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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q


[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 28, 2004

or

[    ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File Number 0-25150


STRATTEC SECURITY CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
 
                                                                             Wisconsin            39-1804239
             (State of Incorporation)       (I.R.S. Employer Identification No.)

 
3333 West Good Hope Road, Milwaukee, WI 53209
(Address of Principal Executive Offices)

(414) 247-3333
(Registrant’s Telephone Number, Including Area Code)

 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES    X   NO ___

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  YES    X   NO ___


Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

Common stock, par value $0.01 per share: 3,820,652 shares outstanding as of March 28, 2004.
 
   
 
STRATTEC SECURITY CORPORATION

FORM 10-Q

March 28, 2004

INDEX


Part I - FINANCIAL INFORMATION
    
Page
  
   
 
Item 1  Financial Statements
    
 
  
Condensed Consolidated Statements of Income
    
3
  
Condensed Consolidated Balance Sheets
    
4
  
Condensed Consolidated Statements of Cash Flows
    
5
  
Notes to Condensed Consolidated Financial Statements
    
6-7
  
Item 2 Management’s Discussion and Analysis of Results
    
 
  
  of Operations and Financial Condition
    
8-13
  
Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
13
  
Item 4 Controls and Procedures
    
14
  
 
    
 
  
 
    
 
  
Part II - OTHER INFORMATION
    
 
  
 
    
 
  
Item 1 Legal Proceedings
    
15
  
Item 2 Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
15
  
Item 3 Defaults Upon Senior Securities
    
15
  
Item 4 Submission of Matters to a Vote of Security Holders
    
15
  
Item 5 Other Information
    
15
  
Item 6 Exhibits and Reports on Form 8-K
    
15
  
 
    
 
  

 
  2  
 
 
Item 1 Financial Statements

STRATTEC SECURITY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
 
(Unaudited)
 
 Three Months Ended  Nine Months Ended
 
  
March 28,
2004
March 30,
2003
March 28,
2004
March 30,
2003
   
Net sales
  
$
49,266
  
$
   49,926
  
$
143,700
  
$
146,512
  
Cost of goods sold
    
37,082
    
38,255
    
108,956
    
112,550
  
   
 
 
 
 
Gross profit
    
12,184
    
11,671
    
34,744
    
33,962
  
Engineering, selling and
   administrative expenses
    
5,132
    
5,043
    
15,033
    
14,225
  
   
 
 
 
 
Income from operations
    
7,052
    
6,628
    
19,711
    
19,737
  
Interest income
    
112
    
91
    
289
    
274
  
Other income (expense), net
    
(49
)
  
21
    
237
    
(227
)
   
 
 
 
 
Income before provision for income taxes
    
7,115
    
6,740
    
20,237
    
19,784
  
Provision for income taxes
    
2,668
    
2,493
    
7,589
    
7,320
  
   
 
 
 
 
Net income
  
$
4,447
  
$
4,247
  
$
12,648
  
$
12,464
  
   
 
 
 
 
 
    
 
    
 
    
 
    
 
  
Earnings per share:
Basic
  
$
1.17
  
$
1.13
  
$
3.35
  
$
3.28
  
 
 
 		  
 
Diluted
  
$
1.15
  
$
1.11
  
$
3.30
  
$
3.22
  
   
 
 
 
 
Average Shares Outstanding:
Basic
    
3,802
    
3,759
    
3,775
    
3,797
  
Diluted
    
3,873
    
3,822
    
3,838
    
3,867
  

The accompanying notes are an integral part of these condensed consolidated statements.

 
  3  
 

STRATTEC SECURITY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts)

(Unaudited)

 
  
March 28,
2004
June 29,
2003
   
ASSETS
Current Assets:
Cash and cash equivalents
  
$
43,384
  
$
29,902
  
Receivables, net
    
31,827
    
31,173
  
Inventories-
Finished products
    
2,422
    
2,269
  
Work in process
    
4,024
    
4,460
  
Purchased materials
    
5,039
    
3,810
  
LIFO adjustment
    
(2,617
)
  
(2,655
)
  
 		  
Total inventories
    
8,868
    
7,884
  
Customer tooling in progress
    
1,911
    
3,573
  
Other current assets
    
8,424
    
8,554
  
   
 
 
Total current assets
    
94,414
    
81,086
  
Deferred income taxes
    
1,973
    
1,973
  
Investment in Joint Venture
    
1,363
    
1,141
  
               
Property, plant and equipment
    
101,938
    
99,070
  
Less: accumulated depreciation
    
(70,476
)
  
(65,176
)
   
 
 
Net property, plant and equipment
    
31,462
    
33,894
  
 		  
 
  
$
129,212
  
$
118,094
  
   
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable
  
$
15,433
  
$
13,990
  
Accrued payroll and benefits
    
8,799
    
11,205
  
Environmental reserve
    
2,709
    
2,720
  
Other accrued liabilities
    
2,871
    
1,894
  
   
 
 
Total current liabilities
    
29,812
    
29,809
  
Accrued pension and postretirement obligations
    
15,861
    
19,190
  
Shareholders' equity:
Common stock, authorized 12,000,000 shares $.01 par value, Issued
   6,732,042 shares at March 28, 2004 and 6,608,642 shares at
   June 29, 2003
    
67
    
66
  
Capital in excess of par value
    
69,432
    
63,830
  
Retained earnings
    
125,596
    
112,948
  
Accumulated other comprehensive loss
    
(7,093
)
  
(6,891
)
Less: treasury stock, at cost (2,911,390 shares at March 28, 2004
   and 2,850,390 shares at June 29, 2003)
    
(104,463
)
  
(100,858
)
   
 
 
Total shareholders' equity
    
83,539
    
69,095
  
   
 
 
 
  
$
129,212
  
$
118,094
  
   
 
 

The accompanying notes are an integral part of these condensed consolidated balance sheets.
 
 
  4  
 
STRATTEC SECURITY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
 
(Unaudited)
 
  
Nine Months Ended
   
 
  
March 28,
March 30,
 
  
2004
2003
   
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
  
$
12,648
  
$
12,464
  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
    
5,842
    
5,884
  
Tax benefit from options exercised
    
1,107
    
324
  
Other, net
    
(121
)
  
150
  
   Change in operating assets and liabilities:
              
Receivables
    
(746
)
  
(429
)
Inventories
    
(984
)
  
(2,825
)
Other assets
    
1,627
    
533
  
Accounts payable and accrued liabilities
    
(3,106
)
  
(3,198
)
 
  
 
 
Net cash provided by operating activities
    
16,267
    
12,903
  
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in joint venture
    
(125
)
  
(876
)
Additions to property, plant and equipment
    
(3,550
)
  
(2,700
)
   
 
 
Net cash used in investing activities
    
(3,675
)
  
(3,576
)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock
    
(3,614
)
  
(17,756
)
Exercise of stock options
    
4,504
    
915
  
   
 
 
Net cash provided by (used in) financing activities
    
890
    
(16,841
)
   
 
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
13,482
    
(7,514
)
 
CASH AND CASH EQUIVALENTS
              
Beginning of period
    
29,902
    
34,956
  
   
 
 
End of period
  
$
43,384
  
$
27,442
  
   
 
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid
  
$
4,893
  
$
7,567
  
Interest paid
    
-
    
-
  

The accompanying notes are an integral part of these condensed consolidated statements.
 
 
  5  
 
STRATTEC SECURITY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Basis of Financial Statements
STRATTEC SECURITY CORPORATION (the “Company”) designs, develops, manufactures and markets mechanical locks, electro-mechanical locks and related access-control products for North American and global automotive manufacturers. The accompanying condensed unaudited financial statements reflect the consolidated results of the Company and its wholly owned Mexican subsidiaries.

In the opinion of management, the accompanying unaudited financial statements contain all adjustments, which are of a normal recurring nature, necessary to present fairly the financial position of the Company as of March 28, 2004, and the results of operations and cash flows for the three and nine month periods then ended. All significant intercompany transactions have been eliminated. Interim financial results are not necessarily indicative of operating results for an entire year.

These financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company’s 2003 Annual Report.

Earnings Per Share (EPS)
A reconciliation of the components of the basic and diluted per-share computations follows (in thousands, except per share amounts):

 
  
Three Months Ended
   
 
  
March 28, 2004
March 30, 2003
   
 
  
Net
Income
Shares
Per Share
Amount
Net
Income
Shares
Per Share
Amount
   
Basic Earnings Per Share
  
$
4,447
    
3,802
  
$
1.17
  
$
4,247
    
3,759
  
$
1.13
  
             
             
 
Stock Options
    
 
    
71
    
 
    
 
    
63
    
 
  
     
             
       
Diluted Earnings Per Share
  
$
4,447
    
3,873
  
$
1.15
  
$
4,247
    
3,822
  
$
1.11
  
       
 
       
 
 
 
 
  
Nine Months Ended
 
 
  
March 28, 2004
March 30, 2003
 
 
  
Net
Income
Shares
Per Share
Amount
Net
Income
Shares
Per Share
Amount
 
 
  
 
 
 
 
 
 
Basic Earnings Per Share
  
$
12,648
    
3,775
  
$
3.35
  
$
12,464
    
3,797
  
$
3.28
  
   
     
Stock Options
    
 
    
63
    
 
    
 
    
70
    
 
  
       
             
       
Diluted Earnings Per Share
  
$
12,648
    
3,838
  
$
3.30
  
$
12,464
    
3,867
  
$
3.22
  
       
 
       
 
 
 
All outstanding options were included in the computation of EPS as of March 28, 2004. Options to purchase 74,160 shares of common stock at an exercise price of $58.59 were outstanding as of March 30, 2003, but were not included in the computation of diluted EPS because the options’ exercise prices were greater than the average market price of the common shares.
 
 
  6  
 
Comprehensive Income
The following table presents the Company’s comprehensive income (in thousands):

 
  
Three Months Ended
Nine Months Ended
   
 
  
March 28,
March 30,
March 28,
March 30,
 
  
2004
2003
2004
2003
   
 
  
 
 
 
 
Net Income
  
$
4,447
  
$
4,247
  
$
12,648
  
$
12,464
  
Change in Cumulative Translation
   
 
    
 
    
 
    
 
  
Adjustments, net
    
34
 
  
(132
)
  
(202
)
  
(252
)
   
 
 
 
 
Total Comprehensive Income
  
$
4,481
  
$
4,115
  
$
12,446
  
$
12,212
  
   
 
 
 
 

Stock Based Compensation
The Company accounts for its stock-based compensation plans using the intrinsic value method. Accordingly, no compensation cost related to these plans was charged against earnings during fiscal 2004 and 2003. Had compensation cost for these plans been determined using the fair value method rather than the intrinsic value method, the pro forma impact on earnings per share would have been as follows (in thousands, except per share amounts):

 
  
Three Months Ended
Nine Months Ended
   
 
  
March 28,
March 30,