Stoneridge, Inc. 10-K
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the fiscal year ended
December 31, 2007
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OR
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the transition period from
to
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Commission file number:
001-13337
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STONERIDGE, INC.
(Exact name of registrant as
specified in its charter)
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Ohio
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34-1598949
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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9400 East Market Street, Warren, Ohio
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44484
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(Address of principal executive
offices)
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(Zip
Code)
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(330)
856-2443
Registrants
telephone number, Including Area Code
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Shares, without par value
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New York Stock Exchange
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Securities registered pursuant to section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
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Yes
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No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act.
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Yes þ
No
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
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Yes o
No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Act).
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Yes þ
No
As of June 30, 2007, the aggregate market value of the
registrants Common Shares, without par value, held by
non-affiliates of the registrant was approximately
$174.5 million. The closing price of the Common Shares on
June 29, 2007 as reported on the New York Stock Exchange
was $12.34 per share. As of June 30, 2007, the number of
Common Shares outstanding was 24,223,817.
The number of Common Shares, without par value, outstanding as
of February 22, 2008 was 24,207,708.
DOCUMENTS
INCORPORATED BY REFERENCE
Definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on May 5, 2008, into Part III,
Items 10, 11, 12, 13 and 14.
STONERIDGE,
INC. AND SUBSIDIARIES
INDEX
1
PART I
Overview
Founded in 1965, Stoneridge, Inc. (the Company) is
an independent designer and manufacturer of highly engineered
electrical and electronic components, modules and systems for
the automotive, medium- and heavy-duty truck, agricultural and
off-highway vehicle markets. Our custom-engineered products are
predominantly sold on a sole-source basis and consist of
application-specific control devices, sensors, vehicle
management electronics and power and signal distribution
systems. These products comprise the elements of every
vehicles electrical system, and individually interface
with a vehicles mechanical and electrical systems to
(i) activate equipment and accessories, (ii) display
and monitor vehicle performance and (iii) control and
distribute electrical power and signals. Our products improve
the performance, safety, convenience and environmental
monitoring capabilities of our customers vehicles. As
such, the growth in many of the product areas in which we
compete is driven by the increasing consumer desire for safety,
security and convenience coupled with the need for original
equipment manufacturers (OEM) to meet safety
requirements in addition to the general trend of increased
electrical and electronic content per vehicle. Our technology
and our partnership-oriented approach to product design and
development enables us to develop next-generation products and
to excel in the transition from mechanical-based components and
systems to electrical and electronic components, modules and
systems.
Products
We conduct our business in two reportable segments: Electronics
and Control Devices. Under the provisions of Statement of
Financial Accounting Standard (SFAS) No. 131,
Disclosures about Segments of an Enterprise and Related
Information, the Companys operating segments are
aggregated based on sharing similar economic characteristics.
Other aggregation factors include the nature of products offered
and management and oversight responsibilities. The core products
of the Electronics reportable segment include vehicle electrical
power and distribution systems and electronic instrumentation
and information display products. The core products of the
Control Devices reportable segment include electronic and
electrical switch products, control actuation devices and
sensors. We design and manufacture the following vehicle parts:
Electronics. The Electronics reportable
segment produces electronic instrument clusters, electronic
control units, driver information systems and electrical
distribution systems, primarily wiring harnesses and connectors
for electrical power and signal distribution. These products
collect, store and display vehicle information such as speed,
pressure, maintenance data, trip information, operator
performance, temperature, distance traveled and driver messages
related to vehicle performance. In addition, power distribution
systems regulate, coordinate and direct the operation of the
entire electrical system within a vehicle compartment. These
products use state-of-the-art hardware, software and
multiplexing technology and are sold principally to the medium-
and heavy-duty truck, agricultural and off-highway vehicle
markets.
Control Devices. The Control Devices
reportable segment produces products that monitor, measure or
activate a specific function within the vehicle. Product lines
included within the Control Devices segment are sensors,
switches, actuators, as well as other electronic products.
Sensor products are employed in most major vehicle systems,
including the emissions, safety, powertrain, braking, climate
control, steering and suspension systems. Switches transmit a
signal that activates specific functions. Hidden switches are
not typically seen by vehicle passengers, but are used to
activate or deactivate selected functions. Customer activated
switches are used by a vehicles operator or passengers to
manually activate headlights, rear defrosters and other
accessories. In addition, the Control Devices segment designs
and manufactures electromechanical actuator products that enable
users to deploy power functions in a vehicle and can be designed
to integrate switching and control functions. We sell these
products principally to the automotive market.
2
The following table presents net sales by reportable segment, as
a percentage of total net sales:
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For the Fiscal Years Ended
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December 31,
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2007
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2006
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2005
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Electronics
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61
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%
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62
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%
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57
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%
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Control Devices
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39
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38
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43
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Total
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100
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%
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100
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%
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100
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%
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For further information related to our reportable segments and
financial information about geographic areas, see Note 13,
Segment Reporting, to the consolidated financial
statements included in this report.
Production
Materials
The principal production materials used in the manufacturing
process for both reportable segments include: copper wire, zinc,
cable, resins, plastics, printed circuit boards and certain
electrical components such as microprocessors, memories,
resistors, capacitors, fuses, relays and connectors. We purchase
such materials pursuant to both annual contract and spot
purchasing methods. Such materials are readily available from
multiple sources, but we generally establish collaborative
relationships with a qualified supplier for each of our key
production materials in order to lower costs and enhance service
and quality. Any change in the supply of, or price for, these
raw materials could materially affect our results of operations
and financial condition.
Patents
and Intellectual Property
Both of our reportable segments maintain and have pending
various U.S. and foreign patents and other rights to
intellectual property relating to our business, which we believe
are appropriate to protect the Companys interests in
existing products, new inventions, manufacturing processes and
product developments. We do not believe any single patent is
material to our business, nor would the expiration or invalidity
of any patent have a material adverse effect on our business or
ability to compete. We are not currently engaged in any material
infringement litigation, nor are there any material infringement
claims pending by or against the Company.
Industry
Cyclicality and Seasonality
The markets for products in both of our reportable segments have
historically been cyclical. Because these products are used
principally in the production of vehicles for the automotive,
medium- and heavy-duty truck, agricultural and off-highway
vehicle markets, sales, and therefore results of operations, are
significantly dependent on the general state of the economy and
other factors, like the impact of environmental regulations on
our customers, which affect these markets. A decline in
automotive, medium- and heavy-duty truck, agricultural and
off-highway vehicle production of our principal customers could
adversely impact the Company. Approximately 40%, 38% and 43% of
our net sales in 2007, 2006 and 2005, respectively, were made to
the automotive market. Approximately 60%, 62% and 57% of our net
sales in 2007, 2006 and 2005, respectively, were derived from
the medium- and heavy-duty truck, agricultural and off-highway
vehicle markets.
We typically experience decreased sales during the third
calendar quarter of each year due to the impact of scheduled OEM
plant shutdowns in July for vacations and new model changeovers.
The fourth quarter is similarly impacted by plant shutdowns for
the holidays.
Customers
We are dependent on a small number of principal customers for a
significant percentage of our sales. The loss of any significant
portion of our sales to these customers or the loss of a
significant customer would have a material adverse impact on the
financial condition and results of operations of the Company. We
supply numerous different parts to each of our principal
customers. Contracts with several of our customers provide for
supplying their requirements for a particular model, rather than
for manufacturing a specific quantity of products. Such
contracts range from one year to the life of the model, which is
generally three to seven years. Therefore, the loss of a
contract for a major model or a significant decrease in demand
for certain key models or group of related models
3
sold by any of our major customers could have a material adverse
impact on the Company. We may also enter into contracts to
supply parts, the introduction of which may then be delayed or
not used at all. We also compete to supply products for
successor models and are therefore subject to the risk that the
customer will not select the Company to produce products on any
such model, which could have a material adverse impact on the
financial condition and results of operations of the Company. In
addition, we sell products to other customers that are
ultimately sold to our principal customers.
The following table presents the Companys principal
customers, as a percentage of net sales:
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For the Fiscal Years Ended
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December 31,
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2007
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2006
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2005
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Navistar International
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20
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%
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25
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22
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Ford Motor Company
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8
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6
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7
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Deere & Company
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7
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6
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6
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MAN AG
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6
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6
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2
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General Motors
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6
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5
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5
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Chrysler LLC
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5
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5
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9
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Other
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48
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47
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49
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Total
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100
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%
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100
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%
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100
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%
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Backlog
Our products are produced from readily available materials and
have a relatively short manufacturing cycle; therefore our
products are not on backlog status. Each of our production
facilities maintains its own inventories and production
schedules. Production capacity is adequate to handle current
requirements and can be expanded to handle increased growth if
needed.
Competition
Markets for our products in both reportable segments are highly
competitive. The principal methods of competition are
technological innovation, price, quality, service and timely
delivery. We compete for new business both at the beginning of
the development of new models and upon the redesign of existing
models. New model development generally begins two to five years
before the marketing of such models to the public. Once a
supplier has been selected to provide parts for a new program,
an OEM customer will usually continue to purchase those parts
from the selected supplier for the life of the program, although
not necessarily for any model redesigns.
Our diversity in products creates a wide range of competitors,
which vary depending on both market and geographic location. We
compete based on strong customer relations and a fast and
flexible organization that develops technically effective
solutions at or below target price. We compete against the
following primary competitors:
Electronics. Our primary competitors include
Continental AG/Siemens VDO, AFL Automotive, Yazaki, Delphi, and
Leoni.
Control Devices. Our primary competitors
include TRW, Methode, Sensata, Denso, Delphi, Bosch, Continental
AG/Siemens VDO, Aisin, and Alps.
Product
Development
Our research and development efforts are largely product
development oriented and consist primarily of applying known
technologies to customer generated problems and situations. We
work closely with our customers to creatively solve problems
using innovative approaches. The majority of our development
expenses are related to customer-sponsored programs where we are
involved in designing custom-engineered solutions for specific
applications or for next generation technology. To further our
vehicles platform penetration, we have also developed
collaborative relationships with the design and engineering
departments of key customers. These collaborative efforts have
resulted in the development of new and complimentary products
and the enhancement of existing products.
4
Development work at the Company is largely performed on a
decentralized basis. We have engineering and product development
departments located at a majority of our manufacturing
facilities. To ensure knowledge sharing among decentralized
development efforts, we have instituted a number of mechanisms
and practices whereby innovation and best practices are shared.
The decentralized product development operations are
complimented by larger technology groups in Canton,
Massachusetts and Stockholm, Sweden.
We use efficient and quality oriented work processes to address
our customers high standards. Our product development
technical resources include a full complement of computer-aided
design and engineering (CAD/CAE) software systems,
including (i) virtual three-dimensional modeling,
(ii) functional simulation and analysis capabilities and
(iii) data links for rapid prototyping. These CAD/CAE
systems enable the Company to expedite product design and the
manufacturing process to shorten the development time and
ultimately time to market.
We are further strengthening our electrical engineering
competencies through investment in equipment such as
(i) automotive electro-magnetic compliance test chambers,
(ii) programmable automotive and commercial vehicle
transient generators, (iii) circuit simulators and
(iv) other environmental test equipment. Additional
investment in product machining equipment has allowed us to
fabricate new product samples in a fraction of the time required
historically. Our product development and validation efforts are
supported by full service,
on-site test
labs at most manufacturing facilities, thus enabling
cross-functional engineering teams to optimize the product,
process and system performance before tooling initiation.
We have invested, and will continue to invest in technology to
develop new products for our customers. Research and development
costs incurred in connection with the development of new
products and manufacturing methods, to the extent not
recoverable from the customer, are charged to selling, general
and administrative expenses, as incurred. Such costs amounted to
approximately $44.2 million, $40.8 million and
$39.2 million for 2007, 2006 and 2005, respectively, or
6.1%, 5.8% and 5.8% of net sales for these periods.
We will continue shifting our investment spending toward the
design and development of new products rather than focusing on
sustaining existing product programs for specific customers.
This shift is essential to the future growth of the Company.
However, the typical product development process takes three to
five years to show tangible results. As part of our effort to
shift our investment spending, we reviewed our current product
portfolio and adjusted our spending to either accelerate or
eliminate our investment in these products, based on our
position in the market and the potential of the market and
product.
Environmental
and Other Regulations
Our operations are subject to various federal, state, local and
foreign laws and regulations governing, among other things,
emissions to air, discharge to waters and the generation,
handling, storage, transportation, treatment and disposal of
waste and other materials. We believe that our business,
operations and facilities have been and are being operated in
compliance, in all material respects, with applicable
environmental and health and safety laws and regulations, many
of which provide for substantial fines and criminal sanctions
for violations.
Employees
As of December 31, 2007, we had approximately
5,600 employees, approximately 1,300 of whom were salaried
and the balance of whom were paid on an hourly basis. Except for
certain employees located in Mexico, Sweden, and the United
Kingdom, our employees are not represented by a union. Our
unionized workers are not covered by collective bargaining
agreements. We believe that relations with our employees are
good.
Joint
Ventures
We form joint ventures in order to achieve several strategic
objectives including gaining access to new markets, exchanging
technology and intellectual capital, broadening our customer
base and expanding our product offerings. Specifically we have
formed joint ventures in Brazil, PST Eletrônica S.A.
(PST), and India, Minda Stoneridge Instruments Ltd.
(Minda), and continue to explore similar business
opportunities in other global markets. We have a 50% interest in
PST and a 49% interest in Minda. We entered into our PST joint
venture in October 1997
5
and our Minda joint venture in August 2004. Each of these
investments is accounted for using the equity method of
accounting.
Our joint ventures have contributed positively to our financial
results in 2007, 2006 and 2005. Equity earnings by joint venture
for the fiscal years ended December 31, 2007, 2006 and 2005
are summarized in the following table (in thousands):
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For the Fiscal Years Ended December 31,
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2007
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2006
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2005
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PST
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$
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10,351
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$
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6,771
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$
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3,976
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Minda
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542
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354
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76
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Total equity earnings of investees
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$
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10,893
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$
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7,125
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$
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4,052
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In Brazil, our PST joint venture, which is an electronic system
provider focused on security and convenience applications
primarily for the vehicle and motorcycle industry, generated net
sales of $133.1 million, $94.1 million and
$70.8 million in 2007, 2006 and 2005, respectively. We also
received dividend payments of $5.6 million,
$3.7 million and $2.2 million from PST in 2007, 2006
and 2005, respectively. During 2006, we increased our ownership
in Minda, which produces electronics and instrumentation
products for the motorcycle and commercial vehicle markets in
India, from 20% to 49% for $2.6 million in cash.
Available
Information
We make available, free of charge through our website
(www.stoneridge.com), our Annual Report on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K,
all amendments to those reports, and other filings with the
Securities and Exchange Commission (SEC), as soon as
reasonably practicable after they are filed with the SEC. Our
Corporate Governance Guidelines, Code of Business Conduct and
Ethics, Code of Ethics for Senior Financial Officers,
Whistleblower Policy and Procedures and the charters of the
Boards Audit, Compensation and Nominating and Corporate
Governance Committees are posted on our website as well. Copies
of these documents will be available to any shareholder upon
request. Requests should be directed in writing to Investor
Relations at 9400 East Market Street, Warren, Ohio 44484.
The public may read and copy any materials we file with the SEC
at the SECs Public Reference Room at 450 Fifth
Street, NW, Washington, DC 20549. The public may obtain
information on the operation of the Public Reference Room by
calling the SEC at
1-800-SEC-0330.
The SEC maintains a website (www.sec.gov) that contains reports,
proxy and information statements, and other information
regarding issuers that file electronically with the SEC,
including the Company.
6
Our
business is cyclical and seasonal in nature and downturns in the
automotive, medium- and heavy-duty truck, agricultural and
off-road vehicle markets could reduce the sales and
profitability of our business.
The demand for our products is largely dependent on the domestic
and foreign production of automobiles, medium- and heavy-duty
trucks, agricultural and off-road vehicles. The markets for our
products have historically been cyclical, because new vehicle
demand is dependent on, among other things, consumer spending
and is tied closely to the overall strength of the economy.
Because our products are used principally in the production of
vehicles for the automotive, medium- and heavy-duty truck,
agricultural and off-road vehicle markets, our sales, and
therefore our results of operations, are significantly dependent
on the general state of the economy and other factors which
affect these markets. A decline in automotive, medium- and
heavy-duty truck, agricultural and off-highway vehicle
production could adversely impact our results of operations and
financial condition. In 2007, approximately 40% of our net sales
were made to the automotive market and approximately 60% were
derived from the medium- and heavy-duty truck, agricultural and
off-highway vehicle markets. Seasonality experienced by the
automotive industry also impacts our operations. We typically
experience decreased sales during the third quarter of each year
due to the impact of scheduled OEM customer plant shutdowns in
July for vacations and new model changeovers. The fourth quarter
is also impacted by plant shutdowns for the holidays.
Our
business is very competitive and increased competition could
reduce our sales.
Markets for our products are highly competitive and the Company
can offer no assurance that we can maintain our product pricing
levels with our customers. We compete based on technological
innovation, price, quality, service and timely delivery. Many of
our competitors are more diversified and have greater financial
and other resources than we do. We cannot assure you that our
business will not be adversely affected by competition or that
we will be able to maintain our profitability if the competitive
environment changes.
The
prices that we can charge some of our customers are
predetermined and we bear the risk of costs in excess of our
estimates.
Our supply agreements with some of our customers require us to
provide our products at predetermined prices. In some cases,
these prices decline over the course of the contract and may
require us to meet certain productivity and cost reduction
targets. In addition, our customers may require us to share
productivity savings in excess of our cost reduction targets.
The costs that we incur in fulfilling these contracts may vary
substantially from our initial estimates. Unanticipated cost
increases or the inability to meet certain cost reduction
targets may occur as a result of several factors, including
increases in the costs of labor, components or materials. In
some cases, we are permitted to pass on to our customers the
cost increases associated with specific materials. Cost overruns
that we cannot pass on to our customers could adversely affect
our business, results of operations and financial condition.
We are
dependent on the availability and price of raw
materials.
We require substantial amounts of raw materials and
substantially all raw materials we require are purchased from
outside sources. The availability and prices of raw materials
may be subject to curtailment or change due to, among other
things, new laws or regulations, suppliers allocations to
other purchasers, interruptions in production by suppliers,
changes in exchange rates and worldwide price levels. Any change
in the supply of, or price for, these raw materials could
materially affect our results of operations and financial
condition.
Our
strategic initiatives may be unsuccessful, may take longer than
anticipated, or may result in unanticipated costs.
Our future strategic initiatives include restructuring
activities. We announced restructuring initiatives in fiscal
year 2007. There is no assurance that the total costs and total
cash costs associated with the restructuring initiatives will
not exceed our estimates, or that we will be able to achieve the
intended benefits of these restructurings activities.
7
The
loss or insolvency of any of our major customers would adversely
affect our future results.
We are dependent on a small number of principal customers for a
significant percentage of our net sales. In 2007, Navistar
International, Ford Motor Company, Deere & Company,
MAN AG, General Motors and Chrysler LLC accounted for 20%, 8%,
7%, 6%, 6%, and 5% of our net sales, respectively. The loss of
any significant portion of our sales to these customers or any
other customers would have a material adverse impact on our
results of operations and financial condition. The contracts we
have entered into with many of our customers provide for
supplying the customers requirements for a particular
model, rather than for manufacturing a specific quantity of
products. Such contracts range from one year to the life of the
model, which is generally three to seven years. These contracts
are subject to renegotiation, which may affect product pricing
and generally may be terminated by our customers at any time.
Therefore, the loss of a contract for a major model or a
significant decrease in demand for certain key models or group
of related models sold by any of our major customers could have
a material adverse impact on our results of operations and
financial condition by reducing cash flows and our ability to
spread costs over a larger revenue base. We also compete to
supply products for successor models and are subject to the risk
that the customer will not select us to produce products on any
such model, which could have a material adverse impact on our
results of operations and financial condition. In addition, we
have significant receivable balances related to these customers
and other major customers that would be at risk in the event of
their bankruptcy.
Consolidation
among vehicle parts customers and suppliers could make it more
difficult for us to compete favorably.
The vehicle part supply industry has undergone a significant
consolidation as OEM customers have sought to lower costs,
improve quality and increasingly purchase complete systems and
modules rather than separate components. As a result of the cost
focus of these major customers, we have been, and expect to
continue to be, required to reduce prices. Because of these
competitive pressures, we cannot assure you that we will be able
to increase or maintain gross margins on product sales to our
customers. The trend toward consolidation among vehicle parts
suppliers is resulting in fewer, larger suppliers who benefit
from purchasing and distribution economies of scale. If we
cannot achieve cost savings and operational improvements
sufficient to allow us to compete favorably in the future with
these larger, consolidated companies, our results of operations
and financial condition could be adversely affected.
Our
physical properties and information systems are subject to
damage as a result of disasters, outages or similar
events.
Our offices and facilities, including those used for design and
development, material procurement, manufacturing, logistics and
sales are located throughout the world and are subject to
possible destruction, temporary stoppage or disruption as a
result of any number of unexpected events. If any of these
facilities or offices were to experience a significant loss as a
result of any of the above events, it could disrupt our
operations, delay production, shipments and revenue, and result
in large expenses to repair or replace these facilities or
offices.
In addition, network and information system shutdowns caused by
unforeseen events such as power outages, disasters, hardware or
software defects, computer viruses and computer hacking pose
increasing risks. Such an event could also result in the
disruption of our operations, delay production, shipments and
revenue, and result in large expenditures necessary to repair or
replace such network and information systems.
We
must implement and sustain a competitive technological advantage
in producing our products to compete effectively.
Our products are subject to changing technology, which could
place us at a competitive disadvantage relative to alternative
products introduced by competitors. Our success will depend on
our ability to continue to meet customers changing
specifications with respect to quality, service, price, timely
delivery and technological innovation by implementing and
sustaining competitive technological advances. Our business may,
therefore, require significant ongoing and recurring additional
capital expenditures and investment in research and development
and manufacturing and management information systems. We cannot
assure you that we will be able to achieve the technological
advances or introduce new products that may be necessary to
remain competitive. Our inability to continuously
8
improve existing products and to develop new products and to
achieve technological advances could have a material adverse
effect on our results of operations and financial condition.
We may
experience increased costs associated with labor unions that
could adversely affect our financial performance and results of
operations.
As of December 31, 2007, we had approximately
5,600 employees, approximately 1,300 of whom were salaried
and the balance of whom were paid on an hourly basis. Certain
employees located in Mexico, Sweden, and the United Kingdom are
represented by a union but not collective bargaining agreements.
We cannot assure you that our employees will not be covered by
collective bargaining agreements in the future or that any of
our facilities will not experience a work stoppage or other
labor disruption. Any prolonged labor disruption involving our
employees, employees of our customers, a large percentage of
which are covered by collective bargaining agreements, or
employees of our suppliers could have a material adverse impact
on our results of operations and financial condition by
disrupting our ability to manufacture our products or the demand
for our products.
Compliance
with environmental and other governmental regulations could be
costly and require us to make significant
expenditures.
Our operations are subject to various federal, state, local and
foreign laws and regulations governing, among other things:
|
|
|
|
|
the discharge of pollutants into the air and water;
|
|
|
the generation, handling, storage, transportation, treatment,
and disposal of waste and other materials;
|
|
|
the cleanup of contaminated properties; and
|
|
|
the health and safety of our employees.
|
We believe that our business, operations and facilities have
been and are being operated in compliance in all material
respects with applicable environmental and health and safety
laws and regulations, many of which provide for substantial
fines and criminal sanctions for violations. The operation of
our manufacturing facilities entails risks and we cannot assure
you that we will not incur material costs or liabilities in
connection with these operations. In addition, potentially
significant expenditures could be required in order to comply
with evolving environmental and health and safety laws,
regulations or requirements that may be adopted or imposed in
the future.
We may
incur material product liability costs.
We are subject to the risk of exposure to product liability
claims in the event that the failure of any of our products
results in personal injury or death and we cannot assure you
that we will not experience material product liability losses in
the future. In addition, if any of our products prove to be
defective, we may be required to participate in
government-imposed or OEM- instituted recalls involving such
products. We maintain insurance against such product liability
claims, but we cannot assure you that such coverage will be
adequate for liabilities ultimately incurred or that it will
continue to be available on terms acceptable to us. A successful
claim brought against us that exceeds available insurance
coverage or a requirement to participate in any product recall
could have a material adverse effect on our results of
operations and financial condition.
9
We are
subject to risks related to our international
operations.
Approximately 28.1% of our net sales in 2007 were derived from
our European and other international operations, and European
and other international non-current assets accounted for
approximately 9.7% of our non-current assets as of
December 31, 2007. International sales and operations are
subject to significant risks, including, among others:
|
|
|
|
|
political and economic instability;
|
|
|
restrictive trade policies;
|
|
|
economic conditions in local markets;
|
|
|
currency exchange controls;
|
|
|
labor unrest;
|
|
|
difficulty in obtaining distribution support and potentially
adverse tax consequences; and
|
|
|
the imposition of product tariffs and the burden of complying
with a wide variety of international and U.S. export laws.
|
Additionally, to the extent any portion of our net sales and
expenses are denominated in currencies other than the
U.S. dollar, changes in exchange rates could have a
material adverse effect on our results of operations and
financial condition.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS.
|
None.
10
The Company and our joint ventures currently own or lease 20
manufacturing facilities, which together contain approximately
1.5 million square feet of manufacturing space. Of these
manufacturing facilities, 11 are used by our Electronics
reportable segment, 6 are used by our Control Devices reportable
segment and 3 are owned by our joint venture companies. The
following table provides information regarding our facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned/
|
|
|
|
|
Square
|
|
Location
|
|
Leased
|
|
|
Use
|
|
Footage
|
|
|
Electronics
|
|
|
|
|
|
|
|
|
|
|
Portland, Indiana
|
|
|
Owned
|
|
|
Manufacturing
|
|
|
182,000
|
|
Juarez, Mexico
|
|
|
Owned
|
|
|
Manufacturing/Division Office
|
|
|
178,000
|
|
Chihuahua, Mexico
|
|
|
Owned
|
|
|
Manufacturing
|
|
|
135,569
|
|
El Paso, Texas
|
|
|
Leased
|
|
|
Warehouse
|
|
|
93,000
|
|
Orebro, Sweden
|
|
|
Leased
|
|
|
Manufacturing
|
|
|
77,472
|
|
Mitcheldean, England
|
|
|
Leased
|
|
|
Manufacturing
|
|
|
74,790
|
|
Monclova, Mexico
|
|
|
Leased
|
|
|
Manufacturing
|
|
|
68,436
|
|
Chihuahua, Mexico
|
|
|
Leased
|
|
|
Manufacturing
|
|
|
49,805
|
|
Stockholm, Sweden
|
|
|
Leased
|
|
|
Engineering Office/Division Office
|
|
|
37,714
|
|
Dundee, Scotland
|
|
|
Leased
|
|
|
Manufacturing
|
|
|
32,753
|
|
Tallinn, Estonia
|
|
|
Leased
|
|
|
Manufacturing
|
|
|
28,352
|
|
Warren, Ohio
|
|
|
Leased
|
|
|
Engineering Office/Division Office
|
|
|
24,570
|
|
Tallinn, Estonia
|
|
|
Leased
|
|
|
Manufacturing/Warehouse
|
|
|
21,635
|
|
Chihuahua, Mexico
|
|
|
Leased
|
|
|
Manufacturing
|
|
|
10,000
|
|
Bayonne, France
|
|
|
Leased
|
|
|
Sales Office
|
|
|
8,267
|
|
Madrid, Spain
|
|
|
Leased
|
|
|
Sales Office/Warehouse
|
|
|
1,560
|
|
Rome, Italy
|
|
|
Leased
|
|
|
Sales Office
|
|
|
1,216
|
|
Stuttgart, Germany
|
|
|
Leased
|
|
|
Sales Office/Engineering Office
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Control Devices
|
|
|
|
|
|
|
|
|
|
|
Lexington, Ohio
|
|
|
Owned
|
|
|
Manufacturing/Division Office
|
|
|
152,742
|
|
Canton, Massachusetts
|
|
|
Owned
|
|
|
Manufacturing/Division Office
|
|
|
132,560
|
|
Sarasota, Florida
|
|
|
Owned
|
|
|
Manufacturing
|
|
|
115,000
|
|
Canton, Massachusetts
|
|
|
Leased
|
|
|
Manufacturing
|
|
|
58,077
|
|
Suzhou, China
|
|
|
Leased
|
|
|
Manufacturing
|
|
|
24,412
|
|
Lexington, Ohio
|
|
|
Owned
|
|
|
Manufacturing
|
|
|
10,120
|
|
Sarasota, Florida
|
|
|
Owned
|
|
|
Warehouse
|
|
|
7,500
|
|
Lexington, Ohio
|
|
|
Leased
|
|
|
Warehouse
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
Novi, Michigan
|
|
|
Leased
|
|
|
Sales Office/Engineering Office
|
|
|
9,400
|
|
Warren, Ohio
|
|
|
Owned
|
|
|
Headquarters
|
|
|
7,500
|
|
Shanghai, China
|
|
|
Leased
|
|
|
Sales Office
|
|
|
270
|
|
Seoul, South Korea
|
|
|
Leased
|
|
|
Sales Office
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint Ventures
|
|
|
|
|
|
|
|
|
|
|
Pune, India
|
|
|
Owned
|
|
|
Manufacturing/Engineering Office/Sales Office
|
|
|
76,000
|
|
Manaus, Brazil
|
|
|
Owned
|
|
|
Manufacturing
|
|
|
73,550
|
|
São Paulo, Brazil
|
|
|
Owned
|
|
|
Manufacturing/Engineering Office/Sales Office
|
|
|
41,323
|
|
Buenos Aires, Argentina
|
|
|
Leased
|
|
|
Sales Office
|
|
|
3,551
|
|
11
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS.
|
The Company is involved in certain legal actions and claims
arising in the ordinary course of business. The Company,
however, does not believe that any of the litigation in which it
is currently engaged, either individually or in the aggregate,
will have a material adverse effect on its business,
consolidated financial position or results of operations. The
Company is subject to the risk of exposure to product liability
claims in the event that the failure of any of its products
causes personal injury or death to users of the Companys
products and there can be no assurance that the Company will not
experience any material product liability losses in the future.
The Company maintains insurance against such product liability
claims. In addition, if any of the Companys products prove
to be defective, the Company may be required to participate in
the government-imposed or OEM customer-instituted recall
involving such products.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.
|
No matters were submitted to a vote of security holders during
the fourth quarter of 2007.
Executive
Officers of the Company
Each executive officer of the Company is appointed by the Board
of Directors, serves at its pleasure and holds office until a
successor is appointed, or until the earlier of death,
resignation or removal. The Board of Directors generally
appoints executive officers annually. The executive officers of
the Company are as follows:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
John C. Corey
|
|
|
60
|
|
|
President, Chief Executive Officer and Director
|
George E. Strickler
|
|
|
60
|
|
|
Executive Vice President, Chief Financial Officer and Treasurer
|
Thomas A. Beaver
|
|
|
54
|
|
|
Vice President of Global Sales and Systems Engineering
|
Mark J. Tervalon
|
|
|
41
|
|
|
Vice President of the Company and President of the Stoneridge
Electronics Division
|
John C. Corey, President, Chief Executive Officer and
Director. Mr. Corey has served as
President and Chief Executive Officer since being appointed by
the Board of Directors in January 2006. Mr. Corey has
served as a Director on the Board of Directors since January
2004. Prior to his employment with the Company, Mr. Corey
served from October 2000, as President and Chief Executive
Officer and Director of Safety Components International, a
supplier of airbags and components, with worldwide operations.
George E. Strickler, Executive Vice President, Chief
Financial Officer and
Treasurer. Mr. Strickler has served as
Executive Vice President and Chief Financial Officer since
joining the Company in January of 2006. Mr. Strickler was
appointed Treasurer of the Company in February 2007. Prior to
his employment with the Company, Mr. Strickler served as
Executive Vice President and Chief Financial Officer for
Republic Engineered Products, Inc. (Republic), from
February 2004 to January of 2006. Before joining Republic,
Mr. Strickler was BorgWarner Inc.s Executive Vice
President and Chief Financial Officer from February 2001 to
November 2003.
Thomas A. Beaver, Vice President of Global Sales and
Systems Engineering. Mr. Beaver has
served as Vice President of Global Sales and Systems Engineering
of the Company since January of 2005. Prior to this time,
Mr. Beaver served as Vice President of Stoneridge Sales and
Marketing from January 2000 to January 2005.
Mark J. Tervalon, Vice President of the Company and
President of the Stoneridge Electronics
Division. Mr. Tervalon has served as
President of the Stoneridge Electronics Division and Vice
President of the Company since August of 2006. Prior to that,
Mr. Tervalon served as Vice President and General Manager
of the Electronic Products Division from May 2002 to December
2003 when he became Vice President and General Manager of the
Stoneridge Electronics Group.
12
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
|
Our shares are listed on the New York Stock Exchange
(NYSE) under the symbol SRI. As of
February 22, 2008, we had 24,207,708 Common Shares without
par value, issued and outstanding, which were owned by
approximately 300 registered holders, including Common Shares
held in the names of brokers and banks (so-called street
name holdings) who are record holders with approximately
2,000 beneficial owners.
The Company has not historically paid or declared dividends,
which are restricted under both the senior notes and the
asset-based credit facility, on our Common Shares. We may only
pay cash dividends in the future if immediately prior to and
immediately after the payment is made no event of default shall
have occurred and outstanding indebtedness under our asset-based
credit facility is not greater than or equal to
$20.0 million before and after the payment of the dividend.
We currently intend to retain earnings for acquisitions, working
capital, capital expenditures, general corporate purposes and
reduction in outstanding indebtedness. Accordingly, we do not
expect to pay cash dividends in the foreseeable future.
High and low sales prices (as reported on the NYSE composite
tape) for our Common Shares for each quarter ended during 2007
and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
High
|
|
|
Low
|
|
|
|
2007
|
|
|
March 31
|
|
$
|
12.17
|
|
|
$
|
8.25
|
|
|
|
|
|
June 30
|
|
$
|
13.53
|
|
|
$
|
10.29
|
|
|
|
|
|
September 30
|
|
$
|
13.76
|
|
|
$
|
9.15
|
|
|
|
|
|
December 31
|
|
$
|
10.98
|
|
|
$
|
8.00
|
|
|
2006
|
|
|
April 1
|
|
$
|
7.11
|
|
|
$
|
4.95
|
|
|
|
|
|
July 1
|
|
$
|
8.45
|
|
|
$
|
5.60
|
|
|
|
|
|
September 30
|
|
$
|
9.89
|
|
|
$
|
7.05
|
|
|
|
|
|
December 31
|
|
$
|
8.32
|
|
|
$
|
6.71
|
|
The Company did not repurchase any Common Shares in 2007 or 2006.
Set forth below is a line graph comparing the cumulative total
return of a hypothetical investment in our Common Shares with
the cumulative total return of hypothetical investments in the
Hemscott Group Industry Group 333 (Automotive Parts)
Index and the NYSE Market Index based on the respective market
price of each investment at December 31, 2002, 2003, 2004,
2005, 2006 and 2007 assuming in each case an initial investment
of $100 on December 31, 2002, and reinvestment of dividends.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
Stoneridge, Inc.
|
|
|
100.00
|
|
|
|
126.47
|
|
|
|
127.14
|
|
|
|
55.63
|
|
|
|
68.82
|
|
|
|
67.56
|
|
Hemscott GroupIndustry Group 333 Index
|
|
|
100.00
|
|
|
|
147.67
|
|
|
|
151.99
|
|
|
|
135.13
|
|
|
|
152.24
|
|
|
|
163.56
|
|
NYSE Market Index
|
|
|
100.00
|
|
|
|
129.55
|
|
|
|
146.29
|
|
|
|
158.37
|
|
|
|
185.55
|
|
|
|
195.46
|
|
For information on Related Stockholder Matters
required by Item 201(d) of
Regulation S-K,
refer to Item 12 of this report.
13
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA.
|
The following table sets forth selected historical financial
data and should be read in conjunction with the consolidated
financial statements and notes related thereto and other
financial information included elsewhere herein. In 2007, the
Company changed the structure of its internal organization in a
manner that caused the composition of its reportable segments to
change; and therefore, the corresponding information for prior
periods has been reclassified to conform to the current year
reportable segment presentation. The selected historical data
was derived from our consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(in thousands, except per share data)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronics
|
|
$
|
458,672
|
|
|
$
|
456,932
|
|
|
$
|
401,663
|
|
|
$
|
403,322
|
|
|
$
|
324,905
|
|
Control Devices
|
|
|
289,979
|
|
|
|
271,943
|
|
|
|
291,434
|
|
|
|
299,408
|
|
|
|
299,791
|
|
Eliminations
|
|
|
(21,531
|
)
|
|
|
(20,176
|
)
|
|
|
(21,513
|
)
|
|
|
(20,935
|
)
|
|
|
(18,031
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
727,120
|
|
|
$
|
708,699
|
|
|
$
|
671,584
|
|
|
$
|
681,795
|
|
|
$
|
606,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
167,723
|
|
|
$
|
158,906
|
|
|
$
|
148,588
|
|
|
$
|
174,987
|
|
|
$
|
156,030
|
|
Operating income (loss)(A)
|
|
$
|
34,799
|
|
|
$
|
35,063
|
|
|
$
|
23,303
|
|
|
$
|
(125,570
|
)
|
|
$
|
58,370
|
|
Income (loss) before income taxes and cumulative effect of
accounting change(A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronics
|
|
$
|
20,692
|
|
|
$
|
20,882
|
|
|
$
|
(216
|
)
|
|
$
|
27,562
|
|
|
$
|
15,578
|
|
Control Devices
|
|
|
15,825
|
|
|
|
13,987
|
|
|
|
19,429
|
|
|
|
(147,960
|
)
|
|
|
46,227
|
|
Other corporate activities
|
|
|
8,676
|
|
|
|
6,392
|
|
|
|
8,217
|
|
|
|
(4,477
|
)
|
|
|
(3,644
|
)
|
Corporate interest
|
|
|
(21,969
|
)
|
|
|
(21,622
|
)
|
|
|
(22,994
|
)
|
|
|
(24,281
|
)
|
|
|
(27,141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
23,224
|
|
|
$
|
19,639
|
|
|
$
|
4,436
|
|
|
$
|
(149,156
|
)
|
|
$
|
31,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)(A)
|
|
$
|
16,671
|
|
|
$
|
14,513
|
|
|
$
|
933
|
|
|
$
|
(92,503
|
)
|
|
$
|
21,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share(A)
|
|
$
|
0.72
|
|
|
$
|
0.63
|
|
|
$
|
0.04
|
|
|
$
|
(4.09
|
)
|
|
$
|
0.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share(A)
|
|
$
|
0.71
|
|
|
$
|
0.63
|
|
|
$
|
0.04
|
|
|
$
|
(4.09
|
)
|
|
$
|
0.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development expenses
|
|
$
|
44,203
|
|
|
$
|
40,840
|
|
|
$
|
39,193
|
|
|
$
|
36,145
|
|
|
$
|
28,714
|
|
Capital expenditures
|
|
|
18,141
|
|
|
|
25,895
|
|
|
|
28,934
|
|
|
|
23,917
|
|
|
|
26,382
|
|
Depreciation and amortization(B)
|
|
|
28,503
|
|
|
|
26,180
|
|
|
|
26,157
|
|
|
|
24,802
|
|
|
|
22,188
|
|
Balance Sheet Data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
184,788
|
|
|
$
|
135,915
|
|
|
$
|
116,689
|
|
|
$
|
123,317
|
|
|
$
|
72,832
|
|
Total assets
|
|
|
527,769
|
|
|
|
501,807
|
|
|
|
463,038
|
|
|
|
473,001
|
|
|
|
573,001
|
|
Long-term debt, less current portion
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
200,052
|
|
|
|
200,245
|
|
Shareholders equity
|
|
|
206,189
|
|
|
|
178,622
|
|
|
|
153,991
|
|
|
|
155,605
|
|
|
|
243,406
|
|
|
|
|
(A) |
|
Our 2004 operating loss, loss before income taxes and cumulative
effect of accounting change, net loss, and related basic and
diluted loss per share amounts include a non-cash, pre-tax
goodwill impairment loss of $183,450, which was recorded in the
fourth quarter of 2004. |
|
(B) |
|
These amounts represent depreciation and amortization on fixed
and finite-lived intangible assets. |
14
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
Overview
The following Management Discussion and Analysis
(MD&A) is intended to help the reader
understand the results of operations and financial condition of
Stoneridge, Inc. (the Company). This MD&A is
provided as a supplement to, and should be read in conjunction
with, our financial statements and the accompanying notes to the
financial statements.
We are an independent designer and manufacturer of highly
engineered electrical and electronic components, modules and
systems for the automotive, medium- and heavy-duty truck,
agricultural and off-highway vehicle markets.
For the year ended December 31, 2007, net sales were
$727.1 million, an increase of $18.4 million compared
with $708.7 million for the year ended December 31,
2006.
Our net income for the year ended December 31, 2007 was
$16.7 million, or $0.71 per diluted share, compared with
net income of $14.5 million, or $0.63 per diluted share,
for 2006.
Our increase in net sales was predominantly attributable to
increased European commercial vehicle production, new program
launches in both North America and Europe and favorable foreign
currency exchange rates. The increase was partially offset by
the substantial decline in North American medium- and heavy-duty
truck production and a decline in North American light vehicle
production. Medium- and heavy-duty truck production was
unfavorably impacted by the new diesel emissions regulations
that were implemented on January 1, 2007 in the U.S.
Our 2007 profitability was positively affected by new program
sales during the year, especially in the third and fourth
quarters. During 2007, our sensor business launched over
$26.0 million in new business revenue and our aftermarket
business in Europe grew by approximately $9.0 million in
revenue as we continued to penetrate new geographic markets and
expand our product offerings. We received new business to supply
electronic products to a military vehicle program, which is
expected to continue through the first half of 2008. We were
also able to partially offset direct material cost increases
through hedging transactions for copper and fixed-price supplier
agreements for zinc. In addition, we received cash and recorded
gains from the divestiture of non-strategic assets, which
included two idle facilities and the Companys airplane in
2007.
Our increase in profitability was partially offset by increased
depreciation expense and direct material costs as well as
operational inefficiencies related to new product launches and
supply chain management. In addition, the Companys
selling, general and administrative (SG&A)
expenses increased due to additional spending in sales and
marketing support for a new product launch, higher design and
development expenses, increased systems implementation costs and
a $1.2 million one-time gain related to the settlement of
the life insurance benefits portion of a postretirement plan in
2006.
Also affecting our profitability were restructuring initiatives
that began in the fourth quarter of 2007 to improve the
Companys manufacturing efficiency and cost position by
ceasing manufacturing operations at our Sarasota, Florida and
Mitcheldean, England locations. Related 2007 expenses, primarily
comprised of one-time termination benefits, were approximately
$1.0 million. We anticipate incurring total pre-tax charges
of approximately $9.0 million to $13.0 million in 2008
for the restructuring, net of an expected gain from a future
Sarasota facility sale. We expect these initiatives to be
substantially completed in 2008 and are expecting projected
benefits to be in the range of $8.0 million to
$12.0 million in 2009 and beyond.
Also in 2007, our PST Eletrônica S.A. (PST)
joint venture in Brazil, which is an electronic system provider
focused on security and convenience applications primarily for
the vehicle and motorcycle industry, continued to perform well,
resulting in equity earnings of $10.4 million compared to
$6.8 million in the previous year. We also received
dividend payments from PST of $5.6 million and
$3.7 million in 2007 and 2006, respectively. On
October 23, 2007, we announced that our PST joint venture
filed certain financial information with the Brazilian
Securities Commission (Comissão de Valores
Mobiliários). We currently hold a 50% equity interest
in PST.
15
Outlook
We expect 2008 production levels in the North American
automotive and commercial vehicle markets to be slightly lower
than 2007 and the European commercial vehicle market to be
comparable to 2007. We also expect that our 2008 sales will be
favorably affected by new program sales.
We expect that the U.S. diesel emissions regulations
adopted in 2007 will continue to negatively impact medium- and
heavy-duty truck production in the U.S. and our financial
results through the first half of 2008. For our Electronics
reportable segment, we anticipate that new program sales and
stable demand outside of the U.S. will offset the continued
downturn in the U.S. medium- and heavy-duty truck
production.
We expect our 2008 automotive related sales to be stagnant or
slightly decline compared to 2007 levels. For our Control
Devices reportable segment, we expect continued growth in our
emissions sensing and other new products; however, these
increases will be offset by customer-demanded price reductions
and forecasted lower market-share for our traditional North
American automotive original equipment manufacturers.
Significant factors inherent to our markets that could affect
our results for 2008 include general economic conditions and the
financial stability of our customers and suppliers as well as
our ability to successfully execute our planned restructuring,
productivity and cost reduction initiatives. We are undertaking
these initiatives to mitigate commodity price increases and
customer-demanded price reductions. Our management team is
focused on improving operational efficiency while adapting to
the needs of our customers. Our results for 2008 also depend on
conditions in the automotive and commercial vehicle markets,
which are generally dependent on domestic and international
economies.
We continue our transition to low-cost manufacturing locations.
Initially, this initiative will result in restructuring costs
stemming from facility closures and production relocations.
However, the longer-term effects of such an initiative will
enable us to reduce our operating costs and increase global
sourcing capacity to our customers.
Results
of Operations
We are primarily organized by markets served and products
produced. Under this organizational structure, our operations
have been aggregated into two reportable segments: Electronics
and Control Devices. The Electronics reportable segment,
formerly known as the Vehicle Management & Power
Distribution reportable segment, includes results of operations
that design and manufacture electronic instrument clusters,
electronic control units, driver information systems and
electrical distribution systems, primarily wiring harnesses and
connectors for electrical power and signal distribution. The
Control Devices reportable segment includes results from our
operations that design and manufacture electronic and
electromechanical switches, control actuation devices and
sensors.
During the third quarter of 2007, a European operating segment
in the Control Devices reportable segment experienced a change
in future business prospects due to the loss of a significant
customer contract. As a result, the Company announced that it
would cease manufacturing at this location and transfer
remaining production to an operating segment in the Electronics
reportable segment. In addition, management and oversight
responsibilities for this business were realigned to the
Electronics reportable segment. Because the Company changed the
structure of its internal organization in a manner that caused
the composition of its reportable segments to change, the
corresponding information for prior periods has been
reclassified to conform to the current year reportable segment
presentation.
Beginning in 2005, we changed from a calendar year-end to a
52-53 week
fiscal year-end. Since then, our fiscal quarters were comprised
of 13-week periods. On October 30, 2006, we changed back to
a calendar (December 31) fiscal year end, and therefore the
2007 and 2006 fiscal years ended on December 31, 2007 and
December 31, 2006, respectively. Our fiscal quarters are
now comprised of three month periods.
16
Fiscal
Year Ended December 31, 2007 Compared To Fiscal Year Ended
December 31, 2006
Net Sales. Net sales for our reportable
segments, excluding inter-segment sales, for the fiscal years
ended December 31, 2007 and 2006 are summarized in the
following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended December 31,
|
|
|
$ Increase/
|
|
|
% Increase/
|
|
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
Electronics
|
|
$
|
441,717
|
|
|
|
60.7
|
%
|
|
$
|
442,427
|
|
|
|
62.4
|
%
|
|
$
|
(710
|
)
|
|
|
(0.2
|
)%
|
Control Devices
|
|
|
285,403
|
|
|
|
39.3
|
|
|
|
266,272
|
|
|
|
37.6
|
|
|
|
19,131
|
|
|
|
7.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
727,120
|
|
|
|
100.0
|
%
|
|
$
|
708,699
|
|
|
|
100.0
|
%
|
|
$
|
18,421
|
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in net sales for our Electronics segment was
primarily due to a substantial decline in medium- and heavy-duty
truck production in North America. As referenced above, medium-
and heavy-duty truck production in 2007 was unfavorably impacted
by the new 2007 diesel emissions regulations that were
implemented on January 1, 2007 in the U.S. Offsetting
the unfavorable impact of the new diesel emissions standards
were new program revenues in North America and Europe, increased
production volume in our European commercial vehicle operations
and favorable foreign currency exchange rates. Favorable foreign
currency exchange rates contributed $18.6 million to net
sales for the fiscal year ended December 31, 2007.
The increase in net sales for our Control Devices segment was
primarily attributable to new product launches in our
temperature and speed sensor businesses. The increase was
partially offset by production volume reductions at our major
customers.
Net sales by geographic location for the fiscal years ended
December 31, 2007 and 2006 are summarized in the following
table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended December 31,
|
|
|
$ Increase/
|
|
|
% Increase/
|
|
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
North America
|
|
$
|
522,730
|
|
|
|
71.9
|
%
|
|
$
|
541,479
|
|
|
|
76.4
|
%
|
|
$
|
(18,749
|
)
|
|
|
(3.5
|
)%
|
Europe and other
|
|
|
204,390
|
|
|
|
28.1
|
|
|
|
167,220
|
|
|
|
23.6
|
|
|
|
37,170
|
|
|
|
22.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
727,120
|
|
|
|
100.0
|
%
|
|
$
|
708,699
|
|
|
|
100.0
|
%
|
|
$
|
18,421
|
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in North American sales was primarily attributable
to lower sales to our commercial vehicle customers as a result
of lower demand because of the new 2007 U.S. diesel
emission regulations and lower production volume from our North
American light vehicle customers. The decrease was partially
offset by sales related to new program launches of sensor
products and new electronic products supplied for the production
of military vehicles. Our increase in sales outside of North
America for the year was primarily due to increased production
volume, new product revenues and favorable foreign currency
exchange rates. The favorable effect of foreign currency
exchange rates affected net sales outside North America by
$18.6 million for the fiscal year ended December 31,
2007.
17
Consolidated statements of operations as a percentage of net
sales for the fiscal years ended December 31, 2007 and 2006
are presented in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended December 31,
|
|
|
$ Increase/
|
|
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
Net Sales
|
|
$
|
727,120
|
|
|
|
100.0
|
%
|
|
$
|
708,699
|
|
|
|
100.0
|
%
|
|
$
|
18,421
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
559,397
|
|
|
|
76.9
|
|
|
|
549,793
|
|
|
|
77.6
|
|
|
|
9,604
|
|
Selling, general and administrative
|
|
|
133,708
|
|
|
|
18.4
|
|
|
|
124,538
|
|
|
|
17.6
|
|
|
|
9,170
|
|
Gain on sale of property, plant & equipment, net
|
|
|
(1,710
|
)
|
|
|
(0.2
|
)
|
|
|
(1,303
|
)
|
|
|
(0.2
|
)
|
|
|
(407
|
)
|
Restructuring charges
|
|
|
926
|
|
|
|
0.1
|
|
|
|
608
|
|
|
|
0.1
|
|
|
|
318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
34,799
|
|
|
|
4.8
|
|
|
|
35,063
|
|
|
|
4.9
|
|
|
|
(264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
21,759
|
|
|
|
3.0
|
|
|
|
21,744
|
|
|
|
3.1
|
|
|
|
15
|
|
Equity in earnings of investees
|
|
|
(10,893
|
)
|
|
|
(1.5
|
)
|
|
|
(7,125
|
)
|
|
|
(1.0
|
)
|
|
|
(3,768
|
)
|
Other loss, net
|
|
|
709
|
|
|
|
0.1
|
|
|
|
805
|
|
|
|
0.1
|
|
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
23,224
|
|
|
|
3.2
|
|
|
|
19,639
|
|
|
|
2.7
|
|
|
|
3,585
|
|
Provision for income taxes
|
|
|
6,553
|
|
|
|
0.9
|
|
|
|
5,126
|
|
|
|
0.7
|
|
|
|
1,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
16,671
|
|
|
|
2.3
|
%
|
|
$
|
14,513
|
|
|
|
2.0
|
%
|
|
$
|
2,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold. The decrease in cost of
goods sold as a percentage of sales was due to increased sales
volume from new business awards, ongoing procurement initiatives
and favorable product mix. The decrease was partially offset by
unfavorable material costs, operational inefficiencies related
to new product launches and higher depreciation expense.
Selling, General and Administrative
Expenses. Product development expenses included
in SG&A were $44.2 million and $40.8 million for
the fiscal years ended December 31, 2007 and 2006,
respectively. The increase related to development spending in
the areas of tachographs and instrumentation. In the future, the
Company intends to reallocate its resources to focus on the
design and development of new products rather than primarily
focusing on sustaining existing product programs.
The increase in SG&A expenses, excluding product
development expenses, in 2007 compared with 2006 was primarily
attributable to the increase in our selling and marketing
activity to support new products in Europe, the increase in
systems implementation expenses related to a new information
system in Europe, and a $1.2 million one-time gain in the
third quarter of 2006 related to the settlement of the life
insurance benefits portion of a postretirement plan.
Restructuring Charges. The increase in
restructuring charges was primarily the result of one-time
termination benefits related to the restructuring initiatives
announced in 2007 to improve manufacturing efficiency and cost
position by ceasing manufacturing operations at our Sarasota,
Florida and Mitcheldean, England locations. No
fixed-asset
impairment charges were incurred because assets are primarily
being transferred to our other locations for continued
production. We expect these initiatives to be substantially
completed in 2008.
18
Restructuring charges recorded by reportable segment during the
year ended December 31, 2007 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
|
Electronics
|
|
|
Control Devices
|
|
|
Charges
|
|
|
Severance costs
|
|
$
|
542
|
|
|
$
|
357
|
|
|
$
|
899
|
|
Other costs
|
|
|
|
|
|
|
27
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
$
|
542
|
|
|
$
|
384
|
|
|
$
|
926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Also included in severance costs for the Electronics reporting
segment in 2007 was $0.1 million of expense related to the
rationalization of certain manufacturing facilities in Europe
and North America announced in 2005. These restructuring
initiatives were completed in 2007.
Restructuring charges recorded by reportable segment during the
year ended December 31, 2006 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended
|
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
|
Electronics
|
|
|
Control Devices
|
|
|
Charges
|
|
|
Severance costs
|
|
$
|
369
|
|
|
$
|
156
|
|
|
$
|
525
|
|
Other costs
|
|
|
|
|
|
|
83
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring charges
|
|
$
|
369
|
|
|
$
|
239
|
|
|
$
|
608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance costs related to a reduction in workforce. Other
associated costs include miscellaneous expenditures associated
with exiting business activities.
Gain on Sale of Property, Plant and Equipment,
net. The increase was primarily attributable to a
gain on the sale of two closed facilities during 2007 exceeding
the gain on the sale of land during the first quarter of 2006.
Equity in Earnings of Investees. The increase
was predominately attributable to the increase in equity
earnings recognized from our PST joint venture. The increase
primarily reflects higher volume for PSTs security product
lines.
Income Before Income Taxes. Income before
income taxes is summarized in the following table by reportable
segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years
|
|
|
|
|
|
|
Ended December 31,
|
|
|
$ Increase/
|
|
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
Electronics
|
|
$
|
20,692
|
|
|
$
|
20,882
|
|
|
$
|
(190
|
)
|
Control Devices
|
|
|
15,825
|
|
|
|
13,987
|
|
|
|
1,838
|
|
Other corporate activities
|
|
|
8,676
|
|
|
|
6,392
|
|
|
|
2,284
|
|
Corporate interest expense
|
|
|
(21,969
|
)
|
|
|
(21,622
|
)
|
|
|
(347
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
23,224
|
|
|
$
|
19,639
|
|
|
$
|
3,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in income before income taxes in the Electronics
segment was related to reduced volume and increased SG&A
expenses. The increased SG&A expenses were predominantly
due to increased development spending in the areas of
tachographs and instrumentation and higher selling and marketing
costs associated with new product introductions.
19
The increase in income before income taxes in the Control
Devices reportable segment was primarily due to increased sales
volume and new product launches. These factors were offset by
operating inefficiencies related to a new product launch.
The increase in income before income taxes from other corporate
activities was primarily due to a reduction in foreign exchange
losses recorded in the previous year and an increase in equity
earnings from our PST joint venture of $3.6 million.
Income before income taxes by geographic location for the fiscal
years ended December 31, 2007 and 2006 are summarized in
the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended December 31,
|
|
|
$ Increase/
|
|
|
% Increase/
|
|
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
North America
|
|
$
|
12,405
|
|
|
|
53.4
|
%
|
|
$
|
10,847
|
|
|
|
55.2
|
%
|
|
$
|
1,558
|
|
|
|
14.4
|
%
|
Europe and other
|
|
|
10,819
|
|
|
|
46.6
|
|
|
|
8,792
|
|
|
|
44.8
|
|
|
|
2,027
|
|
|
|
23.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
23,224
|
|
|
|
100.0
|
%
|
|
$
|
19,639
|
|
|
|
100.0
|
%
|
|
$
|
3,585
|
|
|
|
18.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in our profitability in North America was primarily
attributable to increased revenue from new sensor product
launches and new electronic products supplied for the production
of military vehicles, which is expected to continue through the
first half of 2008. The increase was primarily offset by
unfavorable variances related to a new product launch, lower
North American automotive and commercial vehicle production and
contractual price reductions with our customers. The increase in
our profitability outside North America was primarily due to
increased European commercial vehicle production and revenue
from new program launches. The increase was offset by higher
SG&A related to increased development spending in the areas
of tachographs and instrumentation and higher selling and
marketing costs associated with new product introductions.
Provision for Income Taxes. We recognized a
provision for income taxes of $6.6 million, or 28.2% of
pre-tax income, and $5.1 million, or 26.1% of the pre-tax
income, for federal, state and foreign income taxes for the
years ended December 31, 2007 and 2006, respectively. The
increase in the effective tax rate was primarily attributable to
the increase in higher taxed domestic earnings and the increase
over the prior year of the valuation allowance recorded against
deferred tax assets in the United Kingdom. These increases were
partially offset by a deferred tax benefit related to a change
in state tax law.
Fiscal
Year Ended December 31, 2006 Compared To Fiscal Year Ended
December 31, 2005
Net Sales. Net sales for our reportable
segments, excluding inter-segment sales, for the fiscal years
ended December 31, 2006 and 2005 are summarized in the
following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended December 31,
|
|
|
$ Increase/
|
|
|
% Increase/
|
|
|
|
2006
|
|
|
2005
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
Electronics
|
|
$
|
442,427
|
|
|
|
62.4
|
%
|
|
$
|
384,943
|
|
|
|
57.3
|
%
|
|
$
|
57,484
|
|
|
|
14.9
|
%
|
Control Devices
|
|
|
266,272
|
|
|
|
37.6
|
|
|
|
286,641
|
|
|
|
42.7
|
|
|
|
(20,369
|
)
|
|
|
(7.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
708,699
|
|
|
|
100.0
|
%
|
|
$
|
671,584
|
|
|
|
100.0
|
%
|
|
$
|
37,115
|
|
|
|
5.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in net sales for our Electronics segment was
primarily due to increased sales to our commercial vehicle
customers because North American demand was strong during the
year. The most significant factor behind the increase in demand
was related to the 2007 implementation of more stringent diesel
emissions standards in the U.S. Overall commercial vehicle
demand increased in 2006 in anticipation of the 2007 emission
changes. In addition to the North American volume increase, our
revenues also increased as a result of new product sales in
Europe and a $1.6 million impact from foreign currency
exchange rates for the year. Net sales for our Control Devices
segment declined as a result of lower production volumes at the
traditional domestic automakers and product price reductions.
These declines were partially offset by new product sales in our
European operations.
20
Net sales by geographic location for the fiscal years ended
December 31, 2006 and 2005 are summarized in the following
table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended December 31,
|
|
|
$ Increase/
|
|
|
% Increase/
|
|
|
|
2006
|
|
|
2005
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
North America
|
|
$
|
541,479
|
|
|
|
76.4
|
%
|
|
$
|
532,523
|
|
|
|
79.3
|
%
|
|
$
|
8,956
|
|
|
|
1.7
|
%
|
Europe and other
|
|
|
167,220
|
|
|
|
23.6
|
|
|
|
139,061
|
|
|
|
20.7
|
|
|
|
28,159
|
|
|
|
20.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
708,699
|
|
|
|
100.0
|
%
|
|
$
|
671,584
|
|
|
|
100.0
|
%
|
|
$
|
37,115
|
|
|
|
5.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in North American sales was primarily attributable
to increased sales to our commercial vehicle customers as a
result of strong North American demand. The increase was
substantially offset by unfavorable North American light vehicle
production and product price reductions. The increase in sales
outside North America was primarily due to new product revenues
and favorable foreign currency exchange rates. The favorable
effect of foreign currency exchange rates impacted net sales
outside North America by $1.6 million for the fiscal year
ended December 31, 2006.
Consolidated statements of operations as a percentage of net
sales for the fiscal years ended December 31, 2006 and 2005
are presented in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended December 31,
|
|
|
$ Increase/
|
|
|
|
2006
|
|
|
2005
|
|
|
(Decrease)
|
|
|
Net Sales
|
|
$
|
708,699
|
|
|
|
100.0
|
%
|
|
$
|
671,584
|
|
|
|
100.0
|
%
|
|
$
|
37,115
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
549,793
|
|
|
|
77.6
|
|
|
|
522,996
|
|
|
|
77.9
|
|
|
|
26,797
|
|
Selling, general and administrative
|
|
|
124,302
|
|
|
|
17.5
|
|
|
|
116,836
|
|
|
|
17.4
|
|
|
|
7,466
|
|
Provision for doubtful accounts
|
|
|
236
|
|
|
|
0.0
|
|
|
|
3,711
|
|
|
|
0.6
|
|
|
|
(3,475
|
)
|
Gain on sale of property, plant and equipment, net
|
|
|
(1,303
|
)
|
|
|
(0.2
|
)
|
|
|
(360
|
)
|
|
|
(0.1
|
)
|
|
|
(943
|
)
|
Restructuring charges
|
|
|
608
|
|
|
|
0.1
|
|
|
|
5,098
|
|
|
|
0.7
|
|
|
|
(4,490
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
35,063
|
|
|
|
5.0
|
|
|
|
23,303
|
|
|
|
3.5
|
|
|
|
11,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
21,744
|
|
|
|
3.1
|
|
|
|
23,872
|
|
|
|
3.6
|
|
|
|
(2,128
|
)
|
Equity in earnings of investees
|
|
|
(7,125
|
)
|
|
|
(1.0
|
)
|
|
|
(4,052
|
)
|
|
|
(0.6
|
)
|
|
|
(3,073
|
)
|
Other (income) loss, net
|
|
|
805
|
|
|
|
0.1
|
|
|
|
(953
|
)
|
|
|
(0.1
|
)
|
|
|
1,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
19,639
|
|
|
|
2.8
|
|
|
|
4,436
|
|
|
|
0.6
|
|
|
|
15,203
|
|
Provision for income taxes
|
|
|
5,126
|
|
|
|
0.7
|
|
|
|
3,503
|
|
|
|
0.5
|
|
|
|
1,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
14,513
|
|
|
|
2.1
|
%
|
|
$
|
933
|
|
|
|
0.1
|
%
|
|
$
|
13,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold. This decrease in cost of
goods sold as a percentage of sales was predominately due to
operational improvements and increased sales volume. Offsetting
these factors were unfavorable material price variances
resulting from raw material price increases and product price
reductions.
Selling, General and Administrative
Expenses. The increase in non-product development
SG&A expenses in 2006 compared with 2005 was primarily
attributable to the increase in sales and infrastructure costs
related to a new product launch and costs related to a
consulting agreement for a former employee. These increases were
partially offset by a $1.2 million one-time gain related to
the settlement of the life insurance benefits portion of a
postretirement benefit plan. During 2005, our SG&A costs
benefited from non-recurring legal and commercial settlements.
Product development expenses included in SG&A were
$40.8 million and $39.2 million for the fiscal years
ended December 31, 2006 and 2005, respectively.
Provision for Doubtful Accounts. The decrease
in the provision for doubtful accounts was primarily a function
of bad debt charges associated with customer bankruptcies in
2005 exceeding the bad debt charges associated with customer
bankruptcies in 2006.
21
Restructuring Charges. In January 2005, we
announced that we would undertake restructuring efforts related
to the rationalization of certain manufacturing facilities in
Europe and North America. The restructuring was a result of our
cost reduction initiatives. The decrease in restructuring
charges was a result of the substantial completion of our
previously announced restructuring initiatives.
Interest Expense, Net. The decrease in
interest expense, net was primarily due to an increase in
interest income in 2006. Interest income in 2006 and 2005 was
$2.9 million and $0.9 million, respectively. This
increase was related to a $1.2 million past due interest
payment from PST and increased interest generated from our cash
and cash equivalents.
Equity in Earnings of Investees. The increase
in equity earnings from investees was predominately attributable
to the increase in equity earnings recognized from our PST joint
venture in Brazil. The increase primarily reflects higher volume
and pricing for PSTs security product lines.
Other (Income) Loss, Net. The decrease in
other income was primarily the result of unfavorable foreign
exchange contract variances. The decrease was offset by a
$1.6 million gain on the sale of our partnership interest
in Industrial Development Associates (IDA).
Income Before Income Taxes. Income before
income taxes is summarized in the following table by reportable
segment for the fiscal years ended December 31, 2006 and
2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years
|
|
|
|
|
|
|
Ended December 31,
|
|
|
$ Increase/
|
|
|
|
2006
|
|
|
2005
|
|
|
(Decrease)
|
|
|
Electronics
|
|
$
|
20,882
|
|
|
$
|
(216
|
)
|
|
$
|
21,098
|
|
Control Devices
|
|
|
13,987
|
|
|
|
19,429
|
|
|
|
(5,442
|
)
|
Other corporate activities
|
|
|
6,392
|
|
|
|
8,217
|
|
|
|
(1,825
|
)
|
Corporate interest expense
|
|
|
(21,622
|
)
|
|
|
(22,994
|
)
|
|
|
1,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
19,639
|
|
|
$
|
4,436
|
|
|
$
|
15,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in income before income taxes at the Electronics
reportable segment was primarily the result of increased sales
volume, a reduction in bad debt expense, and operational
improvements at our United Kingdom operation. Offsetting these
gains were unfavorable raw material purchase price variances and
product price reductions.
The decrease in income before income taxes at the Control
Devices reportable segment was primarily the result of ongoing
product price reductions and increased raw material costs. These
factors were partially offset by a reduction in restructuring
and bad debt expenses.
Income before income taxes by geographic location for the fiscal
years ended December 31, 2006 and 2005 is summarized in the
following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended December 31,
|
|
|
$ Increase/
|
|
|
% Increase/
|
|
|
|
2006
|
|
|
2005
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
North America
|
|
$
|
10,847
|
|
|
|
55.2
|
%
|
|
$
|
7,208
|
|
|
|
162.5
|
%
|
|
$
|
3,639
|
|
|
|
50.5
|
%
|
Europe and other
|
|
|
8,792
|
|
|
|
44.8
|
|
|
|
(2,772
|
)
|
|
|
(62.5
|
)
|
|
|
11,564
|
|
|
|
417.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
19,639
|
|
|
|
100.0
|
%
|
|
$
|
4,436
|
|
|
|
100.0
|
%
|
|
$
|
15,203
|
|
|
|
342.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in our profitability in North America was primarily
attributable to increased North American commercial vehicle
volume and lower bad debt expenses. The positive variance was
partially offset by unfavorable raw material variances and
product price reductions. The increase in our profitability
outside North America was primarily due to the operational
improvement at our United Kingdom operations, which experienced
significant operational inefficiencies in 2005, and increased
sales volume. These improvements were partially offset by costs
related to the
start-up of
our Suzhou, China, manufacturing facility.
22
Provision for Income Taxes. We recognized a
provision for income taxes of $5.1 million, or 26.1% of
pre-tax income, and $3.5 million, or 79.0% of the pre-tax
income, for federal, state and foreign income taxes for the
years ended December 31, 2006 and 2005, respectively. The
decrease in the effective tax rate was primarily attributable to
an increase in pre-tax earnings and a corresponding reduction in
the amount of additional valuation allowance needed that
resulted from the improved performance of our United Kingdom
operations.
Liquidity
and Capital Resources
Summary of Cash Flows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years
|
|
|
|
|
|
|
Ended December 31,
|
|
|
$ Increase/
|
|
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
Cash provided by (used for):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
33,525
|
|
|
$
|
46,540
|
|
|
$
|
(13,015
|
)
|
Investing activities
|
|
|
(5,826
|
)
|
|
|
(24,609
|
)
|
|
|
18,783
|
|
Financing activities
|
|
|
900
|
|
|
|
107
|
|
|
|
793
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
1,443
|
|
|
|
3,060
|
|
|
|
(1,617
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
$
|
30,042
|
|
|
$
|
25,098
|
|
|
$
|
4,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in net cash provided by operating activities was
primarily due to a larger investment in working capital.
Specifically, cash used to finance movements in working capital
asset and liability accounts was a use of funds in the current
year of $15.6 million versus an increase of funds of
$6.7 million in the prior year. Higher working capital
requirements in 2007 were driven by our restructuring
initiatives and increased sales in the fourth quarter of 2007 to
customers with contractually longer payment terms.
The decrease in net cash used by investing activities was
attributable to the $12.3 million in proceeds from the
divestiture of non-strategic assets, which included two idle
facilities and the Company airplane in 2007. In addition, we
used $7.7 million less cash for capital projects in 2007
compared to the prior period. In 2006, we invested
$2.6 million in our Minda Stoneridge Instruments Limited
joint venture and received cash of $1.2 million from the
sale of our partnership interest in IDA.
Cash provided by financing activities for the years ended
December 31, 2007 and 2006 was primarily related to
proceeds from the exercise of share options, partially offset by
cash used for fees related to the completion of our credit
agreement amendment during the first quarter of 2006 and the
completion of our new asset-based credit facility in the fourth
quarter of 2007. See Note 4 to the Companys
consolidated financial statements for further information
regarding the Companys senior notes and credit facilities.
As discussed in Note 9 to our consolidated financial
statements, we have entered into foreign currency forward
contracts with a notional value of $8.6 million and
$16.1 million at December 31, 2007 and 2006,
respectively. The purpose of these investments is to reduce
exposure related to our British pound-denominated receivables.
The estimated fair value of these contracts at December 31,
2007 and 2006, per quoted market sources, was approximately
$(0.03) million and $(0.5) million, respectively. In
2007 and 2006, the Company used foreign currency option
contracts to reduce the risk of exposures to the Mexican peso.
The Companys foreign currency option contracts were
expired as of December 31, 2007 and 2006, respectively. As
discussed in Note 9, we entered into fixed price swap
contracts for 480 and 420 metric tonnes of copper in December
2006 and January 2007, respectively. These contracts fixed the
cost of copper purchases in 2007 and expired on
December 31, 2007. In December 2007, we entered into
another fixed price swap contract for 1.0 million pounds of
copper, which will last through December 2008. The purpose of
these contracts is to reduce our price risk as it relates to
copper prices. As of December 31, 2007, the fair value of
the fixed price commodity swap contract, per quoted market
sources, was approximately $0.1 million.
23
The following table summarizes our future cash outflows
resulting from financial contracts and commitments, as of
December 31, 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
After
|
|
Contractual Obligations:
|
|
Total
|
|
|
1 Year
|
|
|
2-3 Years
|
|
|
4-5 Years
|
|
|
5 Years
|
|
|
Long-term debt
|
|
$
|
200,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
200,000
|
|
|
$
|
|
|
Operating leases
|
|
|
21,772
|
|
|
|
5,631
|
|
|
|
6,828
|
|
|
|
3,231
|
|
|
|
6,082
|
|
Employee benefit plans
|
|
|
9,546
|
|
|
|
757
|
|
|
|
1,674
|
|
|
|
1,834
|
|
|
|
5,281
|
|
Uncertain income tax benefits(1)
|
|
|
1,008
|
|
|
|
1,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
232,326
|
|
|
$
|
7,396
|
|
|
$
|
8,502
|
|
|
$
|
205,065
|
|
|
$
|
11,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 5 to the accompanying consolidated financial
statements for further information with respect to our uncertain
income tax benefits. |
Future capital expenditures are expected to be consistent with
recent levels. Management will continue to focus on reducing its
weighted average cost of capital and believes that cash flows
from operations and the availability of funds from our credit
facilities will provide sufficient liquidity to meet our future
growth and operating needs.
As outlined in Note 4 to our consolidated financial
statements, on November 2, 2007, we finalized our new
asset-based credit facility, which permits borrowing up to a
maximum level of $100.0 million. This facility provides us
with lower borrowing rates and allows us the flexibility to
refinance our outstanding debt. At December 31, 2007, there
were no borrowings on this asset-based credit facility. The
available borrowing capacity on this credit facility is based on
eligible current assets, as defined. At December 31, 2007,
the Company had borrowing capacity of $73.5 million based
on eligible current assets. The Company was in compliance with
all covenants at December 31, 2007.
As of May 2007, the Companys $200.0 million senior
notes were redeemable at 105.75. Given the Companys senior
notes are redeemable, we may seek to retire the senior notes
through a redemption, cash purchases, open market purchases,
privately negotiated transactions or otherwise. Such
redemptions, purchases or exchanges, if any, will depend on
prevailing market conditions, our liquidity requirements,
contractual restrictions and other factors. The amounts involved
may be material. In 2008, we have purchased and retired
$11.0 million in face value of our senior notes.
In the fourth quarter of 2007, the Company announced that its
PST joint venture filed certain financial information with the
Brazilian Securities Commission (Comissão de Valores
Mobiliários). The Company currently holds a 50% equity
interest in PST. We also received dividend payments from PST of
$5.6 million and $3.7 million in 2007 and 2006,
respectively. In future years, we expect (but cannot guarantee)
that we will receive dividend payments from PST.
We continue our transition to low-cost manufacturing locations
that will enable us to reduce our operating costs and provide
global sourcing capacity to our customers. Such initiatives will
result in restructuring costs stemming from facility closures
and production relocations. We are presently having a new
facility constructed, which will expand our leased manufacturing
capacity in Estonia.
We announced restructuring initiatives in the fourth quarter of
2007 and expect them to be substantially complete by
December 31, 2008. We anticipate incurring total pre-tax
charges of approximately $9.0 million to $13.0 million
in 2008 for the restructuring, net of the gain on the future
sale of our Sarasota facility.
Inflation
and International Presence
Given the current economic climate and recent increases or
fluctuations in certain commodity prices, we believe that a
continuation of such price increases would significantly affect
our profitability. Furthermore, by operating internationally, we
are affected by foreign currency exchange rates and the economic
conditions of certain countries. Based on the current economic
conditions in these countries, we believe we are not
significantly exposed to adverse exchange rate risk or economic
conditions.
24
Critical
Accounting Policies and Estimates
Estimates. The preparation of financial
statements in conformity with U.S. Generally Accepted
Accounting Principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent liabilities at the
date of the consolidated financial statements, and the reported
amounts of revenues and expenses during the reporting period.
On an ongoing basis, we evaluate estimates and assumptions used
in our financial statements. We base our estimates on historical
experience and on various other factors that we believe to be
reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Actual results could differ from these estimates.
We believe the following are critical accounting
policies those most important to the financial
presentation and those that require the most difficult,
subjective or complex judgments.
Revenue Recognition and Sales Commitments. We
recognize revenues from the sale of products, net of actual and
estimated returns of products sold based on authorized returns
and historical trends in sales returns, at the point of passage
of title, which is generally at the time of shipment. We often
enter into agreements with our customers at the beginning of a
given vehicles expected production life. Once such
agreements are entered into, it is our obligation to fulfill the
customers purchasing requirements for the entire
production life of the vehicle. These agreements are subject to
renegotiation, which may affect product pricing. In certain
limited instances, we may be committed under existing agreements
to supply products to our customers at selling prices which are
not sufficient to cover the direct cost to produce such
products. In such situations, we recognize losses immediately.
These agreements generally may also be terminated by our
customers at any time.
On an ongoing basis, we receive blanket purchase orders from our
customers, which include pricing terms. Purchase orders do not
always specify quantities. We recognize revenue based on the
pricing terms included in our purchase orders as our products
are shipped to our customers. We are asked to provide our
customers with annual cost reductions as part of certain
agreements. In addition, we have ongoing adjustments to our
pricing arrangements with our customers based on the related
content, the cost of our products and other commercial factors.
Such pricing adjustments are recognized as they are negotiated
with our customers.
Warranties. Our warranty reserve is
established based on our best estimate of the amounts necessary
to settle future and existing claims on products sold as of the
balance sheet dates. This estimate is based on historical trends
of units sold and payment amounts, combined with our current
understanding of the status of existing claims. To estimate the
warranty reserve, we are required to forecast the resolution of
existing claims as well as expected future claims on products
previously sold. Although we believe that our warranty reserve
is adequate and that the judgment applied is appropriate, such
amounts estimated to be due and payable could differ materially
from what will actually transpire in the future. Our customers
are increasingly seeking to hold suppliers responsible for
product warranties, which could negatively impact our exposure
to these costs.
Allowance for Doubtful Accounts. We have
concentrations of sales and trade receivable balances with a few
key customers. Therefore, it is critical that we evaluate the
collectibility of accounts receivable based on a combination of
factors. In circumstances where we are aware of a specific
customers inability to meet their financial obligations, a
specific allowance for doubtful accounts is recorded against
amounts due to reduce the net recognized receivable to the
amount we reasonably believe will be collected. Additionally, we
review historical trends for collectibility in determining an
estimate for our allowance for doubtful accounts. If economic
circumstances change substantially, estimates of the
recoverability of amounts due to the Company could be reduced by
a material amount. We do not have collateral requirements with
our customers.
Contingencies. We are subject to legal
proceedings and claims, including product liability claims,
commercial or contractual disputes, environmental enforcement
actions and other claims that arise in the normal course of
business. We routinely assess the likelihood of any adverse
judgments or outcomes to these matters, as well as ranges of
probable losses, by consulting with internal personnel
principally involved with such matters and with our outside
legal counsel handling such matters.
25
We have accrued for estimated losses in accordance with
Statement of Financial Accounting Standard (SFAS)
No. 5, Accounting for Contingencies, when it is
probable that a liability or loss has been incurred and the
amount can be reasonably estimated. Contingencies by their
nature relate to uncertainties that require the exercise of
judgment both in assessing whether or not a liability or loss
has been incurred and estimating that amount of probable loss.
The reserves may change in the future due to new developments or
changes in circumstances. The inherent uncertainty related to
the outcome of these matters can result in amounts materially
different from any provisions made with respect to their
resolution.
Inventory Valuation. Inventories are valued at
the lower of cost or market. Cost is determined by the
last-in,
first-out (LIFO) method for U.S. inventories
and by the
first-in,
first-out (FIFO) method for
non-U.S. inventories.
Where appropriate, standard cost systems are utilized for
purposes of determining cost and the standards are adjusted as
necessary to ensure they approximate actual costs. Estimates of
the lower of cost or market value of inventory are determined
based upon current economic conditions, historical sales
quantities and patterns and, in some cases, the specific risk of
loss on specifically identified inventories.
Goodwill. Goodwill is tested for impairment at
least annually and whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. The
valuation methodologies employed by the Company use subjective
measures including forward looking financial information and
discount rates that directly impact the resulting fair values
used to test the Companys business units for impairment.
See Note 2 to our consolidated financial statements for
more information on our application of this accounting standard,
including the valuation techniques used to determine the fair
value of goodwill.
Share-Based Compensation. The estimate for our
share-based compensation expense involves a number of
assumptions. We believe each assumption used in the valuation is
reasonable because it takes into account the experience of the
plan and reasonable expectations. We estimate volatility and
forfeitures based on historical data, future expectations and
the expected term of the share-based compensation awards. The
assumptions, however, involve inherent uncertainties. As a
result, if other assumptions had been used, share-based
compensation expense could have varied.
Pension and Other Postretirement Benefits. The
amounts recognized in the consolidated financial statements
related to pension and other postretirement benefits are
determined from actuarial valuations. Inherent in these
valuations are assumptions including expected return on plan
assets, discount rates at which the liabilities could be settled
at December 31, 2007, rate of increase in future
compensation levels, mortality rates and health care cost trend
rates. These assumptions are updated annually and are disclosed
in Note 8 to the consolidated financial statements.
The expected long-term return on assets is determined as a
weighted average of the expected returns for each asset class
held by the defined-benefit pension plan at the date. The
expected return on bonds has been based on the yield available
on similar bonds (by currency, issuer and duration) at that
date. The expected return on equities is based on an equity risk
premium of return above that available on long-term government
bonds of a similar duration and the same currency as the
liabilities.
Discount rates for our defined benefit pension plan in the
United Kingdom are determined using the average long-term
sterling AA corporate bond. On December 31, 2007, the yield
was approximately 5.8%, with the individual yields on most of
these yields of most of the bonds being within a range of 5.4% -
6.2%.
Discount rates for our other postretirement benefit plan in the
U.S. are determined using the Moodys Aa Corporate
Bond Index. The average equivalent annual rate on a Aa Corporate
bond at December 31, 2007 was 5.9%.
Deferred Income Taxes. Deferred income taxes
are provided for temporary differences between amounts of assets
and liabilities for financial reporting purposes and the basis
of such assets and liabilities as measured by tax laws and
regulations. Our deferred tax assets include, among other items,
net operating loss carryforwards and tax credits that can be
used to offset taxable income in future periods and reduce
income taxes payable in those future periods. Due to the length
of the carryforward period it is unlikely that the deferred tax
assets will expire prior to being utilized. The Company does not
provide deferred income taxes on unremitted earnings of certain
non-U.S. subsidiaries,
which are deemed permanently reinvested.
26
SFAS No. 109, Accounting for Income Taxes,
requires that deferred tax assets be reduced by a valuation
allowance if, based on all available evidence, it is considered
more likely than not that some portion or all of the recorded
deferred tax assets will not be realized in future periods. This
assessment requires significant judgment, and in making this
evaluation, the Company considers available positive and
negative evidence, including past results, the existence of
cumulative losses in recent periods, and our forecast of taxable
income for the current year and future years. A valuation
allowance may need to be recorded against U.S. deferred tax
assets in the event that future U.S. taxable income is
materially different than estimated amounts. The primary risk
factor is a more than expected severe downturn in the
U.S. automotive and commercial vehicle segments of which
the Company has significant U.S. operations.
Effective January 1, 2007, we adopted the provisions of
Financial Accounting Standards Board (FASB)
interpretation No. 48, Accounting for Uncertainty in
Income Taxes An Interpretation of FASB Statement
No. 109 (FIN 48). FIN 48 contains
a two-step approach to recognizing and measuring uncertain tax
positions accounted for in accordance with
SFAS No. 109. The first step is to evaluate the tax
position for recognition by determining if the weight of
available evidence indicates it is more likely than not that the
position will be sustained on audit, including resolution of
related appeals or litigation processes, if any. The second step
is to measure the tax benefit as the largest amount which is
more than 50% likely of being realized upon ultimate settlement.
We consider many factors when evaluating and estimating our tax
positions and tax benefits, which may require periodic
adjustments and which may not accurately anticipate actual
outcomes.
Restructuring. We have recorded restructuring
charges in the recent period in connection with improving
manufacturing efficiency and cost position by transferring
production to other locations. These charges are recorded when
management has committed to a plan and incurred a liability
related to the plan. Also in connection with this initiative, we
recorded liabilities for severance costs. No fixed-asset
impairment charges were incurred because assets are primarily
being transferred to our other locations for continued
production. Estimates for work force reductions and other costs
savings are recorded based upon estimates of the number of
positions to be terminated, termination benefits to be provided
and other information as necessary. Management evaluates the
estimates on a quarterly basis and will adjust the reserve when
information indicates that the estimate is above or below the
initial estimate.
For further discussion of our restructuring activities, see
Note 12 to our consolidated financial statements included
in this report.
Recently
Issued Accounting Standards
New accounting standards to be implemented:
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS 157),
which provides a definition of fair value, establishes a
framework for measuring fair value and requires expanded
disclosures about fair value measurements. SFAS 157 is
effective for financial statements issued for fiscal years
beginning after November 15, 2007 and interim periods
within those years. The provisions of SFAS 157 will be
applied prospectively. Subsequently, the FASB provide for a
one-year deferral of the effective date for nonfinancial assets
and liabilities that are recognized or disclosed at fair value
on a nonrecurring basis. The adoption of SFAS 157 did not
have a significant impact on the Companys financial
position, results of operations or cash flows.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations (SFAS 141(R)).
This standard improves reporting by creating greater consistency
in the accounting and financial reporting of business
combinations. Additionally, SFAS 141(R) requires the
acquiring entity in a business combination to recognize all (and
only) the assets acquired and liabilities assumed in the
transaction; establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities
assumed; and requires the acquirer to disclose to investors and
other users all of the information they need to evaluate and
understand the nature and financial effect of the business
combination. SFAS 141(R) is effective for financial
statements issued for fiscal years beginning after
December 15, 2008. Early adoption of this standard is
prohibited. In the absence of any planned future business
combinations, management does not currently expect
SFAS 141(R) to have a material impact on the Companys
financial condition or results of operations.
27
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statements
(SFAS 160). This standard improves the
relevance, comparability and transparency of financial
information provided to investors by requiring all entities to
report noncontrolling (minority) interests in subsidiaries in
the same way. Additionally, SFAS 160 eliminates the
diversity that currently exists in accounting for transactions
between an entity and noncontrolling interests by requiring they
be treated as equity transactions. SFAS 160 is effective
for financial statements issued for fiscal years beginning after
December 15, 2008. Early adoption of this standard is
prohibited. In the absence of any noncontrolling (minority)
interests, management does not currently expect SFAS 160 to
have a material impact on the Companys financial condition
or results of operations.
New accounting standards implemented:
In June 2006, the FASB issued FIN 48. FIN 48 clarifies
the accounting for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with
SFAS No. 109, Accounting for Income Taxes. This
interpretation prescribes a recognition threshold and
measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken
in a tax return. This interpretation also provides guidance on
derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. We
adopted the provisions of FIN 48 as of the January 1,
2007. The adoption of FIN 48 did not have a material impact
on the Companys financial statements.
In September 2006, the Securities and Exchange Commission
(SEC) issued Staff Accounting Bulletin
(SAB) No. 108, Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements
(SAB 108), which expresses the SECs
views regarding the process of quantifying financial statement
misstatements. Registrants are required to quantify the impact
of correcting all misstatements, including both the carryover
and reversing effects of prior year misstatements, on the
current year financial statements. The financial statements
would require adjustment when either approach results in
quantifying a misstatement that is material, after considering
all relevant quantitative and qualitative factors. SAB 108
was effective for the first quarter of 2007. The adoption of
SAB 108 did not have an impact on our consolidated
financial statements.
In May 2007, the FASB issued FASB Staff Position
(FSP), Definition of Settlement in FASB
Interpretation No. 48 (FSP
FIN 48-1).
FSP
FIN 48-1
provides guidance on determining whether a tax position is
effectively settled for the purpose of recognizing previously
unrecognized tax benefits. FSP
FIN 48-1
is effective retroactively to January 1, 2007. The
implementation of this standard did not have a material impact
on the Companys consolidated financial position or results
of operations.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities Including an Amendment of FASB Statement
No. 115 (SFAS 159). SFAS 159
permits entities to choose, at specified election dates, to
measure eligible items at fair value (the Fair Value
Option). Unrealized gains and losses on items for which
the Fair Value Option has been elected are reported in earnings.
The Fair Value Option is applied instrument by instrument (with
certain exceptions), is irrevocable (unless a new election date
occurs) and is applied only to an entire instrument. The effect
of the first remeasurement to fair value is reported as a
cumulative-effect adjustment to the opening balance of retained
earnings. SFAS 159 is effective for the first quarter of
2008. We did not elect to use the Fair Value Option for any
financial assets and financial liabilities that were not
currently recorded at fair value.
28
Forward-Looking
Statements
Portions of this report contain forward-looking
statements under the Private Securities Litigation Reform
Act of 1995. These statements appear in a number of places in
this report and include statements regarding the intent, belief
or current expectations of the Company, our directors or
officers with respect to, among other things, our
(i) future product and facility expansion,
(ii) acquisition strategy, (iii) investments and new
product development, and (iv) growth opportunities related
to awarded business. Forward-looking statements may be
identified by the words will, may,
designed to, believes,
plans, expects, continue,
and similar words and expressions. The forward-looking
statements in this report are subject to risks and uncertainties
that could cause actual events or results to differ materially
from those expressed in or implied by the statements. Important
factors that could cause actual results to differ materially
from those in the forward-looking statements include, among
other factors:
|
|
|
|
|
the loss or bankruptcy of a major customer;
|
|
|
|
the costs and timing of facility closures, business realignment,
or similar actions;
|
|
|
|
a significant change in automotive, medium- and heavy-duty or
agricultural and off-highway vehicle production;
|
|
|
|
our ability to achieve cost reductions that offset or exceed
customer-mandated selling price reductions;
|
|
|
|
a significant change in general economic conditions in any of
the various countries in which we operate;
|
|
|
|
labor disruptions at our facilities or at any of our significant
customers or suppliers;
|
|
|
|
the ability of our suppliers to supply us with parts and
components at competitive prices on a timely basis;
|
|
|
|
the amount of debt and the restrictive covenants contained in
our credit facility;
|
|
|
|
customer acceptance of new products;
|
|
|
|
capital availability or costs, including changes in interest
rates or market perceptions;
|
|
|
|
the successful integration of any acquired businesses;
|
|
|
|
the occurrence or non-occurrence of circumstances beyond our
control; and
|
|
|
|
those items described in Part I, Item IA (Risk
Factors).
|
29
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|
Interest
Rate Risk
From time to time, we are exposed to certain market risks,
primarily resulting from the effects of changes in interest
rates. At December 31, 2007, however, all of our debt was
fixed rate debt. At this time, we do not use financial
instruments to manage this risk.
Commodity
Price Risk
Given the current economic climate and the recent increases in
certain commodity costs, we currently are experiencing an
increased risk, particularly with respect to the purchase of
copper, zinc, resins and certain other commodities. We manage
this risk through a combination of fixed price agreements,
staggered short-term contract maturities and commercial
negotiations with our suppliers. We may also consider pursuing
alternative commodities or alternative suppliers to mitigate
this risk over a period of time. The recent increases in certain
commodity costs have negatively affected our operating results,
and a continuation of such price increases could significantly
affect our profitability.
We entered into fixed price swap contracts for 480 and 420
metric tonnes of copper in December 2006 and January 2007,
respectively. These contracts fixed the cost of copper purchases
in 2007 and expired on December 31, 2007. In December 2007,
we entered into another fixed price swap contract for
1.0 million pounds of copper, which will last through
December 2008. The purpose of these contracts is to reduce our
price risk as it relates to copper prices.
Going forward, we believe that our mitigation efforts will
offset a substantial portion of the financial impact of these
increased costs. However, no assurances can be given that the
magnitude or duration of these increased costs will not have a
material impact on our future operating results. A hypothetical
pre-tax gain or loss in fair value from a 10.0% favorable or
adverse change in commodity prices would not significantly
affect our results of operations, financial position or cash
flows.
Foreign
Currency Exchange Risk
Our risks related to foreign currency exchange rates have
historically not been material; however, given the current
economic climate, we are more closely monitoring this risk. We
use derivative financial instruments, including foreign currency
forward and option contracts, to mitigate our exposure to
fluctuations in foreign currency exchange rates by reducing the
effect of such fluctuations on foreign currency denominated
intercompany transactions and other foreign currency exposures.
As discussed in Note 9 to our consolidated financial
statements, we have entered into foreign currency forward
contracts that had a notional value of $8.6 million and
$16.1 million at December 31, 2007 and 2006,
respectively. The purpose of these investments is to reduce
exposure related to the Companys British pound-
denominated receivables. The estimated fair value of these
contracts at December 31, 2007 and 2006, per quoted market
sources, was approximately $(0.03) million and
$(0.5) million, respectively. The Companys foreign
currency option contracts expired as of December 31, 2007.
We do not expect the effects of this risk to be material in the
future based on the current operating and economic conditions in
the countries in which we operate.
A hypothetical pre-tax gain (loss) in fair value from a 10.0%
favorable or adverse change in quoted currency exchange rates
would be approximately $0.8 million or $(0.9) million
as of December 31, 2007. For foreign currency contracts
outstanding at December 31, 2006, a hypothetical pre-tax
gain (loss) in fair value from a 10.0% favorable or adverse
change in quoted currency exchange rates would be approximately
$1.5 million or $(1.8) million as of December 31,
2006. It is important to note that gains and losses indicated in
the sensitivity analysis would generally be offset by gains and
losses on the underlying exposures being hedged. Therefore, a
hypothetical pre-tax gain or loss in fair value from a 10.0%
favorable or adverse change in quoted foreign currencies would
not significantly affect our results of operations, financial
position or cash flows.
30
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
|
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
|
|
|
|
|
|
|
Page
|
|
|
Consolidated Financial Statements:
|
|
|
|
|
|
|
|
32
|
|
|
|
|
33
|
|
|
|
|
34
|
|
|
|
|
35
|
|
|
|
|
36
|
|
|
|
|
37
|
|
Financial Statement Schedule:
|
|
|
|
|
|
|
|
70
|
|
31
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Stoneridge, Inc.
We have audited the accompanying consolidated balance sheets of
Stoneridge, Inc. and Subsidiaries as of December 31, 2007
and 2006 and the related consolidated statements of operations,
shareholders equity, and cash flows for each of the three
years in the period ended December 31, 2007. Our audit also
included the financial statement schedule listed in the Index at
Item 15. These financial statements and schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Stoneridge, Inc. and
Subsidiaries at December 31, 2007 and 2006 and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2007, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
As discussed in Note 2 to the consolidated financial
statements, effective at the beginning of the second quarter of
2005, the Company adopted FASB Statement No. 123 (revised
2004), Share-Based Payment (FAS123(R)) using the
modified-prospective-transition method. As discussed in
Note 5 to the consolidated financial statements, effective
January 1, 2007, the Company adopted FIN 48,
Accounting for Uncertainty in Income Taxes, an interpretation of
FASB Statement No. 109.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Stoneridge, Inc. and Subsidiaries internal control over
financial reporting as of December 31, 2007, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated March 17, 2008
expressed an unqualified opinion thereon.
Cleveland, Ohio
March 17, 2008
32
STONERIDGE,
INC. AND SUBSIDIARIES
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
95,924
|
|
|
$
|
65,882
|
|
Accounts receivable, less reserves of $4,736 and $5,243,
respectively
|
|
|
122,288
|
|
|
|
106,985
|
|
Inventories, net
|
|
|
57,392
|
|
|
|
58,521
|
|
Prepaid expenses and other
|
|
|
15,926
|
|
|
|
13,448
|
|
Deferred income taxes
|
|
|
9,829
|
|
|
|
9,196
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
301,359
|
|
|
|
254,032
|
|
|
|
|
|
|
|
|
|
|
Long-Term Assets:
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
92,752
|
|
|
|
114,586
|
|
Other Assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
65,176
|
|
|
|
65,176
|
|
Investments and other, net
|
|
|
39,454
|
|
|
|
30,875
|
|
Deferred income taxes
|
|
|
29,028
|
|
|
|
37,138
|
|
|
|
|
|
|
|
|
|
|
Total long-term assets
|
|
|
226,410
|
|
|
|
247,775
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
527,769
|
|
|
$
|
501,807
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
69,373
|
|
|
$
|
72,493
|
|
Accrued expenses and other
|
|
|
47,198
|
|
|
|
45,624
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
116,571
|
|
|
|
118,117
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities:
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
200,000
|
|
|
|
200,000
|
|
Deferred income taxes
|
|
|
2,665
|
|
|
|
1,923
|
|
Other liabilities
|
|
|
2,344
|
|
|
|
3,145
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
205,009
|
|
|
|
205,068
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity:
|
|
|
|
|
|
|
|
|
Preferred Shares, without par value, authorized
5,000 shares, none issued
|
|
|
|
|
|
|
|
|
Common Shares, without par value, authorized 60,000 shares,
issued 24,601 and 23,990 shares and outstanding 24,209 and
23,804 shares, respectively, with no stated value
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
154,173
|
|
|
|
150,078
|
|
Common Shares held in treasury, 392 and 186 shares,
respectively, at cost
|
|
|
(383
|
)
|
|
|
(151
|
)
|
Retained earnings
|
|
|
38,372
|
|
|
|
21,701
|
|
Accumulated other comprehensive income
|
|
|
14,027
|
|
|
|
6,994
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
206,189
|
|
|
|
178,622
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity
|
|
$
|
527,769
|
|
|
$
|
501,807
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
33
STONERIDGE,
INC. AND SUBSIDIARIES
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net Sales
|
|
$
|
727,120
|
|
|
$
|
708,699
|
|
|
$
|
671,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
559,397
|
|
|
|
549,793
|
|
|
|
522,996
|
|
Selling, general and administrative
|
|
|
133,614
|
|
|
|
124,302
|
|
|
|
116,836
|
|
Provision for doubtful accounts
|
|
|
94
|
|
|
|
236
|
|
|
|
3,711
|
|
Gain on sale of property, plant and equipment, net
|
|
|
(1,710
|
)
|
|
|
(1,303
|
)
|
|
|
(360
|
)
|
Restructuring charges
|
|
|
926
|
|
|
|
608
|
|
|
|
5,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
34,799
|
|
|
|
35,063
|
|
|
|
23,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
21,759
|
|
|
|
21,744
|
|
|
|
23,872
|
|
Equity in earnings of investees
|
|
|
(10,893
|
)
|
|
|
(7,125
|
)
|
|
|
(4,052
|
)
|
Other (income) loss, net
|
|
|
709
|
|
|
|
805
|
|
|
|
(953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
23,224
|
|
|
|
19,639
|
|
|
|
4,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
6,553
|
|
|
|
5,126
|
|
|
|
3,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
16,671
|
|
|
$
|
14,513
|
|
|
$
|
933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.72
|
|
|
$
|
0.63
|
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
23,133
|
|
|
|
22,866
|
|
|
|
22,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
0.71
|
|
|
$
|
0.63
|
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
23,548
|
|
|
|
23,062
|
|
|
|
22,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
34
STONERIDGE,
INC. AND SUBSIDIARIES
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
16,671
|
|
|
$
|
14,513
|
|
|
$
|
933
|
|
Adjustments to reconcile net income to net cash provided (used)
by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
28,299
|
|
|
|
25,904
|
|
|
|
25,861
|
|
Amortization
|
|
|
1,522
|
|
|
|
1,657
|
|
|
|
1,560
|
|
Deferred income taxes
|
|
|
3,823
|
|
|
|
3,466
|
|
|
|
815
|
|
Earnings of equity method investees, less dividends received
|
|
|
(5,299
|
)
|
|
|
(3,455
|
)
|
|
|
(1,894
|
)
|
Gain on sale of fixed assets
|
|
|
(1,710
|
)
|
|
|
(1,303
|
)
|
|
|
(360
|
)
|
Gain on sale of partnership interest
|
|
|
|
|
|
|
(1,627
|
)
|
|
|
|
|
Share-based compensation expense
|
|
|
2,431
|
|
|
|
1,953
|
|
|
|
1,695
|
|
Postretirement benefit settlement gain
|
|
|
|
|
|
|
(1,242
|
)
|
|
|
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(13,424
|
)
|
|
|
(2,739
|
)
|
|
|
(3,516
|
)
|
Inventories, net
|
|
|
933
|
|
|
|
(2,350
|
)
|
|
|
517
|
|
Prepaid expenses and other
|
|
|
1,563
|
|
|
|
1,742
|
|
|
|
(3,744
|
)
|
Other assets
|
|
|
(89
|
)
|
|
|
2,228
|
|
|
|
(1,762
|
)
|
Accounts payable
|
|
|
(4,881
|
)
|
|
|
14,084
|
|
|
|
505
|
|
Accrued expenses and other
|
|
|
3,686
|
|
|
|
(6,291
|
)
|
|
|
(1,549
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
33,525
|
|
|
|
46,540
|
|
|
|
19,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(18,141
|
)
|
|
|
(25,895
|
)
|
|
|
(28,934
|
)
|
Proceeds from sale of fixed assets
|
|
|
12,315
|
|
|
|
2,266
|
|
|
|
1,664
|
|
Proceeds from sale of partnership interest
|
|
|
|
|
|
|
1,153
|
|
|
|
|
|
Business acquisitions and other
|
|
|
|
|
|
|
(2,133
|
)
|
|
|
(282
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(5,826
|
)
|
|
|
(24,609
|
)
|
|
|
(27,552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt
|
|
|
|
|
|
|
(44
|
)
|
|
|
(118
|
)
|
Share-based compensation activity
|
|
|
2,119
|
|
|
|
301
|
|
|
|
1
|
|
Other financing costs
|
|
|
(1,219
|
)
|
|
|
(150
|
)
|
|
|
(241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
|
|
|
900
|
|
|
|
107
|
|
|
|
(358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
1,443
|
|
|
|
3,060
|
|
|
|
(2,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
30,042
|
|
|
|
25,098
|
|
|
|
(11,548
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
65,882
|
|
|
|
40,784
|
|
|
|
52,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
95,924
|
|
|
$
|
65,882
|
|
|
$
|
40,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net
|
|
$
|
20,637
|
|
|
$
|
20,565
|
|
|
$
|
22,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes, net
|
|
$
|
3,672
|
|
|
$
|
2,394
|
|
|
$
|
4,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
35
STONERIDGE,
INC. AND SUBSIDIARIES
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Additional
|
|
|
Shares
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
Common
|
|
|
Treasury
|
|
|
Paid-In
|
|
|
Held
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Shareholders
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Shares
|
|
|
Capital
|
|
|
in Treasury
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
Income (Loss)
|
|
|
BALANCE, DECEMBER 31, 2004
|
|
|
22,780
|
|
|
|
8
|
|
|
$
|
145,764
|
|
|
$
|
|
|
|
$
|
6,255
|
|
|
$
|
3,586
|
|
|
$
|
155,605
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
933
|
|
|
|
|
|
|
|
933
|
|
|
$
|
933
|
|
Exercise of share options
|
|
|
10
|
|
|
|
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
|
|
|
|
Issuance of restricted Common Shares
|
|
|
434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited restricted Common Shares
|
|
|
(39
|
)
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchased Common Shares for treasury
|
|
|
(7
|
)
|
|
|
7
|
|
|
|
|
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
|
(65
|
)
|
|
|
|
|
Share-based compensation matters
|
|
|
|
|
|
|
|
|
|
|
1,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,628
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
396
|
|
|
|
396
|
|
|
|
396
|
|
Unrealized loss on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
|
|
|
|
89
|
|
|
|
89
|
|
Currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,643
|
)
|
|
|
(4,643
|
)
|
|
|
(4,643
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 2005
|
|
|
23,178
|
|
|
|
54
|
|
|
|
147,440
|
|
|
|
(65
|
)
|
|
|
7,188
|
|
|
|
(572
|
)
|
|
|
153,991
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,513
|
|
|
|
|
|
|
|
14,513
|
|
|
$
|
14,513
|
|
Exercise of share options
|
|
|
64
|
|
|
|
|
|
|
|
393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
393
|
|
|
|
|
|
Issuance of restricted Common Shares
|
|
|
694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited restricted Common Shares
|
|
|
(118
|
)
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchased Common Shares for treasury
|
|
|
(14
|
)
|
|
|
14
|
|
|
|
|
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
(86
|
)
|
|
|
|
|
Share-based compensation matters
|
|
|
|
|
|
|
|
|
|
|
2,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,245
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,625
|
|
|
|
1,625
|
|
|
|
1,625
|
|
Cumulative effect of adopting SFAS No. 158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84
|
)
|
|
|
(84
|
)
|
|
|
(84
|
)
|
Currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,025
|
|
|
|
6,025
|
|
|
|
6,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 2006
|
|
|
23,804
|
|
|
|
186
|
|
|
|
150,078
|
|
|
|
(151
|
)
|
|
|
21,701
|
|
|
|
6,994
|
|
|
|
178,622
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,671
|
|
|
|
|
|
|
|
16,671
|
|
|
$
|
16,671
|
|
Exercise of share options
|
|
|
164
|
|
|
|
|
|
|
|
1,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,552
|
|
|
|
|
|
Issuance of restricted Common Shares
|
|
|
447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited restricted Common Shares
|
|
|
(181
|
)
|
|
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchased Common Shares for treasury
|
|
|
(25
|
)
|
|
|
25
|
|
|
|
|
|
|
|
(232
|
)
|
|
|
|
|
|
|
|
|
|
|
(232
|
)
|
|
|
|
|
Share-based compensation matters
|
|
|
|
|
|
|
|
|
|
|
2,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,543
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension liability adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
983
|
|
|
|
983
|
|
|
|
983
|
|
Unrealized loss on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
44
|
|
|
|
44
|
|
Unrealized gain on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37
|
)
|
|
|
(37
|
)
|
|
|
(37
|
)
|
Currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,043
|
|
|
|
6,043
|
|
|
|
6,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 2007
|
|
|
24,209
|
|
|
|
392
|
|
|
$
|
154,173
|
|
|
$
|
(383
|
)
|
|
$
|
38,372
|
|
|
$
|
14,027
|
|
|
$
|
206,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
36
|
|
1.
|
Organization
and Nature of Business
|
Stoneridge, Inc. and its subsidiaries are independent designers
and manufacturers of highly engineered electrical and electronic
components, modules and systems for the automotive, medium- and
heavy-duty truck, agricultural and off-highway vehicle markets.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Basis
of Presentation
The accompanying consolidated financial statements include the
accounts of Stoneridge, Inc. and its wholly-owned and
majority-owned subsidiaries (collectively, the
Company). Intercompany transactions and balances
have been eliminated in consolidation. Joint ventures in which
the Company does not have control, but does have the ability to
exercise influence over operating and principal policies are
accounted for under the equity method (Note 3).
Beginning in 2005, we changed from a calendar year-end to a
52-53 week
fiscal year-end. Since then, our fiscal quarters were comprised
of 13-week periods. On October 30, 2006, we changed back to
a calendar (December 31) fiscal year end, and therefore the
2007 and 2006 fiscal years ended on December 31, 2007 and
December 31, 2006, respectively. Our fiscal quarters are
now comprised of three month periods.
Cash
and Cash Equivalents
The Company considers all short-term investments with original
maturities of three months or less to be cash equivalents. Cash
equivalents are stated at cost, which approximates fair value,
due to the highly liquid nature and short-term duration of the
underlying securities.
Accounts
Receivable and Concentration of Credit Risk
Revenues are principally generated from the automotive, medium-
and heavy-duty truck, agricultural and off-highway vehicle
markets. Due to the nature of these industries, a significant
portion of sales and related accounts receivable are
concentrated in a relatively small number of customers. The
following table presents the Companys principal customers,
as a percentage of net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Navistar International
|
|
|
20
|
%
|
|
|
25
|
%
|
|
|
22
|
%
|
Ford Motor Company
|
|
|
8
|
|
|
|
6
|
|
|
|
7
|
|
Deere & Company
|
|
|
7
|
|
|
|
6
|
|
|
|
6
|
|
MAN AG
|
|
|
6
|
|
|
|
6
|
|
|
|
2
|
|
General Motors
|
|
|
6
|
|
|
|
5
|
|
|
|
5
|
|
Chrysler LLC
|
|
|
5
|
|
|
|
5
|
|
|
|
9
|
|
Other
|
|
|
48
|
|
|
|
47
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable from the Companys five largest
customer balances aggregated to approximately $63,932, $57,376
and $50,507 at December 31, 2007, 2006 and 2005,
respectively.
During 2007, 2006 and 2005, some of the Companys customers
filed for Chapter 11 bankruptcy protection. As a result,
the Company established reserves for estimated losses that were
expected to result from the bankruptcies
37
STONERIDGE,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(in
thousands, except share and per share data, unless otherwise
indicated)
of approximately $132, $627 and $3,570 for the fiscal years
ended December 31, 2007, 2006 and 2005, respectively. The
expenses related to the established reserves for estimated
losses expected to result from the bankruptcies were recorded in
the Companys consolidated statement of operations as a
component of provision for doubtful accounts.
Inventories
Inventories are valued at the lower of cost or market. Cost is
determined by the
last-in,
first-out (LIFO) method for approximately 66% of the
Companys inventories at December 31, 2007 and 2006,
respectively, and by the
first-in,
first-out (FIFO) method for all other inventories.
Inventory cost includes material, labor and overhead.
Inventories consist of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Raw materials
|
|
$
|
36,678
|
|
|
$
|
39,832
|
|
Work in progress
|
|
|
9,065
|
|
|
|
8,196
|
|
Finished goods
|
|
|
13,700
|
|
|
|
12,614
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
|
59,443
|
|
|
|
60,642
|
|
Less: LIFO reserve
|
|
|
(2,051
|
)
|
|
|
(2,121
|
)
|
|
|
|
|
|
|
|
|
|
Inventories, net
|
|
$
|
57,392
|
|
|
$
|
58,521
|
|
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment
Property, plant and equipment are recorded at cost and consist
of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Land and land improvements
|
|
$
|
3,956
|
|
|
$
|
4,654
|
|
Buildings and improvements
|
|
|
35,869
|
|
|
|
44,526
|
|
Machinery and equipment
|
|
|
132,501
|
|
|
|
130,323
|
|
Office furniture and fixtures
|
|
|
31,394
|
|
|
|
36,103
|
|
Tooling
|
|
|
81,976
|
|
|
|
80,579
|
|
Vehicles
|
|
|
403
|
|
|
|
470
|
|
Leasehold improvements
|
|
|
2,981
|
|
|
|
2,190
|
|
Construction in progress
|
|
|
10,909
|
|
|
|
18,835
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment
|
|
|
299,989
|
|
|
|
317,680
|
|
Less: Accumulated depreciation
|
|
|
(207,237
|
)
|
|
|
(203,094
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
92,752
|
|
|
$
|
114,586
|
|
|
|
|
|
|
|
|
|
|
38
STONERIDGE,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(in
thousands, except share and per share data, unless otherwise
indicated)
Depreciation is provided by both the straight-line and
accelerated methods over the estimated useful lives of the
assets. Depreciation expense for the fiscal years ended
December 31, 2007, 2006 and 2005 was $28,299, $25,904 and
$25,861, respectively. Depreciable lives within each property
classification are as follows:
|
|
|
|
|
Buildings and improvements
|
|
|
1040 years
|
|
Machinery and equipment
|
|
|
320 years
|
|
Office furniture and fixtures
|
|
|
310 years
|
|
Tooling
|
|
|
25 years
|
|
Vehicles
|
|
|
35 years
|
|
Leasehold improvements
|
|
|
38 years
|
|
Maintenance and repair expenditures that are not considered
improvements and do not extend the useful life of property are
charged to expense as incurred. Expenditures for improvements
and major renewals are capitalized. When assets are retired or
otherwise disposed of, the related cost and accumulated
depreciation are removed from the accounts, and any gain or loss
on the disposition is credited or charged to income.
Goodwill
and Other Intangible Assets
Under Statement of Financial Accounting Standard
(SFAS) No. 142, Goodwill and Other
Intangible Assets (SFAS 142), goodwill is
subject to an annual assessment for impairment (or more
frequently if impairment indicators arise) by applying a fair
value-based test.
The Company performs its annual impairment test of goodwill as
of the beginning of the fourth quarter. The Company uses a
combination of valuation techniques, which include consideration
of market-based approaches and an income approach, in
determining the fair value of the Companys applicable
reporting units in the annual impairment test of goodwill. The
Company believes that the combination of the valuation models
provides a more appropriate valuation of the Companys
reporting units by taking into account different marketplace
participant assumptions. The Company, in its estimates of fair
value of the Companys reporting units being tested,
utilizes market and income approaches, specifically: the
guideline company method (market), the transaction method
(market), and the discounted cash flow method (income). An equal
weight is given to each of these three methods. In addition, all
three methods utilize market data in the derivation of a value
estimate and are forward-looking in nature. The guideline
assessment of future performance and the discounted cash flow
method utilize a market-derived rate of return to discount
anticipated performance.
These methodologies are applied to the reporting units
historical and projected financial performance. The impairment
review is highly judgmental and involves the use of significant
estimates and assumptions. These estimates and assumptions have
a significant impact on the amount of any impairment charge
recorded. Discounted cash flow methods are dependent upon
assumption of future sales trends, market conditions and cash
flows of each reporting unit over several years. Actual cash
flows in the future may differ significantly from those
previously forecasted. Other significant assumptions include
growth rates and the discount rate applicable to future cash
flows.
As of the beginning of the fourth quarter, the goodwill balance
of $65.2 million was related entirely to the Control
Devices reportable segment. The Company completed its assessment
of any potential goodwill impairment as of October 1, 2007
and October 1, 2006 and determined that no impairment
existed as of either date.
The net carrying amount of the Companys patents at
December 31, 2007 and 2006 was $203 and $407, respectively,
and was included in the Companys consolidated balance
sheets as a component of other assets. Aggregate amortization
expense on patents was $204 and $270 for the fiscal years ended
December 31, 2007 and December 31, 2006, respectively.
Estimated amortization expense for the fiscal year ended
December 31, 2008 based upon the Companys intangible
asset portfolio at December 31, 2007 is $203.
39
STONERIDGE,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(in
thousands, except share and per share data, unless otherwise
indicated)
Accrued
Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the
following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Compensation-related obligations
|
|
$
|
19,053
|
|
|
$
|
15,128
|
|
Insurance-related obligations
|
|
|
4,084
|
|
|
|
4,178
|
|
Warranty-and
recall-related obligations
|
|
|
5,306
|
|
|
|
5,825
|
|
Other(1)
|
|
|
18,755
|
|
|
|
20,493
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses and other current liabilities
|
|
$
|
47,198
|
|
|
$
|
45,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other is comprised of miscellaneous accruals; none
of which contributed a significant portion of the total. |
Income
Taxes
The Company accounts for income taxes using the provisions of
SFAS No. 109, Accounting for Income Taxes.
Deferred income taxes reflect the expected tax consequences on
future years of differences between the tax basis of assets and
liabilities and their financial reporting amounts. Future tax
benefits are recognized to the extent that realization of such
benefits is more likely than not to occur.
Currency
Translation
The financial statements of foreign subsidiaries, where the
local currency is the functional currency, are translated into
U.S. dollars using exchange rates in effect at the period
end for assets and liabilities and average exchange rates during
each reporting period for the results of operations. Adjustments
resulting from translation of financial statements are reflected
as a component of accumulated other comprehensive income.
Foreign currency transactions are remeasured into the functional
currency using translation rates in effect at the time of the
transaction, with the resulting adjustments included in the
results of operations.
Revenue
Recognition and Sales Commitments
The Company recognizes revenues from the sale of products, net
of actual and estimated returns, at the point of passage of
title, which is generally at the time of shipment. Actual and
estimated returns are based on authorized returns and historical
trends of sales returns. The Company often enters into
agreements with its customers at the beginning of a given
vehicles expected production life. Once such agreements
are entered into, it is the Companys obligation to fulfill
the customers purchasing requirements for the entire
production life of the vehicle. These agreements are subject to
renegotiation, which may affect product pricing.
Allowance
for Doubtful Accounts
The Company evaluates the collectibility of accounts receivable
based on a combination of factors. In circumstances where the
Company is aware of a specific customers inability to meet
its financial obligations, a specific allowance for doubtful
accounts is recorded against amounts due to reduce the net
recognized receivable to the amount the Company reasonably
believes will be collected. Additionally, the Company reviews
historical trends for collectibility in determining an estimate
for its allowance for doubtful accounts. If economic
circumstances change substantially, estimates of the
recoverability of amounts due to the Company could be reduced by
a material amount. The Company does not have collateral
requirements with its customers.
40
STONERIDGE,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(in
thousands, except share and per share data, unless otherwise
indicated)
Product
Warranty and Recall Reserves
Amounts accrued for product warranty and recall claims are
established based on the Companys best estimate of the
amounts necessary to settle future and existing claims on
products sold as of the balance sheet dates. These accruals are
based on several factors including past experience, production
changes, industry developments and various other considerations.
The Company can provide no assurances that it will not
experience material claims in the future or that it will not
incur significant costs to defend or settle such claims beyond
the amounts accrued or beyond what the Company may recover from
its suppliers.
The following provides a reconciliation of changes in product
warranty and recall liability for the fiscal years ended
December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Product warranty and recall at beginning of period
|
|
$
|
5,825
|
|
|
$
|
6,220
|
|
Accruals for products shipped during period
|
|
|
2,689
|
|
|
|
3,695
|
|
Aggregate changes in pre-existing liabilities due to claims
developments
|
|
|
1,756
|
|
|
|
31
|
|
Settlements made during the period (in cash or in kind)
|
|
|
(4,964
|
)
|
|
|
(4,121
|
)
|
|
|
|
|
|
|
|
|
|
Product warranty and recall at end of period
|
|
$
|
5,306
|
|
|
$
|
5,825
|
|
|
|
|
|
|
|
|
|
|
Product
Development Expenses
Expenses associated with the development of new products and
changes to existing products are charged to expense as incurred.
These costs amounted to $44,203, $40,840 and $39,193 in fiscal
years 2007, 2006 and 2005, respectively or 6.1%, 5.8% and 5.8%
of net sales for these periods.
Share-Based
Compensation
At December 31, 2007, the Company had three types of
share-based compensation plans: (1) Long-Term Incentive
Plan (the Incentive Plan), (2) Directors
Share Option Plan and (3) the Directors Restricted
Shares Plan. One plan is for employees and two plans are for
non-employee directors. The Incentive Plan is made up of the
Long-Term Incentive Plan that was approved by the Companys
shareholders on September 30, 1997 and expired on
June 30, 2007 and the Amended and Restated Long-Term
Incentive Plan that was approved by the Companys
shareholders on April 24, 2006 and expires on
April 24, 2016. Prior to the second quarter of 2005, the
Company accounted for its plans under the fair value recognition
provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, (SFAS 123)
adopted prospectively for all employee and director awards
granted, modified or settled after January 1, 2003, under
the provisions of SFAS No. 148, Accounting for
Stock-Based Compensation Transition and
Disclosure an amendment of SFAS 123.
Effective at the beginning of the second quarter of 2005, the
Company adopted SFAS No. 123(R), Share-Based
Payment, (SFAS 123(R)) using the
modified-prospective-transition method. Because the Company had
previously adopted the fair value recognition provisions
required by SFAS 123, and due to the fact that all unvested
awards at the time of adoption were being recognized under a
fair value approach, the adoption of SFAS 123(R) did not
significantly impact the Companys operating income, income
before income taxes, net income, cash flow from operating
activities, cash flow from financing activities, or basic and
diluted net income per share for the fiscal years ended
December 31, 2007, 2006 and 2005.
Total compensation expense recognized in the consolidated
statements of operations for share-based compensation
arrangements was $2,431, $1,953 and $1,695 for the fiscal years
ended December 31, 2007, 2006 and 2005, respectively. The
total income tax benefit recognized in the consolidated
statements of operations for share-based
41
STONERIDGE,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(in
thousands, except share and per share data, unless otherwise
indicated)
compensation arrangements was $851, $355 and $593 for the fiscal
years ended December 31, 2007, 2006 and 2005, respectively.
There was no share-based compensation expense capitalized as
inventory in 2007, 2006 or 2005.
Financial
Instruments and Derivative Financial Instruments
Financial instruments, including derivative financial
instruments, held by the Company include cash and cash
equivalents, accounts receivable, accounts payable, long-term
debt and foreign currency forward and option contracts. The
carrying value of cash and cash equivalents, accounts receivable
and accounts payable is considered to be representative of fair
value because of the short maturity of these instruments. Refer
to Note 9 of the Companys consolidated financial
statements for fair value disclosures of the Companys
fixed rate debt, foreign currency forward and option contracts,
and foreign currency swap contracts.
Common
Shares Held in Treasury
The Company accounts for Common Shares held in treasury under
the cost method and includes such shares as a reduction of total
shareholders equity.
Accounting
Estimates
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, including certain
self-insured risks and liabilities, disclosure of contingent
assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses
during the reporting period. Because actual results could differ
from those estimates, the Company revises its estimates and
assumptions as new information becomes available.
Net
Income Per Share
Net income per share amounts for all periods are presented in
accordance with SFAS No. 128, Earnings Per Share
(SFAS 128), which requires the presentation
of basic and diluted net income per share. Basic net income per
share was computed by dividing net income by the
weighted-average number of Common Shares outstanding for each
respective period. Diluted net income per share was calculated
by dividing net income by the weighted-average of all
potentially dilutive Common Shares that were outstanding during
the periods presented. Actual weighted-average shares
outstanding used in calculating basic and diluted net income per
share were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Basic weighted-average shares outstanding
|
|
|
23,132,814
|
|
|
|
22,866,015
|
|
|
|
22,709,113
|
|
Effect of dilutive securities
|
|
|
415,669
|
|
|
|
195,870
|
|
|
|
65,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average shares outstanding
|
|
|
23,548,483
|
|
|
|
23,061,885
|
|
|
|
22,774,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options not included in the computation of diluted net income
per share to purchase 89,500, 599,850 and 474,250 Common Shares
at an average price of $14.61, $12.17 and $13.93 per share were
outstanding at December 31, 2007, 2006 and 2005,
respectively. These outstanding options were not included in the
computation of diluted net income per share because their
respective exercise prices were greater than the average market
price of Common Shares and, therefore, their effect would have
been anti-dilutive.
As of December 31, 2007, 490,050 performance-based
restricted shares were outstanding. These shares were not
included in the computation of diluted net income per share
because associated performance targets were not
42
STONERIDGE,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(in
thousands, except share and per share data, unless otherwise
indicated)
achieved as of December 31, 2007. These shares may or may
not become dilutive based on the Companys ability to meet
or exceed future performance targets.
Comprehensive
Income (Loss)
SFAS No. 130, Reporting Comprehensive Income,
establishes standards for the reporting and display of
comprehensive income. Other comprehensive income includes
foreign currency translation adjustments and gains and losses
from certain foreign currency transactions, the effective
portion of gains and losses on certain hedging activities,
minimum pension liability adjustments, and unrealized gains and
losses on available-for-sale marketable securities.
The components of accumulated other comprehensive income, as
reported in the statement of consolidated shareholders
equity as of December 31, net of tax were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and
|
|
|
Unrealized
|
|
|
|
|
|
Accumulated
|
|
|
|
Currency
|
|
|
Postretirement
|
|
|
Loss (Gain) on
|
|
|
Unrealized
|
|
|
Other
|
|
|
|
Translation
|
|
|
Liability
|
|
|
Marketable
|
|
|
Gain on
|
|
|
Comprehensive
|
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Securities
|
|
|
Derivatives
|
|
|
Income (Loss)
|
|
|
Balance, January 1, 2005
|
|
$
|
7,143
|
|
|
$
|
(3,488
|
)
|
|
$
|
(69
|
)
|
|
$
|
|
|
|
$
|
3,586
|
|
Current year change
|
|
|
(4,643
|
)
|
|
|
396
|
|
|
|
89
|
|
|
|
|
|
|
|
(4,158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
|
2,500
|
|
|
|
(3,092
|
)
|
|
|
20
|
|
|
|
|
|
|
|
(572
|
)
|
Current year change
|
|
|
6,025
|
|
|
|
1,625
|
|
|
|
(84
|
)
|
|
|
|
|
|
|
7,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
8,525
|
|
|
|
(1,467
|
)
|
|
|
(64
|
)
|
|
|
|
|
|
|
6,994
|
|
Current year change
|
|
|
6,043
|
|
|
|
983
|
|
|
|
44
|
|
|
|
(37
|
)
|
|
|
7,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
$
|
14,568
|
|
|
$
|
(484
|
)
|
|
$
|
(20
|
)
|
|
$
|
(37
|
)
|
|
$
|
14,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
STONERIDGE,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(in
thousands, except share and per share data, unless otherwise
indicated)
The tax effects related to each component of other comprehensive
income (loss) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before Tax
|
|
|
Benefit/
|
|
|
After-Tax
|
|
|
|
Amount
|
|
|
(Provision)
|
|
|
Amount
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
$
|
(4,643
|
)
|
|
$
|
|
|
|
$
|
(4,643
|
)
|
Pension liability adjustments
|
|
|
566
|
|
|
|
(170
|
)
|
|
|
396
|
|
Unrealized loss on marketable securities
|
|
|
137
|
|
|
|
(48
|
)
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
$
|
(3,940
|
)
|
|
$
|
(218
|
)
|
|
$
|
(4,158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
$
|
6,025
|
|
|
$
|
|
|
|
$
|
6,025
|
|
Pension liability adjustments
|
|
|
1,625
|
|
|
|
|
|
|
|
1,625
|
|
Unrealized gain on marketable securities
|
|
|
(129
|
)
|
|
|
45
|
|
|
|
(84
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
$
|
7,521
|
|
|
$
|
45
|
|
|
$
|
7,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
$
|
6,043
|
|
|
$
|
|
|
|
$
|
6,043
|
|
Pension and postretirement liability adjustments
|
|
|
983
|
|
|
|
|
|
|
|
983
|
|
Unrealized loss on marketable securities
|
|
|
68
|
|
|
|
(24
|
)
|
|
|
44
|
|
Unrealized gain on derivatives
|
|
|
(57
|
)
|
|
|
20
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
$
|
7,037
|
|
|
$
|
(4
|
)
|
|
$
|
7,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007 and 2006, the Company was required to
record a valuation allowance of $407 and $787, respectively,
which fully offset the deferred tax asset related to the
accumulated pension liability adjustments.
Impairment
of Assets
The Company reviews its long-lived assets and identifiable
intangible assets with finite lives for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. No significant
impairment charges were recorded in 2007, 2006 or 2005.
Impairment would be recognized when events or changes in
circumstances indicate that the carrying amount of the asset may
not be recovered. Measurement of the amount of impairment may be
based on appraisal, market values of similar assets or estimated
discounted future cash flows resulting from the use and ultimate
disposition of the asset.
Deferred
Finance Costs
Deferred finance costs are being amortized over the life of the
related financial instrument using the straight-line method. The
annual amortization in 2007, 2006 and 2005 was $1,318, $1,379
and $1,260, respectively.
Recently
Issued Accounting Standards
New accounting standards to be implemented:
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS 157),
which provides a definition of fair value, establishes a
framework for measuring fair value and requires expanded
disclosures about fair value measurements. SFAS 157 is
effective for financial statements issued for fiscal years
beginning after November 15, 2007 and interim periods
within those years. The provisions of SFAS 157 will be
applied prospectively. Subsequently, the FASB provide for a
one-year deferral of the effective date for nonfinancial assets
and
44
STONERIDGE,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(in
thousands, except share and per share data, unless otherwise
indicated)
liabilities that are recognized or disclosed at fair value on a
nonrecurring basis. The adoption of SFAS 157 did not have a
significant impact on the Companys financial position,
results of operations or cash flows.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations (SFAS 141(R)).
This standard improves reporting by creating greater consistency
in the accounting and financial reporting of business
combinations. Additionally, SFAS 141(R) requires the
acquiring entity in a business combination to recognize all (and
only) the assets acquired and liabilities assumed in the
transaction; establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities
assumed; and requires the acquirer to disclose to investors and
other users all of the information they need to evaluate and
understand the nature and financial effect of the business
combination. SFAS 141(R) is effective for financial
statements issued for fiscal years beginning after
December 15, 2008. Early adoption of this standard is
prohibited. In the absence of any planned future business
combinations, Management does not currently expect
SFAS 141(R) to have a material impact on the Companys
financial condition or results of operations.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statements
(SFAS 160). This standard improves the
relevance, comparability and transparency of financial
information provided to investors by requiring all entities to
report noncontrolling (minority) interests in subsidiaries in
the same way. Additionally, SFAS 160 eliminates the
diversity that currently exists in accounting for transactions
between an entity and noncontrolling interests by requiring they
be treated as equity transactions. SFAS 160 is effective
for financial statements issued for fiscal years beginning after
December 15, 2008. Early adoption of this standard is
prohibited. In the absence of any noncontrolling (minority)
interests, management does not currently expect SFAS 160 to
have a material impact on the Companys financial condition
or results of operations.
New accounting standards implemented:
In June 2006, the FASB issued interpretation No. 48,
Accounting for Uncertainty in Income Taxes An
Interpretation of FASB Statement No. 109
(FIN 48). FIN 48 clarifies the accounting
for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with
SFAS No. 109, Accounting for Income Taxes. This
interpretation prescribes a recognition threshold and
measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken
in a tax return. This interpretation also provides guidance on
derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. The
Company adopted the provisions of FIN 48 as of
January 1, 2007. The adoption of FIN 48 did not have a
material impact on the Companys financial statements.
In September 2006, the Securities and Exchange Commission
(SEC) issued Staff Accounting Bulletin
(SAB) No. 108, Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements
(SAB 108), which expresses the SECs
views regarding the process of quantifying financial statement
misstatements. Registrants are required to quantify the impact
of correcting all misstatements, including both the carryover
and reversing effects of prior year misstatements, on the
current year financial statements. The financial statements
would require adjustment when either approach results in
quantifying a misstatement that is material, after considering
all relevant quantitative and qualitative factors. SAB 108
was effective for the first quarter of 2007. The adoption of
SAB 108 did not have an impact on the Companys
consolidated financial statements.
In May 2007, the FASB issued FASB Staff Position
(FSP), Definition of Settlement in FASB
Interpretation No. 48 (FSP
FIN 48-1).
FSP
FIN 48-1
provides guidance on determining whether a tax position is
effectively settled for the purpose of recognizing previously
unrecognized tax benefits. FSP
FIN 48-1
is effective retroactively to January 1, 2007. The
implementation of this standard did not have a material impact
on the Companys consolidated financial position or results
of operations.
45
STONERIDGE,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(in
thousands, except share and per share data, unless otherwise
indicated)
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities Including an Amendment of FASB Statement
No. 115 (SFAS 159). SFAS 159
permits entities to choose, at specified election dates, to
measure eligible items at fair value (the Fair Value
Option). Unrealized gains and losses on items for which
the Fair Value Option has been elected are reported in earnings.
The Fair Value Option is applied instrument by instrument (with
certain exceptions), is irrevocable (unless a new election date
occurs) and is applied only to an entire instrument. The effect
of the first remeasurement to fair value is reported as a
cumulative-effect adjustment to the opening balance of retained
earnings. SFAS 159 is effective for the first quarter of
2008. The Company did not elect to use the Fair Value Option for
any financial assets and financial liabilities that were not
currently recorded at fair value.
Reclassifications
Certain prior period amounts have been reclassified to conform
to their 2007 presentation in the consolidated financial
statements.
PST Eletrônica S.A.
The Company has a 50% interest in PST Eletrônica S.A.
(PST), a Brazilian electronic system provider
focused on security and convenience applications primarily for
the vehicle and motorcycle industry. The investment is accounted
for under the equity method of accounting. The Companys
investment in PST was $29,663 and $21,616 at December 31,
2007 and 2006, respectively. During 2006, the Company received a
payment of past due interest of $2.4 million from PST
related to a note receivable that was paid in 2004.
Condensed financial information for PST is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Cash and cash equivalents
|
|
$
|
7,124
|
|
|
$
|
4,785
|
|
Accounts receivable, net
|
|
|
12,306
|
|
|
|
11,609
|
|
Inventories, net
|
|
|
20,114
|
|
|
|
10,602
|
|
Property, plant and equipment, net
|
|
|
16,865
|
|
|
|
9,868
|
|
Other assets
|
|
|
5,331
|
|
|
|
3,191
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
61,740
|
|
|
$
|
40,055
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
25,569
|
|
|
$
|
15,854
|
|
Long-term liabilities
|
|
|
3,957
|
|
|
|
2,791
|
|
Equity of:
|
|
|
|
|
|
|
|
|
Stoneridge
|
|
|
16,107
|
|
|
|
10,705
|
|
Others
|
|
|
16,107
|
|
|
|
10,705
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
61,740
|
|
|
$
|
40,055
|
|
|
|
|
|
|
|
|
|
|
The difference between the Companys carrying amount of its
investment in PST and the Companys underlying equity in
the net assets of PST is primarily due to a net goodwill balance
of $11,296 at December 31, 2007.
46
STONERIDGE,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(in
thousands, except share and per share data, unless otherwise
indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net sales
|
|
$
|
133,039
|
|
|
$
|
94,097
|
|
|
$
|
70,819
|
|
Cost of goods sold
|
|
$
|
61,575
|
|
|
$
|
47,451
|
|
|
$
|
38,700
|
|
Total pretax income
|
|
$
|
25,152
|
|
|
$
|
17,939
|
|
|
$
|
10,956
|
|
The Companys share of pretax income
|
|
$
|
12,576
|
|
|
$
|
8,970
|
|
|
$
|
5,478
|
|
Equity in earnings of PST included in the consolidated
statements of operations were $10,351, $6,771 and $3,976 for the
fiscal years ended December 31, 2007, 2006 and 2005,
respectively. During 2007 and 2006, PST declared dividends
payable to its joint venture partners, which included the
Company. The Company received dividend payments from PST of
$5,594 and $3,707 in 2007 and 2006, respectively, which
decreased the Companys investment in PST.
Minda
Stoneridge Instruments Ltd.
The Company has a 49% interest in Minda Stoneridge Instruments
Ltd. (Minda), a company based in India that
manufactures electronics and instrumentation equipment for the
motorcycle and commercial vehicle market. The investment is
accounted for under the equity method of accounting. The
Companys investment in Minda was $4,547 and $3,796 at
December 31, 2007 and 2006, respectively. Equity in
earnings of Minda included in the consolidated statements of
operations were $542, $354 and $76, for the fiscal years ended
December 31, 2007, 2006 and 2005, respectively. The Company
increased its ownership in Minda from 20% to 49% in 2006.
Senior
Notes
The Company had $200.0 million of senior notes outstanding
at December 31, 2007 and 2006, respectively. The
$200.0 million senior notes bear interest at an annual rate
of 11.50% and mature on May 1, 2012. The senior notes are
redeemable, at the Companys option, at 105.750 until
April 30, 2008. On May 1, 2008, the senior notes will
be redeemable at 103.833. The senior notes will remain
redeemable at various levels until the maturity date. Interest
is payable on May 1 and November 1 of each year. On July 1,
2002, the Company completed an exchange offer of the senior
notes for substantially identical notes registered under the
Securities Act of 1933.
Credit
Facility
On November 2, 2007, the Company entered into an
asset-based credit facility, which permits borrowing up to a
maximum level of $100.0 million. At December 31, 2007,
there were no borrowings on this asset-based credit facility.
The available borrowing capacity on this credit facility is
based on eligible current assets, as defined. At
December 31, 2007, the Company had borrowing capacity of
$73.5 million based on eligible current assets. The
asset-based credit facility does not contain financial
performance covenants; however, restrictions include limits on
capital expenditures, operating leases and dividends. The
asset-based credit facility expires on November 1, 2011,
and requires a commitment fee of 0.25% on the unused balance.
Interest is payable quarterly at either (i) the higher of
the prime rate or the Federal Funds rate plus 0.50%, plus a
margin of 0.00% to 0.25% or (ii) LIBOR plus a margin of
1.00% to 1.75%, depending upon the Companys undrawn
availability, as defined. The Company was in compliance with all
covenants at December 31, 2007.
47
STONERIDGE,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(in
thousands, except share and per share data, unless otherwise
indicated)
The provision for income taxes on income included in the
accompanying consolidated financial statements represents
federal, state and foreign income taxes. The components of
income before income taxes and the provision for income taxes
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Income (loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
9,186
|
|
|
$
|
6,581
|
|
|
$
|
4,441
|
|
Foreign
|
|
|
14,038
|
|
|
|
13,058
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income before income taxes
|
|
$
|
23,224
|
|
|
$
|
19,639
|
|
|
$
|
4,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(55
|
)
|
|
$
|
(807
|
)
|
|
$
|
291
|
|
State and foreign
|
|
|
2,785
|
|
|
|
3,176
|
|
|
|
2,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current provision
|
|
|
2,730
|
|
|
|
2,369
|
|
|
|
2,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
3,450
|
|
|
|
2,175
|
|
|
|
(1,368
|
)
|
State and foreign
|
|
|
373
|
|
|
|
582
|
|
|
|
2,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred provision
|
|
|
3,823
|
|
|
|
2,757
|
|
|
|
815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
6,553
|
|
|
$
|
5,126
|
|
|
$
|
3,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the Companys effective income tax rate
to the statutory federal tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Statutory U.S. federal income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal tax benefit
|
|
|
(1.0
|
)
|
|
|
0.8
|
|
|
|
(7.0
|
)
|
Tax credits
|
|
|
(4.0
|
)
|
|
|
(5.6
|
)
|
|
|
(24.6
|
)
|
Tax benefit for export sales
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
(9.5
|
)
|
Foreign rate differential
|
|
|
(10.9
|
)
|
|
|
(8.9
|
)
|
|
|
(23.0
|
)
|
Increase of income tax accruals
|
|
|
(2.4
|
)
|
|
|
(4.5
|
)
|
|
|
(10.3
|
)
|
Foreign deemed dividends, net of foreign tax credits
|
|
|
1.8
|
|
|
|
4.5
|
|
|
|
17.9
|
|
Reduction (increase) of deferred taxes
|
|
|
1.3
|
|
|
|
|
|
|
|
(22.6
|
)
|
Foreign valuation allowances
|
|
|
7.4
|
|
|
|
4.1
|
|
|
|
120.3
|
|
Other
|
|
|
1.0
|
|
|
|
2.1
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
28.2
|
%
|
|
|
26.1
|
%
|
|
|
79.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective tax rate for 2007 increased slightly due primarily
to the increase in higher taxed domestic earnings and the
increase over the prior year of the valuation allowance recorded
against the deferred tax assets in the United Kingdom. These
increases were partially offset by a deferred tax benefit
related to a change in state tax law.
48
STONERIDGE,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(in
thousands, except share and per share data, unless otherwise
indicated)
Unremitted earnings of foreign subsidiaries were $22,451,
$16,703 and $11,200 as of December 31, 2007, 2006 and 2005,
respectively. Because these earnings have been indefinitely
reinvested in foreign operations, no provision has been made for
U.S. income taxes. It is impracticable to determine the
amount of unrecognized deferred taxes with respect to these
earnings; however, foreign tax credits may be available to
reduce U.S. income taxes in the event of a distribution.
Significant components of the Companys deferred tax assets
and (liabilities) as of December 31, 2007 and 2006 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
2,028
|
|
|
$
|
2,002
|
|
Employee benefits
|
|
|
1,942
|
|
|
|
2,353
|
|
Insurance
|
|
|
1,029
|
|
|
|
1,314
|
|
Depreciation and amortization
|
|
|
28,244
|
|
|
|
36,326
|
|
Net operating loss carryforwards
|
|
|
17,430
|
|
|
|
19,025
|
|
General business credit carryforwards
|
|
|
6,670
|
|
|
|
8,273
|
|
Reserves not currently deductible
|
|
|
8,814
|
|
|
|
6,896
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
66,157
|
|
|
|
76,189
|
|
Less: Valuation allowance
|
|
|
(16,020
|
)
|
|
|
(17,380
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets less valuation allowance
|
|
|
50,137
|
|
|
|
58,809
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(5,404
|
)
|
|
|
(10,454
|
)
|
Other
|
|
|
(8,541
|
)
|
|
|
(3,944
|
)
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
(13,945
|
)
|
|
|
(14,398
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
36,192
|
|
|
$
|
44,411
|
|
|
|
|
|
|
|
|
|
|
The valuation allowance represents the amount of tax benefit
related to foreign net operating losses and other deferred tax
assets as well as state deferred tax assets, which management
believes are not likely to be realized.
The Company has deferred tax assets for net operating loss
carryforwards of $6,346 net of a valuation allowance of
$11,084. The net operating losses relate to U.S. federal,
state and foreign tax jurisdictions. The U.S. net operating
losses expire beginning in 2023 through 2026, the state net
operating losses expire at various times and the foreign net
operating losses have indefinite expiration dates. The Company
has a deferred tax asset for general business credit
carryforwards of $5,370 net of a valuation allowance of
$1,300. The U.S. federal general business credit
carryforwards expire beginning in 2021 through 2027 and the
state tax credits expire at various times.
The Company recognized a provision for income taxes of $6,553,
or 28.2% of pre-tax income, and $5,126, or 26.1% of pre-tax
income, for federal, state and foreign income taxes for the
fiscal years ended December 31, 2007 and 2006,
respectively. The increase in the effective tax rate was
primarily attributable to the increase in higher taxed domestic
earnings and the increase over the prior year of the valuation
allowance recorded against the deferred tax assets in the United
Kingdom. These increases were partially offset by a deferred tax
benefit related to a change in state tax law.
49
STONERIDGE,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(in
thousands, except share and per share data, unless otherwise
indicated)
FIN 48,
Accounting for Uncertainty in Income Taxes An
Interpretation of FASB Statement No. 109
In June 2006, the FASB issued FIN 48. FIN 48 clarifies
the accounting for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with
SFAS No. 109, Accounting for Income Taxes. This
interpretation prescribes a recognition threshold and
measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken
in a tax return. This interpretation also provides guidance on
derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. The
Company adopted the provisions of FIN 48 as of the
January 1, 2007. The adoption of FIN 48 did not have a
material impact on the Companys financial statements.
The following is a reconciliation of the Companys total
gross unrecognized tax benefits, from adoption, to
December 31, 2007:
|
|
|
|
|
|
|
2007
|
|
|
Balance at January 1, 2007
|
|
$
|
4,731
|
|
Tax positions related to the current year:
|
|
|
|
|
Additions
|
|
|
357
|
|
Reductions
|
|
|
|
|
Tax positions related to the prior years:
|
|
|
|
|
Additions
|
|
|
272
|
|
Reductions
|
|
|
(655
|
)
|
Settlements
|
|
|
|
|
Expiration of statutes of limitation
|
|
|
(87
|
)
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
4,618
|
|
|
|
|
|
|
The liability for uncertain tax benefits is classified as a
non-current liability unless it is expected to be paid within
one year. At December 31, 2007 the Company has classified
$1,437 as a current liability and $3,181 as a reduction to
non-current deferred income tax assets. Through a combination of
anticipated state audit settlements and the expiration of
certain statutes of limitation, the amount of unrecognized tax
benefits could decrease by approximately $800 within the next
12 months. Management is currently unaware of issues under
review that could result in a significant change or a material
deviation in this estimate.
If the Companys tax positions are sustained by the taxing
authorities in favor of the Company, approximately $4,410 would
affect the Companys effective tax rate.
Consistent with historical financial reporting, the Company has
elected to classify interest expense and, if applicable,
penalties which could be assessed related to unrecognized tax
benefits as a component of income tax expense. For the fiscal
years ended December 31, 2007 and 2006, the Company
recognized approximately $(149) and $(347) of gross interest and
penalties, respectively. The Company has accrued approximately
$672 and $821 for the payment of interest and penalties at
December 31, 2007 and December 31, 2006, respectively.
The Company conducts business globally and, as a result, files
income tax returns in the U.S. federal jurisdiction and
various state and foreign jurisdictions. In the normal course of
business the Company is subject to
50
STONERIDGE,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(in
thousands, except share and per share data, unless otherwise
indicated)
examination by taxing authorities throughout the world. The
following table summarizes the open tax years for each important
jurisdiction:
|
|
|
|
|
Jurisdiction
|
|
Open Tax Years
|
|
|
U.S. Federal
|
|
|
2004-2007
|
|
France
|
|
|
2003-2007
|
|
Mexico
|
|
|
2002-2007
|
|
Spain
|
|
|
2003-2007
|
|
Sweden
|
|
|
2002-2007
|
|
United Kingdom
|
|
|
2003-2007
|
|
During the third quarter of 2007 the IRS commenced an
examination of the Companys 2005 federal income tax
return. It is anticipated that this examination should be
completed during the second half of 2008. The Company is also
under examination for income and non-income tax filings in
various state and foreign jurisdictions that should be completed
at various times throughout 2008.
|
|
6.
|
Operating
Lease Commitments
|
The Company leases equipment, vehicles and buildings from third
parties under operating lease agreements.
The estate of the late D.M. Draime, former Chairman of the Board
of Directors, is a 50% owner of Hunters Square, Inc.
(HSI), an Ohio corporation, which owns Hunters
Square, an office complex and shopping mall located in Warren,
Ohio. The Company leases office space in Hunters Square. The
Company pays all maintenance, tax and insurance costs related to
the operation of the office. Lease payments made by the Company
to HSI were $342, $342 and $342 in 2007, 2006 and 2005,
respectively. The lease terminates in December 2009. The Company
believes the terms of the lease are no less favorable to it than
would be the terms of a third-party lease.
For the years ended December 31, 2007, 2006 and 2005, lease
expense totaled $7,114, $6,691 and $6,495, including related
party lease expense of $342 for each respective year.
Future minimum operating lease commitments at December 31,
2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Third
|
|
|
Related
|
|
|
|
Party
|
|
|
Party
|
|
|
2008
|
|
$
|
5,289
|
|
|
$
|
342
|
|
2009
|
|
|
4,148
|
|
|
|
342
|
|
2010
|
|
|
2,338
|
|
|
|
|
|
2011
|
|
|
1,626
|
|
|
|
|
|
2012
|
|
|
1,605
|
|
|
|
|
|
Thereafter
|
|
|
6,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,088
|
|
|
$
|
684
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
|
Share-Based
Compensation Plans
|
In October 1997, the Company adopted a Long-Term Incentive Plan
(Incentive Plan). The Company reserved 2,500,000
Common Shares for issuance to officers and other key employees
under the Incentive Plan. Under the Incentive Plan, as of
December 31, 2007, the Company granted cumulative options
to purchase 1,594,500 Common Shares to management with exercise
prices equal to the fair market value of the Companys
Common Shares on the date of grant. The options issued
cliff-vest from one to five years after the date of grant and
have a contractual life of 10 years. In addition, the
Company has also issued 1,553,125 restricted Common Shares
51
STONERIDGE,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(in
thousands, except share and per share data, unless otherwise
indicated)
under the Incentive Plan, of which 814,250 are time-based with
either graded or cliff vesting using the straight-line method
while the remaining 738,875 restricted Common Shares are
performance-based. Restricted Common Shares awarded under the
Incentive Plan entitle the shareholder to all the rights of
Common Share ownership except that the shares may not be sold,
transferred, pledged, exchanged, or otherwise disposed of during
the vesting period. The Incentive Plan expired on June 30,
2007.
In April 2006, the Companys shareholders approved the
Amended and Restated Long-Term Incentive Plan (the 2006
Plan). Common Shares reserved and available for awards
under the 2006 Plan is 1,500,000 pursuant to which the maximum
number of Common Shares which may be issued subject to Incentive
Stock Options is 500,000. Under the 2006 Plan, as of
December 31, 2007, the Company has not granted any Common
Shares awards.
In 2005, pursuant to the Incentive Plan, the Company granted
time-based restricted Common Share awards and performance-based
restricted Common Share awards. The time-based restricted Common
Share awards vest over a one to four year period in equal
increments on the first, second, third and fourth grant-date
anniversaries. Approximately one-half of the performance-based
restricted Common Share awards vest and are no longer subject to
forfeiture upon the recipient remaining an employee of the
Company for three years from date of grant and upon achieving
certain net income per share targets established by the Company.
The remaining one-half of the performance-based restricted
Common Share awards also vest and are no longer subject to
forfeiture upon the recipient remaining an employee for three
years from date of grant and upon the Company attaining certain
targets of performance measured against a peer groups
performance in terms of total return to shareholders. The actual
number of restricted Common Shares to ultimately vest will
depend on the Companys level of achievement of the
targeted performance measures and the employees attainment
of the defined service requirements.
In 2006, pursuant to the Incentive Plan, the Company granted
time-based restricted shares and performance-based restricted
shares. Certain time-based restricted Common Share awards
cliff-vest three years after the grant date. Other time-based
restricted Common Share awards are subject to graded vesting
using the straight-line method over a three or four year period.
The performance-based restricted Common Share awards vest and
are no longer subject to forfeiture upon the recipient remaining
an employee of the Company for three years from date of grant
and upon achieving certain net income per share targets
established by the Company.
In 2007, pursuant to the Incentive Plan, the Company granted
time-based restricted shares and performance-based restricted
shares. The time-based restricted Common Share awards cliff-vest
three years after the grant date. The performance-based
restricted Common Share awards vest and are no longer subject to
forfeiture upon the recipient remaining an employee of the
Company for three years from date of grant and upon achieving
certain net income per share targets established by the Company.
In April 2005, the Company adopted the Directors
Restricted Shares Plan (Director Share Plan). The
Company reserved 300,000 Common Shares for issuance under the
Director Share Plan. Under the Director Share Plan, the Company
has cumulatively issued 130,700 restricted Common Shares. Shares
issued under the Director Share Plan during 2006 will
cliff-vested after a period of 13 months. Shares issued
under the Director Share Plan during 2007 will cliff vest one
year after the grant date.
52
STONERIDGE,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(in
thousands, except share and per share data, unless otherwise
indicated)
Options
A summary of option activity under the plans noted above as of
December 31, 2007, and changes during the fiscal years
ended are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
Share
|
|
|
Exercise
|
|
|
Contractual
|
|
|
|
Options
|
|
|
Price
|
|
|
Term
|
|
|
Outstanding at December 31, 2006
|
|
|
623,000
|
|
|
$
|
11.89
|
|
|
|
|
|
Expired
|
|
|
(170,750
|
)
|
|
|
16.98
|
|
|
|
|
|
Exercised
|
|
|
(163,500
|
)
|
|
|
8.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and Exercisable at December 31, 2007
|
|
|
288,750
|
|
|
|
10.57
|
|
|
|
4.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no options granted during the fiscal years ended
December 31, 2007, 2006 and 2005 and all outstanding
options have vested.
The intrinsic value of options outstanding and exercisable is
the difference between the fair market value of the
Companys Common Shares on the applicable date
(Measurement Value) and the exercise price of those
options that had an exercise price that was less than the
Measurement Value. The intrinsic value of options exercised is
the difference between the fair market value of the
Companys Common Shares on the date of exercise and the
exercise price. The total intrinsic value of options exercised
during the fiscal years ended December 31, 2007, 2006 and
2005 was $482, $176 and $42, respectively.
As of December 31, 2007 and 2006, the aggregate intrinsic
value of both outstanding and exercisable options was $62 and
$115, respectively. The total fair value of options that vested
during the fiscal years ended December 31, 2005 was $1,465.
Prior to 2006, all outstanding option grants had vested, and
therefore, the number of exercisable and outstanding options is
equal.
Restricted
Shares
The fair value of the non-vested time-based restricted Common
Share awards was calculated using the market value of the shares
on the date of issuance. The weighted-average grant-date fair
value of time-based restricted Common Shares granted during the
fiscal years ended December 31, 2007, 2006 and 2005 was
$12.00, $7.79 and $10.23, respectively.
The fair value of the non-vested performance-based restricted
Common Share awards with a performance condition, requiring the
Company to obtain certain net income per share targets, was
calculated using the market value of the shares on the date of
issuance. The fair value of the non-vested performance-based
restricted Common Share awards with a market condition, which
measures the Companys performance against a peer
groups performance in terms of total return to
shareholders, was estimated at the date of issuance using
valuation techniques incorporating the Companys historical
total return to shareholders in comparison to its peers to
determine the expected outcomes related to these awards.
53
STONERIDGE,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(in
thousands, except share and per share data, unless otherwise
indicated)
A summary of the status of the Companys non-vested
restricted Common Shares as of December 31, 2007 and the
changes during the fiscal year then ended, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance-Based
|
|
|
|
Time-Based Awards
|
|
|
Awards
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant-Date
|
|
|
|
|
|
Grant-Date
|
|
Non-vested Restricted Common Shares
|
|
Shares
|
|
|
Fair Value
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Non-vested at December 31, 2006
|
|
|
468,392
|
|
|
$
|
8.47
|
|
|
|
396,825
|
|
|
$
|
8.34
|
|
Granted
|
|
|
234,700
|
|
|
|
12.00
|
|
|
|
212,850
|
|
|
|
12.03
|
|
Vested
|
|
|
(138,402
|
)
|
|
|
9.12
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(60,866
|
)
|
|
|
9.91
|
|
|
|
(119,625
|
)
|
|
|
9.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2007
|
|
|
503,824
|
|
|
|
9.76
|
|
|
|
490,050
|
|
|
|
9.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, total unrecognized compensation
cost related to non-vested time-based restricted Common Share
awards granted was $2,377. That cost is expected to be
recognized over a weighted-average period of 1.47 years.
For the fiscal years ended December 31, 2007, 2006 and
2005, the total fair value of time-based restricted Common Share
awards vested was $1,541, $1,064 and $460, respectively.
As of December 31, 2007, total unrecognized compensation
cost related to non-vested performance-based restricted Common
Share awards granted was $810. That cost is expected to be
recognized over a weighted-average period of 1.58 years. As
noted above, the Company has issued and outstanding
performance-based restricted Commons Share awards that use
different performance targets. The awards that use net income
per share as the performance target will not be expensed until
it is probable that the Company will meet the underlying
performance condition. However, the awards that measure
performance against a peer group are expensed even if the market
condition is not met. No performance-based restricted Common
Share awards have vested as of December 31, 2007.
Cash received from option exercises under all share-based
payment arrangements for the fiscal years ended
December 31, 2007, 2006 and 2005 was $1,409, $301 and $66,
respectively. The actual tax benefit realized for the tax
deductions from the vesting of restricted Common Shares and
option exercises of the share-based payment arrangements totaled
$360, $176 and $220 for the fiscal years ended December 31,
2007, 2006 and 2005, respectively.
|
|
8.
|
Employee
Benefit Plans
|
The Company has certain defined contribution profit sharing and
401(k) plans covering substantially all of its employees in the
US and United Kingdom. Company contributions are generally
discretionary; however, a portion of these contributions is
based upon a percentage of employee compensation, as defined in
the plans. The Companys policy is to fund all benefit
costs accrued. For the fiscal years ended December 31,
2007, 2006 and 2005, expenses related to these plans amounted to
$3,800, $3,556 and $3,828, respectively.
The Company has a single defined benefit pension plan that
covers certain employees in the United Kingdom and a single
postretirement benefit plan that covers certain employees in the
U.S. As of December 31, 2003, employees covered under
the United Kingdom defined benefit pension plan no longer accrue
benefits related to future service and wage increases. In
September 2006, the Board of Directors approved a proposal to
discontinue life insurance benefits for all active and retired
employees under the Companys U.S. postretirement
benefit plan effective September 30, 2006. The
discontinuance of these benefits was accounted for as a plan
settlement, resulting in a one-time non-cash gain of
approximately $1,242. The remaining healthcare portion of the
postretirement benefit plan is contributory, with the Company
and plan participants sharing the cost of the plan.
54
STONERIDGE,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(in
thousands, except share and per share data, unless otherwise
indicated)
The following table sets forth the benefit obligation, fair
value of plan assets, and the funded status of the
Companys plans; amounts recognized in the Companys
financial statements; and the principal weighted average
assumptions used:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Postretirement
|
|
|
|
Benefit Plan
|
|
|
Benefit Plan
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
|
$
|
22,681
|
|
|
$
|
19,988
|
|
|
$
|
508
|
|
|
$
|
1,702
|
|
Service cost
|
|
|
140
|
|
|
|
92
|
|
|
|
|
|
|
|
40
|
|
Interest cost
|
|
|
1,180
|
|
|
|
994
|
|
|
|
25
|
|
|
|
67
|
|
Actuarial gain
|
|
|
(1,281
|
)
|
|
|
(515
|
)
|
|
|
(33
|
)
|
|
|
(239
|
)
|
Benefits paid
|
|
|
(820
|
)
|
|
|
(663
|
)
|
|
|
(53
|
)
|
|
|
(80
|
)
|
Settlement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(982
|
)
|
Translation adjustments
|
|
|
401
|
|
|
|
2,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of year
|
|
$
|
22,301
|
|
|
$
|
22,681
|
|
|
$
|
447
|
|
|
$
|
508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
20,056
|
|
|
$
|
15,898
|
|
|
$
|
|
|
|
$
|
|
|
Actual return on plan assets
|
|
|
1,100
|
|
|
|
2,209
|
|
|
|
|
|
|
|
|
|
Employer contributions
|
|
|
260
|
|
|
|
276
|
|
|
|
53
|
|
|
|
387
|
|
Benefits paid
|
|
|
(820
|
)
|
|
|
(663
|
)
|
|
|
(53
|
)
|
|
|
(80
|
)
|
Settlement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(307
|
)
|
Translation adjustments
|
|
|
350
|
|
|
|
2,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
20,946
|
|
|
$
|
20,056
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation at end of year
|
|
$
|
22,301
|
|
|
$
|
22,681
|
|
|
$
|
447
|
|
|
$
|
508
|
|
Funded status at end of year
|
|
|
(1,355
|
)
|
|
|
(2,625
|
)
|
|
|
(447
|
)
|
|
|
(508
|
)
|
Amounts recognized in the consolidated balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sheet consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
|
(1,355
|
)
|
|
|
(2,625
|
)
|
|
|
(447
|
)
|
|
|
(508
|
)
|
At December 31, 2007 and 2006, long-term liabilities of
$1,748 and $3,075 related to the defined benefit plan and
postretirement benefit plan were recognized in the accompanying
consolidated balance sheets as components of other liabilities.
In addition, a current liability related to the other
postretirement benefit plan of $54 and $58 was recognized as a
component of accrued expenses and other on the consolidated
balance sheets at December 31, 2007 and 2006, respectively.
55
STONERIDGE,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(in
thousands, except share and per share data, unless otherwise
indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Postretirement
|
|
|
|
Benefit Plan
|
|
|
Benefit Plan
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Weighted average assumptions used to determine benefit
obligation at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.80
|
%
|
|
|
5.15
|
%
|
|
|
5.88
|
%
|
|
|
5.80
|
%
|
Rate of increase to compensation levels
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Rate of increase to pensions in payment
|
|
|
3.30
|
%
|
|
|
3.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Rate of future price inflation
|
|
|
3.20
|
%
|
|
|
2.90
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Initial health care cost trend rate
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
10.00
|
%
|
|
|
11.00
|
%
|
Ultimate health care cost trend rate
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
6.00
|
%
|
|
|
6.00
|
%
|
Year that the ultimate trend rate is reached
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
2015
|
|
|
|
2011
|
|
Measurement date
|
|
|
12/31/07
|
|
|
|
12/31/06
|
|
|
|
12/31/07
|
|
|
|
12/31/06
|
|
Weighted average assumptions used to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
determine net periodic benefit cost for the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.15
|
%
|
|
|
4.75
|
%
|
|
|
5.80
|
%
|
|
|
5.50
|
%
|
Expected long-term return on plan assets
|
|
|
7.00
|
%
|
|
|
6.40
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Rate of increase to compensation levels
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
2.50
|
%
|
Rate of increase to pensions in payment
|
|
|
3.00
|
%
|
|
|
3.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Rate of future price inflation
|
|
|
2.90
|
%
|
|
|
2.75
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Initial health care cost trend rate
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
10.00
|
%
|
|
|
11.00
|
%
|
Ultimate health care cost trend rate
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
6.00
|
%
|
|
|
6.00
|
%
|
Year that the ultimate trend rate is reached
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
2015
|
|
|
|
2011
|
|
Measurement date
|
|
|
12/31/07
|
|
|
|
12/31/06
|
|
|
|
12/31/06
|
|
|
|
12/31/05
|
|
In the fiscal year ended December 31, 2006, the Company
adopted the provisions of SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans an amendment of FASB
Statements No. 87, 88, 106, and 132(R)
(SFAS 158). Prior to the adoption of
SFAS 158, the Companys accumulated benefit
obligations and projected benefit obligations were equal,
therefore upon adoption, there was no significant impact on the
Companys consolidated statement of financial position as
of December 31, 2007. In addition, the provisions of
SFAS 158 require the Company to disclose costs recognized
in other comprehensive income for the period pursuant and the
amortization amounts to be recognized in the next fiscal year,
which are shown in the following tables:
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Postretirement
|
|
|
|
Benefit Plan
|
|
|
Benefit Plan
|
|
|
|
2007
|
|
|
2007
|
|
|
Other changes in plan assets and benefit obligations recognized
in other comprehensive income:
|
|
|
|
|
|
|
|
|
Net actuarial (gain) loss
|
|
$
|
(1,120
|
)
|
|
$
|
28
|
|
Amortization of actuarial loss
|
|
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other comprehensive income
|
|
$
|
(1,200
|
)
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic pension cost and other
comprehensive income
|
|
$
|
(1,220
|
)
|
|
$
|
53
|
|
56
STONERIDGE,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(in
thousands, except share and per share data, unless otherwise
indicated)
No net amortization on actuarial gains or losses will be
recognized in the next fiscal year.
The Companys expected long-term return on plan assets
assumption is based on a periodic review and modeling of the
plans asset allocation and liability structure over a
long-term horizon. Expectations of returns for each asset class
are the most important of the assumptions used in the review and
modeling and are based on comprehensive reviews of historical
data and economic / financial market theory. The
expected long-term rate of return on assets was selected from
within the reasonable range of rates determined by
(a) historical real returns, net of inflation, for the
asset classes covered by the investment policy, and
(b) projections of inflation over the long-term period
during which benefits are payable to plan participants.
Components of net periodic pension and postretirement (benefit)
cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefit Plan
|
|
|
Postretirement Benefit Plan
|
|
|
|
For the Fiscal Years
|
|
|
For the Fiscal Years
|
|
|
|
Ended December 31,
|
|
|
Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Service cost
|
|
$
|
140
|
|
|
$
|
92
|
|
|
$
|
73
|
|
|
$
|
|
|
|
$
|
40
|
|
|
$
|
114
|
|
Interest cost
|
|
|
1,180
|
|
|
|
994
|
|
|
|
981
|
|
|
|
25
|
|
|
|
67
|
|
|
|
112
|
|
Settlement gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,242
|
)
|
|
|
|
|
Expected return on plan assets
|
|
|
(1,420
|
)
|
|
|
(1,086
|
)
|
|
|
(999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial loss (gain)
|
|
|
80
|
|
|
|
258
|
|
|
|
291
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic (benefit) cost
|
|
$
|
(20
|
)
|
|
$
|
258
|
|
|
$
|
346
|
|
|
$
|
25
|
|
|
$
|
(1,152
|
)
|
|
$
|
226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A 1.0% change in assumed healthcare cost trend rates would not
significantly impact the Companys amounts reported for
postretirement health benefits.
The Companys defined benefit pension plan fair value
weighted-average asset allocations at December 31 by asset
category are as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Asset Category:
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
74
|
%
|
|
|
81
|
%
|
Debt securities
|
|
|
25
|
|
|
|
18
|
|
Other
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
The Companys target asset allocation, with a permitted
range of ± 7.50%, as of December 31, 2007, by asset
category, is as follows:
|
|
|
|
|
Asset Category:
|
|
|
|
|
Equity securities
|
|
|
75
|
%
|
Debt securities
|
|
|
25
|
%
|
The Companys investment policy for the defined benefit
pension plan includes various guidelines and procedures designed
to ensure assets are invested in a manner necessary to meet
expected future benefits earned by participants. The investment
guidelines consider a broad range of economic conditions.
Central to the policy are target allocation ranges (shown above)
by major asset categories. The objectives of the target
allocations are to maintain investment portfolios that diversify
risk through prudent asset allocation parameters, achieve asset
returns that meet or exceed the plans actuarial
assumptions, and achieve asset returns that are competitive with
like institutions employing similar investment strategies. The
Company and a designated third-party fiduciary
57
STONERIDGE,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(in
thousands, except share and per share data, unless otherwise
indicated)
periodically review the investment policy. The policy is
established and administered in a manner so as to comply at all
times with applicable government regulations.
The Company expects to contribute $259 to its defined benefit
pension plan in 2008. The following pension and postretirement
benefit payments are expected to be paid:
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Postretirement
|
|
|
|
Benefit Plan
|
|
|
Benefit Plan
|
|
|
2008
|
|
$
|
757
|
|
|
$
|
54
|
|
2009
|
|
|
817
|
|
|
|
54
|
|
2010
|
|
|
857
|
|
|
|
53
|
|
2011
|
|
|
897
|
|
|
|
51
|
|
2012
|
|
|
937
|
|
|
|
49
|
|
2013 to 2017
|
|
|
5,281
|
|
|
|
198
|
|
|
|
9.
|
Fair
Value of Financial Instruments
|
Financial
Instruments
A financial instrument is cash or a contract that imposes an
obligation to deliver, or conveys a right to receive cash or
another financial instrument. The carrying values of cash and
cash equivalents, accounts receivable and accounts payable are
considered to be representative of fair value because of the
short maturity of these instruments. The estimated fair value of
the Companys senior notes (fixed rate debt) at
December 31, 2007 and 2006, per quoted market sources, was
$199.2 million and $206.0 million, respectively. On
both dates, the carrying value was $200.0 million.
Derivative
Instruments and Hedging Activities
We make use of derivative instruments in foreign exchange and
commodity price hedging programs. Derivatives currently in use
are foreign currency forward and option contracts and commodity
swaps. These contracts are used strictly for hedging and not for
speculative purposes. Management believes that its use of these
instruments to reduce risk is in the Companys best
interest.
The Company conducts business internationally and therefore is
exposed to foreign currency exchange risk. The Company uses
derivative financial instruments, including foreign currency
forward contracts, to mitigate its exposure to fluctuations in
foreign currency exchange rates by reducing the effect of such
fluctuations on foreign currency denominated intercompany
transactions and other foreign currency exposures. The principal
currencies hedged by the Company include the British pound and
Mexican peso. In certain instances, the foreign currency forward
contracts are marked to market, with gains and losses recognized
in the Companys consolidated statement of operations as a
component of other (income) loss, net. The Companys
foreign currency forward and option contracts substantially
offset gains and losses on the underlying foreign currency
denominated transactions. In addition, the Companys
contracts intended to reduce exposure to the Mexican peso were
executed to hedge forecasted transactions, and therefore the
contracts are accounted for as cash flow hedges. The effective
portion of the unrealized gain or loss is deferred and reported
in the Companys consolidated balance sheets as a component
of accumulated other comprehensive income. The Companys
expectation is that the cash flow hedges will be highly
effective in the future. The effectiveness of the transactions
will be measured on an ongoing basis using the hypothetical
operative method.
The Companys foreign currency forward contracts have a
notional value of $8,551 and $16,147 at December 31, 2007
and 2006, respectively. The purpose of these investments is to
reduce exposure related to the Companys British pound-
denominated receivables. The estimated fair value of these
contracts at December 31, 2007 and 2006, per quoted market
sources, was approximately $(28) and $(502), respectively. In
2007, the Company used foreign
58
STONERIDGE,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(in
thousands, except share and per share data, unless otherwise
indicated)
currency option contracts to reduce the risk of exposures to the
Mexican peso. The Companys foreign currency option
contracts expired as of December 31, 2007.
To mitigate the risk of future price volatility and,
consequently, fluctuations in gross margins, the Company has
entered into fixed price commodity swaps with a bank to fix the
cost of copper purchases. We entered into fixed price swap
contracts for 480 and 420 metric tonnes of copper in December
2006 and January 2007, respectively. These contracts fixed the
cost of copper purchases in 2007 and expired on
December 31, 2007. In December 2007, we entered into
another fixed price swap contract for 1.0 million pounds of
copper, which will last through 2008. Because these contracts
were executed to hedge forecasted transactions, the contracts
are accounted for as cash flow hedges. The unrealized gain or
loss for the effective portion of the hedge is deferred and
reported in the Companys consolidated balance sheets as a
component of accumulated other comprehensive income. The Company
deems these cash flow hedges to be highly effective. The
effectiveness of the transactions has been and will be measured
on an ongoing basis using regression analysis. As of
December 31, 2007, the fair value of the fixed price
commodity swap contract, per quoted market sources, was
approximately $57.
|
|
10.
|
Commitments
and Contingencies
|
In the ordinary course of business, the Company is involved in
various legal proceedings, workers compensation and
product liability disputes. The Company is of the opinion that
the ultimate resolution of these matters will not have a
material adverse effect on the results of operations, cash flows
or the financial position of the Company.
|
|
11.
|
Related
Party Transactions
|
Relationship with Counsel. Avery Cohen, a
director and Secretary of the Company, is a partner in
Baker & Hostetler LLP, a law firm, which has served as
general outside counsel for the Company since 1993. The Company
paid $1,193, $1,081 and $1,193 in legal fees to
Baker & Hostetler, LLP for the fiscal years ended
December 31, 2007, 2006 and 2005, respectively.
Hunters Square. See Note 6 to the Companys
consolidated financial statements for information on the
Companys related party transactions involving operating
leases.
Industrial Development Associates LP
(IDA). The Company owned a 30%
interest in Industrial Development Associates Limited
Partnership, a Maryland limited partnership (IDA).
In addition, Earl L. Linehan, a member of Stoneridges
Board of Directors owns an interest in IDA and the estate of
D.M. Draime (D.M. Draime was Chairman of the Board of Directors
until his death in July 2006) owned an interest in IDA. IDA
is a real estate development company of certain commercial
properties in Mebane, North Carolina. Stoneridge previously
leased a facility from IDA.
On December 29, 2006, the Company entered into a
Partnership Interest Purchase Agreement (the Purchase
Agreement) with Heritage Real Estate Fund V, LLC, a
Maryland limited liability company (Heritage).
Pursuant to the Purchase Agreement, on December 29, 2006,
Stoneridge sold its 30% general partnership interest in IDA to
Heritage for $1,035 in cash and recognized a gain of $1,627 that
is included in the consolidated statement of operations as a
component of other (income) loss, net. The transaction price was
determined by the average of two independent appraisals.
Mr. Linehan is a member of Heritage owning a 14.2%
membership interest in Heritage. The managing member of Heritage
is Heritage Properties, Inc. Mr. Linehan is member of the
Board of Directors of Heritage Properties, Inc. Mr. Linehan
also owns approximately 26.35% of MI Holding Company, a Maryland
corporation, which is a 5.0% general partner of IDA. On
December 29, 2006, the estate of D.M. Draime also entered
into a Partnership Interest Purchase Agreement with Heritage to
sell the estates 10% limited partnership interest to
Heritage for $345. The son of D.M. Draime, Jeffrey P. Draime, is
a member of Stoneridges Board of Directors.
59
STONERIDGE,
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(in
thousands, except share and per share data, unless otherwise
indicated)
In January 2005, the Company announced restructuring initiatives
related to the rationalization of certain manufacturing
facilities in Europe and North America. These restructuring
initiatives were completed in 2007. In connection with these
initiatives, the Company recorded restructuring charges of $74,
$608 and $5,098 in the Companys consolidated statement of
operations for the fiscal years ended December 31, 2007,
2006 and 2005.
On October 29, 2007, the Company announced restructuring
initiatives to improve manufacturing efficiency and cost
position by ceasing manufacturing operations at its Sarasota,
Florida and Mitcheldean, England locations. These
rationalizations are part of the Companys cost reduction
initiatives. In connection with these initiatives, the Company
recorded restructuring charges of $1,027 in the Companys
consolidated statement of operations for the fiscal year ended
December 31, 2007. Restructuring expenses that were general
and administrative in nature were included in the Companys
consolidated statement of operations as part of restructuring
charges, while the remaining restructuring related charges were
included in cost of goods sold.
The charges related to the restructuring initiatives announced
on October 29, 2007 that belong to the Electronics
reportable segment included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
|
|
|
Other
|
|
|
|
|
|
|
Severance
|
|
|
Termination
|
|
|
Associated
|
|
|
|
|
|
|
Costs
|
|
|
Costs
|
|
|
Costs
|
|
|
Total
|
|
|
Total expected restructuring charges
|
|
$
|
3,454
|
|
|
$
|
978
|
|
|
$
|
5,582
|
|
|
$
|
10,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth quarter 2007 charge to expense
|
|
$
|
468
|
|
|
$
|
|
|
|
$
|
103
|
|
|
$
|
571
|
|
Cash payments
|
|
|
|
|
|
|
|
|
|
|
(103
|
)
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
468
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining expected restructuring charge
|
|
$
|
2,986
|
|
|
$
|
978
|
|
|
$
|
5,479
|
|
|
$
|
9,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The charges related to the restructuring initiatives announced
on October 29, 2007 that belong to the Control Devices
reportable segment included the following: