-----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, WFVe4O9+iWvMOrigO8gZ8yM+OdzCqm0h9lLNxFeiuZaYAQmjaHpXdlUoIE9S1eoI +UkrOLAxbh83ihQiy39QKg== 0001021408-01-001952.txt : 20010402 0001021408-01-001952.hdr.sgml : 20010402 ACCESSION NUMBER: 0001021408-01-001952 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 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-K SEC ACT: SEC FILE NUMBER: 001-13337 FILM NUMBER: 1586093 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-K 1 0001.txt FORM 10-K, YEAR ENDED DECEMBER 31, 2000 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the year ended December 31, 2000 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 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Exchange on Which Registered ------------------- ----------------------------- Common Shares, without par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Based on the closing price of March 22, 2001, the aggregate market value of Common Shares held by nonaffiliates of the registrant was $101.7 million. The number of Common Shares, without par value, outstanding as of March 22, 2001 was 22,397,311. DOCUMENTS INCORPORATED BY REFERENCE Definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 7, 2001, into Part III, Items 10, 11, 12 and 13. INDEX ----- STONERIDGE, INC. - FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000
Page No. Part I. Item 1. Business 3 Item 2. Properties 8 Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders 8 Part II. Item 5. Market for Registrant's Common Equity and Related Shareholder Matters 9 Item 6. Selected Financial Data 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results 11 of Operations Item 7A. Quantitative and Qualitative Disclosures about Market Risk 14 Item 8. Financial Statements and Supplementary Data 15 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial 35 Disclosure Part III. Item 10. Directors and Executive Officers of the Registrant 36 Item 11. Executive Compensation 36 Item 12. Security Ownership of Certain Beneficial Owners and Management 36 Item 13. Certain Relationships and Related Transactions 36 Part IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 37 Signatures 40
2 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 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. PART I. ITEM 1. BUSINESS The Company The Company was founded in 1965 as a manufacturer of wire harnesses for the agricultural vehicle market. The Company expanded as a contract manufacturer primarily in the automotive market. In 1987, the Company began to transition away from contract manufacturing into a value-added designer and manufacturer of highly engineered products by developing internal engineering capabilities and pursuing an acquisition program to expand product offerings. The Company completed its initial public offering on October 10, 1997 (the Offering). The Company is a leading independent designer and manufacturer of highly engineered electrical and electronic components, modules and systems for the automotive, medium and heavy-duty truck, and agricultural vehicle markets. The Company's products interface with a vehicle's mechanical and electrical systems to activate equipment and accessories, display and monitor vehicle performance, and control and distribute electrical power and signals. The Company has a leading market position in the design and manufacture of electrical and electronic components, modules and systems for the medium and heavy-duty truck, and agricultural vehicle markets. In the automotive market, the Company designs and manufactures specially designed and engineered electrical and electronic components and modules, typically on a sole-source basis. Recent Acquisitions and Joint Ventures In August 1999, the Company purchased all of the outstanding shares of TVI Europe, Limited, a United Kingdom manufacturer of vehicle information and management systems for the European commercial vehicle market. Cash consideration paid by the Company with respect to this purchase was approximately $20.7 million. In March 1999, the Company purchased certain assets and assumed certain liabilities of Delta Schoeller, Limited, a United Kingdom manufacturer of switches for the automotive industry. Cash consideration paid by the Company with respect to this purchase was approximately $12.2 million. In December 1998, the Company purchased all of the outstanding common shares of Hi-Stat Manufacturing Company, Inc. (Hi-Stat), a manufacturer of engineered sensors, switches and solenoids for measuring speed, pressure, temperature and fluid levels in vehicles. Hi-Stat primarily serves the automotive industry. Cash consideration paid by the Company with respect to this purchase was approximately $361.5 million. 3 Discontinuance of Certain Contract Manufacturing Business During the second quarter of 1999, the Company completed the planned phase out of its contract manufacturing business with a division of General Motors. The Company's net sales under this arrangement totaled approximately $21.9 million and $84.1 million for 1999 and 1998, respectively, or approximately 3.2% and 16.7% of total net sales for such periods. Products The Company's core products include vehicle electrical power and distribution systems, electronic and electrical switch products, electronic instrumentation and information display products, actuator products and sensor products. The Company's principal product categories are: Power and Distribution Systems. The Company designs and manufactures electrical power and signal distribution components, modules and systems, including fully integrated automotive and truck wiring systems and highly engineered products, such as power distribution panels, for the automotive, medium and heavy-duty truck, and agricultural vehicle markets. Power distribution systems regulate, coordinate and direct the operation of the entire electrical system within a vehicle or compartment. Electronic and Electrical Switch Products. The Company designs and manufactures integrated electronic and electromechanical switch products, which include hidden switches and customer-activated switches. These switches transmit a signal to a control device which activates specific functions. Hidden switches are not typically seen by vehicle passengers but are used to activate or deactivate selected functions such as brake lights, cruise control functions and electronic safety features related to air bag, fuel and anti-lock braking systems. Customer-activated switches are used by a vehicle's operator or passengers to manually activate headlights, rear defrosters, heated seats and other accessories. The Company sells these products principally to the automotive market. Electronic Instrumentation and Information Display Products. The Company designs and manufactures electronic instrument clusters, driver message centers, power conversion products, tachographs, multiplexed modules and electrical systems and electronic switch modules. These products collect, store and display vehicle information such as speed, pressure, maintenance data, trip information, operator performance, temperature, distance traveled and driver messages related to vehicle performance. These products use state-of-the-art hardware, software and multiplexing technology and are sold principally to the medium and heavy-duty truck and agricultural vehicle markets. Actuator Products. The Company designs and manufactures electromechanical actuator products that enable users to deploy power functions in a vehicle and can be designed to integrate switching and control functions. These products include power door lock and four-wheel-drive actuators and are sold principally to the automotive market. Sensor Products. The company designs and manufactures sensor products that measure temperature, pressure, speed, and fluid levels. These products monitor and measure the physical variables affecting the performance vehicle systems. Sensor products are employed in most major vehicle systems, including the emissions, safety, powertrain, braking, climate control, steering and suspension systems. The Company sells these products principally to the automotive market. Production Materials The principal production materials used in the Company's manufacturing processes include wire, cable, plastic housings and certain electrical components such as fuses, relays, and connectors. The Company generally purchases such materials subject to annual contracts. Such materials are readily available from multiple sources, but the Company generally establishes collaborative relationships with a qualified supplier for each of its key production materials in order to lower costs and enhance service and quality. Patents and Intellectual Property The Company maintains and has pending various U.S. and foreign patents and other rights to intellectual property relating to its business, which it believes are appropriate to protect the Company's interests in existing products, new 4 inventions, manufacturing processes and product developments. The Company does not believe any single patent is material to its business, nor would the expiration or invalidity of any patent have a material adverse effect on its business or its ability to compete. The Company is not currently engaged in any material infringement litigation, nor are there any material claims pending by or against the Company. Industry Cyclicality and Seasonality The markets for the Company's products have historically been cyclical. Because the Company's products are used principally in the production of vehicles for the automotive, medium and heavy-duty truck and agricultural vehicle markets, its sales, and therefore its results of operations, are significantly dependent on the general state of the economy and other factors which affect these markets. A decline in automotive, medium and heavy-duty truck and agricultural vehicle production could adversely impact the Company. Approximately 62%, 64% and 56% of the Company's net sales in 2000, 1999 and 1998, respectively, were made to the automotive market and approximately 38%, 36% and 44% of the net sales in 2000, 1999 and 1998, respectively, were derived from the medium and heavy-duty truck and agricultural vehicle markets. Demand for the Company's products has been seasonal. The Company typically experiences decreased sales during the third calendar quarter of each year due to the impact of scheduled OEM plant shutdowns in July for vacations and new model changeovers. The fourth quarter is similarly impacted by plant shutdowns for the holidays. Reliance on Major Customers The Company is dependent on a small number of principal customers for a significant percentage of its sales. The loss of any significant portion of its sales to these customers or the loss of a significant customer would have a material adverse impact on the financial condition and results of operations of the Company. The Company supplies numerous different parts to each of its principal customers. The contracts the Company has entered into with many of its customers provide for supplying the customers' requirements for a particular model, rather than for manufacturing a specific quantity of products. Such contracts range from one year to the life of the model, which is generally three to seven years. Therefore, the loss of a contract for a major model or a significant decrease in demand for certain key models or group of related models sold by any of the Company's major customers could have a material adverse impact on the Company. The Company also competes to supply products for successor models and is subject to the risk that the customer will not select the Company to produce products on any such model, which could have a material adverse impact on the financial condition and results of operations of the Company. 5 The following table presents the major customers, as a percentage of net sales, of the Company for the years ended December 31, 2000, 1999 and 1998: Year Ended December 31, -------------------------------------- 2000 1999 1998 ---------- ---------- ---------- Customer General Motors 18% 21% 25% Ford 17 18 18 Daimler-Chrysler 17 17 5 Volvo 6 10 9 Navistar 8 9 10 Deere 7 5 9 Other 27 20 24 --------- ======== ---------- Total 100% 100% 100% ========= ========= ========== Backlog The majority of the Company's products are not on a backlog status. They are produced from readily available materials such as wire, cable, housings and electronic components and have a relatively short manufacturing cycle. Each operating unit of the Company maintains its own inventories and production schedules. Production capacity is adequate to handle current requirements and will be expanded to handle increased growth where needed. Competition Markets for the Company's products are highly competitive. Quality, service, price, timely delivery and technological innovation are the primary elements of competition. The Company competes for new business both at the beginning of the development of new models and upon the redesign of existing models. New model development generally begins two to five years before the marketing of such models to the public. Once a supplier has been selected to provide parts for a new program, an OEM usually will continue to purchase those parts from the selected supplier for the life of the program, although not necessarily for any model redesigns. Product Development In order to increase its vehicle platform penetration, the Company has invested, and intends to continue to invest, significant amounts in its technology and design capabilities. The Company's product development expenditures were $26.8 million, $22.0 million and $17.4 million for 2000, 1999 and 1998, respectively, or 4.0%, 3.4% and 4.1% of core product sales for these periods. These development efforts have strengthened the Company's ability to provide higher value-added products and systems, and have resulted in the introduction of new products such as the four-wheel-drive actuator (shift on demand), seat positioning switches and sensors (which interface with passive restraint systems to indicate occupant position prior to air bag deployment), fuel shut off valve (explosion supression) and the auto-stick (which enables a driver to manually shift an automatic transmission using a unique electronic switch). The Company's technical centers in Massachusetts, Michigan, Ohio, Brazil, England, Mexico, Scotland and Sweden develop and test both new and existing products and concepts. In addition, through its advanced technologies group comprised of dedicated engineers, the Company concentrates on the development of its next generation of products. To further increase vehicle platform penetration, the Company has developed collaborative relationships with the design and engineering departments of its key OEM customers. These collaborative efforts have resulted both in the development of new and complementary products and the enhancement of existing products. Environmental and Other Regulations The Company's operations are subject to various federal, state, local and foreign laws and regulations governing, among other things, emissions to air, discharge to waters and the generation, handling, storage, transportation, treatment and disposal of waste and other materials. The Company believes that its business, operations and facilities have been and are being operated in compliance in all material respects with applicable environmental and health and safety laws and regulations, many of which provide for substantial fines and criminal sanctions for violations. 6 Employees As of December 31, 2000, the Company, had approximately 6,520 employees, approximately 1,756 of whom were salaried and the balance of whom were paid on an hourly basis. Except for certain employees located in Chihuahua, Mexico, Orebro and Stockholm, Sweden, and Dundee, Scotland, the Company's employees are not represented by a union. The Company believes that its relations with its employees are excellent. The Company strongly believes in employee education and sponsors a number of educational opportunities and programs for its employees. Executive Officers of the Registrant The executive officers of the Company are as follows: Name Age Position ------ -------- ----------------- D.M. Draime 67 Chairman of the Board of Directors, Assistant Secretary and Director Cloyd J. Abruzzo 50 President, Chief Executive Officer, Assistant Treasurer and Director Kevin P. Bagby 49 Vice President of the Company, Chief Financial Officer and Treasurer Sten Forseke 41 Vice President of the Company and Managing Director of Berifors Gerald V. Pisani 60 Vice President of the Company and President of Stoneridge Engineered Products Group Thomas A. Beaver 47 Vice President of Sales and Marketing Michael J. Bagby 58 Vice President and General Manager of Alphabet Group Avery S. Cohen 64 Secretary and Director D.M. Draime, founder of the Company, has served as Chairman of the Board of Directors of the Company and its predecessors since 1965. Cloyd J. Abruzzo has served as President and Chief Executive Officer of the Company or its predecessors since June 1993 and as a director of the Company since 1990. From 1984 to June 1993, Mr. Abruzzo was the Vice President and Chief Financial Officer of the Company or its predecessor. Mr. Abruzzo serves as a director of Second National Bank of Warren. Kevin P. Bagby has served as Vice President of the Company, Chief Financial Officer and Treasurer since joining the Company in July 1995. Mr. Bagby was employed by Kelsey-Hayes as Director of Business Analysis from June 1994 to July 1995 and as Director of Finance for the Foundation Brakes Business Unit from January 1991 to June 1994. Sten Forseke, a co-founder of Berifors, has served as Vice President of the Company since the acquisition of Berifors in 1997 and Managing Director of Berifors since 1988. Gerald V. Pisani has served as Vice President of the Company since 1989 and President of the Stoneridge Engineered Products Group since 1985. Thomas A. Beaver has served as Vice President of Sales and Systems Engineering of the Stoneridge Engineered Products Group from February 1995 to December 1999 and Vice President of Sales and Marketing since January 2000. Michael J. Bagby has served as Vice President of the Alphabet Group since March 1990 and Vice President and General Manager of the Alphabet Group since January 2000. Avery S. Cohen has served as Secretary and a director of the Company since 1988. He has been a partner in the law firm of Baker & Hostetler LLP since 1993. 7 ITEM 2. PROPERTIES The Company currently owns or leases 15 manufacturing facilities, which together contain approximately 1.5 million square feet of manufacturing space. The following table provides information regarding the Company's facilities:
Owned/ Square Location Use Leased Status Footage -------- --- ------------- ------- Bloomfield Hills, Michigan Sales Office Leased 1,000 Boston, Massachusetts Division Office & Manufacturing Owned 166,100 Canton, Massachusetts Division Office & Manufacturing Owned 126,500 Chicago, Illinois Sales/Engineering Office Leased 1,000 Cortland, Ohio Engineering Office Leased 11,400 El Paso, Texas Office/Warehouse Leased 22,400 Farmington Hills, Michigan Sales/Engineering Office Leased 4,200 Lexington, Ohio Manufacturing Owned 155,000 Mansfield, Ohio Tool & Die Owned 4,000 Mebane, North Carolina Manufacturing Leased 51,000 Orwell, Ohio Manufacturing Owned 72,000 Portland, Indiana Manufacturing Owned 196,000 Sarasota, Florida Manufacturing/Division Office Owned 125,000 Warren, Ohio Corporate Office Owned 7,500 Warren, Ohio Division Office Leased 15,300 Cheltenham, England Manufacturing Leased 39,983 Dundee, Scotland Manufacturing Owned 148,500 Frankfurt, Germany Sales/Engineering Office Leased 100 Madrid, Spain Office/Warehouse Leased 14,370 Munich, Germany Sales/Engineering Office Leased 1,000 Northampton, England Manufacturing Owned 40,667 Orebro, Sweden Manufacturing Leased 56,000 Paris, France Sales Office Leased 2,799 Stockholm, Sweden Division Office & Engineering Leased 16,100 Stuttgart, Germany Sales/Engineering Office Leased 1,000 Tallinn, Estonia Manufacturing Leased 5,380 Chihuahua, Mexico Manufacturing Owned 133,000 Indaiatuba, Brazil Manufacturing Leased 27,000 Juarez, Mexico Manufacturing Owned 178,000 Sao Paulo, Brazil Sales/Engineering Office Leased 200
ITEM 3. LEGAL PROCEEDINGS There is no pending litigation which management believes will have a material adverse impact upon the Company. The Company is subject to the risk of exposure to product liability claims in the event that the failure of any of its products causes personal injury or death to users of the Company's products and there can be no assurance that the Company will not experience any material product liability losses in the future. In addition, if any of the Company's products proves to be defective, the Company may be required to participate in a government-imposed or OEM-instituted recall involving such products. The Company maintains insurance against such liability claims. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of 2000. 8 PART II. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS On March 22, 2001, the Company had 22,397,311 Common Shares without par value, issued and outstanding, which were owned by 100 shareholders of record, including Common Shares held in "streetname" by nominees who are recordholders and approximately 2,000 beneficial owners. The Company has neither paid nor declared dividends on its Common Shares since its Offering, except for the payment or declaration of S-corporation distributions of $85,600,000 to pre-Offering shareholders. The Company currently intends to retain earnings for acquisitions, working capital, capital expenditures, general corporate purposes and reduction in outstanding indebtedness. Accordingly, the Company does not expect to pay cash dividends in the foreseeable future. High and low sales prices (as reported on the New York Stock Exchange "NYSE" composite tape) for the Common Shares for each quarter during 1999 and 2000 are as follows: Quarter Ended High Low ------------- ---- --- 1999 March 31 22 1/2 12 15/16 June 30 16 13/16 13 11/16 September 30 18 3/4 14 1/8 December 31 16 15/16 12 2000 March 31 16 7/16 9 1/4 June 30 14 1/8 8 11/16 September 30 11 7/16 7 1/2 December 31 10 3/16 6 The Company's Common Shares are traded on the NYSE under the symbol SRI. The Company did not issue or sell any registered or unregistered securities in 2000. 9 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected historical and pro forma financial data for the Company and should be read in conjunction with the consolidated financial statements and notes related thereto and other financial information included elsewhere herein. The selected historical data was derived from the Company's consolidated financial statements, which were audited by Arthur Andersen LLP, the Company's independent accountants.
Years ended December 31, ---------------------------------------------------------------- 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (in thousands, except per share data) Statement of Income Data: Net sales $667,192 $675,221 $503,821 $449,506 $363,748 Gross profit 171,112 187,872 124,239 108,192 75,606 Operating income 75,166 97,305 56,722 52,366 28,912 Income before income taxes 46,794 67,022 56,036 50,895 24,595 Net income $ 32,709 $ 41,172 $ 33,400 $ 46,964 $ 24,071 ================================================================ Basic and diluted net income per share $ 1.46 $ 1.84 $ 1.49 $ 2.92 $ 1.73 ================================================================ Pro Forma Data (Unaudited): (A) Income before income taxes $ 46,794 $ 67,022 $ 56,036 $ 50,895 $ 24,595 Provision for income taxes 14,085 25,850 22,636 21,181 10,295 ---------------------------------------------------------------- Pro forma net income $ 32,709 $ 41,172 $ 33,400 $ 29,714 $ 14,300 ================================================================ Pro forma basic and diluted net income per share $ 1.46 $ 1.84 $ 1.49 $ 1.36 $ 0.66 ================================================================ Other Data: Product development expenses $ 26,750 $ 21,976 $ 17,418 $ 14,114 $ 9,263 Capital expenditures 28,720 17,589 10,919 12,256 14,083 Depreciation and amortization 28,680 27,850 14,422 13,237 9,966 Balance Sheet Data: Working capital $ 80,069 $ 77,112 $ 42,184 $ 44,856 $ 39,957 Total assets 696,995 698,309 638,116 235,073 178,487 Long-term debt, less current portion 296,079 331,898 322,724 9,139 51,156 Shareholders' equity 262,186 231,628 190,542 157,210 84,633
(A) Prior to the Company's initial public offering (Offering) in October 1997, the Company was taxed as an S Corporation. Concurrent with the Offering, the Company terminated its S Corporation status, making it subject to federal, state and foreign income taxes. The pro forma data reflect the results as if the S Corporation termination had been effective as of December 31, 1995. 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Year Ended December 31, 2000 Compared to Year Ended December 31, 1999 - --------------------------------------------------------------------- Net Sales. Net sales for the year ended December 31, 2000 decreased by $8.0 million, or 1.2%, to $667.2 million from $675.2 million in 1999. Sales of core products increased by $13.9 million, or 2.1%, to $667.2 million during 2000 compared to $653.3 million in 1999. This increase is primarily attributable to the increase in core product sales from the recent acquisition of TVI Europe Ltd. (TVI) of $15.9 million, which was offset by a decrease in existing core product sales of $2.0 million, or 0.3%, compared to 1999. Contract manufacturing sales totaling $21.9 million, which were phased out during the second quarter of 1999, accounted for 3.2% of total sales for the year ended December 31, 1999. The remaining decline in sales revenues in 2000 was primarily attributable to the continuing slowdown in the North American commercial vehicle markets, as well as the downturn in the North American automotive and light-truck market that occurred during the fourth quarter. Sales for the year ended December 31, 2000 for North America decreased by $19.4 million to $579.9 million from $599.3 million in 1999. North American sales accounted for 86.9% of total sales in 2000 compared with 88.8% in 1999. Sales in 2000 outside North America increased by $11.4 million to $87.3 million from $75.9 million in 1999. Sales outside North America accounted for 13.1% of total sales in 2000 compared with 11.2% in 1999. The increase is primarily a result of the Company's 1999 acquisitions partially offset by the impact of unfavorable foreign currency exchange rate fluctuations. Cost of Goods Sold. Cost of goods sold for the year ended December 31, 2000 increased by $8.8 million, or 1.8%, to $496.1 million from $487.3 million in 1999. As a percentage of sales, cost of goods sold increased to 74.4% in 2000 from 72.2% in 1999. The increase as a percent of sales was primarily attributable to material shortages and their related impact on production costs, an unfavorable shift in product mix, and costs related to pre-production ramp-ups and new program launches. In addition, unfavorable foreign currency exchange rate fluctuations contributed to this increase. Selling, General and Administrative Expenses. Selling, general and administrative (SG&A) expenses increased by $5.3 million to $95.9 million for the year ended December 31, 2000 from $90.6 million in 1999. As a percentage of sales, SG&A expenses increased to 14.4% in 2000 from 13.4% in 1999. The increase is due primarily to higher development costs to support new program launches for safety-related products, including the seat track position sensor, fuel cut-off switch, and a new modular assembly program titled the next generation vehicle. In addition, the commercial costs related to the newly acquired companies and geographical expansion also contributed to this increase. Interest Expense, net. Interest expense for the year ended December 31, 2000 was $29.5 million compared with $30.7 million in 1999. Average outstanding indebtedness was $331.0 million and $343.8 million for the years ended December 31, 2000 and 1999, respectively. Other Income, net. Other income, which primarily represented equity earnings of unconsolidated subsidiaries and gain on sale of idle fixed assets, was $1.1 million for the year ended December 31, 2000 compared with $0.5 million in 1999. Income Before Income Taxes. As a result of the foregoing, income before income taxes decreased by $20.2 million for the year ended December 31, 2000 to $46.8 million from $67.0 million in 1999. Provision for Income Taxes. The Company recognized provisions for income taxes of $14.1 million and $25.9 million for federal, state and foreign income taxes for the years ended December 31, 2000 and 1999, respectively. The decline in the effective tax rate to 30.1% in 2000 from 38.6% in 1999 is primarily a result of the implementation of certain tax planning strategies and non-recurring tax refunds. The effective tax rate is expected to increase in future years. Net Income. As a result of the foregoing, net income decreased by $8.5 million, or 20.6%, to $32.7 million for the year ended December 31, 2000 from $41.2 million in 1999. 11 Year Ended December 31, 1999 Compared To Year Ended December 31, 1998 - --------------------------------------------------------------------- Net Sales. Net sales for the year ended December 31, 1999 increased by $171.4 million, or 34.0%, to $675.2 million from $503.8 million in 1998. Sales of core products increased by $233.6 million, or 55.7%, to $653.3 million during 1999 compared to $419.7 million in 1998. Sales of core products from the acquisitions of Hi-Stat Manufacturing Company, Inc. (Hi-Stat), Delta Schoeller, Ltd. (Delta) and TVI accounted for $206.2 million of the increase, while sales of existing core products increased by $27.4 million, or 6.5%, compared to 1998. Sales revenues for 1999 were favorably impacted by strong OEM production volumes in both the automotive and the commercial vehicle markets, which were offset by lower production volumes in the agricultural vehicle market. Sales for the year ended December 31, 1999 for North America increased by $142.5 million to $599.3 million from $456.8 million in 1998. North American sales accounted for 88.8% of total sales for the year ended December 31, 1999 compared with 90.7% in 1998. Sales in 1999 outside North America increased by $28.9 million to $75.9 million from $47.0 million in 1998. Sales outside North America accounted for 11.2% of total sales in 1999 compared with 9.3% in 1998. During the second quarter of 1999, the Company completed the planned phase out of its non-core contract manufacturing business. As expected, contract manufacturing sales in 1999 declined by $62.2 million to $21.9 million, or 3.2% of the Company's total sales revenue, compared with $84.1 million, or 16.7% of total sales revenue in 1998. Cost of Goods Sold. Cost of goods sold for the year ended December 31, 1999 increased by $107.7 million, or 28.4%, to $487.3 million from $379.6 million in 1998. As a percentage of sales, cost of goods sold decreased to 72.2% in 1999 from 75.3% in 1998. The decrease in cost of goods sold as a percent of sales was due primarily to improved leveraging of fixed costs, a shift in product mix to higher value-added electrical and electronic core products, and a decrease in lower-margin contract manufacturing sales. Selling, General and Administrative Expenses. SG&A expenses increased by $23.1 million to $90.6 million for the year ended December 31, 1999 from $67.5 million in 1998. As a percentage of sales, SG&A expenses were 13.4% in both 1999 and 1998. The increase of $23.1 million was primarily attributable to additional costs of the newly acquired businesses. Interest Expense, net. Interest expense for the year ended December 31, 1999 was $30.7 million compared with $0.7 million in 1998. Average outstanding indebtedness was $343.8 million and $7.4 million in 1999 and 1998, respectively. The increase in average outstanding indebtedness was primarily due to borrowings to finance the acquisitions of Hi-Stat in December 1998, Delta in March 1999 and TVI in August 1999. Other Income, net. Other income for the year ended December 31, 1999 was $0.5 million, which primarily represented equity earnings of unconsolidated subsidiaries. Income Before Income Taxes. As a result of the foregoing, income before income taxes increased by $11.0 million for the year ended December 31, 1999 to $67.0 million from $56.0 million in 1998. Provision for Income Taxes. The Company recognized provisions for income taxes of $25.9 million and $22.6 million for the years ended December 31, 1999 and 1998, respectively. The effective income tax rate decreased to 38.6% for 1999 compared to 40.4% in 1998. The reduced rate was due to an increase in foreign income, which is taxed at rates below the U.S. statutory rate, and domestic tax initiatives pursued in 1999. Net Income. As a result of the foregoing, net income increased by $7.8 million, or 23.4%, to $41.2 million for the year ended December 31, 1999 from $33.4 million in 1998. Liquidity and Capital Resources Net cash from operating activities was $52.4 million and $44.2 million for the years ended December 31, 2000 and 1999, respectively. The increase in net cash from operating activities of $8.2 million was primarily attributable to lower levels of working capital, which was partially offset by the decrease in net income of $8.5 million. Net cash used for investing activities was $25.8 million and $51.8 million for the years ended December 31, 2000 and 1999, respectively. The decrease in cash used for investing activities of $26.0 million was primarily the result of the 12 acquisitions of Delta and TVI in 1999. Both acquisitions were financed with funds from the Company's $425.0 million credit agreement. Net cash used for financing activities was $24.4 million for the year ended December 31, 2000 compared to net cash from financing activities of $9.7 million for the same period in 1999. Improved cash flows from operations for the year ended December 31, 2000 were used primarily to pay down debt. The Company has a $425.0 million credit agreement (of which $323.7 million and $346.9 million was outstanding at December 31, 2000 and 1999, respectively) with a bank group. The credit agreement, as amended on May 25, 2000, has the following components: a $100.0 million revolving facility (of which $35.2 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 borrowing in specified foreign currencies. Interest is payable quarterly at either (i) the prime rate plus a margin of 0.00% to 1.00% or (ii) LIBOR plus a margin of 1.25% to 2.50%, 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 2.00% or (ii) LIBOR plus a margin of 3.50%. The Company has entered into two interest rate swap agreements with a total notional amount of $140.1 million. The 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 $10.5 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 while the current economic slowdown will continue into 2001, 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 the Company is not significantly exposed to adverse economic conditions. Recently Issued Accounting Standards In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements." SAB 101 provides guidance on applying generally accepted accounting principles to the recognition, presentation and disclosure of revenue in financial statements. The Company adopted the provisions of this bulletin in 2000. The adoption did not impact the Company's recognition of revenue in 2000. Effective January 1, 2000, the Company adopted Emerging Issues Task Force Issue No. 99-5 (EITF 99-5), "Accounting for Pre-Production Costs Related to Long-Term Supply Arrangements." EITF 99-5 established new accounting rules for costs related to the design and development of products and for costs incurred to develop molds, dies and other tools to be used to produce products that will be sold under long-term supply agreements. The Company elected to adopt the requirements of EITF 99-5 on a prospective basis, as permitted. In accordance with the criteria set forth in EITF 99-5, the Company is now required to expense as incurred certain costs that were previously capitalized. The adoption of EITF 99-5 did not have a significant impact on the Company's financial statements during the year ended December 31, 2000. The Company adopted Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities" (as amended by SFAS 138) in the first quarter of its fiscal year ending 2001. SFAS 133 establishes new accounting and reporting standards for derivatives and hedging activities. In accordance with the standard, the Company will prospectively recognize the fair value of its derivative instruments as assets or liabilities in its consolidated balance sheet once SFAS 133 is adopted. The offset will be reflected as other comprehensive income or in 13 earnings, depending upon the achievement of hedge accounting criteria. The adoption of this standard does not significantly affect the Company's balance sheet, shareholders' equity position or statements of income at the time of adoption. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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. 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 material. The Company does not expect the effects of these risks to be material based on current operating and economic conditions in the countries and markets in which it operates. 14 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Page ---- Consolidated Financial Statements: - --------------------------------- Report of Independent Public Accountants 16 Consolidated Balance Sheets as of December 31, 2000 and 1999 17 Consolidated Statements of Income for the Years Ended December 31, 2000, 1999 and 1998 18 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 19 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2000, 1999 and 1998 20 Notes to Consolidated Financial Statements 21 Financial Statement Schedule: - ---------------------------- Report of Independent Public Accountants 33 Schedule II--Valuation and Qualifying Accounts 34
15 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Stoneridge, Inc.: We have audited the accompanying consolidated balance sheets of Stoneridge, Inc. (an Ohio corporation) and Subsidiaries as of December 31, 2000 and 1999 and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Stoneridge, Inc. and Subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Cleveland, Ohio, January 23, 2001. 16 STONERIDGE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)
December 31, ------------ 2000 1999 --------------- ------------- Assets Current Assets: Cash and cash equivalents....................................................... $ 5,594 $ 3,924 Accounts receivable, less allowance for doubtful accounts of $2,657 and $1,549........................................................ 91,680 98,744 Inventories..................................................................... 70,159 65,701 Prepaid expenses and other...................................................... 17,104 13,383 Deferred income taxes, net...................................................... 10,217 10,564 --------------- ------------- Total current assets........................................................ 194,754 192,316 --------------- ------------- Property, Plant and Equipment, net.................................................. 113,855 106,163 Other Assets: Goodwill and other intangibles, net......................................... 357,526 369,265 Investments and other....................................................... 30,860 30,565 --------------- ------------- Total Assets........................................................................ $ 696,995 $ 698,309 =============== ============= Liabilities and Shareholders' Equity Current Liabilities: Current portion of long-term debt............................................... $ 34,562 $ 25,753 Accounts payable................................................................ 45,199 42,337 Accrued expenses and other...................................................... 34,924 47,114 --------------- ------------- Total current liabilities................................................... 114,685 115,204 --------------- ------------- Long-Term Debt, net of current portion.............................................. 296,079 331,898 Deferred Income Taxes, net.......................................................... 22,352 15,985 Other............................................................................... 1,693 3,594 --------------- ------------- Total long-term liabilities................................................. 320,124 351,477 --------------- ------------- 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 December 31, 2000 and 1999, stated at.................... -- -- Additional paid-in capital...................................................... 141,506 141,506 Retained earnings............................................................... 123,211 90,502 Accumulated other comprehensive loss............................................ (2,531) (380) --------------- ------------- Total shareholders' equity.................................................. 262,186 231,628 --------------- ------------- Total Liabilities and Shareholders' Equity.......................................... $ 696,995 $ 698,309 =============== =============
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 17 STONERIDGE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data)
For the years ended December 31, -------------------------------- 2000 1999 1998 ------------- ------------- ------------- Net Sales....................................................... $ 667,192 $ 675,221 $ 503,821 Costs and Expenses Cost of goods sold........................................ 496,080 487,349 379,582 Selling, general and administrative....................... 95,946 90,567 67,517 ------------- ------------- ------------- Operating Income................................................ 75,166 97,305 56,722 Interest expense, net..................................... (29,492) (30,741) (686) Other income, net......................................... 1,120 458 -- ------------- ------------- ------------- Income Before Income Taxes...................................... 46,794 67,022 56,036 Provision for income taxes................................ 14,085 25,850 22,636 ------------- ------------- ------------- Net Income...................................................... $ 32,709 $ 41,172 $ 33,400 ============= ============= ============= Basic and Diluted Net Income per Share.......................... $ 1.46 $ 1.84 $ 1.49 ============= ============= ============= Weighted Average Shares Outstanding............................. 22,397 22,397 22,397 ============= ============= =============
The accompanying notes to consolidated financial statements are an integral part of these statements. 18 STONERIDGE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
For the years ended December 31, -------------------------------- 2000 1999 1998 ----------- ---------- ----------- Operating Activities: Net income...................................................... $ 32,709 $ 41,172 $ 33,400 Adjustments to reconcile net income to net cash from operating activities-- Depreciation and amortization............................... 28,680 27,850 14,422 Deferred income taxes....................................... 7,166 8,900 (1,702) Gain on sale of fixed assets................................ (995) -- -- Changes in operating assets and liabilities-- Accounts receivable, net................................. 5,577 (5,213) (7,162) Inventories.............................................. (5,905) (3,615) (1,918) Prepaid expenses and other............................... (4,242) (6,937) 1,761 Other assets, net........................................ (2,142) (1,015) (3,854) Accounts payable......................................... 4,292 (8,793) 4,004 Accrued expenses and other............................... (12,738) (8,181) 7,037 ----------- ---------- ----------- Net cash from operating activities..................... 52,402 44,168 45,988 ----------- ---------- ----------- Investing Activities: Capital expenditures............................................ (28,720) (17,589) (10,919) Proceeds from sale of fixed assets.............................. 2,176 -- 3,758 Business acquisitions and other................................. 786 (34,209) (361,520) ----------- ---------- ----------- Net cash from investing activities..................... (25,758) (51,798) (368,681) ----------- ---------- ----------- Financing Activities: Shareholder distributions paid.................................. -- -- (2,600) Proceeds from long-term debt.................................... -- 5,114 1,286 Repayments of long-term debt.................................... (1,308) (168) (8,469) Net borrowings (repayments) under credit agreement.............. (23,191) 4,712 341,729 Debt issuance costs............................................. -- -- (8,615) ----------- ---------- ----------- Net cash from financing activities..................... (24,499) 9,658 323,331 ----------- ---------- ----------- Effect of exchange rate changes on cash and cash equivalents.... (475) 20 (100) ----------- ---------- ----------- Net change in cash and cash equivalents......................... 1,670 2,048 538 Cash and cash equivalents at beginning of period................ 3,924 1,876 1,338 ----------- ---------- ----------- Cash and cash equivalents at end of period...................... $ 5,594 $ 3,924 $ 1,876 =========== ========== =========== Supplemental disclosure of cash flow information Cash paid for interest.......................................... $ 27,698 $ 29,967 $ 952 =========== ========== =========== Cash paid for income taxes...................................... $ 14,761 $ 16,180 $ 22,979 =========== ========== ===========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 19 STONERIDGE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands)
Accumulated Additional Other Number Paid in Retained Comprehensive Comprehensive of shares Capital Earnings Loss Income --------- ---------- --------- ------------- ------------- BALANCE, DECEMBER 31, 1997 22,397 $ 141,506 $ 15,930 $ (226) Net income................................... -- -- 33,400 -- $ 33,400 Other comprehensive income: Currency translation adjustments -- -- -- (68) (68) -------- ---------- --------- --------- --------------- Comprehensive income................ $ 33,332 =============== BALANCE, DECEMBER 31, 1998 22,397 141,506 49,330 (294) Net income................................... -- -- 41,172 -- $ 41,172 Other comprehensive income: Currency translation adjustments -- -- -- (86) (86) -------- ---------- --------- --------- --------------- Comprehensive income................ $ 41,086 =============== BALANCE, DECEMBER 31, 1999 22,397 141,506 90,502 (380) Net income................................... -- -- 32,709 -- $ 32,709 Other comprehensive income: Currency translation adjustments -- -- -- (2,151) (2,151) -------- ---------- --------- --------- --------------- Comprehensive income................ $ 30,558 =============== BALANCE, DECEMBER 31, 2000 22,397 $ 141,506 $ 123,211 $ (2,531) ======== ========== ========= =========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 20 STONERIDGE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data, unless otherwise indicated) 1. Organization and Nature of Business Stoneridge, Inc. (Stoneridge) and its subsidiaries are independent designers and manufacturers of engineered electrical and electronic components, modules and systems for the automotive, medium and heavy-duty truck, agricultural, and off-road vehicle markets. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements include the accounts of Stoneridge and its wholly-owned and majority-owned subsidiaries (collectively, the Company). All significant intercompany transactions and balances have been eliminated in consolidation. Cash and Cash Equivalents The Company considers all short-term investments with original maturities of three months or less to be cash equivalents. Cash equivalents are stated at cost, which approximates fair value. Accounts Receivable Concentrations Revenues are principally generated from the automotive, medium and heavy- duty truck, and agricultural vehicle markets. Due to the nature of these industries, a significant portion of sales and related accounts receivable are concentrated in a relatively low number of customers. In 2000, the top three customers accounted for approximately 18%, 17% and 17% of net sales, while the top five customers accounted for 66% of net sales. The top four customers accounted for approximately 21%, 18%, 17% and 10% of the Company's 1999 net sales, and its top five customers accounted for approximately 74% of its 1999 net sales. Accounts receivable from the Company's five largest customers aggregated approximately $47,876 and $58,685 at December 31, 2000 and 1999, respectively. Inventories Cost is determined by the last-in, first-out (LIFO) method for approximately 77% and 78% of the Company's inventories at December 31, 2000 and 1999, 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 at December 31: 2000 1999 --------- --------- Raw materials $ 45,552 $ 42,876 Work in progress 9,369 9,636 Finished goods 15,261 13,400 Less: LIFO reserve (23) (211) --------- --------- Total $ 70,159 $ 65,701 ========= ========= 21 STONERIDGE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except share and per share data, unless otherwise indicated) Property, Plant and Equipment Property, plant and equipment are recorded at cost and consist of the following at December 31: 2000 1999 --------- --------- Land and land improvements $ 5,560 $ 5,816 Buildings and improvements 43,855 44,719 Machinery and equipment 89,345 73,131 Office furniture and fixtures 20,825 17,303 Tooling 38,350 31,613 Vehicles 1,115 1,125 Leasehold improvements 1,110 1,043 --------- --------- 200,160 174,750 Less: Accumulated depreciation and amortization 86,305 68,587 --------- --------- $ 113,855 $ 106,163 ========= ========= Depreciation is provided by both the straight-line and accelerated methods over the estimated useful lives of the assets. Depreciation expense for the years ended December 31, 2000, 1999 and 1998 was $18,218, $17,057 and $11,779, respectively. Depreciable lives within each property classification are as follows: Buildings and improvements 10-40 years Machinery and equipment 5-10 years Office furniture and fixtures 3-10 years Tooling 2-5 years Vehicles 3-5 years Leasehold improvements 3-8 years Maintenance and repair expenditures that are not considered betterments and do not extend the useful life of property are charged to expense as incurred. Expenditures for improvements and major renewals are capitalized. When assets are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss on the disposition is credited or charged to income. Goodwill and Other Intangibles Goodwill and other intangibles, net, which result principally from acquisitions, consist of the following at December 31: Estimated Useful Life 2000 1999 ------------ --------- ---------- Goodwill 40 years $354,912 $ 365,845 Patents 6-13 years 2,614 2,975 Non-compete agreements 2 years -- 445 --------- ---------- $357,526 $ 369,265 ========= ========== 22 STONERIDGE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except share and per share data, unless otherwise indicated) Goodwill and other intangibles are presented net of accumulated amortization of $28,653 and $19,215 as of December 31, 2000 and 1999, respectively. Goodwill and other intangible asset amortization expense totaled approximately $10,462, $10,793, and $2,643 in 2000, 1999 and 1998, respectively. The Company regularly evaluates its accounting for goodwill and other intangible assets. No impairment charges were recorded in 2000, 1999 and 1998. Impairment would be recognized when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Measurement of the amount of impairment would be based on appraisal, market value of similar assets or estimated discounted future cash flows resulting from the use and ultimate disposition of the asset. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following at December 31: 2000 1999 -------- -------- Compensation-related obligations $ 14,028 $ 13,861 Insurance-related obligations 8,036 7,441 Income taxes -- 3,401 Other 12,860 22,411 -------- -------- $ 34,924 $ 47,114 ======== ======== Income Taxes The Company accounts for income taxes, using the provisions of Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." Deferred income taxes reflect the tax consequences on future years of differences between the tax basis of assets and liabilities and their financial reporting amounts. Future tax benefits are recognized to the extent that realization of such benefits is more likely than not. Currency Translation Adjustment The financial statements of foreign subsidiaries, where the local currency is the functional currency, are translated into U.S. dollars using exchange rates in effect at the period end for assets and liabilities and average exchange rates during each reporting period for results of operations. Adjustments resulting from translation of financial statements are reflected as accumulated other comprehensive loss. The financial statements of foreign subsidiaries, where the U.S. dollar is the functional currency and which have certain transactions denominated in a local currency, are re-measured as if the functional currency were the U.S. dollar. The re-measurement of local currencies into U.S. dollars creates translation adjustments which are included in net income. All translation and transaction activities were insignificant in 2000, 1999 and 1998. Revenue Recognition The Company recognizes revenues from the sale of products at the point of passage of title, which is generally at the time of shipment. Revenue is recognized in accordance with the Securities and Exchange Commission's Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements." 23 STONERIDGE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except share and per share data, unless otherwise indicated) Product Development Expenses Expenses associated with the development of new products and changes to existing products are charged to expense as incurred. The costs amounted to $26,750, $21,976 and $17,418 in 2000, 1999 and 1998, respectively. Stock-Based Compensation The Company has elected to follow Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees," and related interpretations in accounting for its employee share options. Since the exercise price of the Company's employee share options equals the market price of the shares on the date of grant, no compensation expense is recorded. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation." Financial Instruments and Derivative Financial Instruments Financial instruments held by the Company include cash and cash equivalents, accounts receivable, accounts payable, long-term debt, interest rate swap agreements and forward currency contracts. The carrying value of cash and cash equivalents, accounts receivable and accounts payable is considered to be representative of fair value because of the short maturity of these instruments. The fair values of borrowings under the long-term debt facilities are based on rates available to the Company for debt with comparable terms and maturities. Refer to Note 10 for fair value disclosures of the interest rate swaps and currency forward contracts. Accounting 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, including certain self-insured risks and liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Since actual results could differ from those estimates, the Company revises its estimates and assumptions as new information becomes available. Net Income Per Share Net income per share amounts for all periods are presented in accordance with Statement of Financial Accounting Standards No. 128, "Earnings per Share," which requires the presentation of basic net income per share and diluted net income per share. Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted net income per share is calculated by dividing net income by the weighted average of all potentially dilutive common shares that were outstanding during the period. Potentially dilutive securities are not significant and do not create differences between reported basic and diluted net income per share for all periods presented. Impairment of Assets The Company reviews its long-lived assets and identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. No impairment charges were recorded in 2000, 1999 and 1998. Measurement of the amount of impairment may be based on appraisal, market values of similar assets or estimated discounted future cash flows resulting from the use and ultimate disposition of the asset. 24 STONERIDGE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except share and per share data, unless otherwise indicated) Comprehensive Income During 1998, the Company adopted SFAS 130, "Reporting Comprehensive Income," which established standards for the reporting and display of comprehensive income and its components. Comprehensive income is defined as all changes in a company's net assets except changes resulting from transactions with shareholders. Comprehensive income differs from net income in that certain items currently recorded directly to shareholders' equity are included in comprehensive income. Accounting Standards The Company adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities" (as amended by SFAS 138) in the first quarter of its fiscal year ending 2001. SFAS 133 establishes new accounting and reporting standards for derivatives and hedging activities. In accordance with the standard, the Company will prospectively recognize the fair value of its derivative instruments as assets or liabilities in its consolidated balance sheet once SFAS 133 is adopted. The offset will be reflected as other comprehensive income or in earnings, depending upon the achievement of hedge accounting criteria. The adoption of this standard does not significantly affect the Company's balance sheet, shareholders' equity position or statements of income at the time of adoption. Effective January 1, 2000 the Company adopted EITF 99-5, "Accounting for Pre-Production Costs Related to Long-Term Supply Arrangements." EITF 99-5 established new accounting rules for costs related to the design and development of products and for costs incurred to develop molds, dies and other tools to be used to produce products that will be sold under long-term supply agreements. The Company elected to adopt the requirements of EITF 99-5 on a prospective basis, as permitted. In accordance with the criteria set forth in EITF 99-5, the Company is now required to expense as incurred certain costs that were previously capitalized. The adoption of EITF 99-5 did not have a significant impact on the Company's financial statements during the year ended December 31, 2000. In December 1999, the Securities and Exchange Commission issued SAB 101, "Revenue Recognition in Financial Statements." SAB 101 provides guidance on applying generally accepted accounting principles to the recognition, presentation and disclosure of revenue in financial statements. The Company adopted the provisions of this bulletin in 2000. The adoption did not impact the Company's recognition of revenue in 2000. Reclassifications Certain prior year amounts have been reclassified to conform to their 2000 presentation in the consolidated financial statements. 3. Acquisitions On August 27, 1999, the Company purchased all the outstanding shares of TVI Europe, Limited (TVI) for approximately $20,700. TVI is a United Kingdom manufacturer of vehicle information and management systems for the European commercial vehicle market. The transaction was accounted for as a purchase. The excess of the purchase price over the fair value of assets acquired, totaling approximately $17,400 is being amortized over 40 years on a straight-line basis. The purchase price was funded with proceeds from the credit agreement discussed in Note 5. The results of operations of TVI are included in the accompanying financial statements from the date of acquisition. On March 6, 1999, the Company purchased certain assets and assumed certain liabilities of Delta Schoeller, Limited (Delta) for approximately $12,200. Delta is a United Kingdom manufacturer of switches for the automotive industry. The transaction was accounted for as a purchase. The purchase price was funded with proceeds from the credit agreement discussed in Note 5. The results of operations of Delta are included in the accompanying financial statements from the date of acquisition. 25 STONERIDGE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except share and per share data, unless otherwise indicated) On December 31, 1998, the Company purchased all of the outstanding common shares of Hi-Stat Manufacturing Company, Inc. (Hi-Stat) for approximately $361,500. Hi-Stat manufactures engineered sensors, switches and solenoids for the automotive industry. The transaction was accounted for as a purchase. Accordingly, the assets acquired and liabilities assumed of Hi-Stat were included in the consolidated balance sheet as of December 31, 1998. The purchase price was funded with cash on hand and with proceeds from the credit agreement discussed in Note 5. All assets acquired and liabilities assumed were stated at fair value. The purchase price paid in excess of identifiable net assets was allocated to goodwill. The components of intangible assets included in the allocation of purchase price, along with the related straight-line amortization periods, are: Amortization Amount Period (years) ------ -------------- Non-compete agreements $ 590 2 Patents 2,580 6-13 Goodwill 312,616 40 The results of operations of Hi-Stat are included in the accompanying financial statements from the date of acquisition. The unaudited pro forma consolidated results of operations as though Hi-Stat had been acquired at the beginning of fiscal 1998 are as follows: 1998 ---- Net sales $ 659,151 Operating income $ 73,269 Net income $ 24,736 Basic and diluted net income per share $ 1.10 The pro forma data do not purport to be indicative of the results that would have been obtained had these events actually occurred at the beginning of the periods presented and are not intended to be a projection of future results. The pro forma amounts reflect the results of operations for the Company, Hi-Stat and the pertinent purchase accounting and other adjustments for the periods presented. 4. Investments The Company has a 50% interest in PST Industria Eletronica da Amazonia Ltda. (PST), a Brazilian electronic components business that specializes in electronic vehicle security devices. The investment is accounted for under the equity method of accounting. The Company has loaned PST $5,000, which was used for the repayment of existing debt. The note is secured by certain assets of PST. The Company has also entered into two joint venture agreements with Connecto AB, a Swedish manufacturer of power distribution systems. Pursuant to the terms of the agreements, the Company has a 79% interest in a Brazilian joint venture and a 40% interest in a European joint venture. The Brazilian joint venture is consolidated with the results of the Company and the European joint venture is accounted for under the equity method of accounting. As of December 31, 2000, the Company incurred costs of approximately $3,132 related to these joint ventures. The joint ventures are establishing production facilities in Brazil and Europe for the purpose of manufacturing and selling power distribution systems in South America and Europe, respectively. 26 STONERIDGE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except share and per share data, unless otherwise indicated) 5. Long-Term Debt The Company has a $425.0 million credit agreement with a bank group. The credit agreement, as amended on May 25, 2000, has the following components: a $100.0 million revolving 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 0.00% to 1.00% or (ii) LIBOR plus a margin of 1.25% to 2.50%, 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 2.00% or (ii) LIBOR plus a margin of 3.50%. The weighted average interest rate in effect for the years ended December 31, 2000, 1999 and 1998 was approximately 7.75%, 8.40% and 7.10%, respectively, including the effects of the interest rate swap agreements. Long-term debt consists of the following at December 31: 2000 1999 ---------- ----------- Borrowings under credit agreement $323,670 $ 346,862 Borrowings payable to foreign banks 4,826 7,917 Other 2,145 2,872 ---------- ------------ 330,641 357,651 Less: Current portion 34,562 25,753 ---------- ------------ $ 296,079 $ 331,898 ========== ============ The credit agreement contains various covenants that require, among other things, the maintenance of certain minimum amounts of consolidated net worth and consolidated EBITDA and certain specified ratios of consolidated total debt to consolidated EBITDA, interest coverage and fixed charge coverage. Restrictions also include limits on capital expenditures and dividends. The Company was in compliance with these covenants, which were amended on January 26, 2001. Future maturities of long-term debt as of December 31, 2000 are as follows: 2001 $ 34,562 2002 39,572 2003 91,851 2004 45,000 2005 119,656 The credit agreement requires certain debt prepayments based upon the achievement of defined levels of EBITDA. 27 STONERIDGE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except share and per share data, unless otherwise indicated) 6. Income Taxes The provisions for income taxes included in the accompanying financial statements represent federal, state and foreign income taxes. The provision for income taxes consists of the following for the years ended December 31: 2000 1999 1998 ----------- ----------- ----------- Current: Federal $ 3,003 $ 12,281 $ 20,414 State and foreign 2,763 3,966 3,924 ----------- ----------- ----------- 5,766 16,247 24,338 ----------- ----------- ----------- Deferred: Federal 7,602 8,618 (1,489) State and foreign 717 985 (213) ----------- ----------- ----------- 8,319 9,603 (1,702) ----------- ----------- ----------- Total $ 14,085 $ 25,850 $ 22,636 =========== =========== =========== A reconciliation of the Company's effective income tax rate to the statutory federal tax rate for 2000, 1999 and 1998 is as follows:
2000 1999 1998 ---------- ---------- ---------- Statutory U.S. federal income tax rate 35.0% 35.0% 35.0% State income taxes, net of federal tax benefit 1.5 3.0 4.7 Tax credits (1.0) -- -- Goodwill amortization 0.5 0.7 0.8 Foreign sales corporation (3.8) (1.4) (1.0) Foreign losses (2.4) -- -- Other items 0.3 1.3 0.9 ---------- ---------- ---------- Effective income tax rate 30.1% 38.6% 40.4% ========== ========== ==========
Unremitted earnings of foreign subsidiaries are $9,529 as of December 31, 2000. Because these earnings have been indefinitely reinvested in foreign operations, no provision has been made for U.S. income taxes. It is impracticable to determine the amount of unrecognized deferred taxes with respect to these earnings; however, foreign tax credits should be available to reduce U.S. income taxes in the event of a distribution. Deferred tax assets and liabilities consist of the following at December 31: 2000 1999 ----------- ------------ Deferred tax assets: Inventories $ 2,275 $ 2,001 Employee benefits 2,863 2,468 Insurance 2,922 3,134 Other nondeductible reserves 7,615 6,884 ----------- ------------ Gross deferred tax assets 15,675 14,487 Deferred tax liabilities: Depreciation and amortization (24,515) (16,614) Other (3,295) (3,294) ----------- ------------ Gross deferred tax liabilities (27,810) (19,908) ----------- ------------ Net deferred tax liability $ (12,135) $ (5,421) =========== ============ 28 STONERIDGE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except share and per share data, unless otherwise indicated) 7. Operating Lease Commitments The Company leases equipment, vehicles and buildings from third parties under operating lease agreements. The Company also leases some of its facilities from certain related parties. The leases are accounted for as operating leases and are for various terms with additional renewal options. The Company is generally responsible for repairs and maintenance, taxes and insurance. For the years ended December 31, 2000, 1999 and 1998, lease expense totaled $3,576, $3,620 and $3,015, under these agreements including related party lease expense of $575, $465 and $451, respectively. Future minimum operating lease commitments at December 31, 2000 are as follows: Third Related Party Party ------------ ----------- 2001 $ 2,851 $ 489 2002 2,380 460 2003 1,760 460 2004 221 382 2005 209 403 Thereafter -- 1,610 8. Share Option Plans In October 1997, the Company adopted a Long-Term Incentive Plan (Incentive Plan). The Company has reserved 1,000,000 Common Shares for issuance under the Incentive Plan. Under the Incentive Plan, the Company has granted cumulative options to purchase 661,000 Common Shares to management with exercise prices equal to the fair market value of the Company's Common Shares at the date of grant. The options vest from one to five years after the date of grant. Information relating to the Company's outstanding options is as follows:
Weighted Share Excercise Average Options Prices Exercise Price ---------------- ------------------- ---------------------- Outstanding at December 31, 1997 498,000 $16.44-17.50 $17.48 Forfeited in 1998 (6,000) 17.50 17.50 ---------------- Outstanding at December 31, 1998 492,000 16.44-17.50 17.48 Granted in 1999 103,000 14.72 14.72 Forfeited in 1999 (14,000) 14.72-17.50 16.31 ---------------- Outstanding at December 31, 1999 581,000 14.72-17.50 17.02 Granted in 2000 60,000 7.82 7.82 Forfeited in 2000 (65,000) 14.72-17.50 17.07 ---------------- Outstanding at December 31, 2000 576,000 7.82-17.50 16.05 ================
Of the options issued and outstanding under the Incentive Plan, 429,000 are currently exercisable as of December 31, 2000. 29 STONERIDGE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except share and per share data, unless otherwise indicated) The following pro forma information regarding net income and net income per share is required by SFAS 123, and has been determined as if the Company had accounted for its share options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions: 2000 1999 1998 ----------------- ---------------- ----------- Risk-free interest rate 6.09 - 6.14% 5.29-5.32% 5.97-6.16% Expected dividend yield 0.00% 0.00% 0.00% Expected lives 7.5 - 8.5 years 7.5 - 8.5 years 7.5 years Expected volatility 38.54 - 39.00% 33.90% 33.19% The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected share price volatility. Because the Company's share options have characteristics significantly different from traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its share options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma net earnings per share is as follows:
2000 1999 1998 ------------- --------------- -------------- Net income - as reported $ 32,709 $ 41,172 $ 33,400 Net income - pro forma $ 32,381 $ 39,302 $ 31,236 Basic and diluted net income per share - as reported $ 1.46 $ 1.84 $ 1.49 Basic and diluted net income per share - pro forma $ 1.45 $ 1.75 $ 1.39
9. Employee Benefit Plans The Company has certain defined contribution profit sharing and 401(k) plans covering substantially all of the employees. Company contributions are generally discretionary; however, a portion of these contributions are based upon a percentage of employee compensation, as defined in the plans. The Company's policy is to fund all benefit costs accrued. There are no unfunded prior service costs. For the years ended December 31, 2000, 1999 and 1998, contributions amounted to $3,479, $6,310 and $3,149, respectively. The Company does not provide any other material retirement, postretirement or postemployment benefits to its employees. 10. Fair Value of Financial Instruments A financial instrument is cash or a contract that imposes an obligation to deliver, or conveys a right to receive cash or another financial instrument. The carrying values of cash and cash equivalents, accounts receivable and accounts payable are considered to be representative of fair value because of the short maturity of these instruments. In management's opinion, the estimated fair value of the Company's long-term debt approximates book value, as under the terms of the borrowing arrangements, a significant portion of the obligations are subject to fluctuating market rates of interest. 30 STONERIDGE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except share and per share data, unless otherwise indicated) The Company uses derivative financial instruments to reduce exposures 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. Derivative financial instruments as of December 31, 2000 and 1999, include the following interest rate swap agreements: Expected Notional Amount Fixed Rate Maturity 2000 1999 Paid Date ---- ---- ---- ---- $ -- $ 63,425 6.50-7.75% Dec. 29, 2000 -- 63,425 6.50-7.75 Dec. 29, 2000 -- 86,625 8.15 Dec. 31, 2000 -- 86,625 8.15 Dec. 31, 2000 54,375 -- 6.76 Dec. 31, 2002 85,750 -- 6.77 Dec. 31, 2002 The fair market value of these interest rate swap agreements, which was estimated based on quoted market sources, approximated a net payable of $2,500 and a net receivable of $4,025, at December 31, 2000 and 1999, respectively. The interest rate swap agreements require the Company to pay a fixed interest rate to counterparties while receiving a floating interest rate based on LIBOR. The fixed rate paid to the counterparties is dependent on the Company's ratio of consolidated total debt to consolidated EBITDA as defined by the Company's $425,000 credit agreement discussed in Note 5. The counterparties to each of the interest rate swap agreements are major commercial banks. Management believes that losses related to credit risk are remote. The Company also entered into a foreign currency forward contract to purchase $10.5 million of Swedish Krona to satisfy Krona denominated debt obligations. The estimated fair value of the forward at December 31, 2000, per quoted market sources, was not materially different from the carrying value. 11. Commitments and Contingencies 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. 12. Geographic Areas Effective January 1, 1998, the Company adopted SFAS 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS 131 requires the financial statement disclosures for operating segments, products and services, and geographic areas. The Company operates in one business segment based on the aggregation criteria set forth in SFAS 131. 31 STONERIDGE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except share and per share data, unless otherwise indicated) The following table presents net sales and non-current assets for each of the geographic areas in which the Company operates: 2000 1999 1998 ------------ ------------ ---------- Net sales: North America $ 579,877 $ 599,309 $ 456,813 Europe and other 87,315 75,912 47,008 ------------ ------------ ---------- Total $ 667,192 $ 675,221 $ 503,821 ============ ============ ========== Non-current assets: North America $ 446,744 $ 452,774 $ 458,679 Europe and other 55,497 53,219 21,971 ------------ ------------ ---------- Total $ 502,241 $ 505,993 $ 480,650 ============ ============ ========== 13. Unaudited Quarterly Financial Data The following is a condensed summary of actual quarterly results of operations for 2000 and 1999:
Quarter Ended ------------------------------------------------------------ Dec. 31 Sep. 30 June 30 Mar. 31 ----------- ------------- ------------ ----------- (in millions, except per share data) 2000 Net sales $ 146.4 $ 153.8 $ 182.8 $ 184.2 Gross profit 30.7 38.0 50.7 51.7 Operating income 7.9 15.4 25.2 26.6 Net income $ 1.1 $ 7.5 $ 11.6 $ 12.5 =========== ============= ============ =========== Basic and diluted net income per share $ 0.05 $ 0.34 $ 0.52 $ 0.56 =========== ============= ============ =========== 1999 Net sales $ 162.5 $ 157.0 $ 178.0 $ 177.7 Gross profit 44.6 44.0 49.8 49.5 Operating income 23.9 21.5 25.7 26.2 Net income $ 10.5 $ 8.7 $ 11.2 $ 10.8 =========== ============= ============ =========== Basic and diluted net income per share $ 0.47 $ 0.39 $ 0.50 $ 0.48 =========== ============= ============ ===========
32 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Stoneridge, Inc.: We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of Stoneridge, Inc. and Subsidiaries included in this Form 10-K, and have issued our report thereon dated January 23, 2001. Our audits were made for the purpose of forming an opinion on those financial statements taken as a whole. The schedule on page 34 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Cleveland, Ohio, January 23, 2001. 33 STONERIDGE, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (in thousands)
Liabilities Balance at Charged to Assumed in Beginning Costs and Purchase Balance at of Period Expenses Accounting Write-offs End of Period --------- -------- ---------- ---------- ------------- Allowance for doubtful accounts: Year ended December 31, 1998 $ 231 $ 254 $ 545 $ 24 $ 1,006 Year ended December 31, 1999 1,006 728 125 310 1,549 Year ended December 31, 2000 1,549 1,356 -- 248 2,657
34 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There has been no disagreement between the management of the Company and the Company's accountants on any matter of accounting principles or practices of financial statement disclosures. 35 PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item 10 is incorporated by reference to the information under the headings "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" contained in the Company's Proxy Statement in connection with its Annual Meeting of Shareholders to be held on May 7, 2001, and the information under the heading "Executive Officers" in Part I of this Annual Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item 11 is incorporated by reference to the information under the heading "Executive Compensation" contained in the Company's Proxy Statement in connection with its Annual Meeting of Shareholders to be held on May 7, 2001. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item 12 is incorporated by reference to the information under the heading "Security Ownership of Certain Beneficial Owners and Management" contained in the Company's Proxy Statement in connection with its Annual Meeting of Shareholders to be held on May 7, 2001. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item 13 is incorporated by reference to the information under the heading "Certain Relationships and Related Transactions" contained in the Company's Proxy Statement in connection with its Annual Meeting of Shareholders to be held on May 7, 2001. 36 PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Form 10-K.
Page in Form 10-K --------- 1. Consolidated Financial Statements: Report of Independent Public Accountants 16 Consolidated Balance Sheets as of December 31, 2000 and 1999 17 Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998 18 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 19 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998 20 Notes to Consolidated Financial Statements 21 2. Financial Statement Schedules: Report of Independent Public Accountants 33 Schedule II - Valuation and Qualifying Accounts 34
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. (b) The following reports on Form 8-K were filed during the quarter ended December 31, 2000. None. (c) The exhibits listed on the Index to Exhibits on page 38 are filed with this Form 10-K or incorporated by reference as set forth below. (d) Additional Financial Statement Schedules. None. 37 INDEX TO EXHIBITS Exhibit Number Exhibit - ------ ------- 3.1 Proposed Form of Second Amended and Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 (No. 333-33285)). 3.2 Proposed Form of Amended and Restated Code of Regulations of the Company (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1 (No. 333-33285)). 4.1 Common Share Certificate (incorporated by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997). 10.1 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1 (No. 333-33285)). 10.2 Lease Agreement between Industrial Development Associates and the Alphabet Division, with respect to the Company's Mebane, North Carolina facility (incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999). 10.3 Lease Agreement between Stoneridge, Inc. and Alphabet, Inc., with respect to the Company's division headquarters for the Alphabet Division (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999). 10.4 Contract Manufacturing Agreement dated January 3, 1993 with a division of General Motors (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1 (No. 333-33285)). 10.5 Share Exchange Agreement relating to the Berifors Acquisition (incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form S-1 (No. 333-33285)). 10.6 Joint Venture and Shareholders' Agreements and Cooperation Agreement with Connecto AB (incorporated by reference to Exhibit 10.7 to the Company's Registration Statement on Form S-1 (No. 333-33285)). 10.7 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). 10.8 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). 10.9 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). 10.10 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). 38 10.11 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, filed herewith. 10.12 Agreement with DAV (Labinal) dated June 9, 1994 (incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1 (No. 333-33285)). 10.13 Proposed Form of Tax Indemnification Agreement (incorporated by reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1 (No. 333-33285)). 10.14 Agreement for the Purchase and Sale of Quotas of P.S.T. Industria Eletronica da Amazonia Ltda dated October 29, 1997(incorporated by reference to Exhibit 10.11 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). 10.15 Quotaholders' Agreement among Marcos Ferretti, Sergio De Cerqueira Leite, Stoneridge, Inc. and P.S.T. Industria Eletronica da Amazonia Ltda dated October 29, 1997 (incorporated by reference to Exhibit 10.12 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997). 10.16 Stock Purchase Agreement by and among Stoneridge, Inc. and the Shareholders of Hi-Stat Manufacturing Co., Inc., dated as of December 7, 1998 (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K as of December 31, 1998). 10.17 Form of Change in Control Agreement (incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998). 21.1 Subsidiaries and Affiliates of the Company, filed herewith. 23.1 Consent of Independent Public Accountants, filed herewith. 39 SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) 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: March 22, 2001 /s/ KEVIN P. BAGBY -------------------------------------------- Kevin P. Bagby Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Date: March 22, 2001 /s/ D.M. DRAIME -------------------------------------------- D.M. Draime Chairman of the Board of Directors Date: March 22, 2001 /s/ CLOYD J. ABRUZZO -------------------------------------------- Cloyd J. Abruzzo President and Chief Executive Officer (Principal Executive Officer) Date: March 22, 2001 /s/ AVERY S. COHEN -------------------------------------------- Avery S. Cohen Secretary and Director Date: March 22, 2001 /s/ RICHARD E. CHENEY -------------------------------------------- Richard E. Cheney Director Date: March 22, 2001 /s/ SHELDON J. EPSTEIN -------------------------------------------- Sheldon J. Epstein Director Date: March 22, 2001 /s/ CHARLES J. HIRE -------------------------------------------- Charles J. Hire Director Date: March 22, 2001 /s/ RICHARD G. LEFAUVE -------------------------------------------- Richard G. LeFauve Director Date: March 22, 2001 /s/ EARL L. LINEHAN -------------------------------------------- Earl L. Linehan Director 40 EX-10.11 2 0002.txt AMENDMENT #4 TO CREDIT AGREEMENT DATED 1/26/2001 Exhibit 10.11 ================================================================================ STONERIDGE, INC. as the 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, NATIONAL ASSOCIATION as Documentation Agent _____________________ AMENDMENT NO. 4 dated as of January 26, 2001 to CREDIT AGREEMENT dated as of December 30, 1998 _____________________ ================================================================================ AMENDMENT NO. 4 TO CREDIT AGREEMENT THIS AMENDMENT NO. 4 TO CREDIT AGREEMENT, dated as of January 26, 2001 ("this Amendment"), among the following: (i) STONERIDGE, INC., an Ohio corporation (herein, together with its successors and assigns, the "Borrower"); (ii) the Lenders party to the Credit Agreement, as hereinafter defined; (iii) DLJ CAPITAL FUNDING, INC., a Delaware corporation, as Syndication Agent; (iv) NATIONAL CITY BANK, a national banking association, as a Lender, the Letter of Credit Issuer, the Administrative Agent and the Collateral Agent under the Credit Agreement; and (v) PNC BANK, NATIONAL ASSOCIATION, a national banking association, as the Documentation Agent: PRELIMINARY STATEMENTS: (1) The Borrower, the Lenders named therein, and the Agents entered into the Credit Agreement, dated as of December 30, 1998, as amended by Amendment No. 1 thereto, dated as of January 28, 1999, Amendment No. 2 thereto, dated as of September 7, 1999, and Amendment No. 3 thereto, dated as of May 25, 2000 (as so amended and as the same may from time to time be further amended, restated or otherwise modified, the "Credit Agreement"; with the terms defined therein being used herein as so defined). (2) The parties hereto desire to modify certain terms and provisions of the Credit Agreement, all as more fully set forth below. NOW, THEREFORE, the parties hereby agree as follows: SECTION 1. AMENDMENTS, ETC. 1.1. Amended Definitions. Section 1.1 of the Credit Agreement is hereby amended to delete the definitions of "Borrowing Base Termination Date" and "Fixed Charge Coverage Ratio" therefrom and to insert in place thereof the following: "Borrowing Base Termination Date" shall mean, if at such time no Default under section 10.1(a) or Event of Default shall have occurred and be continuing, (i) September 30, 2002, or (ii) such earlier date, if any, as of which the Borrower shall have delivered to the Administrative Agent and the Lenders its written undertaking to comply with section 9.8 of this Agreement as if such section 9.8 had been amended so as not to permit the Borrower at any time to have a ratio of its Consolidated Total Debt to Consolidated EBITDA for its Testing Period most recently ended in excess of 2.50 to 1.00 (and effective upon such delivery such section 9.8 of this Agreement shall be deemed to have been so amended). The Administrative Agent shall notify the Borrower and the Lenders of the occurrence of the Borrowing Base Termination Date, specifying the same. "Fixed Charge Coverage Ratio" shall mean, for any Testing Period, the ratio of (i) (A) Consolidated EBITDA, minus (B) Consolidated Capital Expenditures, to (ii) the sum of (A) Consolidated Cash Interest Expense, (B) Consolidated Cash Income Tax Expense, and (C) the sum of all payments for dividends, stock repurchases or other retirements, and other purposes described in section 9.6, if any, in each case on a consolidated basis for the Borrower and its Subsidiaries for such Testing Period; provided that, notwithstanding anything to the contrary contained herein, the Borrower's Fixed Charge Coverage Ratio for any Testing Period shall be computed by giving effect to (x) the inclusion of the appropriate financial items for any person or business unit which has been acquired by the Borrower for any portion of such Testing Period prior to the date of acquisition, and (y) the exclusion of the appropriate financial items for any person or business unit which has been disposed of by the Borrower, for the portion of such Testing Period prior to the date of disposition. 1.2. Pricing Changes. Sections 2.7(g) of the Credit Agreement is hereby amended in its entirety to read as follows: (g) Interest Rate Margins. As used herein the terms "Applicable Prime Rate Margin" and "Applicable Eurodollar Margin" shall mean the applicable rates determined in accordance with the following provisions: (i) for any date prior to January 31, 2001, the Applicable Prime Rate Margin and the Applicable Eurodollar Margin for all Loans shall be determined in accordance with section 2.7(g) of the Credit Agreement as in effect prior to January 31, 2001. (ii) subject at all times to section 2.7(c) and subpart (iv) below, from January 31, 2001 through June 30, 2001, (A) the Applicable Prime Rate Margin for Revolving Loans and Term A Loans shall be 125 basis points per annum and for Term B Loans shall be 225 basis points per annum, and (B) the Applicable Eurodollar Margin for Revolving Loans and Term A Loans shall be 275 basis points per annum and for Term B Loans shall be 375 basis points per annum; provided, however that if, at any time during such period, the Borrower's ratio of Consolidated Total Debt to Consolidated EBITDA, as computed in accordance with section 9.8, shall be greater than 3.50 to 1.00, then (A) the Applicable Prime Rate Margin for Revolving Loans and Term A Loans shall be 150 basis points per annum and for Term B Loans shall be 250 basis points per annum, and (B) the Applicable Eurodollar Margin for Revolving Loans and Term A Loans shall be 300 basis points per annum and for Term B Loans shall be 400 basis points per annum. (iii) subject at all times to section 2.7(c) and subpart (iv) below, commencing on and after July 1, 2001, and continuing with each fiscal quarter thereafter, the Applicable Prime Rate Margin and Applicable Eurodollar Margin for all Loans shall be the particular rate per annum determined by the Administrative Agent in accordance with the Pricing Grid Table that appears below, based on the Borrower's ratio of Consolidated Total Debt to Consolidated EBITDA, as computed in accordance with section 9.8 hereof and such Pricing Grid Table, and the following provisions: (A) Changes in the Applicable Prime Rate Margin or Applicable Eurodollar Margin based upon changes in such ratio shall become effective on the first day of the month following the receipt by the Administrative Agent pursuant to section 8.1(a) or (b) of the financial statements of the Borrower, accompanied by the certificate and calculations referred to in section 8.1(c), demonstrating the computation of such ratio, based upon the ratio in effect at the end of the applicable period covered (in whole or in part) by such financial statements; (B) Notwithstanding the above provisions, but subject section 2.7(c), during any period when the Borrower has failed to timely deliver its consolidated financial statements referred to in section 8.1(a) or (b), accompanied by the certificate and calculations referred to in section 8.1(c), a Default under section 10.1(a) has occurred and is continuing, or an Event of Default has occurred and is continuing, the Applicable Prime Rate Margin and the Applicable Eurodollar Margin shall be the highest rate per annum indicated therefor in the Pricing Grid Table, regardless of the Borrower's ratio of Consolidated Total Debt to Consolidated EBITDA at such time; and (C) Any change in the Applicable Prime Rate Margin or Applicable Eurodollar Margin shall be determined by the Administrative Agent in accordance with the above provisions and the Administrative Agent shall promptly provide notice of such determinations to the Borrower and the Lenders. Any such determination by the Administrative Agent pursuant to this section 2.7(g) shall be conclusive and binding absent manifest error. 2 (iv) notwithstanding anything in this section 2.7 or elsewhere in the Credit Agreement to the contrary, if, at any time, the rating accorded to the Borrower's senior secured debt (A) by Moody's shall be less than Ba3, or (B) by S&P shall be less than BB-, then effective immediately on the date of a change to any such rating, and thereafter, the Applicable Prime Rate Margin and the Applicable Eurodollar Margin for all Loans, as determined in accordance with this section 2.7(g), shall be increased by 25 basis points. PRICING GRID TABLE (Expressed in Basis Points)
- -------------------------------------------------------------------------------------------------------------- Applicable Ratio of Prime Rate Applicable Consolidated Total Margin for Eurodollar Applicable Applicable Debt to Revolving Margin for Prime Rate Eurodollar Applicable Consolidated Loans and Term Revolving Loans Margin for Margin for Commitment EBITDA A Loans and Term A Loans Term B Loans Term B Loans Fee Rate - -------------------------------------------------------------------------------------------------------------- Greater than 3.50 to 1.00 150.00 300.00 250.00 400.00 50.00 - -------------------------------------------------------------------------------------------------------------- Greater than 3.00 to 125.00 275.00 225.00 375.00 50.00 1.00 but less than or equal to 3.50 to 1.00 - -------------------------------------------------------------------------------------------------------------- Greater than 2.50 to 100.00 250.00 225.00 375.00 50.00 1.00 but less than or equal to 3.00 to 1.00 - -------------------------------------------------------------------------------------------------------------- Greater than 2.00 to 62.50 212.50 225.00 375.00 50.00 1.00 but less than or equal to 2.50 to 1.00 - -------------------------------------------------------------------------------------------------------------- Less than or equal to 25.00 175.00 225.00 375.00 50.00 2.00 to 1.00 - --------------------------------------------------------------------------------------------------------------
1.3. Amendment to Certain Financial Covenants. Sections 9.8, 9.9, 9.10 and 9.11 of the Credit Agreement are hereby amended such that, for any date prior to December 31, 2000, the Borrower shall be required to comply with such Sections as in effect prior to the Amendment Effective Date, and, on December 31, 2000 and thereafter, such sections shall be amended in their entirety to read as follows: 9.8. Consolidated Total Debt/Consolidated EBITDA Ratio. The Borrower shall not at any time permit the ratio of Consolidated Total Debt at the end of any Testing Period to Consolidated EBITDA for such Testing Period to exceed the ratio specified below: ----------------------------------------------- Testing Period Ratio ----------------------------------------------- December 31, 2000 3.25 to 1.00 ----------------------------------------------- March 31, 2001 4.00 to 1.00 ----------------------------------------------- June 30, 2001 4.15 to 1.00 ----------------------------------------------- 3 ------------------------------------------------------------- Testing Period Ratio ------------------------------------------------------------- September 30, 2001 4.00 to 1.00 ------------------------------------------------------------- December 31, 2001 3.50 to 1.00 ------------------------------------------------------------- March 31, 2002 3.25 to 1.00 ------------------------------------------------------------- June 30, 2002 2.75 to 1.00 ------------------------------------------------------------- September 30, 2002 and thereafter 2.50 to 1.00 ------------------------------------------------------------- 9.9. Interest Coverage Ratio. The Borrower shall not permit at any time its Interest Coverage Ratio for any Testing Period to be less than the ratio specified below: -------------------------------------------------------------- Testing Period Ratio -------------------------------------------------------------- December 31, 2000 3.50 to 1.00 -------------------------------------------------------------- March 31, 2001 2.90 to 1.00 ------------------------------------------------------------- June 30, 2001 2.60 to 1.00 -------------------------------------------------------------- September 30, 2001 2.60 to 1.00 -------------------------------------------------------------- December 31, 2001 2.75 to 1.00 -------------------------------------------------------------- March 31, 2002 3.00 to 1.00 -------------------------------------------------------------- June 30, 2002 3.25 to 1.00 -------------------------------------------------------------- September 30, 2002 and thereafter 3.50 to 1.00 -------------------------------------------------------------- 9.10. Fixed Charge Coverage Ratio. The Borrower shall not at any time permit its Fixed Charge Coverage Ratio for any Testing Period to be less than the ratio specified below: -------------------------------------------------------------- Testing Period Ratio -------------------------------------------------------------- December 31, 2000 1.75 to 1.00 -------------------------------------------------------------- March 31, 2001 1.50 to 1.00 -------------------------------------------------------------- June 30, 2001 1.10 to 1.00 -------------------------------------------------------------- September 30, 2001 1.10 to 1.00 -------------------------------------------------------------- December 31, 2001 1.35 to 1.00 -------------------------------------------------------------- March 31, 2002 through September 30, 2002 1.50 to 1.00 -------------------------------------------------------------- December 31, 2002 1.75 to 1.00 -------------------------------------------------------------- March 31, 2003 and thereafter 2.00 to 1.00 -------------------------------------------------------------- 4 9.11. Minimum Consolidated EBITDA. The Borrower shall not permit at any time its Consolidated EBITDA for any Testing Period to be less than the amount specified below, provided that, in the event the Borrower and/or its Subsidiaries complete any Acquisition after the Effective Date (other than the Hi-Stat Acquisition), each of the amounts specified below shall be increased by an amount equal to 85% of the consolidated earnings before interest, income taxes, depreciation and amortization attributable to the business and assets acquired in each such Acquisition for the most recently completed period of four fiscal quarters preceding the date such Acquisition is completed: ----------------------------------------------------------- Testing Period Amount ----------------------------------------------------------- December 31, 2000 $100,000,000 ----------------------------------------------------------- March 31, 2001 $ 85,000,000 ----------------------------------------------------------- June 30, 2001 and September 30, 2001 $ 80,000,000 ----------------------------------------------------------- December 31, 2001 $ 87,500,000 ----------------------------------------------------------- March 31, 2002 $100,000,000 ----------------------------------------------------------- June 30, 2002 $110,000,000 ----------------------------------------------------------- September 30, 2002 $120,000,000 ----------------------------------------------------------- December 31, 2002 and March 31, 2003 $130,000,000 ----------------------------------------------------------- June 30, 2003 through September 30, 2004 $140,000,000 ----------------------------------------------------------- December 31, 2004 and thereafter $150,000,000 ----------------------------------------------------------- At the time that the Borrower and/or its Subsidiaries complete an Acquisition requiring an adjustment to the foregoing amounts, the Borrower shall deliver to the Administrative Agent and the Lenders a certificate of its chief financial or accounting officer or another Authorized Officer, reasonably satisfactory in form and substance to the Administrative Agent, as to the amounts of such adjustments, and setting forth the calculations and other financial information (including copies of financial statements of the business acquired in the Acquisition) used in determining such adjustments. 1.4. Amendment to Section 9.12. The Capital Expenditure limitation set forth in Section 9.12 of the Credit Agreement for the fiscal year ended December 31, 2001 is hereby amended to delete the amount "$30,000,000" and to insert in place thereof the amount "$33,500,000"; provided, however, that any amount of Consolidated Capital Expenditures not utilized for the fiscal year ended December 31, 2000 shall not be permitted to be carried over to the fiscal year ended December 31, 2001. SECTION 2. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants as follows: 2.1. Authorization and Validity of Amendment, etc. This Amendment has been duly authorized by all necessary corporate action on the part of the Borrower, has been duly executed and delivered by a duly authorized officer of the Borrower, and constitutes the valid and binding agreement of the Borrower, enforceable against the Borrower in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws generally affecting creditors' rights and by equitable principles (regardless of whether enforcement is sought in equity or at law). 2.2. Representations and Warranties. The representations and warranties of the Credit Parties contained in the Credit Agreement or in the other Credit Documents are true and correct in all material respects on and as of the 5 Amendment Effective Date as though made on and as of the Amendment Effective Date, except to the extent that such representations and warranties expressly relate to an earlier specified date, in which case such representations and warranties are hereby reaffirmed as true and correct in all material respects as of the date when made. 2.3. No Event of Default. No Default or Event of Default exists or hereafter shall begin to exist. 2.4. Compliance. The Borrower is in compliance with all covenants and agreements contained in the Credit Agreement, as amended hereby, and the other Credit Documents to which it is a party; without limitation of the foregoing, each Subsidiary of the Borrower that, as of the date hereof, is required to be a Subsidiary Guarantor, has, on or prior to the Amendment Effective Date, become a Subsidiary Guarantor under the Subsidiary Guaranty. 2.5. Financial Statements, etc. The Borrower has furnished to the Lenders and the Administrative Agent complete and correct copies of: (a) the audited consolidated balance sheets of the Borrower and its consolidated Subsidiaries as of December 31, 1998, and December 31, 1999, and the related audited consolidated statements of income, stockholders' equity, and cash flows for the fiscal years then ended, accompanied by the unqualified report thereon of the Borrower's independent accountants; and (b) the unaudited condensed consolidated balance sheets of the Borrower and its consolidated Subsidiaries as of September 30, 2000, and the related unaudited condensed consolidated statements of income and of cash flows of the Borrower and its consolidated Subsidiaries for the fiscal quarter or quarters then ended, as contained in the Form 10-Q Quarterly Report of the Borrower filed with the SEC. All such financial statements have been prepared in accordance with GAAP, consistently applied (except as stated therein), and fairly present, in all material respects, the financial position of the Borrower and its consolidated Subsidiaries as of the respective dates indicated and the consolidated results of their operations and cash flows for the respective periods indicated, subject in the case of any such financial statements which are unaudited, to the absence of footnotes and to normal audit adjustments none of which shall involve a Material Adverse Effect. 2.6. No Claims, etc. The Borrower is not aware of any claim or offset against, or defense or counterclaim to, any of its obligations or liabilities under the Credit Agreement or any other Credit Document. SECTION 3. RATIFICATIONS. Except as expressly modified and superseded by this Amendment, the terms and provisions of the Credit Agreement are ratified and confirmed and shall continue in full force and effect. SECTION 4. BINDING EFFECT. This Amendment shall become effective on January 26, 2001 (the "Amendment Effective Date"), subject to the satisfaction of the following conditions on or before such date: (a) this Amendment shall have been executed by the Borrower and the Administrative Agent, and counterparts hereof as so executed shall have been delivered to the Administrative Agent; (b) the Acknowledgment and Consent appended hereto shall have been executed by the Credit Parties named therein, and counterparts thereof as so executed shall have been delivered to the Administrative Agent; and (c) the Administrative Agent shall have been notified by the Required Lenders that such Lenders have consented to the changes in the Credit Agreement effected by this Amendment (which notification may be by facsimile or other written confirmation of such consent); 6 and thereafter this Amendment shall be binding upon and inure to the benefit of the Borrower, the Agents, and each Lender and their respective permitted successors and assigns. After this Amendment becomes effective, the Administrative Agent shall promptly furnish a copy of this Amendment to each Lender and the Borrower. SECTION 5. MISCELLANEOUS. 5.1. Survival of Representations and Warranties. All representations and warranties made in this Amendment shall survive the execution and delivery of this Amendment, and no investigation by the Administrative Agent or any Lender or any subsequent Loan or other Credit Event shall affect the representations and warranties or the right of the Administrative Agent or any Lender to rely upon them. 5.2. Reference to Credit Agreement. The Credit Agreement and any and all other agreements, instruments or documentation now or hereafter executed and delivered pursuant to the terms of the Credit Agreement as amended hereby, are hereby amended so that any reference therein to the Credit Agreement shall mean a reference to the Credit Agreement as amended hereby. 5.3. Expenses. As provided in the Credit Agreement, but without limiting any terms or provisions thereof, the Borrower shall pay on demand all reasonable costs and expenses incurred by the Agents in connection with the preparation, negotiation, and execution of this Amendment, including without limitation the reasonable costs and fees of the special legal counsel of Agents, regardless of whether this Amendment becomes effective in accordance with the terms hereof, and all reasonable costs and expenses incurred by any Agent or Lender in connection with the enforcement or preservation of any rights under the Credit Agreement, as amended hereby. 5.4. Severability. Any term or provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the term or provision so held to be invalid or unenforceable. 5.5. Applicable Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Ohio without regard to conflicts of laws provisions. 5.6. Headings. The headings, captions and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. 5.7. Entire Agreement. This Amendment is specifically limited to the matters expressly set forth herein. This Amendment and all other instruments, agreements and documentation executed and delivered in connection with this Amendment embody the final, entire agreement among the parties hereto with respect to the subject matter hereof and supersede any and all prior commitments, agreements, representations and understandings, whether written or oral, relating to the matters covered by this Amendment, and may not be contradicted or varied by evidence of prior, contemporaneous or subsequent oral agreements or discussions of the parties hereto. There are no oral agreements among the parties hereto relating to the subject matter hereof or any other subject matter relating to the Credit Agreement. Except as set forth herein, the Credit Agreement shall remain in full force and effect and be unaffected hereby. 5.8. Waiver of Claims. The Borrower, by signing below, hereby waives and releases each Agent and each of the Lenders and their respective directors, officers, employees, attorneys, affiliates and subsidiaries from any and all claims, offsets, defenses and counterclaims of which Borrower is aware, such waiver and release being with full knowledge and understanding of the circumstances and effect thereof and after having consulted legal counsel with respect thereto. 5.9. Counterparts. This Amendment may be executed by the parties hereto separately in one or more counterparts and by facsimile signature, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same agreement. [Remainder of page intentionally left blank.] 7 5.10. Jury Trial Waiver. EACH OF THE PARTIES TO THIS AMENDMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AMENDMENT, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY HERETO HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AMENDMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as of the date first above written. NATIONAL CITY BANK, as a Lender, the letter of Credit Issuer, the Administrative Agent and the Collateral Agent By: /s/ David A. Buans --------------------------------- David A. Buans Managing Director STONERIDGE, INC. By: /s/ Kevin P. Bagby --------------------------------- Kevin P. Bagby Vice President-Finance & Chief Financial Officer PNC BANK, NATIONAL ASSOCIATION, as a Lender and as Documentation Agent By: /s/ Joseph G. Moran --------------------------------- Title: Vice President DLJ CAPITAL FUNDING, INC., as Syndication Agent By: /s/ Dana Klein --------------------------------- Title: Director ABN AMRO BANK N. V. By: /s/ John M. Ellenwood --------------------------------- Title: Group Vice President And: /s/ David G. Sagers -------------------------------- Title: Group Vice PResident THE BANK OF NOVA SCOTIA By: /s/ M. D. Smith --------------------------------- Title: Agent Operations MELLON BANK, N. A. By: /s/ John Joseph Ligday --------------------------------- Title: Vice President COMERICA BANK By: /s/ Nicholas Mester --------------------------------- Title: Assistant Vice President BANK ONE, MICHIGAN (formerly NBD Bank) By: /s/ Paul E. Flynn --------------------------------- Title: First Vice President S-1 FIRSTAR BANK, NATIONAL ASSOCIATION (formerly Star Bank, National Association) By: /s/ W. Gregory Schmid --------------------------------- Title: Vice President HARRIS TRUST AND SAVINGS BANK By: /s/ Thad D. Rasche --------------------------------- Title: Vice President FLEET NATIONAL BANK (formerly BankBoston, N.A.) By:_________________________________ Title: FIRSTAR BANK, NATIONAL ASSOCIATION ( formerly Mercantile Bank NA) By: /s/ W. Gregory Schmid --------------------------------- Title: Vice President SUNTRUST BANK By: /s/ William C. Humphries --------------------------------- Title: Director GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ William S. Richardson --------------------------------- Title: Duly Authorized Signatory BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC By: /s/ David M. Harnish --------------------------------- Title: Senior Vice President and: /s/ Francesco Ossino -------------------------------- Title: Vice President SUMMIT BANK By: /s/ Punam Gambhir --------------------------------- Title: Assistant Vice President AMMC CDO II, LIMITED By: American Money Management Corp., as Collateral Manager By: /s/ David P. Meyer --------------------------------- Title: Vice President AMMC CDO I, LIMITED By: American Money Management Corp., as Collateral Manager By: /s/ David P. Meyer --------------------------------- Title: Vice President AG CAPITAL FUNDING PARTNERS, L.P. By: Angelo, Gordon & Company, LP, as Investment Advisor By: /s/ John W. Fraser --------------------------------- Title: Managing Director ARCHIMEDES FUNDING II LTD. By: /s/ Greg Lasuda --------------------------------- Title: Vice President ATHENA CDO LIMITED By: /s/ Mohan V. Phansalker --------------------------------- Title: Senior Vice President BLACK DIAMOND CLO 1998-1 LTD. By: /s/ John H. Cullinane --------------------------------- Title: Director BLACK DIAMOND CLO 2000-1 LTD. By: /s/ David Dyer --------------------------------- Title: Director CAPTIVA IV FINANCE LTD. By: /s/ David Dyer --------------------------------- Title: Director S-2 EATON VANCE SENIOR INCOME TRUST By:_________________________________ Title: FIRST DOMINION FUNDING II By: Credit Suisse Asset Management, LLC, as collateral manager By: /s/ David Lerner --------------------------------- Title: Authorized Signatory FLEET NATIONAL BANK By:_________________________________ Title: FREMONT INVESTMENT & LOAN By: /s/ Kannika Viravan --------------------------------- Title: Vice President GALAXY CLO 1999-1 By: SAI Investment Adviser, Inc. its Collateral Manager By: /s/ Kevin Buckle --------------------------------- Title: Authorized Agent KZH ING 2 LLC By: /s/ Kimberly Rowe --------------------------------- Title: Authorized Agent KZH ING 3 LLC By: /s/ Kimberly Rowe --------------------------------- Title: Authorized Agent KZH LANGDALE LLC By: /s/ Kimberly Rowe --------------------------------- Title: Authorized Agent KZH SOLEIL LLC By: /s/ Kimberly Rowe --------------------------------- Title: Authorized Agent KZH SOLEIL-2 LLC By: /s/ Kimberly Rowe --------------------------------- Title: Authorized Agent KZH-RIVERSIDE LLC By: /s/ Kimberly Rowe --------------------------------- Title: Authorized Agent MASS MUTUAL LIFE INSURANCE By: /s/ Steven J. Katz --------------------------------- Title: Second Vice President and Associate General Counsel ML CLO ZII PILGRIM AMERICA By: /s/ Mark F. Haak --------------------------------- Title: Assistant Vice President MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST By: /s/ Peter Gewirtz --------------------------------- Title: Vice President OASIS COLLATERALIZED HIGH INCOME By: /s/ Joseph Rotondo --------------------------------- Title: Authorized Signatory OSPREY INVESTMENTS PORTFOLIO By: /s/ Daniel Slotkin --------------------------------- Title: Vice President SENIOR DEBT PORTFOLIO By:_________________________________ Title: SOMERS CDO, LIMITED By: /s/ Steven J. Katz --------------------------------- Title: Second Vice President and Assistant General Counsel S-3 SRV-HIGHLAND By:_________________________________ Title: STEIN ROE & FARNHAM INCORPORATED, as agent for Keyport Life Insurance Company. By: /s/ Brian W. Good --------------------------------- Title: Senior Vice President STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY By: /s/ Brian W. Good --------------------------------- Title: Senior Vice President TEXAS COMMERCE BANK NA By:_________________________________ Title: TORONTO DOMINION (N.Y.), INC. By:_________________________________ Title: TRAVELERS CORPORATE LOAN FUND INC. By: Travelers Asset Management International Company LLC By: /s/ Matthew J. McInerny --------------------------------- Title: Assistant Investment Officer THE TRAVELERS INSURANCE COMPANY By: /s/ Matthew J. McInerny --------------------------------- Title: Assistant Investment Officer COLUMBUS LOAN FUNDING LTD. By: Travelers Asset Management International Company LLC By: /s/ Matthew J. McInerny --------------------------------- Title: Assistant Investment Officer VAN KEMPEN CLO I, LIMITED By: /s/ Darvin D. Pierce --------------------------------- Title: Principal VAN KEMPEN PRIME RATE INCOME By: /s/ Darvin D. Pierce --------------------------------- Title: Principal AVALON CAPITAL LTD. By: INVESCO Senior Secured Management, Inc. as Portfolio Advisor By: /s/ Joseph Rotondo --------------------------------- Title: Authorized Signatory AVALON CAPITAL LTD 2 By: INVESCO Senior Secured Management, Inc. as Portfolio Advisor By: /s/ Joseph Rotondo --------------------------------- Title: Authorized Signatory CHARTER VIEW PORTOFOLIO By: INVESCO Senior Secured Management, Inc. as Portfolio Advisor By: /s/ Joseph Rotondo --------------------------------- Title: Authorized Signatory ADDISON CDO, LIMITED (Acct 1279) By: Pacific Investment Management Company LLC as its Investment Advisor By: /s/ Mohan V. Phansalker --------------------------------- Title: Senior Vice President BEDFORD CDO, LIMITED (Acct 1276) By: Pacific Investment Management Company LLC as its Investment Advisor By: /s/ Mohan V. Phansalker --------------------------------- Title: Senior Vice President S-4 CATALINA CDO LTD (Acct 1287) By: Pacific Investment Management Company LLC as its Investment Advisor By: /s/ Mohan V. Phansalker --------------------------------- Title: Senior Vice President JISSEKIKUN FUNDING, LTD (Acct 1288) By: Pacific Investment Management Company LLC as its Investment Advisor By: /s/ Mohan V. Phansalker --------------------------------- Title: Senior Vice President S-5 ACKNOWLEDGMENT AND CONSENT For the avoidance of doubt, and without limitation of the intent and effect of sections 4 and 5 of the Subsidiary Guaranty (as such term is defined in the Credit Agreement referred to in the Amendment No. 4 to Credit Agreement (the "Amendment"), to which this Acknowledgment and Consent is appended), each of the undersigned hereby unconditionally and irrevocably (i) acknowledges receipt of a copy of the Credit Agreement and the Amendment, and (ii) consents to all of the terms and provisions of the Credit Agreement as amended by the Amendment. Capitalized terms which are used herein without definition shall have the respective meanings ascribed thereto in the Credit Agreement referred to herein. This Acknowledgment and Consent is for the benefit of the Lenders, the Administrative Agent, the Collateral Agent and any Designated Hedge Creditor (as defined in the Subsidiary Guaranty) which may be a third party beneficiary of the Subsidiary Guaranty or any Security Document, in its capacity as such third party beneficiary under any Credit Document, and their respective successors and assigns. No term or provision of this Acknowledgment and Consent may be modified or otherwise changed without the prior written consent of the Administrative Agent, given as provided in the Credit Agreement. This Acknowledgment and Consent shall be binding upon the successors and assigns of each of the undersigned. This Acknowledgment and Consent may be executed by any of the undersigned in separate counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, each of the undersigned has duly executed and delivered this Acknowledgment and Consent as of the date of the Amendment referred to herein. - -------------------------------------------------------------------------------- Stoneridge Control Devices, Inc. Stoneridge Electronics, Inc. By: /s/ Kevin P. Bagby By: /s/ Kevin P. Bagby ---------------------------------- ----------------------------------- Title: Director, Vice President and Title: Director, Vice President and Chief Financial Officer Chief Financial Officer - -------------------------------------------------------------------------------- S-6 EX-21.1 3 0003.txt PRINCIPAL SUBSIDIARIES Exhibit 21.1 PRINCIPAL SUBSIDIARIES Name of Subsidiary Jurisdiction in Which Organized or Incorporated - ------------------ ----------------------------------------------- Consolidated Subsidiaries of Stoneridge, Inc.: TED de Mexico Mexico Berifors AB Sweden Berifors Production AB Sweden Stoneridge Pollak, Ltd. England TVI Europe, Ltd. Scotland Stoneridge International Sales Corp. Barbados Stoneridge Control Devices, Inc. Massachusettes, United States Stoneride Electronics, Inc. Texas, United States EX-23.1 4 0004.txt CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Exhibit 23.1 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation by reference of our report dated January 23, 2001 included in this Form 10-K and our report dated January 26, 2000 included in the Company's December 31, 1999 Form 10-K, into the Company's previously filed Form S-8 Registration Statement. Arthur Andersen LLP Cleveland, Ohio, March 30, 2001. -----END PRIVACY-ENHANCED MESSAGE-----