UNITED STATES
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 March 31, 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 such 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 April 12, 2002
was 22,399,311.
STONERIDGE, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2002 and
December 31, 2001 2
Condensed Consolidated Statements of Income for the three months
ended March 31, 2002 and 2001 3
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 2002 and 2001 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
Signatures 15
PART I. FINANCIAL INFORMATION
1
ITEM 1. FINANCIAL STATEMENTS
STONERIDGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
2002 2001
---------------- ------------------
(Unaudited) (Audited)
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 4,836 $ 4,369
Accounts receivable, net 104,640 91,018
Inventories, net 52,514 54,504
Prepaid expenses and other 13,936 15,538
Deferred income taxes, net 8,021 7,316
---------------- ------------------
Total current assets 183,947 172,745
---------------- ------------------
PROPERTY, PLANT AND EQUIPMENT, net 117,219 118,061
OTHER ASSETS:
Goodwill, net 345,392 345,392
Investments and other, net 31,333 30,645
---------------- ------------------
TOTAL ASSETS $ 677,891 $ 666,843
================ ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 40,975 $ 41,621
Accounts payable 54,626 50,792
Accrued expenses and other 43,046 33,933
---------------- ------------------
Total current liabilities 138,647 126,346
---------------- ------------------
LONG-TERM DEBT, net of current portion 241,012 249,720
DEFERRED INCOME TAXES, net 27,408 24,352
OTHER LIABILITIES 5,037 6,818
---------------- ------------------
Total long-term liabilities 273,457 280,890
---------------- ------------------
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 March 31, 2002 and 22,397 at December 31,
2001, stated at -- --
Additional paid-in capital 141,516 141,506
Retained earnings 131,734 126,157
Accumulated other comprehensive loss (7,463) (8,056)
---------------- ------------------
Total shareholders' equity 265,787 259,607
---------------- ------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 677,891 $ 666,843
================ ==================
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 ended
March 31,
-----------------------------
2002 2001
-------------- -------------
NET SALES $ 157,744 $ 156,154
COSTS AND EXPENSES:
Cost of goods sold 118,462 118,023
Selling, general and administrative expenses 21,638 25,260
-------------- -------------
Operating income 17,644 12,871
Interest expense, net 8,622 7,934
Other expense, net 100 197
-------------- -------------
INCOME BEFORE INCOME TAXES 8,922 4,740
Provision for income taxes 3,345 1,683
-------------- -------------
NET INCOME $ 5,577 $ 3,057
============== =============
BASIC NET INCOME PER SHARE $ 0.25 $ 0.14
WEIGHTED AVERAGE SHARES OUTSTANDING 22,399 22,397
============== =============
DILUTED NET INCOME PER SHARE $ 0.25 $ 0.14
WEIGHTED AVERAGE SHARES OUTSTANDING 22,486 22,453
============== =============
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 three months ended
March 31,
--------------------------
2002 2001
-------- --------
OPERATING ACTIVITIES:
Net income $ 5,577 $ 3,057
Adjustments to reconcile net income to net cash from operating
activities-
Depreciation and amortization 5,709 7,147
Deferred income taxes 1,693 791
Changes in operating assets and liabilities-
Accounts receivable, net (13,835) (12,525)
Inventories 1,848 1,442
Prepaid expenses and other 1,587 (3,279)
Other assets, net (1,505) 1,639
Accounts payable 3,917 2,242
Accrued expenses and other 9,088 483
-------- --------
Net cash provided by operating activities 14,079 997
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (4,249) (6,044)
Other, net 13 57
-------- --------
Net cash used for investing activities (4,236) (5,987)
-------- --------
FINANCING ACTIVITIES:
Repayments of long-term debt (276) (1,495)
Proceeds from long-term debt 96 4,632
Net (repayments) borrowings under credit agreement (9,116) 1,656
Debt issuance costs -- (1,223)
-------- --------
Net cash (used for) provided by financing activities (9,296) 3,570
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (80) (206)
NET CHANGE IN CASH AND CASH EQUIVALENTS 467 (1,626)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,369 5,594
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,836 $ 3,968
======== ========
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 2001 Annual Report to
Shareholders.
The results of operations for the three months ended March 31, 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
72% and 74% of the Company's inventories at March 31, 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:
March 31, December 31,
2002 2001
---------------- -----------------
Raw materials $ 30,299 $ 35,488
Work in progress 10,545 8,192
Finished goods 12,210 1,142
LIFO reserve (540) (318)
---------------- -----------------
Total $ 52,514 $ 54,504
================ =================
3. 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 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 counterparties
while receiving a floating interest rate based on LIBOR. The
counterparties 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 $170.1 million.
5
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
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 accumulated other comprehensive loss as of March 31, 2002 were $3.2
million after tax ($5.0 million pre-tax).
4. In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS
142, "Goodwill and Other Intangible Assets". Under SFAS 142, the
amortization period for certain intangibles changes and goodwill is no
longer subject to amortization. Goodwill is now subject to at least an
annual assessment for impairment by applying a fair value-based test. This
Statement became effective for the Company on January 1, 2002. The Company
is currently in the process of evaluating the overall potential impact of
this Statement on the Company's financial statements. Goodwill
amortization, which approximated $9.5 million annually, ceased effective
January 1, 2002. The Company is currently in the process of performing an
impairment analysis as required by the new Statement.
The unaudited pro forma consolidated net income as though SFAS 142 had been
in effect at the beginning of fiscal 2001 is as follows:
Three Months Ended March 31,
-------------------------------
2002 2001
-------- --------
Reported net income $5,577 $3,057
Add back: Goodwill amortization, net of tax -- 1,735
-------- --------
Adjusted net income $5,577 $4,792
======== ========
Three Months Ended March 31,
-------------------------------
2002 2001
-------- --------
Basic net income per share:
Reported net income $ 0.25 $ 0.14
Add back: Goodwill amortization, net of tax -- 0.07
-------- --------
Adjusted net income $ 0.25 $ 0.21
======== ========
Three Months Ended March 31,
-------------------------------
2002 2001
-------- --------
Diluted net income per share:
Reported net income $ 0.25 $ 0.14
Add back: Goodwill amortization, net of tax -- 0.07
-------- --------
Adjusted net income $ 0.25 $ 0.21
======== ========
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
adoption of SFAS 144 did not materially impact the Company's financial
statements upon adoption.
6. Other comprehensive loss includes foreign currency translation adjustments
and derivative transactions, net of related tax. Comprehensive income
(loss) consists of the following:
6
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
March 31, March 31,
2002 2001
------------- -------------
Net income $ 5,577 $ 3,057
Other comprehensive income (loss) 593 (4,791)
------------- -------------
Comprehensive income (loss) $ 6,170 $ (1,734)
============= =============
7. The Company has a $425,000 credit agreement with a bank group. The
credit agreement, as amended on September 28, 2001, has the following
components: a $100,000 revolving credit facility including a $5,000
swing line facility, a $150,000 term facility and a $175,000 term
facility. The $100,000 revolving facility and the $150,000 term
facility expire on December 31, 2003 and require a commitment fee of
0.50% on the unused balance of the revolver. 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 2.75% or (ii) LIBOR plus a margin of
4.25%. These margins increase periodically through September 30, 2002.
These facilities require additional interest of 1.00% on the aggregate
unpaid balance payable on the expiration date. The $5,000 swing line
facility expires on December 31, 2003. Interest is payable monthly at
an overnight money market borrowing rate. The $175,000 term facility
expires on December 31, 2005. Interest is payable quarterly at either
(i) the prime rate plus a margin of 3.75% or (ii) LIBOR plus a margin
of 5.25%. These margins increase periodically through September 30,
2002. This facility also requires additional interest of 1.00% on the
aggregate unpaid principal balance payable on the expiration date.
Long-term debt consists of the following:
March 31, December 31,
2002 2001
--------------- ---------------
Borrowings under credit agreement $ 277,493 $ 286,610
Borrowings payable to foreign banks 3,657 3,891
Other 837 840
--------------- ---------------
281,987 291,341
Less: Current portion 40,975 41,621
--------------- ---------------
$ 241,012 $ 249,720
=============== ===============
8. 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. Actual weighted average shares
outstanding used in calculating basic and diluted earnings per share
were as follows:
Three Months Ended
March 31,
------------------------------
2002 2001
------------- -------------
Basic weighted average shares outstanding 22,399 22,397
Effect of dilutive securities 87 56
------------- -------------
Diluted weighted average shares outstanding 22,486 22,453
============= =============
7
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
9. 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:
March 31, March 31,
2002 2001
-------------- --------------
Net Sales:
North America $ 133,157 $ 132,985
Europe and other 24,587 23,169
-------------- --------------
Total $ 157,744 $ 156,154
============== ==============
March 31, December 31,
2002 2001
-------------- --------------
Non-Current Assets:
North America $ 441,854 $ 440,915
Europe and other 52,090 53,183
-------------- --------------
Total $ 493,944 $ 494,098
============== ==============
10. Certain prior year amounts have been reclassified to conform to their 2002
presentation in the condensed consolidated financial statements.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Three Months Ended March 31, 2002 Compared To Three Months Ended March 31, 2001
- -------------------------------------------------------------------------------
Net Sales. Net sales for the first quarter of 2002 increased by $1.6 million, or
1.0%, to $157.7 million from $156.2 million for the same period in 2001. Sales
revenues for the quarter were favorably impacted by increased North American
light vehicle builds mitigated by continued weakness in the commercial vehicle
markets.
Sales for the first quarter of 2002 for North America increased $0.2 million to
$133.2 million from $133.0 million for the same period in 2001. North American
sales accounted for 84.4% of total sales for the first quarter of 2002 compared
with 85.2% for the same period in 2001. Sales for the first quarter of 2002
outside North America increased $1.4 million to $24.6 million from $23.2 million
for the same period in 2001. Sales outside North America accounted for 15.6% of
total sales for the first quarter of 2002 compared with 14.8% for the same
period in 2001.
Cost of Goods Sold. Cost of goods sold for the first quarter of 2002 increased
by $0.5 million, or 0.4%, to $118.5 million from $118.0 million in the first
quarter of 2001. As a percentage of sales, cost of goods sold decreased to 75.1%
from 75.6% in 2001. 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 $3.6 million to $21.6 million in the
first quarter of 2002 from $25.3 million for the same period in 2001. As a
percentage of sales, SG&A expenses decreased to 13.7% for the first quarter of
2002 from 16.2% for the same period in 2001. The decrease was partially
attributable to the fact that the Company ceased amortizing goodwill on January
1, 2002 as a result of the adoption of SFAS 142. Amortization expense for the
first quarter of 2001 was $2.5 million. The decrease was also attributable to
the success of cost cutting initiatives.
Interest Expense, net. Interest expense for the first quarter was $8.6 million
and $7.9 million in 2002 and 2001, respectively. Average outstanding
indebtedness was $287.3 million and $332.1 million for the first three months of
2002 and 2001, respectively.
Other Expense, net. Other expense, which primarily represented equity losses of
unconsolidated subsidiaries, was $0.1 million and $0.2 million for the quarters
ended March 31, 2002 and 2001, respectively.
Income Before Income Taxes. As a result of the foregoing, income before income
taxes increased by $4.2 million for the first quarter of 2002 to $8.9 million
from $4.7 million in 2001.
Provision for Income Taxes. The Company recognized provisions for income taxes
of $3.3 million, or 37.5% and $1.7 million, or 35.5% for federal, state and
foreign income taxes for the first quarters of 2002 and 2001, respectively.
Net Income. As a result of the foregoing, net income increased by $2.5 million,
or 82.4%, to $5.6 million for the first quarter of 2002 from $3.1 million in
2001. Pro forma net income, as if the Company adopted SFAS 142 at the beginning
of fiscal 2001, would be $5.6 million and $4.7 million, for the quarters ended
March 31, 2002 and 2001, respectively.
Liquidity and Capital Resources
Net cash provided by operating activities was $14.1 million and $1.0
million for the quarters ended March 31, 2002 and 2001, respectively. The
increase in net cash from operating activities of $13.1 million was primarily
attributable to a combination of lower levels of working capital and an increase
in net income.
Net cash used for investing activities was $4.2 million and $6.0 million
for the quarters ended March 31, 2002 and 2001, respectively, and primarily
related to capital expenditures.
9
Net cash used for financing activities was $9.3 million for the quarter
ended March 31, 2002, as compared to net cash provided by financing activities
of $3.6 million for the quarter ended March 31, 2001. Improved cash flows from
operations for the quarter ended March 31, 2002 were used primarily to pay down
debt.
The Company has a $425.0 million credit agreement (of which $282.0 million
and $325.3 million was outstanding at March 31, 2002 and 2001, respectively)
with a bank group. The credit agreement, as amended on September 28, 2001, has
the following components: a $100.0 million revolving facility (of which $43.8
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 0.50% on the unused balance
of the revolver. 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 2.75% or (ii) LIBOR plus a margin of
4.25%. These margins increase periodically through September 30, 2002. These
facilities require additional interest of 1.00% on the aggregate unpaid balance
payable on the expiration date. 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
3.75% or (ii) LIBOR plus a margin of 5.25%. These margins increase periodically
through September 30, 2002. This facility also requires additional interest of
1.00% on the aggregate unpaid principal balance payable on the expiration date.
The Company has entered into three interest-rate swap agreements with a
total notional amount of $170.1 million. Two of these interest-rate swap
agreements are due to expire on December 31, 2002, and one interest-rate swap
agreement will expire on December 31, 2003. These interest-rate swap agreements
exchange variable interest rates on the Company's credit agreement for fixed
interest rates. The Company has also entered into a Swedish krona forward
contract with a notional amount of $13.4 million to satisfy krona denominated
debt obligations and other insignificant forward contracts. 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.
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
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 established 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 established 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.
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS
142, "Goodwill and Other Intangible Assets." Under SFAS 142, the amortization
period for certain intangibles changes and goodwill is no longer subject to
amortization. Goodwill is now subject to at least an annual assessment for
impairment by applying a fair value-based test. This Statement became effective
for the Company on January 1, 2002. The Company is currently in the process of
evaluating the overall potential impact of this Statement on the Company's
financial statements. Goodwill amortization, which approximated $9.5 million
annually, ceased effective January 1, 2002. The Company is in the process of
performing an impairment analysis as required by the new Statement.
10
The unaudited pro forma consolidated net income as though SFAS 142 had
been in effect at the beginning of fiscal 2001 is as follows:
Three Months Ended March 31,
-------------------------------
2002 2001
---------- ---------
Reported net income $ 5,577 $ 3,057
Add back: Goodwill amortization, net of tax -- 1,735
---------- ---------
Adjusted net income $ 5,577 $ 4,792
========== =========
Three Months Ended March 31,
-------------------------------
2002 2001
---------- ---------
Basic net income per share:
Reported net income $ 0.25 $ 0.14
Add back: Goodwill amortization, net of tax -- 0.07
---------- ---------
Adjusted net income $ 0.25 $ 0.21
========== =========
Three Months Ended March 31,
-------------------------------
2002 2001
---------- ---------
Diluted net income per share:
Reported net income $ 0.25 $ 0.14
Add back: Goodwill amortization, net of tax -- 0.07
---------- ---------
Adjusted net income $ 0.25 $ 0.21
========== =========
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, supersedes SFAS 121 and establishes guidelines for
accounting for the impairment and disposal of long-lived assets. The adoption of
SFAS 144 did not materially impact the Company's financial statements upon
adoption.
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 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;
. 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;
11
. 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.
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 swapping the floating interest rates on certain portions of the Company's
debt to fixed interest rates. These agreements had a notional amount of $170.1
million and $187.5 million for the periods ended March 31, 2002 and 2001,
respectively, and they expire between December 31, 2002 and December 31, 2003.
Holding other factors constant (such as foreign exchange rates and debt levels),
a 1.00% increase in interest rates would have changed the fair market value of
these agreements at March 31, 2002 by approximately $1.4 million. The effect of
changes in interest rates on the Company's net income historically has been
small relative to other factors that also affect net income, such as sales and
operating margins. However, a 1.00% increase in interest rates would increase
annual interest expense by approximately $1.2 million. 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 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 10.00% change in the value of the U.S. dollar would not
significantly affect the Company's financial position.
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
- -------------------------------------------------------------
None.
ITEM 5. OTHER INFORMATION
- ---------------------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) Exhibits
None.
(b) Reports on Forms 8-K
None.
14
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: April 12, 2002 /s/ Cloyd J. Abruzzo
--------------------------------------
Cloyd J. Abruzzo
President and Chief Executive Officer
(Principal Executive Officer)
Date: April 12, 2002 /s/ Kevin P. Bagby
--------------------------------------
Kevin P. Bagby
Treasurer and Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
15