Add
SRI to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| SRI > SEC Filings for SRI > Form 10-Q on 6-Aug-2009 | All Recent SEC Filings |
6-Aug-2009
Quarterly Report
Overview
The following Management Discussion and Analysis ("MD&A") is intended to help the reader understand the results of operations and financial condition of 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 medium- and heavy-duty truck, agricultural, automotive and off-highway vehicle markets.
We recognized a net loss for the quarter ended June 30, 2009 of $19.8 million, or $(0.84) per diluted share, compared with net income of $4.7 million, or $0.20 per diluted share, for the second quarter of 2008.
Our second quarter 2009 results were negatively affected by the continued dramatic decline in the global commercial and North American automotive vehicle markets as well as the economy as a whole. Production volumes in North American passenger car/light truck declined by 49.6% during the quarter ended June 30, 2009. The commercial vehicle market production volumes in Europe and North America declined by 70.0% and 50.3%, respectively during the current quarter. In addition, our results were affected by foreign currency exchange rates. Foreign exchange translation adversely affected our revenues by approximately $5.1 million during the quarter ended June 30, 2009 when compared to the quarter ended June 30, 2008. In addition, the results of our PST Eletrônica S.A. ("PST") joint venture in Brazil declined between the two periods. Equity earnings in the joint venture declined from $2.8 million for the second quarter of 2008 to $0.8 million in the second quarter of 2009 due to lower demand for PST's security products. Foreign currency fluctuations negatively affected our equity earnings from PST by approximately $0.2 million during the quarter ended June 30, 2009 as compared to the quarter ended June 30, 2008.
The decrease in selling, general and administrative expenses ("SG&A") was primarily due to decreased design and development and reduced compensation and compensation related expenses incurred during the quarter ended June 30, 2009. The decrease in design and development costs were caused by customers delaying new product launches in the near term as well as planned reductions in our design activities.
Also affecting our results were our restructuring initiatives. Costs incurred during the quarter ended June 30, 2009 related to these restructuring initiatives amounted to approximately $1.6 million and were primarily comprised of one-time termination benefits. These restructuring actions were in response to the depressed conditions in the North American and European commercial vehicle and North American light vehicle markets. Second quarter 2008 restructuring expenses were approximately $3.7 million and were comprised of one-time termination benefits and line-transfer expenses related to our initiative to improve the Company's manufacturing efficiency and cost position by ceasing manufacturing operations at our Sarasota, Florida, and Mitcheldean, United Kingdom locations.
At June 30, 2009 and December 31, 2008, we maintained a cash and equivalents balance of $85.5 million and $92.7 million, respectively. As discussed in Note 6 to the condensed consolidated financial statements, we have no borrowings under our asset-based credit facility. At June 30, 2009 and December 31, 2008, we had borrowing capacity of $45.5 million and $57.7 million, respectively.
Significant factors inherent to our markets that could affect our results for the remainder of 2009 include the financial stability of our customers and suppliers. Our results for 2009 also depend on conditions in the commercial and automotive vehicle markets, which are generally dependent on domestic and global economies.
On April 24, 2009, we entered into the United State Treasury's Auto Supplier Program (the "Program"). Entrance into the Program was retroactive to March 18, 2009. As part of entrance into the Program, we were required to amend our credit facility, to allow us to sell certain accounts receivables due from General Motors Corporation ("GM") or Chrysler, LLC ("Chrysler") to GM Supplier Receivables LLC and Chrysler Receivables SPV LLC, respectively, special purpose entities created by the United States Treasury Department. The Program guarantees these receivables, net of a two percent administrative fee imposed on the receivables included in the Program. As a result of GM and Chrysler exiting bankruptcy, we opted out of the GM Program on June 25, 2009 and the Chrysler Program was terminated upon their exit from bankruptcy.
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 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 of operations from our operations that design and manufacture electronic and electromechanical switches, control actuation devices and sensors.
Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008
Net Sales. Net sales for our reportable segments, excluding inter-segment sales,
for the three months ended June 30, 2009 and 2008 are summarized in the
following table (in thousands):
Three Months Ended
June 30, Dollar Percent
2009 2008 Decrease Decrease
Electronics $ 65,894 64.4 % $ 149,416 70.1 % $ (83,522 ) (55.9 ) %
Control Devices 36,396 35.6 63,813 29.9 (27,417 ) (43.0 ) %
Total net sales $ 102,290 100.0 % $ 213,229 100.0 % $ (110,939 ) (52.0 ) %
|
The decrease in net sales for our Electronics segment was primarily due to volume declines in North American and European commercial vehicle production. Our net sales were negatively affected by foreign currency exchange rates of approximately $5.1 million between the two periods.
The decrease in net sales for our Control Devices segment was primarily attributable to production volume reductions at our major customers in the North American light vehicle market.
Net sales by geographic location for the three months ended June 30, 2009 and 2008 are summarized in the following table (in thousands):
Three Months Ended
June 30, Dollar Percent
2009 2008 Decrease Decrease
North America $ 83,075 81.2 % $ 156,101 73.2 % $ (73,026 ) (46.8 ) %
Europe and other 19,215 18.8 57,128 26.8 (37,913 ) (66.4 ) %
Total net sales $ 102,290 100.0 % $ 213,229 100.0 % $ (110,939 ) (52.0 ) %
|
The decrease in North American sales was primarily attributable to lower sales volume in our North American light vehicle and commercial vehicle markets. Our decrease in sales outside North America was primarily due to lower sales volume in the European commercial vehicle market and adverse foreign exchange rate movements.
Condensed consolidated statements of operations as a percentage of net sales for the three months ended June 30, 2009 and 2008 are presented in the following table (in thousands):
Three Months Ended
June 30, $ Increase /
2009 2008 (Decrease)
Net Sales $ 102,290 100.0 % $ 213,229 100.0 % $ (110,939 )
Costs and Expenses:
Cost of goods sold 88,694 86.7 163,875 76.9 (75,181 )
Selling, general and administrative 26,338 25.7 36,884 17.3 (10,546 )
Restructuring charges 1,551 1.5 1,713 0.8 (162 )
Operating Income (Loss) (14,293 ) (13.9 ) 10,757 5.0 (25,050 )
Interest expense, net 5,538 5.4 4,880 2.3 658
Equity in earnings of investees (903 ) (0.9 ) (3,016 ) (1.4 ) 2,113
Loss on early extinguishment of debt - - 271 0.1 (271 )
Other expense (income), net 639 0.6 (124 ) (0.1 ) 763
Income (Loss) Before Income Taxes (19,567 ) (19.0 ) 8,746 4.1 (28,313 )
Provision for income taxes 197 0.2 4,062 1.9 (3,865 )
Net Income (Loss) $ (19,764 ) (19.2 ) % $ 4,684 2.2 % $ (24,448 )
|
Cost of Goods Sold. The increase in cost of goods sold as a percentage of sales was due to the significant decline in volume and a less favorable product mix related to our European commercial vehicle and North American commercial and light vehicle products during the quarter ended June 30, 2009.
Selling, General and Administrative Expenses. Product development expenses included in SG&A were $9.5 million and $13.3 million for the second quarters ended June 30, 2009 and 2008, respectively. The decrease in design and development costs was caused by customers delaying new product launches in the near term as well as planned reductions in our design activities. The decrease in SG&A costs excluding product development expenses was due to lower employee related costs, primarily incentive compensation.
Restructuring Charges. Costs from our restructuring initiatives for the quarter ended June 30, 2009 decreased compared to the second quarter of 2008. Costs incurred during the quarter ended June 30, 2009 related to restructuring initiatives amounted to approximately $1.6 million and were primarily comprised of one-time termination benefits. These restructuring actions were in response to the depressed conditions in the European and North American commercial vehicle markets as well as the North American automotive market. Second quarter 2008 restructuring expenses were approximately $3.7 million and were comprised of one-time termination benefits and line-transfer expenses related to our initiative to improve the Company's manufacturing efficiency and cost position by ceasing manufacturing operations at our Sarasota, Florida, and Mitcheldean, United Kingdom locations. Restructuring expenses that were general and administrative in nature were included in the Company's condensed consolidated statements of operations as restructuring charges, while the remaining restructuring related expenses were included in cost of goods sold.
Restructuring charges, general and administrative in nature, recorded by reportable segment during the three months ended June 30, 2009 were as follows (in thousands):
Total
Consolidated
Control Restructuring
Electronics Devices Charges
Severance costs $ 1,435 $ 116 $ 1,551
|
Severance costs relate to a reduction in workforce.
Restructuring charges, general and administrative in nature, recorded by reportable segment during the three months ended June 30, 2008 were as follows (in thousands):
Total
Consolidated
Control Restructuring
Electronics Devices Charges
Severance costs. $ 819 $ 375 $ 1,194
Other exit costs. 10 509 519
Total general and administrative restructuring charges $ 829 $ 884 $ 1,713
|
Other exit costs include miscellaneous expenditures associated with exiting business activities.
Equity in Earnings of Investees. The decrease in equity earnings of investees was predominately attributable to the decrease in equity earnings recognized from our PST joint venture. Equity earnings for PST declined from $2.8 million for the quarter ended June 30, 2008 to $0.8 million for the quarter ended June 30, 2009. The decrease primarily reflects lower volumes for PST's product lines and unfavorable exchange rates during the quarter ended June 30, 2009. Foreign currency fluctuations negatively affected our equity earnings from PST by approximately $0.2 million during the quarter ended June 30, 2009 as compared to the quarter ended June 30, 2008.
Income (Loss) Before Income Taxes. Income (loss) before income taxes is summarized in the following table by reportable segment (in thousands).
Three Months Ended
June 30, Dollar Percent
2009 2008 Decrease Decrease
Electronics $ (8,954 ) $ 12,984 $ (21,938 ) (169.0 ) %
Control Devices (5,408 ) (985 ) (4,423 ) (449.0 ) %
Other corporate activities 301 1,739 (1,438 ) (82.7 ) %
Corporate interest expense, net (5,506 ) (4,992 ) (514 ) (10.3 ) %
Income (loss) before income taxes $ (19,567 ) $ 8,746 $ (28,313 ) (323.7 ) %
|
The decrease in income (loss) before income taxes in the Electronics segment was primarily related to decreased revenue within our North American and European commercial vehicle markets and unfavorable product mix. Additionally, these factors were favorably affected by foreign exchange rates during the quarter ended June 30, 2009 when converting functional currency to United States Dollars.
The increase in loss before income taxes in the Control Devices reportable segment was primarily due to lower revenue within our North American light vehicle market.
The decrease in income before income taxes from other corporate activities was primarily due to the $2.0 million decrease in equity earnings from our PST joint venture. The decrease is partially offset by a decrease in compensation related expenses and the loss recognized on the purchase and retirement of $6.0 million in face value of our senior notes in the second quarter of 2008.
Income (loss) before income taxes by geographic location for the three months ended June 30, 2009 and 2008 is summarized in the following table (in thousands):
Three Months Ended
June 30, Dollar Percent
2009 2008 Decrease Decrease
North America $ (13,053 ) 66.7 % $ 8,215 93.9 % $ (21,268 ) (258.9 ) %
Europe and other (6,514 ) 33.3 531 6.1 (7,045 ) NM
Income (loss) before
income taxes $ (19,567 ) 100.0 % $ 8,746 100.0 % $ (28,313 ) (323.7 ) %
|
NM - not meaningful
The decrease in our profitability in North America was primarily attributable to lower sales volumes within our North American commercial and light vehicle markets during the quarter ended June 30, 2009. The decrease in profitability outside North America was primarily due to lower sales volumes during the quarter ended June 30, 2009.
Provision for Income Taxes. We recognized a provision for income taxes of $0.2 million, or (1.0)% of pre-tax loss, and $4.1 million, or 46.4% of the pre-tax income, for federal, state and foreign income taxes for the second quarters ended June 30, 2009 and 2008, respectively. As reported at December 31, 2008, the Company is in a cumulative loss position and provides a valuation allowance offsetting federal, state and certain foreign deferred tax assets. As a result, a tax benefit is not being provided for losses incurred in the first half of 2009, for federal, state and certain foreign jurisdictions. The inability to recognize a tax benefit for these losses and other deferred tax assets has a significant impact on our effective tax rate as well as the comparability of the current quarter and year-to-date effective tax rate to prior periods in which the Company had not recorded a federal valuation allowance. The difference in the effective tax rate for the three months ended June 30, 2009 compared to the three months ended June 30, 2008, was primarily attributable to the federal valuation allowance provided against the current year domestic loss which was partially offset by recording a tax benefit related to current period losses in certain foreign jurisdictions in which it is more likely than not that the benefit of those losses will be realized in the current year.
Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008
Net Sales. Net sales for our reportable segments, excluding inter-segment sales,
for the six months ended June 30, 2009 and 2008 are summarized in the following
table (in thousands):
Six Months Ended
June 30, Dollar Percent
2009 2008 Decrease Decrease
Electronics $ 148,665 66.6 % $ 282,632 67.9 % $ (133,967 ) (47.4 ) %
Control Devices 74,710 33.4 133,667 32.1 (58,957 ) (44.1 ) %
Total net sales $ 223,375 100.0 % $ 416,299 100.0 % $ (192,924 ) (46.3 ) %
|
The decrease in net sales for our Electronics segment was primarily due to volume declines in commercial vehicle production. Our net sales were negatively affected by foreign currency exchange rates of approximately $11.8 million between the two periods.
The decrease in net sales for our Control Devices segment was primarily attributable to production volume reductions at our major customers in the North American light vehicle market.
Net sales by geographic location for the six months ended June 30, 2009 and 2008 are summarized in the following table (in thousands):
Six Months Ended
June 30, Dollar Percent
2009 2008 Decrease Decrease
North America $ 182,305 81.6 % $ 303,299 72.9 % $ (120,994 ) (39.9 ) %
Europe and other 41,070 18.4 113,000 27.1 (71,930 ) (63.7 ) %
Total net sales $ 223,375 100.0 % $ 416,299 100.0 % $ (192,924 ) (46.3 ) %
|
The decrease in North American sales was primarily attributable to lower sales volume in our North American light vehicle and commercial vehicle markets. Our decrease in sales outside North America was primarily due to lower sales volume in the European commercial vehicle market and adverse foreign exchange rate movements.
Condensed consolidated statements of operations as a percentage of net sales for the six months ended June 30, 2009 and 2008 are presented in the following table (in thousands):
Six Months Ended
June 30, $ Increase /
2009 2008 (Decrease)
Net Sales $ 223,375 100.0 % $ 416,299 100.0 % $ (192,924 )
Costs and Expenses:
Cost of goods sold 190,504 85.3 315,128 75.7 (124,624 )
Selling, general and administrative 53,415 23.9 73,166 17.6 (19,751 )
Restructuring 2,509 1.1 3,135 0.8 (626 )
-
Operating Income (Loss) (23,053 ) (10.3 ) 24,870 5.9 (47,923 )
Interest expense, net 11,035 4.9 10,252 2.5 783
Equity in earnings of investees (1,478 ) (0.7 ) (6,835 ) (1.6 ) 5,357
Loss on early extinguishment of debt - - 770 0.2 (770 )
Other expense, net 645 0.3 278 0.1 367
-
Income (Loss) Before Income Taxes (33,255 ) (14.8 ) 20,405 4.7 (53,660 )
Provision (benefit) for income taxes (1,911 ) (0.9 ) 9,174 2.2 (11,085 )
Net Income (Loss) $ (31,344 ) (13.9 ) % $ 11,231 2.5 % $ (42,575 )
|
Cost of Goods Sold. The increase in cost of goods sold as a percentage of sales was due to the significant decline in volume and a less favorable product mix related to our European commercial vehicle and North American commercial and light vehicle products during the six months ended June 30, 2009.
Selling, General and Administrative Expenses. Product development expenses included in SG&A were $18.0 million and $25.5 million for the six months ended June 30, 2009 and 2008, respectively. The decrease in design and development costs was caused by customers delaying new product launches in the near term as well as planned reductions in our design activities. The decrease in SG&A costs excluding product development expenses was due to lower employee related costs, primarily incentive compensation.
Restructuring Charges. Costs from our restructuring initiatives for the six months ended June 30, 2009 decreased compared to the first six months of 2008. Costs incurred during the six months ended June 30, 2009 related to restructuring initiatives amounted to approximately $2.5 million and were primarily comprised of one-time termination benefits. These restructuring actions were in response to the depressed conditions in the European and North American commercial vehicle markets as well as the North American automotive market. Restructuring charges for the first six months of 2008 were approximately $3.7 million and were comprised of one-time termination benefits and line-transfer expenses related to our initiative to improve the Company's manufacturing efficiency and cost position by ceasing manufacturing operations at our Sarasota, Florida, and Mitcheldean, United Kingdom locations. Restructuring expenses that were general and administrative in nature were included in the Company's condensed consolidated statements of operations as restructuring charges, while the remaining restructuring related expenses were included in cost of goods sold.
Restructuring charges, general and administrative in nature, recorded by reportable segment during the six months ended June 30, 2009 were as follows (in thousands):
Total
Consolidated
Restructuring
Electronics Control Devices Charges
Severance costs $ 1,804 $ 613 $ 2,417
Contract termination costs 92 - 92
Total general and administrative restructuring charges $ 1,896 $ 613 $ 2,509
|
Severance costs related to a reduction in workforce. Contract termination cost represent costs associated with long-term lease objectives that were cancelled as part of the restructuring initiatives.
Restructuring charges, general and administrative in nature, recorded by reportable segment during the six months ended June 30, 2008 were as follows (in thousands):
Total
Consolidated
Restructuring
Electronics Control Devices Charges
Severance costs $ 1,692 $ 740 $ 2,432
Other exit costs 18 685 703
Total general and administrative restructuring charges $ 1,710 $ 1,425 $ 3,135
|
Other exit costs include miscellaneous expenditures associated with exiting business activities.
Equity in Earnings of Investees. The decrease in equity earnings of investees was predominately attributable to the decrease in equity earnings recognized from our PST joint venture. Equity earnings for PST declined from $6.4 million for the six months ended June 30, 2008 to $1.4 million for the six months ended June 30, 2009. The decrease primarily reflects lower volumes for PST's product lines and unfavorable exchange rates during the six months ended June 30, 2009. Foreign currency fluctuations negatively affected the Company's equity . . .
|
|