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1998 STRATTEC ANNUAL REPORT
COMPANY DESCRIPTION
4
BASIC BUSINESS
STRATTEC SECURITY CORPORATION designs, develops, manufactures and
markets mechanical locks, electro-mechanical locks and related security products
for major automotive manufacturers. Our products are shipped to customer
locations in the United States, Canada, Mexico, Europe and South America, and we
provide full service and aftermarket support. We also supply products for the
heavy truck, recreational vehicle, marine and industrial markets, as well as
precision die castings for the transportation, security and recreational
products industries.
[STRATTEC LOGO]
HISTORY
STRATTEC was formerly a division of the Briggs & Stratton Corporation.
On February 27, 1995, STRATTEC was spun-off from Briggs & Stratton through a
tax-free distribution to the then existing Briggs shareholders. STRATTEC
received substantially all of the assets related to the lock and key business
owned by Briggs & Stratton.
Starting as a division of Briggs & Stratton, and continuing today as a
totally separate and independent company, our history in the automotive lock
manufacturing business spans more than 80 years. We have also been in the zinc
die casting business for approximately 70 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.
[PICTURE OF NEWS HISTORICAL ADVERTISEMENT]
PRODUCTS
Our principal products are locks and keys for cars and trucks. A
typical automobile contains a set of five locks: a steering column/ignition
lock, a glove box lock, two front door locks and a deck lid (trunk) lock. Pickup
trucks typically use three to four locks, while sport utility
[PICTURE OF KEYS]
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1998 STRATTEC ANNUAL REPORT
COMPANY DESCRIPTION
5
vehicles and vans will use five to seven locks. Some vehicles have additional
locks for under-floor compartments or folding rear seat latches. T-top locks,
spare tire locks, burglar alarm locks and door locks with illuminated faces are
also offered as options. Usually two keys are provided with each vehicle
lockset.
STRATTEC produces locks with simple electrical switch devices and more
sophisticated devices, such as resistive elements, radio frequency
identification (RFID) elements and Hall Effect sensors. The primary focus of
these added electronics is increased security and reliability. Electronics will
play an important and ever-increasing role in the future of our security-related
products.
[PICTURE OF KEYS]
MARKETS
We are a direct supplier to OEM auto and light truck manufacturers,
over-the-road heavy truck manufacturers and recreational vehicle manufacturers,
as well as other transportation-related manufacturers. For the 1998 model year,
we enjoyed a 66.5% market share in the North American automotive industry,
supplying locks and keys for approximately 92% of General Motor's production,
62% of Ford's, and 100% of Chrysler's production. We are also an OEM components
supplier to a wide array of smaller industrial manufacturers.
Direct sales to various OEMs represent approximately 85% of our total
sales. The remainder of the company's revenue is received primarily through
sales to the OEM service channels, and the locksmith aftermarket.
Sales to General Motors, Ford and Chrysler are coordinated through our
direct sales personnel located in our Detroit-area office, and to other OEM
customers through a combination of our own sales personnel and manufacturer
representative agencies. Sales are also partially facilitated through daily
interaction between our lock engineers and customer engineering departments.
STRATTEC's products are supported by an extensive staff of experienced
lock engineers. This staff, which includes product design, quality and
manufacturing engineers, is capable of providing complete design, development
and testing services of new products for our customers. This staff is also
available for customer
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1998 STRATTEC ANNUAL REPORT
COMPANY DESCRIPTION
6
[PICTURE OF BLUE PRINT]
problem solving, warranty analysis and other activities that arise during a
product's life cycle. Our customers receive after-sales support in the form of
special field service kits, service manuals, and specific in-plant production
repair programs.
The majority of our OEM products are sold in North America. Export
sales are primarily made up of aftermarket and OEM service business. However,
our dominance in North America translates into a world market share of around
20%, making STRATTEC the largest producer of automotive locks and keys in the
world. We are in the process of expanding our presence in Europe to supply
automotive security products to major manufacturers there through collaborative
agreements with lock manufacturers in that region. Some exporting is also done
to automotive assembly plants in South America.
[PICTURE OF COMPUTER]
CUSTOMER FOCUS
Since the majority of the company's sales are to the "Big Three" North
American automotive manufacturers, STRATTEC is organized to assure that our
activities are focused on these major customers. We have four teams: one each
for General Motors, Ford, and Chrysler, and a fourth team which handles our
industrial customers, including heavy truck manufacturers like Peterbilt,
Kenworth, Mack, Freightliner, Navistar, and GM Volvo.
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1998 STRATTEC ANNUAL REPORT
COMPANY DESCRIPTION
7
Each of the four teams possesses all of the necessary disciplines
required to meet their customers' needs. Leading each team's efforts are Product
Business Managers who handle the overall coordination of various product
programs. The Product Business Managers work closely with their team's quality
engineers, cost engineers, purchasing agents, internal and external customer
service representatives, service manager, and engineering manager. The
engineering manager in turn helps coordinate the efforts of design engineers,
product and process engineers, component engineers, and electrical engineers.
STRATTEC utilizes a formalized product development process to identify
and meet customer needs in the shortest possible time. By creating and following
this streamlined 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 requirements. STRATTEC is also QS-9000 / ISO 9001
certified. This means we embrace the philosophy that quality should exist not
only in the finished product, but in every step of our process as well.
[STRATTEC QUALITY LOGO]
OPERATIONS
The majority of the components that go into our lock products are manufactured
at our main facility and headquarters in Milwaukee, Wisconsin. This facility
also makes zinc die cast components for other manufacturers. Lock assembly is
performed at the Milwaukee location and at our primary assembly facility,
located in Juarez, Mexico.
[PICTURE OF ASSEMBLY LINE]
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1998 STRATTEC ANNUAL REPORT
COMPANY DESCRIPTION
8
CYCLICAL NATURE OF THE BUSINESS
The manufacturing of components that are 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 while summer
vacation shut downs and model year changeover occur at the automotive assembly
plants. September volumes increase rapidly as the new model year begins. This
volume strength continues through October and into early November. As the
holiday and winter seasons approach, the demand for automobiles slows. March
usually brings a major sales and production increase which then continues
through most of June. This results in our first fiscal quarter (ending in Sept.)
typically being our weakest, with the remaining quarters being more consistent.
ECONOMIC VALUE COMMITMENT
The underlying philosophy of our business, and the means by which we
measure our performance, is Economic Value Added (EVA(R)). 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(R). In line
with this philosophy, EVA(R) bonus plans are in effect for our associates and
our outside directors as an incentive to help positively drive the business.
[PICTURE OF COMPANY]
STRATTEC's significant market share is the result of an eight-decade
long 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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1998 STRATTEC ANNUAL REPORT
VEHICLE LIST
9
1999 VEHICLES
We're proud of the quality vehicles that use STRATTEC components. They
include over-the-road trucks like Peterbilt, Kenworth, Mack, Freightliner,
Navistar and GM Volvo. Recreational vehicles like Winnebago, Coachmen, Jayco and
Fleetwood. And the following 1999 cars and light trucks:
CARS
Buick Century Chrysler 300M Oldsmobile Alero
Buick LeSabre Chrysler LHS Oldsmobile Aurora
Buick Regal Chrysler Sebring Convertible Oldsmobile Cutlass
Buick Riviera Dodge Intrepid Oldsmobile Eighty-Eight
Cadillac DeVille Dodge Neon Oldsmobile Intrigue
Cadillac Eldorado Dodge Stratus Plymouth Breeze
Chevrolet Camaro Dodge Viper Plymouth Neon
Chevrolet Cavalier Ford Taurus Plymouth Prowler
Chevrolet Corvette General Motors EV1 Pontiac Bonneville
Chevrolet Lumina Jaguar S-Type Pontiac Firebird
Chevrolet Malibu Lincoln Continental Pontiac Grand Am
Chevrolet Monte Carlo Lincoln LS Pontiac Grand Prix
Chrysler Cirrus Mercury Sable Pontiac Sunfire
Chrysler Concorde Mitsubishi Galant
LIGHT TRUCKS, VANS AND SPORT UTILITY VEHICLES
Cadillac Escalade Dodge Ram Van Jeep Cherokee
Chevrolet Astro Ford Expedition Jeep Grand Cherokee
Chevrolet Blazer Ford Explorer Jeep Wrangler
Chevrolet Silverado Pickup Ford F-Series Pickup Lincoln Navigator
Chevrolet Express Ford Ranger Pickup Mazda Pickup
Chevrolet S-10 Pickup GMC Envoy Mercury Mountaineer
Chevrolet Suburban GMC Denali Mercury Villager
Chevrolet Tahoe GMC Jimmy Nissan Quest
Chevrolet Venture GMC Safari Oldsmobile Bravada
Chrysler Town & Country GMC Savana Oldsmobile Silhouette
Dodge Caravan/Grand Caravan GMC Sierra Pickup Plymouth Voyager/
Dodge Dakota Pickup GMC Sonoma Pickup Grand Voyager
Dodge Durango GMC Suburban Pontiac Montana
Dodge Ramcharger GMC Yukon
Dodge Ram Pickup Isuzu Hombre Pickup
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1998 STRATTEC ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
10
The following Discussion and Analysis should be read in conjunction
with the Company's Financial Statements and Notes thereto. Unless otherwise
indicated, all references to years refer to fiscal years.
RESULTS OF OPERATIONS
1998 COMPARED TO 1997
Net sales were $186.8 million in 1998, an increase of 17 percent
compared to net sales of $159.1 million in 1997. The sales increase is primarily
due to increased sales to all three of the Company's largest customers in the
current year compared to prior year levels, with General Motors Corporation
increasing $16.4 million or 23 percent, Chrysler Corporation increasing $5.0
million or 24 percent and Ford Motor Company increasing $2.5 million or 6
percent. Sales growth was primarily due to higher value mechanical and
electro-mechanical content. Increased sales to Chrysler Corporation also reflect
that company's higher vehicle production schedule in the last six months of
fiscal 1998 compared to the prior year period. Labor disruptions at General
Motors Corporation operations reduced expected sales to this customer by an
estimated $3 million during the current year fourth quarter and by an estimated
$2 million during the second quarter of fiscal 1997.
Gross profit as a percentage of net sales was 21.4 percent in 1998
compared to 20.9 percent in 1997. Gross profit margins improved compared to the
prior year due to decreased scrap and premium freight costs. The gross profit
margin was negatively impacted by a $750,000 charge during the current year as a
result of cash payments to the Company's represented employees upon ratification
of a new collective bargaining agreement. During the first six months of 1998,
the cost of zinc, which the Company uses at a rate of approximately 1 million to
1.2 million pounds per month, remained significantly above prior year levels
increasing to an average of approximately $.74 per pound in the six months ended
December 28, 1997, from an average of $.53 per pound in the six months ended
December 29, 1996 resulting in a negative impact on gross profit margins. The
cost of zinc declined in the second quarter of fiscal 1998 after increasing
dramatically over the previous 12 months.
Gross profit margins were also negatively impacted as inflationary cost
pressures in Mexico over the past 30 months have resulted in higher U.S. dollar
costs. The rate of inflation in Mexico during the six months ended June 28,
1998, and during calendar 1997 and 1996 was approximately 8, 16 and 28 percent,
respectively. The U.S. dollar/Mexican peso exchange rate remained relatively
stable during this period with devaluation during the period September 1997
through June 1998. The exchange rate ranged from approximately 7.40 to 7.90
pesos to the dollar during the period January 1996 through September 1997, and
from approximately 7.80 to 9.00 pesos to the dollar during the period October
1997 through June 28, 1998.
Engineering, selling and administrative expenses were $18.9 million, or
10.1 percent of net sales in 1998, compared to $17.7 million, or 11.1 percent of
net sales in 1997. Engineering expenses increased approximately $700,000
primarily in support of new programs. Selling and marketing expenses increased
approximately $200,000 primarily due to increased costs for commissions and
promotional items. Administrative expenses increased approximately $300,000,
primarily due to increased costs to recruit salaried employees.
Income from operations was $21.0 million in 1998, compared to $15.6
million in 1997, reflecting the increased sales volume and improved gross margin
as previously discussed above.
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
Net sales were $159.1 million in 1997, an increase of 14 percent
compared to net sales of $139.8 million in 1996. Sales to the "Big Three" North
American automakers continued to represent the majority of sales, accounting for
85 percent in 1997 and 82 percent in 1996.
Sales to our largest customer, General Motors Corporation, were $70.4
million in 1997 compared to $65.4 million in 1996, which was negatively affected
by a labor strike at a General Motors component plant. Sales to the Ford Motor
Company were $43.6 million in 1997 compared to $28.0 million in 1996, when the
Company was bringing several new Ford programs into production. Chrysler
Corporation sales were $21.0 million in 1997 compared to $20.3 million in 1996.
Lockset sales to these customers
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1998 STRATTEC ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
11
reflect increased product content from enhanced mechanical and
electro-mechanical features. The Company anticipates that this trend will
continue with further penetration of existing programs and introductions of new
programs.
Sales to Briggs & Stratton Corporation ("Briggs") declined to $3.5
million in 1997 from $6.8 million in 1996.
Gross profit as a percentage of net sales was 20.9 percent in 1997 and
1996. Increased scrap and expedited freight costs incurred in late 1996
continued in 1997 before improving. Gross profit as a percentage of net sales in
the fourth quarter of 1997 was 22.1 percent compared to 18.3 percent in the
fourth quarter of 1996. Improved operating performance in the second half of
1997 was somewhat diminished by rising zinc prices. Zinc is one of the Company's
primary raw materials and is subject to commodity pricing and variations in
market prices. The market price for zinc escalated during the last six months of
fiscal 1997 after a period of relative stability for the previous 18 months. The
increase has negatively impacted operating results as the Company is generally
not able to recover zinc price fluctuations from its customers.
Also negatively impacting gross profits were increased costs of the
Company's Mexican assembly operations. The U.S. dollar/Mexican peso exchange
rate has been relatively stable in the 18 months ending June 29, 1997, while
inflationary cost pressures in Mexico have resulted in higher U.S. dollar costs.
Engineering, selling, and administrative expenses were $17.7 million,
or 11.1 percent, of net sales in 1997, compared to $16.6 million, or 11.9
percent, of net sales in 1996. Engineering expenses increased $1.0 million
during 1997 in support of product programs. Selling and marketing expenses
declined $300,000 during 1997, primarily due to lower costs for commissions and
promotional materials. Administrative expenses increased $400,000, primarily in
the first half of 1997, in support of the Company's new business system
implementation. As of January 27, 1997, the Company no longer purchased computer
services from Briggs.
Income from operations was $15.6 million in 1997 compared to $12.6
million in 1996, reflecting increased sales volumes.
The effective income tax rate for 1997 was 36.8 percent, compared to
38.5 percent in 1996, due to increased tax benefits from research and
development tax credits foreign tax credits, and the Company's foreign sales
corporation. The effective rate differs from the federal statutory rate,
primarily due to the effects of state income taxes.
LIQUIDITY AND
CAPITAL RESOURCES
The Company generated cash from operating activities of $26.0 million
in 1998 compared to $6.1 million in 1997. The increased generation of cash is
primarily due to increased sales levels, with no significant changes in working
capital levels.
The Company's investment in accounts receivable decreased by
approximately $4.4 million at June 28, 1998, as compared to June 29, 1997,
primarily due to decreased sales levels during June 1998 as a result of labor
disruptions at General Motors Corporation, as previously discussed. Inventories
of $15.0 million at June 28, 1998, are consistent with the June 29, 1997,
levels. Inventory reductions resulting from improved inventory management were
offset by increased inventory levels resulting from decreased sales to General
Motors Corporation during June, 1998.
Capital expenditures in 1998 were $7.5 million, compared to $8.0
million in 1997. Expenditures were primarily for capital equipment in support of
new product programs, as well as the upgrade and replacement of existing
equipment at the Milwaukee facility. The Company anticipates that capital
expenditures will be approximately $9 million in 1999, primarily in support of
requirements for new product programs.
The Board of Directors of the Company has authorized a stock repurchase
program to buy back up to 289,395 outstanding shares. A total of 153,000 shares
have been repurchased as of June 28,1998, at a cost of approximately $2.7
million. Additional repurchases may occur from time to time. Funding for the
repurchases was provided by cash flow from operations and borrowings under
existing credit facilities.
The Company has a $25.0 million unsecured, revolving credit facility
(the "Credit Facility"). There were no outstanding borrowings under the Credit
Facility at June 28, 1998. Interest
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1998 STRATTEC ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS
12
on borrowings under the Credit Facility are at varying rates based, at the
Company's option, on the London Interbank offering rate, the Federal Funds Rate,
or the bank's prime rate. The Credit Facility contains various restrictive
covenants including covenants that require the Company to maintain minimum
levels for certain financial ratios such as tangible net worth, ratio of
indebtedness to tangible net worth and fixed charge coverage. The Company
believes that the Credit Facility will be adequate, along with cash flow from
operations, to meet its anticipated capital expenditure, working capital and
operating expenditure requirements.
The Company has not been significantly impacted by inflationary
pressures over the last several years, except for zinc and Mexican assembly
operations as noted elsewhere in this Management's Discussion and Analysis.
OTHER
The Company has developed a plan to address company-wide Year 2000
readiness. The plan addresses operating systems, manufacturing operations,
customers and suppliers. The Company has made significant progress toward
completion of this plan and anticipates being Year 2000 compliant during fiscal
1999. The Company is participating in a program coordinated by the Automotive
Industries Action Group ("AIAG"), a group sponsored and supported by General
Motors Corporation, Chrysler Corporation and the Ford Motor Company. Based upon
the guidelines of a Year 2000 Readiness Self-Assessment, developed by the AIAG,
the Company is classified as a low risk supplier in relation to Year 2000
compliance as of July 1998.
The Company implemented a new business information system in February
1997. Significant modifications to the software to be compliant with the
requirements to process transactions in the Year 2000 are not required.
Therefore, the Company does not expect that its cost to become Year 2000
compliant will be material to its financial condition or results of operations.
MEXICAN OPERATIONS
The Company has assembly operations in Juarez, Mexico. Since December
30, 1996, the functional currency of the Mexican operation has been the U.S.
dollar, as Mexico is currently considered to be a highly inflationary economy in
accordance with Statement of Financial Accounting Standard (SFAS) No. 52,
"Foreign Currency Translation." The effect of currency fluctuations in the
remeasurement process is included in the determination of income. The effect of
currency fluctuations included in the determination of income is not material.
Prior to December 30, 1996, the functional currency of the Mexican operation was
the Mexican Peso. The effects of currency fluctuations resulted in adjustments
to the U.S. dollar value of the Company's net assets and to the equity accounts
in accordance with SFAS No. 52.
PROSPECTIVE INFORMATION
A number of the matters and subject areas discussed in this Annual
Report that are not historical or current facts deal with potential future
circumstances and developments. These include expected future financial results,
liquidity needs, financing ability, planned capital expenditures, management's
or the Company's expectations and beliefs, and similar matters discussed in the
Company's Management's Discussion and Analysis. The discussions of such matters
and subject areas are qualified by the inherent risk 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, demand for the Company's products, competitive and technological
developments, foreign currency fluctuations, Year 2000 compliance issues and
costs of operations.
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1998 STRATTEC ANNUAL REPORT
CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS)
13
Years Ended
-------------------------------------------------
June 28, 1998 June 29, 1997 June 30, 1996
------------- ------------- -------------
NET SALES $186,805 $159,054 $139,745
Cost of goods sold 146,865 125,735 110,514
-------- -------- --------
GROSS PROFIT 39,940 33,319 29,231
Engineering, selling, and
administrative expenses 18,925 17,684 16,632
-------- -------- --------
INCOME FROM OPERATIONS 21,015 15,635 12,599
Interest income 351 4 22
Interest expense (19) (214) (363)
Other income, net 73 125 286
-------- -------- --------
INCOME BEFORE PROVISION FOR
INCOME TAXES 21,420 15,550 12,544
Provision for income taxes 7,931 5,730 4,830
-------- -------- --------
NET INCOME $13,489 $9,820 $7,714
======== ======== ========
EARNINGS PER SHARE:
BASIC $2.36 $1.72 $1.33
======== ======== ========
DILUTED $2.30 $1.70 $1.32
======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
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1998 STRATTEC ANNUAL REPORT
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
14
June 28, 1998 June 29, 1997
------------- -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $14,754 $404
Receivables, less allowance for doubtful
accounts of $250 at June 28, 1998,
and June 29, 1997 25,301 29,687
Inventories 14,962 14,879
Customer tooling in progress 8,692 6,615
Future income tax benefits 2,218 1,868
Other current assets 2,131 2,522
-------- -------
Total current assets 68,058 55,975
DEFERRED INCOME TAXES - 186
PROPERTY, PLANT, AND EQUIPMENT, NET 39,940 39,508
-------- -------
$107,998 $95,669
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $12,457 $12,367
Accrued liabilities:
Payroll and benefits 8,170 6,523
Environmental 2,873 2,911
Income taxes 307 452
Other 1,298 1,323
-------- -------
Total current liabilities 25,105 23,576
DEFERRED INCOME TAXES 357 -
BORROWINGS UNDER REVOLVING CREDIT FACILITY - 5,037
ACCRUED PENSION OBLIGATIONS 8,289 7,461
ACCRUED POSTRETIREMENT OBLIGATIONS 3,849 3,502
SHAREHOLDERS' EQUITY
Common stock, authorized 12,000,000 shares
$.01 par value,
issued 5,877,150 shares at June 28, 1998,
and 5,799,150 shares at June 29, 1997 59 58
Capital in excess of par value 42,489 41,094
Retained earnings 32,436 18,947
Cumulative translation adjustments (1,863) (1,863)
Less: Treasury stock, at cost (152,307
shares at June 28, 1998 and 132,000 shares at
June 29, 1997) (2,723) (2,143)
-------- -------
Total shareholders' equity 70,398 56,093
-------- -------
$107,998 $95,669
======== =======
The accompanying notes are an integral part of these consolidated balance
sheets.
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1998 STRATTEC ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (IN THOUSANDS)
15
Capital in Cumulative
Common Excess of Retained Translation Treasury
Stock Par Value Earnings Adjustments Stock
------ --------- -------- ----------- --------
BALANCE, JULY 2, 1995 $58 $40,909 $1,413 $(1,437) -
Net income - - 7,714 - -
Translation adjustments - - - (359) -
---- -------- -------- --------- --------
BALANCE, JUNE 30, 1996 58 40,909 9,127 (1,796) -
Net income - - 9,820 - -
Translation adjustments - - - (67) -
Purchase of common stock - - - - (2,143)
Exercise of stock options,
including tax benefit - 185 - - -
---- -------- -------- --------- --------
BALANCE, JUNE 29, 1997 58 41,094 18,947 (1,863) (2,143)
Net income - - 13,489 - -
Purchase of common stock - - - - (591)
Exercise of stock options,
including tax benefit 1 1,395 - - 11
---- -------- -------- --------- --------
BALANCE, JUNE 28, 1998 $59 $42,489 $32,436 $(1,863) $(2,723)
==== ======== ======== ========= ========
The accompanying notes are an integral part of these consolidated statements.
13
1998 STRATTEC ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
16
Years Ended
---------------------------------------------
June 28, 1998 June 29, 1997 June 30,1996
------------- ------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $13,489 $9,820 $7,714
Adjustments to reconcile net
income to
net cash provided by operating
activities:
Depreciation 6,776 5,639 3,961
Loss on disposition of property,
plant and equipment 168 171 254
Change in operating assets and
liabilities:
(Increase) decrease in receivables 4,330 (10,897) (3,367)
Increase in inventories (83) (1,473) (3,497)
(Increase) decrease in other
assets (1,891) 1,421 (2,211)
Increase in accounts payable
and accrued liabilities 3,216 1,459 4,128
Other, net (54) (50) (116)
------ ------- -------
Net cash provided by
operating activities 25,951 6,090 6,866
------ ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant
and equipment (7,450) (7,972) (12,177)
Proceeds received on sale of property,
plant, and equipment 70 196 60
------ ------- -------
Net cash used in investing activities (7,380) (7,776) (12,117)
------ ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from (payments of) borrowings
under revolving credit facility (5,037) 3,607 1,430
Purchase of common stock (591) (2,143) -
Exercise of stock options 1,407 185 -
------ ------- -------
Net cash provided by (used in)
financing activities (4,221) 1,649 1,430
------ ------- -------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 14,350 (37) (3,821)
CASH AND CASH EQUIVALENTS
Beginning of year 404 441 4,262
------ ------- -------
End of year $14,754 $404 $441
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Income taxes paid $7,482 $4,984 $6,422
Interest paid 19 227 355
The accompanying notes are an integral part of these consolidated statements.
14
1998 STRATTEC ANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS
17
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
STRATTEC SECURITY CORPORATION (the "Company") designs, develops,
manufacturers and markets mechanical locks, electro-mechanical locks and related
security products for major automotive manufacturers.
The significant accounting policies followed by the Company in the
preparation of these financial statements, as summarized in the following
paragraphs, are in conformity with generally accepted accounting principles.
PRINCIPLES OF CONSOLIDATION AND PRESENTATION: The accompanying
financial statements reflect the consolidated results of the company, its wholly
owned Mexican subsidiary, and its foreign sales corporation.
Certain amounts previously reported have been reclassified to conform
to the June 28, 1998, presentation. These reclassifications have no effect on
previously reported net income or retained earnings.
FISCAL YEAR: The Company's fiscal year ends on the Sunday nearest June
30.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The fair value of financial
instruments does not materially differ from their carrying values.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include all
short-term investments with an original maturity of three months or less.
INVENTORIES: Inventories are stated at cost, which does not exceed
market. The last-in, first-out (LIFO) method was used for determining the cost
of the inventories at the end of each period.
Inventories consist of the following (thousands of dollars):
June 28, June 29,
1998 1997
-------- --------
Finished products $5,114 $3,599
Work in process 11,204 12,446
Raw materials 1,179 1,671
LIFO adjustment (2,535) (2,837)
------- --------
$14,962 $14,879
======= ========
CUSTOMER TOOLING IN PROGRESS: The Company accumulates its costs for
development of certain tooling used in component production and assembly. The
costs, which are primarily from third-party tool vendors, are accumulated on the
Company's balance sheet. These amounts are then billed to the customer upon
formal acceptance by the customer of products produced with the individual tool.
PROPERTY, PLANT, AND EQUIPMENT: Property, plant, and equipment are
stated at cost, and depreciation is computed using the straight-line method over
the following estimated useful lives:
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):
June 28, June 29,
1998 1997
--------- --------
Land $855 $801
Buildings and improvements 9,819 9,551
Machinery and equipment 64,523 58,771
-------- --------
75,197 69,123
Less: accumulated depreciation (35,257) (29,615)
-------- --------
$ 39,940 $ 39,508
======== ========
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.
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.
FOREIGN CURRENCY TRANSLATION: Since December 30, 1996, the functional
currency of the Mexican operation has been the U.S. Dollar, as Mexico is
currently considered to be a highly inflationary economy in accordance with
15
1998 STRATTEC ANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS
18
Statement of Financial Accounting Standard (SFAS) No. 52, "Foreign Currency
Translation." The effect of currency fluctuations in the remeasurement process
is included in the determination of income. The effect of currency fluctuations
included in the determination of income is not material. Prior to December 30,
1996, the functional currency of the Mexican operation was the Mexican Peso. The
effects of currency fluctuations resulted in adjustments to the U.S. dollar
value of the Company's assets and to the equity accounts in accordance with SFAS
No. 52.
REVENUE RECOGNITION: Revenue is recognized upon the shipment of
products, net of estimated costs of returns and allowances.
COMPREHENSIVE INCOME: SFAS No. 130, "Reporting Comprehensive Income,"
was issued in 1997. This statement establishes standards for reporting and
display of comprehensive income and its components in a complete set of
financial statements. Comprehensive net income is the total of reported net
income and all other revenues, expenses, gains and losses that under generally
accepted accounting principles are not includable in reported net income but are
reflected in shareholders' equity. The Company will adopt this statement in
fiscal 1999. The Company does not expect adoption to have a material effect on
the consolidated financial statements.
SEGMENT REPORTING: SFAS No. 131, "Disclosures about segments of an
Enterprise and Related Information," was issued in 1997. This statement
establishes standards for the manner in which public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. SFAS No. 131
is effective for financial statements for fiscal years beginning after December
13, 1997. Since the Company operates in a single business segment, this
Statement will have no impact on future reporting requirements of the Company.
DERIVATIVE INSTRUMENTS: SFAS No. 133, "Accounting of Derivative
Instruments and Hedging Activities," was issued in 1998. The statement
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 is effective for financial statements
for fiscal years beginning after June 15, 1999. The Company currently does not
hold any such derivative instruments and does not expect this statement to have
an impact on future financial statements.
REVOLVING CREDIT FACILITY
The Company has a $25 million unsecured, revolving credit facility (the
"Credit Facility"), which expires October 31, 2000. Interest on borrowings under
the Credit Facility are at varying rates based, at the Company's option, on the
London Interbank Offering Rate, the Federal Funds Rate, or the bank's prime
rate. There were no outstanding borrowings at June 28, 1998. Outstanding
borrowings were $5,037,000 under the Credit Facility at and June 29, 1997. The
weighted average interest rate on the revolving credit borrowings was 6.2
percent and 6.0 percent for the years ended June 28, 1998, and June 29, 1997,
respectively.
The Credit Facility contains various restrictive covenants that require
the Company to maintain minimum levels for certain financial ratios, including
tangible net worth, ratio of indebtedness to tangible net worth and fixed charge
coverage.
ENVIRONMENTAL MATTER
In 1995, the Company recorded a provision of $3.0 million for estimated
costs to remediate a site at the Company's Milwaukee facility that was
contaminated by a solvent spill which occurred in 1985. The Company continues to
monitor and evaluate the site and believes, based upon findings-to-date and
known environmental regulations, that the environmental reserve at June 28,
1998, is adequate.
INCOME TAXES
The provision for income taxes consists of the following (thousands of
dollars):
1998 1997 1996
-----------------------------------
Currently payable:
Federal $5,576 $4,469 $3,883
State 1,323 1,037 861
Foreign 471 43 319
------ ------ ------
7,370 5,549 5,063
Deferred taxes 561 181 (233)
------ ------ ------
$7,931 $5,730 $4,830
====== ====== ======
16
1998 STRATTEC ANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
19
A reconciliation of the US statutory tax rates to the effective tax
rates follows:
1998 1997 1996
--------------------------------
US statutory rate 34.8% 34.4% 34.2%
State taxes, net of federal tax benefit 4.4 4.4 4.3
Foreign rate differential .4 (.8) .4
Other (2.6) (1.2) (.4)
---- ---- ----
37.0% 36.8% 38.5%
==== ==== ====
The components of deferred tax assets and liabilities are as follows
(thousands of dollars):
June 28, June 29,
1998 1997
-------- --------
Future income tax benefits:
Customer tooling $156 $156
Payroll-related accruals 410 410
Environmental reserve 1,121 1,136
Other 531 166
------ ------
$2,218 $1,868
====== ======
Deferred income taxes:
Accrued pension obligations $3,233 $2,910
Accumulated depreciation (5,091) (4,116)
Postretirement obligations 1,501 1,366
Other - 26
------ ------
($ 357) $186
====== ======
Foreign income before the provision for income taxes was not
significant for each of the years indicated.
RETIREMENT PLANS AND POSTRETIREMENT COSTS
The Company has a noncontributory deferred benefit pension plan
covering substantially all U.S. associates. Benefits are based on years of
service and final average compensation. The Company's 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.
The following tables summarize the plan's income and expense, actuarial
assumptions, and funded status for the years indicated (thousands of dollars):
1998 1997 1996
---- ---- ----
INCOME AND EXPENSE:
Service cost-benefits
earned during the year $1,206 $1,205 $1,057
Interest cost on projected
benefit obligation 1,664 1,631 1,451
Actual return on
plan assets (4,585) (3,138) (2,608)
Net amortization
and deferral 2,566 1,428 1,028
----- ----- -----
Net periodic pension
expense $851 $1,126 $928
====== ====== ======
1998 1997
---- ----
FUNDED STATUS:
Actuarial present value
of benefit obligations:
Vested $16,713 $13,187
Nonvested 2,270 1,946
------- -------
Accumulated benefit
obligation 18,983 15,133
Effect of projected future
compensation increases 7,206 6,492
------- -------
Projected benefit
obligation 26,189 21,625
Plan assets at fair
market value 26,364 22,194
-------- -------
Plan assets greater
than projected
benefit obligation 175 569
Remaining unrecognized
net asset arising from
the initial application
of SFAS No. 87 947 1,096
Unrecognized net gain 7,535 6,885
Unrecognized prior
service cost (18) 49
-------- -------
Accrued pension obligation $8,289 $7,461
======== =======
1998 1997
ACTUARIAL ASSUMPTIONS: -------- ------
Discount rate used to determine
present value of projected
benefit obligation 7.5% 7.75%
Expected rate of future
compensation increases 4.0% 4.0%
Expected long-term rate
of return on plan assets 8.5% 8.5%
17
NOTES TO FINANCIAL STATEMENTS
1998 STRATTEC ANNUAL REPORT
20
All U.S. associates of the Company may participate in a 401(K) Plan.
The Company contributes a fixed percentage of up to the first 6 percent of
eligible compensation that a participant contributes to the plan. The Company's
contributions totaled approximately $548,000 in 1998, $487,000 in 1997 and
$359,000 in 1996.
The Company recognizes the expected cost of retiree health care and
life insurance benefits during the years that the associates render service. For
measurement purposes, a 6.5 percent annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1998; the rate was assumed
to decrease to 6 percent by the year 1999 and remain at that level thereafter.
The discount rate used in determining the accumulated postretirement
benefit obligations was 7.5 percent at June 28, 1998, and 7.75 percent at June
29, 1997, compounded annually. The health care and life insurance plans are
unfunded.
The components of the accumulated postretirement benefit obligations
were as follows (thousands of dollars):
June 28, June 29,
1998 1997
-------- -------
Retirees $ 548 $ 225
Fully eligible
plan participants 570 435
Other active
participants 2,763 2,432
-------- -------
3,881 3,092
Unrecognized net
obligations (8) (9)
Unrecognized prior
service cost (274) -
Unrecognized net
gain 250 419
-------- -------
$ 3,849 $ 3,502
======== =======
The net periodic postretirement costs recorded during 1998, 1997, and
1996 were as follows (thousands of dollars):
1998 1997 1996
---- ---- ----
Service cost-benefits
attributed to service
during the year $169 $153 $173
Interest cost on
accumulated
benefit obligation 238 215 221
Other (8) (7) 1
---- ---- ----
$399 $361 $395
==== ==== ====
The health care cost trend assumption has a significant effect on the
amounts reported. A 1% change in the health care cost trend rates would have the
following effects (thousands of dollars):
1% 1%
Increase Decrease
-------- --------
Effect on total of service and
interest cost components $82 ($68)
Effect on Postretirement
benefit obligation $556 ($468)
SHAREHOLDERS' EQUITY
The Company has 12,000,000 shares of authorized common stock, par value
$.01 per share, with 5,724,843 and 5,667,150 shares issued and outstanding at
June 28, 1998, and June 29, 1997, respectively. Holders of Company common stock
are entitled to one vote for each share on all matters voted on by shareholders.
On February 27, 1995, one common stock purchase right (a "right") was
distributed for each share of the Company's common stock outstanding. The rights
are not currently exercisable, but would entitle shareholders to buy one-half of
one share of the Company's common stock at an exercise price of $30 per share if
certain events occurred relating to the acquisition or attempted acquisition of
20 percent or more of the outstanding shares. The rights expire in the year
2005, unless redeemed or exchanged by the Company earlier.
During fiscal 1997 the Company's Board of Directors authorized a stock
repurchase program to buy back up to 289,395 outstanding shares. As of June 28,
1998, 153,000 shares have been purchased at a cost of $2,734,000.
18
1998 STRATTEC ANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
21
EARNINGS PER SHARE (EPS)
In the second quarter of fiscal 1998, the Company adopted SFAS No. 128,
"Earnings Per Share." The Company's previously reported EPS is consistent with
basic EPS as calculated below under SFAS No. 128. A reconciliation of the
components of the basic and diluted per share computations follows (thousands of
dollars, except per share amounts):
Net Per-Share
Income Shares Amount
------ ------ ------
1998
----------------------------------
Basic EPS $ 13,489 5,708 $2.36
Stock Options 155
----- -----
Diluted EPS $ 13,489 5,863 $2.30
===== =====
1997
---------------------------------
Basic EPS $ 9,820 5,716 $1.72
Stock Options 69
----- -----
Diluted EPS $ 9,820 5,785 $1.70
===== =====
1996
---------------------------------
Basic EPS $ 7,714 5,785 $1.33
Stock Options 66
-----
Diluted EPS $ 7,714 5,851 $1.32
===== =====
Options to purchase the following shares of common stock were
outstanding as of each date indicated 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:
Exercise
Shares Price
------ -------
June 28, 1998 80,000 $31.98
5,000 $31.63
June 29, 1997 76,393 $19.28
77,135 $19.68
June 30, 1996 76,393 $19.28
STOCK OPTION AND PURCHASE PLANS
The Company maintains an omnibus stock incentive plan, which provides
for the granting of stock options. The Board of Directors has designated
1,200,000 shares of the Company's common stock available for grant under the
plan at a price not less than the fair market value on the date the option is
granted. Options become exercisable as determined at the date of grant by a
committee of the Board of Directors and expire 5 to 10 years after the date of
grant unless an earlier expiration date is set at the time of grant.
Weighted
Average
Exercise
Shares Price
------- --------
Balance as of July 2, 1995 382,500 $11.75
Granted 96,393 $18.57
Terminated 7,500 $11.75
-------
Balance as of June 30, 1996 471,393 $13.15
-------
Granted 157,135 $18.17
Exercised 13,750 $11.75
Terminated 15,889 $15.01
------
Balance June 29, 1997 598,889 $14.45
-------
Granted 95,000 $31.06
Exercised 78,000 $12.67
-------
Balance at June 28, 1998 615,889 $17.23
=======
Exercisable as of June 28, 1998 340,750 $12.37
=======
Available for grant
as of June 28, 1998 492,361
=======
During 1997, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." As permitted by the statement, the Company will
continue to account for its stock-based compensation plans in accordance with
APB Opinion No. 25 and related Interpretations. Accordingly, no compensation
cost related to these plans was charged against earnings in 1998, 1997, and
1996. Had compensation cost for these plans been determined consistent with SFAS
No. 123, the pro forma impact on earnings per share would have been as follows
(thousands of dollars):
June 28, June 29, June 30,
1998 1997 1996
-------- -------- --------
Net income
As reported $ 13,489 $ 9,820 $ 7,714
Pro forma $ 13,057 $ 9,655 $ 7,649
Basic earnings per share
As reported $ 2.36 $ 1.72 $ 1.33
Pro forma $ 2.29 $ 1.69 $ 1.33
Diluted earnings per share
As reported $ 2.30 $ 1.70 $ 1.32
Pro forma $ 2.24 $ 1.69 $ 1.32
The fair market value of each option grant was estimated as of the date
of grant using the Black-Scholes pricing model. The resulting compensation cost
was amortized over the vesting period.
19
1998 STRATTEC ANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS (Continued)
22
The grant date fair market values and assumptions used to determine
such impact are as follows:
Options Granted During 1998 1997 1996
---- ---- ----
Weighted average grant date fair value $ 31.06 $18.17 $18.57
Assumptions:
Risk free interest rates 6.07% 6.54% 6.01%
Expected volatility 30.10% 32.11% 27.98%
Expected term (in years) 5.75 5.5 5.75
The range of options outstanding as of June 28, 1998, is as follows:
Weighted
Weighted Average
Number of Average Remaining
Options Exercise Price Contractual
Price Range Outstanding/ Outstanding/ Life
per Share Exercisable Exercisable (in years)
- ----------- ------------ -------------- ----------
$11.75-$17.05 370,750/340,750 $12.78/$12.40 7.1
$19.28-$23.63 160,139/ - $19.73/ - 3.1
Over $31.63 85,000/ - $31.96/ - 4.5
--------------- ------------- ---
615,889/340,750 $17.23/$12.40 5.7
=============== ============= ===
Effective February 18, 1998, the Company adopted an Employee Stock
Purchase plan to provide substantially all U. S. full-time associates an
opportunity to purchase shares of its 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 stock at the average of the highest and lowest reported sales prices
of a share of the Company's common stock on the NASDAQ National Market. A total
of 100,000 shares may be issued under the plan. A total of 693 shares were
issued from treasury stock under the plan at an average price of $29.93 during
fiscal 1998. A total of 99,307 shares are available for purchase under the plan
as of June 28, 1998.
EXPORT SALES
Export sales are summarized below thousands of dollars):
Export Sales Percent of Net Sales
------------ --------------------
1998 $22,330 12%
1997 $17,179 11%
1996 $14,713 11%
These sales were primarily to vehicle manufacturing plants in Canada
and Mexico.
SALES TO LARGEST CUSTOMERS
Sales to the Company's largest customers were as follows (thousands of
dollars and percent of total net sales):
1998 1997 1996
Sales % Sales % Sales %
------------- ------------- ------------
General Motors
Corporation $ 86,721 46% $ 70,347 44% $ 65,441 47%
Ford Motor
Company 46,136 25% 43,617 27% 27,977 20%
Chrysler
Corporation 25,966 14% 21,000 13% 20,318 15%
------------ ------------- ------------
$158,823 85% $134,964 85% $113,736 82%
============ ============= ============
20
1998 STRATTEC ANNUAL REPORT
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS/REPORT OF MANAGEMENT
23
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, as of June 28, 1998, and June
29, 1997, and the related consolidated statements of income, changes in equity
and cash flows for each of the three years in the period ended June 28, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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, the financial statements referred to above present
fairly, in all material respects, the financial position of STRATTEC SECURITY
CORPORATION and subsidiaries as of June 28, 1998, and June 29, 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended June 28, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
July 30, 1998
REPORT OF MANAGEMENT
The management of STRATTEC SECURITY CORPORATION is responsible for the
fair presentation and integrity of the financial statements and other
information contained in this Annual Report. We rely on a system of internal
financial controls to meet the responsibility of providing financial statements.
The system provides reasonable assurances that assets are safeguarded, that
transactions are executed in accordance with management's authorization and that
the financial statements are prepared in accordance with generally accepted
accounting principles, including amounts based upon management's best estimates
and judgments.
The financial statements for each of the years covered in this Annual
Report have been audited by independent auditors, who have provided an
independent assessment as to the fairness of the financial statements.
The Audit Committee of the Board of Directors meets with management and
the independent auditors to review the results of their work and to satisfy
itself that their responsibilities are being properly discharged. The
independent auditors have full and free access to the Audit Committee and have
discussions with the committee regarding appropriate matters, with and without
management present.
Harold M. Stratton II John G. Cahill
Harold M. Stratton II John G. Cahill
President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
21
1998 STRATTEC ANNUAL REPORT
FINANCIAL SUMMARY
24
FIVE-YEAR FINANCIAL SUMMARY
For all periods after February 26, 1995, the financial data reflect the
consolidated results of the Company and its wholly owned subsidiaries. For all
periods prior to February 27, 1995, the financial data reflect the combined
results of the Technologies Business of Briggs & Stratton Corporation
("Briggs"). On February 27, 1995 Briggs transferred substantially all of the
assets, related debt and liabilities of its Technologies Business to the
Company, which was previously formed as a wholly owned subsidiary of Briggs in
order to receive the distribution (the "Distribution"). 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
1998 1997 1996 1995 1994
---------- ---------- ------------- ----------- ----------
INCOME STATEMENT DATA
Net sales $ 186,805 $ 159,054 $ 139,745 $ 110,372 $ 97,077
Gross profit 39,940 33,319 29,231 27,893 23,248
Engineering, selling, and
administrative expenses 18,925 17,684 16,632 13,847 8,915
Environmental charges - - - 3,000 1,250
--------- --------- --------- --------- ---------
Income from operations 21,015 15,635 12,599 11,046 13,083
Interest income 351 4 22 16 -
Interest expense (19) (214) (363) (12) -
Other income, net 73 125 286 83 68
--------- --------- --------- --------- ---------
Income before taxes and cumulative
effect of accounting changes 21,420 15,550 12,544 11,133 13,151
Provision for income taxes 7,931 5,730 4,830 4,657 5,330
--------- --------- --------- --------- ---------
Net income before cumulative
effect of accounting changes 13,489 9,820 7,714 6,476 7,821
Cumulative effect of accounting changes - - - - (3,024)
--------- --------- --------- --------- ---------
Net income $ 13,489 $ 9,820 $ 7,714 $ 6,476 $ 4,797
========= ========= ========= ========= =========
Earnings per share (a):
Basic $ 2.36 $ 1.72 $ 1.33 - -
Diluted $ 2.30 $ 1.70 $ 1.32 - -
BALANCE SHEET DATA
Net working capital $ 42,953 $ 32,399 $ 21,181 $ 18,978 $ 13,714
Total assets 107,998 95,669 82,818 70,103 49,496
Long-term liabilities 12,138 16,000 10,937 8,198 6,212
Equity 70,398 56,093 48,298 40,943 28,379
(a)Earnings per share is presented for fiscal years subsequent to the
Distribution.
QUARTERLY FINANCIAL DATA (UNAUDITED)
Market Price
Earnings Per Share Per Share
Net ------------------- -------------
Quarter Net Sales Gross Profit Income Basic Diluted High Low
------- --------- ------------ ------ ----- ------- ---- ---
1998
First $ 42,868 $ 8,488 $ 2,398 $ .42 $ .41 28 1/4 19 1/2
Second 49,722 10,142 3,433 .60 .59 30 1/4 23
Third 47,420 10,623 3,835 .67 .65 29 1/4 25
Fourth 46,795 10,687 3,823 .67 .65 33 1/4 27
--------- --------- --------- --------- ------
TOTAL $ 186,805 $ 39,940 $ 13,489 $ 2.36 $ 2.30
========= ========= ========= ========= ======
1997 First $ 36,214 $ 6,253 $ 1,201 $ .21 $ .21 18 1/2 13 3/4
Second 37,926 8,528 2,598 .45 .45 18 1/2 14 1/2
Third 41,836 9,036 2,902 .51 .50 19 3/4 16
Fourth 43,078 9,502 3,119 .55 .54 21 16 1/2
--------- --------- --------- --------- ------
TOTAL $ 159,054 $ 33,319 $ 9,820 $ 1.72 $ 1.70
========= ========= ========= ========= ======
Shareholders of record at June 28, 1998, were 5,010.