Add
SRI to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| SRI > SEC Filings for SRI > Form 10-Q on 9-Nov-2009 | All Recent SEC Filings |
9-Nov-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, light vehicle and off-highway vehicle markets.
We recognized a net loss for the quarter ended September 30, 2009 of $0.9 million, or $(0.04) per diluted share, compared with net loss of $0.4 million, or $(0.02) per diluted share, for the third quarter of 2008. The decrease in net income was primarily due to the severe reduction in sales volume that we experienced in all of our markets. However the reduction in net income was mitigated by the benefits of previous restructuring and cost-reduction initiatives.
Our third quarter 2009 results were negatively affected by the continued decline in the North American and European commercial and North American light vehicle markets as well as the economy as a whole. Production volumes in North American light vehicle declined by 20.6% during the quarter ended September 30, 2009 when compared to the quarter ended September 30, 2008. These production volume reductions had a negative effect on our Control Devices segment net sales of approximately $2.1 million. The commercial vehicle market production volumes in Europe and North America declined by 68.6% and 38.4%, respectively during the current quarter when compared to the prior year third quarter, which resulted in lower net sales for our Electronics segment of approximately $49.1 million. In aggregate these production declines had an unfavorable effect on our consolidated net sales of approximately $51.2 million for the quarter ended September 30, 2009. Product pricing had a minimal affect on our current quarter net sales when compared to our net sales for the third quarter of 2008. Our gross margin percentage increased from 19.8% for the quarter ended September 30, 2008 to 23.0% for the current quarter. Restructuring charges included in prior year cost of goods sold of approximately $2.1 million had a negative affect of approximately 1.2% on the gross margin percentage for the quarter ended September 30, 2008. There were no restructuring charges included in current quarter cost of goods sold.
Our selling, general and administrative expenses ("SG&A") decreased from $31.7 million for the quarter ended September 30, 2008 to $23.1 million for the quarter ended September 30, 2009. This $8.6 million or 27.1% decrease in SG&A, was primarily due to reduced compensation and compensation related expenses incurred during the quarter ended September 30, 2009 of approximately $6.2 million as a result of lower headcount and incentive compensation expenses. The reduction of current quarter SG&A expenses is largely due to cost benefits realized in the current quarter from prior period restructuring initiatives. In addition, our design and development costs decreased between periods due to customers delaying new product launches in the near term as well as planned reductions in our design activities. Our design and development costs declined by approximately $3.3 million between the two periods, which was primarily attributable to our Electronics segment. In addition to our restructuring initiatives, we have reduced discretionary spending in 2009, which has reduced our current quarter cost structure.
Also affecting our results were our restructuring initiatives. Costs incurred during the quarter ended September 30, 2009 related to these restructuring initiatives amounted to approximately $1.3 million and was comprised of one-time termination benefits. These restructuring actions were in response to the depressed conditions in the North American and European commercial vehicle markets. In addition, during the third quarter of 2009 we consolidated certain marketing and administrative positions at two of our Control Devices facilities. Third quarter 2008 restructuring expenses were approximately $4.8 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 Control Devices facility in Sarasota, Florida, and our Electronics facility in Mitcheldean, United Kingdom. We may incur additional restructuring charges in the future related to the further consolidation of our Control Devices operations.
Equity earnings in our PST Eletrônica S.A. ("PST") joint venture in Brazil declined from $4.2 million for the third quarter of 2008 to $3.2 million in the third quarter of 2009 due to lower demand for PST's security products and adverse foreign currency exchange fluctuations.
At September 30, 2009 and December 31, 2008, we maintained a cash and cash equivalents balance of $84.4 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 September 30, 2009 and December 31, 2008, we had borrowing capacity of $51.5 million and $57.7 million, respectively based upon eligible current assets.
In April 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 guaranteed 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 in June 2009 and the Chrysler Program was terminated upon their exit from bankruptcy. We have not experienced any losses related to the collection of GM or Chrysler receivables as a result of their bankruptcy filings. Subsequent to the GM and Chrysler bankruptcies, we have been collecting our GM and Chrysler receivables under normal terms.
Our results for 2009 depend on conditions in the global commercial and light vehicle markets, which are generally dependent on domestic economies. 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. In addition, the ability of our supplier base to adjust to production volatility in the market may also affect our results.
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 Electronics reportable segment primarily sells products to the commercial vehicle market. The Control Devices reportable segment includes results of operations that design and manufacture electronic and electromechanical switches, control actuation devices and sensors. The Control Devices reportable segment primarily sells products to the light vehicle market.
Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008
Net Sales. Net sales for our reportable segments, excluding inter-segment sales, for the three months ended September 30, 2009 and 2008 are summarized in the following table (in thousands):
Three Months Ended
September 30, Dollar Percent
2009 2008 Decrease Decrease
Electronics $ 70,165 59.5 % $ 126,636 71.0 % $ (56,471) (44.6) %
Control Devices 47,827 40.5 51,798 29.0 (3,971) (7.7) %
Total net sales $ 117,992 100.0 % $ 178,434 100.0 % $ (60,442) (33.9) %
|
The decrease in net sales for our Electronics segment was primarily due to volume declines in our North American and European commercial vehicle production. The commercial vehicle market production volumes in Europe and North America declined by 68.6% and 38.4%, respectively, during the current quarter when compared to the prior year third quarter. Our Electronics segment was adversely affected by reduced volume by approximately $49.1 million for the quarter ended September 30, 2009 when compared to the prior year quarter. The reductions in North American and European commercial vehicle production negatively affected our Electronics segment for the quarter ended September 30, 2009 by $21.2 million and $16.4 million, respectively. The balance of the decrease was primarily related to volume declines in the agricultural and light vehicle markets.
The decrease in net sales for our Control Devices segment was attributable to sales losses and production volume reductions at our major customers in the North American light vehicle market. Our current quarter sales were adversely affected by sales losses during the quarter ended September 30, 2009 of approximately $3.3 million. These sales losses were primarily a result of our products being decontented or removed from certain customer products. Our net sales were also negatively affected by approximately $2.1 million due to the reduced volume during the quarter ended September 30, 2009 when compared to the prior year quarter. Production volumes in North American light vehicle declined by 20.6% during the quarter ended September 30, 2009 when compared to the quarter ended September 30, 2008.
Net sales by geographic location for the three months ended September 30, 2009 and 2008 are summarized in the following table (in thousands):
Three Months Ended
September 30, Dollar Percent
2009 2008 Decrease Decrease
North America $ 95,212 80.7 % $ 131,966 74.0 % $ (36,754) (27.9) %
Europe and other 22,780 19.3 46,468 26.0 (23,688) (51.0) %
Total net sales $ 117,992 100.0 % $ 178,434 100.0 % $ (60,442) (33.9) %
|
The decrease in North American sales was primarily attributable to lower sales volume in the North American commercial vehicle and agricultural markets in our Electronics segment. Net sales declined as a result of lower sales volume by approximately $21.5 and $10.7 million in our North American commercial vehicle and agricultural markets, respectively between the periods presented. Our decrease in sales outside North America was primarily due to lower sales volume of approximately $16.4 million in the European commercial vehicle market.
Condensed consolidated statements of operations as a percentage of net sales for the three months ended September 30, 2009 and 2008 are presented in the following table (in thousands):
Three Months Ended
September 30, $ Increase /
2009 2008 (Decrease)
Net Sales $ 117,992 100.0 % $ 178,434 100.0 % $ (60,442)
Costs and Expenses:
Cost of goods sold 90,909 77.0 143,089 80.2 (52,180)
Selling, general and administrative 23,139 19.6 31,668 17.7 (8,529)
Restructuring charges 1,310 1.1 2,742 1.5 (1,432)
Operating Income 2,634 2.3 935 0.6 1,699
Interest expense, net 5,559 4.7 5,049 2.8 510
Equity in earnings of investees (3,386) (2.9) (4,371) (2.4) 985
Other expense (income), net (198) (0.2) (234) (0.1) 36
Income Before Income Taxes 659 0.7 491 0.3 168
Provision for income taxes 1,502 1.3 855 0.5 647
Net Loss $ (843) (0.6) % $ (364) (0.2) % $ (479)
|
Cost of Goods Sold. The decrease in cost of goods sold was due to the significant decline in volume during the current quarter when compared to the prior year quarter. The decrease in cost of goods sold as a percentage of sales was primarily due to benefits realized in the current quarter cost structure as a result of prior period restructuring initiatives. In addition, our cost of goods sold for the quarter ended September 30, 2008 included approximately $2.1 million of restructuring charges. There were no such charges included in cost of goods sold for the current quarter. Our material cost as a percentage of net sales for our Electronics segment for the quarters ended September 30, 2009 and 2008 was 54.6% and 52.0%, respectively. This increase is primarily due to lower volume from our military related commercial vehicle products in the current quarter. Our materials cost as a percent of sales for the Control Devices segment increased from 49.0% for the quarter ended September 30, 2008 to 52.3% for the third quarter of 2009. Our material costs as a percent of sales increased during the current quarter due to the outsourcing of a stamping operation and minor shifts in product mix.
Selling, General and Administrative Expenses. Design and development expenses included in SG&A were $6.9 million and $10.2 million for the quarters ended September 30, 2009 and 2008, respectively. Design and development expenses for our Electronics and Control Devices segments decreased from $6.2 million and $4.0 million for the quarter ended September 30, 2008 to $3.6 million and $3.3 million for the quarter ended September 30, 2009, respectively. The decrease in design and development costs was a result of our 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 design and development expenses was due to lower employee related costs of approximately $4.2 million due to reduced headcount and lower incentive compensation expenses company-wide. These current quarter cost reductions were primarily due to prior period restructuring initiatives. Our SG&A costs increased as a percent of sales because net sales declined faster than we were able to reduce our SG&A costs.
Restructuring Charges. Costs from our restructuring initiatives for the quarter ended September 30, 2009 decreased compared to the third quarter of 2008. Costs incurred during the quarter ended September 30, 2009 related to restructuring initiatives amounted to approximately $1.3 million and was comprised of one-time termination benefits. These restructuring costs were general and administrative in nature and were included in our condensed consolidated statements of operations as restructuring charges. During the current quarter we consolidated certain marketing and administrative positions at two of our Control Devices facilities and we initiated additional restructuring actions in our Electronics segment in response to the depressed conditions in the European and North American commercial vehicle markets. Third quarter 2008 restructuring expenses were approximately $4.8 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 Control Devices segment facility in Sarasota, Florida and our Electronics segment facility in Mitcheldean, United Kingdom. Restructuring expenses of $2.7 million that were general and administrative in nature were included in the Company's condensed consolidated statements of operations as restructuring charges, while the remaining $2.1 million of 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 September 30, 2009 are as follows (in thousands):
Total
Consolidated
Restructuring
Electronics Control Devices Charges
Severance costs $ 939 $ 371 $ 1,310
|
Severance costs relate to a reduction in workforce.
Restructuring charges, general and administrative in nature, recorded by reportable segment during the three months ended September 30, 2008 are as follows (in thousands):
Total
Consolidated
Restructuring
Electronics Control Devices Charges
Severance costs $ 590 $ 486 $ 1,076
Contract termination costs 703 - 703
Other exit costs 1 962 963
Total general and administrative restructuring charges $ 1,294 $ 1,448 $ 2,742
|
Contract termination costs represent expenditures associated with long-term lease obligations that were cancelled as part of the restructuring initiatives. 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 $4.2 million for the quarter ended September 30, 2008 to $3.2 million for the quarter ended September 30, 2009. This decrease was caused by a 10.6% decline in PST's net sales and the negative effect of foreign currency translation during the quarter ended September 30, 2009 when compared to the prior year quarter.
Income (Loss) Before Income Taxes. Income before income taxes is summarized in the following table by reportable segment (in thousands).
Three Months Ended Dollar Percent
September 30, Increase Increase
2009 2008 (Decrease) (Decrease)
Electronics $ (348) $ 7,001 $ (7,349) (105.0) %
Control Devices 2,035 (6,523) 8,558 131.2 %
Other corporate activities 4,459 5,129 (670) (13.1) %
Corporate interest expense, net (5,487) (5,116) (371) (7.3) %
Income before income taxes $ 659 $ 491 $ 168 34.2 %
|
The decrease in profitability in the Electronics segment was primarily related to decreased net sales and resulting gross margin within our North American and European commercial vehicle and North American agricultural markets. Our net sales within our Electronics segment decreased by $21.2 million, $16.4 million and $9.6 million, respectively, due to volume reductions within the North American and European commercial vehicle and agricultural markets.
The increase in income before income taxes in the Control Devices reportable segment was primarily due to lower restructuring charges of approximately $2.6 million incurred during the third quarter of 2009 when compared to the third quarter of 2008. Additionally, the third quarter of 2009 benefited from a lower cost structure as a result of prior period restructuring initiatives. Compensation and compensation related SG&A costs declined by approximately $2.9 million from the quarter ended September 30, 2008 to the quarter ended September 30, 2009 as a result of reduced headcount and lower incentive compensation expenses.
The decrease in income before income taxes from other corporate activities was primarily due to the $1.0 million decrease in equity earnings from our PST joint venture. The decrease is partially offset by a decrease in compensation related expenses.
Income (loss) before income taxes by geographic location for the three months ended September 30, 2009 and 2008 is summarized in the following table (in thousands):
Three Months Ended Dollar Percent
September 30, Increase Increase
2009 2008 (Decrease) (Decrease)
North America $ 486 73.7 % $ 2,688 547.5 % $ (2,202) (81.9) %
Europe and other 173 26.3 (2,197) (447.5) 2,370 107.9 %
Income before income taxes $ 659 100.0 % $ 491 100.0 % $ 168 34.2 %
|
The decrease in our profitability in North America was primarily attributable to lower sales volumes within our North American commercial vehicle and agricultural markets of approximately $21.5 million and $10.7 million, respectively during the quarter ended September 30, 2009. The increase in profitability outside North America was due to benefits realized in our cost structure from prior restructuring initiatives during the quarter ended September 30, 2009 as well as a reduction in restructuring costs of approximately $1.8 million between periods.
Provision for Income Taxes. We recognized a provision for income taxes of $1.5 million, or 227.9% and $0.9 million, or 174.1% of pre-tax income, for federal, state and foreign income taxes for the third quarters ended September 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 nine months 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 effect 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 September 30, 2009 compared to the three months ended September 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.
Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
Net Sales. Net sales for our reportable segments, excluding inter-segment sales, for the nine months ended September 30, 2009 and 2008 are summarized in the following table (in thousands):
Nine Months Ended
September 30, Dollar Percent
2009 2008 Decrease Decrease
Electronics $ 218,830 64.1 % $ 409,268 68.8 % $ (190,438) (46.5) %
Control Devices 122,537 35.9 185,465 31.2 (62,928) (33.9) %
Total net sales $ 341,367 100.0 % $ 594,733 100.0 % $ (253,366) (42.6) %
|
The decrease in net sales for our Electronics segment was primarily due to volume declines in our North American and European commercial vehicle production. Commercial vehicle market production volumes in Europe and North America declined by 67.2% and 45.7%, respectively during the nine months ended September 30, 2009 compared to the prior year comparative period. Our Electronics segment was adversely affected by reduced volume in our served markets by approximately $179.0 million for the nine months ended September 30, 2009 when compared to the prior year comparative period. The reductions in North American and European commercial vehicle production negatively affected our Electronics segment for the nine months ended September 30, 2009 by approximately $77.6 million and $73.1 million, respectively. The balance of the decrease was primarily related to volume declines in the agricultural and light vehicle markets.
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 and sales losses. Production volumes in the North American light vehicle market declined by 41.4% during the nine months ended September 30, 2009 when compared to the nine months ended September 30, 2008. Volume reductions within our Control Devices segment reduced net sales for the nine months ended September 30, 2009 by approximately $55.1 million when compared to the prior year comparative period. The reduction in the North American light vehicle market production negatively affected our Control Devices segment for the nine months ended September 30, 2009 by approximately $45.0 million. The balance of the decrease was related to volume declines in the agricultural and commercial vehicle markets. Our net sales for the nine months ended September 30, 2009 were also adversely affected by sales losses of approximately $12.0 million. These sales losses were primarily a result of our products being decontented or removed from certain customer products.
. . .
|
|