Management’s Discussion and Analysis of Financial Condition and Results of Operations.
−Removed: 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.
+Added: We are a leading global designer and manufacturer of highly engineered electrical and electronic systems, components and modules primarily for the automotive, commercial, off-highway and agricultural vehicle markets.
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.
−Removed: Impact of COVID-19 on Our Business
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: The adverse conditions caused by COVID-19 initially reduced demand for our products and increased operating costs, which resulted in lower overall margins.
−Removed: Similar to our customers, we instituted several changes to our manufacturing operations to reduce the spread of COVID-19 and keep our employees safe.
−Removed: 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.
−Removed: 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.
−Removed: As a result, COVID-19 may continue to adversely impact demand for our products, financial condition and results of operations in the near term.
−Removed: 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.
−Removed: 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.
−Removed: In addition, we have experienced longer lead-times, higher costs and delays in procuring other component parts and raw materials.
−Removed: As a result, we are currently experiencing supply chain disruptions.
−Removed: We are assessing the potential supply chain impacts, which may directly or indirectly impact various suppliers, and correspondingly, OEM production.
+Added: Impacts to Global Market Conditions
+Added: The coronavirus pandemic (“COVID-19”) and the ongoing supply chain disruptions, primarily related to semiconductor shortages, have had a negative impact on the global economy in 2020 and 2021.
+Added: These conditions have disrupted, and likely will continue to disrupt, the global vehicle industry and customer sales, production volumes and purchases of automotive, commercial, off-highway and agricultural vehicles by end-consumers.
+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.
+Added: This surge in demand led to a worldwide semiconductor supply shortage at the end of 2020, and other supply chain related constraints which have continued through 2021.
+Added: We have experienced longer lead-times, higher costs, delays in procuring other component parts and raw materials and more recently, significant production volume reductions as a result of these shortages.
+Added: In the second half of 2021, these supply chain disruptions became incrementally more challenging and as a result we are experiencing higher related costs.
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.
−Removed: However, any direct or indirect supply chain disruptions may have an adverse impact on our financial condition, results of operations or cash flows.
−Removed: 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.
−Removed: Beginning in the first quarter and into the second quarter of 2020, we undertook several actions to reduce costs and spending across our organization.
−Removed: This included reducing hiring activities, temporarily reducing our workforce in facilities impacted by volume reductions or shutdowns and limiting discretionary spending.
−Removed: 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.
−Removed: 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.
−Removed: 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.
+Added: In 2021, the Company recognized $17.6 million of cost recoveries related to spot buys of materials purchased for our customers.
+Added: Global vehicle volumes are expected to increase in 2022 due to a combination of higher demand and historically low inventory levels.
+Added: However, vehicle production volumes will continue to be negatively impacted by the ongoing supply chain disruptions, including semiconductor shortages.
+Added: The magnitude of the adverse impact on our financial condition, results of operations and cash flows will depend on the evolution of the semiconductor supply shortage, vehicle production schedules and supply chain impacts.
We are organized by products produced and markets served.
3 unchanged sentences
This segment includes results of operations from the production of driver information systems, camera-based vision systems, connectivity and compliance products and electronic control units.
−Removed: Stoneridge Brazil (formerly referred to as “PST”).
+Added: Stoneridge Brazil (“SRB”).
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 loss of $8.0 million, or $(0.29) per diluted share, for the year ended December 31, 2020.
−Removed: 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 .
−Removed: 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.
−Removed: In 2020, our net sales decreased by $186.3 million, or 22.3%, while our operating income decreased $79.5 million.
−Removed: 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.
−Removed: 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.
−Removed: These decreases were partially offset by increased sales volume in our European and China automotive markets .
−Removed: 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 .
−Removed: 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 .
−Removed: 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.
−Removed: These decreases were partially offset by a favorable foreign currency translation.
−Removed: 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 .
−Removed: Operating income for the segment decreased compared to 2019 due to lower sales as a result of COVID-19 resulting in lower gross margin.
−Removed: Electronics SG&A cost reductions were offset by business realignment and restructuring expenses .
−Removed: 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 .
−Removed: 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.
−Removed: 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 .
−Removed: In 2020, SG&A expenses were favorably impacted due to lower incentive compensation costs, professional service fees and travel related expenses.
−Removed: 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 .
+Added: Although 2021 presented a number of challenges, the Company was able to effectively navigate an incredibly volatile operating environment while at the same time continuing to execute on our long-term strategy.
+Added: The Company continues to work with our customers to preserve gross margin through price increases aligned with current market conditions and is executing on initiatives to reduce supply chain related costs.
+Added: The Company had net income of $3.4 million, or $0.12 per diluted share, for the year ended December 31, 2021.
+Added: Net income in 2021 increased by $11.4 million, or $0.41 per diluted share, from $(8.0) million, or $(0.29) per diluted share, for the year ended December 31, 2020 primarily due to the gain on sale of the Canton Facility of $30.7 million, or $0.93 per diluted share, and the pre-tax gain on the disposal of the MSIL joint venture of $1.9 million, or $(0.05) per diluted share.
+Added: This increase was offset by higher D&D costs for new product launches and higher SG&A including a net unfavorable fair value adjustment for SRB earn-out consideration of $5.3 million, or $(0.19) per diluted share.
+Added: In 2021, our net sales increased by $122.5 million, or 18.9%, while our operating income increased $23.1 million.
+Added: Our Control Devices segment net sales increased by 3.9% primarily as a result of the recovery from the 2020 COVID-19 impacts in our North American and China automotive markets.
+Added: These increases were partially offset by a decrease in volumes in European automotive volumes due to the exit of PM sensor production and a decrease in volumes in our North American commercial vehicle market.
+Added: Segment gross margin decreased due to costs associated with supply chain disruptions offset by lower restructuring and realignment costs of $1.7 million and favorable leverage of fixed costs from higher sales levels.
+Added: Segment operating income increased due to the gain on sale of the Canton Facility of $30.7 million, the gain on disposal of the PM sensor business of $1.1 million and a decrease in restructuring expense of $4.0 million offset by higher costs from supply chain disruptions.
+Added: Our Electronics segment net sales increased by 38.9% primarily as a result of the recovery from the 2020 COVID-19 impacts in our North American and European commercial and off-highway vehicle markets as well as favorable customer pricing for recoveries of semiconductor spot buy purchases and favorable foreign currency translation .
+Added: Segment gross margin decreased primarily due to higher costs associated with supply chain disruptions including spot purchases of electronic components offsetting favorable leverage of fixed costs from higher sales levels.
+Added: Operating loss increased primarily due to higher costs from supply chain disruptions including spot purchases of electronic components and higher D&D costs offset by higher sales.
+Added: Our Stoneridge Brazil segment net sales increased by 19.1% due to higher volumes for all of our product lines and for our Argentina market channel offset by unfavorable foreign currency translation.
+Added: Segment gross margin was lower due to adverse sales mix from higher product sales compared to monitoring fees and higher costs associated with supply chain disruptions offset by favorable leverage of fixed costs.
+Added: Operating income decreased primarily due to a $5.3 million increase in net unfavorable adjustments to the fair value of the Stoneridge Brazil earn-out consideration and the impairment of Brazilian indirect tax credits of $0.7 million offset by higher sales.
+Added: In 2021, SG&A expenses were higher compared to 2020 due to a $5.3 million increase in net adjustments to the fair value of the SRB earn-out consideration and higher professional service costs which were offset by lower incentive compensation costs and the 2021 gains on the MSIL joint venture of $1.8 million and the disposal of the PM sensor business of $1.1 million.
+Added: D&D costs increased in 2021 mostly due to increased spend in our Electronics segment for higher consulting and prototype costs as well as lower customer reimbursements for ongoing development activities for awarded business programs and development of advanced technologies and systems.
At December 31, 2021 and 2020, we had cash and cash equivalents of $85.5 million and $73.9 million, respectively.
1 unchanged sentence
At December 31, 2021 and 2020, we had $164.0 million and $136.0 million, respectively, in borrowings outstanding on the 2019 Credit Facility.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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 remain relatively flat based on current market conditions.
+Added: 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.
+Added: Beginning in the first quarter of 2020 and continuing through 2021, COVID-19 caused worldwide adverse economic conditions and uncertainty in our served markets.
+Added: In the first quarter of 2021, we began experiencing supply chain related disruptions because of a worldwide semiconductor shortage, which has resulted in longer lead-times, higher costs and delays in procuring other component parts and raw materials.
+Added: The Company expects that ongoing material cost challenges, resulting from supply chain disruptions, will put pressure on margins particularly in the first half of 2022.
+Added: The North American automotive market is expected to increase to 15.2 million units in 2022 from 13.0 million units in 2021 as the market continues to recover from supply chain disruptions.
+Added: The Company expects sales volumes in our Control Devices segment to increase from 2021 based on current 2022 production forecasts and market conditions and the ramp-
+Added: up of certain electrified vehicle program launches, however, global supply chain shortages, primarily the global semiconductor supply shortage could adversely impact our sales volumes and gross margin in 2022.
+Added: For 2022, we expect an increase in our Electronics’ segment sales compared to 2021 primarily due to the increase in production volume forecasts in our European and North American commercial markets, strong demand in our off-highway markets and new program launches in 2022.
+Added: We expect increased sales from the launch of our first two MirrorEye camera-based vision systems for OEM applications as well as the continued roll out of MirrorEye in the retrofit markets.
+Added: Customer pricing increased net sales by $17.6 million in the fourth quarter of 2021, primarily due to customer recoveries related to spot buys of materials purchased for our customers.
+Added: This spot buy material purchasing activity, which is recognized as revenue and material costs, was passed through 100% to the customer and was driven by electronic component shortages in 2021.
+Added: The Company expects continued spot buy activity in 2022 but cannot predict the duration or magnitude of continued spot buy activity due to volatile supply chains and component availability.
+Added: In 2021, our D&D spend increased to support near term launches of awarded business primarily in our Electronics segment.
+Added: We expect that our D&D spending will moderate from current levels as we continue to align our global engineering capabilities in order to develop advanced technologies and systems within our portfolio of products.
+Added: Our 2021 Stoneridge Brazil segment revenues increased compared to the prior year due to the recovery of the adverse economic conditions caused by COVID-19 in 2020 offset by unfavorable foreign currency translation.
+Added: In October 2021, the International Monetary Fund forecasted the Brazil gross domestic product to grow 5.2% in 2021 and 1.5% in 2022.
+Added: We expect our served market channels to remain stable 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: Global transportation production has been impacted by supply chain disruptions, in the first quarter of 2021, primarily in our automotive passenger vehicle end-market.
−Removed: 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.
−Removed: 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.
+Added: Global transportation vehicle production has been impacted by supply chain disruptions, including semiconductor shortages, in 2021, primarily in our commercial vehicle and automotive end-markets.
+Added: Based on the current market conditions, we expect continued impact on production in 2022.
+Added: We expect incremental costs related to supply chain disruptions and production schedule volatility to continue to adversely impact our gross margin in 2022.
+Added: In 2021, our effective tax rate increased due to atypical jurisdictional earnings mix as a result of increased supply chain costs and incremental engineering expenses to support future program launches.
+Added: We expect our effective tax rate to return to previous rates in 2022.
Other Matters
4 unchanged sentences
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 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.
−Removed: In 2020, the U.S.
−Removed: Dollar weakened against the Swedish krona and euro which favorably impacted our material costs and reported results.
−Removed: 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: Dollar strengthened against the euro, Swedish krona, Brazilian real, Argentine peso and Mexican peso in 2021 and the Brazilian real, Argentine peso and Mexican peso in 2020, unfavorably impacting our material costs and reported results.
+Added: On November 2, 2021, the Company entered into a Share Purchase Agreement (the “SPA”) with Minda Corporation Limited (“Minda”), as the buyer, and MSIL.
+Added: Pursuant to the SPA the Company agreed to sell to Minda the Company’s minority interest in MSIL for approximately $21.5 million equivalent Indian Rupee which was payable in U.S.
+Added: dollars at closing.
+Added: On December 30, 2021, pursuant to the SPA, the Company closed the sale of MSIL to Minda for $21.6 million.
+Added: The Company recognized net proceeds of $21.0 million and a gain, net of direct selling costs, of $1.8 million.
+Added: On March 8, 2021, the Company entered into an Asset Purchase Agreement (the “APA”) by and among the Company, the Company’s wholly owned subsidiary, Stoneridge Electronics AS, as the Sellers, and Standard Motor Products, Inc.
+Added: (“SMP”) and SMP Poland SP Z O.O., as the Buyers.
+Added: Pursuant to the APA the Company agreed to sell to the Buyers the Company’s assets located in Lexington, Ohio and Tallinn, Estonia related to the manufacturing of particulate matter sensor products and related service part operations (together, the “PM sensor business”).
+Added: In the past, the Company has sometimes referred to the PM sensor assets as the Company’s soot sensing business.
+Added: The Buyers did not acquire any of the Company’s locations or employees.
+Added: The purchase price for the sale of the PM sensor business was $4.0 million (subject to a post-closing inventory adjustment which was a payment to SMP of $1.1 million) plus the assumption of certain liabilities.
+Added: The purchase price was allocated among PM sensor product lines, Gen 1 and Gen 2 as defined under the APA.
+Added: The purchase price allocated to Gen 1 fixed assets and inventory and Gen 2 fixed assets was $3.2 million and $0.8 million, respectively.
+Added: The sale of the Gen 2 assets occurred during November 2021 as the Company’s supply commitments to certain customers were completed in September 2021.
+Added: The Company and SMP also entered into certain ancillary agreements, including a contract manufacturing agreement, a transitional services agreement, and a supply agreement, pursuant to which the Company will provide and be compensated for certain manufacturing, transitional, administrative and support services to SMP on a short-term basis.
+Added: On May 19, 2020, the Company committed to the strategic exit of its Control Devices particulate matter 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.
1 unchanged sentence
Non-cash charges include impairment of fixed assets and accelerated depreciation associated with PM sensor production.
−Removed: We recognized $3.4 million of expense as a result of this initiative during the year ended December 31, 2020.
−Removed: 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.
−Removed: The estimated range of additional cost increased since the third quarter of 2020 due to customer and supplier negotiations.
−Removed: The Company expects the exit from the PM sensor product line to be completed in the fourth quarter of 2021.
+Added: We recognized $2.4 million and $3.4 million of expense as a result of this initiative during the years ended December 31, 2021 and 2020, respectively.
+Added: The only remaining costs relate to potential commercial settlements and legal fees which we continue to negotiate.
+Added: The estimated additional cost related to these settlements and fees is up to $4.2 million.
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”).
−Removed: 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.
−Removed: 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.
−Removed: During the third quarter of 2020, we leased the Canton facility to a third party and are evaluating the sale of the facility.
−Removed: We expect additional costs to be immaterial related to the Canton Restructuring.
−Removed: In the fourth quarter of 2018, we undertook restructuring actions for our Electronics segment affecting our European Aftermarket business and China operations.
−Removed: 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.
−Removed: In addition, the Company announced a restructuring program to transfer the European production of its Controls product line to China.
−Removed: 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.
−Removed: 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: The cost 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 expense as a result of these actions during the years ended December 31, 2021 and 2020 of $0.0 and $3.0 million, respectively.
+Added: We do not expect to incur additional costs related to the Canton Restructuring.
+Added: During the third quarter of 2020, we leased the Canton Facility to a third party.
+Added: On June 17, 2021, we sold the Canton Facility for net proceeds of $35.2 million and a net gain of $30.7 million.
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.
5 unchanged sentences
On June 17, 2020, the Company and SMP terminated the transition services agreement and the contract manufacturing agreement.
+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 an additional restructuring program to transfer the European production of its Controls product line to China.
+Added: For the years ended December 31, 2021 and 2020, we recognized expense of $0.3 million and $2.4 million, respectively, as a result of these actions for related costs.
+Added: The Company does not expect to incur additional restructuring costs related to the Electronics segment.
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.
5 unchanged sentences
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.
−Removed: The repurchases may be made from time to time in either open market transactions or in privately negotiated transactions.
−Removed: Repurchases may also be made under rule 10b-18, which permit Common Shares to be repurchased through pre-determined criteria.
−Removed: 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.
−Removed: 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: The repurchases could be made from time to time in either open market transactions or in privately negotiated transactions.
+Added: Repurchases could 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 was 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 did not obligate the Company to acquire any particular amount of its Common Shares, and could be suspended or discontinued at any time.
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.
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.
+Added: The 2020 repurchase program authorization expired during the third quarter of 2021 and no additional shares will be repurchased under this program.
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.
4 unchanged sentences
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.
−Removed: The timing for a decision is uncertain due to the COVID-19 pandemic.
−Removed: 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.
+Added: The leading case was decided on May 13, 2021.
+Added: The Company does not expect any impact to amounts previously recognized as a result of the Supreme Court decision.
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.
1 unchanged sentence
As a consequence of these actions, we incur severance related costs which we refer to as business realignment charges.
−Removed: On May 4, 2020, the Company began business realignment actions that resulted in the reduction of our global salaried workforce by approximately 5.0%.
−Removed: 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.
−Removed: One-time separation costs of $4.0 million associated with these and other realignment actions were incurred during the year ended December 31, 2020.
+Added: Business realignment costs of $1.4 million and $4.0 million were incurred during the years ended December 31, 2021 and 2020, respectively.
Because of the competitive nature of the markets we serve, we face pricing pressures from our customers in the ordinary course of business.
7 unchanged sentences
Selling, general and administrative
+Added: Gain on sale of Canton Facility, net
+Added: Design and development
+Added: Operating income (loss)
+Added: Interest expense, net
+Added: Equity in earnings of investee
+Added: Other expense (income), net
+Added: Income (loss) before income taxes
+Added: Provision (benefit) for income taxes
+Added: Net income (loss)
+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 increased $13.2 million due to recovery from 2020 COVID-19 impacts in our North American automotive and agricultural vehicle markets of $23.4 million and $2.7 million, respectively, and an increase in our China automotive and commercial vehicle markets of $3.8 million and $0.4 million, respectively, as well as a favorable foreign currency translation of $3.2 million.
+Added: These increases were partially offset by a decrease in volumes in our European automotive of $16.7 million due to the exit of PM sensor production and a decrease in volumes in our North American commercial vehicle market of $4.3 million.
+Added: Our Electronics segment net sales increased $100.1 million due to recovery from 2020 COVID-19 impacts in our North American and European commercial vehicle and European and North American off-highway vehicle markets of $28.7 million, $28.4 million, $14.4 million and $5.3 million, respectively, as well as favorable euro and Swedish krona foreign currency translation of $5.0 million compared to the prior year period.
+Added: In the fourth quarter, net sales increased by $17.6 million due to customer pricing for recoveries of electronic component spot buy purchases.
+Added: Our Stoneridge Brazil segment net sales increased $9.1 million due to higher volumes for all of our product lines and for our Argentina market channel offset by unfavorable foreign currency translation of $3.0 million.
+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 increase in North American net sales was attributable to sales volume increases in our North American commercial vehicle, automotive and off-highway markets of $24.5 million, $22.5 million and $6.2 million, respectively and customer pricing for recoveries of semiconductor spot buy purchases of $2.4 million.
+Added: The increase in net sales in South America was due to higher volumes for all of our Stoneridge Brazil product lines and for our Argentina market channel offset by unfavorable Brazilian real foreign currency translation of $3.0 million.
+Added: The increase in net sales in Europe and Other was primarily due to increases in our European commercial vehicle and off-highway markets of $28.4 million and $14.4 million, respectively, and increases in our China automotive and agricultural vehicle markets of $3.8 million and $2.2 million, respectively.
+Added: Europe and Other net sales also increased due to customer pricing for recoveries of semiconductor spot buy purchases of $15.2 million and favorable foreign currency translation of $8.2 million.
+Added: These increases were partially offset by a decrease in volumes in our European automotive market of $16.7 million due to the exit of PM sensor production.
+Added: Cost of Goods Sold and Gross Margin.
+Added: Cost of goods sold increased compared to 2020 and our gross margin decreased to 21.7% in 2021 compared to 23.8% in 2020.
+Added: Our material cost as a percentage of net sales increased by 4.2% to 57.0% in 2021 compared to 52.8% in 2020 primarily caused by costs associated with supply chain disruptions including spot purchases of electronic components.
+Added: In 2021, cost of goods sold increased by $17.6 million, or 2.3% of net sales, due to semiconductor spot buy purchases which was offset by customer recoveries.
+Added: Overhead as a percentage of net sales decreased by 2.0% to 16.1% for 2021 compared to 18.0% for 2020 primarily due to leverage of fixed costs from higher sales levels offset by higher incremental freight costs .
+Added: Our Control Devices segment gross margin decreased due to costs associated with supply chain disruptions offset by lower restructuring and realignment costs of $1.7 million and favorable leverage of fixed costs from higher sales levels.
+Added: Our Electronics segment gross margin decreased primarily due to higher costs associated with supply chain disruptions including spot purchases of electronic components offsetting favorable leverage of fixed costs from higher sales levels.
+Added: Our Stoneridge Brazil segment gross margin decreased due to adverse sales mix from higher product sales compared to monitoring fees and higher costs associated with supply chain disruptions offset by favorable leverage of fixed costs.
+Added: Selling, General and Administrative (“SG&A”).
+Added: SG&A expenses increased by $3.5 million compared to 2020 due to a $5.3 million increase in net adjustments to the fair value of the SRB earn-out consideration and higher professional service costs which were offset by lower incentive compensation costs and the 2021 gain on disposal of the PM sensor business of $1.1 million and the MSIL joint venture of $1.8 million.
+Added: Design and Development (“D&D”).
+Added: D&D costs increased by $16.8 million mostly due to increased spend in our Electronics segment of $14.4 million comprised of higher consulting and prototype costs as well as lower customer reimbursements offset by higher capitalized software development costs for ongoing development activities for awarded business programs and development of advanced technologies and systems.
+Added: Operating Income (Loss).
+Added: Operating income (loss) 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 income (loss)
+Added: Our Control Devices segment operating income increased due to the gain on sale of the Canton Facility of $30.7 million, the gain on disposal of the PM sensor business of $1.1 million and a decrease in restructuring expense of $4.0 million offset by higher costs from supply chain disruptions and higher Sarasota environmental remediation costs.
+Added: Our Electronics segment operating loss increased primarily due to higher costs from supply chain disruptions including spot purchases of electronic components net of recoveries and higher D&D costs offset by higher sales.
+Added: Our Stoneridge Brazil segment operating income decreased primarily due to a $5.3 million increase in net adjustments to the fair value of the Stoneridge Brazil earn-out consideration and the impairment of Brazilian indirect tax credits of $0.7 million offset by higher sales.
+Added: Our unallocated corporate operating loss was lower due to lower incentive compensation benefits as a result of Company performance and the gain on the disposal of the MSIL joint venture offset by higher business realignment costs of $0.8 million and higher professional service costs.
+Added: Operating income (loss) 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 income (loss)
+Added: Our North American operating income increased due to the gain on sales of the Canton Facility, the PM sensor business and the MSIL joint venture, higher sales in our automotive and commercial vehicle markets and lower restructuring costs offsetting higher costs from supply chain disruptions.
+Added: The decrease in operating income in South America was primarily due to an unfavorable change in fair value of earn-out consideration adjustments of $5.3 million offsetting higher sales.
+Added: Our operating results in Europe and Other decreased primarily due to higher costs from supply chain disruptions including spot purchases of electronic components net of recoveries and higher D&D costs offset by higher sales in our commercial vehicle and off-highway markets as well as a favorable foreign currency translation impact.
+Added: Interest Expense, net.
+Added: Interest expense, net decreased by $0.9 million compared to 2020 due to higher interest income of $1.2 million at Stoneridge Brazil from monetary correction on indirect tax credits.
+Added: Offsetting this increase was higher interest expense from Credit Facility borrowings.
+Added: Equity in Earnings of Investee.
+Added: Equity earnings for MSIL were $1.8 million and $1.5 million for the years ended December 31, 2021 and 2020, respectively.
+Added: As discussed in Note 2 to the consolidated financial statements, the Company sold its equity interest in MSIL on December 30, 2021.
+Added: Equity earnings for Autotech were $1.9 million and $0.1 million for the years ended December 31, 2021 and 2020 .
+Added: The increase in Autotech earnings was due to favorable 2021 fair value adjustments to fund investments.
+Added: Other Expense (Income), net .
+Added: We record certain foreign currency transaction losses (gains) as a component of other income, net on the consolidated statement of operations.
+Added: Other expense (income), net of $1.4 million, increased by $2.9 million in 2021 compared to other income, net of $1.5 million for 2020 primarily due to 2021 foreign currency losses in our Electronics segment and 2020 foreign currency transaction gains in our Stoneridge Brazil and Electronics segments.
+Added: Provision (Benefit) for Income Taxes.
+Added: In 2021, income tax expense of $9.0 million was attributable to the gain on the sale of the Canton facility, the gain on the sale of the Company’s minority interest in MSIL, the mix of earnings 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 72.6% is greater than the statutory tax rate primarily due to the impact of tax losses for which no benefit is recognized due to valuation allowances in certain jurisdictions, the tax impact of the sale of the Company’s minority interest in MSIL, partially offset by tax incentives.
+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: Year Ended December 31, 2020 Compared To Year Ended December 31, 2019
+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
Gain on disposal of non-core products, net
78 unchanged sentences
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.
−Removed: Year Ended December 31, 2019 Compared To Year Ended December 31, 2018
−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: Gain on disposal of Non-core Products, net
−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 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 $28.0 million due to certain program volume reductions related to the legacy shift-by-wire programs, the disposal of Non-core Products and the impact of a fourth quarter labor strike at a major customer.
−Removed: In addition, Control Devices experienced decreased sales volume in our North American commercial vehicle and agriculture markets of $3.0 million and $1.7 million, respectively.
−Removed: These decreases were partially offset by sales volume increases in our China automotive, European automotive and European commercial vehicle markets of $15.3 million, $4.5 million and $3.2 million, respectively, as well as the one-time sale of Non-core Product inventory of $4.2 million.
−Removed: Our Electronics segment net sales decreased primarily due to a decrease in sales volume in our European commercial vehicle market of $14.8 million and unfavorable foreign currency translation of $7.4 million.
−Removed: This decrease was offset by an increase in sales volume in our North American and China commercial vehicle markets of $7.1 million and $1.7 million, respectively and increased sales of European and North American off-highway vehicle products of $3.6 million and $1.2 million, respectively.
−Removed: Our Stoneridge Brazil segment net sales decreased 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: 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 decrease in North American net sales was primarily attributable to a decrease in sales volume in our North American automotive market of $28.0 million resulting from certain program volume reductions related to the 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 agriculture market of $1.8 million.
−Removed: These decreases were partially offset by increased sales volume in our North American commercial vehicle and off-highway markets of $3.3 million and $1.2 million, respectively as well as the one-time sale of Non-core Product inventory of $4.2 million.
−Removed: The decrease in net sales in South America was primarily 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: The increase in net sales in Europe and Other was primarily due to an increase in sales volume in our China automotive, European automotive, European off-highway and China commercial vehicle markets of $15.3 million, $4.2 million, $3.6 million and $1.7 million, respectively.
−Removed: This increase was offset by a decrease in sales volume of our European commercial vehicle market of $11.6 million.
−Removed: In addition, Europe and Other sales were unfavorably impacted by foreign currency translation of $8.0 million.
−Removed: Cost of Goods Sold and Gross Margin.
−Removed: Cost of goods sold increased compared to 2018 and our gross margin decreased to 25.6% in 2019 compared to 29.6% in 2018.
−Removed: Our material cost as a percentage of net sales increased by 1.6% to 53.1% in 2019 compared to 51.5% in 2018.
−Removed: Direct material costs in our Control Devices segment were negatively impacted by adverse product mix primarily from the impact of Non-core Product sales pursuant to the contract manufacturing agreement at an average margin of 5.5% and higher tariffs while our Electronics and Stoneridge Brazil segments were negatively impacted by adverse product mix and higher costs for electronic components.
−Removed: Overhead as a percentage of net sales increased by 2.0% to 15.9% in 2019 compared to 13.9% in 2018 primarily due to the Canton Restructuring costs of $7.6 million in our Control Devices segment.
−Removed: Our Control Devices segment gross margin decreased due to lower sales and higher direct material costs as a percentage of sales, adversely affected by tariffs, Canton Restructuring costs of $7.6 million and the unfavorable impact of Non-Core Product sales pursuant to the contract manufacturing agreement at an average margin of 5.5%.
−Removed: Our Electronics segment gross margin decreased primarily due to lower sales, unfavorable product mix and higher costs for electronic components.
−Removed: Our Stoneridge Brazil segment gross margin decreased due to a reduction in sales volume and adverse sales mix.
−Removed: Selling, General and Administrative (“SG&A”).
−Removed: SG&A expenses decreased by $14.7 million compared to 2018 primarily due to a decrease in Stoneridge Brazil SG&A costs from the recovery of Brazilian indirect taxes of $6.5 million and lower selling costs.
−Removed: Electronics SG&A expense decreased due to lower restructuring expenses of $2.1 million, a reduction in expense related to the fair value adjustment for the Orlaco earn-out consideration of $0.4 million and lower wages.
−Removed: Control Devices SG&A costs decreased due to transitional service cost reimbursement associated with the disposal of its Non-core Products and lower wages offset by Canton Restructuring costs of $1.5 million and higher business realignment costs of $0.6 million.
−Removed: Unallocated corporate SG&A costs increased primarily due to higher business realignment costs of $1.0 million, accelerated share-based compensation expense of $0.7 million associated with a retirement and higher wages offset by lower incentive compensation.
−Removed: Gain on Disposal of Non-core Products, net.
−Removed: The gain on disposal in 2019 relates to the disposal of Control Devices’ Non-core Products.
−Removed: Design and Development (“D&D”).
−Removed: D&D costs increased by $1.1 million compared to the prior year due to higher D&D costs in our Control Devices segment due to Canton Restructuring costs of $3.4 million and in our unallocated corporate segment for the establishment of the chief technology office.
−Removed: This increase was offset by lower D&D costs in our Electronics and Control Devices segments from the capitalization of software development costs of $2.2 million and $1.4 million, respectively.
−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 increased primarily due to the gain on disposal of Non-core Products and the favorable impact to D&D from the capitalization of software development costs offset by Canton Restructuring of $12.5 million and lower sales and margin including the adverse impact of tariffs,
−Removed: Our Electronics segment operating income decreased primarily due to lower sales, unfavorable mix and higher costs for electronic components partially offset by a decrease in SG&A expense from lower restructuring costs and lower wages, and from lower D&D costs due to capitalization of software development costs.
−Removed: Our Stoneridge Brazil segment operating income increased primarily due to the recovery of Brazilian indirect taxes, lower selling costs offsetting the impact of lower sales and gross margin.
−Removed: Our unallocated corporate operating loss increased primarily due to higher SG&A costs from increase in business realignment costs of $1.0 million, accelerated share-based compensation expense associated with a retirement of eligible employees of $0.7 million, higher wages offset by lower incentive compensation.
−Removed: In addition, D&D expenses increased for the establishment of the chief technology office.
−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 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.
−Removed: 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 increased slightly primarily due to lower SG&A and D&D costs offset by lower gross margin from adverse product mix.
−Removed: Interest Expense, net.
−Removed: Interest expense, net decreased by $0.4 million compared to the prior year primarily due to lower interest expense at our Stoneridge Brazil segment from lower outstanding debt offset by the write-off of deferred financing fees as a result of refinancing the 2019 Credit Facility.
−Removed: Equity in Earnings of Investee.
−Removed: Equity earnings for MSIL were $1.6 million and $2.0 million for the years ended December 31, 2019 and 2018, respectively.
−Removed: The decrease compared to the prior period is primarily due to lower gross margin from lower sales volumes in served markets as well as unfavorable changes 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 $0.8 million to other expense (income), net of $0.1 million in 2019 compared to other expense (income), net of ($0.7) million in 2018 primarily due to lower foreign currency transaction gains in our Electronics segment.
−Removed: Provision for Income Taxes.
−Removed: We recognized income tax expense of $8.1 million and $11.2 million for federal, state and foreign income taxes for 2019 and 2018, respectively.
−Removed: The decrease in tax expense for the year ended December 31, 2019 compared to the same period for 2018 was primarily due to the impact of certain tax incentives, which did not impact 2018.
−Removed: 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.
Liquidity and Capital Resources
Summary of Cash Flows for the years ended December 31, 2021 and 2020 (in thousands):
−Removed: Years ended December 31,
+Added: Year ended December 31,
Net cash provided by (used for):
4 unchanged sentences
Net change in cash and cash equivalents
−Removed: 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: Cash used for operating activities increased compared to 2020 primarily due to an increase in cash used to fund working capital levels primarily for inventory, which was impacted by supply chain disruptions and production volatilities, offset by higher net income, net of the reconciling adjustment for the gain on the sale of the Canton Facility.
Our receivable terms and collections rates have remained consistent between periods presented.
−Removed: 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.
−Removed: 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.
+Added: Net cash provided by investing activities increased compared to 2020 due to proceeds from the sale of the Canton Facility, from the disposal of the MSIL joint venture and from the disposal of the PM sensor business as well as lower capital expenditures and capitalized software costs which were offset by higher investments in the Autotech Fund II.
+Added: Net cash used for financing activities increased compared to the prior year primarily due to higher Credit Facility net borrowings.
Summary of Cash Flows for the years ended December 31, 2020 and 2019 (in thousands):
6 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 Fund II 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 Future Cash Flows
3 unchanged sentences
Operating leases
+Added: Stoneridge Brazil earn-out consideration
Total contractual obligations (B)
4 unchanged sentences
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 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.
+Added: As outlined in Note 5 to our consolidated financial statements, the Credit Facility 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.
5 unchanged sentences
Amendment No.
−Removed: 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: 1 provided 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: The Covenant Relief Period ended on August 14, 2021.
During the Covenant Relief Period:
−Removed: ● the maximum net leverage ratio is suspended;
−Removed: ● 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;
−Removed: ● 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;
−Removed: ● the Company’s liquidity may not be less than $150,000;
−Removed: ● the Company’s aggregate amount of cash and cash equivalents cannot exceed $130,000;
−Removed: ● there are certain restrictions on Restricted Payments (as defined);
−Removed: ● a Permitted Acquisition (as defined) may be not consummated unless otherwise approved in writing by the required lenders.
+Added: ● the maximum net leverage ratio was suspended;
+Added: ● the calculation of the minimum interest coverage ratio excluded 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 was reduced to 2.75 and 3.25 for the quarters ended December 31, 2020 and March 31, 2021, respectively;
+Added: ● the Company’s liquidity could not be less than $150,000;
+Added: ● the Company’s aggregate amount of cash and cash equivalents could not exceed $130,000;
+Added: ● there were certain restrictions on Restricted Payments (as defined);
+Added: ● a Permitted Acquisition (as defined) could not be consummated unless otherwise approved in writing by the required lenders.
Amendment No.
−Removed: 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.
+Added: 1 increased 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.
+Added: On December 17, 2021, the Company entered into Amendment No.
+Added: 2 to the Fourth Amended and Restated Credit Agreement (“Amendment No.
+Added: Amendment No.
+Added: 2 implemented non-LIBOR interest reference rates for borrowings in euros and British pounds.
+Added: Due to the ongoing impacts of the COVID-19 pandemic and supply chain disruptions on the Company’s end-markets and the resulting financial impacts on the Company, on February 28, 2022, the Company entered into Amendment No.
+Added: 3 to the Fourth Amended and Restated Credit Agreement (“Amendment No.
+Added: Amendment No.
+Added: 3 reduces the total revolving credit commitments from $400.0 million to $300.0 million and the maximum permitted amount of swing loans from $40.0 million to $30.0 million .
+Added: Amendment No.
+Added: 3 provides for certain financial covenant relief and additional covenant restrictions during the “Specified Period” (the period from February 28, 2022 until the date that the Company delivers a compliance certificate for the quarter ending March 31, 2023 in form and substance satisfactory to the administrative agent).
+Added: During the Specified Period:
+Added: ● the maximum net leverage ratio is changed to 4.0x for the year ended December 31, 2021, suspended for the quarters ending March 31, 2022 through September 30, 2022 and cannot exceed 4.75 to 1.00 for the quarter ended December 31, 2022 or 3.50 to 1.00 for the quarter ended March 31, 2023;
+Added: ● the minimum interest coverage ratio of 3.50 is reduced to 2.50 for the quarter ended March 31, 2022, 2.25 for the quarter ended June 30, 2022 and 3.00 for the quarters ended September 30, 2022 and December 31, 2022;
+Added: ● an additional condition to drawing on the Credit Facility has been added that restricts borrowings if the Company’s total of 100% of domestic and 65% of foreign cash and cash equivalents exceeds $70.0 million;
+Added: ● there are certain additional restrictions on Restricted Payments (as defined);
+Added: ● a Permitted Acquisition (as defined) may not be consummated unless the net leverage ratio is below 3.50x during the Specified Period.
+Added: Amendment No.
+Added: 3 changes the leverage based LIBOR pricing grid through the maturity date and also retains 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.
+Added: Amendment No.
+Added: 3 also incorporates hardwired mechanics to permit a future replacement of LIBOR as the interest reference rate without lender consent.
+Added: As a result of Amendment No.
3, the Company was in compliance with all covenants at December 31, 2021.
The Company has not experienced a violation which would limit the Company’s ability to borrow under the Credit Facility, as amended and does not expect that the covenants under it will restrict the Company’s financing flexibility.
−Removed: 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.
−Removed: The Company expects to make additional repayments on the Credit Facility when cash exceeds the amount needed for operations.
−Removed: Stoneridge Brazil maintains short-term loans used for working capital purposes.
−Removed: At December 31, 2020, there was $1.6 million of Stoneridge Brazil debt outstanding.
−Removed: Principal repayments of $1.6 million on Stoneridge Brazil debt at December 31, 2020 are due in 2021.
−Removed: 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.
−Removed: 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: However, it is possible that future borrowing flexibility under the Credit Facility may be limited as a result of lower than expected financial performance due to the adverse impact of COVID-19 and supply chain shortages on the Company’s markets and general global demand.
+Added: The Company expects to make additional repayments on the Credit Facility when cash exceeds the amount needed for operations and to remain in compliance with all covenants.
+Added: Stoneridge Brazil maintained short-term loans used for working capital purposes during 2021 and 2020.
+Added: There were no borrowings outstanding on these notes at December 31, 2021.
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 $2.2 million and $2.4 million, at December 31, 2021 and December 31, 2020, respectively.
At December 31, 2021, there was 19.0 million Swedish krona, or $2.1 million outstanding on this overdraft credit line.
−Removed: At December 31, 2019, there was no balance outstanding on this overdraft credit line.
+Added: At December 31, 2020, there was 13.1 million Swedish krona, or $1.6 million outstanding on this overdraft credit line.
During the year ended December 31, 2021, the subsidiary borrowed 352.4 million Swedish krona, or $39.0 million, and repaid 346.5 million Swedish krona, or $38.3 million.
−Removed: 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: 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 $7.9 million and $7.7 million at December 31, 2021 and 2020, respectively.
At December 31, 2021 and December 31, 2020 there was $3.1 million and $4.5 million, respectively, in borrowings outstanding recorded within current portion of debt.
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 $2.4 million and $2.3 million at December 31, 2021 and December 31, 2020, respectively.
−Removed: 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: There was $2.2 million and $0.4 million utilized on the Suzhou bank acceptance draft line of credit at December 31, 2021 and 2020, respectively.
On May 19, 2020, the Company committed to the strategic exit of its Control Devices particulate matter (“PM”) sensor product line (“PM Sensor Exit”).
−Removed: 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: The estimated costs for the PM Sensor Exit include employee severance and 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.
−Removed: We recognized $3.4 million of expense as a result of this initiative during 2020.
−Removed: 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.
−Removed: The Company expects the exit from the PM sensor product line to be completed in the third quarter of 2021.
+Added: We recognized $2.4 million and $3.4 million of expense as a result of this initiative during 2021 and 2020, respectively.
+Added: The only remaining costs relate to potential commercial settlements and legal fees which we continue to negotiate.
+Added: The estimated additional costs related to these settlements and fees is up to $4.2 million.
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”).
−Removed: 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.
−Removed: 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.
−Removed: During the third quarter of 2020, we leased the Canton facility to a third party and are evaluating the sale of the facility.
−Removed: We expect additional costs to be immaterial related to the 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 less than $0.1 million and $3.0 million of expense as a result of these actions during the years ended December 31, 2021 and 2020, respectively.
+Added: During the third quarter of 2020, we leased the Canton facility to a third party.
+Added: On June 17, 2021, we sold the Canton Facility for net proceeds of $35.2 million and a net gain of $30.7 million.
In the fourth quarter of 2018, the Company undertook restructuring actions for the Electronics segment affecting the European Aftermarket business and China operations.
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In addition, the Company announced a restructuring program to transfer the European production of its Controls product line to China.
−Removed: 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.
−Removed: 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: For the years ended December 31, 2021 and 2020, we recognized expense of $0.3 million and $2.4 million, respectively, as a result of these actions for related costs.
+Added: We do not expect to incur additional costs related to the Electronics segment restructuring.
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.
5 unchanged sentences
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.
−Removed: The repurchases may be made from time to time in either open market transactions or in privately negotiated transactions.
−Removed: Repurchases may also be made under rule 10b-18, which permit Common Shares to be repurchased through pre-determined criteria.
−Removed: 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.
−Removed: 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: The repurchases could be made from time to time in either open market transactions or in privately negotiated transactions.
+Added: Repurchases could 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 was 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 did not obligate the Company to acquire any particular amount of its Common Shares, and it could be suspended or discontinued at any time.
For the quarter ended March 31, 2020, the Company repurchased 242,634 Common Shares for $5.0 million in accordance with this repurchase program authorization.
−Removed: In April 2020, the Company announced that was temporarily suspending the previously announced share repurchase program in response to uncertainty surrounding the duration and magnitude of the impact of COVID-19.
+Added: In April 2020, the Company announced that it was temporarily suspending the previously announced share repurchase program in response to uncertainty surrounding the duration and magnitude of the impact of COVID-19.
+Added: The 2020 repurchase program authorization expired during the third quarter of 2021 and no additional shares will be repurchased under this program.
In January 2020, Stoneridge Brazil paid dividends to former noncontrolling interest holders of Brazilian real (“R$”) 24.2 million ($6.0 million) as of December 31, 2019.
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.
−Removed: The dividend payable related to Stoneridge Brazil was recorded within other current liabilities on the consolidated balance sheet as of December 31, 2019.
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.
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As of December 31 2021, the Company’s cumulative investment in the Autotech Fund II was $7.1 million.
−Removed: The Company contributed $1.6 million to the Autotech Fund II during both years ended December 31, 2020 and 2019, respectively.
+Added: The Company contributed $3.2 million, net and $1.6 million to the Autotech Fund II during the years ended December 31, 2021 and 2020, respectively.
Our future results could also be adversely affected by unfavorable changes in foreign currency exchange rates.
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The Company has approximately $236.0 million of undrawn commitments under the Credit Facility as of December 31, 2021, which results in total undrawn commitments and cash balances of more than $319.8 million.
−Removed: 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.
+Added: However, despite the February 28, 2022 amendment, it is possible that future borrowing flexibility under our Credit Facility may be limited as a result of our financial performance.
Commitments and Contingencies
See Note 11 to the consolidated financial statements for disclosures of the Company’s commitments and contingencies.
−Removed: Our Control Devices and Electronics segments are not typically materially affected by seasonality, however the demand for our Stoneridge Brazil segment consumer products is generally higher in the second half of the year, the fourth quarter in particular.
+Added: Our Control Devices and Electronics segments are moderately seasonal, impacted by mid-year and year-end shutdowns and the ramp-up of new model production at key customers.
+Added: In addition, the demand for our Stoneridge Brazil segment consumer products is generally higher in the second half of the year.
Inflation and International Presence
2 unchanged sentences
See Note 10 to the consolidated financial statements for additional details on the Company’s commodity price and foreign currency exchange rate risks.
−Removed: Off-balance Sheet Arrangements
−Removed: At December 31, 2020 we do not have any off-balance sheet arrangements that have, or are, in the opinion of management, reasonably likely to have, a current or future material effect on our financial condition or results of operations.
Critical Accounting Policies and Estimates
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Our critical accounting policies, those most important to the financial presentation and those that are the most complex, subjective or require significant judgment, are as follows.
+Added: For additional information, see Item 8 of Part II, “Financial Statements and Supplementary Data — Note 2 — Summary of Significant Accounting Policies.”
Revenue Recognition and Sales Commitments.
34 unchanged sentences
The market valuation approach is used to further support our analysis.
+Added: The annual impairment test for goodwill for the years ended December 31, 2021, 2020 and 2019 showed no impairment and fair value exceeded book value by more than 100%.
+Added: A one percent increase in discount rates or a one percent decrease in revenue growth rates would not have resulted in a change in the conclusion regarding impairment.
Income Taxes.
23 unchanged sentences
The adoption of this standard did not have an impact on the Company’s consolidated results of operations and cash flows.
−Removed: In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: The disclosure framework project aims to improve the effectiveness of disclosures in the notes to the financial statements by focusing on requirements that clearly communicate the most important information to users of the financial statements.
−Removed: This guidance is effective for fiscal years beginning after December 15, 2019, with early adoption permitted.
−Removed: 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.
−Removed: 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.
−Removed: The guidance allows for various methods for measuring expected credit losses.
−Removed: 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.
−Removed: 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.
Recently Issued Accounting Standards Not Yet Adopted as of December 31, 2021
6 unchanged sentences
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.