Company Quick10K Filing
Stoneridge
Price31.77 EPS2
Shares28 P/E13
MCap903 P/FCF44
Net Debt-52 EBIT86
TEV851 TEV/EBIT10
TTM 2019-09-30, in MM, except price, ratios
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8-K 2020-05-19
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8-K 2018-12-06
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8-K 2018-02-28
8-K 2018-01-15

SRI 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.1 sri-20200331xex10d1.htm
EX-31.1 sri-20200331xex31d1.htm
EX-31.2 sri-20200331xex31d2.htm
EX-32.1 sri-20200331xex32d1.htm
EX-32.2 sri-20200331xex32d2.htm

Stoneridge Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
0.70.60.40.30.10.02012201420172020
Assets, Equity
0.30.20.10.1-0.0-0.12012201420172020
Rev, G Profit, Net Income
0.10.10.0-0.0-0.1-0.12012201420172020
Ops, Inv, Fin

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarter ended March 31, 2020

Commission file number: 001-13337

Stoneridge

STONERIDGE INC

(Exact name of registrant as specified in its charter)

Ohio

34-1598949

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

39675 MacKenzie Drive, Suite 400, Novi, Michigan

48377

(Address of principal executive offices)

(Zip Code)

(248) 489-9300

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Common Shares, without par value SRI New York Stock Exchange

Title of each class Trading symbol(s) Name of each exchange on which registered

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 No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No

The number of Common Shares, without par value, outstanding as of April 30, 2020 was 26,993,184.

Table of Contents

STONERIDGE, INC. AND SUBSIDIARIES

INDEX

 

Page

PART I–FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets as of March 31, 2020 (Unaudited) and December 31, 2019

4

Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2020 and 2019

5

Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited) for the Three Months Ended March 31, 2020 and 2019

6

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2020 and 2019

7

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) for the Three Months Ended March 31, 2020 and 2019

8

Notes to Condensed Consolidated Financial Statements (Unaudited)

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

Item 4.

Controls and Procedures

36

PART II–OTHER INFORMATION

Item 1.

Legal Proceedings

37

Item 1A.

Risk Factors

37

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 3.

Defaults Upon Senior Securities

38

Item 4.

Mine Safety Disclosures

38

Item 5.

Other Information

38

Item 6.

Exhibits

39

Signatures

40

2

Table of Contents

Forward-Looking Statements

Portions of this report on Form 10-Q contain “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this report and may include statements regarding the intent, belief or current expectations of the Company, with respect to, among other things, our (i) future product and facility expansion, (ii) acquisition strategy, (iii) investments and new product development, (iv) growth opportunities related to awarded business and (v) operational expectations. Forward-looking statements may be identified by the words “will,” “may,” “should,” “designed to,” “believes,” “plans,” “projects,” “intends,” “expects,” “estimates,” “anticipates,” “continue,” and similar words and expressions. The forward-looking statements are subject to risks and uncertainties that could cause actual events or results to differ materially from those expressed in or implied by the statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, among other factors:

the reduced purchases, loss or bankruptcy of a major customer or supplier;
the costs and timing of business realignment, facility closures or similar actions;
a significant change in automotive, commercial, off-highway, motorcycle or agricultural vehicle production;
competitive market conditions and resulting effects on sales and pricing;
the impact on changes in foreign currency exchange rates on sales, costs and results, particularly the Argentinian peso, Brazilian real, Chinese renminbi, euro, Mexican peso and Swedish krona;
our ability to achieve cost reductions that offset or exceed customer-mandated selling price reductions;
customer acceptance of new products;
our ability to successfully launch/produce products for awarded business;
adverse changes in laws, government regulations or market conditions, including tariffs, affecting our products or our customers’ products;
our ability to protect our intellectual property and successfully defend against assertions made against us;
liabilities arising from warranty claims, product recall or field actions, product liability and legal proceedings to which we are or may become a party, or the impact of product recall or field actions on our customers;
labor disruptions at our facilities or at any of our significant customers or suppliers;
business disruptions due to natural disasters or other disasters or other disasters outside our control, such as the COVID-19 pandemic;
the ability of our suppliers to supply us with parts and components at competitive prices on a timely basis, including the impact of potential tariffs and trade considerations on their operations and output;
the amount of our indebtedness and the restrictive covenants contained in the agreements governing our indebtedness, including our revolving credit facility;
capital availability or costs, including changes in interest rates or market perceptions;
the failure to achieve the successful integration of any acquired company or business;
risks related to a failure of our information technology systems and networks, and risks associated with current and emerging technology threats and damage from computer viruses, unauthorized access, cyber-attack and other similar disruptions; and
those items described in Part II Item 1A (“Risk Factors”) of this Quarterly Report on Form 10-Q and Part I, Item IA (“Risk Factors”) in the Company’s 2019 Form 10-K.

In addition, the forward-looking statements contained herein represent our estimates only as of the date of this filing and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, whether to reflect actual results, changes in assumptions, changes in other factors affecting such forward-looking statements or otherwise.

3

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

STONERIDGE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31,

December 31,

(in thousands)

    

2020

    

2019

(Unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

81,305

$

69,403

Accounts receivable, less reserves of $813 and $1,289, respectively

138,438

138,564

Inventories, net

95,777

93,449

Prepaid expenses and other current assets

33,739

29,850

Total current assets

349,259

331,266

Long-term assets:

Property, plant and equipment, net

116,149

122,483

Intangible assets, net

51,463

58,122

Goodwill

35,279

35,874

Operating lease right-of-use asset

20,316

22,027

Investments and other long-term assets, net

28,024

32,437

Total long-term assets

251,231

270,943

Total assets

$

600,490

$

602,209

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Current portion of debt

$

2,516

$

2,672

Accounts payable

79,222

80,701

Accrued expenses and other current liabilities

48,731

55,223

Total current liabilities

130,469

138,596

Long-term liabilities:

Revolving credit facility

161,000

126,000

Long-term debt, net

255

454

Deferred income taxes

11,335

12,530

Operating lease long-term liability

16,569

17,971

Other long-term liabilities

13,569

16,754

Total long-term liabilities

202,728

173,709

Shareholders' equity:

Preferred Shares, without par value, 5,000 shares authorized, none issued

-

-

Common Shares, without par value, 60,000 shares authorized, 28,966 and 28,966 shares issued and 26,993 and 27,408 shares outstanding at March 31, 2020 and December 31, 2019, respectively, with no stated value

-

-

Additional paid-in capital

230,506

225,607

Common Shares held in treasury, 1,973 and 1,558 shares at March 31, 2020 and December 31, 2019, respectively, at cost

(60,999)

(50,773)

Retained earnings

210,032

206,542

Accumulated other comprehensive loss

(112,246)

(91,472)

Total shareholders' equity

267,293

289,904

Total liabilities and shareholders' equity

$

600,490

$

602,209

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

4

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STONERIDGE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Three months ended March 31 (in thousands, except per share data)

2020

    

2019

Net sales

$

182,966

$

218,297

Costs and expenses:

Cost of goods sold

137,569

157,444

Selling, general and administrative

29,503

35,910

Design and development

12,235

13,244

Operating income

3,659

11,699

Interest expense, net

1,030

1,003

Equity in earnings of investee

(457)

(364)

Other income, net

(1,617)

(432)

Income before income taxes

4,703

11,492

Provision for income taxes

1,213

1,835

Net income

$

3,490

$

9,657

Earnings per share:

Basic

$

0.13

$

0.34

Diluted

$

0.13

$

0.33

Weighted-average shares outstanding:

Basic

27,232

28,529

Diluted

27,591

29,085

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

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STONERIDGE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)

Three months ended March 31 (in thousands)

2020

2019

Net income

$

3,490

$

9,657

Other comprehensive income (loss), net of tax:

Foreign currency translation

(17,119)

(3,804)

Unrealized (loss) gain on derivatives (1)

(3,655)

42

Other comprehensive loss, net of tax

(20,774)

(3,762)

Comprehensive (loss) income

$

(17,284)

$

5,895

(1)Net of tax (benefit) expense of $(972) and $11 for the three months ended March 31, 2020 and 2019, respectively.

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

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STONERIDGE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Three months ended March 31 (in thousands)

    

2020

    

2019

    

OPERATING ACTIVITIES:

Net income

$

3,490

$

9,657

Adjustments to reconcile net income to net cash provided by (used for) operating activities:

Depreciation

6,650

5,697

Amortization, including accretion and write-off of deferred financing costs

1,429

1,613

Deferred income taxes

76

(2,979)

Earnings of equity method investee

(457)

(364)

Loss (gain) on sale of fixed assets

131

(1)

Share-based compensation expense

1,372

1,548

Excess tax deficiency (benefit) related to share-based compensation expense

17

(656)

Change in fair value of earn-out contingent consideration

(633)

469

Change in fair value of venture capital fund

39

(16)

Changes in operating assets and liabilities, net of effect of business combination:

Accounts receivable, net

(3,730)

(17,821)

Inventories, net

(5,838)

(13,655)

Prepaid expenses and other assets

(3,702)

(660)

Accounts payable

2,327

16,395

Accrued expenses and other liabilities

(7,733)

(4,836)

Net cash used for operating activities

(6,562)

(5,609)

INVESTING ACTIVITIES:

Capital expenditures, including intangibles

(7,140)

(8,684)

Proceeds from sale of fixed assets

8

1

Investment in venture capital fund

-

(400)

Net cash used for investing activities

(7,132)

(9,083)

FINANCING ACTIVITIES:

Revolving credit facility borrowings

71,500

-

Revolving credit facility payments

(36,500)

(5,000)

Proceeds from issuance of debt

1,958

34

Repayments of debt

(2,076)

(690)

Earn-out consideration cash payment

-

(3,394)

Other financing costs

(1)

(2)

Common Share repurchase program

(4,995)

-

Repurchase of Common Shares to satisfy employee tax withholding

(1,687)

(2,945)

Net cash provided by (used for) financing activities

28,199

(11,997)

Effect of exchange rate changes on cash and cash equivalents

(2,603)

(1,317)

Net change in cash and cash equivalents

11,902

(28,006)

Cash and cash equivalents at beginning of period

69,403

81,092

Cash and cash equivalents at end of period

$

81,305

$

53,086

Supplemental disclosure of cash flow information:

Cash paid for interest

$

1,150

$

1,109

Cash paid for income taxes, net

$

1,832

$

3,327

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

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STONERIDGE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

Number of 

Accumulated

 

Common 

Number of

Additional

Common

other

Total

Shares

 treasury

paid-in

Shares held 

Retained

comprehensive

shareholders'

(in thousands)

    

outstanding

    

shares

    

capital

    

in treasury

    

earnings

    

loss

    

equity

BALANCE DECEMBER 31, 2018

 

28,488

 

478

 

$

231,647

 

$

(8,880)

 

$

146,251

 

$

(85,752)

 

$

283,266

Net income

 

 

 

 

 

9,657

 

 

9,657

Unrealized gain on derivatives, net

 

 

 

 

 

 

42

 

42

Currency translation adjustments

 

 

 

 

 

 

(3,804)

 

(3,804)

Issuance of Common Shares

 

305

 

(305)

 

 

 

 

 

Repurchased Common Shares for treasury, net

 

(98)

 

98

 

 

(1,883)

 

 

 

(1,883)

Share-based compensation, net

480

480

BALANCE MARCH 31, 2019

 

28,695

 

271

$

232,127

$

(10,763)

$

155,908

$

(89,514)

$

287,758

BALANCE DECEMBER 31, 2019

 

27,408

 

1,558

 

$

225,607

 

$

(50,773)

 

$

206,542

 

$

(91,472)

 

$

289,904

Net income

 

 

 

 

 

3,490

 

 

3,490

Unrealized loss on derivatives, net

 

 

 

 

 

 

(3,655)

 

(3,655)

Currency translation adjustments

 

 

 

 

 

 

(17,119)

 

(17,119)

Issuance of Common Shares

 

267

 

(267)

 

 

 

 

 

Repurchased Common Shares for treasury, net

 

(75)

 

75

 

 

4,769

 

 

 

4,769

Common Share repurchase program

 

(607)

 

607

 

10,000

 

(14,995)

 

 

 

(4,995)

Share-based compensation, net

(5,101)

(5,101)

BALANCE MARCH 31, 2020

 

26,993

 

1,973

$

230,506

$

(60,999)

$

210,032

$

(112,246)

$

267,293

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

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STONERIDGE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data, unless otherwise stated)

(Unaudited)

(1) Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared by Stoneridge, Inc. (the “Company”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The information furnished in the condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of such financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to the SEC’s rules and regulations. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s 2019 Form 10-K.

The Company’s investment in Minda Stoneridge Instruments Ltd. (“MSIL”) for the three months ended March 31, 2020 and 2019 has been determined to be an unconsolidated entity, and therefore is accounted for under the equity method of accounting based on the Company’s 49% ownership in MSIL.

(2) Recently Issued Accounting Standards

Recently Adopted Accounting Standards

In August 2018, the Financial Accounting Standards Board (‘FASB”) issued Accounting Standards Update (“ASU”) 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The guidance in ASU 2018-15 clarifies the accounting for implementation costs in cloud computing arrangements. ASU 2018-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. The Company adopted this standard prospectively as of January 1, 2020 and the impact on the Company’s condensed consolidated financial statements will depend on the nature of our future cloud computing arrangements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” The guidance in ASU 2018-13 changes disclosure requirements related to fair value measurements as part of the disclosure framework project. The disclosure framework project aims to improve the effectiveness of disclosures in the notes to the financial statements by focusing on requirements that clearly communicate the most important information to users of the financial statements. This guidance is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company adopted this standard as of January 1, 2020 and it did not have a material impact on the Company’s condensed consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments”, which requires measurement and recognition of expected credit losses for financial assets held and requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses. ASU 2016-13 is effective for public business entities for annual periods beginning after December 15, 2019. The guidance allows for various methods for measuring expected credit losses. The Company has elected to apply a historical loss rate based on historical write-offs by region, adjusted for current economic conditions and forecasts about future economic conditions that are reasonable and supportable. The Company adopted this standard as of January 1, 2020 and it did not have a material impact on the Company’s condensed consolidated financial statements.

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STONERIDGE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data, unless otherwise stated)

(Unaudited)

Accounting Standards Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The guidance in ASU 2020-04 provides temporary optional expedient and exceptions to the guidance in U.S. GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”) (also known as the “reference rate reform”). The guidance allows companies to elect not to apply certain modification accounting requirements to contracts affected by the reference rate reform, if certain criteria are met. The guidance also allows companies to elect various option expedients that allow them to continue to apply hedge accounting for hedging relationships affected by the reference rate reform, if certain criteria are met. The Company is currently evaluating the impact of this ASU on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The amendments in this update remove certain exceptions of Topic 740 including: exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or gain from other items; exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. There are also additional areas of guidance in regards to: franchise and other taxes partially based on income and the interim recognition of enactment of tax laws and rate changes. The provisions of this ASU are effective for years beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this ASU on the Company’s consolidated financial statements.

(3) Revenue

Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs with the transfer of control of our products and services, which is usually when the parts are shipped or delivered to the customer’s premises. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. The transaction price will include estimates of variable consideration to the extent it is probable that a significant reversal of revenue recognized will not occur. Incidental items that are not significant in the context of the contract are recognized as expense. The expected costs associated with our base warranties continue to be recognized as expense when the products are sold. Customer returns only occur if products do not meet the specifications of the contract and are not connected to any repurchase obligations of the Company.

The Company does not have any financing components or significant payment terms as payment occurs shortly after the point of sale. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction that are collected by the Company from a customer are excluded from revenue. Amounts billed to customers related to shipping and handling costs are included in net sales in the condensed consolidated statements of operations. Shipping and handling costs associated with outbound freight after control over a product is transferred to the customer are accounted for as a fulfillment cost and are included in cost of sales.

Revenue by Reportable Segment

Control Devices. Our Control Devices segment designs and manufactures products that monitor, measure or activate specific functions within a vehicle. This segment includes product lines such as actuators, sensors, switches and connectors. We sell these products principally to the automotive market in the North American, European, and Asia Pacific regions. To a lesser extent, we also sell these products to the commercial vehicle and agricultural markets in our North America, European and Asia Pacific regions. Our customers included in these markets primarily consist of original equipment manufacturers (“OEM”) and companies supplying components directly to the OEMs (“Tier 1 supplier”).

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STONERIDGE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data, unless otherwise stated)

(Unaudited)

Electronics. Our Electronics segment designs and manufactures driver information systems, camera-based vision systems, connectivity and compliance products and electronic control units. These products are sold principally to the commercial vehicle market primarily through our OEM and aftermarket channels in the North American and European regions, and to a lesser extent, the Asia Pacific region. The camera-based vision systems and related products are sold principally to the off-highway vehicle market in the North American and European regions.

Stoneridge Brazil. Our Stoneridge Brazil segment (also referred to as “PST” in prior filings) primarily serves the South American region and specializes in the design, manufacture and sale of vehicle tracking devices and monitoring services, vehicle security alarms and convenience accessories, in-vehicle audio and infotainment devices and telematics solutions. Stoneridge Brazil sells its products through the aftermarket distribution channel, to factory authorized dealer installers, also referred to as original equipment services, direct to OEMs and through mass merchandisers. In addition, monitoring services and tracking devices are sold directly to corporate and individual consumers.

The following tables disaggregate our revenue by reportable segment and geographical location(1) for the periods ended March 31, 2020 and 2019:

Control Devices

Electronics

Stoneridge Brazil

Consolidated

Three months ended March 31,

    

2020

    

2019

    

2020

    

2019

    

2020

    

2019

    

2020

    

2019

 

Net Sales:

  

  

  

  

  

  

  

  

North America

$

80,410

$

96,720

$

19,441

$

22,647

$

-

$

-

$

99,851

$

119,367

South America

 

-

 

-

 

-

 

-

 

14,570

 

17,332

 

14,570

 

17,332

Europe

 

7,388

 

4,412

 

51,306

 

66,942

 

-

 

-

 

58,694

 

71,354

Asia Pacific

 

9,052

 

8,987

 

799

 

1,257

 

-

 

-

 

9,851

 

10,244

Total net sales

$

96,850

$

110,119

$

71,546

$

90,846

$

14,570

$

17,332

$

182,966

$

218,297

(1)Company sales based on geographic location are where the sale originates not where the customer is located.

Performance Obligations

For OEM and Tier 1 supplier customers, the Company typically enters into contracts to provide serial production parts that consist of a set of documents including, but not limited to, an award letter, master purchase agreement and master terms and conditions. For each production product, the Company enters into separate purchase orders that contain the product specifications and an agreed-upon price. The performance obligation does not exist until a customer release is received for a specific number of parts.  The majority of the parts sold to OEM and Tier 1 supplier customers are customized to the specific customer, with the exception of off-highway products that are common across all customers. The transaction price is equal to the contracted price per part and there is no expectation of material variable consideration in the transaction price. For most customer contracts, the Company does not have an enforceable right to payment at any time prior to when the parts are shipped or delivered to the customer; therefore, the Company recognizes revenue at the point in time it satisfies a performance obligation by transferring control of a part to the customer. Certain customer contracts contain an enforceable right to payment if the customer terminates the contract for convenience and therefore are recognized over time using the cost to complete input method.

Our aftermarket products are focused on meeting the demand for repair and replacement parts, compliance parts and accessories and are sold primarily to aftermarket distributors and mass retailers in our South American, European and North American markets. Aftermarket products have one type of performance obligation which is the delivery of aftermarket parts and spare parts.  For aftermarket customers, the Company typically has standard terms and conditions for all customers.  In addition, aftermarket products have alternative use as they can be sold to multiple customers. Revenue for aftermarket part production contracts is recognized at a point in time when the control of the parts transfer to the customer which is based on the shipping terms.  Aftermarket contracts may include variable consideration related to discounts and rebates and is included in the transaction price upon recognizing the product revenue. 

 

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STONERIDGE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data, unless otherwise stated)

(Unaudited)

A small portion of the Company’s sales are comprised of monitoring services that include both monitoring devices and fees to individual, corporate, fleet and cargo customers in our Stoneridge Brazil segment. These monitoring service contracts are generally not capable of being distinct and are accounted for as a single performance obligation.  We recognize revenue for our monitoring products and services contracts over the life of the contract. There is no variable consideration associated with these contracts. The Company has the right to consideration from a customer in the amount that corresponds directly with the value to the customer of the Company’s performance to date.  Therefore, the Company recognizes revenue over time using the practical expedient ASC 606-10-55-18 in the amount the Company has a “right to invoice” rather than selecting an output or input method.

Contract Balances

The Company had no material contract assets, contract liabilities or capitalized contract acquisition costs as of March 31, 2020 and December 31, 2019.

(4) Inventories

Inventories are valued at the lower of cost (using either the first-in, first-out (“FIFO”) or average cost methods) or net realizable value. The Company evaluates and adjusts as necessary its excess and obsolescence reserve on a quarterly basis. Excess inventories are quantities of items that exceed anticipated sales or usage for a reasonable period. The Company has guidelines for calculating provisions for excess inventories based on the number of months of inventories on-hand compared to anticipated sales or usage. Management uses its judgment to forecast sales or usage and to determine what constitutes a reasonable period. Inventory cost includes material, labor and overhead. Inventories consisted of the following:

March 31,

December 31,

    

2020

    

2019

Raw materials

$

69,316

$

66,357

Work-in-progress

6,875

5,582

Finished goods

19,586

21,510

Total inventories, net

$

95,777

$

93,449

Inventory valued using the FIFO method was $86,807 and $82,910 at March 31, 2020 and December 31, 2019, respectively. Inventory valued using the average cost method was $8,970 and $10,539 at March 31, 2020 and December 31, 2019, respectively.

(5) Financial Instruments and Fair Value Measurements

Financial Instruments

A financial instrument is cash or a contract that imposes an obligation to deliver or conveys a right to receive cash or another financial instrument. The carrying values of cash and cash equivalents, accounts receivable and accounts payable are considered to be representative of fair value because of the short maturity of these instruments. The fair value of debt approximates the carrying value of debt.

Derivative Instruments and Hedging Activities

On March 31, 2020, the Company had open foreign currency forward contracts which are used solely for hedging and not for speculative purposes. Management believes that its use of these instruments to reduce risk is in the Company’s best interest. The counterparties to these financial instruments are financial institutions with investment grade credit ratings.

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STONERIDGE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data, unless otherwise stated)

(Unaudited)

Foreign Currency Exchange Rate Risk

The Company conducts business internationally and therefore is exposed to foreign currency exchange rate risk. The Company uses derivative financial instruments as cash flow hedges to manage its exposure to fluctuations in foreign currency exchange rates by reducing the effect of such fluctuations on foreign currency denominated intercompany transactions, inventory purchases and other foreign currency exposures. The Company hedged the euro and Mexican peso currencies during 2020 and the Mexican peso in 2019.

These forward contracts were executed to hedge forecasted transactions and have been accounted for as cash flow hedges. As such, gains and losses on derivatives qualifying as cash flow hedges are recorded in accumulated other comprehensive income, to the extent that hedges are effective, until the underlying transactions are recognized in earnings. Unrealized amounts in accumulated other comprehensive income will fluctuate based on changes in the fair value of hedge derivative contracts at each reporting period. The cash flow hedges were highly effective. The effectiveness of the transactions has been and will be measured on an ongoing basis using regression analysis and forecasted future purchases of the currency.

In certain instances, the foreign currency forward contracts may not qualify for hedge accounting or are not designated as hedges, and therefore are marked-to-market with gains and losses recognized in the Company’s condensed consolidated statement of operations as a component of other income (loss), net. At March 31, 2020, all of the Company’s foreign currency forward contracts were designated as cash flow hedges.

The Company’s foreign currency forward contracts offset a portion of the gains and losses on the underlying foreign currency denominated transactions as follows:

U.S. dollar-denominated Foreign Currency Forward Contracts – Cash Flow Hedges

During the quarter, The Company entered into U.S. dollar-denominated currency contracts on behalf of one of its European Electronics subsidiaries, whose functional currency is the euro, with a notional amount at March 31, 2020 of $2,100 which expire ratably on a monthly basis from April 2020 through December 2020. There were no such contracts at December 31, 2019.

Mexican peso-denominated Foreign Currency Forward Contracts – Cash Flow Hedge

The Company holds Mexican peso-denominated foreign currency forward contracts with a notional amount at March 31, 2020 of $22,746 which expire ratably on a monthly basis from April 2020 to March 2021. There were no open Mexican peso-denominated foreign currency forward contracts at December 31, 2019.

The Company evaluated the effectiveness of the Mexican peso and euro-denominated forward contracts held as of March 31, 2020 and 2019, and for the three months then ended, and concluded that the hedges were effective.

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STONERIDGE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data, unless otherwise stated)

(Unaudited)

Interest Rate Risk

Interest Rate Risk – Cash Flow Hedge

On February 18, 2020, the Company entered into a floating-to-fixed interest rate swap agreement (the “Swap”) with a notional amount of $50,000 to hedge its exposure to interest payment fluctuations on a portion of its 2019 Credit Facility. The Swap was designated as a cash flow hedge of the variable interest rate obligation under the Company's 2019 Credit Facility that has a current balance of $161,000 at March 31, 2020. The Swap agreement settles each month on the same day that the 2019 Credit Facility interest payments are due and has a maturity date of March 10, 2023 which is prior to the 2019 Credit Facility maturity date of June 4, 2024. Under the Swap terms, the Company pays a fixed interest rate and receives a floating interest rate based on the one-month LIBOR, with a floor. The critical terms of the Swap are aligned with the terms of the 2019 Credit Facility, resulting in no hedge ineffectiveness. The difference between amounts to be received and paid under the Swap is recognized as a component of interest expense, net on the condensed consolidated statements of operations. The Swap increased interest expense by $4 for the three months ended March 31, 2020.

The notional amounts and fair values of derivative instruments in the condensed consolidated balance sheets were as follows:

Prepaid expenses

Accrued expenses and

Notional amounts (A)

and other current assets

other current liabilities

March 31,

December 31,

March 31,

December 31,

March 31,

December 31,

    

2020

    

2019

    

2020

    

2019

    

2020

    

2019

Derivatives designated as hedging instruments:

Cash flow hedges:

Forward currency contracts

$

24,846

$

-

$

66

$

-

$

3,230

$

-

Interest rate swap contract

$

50,000

-

-

-

$

1,463

$

-

(A)Notional amounts represent the gross contract of the derivatives outstanding in U.S. dollars.

Gross amounts recorded for the cash flow hedges in other comprehensive income (loss) and in net income for the three months ended March 31 were as follows:

Gain (loss) reclassified from

Gain (loss) recorded in other

other comprehensive income

comprehensive income (loss) (A)

(loss) into net income (B)

    

2020

    

2019

    

2020

    

2019

Derivatives designated as cash flow hedges:

Forward currency contracts

$

(3,320)

$

269

$

(156)

$

216

Interest rate swap

(1,467)

-

(4)

-

(A)For the three months ended March 31, 2020, the total net losses on the foreign currency contract cash flow hedges of $3,164 are expected to be included in cost of goods sold (“COGS”) and design and development (“D&D”) within the next 12 months. Of the total net losses on the interest rate swap cash flow hedges, approximately $545 of losses are expected to be included in interest expense within the next 12 months and $918 of losses are expected to be included in interest expense in subsequent periods.

(B)Gains (losses) reclassified from other comprehensive income (loss) into net income recognized in COGS in the Company’s condensed consolidated statements of operations were $(127) and $173 for the three months ended March 31, 2020 and 2019, respectively. Gains (losses) reclassified from other comprehensive income (loss) into net income recognized in design and development D&D in the Company’s condensed consolidated statements of operations were $(29) and $43 for the three months ended March 31, 2020 and 2019, respectively. Losses reclassified from other comprehensive income (loss) into net income recognized in interest expense in the Company’s condensed consolidated statements of operations was $4 for the three months ended March 31, 2020.

Cash flows from derivatives used to manage foreign exchange and interest rate risks are classified as operating activities within the condensed consolidated statements of cash flows.

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STONERIDGE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data, unless otherwise stated)

(Unaudited)

Fair Value Measurements

The Company’s assets and liabilities are measured at fair value on a recurring basis and are categorized using the three levels of the fair value hierarchy based on the reliability of the inputs used. Fair values estimated using Level 1 inputs consist of quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Fair values estimated using Level 2 inputs, other than quoted prices, are observable for the asset or liability, either directly or indirectly and include among other things, quoted prices for similar assets or liabilities in markets that are active or inactive as well as inputs other than quoted prices that are observable. For forward currency contracts, inputs include foreign currency exchange rates. For the interest rate swap, inputs include LIBOR. Fair values estimated using Level 3 inputs consist of significant unobservable inputs.

The following table presents our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the three levels of the fair value hierarchy based on the reliability of inputs used.