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, 2002. 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 August 14,
2002 was 22,399,311.
STONERIDGE, INC.
INDEX
Page No.
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2002
and December 31, 2001 2
Condensed Consolidated Statements of Operations for the three
months and six months ended June 30, 2002 and 2001 3
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 2002 and 2001 4
Notes to Condensed Consolidated Financial Statements 5-14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15-19
Item 3. Quantitative and Qualitative Disclosure About Market
Risk 20
Part II Other Information 21-22
Signatures 23
Exhibit Index 24
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STONERIDGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
2002 2001
----------- ------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 40,238 $ 4,369
Accounts receivable, net 107,354 91,018
Inventories, net 53,929 54,504
Prepaid expenses and other 11,510 15,538
Deferred income taxes 8,442 7,316
-------- --------
Total current assets 221,473 172,745
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net 116,416 118,061
OTHER ASSETS:
Goodwill, net 255,292 345,392
Investments and other, net 34,793 30,645
-------- --------
TOTAL ASSETS $627,974 $666,843
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,887 $ 41,621
Accounts payable 54,342 50,792
Accrued expenses and other 51,211 33,933
-------- --------
Total current liabilities 107,440 126,346
-------- --------
LONG-TERM LIABILITIES:
Long-term debt, net of current portion 304,302 249,720
Deferred income taxes 10,968 24,352
Other liabilities 65 6,818
-------- --------
Total long-term liabilities 315,335 280,890
-------- --------
SHAREHOLDERS' EQUITY:
Preferred shares, without par value, 5,000 authorized, none issued -- --
Common shares, without par value, 60,000 authorized, 22,399
issued and outstanding at June 30, 2002 and 22,397 at
December 31, 2001, with no stated value -- --
Additional paid-in capital 141,516 141,506
Retained earnings 68,719 126,157
Accumulated other comprehensive loss (5,036) (8,056)
-------- --------
Total shareholders' equity 205,199 259,607
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $627,974 $666,843
======== ========
The accompanying notes to the condensed consolidated financial statements are
an integral part of these condensed consolidated statements.
2
STONERIDGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands except for per share data)
For the three months For the six months
ended June 30, ended June 30,
-------------------- -------------------
2002 2001 2002 2001
--------- -------- -------- --------
NET SALES $172,044 $151,947 $329,788 $308,101
COSTS AND EXPENSES:
Cost of goods sold 123,852 115,266 242,315 233,289
Selling, general and administrative expenses 23,494 26,881 45,132 52,141
-------- -------- -------- --------
OPERATING INCOME 24,698 9,800 42,341 22,671
Interest expense, net 8,154 7,433 16,776 15,367
Other expense (income), net 240 (19) 339 178
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 16,304 2,386 25,226 7,126
Provision for income taxes 5,878 847 9,223 2,530
-------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY LOSS AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 10,426 1,539 16,003 4,596
Extraordinary loss, net of tax 3,607 -- 3,607 --
-------- -------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 6,819 1,539 12,396 4,596
Cumulative effect of accounting change, net of tax -- -- (69,834) --
-------- -------- -------- --------
NET INCOME (LOSS) $ 6,819 $ 1,539 $(57,438) $ 4,596
======== ======== ======== ========
BASIC NET INCOME (LOSS) PER SHARE:
Income before extraordinary loss and cumulative effect of
accounting change $ 0.46 $ 0.07 $ 0.71 $ 0.21
Extraordinary loss, net of tax 0.16 -- (0.16) --
Cumulative effect of accounting change, net of tax -- -- (3.11) --
-------- -------- -------- --------
Basic net income (loss) per share $ 0.30 $ 0.07 $ (2.56) $ 0.21
======== ======== ======== ========
DILUTED NET INCOME (LOSS) PER SHARE:
Income before extraordinary loss and cumulative effect of
accounting change $ 0.46 $ 0.07 $ 0.71 $ 0.21
Extraordinary loss, net of tax (0.16) -- (0.16) --
Cumulative effect of accounting change, net of tax -- -- (3.09) --
-------- -------- -------- --------
Diluted net income (loss) per share $ 0.30 $ 0.07 $ (2.54) $ 0.21
======== ======== ======== ========
The accompanying notes to the 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,
--------------------
2002 2001
--------- --------
OPERATING ACTIVITIES:
Net (loss) income $ (57,438) $ 4,596
Adjustments to reconcile net income to net cash from
operating activities-
Depreciation and amortization 12,138 14,285
Deferred income taxes 5,254 1,099
Gain on sale of fixed assets (20) --
Equity in (earnings) loss of unconsolidated subsidiaries 172 (196)
Extraordinary loss 3,607 --
Cumulative effect of accounting change 69,834 --
Changes in operating assets and liabilities-
Accounts receivable (14,042) (9,948)
Inventories 1,782 6,475
Prepaid expenses and other 4,299 (1,658)
Other assets (999) 1,681
Accounts payable 2,596 (5,341)
Accrued expenses and other 18,826 2,482
--------- --------
Net cash provided by operating activities 46,009 13,475
--------- --------
INVESTING ACTIVITIES:
Capital expenditures (7,251) (11,692)
Proceeds from sale of fixed assets 20 --
Other (24) 127
--------- --------
Net cash used by investing activities (7,255) (11,565)
--------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of senior notes 200,000 --
Extinguishment of revolving facility (37,641) --
Extinguishment of term debt (226,139) --
Net (repayments) borrowings under revolving facilities (13,613) 20,972
Proceeds from long-term debt 100,000 921
Repayments of long-term debt (9,958) (23,693)
Debt issuance costs (10,647) (1,223)
Interest rate swap termination costs (5,274) --
--------- --------
Net cash used by financing activities (3,272) (3,023)
--------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 387 (274)
NET CHANGE IN CASH AND CASH EQUIVALENTS 35,869 (1,387)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,369 5,594
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 40,238 $ 4,207
========= ========
The accompanying notes to the condensed consolidated financial statements are an
integral part of these condensed consolidated statements.
4
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share amounts)
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 consolidated financial statements and the
notes thereto included in the Company's 2001 Annual Report to Shareholders.
The results of operations for the three and six months ended June 30, 2002
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 70% and 74% of
the Company's inventories at June 30, 2002 and December 31, 2001,
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,
2002 2001
-------- ------------
Raw materials $30,224 $35,488
Work in progress 11,923 8,192
Finished goods 12,596 11,142
LIFO reserve (814) (318)
------- -------
Total $53,929 $54,504
======= =======
3. The Company uses derivative financial instruments to reduce exposure to
market risks resulting from fluctuations in interest rates and currency
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 previous debt
portfolio, the Company entered into interest rate swap agreements to manage
exposure to changes in interest rates. These agreements required the
Company to pay a fixed interest rate to counterparties while receiving a
floating interest rate based on LIBOR. The counterparties to each of the
interest rate swap agreements were major commercial banks. These agreements
were due to mature on or before December 31, 2003 and qualified as cash
flow hedges; however, as a result of the recent debt refinancing, these
agreements were terminated at a cost of $5.3 million on May 1, 2002.
Gains and losses on derivatives qualifying as cash flow hedges are recorded
in other comprehensive loss to the extent that the hedges are effective
until the underlying transactions are recognized in earnings. Net losses
included in accumulated other comprehensive loss as of May 1, 2002 were
$3.3 million after tax ($5.3 million pre-tax). This amount is currently
being amortized to interest expense over the remaining contractual terms of
the agreements. The remaining unamortized balance as of June 30, 2002 was
$2.6 million after tax ($4.2 million pre-tax).
5
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share amounts)
The Company has foreign currency forward contracts to purchase $15.6
million of Swedish krona and British pounds to satisfy krona and pound
denominated debt obligations. The estimated fair value of these forward
contracts at June 30, 2002, per quoted market sources, was $16.6 million.
4. In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS
142, "Goodwill and Other Intangible Assets". Under SFAS 142, goodwill is no
longer subject to amortization. Goodwill amortization, which approximated
$9.5 million annually, ceased when the Statement became effective for the
Company on January 1, 2002. Goodwill is now subject to at least an annual
assessment for impairment by applying a fair value-based test. In
accordance with the transition provisions of SFAS 142, the Company has
completed the two-step transitional goodwill impairment analysis for both
reporting units of the Company. The initial impairment test indicated that
the carrying values of the reporting units exceeded the corresponding fair
values of the reporting units, which were determined based on a combination
of valuation techniques including the guideline company method, the
transaction method and the discounted cash flow method. The implied fair
value of goodwill in these reporting units was then determined through the
allocation of the fair values to the underlying assets and liabilities. The
January 1, 2002 carrying value of the goodwill in these reporting units
exceeded their implied fair value by $90.1 million. The $69.8 million
write-down of goodwill to its fair value, which is net of $20.3 million of
related tax benefits, was reported as a cumulative effect of accounting
change in the accompanying condensed consolidated financial statements as
of January 1, 2002.
The change in the carrying amount of goodwill during 2002 is as follows:
Balance at December 31, 2001 $345,392
Cumulative effect of accounting change (90,100)
--------
Balance at June 30, 2002 $255,292
========
The unaudited pro forma consolidated net income (loss) as though SFAS 142
had been in effect at the beginning of fiscal 2001 is as follows:
Three months ended Six months ended
June 30, June 30,
------------------ -----------------
2002 2001 2002 2001
------ ------ -------- ------
Reported income before cumulative effect of
accounting change $6,819 $1,539 $ 12,396 $4,596
Add back: Goodwill amortization, net of tax -- 1,699 -- 3,434
------ ------ -------- ------
Adjusted income before cumulative effect of
accounting change 6,819 3,238 12,396 8,030
Cumulative effect of accounting change, net of tax -- -- (69,834) --
------ ------ -------- ------
Adjusted net income (loss) $6,819 $3,238 $(57,438) $8,030
====== ====== ======== ======
6
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share amounts)
Three months ended Six months ended
June 30, June 30,
------------------ ----------------
2002 2001 2002 2001
----- ----- ------ -----
Basic net income per share:
Reported income before cumulative effect of
accounting change $0.30 $0.07 $ 0.55 $0.21
Add back: Goodwill amortization, net of tax -- 0.08 -- 0.15
----- ----- ------ -----
Adjusted income before cumulative effect of
accounting change 0.30 0.15 0.55 0.36
Cumulative effect of accounting change, net of tax -- -- (3.11) --
----- ----- ------ -----
Adjusted net income (loss) $0.30 $0.15 $(2.56) $0.36
===== ===== ====== =====
Three months ended Six months ended
June 30, June 30,
------------------ ----------------
2002 2001 2002 2001
----- ----- ------ -----
Diluted net income per share:
Reported income before cumulative effect of
accounting change $0.30 $0.07 $ 0.55 $0.21
Add back: Goodwill amortization, net of tax -- 0.08 -- 0.15
----- ----- ------ -----
Adjusted income before cumulative effect of
accounting change 0.30 0.15 0.55 0.36
Cumulative effect of accounting change, net of tax -- -- (3.09) --
----- ----- ------ -----
Adjusted net income (loss) $0.30 $0.15 (2.54) $0.36
===== ===== ====== =====
The Company has the following intangible assets subject to amortization as
of June 30, 2002 and December 31, 2001, respectively:
June 30, December 31,
2002 2001
-------- ------------
Patents:
Gross Carrying Amount $3,679 $3,659
Accumulated Amortization 1,531 1,327
------ ------
Net Carrying Amount $2,148 $2,332
====== ======
Aggregate amortization expense on patents was $102 and $204 for the three
and six months ended June 30, 2002, respectively. Estimated annual
amortization expense is $377 for 2002, $345 for 2003-2005 and $312 for
2006.
5. In October 2001, the FASB issued SFAS 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". SFAS 144, which became effective for the
Company in 2002, supercedes SFAS 121 and establishes guidelines for
accounting for the impairment and disposal of long-lived assets. The
provisions of SFAS 144 had no impact on the Company's financial statements
upon adoption.
6. In April 2002, the FASB issued SFAS 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". Among other things, SFAS 145 requires gains and losses on
extinguishments of debt to be classified as income or loss from continuing
operations rather than as extraordinary items as previously required under
SFAS 4. Any gain or loss on extinguishment of debt that was classified as
an extraordinary item in prior periods presented that does not meet the
criteria in Accounting Principles Board Opinion 30 for
7
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share amounts)
classification as an extraordinary item shall be reclassified. The Company
will adopt this Statement effective January 1, 2003, and accordingly, the
extraordinary loss of $3.6 million, net of tax, recorded as a result of the
early extinguishment of debt described in Note 8 will be reclassified as a
component of income from continuing operations.
7. Other comprehensive income (loss) includes foreign currency translation
adjustments and derivative transactions, net of related tax. Comprehensive
income (loss) consists of the following:
Three months Six months
ended June 30, ended June 30,
--------------- ------------------
2002 2001 2002 2001
------ ------ -------- -------
Net income $6,819 $1,539 $(57,438) $ 4,596
Other comprehensive income (loss) 2,427 1,130 3,020 (3,661)
------ ------ -------- -------
Comprehensive income (loss) $9,246 $2,669 $(54,418) $ 935
====== ====== ======== =======
8. On May 1, 2002, the Company issued $200.0 million aggregate principal
amount of senior notes. The $200.0 million notes bear interest at an annual
rate of 11.50% and mature on May 1, 2012. Interest is payable on May 1 and
November 1 of each year. The Company registered the notes under the
Securities Act of 1933 on May 17, 2002. On July 1, 2002, the Company
completed an exchange offer of the senior notes for substantially identical
notes registered under the Securities Act of 1933.
In conjunction with the issuance of the senior notes, the Company also
entered into a new $200.0 million credit agreement with a bank group. The
credit agreement has two components: a $100.0 million revolving facility,
including a $10.0 million swing line facility, and a $100.0 million term
facility. The revolving facility expires on April 30, 2007 and requires a
commitment fee of 0.375% to 0.500% on the unused balance as well as a
utilization fee of 0.125% to 0.250% when the unutilized balance equals or
exceeds 50.0% of the total revolving commitment. 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 0.50% to 1.50% or (ii) LIBOR plus a margin of 2.00%
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. Interest on the swing line facility is payable
monthly at the same rate as the revolving facility. The term facility
expires on April 30, 2008. Interest is payable quarterly at either (i) the
prime rate plus 1.75% or (ii) LIBOR plus 3.25%. The Company has the right
to prepay any of the above mentioned loans in whole or in part, without
premium or penalty. The Company was in compliance with its covenants as of
June 30, 2002.
The Company incurred debt financing costs of $10.6 million in connection
with the issuance of the senior notes and credit facility, which are being
amortized over the respective terms of the debt.
The proceeds of the senior notes were used to repay the amounts outstanding
under the Company's then existing debt obligations on May 1, 2002, which
consisted of $37.6 million of revolving credit borrowings and $226.1
million of term debt borrowings ("the old debt"). The Company also had $5.8
million of unamortized deferred financing costs related to the old debt,
which were written off in connection with the repayment of the debt and is
presented as an extraordinary loss on the extinguishment of debt of $3.6
million, net of taxes of $2.2 million, in the accompanying condensed
consolidated financial statements.
8
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share amounts)
Long-term debt consists of the following:
June 30, December 31,
2002 2001
-------- ------------
11 1/2% Senior Notes, due 2012 $200,000 $ --
Borrowings under old credit agreement -- 286,610
Borrowings under new credit agreement 99,750 --
Borrowings payable to foreign banks 2,088 3,891
Other 4,351 840
-------- --------
306,189 291,341
Less: Current portion 1,887 41,621
-------- --------
$304,302 $249,720
======== ========
9. 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. 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,
------------------ ----------------
2002 2001 2002 2001
------ ------ ------ ------
Basic weighted average shares outstanding 22,399 22,397 22,399 22,397
Effect of dilutive securities 247 82 197 82
------ ------ ------ ------
Diluted weighted average shares outstanding 22,646 22,479 22,596 22,479
====== ====== ====== ======
10. Based on the criteria set forth in SFAS 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,
------------------- -------------------
2002 2001 2002 2001
-------- -------- -------- --------
Net Sales:
North America $145,047 $131,257 $278,207 $264,242
Europe and other 26,997 20,690 51,581 43,859
-------- -------- -------- --------
Total $172,044 $151,947 $329,788 $308,101
======== ======== ======== ========
June 30, December 31,
2002 2001
-------- ------------
Non-Current Assets:
North America $352,918 $440,915
Europe and other 53,583 53,183
-------- --------
Total $406,501 $494,098
======== ========
9
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share amounts)
11. The senior notes and the credit facility are fully and unconditionally
guaranteed, jointly and severally, by each of the Company's existing and
future domestic wholly-owned subsidiaries (Guarantor Subsidiaries). The
Company's non-U.S. subsidiaries are not guaranteeing the senior notes and
the credit facility (Non-Guarantor Subsidiaries).
Presented below are summarized condensed consolidating financial statements
of the Parent (which includes certain of the Company's operating units),
the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries and the Company
on a consolidated basis, as of June 30, 2002 and December 31, 2001, and for
the three and six months ended June 30, 2002 and 2001.
These summarized condensed consolidating financial statements are prepared
on the equity method. Separate financial statements for the Guarantor
Subsidiaries are not presented based on management's determination that
they do not provide additional information that is material to investors.
Therefore, the Guarantor Subsidiaries are combined in the presentation
below.
June 30, 2002
----------------------------------------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------- ------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 35,108 $ 20 $ 5,110 $ -- $ 40,238
Accounts receivable, net 46,628 37,835 25,817 (2,926) 107,354
Inventories, net 21,590 16,359 15,980 -- 53,929
Prepaid expenses and other (148,407) 143,539 16,378 -- 11,510
Deferred income taxes 4,162 4,460 (180) -- 8,442
--------- -------- ------- --------- --------
Total current assets (40,919) 202,213 63,105 (2,926) 221,473
--------- -------- ------- --------- --------
PROPERTY, PLANT AND EQUIPMENT, net 55,309 36,969 24,138 -- 116,416
OTHER ASSETS:
Goodwill, net 234,701 20,591 -- -- 255,292
Investments and other, net 47,613 1,952 1,598 (16,370) 34,793
Investment in subsidiaries 267,548 -- -- (267,548) --
--------- -------- ------- --------- --------
TOTAL ASSETS $ 564,252 $261,725 $88,841 $(286,844) $627,974
========= ======== ======= ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,000 $ -- $ 887 $ -- $ 1,887
Accounts payable 23,439 20,109 13,635 (2,841) 54,342
Accrued expenses and other 23,098 11,118 17,080 (85) 51,211
--------- -------- ------- --------- --------
Total current liabilities 47,537 31,227 31,602 (2,926) 107,440
--------- -------- ------- --------- --------
LONG-TERM LIABILITIES:
Long-term debt, net of current portion 300,534 -- 20,138 (16,370) 304,302
Deferred income taxes 10,482 4,273 (3,787) -- 10,968
Other liabilities 500 -- (435) -- 65
--------- -------- ------- --------- --------
Total long-term liabilities 311,516 4,273 15,916 (16,370) 315,335
--------- -------- ------- --------- --------
SHAREHOLDERS' EQUITY 205,199 226,225 41,323 (267,548) 205,199
--------- -------- ------- --------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 564,252 $261,725 $88,841 $(286,844) $627,974
========= ======== ======= ========= ========
10
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share amounts)
Supplemental condensed consolidating financial statements (continued):
December 31, 2001
-----------------------------------------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------- ------------ -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 714 $ 29 $ 3,626 $ -- $ 4,369
Accounts receivable, net 40,209 30,088 22,132 (1,411) 91,018
Inventories, net 25,334 14,988 14,182 -- 54,504
Prepaid expenses and other (142,780) 138,656 19,662 -- 15,538
Deferred income taxes 4,035 3,453 (172) -- 7,316
--------- -------- -------- --------- --------
Total current assets (72,488) 187,214 59,430 (1,411) 172,745
--------- -------- -------- --------- --------
PROPERTY, PLANT AND EQUIPMENT, NET 56,468 37,901 23,692 -- 118,061
OTHER ASSETS:
Goodwill, net 288,325 25,292 31,775 -- 345,392
Investments and other, net 42,822 1,592 752 (14,521) 30,645
Investment in subsidiaries 282,726 -- -- (282,726) --
--------- -------- -------- --------- --------
TOTAL ASSETS $ 597,853 $251,999 $115,649 $(298,658) $666,843
========= ======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 39,250 $ -- $ 2,371 $ -- $ 41,621
Accounts payable 20,360 18,712 13,133 (1,413) 50,792
Accrued expenses and other 2,025 19,600 12,308 -- 33,933
--------- -------- -------- --------- --------
Total current liabilities 61,635 38,312 27,812 (1,413) 126,346
--------- -------- -------- --------- --------
LONG-TERM LIABILITIES:
Long-term debt, net of current portion 246,019 -- 18,220 (14,519) 249,720
Deferred income taxes 23,242 3,398 (2,288) -- 24,352
Other liabilities 7,350 -- (532) -- 6,818
--------- -------- -------- --------- --------
Total long-term liabilities 276,611 3,398 15,400 (14,519) 280,890
--------- -------- -------- --------- --------
SHAREHOLDERS' EQUITY 259,607 210,289 72,437 (282,726) 259,607
--------- -------- -------- --------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 597,853 $251,999 $115,649 $(298,658) $666,843
========= ======== ======== ========= ========
11
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share amounts)
Supplemental condensed consolidating financial statements (continued):
For the three months ended June 30, 2002
---------------------------------------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------- ------------ ------------
NET SALES $ 75,769 $67,506 $39,042 $(10,273) $172,044
COSTS AND EXPENSES:
Cost of goods sold 56,698 47,817 29,610 (10,273) 123,852
Selling, general and administrative expenses 10,366 7,466 5,662 -- 23,494
-------- ------- ------- -------- --------
OPERATING INCOME 8,705 12,223 3,770 -- 24,698
Interest expense, net 7,803 -- 351 -- 8,154
Other (income) expense, net (301) 544 (3) -- 240
Equity earnings from subsidiaries (10,195) -- -- 10,195 --
-------- ------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES 11,398 11,679 3,422 (10,195) 16,304
Provision for income taxes 972 4,088 818 -- 5,878
-------- ------- ------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS 10,426 7,591 2,604 (10,195) 10,426
Extraordinary loss, net of tax 3,607 -- -- -- 3,607
-------- ------- ------- -------- --------
NET INCOME (LOSS) $ 6,819 $ 7,591 $ 2,604 $(10,195) $ 6,819
======== ======= ======= ======== ========
For the three months ended June 30, 2001
--------------------------------------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------- ------------ ------------
NET SALES $69,063 $58,746 $31,152 $(7,014) $151,947
COSTS AND EXPENSES:
Cost of goods sold 53,916 43,216 25,148 (7,014) 115,266
Selling, general and administrative expenses 14,986 8,329 3,566 -- 26,881
------- ------- ------- ------- --------
OPERATING INCOME 161 7,201 2,438 -- 9,800
Interest expense, net 7,202 -- 231 -- 7,433
Other (income) expense, net (658) 652 (13) -- (19)
Equity earnings from subsidiaries (6,267) -- -- 6,267 --
------- ------- ------- ------- --------
(LOSS) INCOME BEFORE INCOME TAXES (116) 6,549 2,220 (6,267) 2,386
Provision for income taxes (1,655) 2,292 210 -- 847
------- ------- ------- ------- --------
NET INCOME (LOSS) $ 1,539 $ 4,257 $ 2,010 $(6,267) $ 1,539
======= ======= ======= ======= ========
12
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share amounts)
Supplemental condensed consolidating financial statements (continued):
For the six months ended June 30, 2002
---------------------------------------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------- ------------ ------------
NET SALES $145,400 $130,427 $ 73,680 $(19,719) $329,788
COSTS AND EXPENSES:
Cost of goods sold 110,171 93,691 58,172 (19,719) 242,315
Selling, general and administrative expenses 19,460 14,986 10,686 -- 45,132
-------- -------- -------- -------- --------
OPERATING INCOME 15,769 21,750 4,822 -- 42,341
Interest expense, net 16,243 -- 533 -- 16,776
Other (income) expense, net (747) 1,089 (3) -- 339
Equity earnings from subsidiaries 20,079 -- -- (20,079) --
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES (19,806 20,661 4,292 20,079 25,226
Provision for income taxes 667 7,231 1,325 -- 9,223
-------- -------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY LOSS AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE (20,473) 13,430 2,967 20,079 16,003
Extraordinary loss, net of tax 3,607 -- -- -- 3,607
-------- -------- -------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE (24,080) 13,430 2,967 20,079 12,396
Cumulative effect of accounting change, net of tax (33,358) (4,701) (31,775) -- (69,834)
-------- -------- -------- -------- --------
NET (LOSS) INCOME $(57,438) $ 8,729 $(28,808) $ 20,079 $(57,438)
======== ======== ======== ======== ========
For the six months ended June 30, 2001
---------------------------------------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------- ------------ ------------
NET SALES $135,463 $119,765 $64,857 $(11,984) $308,101
COSTS AND EXPENSES:
Cost of goods sold 105,565 87,479 52,229 (11,984) 233,289
Selling, general and administrative expenses 28,458 16,594 7,089 -- 52,141
-------- -------- ------- -------- --------
OPERATING INCOME 1,440 15,692 5,539 -- 22,671
Interest expense, net 14,890 1 476 -- 15,367
Other (income) expense, net (1,116) 1,309 (15) -- 178
Equity earnings from subsidiaries (13,555) -- -- 13,555 --
-------- -------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES 1,221 14,382 5,078 (13,555) 7,126
Provision for income taxes (3,375) 5,034 871 -- 2,530
-------- -------- ------- -------- --------
NET INCOME (LOSS) $ 4,596 $ 9,348 $ 4,207 $(13,555) $ 4,596
======== ======== ======= ======== ========
13
STONERIDGE, INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousand, execept per share amounts)
Supplemental condensed consolidating financial statements (continued):
For the six months ended June 30, 2002
----------------------------------------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------- ------------ ------------
Net cash provided by operating activities $ 17,794 $ 20,813 $ 5,552 $ 1,850 $ 46,009
INVESTING ACTIVITIES:
Capital expenditures (2,791) (3,253) (1,207) -- (7,251)
Proceeds from sale of fixed assets -- -- 20 -- 20
Other (55) -- (403) 434 (24)
--------- -------- -------- ------- ---------
Net cash used for investing activities (2,846) (3,253) (1,590) 434 (7,255)
--------- -------- -------- ------- ---------
FINANCING ACTIVITIES:
Proceeds from issuance of senior notes 200,000 -- -- -- 200,000
Extinguishment of revolving facility (37,641) -- -- -- (37,641)
Extinguishment of term debt (226,139) -- -- -- (226,139)
Net repayments under revolving facilities (10,142) -- (3,471) -- (13,613)
Proceeds from long-term debt 100,000 -- -- -- 100,000
Repayments of long-term debt 9,289 (17,569) 606 (2,284) (9,958)
Debt issuance costs (10,647) -- -- -- (10,647)
Interest rate swap termination costs (5,274) -- -- -- (5,274)
--------- -------- -------- ------- ---------
Net cash used for financing activities 19,446 (17,569) (2,865) (2,284) (3,272)
--------- -------- -------- ------- ---------
Effect of exchange rate changes on cash and cash
equivalents -- -- 387 -- 387
Net change in cash and cash equivalents 34,394 (9) 1,484 -- 35,869
Cash and cash equivalents at beginning of period 714 29 3,626 -- 4,369
--------- -------- -------- ------- ---------
Cash and cash equivalents at end of period $ 35,108 $ 20 $ 5,110 $ -- $ 40,238
========= ======== ======== ======= =========
For the six months ended June 30, 2001
----------------------------------------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------- ------------ ------------
Net cash provided by operating activities $(2,602) $ 15,699 $ 1,292 $(914) $ 13,475
INVESTING ACTIVITIES:
Capital expenditures (6,080) (4,793) (819) -- (11,692)
Other (265) -- 392 -- 127
------- -------- ------- ----- --------
Net cash used for investing activities (6,345) (4,793) (427) -- (11,565)
------- -------- ------- ----- --------
FINANCING ACTIVITIES:
Net borrowings under revolving facilities 17,403 -- 3,569 -- 20,972
Proceeds from long-term debt -- -- 921 -- 921
Repayments of long-term debt (7,242) (10,891) (6,474) 914 (23,693)
Debt issuance costs (1,223) -- -- -- (1,223)
------- -------- ------- ----- --------
Net cash used for financing activities 8,938 (10,891) (1,984) 914 (3,023)
------- -------- ------- ----- --------
Effect of exchange rate changes on cash and cash
equivalents -- -- (274) -- (274)
Net change in cash and cash equivalents (9) 15 (1,393) -- (1,387)
Cash and cash equivalents at beginning of period 172 109 5,313 -- 5,594
------- -------- ------- ----- --------
Cash and cash equivalents at end of period $ 163 $ 124 $ 3,920 $ -- $ 4,207
======= ======== ======= ===== ========
12. Certain prior period amounts have been reclassified to conform to
their 2002 presentation in the condensed consolidated financial
statements.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the consolidated financial statements, and the reported amounts of
revenues and expenses during the reporting period.
On an ongoing basis, the Company evaluates estimates and assumptions used. The
Company bases its estimates used on historical experience and on various other
factors that the Company believes to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results could differ from these estimates.
The Company believes the following are its "critical accounting polices" - those
most important to the financial presentation and those that require the most
difficult, subjective or complex judgements.
Revenue Recognition and Sales Commitments - The Company recognizes revenues from
the sale of products, net of costs of returns and allowances, at the point of
passage of title, which is generally at the time of shipment. The Company often
enters into agreements with its customers at the beginning of a given vehicle's
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 generally may be terminated by our customer at any
time, but usually are not.
Bad Debts - The Company evaluates the collectibility 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 account 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
collectibility 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.
Inventory - Inventories are valued at the lower of cost or market. Cost is
determined by the last-in, first-out (LIFO) method for U.S. inventories and by
the first-in, first-out (FIFO) method for non-U.S. inventories. Where
appropriate, standard cost systems are utilized for purposes of determining
cost; the standards are adjusted as necessary to ensure they approximate actual
costs. Estimates of lower of cost or market value of inventory are determined
based upon current economic conditions, historical sales quantities and patterns
and, in some cases, the specific risk of loss on specifically identified
inventories.
Goodwill - In connection with the adoption of SFAS 142, "Goodwill and Other
Intangible Assets," the Company discontinued the amortization of goodwill on
January 1, 2002. In lieu of amortization, the new standard requires that
goodwill be tested for impairment as of the date of adoption, at least annually
thereafter and whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. See Note 4 for more information on the
Company's application of this new accounting standard.
Results of Operations
Six Months Ended June 30, 2002 Compared To Six Months Ended June 30, 2001
Net Sales. Net sales for the six months ended June 30, 2002 increased by $21.7
million, or 7.0%, to $329.8 million from $308.1 million for the corresponding
period in 2001. Sales revenues for the first six months were favorably impacted
by increased North American light vehicle builds.
15
Sales for the six months ended June 30, 2002 for North America increased $14.0
million to $278.2 million from $264.2 million for the corresponding period in
2001. North American sales accounted for 84.4% of total sales for the first six
months of 2002 compared with 85.8% for the corresponding period in 2001. Sales
for the six months ended June 30, 2002 outside North America increased $7.7
million to $51.6 million from $43.9 million for the corresponding period in
2001. Sales outside North America accounted for 15.6% of total sales for the six
months ended June 30, 2002 compared with 14.2% for the corresponding period in
2001.
Cost of Goods Sold. Cost of goods sold for the first six months of 2002
increased by $9.0 million, or 3.9%, to $242.3 million from $233.3 million in the
first six months of 2001. As a percentage of sales, cost of goods sold decreased
to 73.5% from 75.7% for the first six months of 2002 and 2001, respectively. The
improvement as a percent of sales was primarily attributable to cost reduction
programs and increased light vehicle production volumes.
Selling, General and Administrative Expenses. Selling, general and
administrative (SG&A) expenses, decreased by $7.0 million to $45.1 million in
the first six months of 2002 from $52.1 million for the corresponding period in
2001. As a percentage of sales, SG&A expenses decreased to 13.7% for the first
six months of 2002 from 16.9% for the corresponding period in 2001. The decrease
was primarily attributable to the Company's adopting the non-amortization of
goodwill provisions of SFAS 142 on January 1, 2002. Goodwill amortization
expense for the first six months of 2001 was $4.9 million. Excluding the impact
of goodwill amortization expense, SG&A decreased by $2.1 million, or 4.5%, in
the first six months of 2002 compared to the corresponding period in 2001,
primarily as a result of the Company's cost cutting initiatives.
Interest Expense, net. Net interest expense for the first six months of 2002
increased by $1.4 million to $16.8 million in 2002 from $15.4 million in 2001
primarily due to an increase in the effective rate of interest resulting from
the debt refinancing.
Other Expense, net. Other expense, which primarily represented equity losses of
unconsolidated subsidiaries, was $0.3 million and $0.2 million for the six
months ended June 30, 2002 and 2001, respectively.
Income Before Income Taxes. As a result of the foregoing, income before income
taxes increased by $18.1 million for the first six months of 2002 to $25.2
million from $7.1 million in 2001.
Provision for Income Taxes. The Company recognized provisions for income taxes
of $9.2 million and $2.5 million for federal, state and foreign income taxes for
the first six months of 2002 and 2001, respectively.
Income Before Extraordinary Loss and Cumulative Effect of Accounting Change. As
a result of the foregoing, income before extraordinary loss and cumulative
effect of accounting change increased by $11.4 million to $16.0 million for the
first six months of 2002 from $4.6 million in 2001.
Extraordinary Loss, net of tax. The Company recognized a net of tax loss of $3.6
million during the first six months of 2002 in connection with the early
extinguishment of debt related to the Company's debt refinancing.
Cumulative Effect of Accounting Change, net of tax. In accordance with the
transition provisions of SFAS 142, the Company completed the two-step
transitional goodwill impairment analysis. As a result, the Company recorded as
a cumulative effect of accounting change, a non-cash charge of approximately
$69.8 million, net of tax, to write off a portion of the carrying value of
goodwill.
16
Three Months Ended June 30, 2002 Compared To Three Months Ended June 30, 2001
Net Sales. Net sales for the quarter ended June 30, 2002 increased by $20.1
million, or 13.2%, to $172.0 million from $151.9 million for the corresponding
period in 2001. Sales revenues for the second quarter ended June 30, 2002
continued to be favorably impacted by increased North American light vehicle
builds.
Sales for the quarter ended June 30, 2002 for North America increased $13.8
million to $145.0 million from $131.2 million for the corresponding period in
2001. North American sales accounted for 84.3% of total sales for the second
quarter ended June 30, 2002 compared with 86.4% for the corresponding period in
2001. Sales for the second quarter of 2002 outside North America increased by
$6.3 million to $27.0 million from $20.7 million for the corresponding period in
2001. Sales outside North America accounted for 15.7% of total sales for the
second quarter of 2002 compared with 13.6% for the corresponding period in 2001.
Cost of Goods Sold. Cost of goods sold for the quarter ended June 30, 2002
increased by $8.6 million, or 7.4%, to $123.9 million from $115.3 million for
the corresponding period in 2001. As a percentage of sales, cost of goods sold
decreased to 72.0% from 75.9% for the second quarter of 2002 and 2001,
respectively. The improvement as a percent of sales was primarily attributable
to cost reduction programs and increased light vehicle production volumes.
Selling, General and Administrative Expenses. SG&A expenses decreased by $3.4
million to $23.5 million in the second quarter of 2002 from $26.9 million for
the corresponding period in 2001. As a percentage of sales, SG&A expenses
decreased to 13.7% for the second quarter of 2002 from 17.7% for the
corresponding period in 2001. The decrease was primarily attributable to the
Company's adopting the non-amortization of goodwill provisions of SFAS 142 on
January 1, 2002. Goodwill amortization expense for the second quarter of 2001
was $2.4 million. Excluding the impact of goodwill amortization expense, SG&A
decreased by $1.0 million, or 4.0% in the second quarter of 2002, reflecting the
Company's cost cutting initiatives.
Interest Expense, net. Net interest expense for the second quarter of 2002
increased by $0.8 million to $8.2 million in 2002 from $7.4 million in 2001. The
increase was primarily due to an increase in the effective rate of interest
resulting from the debt refinancing.
Income Before Income Taxes. As a result of the foregoing, income before income
taxes increased $13.9 million for the second quarter of 2002 to $16.3 million
from $2.4 million in 2001.
Provision for Income Taxes. The Company recognized provisions for income taxes
of $5.9 million and $0.8 million for federal, state and foreign income taxes for
the second quarter of 2002 and 2001, respectively.
Income Before Extraordinary Loss and Cumulative Effect of Accounting Change. As
a result of the foregoing, income before extraordinary loss and cumulative
effect of accounting change increased by $8.9 million to $10.4 million for the
first six months of 2002 from $1.5 million in 2001.
Extraordinary Loss, net of tax. The Company recognized a net of tax loss of $3.6
million during the second quarter of 2002 in connection with the early
extinguishment of debt related to the Company's debt refinancing.
Liquidity and Capital Resources
Net cash provided by operating activities was $46.0 million and $13.5
million for the six months ended June 30, 2002 and 2001, respectively. The
increase in net cash provided by operating activities of $32.5 million was
primarily attributable to a combination of lower levels of working capital and
an increase in operating income.
17
Net cash used by investing activities was $7.3 million and $11.6 million
for the six months ended June 30, 2002 and 2001, respectively. The decrease in
net cash used by investing activities of $4.3 million was primarily attributable
to a decrease in capital expenditures.
Net cash used by financing activities was $3.3 million and $3.0 million for
the six months ended June 30, 2002 and 2001, respectively. The increase in net
cash used by financing activities of $0.3 million was attributable to a
combination of an increase in cash due to the debt refinancing offset by the
costs associated with the refinancing.
The Company has a new $200.0 million credit agreement (of which $99.8
million was outstanding at June 30, 2002) with a bank group. The credit
agreement has the following components: a $100.0 million revolving facility (of
which $97.8 million is currently available) including a $10.0 million swing line
facility, and a $100.0 million term facility. The revolving facility expires on
April 30, 2007 and requires a commitment fee of 0.375% to 0.500% on the unused
balance as well as a utilization fee of 0.125% to 0.250% when the unutilized
balance equals or exceeds 50.0% of the total revolving commitment. 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 0.50% to 1.50% or (ii) LIBOR plus a margin of 2.00% 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. Interest on the swing line facility is payable monthly at the same rate
as the revolving facility. The term facility expires on April 30, 2008. Interest
is payable quarterly at either (i) the prime rate plus 1.75% or (ii) LIBOR plus
3.25%. The Company has the right to prepay any of the above mentioned loans, in
whole or in part, without premium or penalty. The Company was in compliance with
its covenants as of June 30, 2002.
On May 1, 2002, the Company issued $200.0 million aggregate principal
amount of senior notes, the proceeds of which were used to repay existing debt.
The $200.00 million notes bear interest at an annual rate of 11.50% and mature
on May 1, 2012. Interest is payable on May 1 and November 1 of each year. The
Company registered the notes under the Securities Act of 1933 on May 17, 2002.
On July 1, 2002, the Company completed an exchange offer of the senior notes for
substantially identical notes registered under the Securities Act of 1933.
The following table summarizes the Company's cash outflows resulting from
financial contracts and commitments:
Less than 1 - 3 4 - 5 After 5
Contractual Obligations Total 1 year years years years
-------- --------- ------- ------ --------
Long-Term Debt $304,203 $ 824 $ 7,379 $2,000 $294,000
Capital Lease Obligations 1,986 1,063 921 2 --
Operating Leases 11,964 3,784 5,642 1,464 1,074
-------- ------ ------- ------ --------
Total Contractual Cash
Obligations $318,154 $5,671 $13,942 $3,466 $295,074
======== ====== ======= ====== ========
Management believes that cash flows from operations and the availability of
funds from the Company's credit facilities and senior notes will provide
sufficient liquidity to meet the Company's growth and operating needs.
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.
18
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.
Forward-looking statements may be identified by the words "will," "may,"
"designed to," "believes," "plans," "expects," "continue," and similar
expressions. 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. Important factors that
could cause actual results to differ materially from those in the
forward-looking statements include, among other factors:
. the loss of a major customer;
. a decline in automotive, medium- and heavy-duty truck or agricultural
vehicle production;
. the failure to achieve successful integration of any acquired company
or business;
. a decline in general economic conditions in any of the various
countries in which the Company operates;
. labor disruptions at our facilities or at any of our significant
customers or suppliers;
. the ability of our suppliers to supply us with parts and components at
competitive prices on a timely basis;
. our significant amount of debt and the restrictive covenants contained
in our credit facility;
. customer acceptance of new products;
. capital availability or costs, including changes in interest rates or
market perceptions of the Company;
. changes by the Financial Accounting Standards Board or the Securities
and Exchange Commission of authoritative generally accepted accounting
principles or policies;
. the impact of laws and regulations, including environmental laws and
regulations; and
. the occurrence or non-occurrence of circumstances beyond our control.
19
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 a combination of
variable and fixed rate debt. At June 30, 2002, approximately 50.0% of the
Company's debt was variable rate debt. The Company believes that a 1.0% increase
or decrease in the interest rate on variable rate debt could affect earnings by
approximately $0.1 million.
The Company's risks related to commodity price and foreign currency
exchange risks have historically not been material. The Company does not expect
the effects of these risks to be material in the future based on current
operating and economic conditions in the countries and markets in which it
operates. Therefore, a 10.0% change in the value of the U.S. dollar would not
significantly affect the Company's financial position.
20
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
13, 2002.
(b) The following matters were 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 19,810,639 982,068
Cloyd J. Abruzzo 19,808,589 984,118
Avery S. Cohen 20,722,682 70,025
Richard E. Cheney 20,765,072 27,635
Sheldon J. Epstein 18,786,381 2,006,326
C.J. Hire 20,765,172 27,535
Richard G. LeFauve 20,767,172 25,535
Earl L. Linehan 20,767,172 25,535
(2) The proposal to approve the adoption of the Directors' Share
Option Plan. The vote with respect to adopting the Plan was as
follows:
In Favor 16,331,560
Against 4,458,656
Abstained 2,491,000
ITEM 5. OTHER INFORMATION
None.
21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1 Indenture dated as of May 1, 2002 among Stoneridge, Inc. as Issuer,
Stoneridge Control Devices, Inc. and Stoneridge Electronics, Inc., as
Guarantors, and Fifth Third Bank, as trustee (incorporated by
reference to Exhibit 4.1 to the Company's Current Report on Form 8-K
filed on May 7, 2002).
10.1 Credit Agreement dated as of May 1, 2002 among Stoneridge, Inc., as
Borrower, the Lending Institutions Named Therein, as Lenders, National
City Bank, as Administrative Agent, a Joint Lead Arranger and
Collateral Agent, Deutsche Bank Securities Inc., as a Joint Lead
Arranger, Comerica Bank and PNC Bank, National Association, as the
Co-Documentation Agents (incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K filed on May 7, 2002).
10.2 Purchase Agreement dated as of May 1, 2002 among Stoneridge Inc.,
Stoneridge Control Devices Inc., Stoneridge Electronics Inc. and
Deutsche Bank Securities Inc., J.P. Morgan Securities Inc., Morgan
Stanley & Co. Incorporated and NatCity Investments Inc. (incorporated
by reference to Exhibit 10.2 to the Company's Current Report on Form
8-K filed on May 7, 2002).
10.3 Registration Rights Agreement dated as of May 1, 2002 among Stoneridge
Inc., Stoneridge Control Devices Inc., Stoneridge Electronics Inc. and
Deutsche Bank Securities Inc., J.P. Morgan Securities Inc., Morgan
Stanley & Co. Incorporated and NatCity Investments Inc. (incorporated
by reference to Exhibit 10.3 to the Company's Current Report on Form
8-K filed on May 7, 2002).
(b) Reports on Forms 8-K
1. On April 16, 2002, the Company filed a Current Report on Form 8-K
reporting the anticipated sale of Senior Notes.
2. On April 26, 2002, the Company filed a Current Report on Form 8-K
reporting the pricing of the Senior Notes.
3. On April 30, 2002, the Company filed a Current Report on Form 8-K
reporting the disclosure of financial statement footnotes included in
the offering memorandum that were not required to be included in
either the Company's previously filed Form 10-Q for the quarter ended
March 31, 2002 or in the Company's previously filed Form 10-K for the
fiscal year ended December 31, 2001.
4. On May 7, 2002, the Company filed a Current Report on Form 8-K
reporting the following agreements associated with the senior notes
issued on May 1, 2002: Indenture Agreement, Credit Agreement, Purchase
Agreement and Registration Rights Agreement.
5. On May 22, 2002, the Company filed a Current Report on Form 8-K
reporting the Board of Directors' decision to engage Ernst & Young LLP
as the Company's independent auditors for the fiscal year ending
December 31, 2002. Ernst & Young LLP replaces Arthur Andersen LLP who
was dismissed as the Company's independent auditors effective May 21,
2002.
22
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: August 14, 2002 /s/ Cloyd J. Abruzzo
-------------------------------------
Cloyd J. Abruzzo
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 2002 /s/ Kevin P. Bagby
-------------------------------------
Kevin P. Bagby
Vice-President and Chief Financial
Officer (Principal Financial and
Chief Accounting Officer)
23
STONERIDGE, INC.
EXHIBIT INDEX
Exhibit
Number Exhibit
- ------- -------
4.1 Indenture dated as of May 1, 2002 among Stoneridge, Inc. as Issuer,
Stoneridge Control Devices, Inc. and Stoneridge Electronics, Inc., as
Guarantors, and Fifth Third Bank, as trustee (incorporated by
reference to Exhibit 4.1 to the Company's Current Report on Form 8-K
filed on May 7, 2002).
10.1 Credit Agreement dated as of May 1, 2002 among Stoneridge, Inc., as
Borrower, the Lending Institutions Named Therein, as Lenders, National
City Bank, as Administrative Agent, a Joint Lead Arranger and
Collateral Agent, Deutsche Bank Securities Inc., as a Joint Lead
Arranger, Comerica Bank and PNC Bank, National Association, as the
Co-Documentation Agents (incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K filed on May 7, 2002).
10.2 Purchase Agreement dated as of May 1, 2002 among Stoneridge Inc.,
Stoneridge Control Devices Inc., Stoneridge Electronics Inc. and
Deutsche Bank Securities Inc., J.P. Morgan Securities Inc., Morgan
Stanley & Co. Incorporated and NatCity Investments Inc. (incorporated
by reference to Exhibit 10.2 to the Company's Current Report on Form
8-K filed on May 7, 2002).
10.3 Registration Rights Agreement dated as of May 1, 2002 among Stoneridge
Inc., Stoneridge Control Devices Inc., Stoneridge Electronics Inc. and
Deutsche Bank Securities Inc., J.P. Morgan Securities Inc., Morgan
Stanley & Co. Incorporated and NatCity Investments Inc. (incorporated
by reference to Exhibit 10.3 to the Company's Current Report on Form
8-K filed on May 7, 2002).
24