Exhibit 99.1

FOR RELEASE AT 3:00 PM CDT

Contact: Pat Hansen
Senior Vice President and
Chief Financial Officer
414-247-3435
www.strattec.com

STRATTEC SECURITY CORPORATION

REPORTS FISCAL 2019 SECOND QUARTER OPERATING RESULTS

AND PENSION SETTLEMENT CHARGE

Milwaukee, Wisconsin – January 24, 2019 -- STRATTEC SECURITY CORPORATION (NASDAQ:STRT) today reported operating results for the fiscal second quarter ended December 30, 2018 and a $32.4 million non-cash pre-tax pension settlement charge that reduced diluted earnings per share in the current year quarter by $6.67. Without the charge adjusted diluted earnings per share in the current year quarter would have been $0.71.

Net sales for the Company’s fiscal second quarter ended December 30, 2018 were $112.9 million, compared to net sales of $103.2 million for the prior year quarter ended December 31, 2017. Net loss for the current year quarter was $22.2 million, compared to net income of $2.9 million in the prior year quarter. Diluted loss per share for the current year quarter was $5.96 compared to diluted earnings per share of $0.78 in the prior year quarter.
 


Exhibit 99.1

During the current year quarter, the Company completed a substantial portion of terminating the STRATTEC Pension Plan that was frozen on December 31, 2009. A non-cash pre-tax pension settlement charge of $32.4 million was recorded during the current year quarter ($24.8 million or $6.67 diluted per share after tax). A remaining non-cash compensation expense charge of approximately $8 million on a pre-tax basis (approximately $6.1 million after tax) is expected to be recorded in future periods when the Plan is fully terminated and the excess Plan assets are transferred to a STRATTEC defined contribution plan and subsequently paid out.

For the six months ended December 30, 2018, net sales were $230.1 million compared to net sales of $205.6 million during the prior year six month period. Net loss during the current year six month period was $18.7 million compared to net income of $5.3 million during the prior year six month period. Diluted loss per share was $5.03 for the current year six month period ended December 30, 2018 compared to diluted earnings per share of $1.44 for the prior year six month period ended December 31, 2017. As previously described, the non-cash pre-tax settlement charge of $32.4 million or $24.8 million after tax impacted the six month results ended December 30, 2018. See the following table for further explanation.

STRATTEC SECURITY CORPORATION

RECONCILIATION OF NON-GAAP PERFORMANCE MEASURES TO GAAP PERFORMANCE MEASURES

(in thousands, except share and earnings per share data)

   
Three Months Ended
   
Six Months Ended
 
   
December 30,
   
December 31,
   
December 30,
   
December 31,
 
   
2018
   
2017
   
2018
   
2017
 
   
Unaudited
   
Unaudited
   
Unaudited
   
Unaudited
 
                         
Net (loss) income (GAAP measure)
 
$
(22,164
)
 
$
2,882
   
$
(18,697
)
 
$
5,338
 
                                 
Pension termination settlement charge, net of tax
   
24,812
     
-
     
24,812
     
-
 
                                 
Adjusted net income
 
$
2,648
   
$
2,882
   
$
6,115
   
$
5,338
 
                                 
Diluted (loss) earnings per share (GAAP measure)
 
$
(5.96
)
 
$
0.78
   
$
(5.03
)
 
$
1.44
 
                                 
Pension termination settlement charge, net of tax
   
6.67
     
-
     
6.68
     
-
 
                                 
Adjusted diluted earnings per share
 
$
0.71
   
$
0.78
   
$
1.65
   
$
1.44
 
 


Exhibit 99.1

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

   
Three Months Ended
 
             
   
December 30, 2018
   
December 31, 2017
 
             
Fiat Chrysler Automobiles
 
$
25.7
   
$
22.0
 
General Motors Company
   
23.8
     
21.4
 
Ford Motor Company
   
16.1
     
16.1
 
Tier 1 Customers
   
18.5
     
16.5
 
Commercial and Other OEM Customers
   
21.4
     
19.8
 
Hyundai / Kia
   
7.4
     
7.4
 
TOTAL
 
$
112.9
   
$
103.2
 

The sales to Fiat Chrysler Automobiles in the current year quarter increased compared to the prior year quarter due to higher content on the components we supply on certain vehicles, in particular the Dodge Ram pickup truck. The increase in sales to General Motors Company in the current year quarter was primarily attributed to higher vehicle production volumes and content on products we supply. Sales to Ford Motor Company and Hyundai/Kia in the current year quarter were flat compared to the prior year quarter. Sales to Tier 1 Customers increased in the current year quarter due to higher production volumes. Sales to Commercial and Other OEM Customers during the current year quarter increased in comparison to the prior year quarter mainly due to new customer programs at Volkswagen. These customers, along with the Tier 1 Customers, primarily represent purchasers of vehicle access control products such as latches, fobs, driver controls and door handles, that we have developed in recent years to complement our historic core business of locks and keys.
 


Exhibit 99.1

The gross profit margins were 11.3 percent in the current year quarter compared to 12.3 percent in the prior year quarter. The decrease in gross profit margin in the current year quarter compared to the prior year quarter was attributed to a continuation from our previous quarter of higher production and expediting costs associated with new product launches occurring in fiscal year 2019 and to changes in product mix. The gross profit margins in the current year quarter were positively impacted by a favorable Mexican Peso to U.S. Dollar exchange rate affecting our operations in Mexico.

Engineering, Selling and Administrative expenses as a percentage of net sales decreased to 9.3 percent in the current year quarter from 9.8 percent in the prior year quarter.

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

   
December 30,
   
December 31,
 
   
2018
   
2017
 
             
Equity Earnings of VAST LLC Joint Venture
 
$
1,487
   
$
1,404
 
Equity (Loss) Earnings of STRATTEC Advanced Logic LLC Joint Venture
   
(11
)
   
69
 
Net Foreign Currency Transaction Gain (Loss)
   
277
     
(64
)
Other
   
(539
)
   
173
 
   
$
1,214
   
$
1,582
 

Frank Krejci, President and CEO commented: “I am very pleased, that after years of planning and effort, in this quarter we took the major step of contractually transferring our pension obligations to an insurance company, and did so without having to contribute any additional funds. Some companies are struggling with, or even worse, deferring focus on the enormous problem of unfunded pension liabilities. We have now eliminated that liability and its attendant risks from STRATTEC’s financial future.
 


Exhibit 99.1

We believe that we have created significant shareholder value by eliminating the risk of stock market volatility affecting our pension assets. If there is a downturn in the economy and the stock market, we no longer need to worry about having to make pension contributions when we may be least able to afford them. This is a very positive achievement, despite the ugly pension accounting treatment associated with a transaction of this type, and well worth the non-cash accounting hit in this quarter.”

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 our companies' products to global customers under the “VAST” brand name. STRATTEC’s history in the automotive business spans over 110 years.

Certain statements contained in this release are “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 customer product recall policies, foreign currency fluctuations, uncertainties stemming from U.S. trade policies, tariffs and reaction to same from foreign countries 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.
 


Exhibit 99.1

Non-GAAP Financial Measures

This press release contains financial measures not prepared in accordance with generally accepted accounting principles (referred to as Non-GAAP), specifically “adjusted net income” and “adjusted diluted earnings per share.” “Adjusted net income” is defined as net (loss) income attributable to STRATTEC SECURITY CORPORATION shareholders excluding the pension termination settlement charge, net of tax. “Adjusted diluted earnings per share” is defined as “Adjusted net income” divided by average diluted shares of common stock outstanding. The Company believes that these Non-GAAP measures, when presented in conjunction with comparable GAAP measures, provide additional information for evaluating STRATTEC’s performance and are important measures by which STRATTEC’s management is able to assess the profitability and liquidity of STRATTEC’s business. These Non-GAAP measures should be considered in addition to, not as a substitute for or superior to, net income (loss) as a measure of operating performance. These Non-GAAP measures may be different than Non-GAAP financial measures used by other companies.
 


Exhibit 99.1

STRATTEC SECURITY CORPORATION
Condensed Results of Operations
(In Thousands except per share amounts)
(Unaudited)

   
Second Quarter Ended
   
Six Months Ended
 
   
December 30, 2018
   
December 31, 2017
   
December 30, 2018
   
December 31, 2017
 
                         
Net Sales
 
$
112,913
   
$
103,182
   
$
230,072
   
$
205,642
 
                                 
Cost of Goods Sold
   
100,177
     
90,536
     
202,153
     
179,533
 
                                 
Gross Profit
   
12,736
     
12,646
     
27,919
     
26,109
 
                                 
Engineering, Selling & Administrative Expenses
   
10,470
     
10,152
     
21,501
     
20,194
 
                                 
Income from Operations
   
2,266
     
2,494
     
6,418
     
5,915
 
                                 
Interest Income
   
-
     
3
     
-
     
7
 
                                 
Interest Expense
   
(404
)
   
(253
)
   
(811
)
   
(456
)
                                 
Pension Termination Settlement Charge
   
(32,434
)
   
-
     
(32,434
)
   
-
 
                                 
Other Income, Net
   
1,214
     
1,582
     
1,878
     
2,695
 
                                 
(Loss) Income Before (Benefit) Provision for Income Taxes and Non-Controlling Interest
   
(29,358
)
   
3,826
     
(24,949
)
   
8,161
 
                                 
(Benefit) Provision for Income Taxes
   
(7,760
)
   
(9
)
   
(7,780
)
   
1,057
 
                                 
Net (Loss) Income
   
(21,598
)
   
3,835
     
(17,169
)
   
7,104
 
                                 
Net Income Attributable to Non-Controlling Interest
   
(566
)
   
(953
)
   
(1,528
)
   
(1,766
)
                                 
Net (Loss) Income Attributable to STRATTEC SECURITY CORPORATION
 
$
(22,164
)
 
$
2,882
   
$
(18,697
)
 
$
5,338
 
                                 
(Loss) Earnings Per Share:
                               
Basic
 
$
(6.03
)
 
$
0.79
   
$
(5.10
)
 
$
1.47
 
Diluted
 
$
(5.96
)
 
$
0.78
   
$
(5.03
)
 
$
1.44
 
                                 
Average Basic Shares Outstanding
   
3,675
     
3,631
     
3,663
     
3,621
 
                                 
Average Diluted Shares Outstanding
   
3,718
     
3,715
     
3,715
     
3,698
 
                                 
Other
                               
Capital Expenditures
 
$
5,433
   
$
6,778
   
$
9,402
   
$
14,349
 
Depreciation & Amortization
 
$
4,076
   
$
3,572
   
$
8,123
   
$
6,667
 
 


Exhibit 99.1

STRATTEC SECURITY CORPORATION
Condensed Balance Sheet Data
(In Thousands)

   
December 30, 2018
   
July 1, 2018
 
   
(Unaudited)
       
             
ASSETS
           
Current Assets:
           
Cash and cash equivalents
 
$
11,373
   
$
8,090
 
Receivables, net
   
67,256
     
73,832
 
Inventories, net
   
47,988
     
46,654
 
Other current assets
   
19,707
     
22,527
 
Total Current Assets
   
146,324
     
151,103
 
Investment in Joint Ventures
   
22,989
     
22,192
 
Other Long Term Assets
   
11,732
     
17,338
 
Property, Plant and Equipment, Net
   
117,793
     
116,542
 
   
$
298,838
   
$
307,175
 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current Liabilities:
               
Accounts Payable
 
$
35,652
   
$
38,439
 
Other
   
30,272
     
30,354
 
Total Current Liabilities
   
65,924
     
68,793
 
Accrued Pension and Post Retirement Obligations
   
2,338
     
2,379
 
Borrowings Under Credit Facility
   
46,000
     
51,000
 
Other Long-term Liabilities
   
819
     
1,757
 
Shareholders’ Equity
   
316,374
     
331,375
 
Accumulated Other Comprehensive Loss
   
(18,648
)
   
(33,439
)
Less: Treasury Stock
   
(135,758
)
   
(135,778
)
Total STRATTEC SECURITY CORPORATION Shareholders’ Equity
   
161,968
     
162,158
 
Non-Controlling Interest
   
21,789
     
21,088
 
Total Shareholders’ Equity
   
183,757
     
183,246
 
   
$
298,838
   
$
307,175
 
 


Exhibit 99.1

STRATTEC SECURITY CORPORATION
Condensed Cash Flow Statement Data
(In Thousands)
(Unaudited)

   
Second Quarter Ended
   
Six Months Ended
 
   
December 30, 2018
   
December 31, 2017
   
December 30, 2018
   
December 31, 2017
 
                         
Cash Flows from Operating Activities:
                       
Net (Loss) Income
 
$
(21,598
)
 
$
3,835
   
$
(17,169
)
 
$
7,104
 
Adjustments to Reconcile Net (Loss) Income to Cash Provided by Operating Activities:
                               
Pension Settlement Charge
   
32,434
     
-
     
32,434
     
-
 
Equity Earnings in Joint Ventures
   
(1,476
)
   
(1,473
)
   
(2,385
)
   
(2,499
)
Depreciation and Amortization
   
4,076
     
3,572
     
8,123
     
6,667
 
Foreign Currency Transaction (Gain) Loss
   
(359
)
   
(556
)
   
69
     
(419
)
Unrealized Loss (Gain) on Peso Forward Contracts
   
132
     
821
     
(93
)
   
1,079
 
Deferred Income Taxes
   
(7,759
)
   
(1,710
)
   
(8,131
)
   
(1,710
)
Stock Based Compensation Expense
   
241
     
250
     
626
     
621
 
Change in Operating Assets/Liabilities
   
6,518
     
(4,027
)
   
6,532
     
(9,772
)
Other, net
   
(284
)
   
(28
)
   
(284
)
   
(33
)
                                 
Net Cash Provided by Operating Activities
   
11,925
     
684
     
19,722
     
1,038
 
                                 
Cash Flows from Investing Activities:
                               
Repayment of Loan to Joint Venture
   
-
     
150
     
-
     
150
 
Additions to Property, Plant and Equipment
   
(5,433
)
   
(6,778
)
   
(9,402
)
   
(14,349
)
Proceeds Received on Sale of Property, Plant and Equipment
   
12
     
2
     
12
     
2
 
Net Cash Used in Investing Activities
   
(5,421
)
   
(6,626
)
   
(9,390
)
   
(14,197
)
                                 
Cash Flow from Financing Activities:
                               
Borrowings on Line of Credit Facility
   
-
     
6,000
     
2,000
     
18,000
 
Payments on Line of Credit Facility
   
(5,000
)
   
-
     
(7,000
)
   
(2,000
)
Dividends Paid to Non-Controlling Interest of Subsidiary
   
(200
)
   
-
     
(984
)
   
(2,017
)
Dividends Paid
   
(515
)
   
(509
)
   
(1,029
)
   
(1,017
)
Exercise of Stock Options and Employee Stock Purchases
   
49
     
165
     
72
     
190
 
                                 
Net Cash (Used in) Provided by Financing Activities
   
(5,666
)
   
5,656
     
(6,941
)
   
13,156
 
                                 
Effect of Foreign Currency Fluctuations on Cash
   
190
     
173
     
(108
)
   
27
 
                                 
Net Increase (Decrease) in Cash & Cash Equivalents
   
1,028
     
(113
)
   
3,283
     
24
 
                                 
Cash and Cash Equivalents:
                               
Beginning of Period
   
10,345
     
8,498
     
8,090
     
8,361
 
End of Period
 
$
11,373
   
$
8,385
   
$
11,373
   
$
8,385
 




The following information was filed by Strattec Security Corp (STRT) on Thursday, January 24, 2019 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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