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We are a global designer and manufacturer of highly engineered electrical and electronic components, modules and systems primarily for the automotive, commercial, off-highway, motorcycle and agricultural vehicle markets.
−Removed: On January 31, 2017, the Company acquired Exploitatiemaatschappij Berghaaf B.V.
−Removed: As such, the Company’s consolidated financial statements herein include the results of Orlaco from the date of acquisition.
−Removed: On May 16, 2017, the Company also acquired the remaining 26% noncontrolling interest in Stoneridge Brazil.
The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes related thereto and other financial information included elsewhere herein.
+Added: Impact of COVID-19 on Our Business
+Added: The coronavirus pandemic (“COVID-19”) has had a negative impact on the global economy in 2020, disrupting financial markets and increasing volatility, and has impeded global supply chains, restricted manufacturing operations and resulted in significantly reduced economic activity and higher unemployment rates.
+Added: It has disrupted, and likely will continue to disrupt, the global vehicle industry and customer sales, production volumes and purchases of automotive, commercial, off-highway, motorcycle and agricultural vehicles by end-consumers.
+Added: COVID-19 began to impact our operations in the first quarter of 2020 as government authorities imposed mandatory closures, work-from-home orders, social distancing protocols, and other restrictions.
+Added: These actions materially affected our ability to adequately staff and maintain our operations and supply chain and significantly impacted our financial results in the first half of 2020.
+Added: The adverse conditions caused by COVID-19 initially reduced demand for our products and increased operating costs, which resulted in lower overall margins.
+Added: Similar to our customers, we instituted several changes to our manufacturing operations to reduce the spread of COVID-19 and keep our employees safe.
+Added: In the second half of 2020, as a result of recovery across our global end-markets, we experienced significant sales growth compared to the second quarter 2020.
+Added: Although our end-markets showed strong recovery in the second half of 2020, during the fourth quarter of 2020, certain European, North American and South American countries began to initiate new governmental restrictions in response to renewed pandemic impacts and concerns, and many of these restrictions have continued into the first quarter of 2021.
+Added: As a result, COVID-19 may continue to adversely impact demand for our products, financial condition and results of operations in the near term.
+Added: The adverse impacts of the COVID-19 pandemic led to a significant vehicle production slowdown in the first half of 2020, which was followed by increased consumer demand and vehicle production schedules in the second half of 2020.
+Added: This surge in demand led to a worldwide semiconductor supply shortage at the end of 2020 and into early 2021, as semiconductor suppliers have been unable to rapidly reallocate production lines to serve the transportation industry.
+Added: In addition, we have experienced longer lead-times, higher costs and delays in procuring other component parts and raw materials.
+Added: As a result, we are currently experiencing supply chain disruptions.
+Added: We are assessing the potential supply chain impacts, which may directly or indirectly impact various suppliers, and correspondingly, OEM production.
+Added: We are working closely with our suppliers and customers to minimize any potential adverse impacts, and we continue to closely monitor the availability of semiconductor microchips and other component parts and raw materials, customer vehicle production schedules and any other supply chain inefficiencies that may arise, due to this or any other issue.
+Added: However, any direct or indirect supply chain disruptions may have an adverse impact on our financial condition, results of operations or cash flows.
+Added: We continue to actively manage our cash and working capital to preserve adequate liquidity and ensure that our business can continue to operate during these uncertain times.
+Added: Beginning in the first quarter and into the second quarter of 2020, we undertook several actions to reduce costs and spending across our organization.
+Added: This included reducing hiring activities, temporarily reducing our workforce in facilities impacted by volume reductions or shutdowns and limiting discretionary spending.
+Added: Due to the adverse financial impact of COVID-19 resulting from significantly reduced production during the second quarter of 2020, we amended our existing credit facility to waive several financial covenants, including our net debt leverage compliance ratio, until the second quarter of 2021.
+Added: As of December 31, 2020, our cash and cash equivalents balance was $73.9 million while undrawn commitments on our credit facility were $262.3 million.
+Added: We will also continue to actively monitor the impact of COVID-19 on our business and served-markets and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, suppliers and shareholders.
We are organized by products produced and markets served.
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This segment includes results of operations that design and manufacture vehicle tracking devices and monitoring services, vehicle security alarms and convenience accessories, in-vehicle audio and infotainment devices and telematics solutions.
−Removed: The Company had net income attributable to Stoneridge, Inc.
−Removed: of $60.3 million, or $2.13 per diluted share, for the year ended December 31, 2019.
−Removed: Net income attributable to Stoneridge, Inc.
−Removed: in 2019 increased by $6.4 million, or $0.28 per diluted share, from $53.8 million, or $1.85 per diluted share, for the year ended December 31, 2018 primarily due to the gain on disposal of Control Devices’ Non-core Products of $33.6 million, or $0.98 per diluted share, and the recovery of Brazilian indirect taxes of $6.5 million, or $0.20 per diluted share, which were offset by decreased sales and gross margin and an increase in restructuring costs of $9.6 million, or $0.23 per diluted share, mostly related to our previously announced closure of our Canton facility (“Canton Restructuring”).
−Removed: Pursuant to our Common Share repurchase program, we purchased 1,349,528 outstanding Common Shares on May 8, 2019 which increased earnings per share by reducing diluted weighted-average shares outstanding.
−Removed: In 2019, our net sales decreased by $31.9 million, or 3.7%, while our operating income increased $4.3 million, or 6.4%.
−Removed: Our Control Devices segment net sales decreased by 2.2% primarily as a result of decreased sales volume in the North American automotive market due to certain program volume reductions related to our legacy shift-by-wire programs, the disposal of Non-core Products and the impact of the labor strike at a major customer that occurred in the second half of 2019.
−Removed: In addition, we experienced decreased sales volume in our North American commercial vehicle and agricultural markets.
−Removed: These decreases were partially offset by sales volume increases in our China automotive, European automotive and European commercial vehicle markets as well as the one-time sale of Non-core Product inventory.
−Removed: Segment gross margin decreased due to lower sales and higher direct material costs as a percentage of sales from the adverse effects of the impact of Non-Core Product sales pursuant to the contract manufacturing agreement at an average gross margin of 5.5%, Canton Restructuring costs and tariffs.
−Removed: Segment operating income increased 14.2% relative to 2018 due to the gain on disposal of Non-core Products offset by Canton Restructuring costs and lower segment margin.
−Removed: Our Electronics segment net sales decreased by 2.8% primarily due to a decrease in sales volume in our European commercial vehicle market and unfavorable foreign currency translation which was offset by an increase in sales volume in our North American and China commercial vehicle markets as well as increased sales of European and North American off-highway vehicle products.
−Removed: Segment gross margin decreased slightly due to lower sales, unfavorable product mix and higher costs for electronic components.
−Removed: Operating income for the segment decreased 11.4% compared to 2018 due to lower segment margin being partially offset by lower wages, the capitalization of software development costs and the impact of 2018 restructuring costs.
−Removed: Our Stoneridge Brazil segment net sales decreased by 15.8% due to lower volumes for our Argentina aftermarket channel, audio and alarm products, tracking devices and monitoring service revenues.
−Removed: This decrease was offset by higher volumes for our OEM and factory authorized dealer installer products.
−Removed: Segment gross margin declined due to the reduction in sales volume and adverse sales mix.
−Removed: Operating income increased 31.1% compared to 2018 primarily due to the recovery of Brazilian indirect taxes offsetting the impact of lower sales and gross margin.
−Removed: In 2019, SG&A expenses were favorably impacted by Stoneridge Brazil’s recovery of indirect taxes and Control Device’s transitional service cost reimbursement associated with the disposal of its Non-core Products offset by an increase in year-over-year restructuring and business realignment costs.
+Added: The Company had net loss of $8.0 million, or $(0.29) per diluted share, for the year ended December 31, 2020.
+Added: Net income in 2020 decreased by $68.3 million, or $(2.42) per diluted share, from $60.3 million, or $2.13 per diluted share, for the year ended December 31, 2019 primarily due to the COVID-19 pandemic, the 2019 gain on disposal of Control Devices’ Non-core Products of $33.6 million, or $0.98 per diluted share, and the recovery of Brazilian indirect taxes of $6.5 million, or $0.20 per diluted share .
+Added: This decrease in net income was partially offset by a favorable fair value adjustment, net for earn-out consideration of $5.5 million, or $0.20 per diluted share, at Stoneridge Brazil and a $4.3 million decrease in restructuring costs during 2020.
+Added: In 2020, our net sales decreased by $186.3 million, or 22.3%, while our operating income decreased $79.5 million.
+Added: Our Control Devices segment net sales decreased by 20.6% primarily as a result of COVID-19 and 2019 sales of $41.6 million under the contract manufacturing agreement pursuant to the disposal of the Non-core Products.
+Added: Including the impact of COVID-19, Control Devices experienced decreased sales volume in our North American automotive, North American commercial vehicle, agricultural and other markets.
+Added: These decreases were partially offset by increased sales volume in our European and China automotive markets .
+Added: Segment gross margin decreased due to lower sales from COVID-19, the adverse impact of the disposal of Non-core Products in the second quarter of 2019 and COVID-19 related incremental operating costs for employee safety protocols .
+Added: Segment operating income decreased 69.9% relative to 2019 due to the 2019 gain on disposal of Non-Core Products, lower sales primarily related to COVID-19 and impact from the disposal of Non-core Products that occurred in the second quarter of 2019 .
+Added: Our Electronics segment net sales decreased by 23.1% primarily as a result of COVID-19 including a decrease in sales volume in our European, North American and China commercial vehicle markets as well as European off-highway vehicle products.
+Added: These decreases were partially offset by a favorable foreign currency translation.
+Added: Segment gross margin decreased primarily due to lower sales as a result of the of COVID-19 pandemic and from the adverse leverage of fixed costs and COVID-19 related incremental operating costs for employee safety protocols .
+Added: Operating income for the segment decreased compared to 2019 due to lower sales as a result of COVID-19 resulting in lower gross margin.
+Added: Electronics SG&A cost reductions were offset by business realignment and restructuring expenses .
+Added: Our Stoneridge Brazil segment net sales decreased by 29.4% due to unfavorable foreign currency translation and the effects of COVID-19 causing lower volumes for our aftermarket, mass retail and OES channels mostly in the second quarter of 2020 .
+Added: Segment gross margin was consistent with the prior year as lower sales levels were offset with favorable product mix of a greater percentage of monitoring service fees.
+Added: Operating income decreased 42.4% compared to 2019 primarily from the 2019 recovery of Brazilian indirect taxes of $6.5 million, lower sales volumes and margin offset by a favorable fair value adjustment, net for earn-out consideration of $5.5 million recognized in 2020 .
+Added: In 2020, SG&A expenses were favorably impacted due to lower incentive compensation costs, professional service fees and travel related expenses.
+Added: Additionally, a favorable fair value adjustment, net for earn-out consideration of $5.5 million at Stoneridge Brazil offset by the 2019 recovery of Brazilian indirect taxes of $6.5 million and higher 2020 business realignment and restructuring costs of $3.1 million .
At December 31, 2020 and 2019, we had cash and cash equivalents of $73.9 million and $69.4 million, respectively.
−Removed: Cash and cash equivalents decreased during 2019 primarily due to the repurchase of our Common Shares and lower cash flows from operations as well as the cash payment of the Orlaco earn-out consideration which were offset by proceeds from the disposal of Non-core Products and net borrowings on the 2019 Credit Facility.
−Removed: At December 31, 2019 and 2018 we had $126.0 million and $96.0 million, respectively, in borrowings outstanding on our 2019 Credit Facility and the Amended Agreement, as applicable.
−Removed: The Company believes that focusing on products that address industry megatrends will have a positive impact on both our top-line growth and underlying margins.
−Removed: The North American automotive market is expected to increase from 16.3 million units in 2019 to 16.7 million units in 2020.
−Removed: Based on our product mix and expected certain program volume reductions related to the legacy shift-by-wire programs, the Company expects sales volumes in our Control Devices segment to be consistent with the prior year excluding the impact of the sale of Non-core Products.
−Removed: We expect full year 2020 European commercial vehicle volumes to decline compared to prior year volumes.
−Removed: The North American commercial vehicle market increased in 2019, however we expect it to decline significantly in 2020.
−Removed: Our 2019 Stoneridge Brazil segment revenues declined compared to the prior year due to lower volumes in our Brazilian served markets for our audio and alarm products, monitoring products and service revenues.
−Removed: In addition, revenues were adversely affected by the continued decline in the Argentinian economy.
+Added: The 2020 increase in borrowings under the 2019 Credit Facility were to maintain a high level of liquidity to ensure adequate available capital across our global locations due to adverse economic conditions caused by COVID-19.
+Added: At December 31, 2020 and 2019, we had $136.0 million and $126.0 million, respectively, in borrowings outstanding on the 2019 Credit Facility.
+Added: While the Company believes that focusing on products that address industry megatrends will have a positive impact on both our top-line growth and underlying margins, beginning in the first quarter of 2020 and continuing through the fourth quarter, COVID-19 has caused worldwide adverse economic conditions and uncertainty in our served markets.
+Added: The North American automotive market is expected to increase from 13.0 million units in 2020 to 16.2 million units in 2021 as the market recovers from adverse economic conditions caused by COVID-19 in 2020.
+Added: The Company expects sales volumes in our Control Devices segment to increase from 2020 based on the current 2021 production forecasts and ramp up of certain program launches, however, global supply chain shortages, such as the global semiconductor supply shortage, could potentially have an adverse impact on our sales volumes in the first half of 2021.
+Added: For 2021, we expect an increase in our Electronics’ segment sales in 2021 compared to 2020 primarily due to the increase in production volume forecasts in our European and North American commercial markets and new program launches in 2021, including the first two launches of our MirrorEye camera based vision system in OEM markets as well as the continued roll out of MirrorEye in the retrofit markets.
+Added: Our 2020 Stoneridge Brazil segment revenues declined compared to the prior year due to the adverse economic conditions caused by COVID-19 and lower volumes in our Brazilian served markets for our audio and alarm products.
In January 2021, the International Monetary Fund (“IMF”) forecasted the Brazil gross domestic product to grow 3.6% in 2021 and 2.6% in 2022.
−Removed: We expect our served market channels to improve with improvements in the Brazilian economy and expect higher OEM related revenues from new program launches occurring in 2020.
+Added: We expect our served market channels to remain relatively flat based on current market conditions.
Our financial performance in our Stoneridge Brazil segment is also subject to uncertainty from movements in the Brazilian Real and Argentina Peso foreign currencies.
−Removed: Because of the recent coronavirus outbreak in China, we are currently experiencing operational limitations at our Suzhou, China facility.
−Removed: We continue to be impacted due to national and regional Chinese government declarations requiring closures, quarantines and travel restrictions.
−Removed: Numerous variables and uncertainties related to this outbreak limit our ability to calculate the overall impact on our business;
−Removed: however, we expect that the impact will be material in the first quarter of fiscal year 2020.
−Removed: Trade actions initiated by the U.S.
−Removed: imposing tariffs on imports have been met with retaliatory tariffs by other countries, adding a level of uncertainty to the global economic environment.
−Removed: These and other actions are likely to impact trade polices with other countries and the overall global economy which could adversely impact our results of operations.
+Added: Global transportation production has been impacted by supply chain disruptions, in the first quarter of 2021, primarily in our automotive passenger vehicle end-market.
+Added: Based on the current market conditions, we expect production reductions to be limited in the first half of 2021 and expect most production to be to be made up in the second half of year due to current market demand.
+Added: We do not expect a significant revenue impact in 2021, however, we do expect that increased material costs, due to material spot buys and increased expediting and premium freight costs, to have an adverse impact on gross margin, particularly in the first half of 2021.
Other Matters
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dollars, and therefore movements in foreign currency exchange rates can also have a significant effect on our results of operations.
−Removed: Dollar strengthened against the Swedish krona, euro, Brazilian real and Argentinian peso in 2019 and 2018, unfavorably impacting our material costs and reported results.
−Removed: In January 2019, we committed to a restructuring plan that will result in the closure of our Canton, Massachusetts facility (“Canton Facility”) which is expected by March 31, 2020 and the consolidation of manufacturing operations at that site into other Company locations.
−Removed: The estimated costs for the Canton Restructuring include 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.
−Removed: We recognized $12.5 million of expense as a result of these actions during the year ended December 31, 2019.
−Removed: We expect to incur additional costs related to the Canton Restructuring of $1.5 million to $1.9 million through December 2020.
+Added: Dollar strengthened against the Brazilian real, Argentine peso and Mexican peso in 2020 and the Swedish krona, euro, Brazilian real and Argentine peso in 2019, unfavorably impacting our material costs and reported results.
+Added: In 2020, the U.S.
+Added: Dollar weakened against the Swedish krona and euro which favorably impacted our material costs and reported results.
+Added: On May 19, 2020, the Company committed to the strategic exit of its Control Devices particulate matter (“PM”) sensor product line (“PM Sensor Exit”).
+Added: 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.
+Added: 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.
+Added: Non-cash charges include impairment of fixed assets and accelerated depreciation associated with PM sensor production.
+Added: We recognized $3.4 million of expense as a result of this initiative during the year ended December 31, 2020.
+Added: 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 commercial and supplier settlements and accelerated depreciation.
+Added: The estimated range of additional cost increased since the third quarter of 2020 due to customer and supplier negotiations.
+Added: The Company expects the exit from the PM sensor product line to be completed in the fourth quarter of 2021.
+Added: In January 2019, we committed to a restructuring plan that resulted in the closure of our 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”).
+Added: 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.
+Added: 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.
+Added: During the third quarter of 2020, we leased the Canton facility to a third party and are evaluating the sale of the facility.
+Added: We expect additional costs to be immaterial related to the Canton Restructuring.
+Added: In the fourth quarter of 2018, we undertook restructuring actions for our Electronics segment affecting our European Aftermarket business and China operations.
+Added: In the second quarter of 2020, the Company finalized plans to move its European Aftermarket sales activities in Dundee, Scotland to a new location which resulted in incurring contract termination costs as well as employee severance and termination costs.
+Added: In addition, the Company announced a restructuring program to transfer the European production of its Controls product line to China.
+Added: For the years ended December 31, 2020 and 2019, we recognized expense of $2.4 million and $0.6 million, respectively, as a result of these actions for related costs and non-cash fixed asset charges for accelerated depreciation.
+Added: The Company expects to incur approximately $0.2 million of additional restructuring costs related to employee severance and other related costs for these actions through the second quarter of 2021.
On April 1, 2019, the Company entered into an Asset Purchase Agreement by and among the Company, the Company’s wholly owned subsidiary, Stoneridge Control Devices, Inc.
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On April 1, 2019, the Company and SMP also entered into certain ancillary agreements, including a transition services agreement, a contract manufacturing agreement and a supply agreement, pursuant to which the Company provided and was compensated for certain manufacturing, transitional, administrative and support services to SMP on a short-term basis.
−Removed: 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.
+Added: The products related to the Non-core Products were manufactured in Juarez, Mexico and Canton, Massachusetts, and included ball switches, ignition switches, rotary switches, courtesy lamps, toggle switches, headlamp switches and other related components.
On April 1, 2019, the Company’s Control Devices segment recognized net sales and costs of goods sold of $4.2 million and $2.8 million, respectively, for the one-time sale of finished goods inventory and a gain on disposal of $33.9 million for the sale of fixed assets, intellectual property and customer lists associated with the Non-core Products less transaction costs.
−Removed: On October 26, 2018 the Company announced a Board approved share repurchase program authorizing Stoneridge to repurchase up to $50.0 million of our Common Shares.
+Added: On June 17, 2020, the Company and SMP terminated the transition services agreement and the contract manufacturing agreement.
+Added: On October 26, 2018 the Company announced a Board of Directors approved share repurchase program authorizing Stoneridge to repurchase up to $50.0 million of our Common Shares.
Thereafter, on May 7, 2019, we announced that the Company had entered into an accelerated share repurchase agreement with Citibank N.A.
to repurchase an aggregate of $50.0 million of our Common Shares.
−Removed: Pursuant to the accelerated share repurchase agreement in the second quarter of 2019 we made an upfront payment of $50.0 million and received an initial delivery of 1,349,528 Common Shares which became treasury shares and were recorded as a $40.0 million reduction to shareholder’ equity.
−Removed: The remaining $10.0 million of the initial payment was recorded as a reduction to shareholders’ equity as an unsettled forward contract indexed to our Common Shares.
−Removed: The number of shares to be ultimately purchased by the Company will be determined based on the volume weighted-average price of our Common Shares during the terms of the transaction, minus an agreed upon discount between the parties.
−Removed: The program is expected to be completed by May 8, 2020.
+Added: Pursuant to the accelerated share repurchase agreement in the second quarter of 2019 we made an upfront payment of $50.0 million and received an initial delivery of 1,349,528 Common Shares which became treasury shares.
+Added: On February 25, 2020, Citibank N.A.
+Added: terminated early its commitment pursuant to the accelerated share repurchase agreement and delivered to the Company, 364,604 Common Shares representing the final settlement of the Company’s repurchase program which became treasury shares.
+Added: On February 24, 2020, the Board of Directors authorized a new repurchase program of $50.0 million for the repurchase of outstanding Common Shares over an 18 month period.
+Added: The repurchases may be made from time to time in either open market transactions or in privately negotiated transactions.
+Added: Repurchases may also be made under rule 10b-18, which permit Common Shares to be repurchased through pre-determined criteria.
+Added: The timing, volume and nature of common share repurchases will be at the discretion of management, dependent on market conditions, other priorities of cash investment, applicable securities laws and other factors.
+Added: This Common Share repurchase program authorization does not obligate the Company to acquire any particular amount of its Common Shares, and it may be suspended or discontinued at any time.
+Added: For the quarter ended March 31, 2020, under the new 2020 repurchase program, the Company repurchased 242,634 Common Shares for $5.0 million, which became treasury shares, in accordance with this repurchase program authorization.
+Added: In April 2020, the Company announced that it was temporarily suspending the previously announced share repurchase program in response to uncertainty surrounding the duration and magnitude of the impact of COVID-19.
In March 2017, the Supreme Court of Brazil issued a decision concluding that a certain state value added tax should not be included in the calculation of federal gross receipts taxes.
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In April 2019, the Company received judicial notification that the Superior Judicial Court of Brazil rendered a favorable decision on Stoneridge Brazil’s case granting the Company the right to recover, through offset of federal tax liabilities, amounts collected by the government from June 2010 to February 2017.
−Removed: Based on the Company’s determination that these tax credits will be used prior to expiration, we recorded a pre-tax benefit of $6.5 million as a reduction to SG&A expense which is inclusive of related interest income of $2.4 million, net of applicable professional fees of $1.0 million in the year ended December 31, 2019.
−Removed: The Company received administrative approval in January 2020 and is now able to offset eligible federal tax with the tax credit.
−Removed: The Brazilian tax authorities have sought clarification before the Supreme Court of Brazil (in a leading case involving another taxpayer) of certain matters that could affect the rights of Brazilian taxpayers regarding these credits, and a hearing is scheduled for April 2020.
+Added: Based on the Company’s determination that these tax credits will be used prior to expiration, we recorded a pre-tax benefit of $6.5 million as a reduction to SG&A expense which is inclusive of related interest income of $2.4 million, net of applicable professional fees of $1.0 million in the second quarter of 2019.
+Added: The Company received administrative approval in January 2020 and is now offsetting eligible federal taxes with these tax credits.
+Added: The Brazilian tax authorities have sought clarification before the Supreme Court of Brazil (in a leading case involving another taxpayer) of certain matters that could affect the rights of Brazilian taxpayers regarding these credits.
+Added: The timing for a decision is uncertain due to the COVID-19 pandemic.
If the Brazilian tax authorities challenge our rights to these credits, we may become subject to new litigation that could impact the amount ultimately realized by Stoneridge Brazil.
−Removed: In the fourth quarter of 2018, we undertook restructuring actions for our Electronics segment affecting our European Aftermarket business and China operations.
−Removed: For the years ended December 31, 2019 and 2018, we recognized expense of $0.6 million and $3.5 million, respectively, as a result of these actions for related costs and non-cash accelerated depreciation.
−Removed: We expect to incur additional costs related to the Electronics segment restructuring actions of $0.4 million through 2020.
−Removed: In addition, we regularly evaluate the performance of our businesses and their cost structures, including personnel, and make necessary changes thereto in order to optimize our results.
+Added: We regularly evaluate the performance of our businesses and their cost structures, including personnel, and make necessary changes thereto in order to optimize our results.
We also evaluate the required skill sets of our personnel and periodically make strategic changes.
As a consequence of these actions, we incur severance related costs which we refer to as business realignment charges.
+Added: On May 4, 2020, the Company began business realignment actions that resulted in the reduction of our global salaried workforce by approximately 5.0%.
+Added: These actions were made to better align our resources and cost structure with our current business opportunities and market outlook as well as respond to COVID-19.
+Added: One-time separation costs of $4.0 million associated with these and other realignment actions were incurred during the year ended December 31, 2020.
Because of the competitive nature of the markets we serve, we face pricing pressures from our customers in the ordinary course of business.
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Design and development
+Added: Operating (loss) income
+Added: Interest expense, net
+Added: Equity in earnings of investee
+Added: Other (income) expense, net
+Added: (Loss) income before income taxes
+Added: (Benefit) provision for income taxes
+Added: Net (loss) income
+Added: Net sales for our reportable segments, excluding inter-segment sales are summarized in the following table (in thousands):
+Added: Year ended December 31,
+Added: Control Devices
+Added: Stoneridge Brazil
+Added: Total net sales
+Added: Our Control Devices segment net sales decreased primarily as a result of COVID-19 and 2019 sales of $41.6 million under the contract manufacturing agreement pursuant to the 2019 disposal of the Non-core Products.
+Added: Including the impact of COVID-19, Control Devices experienced decreased sales volume in our North American automotive, North American commercial vehicle, agricultural and other markets of $61.5 million, $17.4 million, $9.6 million and $14.5 million, respectively.
+Added: These decreases were offset by increased sales volume in our European and China automotive markets of $7.2 million and $6.6 million, respectively.
+Added: Our Electronics segment net sales decreased primarily as a result of COVID-19 including a decrease in sales volume in our European, North American and China commercial vehicle markets of $47.2 million, $23.4 million and $1.0 million, respectively.
+Added: In addition, the Electronics segment net sales decreased due to a decrease in sales volume in our European off-highway vehicle products of $17.1 million.
+Added: These decreases were offset by a favorable foreign currency translation of $11.4 million.
+Added: Our Stoneridge Brazil segment net sales decreased due to unfavorable foreign currency translation of $19.5 million and the effects of COVID-19 causing lower volumes for our aftermarket, mass retail and OES channels mostly in the second quarter of 2020.
+Added: Net sales by geographic location are summarized in the following table (in thousands):
+Added: Year ended December 31,
+Added: North America
+Added: South America
+Added: Europe and Other
+Added: Total net sales
+Added: The decrease in North American net sales was primarily attributable to the impact of COVID-19 and 2019 sales of Non-core Products under the contract manufacturing agreement of $41.6 million.
+Added: Including the impact of COVID-19, sales volume has decreased in our North American automotive, commercial vehicle, agricultural and other markets by $60.8 million, $40.8 million, $9.6 million and $14.5 million, respectively.
+Added: The decrease in net sales in South America was primarily due to unfavorable foreign currency translation of $19.5 million and lower volumes for our aftermarket, mass retail and OES channels mostly in the second quarter of 2020 primarily due to COVID-19.
+Added: The decrease in net sales in Europe and Other was primarily due to a decrease in our European commercial vehicle and off-highway markets of $47.2 million and $17.1 million, respectively, primarily impacted by COVID-19.
+Added: Europe and Other sales were favorably impacted due to increased sales volume in our European automotive and China automotive of $6.7 million and $6.6 million, respectively, as well as favorable foreign currency translation of $11.6 million.
+Added: Cost of Goods Sold and Gross Margin.
+Added: Cost of goods sold decreased compared to 2019 and our gross margin decreased to 23.8% in 2020 compared to 25.6% in 2019.
+Added: Our material cost as a percentage of net sales decreased by 0.3% to 52.8% in 2020 compared to 53.1% in 2019.
+Added: Overhead as a percentage of net sales increased by 2.1% to 18.0% for 2020 compared to 15.9% for 2019 primarily due to adverse fixed cost leverage on lower sales levels including COVID-19 related incremental operating costs.
+Added: Our Control Devices segment gross margin decreased due to lower sales from COVID-19, the impact of the disposal of Non-core Products in the second quarter of 2019, as well as adverse fixed cost leverage on lower sales levels including our Canton facility which ceased production in accordance with our Canton restructuring plan in December 2019 and COVID-19 related incremental operating costs for employee safety protocols.
+Added: Our Electronics segment gross margin decreased primarily due to lower sales as a result of the of COVID-19 pandemic and higher overhead costs from the adverse leverage of fixed costs and COVID-19 related incremental operating costs for employee safety protocols.
+Added: Our Stoneridge Brazil segment gross margin decreased due to lower sales volumes partially offset by lower material costs due to favorable product mix from a greater percentage of monitoring service fees.
+Added: Selling, General and Administrative (“SG&A”).
+Added: SG&A expenses decreased by $11.4 million compared to 2019 due to a favorable fair value adjustment, net for earn-out consideration of $5.5 million at Stoneridge Brazil, lower incentive compensation costs, professional service fees and travel related expenses offset by the 2019 recovery of Brazilian indirect taxes of $6.5 million and higher 2020 business realignment and restructuring costs of $3.1 million.
+Added: Gain on Disposal of Non-core Products, net.
+Added: The gain on disposal in 2019 relates to the disposal of Control Devices’ Non-core Products.
+Added: Design and Development (“D&D”).
+Added: D&D costs decreased by $2.8 million mostly due to lower restructuring and business realignment expenses at Control Devices of $2.3 million and lower spending at Control Devices due to the pace of the restoration of the engineering function previously located at the Canton facility.
+Added: Operating (Loss) Income.
+Added: Operating (loss) income is summarized in the following table by reportable segment (in thousands):
+Added: Year ended December 31,
+Added: Control Devices
+Added: Stoneridge Brazil
+Added: Unallocated corporate
+Added: Operating (loss) income
+Added: Our Control Devices segment operating income decreased due to the 2019 gain on disposal of Non-core Products, lower sales primarily related to COVID-19 as well as lower sales from the disposal of Non-core Products from the second quarter of 2019.
+Added: Adverse leverage of fixed costs from lower sales volumes and COVID-19 related incremental operating costs offset by lower restructuring costs also affected operating income.
+Added: Our Electronics segment operating income decreased primarily due to lower sales as a result of COVID-19 resulting in lower gross margin.
+Added: Electronics SG&A cost reductions were offset by business realignment and restructuring expenses.
+Added: Our Stoneridge Brazil segment operating income decreased primarily from the 2019 recovery of Brazilian indirect taxes of $6.5 million, lower sales volumes and margin offset by a favorable fair value adjustment, net for earn-out consideration of $5.5 million recognized in 2020.
+Added: Our unallocated corporate operating loss decreased primarily from lower incentive compensation, professional fees and travel related expenses.
+Added: Operating (loss) income by geographic location is summarized in the following table (in thousands):
+Added: Year ended December 31,
+Added: North America
+Added: South America
+Added: Europe and Other
+Added: Operating (loss) income
+Added: Our North American operating results decreased due to lower sales in our automotive, commercial vehicle, agriculture and off-highway markets, adverse leverage of fixed costs and COVID-19 related incremental operating costs for employee safety protocols.
+Added: The decrease in operating income in South America was primarily due to the 2019 recovery of indirect Brazilian taxes and lower sales volumes offset by the favorable fair value adjustment, net for earn-out consideration.
+Added: Our operating results in Europe and Other decreased primarily due to lower sales in our commercial vehicle and off-highway markets, adverse leverage of fixed costs and COIVD-19 related incremental operating costs for employee safety protocols.
+Added: Interest Expense, net.
+Added: Interest expense, net increased by $1.8 million compared to 2019 due to an increase in outstanding debt balances.
+Added: Equity in Earnings of Investee.
+Added: Equity earnings for MSIL were $1.5 million and $1.6 million for the years ended December 31, 2020 and 2019, respectively.
+Added: The decrease in MSIL earnings was due to lower sales volume from the COVID-19 pandemic.
+Added: Other (Income) Expense, net .
+Added: We record certain foreign currency transaction and forward currency hedge contract (gains) losses as a component of other income, net on the consolidated statement of operations.
+Added: Other income, net increased by $1.7 million to $1.5 million in 2020 compared to other expense, net of $0.1 million in 2019 primarily due to higher foreign currency transaction gains in our Electronics, Control Devices and Stoneridge Brazil segments.
+Added: (Benefit) Provision for Income Taxes.
+Added: In 2020, income tax benefit of $(2.8) million was attributable to the mix of earnings and losses among tax jurisdictions as well as tax losses for which no benefit is recognized due to valuation allowances in certain jurisdictions.
+Added: The effective tax rate of 25.9% is slightly greater than the statutory tax rate primarily due to non-deductible expenses and tax losses for which no benefit is recognized due to valuation allowances in certain jurisdictions offset by the impact of certain incentives.
+Added: In 2019, income tax expense of $8.1 million was attributable to the mix of earnings amount jurisdictions and the sale of Non-core-Products on April 1, 2019.
+Added: The effective tax rate of 11.8% is lower than the statutory tax rate primarily due to certain tax incentives offset by non-deductible expenses and tax losses for which no benefit is recognized due to valuation allowances in certain jurisdictions.
+Added: Year Ended December 31, 2019 Compared To Year Ended December 31, 2018
+Added: Consolidated statements of operations as a percentage of net sales are presented in the following table (in thousands):
+Added: Year ended December 31,
+Added: Costs and expenses:
+Added: Cost of goods sold
+Added: Selling, general and administrative
+Added: Gain on disposal of Non-core Products, net
+Added: Design and development
Operating income
66 unchanged sentences
Operating income
−Removed: Our North American operating results increased primarily due to the gain on disposal of Non-core Products and higher sales volume in the North American commercial vehicle and off-highway markets offset by lower sales in our automotive market, Canton Restructuring costs as well as higher SG&A and D&D costs.
+Added: Our North American operating results decreased primarily due lower sales in our automotive market, Canton Restructuring costs as well as higher SG&A and D&D costs offset by the gain on disposal of Non-core Products and higher sales volume in the North American commercial vehicle and off-highway markets.
The increase in operating income in South America was primarily due to lower SG&A from the recovery of Brazilian indirect taxes and lower selling costs and lower overhead costs offsetting lower sales.
−Removed: Our operating results in Europe and Other decreased slightly primarily due to lower gross margin from adverse product mix offset by lower SG&A and D&D costs.
+Added: Our operating results in Europe and Other increased slightly primarily due to lower SG&A and D&D costs offset by lower gross margin from adverse product mix.
Interest Expense, net.
10 unchanged sentences
The effective tax rate decreased to 11.8% in 2019 from 17.2% in 2018 primarily due to the impact of certain tax incentives, which did not impact 2018.
−Removed: Year Ended December 31, 2018 Compared To Year Ended December 31, 2017
−Removed: Consolidated statements of operations as a percentage of net sales are presented in the following table (in thousands):
−Removed: Year ended December 31,
−Removed: Costs and expenses:
−Removed: Cost of goods sold
−Removed: Selling, general and administrative
−Removed: Design and development
−Removed: Operating income
−Removed: Interest expense, net
−Removed: Equity in earnings of investee
−Removed: Other expense (income), net
−Removed: Income before income taxes
−Removed: Provision for income taxes
−Removed: Net loss attributable to noncontrolling interest
−Removed: Net income attributable to Stoneridge, Inc.
−Removed: Net sales for our reportable segments, excluding inter-segment sales are summarized in the following table (in thousands):
−Removed: Year ended December 31,
−Removed: Control Devices
−Removed: Stoneridge Brazil
−Removed: Total net sales
−Removed: Our Control Devices segment net sales decreased primarily as a result of decreased sales volume in the North American automotive market of $24.4 million as a result of certain program volume reductions partially offset by an increase in sales volume in our commercial vehicle and China automotive markets of $15.9 million and $1.3 million, respectively, and favorable foreign currency translation of $0.5 million.
−Removed: Our Electronics segment net sales increased primarily due to an increase in sales volume in our European and North American commercial vehicle products of $20.2 million and $19.6 million, respectively, and increased sales of European and North American off-highway vehicle products of $15.9 million and $4.6 million, respectively, as well as favorable foreign currency translation of $1.6 million.
−Removed: Our Stoneridge Brazil segment net sales decreased primarily due to unfavorable foreign currency translation that decreased sales by $11.9 million, or 12.6%, as well as lower volumes for our audio products and our Argentina aftermarket channel.
−Removed: This reduction was partially offset by an increase in sales of new products to our factory authorized dealer installers and higher sales of monitoring products and services.
−Removed: Net sales by geographic location are summarized in the following table (in thousands):
−Removed: Year ended December 31,
−Removed: North America
−Removed: South America
−Removed: Europe and Other
−Removed: Total net sales
−Removed: The increase in North American net sales was primarily attributable to increased sales volume in our North American commercial vehicle and off-highway markets of $28.4 million and $4.6 million, respectively, which was offset by a decrease in sales volume in our North American automotive of $24.4 million resulting from certain program volume reductions.
−Removed: The decrease in net sales in South America was primarily due to an unfavorable foreign currency translation that decreased sales by $11.9 million, or 12.6%, as well as lower sales volume for our audio products and our Argentina aftermarket channel partially offset by an increase in sales of new products to our factory authorized dealer installers and higher sales of monitoring products and services.
−Removed: The increase in net sales in Europe and Other was primarily due to the increase in our European commercial vehicle and off-highway markets of $27.1 million and $15.9 million, respectively, as well as an increase in sales volume in our China automotive market of $1.3 million.
−Removed: Additionally, Europe and Other sales were favorably impacted by foreign currency translation of $2.1 million.
−Removed: Cost of Goods Sold and Gross Margin.
−Removed: Cost of goods sold increased by 5.8% and our gross margin decreased from 30.1% in 2017 to 29.7%.
−Removed: Our material cost as a percentage of net sales increased by 0.9% to 51.5% during 2018 compared to 50.6% for 2017.
−Removed: The higher direct material costs in our Control Devices segment resulted from the adverse effects of tariffs while our Electronics and Stoneridge Brazil segments were negatively impacted by U.S.
−Removed: denominated material purchases at non-U.S.
−Removed: based operations offset by favorable product mix.
−Removed: Overhead as a percentage of net sales decreased by 0.4% to 13.9% during 2018 compared to 14.3% for 2017.
−Removed: Our Control Devices segment gross margin decreased slightly due to lower sales and higher direct material costs due to tariffs, partially offset by a decrease in overhead costs primarily from a reduction in warranty costs.
−Removed: Our Electronics segment gross margin increased primarily due to higher sales offset and favorable product mix offset by the adverse effect of U.S denominated material purchases at non-U.S.
−Removed: based operations.
−Removed: Our Stoneridge Brazil segment gross margin improved slightly due to a favorable sales mix related to lower sales of audio products that resulted in lower direct material costs as a percentage of sales which was partially offset by lower sales primarily due to unfavorable foreign currency translation.
−Removed: Selling, General and Administrative (“SG&A”).
−Removed: SG&A expenses decreased by $3.3 million compared to 2017 primarily due to a decrease in expense for the fair value of the Orlaco and Stoneridge Brazil earn-out consideration of $4.5 million and $2.8 million in our Electronics and Stoneridge Brazil segments, respectively, offset by our Electronics segment 2018 restructuring actions for its aftermarket business and China operations of $2.7 million.
−Removed: Control Devices and Electronics SG&A costs increased due to higher wages and fringe benefits as well as higher direct support charges for procurement support.
−Removed: Stoneridge Brazil SG&A costs decreased during the current period due to lower wage and fringe benefits, professional service costs and selling costs.
−Removed: Unallocated corporate SG&A costs decreased primarily due to higher allocation of direct support costs to operating segments for procurement and manufacturing support due to the centralization of these activities as well as lower incentive compensation costs which were partially offset by higher professional service fees.
−Removed: Design and Development (“D&D”).
−Removed: D&D costs increased by $2.2 million primarily due to higher D&D costs in our Electronics and Control Devices segments related to program launches and investment in development activities.
−Removed: Customer reimbursement for development projects increased $1.6 million in 2018.
−Removed: Operating Income.
−Removed: Operating income (loss) is summarized in the following table by reportable segment (in thousands):
−Removed: Year ended December 31,
−Removed: Control Devices
−Removed: Stoneridge Brazil
−Removed: Unallocated corporate
−Removed: Operating income
−Removed: Our Control Devices segment operating income decreased primarily due to lower sales and higher SG&A and D&D costs partially related to program launches.
−Removed: Our Electronics segment operating income increased primarily due to higher sales and gross margin partially offset by higher SG&A including restructuring expenses as well as higher D&D related to product launch and development activities.
−Removed: Our Stoneridge Brazil segment operating income increased primarily due to lower SG&A, including the decrease in expense for the fair value of earn-out consideration of $2.8 million during 2018, partially offset by a decrease in sales.
−Removed: Our unallocated corporate operating loss decreased primarily due to higher allocations of direct support costs to operating segments for procurement and manufacturing activities due to the centralization of these activities as well as lower incentive compensation costs which were offset by higher professional service fees.
−Removed: Operating income by geographic location is summarized in the following table (in thousands):
−Removed: Year ended December 31,
−Removed: North America
−Removed: South America
−Removed: Europe and Other
−Removed: Operating income
−Removed: Our North American operating results decreased primarily due to lower sales volume in the North American automotive market as well as higher D&D costs, which were partially offset by increased sales volume in the commercial vehicle and off-highway markets.
−Removed: The increase in operating income in South America was primarily due to a decrease in expense for the fair value of Stoneridge Brazil earn-out consideration.
−Removed: Our operating results in Europe and Other increased due to higher sales in our European commercial vehicle and off-highway markets which were partially offset by higher SG&A and D&D costs.
−Removed: Interest Expense, net.
−Removed: Interest expense, net decreased by $1.1 million compared to the prior year primarily due to lower interest expense at our unallocated corporate and Stoneridge Brazil segments as a result of the decrease in outstanding credit facility and debt balances, respectively, from voluntary principal prepayments of our credit facility.
−Removed: Equity in Earnings of Investee.
−Removed: Equity earnings for MSIL were $2.0 million and $1.6 million for the years ended December 31, 2018 and 2017, respectively.
−Removed: The increase compared to the prior period was due to higher sales which was offset by an unfavorable change in foreign currency exchange rates.
−Removed: Other Expense (Income), net .
−Removed: We record certain foreign currency transaction and forward currency hedge contract (gains) losses as a component of other expense (income), net on the consolidated statement of operations.
−Removed: Other expense (income), net decreased by $1.4 million to other income of $0.7 million in 2018 compared to other expense of $0.6 million for 2017 primarily due to the favorable impact of foreign currency exchange rates of non-functional currency denominated cash balances in our Electronics segment.
−Removed: Provision for Income Taxes .
−Removed: We recognized income tax expense of $11.2 million and $7.5 million for federal, state and foreign income taxes for 2018 and 2017, respectively.
−Removed: The change in tax expense for the year ended December 31, 2018 compared to the same period for 2017 was predominantly due to the impact of the enactment of the Tax Cuts and Jobs Act (“Tax Legislation”) in the United States on December 22, 2017.
−Removed: The change in the effective tax rate to 17.2% in 2018 from 14.3% in 2017, was predominantly due to impact of the Tax Legislation in 2017.Liquidity and Capital Resources
Liquidity and Capital Resources
7 unchanged sentences
Net change in cash and cash equivalents
−Removed: Cash provided by operating activities decreased compared to 2018 primarily due to the lower net income excluding the gain on disposal related to Control Devices’ Non-core Products and a higher use of cash to fund working capital levels.
−Removed: This decrease includes a portion of the cash payment of the Orlaco earn-out consideration obligation of $5.0 million paid during 2019.
−Removed: The higher working capital levels mostly relate to higher inventory levels from bank builds attributable to the Canton Restructuring activities and the disposal of Non-core Products as well as the delay of a product launch in our Electronics segment.
−Removed: Our receivable terms have remained consistent between 2019 and 2018 however we have experienced a timing related decline in 2019 year-end collection rates.
−Removed: Net cash provided by investing activities increased compared to 2018 due to the cash proceeds received from the disposal of Control Devices’ Non-core Products offset by higher capital expenditures, 2019 capitalized software development costs, 2019 investments in the Autotech venture capital fund and insurance proceeds received in 2018.
−Removed: Net cash used for financing activities increased compared to the prior year primarily due to the repurchase of Common Shares during the second quarter of 2019 and the cash payment of Orlaco earn-out consideration offset by higher net Credit Facility borrowings.
+Added: Cash provided by operating activities increased compared to 2019 primarily due to a reduction in cash used to fund working capital levels and the 2019 payment of Orlaco earn-out consideration of $5.1 million offset by lower net income and the payment of dividends to former noncontrolling interest holders of Stoneridge Brazil of $6.0 million.
+Added: Our receivable terms and collections rates have remained consistent between periods presented.
+Added: Net cash used for investing activities increased compared to 2019 due to proceeds from the 2019 sale of Control Devices Non-core Products offset by lower capital expenditures.
+Added: Net cash provided by (used for) financing activities increased compared to the prior year primarily due to lower Common Share repurchases of $45.0 million offset by higher Credit Facility borrowings, net of $20.0 million and the 2019 cash payment for Orlaco earn-out consideration.
Summary of Cash Flows for the years ended December 31, 2019 and 2018 (in thousands):
6 unchanged sentences
Net change in cash and cash equivalents
−Removed: Cash provided by operating activities increased compared to 2017 primarily due to an increase in net income and lower cash used to support working capital levels offset by cash outflows for income taxes and incentive compensation.
−Removed: Our receivable terms and collections rates have remained consistent between periods presented.
−Removed: Net cash used for investing activities decreased primarily due to the business acquisition of Orlaco and insurance proceeds received in 2017 as well as lower capital expenditures in 2018.
−Removed: Net cash provided by (used for) financing activities decreased primarily due to the significant decrease in borrowing activity on our Credit Facility as we borrowed $77.3 million to fund the acquisition of the Orlaco business in the first quarter of 2017 and an increase in voluntary principal repayments of our Credit Facility and Stoneridge Brazil debt obligations in 2018.
+Added: Cash provided by operating activities decreased compared to 2018 primarily due to the lower net income excluding the gain on disposal related to Control Devices’ Non-core Products and a higher use of cash to fund working capital levels.
+Added: This decrease includes a portion of the cash payment of the Orlaco earn-out consideration obligation of $5.0 million paid during 2019.
+Added: The higher working capital levels mostly relate to higher inventory levels from bank builds attributable to the Canton Restructuring activities and the disposal of Non-core Products as well as the delay of a product launch in our Electronics segment.
+Added: Our receivable terms have remained consistent between 2019 and 2018 however we have experienced a timing related decline in 2019 year-end collection rates.
+Added: Net cash provided by investing activities increased compared to 2018 due to the cash proceeds received from the disposal of Control Devices’ Non-core Products offset by higher capital expenditures, 2019 capitalized software development costs, 2019 investments in the Autotech Fund II and insurance proceeds received in 2018.
+Added: Net cash used for financing activities increased compared to the prior year primarily due to the repurchase of Common Shares during the second quarter of 2019 and the cash payment of Orlaco earn-out consideration offset by higher net Credit Facility borrowings.
Summary of Future Cash Flows
5 unchanged sentences
(A) Includes estimated payments under the Company’s 2019 Credit Facility and other debt obligations using the most current interest rate and principal balance information available at December 31, 2020, extended through the end of the term.
−Removed: (B) In December 2018, the Company entered into an agreement to make a $10.0 million investment in a fund managed by Autotech Ventures (“Autotech”), a venture capital firm focused on ground transportation technology.
−Removed: The Company’s $10.0 million investment in the Autotech fund will be contributed over the expected ten year life of the fund.
−Removed: The Company has contributed $2.1 million to the Autotech fund since December 2018.
+Added: (B) In December 2018, the Company entered into an agreement to make a $10.0 million investment in a fund (“Autotech Fund II”) managed by Autotech Ventures (“Autotech”), a venture capital firm focused on ground transportation technology.
+Added: The Company’s $10.0 million investment in the Autotech Fund II will be contributed over the expected ten year life of the fund.
+Added: The Company has contributed $3.6 million to the Autotech Fund II since December 2018.
Management will continue to focus on efficiently managing its weighted-average cost of capital and believes that cash flows from operations and the availability of funds from our 2019 Credit Facility provides sufficient liquidity to meet our future growth and operating needs.
−Removed: As outlined in Note 5 to our consolidated financial statements, the 2019 Credit Facility increased our borrowing capacity by $100.0 million and permits borrowing up to a maximum level of $400.0 million which includes an accordion feature which allows the Company to increase the availability by up to $150.0 million upon the satisfaction of certain conditions.
+Added: As outlined in Note 5 to our consolidated financial statements, the 2019 Credit Facility increased our borrowing capacity by $100.0 million and permits borrowing up to a maximum level of $400.0 million.
This variable rate facility provides the flexibility to refinance other outstanding debt or finance acquisitions through June 2024.
2 unchanged sentences
The 2019 Credit Facility had an outstanding balance of $136.0 million at December 31, 2020.
+Added: Due to the expected impact of the COVID-19 pandemic on the Company’s end-markets and the resulting expected financial impacts on the Company, on June 26, 2020, the Company entered into a Waiver and Amendment No.
+Added: 1 to the Fourth Amended and Restated Credit Agreement (“Amendment No.
+Added: Amendment No.
+Added: 1 provides for certain covenant relief and restrictions during the “Covenant Relief Period” (the period ending on the date that the Company delivers a compliance certificate for the quarter ending June 30, 2021).
+Added: During the Covenant Relief Period:
+Added: ● the maximum net leverage ratio is suspended;
+Added: ● the calculation of the minimum interest coverage ratio will exclude second quarter 2020 financial results effective for the quarters ended September 30, 2020 through March 31, 2021;
+Added: ● the minimum interest coverage ratio of 3.50 is reduced to 2.75 and 3.25 for the quarters ended December 31, 2020 and March 31, 2021, respectively;
+Added: ● the Company’s liquidity may not be less than $150,000;
+Added: ● the Company’s aggregate amount of cash and cash equivalents cannot exceed $130,000;
+Added: ● there are certain restrictions on Restricted Payments (as defined);
+Added: ● a Permitted Acquisition (as defined) may be not consummated unless otherwise approved in writing by the required lenders.
+Added: Amendment No.
+Added: 1 increases the leverage based LIBOR pricing grid through the maturity date and also provides for a LIBOR floor of 50 basis points on outstanding borrowings excluding any Specified Hedge Borrowings (as defined) which remain subject to a LIBOR floor of 0 basis points.
The Company was in compliance with all covenants at December 31, 2020.
−Removed: The covenants included in 2019 Credit Facility to date have not and are not expected to limit our financing flexibility.
+Added: The Company has not experienced a violation which would limit the Company’s ability to borrow under the 2019 Credit Facility, as amended and does not expect that the covenants under it will restrict the Company’s financing flexibility.
+Added: However, it is possible that future borrowing flexibility under the 2019 Credit Facility may be limited as a result of lower than expected financial performance due to the adverse impact of COVID-19 on the Company’s markets and general global demand.
The Company expects to make additional repayments on the Credit Facility when cash exceeds the amount needed for operations.
−Removed: Stoneridge Brazil maintains several short-term obligations and long-term loans used for working capital purposes.
−Removed: At December 31, 2019, there was $1.0 million outstanding on the Stoneridge Brazil term loans.
−Removed: The Stoneridge Brazil loans at December 31, 2019 mature as follows:
−Removed: $0.5 million in 2020 and $0.5 million in 2021.
−Removed: In December 2019, Stoneridge Brazil established an overdraft credit line which allows overdrafts on Stoneridge Brazil’s bank account up to a maximum level of Brazilian real 5.0 million, or $1.2 million, at December 31, 2019.
−Removed: There was no balance outstanding on the overdraft credit line as of December 31, 2019.
−Removed: The Company’s wholly-owned subsidiary located in Stockholm, Sweden, has an overdraft credit line which allows overdrafts on the subsidiary’s bank account up to a maximum level of 20.0 million Swedish krona, or $2.1 million, at December 31, 2019.
+Added: Stoneridge Brazil maintains short-term loans used for working capital purposes.
+Added: At December 31, 2020, there was $1.6 million of Stoneridge Brazil debt outstanding.
+Added: Principal repayments of $1.6 million on Stoneridge Brazil debt at December 31, 2020 are due in 2021.
+Added: In December 2019, Stoneridge Brazil established an overdraft credit line which allowed overdrafts on Stoneridge Brazil’s bank account up to a maximum level of Brazilian real 5.0 million, or $1.2 million, at December 31, 2019.
+Added: There was no balance outstanding on the overdraft credit line as of December 31, 2019, and the overdraft credit line was terminated during the year ended December 31, 2020.
+Added: The Company’s wholly owned subsidiary located in Stockholm, Sweden, has an overdraft credit line which allows overdrafts on the subsidiary’s bank account up to a daily maximum level of 20.0 million Swedish krona, or $2.4 million and $2.1 million, at December 31, 2020 and December 31, 2019, respectively.
+Added: At December 31, 2020, there was 13.1 million Swedish krona, or $1.6 million outstanding on this overdraft credit line.
At December 31, 2019, there was no balance outstanding on this overdraft credit line.
−Removed: The Company’s wholly-owned subsidiary located in Suzhou, China, has two credit lines which allow up to a maximum borrowing level of 60.0 million Chinese yuan, or $8.6 million at December 31, 2019.
−Removed: At December 31, 2019 there was $2.2 million in borrowings outstanding recorded within current portion of debt.
−Removed: At December 31, 2018, there was no balance outstanding on these credit lines.
−Removed: Although the Company’s notes and credit facilities contain various covenants, the Company has not experienced a violation which would limit or preclude their use or accelerate the maturity and does not expect these covenants to restrict our financing flexibility.
−Removed: The Company has been and expects to continue to remain in compliance with these covenants during the term of the credit facilities and loans.
−Removed: On October 26, 2018 the Company announced a Board approved share repurchase program authorizing Stoneridge to repurchase up to $50.0 million of our Common Shares.
+Added: During the year ended December 31, 2020, the subsidiary borrowed 312.9 million Swedish krona, or $38.1 million, and repaid 299.8 million Swedish krona, or $36.5 million.
+Added: The Company’s wholly-owned subsidiary located in Suzhou, China, has two credit lines which allow up to a maximum borrowing level of 50.0 million Chinese yuan, or $7.7 million at December 31, 2020 and 40.0 million Chinese yuan, or $5.7 million at December 31, 2019.
+Added: At December 31, 2020 and December 31, 2019 there was $4.5 million and $2.2 million, respectively, in borrowings outstanding recorded within current portion of debt.
+Added: In addition, the Suzhou subsidiary has a bank acceptance draft line of credit which allows up to a maximum borrowing level of 15.0 million Chinese yuan, or $2.3 million and $2.2 million at December 31, 2020 and December 31, 2019, respectively.
+Added: At December 31, 2020 there was $0.4 million utilized on the Suzhou bank acceptance draft line and at December 31, 2019 there was approximately $0.2 million utilized on the Suzhou bank acceptance draft line of credit.
+Added: On May 19, 2020, the Company committed to the strategic exit of its Control Devices particulate matter (“PM”) sensor product line (“PM Sensor Exit”).
+Added: 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.
+Added: Non-cash charges include impairment of fixed assets and accelerated depreciation associated with PM sensor production.
+Added: We recognized $3.4 million of expense as a result of this initiative during 2020.
+Added: 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 to $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.
+Added: The Company expects the exit from the PM sensor product line to be completed in the third quarter of 2021.
+Added: In January 2019, the Company committed to a restructuring plan that resulted in the closure of its Canton Facility as of March 31, 2020 and the consolidation of manufacturing operations at that site into other Company locations (“Canton Restructuring”).
+Added: The estimated 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.
+Added: 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.
+Added: During the third quarter of 2020, we leased the Canton facility to a third party and are evaluating the sale of the facility.
+Added: We expect additional costs to be immaterial related to the Canton Restructuring.
+Added: In the fourth quarter of 2018, the Company undertook restructuring actions for the Electronics segment affecting the European Aftermarket business and China operations.
+Added: In the second quarter of 2020, the Company finalized plans to move its European Aftermarket sales activities in Dundee, Scotland to a new location which resulted in incurring contract termination costs as well as employee severance and termination costs.
+Added: In addition, the Company announced a restructuring program to transfer the European production of its Controls product line to China.
+Added: For the years ended December 31, 2020 and 2019, we recognized expense of $2.4 million and $0.6 million, respectively, as a result of these actions for related costs and non-cash fixed asset charges for accelerated depreciation fixed assets.
+Added: The Company expects to incur approximately $0.2 million of additional restructuring costs related to employee severance and other related costs for these actions through the second quarter of 2021.
+Added: On October 26, 2018 the Company announced a Board of Directors approved repurchase program authorizing Stoneridge to repurchase up to $50.0 million of our Common Shares.
Thereafter, on May 7, 2019, we announced that the Company had entered into an accelerated share repurchase agreement with Citibank N.A.
to repurchase an aggregate of $50.0 million of our Common Shares.
−Removed: Pursuant to the accelerated share repurchase agreement in the second quarter of 2019 we made an upfront payment of $50.0 million and received an initial delivery of 1,349,528 Common Shares which became treasury shares and were recorded as a $40.0 million reduction to shareholder’ equity.
−Removed: The remaining $10.0 million of the initial payment was recorded as a reduction to shareholders’ equity as an unsettled forward contract indexed to our Common Shares.
−Removed: The number of shares to be ultimately purchased by the Company will be determined based on the volume weighted-average price of our Common Shares during the terms of the transaction, minus an agreed upon discount between the parties.
−Removed: The program is expected to be completed by May 8, 2020.
−Removed: In January 2020, Stoneridge Brazil paid dividends to former noncontrolling interest holders of Brazilian real (“R$”) 24,154 ($6,010) as of December 31, 2019.
+Added: Pursuant to the accelerated share repurchase agreement in the second quarter of 2019 we made an upfront payment of $50.0 million and received an initial delivery of 1,349,528 Common Shares which became treasury shares.
+Added: On February 25, 2020, Citibank N.A.
+Added: terminated early its commitment pursuant to the accelerated share repurchase agreement and delivered to the Company, 364,604 Common Shares representing the final settlement of the Company’s repurchase program which became treasury shares.
+Added: On February 24, 2020, the Board of Directors authorized a new repurchase program for $50.0 million of outstanding Common Shares over an 18 month period.
+Added: The repurchases may be made from time to time in either open market transactions or in privately negotiated transactions.
+Added: Repurchases may also be made under rule 10b-18, which permit Common Shares to be repurchased through pre-determined criteria.
+Added: The timing, volume and nature of repurchases of Common Shares will be at the discretion of management, dependent on market conditions, other priorities of cash investment, applicable securities laws and other factors.
+Added: This Common Share repurchase program authorization does not obligate the Company to acquire any particular amount of its Common Shares, and it may be suspended or discontinued at any time.
+Added: For the quarter ended March 31, 2020, the Company repurchased 242,634 Common Shares for $5.0 million in accordance with this repurchase program authorization.
+Added: In April 2020, the Company announced that was temporarily suspending the previously announced share repurchase program in response to uncertainty surrounding the duration and magnitude of the impact of COVID-19.
+Added: In January 2020, Stoneridge Brazil paid dividends to former noncontrolling interest holders of Brazilian real (“R$”) 24.2 million ($6.0 million) as of December 31, 2019.
+Added: The dividends payable balance included R$3.7 million ($1.0 million) in monetary correction for the year ended December 31, 2019 based on the Brazilian National Extended Consumer Price inflation index.
The dividend payable related to Stoneridge Brazil was recorded within other current liabilities on the consolidated balance sheet as of December 31, 2019.
−Removed: See Note 4 to the consolidated financial statements for additional details.
+Added: In December 2018, the Company entered into an agreement to make a $10.0 million investment in a fund (“Autotech Fund II”) managed by Autotech Ventures (“Autotech”), a venture capital firm focused on ground transportation technology.
+Added: The Company’s $10.0 million investment in the Autotech Fund II will be contributed over the expected ten-year life of the fund.
+Added: As of December 31, 2020, the Company’s cumulative investment in the Autotech Fund II was $3.6 million.
+Added: The Company contributed $1.6 million to the Autotech Fund II during both years ended December 31, 2020 and 2019, respectively.
Our future results could also be adversely affected by unfavorable changes in foreign currency exchange rates.
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Our future results could also be unfavorably affected by increased commodity prices as commodity fluctuations impact the cost of our raw material purchases.
−Removed: At December 31, 2019, we had cash and cash equivalents of $69.4 million, of which 97.0% was held in foreign locations.
−Removed: The Company has recognized deferred taxes related to the expected foreign currency impact upon repatriation from foreign subsidiaries not considered indefinitely reinvested.
−Removed: Any foreign tax on repatriation of earnings not considered to be indefinitely reinvested is expected to be immaterial.
−Removed: The decrease in cash and cash equivalents from $81.1 million at December 31, 2018 was primarily due to the repurchase of our Common Shares, lower cash flows from operations and the cash payment of the Orlaco earn-out consideration which were offset by proceeds from the disposal of Non-core Products and net borrowings on the 2019 Credit Facility and the Amended Agreement, as applicable.
+Added: At December 31, 2020, we had a cash and cash equivalents balance of approximately $73.9 million, of which 88.4% was held in foreign locations.
+Added: The Company has approximately $262.3 million of undrawn commitments under the 2019 Credit Facility as of December 31, 2020, which results in total undrawn commitments and cash balances of more than $336.2 million.
+Added: However, despite the June 26, 2020 amendment, it is possible that future borrowing flexibility under our 2019 Credit Facility may be limited as a result of our financial performance due the adverse impact of COVID-19 on the Company’s markets and general global demand.
Commitments and Contingencies
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A small portion of our sales are comprised of monitoring services of which the revenue is recognized over the life of the contract.
−Removed: See Note 3 for additional information on our revenue recognition policies, including recognizing revenue based on satisfying performance obligations.
+Added: See Note 3 to the consolidated financial statements for additional information on our revenue recognition policies, including recognizing revenue based on satisfying performance obligations.
Our warranty liability is established based on our best estimate of the amounts necessary to settle existing and future claims on products sold as of the balance sheet dates.
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and foreign economic conditions that affect the automotive and commercial vehicle markets of which the Company has significant operations.
−Removed: The Company has recognized deferred taxes related to the expected foreign currency impact upon repatriation from foreign subsidiaries not considered indefinitely reinvested.
−Removed: Any foreign tax on repatriation of earnings not considered to be indefinitely reinvested is expected to be immaterial.
−Removed: The Tax Legislation also created a provision known as Global Intangible Low-Taxed Income (“GILTI”) that imposes a tax on certain earnings of foreign subsidiaries.
+Added: The Company has recognized deferred taxes related to foreign withholding taxes and the expected foreign currency impact upon repatriation from foreign subsidiaries not considered indefinitely reinvested.
+Added: The Tax Cuts and Jobs Act of 2017 created a provision known as Global Intangible Low-Taxed Income (“GILTI”) that imposes a tax on certain earnings of foreign subsidiaries.
The Company has made an accounting policy election to reflect GILTI taxes, if any, as a current period tax expense when incurred.
Recently Adopted Accounting Standards
−Removed: In January 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220):
−Removed: 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 the 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.
−Removed: The new guidance was effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years.
−Removed: The Company adopted this standard on January 1, 2019, which did not have a material impact on the Company’s consolidated financial statements.
−Removed: 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.
−Removed: The new standard was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.
−Removed: 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.
−Removed: 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.
−Removed: The Company recognized its transition adjustment as of the effective date.
−Removed: In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard.
−Removed: The impact of the adoption resulted in the recognition of right-of-use (“ROU”) assets and lease liabilities on the consolidated balance sheet of $20,618 and $20,856, respectively, as of January 1, 2019.
−Removed: This standard did not have a material impact on the Company’s consolidated results of operations and cash flows upon adoption.
−Removed: Recently Issued Accounting Standards Not Yet Adopted as of December 31, 2019
−Removed: In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740):
+Added: In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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:
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The provisions of this ASU are effective for years beginning after December 15, 2020, with early adoption permitted.
−Removed: We are currently evaluating the impact of this ASU on our consolidated financial statements.
+Added: The Company adopted this standard prospectively as of January 1, 2020 using the modified retrospective basis.
+Added: The impact of the adoption was a reduction to deferred tax liabilities and an increase to retained earnings of $13.8 million on the consolidated balance sheet as of December 31, 2020.
+Added: The adoption of this standard did not have an impact on the Company’s consolidated results of operations and cash flows.
In August 2018, the FASB issued 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.
−Removed: ASU 2018-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, and earlier adoption is permitted including adoption in any interim period.
−Removed: The Company is currently evaluating the impact of its pending adoption of ASU 2018-15.
−Removed: The Company will adopt this standard as of January 1, 2020 and it is not expected to have a material impact on the Company’s consolidated financial statements.
+Added: ASU 2018-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019.
+Added: The Company adopted this standard prospectively as of January 1, 2020 and it did not have a material impact on the Company’s consolidated financial statements.
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.
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This guidance is effective for fiscal years beginning after December 15, 2019, with early adoption permitted.
−Removed: The Company is currently evaluating the impact of its pending adoption of ASU 2018-13.
−Removed: The Company will adopt this standard as of January 1, 2020 and determined the impact is not material to its consolidated financial statements.
+Added: The Company adopted this standard as of January 1, 2020 and it did not have a material impact on the Company’s 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.
−Removed: 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.
−Removed: The Company is currently evaluating the impact of its pending adoption of ASU 2016-13 on the consolidated financial statements.
−Removed: The Company will adopt this standard as of January 1, 2020 and determined the impact is not material to its consolidated financial statements.
+Added: ASU 2016-13 is effective for public business entities for annual periods beginning after December 15, 2019.
+Added: The guidance allows for various methods for measuring expected credit losses.
+Added: 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.
+Added: The Company adopted this standard as of January 1, 2020 and it did not have a material impact on the Company’s consolidated financial statements.
+Added: Recently Issued Accounting Standards Not Yet Adopted as of December 31, 2020
+Added: 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.
+Added: 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”).
+Added: 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.
+Added: The guidance will also allow companies to elect various optional expedients which would allow them to continue to apply hedge accounting for hedging relationships affected by the reference rate reform, if certain criteria are met.
+Added: The new standard was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022.
+Added: As of December 31, 2020, the Company has not yet had contracts modified due to rate reform.
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.