 8,815 $ 8,267

Condensed Balance Sheet Data
(In Thousands)
June 28, 2015 June 29, 2014
Current Assets:
Cash and cash equivalents $ 25,695 $ 19,756
Receivables, net 58,807 68,822
Inventories, net 34,786 30,502
Other current assets 18,873 16,559
Total Current Assets 138,161 135,639
Investment in Joint Ventures 15,326 9,977
Other Long Term Assets 10,816 11,639
Property, Plant and Equipment, Net 71,126 55,781
$ 235,429 $ 213,036
Current Liabilities:
Accounts Payable $ 27,838 $ 36,053
Other 36,897 29,210
Total Current Liabilities 64,735 65,263
Accrued Pension and Post Retirement Obligations 2,988 3,842
Borrowings Under Credit Facility 10,000 2,500
Deferred Income Taxes 4,595 5,127
Other Long-term Liabilities 710 1,401
Shareholders’ Equity 303,073 281,623
Accumulated Other Comprehensive Loss (26,859) (20,198)
Less: Treasury Stock (135,902) (135,919)
CORPORATION Shareholders’ Equity 140,312 125,506
Non-Controlling Interest 12,089 9,397
Total Shareholders’ Equity 152,401 134,903
$ 235,429 $ 213,036

Condensed Cash Flow Statement Data
(In Thousands)
Fourth Quarter Ended Years Ended
June 28, 2015 June 29, 2014 June 28, 2015 June 29, 2014
(Unaudited) (Unaudited)
Cash Flows from Operating Activities:
Net Income$ 1,935 $ 6,388 $24,551 $19,140
Adjustment to Reconcile Net Income to
Cash Provided by Operating Activities:
Equity Loss (Earnings) in Joint Ventures 650 (99) 788 (957)
Depreciation and Amortization 2,348 2,054 8,815 8,267
Foreign Currency Transaction (Gain) Loss (71) 110 (3,075) 36
Deferred Income Taxes (3,330) 1,447 (3,330) 1,447
Stock Based Compensation Expense 310 248 1,323 1,128
Change in Operating Assets/Liabilities 5,733 (8,113) 1,926 (17,828)
Other, net 289 172 461 286
Net Cash Provided by Operating Activities 7,864 2,207 31,459 11,519
Cash Flows from Investing Activities:
Investment in Joint Ventures (4,000) - (4,384) -
Additions to Property, Plant and Equipment (4,446) (3,431) (26,097) (12,812)
Proceeds from Sale of Property, Plant
and Equipment 1 25 1 71
Other (100) - (315) (285)
Net Cash Used in Investing Activities (8,545) (3,406) (30,795) (13,026)
Cash Flows from Financing Activities:
Borrowings Under Credit Facility - - 9,000 1,250
Repayments Under Credit Facility (1,000) - (1,500) (1,000)
Dividends Paid (429) (390) (1,711) (1,542)
Dividends Paid to Non-Controlling Interest
Of Subsidiaries - - (882) (984)
Excess Tax Benefits from Stock Based Compensation 52 40 367 495
Exercise of Stock Options and Employee
Stock Purchases 134 769 553 2,742
Net Cash (Used in) Provided by Financing Activities (1,243) 419 5,827 961
Foreign Currency Impact on Cash (416) 42 (552) (5)
Net (Decrease) Increase in Cash & Cash Equivalents (2,340) (738) 5,939 (551)
Cash and Cash Equivalents:
Beginning of Period 28,035 20,494 19,756 20,307
End of Period$ 25,695 $ 19,756 $ 25,695 $ 19,756

Contact: Pat Hansen Senior Vice President and Chief Financial Officer 414-247-3435