-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Sg3YK6lWgqAbhpGAm8YkD4ocgNpV/TjJeNstYl55bPEaJBS6F+sZiAa+YUPdUBR8 M8XQRbAWqAQhPTGm3DCyIg== 0000950109-01-502188.txt : 20010718 0000950109-01-502188.hdr.sgml : 20010718 ACCESSION NUMBER: 0000950109-01-502188 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010717 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STONERIDGE INC CENTRAL INDEX KEY: 0001043337 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 341598949 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13337 FILM NUMBER: 1683347 BUSINESS ADDRESS: STREET 1: 9400 EAST MARKET ST CITY: WARREN STATE: OH ZIP: 44484 BUSINESS PHONE: 3308562443 MAIL ADDRESS: STREET 1: 9400 EAST MARKET ST CITY: WARREN STATE: OH ZIP: 44484 10-Q 1 d10q.txt STONERIDGE, INC FORM 10-Q DATED JUNE 30, 2001 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001. Commission file number 001-13337 STONERIDGE, INC. ------------------------------------------------------ (Exact Name of Registrant as Specified in Its Charter) Ohio 34-1598949 ------------------------------- ------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 9400 East Market Street, Warren, Ohio 44484 - ---------------------------------------- ------------ (Address of Principal Executive Offices) (Zip Code) (330) 856-2443 -------------------------------------------------- Registrant's Telephone Number, Including Area Code Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No_____. --- The number of Common Shares, without par value, outstanding as of July 17, 2001 was 22,397,311. STONERIDGE, INC. INDEX
Page No. Part I Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000 2 Condensed Consolidated Statements of Income for the three months and six months ended June 30, 2001 and 2000 3 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2000 4 Notes to Condensed Consolidated Financial Statements 5-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-12 Item 3. Quantitative and Qualitative Disclosure About Market Risk 13 Part II Other Information 14-15 Signatures 16
1 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS STONERIDGE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
June 30, December 31, 2001 2000 ---------------- ------------------ (Unaudited) (Audited) ASSETS - ------ CURRENT ASSETS: Cash and cash equivalents $ 4,207 $ 5,594 Accounts receivable, net 99,489 91,680 Inventories, net 62,033 70,159 Prepaid expenses and other 18,185 17,104 Deferred income taxes, net 12,680 10,217 --------------- -------------- Total current assets 196,594 194,754 --------------- -------------- PROPERTY, PLANT AND EQUIPMENT, net 114,467 113,855 OTHER ASSETS: Goodwill and other intangibles, net 352,592 357,526 Investments and other 29,475 30,860 --------------- -------------- TOTAL ASSETS $ 693,128 $ 696,995 =============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES: Current portion of long-term debt $ 38,904 $ 34,562 Accounts payable 38,571 45,199 Accrued expenses and other 36,830 34,924 --------------- -------------- Total current liabilities 114,305 114,685 --------------- -------------- LONG-TERM DEBT, net of current portion 286,441 296,079 DEFERRED INCOME TAXES, net 24,707 22,352 OTHER LIABILITIES 4,554 1,693 --------------- -------------- Total long-term liabilities 315,702 320,124 --------------- -------------- SHAREHOLDERS' EQUITY: Preferred shares, without par value, 5,000 authorized, none issued -- -- Common shares, without par value, 60,000 authorized, 22,397 issued and outstanding at June 30, 2001 and December 31, 2000, stated at -- -- Additional paid-in capital 141,506 141,506 Retained earnings 127,807 123,211 Accumulated other comprehensive loss (6,192) (2,531) --------------- -------------- Total shareholders' equity 263,121 262,186 --------------- -------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 693,128 $ 696,995 =============== ==============
The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated balance sheets. 2 STONERIDGE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (in thousands except for per share data)
For the three months For the six months ended June 30, ended June 30, -------------------------- ---------------------- 2001 2000 2001 2000 ---- ---- ---- ---- NET SALES $ 151,947 $ 182,768 $ 308,101 $ 366,979 COST AND EXPENSES: Cost of goods sold 115,266 132,090 233,289 264,639 Selling, general and administrative expenses 26,881 25,468 52,141 50,538 ---------- ---------- --------- --------- Operating income 9,800 25,210 22,671 51,802 Interest expense, net 7,433 7,646 15,367 15,577 Other (income) expense, net (19) (228) 178 (542) ---------- ---------- --------- --------- INCOME BEFORE INCOME TAXES 2,386 17,792 7,126 36,767 Provision for income taxes 847 6,202 2,530 12,661 ---------- ---------- --------- --------- NET INCOME $ 1,539 $ 11,590 $ 4,596 $ 24,106 ========== ========== ========= ========= BASIC AND DILUTED NET INCOME PER SHARE $ 0.07 $ 0.52 $ 0.21 $ 1.08 ========== ========== ========= =========
The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated statements. 3 STONERIDGE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
For the six months ended June 30, -------------------------- 2001 2000 ----------- ------------ OPERATING ACTIVITIES: Net income $ 4,596 $ 24,106 Adjustments to reconcile net income to net cash from operating activities- Depreciation and amortization 14,285 13,682 Deferred income taxes 1,099 2,301 Changes in operating assets and liabilities- Accounts receivable, net (9,948) (12,085) Inventories 6,475 (494) Prepaid expenses and other (1,658) (4,642) Other assets, net 1,681 (221) Accounts payable (5,341) 7,306 Accrued expenses and other 2,482 5,383 -------- --------- Net cash from operating activities 13,671 35,336 -------- --------- INVESTING ACTIVITIES: Capital expenditures (11,692) (10,669) Other, net (69) (592) -------- --------- Net cash from investing activities (11,761) (11,261) -------- --------- FINANCING ACTIVITIES: Proceeds from long-term debt 5,033 -- Repayments of long-term debt (1,277) (1,947) Net repayments under credit agreement (5,556) (17,328) Debt issuance costs (1,223) -- -------- --------- Net cash from financing activities (3,023) (19,275) -------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (274) (244) NET CHANGE IN CASH AND CASH EQUIVALENTS (1,387) 4,556 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,594 3,924 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,207 $ 8,480 ========= =========
The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated statements. 4 STONERIDGE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands) 1. The accompanying condensed consolidated financial statements have been prepared by Stoneridge, Inc. (the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the Commission). The information furnished in the condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of such financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Commission's rules and regulations. Although the Company believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these condensed consolidated financial statements be read in conjunction with the audited financial statements and the notes thereto included in the Company's 2000 Annual Report to Shareholders. The results of operations for the three and six months ended June 30, 2001 are not necessarily indicative of the results to be expected for the full year. 2. Inventories are valued at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for approximately 76% and 77% of the Company's inventories at June 30, 2001 and December 31, 2000, respectively, and by the first-in, first-out (FIFO) method for all other inventories. Inventory cost includes material, labor and overhead. Inventories consist of the following: June 30, December 31, 2001 2000 ----------------- ---------------- Raw materials $ 38,631 $ 45,552 Work in progress 8,540 9,369 Finished goods 14,852 15,261 LIFO reserve 10 (23) ----------------- ---------------- Total $ 62,033 $ 70,159 ================= ================ 3. The Financial Accounting Standards Board recently announced its intention to issue Statement of Financial Accounting Standard No. 141 (SFAS 141), "Business Combinations" and SFAS 142, "Goodwill and Other Intangible Assets." The statements are expected to become effective for the Company on January 1, 2002. These statements are expected to result in significant modifications relative to the Company's accounting for goodwill and other intangible assets. Specifically, the Company will cease goodwill and certain intangible asset amortization beginning January 1, 2002. Additionally, intangible assets, including goodwill, will be subjected to new impairment testing criteria. Other than the cessation of intangible asset amortization, the Company has not had ample time to evaluate the impact of adoption on the Company's financial statements. 5 STONERIDGE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) (in thousands) Effective January 1, 2001, the Company adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities" (as amended by SFAS 138). SFAS 133 establishes new accounting and reporting standards for derivatives and hedging activities, which requires that all derivative instruments be reported on the balance sheet at fair value and establishes criteria for designation and effectiveness of transactions entered into for hedging purposes. The adoption of SFAS 133 did not result in a cumulative effect adjustment being recorded to net income for the change in accounting. However, the Company recorded a cumulative effect transition adjustment charge of approximately $0.3 million (net of tax) in accumulated other comprehensive loss in the first quarter of 2001. The Company uses derivative financial instruments to reduce exposure to market risk resulting from fluctuations in interest rates. The Company does not enter into financial instruments for trading purposes. Management believes that its use of these instruments to reduce risk is in the Company's best interest. In order to manage the interest rate risk associated with our debt portfolio, the Company has entered into interest rate swap agreements to manage exposure to changes in interest rates. These agreements require the Company to pay a fixed interest rate to counter-parties while receiving a floating interest rate based on LIBOR. The counter-parties to each of the interest rate swap agreements are major commercial banks. These agreements mature on or before December 31, 2003 and qualify as cash flow hedges. The total notional amount of the interest rate swap agreements is $183.4 million. Gains and losses on derivatives qualifying as cash flow hedges are recorded in other comprehensive loss to the extent that hedges are effective until the underlying transactions are recognized in earnings. Net losses included in other comprehensive loss as of June 30, 2001, including the transition adjustment, were $2.1 million after tax ($3.6 million pre-tax). 4. Other comprehensive income (loss) includes foreign currency translation adjustments and derivative transactions, net of related tax. Comprehensive income consists of the following:
Three months Six months ended June 30, ended June 30, --------------------------- ------------------------- 2001 2000 2001 2000 ------------ -------------- ------------ ------------ Net income $ 1,539 $ 11,590 $ 4,596 $ 24,106 Other comprehensive income (loss) 1,130 (1,014) (3,661) (1,639) ----------- ------------- ----------- ----------- Comprehensive income $ 2,669 $ 10,576 $ 935 $ 22,467 =========== ============= =========== ===========
6 STONERIDGE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) (in thousands) 5. The Company has a $425.0 million credit agreement with a bank group. The credit agreement, as amended on January 26, 2001, has three components: a $100.0 million revolving credit facility, including a $5.0 million swing line facility, a $150.0 million term facility and a $175.0 million term facility. The $100.0 million revolving facility and the $150.0 million term facility expire on December 31, 2003 and require a commitment fee of 0.37% to 0.50% on the unused balance. The revolving facility permits the Company to borrow up to half its borrowings in specified foreign currencies. Interest is payable quarterly at either (i) the prime rate plus a margin of 1.25% to 1.50% or (ii) LIBOR plus a margin of 2.75% to 3.00%, depending upon the Company's ratio of consolidated total debt to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA), as defined. The $5.0 million swing line facility expires on December 31, 2003. Interest is payable monthly at the overnight borrowing rate. The $175.0 million term facility expires on December 31, 2005. Interest is payable quarterly at either (i) the prime rate plus a margin of 2.25% to 2.50% or (ii) LIBOR plus a margin of 3.75% to 4.00%. The Company was either in compliance or had obtained waivers with respect to its covenants as of June 30, 2001. In the third quarter of 2001, the Company intends to sell $200.0 million aggregate principal amount of senior subordinated notes (the Notes), which will mature in 2011. Proceeds from the sale of the Notes will be used to pay down the Company's existing credit agreement. In the third quarter of 2001, the Company also expects to refinance its senior credit facility. The new senior credit facility is expected to contain a six-year term facility and a five-year revolving facility that will allow for a total commitment of $100.0 million and $125.0 million, respectively. The Company anticipates a significant one-time charge relating to the write-off of deferred financing charges associated with the prior credit facility, which will be recorded as an extraordinary item. Proceeds from the new senior credit facility would be used to pay down the Company's existing credit agreement. In addition, the Company is evaluating its existing interest rate swap agreements as they would relate to a new senior credit facility. If necessary, the Company will break its existing swap agreements and enter into a new swap arrangement that effectively reduces its market risk resulting from fluctuations in interest rates. Long-term debt consists of the following: June 30, December 31, 2001 2000 ---------------- ----------------- Borrowings under credit agreement $ 318,114 $ 323,670 Borrowings payable to foreign banks 6,252 4,826 Other 979 2,145 ---------------- ----------------- 325,345 330,641 Less: Current portion 38,904 34,562 ---------------- ----------------- $ 286,441 $ 296,079 ================ ================= 7 STONERIDGE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) (in thousands) 6. The Company presents basic and diluted earnings per share in accordance with Statement of Financial Accounting Standard No. 128, "Earnings Per Share". Basic earnings per share amounts were computed using weighted average shares outstanding for each respective period. Diluted earnings per share also reflect the weighted average impact from the date of issuance of all potentially dilutive securities during the periods presented, except for the three and six months ended June 30, 2000 where such inclusion would have had an anti-dilutive effect. Actual weighted average shares outstanding used in calculating basic and diluted earnings per share were as follows:
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- ---------- -------- Basic weighted average shares outstanding 22,397 22,397 22,397 22,397 Effect of dilutive securities 82 -- 82 -- --------- --------- ---------- -------- Diluted weighted average shares outstanding 22,479 22,397 22,479 22,397 ========= ========= ========== ========
7. Based on the criteria set forth in Statement of Financial Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and Related Information," the Company operates in one business segment. The following table presents net sales and non-current assets for each of the geographic areas in which the Company operates:
Three months Six months ended June 30, ended June 30, --------------------------------- ---------------------------- 2001 2000 2001 2000 --------------- -------------- ------------ ------------ Net Sales: North America $ 131,257 $ 161,864 $ 264,242 $ 319,984 Europe and other 20,690 20,904 43,859 46,995 --------------- -------------- ------------ ------------ Total $ 151,947 $ 182,768 $ 308,101 $ 366,979 =============== ============== ============ ============
June 30, December 31, 2001 2000 --------------- -------------- Non-Current Assets: North America $ 441,522 $ 446,744 Europe and other 55,012 55,497 -------------- -------------- Total $ 496,534 $ 502,241 ============== ==============
8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - --------------------- Six Months Ended June 30, 2001 Compared To Six Months Ended June 30, 2000 - ------------------------------------------------------------------------- Net Sales. Net sales for the six months ended June 30, 2001 decreased by $58.9 million, or 16.0%, to $308.1 million from $367.0 million for the same period in 2000. Sales revenues for the first six months were unfavorably impacted by the continued decline in production in the automotive and commercial vehicle markets. Sales for the six months ended June 30, 2001 for North America decreased $55.8 million to $264.2 million from $320.0 million for the same period in 2000. North American sales accounted for 85.8% of total sales for the first six months of 2001 compared with 87.2% for the same period in 2000. Sales for the six months ended June 30, 2001 outside North America decreased $3.1 million to $43.9 million from $47.0 million for the same period in 2000. International sales were unfavorably impacted by the weakening of foreign currencies in relation to the U.S. dollar. Sales outside North America accounted for 14.2% of total sales for the six months ended June 30, 2001 compared with 12.8% for the same period in 2000. Cost of Goods Sold. Cost of goods sold for the first six months of 2001 decreased by $31.4 million, or 11.8%, to $233.3 million from $264.6 million in the first six months of 2000. As a percentage of sales, cost of goods sold increased to 75.7% from 72.1% for the first six months of 2001 and 2000, respectively. The corresponding reduction in margin was primarily attributable to the softening of the automotive and commercial vehicle markets, continued price pressures from our customers, costs related to pre-production ramp-ups and new program launches, and the unfavorable impact of foreign currencies in relation to the U.S. dollar at our foreign operations. Selling, General and Administrative Expenses. Selling, general and administrative (SG&A) expenses, including research and development, increased by $1.6 million to $52.1 million in the first six months of 2001 from $50.5 million for the same period in 2000. As a percentage of sales, SG&A expenses increased to 16.9% for the first six months of 2001 from 13.8% for the same period in 2000. Design and development resources were required to support efforts associated with future programs. Interest Expense. Interest expense for the first six months of 2001 was $15.4 million compared with $15.6 million in 2000. Average outstanding indebtedness was $327.6 million and $342.1 million for the first six months of 2001 and 2000, respectively. Income Before Income Taxes. As a result of the foregoing, income before taxes decreased by $29.7 million for the first six months of 2001 to $7.1 million from $36.8 million in 2000. Provision for Income Taxes. The Company recognized provisions for income taxes of $2.5 million and $12.7 million for federal, state and foreign income taxes for the first six months of 2001 and 2000, respectively. Net Income. As a result of the foregoing, net income decreased by $19.5 million, or 80.9%, to $4.6 million for the first six months of 2001 from $24.1 million in 2000. 9 Three Months Ended June 30, 2001 Compared To Three Months Ended June 30, 2000 - ----------------------------------------------------------------------------- Net Sales. Net sales for the quarter ended June 30, 2001 decreased by $30.8 million, or 16.9%, to $151.9 million from $182.8 million for the same period in 2000. Sales revenues for the second quarter ended June 30, 2001 were unfavorably impacted by the continued decline in the automotive and commercial vehicle markets. Sales for the quarter ended June 30, 2001 for North America decreased $30.7 million to $131.2 million from $161.9 million for the same period in 2000. North American sales accounted for 86.3% of total sales for the second quarter ended June 30, 2001 compared with 88.6% for the same period in 2000. Sales for the second quarter of 2001 outside North America decreased by $0.2 million to $20.7 million from $20.9 million for the same period in 2000. International sales were unfavorably impacted by the weakening of foreign currencies in relation to the U.S. dollar. Sales outside North America accounted for 13.7% of total sales for the second quarter of 2001 compared with 11.4% for the same period in 2000. Cost of Goods Sold. Cost of goods sold for the second quarter of 2001 decreased by $16.8 million, or 12.7%, to $115.3 million from $132.1 million in the second quarter of 2000. As a percentage of sales, cost of goods sold increased to 75.9% in 2001 from 72.3% in 2000. The corresponding reduction in margin was primarily attributable to the continued softening of the automotive and commercial vehicle markets, ongoing price pressures from our customers, costs related to pre- production ramp-ups and new program launches, and the unfavorable impact of foreign currencies in relation to the U.S. dollar at our foreign operations. Selling, General and Administrative Expenses. SG&A expenses, including research and development, increased by $1.4 million to $26.9 million in the second quarter of 2001 from $25.5 million for the same period in 2000. As a percentage of sales, SG&A expenses increased to 17.7% for the second quarter of 2001 from 13.9% for the same period in 2000. Design and development resources were required to support efforts associated with future programs. Interest Expense. Interest expense for the second quarter of 2001 was $7.4 million compared with $7.6 million in 2000. Average outstanding indebtedness was $323.8 million and $337.9 million for the second quarter of 2001 and 2000, respectively. Income Before Income Taxes. As a result of the foregoing, income before taxes decreased by $15.4 million for the second quarter of 2001 to $2.4 million from $17.8 million in 2000. Provision for Income Taxes. The Company recognized provisions for income taxes of $0.8 million and $6.2 million for federal, state and foreign income taxes for the second quarter of 2001 and 2000, respectively. Net Income. As a result of the foregoing, net income decreased by $10.1 million, or 86.7%, to $1.5 million for the second quarter of 2001 from $11.6 million in 2000. Liquidity and Capital Resources Net cash provided by operating activities was $13.7 million and $35.3 million for the six months ended June 30, 2001 and 2000, respectively. The decrease in net cash from operating activities of $21.6 million was primarily attributable to a decrease in net income. 10 Net cash used for investing activities was $11.8 million and $11.3 million for the six months ended June 30, 2001 and 2000, respectively. Net cash used for financing activities was $3.0 million and $19.3 million for the six months ended June 30, 2001 and 2000, respectively. Higher levels of generated operating cash flows in 2000 were used primarily to repay outstanding debt under the credit agreement. The Company has a $425.0 million credit agreement (of which $318.1 million and $329.5 million was outstanding at June 30, 2001 and 2000, respectively) with a bank group. The credit agreement, as amended January 26, 2001, has the following components: a $100.0 million revolving facility (of which $33.7 million is currently available) including a $5.0 million swing line facility, a $150.0 million term facility, and a $175.0 million term facility. The $100.0 million revolving facility and the $150.0 million term facility expire on December 31, 2003, and require a commitment fee of 0.37% to 0.50% on the unused balance. The revolving facility permits the Company to borrow up to half its borrowings in specified foreign currencies. Interest is payable quarterly at either (i) the prime rate plus a margin of 1.25% to 1.50% or (ii) LIBOR plus a margin of 2.75% to 3.00%, depending upon the Company's ratio of consolidated total debt to consolidated earnings before interest, taxes, depreciation and amortization, as defined. The $5.0 million swing line facility expires on December 31, 2003. Interest is payable monthly at an overnight money market borrowing rate. The $175.0 million term facility expires on December 31, 2005. Interest is payable quarterly at either (i) the prime rate plus a margin of 2.25% to 2.50% or (ii) LIBOR plus a margin of 3.75% to 4.00%. The Company was either in compliance or had obtained waivers with respect to its covenants as of June 30, 2001. In the third quarter of 2001, the Company intends to sell $200.0 million aggregate principal amount of senior subordinated notes (the Notes), which will mature in 2011. Proceeds from the sale of the Notes will be used to pay down the Company's existing credit agreement. In the third quarter of 2001, the Company also expects to refinance its senior credit facility. The new senior credit facility is expected to contain a six-year term facility and a five-year revolving facility that will allow for a total commitment of $100.0 million and $125.0 million, respectively. The Company anticipates a significant one-time charge relating to the write-off of deferred financing charges associated with the prior credit facility, which will be recorded as an extraordinary item. Proceeds from the new senior credit facility would be used to pay down the Company's existing credit agreement. In addition, the Company is evaluating its existing interest rate swap agreements as they would relate to a new senior credit facility. If necessary, the Company will break its existing swap agreements and enter into a new swap arrangement that effectively reduces its market risk resulting from fluctuations in interest rates. The Company has entered into three interest-rate swap agreements with a total notional amount of $183.4 million. Two of these interest-rate swap agreements are due to expire on December 31, 2002, and one swap agreement is due to expire on December 31, 2003. These interest-rate swap agreements exchange variable interest rates on the senior secured credit facility for fixed interest rates. The Company does not use derivatives for speculative or profit-motivated purposes. Management believes that cash flows from operations and the availability of funds from the Company's credit facilities will provide sufficient liquidity to meet the Company's growth and operating needs. 11 Inflation and International Presence Management believes that the Company's operations have not been adversely affected by inflation. By operating internationally, the Company is affected by the economic conditions of certain countries. Based on the current economic conditions in these countries, management believes they are not significantly exposed to adverse economic conditions. Recently Issued Accounting Standards The Financial Accounting Standards Board recently announced its intention to issue Statement of Financial Accounting Standard No. 141 (SFAS 141), "Business Combinations" and SFAS 142, "Goodwill and Other Intangible Assets." The statements are expected to become effective for the Company on January 1, 2002. These statements are expected to result in significant modifications relative to the Company's accounting for goodwill and other intangible assets. Specifically, the Company will cease goodwill and certain intangible asset amortization beginning January 1, 2002. Additionally, intangible assets, including goodwill, will be subjected to new impairment testing criteria. Other than the cessation of intangible asset amortization, the Company has not had ample time to evaluate the impact of adoption on the Company's financial statements. Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standard No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities" (as amended by SFAS 138). SFAS 133 establishes new accounting and reporting standards for derivatives and hedging activities, which requires that all derivative instruments be reported on the balance sheet at fair value and establishes criteria for designation and effectiveness of transactions entered into for hedging purposes. The cumulative effect of adopting SFAS 133 was to increase other comprehensive loss by $0.3 million, after-tax. The effect on net income was not significant, primarily because the hedges in place as of January 1, 2001 qualified for hedge accounting treatment and were highly effective. Forward-Looking Statements Portions of this report may contain "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this report and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to, among other things, the Company's (i) future product and facility expansion, (ii) acquisition strategy, (iii) investments and new product development and (iv) growth opportunities related to awarded business. The forward-looking statements in this report are subject to risks and uncertainties that could cause actual events or results to differ materially from those expressed in or implied by the statements. Factors which may cause actual results to differ materially from those in the forward-looking statements include, among other factors, the loss of a major customer; a further decline in automotive, medium and heavy-duty truck or agricultural vehicle production; the failure to achieve successful integration of any acquired company or business; or a decline in general economic conditions in any of the various countries in which the Company operates. Further information concerning issues that could materially affect financial performance is contained in the Company's periodic filings with the Securities and Exchange Commission. 12 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company is exposed to certain market risks, primarily resulting from the effects of changes in interest rates. To reduce exposures to market risks resulting from fluctuations in interest rates, the Company uses derivative financial instruments. Specifically, the Company uses interest rate swap agreements to mitigate the effects of interest rate fluctuations on net income by changing the floating interest rates on certain portions of the Company's debt to fixed interest rates. These agreements are in place through December 31, 2003. The effect of changes in interest rates on the Company's net income generally has been small relative to other factors that also affect net income, such as sales and operating margins. Management believes that its use of these financial instruments to reduce risk is in the Company's best interest. The Company does not enter into financial instruments for trading purposes. The Company's risks related to commodity price and foreign currency exchange risks have historically not been significant. The Company does not expect the effects of these risks to be significant based on current operating and economic conditions in the countries and markets in which it operates. 13 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - --------------------------- In the ordinary course of business, the Company is involved in various legal proceedings, workers' compensation and product liability disputes. The Company is of the opinion that the ultimate resolution of these matters will not have a material adverse effect on the results of operations or the financial position of the Company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS - --------------------------------------------------- None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES - ----------------------------------------- None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------- (a) The Annual Meeting of Shareholders of Stoneridge, Inc. was held on May 7, 2001. (b) The following matter was submitted to a vote at the meeting: (1) The election of the following nominees as directors of the Company. The vote with respect to each nominee was as follows: Nominee For Withheld ------- --- -------- D.M. Draime 16,712,392 2,594,514 Cloyd J. Abruzzo 16,712,092 2,594,814 Avery S. Cohen 17,541,568 1,765,338 Richard E. Cheney 17,552,765 1,754,141 Sheldon J. Epstein 16,086,189 3,220,717 C.J. Hire 17,548,355 1,758,551 Richard G. LeFauve 17,553,365 1,753,541 Earl L. Linehan 17,548,155 1,758,751 No other matters were voted on at the Annual Meeting of Shareholders or otherwise during the quarter. ITEM 5. OTHER INFORMATION - --------------------------- None. 14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ------------------------------------------ (a) Exhibits 10.1 Credit Agreement dated as of December 30, 1998 among Stoneridge, Inc., as Borrower, the Lending Institutions Named Therein, as Lenders, DLJ Capital Funding, Inc., as Syndication Agent, National City Bank as Administrative Agent and Collateral Agent, PNC Bank, NA as Documentation Agent (incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998). 10.2 Amendment No. 1 dated as of January 28, 1999 to Credit Agreement dated as of December 30, 1998 among Stoneridge, Inc. as Borrower, the Lenders named therein as Lenders, DLJ Capital Funding, Inc. as Syndication Agent, National City Bank as a Lender, a Letter of Credit Issuer, the Administrative Agent and the Collateral Agent, PNC Bank NA as Documentation Agent (incorporated by reference to Exhibit 10.15 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999). 10.3 Amendment No. 2 dated as of September 7, 1999 to Credit Agreement dated as of December 30, 1998 among Stoneridge, Inc. as Borrower, the Lenders named therein as Lenders, DLJ Capital Funding, Inc. as Syndication Agent, National City Bank as a Lender, a Letter of Credit Issuer, the Administrative Agent and the Collateral Agent, PNC Bank NA as Documentation Agent (incorporated by reference to Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999). 10.4 Amendment No. 3 dated as of May 25, 2000 to Credit Agreement dated as of December 30, 1998 among Stoneridge, Inc. as Borrower, the Lenders named therein as Lenders, DLJ Capital Funding, Inc. as Syndication Agent, National City Bank as a Lender, a Letter of Credit Issuer, the Administrative Agent and the Collateral Agent, PNC Bank NA as Documentation Agent (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000). 10.5 Amendment No. 4 dated as of January 26, 2001 to Credit Agreement dated as of December 30, 1998 among Stoneridge, Inc. as Borrower, the Lenders named therein as Lenders, DLJ Capital Funding, Inc. as Syndication Agent, National City Bank as a Lender, a Letter of Credit Issuer, the Administrative Agent and the Collateral Agent, PNC Bank NA as Documentation Agent (incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000). (b) Reports on Forms 8-K None. 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STONERIDGE, INC. Date: July 17, 2001 /s/ Cloyd J. Abruzzo --------------------------------------- Cloyd J. Abruzzo President and Chief Executive Officer (Principal Executive Officer) Date: July 17, 2001 /s/ Kevin P. Bagby --------------------------------------- Kevin P. Bagby Treasurer and Chief Financial Officer (Principal Financial and Chief Accounting Officer) 16 -----END PRIVACY-ENHANCED MESSAGE-----