UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2003
Commission file number 001-13337
STONERIDGE, INC.
(Exact Name of Registrant as Specified in Its Charter)
Ohio | 34-1598949 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) | |
9400 East Market Street, Warren, Ohio | 44484 | |
(Address of Principal Executive Offices) | (Zip Code) |
(330) 856-2443
Registrant’s Telephone Number, Including Area Code
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No ¨
The number of Common Shares, without par value, outstanding as of November 14, 2003 was 22,425,211.
STONERIDGE, INC. AND SUBSIDIARIES
Page No. | ||||
Part I. Financial Information |
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Item 1. Financial Statements |
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Condensed Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002 |
2 | |||
3 | ||||
4 | ||||
5 | ||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 | |||
Item 3. Quantitative and Qualitative Disclosure About Market Risk |
21 | |||
Item 4. Controls and Procedures |
21 | |||
22 | ||||
23 | ||||
24 |
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STONERIDGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, 2003 |
December 31, 2002 |
|||||||
(Unaudited) | (Audited) | |||||||
ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ | 45,404 | $ | 27,235 | ||||
Accounts receivable, net |
94,966 | 79,342 | ||||||
Inventories, net |
49,516 | 51,139 | ||||||
Prepaid expenses and other |
8,198 | 12,055 | ||||||
Deferred income taxes |
5,957 | 5,904 | ||||||
Total current assets |
204,041 | 175,675 | ||||||
PROPERTY, PLANT AND EQUIPMENT, net |
106,741 | 111,838 | ||||||
OTHER ASSETS: |
||||||||
Goodwill |
255,292 | 255,292 | ||||||
Investments and other, net |
28,358 | 28,322 | ||||||
TOTAL ASSETS |
$ | 594,432 | $ | 571,127 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
CURRENT LIABILITIES: |
||||||||
Current portion of long-term debt |
$ | 1,277 | $ | 1,992 | ||||
Accounts payable |
52,114 | 43,151 | ||||||
Accrued expenses and other |
52,004 | 45,070 | ||||||
Total current liabilities |
105,395 | 90,213 | ||||||
LONG-TERM LIABILITIES: |
||||||||
Long-term debt, net of current portion |
227,928 | 248,918 | ||||||
Deferred income taxes |
25,544 | 15,278 | ||||||
Other liabilities |
1,028 | 816 | ||||||
Total long-term liabilities |
254,500 | 265,012 | ||||||
SHAREHOLDERS’ EQUITY: |
||||||||
Preferred shares, without par value, 5,000 authorized, none issued |
— | — | ||||||
Common shares, without par value, 60,000 authorized, 22,425 and 22,399 issued and outstanding at September 30, 2003 and December 31, 2002, respectively, with no stated value |
— | — | ||||||
Additional paid-in capital |
141,775 | 141,516 | ||||||
Retained earnings |
93,913 | 77,379 | ||||||
Accumulated other comprehensive loss |
(1,151 | ) | (2,993 | ) | ||||
Total shareholders’ equity |
234,537 | 215,902 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 594,432 | $ | 571,127 | ||||
The accompanying notes to the condensed consolidated financial statements are
an integral part of these condensed consolidated statements.
2
STONERIDGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands except for per share data)
For the three months ended September 30, |
For the nine months ended September 30, |
||||||||||||||
2003 |
2002 |
2003 |
2002 |
||||||||||||
NET SALES |
$ | 140,832 | $ | 158,441 | $ | 455,415 | $ | 488,229 | |||||||
COSTS AND EXPENSES: |
|||||||||||||||
Cost of goods sold |
106,462 | 118,842 | 339,794 | 361,156 | |||||||||||
Selling, general and administrative expenses |
23,119 | 23,262 | 70,901 | 67,745 | |||||||||||
OPERATING INCOME |
11,251 | 16,337 | 44,720 | 59,328 | |||||||||||
Interest expense, net |
6,805 | 9,378 | 20,558 | 26,154 | |||||||||||
Loss on extinguishment of debt |
— | — | — | 5,771 | |||||||||||
Other (income) expense, net |
(187 | ) | 530 | (180 | ) | 1,519 | |||||||||
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE |
4,633 | 6,429 | 24,342 | 25,884 | |||||||||||
Provision for income taxes |
1,436 | 2,231 | 7,808 | 9,290 | |||||||||||
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE |
3,197 | 4,198 | 16,534 | 16,594 | |||||||||||
Cumulative effect of accounting change, net of tax |
— | — | — | (69,834 | ) | ||||||||||
NET INCOME (LOSS) |
$ | 3,197 | $ | 4,198 | $ | 16,534 | $ | (53,240 | ) | ||||||
BASIC NET INCOME (LOSS) PER SHARE: |
|||||||||||||||
Income before cumulative effect of accounting change |
$ | 0.14 | $ | 0.19 | $ | 0.74 | $ | 0.74 | |||||||
Cumulative effect of accounting change, net of tax |
— | — | — | (3.12 | ) | ||||||||||
Basic net income (loss) per share |
$ | 0.14 | $ | 0.19 | $ | 0.74 | $ | (2.38 | ) | ||||||
DILUTED NET INCOME (LOSS) PER SHARE: |
|||||||||||||||
Income before cumulative effect of accounting change |
$ | 0.14 | $ | 0.19 | $ | 0.73 | $ | 0.73 | |||||||
Cumulative effect of accounting change, net of tax |
— | — | — | (3.08 | ) | ||||||||||
Diluted net income (loss) per share |
$ | 0.14 | $ | 0.19 | $ | 0.73 | $ | (2.35 | ) | ||||||
Basic Weighted Average Shares Outstanding |
22,410 | 22,399 | 22,410 | 22,399 | |||||||||||
Diluted Weighted Average Shares Outstanding |
22,758 | 22,693 | 22,676 | 22,632 | |||||||||||
The accompanying notes to the condensed consolidated financial statements
are an integral part of these condensed consolidated statements.
3
STONERIDGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
For the nine months ended September 30, |
||||||||
2003 |
2002 |
|||||||
OPERATING ACTIVITIES: |
||||||||
Net income (loss) |
$ | 16,534 | $ | (53,240 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities- |
||||||||
Depreciation and amortization |
18,325 | 19,395 | ||||||
Deferred income taxes |
10,585 | 6,816 | ||||||
Loss (gain) on sale of fixed assets |
346 | (156 | ) | |||||
Equity in (earnings) losses of unconsolidated subsidiaries |
(1,013 | ) | 1,148 | |||||
Loss on extinguishment of debt |
— | 5,771 | ||||||
Cumulative effect of accounting change |
— | 69,834 | ||||||
Changes in operating assets and liabilities- |
||||||||
Accounts receivable |
(14,075 | ) | (13,645 | ) | ||||
Inventories |
2,865 | 2,448 | ||||||
Prepaid expenses and other |
2,091 | 7,248 | ||||||
Other assets |
(19 | ) | (37 | ) | ||||
Accounts payable |
7,834 | (342 | ) | |||||
Accrued expenses and other |
7,564 | 22,750 | ||||||
Net cash provided by operating activities |
51,037 | 67,990 | ||||||
INVESTING ACTIVITIES: |
||||||||
Capital expenditures |
(11,615 | ) | (9,902 | ) | ||||
Proceeds from sale of fixed assets |
832 | 298 | ||||||
Other |
(3 | ) | 2 | |||||
Net cash used by investing activities |
(10,786 | ) | (9,602 | ) | ||||
FINANCING ACTIVITIES: |
||||||||
Proceeds from issuance of senior notes |
— | 200,000 | ||||||
Extinguishment of revolving facility |
— | (37,641 | ) | |||||
Extinguishment of term debt |
— | (226,139 | ) | |||||
Net repayments under revolving facilities |
(715 | ) | (44,677 | ) | ||||
Proceeds from long-term debt |
— | 100,000 | ||||||
Repayments of long-term debt |
(22,355 | ) | (9,648 | ) | ||||
Debt issuance costs |
— | (10,694 | ) | |||||
Interest rate swap termination costs |
— | (5,274 | ) | |||||
Proceeds from stock options exercised |
258 | — | ||||||
Net cash used by financing activities |
(22,812 | ) | (34,073 | ) | ||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |
730 | 395 | ||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS |
18,169 | 24,710 | ||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
27,235 | 4,369 | ||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 45,404 | $ | 29,079 | ||||
The accompanying notes to the condensed consolidated financial statements
are an integral part of these condensed consolidated statements.
4
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
1. | The accompanying condensed consolidated financial statements have been prepared by Stoneridge, Inc. (the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the Commission). The information furnished in the condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of such financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Commission’s rules and regulations. Although the Company believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s 2002 Annual Report to Shareholders. |
The results of operations for the three and nine months ended September 30, 2003 are not necessarily indicative of the results to be expected for the full year. |
2. | Inventories are valued at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for approximately 67% and 73% of the Company’s inventories at September 30, 2003 and December 31, 2002, 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: |
September 30, 2003 |
December 31, 2002 |
|||||||
Raw materials |
$ | 26,887 | $ | 28,157 | ||||
Work in progress |
8,861 | 10,229 | ||||||
Finished goods |
14,325 | 13,313 | ||||||
LIFO reserve |
(557 | ) | (560 | ) | ||||
Total |
$ | 49,516 | $ | 51,139 | ||||
3. | The Company uses derivative financial instruments to reduce exposure to market risks resulting from fluctuations in interest rates (swaps) and currency rates (forward contracts). The Company does not enter into financial instruments for speculative or profit motivated purposes. Management believes that its use of these instruments to reduce risk is in the Company’s best interest. At September 30, 2003, the Company had no active interest rate swaps. |
The Company has entered into foreign currency forward purchase contracts with a notional value of $6.8 million of Swedish krona to reduce exposure related to the Company’s krona denominated debt obligations. The estimated fair value of these forward contracts at September 30, 2003, per quoted market sources, was $(0.6) million. These forward contracts are marked to market, with gains and losses recognized in the Consolidated Statement of Operations. The Company’s foreign exchange contracts substantially offset losses and gains on the underlying foreign denominated debt obligations. |
4. | Under Statement of Financial Accounting Standard (SFAS) 142, “Goodwill and Other Intangible Assets,” goodwill is subject to at least an annual assessment for impairment by applying a fair value-based test. In accordance with the transition provisions of SFAS 142, the Company completed the two-step transitional goodwill impairment analysis for both reporting units of the Company as of January 1, 2002. The initial impairment test indicated that the carrying values of the reporting units exceeded the corresponding fair values of the reporting units, which were determined based on a combination of valuation techniques including the guideline company method, the transaction method and the discounted cash flow method. The implied fair value of goodwill in these reporting units was then determined through the allocation of the fair values to the underlying assets and liabilities. The January 1, 2002 carrying value of the goodwill in these reporting units exceeded their implied fair |
5
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
value by $90.1 million. The $69.8 million write-down of goodwill to its fair value, which is net of $20.3 million of related tax benefits, was reported as a cumulative effect of accounting change in the accompanying condensed consolidated financial statements as of January 1, 2002. The Company performed an annual impairment test of goodwill as of October 1, 2002 and no additional impairment was recognized. |
Vehicle Management & Power Distribution |
Control Devices |
Total |
||||||||||
Goodwill balance at January 1, 2002 |
$ | 31,800 | $ | 313,592 | $ | 345,392 | ||||||
Cumulative effect of accounting change |
(31,800 | ) | (58,300 | ) | (90,100 | ) | ||||||
Goodwill balance at December 31, 2002 |
$ | — | $ | 255,292 | $ | 255,292 | ||||||
There was no change in the carrying value of goodwill by reportable operating segment during the first nine months of 2003. The Company is currently in the process of completing this year’s annual impairment test of goodwill. |
5. | In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”. Among other things, SFAS 145 requires gains and losses on extinguishments of debt to be classified as income or loss from continuing operations rather than as extraordinary items as previously required under SFAS 4. Any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented that does not meet the criteria in Accounting Principles Board Opinion (APBO) 30 for classification as an extraordinary item shall be reclassified. The Company adopted this Statement effective January 1, 2003, and accordingly, the extraordinary loss of $3.6 million, net of tax, recorded in the second quarter of 2002 as a result of the early extinguishment of debt described in Note 11 was reclassified as a component of income from continuing operations. Therefore, income before income taxes and cumulative effect of accounting change as well as the income tax provision for the nine months ended September 30, 2002 are restated as follows: |
Nine months ended September 30, 2002 |
||||
Income before income taxes and cumulative effect of accounting change, as originally reported |
$ | 31,655 | ||
Loss on extinguishment of debt, pre-tax |
(5,771 | ) | ||
Income before income taxes and cumulative effect of accounting change, as restated |
$ | 25,884 | ||
Provision for income taxes, as originally reported |
$ | 11,454 | ||
Tax benefit from loss on extinguishment of debt |
(2,164 | ) | ||
Provision for income taxes, as restated |
$ | 9,290 | ||
6. | In July 2002, the FASB issued SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS 146 addresses financial accounting and reporting for costs associated with exit and disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for |
6
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”. The provisions of SFAS 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of SFAS 146 did not have a material impact on the Company’s consolidated financial statements. |
7. | In December 2002, the FASB issued SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” as an amendment to SFAS 123. SFAS 148 provides for alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company adopted the disclosure provisions of SFAS 148 effective December 31, 2002. The transition provisions do not currently affect the Company’s consolidated financial statements. |
The Company has adopted the disclosure-only provisions of SFAS 123, “Accounting for Stock-Based Compensation.” The Company continues to follow APBO 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its employee share options. Because the exercise price of the Company’s employee share options equaled the market price of the shares on the date of grant, no compensation expense has been recorded. |
The following table illustrates the effect on net income (loss) and net income (loss) per share if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation. |
Three months ended September 30, |
Nine months ended September 30, |
||||||||||||
2003 |
2002 |
2003 |
2002 |
||||||||||
Net income (loss), as reported |
$ | 3,197 | $ | 4,198 | $ | 16,534 | $ | (53,240 | ) | ||||
Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards |
344 | 328 | 927 | 1,029 | |||||||||
Pro forma net income (loss) |
$ | 2,853 | $ | 3,870 | $ | 15,607 | $ | (54,269 | ) | ||||
Net income (loss) per share: |
|||||||||||||
Basic – as reported |
$ | 0.14 | $ | 0.19 | $ | 0.74 | $ | (2.38 | ) | ||||
Basic – pro forma |
$ | 0.13 | $ | 0.17 | $ | 0.70 | $ | (2.42 | ) | ||||
Diluted – as reported |
$ | 0.14 | $ | 0.19 | $ | 0.73 | $ | (2.35 | ) | ||||
Diluted – pro forma |
$ | 0.13 | $ | 0.17 | $ | 0.69 | $ | (2.40 | ) |
8. | In May 2003, the FASB issued SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS 150 establishes standards for how public companies classify and measure in their statement of financial position certain financial instruments with characteristics of both liabilities and equity. This statement became effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS 150 did not impact the Company’s consolidated financial statements. |
9. | In January 2003, the FASB issued interpretation (FIN) 46, “Consolidation of Variable Interest Entities - interpretation of ARB No. 51.” FIN 46 requires unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse the risks and rewards of ownership among their owners and other parties involved. The provisions of FIN 46 are |
7
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
applicable immediately to all variable interest entities created after January 31, 2003. For variable interest entities created or acquired before February 1, 2003, the provisions must be applied for the first interim or annual period ending after December 15, 2003. |
The Company has a fifty percent equity investment interest in one potential variable interest entity and the Company has chosen to defer application of FIN 46 in order to continue evaluating its effects. The Company invested in the potential variable interest entity in question, a Brazilian based company that specializes in automotive electronics, in 1997 in order to increase its market presence in South America. The Company’s investment in and notes receivable from this entity totaled $18,856 at September 30, 2003. The Company has no obligation to provide additional funding. The entity’s revenues were $10,280 and $8,561 for the three months ended and $26,051 and $27,615 for the nine months ended September 30, 2003 and 2002, respectively. |
10. | Other comprehensive (loss) income includes foreign currency translation adjustments and derivative transactions, net of related tax. Comprehensive income (loss) consists of the following: |
Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||
2003 |
2002 |
2003 |
2002 |
|||||||||||
Net income (loss) |
$ | 3,197 | $ | 4,198 | $ | 16,534 | $ | (53,240 | ) | |||||
Other comprehensive (loss) income |
(43 | ) | 916 | 1,842 | 3,936 | |||||||||
Comprehensive income (loss) |
$ | 3,154 | $ | 5,114 | $ | 18,376 | $ | (49,304 | ) | |||||
11. | On May 1, 2002, the Company issued $200.0 million aggregate principal amount of senior notes. The $200.0 million notes bear interest at an annual rate of 11.50% and mature on May 1, 2012. Interest is payable on May 1 and November 1 of each year. The Company registered the notes under the Securities Act of 1933 on May 17, 2002. On July 1, 2002, the Company completed an exchange offer of the senior notes for substantially identical notes registered under the Securities Act of 1933. |
In conjunction with the issuance of the senior notes, the Company also entered into a new $200.0 million credit agreement (of which $28.5 million was outstanding at September 30, 2003) with a bank group. The credit agreement has the following components: a $100.0 million revolving facility (of which $95.9 million was available at September 30, 2003), which includes a $10.0 million swing line facility, and a $100.0 million term facility. The revolving facility expires on April 30, 2007 and requires a commitment fee of 0.375% to 0.500% on the unused balance as well as a utilization fee of 0.125% to 0.250% when the unutilized balance equals or exceeds 50.0% of the total revolving commitment. The revolving facility permits the Company to borrow up to half its borrowings in specified foreign currencies. Interest is payable quarterly at either (i) the prime rate plus a margin of 0.50% to 1.50% or (ii) LIBOR plus a margin of 2.00% to 3.00%, depending upon the Company’s ratio of consolidated total debt to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA), as defined. Interest on the swing line facility is payable monthly at the quoted overnight borrowing rate plus a margin of 2.00% to 3.00%, depending upon the Company’s ratio of consolidated total debt to consolidated EBITDA, as defined. The term facility expires on April 30, 2008. Interest is payable quarterly at either (i) the prime rate plus 1.75% or (ii) LIBOR plus 3.25%. The Company has the right to prepay any of the above mentioned loans in whole or in part, without premium or penalty. During the first quarter of 2003, the Company prepaid $20.0 million of the term facility. |
8
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
Long-term debt consists of the following: |
September 30, 2003 |
December 31, 2002 | |||||
11 1/2% Senior notes, due 2012 |
$ | 200,000 | $ | 200,000 | ||
Borrowings under credit agreement |
28,500 | 49,250 | ||||
Borrowings payable to foreign banks |
279 | 1,108 | ||||
Other |
426 | 552 | ||||
229,205 | 250,910 | |||||
Less: Current portion |
1,277 | 1,992 | ||||
$ | 227,928 | $ | 248,918 | |||
12. | The Company presents basic and diluted net income (loss) per share in accordance with SFAS 128, “Earnings Per Share”, which requires the presentation of basic net income (loss) per share and diluted net income (loss) per share. Basic net income (loss) per share was computed by dividing net income (loss) by the weighted-average number of common shares outstanding for each respective period. Diluted net income (loss) per share was calculated by dividing net income (loss) by the weighted-average of all potentially dilutive common shares that were outstanding during the periods presented. Actual weighted-average shares outstanding used in calculating basic and diluted net income (loss) per share were as follows: |
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||
2003 |
2002 |
2003 |
2002 | |||||
Basic weighted average shares outstanding |
22,410 | 22,399 | 22,410 | 22,399 | ||||
Effect of dilutive securities |
348 | 294 | 266 | 233 | ||||
Diluted weighted average shares outstanding |
22,758 | 22,693 | 22,676 | 22,632 | ||||
13. | SFAS 131, “Disclosures about Segments of an Enterprise and Related Information,” established standards for reporting information about operating segments in financial statements. Operating segments are defined as components of an enterprise that are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the Chief Executive Officer. |
The Company has two reportable operating segments: Vehicle Management & Power Distribution and Control Devices. These reportable operating segments were determined based on the differences in the nature of the products offered. The Vehicle Management & Power Distribution operating segment produces electronic instrument clusters, electronic control units, driver information systems and electrical distribution systems, primarily wiring harnesses and connectors for electrical power and signal distribution. The Control Devices operating segment produces electronic and electromechanical switches, control actuation devices and sensors. |
The accounting policies of the Company’s operating segments are the same as those described in Note 2, “Summary of Significant Accounting Policies,” of the Company’s December 31, 2002 consolidated financial statements in the Form 10-K. The Company evaluates the performance of its operating segments based primarily on revenues from external customers, net income and capital expenditures. Intersegment sales are accounted for on terms similar to those to third parties and are eliminated upon consolidation. |
9
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
A summary of financial information by reportable operating segment is as follows:
For the three months ended September 30, 2003 | |||||||||||||
Vehicle Management & Power Distribution |
Control Devices |
Eliminations |
Consolidated | ||||||||||
Sales from external customers |
$ | 64,755 | $ | 76,077 | $ | — | $ | 140,832 | |||||
Intersegment sales |
3,452 | 619 | (4,071 | ) | — | ||||||||
Total net sales |
$ | 68,207 | $ | 76,696 | $ | (4,071 | ) | $ | 140,832 | ||||
Net income |
$ | 1,295 | $ | 1,902 | $ | — | $ | 3,197 | |||||
Depreciation and amortization |
$ | 2,056 | $ | 3,658 | $ | — | $ | 5,714 | |||||
Interest expense, net |
$ | 850 | $ | 5,955 | $ | — | $ | 6,805 | |||||
Provision for income taxes |
$ | 582 | $ | 854 | $ | — | $ | 1,436 | |||||
Capital expenditures |
$ | 1,712 | $ | 2,498 | $ | — | $ | 4,210 | |||||
For the three months ended September 30, 2002 | |||||||||||||
Vehicle Management & Power Distribution |
Control Devices |
Eliminations |
Consolidated | ||||||||||
Sales from external customers |
$ | 66,175 | $ | 92,266 | $ | — | $ | 158,441 | |||||
Intersegment sales |
3,333 | 473 | (3,806 | ) | — | ||||||||
Total net sales |
$ | 69,508 | $ | 92,739 | $ | (3,806 | ) | $ | 158,441 | ||||
Net income |
$ | 893 | $ | 3,305 | $ | — | $ | 4,198 | |||||
Depreciation and amortization |
$ | 1,915 | $ | 3,207 | $ | — | $ | 5,122 | |||||
Interest expense, net |
$ | 1,432 | $ | 7,946 | $ | — | $ | 9,378 | |||||
Provision for income taxes |
$ | 246 | $ | 1,985 | $ | — | $ | 2,231 | |||||
Capital expenditures |
$ | 652 | $ | 1,998 | $ | — | $ | 2,650 | |||||
For the nine months ended September 30, 2003 | |||||||||||||
Vehicle Management & Power Distribution |
Control Devices |
Eliminations |
Consolidated | ||||||||||
Sales from external customers |
$ | 204,664 | $ | 250,751 | $ | — | $ | 455,415 | |||||
Intersegment sales |
10,307 | 1,602 | (11,909 | ) | — | ||||||||
Total net sales |
$ | 214,971 | $ | 252,353 | $ | (11,909 | ) | $ | 455,415 | ||||
Net income |
$ | 4,407 | $ | 12,127 | $ | — | $ | 16,534 | |||||
Depreciation and amortization |
$ | 6,216 | $ | 10,241 | $ | — | $ | 16,457 | |||||
Interest expense, net |
$ | 2,715 | $ | 17,843 | $ | — | $ | 20,558 | |||||
Provision for income taxes |
$ | 2,081 | $ | 5,727 | $ | — | $ | 7,808 | |||||
Capital expenditures |
$ | 4,935 | $ | 6,680 | $ | — | $ | 11,615 |
10
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
For the nine months ended September 30, 2002 |
||||||||||||||||
Vehicle Management & Power Distribution |
Control Devices |
Eliminations |
Consolidated |
|||||||||||||
Sales from external customers |
$ | 198,196 | $ | 290,033 | $ | — | $ | 488,229 | ||||||||
Intersegment sales |
9,434 | 1,195 | (10,629 | ) | — | |||||||||||
Total net sales |
$ | 207,630 | $ | 291,228 | $ | (10,629 | ) | $ | 488,229 | |||||||
Net loss |
$ | (29,006 | ) | $ | (24,234 | ) | $ | — | $ | (53,240 | ) | |||||
Depreciation and amortization |
$ | 5,932 | $ | 9,546 | $ | — | $ | 15,478 | ||||||||
Interest expense, net |
$ | 3,953 | $ | 22,201 | $ | — | $ | 26,154 | ||||||||
Loss on extinguishment of debt |
$ | 644 | $ | 5,127 | $ | — | $ | 5,771 | ||||||||
Provision for income taxes |
$ | 686 | $ | 8,604 | $ | — | $ | 9,290 | ||||||||
Cumulative effect of accounting change, net of tax |
$ | (31,800 | ) | $ | (38,034 | ) | $ | — | $ | (69,834 | ) | |||||
Capital expenditures |
$ | 3,679 | $ | 6,223 | $ | — | $ | 9,902 |
The following table presents net sales and non-current assets for each of the geographic areas in which the Company operates:
Three months ended September 30, |
Nine months ended September 30, | |||||||||||
2003 |
2002 |
2003 |
2002 | |||||||||
Net Sales: |
||||||||||||
North America |
$ | 116,731 | $ | 135,841 | $ | 369,803 | $ | 413,429 | ||||
Europe and other |
24,101 | 22,600 | 85,612 | 74,800 | ||||||||
Total |
$ | 140,832 | $ | 158,441 | $ | 455,415 | $ | 488,229 | ||||
September 30, 2003 |
December 31, 2002 | |||||
Non-Current Assets: |
||||||
North America |
$ | 338,786 | $ | 344,450 | ||
Europe and other |
51,605 | 51,002 | ||||
Total |
$ | 390,391 | $ | 395,452 | ||
11
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
14. | The senior notes and the credit facility are fully and unconditionally guaranteed, jointly and severally, by each of the Company’s existing and future domestic wholly-owned subsidiaries (Guarantor Subsidiaries). The Company’s non-U.S. subsidiaries are not guaranteeing the senior notes and the credit facility (Non-Guarantor Subsidiaries). |
Presented below are summarized condensed consolidating financial statements of the Parent (which includes certain of the Company’s operating units), the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries and the Company on a consolidated basis, as of September 30, 2003 and December 31, 2002, and for the three and nine months ended September 30, 2003 and 2002. |
These summarized condensed consolidating financial statements are prepared on the equity method. Separate financial statements for the Guarantor Subsidiaries are not presented based on management’s determination that they do not provide additional information that is material to investors. Therefore, the Guarantor Subsidiaries are combined in the presentation below. |
September 30, 2003 | ||||||||||||||||||
Parent |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations |
Consolidated | ||||||||||||||
ASSETS |
||||||||||||||||||
CURRENT ASSETS: |
||||||||||||||||||
Cash and cash equivalents |
$ | 34,662 | $ | 30 | $ | 10,712 | $ | — | $ | 45,404 | ||||||||
Accounts receivable, net |
46,672 | 31,834 | 19,945 | (3,485 | ) | 94,966 | ||||||||||||
Inventories, net |
22,156 | 11,221 | 16,139 | — | 49,516 | |||||||||||||
Prepaid expenses and other |
(212,570 | ) | 194,858 | 25,910 | — | 8,198 | ||||||||||||
Deferred income taxes |
3,198 | 2,955 | (196 | ) | — | 5,957 | ||||||||||||
Total current assets |
(105,882 | ) | 240,898 | 72,510 | (3,485 | ) | 204,041 | |||||||||||
PROPERTY, PLANT AND EQUIPMENT, net |
52,959 | 31,355 | 22,427 | — | 106,741 | |||||||||||||
OTHER ASSETS: |
||||||||||||||||||
Goodwill |
234,701 | 20,591 | — | — | 255,292 | |||||||||||||
Investments and other, net |
35,169 | 546 | 1,863 | (9,220 | ) | 28,358 | ||||||||||||
Investment in subsidiaries |
320,133 | — | — | (320,133 | ) | — | ||||||||||||
TOTAL ASSETS |
$ | 537,080 | $ | 293,390 | $ | 96,800 | $ | (332,838 | ) | $ | 594,432 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||||||||||||
CURRENT LIABILITIES: |
||||||||||||||||||
Current portion of long-term debt |
$ | 1,000 | $ | — | $ | 277 | $ | — | $ | 1,277 | ||||||||
Accounts payable |
23,377 | 17,687 | 14,493 | (3,443 | ) | 52,114 | ||||||||||||
Accrued expenses and other |
26,962 | 9,106 | 15,978 | (42 | ) | 52,004 | ||||||||||||
Total current liabilities |
51,339 | 26,793 | 30,748 | (3,485 | ) | 105,395 | ||||||||||||
LONG-TERM LIABILITIES: |
||||||||||||||||||
Long-term debt, net of current portion |
227,500 | — | 9,648 | (9,220 | ) | 227,928 | ||||||||||||
Deferred income taxes |
23,704 | 3,259 | (1,419 | ) | — | 25,544 | ||||||||||||
Other liabilities |
— | — | 1,028 | — | 1,028 | |||||||||||||
Total long-term liabilities |
251,204 | 3,259 | 9,257 | (9,220 | ) | 254,500 | ||||||||||||
SHAREHOLDERS’ EQUITY |
234,537 | 263,338 | 56,795 | (320,133 | ) | 234,537 | ||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 537,080 | $ | 293,390 | $ | 96,800 | $ | (332,838 | ) | $ | 594,432 | |||||||
12
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
Supplemental condensed consolidating financial statements (continued):
December 31, 2002 | ||||||||||||||||||
Parent |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations |
Consolidated | ||||||||||||||
ASSETS |
||||||||||||||||||
CURRENT ASSETS: |
||||||||||||||||||
Cash and cash equivalents |
$ | 18,698 | $ | 167 | $ | 8,370 | $ | — | $ | 27,235 | ||||||||
Accounts receivable, net |
35,941 | 30,295 | 16,137 | (3,031 | ) | 79,342 | ||||||||||||
Inventories, net |
23,940 | 13,346 | 13,853 | — | 51,139 | |||||||||||||
Prepaid expenses and other |
(177,321 | ) | 168,489 | 20,887 | — | 12,055 | ||||||||||||
Deferred income taxes |
3,051 | 3,043 | (190 | ) | — | 5,904 | ||||||||||||
Total current assets |
(95,691 | ) | 215,340 | 59,057 | (3,031 | ) | 175,675 | |||||||||||
PROPERTY, PLANT AND EQUIPMENT, NET |
55,714 | 33,875 | 22,249 | — | 111,838 | |||||||||||||
OTHER ASSETS: |
||||||||||||||||||
Goodwill |
234,701 | 20,591 | — | — | 255,292 | |||||||||||||
Investments and other, net |
40,514 | 507 | 914 | (13,613 | ) | 28,322 | ||||||||||||
Investment in subsidiaries |
287,092 | — | — | (287,092 | ) | — | ||||||||||||
TOTAL ASSETS |
$ | 522,330 | $ | 270,313 | $ | 82,220 | $ | (303,736 | ) | $ | 571,127 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||||||||||||
CURRENT LIABILITIES: |
||||||||||||||||||
Current portion of long-term debt |
$ | 1,000 | $ | — | $ | 992 | $ | — | $ | 1,992 | ||||||||
Accounts payable |
19,025 | 16,864 | 10,219 | (2,957 | ) | 43,151 | ||||||||||||
Accrued expenses and other |
24,521 | 5,423 | 15,200 | (74 | ) | 45,070 | ||||||||||||
Total current liabilities |
44,546 | 22,287 | 26,411 | (3,031 | ) | 90,213 | ||||||||||||
LONG-TERM LIABILITIES: |
||||||||||||||||||
Long-term debt, net of current portion |
247,565 | — | 14,966 | (13,613 | ) | 248,918 | ||||||||||||
Deferred income taxes |
13,984 | 3,879 | (2,585 | ) | — | 15,278 | ||||||||||||
Other liabilities |
333 | — | 483 | — | 816 | |||||||||||||
Total long-term liabilities |
261,882 | 3,879 | 12,864 | (13,613 | ) | 265,012 | ||||||||||||
SHAREHOLDERS’ EQUITY |
215,902 | 244,147 | 42,945 | (287,092 | ) | 215,902 | ||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 522,330 | $ | 270,313 | $ | 82,220 | $ | (303,736 | ) | $ | 571,127 | |||||||
13
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
Supplemental condensed consolidating financial statements (continued):
For the three months ended September 30, 2003 |
|||||||||||||||||||
Parent |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations |
Consolidated |
|||||||||||||||
NET SALES |
$ | 65,359 | $ | 48,298 | $ | 32,979 | $ | (5,804 | ) | $ | 140,832 | ||||||||
COSTS AND EXPENSES: |
|||||||||||||||||||
Cost of goods sold |
50,616 | 34,560 | 27,090 | (5,804 | ) | 106,462 | |||||||||||||
Selling, general and administrative expenses |
9,495 | 7,752 | 5,872 | — | 23,119 | ||||||||||||||
OPERATING INCOME |
5,248 | 5,986 | 17 | — | 11,251 | ||||||||||||||
Interest expense, net |
6,810 | — | (5 | ) | — | 6,805 | |||||||||||||
Other (income) expense, net |
(592 | ) | 863 | (458 | ) | — | (187 | ) | |||||||||||
Equity earnings from subsidiaries |
(4,010 | ) | — | — | 4,010 | — | |||||||||||||
INCOME BEFORE INCOME TAXES |
3,040 | 5,123 | 480 | (4,010 | ) | 4,633 | |||||||||||||
(Benefit) Provision for income taxes |
(157 | ) | 1,537 | 56 | — | 1,436 | |||||||||||||
NET INCOME |
$ | 3,197 | $ | 3,586 | $ | 424 | $ | (4,010 | ) | $ | 3,197 | ||||||||
For the three months ended September 30, 2002 |
|||||||||||||||||||
Parent |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations |
Consolidated |
|||||||||||||||
NET SALES |
$ | 70,980 | $ | 66,801 | $ | 31,006 | $ | (10,346 | ) | $ | 158,441 | ||||||||
COSTS AND EXPENSES: |
|||||||||||||||||||
Cost of goods sold |
54,933 | 48,844 | 25,411 | (10,346 | ) | 118,842 | |||||||||||||
Selling, general and administrative expenses |
9,765 | 7,820 | 5,677 | — | 23,262 | ||||||||||||||
OPERATING INCOME |
6,282 | 10,137 | (82 | ) | — | 16,337 | |||||||||||||
Interest expense, net |
9,075 | — | 303 | — | 9,378 | ||||||||||||||
Other (income) expense, net |
(378 | ) | 545 | 363 | — | 530 | |||||||||||||
Equity earnings from subsidiaries |
(5,127 | ) | — | — | 5,127 | — | |||||||||||||
INCOME (LOSS) BEFORE INCOME TAXES |
2,712 | 9,592 | (748 | ) | (5,127 | ) | 6,429 | ||||||||||||
(Benefit) Provision for income taxes |
(1,486 | ) | 3,357 | 360 | — | 2,231 | |||||||||||||
NET INCOME (LOSS) |
$ | 4,198 | $ | 6,235 | $ | (1,108 | ) | $ | (5,127 | ) | $ | 4,198 | |||||||
14
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
Supplemental condensed consolidating financial statements (continued):
For the nine months ended September 30, 2003 |
||||||||||||||||||||
Parent |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations |
Consolidated |
||||||||||||||||
NET SALES |
$ | 205,139 | $ | 155,883 | $ | 111,435 | $ | (17,042 | ) | $ | 455,415 | |||||||||
COSTS AND EXPENSES: |
||||||||||||||||||||
Cost of goods sold |
160,692 | 111,156 | 84,988 | (17,042 | ) | 339,794 | ||||||||||||||
Selling, general and administrative expenses |
29,471 | 22,773 | 18,657 | — | 70,901 | |||||||||||||||
OPERATING INCOME |
14,976 | 21,954 | 7,790 | — | 44,720 | |||||||||||||||
Interest expense, net |
20,456 | — | 102 | — | 20,558 | |||||||||||||||
Other (income) expense, net |
(1,881 | ) | 2,505 | (804 | ) | — | (180 | ) | ||||||||||||
Equity earnings from subsidiaries |
(19,177 | ) | — | — | 19,177 | — | ||||||||||||||
INCOME BEFORE INCOME TAXES |
15,578 | 19,449 | 8,492 | (19,177 | ) | 24,342 | ||||||||||||||
(Benefit) Provision for income taxes |
(956 | ) | 6,224 | 2,540 | — | 7,808 | ||||||||||||||
NET INCOME |
$ | 16,534 | $ | 13,225 | $ | 5,952 | $ | (19,177 | ) | $ | 16,534 | |||||||||
For the nine months ended September 30, 2002 |
||||||||||||||||||||
Parent |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations |
Consolidated |
||||||||||||||||
NET SALES |
$ | 216,380 | $ | 197,228 | $ | 104,687 | $ | (30,066 | ) | $ | 488,229 | |||||||||
COSTS AND EXPENSES: |
||||||||||||||||||||
Cost of goods sold |
165,104 | 142,535 | 83,583 | (30,066 | ) | 361,156 | ||||||||||||||
Selling, general and administrative expenses |
29,205 | 22,805 | 15,735 | — | 67,745 | |||||||||||||||
OPERATING INCOME |
22,071 | 31,888 | 5,369 | — | 59,328 | |||||||||||||||
Interest expense, net |
25,317 | — | 837 | — | 26,154 | |||||||||||||||
Loss on extinguishment of debt |
5,771 | — | — | — | 5,771 | |||||||||||||||
Other (income) expense, net |
(1,103 | ) | 1,633 | 989 | — | 1,519 | ||||||||||||||
Equity losses from subsidiaries |
14,952 | — | — | (14,952 | ) | — | ||||||||||||||
(LOSS) INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE |
(22,866 | ) | 30,255 | 3,543 | 14,952 | 25,884 | ||||||||||||||
(Benefit) Provision for income taxes |
(2,984 | ) | 10,589 | 1,685 | — | 9,290 | ||||||||||||||
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE |
(19,882 | ) | 19,666 | 1,858 | 14,952 | 16,594 | ||||||||||||||
Cumulative effect of accounting change, net of tax |
(33,358 | ) | (4,701 | ) | (31,775 | ) | — | (69,834 | ) | |||||||||||
NET (LOSS) INCOME |
$ | (53,240 | ) | $ | 14,965 | $ | (29,917 | ) | $ | 14,952 | $ | (53,240 | ) | |||||||
15
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
Supplemental condensed consolidating financial statements (continued):
For the nine months ended September 30, 2003 |
||||||||||||||||||||
Parent |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations |
Consolidated |
||||||||||||||||
Net cash provided by operating activities |
$ | 40,201 | $ | 3,163 | $ | 12,072 | $ | (4,399 | ) | $ | 51,037 | |||||||||
INVESTING ACTIVITIES: |
||||||||||||||||||||
Capital expenditures |
(4,439 | ) | (3,300 | ) | (3,876 | ) | — | (11,615 | ) | |||||||||||
Proceeds from sale of fixed assets |
12 | — | 820 | — | 832 | |||||||||||||||
Other |
(15 | ) | — | 12 | — | (3 | ) | |||||||||||||
Net cash used for investing activities |
(4,442 | ) | (3,300 | ) | (3,044 | ) | — | (10,786 | ) | |||||||||||
FINANCING ACTIVITIES: |
||||||||||||||||||||
Net repayments under revolving credit facilities |
— | — | (715 | ) | — | (715 | ) | |||||||||||||
Repayments of long-term debt |
(20,053 | ) | — | (6,701 | ) | 4,399 | (22,355 | ) | ||||||||||||
Proceeds from stock options exercised |
258 | — | — | — | 258 | |||||||||||||||
Net cash used for financing activities |
(19,795 | ) | — | (7,416 | ) | 4,399 | (22,812 | ) | ||||||||||||
Effect of exchange rate changes on cash and cash equivalents |
— | — | 730 | — | 730 | |||||||||||||||
Net change in cash and cash equivalents |
15,964 | (137 | ) | 2,342 | — | 18,169 | ||||||||||||||
Cash and cash equivalents at beginning of period |
18,698 | 167 | 8,370 | — | 27,235 | |||||||||||||||
Cash and cash equivalents at end of period |
$ | 34,662 | $ | 30 | $ | 10,712 | $ | — | $ | 45,404 | ||||||||||
For the nine months ended September 30, 2002 |
||||||||||||||||||||
Parent |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations |
Consolidated |
||||||||||||||||
Net cash provided by operating activities |
$ | 24,516 | $ | 33,034 | $ | 8,647 | $ | 1,793 | $ | 67,990 | ||||||||||
INVESTING ACTIVITIES: |
||||||||||||||||||||
Capital expenditures |
(4,069 | ) | (4,123 | ) | (1,710 | ) | — | (9,902 | ) | |||||||||||
Proceeds from sale of fixed assets |
222 | — | 76 | — | 298 | |||||||||||||||
Other |
(34 | ) | — | (398 | ) | 434 | 2 | |||||||||||||
Net cash used for investing activities |
(3,881 | ) | (4,123 | ) | (2,032 | ) | 434 | (9,602 | ) | |||||||||||
FINANCING ACTIVITIES: |
||||||||||||||||||||
Proceeds from issuance of senior notes |
200,000 | — | — | — | 200,000 | |||||||||||||||
Extinguishment of revolving facility |
(37,641 | ) | — | — | — | (37,641 | ) | |||||||||||||
Extinguishment of term debt |
(226,139 | ) | — | — | — | (226,139 | ) | |||||||||||||
Net repayments under revolving facilities |
(41,082 | ) | — | (3,595 | ) | — | (44,677 | ) | ||||||||||||
Proceeds from long-term debt |
100,000 | — | — | — | 100,000 | |||||||||||||||
Repayments of long-term debt |
19,682 | (29,407 | ) | 2,304 | (2,227 | ) | (9,648 | ) | ||||||||||||
Debt issuance costs |
(10,694 | ) | — | — | — | (10,694 | ) | |||||||||||||
Interest rate swap termination costs |
(5,274 | ) | — | — | — | (5,274 | ) | |||||||||||||
Net cash used for financing activities |
(1,148 | ) | (29,407 | ) | (1,291 | ) | (2,227 | ) | (34,073 | ) | ||||||||||
Effect of exchange rate changes on cash and cash equivalents |
— | — | 395 | — | 395 | |||||||||||||||
Net change in cash and cash equivalents |
19,487 | (496 | ) | 5,719 | — | 24,710 | ||||||||||||||
Cash and cash equivalents at beginning of period |
714 | 29 | 3,626 | — | 4,369 | |||||||||||||||
Cash and cash equivalents at end of period |
$ | 20,201 | $ | (467 | ) | $ | 9,345 | $ | — | $ | 29,079 | |||||||||
15. | Certain prior period amounts have been reclassified to conform to their 2003 presentation in the condensed consolidated financial statements. |
16
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Nine Months Ended September 30, 2003 Compared To Nine Months Ended September 30, 2002
Net Sales. Net sales for the nine months ended September 30, 2003 decreased by $32.8 million, or 6.7%, to $455.4 million from $488.2 million for the corresponding period in 2002. The decrease in sales was primarily due to lower vehicle production in the Company’s served markets and the reduced sales from an exited product line.
Sales for the nine months ended September 30, 2003 in North America decreased $45.5 million to $369.8 million from $415.3 million for the corresponding period in 2002. North American sales accounted for 81.2% of total sales for the first nine months of 2003 compared with 85.1% for the corresponding period in 2002. The decrease in sales was primarily due to lower light and commercial vehicle production in the Company’s served markets and the reduced sales from an exited product line. Sales for the nine months ended September 30, 2003 outside North America increased $12.7 million to $85.6 million from $72.9 million for the corresponding period in 2002. Sales outside North America accounted for 18.8% of total sales for the nine months ended September 30, 2003 compared with 14.9% for the corresponding period in 2002. The increase in sales outside North America was primarily attributable to favorable currency exchange rates.
Net sales for the Vehicle Management & Power Distribution operating segment were $215.0 million for the first nine months of 2003 as compared to $207.6 million for the corresponding period in 2002. Increased content per vehicle and favorable currency exchange rates positively impacted sales for the first nine months. Net sales for the Control Devices operating segment were $252.4 million for the first nine months of 2003 as compared to $291.2 million for the corresponding period in 2002. The decrease in sales was primarily due to lower light and commercial vehicle production in the Company’s served markets and the reduced sales from an exited product line.
Cost of Goods Sold. Cost of goods sold for the first nine months of 2003 decreased by $21.4 million, or 5.9%, to $339.8 million from $361.2 million in the first nine months of 2002. As a percentage of sales, cost of goods sold increased to 74.6% from 74.0% for the first nine months of 2003 and 2002, respectively. The increase as a percentage of sales was primarily attributable to lower sales levels.
Selling, General and Administrative Expenses. Selling, general and administrative (SG&A) expenses increased by $3.2 million to $70.9 million in the first nine months of 2003 from $67.7 million for the corresponding period in 2002. As a percentage of sales, SG&A expenses increased to 15.6% for the first nine months of 2003 from 13.9% for the corresponding period in 2002. The increase in SG&A expenses reflects increased investment in the Company’s design and development activities and increased sales and marketing efforts.
Interest Expense, net. Net interest expense for the first nine months of 2003 decreased by $5.6 million to $20.6 million from $26.2 million in 2002. Average outstanding indebtedness was $234.5 million and $292.9 million for the first nine months of 2003 and 2002, respectively. The decrease in interest expense reflects the Company’s lower debt balance as well as interest income of $0.3 million related to a tax refund recorded in the second quarter of 2003.
Loss on Extinguishment of Debt. The Company recognized a non-cash loss of $5.8 million during the first nine months of 2002 in connection with the early extinguishment of debt related to the Company’s debt refinancing.
Other (Income) Expense, net. Other (income) expense, which primarily represented equity (earnings) losses of unconsolidated subsidiaries and effects of foreign currency exchange, was $(0.2) million and $1.5 million for the nine months ended September 30, 2003 and 2002, respectively.
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Income Before Income Taxes and Cumulative Effect of Accounting Change. As a result of the foregoing, income before income tax and cumulative effect of accounting change decreased by $1.5 million for the first nine months of 2003 to $24.3 million from $25.9 million in 2002.
Provision for Income Taxes. The Company recognized provisions for income taxes of $7.8 million, or 32.0% of pre-tax income, and $9.3 million, or 35.9% of pre-tax income, for federal, state and foreign income taxes for the first nine months of 2003 and 2002, respectively. The decrease in the effective tax rate was primarily due to tax refunds related to the completion of several tax initiatives and to the higher proportion of non-U.S. pre-tax income, which is taxed at a lower rate than U.S. pre-tax income.
Income Before Cumulative Effect of Accounting Change. As a result of the foregoing, income before cumulative effect of accounting change decreased to $16.5 million for the first nine months of 2003 from $16.6 million in 2002.
Cumulative Effect of Accounting Change, net of tax. In accordance with the transition provisions of SFAS 142, the Company completed the two-step transitional goodwill impairment analysis. As a result, the Company recorded as a cumulative effect of accounting change, a non-cash charge of $69.8 million, net of tax, to write off a portion of the carrying value of goodwill as of January 31, 2002. The Company performed an annual impairment test of goodwill as of October 1, 2002 and no additional impairment was recognized. See Note 4 to the Company’s consolidated financial statements for more information on the Company’s application of the new accounting standard.
Net Income. As a result of the foregoing, net income increased by $69.8 million to $16.5 million for the first nine months of 2003 from a loss of $53.2 million in 2002.
Three Months Ended September 30, 2003 Compared To Three Months Ended September 30, 2002
Net Sales. Net sales for the quarter ended September 30, 2003 decreased by $17.6 million, or 11.1%, to $140.8 million from $158.4 million for the corresponding period in 2002. The decrease in sales was primarily due to lower vehicle build rates in the Company’s markets and the reduced sales from an exited product line.
Sales for the quarter ended September 30, 2003 in North America decreased $20.4 million to $116.7 million from $137.1 million for the corresponding period in 2002. North American sales accounted for 82.9% of total sales for the third quarter ended September 30, 2003 compared with 86.5% for the corresponding period in 2002. An exited product line and reduced production volumes in both the light and commercial vehicle markets accounted for the reduction in North American sales. Sales for the third quarter of 2003 outside North America increased by $2.8 million to $24.1 million from $21.3 million for the corresponding period in 2002. Sales outside North America accounted for 17.1% of total sales for the third quarter of 2003 compared with 13.5% for the corresponding period in 2002. The increase in sales outside North America was primarily attributable to favorable currency exchange rates.
Net sales for the Vehicle Management & Power Distribution operating segment were $68.2 million for the third quarter of 2003, as compared to $69.5 million for the corresponding period in 2002. Favorable currency exchange rates were more than offset by lower volumes in the Company’s markets. Net sales for the Control Devices operating segment were $76.7 million for the third quarter of 2003 as compared to $92.7 million for the corresponding period in 2002. The decrease in sales was primarily due to lower light and commercial vehicle production in the Company’s served markets and the reduced sales from an exited product line.
Cost of Goods Sold. Cost of goods sold for the quarter ended September 30, 2003 decreased by $12.4 million, or 10.4%, to $106.5 million from $118.8 million for the corresponding period in 2002. As a percentage of sales, cost of goods sold increased to 75.6% from 75.0% for the third quarter of 2003 and 2002, respectively. The increase as a percentage of sales was primarily attributable to lower sales levels.
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Selling, General and Administrative Expenses. SG&A expenses decreased by $0.2 million to $23.1 million in the third quarter of 2003 from $23.3 for the corresponding period in 2002. As a percentage of sales, SG&A expenses increased to 16.4% for the third quarter of 2003 from 14.7% for the corresponding period in 2002.
Interest Expense, net. Net interest expense for the third quarter of 2003 decreased by $2.6 million to $6.8 million from $9.4 million in the corresponding period of 2002. Average outstanding indebtedness was $229.5 million and $296.9 million for the third quarter of 2003 and 2002, respectively. The decrease in interest expense reflects the Company’s lower debt balance.
Other (Income) Expense, net. Other (income) expense, which primarily represented equity (earnings) losses of unconsolidated subsidiaries and effects of foreign exchange, was $(0.2) million for the third quarter of 2003 and $0.5 million for the corresponding period in 2002.
Income Before Income Taxes. As a result of the foregoing, income before income taxes decreased to $4.6 million from $6.4 million for the third quarter of 2003 and 2002, respectively.
Provision for Income Taxes. The Company recognized a provision for income taxes of $1.4 million, or 31.0% of pre-tax income, and $2.2 million, or 34.7% of pre-tax income, for federal, state and foreign income taxes for the third quarter of 2003 and 2002, respectively. The decrease in the effective tax rate was primarily due to tax refunds related to the completion of several tax initiatives and to the higher proportion of non-U.S. pre-tax income, which is taxed at a lower rate than U.S. pre-tax income.
Net Income. As a result of the foregoing, net income decreased by $1.0 million to $3.2 million for the third quarter of 2003 from $4.2 million for the corresponding period in 2002.
Liquidity and Capital Resources
Net cash provided by operating activities was $51.0 million and $68.0 million for the nine months ended September 30, 2003 and 2002, respectively. The reduction in cash provided by operating activities is primarily the result of a reduction in positive contribution from accrued expenses recorded in 2003 compared to 2002.
Net cash used by investing activities was $10.8 million and $9.6 million for the nine months ended September 30, 2003 and 2002, respectively. The increase in net cash used by investing activities of $1.2 million was primarily attributable to an increase in capital expenditures.
Net cash used by financing activities was $22.8 million and $34.1 million for the nine months ended September 30, 2003 and 2002, respectively, and primarily related to the reduction of the Company’s debt obligations in both periods.
The Company has entered into foreign currency forward purchase contracts with a notional value of $6.8 million of Swedish krona to reduce exposure related to the Company’s krona denominated debt obligations. The estimated fair value of these forward contracts at September 30, 2003, per quoted market sources, was $(0.6) million. These forward contracts are marked to market, with gains and losses recognized in the Consolidated Statement of Operations. The Company’s foreign exchange contracts substantially offset losses and gains on the underlying foreign denominated debt obligations. The Company does not use derivatives for speculative or profit-motivated purposes.
Management believes that cash flows from operations and the availability of funds from the Company’s credit facilities and senior notes will provide sufficient liquidity to meet the Company’s growth and operating needs.
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Inflation and International Presence
Management believes that the Company’s operations have not been adversely affected by inflation. By operating internationally, the Company is affected by the economic conditions of certain countries. Based on the current economic conditions in these countries, management believes they are not significantly exposed to adverse economic conditions.
Forward-Looking Statements
Portions of this report may contain “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this report and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to, among other things, the Company’s (i) future product and facility expansion, (ii) acquisition strategy, (iii) investments and new product development, and (iv) growth opportunities related to awarded business. Forward-looking statements may be identified by the words “will,” “may,” “designed to,” “believes,” “plans,” “expects,” “continue,” and similar expressions. The forward-looking statements in this report are subject to risks and uncertainties that could cause actual events or results to differ materially from those expressed in or implied by the statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, among other factors:
• | the loss of a major customer; |
• | a decline in automotive, medium- and heavy-duty truck, agricultural or off-highway vehicle production; |
• | a decline in general economic conditions in any of the various countries in which the Company operates; |
• | labor disruptions at the Company’s facilities or at any of the Company’s significant customers or suppliers; |
• | the ability of the Company’s suppliers to supply it with parts and components at competitive prices on a timely basis; |
• | the significant amount of debt and the restrictive covenants contained in the Company’s credit facility; |
• | customer acceptance of new products; |
• | capital availability or costs, including changes in interest rates or market perceptions of the Company; |
• | changes by the Financial Accounting Standards Board or the Securities and Exchange Commission of authoritative generally accepted accounting principles or policies; |
• | the impact of laws and regulations, including environmental laws and regulations; and |
• | the occurrence or non-occurrence of circumstances beyond the Company’s control. |
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to certain market risks, primarily resulting from the effects of changes in interest rates. To reduce exposures to market risks resulting from fluctuations in interest rates, the Company uses a combination of variable and fixed rate debt. At September 30, 2003, approximately 13.0% of the Company’s debt was variable rate debt. The Company believes that a 1.0% increase or decrease in the interest rate on variable rate debt could affect annual interest expense by approximately $0.3 million.
The Company’s risks related to commodity price and foreign currency exchange risks have historically not been material. The Company does not expect the effects of these risks to be material in the future based on current operating and economic conditions in the countries and markets in which it operates. Therefore, a 10.0% change in the value of the U.S. dollar would not significantly affect the Company’s financial position.
ITEM 4. CONTROLS AND PROCEDURES
As of September 30, 2003, an evaluation was performed under the supervision and with the participation of the Company’s management, including the CEO and CFO, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2003.
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ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of business, the Company is involved in various legal proceedings, workers’ compensation and product liability disputes. The Company is of the opinion that the ultimate resolution of these matters will not have a material adverse effect on the results of operations or the financial position of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) | Exhibits |
10.1 | Amendment to Long-Term Incentive Plan, filed herewith. | |
31.1 | Chief Executive Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. | |
31.2 | Chief Financial Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. | |
32.1 | Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. | |
32.2 | Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. |
(b) | Reports on Form 8-K |
1. | On July 24, 2003, the Company filed a Current Report on Form 8-K for a press release announcing second quarter 2003 earnings. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
STONERIDGE, INC. | ||||
Date: November 14, 2003 |
/s/ Cloyd J. Abruzzo | |||
Cloyd J. Abruzzo | ||||
President and Chief Executive Officer | ||||
(Principal Executive Officer) | ||||
Date: November 14, 2003 |
/s/ Kevin P. Bagby | |||
Kevin P. Bagby | ||||
Vice President and Chief Financial Officer | ||||
(Principal Financial and Chief Accounting Officer) |
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STONERIDGE, INC.
Exhibit Number |
Exhibit | |
10.1 | Amendment to Long-Term Incentive Plan, filed herewith. | |
31.1 | Chief Executive Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. | |
31.2 | Chief Financial Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. | |
32.1 | Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. | |
32.2 | Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. |
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