SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2001. Commission file number 001-13337
STONERIDGE, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Ohio 34-1598949
------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
9400 East Market Street, Warren, Ohio 44484
- ---------------------------------------- ------------
(Address of Principal Executive Offices) (Zip Code)
(330) 856-2443
--------------------------------------------------
Registrant's Telephone Number, Including Area Code
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 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. Yes X No_____.
---
The number of Common Shares, without par value, outstanding as of July 17, 2001
was 22,397,311.
STONERIDGE, INC.
INDEX
Page No.
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2001
and December 31, 2000 2
Condensed Consolidated Statements of Income for the three
months and six months ended June 30, 2001 and 2000 3
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 2001 and 2000 4
Notes to Condensed Consolidated Financial Statements 5-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
Item 3. Quantitative and Qualitative Disclosure About Market
Risk 13
Part II Other Information 14-15
Signatures 16
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STONERIDGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
2001 2000
---------------- ------------------
(Unaudited) (Audited)
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 4,207 $ 5,594
Accounts receivable, net 99,489 91,680
Inventories, net 62,033 70,159
Prepaid expenses and other 18,185 17,104
Deferred income taxes, net 12,680 10,217
--------------- --------------
Total current assets 196,594 194,754
--------------- --------------
PROPERTY, PLANT AND EQUIPMENT, net 114,467 113,855
OTHER ASSETS:
Goodwill and other intangibles, net 352,592 357,526
Investments and other 29,475 30,860
--------------- --------------
TOTAL ASSETS $ 693,128 $ 696,995
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 38,904 $ 34,562
Accounts payable 38,571 45,199
Accrued expenses and other 36,830 34,924
--------------- --------------
Total current liabilities 114,305 114,685
--------------- --------------
LONG-TERM DEBT, net of current portion 286,441 296,079
DEFERRED INCOME TAXES, net 24,707 22,352
OTHER LIABILITIES 4,554 1,693
--------------- --------------
Total long-term liabilities 315,702 320,124
--------------- --------------
SHAREHOLDERS' EQUITY:
Preferred shares, without par value, 5,000 authorized, none issued -- --
Common shares, without par value, 60,000 authorized, 22,397
issued and outstanding at June 30, 2001 and December 31,
2000, stated at -- --
Additional paid-in capital 141,506 141,506
Retained earnings 127,807 123,211
Accumulated other comprehensive loss (6,192) (2,531)
--------------- --------------
Total shareholders' equity 263,121 262,186
--------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 693,128 $ 696,995
=============== ==============
The accompanying notes to condensed consolidated financial statements are an
integral part of these condensed consolidated balance sheets.
2
STONERIDGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands except for per share data)
For the three months For the six months
ended June 30, ended June 30,
-------------------------- ----------------------
2001 2000 2001 2000
---- ---- ---- ----
NET SALES $ 151,947 $ 182,768 $ 308,101 $ 366,979
COST AND EXPENSES:
Cost of goods sold 115,266 132,090 233,289 264,639
Selling, general and administrative expenses 26,881 25,468 52,141 50,538
---------- ---------- --------- ---------
Operating income 9,800 25,210 22,671 51,802
Interest expense, net 7,433 7,646 15,367 15,577
Other (income) expense, net (19) (228) 178 (542)
---------- ---------- --------- ---------
INCOME BEFORE INCOME TAXES 2,386 17,792 7,126 36,767
Provision for income taxes 847 6,202 2,530 12,661
---------- ---------- --------- ---------
NET INCOME $ 1,539 $ 11,590 $ 4,596 $ 24,106
========== ========== ========= =========
BASIC AND DILUTED NET INCOME PER SHARE $ 0.07 $ 0.52 $ 0.21 $ 1.08
========== ========== ========= =========
The accompanying notes to condensed consolidated financial statements are an
integral part of these condensed consolidated statements.
3
STONERIDGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
For the six months ended
June 30,
--------------------------
2001 2000
----------- ------------
OPERATING ACTIVITIES:
Net income $ 4,596 $ 24,106
Adjustments to reconcile net income to net cash from operating
activities-
Depreciation and amortization 14,285 13,682
Deferred income taxes 1,099 2,301
Changes in operating assets and liabilities-
Accounts receivable, net (9,948) (12,085)
Inventories 6,475 (494)
Prepaid expenses and other (1,658) (4,642)
Other assets, net 1,681 (221)
Accounts payable (5,341) 7,306
Accrued expenses and other 2,482 5,383
-------- ---------
Net cash from operating activities 13,671 35,336
-------- ---------
INVESTING ACTIVITIES:
Capital expenditures (11,692) (10,669)
Other, net (69) (592)
-------- ---------
Net cash from investing activities (11,761) (11,261)
-------- ---------
FINANCING ACTIVITIES:
Proceeds from long-term debt 5,033 --
Repayments of long-term debt (1,277) (1,947)
Net repayments under credit agreement (5,556) (17,328)
Debt issuance costs (1,223) --
-------- ---------
Net cash from financing activities (3,023) (19,275)
-------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (274) (244)
NET CHANGE IN CASH AND CASH EQUIVALENTS (1,387) 4,556
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,594 3,924
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,207 $ 8,480
========= =========
The accompanying notes to condensed consolidated financial statements are an
integral part of these condensed consolidated statements.
4
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
1. The accompanying condensed consolidated financial statements have been
prepared by Stoneridge, Inc. (the Company), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission (the
Commission). The information furnished in the condensed consolidated
financial statements includes normal recurring adjustments and reflects all
adjustments which are, in the opinion of management, necessary for a fair
presentation of such financial statements. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United
States have been condensed or omitted pursuant to the Commission's rules
and regulations. Although the Company believes that the disclosures are
adequate to make the information presented not misleading, it is suggested
that these condensed consolidated financial statements be read in
conjunction with the audited financial statements and the notes thereto
included in the Company's 2000 Annual Report to Shareholders.
The results of operations for the three and six months ended June 30, 2001
are not necessarily indicative of the results to be expected for the full
year.
2. Inventories are valued at the lower of cost or market. Cost is determined
by the last-in, first-out (LIFO) method for approximately 76% and 77% of
the Company's inventories at June 30, 2001 and December 31, 2000,
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:
June 30, December 31,
2001 2000
----------------- ----------------
Raw materials $ 38,631 $ 45,552
Work in progress 8,540 9,369
Finished goods 14,852 15,261
LIFO reserve 10 (23)
----------------- ----------------
Total $ 62,033 $ 70,159
================= ================
3. The Financial Accounting Standards Board recently announced its intention
to issue Statement of Financial Accounting Standard No. 141 (SFAS 141),
"Business Combinations" and SFAS 142, "Goodwill and Other Intangible
Assets." The statements are expected to become effective for the Company on
January 1, 2002. These statements are expected to result in significant
modifications relative to the Company's accounting for goodwill and other
intangible assets. Specifically, the Company will cease goodwill and
certain intangible asset amortization beginning January 1, 2002.
Additionally, intangible assets, including goodwill, will be subjected to
new impairment testing criteria. Other than the cessation of intangible
asset amortization, the Company has not had ample time to evaluate the
impact of adoption on the Company's financial statements.
5
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(in thousands)
Effective January 1, 2001, the Company adopted SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities" (as amended by SFAS 138).
SFAS 133 establishes new accounting and reporting standards for derivatives
and hedging activities, which requires that all derivative instruments be
reported on the balance sheet at fair value and establishes criteria for
designation and effectiveness of transactions entered into for hedging
purposes. The adoption of SFAS 133 did not result in a cumulative effect
adjustment being recorded to net income for the change in accounting.
However, the Company recorded a cumulative effect transition adjustment
charge of approximately $0.3 million (net of tax) in accumulated other
comprehensive loss in the first quarter of 2001.
The Company uses derivative financial instruments to reduce exposure to
market risk resulting from fluctuations in interest rates. The Company does
not enter into financial instruments for trading purposes. Management
believes that its use of these instruments to reduce risk is in the
Company's best interest.
In order to manage the interest rate risk associated with our debt
portfolio, the Company has entered into interest rate swap agreements to
manage exposure to changes in interest rates. These agreements require the
Company to pay a fixed interest rate to counter-parties while receiving a
floating interest rate based on LIBOR. The counter-parties to each of the
interest rate swap agreements are major commercial banks. These agreements
mature on or before December 31, 2003 and qualify as cash flow hedges. The
total notional amount of the interest rate swap agreements is $183.4
million.
Gains and losses on derivatives qualifying as cash flow hedges are recorded
in other comprehensive loss to the extent that hedges are effective until
the underlying transactions are recognized in earnings. Net losses included
in other comprehensive loss as of June 30, 2001, including the transition
adjustment, were $2.1 million after tax ($3.6 million pre-tax).
4. Other comprehensive income (loss) includes foreign currency translation
adjustments and derivative transactions, net of related tax. Comprehensive
income consists of the following:
Three months Six months
ended June 30, ended June 30,
--------------------------- -------------------------
2001 2000 2001 2000
------------ -------------- ------------ ------------
Net income $ 1,539 $ 11,590 $ 4,596 $ 24,106
Other comprehensive income (loss) 1,130 (1,014) (3,661) (1,639)
----------- ------------- ----------- -----------
Comprehensive income $ 2,669 $ 10,576 $ 935 $ 22,467
=========== ============= =========== ===========
6
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(in thousands)
5. The Company has a $425.0 million credit agreement with a bank group. The
credit agreement, as amended on January 26, 2001, has three components: a
$100.0 million revolving credit facility, including a $5.0 million swing
line facility, a $150.0 million term facility and a $175.0 million term
facility. The $100.0 million revolving facility and the $150.0 million term
facility expire on December 31, 2003 and require a commitment fee of 0.37%
to 0.50% on the unused balance. The revolving facility permits the Company
to borrow up to half its borrowings in specified foreign currencies.
Interest is payable quarterly at either (i) the prime rate plus a margin of
1.25% to 1.50% or (ii) LIBOR plus a margin of 2.75% to 3.00%, depending
upon the Company's ratio of consolidated total debt to consolidated
earnings before interest, taxes, depreciation and amortization (EBITDA), as
defined. The $5.0 million swing line facility expires on December 31, 2003.
Interest is payable monthly at the overnight borrowing rate. The $175.0
million term facility expires on December 31, 2005. Interest is payable
quarterly at either (i) the prime rate plus a margin of 2.25% to 2.50% or
(ii) LIBOR plus a margin of 3.75% to 4.00%. The Company was either in
compliance or had obtained waivers with respect to its covenants as of June
30, 2001.
In the third quarter of 2001, the Company intends to sell $200.0 million
aggregate principal amount of senior subordinated notes (the Notes), which
will mature in 2011. Proceeds from the sale of the Notes will be used to
pay down the Company's existing credit agreement. In the third quarter of
2001, the Company also expects to refinance its senior credit facility. The
new senior credit facility is expected to contain a six-year term facility
and a five-year revolving facility that will allow for a total commitment
of $100.0 million and $125.0 million, respectively. The Company anticipates
a significant one-time charge relating to the write-off of deferred
financing charges associated with the prior credit facility, which will be
recorded as an extraordinary item. Proceeds from the new senior credit
facility would be used to pay down the Company's existing credit agreement.
In addition, the Company is evaluating its existing interest rate swap
agreements as they would relate to a new senior credit facility. If
necessary, the Company will break its existing swap agreements and enter
into a new swap arrangement that effectively reduces its market risk
resulting from fluctuations in interest rates.
Long-term debt consists of the following:
June 30, December 31,
2001 2000
---------------- -----------------
Borrowings under credit agreement $ 318,114 $ 323,670
Borrowings payable to foreign banks 6,252 4,826
Other 979 2,145
---------------- -----------------
325,345 330,641
Less: Current portion 38,904 34,562
---------------- -----------------
$ 286,441 $ 296,079
================ =================
7
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(in thousands)
6. The Company presents basic and diluted earnings per share in accordance
with Statement of Financial Accounting Standard No. 128, "Earnings Per
Share". Basic earnings per share amounts were computed using weighted
average shares outstanding for each respective period. Diluted earnings per
share also reflect the weighted average impact from the date of issuance of
all potentially dilutive securities during the periods presented, except
for the three and six months ended June 30, 2000 where such inclusion would
have had an anti-dilutive effect. Actual weighted average shares
outstanding used in calculating basic and diluted earnings per share were
as follows:
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2001 2000 2001 2000
--------- --------- ---------- --------
Basic weighted average shares outstanding 22,397 22,397 22,397 22,397
Effect of dilutive securities 82 -- 82 --
--------- --------- ---------- --------
Diluted weighted average shares outstanding 22,479 22,397 22,479 22,397
========= ========= ========== ========
7. Based on the criteria set forth in Statement of Financial Accounting
Standard No. 131, "Disclosures about Segments of an Enterprise and Related
Information," the Company operates in one business segment. The following
table presents net sales and non-current assets for each of the geographic
areas in which the Company operates:
Three months Six months
ended June 30, ended June 30,
--------------------------------- ----------------------------
2001 2000 2001 2000
--------------- -------------- ------------ ------------
Net Sales:
North America $ 131,257 $ 161,864 $ 264,242 $ 319,984
Europe and other 20,690 20,904 43,859 46,995
--------------- -------------- ------------ ------------
Total $ 151,947 $ 182,768 $ 308,101 $ 366,979
=============== ============== ============ ============
June 30, December 31,
2001 2000
--------------- --------------
Non-Current Assets:
North America $ 441,522 $ 446,744
Europe and other 55,012 55,497
-------------- --------------
Total $ 496,534 $ 502,241
============== ==============
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Six Months Ended June 30, 2001 Compared To Six Months Ended June 30, 2000
- -------------------------------------------------------------------------
Net Sales. Net sales for the six months ended June 30, 2001 decreased by $58.9
million, or 16.0%, to $308.1 million from $367.0 million for the same period in
2000. Sales revenues for the first six months were unfavorably impacted by the
continued decline in production in the automotive and commercial vehicle
markets.
Sales for the six months ended June 30, 2001 for North America decreased $55.8
million to $264.2 million from $320.0 million for the same period in 2000. North
American sales accounted for 85.8% of total sales for the first six months of
2001 compared with 87.2% for the same period in 2000. Sales for the six months
ended June 30, 2001 outside North America decreased $3.1 million to $43.9
million from $47.0 million for the same period in 2000. International sales were
unfavorably impacted by the weakening of foreign currencies in relation to the
U.S. dollar. Sales outside North America accounted for 14.2% of total sales for
the six months ended June 30, 2001 compared with 12.8% for the same period in
2000.
Cost of Goods Sold. Cost of goods sold for the first six months of 2001
decreased by $31.4 million, or 11.8%, to $233.3 million from $264.6 million in
the first six months of 2000. As a percentage of sales, cost of goods sold
increased to 75.7% from 72.1% for the first six months of 2001 and 2000,
respectively. The corresponding reduction in margin was primarily attributable
to the softening of the automotive and commercial vehicle markets, continued
price pressures from our customers, costs related to pre-production ramp-ups and
new program launches, and the unfavorable impact of foreign currencies in
relation to the U.S. dollar at our foreign operations.
Selling, General and Administrative Expenses. Selling, general and
administrative (SG&A) expenses, including research and development, increased by
$1.6 million to $52.1 million in the first six months of 2001 from $50.5 million
for the same period in 2000. As a percentage of sales, SG&A expenses increased
to 16.9% for the first six months of 2001 from 13.8% for the same period in
2000. Design and development resources were required to support efforts
associated with future programs.
Interest Expense. Interest expense for the first six months of 2001 was $15.4
million compared with $15.6 million in 2000. Average outstanding indebtedness
was $327.6 million and $342.1 million for the first six months of 2001 and 2000,
respectively.
Income Before Income Taxes. As a result of the foregoing, income before taxes
decreased by $29.7 million for the first six months of 2001 to $7.1 million from
$36.8 million in 2000.
Provision for Income Taxes. The Company recognized provisions for income taxes
of $2.5 million and $12.7 million for federal, state and foreign income taxes
for the first six months of 2001 and 2000, respectively.
Net Income. As a result of the foregoing, net income decreased by $19.5 million,
or 80.9%, to $4.6 million for the first six months of 2001 from $24.1 million in
2000.
9
Three Months Ended June 30, 2001 Compared To Three Months Ended June 30, 2000
- -----------------------------------------------------------------------------
Net Sales. Net sales for the quarter ended June 30, 2001 decreased by $30.8
million, or 16.9%, to $151.9 million from $182.8 million for the same period in
2000. Sales revenues for the second quarter ended June 30, 2001 were unfavorably
impacted by the continued decline in the automotive and commercial vehicle
markets.
Sales for the quarter ended June 30, 2001 for North America decreased $30.7
million to $131.2 million from $161.9 million for the same period in 2000. North
American sales accounted for 86.3% of total sales for the second quarter ended
June 30, 2001 compared with 88.6% for the same period in 2000. Sales for the
second quarter of 2001 outside North America decreased by $0.2 million to $20.7
million from $20.9 million for the same period in 2000. International sales were
unfavorably impacted by the weakening of foreign currencies in relation to the
U.S. dollar. Sales outside North America accounted for 13.7% of total sales for
the second quarter of 2001 compared with 11.4% for the same period in 2000.
Cost of Goods Sold. Cost of goods sold for the second quarter of 2001 decreased
by $16.8 million, or 12.7%, to $115.3 million from $132.1 million in the second
quarter of 2000. As a percentage of sales, cost of goods sold increased to 75.9%
in 2001 from 72.3% in 2000. The corresponding reduction in margin was primarily
attributable to the continued softening of the automotive and commercial vehicle
markets, ongoing price pressures from our customers, costs related to pre-
production ramp-ups and new program launches, and the unfavorable impact of
foreign currencies in relation to the U.S. dollar at our foreign operations.
Selling, General and Administrative Expenses. SG&A expenses, including research
and development, increased by $1.4 million to $26.9 million in the second
quarter of 2001 from $25.5 million for the same period in 2000. As a percentage
of sales, SG&A expenses increased to 17.7% for the second quarter of 2001 from
13.9% for the same period in 2000. Design and development resources were
required to support efforts associated with future programs.
Interest Expense. Interest expense for the second quarter of 2001 was $7.4
million compared with $7.6 million in 2000. Average outstanding indebtedness was
$323.8 million and $337.9 million for the second quarter of 2001 and 2000,
respectively.
Income Before Income Taxes. As a result of the foregoing, income before taxes
decreased by $15.4 million for the second quarter of 2001 to $2.4 million from
$17.8 million in 2000.
Provision for Income Taxes. The Company recognized provisions for income taxes
of $0.8 million and $6.2 million for federal, state and foreign income taxes for
the second quarter of 2001 and 2000, respectively.
Net Income. As a result of the foregoing, net income decreased by $10.1 million,
or 86.7%, to $1.5 million for the second quarter of 2001 from $11.6 million in
2000.
Liquidity and Capital Resources
Net cash provided by operating activities was $13.7 million and $35.3
million for the six months ended June 30, 2001 and 2000, respectively. The
decrease in net cash from operating activities of $21.6 million was primarily
attributable to a decrease in net income.
10
Net cash used for investing activities was $11.8 million and $11.3 million
for the six months ended June 30, 2001 and 2000, respectively.
Net cash used for financing activities was $3.0 million and $19.3 million
for the six months ended June 30, 2001 and 2000, respectively. Higher levels of
generated operating cash flows in 2000 were used primarily to repay outstanding
debt under the credit agreement.
The Company has a $425.0 million credit agreement (of which $318.1 million
and $329.5 million was outstanding at June 30, 2001 and 2000, respectively) with
a bank group. The credit agreement, as amended January 26, 2001, has the
following components: a $100.0 million revolving facility (of which $33.7
million is currently available) including a $5.0 million swing line facility, a
$150.0 million term facility, and a $175.0 million term facility. The $100.0
million revolving facility and the $150.0 million term facility expire on
December 31, 2003, and require a commitment fee of 0.37% to 0.50% on the unused
balance. The revolving facility permits the Company to borrow up to half its
borrowings in specified foreign currencies. Interest is payable quarterly at
either (i) the prime rate plus a margin of 1.25% to 1.50% or (ii) LIBOR plus a
margin of 2.75% to 3.00%, depending upon the Company's ratio of consolidated
total debt to consolidated earnings before interest, taxes, depreciation and
amortization, as defined. The $5.0 million swing line facility expires on
December 31, 2003. Interest is payable monthly at an overnight money market
borrowing rate. The $175.0 million term facility expires on December 31, 2005.
Interest is payable quarterly at either (i) the prime rate plus a margin of
2.25% to 2.50% or (ii) LIBOR plus a margin of 3.75% to 4.00%. The Company was
either in compliance or had obtained waivers with respect to its covenants as of
June 30, 2001.
In the third quarter of 2001, the Company intends to sell $200.0 million
aggregate principal amount of senior subordinated notes (the Notes), which will
mature in 2011. Proceeds from the sale of the Notes will be used to pay down the
Company's existing credit agreement. In the third quarter of 2001, the Company
also expects to refinance its senior credit facility. The new senior credit
facility is expected to contain a six-year term facility and a five-year
revolving facility that will allow for a total commitment of $100.0 million and
$125.0 million, respectively. The Company anticipates a significant one-time
charge relating to the write-off of deferred financing charges associated with
the prior credit facility, which will be recorded as an extraordinary item.
Proceeds from the new senior credit facility would be used to pay down the
Company's existing credit agreement.
In addition, the Company is evaluating its existing interest rate swap
agreements as they would relate to a new senior credit facility. If necessary,
the Company will break its existing swap agreements and enter into a new swap
arrangement that effectively reduces its market risk resulting from fluctuations
in interest rates.
The Company has entered into three interest-rate swap agreements with a
total notional amount of $183.4 million. Two of these interest-rate swap
agreements are due to expire on December 31, 2002, and one swap agreement is due
to expire on December 31, 2003. These interest-rate swap agreements exchange
variable interest rates on the senior secured credit facility for fixed interest
rates. The Company does not use derivatives for speculative or profit-motivated
purposes.
Management believes that cash flows from operations and the availability of
funds from the Company's credit facilities will provide sufficient liquidity to
meet the Company's growth and operating needs.
11
Inflation and International Presence
Management believes that the Company's operations have not been adversely
affected by inflation. By operating internationally, the Company is affected by
the economic conditions of certain countries. Based on the current economic
conditions in these countries, management believes they are not significantly
exposed to adverse economic conditions.
Recently Issued Accounting Standards
The Financial Accounting Standards Board recently announced its intention
to issue Statement of Financial Accounting Standard No. 141 (SFAS 141),
"Business Combinations" and SFAS 142, "Goodwill and Other Intangible Assets."
The statements are expected to become effective for the Company on January 1,
2002. These statements are expected to result in significant modifications
relative to the Company's accounting for goodwill and other intangible assets.
Specifically, the Company will cease goodwill and certain intangible asset
amortization beginning January 1, 2002. Additionally, intangible assets,
including goodwill, will be subjected to new impairment testing criteria. Other
than the cessation of intangible asset amortization, the Company has not had
ample time to evaluate the impact of adoption on the Company's financial
statements.
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standard No. 133 (SFAS 133), "Accounting for Derivative Instruments
and Hedging Activities" (as amended by SFAS 138). SFAS 133 establishes new
accounting and reporting standards for derivatives and hedging activities, which
requires that all derivative instruments be reported on the balance sheet at
fair value and establishes criteria for designation and effectiveness of
transactions entered into for hedging purposes. The cumulative effect of
adopting SFAS 133 was to increase other comprehensive loss by $0.3 million,
after-tax. The effect on net income was not significant, primarily because the
hedges in place as of January 1, 2001 qualified for hedge accounting treatment
and were highly effective.
Forward-Looking Statements
Portions of this report may 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, its directors or its officers
with respect to, among other things, the Company's (i) future product and
facility expansion, (ii) acquisition strategy, (iii) investments and new product
development and (iv) growth opportunities related to awarded business. 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. Factors which may cause actual
results to differ materially from those in the forward-looking statements
include, among other factors, the loss of a major customer; a further decline in
automotive, medium and heavy-duty truck or agricultural vehicle production; the
failure to achieve successful integration of any acquired company or business;
or a decline in general economic conditions in any of the various countries in
which the Company operates. Further information concerning issues that could
materially affect financial performance is contained in the Company's periodic
filings with the Securities and Exchange Commission.
12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to certain market risks, primarily resulting from
the effects of changes in interest rates. To reduce exposures to market risks
resulting from fluctuations in interest rates, the Company uses derivative
financial instruments. Specifically, the Company uses interest rate swap
agreements to mitigate the effects of interest rate fluctuations on net income
by changing the floating interest rates on certain portions of the Company's
debt to fixed interest rates. These agreements are in place through December 31,
2003. The effect of changes in interest rates on the Company's net income
generally has been small relative to other factors that also affect net income,
such as sales and operating margins. Management believes that its use of these
financial instruments to reduce risk is in the Company's best interest. The
Company does not enter into financial instruments for trading purposes.
The Company's risks related to commodity price and foreign currency
exchange risks have historically not been significant. The Company does not
expect the effects of these risks to be significant based on current operating
and economic conditions in the countries and markets in which it operates.
13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ---------------------------
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 or the financial position
of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
- ---------------------------------------------------
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- -----------------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
(a) The Annual Meeting of Shareholders of Stoneridge, Inc. was held on May
7, 2001.
(b) The following matter was submitted to a vote at the meeting:
(1) The election of the following nominees as directors of the
Company. The vote with respect to each nominee was as follows:
Nominee For Withheld
------- --- --------
D.M. Draime 16,712,392 2,594,514
Cloyd J. Abruzzo 16,712,092 2,594,814
Avery S. Cohen 17,541,568 1,765,338
Richard E. Cheney 17,552,765 1,754,141
Sheldon J. Epstein 16,086,189 3,220,717
C.J. Hire 17,548,355 1,758,551
Richard G. LeFauve 17,553,365 1,753,541
Earl L. Linehan 17,548,155 1,758,751
No other matters were voted on at the Annual Meeting of Shareholders or
otherwise during the quarter.
ITEM 5. OTHER INFORMATION
- ---------------------------
None.
14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) Exhibits
10.1 Credit Agreement dated as of December 30, 1998 among
Stoneridge, Inc., as Borrower, the Lending Institutions
Named Therein, as Lenders, DLJ Capital Funding, Inc., as
Syndication Agent, National City Bank as Administrative
Agent and Collateral Agent, PNC Bank, NA as Documentation
Agent (incorporated by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998).
10.2 Amendment No. 1 dated as of January 28, 1999 to Credit
Agreement dated as of December 30, 1998 among Stoneridge,
Inc. as Borrower, the Lenders named therein as Lenders, DLJ
Capital Funding, Inc. as Syndication Agent, National City
Bank as a Lender, a Letter of Credit Issuer, the
Administrative Agent and the Collateral Agent, PNC Bank NA
as Documentation Agent (incorporated by reference to Exhibit
10.15 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999).
10.3 Amendment No. 2 dated as of September 7, 1999 to Credit
Agreement dated as of December 30, 1998 among Stoneridge,
Inc. as Borrower, the Lenders named therein as Lenders, DLJ
Capital Funding, Inc. as Syndication Agent, National City
Bank as a Lender, a Letter of Credit Issuer, the
Administrative Agent and the Collateral Agent, PNC Bank NA
as Documentation Agent (incorporated by reference to Exhibit
10.16 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999).
10.4 Amendment No. 3 dated as of May 25, 2000 to Credit Agreement
dated as of December 30, 1998 among Stoneridge, Inc. as
Borrower, the Lenders named therein as Lenders, DLJ Capital
Funding, Inc. as Syndication Agent, National City Bank as a
Lender, a Letter of Credit Issuer, the Administrative Agent
and the Collateral Agent, PNC Bank NA as Documentation Agent
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2000).
10.5 Amendment No. 4 dated as of January 26, 2001 to Credit
Agreement dated as of December 30, 1998 among Stoneridge,
Inc. as Borrower, the Lenders named therein as Lenders, DLJ
Capital Funding, Inc. as Syndication Agent, National City
Bank as a Lender, a Letter of Credit Issuer, the
Administrative Agent and the Collateral Agent, PNC Bank NA
as Documentation Agent (incorporated by reference to Exhibit
10.11 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2000).
(b) Reports on Forms 8-K
None.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STONERIDGE, INC.
Date: July 17, 2001 /s/ Cloyd J. Abruzzo
---------------------------------------
Cloyd J. Abruzzo
President and Chief Executive Officer
(Principal Executive Officer)
Date: July 17, 2001 /s/ Kevin P. Bagby
---------------------------------------
Kevin P. Bagby
Treasurer and Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
16