Company Quick10K Filing
Quick10K
Stoneridge
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$28.78 29 $826
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-06-05 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2019-06-04 Regulation FD, Exhibits
8-K 2019-05-14 Shareholder Vote
8-K 2019-05-07 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-05-01 Earnings, Regulation FD, Exhibits
8-K 2019-04-22 Officers
8-K 2019-04-01 Enter Agreement, M&A, Exhibits
8-K 2019-01-16 Earnings, Regulation FD, Exhibits
8-K 2019-01-10 Exit Costs, Other Events, Exhibits
8-K 2019-01-02 Other Events, Exhibits
8-K 2018-12-06 Other Events, Exhibits
8-K 2018-11-09 Exit Costs
8-K 2018-08-01 Earnings, Regulation FD, Exhibits
8-K 2018-05-15 Enter Agreement, Shareholder Vote, Exhibits
8-K 2018-02-28 Earnings, Regulation FD, Exhibits
8-K 2018-01-15 Earnings, Regulation FD, Exhibits
XOM Exxon Mobil 324,820
RE Everest RE Group 10,020
JBL Jabil 4,450
NVEE NV5 Global 958
HMI Huami 609
SALT Scorpio Bulkers 360
MYDX MyDx 0
HTBC Hotapp Blockchain 0
ABLP Alliancebernstein 0
NOBH Nobility Homes 0
SRI 2019-03-31
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-31.1 sri-20190331ex311e79490.htm
EX-31.2 sri-20190331ex312b842a3.htm
EX-32.1 sri-20190331ex321a46544.htm
EX-32.2 sri-20190331ex32245d99f.htm

Stoneridge Earnings 2019-03-31

SRI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 sri-20190331x10q.htm 10-Q sri_Current_Folio_10Q

 

 

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, 2019

Commission file number: 001‑13337

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

 

 

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 26, 2019 was 28,694,655.

 

 

 


 

STONERIDGE, INC. AND SUBSIDIARIES

 

 

 

 

 

INDEX

 

 

Page

PART I–FINANCIAL INFORMATION 

 

 

 

 

 

 

Item 1. 

Financial Statements

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2019 (Unaudited) and December 31, 2018

 

3

 

Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2019 and 2018

 

4

 

Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2019 and 2018

 

5

 

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2019 and 2018

 

6

 

Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, 2019 and 2018

 

7

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

8

Item 2. 

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

 

27

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

 

34

Item 4. 

Controls and Procedures

 

34

 

 

 

PART II–OTHER INFORMATION 

 

35

 

 

 

 

Item 1. 

Legal Proceedings

 

35

Item 1A. 

Risk Factors

 

35

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

 

35

Item 3. 

Defaults Upon Senior Securities

 

35

Item 4. 

Mine Safety Disclosures

 

35

Item 5. 

Other Information

 

35

Item 6. 

Exhibits

 

36

 

 

 

Signatures 

 

37

 

 

1


 

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;

·

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 I, Item IA (“Risk Factors”) of the Company’s 2018 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.

2


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

STONERIDGE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

(in thousands)

    

2019

    

2018

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

53,086

 

$

81,092

Accounts receivable, less reserves of $1,430 and $1,243, respectively

 

 

155,734

 

 

139,076

Inventories, net

 

 

92,162

 

 

79,278

Prepaid expenses and other current assets

 

 

22,434

 

 

20,731

Total current assets

 

 

323,416

 

 

320,177

Long-term assets:

 

 

 

 

 

 

Property, plant and equipment, net

 

 

114,322

 

 

112,213

Intangible assets, net

 

 

59,471

 

 

62,032

Goodwill

 

 

35,899

 

 

36,717

Operating lease right-of-use asset

 

 

19,226

 

 

 -

Investments and other long-term assets, net

 

 

29,929

 

 

28,380

Total long-term assets

 

 

258,847

 

 

239,342

Total assets

 

$

582,263

 

$

559,519

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of debt

 

$

1,013

 

$

1,533

Accounts payable

 

 

102,564

 

 

87,894

Accrued expenses and other current liabilities

 

 

53,172

 

 

57,880

Total current liabilities

 

 

156,749

 

 

147,307

Long-term liabilities:

 

 

 

 

 

 

Revolving credit facility

 

 

91,000

 

 

96,000

Long-term debt, net

 

 

846

 

 

983

Deferred income taxes

 

 

14,511

 

 

14,895

Operating lease long-term liability

 

 

14,858

 

 

 -

Other long-term liabilities

 

 

16,541

 

 

17,068

Total long-term liabilities

 

 

137,756

 

 

128,946

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 28,695 and 28,488 shares outstanding at March 31, 2019 and December 31, 2018, respectively, with no stated value

 

 

 -

 

 

 -

Additional paid-in capital

 

 

232,127

 

 

231,647

Common Shares held in treasury, 271 and 478 shares at March 31, 2019 and December 31, 2018, respectively, at cost

 

 

(10,763)

 

 

(8,880)

Retained earnings

 

 

155,908

 

 

146,251

Accumulated other comprehensive loss

 

 

(89,514)

 

 

(85,752)

Total shareholders' equity

 

 

287,758

 

 

283,266

Total liabilities and shareholders' equity

 

$

582,263

 

$

559,519

 

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

3


 

STONERIDGE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

2019

    

2018

 

 

 

 

 

 

 

 

Net sales

 

 

$

218,297

 

$

225,930

Costs and expenses:

 

 

 

 

 

 

 

Cost of goods sold

 

 

 

157,444

 

 

157,961

Selling, general and administrative

 

 

 

35,910

 

 

37,261

Design and development

 

 

 

13,244

 

 

13,861

Operating income

 

 

 

11,699

 

 

16,847

Interest expense, net

 

 

 

1,003

 

 

1,354

Equity in earnings of investee

 

 

 

(364)

 

 

(521)

Other income, net

 

 

 

(432)

 

 

(599)

Income before income taxes

 

 

 

11,492

 

 

16,613

Provision for income taxes

 

 

 

1,835

 

 

3,233

Net income

 

 

$

9,657

 

$

13,380

Earnings per share:

 

 

 

 

 

 

 

Basic

 

 

$

0.34

 

$

0.47

Diluted

 

 

$

0.33

 

$

0.46

Weighted-average shares outstanding:

 

 

 

 

 

 

 

Basic

 

 

 

28,529

 

 

28,249

Diluted

 

 

 

29,085

 

 

28,936

 

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

4


 

STONERIDGE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31, (in thousands)

 

2019

    

2018

 

 

 

 

 

 

Net income

$

9,657

 

$

13,380

 

 

 

 

 

 

Other comprehensive (loss) income, net of tax attributable to Stoneridge, Inc.:

 

 

 

 

 

Foreign currency translation

 

(3,804)

 

 

3,894

Unrealized gain on derivatives (1)

 

42

 

 

795

Other comprehensive (loss) income, net of tax attributable to Stoneridge, Inc.

 

(3,762)

 

 

4,689

 

 

 

 

 

 

Comprehensive income attributable to Stoneridge, Inc.

$

5,895

 

$

18,069

 

(1)

Net of tax expense of $11 and $212 for the three months ended March 31, 2019 and 2018, respectively.

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

5


 

STONERIDGE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

 

 

 

 

 

Three months ended March 31,  (in thousands)

    

2019

    

2018

    

 

 

 

 

 

 

 

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net income

 

$

9,657

 

$

13,380

 

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

 

 

 

 

 

 

 

Depreciation

 

 

5,697

 

 

6,061

 

Amortization, including accretion of deferred financing costs

 

 

1,613

 

 

1,807

 

Deferred income taxes

 

 

(2,979)

 

 

(243)

 

Earnings of equity method investee

 

 

(364)

 

 

(521)

 

Gain on fixed assets

 

 

(1)

 

 

 -

 

Share-based compensation expense

 

 

1,548

 

 

1,404

 

Tax benefit related to share-based compensation expense

 

 

(656)

 

 

(830)

 

Change in fair value of earn-out contingent consideration

 

 

469

 

 

904

 

Change in fair value of venture capital fund

 

 

(16)

 

 

 -

 

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

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(17,821)

 

 

(14,821)

 

Inventories, net

 

 

(13,655)

 

 

(4,694)

 

Prepaid expenses and other assets

 

 

(660)

 

 

(3,647)

 

Accounts payable

 

 

16,395

 

 

7,841

 

Accrued expenses and other liabilities

 

 

(4,836)

 

 

3,030

 

Net cash provided by (used for) operating activities

 

 

(5,609)

 

 

9,671

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Capital expenditures

 

 

(8,684)

 

 

(10,505)

 

Proceeds from sale of fixed assets

 

 

 1

 

 

 9

 

Insurance proceeds for fixed assets

 

 

 -

 

 

1,403

 

Investment in venture capital fund

 

 

(400)

 

 

 -

 

Net cash used for investing activities

 

 

(9,083)

 

 

(9,093)

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Revolving credit facility borrowings

 

 

 -

 

 

5,000

 

Revolving credit facility payments

 

 

(5,000)

 

 

(10,000)

 

Proceeds from issuance of debt

 

 

34

 

 

155

 

Repayments of debt

 

 

(690)

 

 

(1,378)

 

Earn-out consideration cash payment

 

 

(3,394)

 

 

 -

 

Other financing costs

 

 

(2)

 

 

 -

 

Repurchase of Common Shares to satisfy employee tax withholding

 

 

(2,945)

 

 

(3,713)

 

Net cash used for financing activities

 

 

(11,997)

 

 

(9,936)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(1,317)

 

 

759

 

Net change in cash and cash equivalents

 

 

(28,006)

 

 

(8,599)

 

Cash and cash equivalents at beginning of period

 

 

81,092

 

 

66,003

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

53,086

 

$

57,404

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid for interest

 

$

1,109

 

$

1,438

 

Cash paid for income taxes, net

 

$

3,327

 

$

5,056

 

 

 

 

 

 

 

 

 

 

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

 

 

6


 

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, 2017

 

28,180

 

786

 

$

228,486

 

$

(7,118)

 

$

92,264

 

$

(69,560)

 

$

244,072

Net income

 

 —

 

 —

 

 

 

 

 

 

13,380

 

 

 

 

13,380

Unrealized gain on derivatives, net

 

 —

 

 —

 

 

 

 

 

 

 

 

795

 

 

795

Currency translation adjustments

 

 —

 

 —

 

 

 

 

 

 

 

 

3,894

 

 

3,894

Issuance of restricted Common Shares

 

446

 

(446)

 

 

 

 

 

 

 

 

 

 

 —

Repurchased Common Shares for treasury

 

(136)

 

136

 

 

 

 

(1,387)

 

 

 

 

 

 

(1,387)

Share-based compensation

 

 —

 

 —

 

 

(925)

 

 

 —

 

 

 —

 

 

 —

 

 

(925)

Cumulative effect of an accounting change

 

 —

 

 —

 

 

 —

 

 

 

 

(212)

 

 

 

 

(212)

BALANCE MARCH 31, 2018

 

28,490

 

476

 

$

227,561

 

$

(8,505)

 

$

105,432

 

$

(64,871)

 

$

259,617

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 restricted Common Shares

 

305

 

(305)

 

 

 

 

 

 

 

 

 

 

 —

Repurchased Common Shares for treasury

 

(98)

 

98

 

 

 

 

(1,883)

 

 

 

 

 

 

(1,883)

Share-based compensation

 

 —

 

 —

 

 

480

 

 

 —

 

 

 —

 

 

 —

 

 

480

BALANCE, MARCH 31, 2019

 

28,695

 

271

 

$

232,127

 

$

(10,763)

 

$

155,908

 

$

(89,514)

 

$

287,758

 

 

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

 

 

 

7


 

Table of Contents

STONERIDGE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(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, 2019 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 2018 Form 10‑K.

The Company’s investment in Minda Stoneridge Instruments Ltd. (“MSIL”) for the three months ended March 31, 2019 and 2018 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.

Also, see Note 2 for the impact of the adoption of various accounting standards on the condensed consolidated financial statements herein.

(2) Recently Issued Accounting Standards

Recently Adopted Accounting Standards

In January 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018‑02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.”  This guidance gives entities the option to reclassify to retained earnings the tax effects resulting from the enactment of Tax Cuts and Jobs Act related to items in accumulated other comprehensive income (“AOCI”) that the FASB refers to as having been stranded in AOCI. The new guidance was effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. The Company adopted this standard on January 1, 2019, which did not have a material impact on its condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016‑02, “Leases (Topic 842)”, which requires that a lessee recognize assets and liabilities on the balance sheet for all leases with a lease term of more than twelve months, with the result being the recognition of a right of use asset and a lease liability. The new standard was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company adopted this standard as of January 1, 2019 using the modified retrospective approach and elected the transition option to use the effective date January 1, 2019, as the date of initial application. The Company did not adjust its comparative period financial statements for effects of the ASU 2016‑02, or make the new required lease disclosures for periods before the effective date. The Company recognized its cumulative effect transition adjustment as of the effective date. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard. The impact of the adoption resulted in the recognition of right-of-use (“ROU”) assets and lease liabilities on the condensed consolidated balance sheet of $20,618 and $20,856, respectively, as of January 1, 2019.  The standard did not have a material impact on the Company’s condensed consolidated results of operations and cash flows upon adoption.

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STONERIDGE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Accounting Standards Not Yet Adopted

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, and early adoption is permitted for annual periods beginning after December 15, 2018. The Company is currently evaluating the impact of its pending adoption of ASU 2016‑13 on the consolidated financial statements. The Company will adopt this standard as of January 1, 2020 and it is not expected to have a material impact on its condensed consolidated financial statements.

(3) Revenue

The Company adopted ASC 606 using the modified retrospective method as applied to customer contracts that were not completed as of January 1, 2018. The Company did not record a cumulative adjustment related to the adoption of ASC 606, and the effects of the adoption were not significant.

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 sensors, actuators, valves and switches. 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 and European 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”).

Electronics. Our Electronics segment designs and manufactures electronic instrument clusters, electronic control units, driver information systems, camera-based vision systems, monitors and related products. 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, monitors and related products are sold principally to the off-highway vehicle market in the North American and European regions.

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STONERIDGE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

PST. Our PST segment primarily serves the South American region and specializes in the design, manufacture and sale of in-vehicle audio and video devices, electronic vehicle security alarms, convenience accessories, vehicle tracking devices and monitoring services primarily for the automotive and motorcycle markets. PST 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, 2019 and 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Control Devices

 

Electronics

 

PST

 

Consolidated

March 31 

    

2019

    

2018

    

2019

    

2018

    

2019

    

2018

    

2019

    

2018

Net Sales:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

North America

 

$

96,720

 

$

104,443

 

$

22,647

 

$

19,986

 

$

 -

 

$

 -

 

$

119,367

 

$

124,429

South America

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

17,332

 

 

20,545

 

 

17,332

 

 

20,545

Europe

 

 

4,412

 

 

2,891

 

 

66,942

 

 

68,544

 

 

 -

 

 

 -

 

 

71,354

 

 

71,435

Asia Pacific

 

 

8,987

 

 

8,023

 

 

1,257

 

 

1,498

 

 

 -

 

 

 -

 

 

10,244

 

 

9,521

Total net sales

 

$

110,119

 

$

115,357

 

$

90,846

 

$

90,028

 

$

17,332

 

$

20,545

 

$

218,297

 

$

225,930

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


(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 with its customers 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 specifically 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

(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 PST 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, 2019 and December 31, 2018.

(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,

 

    

2019

    

2018

Raw materials

 

$

60,967

 

$

54,382

Work-in-progress

 

 

5,610

 

 

4,710

Finished goods

 

 

25,585

 

 

20,186

Total inventories, net

 

$

92,162

 

$

79,278

 

Inventory valued using the FIFO method was $76,877 and $64,745 at March 31, 2019 and December 31, 2018, respectively. Inventory valued using the average cost method was $15,285 and $14,533 at March 31, 2019 and December 31, 2018, 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, 2019, 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

(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 and fair value 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 Mexican peso currency during the first quarter of 2019 and, during 2018, the Company hedged the euro and Mexican peso currencies. In addition, the Company hedged the U.S. dollar against the Swedish krona and euro on behalf of its European subsidiaries in 2018.

These forward contracts were executed to hedge forecasted transactions and certain transactions have been accounted for as cash flow hedges. As such, the effective portion of the unrealized gain or loss was deferred and reported in the Company’s condensed consolidated balance sheets as a component of accumulated other comprehensive loss. 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 do 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, net.

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

Euro-denominated Foreign Currency Forward Contract

At March 31, 2019 and December 31, 2018, there were no foreign currency forward contracts entered into as all contracts were settled in December 2018.  The euro-denominated foreign currency forward contract was not designated as a hedging instrument. The Company recognized a loss of $20 for the three months ended March 31, 2018 in the condensed consolidated statements of operations as a component of other income, net related to the euro-denominated contract.

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

The Company entered into on behalf of one of its European Electronics subsidiaries, whose functional currency is the Swedish krona, U.S. dollar-denominated currency contracts which expired ratably on a monthly basis from February 2018 through December 2018. There were no such contracts at March 31, 2019 or December 31, 2018.

The Company entered into on behalf of one of its European Electronics subsidiaries, whose functional currency is the euro, U.S. dollar-denominated currency contracts which expired ratably on a monthly basis from February 2018 through December 2018. There were no such contracts at March 31, 2019 or December 31, 2018.

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

The Company holds Mexican peso-denominated foreign currency forward contracts with notional amounts at March 31, 2019 of $6,108 which expire ratably on a monthly basis from April 2019 through December 2019, compared to a notional amount of $9,017 at December 31, 2018.

The Company evaluated the effectiveness of the Mexican peso-denominated foreign currency forward contracts held as of March 31, 2019 and December 31, 2018 and concluded that the hedges were highly effective.

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STONERIDGE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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,

 

    

2019

    

2018

    

2019

    

2018

    

2019

    

2018

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward currency contracts

 

$

6,108

 

$

9,017

 

$

423

 

$

370

 

$

 -

 

$

 -


 

(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 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain reclassified from

 

 

Gain recorded in other

 

other comprehensive income

 

 

comprehensive income

 

 into net income (A)

 

    

2019

    

2018

    

2019

    

2018

Derivatives designated as cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

Forward currency contracts

 

$

269

 

$

1,159

 

$

216

 

$

(152)


(A)

Gains reclassified from other comprehensive loss into net income were recognized in cost of goods sold (“COGS”) in the Company’s condensed consolidated statements of operations.

The net deferred gain of $423 on the cash flow hedge derivatives will be reclassified from other comprehensive income (loss) to the condensed consolidated statements of operations through December 2019.

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. Fair values estimated using Level 3 inputs consist of significant unobservable inputs.

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STONERIDGE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

 

 

 

 

2019

 

2018

 

 

 

 

 

Fair values estimated using

 

 

 

 

 

 

 

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

    

Fair value

    

inputs

    

inputs

    

inputs

    

Fair value

Financial assets carried at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward currency contracts

 

$

423

 

$

 -

 

$

423

 

$

 -

 

$

370

Total financial assets carried at fair value

 

$

423

 

$

 -

 

$

423

 

$

 -

 

$

370

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities carried at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earn-out consideration

 

$

10,406

 

$

 -

 

$

 -

 

$

10,406

 

$

18,672

Total financial liabilities carried at fair value

 

$

10,406

 

$

 -

 

$

 -

 

$

10,406

 

$

18,672

 

The following table sets forth a summary of the change in fair value of the Company’s Level 3 financial liabilities related to earn-out consideration that are measured at fair value on a recurring basis.

 

 

 

 

 

 

 

 

 

 

 

    

Orlaco

    

PST

    

Total

Balance at December 31, 2018

 

$

8,602

 

$

10,070

 

$

18,672

Change in fair value

 

 

 -

 

 

469

 

 

469

Foreign currency adjustments

 

 

(128)

 

 

(133)

 

 

(261)

Earn-out consideration cash payment

 

 

(8,474)

 

 

 -

 

 

(8,474)

Balance at March 31, 2019

 

$

 -

 

$

10,406

 

$

10,406