What changed in this filing

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Item 1. Business

2021-02-24 compared with 2020-02-27 · 72 added, 45 removed, 200 unchanged (37% of the section changed)

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(the “Company”) is a global designer and manufacturer of highly engineered electrical and electronic components, modules and systems for the automotive, commercial, off-highway, motorcycle and agricultural vehicle markets.

Our products and systems are critical elements in the management of mechanical and electrical systems to improve overall vehicle performance, convenience and monitoring in areas such as emissions control, fuel efficiency, safety, security and intelligence.

Our extensive footprint encompasses 24 locations in 12 countries and enables us to supply global and regional automotive, commercial, off-highway, motorcycle, agricultural and other vehicle markets.

Our products and systems are critical elements in the management of mechanical and electrical systems to improve overall vehicle performance, convenience and monitoring in areas such as safety and security, intelligence, efficiency and emissions.

Our worldwide footprint is primarily comprised of 26 locations in 12 countries and enables us to supply global and regional automotive, commercial, off-highway, motorcycle, agricultural and other vehicle markets.

Our custom-engineered products and systems are used to activate equipment and accessories, monitor and display vehicle performance and control, distribute electrical power and signals and provide vehicle security and convenience.

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As a result of this trend, per-vehicle electronic content has been increasing.

Our technology and our partnership-oriented approach to product design and development enables us to develop next-generation products for this trend.

On April 1, 2019, the Company entered into an Asset Purchase Agreement by and among the Company’s wholly owned subsidiary, Stoneridge Control Devices, Inc.

(“SCD”), and with Standard Motor Products, Inc.

On the same day, the Company sold to SMP, product lines and assets related to certain non-core switches and connectors (the “Non-core Products”).

The products related to the Non-core Products were manufactured in Juarez, Mexico and Canton, Massachusetts, and include ball switches, ignition switches, rotary switches, courtesy lamps, toggle switches, headlamp switches and other related components.

See Note 2 to the consolidated financial statement for additional details regarding the disposal of Non-core Products.

On January 31, 2017, the Company acquired Exploitatiemaatschappij Berghaaf B.V.

(“Orlaco”), an electronics business which designs, manufactures and sells camera-based vision systems, monitors and related products.

The acquisition was accounted for as a business combination, and accordingly, the Company’s consolidated financial statements herein include the results of Orlaco from the acquisition date to December 31, 2019.

See Note 2 to the consolidated financial statements for additional details regarding the Orlaco acquisition.

The Company had a 74% controlling interest in PST Eletronica Ltda.

(“Stoneridge Brazil”, also referred to as “PST” in prior filings) from December 31, 2011 through May 15, 2017.

On May 16, 2017, the Company acquired the remaining 26% noncontrolling interest in Stoneridge Brazil, which was accounted for as an equity transaction.

As such, Stoneridge Brazil is now a wholly owned subsidiary.

See Note 4 to the consolidated financial statements for additional details regarding the acquisition of Stoneridge Brazil’s noncontrolling interest.

Our technology and our partnership-oriented approach to product design and development enables us to develop next-generation products and systems for this trend.

Beginning with the divestiture of our wiring business in 2014, we accelerated a shift in our product portfolio towards smart products, or those products which contain embedded electronics or logic.

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In addition to the divestiture of the wiring business, we deployed capital in 2017 to make strategic investments including the acquisition of Orlaco, our partner on the development of MirrorEye, our camera-based vision system, and the acquisition of 100 percent of our Stoneridge Brazil business.

In 2019, the Company sold the Non-core Products business to SMP to further align with our strategic plan.

In 2019, the Company sold the Control Devices Non-core Products business to further align with our strategic plan.

These activities have acted as a catalyst for the advancement of our smart product portfolio, increasing our smart content from just over 50 percent of our sales in 2014 to almost 73% of our sales in 2020.

Our product portfolio shift focuses on the megatrends driving the transportation industry.

In January 2019, the Company committed to a restructuring plan that resulted in the closure of the Canton, Massachusetts facility (“Canton Facility”) as of March 31, 2020 and the consolidation of manufacturing operations at that site into other Company locations (“Canton Restructuring”).

The costs for the Canton Restructuring included employee severance and termination costs, contract termination costs, professional fees and other related costs such as moving and set-up costs for equipment and costs to restore the engineering function previously located at the Canton Facility.

We recognized $3.0 million and $12.5 million of expense as a result of these actions during the years ended December 31, 2020 and 2019, respectively.

During the third quarter of 2020, we leased the Canton facility to a third party and are evaluating the sale of the facility.

The Company expects additional costs to be immaterial related to the Canton Restructuring.

On April 1, 2019, the Company entered into an Asset Purchase Agreement and sold product lines and assets related to certain Control Devices non-core switches and connectors (the “Non-core Products”).

The Non-core Products were manufactured in Juarez, Mexico and Canton, Massachusetts, and include ball switches, ignition switches, rotary switches, courtesy lamps, toggle switches, headlamp switches and other related components.

See Note 2 to the consolidated financial statement for additional details regarding the disposal of Non-core Products.

On May 19, 2020, the Company committed to the strategic exit of its Control Devices particulate matter (“PM”) sensor product line (“PM Sensor Exit”).

The decision to exit the PM sensor product line was made after the consideration of the decline in the market outlook for diesel passenger vehicles, the current and expected profitability of the product line and the Company’s strategic focus on aligning resources with the greatest opportunities.

The estimated costs for the PM Sensor Exit include employee severance and termination costs, contract termination costs, professional fees and other related costs such as potential commercial and supplier settlements.

Non-cash charges include impairment of fixed assets and accelerated depreciation associated with PM sensor production.

We recognized $3.4 million of expense as a result of this initiative during the year ended December 31, 2020.

The estimated range of additional cost of the plan to exit the PM sensor product line, that will impact the Control Devices segment, is approximately $2.8 million and $6.3 million and is related to employee severance and termination costs, contract terminations costs, other related costs such as potential commercial and supplier settlements and accelerated depreciation.

The Company expects the exit from the PM sensor product line to be completed in the fourth quarter of 2021.

We have positioned each of our segments for continued long-term success.

Our Control Devices segment is increasingly well positioned with a focus on continued development and commercialization of actuation and electrified powertrain applications that will drive future growth for the segment.

Our Electronics segment is expected drive strong revenue growth through previously awarded new program launches including our first two launches for our MirrorEye® camera-based vision system in the OEM market, as well as our continued investment in current and future technologies.

Our Stoneridge Brazil segment continues to integrate into our global Electronics strategy as we leverage our global engineering footprint and prepare for continued expansion of our local OEM presence.

Overall, we will continue to focus our resources on the areas of largest opportunity for the Company and drive long-term value creation for our shareholders.

Segments and Products

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This segment includes product lines such as actuators, sensors, switches and connectors.

Actuator products enable OEMs to deploy power functions in a vehicle and can be designed to integrate switching and control functions including our park and shift by wire products.

Actuator products enable OEMs to deploy power functions in a vehicle and can be designed to integrate switching and control functions including our park lock and shift by wire products.

Sensor products are employed in major vehicle systems such as the emissions, safety, powertrain, braking, climate control, steering and suspension systems.

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These products are sold principally to the commercial vehicle market through both the OEM and aftermarket channels.

In addition, camera-based vision systems are sold principally to the off-highway vehicle market.

In addition, camera-based vision systems are sold to the off-highway and commercial vehicle markets.

Stoneridge Brazil.

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In addition, monitoring services and tracking devices are sold directly to corporate and individual customers.

Product Category

Control Devices

Actuators, sensors, switches and connectors

Driver information systems, camera-based vision systems, connectivity and compliance products and electronic control units

Stoneridge Brazil

Vehicle tracking devices and monitoring services, vehicle security alarms and convenience accessories, in-vehicle audio and infotainment devices and telematics solutions

Our products and systems are sold to numerous OEM and Tier 1 customers, as well as aftermarket distributors and mass merchandisers, for use on many different vehicle platforms.

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These contracts range in duration from one year to the production life of the model, which commonly extends for three to seven years.

The following table sets forth for the periods indicated, the percentage of net sales derived from our principal end markets for the years ended December 31:

Principal End Markets

The following table sets forth for the periods indicated, the percentage of net sales derived from our principal end markets:

Year ended December 31

Commercial vehicle

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As global demand for our production materials increases, we may have difficulties obtaining adequate production materials from our suppliers to satisfy our customers.

Refer to the Risk Factors for risks related to the current supply chain disruption related to semiconductors and other production materials.

Any extended period of time for which we cannot obtain adequate production material or which we experience an increase in the price of production material would materially affect our results of operations and financial condition.

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However, if we are unable to effectively manage production costs in the future to mitigate future pricing pressures, our results of operations would be adversely affected.

The following table presents our principal customers, as a percentage of net sales:

Ford Motor Company

American Axle

The Company typically enters into customer agreements at the beginning of a vehicle life cycle with the intent to fulfill customer-purchasing requirements for the entire vehicle production life cycle.

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The Company defines backlog as the estimated cumulative awarded sales for the next five years (or “estimated sourced future sales”).

The Company’s estimated sourced future sales was $3.2 billion as of December 31, 2019, compared to $3.4 billion as of December 31, 2018.

The Company’s estimated sourced future sales were $3.0 billion as of December 31, 2020, compared to $3.2 billion as of December 31, 2019.

Sales related to the disposal of the Control Devices Non-core Products business are excluded from our estimated sourced future sales as of December 31, 2019.

There were no sales related to the disposal of the Control Devices Non-core Products business for the year ended December 31, 2020.

Due to the planned exit of the Control Devices particulate matter (“PM”) sensor products business, related sales are excluded from our estimated sourced future sales as of December 31, 2020.

The markets for our products in our reportable segments are highly competitive.

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Control Devices.

Our primary competitors include Aisin, American Axle and Manufacturing, BorgWarner, Bosch, Continental, Dana Incorporated, Denso Corporation, Dura Automotive, EFI Automotive, Ficosa Corporation, GHSP, GKN Automotive, Kongsberg Automotive, Nidec and ZF Friedrichshafen.

Our primary competitors include Aisin Seiki, Dana Incorporated, EFI Automotive, Erich Jaeger, ETO:

Gruppe, Ficosa Corporation, Futronic, GHSP, Johnson Electric, Kongsberg Automotive, Korea Fuel Tech Corporation (KFTC), Mitsubishi Electronics (MELCO), Nidec, Sensata and Sonceboz.

Our primary competitors include Actia Group, Aptiv, Bosch, Continental, Delphi Technologies, Hella KGaA Hueck & Co., Magneti Marelli, Mekra Lang, Valeo, Visteon and ZF Frierichshafen.

Stoneridge Brazil.

Our primary competitors include Autotrac, Bosch, CalAmp, Car System, Continental, Dalgas Precision Equipment, Harman Automotive, Hinor, Ituran, Kostal, Magneti Marelli, Maxtrack, MultiLaser, Onix, Pioneer Corporation, Quelink, Sascar, SOFT Automotiva, Suntech, Taramps, Tury and Visteon.

Our primary competitors include Autotrac, Bosch, CalAmp, Car System, Continental, Harman Automotive, Hinor, Ituran, Magneti Marelli, Maxtrack, Onix, Pioneer Corporation, Quelink, Sascar, Suntech, Taramps, Tury and Visteon.

Product Development

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Novi, Michigan;

Pune, India and Stockholm, Sweden.

Pune, India, Stockholm, Sweden and Suzhou, China.

We have invested, and will continue to invest heavily in technology to develop new products for our customers.

Product development costs, other than capitalized software development costs, incurred in connection with the development of new products and manufacturing methods, to the extent not recoverable from the customer, are expensed as incurred.

Such costs amounted to approximately $52.2 million, $51.1 million, and $48.9 million for 2019, 2018, and 2017, respectively, or 6.3%, 5.9%, and 5.9% of net sales for these periods.

We will continue to prioritize investment spending toward the design and development of new products over sustaining existing product programs for specific customers, which allows us to sell our products to multiple customers.

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We believe that our business, operations and facilities have been and are being operated in compliance, in all material respects, with applicable environmental and health and safety laws and regulations, many of which provide for substantial fines and criminal sanctions for violations.

As of December 31, 2019, we had approximately 4,700 employees, approximately 78% of whom were located outside of the United States.

Human Capital Management

As of December 31, 2020, Stoneridge employed approximately 4,800 full time and temporary employees in 13 countries, with about 84% located outside of the United States.

Although we have no collective bargaining agreements covering U.S.

employees, a significant number of employees located in Brazil, China, Estonia, Mexico, Netherlands, Sweden and the United Kingdom either (i) are represented by a union and are covered by a collective bargaining agreement, or (ii) are covered by a work council or other employment arrangements required by law.

We believe that relations with our employees are good.

employees, a significant number of employees located in Brazil, China, Estonia, Mexico, Netherlands, Sweden and the United Kingdom either (i) are represented by a union and are covered by a collective bargaining agreement, or (ii) are covered by a works council or other employment arrangements required by law.

We work to ensure positive relations with our employees.

We strive to create a work environment that enhances employee engagement, fosters productivity, and is aligned with our values of Integrity, Accountability, Teamwork, Adaptability, Customer Orientation, and Social Responsibility.

We know that our success is dependent on our employees’ engagement, performance, skills, and development.

To that end, we have established talent management programs at Stoneridge, which include but are not limited to the following:

● Periodic global employee engagement surveys and subsequent action planning

● Regular talent reviews for employee development and succession planning

● Feedback and coaching to ensure performance is aligned with our goals and strategic direction

● Delivery of Code of Conduct and global policy training

● New employee orientation with globally consistent and locally flexible messaging

● Frequent global “townhall” meetings and other communications

● Employee wellness programs

● Opportunities for community and charitable involvement (reduced in 2020 due to COVID-19 pandemic)

● Employee mentoring program

● Internship programs

When we hire new employees, we focus not just on the skills required for current positions, but the ever-changing complex skills and competencies that will be required as we move forward on our path to being the mobility industry’s integrated technology partner.

We seek diverse sources for candidates and we offer wages and benefits that are competitive in the markets where employees are located.

We believe a diverse workforce and an inclusive work environment is required for us to achieve our full potential as an organization.

We further recognize the importance of having a strong Diversity, Equity & Inclusion (“DEI”) strategy.

In 2020, we embarked on an initiative to reassess our DEI strategy, identify gaps between our ideal and current states, and develop goals and actions to realize measurable improvement.

We look forward to continuing this work in 2021.

It is always a top priority, but in 2020 employee health and safety was of paramount importance due to the COVID-19 global pandemic.

Where feasible, employees began working from home in March 2020 through the remainder of the year and into early 2021.

For jobs that could not be done remotely, extensive safety measures were implemented, including temperature and health screenings, distanced workstations, plexiglass barriers, enhanced cleaning and disinfection protocols, required face coverings, contact tracing when needed, published Safe Workplace Guidelines, and employee training.

Our safety measures are aligned with the recommendations of US and global health organizations, and have continued into 2021.

The Human Resources function at Stoneridge is an active and visible partner to the business at all levels.

Our Chief Human Resources Officer reports directly to the Chief Executive Officer and interacts frequently with the Company’s Board of Directors.

In 2021, our Human Capital focus will continue to be on employee engagement, employee and leadership development, communications, and employee health and safety.

Joint Ventures

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Chief Procurement Officer

Robert Willig

James Zizelman

President of the Control Devices Division

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where he held positions of increasing responsibility in the purchasing function over a 10-year tenure.

Robert Willig, President of the Control Devices Division.

Willig was appointed to President of the Control Devices Division in October 2017.

James Zizelman, President of the Control Devices Division.

Zizelman was appointed to President of the Control Devices Division in April 2020.

Until his employment with the Company, Mr.

Willig served as President and Chief Executive Officer of Plasan Carbon Composites from April 2017 to October 2017.

From April 2013 to July 2016, he served as President of Driveline Americas, GKN PLC and from September 2010 to April 2013 President of Sinter Americas, GKN, PLC.

Prior to that, he served as President of the Power Transmission Division of Tomkins PLC from 2008.

Zizelman served as the Vice President of Engineering and Program Management for Aptiv from December 2017 to March 2019.

Prior to that, Mr.

Zizelman was employed at Delphi for more than 20 years, where he was last a Vice President of Engineering from 2016.

Available Information

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business