SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999. Commission file number 001-13337 STONERIDGE, INC. --------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Ohio 34-1598949 -------------------------------- ------------------------ (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 9400 East Market Street, Warren, Ohio 44484 ----------------------------------------- ------------------ (Address of Principal Executive Offices) (Zip Code) (330) 856-2443 -------------------------------------------- Registrant's Telephone Number, Including Area Code Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . ----- ------ The number of Common Shares, without par value, outstanding as of August 11, 1999 : 22,397,311
STONERIDGE, INC. INDEX <TABLE> <CAPTION> Part I Financial Information Page No. <S> <C> Item 1. Financial Statements Condensed Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 2 Condensed Consolidated Statements of Income for the three months and six months ended June 30, 1999 and 1998 3 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and 1998 4 Notes to Condensed Consolidated Financial Statements 5-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-12 Item 3. Quantitative and Qualitative Disclosure About Market Risk 12 Part II Other Information 13-14 Signatures 15 Exhibit Index 16 </TABLE> 1
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS STONERIDGE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) <TABLE> <CAPTION> June 30, December 31, 1999 1998 ----------- ------------ (unaudited) (audited) ASSETS - ------ <S> <C> <C> CURRENT ASSETS: Cash and cash equivalents $ 4,232 $ 1,876 Accounts receivable, net 100,131 84,655 Inventories 56,976 53,273 Prepaid expenses and other 9,803 5,983 Deferred income taxes 12,839 11,679 ------------ ---------- Total current assets 183,981 157,466 ------------ ---------- PROPERTY, PLANT AND EQUIPMENT, net 98,495 94,770 OTHER ASSETS: Goodwill, net 349,729 351,501 Other intangible assets, net 3,889 3,928 Investments and other 27,454 30,451 ------------ ---------- TOTAL ASSETS $ 663,548 $ 638,116 ============ ========== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES: Current portion of long-term debt $ 22,782 $ 21,213 Accounts payable 44,110 45,835 Accrued expenses and other 57,484 48,234 ------------ ---------- Total current liabilities 124,376 115,282 ------------ ---------- LONG-TERM DEBT, net of current portion 315,031 322,724 DEFERRED INCOME TAXES 10,628 8,088 OTHER LIABILITIES 1,361 1,480 ------------ ---------- Total long term liabilities 327,020 332,292 ------------ ---------- SHAREHOLDERS' EQUITY: Preferred shares, without par value, 5,000 authorized, none issued -- -- Common shares, without par value, 60,000 authorized, 22,397 issued and outstanding at June 30, 1999 and December 31, 1998, stated at -- -- Additional paid-in capital 141,506 141,506 Retained earnings 71,311 49,330 Accumulated other comprehensive income (665) (294) ------------ ---------- Total shareholders' equity 212,152 190,542 ------------ ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 663,548 $ 638,116 ============ ========== </TABLE> The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated balance sheets. 2
STONERIDGE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (in thousands except for per share data) <TABLE> <CAPTION> For the three months ended For the six months ended June 30, June 30, -------------------------------- ---------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- <S> <C> <C> <C> <C> NET SALES $ 178,048 $ 121,763 $ 355,703 $ 252,979 COST AND EXPENSES: Cost of goods sold 128,237 92,143 256,451 191,656 Selling, general and administrative expenses 24,150 14,939 47,334 30,604 ------------- ------------- ------------ -------------- Operating income 25,661 14,681 51,918 30,719 Interest expense, net 7,326 266 15,576 540 Other income 225 -- 225 -- ------------- ------------- ------------ -------------- INCOME BEFORE INCOME TAXES 18,560 14,415 36,567 30,179 Provision for income taxes 7,352 5,622 14,586 12,004 ------------- ------------- ------------ -------------- NET INCOME $ 11,208 $ 8,793 $ 21,981 $ 18,175 ============= ============= ============ ============== BASIC AND DILUTED NET INCOME PER SHARE $ 0.50 $ 0.39 $ 0.98 $ 0.81 ============= ============= ============ ============== WEIGHTED AVERAGE SHARES OUTSTANDING 22,397 22,397 22,397 22,397 ============= ============= ============ ============== </TABLE> The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated statements. 3
STONERIDGE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) <TABLE> <CAPTION> For the six months ended June 30, ----------------------------- 1999 1998 ---- ---- <S> <C> <C> OPERATING ACTIVITIES: Net income $ 21,981 $ 18,175 Adjustments to reconcile net income to net cash from operating activities- Depreciation and amortization 14,748 7,221 Deferred income taxes 1,644 (978) Changes in operating assets and liabilities- Accounts receivable, net (11,670) 2,907 Inventories 961 (2,287) Prepaid expenses and other (3,426) (1,921) Other assets, net 735 (1,384) Accounts payable (3,856) (1,255) Accrued expenses and other 4,662 (2,012) ---------- --------- Net cash from operating activities 25,779 18,466 ---------- --------- INVESTING ACTIVITIES: Capital expenditures (5,241) (4,565) Proceeds from sale of fixed assets -- 12 Business acquisitions (12,038) (5,361) ---------- --------- Net cash from investing activities (17,279) (9,914) ---------- --------- FINANCING ACTIVITIES: Shareholder distributions paid -- (2,600) Proceeds from long-term debt 3,166 -- Repayments of long-term debt (83) (4,477) Net repayments under credit agreement (9,207) (768) ---------- --------- Net cash from financing activities (6,124) (7,845) ---------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (20) -- NET CHANGE IN CASH AND CASH EQUIVALENTS 2,356 707 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,876 1,338 ---------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,232 $ 2,045 ========== ========= </TABLE> The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated statements. 4
STONERIDGE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except for share and per share data) 1. The accompanying condensed consolidated financial statements have been prepared by Stoneridge, Inc. (the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the Commission). The information furnished in the condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of such financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Commission's rules and regulations. Although the Company believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these condensed consolidated financial statements be read in conjunction with the audited financial statements and the notes thereto included in the Company's 1998 Annual Report to Shareholders. The results of operations for the three and six months ended June 30, 1999 are not necessarily indicative of the results to be expected for the full year. 2. Inventories are valued at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for approximately 69% and 76% of the Company's inventories at June 30, 1999 and December 31, 1998, respectively, and by the first-in, first-out (FIFO) method for all other inventories. Inventory cost includes material, labor and overhead. Inventories consist of the following: June 30, 1999 December 31, 1998 ------------- ----------------- Raw materials $37,772 $32,453 Work in progress 8,169 10,673 Finished goods 13,477 12,379 Less-LIFO reserve (2,442) (2,232) ------------ ------------ Total $56,976 $53,273 ============ ============ 3. On March 6, 1999, the Company purchased certain assets and assumed certain liabilities of Delta Schoeller, Ltd. (Delta), a United Kingdom manufacturer of switches for the automotive industry. The transaction was accounted for as a purchase. The preliminary purchase price approximates $12.0 million. On December 31, 1998, the Company purchased all the outstanding common shares of Hi-Stat Manufacturing Company, Inc. (Hi-Stat) for approximately $362,000. Hi-Stat manufactures engineered sensors, switches and solenoids for the automotive industry. The transaction was accounted for as a purchase. Accordingly, the assets acquired and liabilities assumed of Hi- Stat are included in the consolidated balance sheet as of June 30, 1999 and December 31, 1998. The purchase price was funded with the Company's cash on hand and with proceeds from the Company's senior secured credit agreement. The components of intangible assets included in the allocation of purchase price at December 31, 1998 and the related straight-line amortization periods is summarized as follows: 5
STONERIDGE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) (in thousands, except for share and per share data) Amortization Amount Period (years) ------ -------------- Non-compete covenants $ 590 2 Patents 2,580 6-13 Goodwill 309,613 40 -------- Total $312,783 ======== The results of operations of Hi-Stat have been included in the accompanying financial statements from the date of acquisition. As such, Hi-Stat has no effect on fiscal year 1998 net income. The unaudited proforma consolidated results of operations as though Hi-Stat had been acquired as of the beginning of fiscal 1998 is as follows: Three months ended Six months ended June 30, 1998 June 30, 1998 ------------- ------------- Net sales $158,446 $331,315 Operating income $20,694 $43,434 Net income $5,787 $13,106 Basic and diluted earnings per share $0.26 $0.59 The pro forma data does not purport to be indicative of the results that would have been obtained had these events actually occurred at the beginning of the periods presented and is not intended to be a projection of future results. The pro forma amounts reflect the results of operations for the Company, Hi-Stat and the following assumed purchase accounting adjustments for the periods presented: . Elimination of historical management costs and interest expense of Hi- Stat . Interest expense on borrowings used to fund the acquisition . Amortization of intangible assets based on the purchase price allocation . Estimated income tax effect on the results of operations and the pro forma adjustments assuming both companies were subject to tax as C corporations 4. Other comprehensive income includes foreign currency translation adjustments, net of related tax. Comprehensive income consists of the following: <TABLE> <CAPTION> Three months ended June 30, Six months ended June 30, -------------------------- ------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- <S> <C> <C> <C> <C> Net income $11,208 $8,793 $21,981 $18,175 Other comprehensive income (456) (93) (371) (3) -------------------------- ------------------------- Comprehensive income $10,752 $8,700 $21,610 $18,172 ========================== ======================== </TABLE> 6
STONERIDGE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (Unaudited) (in thousands, except for share and per share data) 5. The Company has a $425,000 credit agreement with a bank group. The credit agreement has three components: a $100,000 revolving credit facility, a $150,000 term facility and a $175,000 term facility. The $100,000 revolving facility and the $150,000 term facility expire on December 31, 2003, and require a commitment fee of 0.37% to 0.50% on the unused balance. Interest is payable quarterly at either (i) the prime rate plus a margin of 0.25% to 1.50% or (ii) LIBOR plus a margin of 1.75% to 3.00%, depending upon the Company's ratio of consolidated total debt to consolidated earnings before interest, taxes, depreciation and amortization, as defined. The $175,000 term facility expires on December 31, 2005. Interest is payable quarterly at either (i) the prime rate plus a margin of 2.00% or (ii) LIBOR plus a margin of 3.50%. Long-term debt consists of the following: <TABLE> <CAPTION> June 30, 1999 December 31,1998 ------------- ---------------- <S> <C> <C> Borrowings under credit agreement $333,808 $342,150 Other 4,005 1,787 ------------- ---------------- 337,813 343,937 Less: Current maturities 22,782 21,213 ------------- ---------------- $315,031 $322,724 ============= ================ </TABLE> 6. The Company presents basic and diluted earnings per share in accordance with Statement of Financial Accounting Standard No. 128, "Earnings per Share". Potentially dilutive securities are not significant and do not create differences between reported basic and diluted earnings per share for all periods presented. 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - --------------------- Six Months Ended June 30, 1999 Compared To Six Months Ended June 30, 1998 - ------------------------------------------------------------------------- Net Sales. Net sales for the six months ended June 30, 1999 increased by $102.7 million, or 40.6%, to $355.7 million from $253.0 million for the same period in 1998. Sales of core products increased by $120.9 million, or 56.8%, to $333.8 million during the first six months of 1999 compared to $212.9 million for the same period of 1998. Sales of core products from the recent acquisitions of Hi- Stat and Delta accounted for $99.9 million of the change, while sales of existing core products increased by $21.0 million, or 9.9%, compared to the same period in 1998. Sales revenues for the six months ended June 30, 1999 were favorably impacted by strong OEM production volumes in both the passenger car/light truck and the commercial vehicle markets which was offset by lower production volumes in the agricultural vehicle market. Sales for the six months ended June 30, 1999 for North America increased by $91.4 million to $322.2 million from $230.8 million for the same period in 1998. North American sales accounted for 90.6% of total sales for the six months ended June 30, 1999 compared with 91.2% for the same period in 1998. Sales for the first six months of 1999 outside North America increased by $11.3 million to $33.5 million from $22.2 million for the same period in 1998. Sales outside North America accounted for 9.4% of total sales for the six months ended June 30, 1999 compared with 8.8% for the same period in 1998. During the second quarter of 1999, the Company completed the planned phase out of its contract manufacturing business. As expected, contract manufacturing sales for the first six months of 1999 declined by $18.1 million to $21.9 million, or 6.2% of the Company's total sales revenue compared with $40.0 million, or 15.8% of total sales revenue for the same period in 1998. Cost of Goods Sold. Cost of goods sold for the first six months of 1999 increased by $64.8 million, or 33.8%, to $256.5 million from $191.7 million in the first six months of 1998. As a percentage of sales, cost of goods sold decreased to 72.1% for the first six months of 1999 from 75.8% for the same period in 1998. The decrease as a percent of sales was due primarily to a shift in product mix to higher value added electrical and electronic core products and lower contract manufacturing sales. Selling, General and Administrative Expenses. Selling, general and administrative (SG&A) expenses increased by $16.7 million to $47.3 million in the first six months of 1999 from $30.6 million for the same period in 1998. As a percentage of sales, SG&A expenses increased to 13.3% for the first six months of 1999 from 12.1% for the same period in 1998. The majority of the increase was attributable to additional costs of the newly acquired business. Interest Expense. Interest expense for the first six months of 1999 was $15.6 million compared with $0.5 million for the same period in 1998. Average outstanding indebtedness was $345.4 million and $12.1 million for the first six months of 1999 and 1998, respectively. The increase in average outstanding indebtedness was primarily due to borrowings to finance recent acquisitions. Income Before Income Taxes. As a result of the foregoing, income before taxes increased by $6.4 million for the first six months of 1999 to $36.6 million from $30.2 million for the same period in 1998. 8
Provision for Income Taxes. The Company recognized provisions for income taxes of $14.6 million and $12.0 million for federal, state and foreign income taxes for the first six months of 1999 and 1998, respectively. Net Income. As a result of the foregoing, net income increased by $3.8 million, or 20.9%, to $22.0 million for the first six months of 1999 from $18.2 million for the same period in 1998. Three Months Ended June 30, 1999 Compared To Three Months Ended June 30, 1998 - ----------------------------------------------------------------------------- Net Sales. Net sales for the quarter ended June 30, 1999 increased by $56.2 million, or 46.1%, to $178.0 million from $121.8 million for the same period in 1998. Sales of core products increased by $66.9 million, or 64.0%, to $171.4 million during the second quarter of 1999 compared to $104.5 million for the same period of 1998. Sales of core products from the recent acquisitions of Hi- Stat and Delta accounted for $52.7 million of the change, while sales of existing core products increased by $14.2 million, or 13.6%, compared to same period in 1998. Sales revenues for the second quarter of 1999 were favorably impacted by strong OEM production volumes in both the passenger car/light truck and the commercial vehicle markets which was offset by lower production volumes in the agricultural vehicle market. Sales for the quarter ended June 30, 1999 for North America increased by $50.8 million to $161.0 million from $110.2 million for the same period in 1998. North American sales accounted for 90.4% of total sales for the second quarter of 1999 compared with 90.5% for the same period in 1998. Sales for the second quarter of 1999 outside North America increased by $5.4 million to $17.0 million from $11.6 million for the same period in 1998. Sales outside North America accounted for 9.6% of total sales for the second quarter of 1999 compared with 9.5% for the same period in 1998. As previously mentioned, the Company completed its planned phase out of the contract manufacturing business. As expected, contract manufacturing sales for the second quarter of 1999 declined by $10.7 million to $6.7 million, or 3.8%, of the Company's total sales revenue compared with $17.2 million, or 14.2%, of total sales revenue for the same period in 1998. Cost of Goods Sold. Cost of goods sold for the second quarter of 1999 increased by $36.1 million, or 39.2%, to $128.2 million from $92.1 million in the second quarter of 1998. As a percentage of sales, cost of goods sold decreased to 72.0% in 1999 from 75.7% in 1998. The decrease as a percent of sales was due primarily to a shift in product mix to higher value added electrical and electronic core products and lower contract manufacturing sales. Selling, General and Administrative Expenses. Selling, general and administrative (SG&A) expenses increased by $9.3 million to $24.2 million in the second quarter of 1999 from $14.9 million for the same period in 1998. As a percentage of sales, SG&A expenses increased to 13.6% for the second quarter of 1999 from 12.2% for the same period in 1998. The majority of the increase was attributable to the additional costs of the newly acquired business. Interest Expense. Interest expense for the second quarter of 1999 was $7.3 million compared with $0.3 million for the same period in 1998. Average outstanding indebtedness was $342.6 million and $10.8 million for the second quarter of 1999 and 1998, respectively. The increase in average outstanding indebtedness was primarily due to borrowings to finance recent acquisitions. Income Before Income Taxes. As a result of the foregoing, income before taxes increased by $4.2 million for the second quarter of 1999 to $18.6 million from $14.4 million in 1998. 9
Provision for Income Taxes. The Company recognized provisions for income taxes of $7.4 million and $5.6 million for federal, state and foreign income taxes for the second quarters of 1999 and 1998, respectively. Net Income. As a result of the foregoing, net income increased by $2.4 million, or 27.3%, to $11.2 million for the second quarter of 1999 from $8.8 million for the same period in 1998. Liquidity and Capital Resources Net cash provided by operating activities was $25.8 million and $18.5 million for the six months ended June 30, 1999 and 1998, respectively. The increase in net cash from operating activities of $7.3 million was due primarily to the increase in net income of $3.8 million and the increase in depreciation and amortization of $7.5 million which was offset by the increase in working capital and other operating assets of $4.0 million. Net cash used for investing activities was $17.3 million and $9.9 million for the six months ended June 30, 1999 and 1998, respectively. The increase in cash used for investing activities of $7.4 million was primarily the result of the acquisition of Delta. The acquisition of Delta was financed with funds from the Company's $425.0 million credit agreement. Net cash used for financing activities was $6.1 million for the six months ended June 30, 1999 as compared to net cash used for financing activities of $7.8 million for the six months ended June 30, 1998. The Company has a $425.0 million credit agreement (of which $333.8 million was outstanding at June 30, 1999) with a bank group. The credit agreement has three components: a $100.0 million revolving facility (of which $93.0 million is currently available), a $150.0 million term facility, and a $175.0 million term facility. The $100.0 million revolving facility and the $150.0 million term facility expire on December 31, 2003, and require a commitment fee of 0.37% to 0.50% on the unused balance. Interest is payable quarterly at either (i) the prime rate plus a margin of 0.25% to 1.50% or (ii) LIBOR plus a margin of 1.75% to 3.00%, depending upon the Company's ratio of consolidated total debt to consolidated earnings before interest, taxes, depreciation and amortization, as defined. The $175,000 term facility expires on December 31, 2005. Interest is payable quarterly at either (i) the prime rate plus a margin of 2.00% or (ii) LIBOR plus a margin of 3.50%. The Company has entered into five interest rate swap agreements with a total notional amount of $350.0 million. The interest rate swap agreements exchange variable interest rates on the senior secured credit facility for fixed interest rates. The Company does not use derivatives for speculative or profit- motivated purposes. To the extent that the notional amount of the swap agreements exceed the carrying value of the underlying debt, a mark to market adjustment is reflected in the financial statements. Management believes that cash flows from operations and the availability of funds from the Company's credit facilities will provide sufficient liquidity to meet the Company's growth and operating needs. 10
Inflation and International Presence Management believes that the Company's operations have not been adversely affected by inflation. By operating internationally, the Company is affected by the economic conditions of certain countries. Based on the current economic conditions in these countries, management believes they are not significantly exposed to adverse economic conditions. Recently Issued Accounting Standards Effective January 1, 1998 the Company adopted Statement of Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an Enterprise and Related Information." SFAS 131 requires the financial statement disclosures for operating segments, products and services, and geographic areas. The Company operates in one business segment based on the criteria set forth in SFAS 131. Therefore, SFAS 131 will not affect the Company's financial position, results of operations or financial statement disclosures. The Company is required to adopt Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities". SFAS 133 establishes new accounting and reporting standards for derivatives and hedging activities. In May 1999, the Financial Accounting Standards Board announced a deferral in the implementation date of SFAS 133 to January 1, 2001. The Company has not yet evaluated the financial accounting and reporting impact of SFAS 133. Year 2000 Initiative The Company has conducted an evaluation of the actions necessary in order to gain assurance that its information and non-information technology systems will be able to function without disruption with respect to the application of dating systems in the Year 2000. As a result of this evaluation, the Company is engaged in the process of upgrading, replacing and testing information systems, computer applications and other systems to be able to operate without disruption due to Year 2000 issues. The Company's remedial actions are scheduled to be completed by the end of the third quarter of 1999. There can be no assurance that the remedial actions being implemented by the Company will be able to be completed by the time necessary to avoid Year 2000 dating systems problems or that the cost of doing so will not be in excess of the amounts discussed below. If the Company is unable to complete its remedial actions in the planned timeframe, contingency plans will be developed to address systems that may not be Year 2000 compliant. These contingency plans could include accelerating the implementation of third party Year 2000 compliant software. The Company estimates total historical Year 2000 expenditures to be approximately $3.0 million. Year 2000 expenditures relate to modifying software, purchasing new software and hardware, and replacing non-compliant software and hardware. Year 2000 expenditures to be incurred through December 31, 1999 are estimated to be an additional $0.9 million. These costs include both internal and external personnel costs related to the assessment process, as well as the cost of purchasing certain hardware and software. There can be no guarantee that these estimates will be achieved, and actual results may differ from those planned. The cost of remedial actions to rectify non-information technology systems is not anticipated to be material to the Company's financial position or results of operations. The Company intends to use cash provided from operations to fund expenditures related to Year 2000 issues. 11
The Company currently believes the most likely worst case scenario with respect to the Year 2000 issue is a disruption in the supply of products and services from the Company's vendors, including utility providers. Such a supply disruption could result in the Company not being able to produce certain products for a period of time, which could have a material adverse effect on the financial condition and results of operations of the Company. The Company intends to develop contingency plans to address potential third party system failures resulting from a Year 2000 problem. The Company has an ongoing assessment process to gain assurances and certifications of customers' and suppliers' Year 2000 readiness programs. Based on the results of the assessment process, the Company will develop contingency plans for those suppliers who are unable or unwilling to develop remediation plans to become Year 2000 compliant. Although these plans are not yet complete, the Company expects that these plans will include a combination of the resourcing of materials to Year 2000 compliant vendors and the stockpiling of components. The Company expects the implementation of these plans to occur by the end of the third quarter of 1999. Portions of this Year 2000 section contain statements that constitute forward- looking statements. The forward-looking statements include statements regarding the Company's intent, belief and expectations with respect to, among other things, the timing of the Company's Year 2000 remedial actions and the development of the Company's contingency plans, and the future expenses related to the Company's Year 2000 compliance programs. Investors are cautioned that any such forward-looking statement is not a guarantee and involves risks and uncertainties, and that actual events may differ materially from those in the forward-looking statement as a result of various factors, including, among others, the discovery of a currently unknown material Year 2000 issue, the failure of third parties to address Year 2000 issues, the failure to implement the Company's Year 2000 plan as scheduled, and a material increase in the costs of external consultants. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company is exposed to certain market risks, primarily resulting from the effects of changes in interest rates. To reduce exposures to market risks resulting from fluctuations in interest rates, the Company uses derivative financial instruments. Specifically, the Company uses interest rate swap agreements to mitigate the effects of interest rate fluctuations on net income by changing the floating interest rates on certain portions of the Company's debt to fixed interest rates. The effect of changes in interest rates on the Company's net income generally has been small relative to other factors that also affect net income, such as sales and operating margins. Management believes that its use of these financial instruments to reduce risk is in the Company's best interest. The Company does not enter into financial instruments for trading purposes. The Company's risks related to commodity price and foreign currency exchange risks have historically not been material. The Company does not expect the effects of these risks to be material based on current operating and economic conditions in the countries and markets in which it operates. 12
PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - ----------------------------- In the ordinary course of business, the Company is involved in various legal proceedings, workers' compensation and product liability disputes. The Company is of the opinion that the ultimate resolution of these matters will not have a material adverse effect on the results of operations or the financial position of the Company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS - ----------------------------------------------------- None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES - ------------------------------------------- None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - --------------------------------------------------------------- (a) The Annual Meeting of Shareholders of Stoneridge, Inc. was held on May 3, 1999. (b) The following matter was submitted to a vote at the meeting (1) The election of the following nominees as directors of the Company. The vote with respect to each nominee was as follows: Nominee For Withheld ------- --- --------- D.M. Draime 17,724,398 4,672,913 Cloyd J. Abruzzo 17,724,898 4,672,413 Avery S. Cohen 17,724,198 4,673,113 Richard E. Cheney 17,726,298 4,671,013 Sheldon J. Epstein 17,727,598 4,669,713 C.J. Hire 17,721,443 4,675,868 Richard G. LeFauve 17,724,043 4,673,268 Earl L. Linehan 17,723,498 4,673,813 No other matters were voted on at the Annual Meeting of Shareholders or otherwise during the quarter. ITEM 5. OTHER INFORMATION - ----------------------------- None. 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - -------------------------------------------- (a) Exhibits 27.1 Financial Data Schedule for the six months ended June 30, 1999 (b) Reports on Forms 8-K None. 14
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STONERIDGE, INC. Date: August 16, 1999 /s/ Cloyd J. Abruzzo ------------------------------- Cloyd J. Abruzzo President and Chief Executive Officer (Principal Executive Officer) Date: August 16, 1999 /s/ Kevin P. Bagby ------------------------------- Kevin P. Bagby Treasurer and Chief Financial Officer (Principal Financial and Chief Accounting Officer) 15
STONERIDGE, INC. EXHIBIT INDEX Exhibit Number Exhibit ------- ------- 27.1 Financial Data Schedule for the six months ended June 30, 1999, filed herewith. 16