UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2002. 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 such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ --- The number of Common Shares, without par value, outstanding as of April 12, 2002 was 22,399,311.
STONERIDGE, INC. AND SUBSIDIARIES INDEX Page No. Part I Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001 2 Condensed Consolidated Statements of Income for the three months ended March 31, 2002 and 2001 3 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2002 and 2001 4 Notes to Condensed Consolidated Financial Statements 5-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-12 Item 3. Quantitative and Qualitative Disclosure About Market Risk 13 Part II Other Information 14 Signatures 15 PART I. FINANCIAL INFORMATION 1
ITEM 1. FINANCIAL STATEMENTS STONERIDGE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) <TABLE> <CAPTION> March 31, December 31, 2002 2001 ---------------- ------------------ (Unaudited) (Audited) ASSETS - ------ <S> <C> <C> CURRENT ASSETS: Cash and cash equivalents $ 4,836 $ 4,369 Accounts receivable, net 104,640 91,018 Inventories, net 52,514 54,504 Prepaid expenses and other 13,936 15,538 Deferred income taxes, net 8,021 7,316 ---------------- ------------------ Total current assets 183,947 172,745 ---------------- ------------------ PROPERTY, PLANT AND EQUIPMENT, net 117,219 118,061 OTHER ASSETS: Goodwill, net 345,392 345,392 Investments and other, net 31,333 30,645 ---------------- ------------------ TOTAL ASSETS $ 677,891 $ 666,843 ================ ================== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES: Current portion of long-term debt $ 40,975 $ 41,621 Accounts payable 54,626 50,792 Accrued expenses and other 43,046 33,933 ---------------- ------------------ Total current liabilities 138,647 126,346 ---------------- ------------------ LONG-TERM DEBT, net of current portion 241,012 249,720 DEFERRED INCOME TAXES, net 27,408 24,352 OTHER LIABILITIES 5,037 6,818 ---------------- ------------------ Total long-term liabilities 273,457 280,890 ---------------- ------------------ SHAREHOLDERS' EQUITY: Preferred shares, without par value, 5,000 authorized, none issued -- -- Common shares, without par value, 60,000 authorized, 22,399 issued and outstanding at March 31, 2002 and 22,397 at December 31, 2001, stated at -- -- Additional paid-in capital 141,516 141,506 Retained earnings 131,734 126,157 Accumulated other comprehensive loss (7,463) (8,056) ---------------- ------------------ Total shareholders' equity 265,787 259,607 ---------------- ------------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 677,891 $ 666,843 ================ ================== </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) For the three months ended March 31, ----------------------------- 2002 2001 -------------- ------------- NET SALES $ 157,744 $ 156,154 COSTS AND EXPENSES: Cost of goods sold 118,462 118,023 Selling, general and administrative expenses 21,638 25,260 -------------- ------------- Operating income 17,644 12,871 Interest expense, net 8,622 7,934 Other expense, net 100 197 -------------- ------------- INCOME BEFORE INCOME TAXES 8,922 4,740 Provision for income taxes 3,345 1,683 -------------- ------------- NET INCOME $ 5,577 $ 3,057 ============== ============= BASIC NET INCOME PER SHARE $ 0.25 $ 0.14 WEIGHTED AVERAGE SHARES OUTSTANDING 22,399 22,397 ============== ============= DILUTED NET INCOME PER SHARE $ 0.25 $ 0.14 WEIGHTED AVERAGE SHARES OUTSTANDING 22,486 22,453 ============== ============= 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 three months ended March 31, -------------------------- 2002 2001 -------- -------- <S> <C> <C> OPERATING ACTIVITIES: Net income $ 5,577 $ 3,057 Adjustments to reconcile net income to net cash from operating activities- Depreciation and amortization 5,709 7,147 Deferred income taxes 1,693 791 Changes in operating assets and liabilities- Accounts receivable, net (13,835) (12,525) Inventories 1,848 1,442 Prepaid expenses and other 1,587 (3,279) Other assets, net (1,505) 1,639 Accounts payable 3,917 2,242 Accrued expenses and other 9,088 483 -------- -------- Net cash provided by operating activities 14,079 997 -------- -------- INVESTING ACTIVITIES: Capital expenditures (4,249) (6,044) Other, net 13 57 -------- -------- Net cash used for investing activities (4,236) (5,987) -------- -------- FINANCING ACTIVITIES: Repayments of long-term debt (276) (1,495) Proceeds from long-term debt 96 4,632 Net (repayments) borrowings under credit agreement (9,116) 1,656 Debt issuance costs -- (1,223) -------- -------- Net cash (used for) provided by financing activities (9,296) 3,570 -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (80) (206) NET CHANGE IN CASH AND CASH EQUIVALENTS 467 (1,626) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,369 5,594 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,836 $ 3,968 ======== ======== </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) 1. The accompanying condensed consolidated financial statements have been prepared by Stoneridge, Inc. (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "Commission"). The information furnished in the condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of such financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Commission's rules and regulations. Although the Company believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these condensed consolidated financial statements be read in conjunction with the audited financial statements and the notes thereto included in the Company's 2001 Annual Report to Shareholders. The results of operations for the three months ended March 31, 2002 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 72% and 74% of the Company's inventories at March 31, 2002 and December 31, 2001, 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: March 31, December 31, 2002 2001 ---------------- ----------------- Raw materials $ 30,299 $ 35,488 Work in progress 10,545 8,192 Finished goods 12,210 1,142 LIFO reserve (540) (318) ---------------- ----------------- Total $ 52,514 $ 54,504 ================ ================= 3. Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standard No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities" (as amended by SFAS 138). SFAS 133 establishes new accounting and reporting standards for derivatives and hedging activities, which requires that all derivative instruments be reported on the balance sheet at fair value and establishes criteria for designation and effectiveness of transactions entered into for hedging purposes. The adoption of SFAS 133 did not result in a cumulative effect adjustment being recorded to net income for the change in accounting. However, the Company recorded a cumulative effect transition adjustment charge of approximately $0.3 million (net of tax) in accumulated other comprehensive loss in the first quarter of 2001. The Company uses derivative financial instruments to reduce exposure to market risk resulting from fluctuations in interest rates. The Company does not enter into financial instruments for trading purposes. Management believes that its use of these instruments to reduce risk is in the Company's best interest. In order to manage the interest rate risk associated with our debt portfolio, the Company has entered into interest rate swap agreements to manage exposure to changes in interest rates. These agreements require the Company to pay a fixed interest rate to counterparties while receiving a floating interest rate based on LIBOR. The counterparties to each of the interest rate swap agreements are major commercial banks. These agreements mature on or before December 31, 2003 and qualify as cash flow hedges. The total notional amount of the interest rate swap agreements is $170.1 million. 5
STONERIDGE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands) Gains and losses on derivatives qualifying as cash flow hedges are recorded in other comprehensive loss to the extent that hedges are effective until the underlying transactions are recognized in earnings. Net losses included in accumulated other comprehensive loss as of March 31, 2002 were $3.2 million after tax ($5.0 million pre-tax). 4. In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS 142, "Goodwill and Other Intangible Assets". Under SFAS 142, the amortization period for certain intangibles changes and goodwill is no longer subject to amortization. Goodwill is now subject to at least an annual assessment for impairment by applying a fair value-based test. This Statement became effective for the Company on January 1, 2002. The Company is currently in the process of evaluating the overall potential impact of this Statement on the Company's financial statements. Goodwill amortization, which approximated $9.5 million annually, ceased effective January 1, 2002. The Company is currently in the process of performing an impairment analysis as required by the new Statement. The unaudited pro forma consolidated net income as though SFAS 142 had been in effect at the beginning of fiscal 2001 is as follows: <TABLE> <CAPTION> Three Months Ended March 31, ------------------------------- 2002 2001 -------- -------- <S> <C> <C> Reported net income $5,577 $3,057 Add back: Goodwill amortization, net of tax -- 1,735 -------- -------- Adjusted net income $5,577 $4,792 ======== ======== <CAPTION> Three Months Ended March 31, ------------------------------- 2002 2001 -------- -------- <S> <C> <C> Basic net income per share: Reported net income $ 0.25 $ 0.14 Add back: Goodwill amortization, net of tax -- 0.07 -------- -------- Adjusted net income $ 0.25 $ 0.21 ======== ======== <CAPTION> Three Months Ended March 31, ------------------------------- 2002 2001 -------- -------- <S> <C> <C> Diluted net income per share: Reported net income $ 0.25 $ 0.14 Add back: Goodwill amortization, net of tax -- 0.07 -------- -------- Adjusted net income $ 0.25 $ 0.21 ======== ======== </TABLE> 5. In October 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS 144, which became effective for the Company in 2002, supercedes SFAS 121 and establishes guidelines for accounting for the impairment and disposal of long-lived assets. The adoption of SFAS 144 did not materially impact the Company's financial statements upon adoption. 6. Other comprehensive loss includes foreign currency translation adjustments and derivative transactions, net of related tax. Comprehensive income (loss) consists of the following: 6
STONERIDGE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands) <TABLE> <CAPTION> March 31, March 31, 2002 2001 ------------- ------------- <S> <C> <C> Net income $ 5,577 $ 3,057 Other comprehensive income (loss) 593 (4,791) ------------- ------------- Comprehensive income (loss) $ 6,170 $ (1,734) ============= ============= </TABLE> 7. The Company has a $425,000 credit agreement with a bank group. The credit agreement, as amended on September 28, 2001, has the following components: a $100,000 revolving credit facility including a $5,000 swing line 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 0.50% on the unused balance of the revolver. 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 2.75% or (ii) LIBOR plus a margin of 4.25%. These margins increase periodically through September 30, 2002. These facilities require additional interest of 1.00% on the aggregate unpaid balance payable on the expiration date. The $5,000 swing line facility expires on December 31, 2003. Interest is payable monthly at an overnight money market borrowing rate. The $175,000 term facility expires on December 31, 2005. Interest is payable quarterly at either (i) the prime rate plus a margin of 3.75% or (ii) LIBOR plus a margin of 5.25%. These margins increase periodically through September 30, 2002. This facility also requires additional interest of 1.00% on the aggregate unpaid principal balance payable on the expiration date. Long-term debt consists of the following: <TABLE> <CAPTION> March 31, December 31, 2002 2001 --------------- --------------- <S> <C> <C> Borrowings under credit agreement $ 277,493 $ 286,610 Borrowings payable to foreign banks 3,657 3,891 Other 837 840 --------------- --------------- 281,987 291,341 Less: Current portion 40,975 41,621 --------------- --------------- $ 241,012 $ 249,720 =============== =============== </TABLE> 8. The Company presents basic and diluted earnings per share in accordance with Statement of Financial Accounting Standard No. 128, "Earnings Per Share". Basic earnings per share amounts were computed using weighted average shares outstanding for each respective period. Diluted earnings per share also reflect the weighted average impact from the date of issuance of all potentially dilutive securities during the periods presented. Actual weighted average shares outstanding used in calculating basic and diluted earnings per share were as follows: <TABLE> <CAPTION> Three Months Ended March 31, ------------------------------ 2002 2001 ------------- ------------- <S> <C> <C> Basic weighted average shares outstanding 22,399 22,397 Effect of dilutive securities 87 56 ------------- ------------- Diluted weighted average shares outstanding 22,486 22,453 ============= ============= </TABLE> 7
STONERIDGE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands) 9. Based on the criteria set forth in Statement of Financial Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and Related Information," the Company operates in one business segment. The following table presents net sales and non-current assets for each of the geographic areas in which the Company operates: <TABLE> <CAPTION> March 31, March 31, 2002 2001 -------------- -------------- <S> <C> <C> Net Sales: North America $ 133,157 $ 132,985 Europe and other 24,587 23,169 -------------- -------------- Total $ 157,744 $ 156,154 ============== ============== March 31, December 31, 2002 2001 -------------- -------------- Non-Current Assets: North America $ 441,854 $ 440,915 Europe and other 52,090 53,183 -------------- -------------- Total $ 493,944 $ 494,098 ============== ============== </TABLE> 10. Certain prior year amounts have been reclassified to conform to their 2002 presentation in the condensed consolidated financial statements. 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - --------------------- Three Months Ended March 31, 2002 Compared To Three Months Ended March 31, 2001 - ------------------------------------------------------------------------------- Net Sales. Net sales for the first quarter of 2002 increased by $1.6 million, or 1.0%, to $157.7 million from $156.2 million for the same period in 2001. Sales revenues for the quarter were favorably impacted by increased North American light vehicle builds mitigated by continued weakness in the commercial vehicle markets. Sales for the first quarter of 2002 for North America increased $0.2 million to $133.2 million from $133.0 million for the same period in 2001. North American sales accounted for 84.4% of total sales for the first quarter of 2002 compared with 85.2% for the same period in 2001. Sales for the first quarter of 2002 outside North America increased $1.4 million to $24.6 million from $23.2 million for the same period in 2001. Sales outside North America accounted for 15.6% of total sales for the first quarter of 2002 compared with 14.8% for the same period in 2001. Cost of Goods Sold. Cost of goods sold for the first quarter of 2002 increased by $0.5 million, or 0.4%, to $118.5 million from $118.0 million in the first quarter of 2001. As a percentage of sales, cost of goods sold decreased to 75.1% from 75.6% in 2001. The improvement as a percent of sales was primarily attributable to cost reduction programs and increased light vehicle production volumes. Selling, General and Administrative Expenses. Selling, general and administrative (SG&A) expenses decreased by $3.6 million to $21.6 million in the first quarter of 2002 from $25.3 million for the same period in 2001. As a percentage of sales, SG&A expenses decreased to 13.7% for the first quarter of 2002 from 16.2% for the same period in 2001. The decrease was partially attributable to the fact that the Company ceased amortizing goodwill on January 1, 2002 as a result of the adoption of SFAS 142. Amortization expense for the first quarter of 2001 was $2.5 million. The decrease was also attributable to the success of cost cutting initiatives. Interest Expense, net. Interest expense for the first quarter was $8.6 million and $7.9 million in 2002 and 2001, respectively. Average outstanding indebtedness was $287.3 million and $332.1 million for the first three months of 2002 and 2001, respectively. Other Expense, net. Other expense, which primarily represented equity losses of unconsolidated subsidiaries, was $0.1 million and $0.2 million for the quarters ended March 31, 2002 and 2001, respectively. Income Before Income Taxes. As a result of the foregoing, income before income taxes increased by $4.2 million for the first quarter of 2002 to $8.9 million from $4.7 million in 2001. Provision for Income Taxes. The Company recognized provisions for income taxes of $3.3 million, or 37.5% and $1.7 million, or 35.5% for federal, state and foreign income taxes for the first quarters of 2002 and 2001, respectively. Net Income. As a result of the foregoing, net income increased by $2.5 million, or 82.4%, to $5.6 million for the first quarter of 2002 from $3.1 million in 2001. Pro forma net income, as if the Company adopted SFAS 142 at the beginning of fiscal 2001, would be $5.6 million and $4.7 million, for the quarters ended March 31, 2002 and 2001, respectively. Liquidity and Capital Resources Net cash provided by operating activities was $14.1 million and $1.0 million for the quarters ended March 31, 2002 and 2001, respectively. The increase in net cash from operating activities of $13.1 million was primarily attributable to a combination of lower levels of working capital and an increase in net income. Net cash used for investing activities was $4.2 million and $6.0 million for the quarters ended March 31, 2002 and 2001, respectively, and primarily related to capital expenditures. 9
Net cash used for financing activities was $9.3 million for the quarter ended March 31, 2002, as compared to net cash provided by financing activities of $3.6 million for the quarter ended March 31, 2001. Improved cash flows from operations for the quarter ended March 31, 2002 were used primarily to pay down debt. The Company has a $425.0 million credit agreement (of which $282.0 million and $325.3 million was outstanding at March 31, 2002 and 2001, respectively) with a bank group. The credit agreement, as amended on September 28, 2001, has the following components: a $100.0 million revolving facility (of which $43.8 million is currently available) including a $5.0 million swing line facility, a $150.0 million term facility, and a $175.0 million term facility. The $100.0 million revolving facility and the $150.0 million term facility expire on December 31, 2003, and require a commitment fee of 0.50% on the unused balance of the revolver. 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 2.75% or (ii) LIBOR plus a margin of 4.25%. These margins increase periodically through September 30, 2002. These facilities require additional interest of 1.00% on the aggregate unpaid balance payable on the expiration date. The $5.0 million swing line facility expires on December 31, 2003. Interest is payable monthly at an overnight money market borrowing rate. The $175.0 million term facility expires on December 31, 2005. Interest is payable quarterly at either (i) the prime rate plus a margin of 3.75% or (ii) LIBOR plus a margin of 5.25%. These margins increase periodically through September 30, 2002. This facility also requires additional interest of 1.00% on the aggregate unpaid principal balance payable on the expiration date. The Company has entered into three interest-rate swap agreements with a total notional amount of $170.1 million. Two of these interest-rate swap agreements are due to expire on December 31, 2002, and one interest-rate swap agreement will expire on December 31, 2003. These interest-rate swap agreements exchange variable interest rates on the Company's credit agreement for fixed interest rates. The Company has also entered into a Swedish krona forward contract with a notional amount of $13.4 million to satisfy krona denominated debt obligations and other insignificant forward contracts. The Company does not use derivatives for speculative or profit-motivated purposes. Management believes that cash flows from operations and the availability of funds from the Company's credit facilities will provide sufficient liquidity to meet the Company's growth and operating needs. Inflation and International Presence Management believes that the Company's operations have not been adversely affected by inflation. By operating internationally, the Company is affected by the economic conditions of certain countries. Based on the current economic conditions in these countries, management believes they are not significantly exposed to adverse economic conditions. Recently Issued Accounting Standards Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standard No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities" (as amended by SFAS 138). SFAS 133 established new accounting and reporting standards for derivatives and hedging activities, which requires that all derivative instruments be reported on the balance sheet at fair value and established criteria for designation and effectiveness of transactions entered into for hedging purposes. The adoption of SFAS 133 did not result in a cumulative effect adjustment being recorded to net income for the change in accounting. However, the Company recorded a cumulative effect transition adjustment charge of approximately $0.3 million (net of tax) in accumulated other comprehensive loss in the first quarter of 2001. In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS 142, "Goodwill and Other Intangible Assets." Under SFAS 142, the amortization period for certain intangibles changes and goodwill is no longer subject to amortization. Goodwill is now subject to at least an annual assessment for impairment by applying a fair value-based test. This Statement became effective for the Company on January 1, 2002. The Company is currently in the process of evaluating the overall potential impact of this Statement on the Company's financial statements. Goodwill amortization, which approximated $9.5 million annually, ceased effective January 1, 2002. The Company is in the process of performing an impairment analysis as required by the new Statement. 10
The unaudited pro forma consolidated net income as though SFAS 142 had been in effect at the beginning of fiscal 2001 is as follows: <TABLE> <CAPTION> Three Months Ended March 31, ------------------------------- 2002 2001 ---------- --------- <S> <C> <C> Reported net income $ 5,577 $ 3,057 Add back: Goodwill amortization, net of tax -- 1,735 ---------- --------- Adjusted net income $ 5,577 $ 4,792 ========== ========= <CAPTION> Three Months Ended March 31, ------------------------------- 2002 2001 ---------- --------- <S> <C> <C> Basic net income per share: Reported net income $ 0.25 $ 0.14 Add back: Goodwill amortization, net of tax -- 0.07 ---------- --------- Adjusted net income $ 0.25 $ 0.21 ========== ========= <CAPTION> Three Months Ended March 31, ------------------------------- 2002 2001 ---------- --------- <S> <C> <C> Diluted net income per share: Reported net income $ 0.25 $ 0.14 Add back: Goodwill amortization, net of tax -- 0.07 ---------- --------- Adjusted net income $ 0.25 $ 0.21 ========== ========= </TABLE> In October 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144, which became effective for the Company in 2002, supersedes SFAS 121 and establishes guidelines for accounting for the impairment and disposal of long-lived assets. The adoption of SFAS 144 did not materially impact the Company's financial statements upon adoption. Forward-Looking Statements Portions of this report may contain "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this report and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to, among other things, the Company's (i) future product and facility expansion, (ii) acquisition strategy, (iii) investments and new product development, and (iv) growth opportunities related to awarded business. Forward-looking statements may be identified by the words "will," "may," "designed to," "believes," "plans," "expects," "continue," and similar expressions. The forward-looking statements in this report are subject to risks and uncertainties that could cause actual events or results to differ materially from those expressed in or implied by the statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, among other factors: . the loss of a major customer; . a further decline in automotive, medium- and heavy-duty truck or agricultural vehicle production; . the failure to achieve successful integration of any acquired company or business; . a decline in general economic conditions in any of the various countries in which the Company operates; . 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; . our significant amount of debt and the restrictive covenants contained in our credit facility; . customer acceptance of new products; 11
. capital availability or costs, including changes in interest rates or market perceptions of the Company; . changes by the Financial Accounting Standards Board or the Securities and Exchange Commission of authoritative generally accepted accounting principles or policies; . the impact of laws and regulations, including environmental laws and regulations; and . the occurrence or non-occurrence of circumstances beyond our control. 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company is exposed to certain market risks, primarily resulting from the effects of changes in interest rates. To reduce exposures to market risks resulting from fluctuations in interest rates, the Company uses derivative financial instruments. Specifically, the Company uses interest rate swap agreements to mitigate the effects of interest rate fluctuations on net income by swapping the floating interest rates on certain portions of the Company's debt to fixed interest rates. These agreements had a notional amount of $170.1 million and $187.5 million for the periods ended March 31, 2002 and 2001, respectively, and they expire between December 31, 2002 and December 31, 2003. Holding other factors constant (such as foreign exchange rates and debt levels), a 1.00% increase in interest rates would have changed the fair market value of these agreements at March 31, 2002 by approximately $1.4 million. The effect of changes in interest rates on the Company's net income historically has been small relative to other factors that also affect net income, such as sales and operating margins. However, a 1.00% increase in interest rates would increase annual interest expense by approximately $1.2 million. 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 in the future based on current operating and economic conditions in the countries and markets in which it operates. Therefore, a 10.00% change in the value of the U.S. dollar would not significantly affect the Company's financial position. 13
PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - --------------------------- In the ordinary course of business, the Company is involved in various legal proceedings, workers' compensation and product liability disputes. The Company is of the opinion that the ultimate resolution of these matters will not have a material adverse effect on the results of operations or the financial position of the Company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS - --------------------------------------------------- None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES - ----------------------------------------- None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------- None. ITEM 5. OTHER INFORMATION - --------------------------- None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ------------------------------------------ (a) Exhibits None. (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: April 12, 2002 /s/ Cloyd J. Abruzzo -------------------------------------- Cloyd J. Abruzzo President and Chief Executive Officer (Principal Executive Officer) Date: April 12, 2002 /s/ Kevin P. Bagby -------------------------------------- Kevin P. Bagby Treasurer and Chief Financial Officer (Principal Financial and Chief Accounting Officer) 15