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Summary of Significant Accounting Policies
 12 Months Ended
Dec. 31, 2012
Organization, Consolidation and Presentation Of Financial Statements [Abstract]  
Organization Consolidation and Presentation Of Financial Statements Disclosure [Text Block]

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. The Company accounts for investments in joint ventures in which it owns between 20% and 50% of equity, or otherwise acquires significant management influence, using the equity method (see Note 3).

 

On December 31, 2011, the Company completed the acquisition of an additional 24% controlling interest in PST Eletrônica Ltda. (“PST”). As a result, the Company now owns 74% of the outstanding equity of PST, which is a Brazil-based electronics system provider focused on electronic vehicle alarms, convenience accessories, vehicle tracking devices and monitoring services and in-vehicle audio and video devices, primarily for the South American automotive and motorcycle markets.

 

PST’s results for the year ended December 31, 2012 were consolidated such that 100% of PST’s operations were included in each line from sales through net income in the Company’s consolidated statement of operations with the 26% noncontrolling interest reduced in the net loss attributable to noncontrolling interest line.

 

Because a controlling interest in PST was not acquired until the close of business on December 31, 2011, the results for the year ended December 31, 2011 were accounted for as an unconsolidated joint venture under the equity method of accounting such that our 50% portion of PST’s after-tax earnings were included within equity in earnings of investees in the consolidated statement of operations.

 

Accounting Estimates

 

The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) 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.

 

Cash and Cash Equivalents

 

The Company’s cash equivalents are actively traded money market funds with short-term investments in marketable securities, primarily U.S. government securities. 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 commercial, automotive, agricultural, motorcycle and off-highway vehicle markets. The Company’s largest customers were Navistar International Corporation (“Navistar”) and Deere & Company (“Deere”), primarily related to the Wiring reportable segment, and accounted for the following percentages of consolidated net sales for the years ended December 31, 2012, 2011 and 2010:

 

    2012     2011     2010  
Navistar     18 %     24 %     24 %
Deere     13 %     15 %     14 %

 

Accounts receivable are recorded at the invoice price net of an estimate of allowance for doubtful accounts and other reserves.

 

Allowance for Doubtful Accounts

 

The Company evaluates the collectability of accounts receivable based on a combination of factors. In circumstances where the Company is aware of a specific customer’s 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 collectability 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.

 

Inventories

 

Inventories are valued at the lower of cost (using either the first-in, first-out (“FIFO”) or average cost methods) or market. The Company evaluates and adjusts as necessary its excess and obsolescence reserve on at least on a quarterly basis. Excess inventories are quantities of items that exceed anticipated sales or usage for a reasonable period. The Company has guidelines for calculating provisions for excess inventories based on the number of months of inventories on hand compared to anticipated sales or usage. Management uses its judgment to forecast sales or usage and to determine what constitutes a reasonable period. Inventory cost includes material, labor and overhead. Inventories consist of the following:

 

As of December 31   2012     2011  
             
Raw materials   $ 64,340     $ 72,145  
Work-in-progress     13,621       14,722  
Finished goods     18,071       33,615  
Total inventories, net   $ 96,032     $ 120,482  

 

Inventory valued using the FIFO method was $57,004 and $64,441 at December 31, 2012 and 2011, respectively. Inventory valued using the average cost method was $39,028 and $56,041 at December 31, 2012 and 2011, respectively.

 

Pre-production costs related to long-term supply arrangements

 

Engineering, research and development and other design and development costs for products sold on long-term supply arrangements are expensed as incurred unless the Company has a contractual guarantee for reimbursement from the customer. Costs for molds, dies and other tools used to make products sold on long-term supply arrangements for which the Company either has title to the assets or has the noncancelable right to use the assets during the term of the supply arrangement are capitalized in property, plant and equipment and amortized to cost of sales over the shorter of the term of the arrangement or over the estimated useful lives of the assets, typically three to five years. Costs for molds, dies and other tools used to make products sold on long-term supply arrangements for which the Company has a contractual guarantee to lump sum reimbursement from the customer are capitalized as a component of prepaid expenses and other current assets within the consolidated balance sheets. The amounts recorded related to these pre-production costs as of December 31, 2012 and 2011 were $8,631 and $10,381, respectively.

 

Property, Plant and Equipment

 

Property, plant and equipment are recorded at cost and consist of the following:

 

As of December 31   2012     2011  
             
Land and land improvements   $ 5,117     $ 5,254  
Buildings and improvements     45,940       45,291  
Machinery and equipment     196,003       177,434  
Office furniture and fixtures     8,856       8,789  
Tooling     71,045       69,719  
Information technology     33,009       31,158  
Vehicles     1,456       1,459  
Leasehold improvements     3,560       3,416  
Construction in progress     17,656       19,089  
Total property, plant, and equipment     382,642       361,609  
Less: accumulated depreciation     (263,495 )     (236,665 )
Property, plant and equipment, net   $ 119,147     $ 124,944  

 

Depreciation is provided using the straight-line method over the estimated useful lives of the assets. Depreciation expense for the years ended December 31, 2012, 2011 and 2010 was $28,519, $18,847 and $19,070, respectively. Depreciable lives within each property classification are as follows:

 

Buildings and improvements 10–40 years
Machinery and equipment 3–10 years
Office furniture and fixtures 3–10 years
Tooling 2–5 years
Information technology 3–5 years
Vehicles 3–5 years
Leasehold improvements shorter of lease term or 3–10 years

 

Maintenance and repair expenditures that are not considered improvements and do not extend the useful life of the property, plant and equipment 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 recorded in the consolidated statements of operations as a component of selling, general and administrative.

 

Impairment of Long-Lived or Finite-Lived 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. 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 undiscounted future cash flows resulting from the use and ultimate disposition of the asset. During the year ended December 31, 2011, the Company recorded an impairment charge of $807 in its Wiring reportable segment related to certain capitalized software costs that were determined to no longer represent a future realizable benefit. This charge is recorded in the consolidated statements of operations as a component of selling, general and administrative expenses. No impairment charges were recorded in 2012 or 2010 for long-lived or finite-lived intangible assets.

 

Acquisitions

 

PST Eletrônica Ltda.

 

On December 31, 2011, the Company acquired a controlling interest in PST, by increasing its interest from 50% to 74%. Prior to the acquisition of the additional interest, the PST joint venture was accounted for under the equity method of accounting. On the date of acquisition of controlling interest, PST became a consolidated subsidiary and a new reportable segment of the Company. PST’s results of operations were consolidated and included in the Company’s consolidated statement of operations, comprehensive income and cash flows for the year ended December 31, 2012. For the year ended December 31, 2011, PST’s results of operations and cash flows were included in the Company’s consolidated statements of operations and cash flows as equity in earnings of investees. PST’s financial position is included in the consolidated balance sheet at December 31, 2012 and 2011.

 

PST specializes in the design, manufacture and sale of electronic vehicle security alarms, convenience accessories, vehicle tracking devices and monitoring services and in-vehicle audio and video devices. PST sells its products through the aftermarket distribution channel, to factory authorized dealer installers, also referred to as original equipment services, direct to Original Equipment Manufacturers (“OEMs”) and through mass merchandisers in South America.

 

As a result of obtaining a controlling interest in PST, the Company’s previously held 50% equity interest in PST of $38,746 was remeasured to an acquisition date fair value of $104,118. The Company recognized a one-time non-cash pre-tax gain on previously held equity interest of $65,372 as a result of this remeasurment in the fourth quarter of 2011.

 

The acquisition date fair value of the remaining 26% noncontrolling interest in PST was measured at $48,727 at December 31, 2011. The noncontrolling interest was recorded as a component of total shareholder’s equity on the consolidated balance sheet at December 31, 2011. Noncontrolling interest in PST decreased to $44,076 at December 31, 2012 due to changes in foreign currency translation of approximately $3,918 and its proportionate share of its net loss of $733 for the year ended December 31, 2012.

 

The acquisition date fair value of the total consideration transferred consisted of the following:

 

Cash   $ 29,669  
Common Shares (1,940,413 shares)     15,310  
Fair value of consideration transferred     44,979  
Fair value of the Company's previously held equity interest     104,118  
Fair value of noncontrolling interest     48,727  
Total fair value of PST   $ 197,824  

  

Of the $44,979 consideration transferred for the additional 24% interest, $29,976 ($19,779 of cash and $10,197 of the fair value of 1,293,609 Company Common Shares) was transferred on January 5, 2012, in accordance with the terms of the purchase agreement. This amount was recorded as a liability owed to the selling shareholders and was included as a component of accrued expenses and other current liabilities on the consolidated balance sheet as of December 31, 2011.

 

The fair value of the Common Shares transferred was based on the closing market price of the Company’s Common Shares on the acquisition date, less a discount for a lack of short-term marketability as the Common Shares transferred were issued through a private placement.

 

The following table summarizes the allocation of the consideration transferred to the assets acquired and liabilities assumed at the acquisition date.

 

At December 31, 2011 (controlling interest acquisition date)

 

    Initial     Final  
    Allocation     Allocation  
             
Cash   $ 2,137     $ 2,137  
Accounts receivable     48,993       48,993  
Inventory     56,204       56,041  
Prepaids and other current assets     9,547       9,051  
Property, plant and equipment     42,389       42,531  
Identifiable intangible assets     102,090       97,398  
Other long-term assets     1,479       1,479  
Total identifiable assets acquired     262,839       257,630  
                 
Accounts payable     9,825       9,475  
Other current liabilities     25,801       25,378  
Debt     54,068       54,068  
Deferred tax liabilities     39,392       38,003  
Total liabilities assumed     129,086       126,924  
Net identifiable assets acquired     133,753       130,706  
Goodwill     64,071       67,118  
Net assets acquired   $ 197,824     $ 197,824  

 

During the year ended December 31, 2012, goodwill was increased by $3,047, the net result of measurement period purchase accounting adjustments to the fair value of assets acquired and liabilities assumed primarily related to changes to provisional amounts recorded for property, plant and equipment and identifiable intangible assets and the related tax impact thereon.

 

The carrying amounts for cash, accounts receivable, prepaid and other current assets, other long-term assets, accounts payable, other current liabilities, debt and deferred tax liabilities approximated their fair value, while inventory, property, plant and equipment and intangibles were adjusted to their fair market value at December 31, 2011.

 

Goodwill is calculated as the excess of the fair value of consideration transferred over the fair market value of the identifiable assets and liabilities and represents the future economic benefits arising from other assets acquired that could not be separately recognized. Goodwill is reported in the Company’s PST segment and is not deductible for income tax purposes.

 

Of the $97,398 of acquired identifiable intangible assets, $47,126 was assigned to customer lists with a 15 year useful life; $31,400 was assigned to trademarks with a 20 year useful life; and $18,872 was assigned to technology with a 17 year weighted- average useful life. The fair value of the identifiable intangible assets was determined using an income approach.

 

The following unaudited pro forma information reflects the Company’s consolidated results of operations as if the acquisition had occurred on January 1, 2010. The unaudited pro forma information is not necessarily indicative of the results of operations that the Company would have reported had the transaction actually occurred at the beginning of these periods, nor is it necessarily indicative of future results.

 

Years ended December 31   2011     2010  
             
Net sales   $ 999,553     $ 818,172  
Net income attributable to Stoneridge, Inc. and subsidiaries   $ 10,608     $ 55,730  

 

The unaudited pro forma financial information presented in the table above has been adjusted to give effect to adjustments that are directly related to the business combination and factually supportable. These tax affected adjustments include, but are not limited to depreciation and amortization related to fair value adjustments to property, plant, and equipment, intangible assets and inventory.

  

Bolton Conductive Systems, LLC

 

On October 13, 2009, the Company acquired a 51% membership interest in Bolton Conductive Systems, LLC (“BCS”) for a purchase price of $5,967, net of cash acquired. BCS designs and manufactures a wide variety of electrical solutions for the military, automotive, marine and specialty vehicle markets and is based in Walled Lake, Michigan. The purchase agreement provides the Company with the option to purchase the remaining 49% interest in BCS in 2013 at a price determined in accordance with the purchase agreement.

 

BCS’s results of operations are included in the Company’s consolidated statements of operations for the years ended December 31, 2012, 2011 and 2010 with the 49% not owned presented in net loss attributable to noncontrolling interest. In 2011, the Company recognized a goodwill impairment charge of $4,945 related to BCS (see Goodwill and Other Intangible Assets below).

 

Goodwill and Other Intangible Assets

 

The total purchase price associated with acquisitions is allocated to the acquisition date fair values of assets acquired and liabilities assumed, with the excess purchase price recorded to goodwill.

 

In 2011, the Company recorded goodwill of $67,118 related to the acquisition of PST (see Acquisitions above). In 2009, the Company recorded goodwill of $9,199 within the Wiring segment related to the BCS acquisition. The goodwill related to these acquisitions is not deductible for income tax purposes. The remainder of the December 31, 2012 and 2011 goodwill balance relates to the 2008 acquisition of Magnum Trade AB, which is included within the Electronics segment.

 

Goodwill as of December 31, 2012 and 2011, and changes in the carrying amount of goodwill by segment were as follows:

 

                Control              
    Electronics     Wiring     Devices     PST     Total  
Balance at January 1, 2011   $ 578     $ 9,118     $ -     $ -     $ 9,696  
Acquistion of business     -       -       -       67,118       67,118  
Impairment     -       (4,945 )     -       -       (4,945 )
Translations and other adjustments     (14 )     -       -               (14 )
Balance at December 31, 2011     564       4,173       -       67,118       71,855  
Translations and other adjustments     34       -       -       (5,508 )     (5,474 )
Balance at December 31, 2012   $ 598     $ 4,173     $ -     $ 61,610     $ 66,381  

 

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 utilized an income approach (discounted cash flow method) valuation technique in determining the fair value of the Company’s applicable reporting units in the annual impairment test of goodwill. The discounted cash flow method utilizes a market-derived rate of return to discount anticipated performance.

 

The income approach methodology is 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, if any. 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.

  

During the year ended December 31, 2011, the Company recorded a goodwill impairment charge of $4,945 within the Wiring reportable segment. The goodwill impairment charge reduced the carrying value of BCS goodwill to $4,173 and was the result of a decline in business activity due to a reduction in military and defense related spending by customers since the Company’s acquisition of BCS.

 

The table below shows accumulated goodwill impairment for the year ended December 31, 2012 and 2011:

 

Accumulated goodwill impairment loss at January 1, 2011   $ 248,625  
Goodwill impairment charge     4,945  
Accumulated goodwill impairment loss at December 31, 2011     253,570  
Goodwill impairment charge     -  
Accumulated goodwill impairment loss at December 31, 2012   $ 253,570  

 

Intangible assets, net at December 31, 2012 consisted of the following:

 

    Acquisition     Accumulated        
As of December 31, 2012   cost     amortization     Net  
                   
Customer lists   $ 43,973     $ (3,166 )   $ 40,807  
Trademarks     29,252       (1,870 )     27,382  
Technology     17,323       (1,115 )     16,208  
Other     66       (66 )     -  
Total   $ 90,614     $ (6,217 )   $ 84,397  

 

Intangible assets, net at December 31, 2011 consisted of the following:

 

    Acquisition     Accumulated        
As of December 31, 2011   cost     amortization     Net  
                   
Customer lists   $ 47,840     $ (194 )   $ 47,646  
Trademarks     31,829       (316 )     31,513  
Technology     18,872       -       18,872  
Other     87       (79 )     8  
Total   $ 98,628     $ (589 )   $ 98,039  

 

The Company recognized $5,940, $238 and $215 of amortization expense in 2012, 2011 and 2010, respectively. Amortization expense is included as a component of selling, general and administrative on the consolidated statements of operations. Amortization expense for intangible assets is estimated to be approximately $5,900 for the years 2013 through 2018 and the weighted-average remaining amortization period is approximately 16 years.

  

Accrued Expenses and Other Current Liabilities

 

Accrued expenses and other current liabilities consist of the following:

 

As of December 31   2012     2011  
             
Compensation related reserves   $ 22,620     $ 22,013  
Product warranty and recall obligations     5,613       5,126  
Financial instruments     191       7,722  
Liability to PST shareholders     -       29,976  
Other (A)     28,657       26,157  
Total accrued expenses and other current liabilities   $ 57,081     $ 90,994  

 

(A) “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 liability method. Deferred income taxes reflect the 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.

 

The Company's policy is to provide for uncertain tax positions and the related interest and penalties based upon management's assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities.  At December 31, 2012, the Company believes it has appropriately accounted for any unrecognized tax benefits (see Note 5).  To the extent the Company prevails in matters for which a liability for an unrecognized tax benefit is established or is required to pay amounts in excess of the liability, the Company's effective tax rate in a given financial statement period may be affected.

 

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 loss. 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 on the consolidated statements of operations within other expense (income), net. These foreign currency transaction losses including the impact of hedging activities were $4,275, $106 and $974 for the years ended December 31, 2012, 2011 and 2010, respectively.

 

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 either at the time of shipment or upon customer receipt based upon the terms of the sale. The Company collects certain taxes and fees on behalf of government agencies and remits such collections on a periodic basis. The taxes are collected from customers but are not included in net sales. Estimated returns are based on historical authorized returns. The Company often enters into agreements with its customers at the beginning of a given vehicle’s expected production life. Once such agreements are entered into, it is the Company’s 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.

 

Shipping and Handling Costs

 

Shipping and handling costs are included in cost of goods sold on the consolidated statement of operations.

  

Product Warranty and Recall Reserves

 

Amounts accrued for product warranty and recall claims are established based on the Company’s 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 current portion of the product warranty and recall reserve is included as a component of accrued expenses and other current liabilities on the consolidated balance sheets. Product warranty and recall includes $494 and $175 of a long-term liability at December 31, 2012 and 2011, respectively, which is included as a component of other long-term liabilities on the consolidated balance sheets.

 

The following provides a reconciliation of changes in the product warranty and recall reserve:

 

Years ended December 31   2012     2011  
             
Product warranty and recall at beginning of period   $ 5,301     $ 3,831  
Accruals for products shipped during period     3,288       3,142  
Acquisition     -       1,063  
Aggregate changes in pre-existing liabilities due to claim developments     1,062       (168 )
Settlements made during the period (in cash or in kind)     (3,544 )     (2,567 )
Product warranty and recall at end of period   $ 6,107     $ 5,301  

 

Product Development Expenses

 

Expenses associated with the development of new products and changes to existing products are charged to expense as incurred and are included in the Company’s consolidated statements of operations as a component of selling, general and administrative. These costs amounted to $44,798, $35,263 and $37,563 in years ended December 31, 2012, 2011 and 2010, respectively or 4.8%, 4.6% and 5.9% of net sales for these respective periods.

 

Share-Based Compensation

 

At December 31, 2012, the Company had three types of share-based compensation plans: (1) Long-Term Incentive Plan, as amended, (2) Directors’ Share Option Plan and (3) the Amended Directors’ Restricted Shares Plan. One plan is for employees and two plans are for non-employee directors. The Long-Term Incentive Plan is made up of the Long-Term Incentive Plan that was approved by the Company's shareholders on September 30, 1997, which expired on June 30, 2007, and the Amended and Restated Long-Term Incentive Plan, as amended, that was approved by shareholders on May 17, 2010, and expires on April 24, 2016. 

 

Total compensation expense recognized as a component of selling, general and administrative on the consolidated statements of operations for share-based compensation arrangements was $4,890, $4,423 and $2,661 for the years ended December 31, 2012, 2011 and 2010, respectively. Of these amounts, $47 and $375 for the years ended December 31, 2012 and 2011, respectively, were related to the Long-Term Cash Incentive Plan “Phantom Shares” discussed in Note 8. There was no share-based compensation expense capitalized as inventory in 2012, 2011 or 2010.

 

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 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. See Note 9 for fair value disclosures of the Company’s financial instruments.

  

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.

 

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 Common Shares outstanding used in calculating basic and diluted net income per share were as follows:

 

Years ended December 31   2012     2011     2010  
                   
Basic weighted-average shares outstanding     26,377,352       24,180,671       23,945,754  
Effect of dilutive shares     654,518       464,258       386,847  
Diluted weighted-average shares outstanding     27,031,870       24,644,929       24,332,601  

 

Options not included in the computation of diluted net income per share to purchase 59,000, 50,000 and 106,750 Common Shares at an average price of $12.20, $15.73 and $12.96 per share were outstanding at December 31, 2012, 2011 and 2010, 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 closing market price of Company Common Shares.

 

There were 635,850, 419,100 and 445,950 performance-based restricted Common Shares outstanding at December 31, 2012, 2011 and 2010, respectively. These shares were not included in the computation of diluted net income per share because all vesting conditions have not and are not expected to be achieved as of December 31, 2012, 2011 and 2010. These shares may or may not become dilutive based on the Company’s ability to meet or exceed future performance targets.

 

Deferred Finance Costs

 

Deferred finance costs are being amortized over the life of the related financial instrument using the straight-line method, which approximates the effective interest method. The 2.5% discount to the initial purchasers of the Company’s senior secured notes is being accreted using the effective interest rate of 10.0% over the life of the senior secured notes. Deferred finance cost amortization and debt discount accretion for the years ended December 31, 2012, 2011 and 2010 was $862, $875 and $914, respectively, and is included as a component of interest expense, net on the consolidated statements of operations. As of December 31, 2012 and 2011, deferred financing costs, net were $1,564 and $1,914, respectively and were included on the consolidated balance sheets as a component of investments and other long-term assets, net.

 

Recently Issued Accounting Standards Not Yet Adopted at December 31, 2012

 

In February 2013, the Financial Accounting Standards Board ("FASB") issued an accounting standards update requiring new disclosures about reclassifications from accumulated other comprehensive loss to net income. These disclosures may be presented on the face of the statements or in the notes to the consolidated financial statements. The standards update is effective for fiscal years beginning after December 15, 2012. We will adopt this standards update and revise our disclosure, as required, beginning with the first quarter of 2013.

 

In December 2011, the FASB issued an accounting standards update requiring new disclosures about financial instruments and derivative instruments that are either offset by or subject to an enforceable master netting arrangement or similar agreement. The standards update is effective for fiscal years beginning after December 15, 2012. We will adopt this standards update and revise our disclosure, as required, beginning with the first quarter of 2013.

 

Recently Adopted Accounting Standards

 

Effective January 1, 2012, we adopted an accounting standards update with new guidance on fair value measurement and disclosure requirements. This standard provides guidance on the application of fair value accounting where it is already required or permitted by other standards. This standard also requires additional disclosures related to transfers of financial instruments within the fair value hierarchy and quantitative and qualitative disclosures related to significant unobservable inputs. The adoption of this standard did not have a material impact on our consolidated financial statements.

  

Effective January 1, 2012, we adopted accounting standards updates with guidance on the presentation of other comprehensive income. These standards require an entity to either present components of net income and other comprehensive income in one continuous statement or in two separate but consecutive statements. Accordingly, we have presented net income and comprehensive income in two consecutive statements.

 

Reclassifications

 

Certain prior period amounts have been reclassified to conform to their 2012 presentation in the consolidated financial statements due to the change in reportable segments.