Stoneridge, Inc. — 2013 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2013. The filing also reports fourth-quarter 2013 results. Stoneridge designs and manufactures electrical and electronic vehicle components and systems through Control Devices, Electronics, Wiring and PST. PST primarily serves South America.
Key financial results
| Metric | 2013 | 2012 |
|---|---|---|
| Net sales | $947.8 million | $938.5 million |
| Gross profit / margin | $226.0 million / 23.9% | $224.6 million / 23.9% |
| Operating income / margin | $39.7 million / 4.2% | $28.7 million / 3.1% |
| Net income attributable to Stoneridge | $15.1 million | $5.4 million |
| Diluted EPS | $0.56 | $0.20 |
| Cash from operating activities | $43.7 million | $75.5 million |
| Capital expenditures | $25.3 million | $26.4 million |
| Cash and cash equivalents | $62.8 million | $44.6 million |
| Working capital | $186.5 million | $157.6 million |
| Total debt | $197.2 million | $200.2 million |
2013 cash from operations less capital expenditures was approximately $18.3 million. The company reported $71.1 million of undrawn capacity under its asset-based credit facility, with no borrowings outstanding on that facility at year-end. Cash and debt figures are consolidated; cash included $30.0 million domestically and $32.8 million abroad.
Changes versus 2012
- Sales rose 1.0%. Higher North American automotive and European commercial-vehicle sales were partly offset by weaker North American commercial-vehicle sales and unfavorable currency translation of PST revenue.
- Control Devices sales increased 8.7% and Electronics sales increased 15.6%; Wiring sales fell 11.6%, while PST sales declined 1.0% in U.S. dollars. PST sales grew 9.9% in Brazilian real, but currency translation reduced reported sales by about $19.7 million.
- Operating income increased $11.0 million. Management attributed higher earnings principally to improved product mix, lower SG&A, lower interest expense and reduced foreign-currency losses; higher income taxes partly offset the improvement.
- Wiring reported a $10.1 million pretax loss, versus a $0.3 million loss in 2012. Lower volumes, labor costs incurred for forecasted demand that did not materialize, and operating inefficiencies weighed on results.
- Operating cash flow fell $31.9 million, primarily because PST and Wiring carried higher working capital for planned production increases. The 2012 comparison also included a $19.8 million cash payment related to the PST acquisition in investing activities.
Fourth-quarter 2013
Net sales were $235.8 million, gross profit was $53.6 million, and operating income was $6.9 million. Net income attributable to Stoneridge was $0.2 million, or $0.01 per diluted share. Fourth-quarter 2012 sales were $222.7 million and attributable net income was $2.6 million, or $0.10 per diluted share.
Outlook, risks and notable items
- Management expected North American commercial-vehicle market weakness to continue in 2014. North American automotive production was forecast at 16.2–16.8 million vehicles for 2014, versus 16.2 million in 2013; the European commercial-vehicle market was expected to improve.
- Management expected PST’s audio-product market-share gains to continue benefiting results, while cautioning that a weaker Brazilian economy or adverse currency movements could hurt performance. No consolidated earnings or revenue guidance was provided in the supplied filing text.
- Customer concentration is significant: Deere accounted for 14% of 2013 sales, Navistar 13%, and Ford 7%; the top ten customers accounted for 58%. Customer programs may be renegotiated or terminated, and customers generally do not guarantee volumes.
- Debt includes $175 million face value of 9.5% senior secured notes due in 2017, plus subsidiary and other borrowings. The company reported compliance with debt covenants at year-end. The credit facility expires December 1, 2016 and will need refinancing before then.
- PST faces a São Paulo tax assessment of approximately $39.5 million, including tax, interest and penalties, concerning the classification of tracking and monitoring services. Management assessed loss as not probable, recorded no accrual, and said resolution could take years. Other PST civil, labor and tax contingencies of $11.5 million were assessed as reasonably possible, not probable, with no accrual.
- PST goodwill had estimated fair value only about 10% above carrying value in the October 2013 test; up to $53.7 million of goodwill could be at risk if the reporting unit fails a future impairment test. The test depended on substantial forecast growth and other assumptions.
- The company retained a $0.9 million liability for groundwater remediation at its former Sarasota facility. It expected remediation to begin in 2014. Product warranty and recall reserves were $6.5 million at year-end.
- Key exposures include cyclical vehicle demand, customer pricing pressure, raw-material availability and prices, foreign exchange (especially the Brazilian real), product liability and warranty claims, and labor and international operating risks. The company reported no material off-balance-sheet arrangements.
Ernst & Young issued an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded that disclosure controls and internal controls were effective as of December 31, 2013.
Important facts for investors to verify
- Whether commercial-vehicle demand, especially in North America, and Wiring segment profitability improved after year-end.
- Whether working-capital needs and cash conversion remained consistent with the 2013 decline in operating cash flow.
- Debt maturities, refinancing plans for the credit facility, and the company’s capacity to service its 9.5% notes.
- Developments in the São Paulo tax dispute and other PST contingencies, including potential exposure for later periods.
- Whether PST meets the projections supporting its goodwill valuation, and whether any impairment indicators emerge.
- Customer program volumes, concentration, and the realization of awarded business; also monitor currency and commodity effects on reported results.