UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-KAnnual Report Pursuant to Section 13 OR 15(d)of the Securities Exchange Act of 1934For the fiscal year ended December 31, 2005Commission file number: 001-13337STONERIDGE, INC. (Exact name of registrant as specified in its charter)
INDEXSTONERIDGE, INC. AND SUBSIDIARIES
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PART IITEM 1.BUSINESS.Overview Founded in 1965, Stoneridge, Inc. (the “Company”) is an independent designer and manufacturer of highly engineered electrical and electronic components, modules and systems for the automotive, medium- and heavy-duty truck, agricultural and off-highway vehicle markets. Our custom-engineered products are predominantly sold on a sole-source basis and consist of application-specific control devices, sensors, vehicle management electronics and power and signal distribution systems. These products comprise the elements of every vehicle’s electrical system, and individually interface with a vehicle’s mechanical and electrical systems to (i) activate equipment and accessories, (ii) display and monitor vehicle performance and (iii) control and distribute electrical power and signals. Our products improve the performance, safety, convenience and environmental monitoring capabilities of our customers’ vehicles. As such, the growth in many of the product areas in which we compete is driven by the increasing consumer desire for safety, security and convenience coupled with the need for original equipment manufacturers (“OEM”) to meet safety requirements in addition to the general trend of increased electrical and electronic content per vehicle. Our technology and our partnership-oriented approach to product design and development enables us to develop next-generation products and to excel in the transition from mechanical-based components and systems to electrical and electronic components, modules and systems.Products We conduct our business in two reportable segments: Vehicle Management & Power Distribution and Control Devices. Under the provisions of Statement of Accounting Standard (“SFAS”) 131, “Disclosures about Segments of an Enterprise and Related Information,” two of the Company’s four operating segments are aggregated into the Vehicle Management & Power Distribution reportable segment and two are aggregated into the Control Devices reportable segment. The core products of the Vehicle Management & Power Distribution reportable segment include vehicle electrical power and distribution systems and electronic instrumentation and information display products. The core products of the Control Devices reportable segment include electronic and electrical switch products, actuator products and sensor products. We design and manufacture the following vehicle parts: Vehicle Management & Power Distribution. The Vehicle Management & Power Distribution reportable segment produces electronic instrument clusters, electronic control units, and electrical distribution systems, primarily wiring harnesses and connectors for electrical power and signal distribution. 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. In addition, power distribution systems regulate, coordinate and direct the operation of the entire electrical system within a vehicle compartment. These products usestate-of-the-art hardware, software and multiplexing technology and are sold principally to the medium- and heavy-duty truck, agricultural and off-highway vehicle markets. Control Devices. The Control Devices reportable segment produces products that monitor, measure or activate a specific function within the vehicle. Product lines included within the Control Devices segment are sensors, switches, actuators, driver information systems as well as other electronic products. Sensor products are employed in most major vehicle systems, including the emissions, safety, powertrain, braking, climate control, steering and suspension systems. Switches transmit a signal that activates specific functions. Hidden switches are not typically seen by vehicle passengers, but are used to activate or deactivate selected functions. Customer activated switches are used by a vehicle’s operator or passengers to manually activate headlights, rear defrosters and other accessories. In addition, the Control Devices segment 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. We sell these products principally to the automotive market.2
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The following table presents core product lines by reportable segment, as a percentage of net sales:
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Customers We are dependent on a small number of principal customers for a significant percentage of our sales. The loss of any significant portion of our 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. We supply numerous different parts to each of our principal customers. Contracts with several of our customers provide for supplying their 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 our major customers could have a material adverse impact on the Company. We may also enter into contracts to supply parts, the introduction of which may then be delayed or not used at all. We also compete to supply products for successor models and are therefore 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. The following table presents the Company’s major customers, as a percentage of net sales:
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Control Devices. Our primary competitors include Bosch, Cherry, CTS, Delphi, Honeywell, Lear, Methode, Optek, Texas Instruments, Siemens VDO and Yazaki.Product Development Our research and development efforts are largely product development oriented and consist primarily of applying known technologies to customer generated problems and situations. We work closely with our customers to creatively solve problems using innovative approaches. The vast majority of our development expenses are related to customer-sponsored programs where we are involved in designing custom-engineered solutions for specific applications or for next generation technology. To further our vehicles platform penetration, we have also developed collaborative relationships with the design and engineering departments of key customers. These collaborative efforts have resulted in the development of new and complimentary products and the enhancement of existing products. Development work at the Company is largely performed on a decentralized basis. We have engineering and product development departments located at a majority of our manufacturing facilities. To ensure knowledge sharing among decentralized development efforts, we have instituted a number of mechanisms and practices whereby innovation and best practices are shared. The decentralized product development operations are complimented by larger technology groups in Canton, Massachusetts and Stockholm, Sweden. We use efficient and quality oriented work processes to address our customers’ high standards. Our product development technical resources include a full complement of computer-aided design and engineering (“CAD/ CAE”) software systems, including (i) virtual three-dimensional modeling, (ii) functional simulation and analysis capabilities and (iii) data links for rapid prototyping. These CAD/ CAE systems enable the Company to expedite product design and the manufacturing process to shorten the development time and ultimately time to market. We are further strengthening our electrical engineering competencies through investment in equipment such as (i) automotive electro-magnetic compliance test chambers, (ii) programmable automotive and commercial vehicle transient generators, (iii) circuit simulators and (iv) other environmental test equipment. Additional investment in product machining equipment has allowed us to fabricate new product samples in a fraction of the time required historically. Our product development and validation efforts are supported by full service,on-site test labs at most manufacturing facilities, thus enabling cross-functional engineering teams to optimize the product, process and system performance before tooling initiation. We have invested, and will continue to invest in technology to develop new products for our customers. Research and development costs incurred in connection with the development of new products and manufacturing methods, to the extent not recoverable from the customer, are charged to selling, general and administrative expenses, as incurred. Such costs amounted to approximately $39.2 million, $36.1 million and $28.7 million for 2005, 2004 and 2003, respectively, or 5.8%, 5.3% and 4.7% of net sales for these periods. It generally takes the Company several years to bring new products from development to the marketplace.Environmental and Other Regulations Our 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. We believe that our 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.Employees As of December 31, 2005, we had approximately 6,000 employees, approximately 1,400 of whom were salaried and the balance of whom were paid on an hourly basis. Except for certain employees located in5
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Chihuahua, Mexico, Orebro and Stockholm, Sweden, and Dundee, Scotland, our employees are not represented by a union. We believe that relations with our employees are good.Joint Ventures We form joint ventures in order to achieve several strategic objectives including gaining access to new markets, exchanging technology and intellectual capital, broadening our customer base and expanding our product offerings. Specifically we have formed joint ventures in Brazil, PST Indústria Eletrônica da Amazônia Ltda. (“PST”), and India, Minda Instruments Ltd. (“Minda”), and continue to explore similar business opportunities in other global markets. We have a 50% interest in PST and a 20% interest in Minda. We entered into our PST joint venture in October 1997 and our Minda joint venture in August 2004. Each of these investments is accounted for using the equity method of accounting. As of December 31, 2005, our investments in these non-consolidated joint ventures totaled $18.6 million. Equity earnings from these joint ventures were $4.1 million and $1.7 million for the fiscal years ended December 31, 2005 and 2004, respectively.Available Information We make available, free of charge through our website (www.stoneridge.com), our Annual Report on Form 10-K,Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all amendments to those reports, and other filings with the Securities and Exchange Commission (“SEC”), as soon as reasonably practicable after they are filed with the SEC. Our Corporate Governance Guidelines, Code of Business Conduct and Ethics, Code of Ethics for Senior Financial Officers, Whistleblower Policy and Procedures and the charters of the Board’s Audit, Compensation and Nominating and Corporate Governance Committees are posted on our website as well. Copies of these documents will be available to any shareholder upon request. Requests should be directed in writing to Investor Relations at 9400 East Market Street, Warren, Ohio 44484. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DE 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at1-800-SEC-0330. The SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including the Company.ITEM 1A. RISK FACTORS.The loss or insolvency of any of our major customers would adversely affect our future results. We are dependent on a small number of principal customers for a significant percentage of our net sales. In 2005, International, DaimlerChrysler, Ford, Volvo, Deere and General Motors accounted for 22%, 12%, 7%, 6%, 6% and 5%, respectively, of our net sales. The loss of any significant portion of our sales to these customers or any other significant customers would have a material adverse impact on our results of operations and financial condition. The contracts we have entered into with many of our 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 our major customers could have a material adverse impact on our results of operations and financial condition by reducing cash flows and our ability to spread costs over a larger revenue base. We also compete to supply products for successor models and are subject to the risk that the customer will not select us to produce products on any such model, which could have a material adverse impact on our results of operations and financial condition. In addition, we have significant receivable balances related to these customers and other major customers that would be at risk in the event of their bankruptcy.6
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Our business is cyclical and seasonal in nature and further downturns in the automotive, medium- and heavy-duty truck, agricultural and off-road vehicle industries could reduce the sales and profitability of our business. The demand for our products is largely dependent on the domestic and foreign production of automobiles, medium-and heavy-duty trucks, agricultural and off-road vehicles. The markets for our products have historically been cyclical, because new vehicle demand is dependent on, among other things, consumer spending and is tied closely to the overall strength of the economy. Because our products are used principally in the production of vehicles for the automotive, medium- and heavy-duty truck, agricultural and off-road vehicle markets, our sales, and therefore our 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, agricultural and off-highway vehicle production could adversely impact our results of operations and financial condition. In 2005, approximately 43% of our net sales were made to the automotive market and approximately 57% were derived from the medium- and heavy-duty truck, agricultural and off-highway vehicle markets. Seasonality experienced by the automotive industry also impacts our operations. We typically experience decreased sales during the third 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 also impacted by plant shutdowns for the holidays.Consolidation among vehicle parts customers and suppliers could make it more difficult for us to compete favorably. Since the early 1980’s the OEM supply industry has undergone a significant consolidation as OEMs have sought to lower costs, improve quality and increasingly purchase complete systems and modules rather than separate components. As a result of the cost focus of these major customers, we have been, and expect to continue to be, required to reduce prices. Because of these competitive pressures, we cannot assure you that we will be able to increase or maintain gross margins on product sales to OEMs. The trend toward consolidation among automotive parts suppliers is resulting in fewer, larger suppliers who benefit from purchasing and distribution economies of scale. If we cannot achieve cost savings and operational improvements sufficient to allow us to compete favorably in the future with these larger, consolidated companies, our results of operations and financial condition could be adversely affected.Our physical properties and information systems are subject to damage as a result of disasters, outages or similar events. Our offices and facilities, including those used for design and development, material procurement, manufacturing, logistics and sales are located throughout the world and are subject to possible destruction, temporary stoppage or disruption as a result of any number of unexpected events. If any of these facilities or offices were to experience a significant loss as a result of any of the above events, it could disrupt our operations, delay production, shipments and revenue, and result in large expenses to repair or replace these facilities or offices. In addition, network and information system shutdowns caused by unforeseen events such as power outages, disasters, hardware or software defects, computer viruses and computer hacking pose increasing risks. Such an event could also result in the disruption of our operations, delay production, shipments and revenue, and result in large expenditures necessary to repair or replace such network and information systems.Our business is very competitive and increased competition could reduce our sales. Markets for our products are highly competitive and the company can offer no assurance that we can maintain our product pricing levels with our customers. We compete based on quality, service, price, timely delivery and technological innovation. Many of our competitors are more diversified and have greater financial and other resources than we do. We cannot assure you that our business will not be adversely7
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affected by competition or that we will be able to maintain our profitability if the competitive environment changes.We must implement and sustain a competitive technological advantage in producing our products to compete effectively. Our products are subject to changing technology, which could place us at a competitive disadvantage relative to alternative products introduced by competitors. Our success will depend on our ability to continue to meet customers’ changing specifications with respect to quality, service, price, timely delivery and technological innovation by implementing and sustaining competitive technological advances. Our business may, therefore, require, significant ongoing and recurring additional capital expenditures and investment in research and development and manufacturing and management information systems. We cannot assure you that we will be able to achieve the technological advances or introduce new products that may be necessary to remain competitive. Our inability to continuously improve existing products and to develop new products and to achieve technological advances could have a material adverse affect on our results of operations and financial condition.We may experience increased costs associated with labor unions that could adversely affect our financial performance and results of operations. As of December 31, 2005, we had approximately 6,000 employees, approximately 1,400 of whom were salaried and the balance of whom were paid on an hourly basis. Certain employees located in Chihuahua, Mexico, Orebro and Stockholm, Sweden and Dundee, Scotland, are represented by unions. We cannot assure you that more of our employees will not be covered by collective bargaining agreements in the future or that any of our facilities will not experience a work stoppage or other labor disruption. Any prolonged labor disruption involving our employees, employees of our customers, a large percentage of which are covered by collective bargaining agreements, or employees of our suppliers could have a material adverse impact on our results of operations and financial condition by disrupting our ability to manufacture our products or the demand for our products.Compliance with environmental and other governmental regulations could be costly and require us to make significant expenditures. Our operations are subject to various federal, state, local and foreign laws and regulations governing, among other things: • the discharge of pollutants into the air and water; • the generation, handling, storage, transportation, treatment, and disposal of waste and other materials; • the cleanup of contaminated properties; and • the health and safety of our employees. We believe that our 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. The operation of our manufacturing facilities entails risks and we cannot assure you that we will not incur material costs or liabilities in connection with these operations. In addition, potentially significant expenditures could be required in order to comply with evolving environmental and health and safety laws, regulations or requirements that may be adopted or imposed in the future.We may incur material product liability costs. We are subject to the risk of exposure to product liability claims in the event that the failure of any of our products results in personal injury or death and we cannot assure you that we will not experience material product liability losses in the future. In addition, if any of our products prove to be defective, we8
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may be required to participate in government-imposed or OEM-instituted recalls involving such products. We maintain insurance against such product liability claims, but we cannot assure you that such coverage will be adequate for liabilities ultimately incurred or that it will continue to be available on terms acceptable to us. A successful claim brought against us that exceeds available insurance coverage or a requirement to participate in any product recall could have a material adverse affect on our results of operations and financial condition.We are subject to risks related to our international operations. Approximately 21% of our net sales in 2005 were derived from sales of our European and other international operations, and European and other international non-current assets accounted for approximately 11% of our non-current assets as of December 31, 2005. International sales and operations are subject to significant risks, including, among others: • political and economic instability; • restrictive trade policies; • economic conditions in local markets; • currency exchange controls; • labor unrest; • difficulty in obtaining distribution support and potentially adverse tax consequences; and • the imposition of product tariffs and the burden of complying with a wide variety of international and U.S. export laws. Additionally, to the extent any portion of our net sales and expenses are denominated in currencies other than U.S. dollars, changes in exchange rates could have a material adverse affect on our results of operations and financial condition.The prices that we can charge some of our customers are predetermined and we bear the risk of costs in excess of our estimates. Our supply agreements with some of our customers require us to provide our products at predetermined prices. In some cases, these prices decline over the course of the contract and may require us to meet certain productivity, cost reduction targets. The costs that we incur in fulfilling these contracts may vary substantially from our initial estimates. Unanticipated cost increases or the inability to meet certain cost reduction targets may occur as a result of several factors, including increases in the costs of labor, components or materials. In some cases, we are permitted to pass on to our customers the cost increases associated with specific materials. Cost overruns that we cannot pass on to our customers could adversely affect our business, results of operations and financial condition.We are dependent on the availability and price of raw materials. We require substantial amounts of raw materials and substantially all raw materials we require are purchased from outside sources. The availability and prices of raw materials may be subject to curtailment or change due to, among other things, new laws or regulations, suppliers’ allocations to other purchasers, interruptions in production by suppliers, changes in exchange rates and worldwide price levels. Any change in the supply of, or price for, these raw materials could materially affect our results of operations and financial condition.ITEM 1B. UNRESOLVED STAFF COMMENTS. None.9
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ITEM 2.PROPERTIES. The Company and our joint ventures currently own or lease 23 manufacturing facilities, which together contain approximately 1.8 million square feet of manufacturing space. Of these manufacturing facilities, ten are used by our Vehicle Management & Power Distribution reportable segment, ten are used by our Control Devices reportable segment and three are owned by our joint venture companies. The following table provides information regarding our facilities:
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ITEM 3.LEGAL PROCEEDINGS. The Company is involved in certain legal actions and claims arising in the ordinary course of business. The Company, however, does not believe that any of the litigation in which it is currently engaged, either individually or in the aggregate, will have a material adverse effect on its business, consolidated financial position or results of operations. 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 prove to be defective, the Company may be required to participate in the 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 2005.Executive Officers of the Company Each executive officer of the Company is appointed by the Board of Directors, serves at its pleasure and holds office until a successor is appointed, or until the earlier of death, resignation or removal. The Board of Directors generally appoints executive officers annually. The executive officers of the Company are as follows:
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George E. Strickler, Executive Vice President and Chief Financial Officer. Mr. Strickler has served as Executive Vice President and Chief Financial Officer since joining the Company in January of 2006. Prior to his employment with the Company, Mr. Strickler served as Executive Vice President and Chief Financial Officer for Republic Engineered Products, Inc. (“Republic”), from February 2004 to January of 2006. Before joining Republic, Mr. Strickler was BorgWarner Inc.’s Executive Vice President and Chief Financial Officer from February 2001 to November 2003. Edward F. Mosel, Executive Vice President and Chief Operating Officer. Mr. Mosel has served as Executive Vice President and Chief Operating Officer of the Company since June of 2004. Prior to this time, Mr. Mosel had served as Vice President of Pollak Sales and Marketing from 1987 to 1993, Vice President and General Manager of Pollak Central Services from 1993 to 1995, and Vice President and General Manager of the Switch Products Division from 1996 to 2000, at which time he became Vice President and General Manager of the Switch and Sensor Products Group. Thomas A. Beaver, Vice President of Global Sales and Systems Engineering. Mr. Beaver has served as Vice President of Global Sales and Systems Engineering of the Company since January of 2005. Prior to this time, Mr. Beaver served as Vice President of Stoneridge Sales and Marketing from January 2000 to January 2005 and Vice President of Sales and Systems Engineering of the Stoneridge Engineered Products Group from February 1995 to December 1999. Karl E. Mentzel, Vice President and General Manager of Alphabet Group. Mr. Mentzel has served as Vice President and General Manager of the Alphabet Division since July of 2005. Prior to joining the Company, Mr. Mentzel served as Vice President of Operations for Skyworks Solutions Inc. from 2003 to 2005 and Vice President of Manufacturing from 2001 to 2003. In addition, Mr. Mentzel held various senior management positions at Conexant Systems Inc. and Texas Instruments for over 20 years. Andrew Mark Oakes, Vice President and General Manager of Actuator and Sensor Products Group. Mr. Oakes served as General Manager of the Actuator Products Division from 1996 to 1997, and Vice President and General Manager of the Actuator Products Division from 1998 to 2001 when he became Vice President and General Manager of the Actuator and Sensor Products Group. In 2005, Mr. Oakes assumed additional duties and serves as Chairman and General Manager of Stoneridge Asia Pacific Electronics (Sozhou) Co., Ltd., a Stoneridge wholly owned subsidiary, now undergoing operationstart-up in China. Mark J. Tervalon, Vice President and General Manager of Stoneridge Electronics Group. Mr. Tervalon served as Vice President and General Manager of the Electronic Products Division from May 2002 to December 2003 when he became Vice President and General Manager of the Stoneridge Electronics Group. Prior to that, Mr. Tervalon served as a Vice President and General Manager at Power – One, Inc. from August 1998 to November 2001. Vincent F. Suttmeier, Vice President and General Manager of Switch and Sensor Products Group. Mr. Suttmeier served as Vice President of the Switch Products Division from January to June of 2000 and Vice President and General Manager of the Switch Products Division from June 2000 to June 2004 when he became Vice President and General Manager of the Switch and Sensor Products Group. Avery S. Cohen, Secretary and Director.Mr. Cohen has served as Secretary and a Director of the Company since 1988. Mr. Cohen is a partner in Baker & Hostetler LLP, a law firm, which has served as general outside counsel for the Company since 1993 and is expected to continue to do so in the future.PART IIITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Our shares are listed on the New York Stock Exchange (“NYSE”) under the symbol “SRI.” As of February 10, 2006, we had 23,327,478 Common Shares without par value, issued and outstanding, which were12
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owned by approximately 272 registered holders, including Common Shares held in the names of brokers and banks (so-called “street name” holdings) who are record holders with approximately 1,400 beneficial owners. We have not historically paid or declared dividends, which are restricted under both the senior notes and the credit agreement, on our Common Shares. We may only pay cash dividends in the future if immediately prior to and immediately after the payment is made no event of default has occurred, we remain in compliance with certain leverage ratio requirements, and the amount paid does not exceed 5% of our excess cash flow for the preceding fiscal year. We currently intend to retain earnings for acquisitions, working capital, capital expenditures, general corporate purposes and reduction in outstanding indebtedness. Accordingly, we do not expect to pay cash dividends in the foreseeable future. High and low sales prices (as reported on the NYSE composite tape) for our Common Shares for each quarter during 2005 and 2004 are as follows:
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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.Executive Overview We are an independent designer and manufacturer of highly engineered electrical and electronic components, modules and systems for the automotive, medium- and heavy-duty truck, agricultural and off-highway vehicle markets. Our net income for the year ended December 31, 2005 was $0.9 million, or $0.04 per diluted share, compared with a net loss of $92.5 million, or $4.09 per diluted share, for 2004. Our 2005 results were affected by operating losses at certain of our operations involved in our manufacturing restructuring initiatives, as well as a number of challenging industry-wide issues, including intense competition, product price reductions, higher commodity costs, customer bankruptcies, and lower North American light vehicle production levels. We continuously work to address these challenges by implementing a broad range of initiatives aimed to improve operating performance. One of the main focuses during 2005 was our restructuring program, which is aimed at reducing our overall manufacturing square footage and improving our cost structure accordingly. In addition to our restructuring initiatives, we have implemented lean manufacturing principles, consolidated our purchasing activities, and we are continually evaluating the opportunity to manufacture products in low cost locations. Operating inefficiencies related to our restructuring efforts, primarily due to retention issues, also negatively affected our 2005 results. These restructuring initiatives include the rationalization of certain manufacturing facilities in the high cost regions of Europe and North America. As a result of the rationalization, many employees opted not to move with the business causing significant turnover and increased hiring, training and expedited freight charges. We recently began a transition of additional production from the United States to Mexico by announcing the closing of a wire harness plant in the United States. The production lines are planned to transition to Mexico over the next year. In connection with our overall restructuring plan, we recorded charges of $4.8 million for the fiscal year 2005. We expect the total cost of our restructuring efforts for 2005 and 2006 to approximate $7.2 million. See Note 12 to our consolidated financial statements for more information. These challenges were offset by the favorable operating results of our PST joint venture in Brazil, which added $4.0 million to our equity in earnings of investees in 2005. Significant factors inherent to our markets that could affect our results for 2006 include our ability to successfully execute our planned restructuring program, mitigate commodity price increases and customer demanded price reductions, and implement planned productivity and cost reduction initiatives. Our results for 2006 also depend on conditions in the automotive and commercial vehicle industries, which are generally dependent on domestic and global economies.Results of Operations We are primarily organized by markets served and products produced. Under this organization structure, our operations have been aggregated into two reportable segments: Vehicle Management & Power Distribution and Control Devices. The Vehicle Management & Power Distribution reportable segment includes results of operations from our operations that primarily design and manufacture 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 reportable segment includes results of operations from our operations that primarily design and manufacture electronic and electromechanical switches, control actuation devices and sensors. Beginning in 2005, we changed from a calendar year-end to a 52-53 week fiscal year-end. Our fiscal quarters are now comprised of 13-weekperiods and once every seven years, starting in 2008, the fourth quarter will be 14 weeks in length. The third quarter of 2005 and 2004 ended on October 1 and September 30, respectively.15
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Fiscal Year Ended December 31, 2005 Compared To Fiscal Year Ended December 31, 2004 Net Sales. Net sales for our reportable segments, excluding inter-segment sales, for the fiscal years ended December 31, 2005 and 2004 are summarized in the following table:
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America. This rationalization is a result of our cost reduction initiatives. Restructuring charges recorded by reportable segment during the fiscal year ended December 31, 2005, were as follows:
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reductions. Customer bankruptcies resulted in a charge of $1.0 million in 2005 for the Vehicle Management & Power Distribution reportable segment. The increase in income (loss) before income taxes at the Control Devices reportable segment was primarily the result of the $183.5 million goodwill impairment charge recorded in 2004 that did not recur in 2005. Excluding this charge, income declined year-over-year due to operational inefficiencies, product price reductions, decreased North American light vehicle volume, and a $2.6 million charge related to customer bankruptcies. Income (loss) before income taxes for the fiscal year ended December 31, 2005 for North America increased by $159.4 million to $1.5 million from $(157.9) million in 2004. Income (loss) before income taxes for 2005 outside North America decreased by $5.8 million to $2.9 million from $8.7 million in 2004. The decrease in our overall profitability, excluding the goodwill impairment charge recorded in 2004, was primarily due to operating inefficiencies, restructuring charges, customer bankruptcies, product price reductions, and increased product development activities. Provision (Benefit) for Income Taxes. We recognized a provision (benefit) for income taxes of $3.5 million, or 79% of pre-tax income, and $(56.7) million, or (38%) of the pre-tax loss, for federal, state and foreign income taxes for the fiscal years ended December 31, 2005 and 2004, respectively. The increase in the effective rate for the fiscal year ended December 31, 2005 compared to 2004 was attributable to net operating loss carryforwards and certain other deferred tax assets in the United Kingdom that required a full valuation allowance in 2005.Fiscal Year Ended December 31, 2004 Compared To Fiscal Year Ended December 31, 2003 Net Sales. Net sales for our reportable segments, excluding inter-segment sales, for the fiscal years ended December 31, 2004 and 2003 are summarized in the following table:
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to favorable currency exchange rates, partially offset by a decrease in sales to the light vehicle market and price reductions. Cost of Goods Sold. Cost of goods sold for the fiscal year ended December 31, 2004 increased by $56.2 million, or 12.5%, to $506.8 million from $450.6 million in 2003. As a percentage of sales, cost of goods sold remained flat at 74.3% in 2004 compared to 74.3% in 2003. Cost of goods sold includes primarily material, labor and manufacturing overhead costs. We were able to maintain our gross margin percentage despite the difficult operating environment due to management’s continued focus on our lean production system utilizing Six Sigma principles. Selling, General and Administrative Expenses. SG&A expenses increased by $17.2 million to $114.7 million for the fiscal year ended December 31, 2004 from $97.5 million in 2003. Included in SG&A expenses for the fiscal year ended December 31, 2004 and 2003 were product development expenses of $36.1 million and $28.7 million, respectively. The increase in SG&A expenses reflects increased investment in our product development activities, which are focused on occupant safety, chassis, driveline and instrument cluster products, and increased sales and marketing efforts. Sarbanes-Oxley implementation, especially compliance with Section 404 of the Sarbanes-Oxley Act of 2002, which relates to internal controls and legal-related costs, also negatively affected SG&A during 2004. As a percentage of sales, SG&A expenses increased to 16.8% in 2004 from 16.1% in 2003. Restructuring Charges. We initiated restructuring efforts in 2004 related to the rationalization of certain manufacturing facilities in the high cost European region. This rationalization was a result of our cost reduction initiatives. Restructuring charges recorded by reportable segment during the fiscal year ended December 31, 2004, were as follows:
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annual goodwill impairment analysis. The main factors that contributed to the goodwill impairment charge included an organizational realignment that was completed during the fourth quarter of 2004 as the result of a change in executive leadership and a realization that the anticipated growth of one of our business units included in the Control Devices reportable segment no longer justified the carrying value of its goodwill. Excluding the effect of the goodwill impairment charge, income before income taxes for the year ended December 31, 2004 decreased by $14.5 million at the Control Devices reportable segment to $33.5 million from $48.0 million, primarily as the result of price reductions, higher commodity costs, and increased product development activities. Income before income taxes for the year ended December 31, 2004 for North America decreased by $178.6 million to $(157.9) million from $20.7 million for the corresponding period in 2003. Income before income taxes for the year ended December 31, 2004 outside North America decreased by $1.6 million to $8.7 million from $10.3 million for the corresponding period of 2003. The decrease in our worldwide profitability was primarily due to the non-cash, goodwill impairment charge recognized in 2004. The loss before income taxes that we reported was also due to the decrease in passenger car and light truck production as well as price reductions, higher commodity costs, and increased product development activities, offset by increased commercial vehicle production and favorable currency exchange rates. Provision (Benefit) for Income Taxes. We recognized a provision (benefit) for income taxes of $(56.7) million, or 38.0% of the pre-tax loss, and $9.6 million, or 31.1% of pre-tax income, for federal, state and foreign income taxes for the years ended December 31, 2004 and 2003, respectively. The effective tax rate for 2004 decreased primarily due to the tax benefit recognized on the loss. The rate decrease was marginally impacted by a reduction in state taxes, which was offset by a reduction in credits and the impact of the goodwill impairment charge.Liquidity and Capital Resources Net cash provided by operating activities was $19.1 million and $48.3 million for the fiscal years ended December 31, 2005 and 2004, respectively. The decrease in net cash provided by operating activities of $29.2 million was primarily due to a decrease in our profitability, largely attributable to operating inefficiencies related to our restructuring efforts, the decrease in passenger car and light truck production, product price reductions, customer bankruptcies and increased product development activities. This decrease was partially offset by decreases in working capital requirements. Net cash used by investing activities was $27.6 million and $19.9 million for the fiscal years ended December 31, 2005 and 2004, respectively. The increase in net cash used by investing activities of $7.7 million was attributable to an increase in capital spending for our restructuring initiatives, high temperature sensors, speed sensors and customer actuated switches, offset by proceeds received from a sale of fixed assets in the United Kingdom in 2005. Net cash used by financing activities was $0.4 million and $1.0 million for the fiscal years ended December 31, 2005 and 2004, respectively. Cash used by financing activities for the year ended December 31, 2005 was primarily related to capital lease payments and deferred debt issuance costs related to the company’s credit facility amendments. As discussed in Note 9 to our consolidated financial statements, we have entered into foreign currency forward contracts with a notional value of $23.0 million to reduce exposure related to our krona- and pound-denominated receivables. The estimated fair value of these contracts at December 31, 2005, per quoted market sources, was approximately $0.2 million. The Company’s foreign currency option contracts have expired as of December 31, 2005. Our credit facilities contain various covenants that require, among other things, the maintenance of certain specified ratios of consolidated total debt to consolidated EBITDA, interest coverage and fixed charge coverage. Restrictions also include limits on capital expenditures, operating leases and dividends. We were in compliance with all covenants at December 31, 2005. On March 7, 2006, the Company amended its credit agreement dated May 1, 2002. The amendment modifies certain financial covenant requirements, changes20
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certain reporting requirements, sets borrowing levels based on certain asset levels and prohibits the Company from repurchasing, repaying or redeeming any of the Company’s outstanding subordinated notes unless certain covenant levels are met. The following table summarizes our future cash outflows resulting from financial contracts and commitments, as of December 31, 2005. The Company’s $200.0 million senior notes are redeemable in May 2007 at 105.75.
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entire production life of the vehicle. These agreements are subject to renegotiation, which may affect product pricing. Warranties. Our warranty reserve is established based on our best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. This estimate is based on historical trends of units sold and payment amounts, combined with our current understanding of the status of existing claims. In order to estimate the warranty reserve, we are required to forecast the resolution of existing claims as well as expected future claims on products previously sold. While we believe that our warranty reserve is adequate and that the judgment applied is appropriate, such amounts estimated to be due and payable could differ materially from what will actually transpire in the future. Our customers are increasingly seeking to hold suppliers responsible for product warranties, which could negatively impact our exposure to these costs. Allowance for Doubtful Accounts. We evaluate the collectibility of accounts receivable based on a combination of factors. In circumstances where we are aware of a specific customer’s inability to meet our financial obligations, a specific allowance for doubtful accounts is recorded against amounts due to reduce the net recognized receivable to the amount we reasonably believe will be collected. Additionally, we review historical trends for collectibility in determining an estimate for our allowance for doubtful accounts. If economic circumstances change substantially, estimates of the recoverability of amounts due to the Company could be reduced by a material amount. We do not have collateral requirements with our customers. Contingencies. We have accrued for estimated losses in accordance with SFAS 5, “Accounting for Contingencies,” when it is probable that a liability or loss has been incurred and the amount can be reasonably estimated. Contingencies by their nature relate to uncertainties that require the exercise of judgment both in assessing whether or not a liability or loss has been incurred and estimated that amount of probable loss. The reserves may change in the future due to new developments or changes in circumstances. The inherent uncertainty related to the outcome of these matters can result in amounts materially different from any provisions made with respect to their resolution. Inventory. Inventories are valued at the lower of cost or market. Cost is determined by thelast-in, first-out (“LIFO”) method for U.S. inventories and by thefirst-in, first-out (“FIFO”) method fornon-U.S. inventories. Where appropriate, standard cost systems are utilized for purposes of determining cost and the standards are adjusted as necessary to ensure they approximate actual costs. Estimates of the lower of cost or market value of inventory are determined based upon current economic conditions, historical sales quantities and patterns and, in some cases, the specific risk of loss on specifically identified inventories. Goodwill. In connection with the adoption of SFAS 142, “Goodwill and Other Intangible Assets,” we discontinued the amortization of goodwill on January 1, 2002. In lieu of amortization, this standard requires that goodwill be tested for impairment as of the date of adoption, at least annually thereafter and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. See Note 2 to our consolidated financial statements for more information on our application of this accounting standard, including the valuation techniques used to determine the fair value of goodwill. Share-Based Compensation. Effective April 3, 2005, we adopted SFAS 123(R), “Share-Based Payment,” using the modified-prospective-transition method. Because the Company had previously adopted the fair value recognition provisions required by SFAS 123, and due to the fact that all unvested awards at the time of adoption were being recognized under a fair value approach, the adoption of SFAS 123(R) did not affect our operating income, income before income taxes, net income, cash flow from operating activities, cash flow from financing activities, or basic and diluted net income per share for fiscal year ended December 31, 2005. See Note 2 to our consolidated financial statements for assumptions used to determine fair value. Deferred Income Taxes. Deferred income taxes are provided for temporary differences between amounts of assets and liabilities for financial reporting purposes and the basis of such assets and liabilities as measured by tax laws and regulations, as well as net operating loss, tax credit and other carryforwards. The Company does not provide deferred income taxes on unremitted earnings of certain22
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non-U.S. subsidiaries, which are deemed permanently reinvested. SFAS 109, “Accounting for Income Taxes,” requires that deferred tax assets be reduced by a valuation allowance if, based on all available evidence, it is considered more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. This assessment requires significant judgment, and in making this evaluation, the Company considers available positive and negative evidence, including past results, the existence of cumulative losses in recent periods, and our forecast of taxable income for the current year and future years.Recently Issued Accounting Standards In November 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS 151, “Inventory Costs,” as an amendment to Accounting Research Bulletin No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage). This Statement requires that these items be recognized as current-period charges and requires the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. This Statement becomes effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not expect the adoption of SFAS 151 to have a material impact on the Company’s consolidated financial statements. In December 2004, the FASB issued two FASB Staff Positions (“FSP”) that provide accounting guidance on how companies should account for the effects of the American Jobs Creation Act of 2004 (“the Act”) that was signed into law in October 2004. The Act could affect how companies report their deferred income tax balances. The first FSP is FSP SFAS 109-1 (“SFAS 109-1”); the second is FSP SFAS 109-2 (“SFAS 109-2”). In SFAS 109-1, the FASB concluded that the tax relief (special tax deduction for domestic manufacturing companies) from the Act should be accounted for as a “special deduction” instead of a tax rate reduction. The Company has reviewed SFAS 109-1. The Company has not issued financial statements that treat the “domestic manufacturing deduction” as a rate reduction. Therefore, SFAS 109-1 did not affect the Company’s financial statements for 2004. The Company now treats the domestic manufacturing deduction as a special deduction in its financial statements issued for 2005 forward. SFAS 109-2 gives companies additional time to evaluate the effects of the Act on any plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS 109, “Accounting for Income Taxes.” However, companies must provide certain disclosures if they choose to utilize the additional time granted by the FASB. The Company did not repatriate foreign earnings during 2004 or 2005. It is management’s intent not to repatriate foreign earnings during 2006 and beyond. Therefore, no disclosure is required. These FSPs, which were effective immediately, did not have a material impact on the Company’s consolidated financial statements. In May 2005, the FASB issued SFAS 154, “Accounting Changes and Error Corrections,” a replacement of APB Opinion No. 20, “Accounting Changes” and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements” in order to change the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle and changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. The Statement requires retrospective application to prior period financial statements of changes in accounting principle, unless it is impractical to determine either the period-specific effects or the cumulative effect of the change. This Statement becomes effective for accounting changes and corrections of errors during fiscal years beginning after December 15, 2005. The Company does not expect the adoption of SFAS 154 to have a material impact on the Company’s consolidated financial statements.Forward-Looking Statements Portions of this report 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, our directors or officers with respect to, among other things, our (i) future product and facility expansion, (ii) acquisition strategy, (iii) investments and new product development, and (iv) growth opportunities related to awarded business. Forward-looking23
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statements may be identified by the words “will,” “may,” “designed to,” “believes,” “plans,” “expects,” “continue,” and similar words and 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 or bankruptcy of a major customer; • the costs and timing of facility closures, business realignment, or similar actions; • a significant change in automotive, medium- and heavy-duty or agricultural and off-highway vehicle production; • our ability to achieve cost reductions that offset or exceed customer-mandated selling price reductions; • a significant change in general economic conditions in any of the various countries in which we operate; • labor disruptions at our facilities or at any of our significant customers or suppliers; • the ability of our suppliers to supply us with parts and components at competitive prices on a timely basis; • the amount of debt and the restrictive covenants contained in our credit facility; • customer acceptance of new products; • capital availability or costs, including changes in interest rates or market perceptions; • the successful integration of any acquired businesses; • the occurrence or non-occurrence of circumstances beyond our control; and • those items described in Part I, Item IA. (“Risk Factors”)ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.Interest Rate Risk From time to time, we are exposed to certain market risks, primarily resulting from the effects of changes in interest rates. At December 31, 2005, however, all of our debt was fixed rate debt. In order to manage the interest rate risk associated with the Company’s previous debt portfolio, we entered into interest rate swap agreements, which were terminated on May 1, 2002. At this time, we do not intend to use financial instruments to manage this risk.Commodity Price Risk Given the current economic climate and the recent increases in certain commodity costs, we currently are experiencing an increased risk particularly with respect to the purchase of copper, steel, and resins. We manage this risk through a combination of fixed price agreements, staggered short-term contract maturities and commercial negotiations with our suppliers. We may also consider pursuing alternative commodities or alternative suppliers to mitigate this risk over a period of time. At this time, we do not intend to use financial instruments to mitigate this risk. The recent increases in certain commodity costs have negatively affected our operating results, and a continuation of such price increases could significantly affect our profitability. Going forward, we believe that our mitigation efforts will offset a substantial portion of the financial impact of these increased costs. However, no assurances can be given that the magnitude or duration of these increased costs will not have a material impact on our future operating results.24
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Foreign Currency Exchange Risk Our risks related to foreign currency exchange rates have historically not been material; however, given the current economic climate, we are monitoring this risk. We use derivative financial instruments, including foreign currency forward and option contracts, to mitigate our exposure to fluctuations in foreign currency exchange rates by reducing the effect of such fluctuations on foreign currency denominated intercompany transactions and other known foreign currency exposures. As discussed in Note 9 to our consolidated financial statements, we have entered into foreign currency forward contracts with a notional value of $23.0 million to reduce exposure related to our krona- and pound-denominated intercompany loans. The estimated fair value of these contracts at December 31, 2005, per quoted market sources, was approximately $0.2 million. The Company’s foreign currency option contracts have expired as of December 31, 2005. We do not expect the effects of this risk to be material in the future based on the current operating and economic conditions in the countries in which we operate. Furthermore, a hypothetical pre-tax gain or loss in fair value from a 10.0% favorable or adverse change in quoted exchange rates would not significantly affect our results of operations, financial position or cash flows.25
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Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.INDEX TO CONSOLIDATED FINANCIAL STATEMENTSAND FINANCIAL STATEMENT SCHEDULE
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Report of Independent Registered Public Accounting FirmTo 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, 2005 and 2004 and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005. Our audit also included the financial statement schedule listed in the Index at Item 15. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Stoneridge, Inc. and Subsidiaries at December 31, 2005 and 2004 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As explained in Note 2 to the consolidated financial statements, effective at the beginning of the second quarter of 2005, the Company adopted Financial Accounting Standards (Statement) No. 123 (revised 2004), “Share-Based Payment,” using the modified-prospective-transition method. Also explained in Note 2 to the consolidated financial statements, effective January 1, 2003, the Company adopted Statement No. 123, “Accounting for Stock-Based Compensation,” under the prospective transition method in Statement No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure; an Amendment to Statement No. 123.” We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Stoneridge, Inc.’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2006 expressed an unqualified opinion thereon. /s/ Ernst & Young LLPCleveland, OhioMarch 9, 200627
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STONERIDGE, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(in thousands)
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STONERIDGE, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data)
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STONERIDGE, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)
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STONERIDGE, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY(in thousands)
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STONERIDGE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(in thousands, except share and per share data, unless otherwise indicated)1.Organization and Nature of Business Stoneridge, Inc. and its subsidiaries are independent designers and manufacturers of highly engineered electrical and electronic components, modules and systems for the automotive, medium- and heavy-duty truck, agricultural and off-highway vehicle markets.2.Summary of Significant Accounting PoliciesBasis of Presentation The accompanying consolidated financial statements include the accounts of Stoneridge and its wholly-owned and majority-owned subsidiaries (collectively, the “Company”). Intercompany transactions and balances have been eliminated in consolidation. Joint ventures in which the Company does not have control, but does have the ability to exercise significant influence over operating and principal policies are accounted for under the equity method (Note 3). Beginning in 2005, the Company changed from a calendar year end to a 52-53 week fiscal year end. The Company’s fiscal quarters are now comprised of 13 week periods and once every seven years, starting in 2008, the fourth quarter will be 14 weeks in length. However, the fourth quarter of 2005 and 2004 both ended on December 31.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, due to the highly liquid nature and short-term duration of the underlying securities.Accounts Receivable and Concentration of Credit Risk Revenues are principally generated from the automotive, medium- and heavy-duty truck, agricultural and off-highway vehicle markets. Due to the nature of these industries, a significant portion of sales and related accounts receivable are concentrated in a relatively small number of customers. Accounts receivable from the Company’s five largest customer balances aggregated approximately $50,507, $65,319 and $51,240 at December 31, 2005, 2004 and 2003, respectively. The following table presents these customers, as a percentage of net sales:
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STONERIDGE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(in thousands, except share and per share data, unless otherwise indicated)respectively, and by thefirst-in, first-out (“FIFO”) method for all other inventories. Inventory cost includes material, labor and overhead. Inventories consist of the following at December 31:
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STONERIDGE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(in thousands, except share and per share data, unless otherwise indicated)Goodwill and Other Intangible Assets Under 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. The company determined that it has four reporting units and two of these reporting units have goodwill that was tested in accordance with the provisions of SFAS 142. The Company performs its annual impairment test of goodwill as of the beginning of the fourth quarter. The Company uses a combination of valuation techniques, which include consideration of market-based approaches and an income approach, in determining the fair value of the Company’s applicable reporting units in the annual impairment test of goodwill. The Company believes that the combination of the valuation models provides a more appropriate valuation of the Company’s reporting units by taking into account different marketplace participant assumptions. The Company utilizes market and income approaches, specifically the guideline company method (market), the transaction method (market), and the discounted cash flow method (income), in its estimates of fair value of the Company’s reporting units being tested and an equal weight is given to each of these three methods. These methodologies are applied to the reporting units’ adjusted historical and projected financial performance. Earnings are emphasized in all three methods used. In addition, all three methods utilize market data in the derivation of a value estimate and are forward-looking in nature. The guideline assessment of future performance, and the discounted cash flow method utilize a market-derived rate of return to discount anticipated performance. As of the beginning of the fourth quarter, the goodwill balance of $65.2 million was related entirely to the Control Devices reportable segment. The Company completed its assessment of any potential goodwill impairment as of October 2, 2005 and determined that no impairment existed. As of October 1, 2004, the Company determined that the carrying value of one of the Company’s reporting units, which is included in the Control Devices reportable segment, exceeded its fair value by $183.5 million. The corresponding write-down of goodwill to its fair value was reported as a component of operating loss in the Company’s consolidated statement of operations for the fourth quarter of 2004. The Company had the following intangible assets included as a component of other assets in the balance sheet subject to amortization at December 31:
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STONERIDGE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(in thousands, except share and per share data, unless otherwise indicated)Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following at December 31:
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STONERIDGE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(in thousands, except share and per share data, unless otherwise indicated)Warranty Reserves The Company’s warranty reserve is established based on the Company’s best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. The following is a reconciliation of the changes in the Company’s warranty reserve at December 31:
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STONERIDGE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(in thousands, except share and per share data, unless otherwise indicated) The following table illustrates the effect on net income (loss) and net income (loss) per share if the fair value method had been applied to all outstanding and unvested awards in each period.
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STONERIDGE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(in thousands, except share and per share data, unless otherwise indicated)payable is considered to be representative of fair value because of the short maturity of these instruments. The carrying value of the Company’s variable rate debt approximates its fair value. Refer to Note 9 of the Company’s consolidated financial statements for fair value disclosures of the Company’s fixed rate debt, and foreign currency forward and option contracts.Common Shares Held in Treasury The Company accounts for Common Shares held in treasury under the cost method and includes such shares as a reduction of total shareholders’ equity.Accounting Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including certain self-insured risks and liabilities, 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. Because actual results could differ from those estimates, the Company revises its estimates and assumptions as new information becomes available.Net Income (Loss) Per Share Net income (loss) per share amounts for all periods are presented in accordance with SFAS 128, “Earnings Per Share,” which requires the presentation of basic and diluted net income 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:
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STONERIDGE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(in thousands, except share and per share data, unless otherwise indicated)gains and losses from certain foreign currency transactions, the effective portion of gains and losses on certain hedging activities, minimum pension liability adjustments, and unrealized gains and losses on available-for-sale marketable securities. The components of accumulated other comprehensive income (loss), as reported in the Statement of Consolidated Shareholders’ Equity as of December 31, net of tax were as follows:
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STONERIDGE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(in thousands, except share and per share data, unless otherwise indicated)not be recoverable. Except for the impairment of goodwill, no significant impairment charges were recorded in 2005, 2004 or 2003. Impairment would be recognized when events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. 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.Reclassifications Certain prior period amounts have been reclassified to conform to their 2005 presentation in the consolidated financial statements.3.InvestmentsPST Indústria Eletrônica da Amazônia Ltda. The Company has a 50% interest in PST Indústria Eletrônica da Amazônia 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’s investment in PST was $17,818 and $15,323 at December 31, 2005 and 2004, respectively. The Company has a note receivable with PST of $1,148 and $1,148, as of December 31, 2005 and 2004, respectively. Condensed financial information for PST is as follows:
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STONERIDGE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(in thousands, except share and per share data, unless otherwise indicated)received a dividend payment from PST during 2005 of $2,175, which decreased the Company’s investment in PST.Minda Instruments Ltd. The Company has a 20% interest in Minda Instruments Ltd. (“Minda”), a company based in India that manufactures electronic instrumentation equipment for the automotive and truck markets. The investment is accounted for under the equity method of accounting. The Company’s investment in Minda was $828 and $781 at December 31, 2005 and 2004, respectively. Equity in earnings of Minda included in the consolidated statements of operations were $76 and $21, for the fiscal years ended December 31, 2005 and 2004, respectively.4.Long-Term Debt On May 1, 2002, the Company issued $200.0 million aggregate principal amount of senior notes. The $200.0 million senior notes bear interest at an annual rate of 11.50% and mature on May 1, 2012. The senior notes are redeemable in May 2007 at 105.75. Interest is payable on May 1 and November 1 of each year. On July 1, 2002, the Company completed an exchange offer of the senior notes for substantially identical notes registered under the Securities Act of 1933. In conjunction with the issuance of the senior notes, the Company also entered into a new $200.0 million credit agreement with a bank group. The credit agreement had the following components: a $100.0 million revolving facility which includes a $10.0 million swing line facility, a€10 million swing line facility, and a $100.0 million term facility. The revolving facility expires on April 30, 2008 and requires a commitment fee of 0.375% to 0.500% 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 0.25% to 1.25% or (ii) LIBOR plus a margin of 1.75% to 2.75%, 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 1.75% to 2.75%, depending upon the Company’s ratio of consolidated total debt to consolidated EBITDA, as defined. Long-term debt consists of the following:
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STONERIDGE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(in thousands, except share and per share data, unless otherwise indicated) Future maturities of long-term debt at December 31, 2005 are as follows:
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STONERIDGE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(in thousands, except share and per share data, unless otherwise indicated) A reconciliation of the Company’s effective income tax rate to the statutory federal tax rate for is as follows:
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STONERIDGE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(in thousands, except share and per share data, unless otherwise indicated) Significant components of the Company’s deferred tax assets and (liabilities) as of December 31, 2005 and 2004 are as follows:
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STONERIDGE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(in thousands, except share and per share data, unless otherwise indicated) Future minimum operating lease commitments at December 31, 2005 are as follows:
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STONERIDGE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(in thousands, except share and per share data, unless otherwise indicated) A summary of option activity under the plans noted above as of December 31, 2005, and changes during the fiscal years ended are presented below:
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STONERIDGE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(in thousands, except share and per share data, unless otherwise indicated)during the fiscal year ended December 31, 2005 was $460. No time-based restricted Common Share awards vested during the fiscal year ended December 31, 2004. As of December 31, 2005, total unrecognized compensation cost related to nonvested performance-based restricted Common Share awards granted was $577. That cost is expected to be recognized over a weighted-average period of 2.3 years. No performance-based restricted Common Share awards have vested as of December 31, 2005. Cash received from option exercises under all share-based payment arrangements for the fiscal years ended December 31, 2005, 2004 and 2003 was $66, $561 and $444 respectively. Cash used to settle equity instruments granted under all share-based arrangements for the fiscal year ended December 31, 2005 was $65. There was no cash used to settle share-based arrangements for the fiscal years ended December 31, 2004 and 2003. The actual tax benefit realized for the tax deductions from option exercises of the share-based payment arrangements totaled $220, $1,466 and $175 for the fiscal years ended December 31, 2005, 2004 and 2003, respectively.8.Employee Benefit Plans The Company has certain defined contribution profit sharing and 401(k) plans covering substantially all of its employees. Company contributions are generally discretionary; however, a portion of these contributions is based upon a percentage of employee compensation, as defined in the plans. The Company’s policy is to fund all benefit costs accrued. For the fiscal years ended December 31, 2005, 2004 and 2003, expenses related to these plans amounted to $4,313, $4,593 and $4,541, respectively. The Company has a single defined benefit pension plan that covers certain employees in the United Kingdom and a single postretirement benefit plan that covers certain employees in the U.S. The following table sets forth the benefit obligation, fair value of plan assets, and the funded status of the Company’s plans; amounts recognized in the Company’s financial statements; and the principal weighted average assumptions used:
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STONERIDGE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(in thousands, except share and per share data, unless otherwise indicated)
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STONERIDGE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(in thousands, except share and per share data, unless otherwise indicated)allocations are to maintain investment portfolios that diversify risk through prudent asset allocation parameters, achieve asset returns that meet or exceed the plans’ actuarial assumptions, and achieve asset returns that are competitive with like institutions employing similar investment strategies. The Company and a designated third-party fiduciary periodically review the investment policy. The policy is established and administered in a manner so as to comply at all times with applicable government regulations. The Company expects to contribute $273 to its defined benefit pension plan in 2006. The following pension and postretirement benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
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STONERIDGE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(in thousands, except share and per share data, unless otherwise indicated)purposes. Management believes that its use of these instruments to reduce risk is in the Company’s best interest. The Company’s foreign currency forward contracts have a notional value of $23.0 million and reduce exposure related to the Company’s Swedish krona and British pound denominated receivables. The estimated fair value of these contracts at December 31, 2005, per quoted market sources, was approximately $0.2 million. The Company’s foreign currency option contracts have expired as of December 31, 2005. In order to manage the interest rate risk associated with the Company’s previous debt portfolio, the Company entered into interest rate swap agreements. These agreements required the Company to pay a fixed interest rate to counterparties while receiving a floating interest rate based on LIBOR. The counterparties to each of the interest rate swap agreements were major commercial banks. These agreements were due to mature on or before December 31, 2003 and qualified as cash flow hedges; however, as a result of the Company’s debt refinancing, these agreements were terminated on May 1, 2002. Hedging activities recorded in accumulated other comprehensive income (loss) for the fiscal year ended December 31, 2003 was as follows:
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STONERIDGE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(in thousands, except share and per share data, unless otherwise indicated)were recorded in the Company’s consolidated statement of operations as components of provision for doubtful accounts expense.11.Related Party Transactions Relationship with Counsel. Avery Cohen, a director of the Company, is a partner in Baker & Hostetler LLP, a law firm, which has served as general outside counsel for the Company since 1993 and is expected to continue to do so in the future. The Company paid $1,193, $1,255 and $940 in legal fees to Baker & Hostetler, LLP for the fiscal years ended December 31, 2005, 2004 and 2003, respectively. Industrial Development Associates LP (“IDA”).Earl Linehan, a director of the Company, and D.M. Draime, Chairman of the Board of Directors, as limited partners, own 11.81% and 10.00%, respectively, of IDA, a Maryland limited partnership real estate development company in which the Company is a 30% general partner. The Company made lease payments to IDA of $115 in 2003. Hunters Square. See Note 6 to the Company’s consolidated financial statements for information on the Company’s related party transactions involving operating leases.12.Restructuring The Company has announced restructuring initiatives related to the rationalization of certain manufacturing facilities in the high cost regions of Europe and North America. This rationalization is part of the Company’s cost reduction initiatives. In connection with these initiatives, the Company recorded restructuring charges of $4,762 and $2,087 in the Company’s consolidated statement of operations for the fiscal years ended December 31, 2005 and 2004. The restructuring charges related to the Vehicle Management & Power Distribution reportable segment included the following:
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STONERIDGE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(in thousands, except share and per share data, unless otherwise indicated) The restructuring charges related to the Control Devices reportable segment included the following:
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STONERIDGE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(in thousands, except share and per share data, unless otherwise indicated)segments are aggregated for reporting purposes into the Company’s Vehicle Management & Power Distribution and Control Devices reportable segments. The Company’s chief executive officer also changed the profit measure used to evaluate the business to “Income Before Income Taxes.” In addition to the 2004 changes, the Company further realigned management responsibilities effective for the second quarter of 2005. As a result, a component within the Control Devices reportable segment was realigned to the Vehicle Management & Power Distribution reportable segment. Because the Company changed the structure of its internal organization in a manner that caused the composition of its reportable segments to change, the corresponding information for prior periods has been adjusted to conform to the current year reportable segment presentation. The accounting policies of the Company’s reportable segments are the same as those described in Note 2, “Summary of Significant Accounting Policies.” The Company’s chief executive officer evaluates the performance of its reportable segments based primarily on revenues from external customers, capital expenditures and income before income taxes. Inter-segment sales are accounted for on terms similar to those to third parties and are eliminated upon consolidation. A summary of financial information by reportable segment is as follows:
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STONERIDGE, INC. AND SUBSIDIARIESNOTES 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:
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STONERIDGE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(in thousands, except share and per share data, unless otherwise indicated) These summarized condensed consolidating financial statements are prepared under 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.
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STONERIDGE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(in thousands, except share and per share data, unless otherwise indicated) Supplemental condensed consolidating financial statements (continued):
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STONERIDGE, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(in thousands, except share and per share data, unless otherwise indicated)16.Unaudited Quarterly Financial Data The following is a summary of actual quarterly results of operations for 2005 and 2004:
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STONERIDGE, INC. AND SUBSIDIARIESSCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS(in thousands)
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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 its independent auditors on any matter of accounting principles or practices of financial statement disclosures, or auditing scope or procedure.ITEM 9A.CONTROLS AND PROCEDURES.Evaluation of Disclosure Controls and Procedures As of December 31, 2005, an evaluation was performed under the supervision and with the participation of the Company’s management, including the chief executive officer (CEO) and chief financial officer (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 December 31, 2005.Changes in Internal Control Over Financial Reporting There were no changes in the Company’s internal control over financial reporting during the fourth quarter ended December 31, 2005 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f)and 15d-15(f). In evaluating the Company’s internal control over financial reporting, management has adopted the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Under the supervision and with the participation of our management, including the principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting, as of December 31, 2005. Based on our evaluation under the framework in Internal Control — Integrated Framework, our management has concluded that our internal control over financial reporting was effective as of December 31, 2005. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management’s assessment of the effectiveness of the internal control over financial reporting as of December 31, 2005 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report, which follows this report.65
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Report of Independent Registered Public Accounting FirmTo the Board of Directors and Shareholders of Stoneridge, Inc. We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Stoneridge, Inc. and Subsidiaries maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Stoneridge Inc. and Subsidiaries’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, management’s assessment that Stoneridge, Inc. and Subsidiaries maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Stoneridge, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, 2005 and 2004 and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2005 of Stoneridge, Inc. and Subsidiaries and our report dated March 9, 2006 expressed an unqualified opinion thereon. /s/ Ernst & Young LLPCleveland, OhioMarch 9, 200666
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Item 9B.OTHER INFORMATION. None.PART IIIITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by Item 10 regarding our directors is incorporated by reference to the Proxy Statement sections entitled, “Election of Directors,” “Audit Committee,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance.” The information required by Item 10 regarding our executive officers appears as a Supplementary Item following Item 4 under Part I of the 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 April 24, 2006.ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The information required by this Item 12 (other than the information required by Item 201(d) of Regulation S-Kwhich is set forth below) 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 April 24, 2006. In October 1997, we adopted a Long-Term Incentive Plan for our employees. In May 2002, we adopted a Director Share Option Plan for our directors and in April 2005, we adopted a Directors’ Restricted Shares Plan. Our shareholders approved each plan. Equity compensation plan information, as of December 31, 2005, is as follows:
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ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES. The information required by this Item 14 is incorporated by reference to the information under the heading “Other Matters” contained in the Company’s Proxy Statement in connection with its Annual Meeting of Shareholders to be held on April 24, 2006.PART IVITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES. (a) The following documents are filed as part of this Form 10-K.
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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 9, 2006 /s/ GEORGE E. STRICKLER George E. Strickler Executive Vice President and Chief Financial Officer (Principal Financial Officer) Pursuant to the requirements of the 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 dates indicated.
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INDEX TO EXHIBITS
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