Strattec Security Corp. (STRT, Financial) filed Quarterly Report for the period ended 2009-09-27.
Strattec Security Corporation designs develops manufactures and markets mechanical locks electro-mechanical locks and related products for automotive manufacturers with operations in the United States Canada and Mexico. The company also produces precision zinc die castings for the transportation security and small engine industries. The company's principal products are locks and keys for cars and trucks. Strattec Security Corp. has a market cap of $48.3 million; its shares were traded at around $14.635 with and P/S ratio of 0.4.
Net sales for the three months ended September 27, 2009 were $41.2 million compared to net sales of $34.7 million for the three months ended September 28, 2008. Sales to our largest customers overall increased in the current quarter compared to the prior year quarter levels. Sales to Chrysler Group LLC were $12.8 million in the current quarter compared to $7.1 million in the prior year quarter. Included in the current quarter were sales generated by SPA, offset by a combination of lower vehicle production volumes and reduced component content in the other security products we supply. Sales to General Motors Company were $9.9 million in the current quarter compared to $12.3 million in the prior year quarter. The reduction was primarily due to lower vehicle production volumes. Sales to Ford Motor Company increased to $3.7 million in the current quarter compared to $2.3 million in the prior year quarter largely due to higher Ford vehicle production volumes. Also, in the current quarter, sales generated by SPA to Hyundai Kia were $3.0 million.
Net other income was $428,000 in the current quarter compared to $223,000 in the prior year quarter. The increase was primarily due to gains on the Rabbi Trust in the current quarter, partially offset by a reduction in favorable transaction gains resulting from foreign currency transactions entered into by our Mexican subsidiaries in the current quarter compared to the prior year quarter. The Rabbi Trust funds our supplemental executive retirement plan. Gains related to the Rabbi Trust totaled $283,000 in the current quarter compared to losses of $69,000 in the prior year quarter. The investments held in the Trust are considered trading securities. Foreign currency transaction gains totaled $65,000 in the current quarter compared to $238,000 in the prior year quarter.
Capital expenditures during the three months ended September 27, 2009, were $1.8 million. Capital expenditures during the three months ended September 28, 2008, were $5.3 million, which included approximately $3.2 million for the construction of a new facility in Mexico. The construction of the new facility was completed in fiscal 2009. We anticipate that capital expenditures will be approximately $5 million to $6 million in fiscal 2010, primarily relating to expenditures in support of requirements for new product programs and the upgrade and replacement of existing equipment.
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 collectibility of our trade accounts receivable involves judgment and estimates and includes a 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 collectibility of receivable balances. This uncertainty is magnified by the financial difficulty currently experienced by our customers as discussed under Risk-Factors-Loss of Significant Customers, Vehicle Content, Vehicle Models and Market Share included in the Management s Discussion and Analysis in our 2009 Annual Report filed with the Securities and Exchange Commission as an exhibit to our Form 10-K on August 28, 2009. Also, refer to the discussion of Receivables under Organization and Summary of Significant Accounting Policies included in Notes to Financial Statements in our 2009 Annual Report filed with the Securities and Exchange Commission as an exhibit to our Form 10-K on August 28, 2009. We increased our allowance for uncollectible trade accounts receivable by $500,000 during 2009 in connection with Chrysler LLC s filing for Chapter 11 bankruptcy protection for certain of their U.S. legal entities on April 30, 2009. General Motors filed for Chapter 11 bankruptcy protection for their U.S. legal entities on June 1, 2009. The bankruptcy filings did not significantly impact the collection of pre-bankruptcy receivable balances as both Companies were able to continue to make payments to suppliers for parts they had purchased prior to their bankruptcy filings. As of September 27, 2009, all uncollectible amounts related to the bankruptcy filings were written off against the $500,000 reserve and $220,000 of the $500,000 provision was recorded as a recovery of allowance for doubtful accounts.
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 their North American automotive market share to the “New Domestic” automotive manufacturers (primarily the Japanese 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. For example, on October 8, 2005, Delphi Corporation filed for Chapter 11 bankruptcy protection. As a result, we wrote-off $1.6 million of uncollectible pre-petition Chapter 11 accounts receivable due from Delphi Corporation. This directly reduced our pre-tax net income during fiscal 2006. On April 30, 2009, Chrysler LLC filed for Chapter 11 bankruptcy protection for certain of their U.S. legal entities. As discussed under Critical Accounting Policies - Other Reserves - Allowance for Doubtful Accounts Related to Trade Accounts Receivable herein, during 2009 we recorded a provision for bad debts of $500,000 related to this filing, of which we subsequently recovered $220,000 of the $500,000 provision. This directly reduced our pre-tax net income during 2009.
Read the The complete ReportSTRT is in the portfolios of PRIMECAP Management.
Strattec Security Corporation designs develops manufactures and markets mechanical locks electro-mechanical locks and related products for automotive manufacturers with operations in the United States Canada and Mexico. The company also produces precision zinc die castings for the transportation security and small engine industries. The company's principal products are locks and keys for cars and trucks. Strattec Security Corp. has a market cap of $48.3 million; its shares were traded at around $14.635 with and P/S ratio of 0.4.
Highlight of Business Operations:
Effective November 30, 2008, STRATTEC in combination with WITTE Automotive of Velbert, Germany, completed the acquisition of certain assets, primarily equipment and inventory, and assumption of certain employee liabilities of Delphi Corporation s Power Products business for approximately $7.3 million. For purposes of owning and operating the North American portion of this acquired business, STRATTEC established a new subsidiary, STRATTEC POWER ACCESS LLC (SPA), which is 80 percent owned by STRATTEC and 20 percent owned by WITTE. The purchase price of the North American portion of the business totaled approximately $4.4 million, of which STRATTEC paid approximately $3.5 million. WITTE acquired the European portion of the business for approximately $2.4 million. Effective February 12, 2009, SPA acquired the Asian portion of the business for approximately $500,000.Net sales for the three months ended September 27, 2009 were $41.2 million compared to net sales of $34.7 million for the three months ended September 28, 2008. Sales to our largest customers overall increased in the current quarter compared to the prior year quarter levels. Sales to Chrysler Group LLC were $12.8 million in the current quarter compared to $7.1 million in the prior year quarter. Included in the current quarter were sales generated by SPA, offset by a combination of lower vehicle production volumes and reduced component content in the other security products we supply. Sales to General Motors Company were $9.9 million in the current quarter compared to $12.3 million in the prior year quarter. The reduction was primarily due to lower vehicle production volumes. Sales to Ford Motor Company increased to $3.7 million in the current quarter compared to $2.3 million in the prior year quarter largely due to higher Ford vehicle production volumes. Also, in the current quarter, sales generated by SPA to Hyundai Kia were $3.0 million.
Net other income was $428,000 in the current quarter compared to $223,000 in the prior year quarter. The increase was primarily due to gains on the Rabbi Trust in the current quarter, partially offset by a reduction in favorable transaction gains resulting from foreign currency transactions entered into by our Mexican subsidiaries in the current quarter compared to the prior year quarter. The Rabbi Trust funds our supplemental executive retirement plan. Gains related to the Rabbi Trust totaled $283,000 in the current quarter compared to losses of $69,000 in the prior year quarter. The investments held in the Trust are considered trading securities. Foreign currency transaction gains totaled $65,000 in the current quarter compared to $238,000 in the prior year quarter.
Capital expenditures during the three months ended September 27, 2009, were $1.8 million. Capital expenditures during the three months ended September 28, 2008, were $5.3 million, which included approximately $3.2 million for the construction of a new facility in Mexico. The construction of the new facility was completed in fiscal 2009. We anticipate that capital expenditures will be approximately $5 million to $6 million in fiscal 2010, primarily relating to expenditures in support of requirements for new product programs and the upgrade and replacement of existing equipment.
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 collectibility of our trade accounts receivable involves judgment and estimates and includes a 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 collectibility of receivable balances. This uncertainty is magnified by the financial difficulty currently experienced by our customers as discussed under Risk-Factors-Loss of Significant Customers, Vehicle Content, Vehicle Models and Market Share included in the Management s Discussion and Analysis in our 2009 Annual Report filed with the Securities and Exchange Commission as an exhibit to our Form 10-K on August 28, 2009. Also, refer to the discussion of Receivables under Organization and Summary of Significant Accounting Policies included in Notes to Financial Statements in our 2009 Annual Report filed with the Securities and Exchange Commission as an exhibit to our Form 10-K on August 28, 2009. We increased our allowance for uncollectible trade accounts receivable by $500,000 during 2009 in connection with Chrysler LLC s filing for Chapter 11 bankruptcy protection for certain of their U.S. legal entities on April 30, 2009. General Motors filed for Chapter 11 bankruptcy protection for their U.S. legal entities on June 1, 2009. The bankruptcy filings did not significantly impact the collection of pre-bankruptcy receivable balances as both Companies were able to continue to make payments to suppliers for parts they had purchased prior to their bankruptcy filings. As of September 27, 2009, all uncollectible amounts related to the bankruptcy filings were written off against the $500,000 reserve and $220,000 of the $500,000 provision was recorded as a recovery of allowance for doubtful accounts.
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 their North American automotive market share to the “New Domestic” automotive manufacturers (primarily the Japanese 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. For example, on October 8, 2005, Delphi Corporation filed for Chapter 11 bankruptcy protection. As a result, we wrote-off $1.6 million of uncollectible pre-petition Chapter 11 accounts receivable due from Delphi Corporation. This directly reduced our pre-tax net income during fiscal 2006. On April 30, 2009, Chrysler LLC filed for Chapter 11 bankruptcy protection for certain of their U.S. legal entities. As discussed under Critical Accounting Policies - Other Reserves - Allowance for Doubtful Accounts Related to Trade Accounts Receivable herein, during 2009 we recorded a provision for bad debts of $500,000 related to this filing, of which we subsequently recovered $220,000 of the $500,000 provision. This directly reduced our pre-tax net income during 2009.
Read the The complete ReportSTRT is in the portfolios of PRIMECAP Management.
