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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the year ended December 31, 2000 Commission file number 001-13337
STONERIDGE, INC.
----------------
(Exact Name of Registrant as Specified in Its Charter)
Ohio 34-1598949
---------------------------- -----------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
9400 East Market Street, Warren, Ohio 44484
------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(330) 856-2443
--------------------------------------------------
Registrant's Telephone Number, Including Area Code
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Exchange on Which Registered
------------------- -----------------------------
Common Shares, without par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based on the closing price of March 22, 2001, the aggregate market value of
Common Shares held by nonaffiliates of the registrant was $101.7 million.
The number of Common Shares, without par value, outstanding as of March 22, 2001
was 22,397,311.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement for the Annual Meeting of Shareholders to be held on
May 7, 2001, into Part III, Items 10, 11, 12 and 13.
INDEX
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STONERIDGE, INC. - FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2000
Page No.
Part I.
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders 8
Part II.
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results 11
of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 14
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial 35
Disclosure
Part III.
Item 10. Directors and Executive Officers of the Registrant 36
Item 11. Executive Compensation 36
Item 12. Security Ownership of Certain Beneficial Owners and Management 36
Item 13. Certain Relationships and Related Transactions 36
Part IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 37
Signatures 40
2
Forward-Looking Statements
Portions of this report may contain "forward-looking statements" under
the Private Securities Litigation Reform Act of 1995. These statements appear in
a number of places in this report and include statements regarding the intent,
belief or current expectations of the Company, its directors or its officers
with respect to, among other things, the Company's (i) future product and
facility expansion, (ii) acquisition strategy, (iii) investments and new product
development and (iv) growth opportunities related to awarded business. The
forward-looking statements in this report are subject to risks and uncertainties
that could cause actual events or results to differ materially from those
expressed in or implied by the statements. Factors which may cause actual
results to differ materially from those in the forward-looking statements
include, among other factors, the loss of a major customer; a decline in
automotive, medium and heavy-duty truck or agricultural vehicle production; the
failure to achieve successful integration of any acquired company or business;
or a decline in general economic conditions in any of the various countries in
which the Company operates. Further information concerning issues that could
materially affect financial performance is contained in the Company's periodic
filings with the Securities and Exchange Commission.
PART I.
ITEM 1. BUSINESS
The Company
The Company was founded in 1965 as a manufacturer of wire harnesses for
the agricultural vehicle market. The Company expanded as a contract manufacturer
primarily in the automotive market. In 1987, the Company began to transition
away from contract manufacturing into a value-added designer and manufacturer of
highly engineered products by developing internal engineering capabilities and
pursuing an acquisition program to expand product offerings. The Company
completed its initial public offering on October 10, 1997 (the Offering).
The Company is a leading independent designer and manufacturer of
highly engineered electrical and electronic components, modules and systems for
the automotive, medium and heavy-duty truck, and agricultural vehicle markets.
The Company's products interface with a vehicle's mechanical and electrical
systems to activate equipment and accessories, display and monitor vehicle
performance, and control and distribute electrical power and signals. The
Company has a leading market position in the design and manufacture of
electrical and electronic components, modules and systems for the medium and
heavy-duty truck, and agricultural vehicle markets. In the automotive market,
the Company designs and manufactures specially designed and engineered
electrical and electronic components and modules, typically on a sole-source
basis.
Recent Acquisitions and Joint Ventures
In August 1999, the Company purchased all of the outstanding shares of
TVI Europe, Limited, a United Kingdom manufacturer of vehicle information and
management systems for the European commercial vehicle market. Cash
consideration paid by the Company with respect to this purchase was
approximately $20.7 million.
In March 1999, the Company purchased certain assets and assumed
certain liabilities of Delta Schoeller, Limited, a United Kingdom manufacturer
of switches for the automotive industry. Cash consideration paid by the Company
with respect to this purchase was approximately $12.2 million.
In December 1998, the Company purchased all of the outstanding common
shares of Hi-Stat Manufacturing Company, Inc. (Hi-Stat), a manufacturer of
engineered sensors, switches and solenoids for measuring speed, pressure,
temperature and fluid levels in vehicles. Hi-Stat primarily serves the
automotive industry. Cash consideration paid by the Company with respect to this
purchase was approximately $361.5 million.
3
Discontinuance of Certain Contract Manufacturing Business
During the second quarter of 1999, the Company completed the planned
phase out of its contract manufacturing business with a division of General
Motors. The Company's net sales under this arrangement totaled approximately
$21.9 million and $84.1 million for 1999 and 1998, respectively, or
approximately 3.2% and 16.7% of total net sales for such periods.
Products
The Company's core products include vehicle electrical power and
distribution systems, electronic and electrical switch products, electronic
instrumentation and information display products, actuator products and sensor
products.
The Company's principal product categories are:
Power and Distribution Systems. The Company designs and manufactures electrical
power and signal distribution components, modules and systems, including fully
integrated automotive and truck wiring systems and highly engineered products,
such as power distribution panels, for the automotive, medium and heavy-duty
truck, and agricultural vehicle markets. Power distribution systems regulate,
coordinate and direct the operation of the entire electrical system within a
vehicle or compartment.
Electronic and Electrical Switch Products. The Company designs and manufactures
integrated electronic and electromechanical switch products, which include
hidden switches and customer-activated switches. These switches transmit a
signal to a control device which activates specific functions. Hidden switches
are not typically seen by vehicle passengers but are used to activate or
deactivate selected functions such as brake lights, cruise control functions and
electronic safety features related to air bag, fuel and anti-lock braking
systems. Customer-activated switches are used by a vehicle's operator or
passengers to manually activate headlights, rear defrosters, heated seats and
other accessories. The Company sells these products principally to the
automotive market.
Electronic Instrumentation and Information Display Products. The Company designs
and manufactures electronic instrument clusters, driver message centers, power
conversion products, tachographs, multiplexed modules and electrical systems and
electronic switch modules. These products collect, store and display vehicle
information such as speed, pressure, maintenance data, trip information,
operator performance, temperature, distance traveled and driver messages related
to vehicle performance. These products use state-of-the-art hardware, software
and multiplexing technology and are sold principally to the medium and
heavy-duty truck and agricultural vehicle markets.
Actuator Products. The Company designs and manufactures electromechanical
actuator products that enable users to deploy power functions in a vehicle and
can be designed to integrate switching and control functions. These products
include power door lock and four-wheel-drive actuators and are sold principally
to the automotive market.
Sensor Products. The company designs and manufactures sensor products that
measure temperature, pressure, speed, and fluid levels. These products monitor
and measure the physical variables affecting the performance vehicle systems.
Sensor products are employed in most major vehicle systems, including the
emissions, safety, powertrain, braking, climate control, steering and suspension
systems. The Company sells these products principally to the automotive market.
Production Materials
The principal production materials used in the Company's manufacturing
processes include wire, cable, plastic housings and certain electrical
components such as fuses, relays, and connectors. The Company generally
purchases such materials subject to annual contracts. Such materials are readily
available from multiple sources, but the Company generally establishes
collaborative relationships with a qualified supplier for each of its key
production materials in order to lower costs and enhance service and quality.
Patents and Intellectual Property
The Company maintains and has pending various U.S. and foreign patents
and other rights to intellectual property relating to its business, which it
believes are appropriate to protect the Company's interests in existing
products, new
4
inventions, manufacturing processes and product developments. The Company does
not believe any single patent is material to its business, nor would the
expiration or invalidity of any patent have a material adverse effect on its
business or its ability to compete. The Company is not currently engaged in any
material infringement litigation, nor are there any material claims pending by
or against the Company.
Industry Cyclicality and Seasonality
The markets for the Company's products have historically been cyclical.
Because the Company's products are used principally in the production of
vehicles for the automotive, medium and heavy-duty truck and agricultural
vehicle markets, its sales, and therefore its results of operations, are
significantly dependent on the general state of the economy and other factors
which affect these markets. A decline in automotive, medium and heavy-duty truck
and agricultural vehicle production could adversely impact the Company.
Approximately 62%, 64% and 56% of the Company's net sales in 2000, 1999 and
1998, respectively, were made to the automotive market and approximately 38%,
36% and 44% of the net sales in 2000, 1999 and 1998, respectively, were derived
from the medium and heavy-duty truck and agricultural vehicle markets.
Demand for the Company's products has been seasonal. The Company
typically experiences decreased sales during the third calendar quarter of each
year due to the impact of scheduled OEM plant shutdowns in July for vacations
and new model changeovers. The fourth quarter is similarly impacted by plant
shutdowns for the holidays.
Reliance on Major Customers
The Company is dependent on a small number of principal customers for a
significant percentage of its sales. The loss of any significant portion of its
sales to these customers or the loss of a significant customer would have a
material adverse impact on the financial condition and results of operations of
the Company. The Company supplies numerous different parts to each of its
principal customers. The contracts the Company has entered into with many of its
customers provide for supplying the customers' requirements for a particular
model, rather than for manufacturing a specific quantity of products. Such
contracts range from one year to the life of the model, which is generally three
to seven years. Therefore, the loss of a contract for a major model or a
significant decrease in demand for certain key models or group of related models
sold by any of the Company's major customers could have a material adverse
impact on the Company. The Company also competes to supply products for
successor models and is subject to the risk that the customer will not select
the Company to produce products on any such model, which could have a material
adverse impact on the financial condition and results of operations of the
Company.
5
The following table presents the major customers, as a percentage of net
sales, of the Company for the years ended December 31, 2000, 1999 and 1998:
Year Ended December 31,
--------------------------------------
2000 1999 1998
---------- ---------- ----------
Customer
General Motors 18% 21% 25%
Ford 17 18 18
Daimler-Chrysler 17 17 5
Volvo 6 10 9
Navistar 8 9 10
Deere 7 5 9
Other 27 20 24
--------- ======== ----------
Total 100% 100% 100%
========= ========= ==========
Backlog
The majority of the Company's products are not on a backlog status.
They are produced from readily available materials such as wire, cable, housings
and electronic components and have a relatively short manufacturing cycle. Each
operating unit of the Company maintains its own inventories and production
schedules. Production capacity is adequate to handle current requirements and
will be expanded to handle increased growth where needed.
Competition
Markets for the Company's products are highly competitive. Quality,
service, price, timely delivery and technological innovation are the primary
elements of competition. The Company competes for new business both at the
beginning of the development of new models and upon the redesign of existing
models. New model development generally begins two to five years before the
marketing of such models to the public. Once a supplier has been selected to
provide parts for a new program, an OEM usually will continue to purchase those
parts from the selected supplier for the life of the program, although not
necessarily for any model redesigns.
Product Development
In order to increase its vehicle platform penetration, the Company has
invested, and intends to continue to invest, significant amounts in its
technology and design capabilities. The Company's product development
expenditures were $26.8 million, $22.0 million and $17.4 million for 2000, 1999
and 1998, respectively, or 4.0%, 3.4% and 4.1% of core product sales for these
periods. These development efforts have strengthened the Company's ability to
provide higher value-added products and systems, and have resulted in the
introduction of new products such as the four-wheel-drive actuator (shift on
demand), seat positioning switches and sensors (which interface with passive
restraint systems to indicate occupant position prior to air bag deployment),
fuel shut off valve (explosion supression) and the auto-stick (which enables a
driver to manually shift an automatic transmission using a unique electronic
switch). The Company's technical centers in Massachusetts, Michigan, Ohio,
Brazil, England, Mexico, Scotland and Sweden develop and test both new and
existing products and concepts. In addition, through its advanced technologies
group comprised of dedicated engineers, the Company concentrates on the
development of its next generation of products. To further increase vehicle
platform penetration, the Company has developed collaborative relationships with
the design and engineering departments of its key OEM customers. These
collaborative efforts have resulted both in the development of new and
complementary products and the enhancement of existing products.
Environmental and Other Regulations
The Company's operations are subject to various federal, state, local
and foreign laws and regulations governing, among other things, emissions to
air, discharge to waters and the generation, handling, storage, transportation,
treatment and disposal of waste and other materials. The Company believes that
its business, operations and facilities have been and are being operated in
compliance in all material respects with applicable environmental and health and
safety laws and regulations, many of which provide for substantial fines and
criminal sanctions for violations.
6
Employees
As of December 31, 2000, the Company, had approximately 6,520
employees, approximately 1,756 of whom were salaried and the balance of whom
were paid on an hourly basis. Except for certain employees located in Chihuahua,
Mexico, Orebro and Stockholm, Sweden, and Dundee, Scotland, the Company's
employees are not represented by a union. The Company believes that its
relations with its employees are excellent. The Company strongly believes in
employee education and sponsors a number of educational opportunities and
programs for its employees.
Executive Officers of the Registrant
The executive officers of the Company are as follows:
Name Age Position
------ -------- -----------------
D.M. Draime 67 Chairman of the Board of Directors, Assistant
Secretary and Director
Cloyd J. Abruzzo 50 President, Chief Executive Officer, Assistant
Treasurer and Director
Kevin P. Bagby 49 Vice President of the Company, Chief Financial
Officer and Treasurer
Sten Forseke 41 Vice President of the Company and Managing
Director of Berifors
Gerald V. Pisani 60 Vice President of the Company and President of
Stoneridge Engineered Products Group
Thomas A. Beaver 47 Vice President of Sales and Marketing
Michael J. Bagby 58 Vice President and General Manager of Alphabet
Group
Avery S. Cohen 64 Secretary and Director
D.M. Draime, founder of the Company, has served as Chairman of the
Board of Directors of the Company and its predecessors since 1965.
Cloyd J. Abruzzo has served as President and Chief Executive Officer of
the Company or its predecessors since June 1993 and as a director of the Company
since 1990. From 1984 to June 1993, Mr. Abruzzo was the Vice President and Chief
Financial Officer of the Company or its predecessor. Mr. Abruzzo serves as a
director of Second National Bank of Warren.
Kevin P. Bagby has served as Vice President of the Company, Chief
Financial Officer and Treasurer since joining the Company in July 1995. Mr.
Bagby was employed by Kelsey-Hayes as Director of Business Analysis from June
1994 to July 1995 and as Director of Finance for the Foundation Brakes Business
Unit from January 1991 to June 1994.
Sten Forseke, a co-founder of Berifors, has served as Vice President of
the Company since the acquisition of Berifors in 1997 and Managing Director of
Berifors since 1988.
Gerald V. Pisani has served as Vice President of the Company since 1989
and President of the Stoneridge Engineered Products Group since 1985.
Thomas A. Beaver has served as Vice President of Sales and Systems
Engineering of the Stoneridge Engineered Products Group from February 1995 to
December 1999 and Vice President of Sales and Marketing since January 2000.
Michael J. Bagby has served as Vice President of the Alphabet Group
since March 1990 and Vice President and General Manager of the Alphabet Group
since January 2000.
Avery S. Cohen has served as Secretary and a director of the Company
since 1988. He has been a partner in the law firm of Baker & Hostetler LLP since
1993.
7
ITEM 2. PROPERTIES
The Company currently owns or leases 15 manufacturing facilities, which
together contain approximately 1.5 million square feet of manufacturing space.
The following table provides information regarding the Company's facilities:
Owned/ Square
Location Use Leased Status Footage
-------- --- ------------- -------
Bloomfield Hills, Michigan Sales Office Leased 1,000
Boston, Massachusetts Division Office & Manufacturing Owned 166,100
Canton, Massachusetts Division Office & Manufacturing Owned 126,500
Chicago, Illinois Sales/Engineering Office Leased 1,000
Cortland, Ohio Engineering Office Leased 11,400
El Paso, Texas Office/Warehouse Leased 22,400
Farmington Hills, Michigan Sales/Engineering Office Leased 4,200
Lexington, Ohio Manufacturing Owned 155,000
Mansfield, Ohio Tool & Die Owned 4,000
Mebane, North Carolina Manufacturing Leased 51,000
Orwell, Ohio Manufacturing Owned 72,000
Portland, Indiana Manufacturing Owned 196,000
Sarasota, Florida Manufacturing/Division Office Owned 125,000
Warren, Ohio Corporate Office Owned 7,500
Warren, Ohio Division Office Leased 15,300
Cheltenham, England Manufacturing Leased 39,983
Dundee, Scotland Manufacturing Owned 148,500
Frankfurt, Germany Sales/Engineering Office Leased 100
Madrid, Spain Office/Warehouse Leased 14,370
Munich, Germany Sales/Engineering Office Leased 1,000
Northampton, England Manufacturing Owned 40,667
Orebro, Sweden Manufacturing Leased 56,000
Paris, France Sales Office Leased 2,799
Stockholm, Sweden Division Office & Engineering Leased 16,100
Stuttgart, Germany Sales/Engineering Office Leased 1,000
Tallinn, Estonia Manufacturing Leased 5,380
Chihuahua, Mexico Manufacturing Owned 133,000
Indaiatuba, Brazil Manufacturing Leased 27,000
Juarez, Mexico Manufacturing Owned 178,000
Sao Paulo, Brazil Sales/Engineering Office Leased 200
ITEM 3. LEGAL PROCEEDINGS
There is no pending litigation which management believes will have a
material adverse impact upon the Company. The Company is subject to the risk of
exposure to product liability claims in the event that the failure of any of its
products causes personal injury or death to users of the Company's products and
there can be no assurance that the Company will not experience any material
product liability losses in the future. In addition, if any of the Company's
products proves to be defective, the Company may be required to participate in a
government-imposed or OEM-instituted recall involving such products. The Company
maintains insurance against such liability claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 2000.
8
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
On March 22, 2001, the Company had 22,397,311 Common Shares without par
value, issued and outstanding, which were owned by 100 shareholders of record,
including Common Shares held in "streetname" by nominees who are recordholders
and approximately 2,000 beneficial owners.
The Company has neither paid nor declared dividends on its Common
Shares since its Offering, except for the payment or declaration of
S-corporation distributions of $85,600,000 to pre-Offering shareholders. The
Company currently intends to retain earnings for acquisitions, working capital,
capital expenditures, general corporate purposes and reduction in outstanding
indebtedness. Accordingly, the Company does not expect to pay cash dividends in
the foreseeable future.
High and low sales prices (as reported on the New York Stock Exchange
"NYSE" composite tape) for the Common Shares for each quarter during 1999 and
2000 are as follows:
Quarter Ended High Low
------------- ---- ---
1999 March 31 22 1/2 12 15/16
June 30 16 13/16 13 11/16
September 30 18 3/4 14 1/8
December 31 16 15/16 12
2000 March 31 16 7/16 9 1/4
June 30 14 1/8 8 11/16
September 30 11 7/16 7 1/2
December 31 10 3/16 6
The Company's Common Shares are traded on the NYSE under the symbol
SRI. The Company did not issue or sell any registered or unregistered securities
in 2000.
9
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical and pro forma
financial data for the Company and should be read in conjunction with the
consolidated financial statements and notes related thereto and other financial
information included elsewhere herein. The selected historical data was derived
from the Company's consolidated financial statements, which were audited by
Arthur Andersen LLP, the Company's independent accountants.
Years ended December 31,
----------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(in thousands, except per share data)
Statement of Income Data:
Net sales $667,192 $675,221 $503,821 $449,506 $363,748
Gross profit 171,112 187,872 124,239 108,192 75,606
Operating income 75,166 97,305 56,722 52,366 28,912
Income before income taxes 46,794 67,022 56,036 50,895 24,595
Net income $ 32,709 $ 41,172 $ 33,400 $ 46,964 $ 24,071
================================================================
Basic and diluted net income per share $ 1.46 $ 1.84 $ 1.49 $ 2.92 $ 1.73
================================================================
Pro Forma Data (Unaudited): (A)
Income before income taxes $ 46,794 $ 67,022 $ 56,036 $ 50,895 $ 24,595
Provision for income taxes 14,085 25,850 22,636 21,181 10,295
----------------------------------------------------------------
Pro forma net income $ 32,709 $ 41,172 $ 33,400 $ 29,714 $ 14,300
================================================================
Pro forma basic and diluted net income
per share $ 1.46 $ 1.84 $ 1.49 $ 1.36 $ 0.66
================================================================
Other Data:
Product development expenses $ 26,750 $ 21,976 $ 17,418 $ 14,114 $ 9,263
Capital expenditures 28,720 17,589 10,919 12,256 14,083
Depreciation and amortization 28,680 27,850 14,422 13,237 9,966
Balance Sheet Data:
Working capital $ 80,069 $ 77,112 $ 42,184 $ 44,856 $ 39,957
Total assets 696,995 698,309 638,116 235,073 178,487
Long-term debt, less current portion 296,079 331,898 322,724 9,139 51,156
Shareholders' equity 262,186 231,628 190,542 157,210 84,633
(A) Prior to the Company's initial public offering (Offering) in October 1997,
the Company was taxed as an S Corporation. Concurrent with the Offering, the
Company terminated its S Corporation status, making it subject to federal, state
and foreign income taxes. The pro forma data reflect the results as if the S
Corporation termination had been effective as of December 31, 1995.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
- ---------------------------------------------------------------------
Net Sales. Net sales for the year ended December 31, 2000 decreased by
$8.0 million, or 1.2%, to $667.2 million from $675.2 million in 1999. Sales of
core products increased by $13.9 million, or 2.1%, to $667.2 million during 2000
compared to $653.3 million in 1999. This increase is primarily attributable to
the increase in core product sales from the recent acquisition of TVI Europe
Ltd. (TVI) of $15.9 million, which was offset by a decrease in existing core
product sales of $2.0 million, or 0.3%, compared to 1999. Contract manufacturing
sales totaling $21.9 million, which were phased out during the second quarter of
1999, accounted for 3.2% of total sales for the year ended December 31, 1999.
The remaining decline in sales revenues in 2000 was primarily attributable to
the continuing slowdown in the North American commercial vehicle markets, as
well as the downturn in the North American automotive and light-truck market
that occurred during the fourth quarter.
Sales for the year ended December 31, 2000 for North America decreased
by $19.4 million to $579.9 million from $599.3 million in 1999. North American
sales accounted for 86.9% of total sales in 2000 compared with 88.8% in 1999.
Sales in 2000 outside North America increased by $11.4 million to $87.3 million
from $75.9 million in 1999. Sales outside North America accounted for 13.1% of
total sales in 2000 compared with 11.2% in 1999. The increase is primarily a
result of the Company's 1999 acquisitions partially offset by the impact of
unfavorable foreign currency exchange rate fluctuations.
Cost of Goods Sold. Cost of goods sold for the year ended December 31,
2000 increased by $8.8 million, or 1.8%, to $496.1 million from $487.3 million
in 1999. As a percentage of sales, cost of goods sold increased to 74.4% in 2000
from 72.2% in 1999. The increase as a percent of sales was primarily
attributable to material shortages and their related impact on production costs,
an unfavorable shift in product mix, and costs related to pre-production
ramp-ups and new program launches. In addition, unfavorable foreign currency
exchange rate fluctuations contributed to this increase.
Selling, General and Administrative Expenses. Selling, general and
administrative (SG&A) expenses increased by $5.3 million to $95.9 million for
the year ended December 31, 2000 from $90.6 million in 1999. As a percentage of
sales, SG&A expenses increased to 14.4% in 2000 from 13.4% in 1999. The increase
is due primarily to higher development costs to support new program launches for
safety-related products, including the seat track position sensor, fuel cut-off
switch, and a new modular assembly program titled the next generation vehicle.
In addition, the commercial costs related to the newly acquired companies and
geographical expansion also contributed to this increase.
Interest Expense, net. Interest expense for the year ended December 31,
2000 was $29.5 million compared with $30.7 million in 1999. Average outstanding
indebtedness was $331.0 million and $343.8 million for the years ended December
31, 2000 and 1999, respectively.
Other Income, net. Other income, which primarily represented equity
earnings of unconsolidated subsidiaries and gain on sale of idle fixed assets,
was $1.1 million for the year ended December 31, 2000 compared with $0.5 million
in 1999.
Income Before Income Taxes. As a result of the foregoing, income before
income taxes decreased by $20.2 million for the year ended December 31, 2000 to
$46.8 million from $67.0 million in 1999.
Provision for Income Taxes. The Company recognized provisions for
income taxes of $14.1 million and $25.9 million for federal, state and foreign
income taxes for the years ended December 31, 2000 and 1999, respectively. The
decline in the effective tax rate to 30.1% in 2000 from 38.6% in 1999 is
primarily a result of the implementation of certain tax planning strategies and
non-recurring tax refunds. The effective tax rate is expected to increase in
future years.
Net Income. As a result of the foregoing, net income decreased by $8.5
million, or 20.6%, to $32.7 million for the year ended December 31, 2000 from
$41.2 million in 1999.
11
Year Ended December 31, 1999 Compared To Year Ended December 31, 1998
- ---------------------------------------------------------------------
Net Sales. Net sales for the year ended December 31, 1999 increased by
$171.4 million, or 34.0%, to $675.2 million from $503.8 million in 1998. Sales
of core products increased by $233.6 million, or 55.7%, to $653.3 million during
1999 compared to $419.7 million in 1998. Sales of core products from the
acquisitions of Hi-Stat Manufacturing Company, Inc. (Hi-Stat), Delta Schoeller,
Ltd. (Delta) and TVI accounted for $206.2 million of the increase, while sales
of existing core products increased by $27.4 million, or 6.5%, compared to 1998.
Sales revenues for 1999 were favorably impacted by strong OEM production volumes
in both the automotive and the commercial vehicle markets, which were offset by
lower production volumes in the agricultural vehicle market.
Sales for the year ended December 31, 1999 for North America increased
by $142.5 million to $599.3 million from $456.8 million in 1998. North American
sales accounted for 88.8% of total sales for the year ended December 31, 1999
compared with 90.7% in 1998. Sales in 1999 outside North America increased by
$28.9 million to $75.9 million from $47.0 million in 1998. Sales outside North
America accounted for 11.2% of total sales in 1999 compared with 9.3% in 1998.
During the second quarter of 1999, the Company completed the planned
phase out of its non-core contract manufacturing business. As expected, contract
manufacturing sales in 1999 declined by $62.2 million to $21.9 million, or 3.2%
of the Company's total sales revenue, compared with $84.1 million, or 16.7% of
total sales revenue in 1998.
Cost of Goods Sold. Cost of goods sold for the year ended December 31,
1999 increased by $107.7 million, or 28.4%, to $487.3 million from $379.6
million in 1998. As a percentage of sales, cost of goods sold decreased to 72.2%
in 1999 from 75.3% in 1998. The decrease in cost of goods sold as a percent of
sales was due primarily to improved leveraging of fixed costs, a shift in
product mix to higher value-added electrical and electronic core products, and a
decrease in lower-margin contract manufacturing sales.
Selling, General and Administrative Expenses. SG&A expenses increased
by $23.1 million to $90.6 million for the year ended December 31, 1999 from
$67.5 million in 1998. As a percentage of sales, SG&A expenses were 13.4% in
both 1999 and 1998. The increase of $23.1 million was primarily attributable to
additional costs of the newly acquired businesses.
Interest Expense, net. Interest expense for the year ended December 31,
1999 was $30.7 million compared with $0.7 million in 1998. Average outstanding
indebtedness was $343.8 million and $7.4 million in 1999 and 1998, respectively.
The increase in average outstanding indebtedness was primarily due to borrowings
to finance the acquisitions of Hi-Stat in December 1998, Delta in March 1999 and
TVI in August 1999.
Other Income, net. Other income for the year ended December 31, 1999
was $0.5 million, which primarily represented equity earnings of unconsolidated
subsidiaries.
Income Before Income Taxes. As a result of the foregoing, income before
income taxes increased by $11.0 million for the year ended December 31, 1999 to
$67.0 million from $56.0 million in 1998.
Provision for Income Taxes. The Company recognized provisions for
income taxes of $25.9 million and $22.6 million for the years ended December 31,
1999 and 1998, respectively. The effective income tax rate decreased to 38.6%
for 1999 compared to 40.4% in 1998. The reduced rate was due to an increase in
foreign income, which is taxed at rates below the U.S. statutory rate, and
domestic tax initiatives pursued in 1999.
Net Income. As a result of the foregoing, net income increased by $7.8
million, or 23.4%, to $41.2 million for the year ended December 31, 1999 from
$33.4 million in 1998.
Liquidity and Capital Resources
Net cash from operating activities was $52.4 million and $44.2 million
for the years ended December 31, 2000 and 1999, respectively. The increase in
net cash from operating activities of $8.2 million was primarily attributable to
lower levels of working capital, which was partially offset by the decrease in
net income of $8.5 million.
Net cash used for investing activities was $25.8 million and $51.8
million for the years ended December 31, 2000 and 1999, respectively. The
decrease in cash used for investing activities of $26.0 million was primarily
the result of the
12
acquisitions of Delta and TVI in 1999. Both acquisitions were financed with
funds from the Company's $425.0 million credit agreement.
Net cash used for financing activities was $24.4 million for the year
ended December 31, 2000 compared to net cash from financing activities of $9.7
million for the same period in 1999. Improved cash flows from operations for the
year ended December 31, 2000 were used primarily to pay down debt.
The Company has a $425.0 million credit agreement (of which $323.7
million and $346.9 million was outstanding at December 31, 2000 and 1999,
respectively) with a bank group. The credit agreement, as amended on May 25,
2000, has the following components: a $100.0 million revolving facility (of
which $35.2 million is currently available) including a $5.0 million swing line
facility, a $150.0 million term facility, and a $175.0 million term facility.
The $100.0 million revolving facility and the $150.0 million term facility
expire on December 31, 2003 and require a commitment fee of 0.37% to 0.50% on
the unused balance. The revolving facility permits the Company to borrow up to
half its borrowing in specified foreign currencies. Interest is payable
quarterly at either (i) the prime rate plus a margin of 0.00% to 1.00% or (ii)
LIBOR plus a margin of 1.25% to 2.50%, depending upon the Company's ratio of
consolidated total debt to consolidated earnings before interest, taxes,
depreciation and amortization, as defined. The $5.0 million swing line facility
expires on December 31, 2003. Interest is payable monthly at an overnight money
market borrowing rate. The $175.0 million term facility expires on December 31,
2005. Interest is payable quarterly at either (i) the prime rate plus a margin
of 2.00% or (ii) LIBOR plus a margin of 3.50%.
The Company has entered into two interest rate swap agreements with a
total notional amount of $140.1 million. The interest rate swap agreements
exchange variable interest rates on the Company's credit agreement for fixed
interest rates. The Company has also entered into a Swedish Krona forward
contract with a notional amount of $10.5 million to satisfy Krona denominated
debt obligations and other insignificant forward contracts. The Company does not
use derivatives for speculative or profit-motivated purposes.
Management believes that while the current economic slowdown will
continue into 2001, cash flows from operations and the availability of funds
from the Company's credit facilities will provide sufficient liquidity to meet
the Company's growth and operating needs.
Inflation and International Presence
Management believes that the Company's operations have not been
adversely affected by inflation. By operating internationally, the Company is
affected by the economic conditions of certain countries. Based on the current
economic conditions in these countries, management believes the Company is not
significantly exposed to adverse economic conditions.
Recently Issued Accounting Standards
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying generally accepted accounting
principles to the recognition, presentation and disclosure of revenue in
financial statements. The Company adopted the provisions of this bulletin in
2000. The adoption did not impact the Company's recognition of revenue in 2000.
Effective January 1, 2000, the Company adopted Emerging Issues Task
Force Issue No. 99-5 (EITF 99-5), "Accounting for Pre-Production Costs Related
to Long-Term Supply Arrangements." EITF 99-5 established new accounting rules
for costs related to the design and development of products and for costs
incurred to develop molds, dies and other tools to be used to produce products
that will be sold under long-term supply agreements. The Company elected to
adopt the requirements of EITF 99-5 on a prospective basis, as permitted. In
accordance with the criteria set forth in EITF 99-5, the Company is now required
to expense as incurred certain costs that were previously capitalized. The
adoption of EITF 99-5 did not have a significant impact on the Company's
financial statements during the year ended December 31, 2000.
The Company adopted Statement of Financial Accounting Standards No. 133
(SFAS 133), "Accounting for Derivative Instruments and Hedging Activities" (as
amended by SFAS 138) in the first quarter of its fiscal year ending 2001. SFAS
133 establishes new accounting and reporting standards for derivatives and
hedging activities. In accordance with the standard, the Company will
prospectively recognize the fair value of its derivative instruments as assets
or liabilities in its consolidated balance sheet once SFAS 133 is adopted. The
offset will be reflected as other comprehensive income or in
13
earnings, depending upon the achievement of hedge accounting criteria. The
adoption of this standard does not significantly affect the Company's balance
sheet, shareholders' equity position or statements of income at the time of
adoption.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks, primarily resulting
from the effects of changes in interest rates. To reduce exposures to market
risks resulting from fluctuations in interest rates, the Company uses derivative
financial instruments. Specifically, the Company uses interest rate swap
agreements to mitigate the effects of interest rate fluctuations on net income
by changing the floating interest rates on certain portions of the Company's
debt to fixed interest rates. The effect of changes in interest rates on the
Company's net income generally has been small relative to other factors that
also affect net income, such as sales and operating margins. Management believes
that its use of these financial instruments to reduce risk is in the Company's
best interest. The Company does not enter into financial instruments for trading
purposes.
The Company's risks related to commodity price and foreign currency
exchange risks have historically not been material. The Company does not expect
the effects of these risks to be material based on current operating and
economic conditions in the countries and markets in which it operates.
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Page
----
Consolidated Financial Statements:
- ---------------------------------
Report of Independent Public Accountants 16
Consolidated Balance Sheets as of December 31, 2000 and 1999 17
Consolidated Statements of Income for the Years Ended December 31, 2000, 1999 and 1998 18
Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 19
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2000, 1999 and 1998 20
Notes to Consolidated Financial Statements 21
Financial Statement Schedule:
- ----------------------------
Report of Independent Public Accountants 33
Schedule II--Valuation and Qualifying Accounts 34
15
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Stoneridge, Inc.:
We have audited the accompanying consolidated balance sheets of
Stoneridge, Inc. (an Ohio corporation) and Subsidiaries as of December 31, 2000
and 1999 and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Stoneridge, Inc. and
Subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
January 23, 2001.
16
STONERIDGE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31,
------------
2000 1999
--------------- -------------
Assets
Current Assets:
Cash and cash equivalents....................................................... $ 5,594 $ 3,924
Accounts receivable, less allowance for doubtful accounts
of $2,657 and $1,549........................................................ 91,680 98,744
Inventories..................................................................... 70,159 65,701
Prepaid expenses and other...................................................... 17,104 13,383
Deferred income taxes, net...................................................... 10,217 10,564
--------------- -------------
Total current assets........................................................ 194,754 192,316
--------------- -------------
Property, Plant and Equipment, net.................................................. 113,855 106,163
Other Assets:
Goodwill and other intangibles, net......................................... 357,526 369,265
Investments and other....................................................... 30,860 30,565
--------------- -------------
Total Assets........................................................................ $ 696,995 $ 698,309
=============== =============
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt............................................... $ 34,562 $ 25,753
Accounts payable................................................................ 45,199 42,337
Accrued expenses and other...................................................... 34,924 47,114
--------------- -------------
Total current liabilities................................................... 114,685 115,204
--------------- -------------
Long-Term Debt, net of current portion.............................................. 296,079 331,898
Deferred Income Taxes, net.......................................................... 22,352 15,985
Other............................................................................... 1,693 3,594
--------------- -------------
Total long-term liabilities................................................. 320,124 351,477
--------------- -------------
Shareholders' Equity:
Preferred shares, without par value, 5,000 authorized, none issued.............. -- --
Common shares, without par value, 60,000 authorized, 22,397 issued
and outstanding at December 31, 2000 and 1999, stated at.................... -- --
Additional paid-in capital...................................................... 141,506 141,506
Retained earnings............................................................... 123,211 90,502
Accumulated other comprehensive loss............................................ (2,531) (380)
--------------- -------------
Total shareholders' equity.................................................. 262,186 231,628
--------------- -------------
Total Liabilities and Shareholders' Equity.......................................... $ 696,995 $ 698,309
=============== =============
The accompanying notes to consolidated financial statements are
an integral part of these consolidated balance sheets.
17
STONERIDGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
For the years ended December 31,
--------------------------------
2000 1999 1998
------------- ------------- -------------
Net Sales....................................................... $ 667,192 $ 675,221 $ 503,821
Costs and Expenses
Cost of goods sold........................................ 496,080 487,349 379,582
Selling, general and administrative....................... 95,946 90,567 67,517
------------- ------------- -------------
Operating Income................................................ 75,166 97,305 56,722
Interest expense, net..................................... (29,492) (30,741) (686)
Other income, net......................................... 1,120 458 --
------------- ------------- -------------
Income Before Income Taxes...................................... 46,794 67,022 56,036
Provision for income taxes................................ 14,085 25,850 22,636
------------- ------------- -------------
Net Income...................................................... $ 32,709 $ 41,172 $ 33,400
============= ============= =============
Basic and Diluted Net Income per Share.......................... $ 1.46 $ 1.84 $ 1.49
============= ============= =============
Weighted Average Shares Outstanding............................. 22,397 22,397 22,397
============= ============= =============
The accompanying notes to consolidated financial statements are
an integral part of these statements.
18
STONERIDGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the years ended December 31,
--------------------------------
2000 1999 1998
----------- ---------- -----------
Operating Activities:
Net income...................................................... $ 32,709 $ 41,172 $ 33,400
Adjustments to reconcile net income to net cash from
operating activities--
Depreciation and amortization............................... 28,680 27,850 14,422
Deferred income taxes....................................... 7,166 8,900 (1,702)
Gain on sale of fixed assets................................ (995) -- --
Changes in operating assets and liabilities--
Accounts receivable, net................................. 5,577 (5,213) (7,162)
Inventories.............................................. (5,905) (3,615) (1,918)
Prepaid expenses and other............................... (4,242) (6,937) 1,761
Other assets, net........................................ (2,142) (1,015) (3,854)
Accounts payable......................................... 4,292 (8,793) 4,004
Accrued expenses and other............................... (12,738) (8,181) 7,037
----------- ---------- -----------
Net cash from operating activities..................... 52,402 44,168 45,988
----------- ---------- -----------
Investing Activities:
Capital expenditures............................................ (28,720) (17,589) (10,919)
Proceeds from sale of fixed assets.............................. 2,176 -- 3,758
Business acquisitions and other................................. 786 (34,209) (361,520)
----------- ---------- -----------
Net cash from investing activities..................... (25,758) (51,798) (368,681)
----------- ---------- -----------
Financing Activities:
Shareholder distributions paid.................................. -- -- (2,600)
Proceeds from long-term debt.................................... -- 5,114 1,286
Repayments of long-term debt.................................... (1,308) (168) (8,469)
Net borrowings (repayments) under credit agreement.............. (23,191) 4,712 341,729
Debt issuance costs............................................. -- -- (8,615)
----------- ---------- -----------
Net cash from financing activities..................... (24,499) 9,658 323,331
----------- ---------- -----------
Effect of exchange rate changes on cash and cash equivalents.... (475) 20 (100)
----------- ---------- -----------
Net change in cash and cash equivalents......................... 1,670 2,048 538
Cash and cash equivalents at beginning of period................ 3,924 1,876 1,338
----------- ---------- -----------
Cash and cash equivalents at end of period...................... $ 5,594 $ 3,924 $ 1,876
=========== ========== ===========
Supplemental disclosure of cash flow information
Cash paid for interest.......................................... $ 27,698 $ 29,967 $ 952
=========== ========== ===========
Cash paid for income taxes...................................... $ 14,761 $ 16,180 $ 22,979
=========== ========== ===========
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
19
STONERIDGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Accumulated
Additional Other
Number Paid in Retained Comprehensive Comprehensive
of shares Capital Earnings Loss Income
--------- ---------- --------- ------------- -------------
BALANCE, DECEMBER 31, 1997 22,397 $ 141,506 $ 15,930 $ (226)
Net income................................... -- -- 33,400 -- $ 33,400
Other comprehensive income:
Currency translation adjustments -- -- -- (68) (68)
-------- ---------- --------- --------- ---------------
Comprehensive income................ $ 33,332
===============
BALANCE, DECEMBER 31, 1998 22,397 141,506 49,330 (294)
Net income................................... -- -- 41,172 -- $ 41,172
Other comprehensive income:
Currency translation adjustments -- -- -- (86) (86)
-------- ---------- --------- --------- ---------------
Comprehensive income................ $ 41,086
===============
BALANCE, DECEMBER 31, 1999 22,397 141,506 90,502 (380)
Net income................................... -- -- 32,709 -- $ 32,709
Other comprehensive income:
Currency translation adjustments -- -- -- (2,151) (2,151)
-------- ---------- --------- --------- ---------------
Comprehensive income................ $ 30,558
===============
BALANCE, DECEMBER 31, 2000 22,397 $ 141,506 $ 123,211 $ (2,531)
======== ========== ========= =========
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
20
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
1. Organization and Nature of Business
Stoneridge, Inc. (Stoneridge) and its subsidiaries are independent
designers and manufacturers of engineered electrical and electronic components,
modules and systems for the automotive, medium and heavy-duty truck,
agricultural, and off-road vehicle markets.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Stoneridge and its wholly-owned and majority-owned subsidiaries (collectively,
the Company). All significant intercompany transactions and balances have been
eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all short-term investments with original maturities
of three months or less to be cash equivalents. Cash equivalents are stated at
cost, which approximates fair value.
Accounts Receivable Concentrations
Revenues are principally generated from the automotive, medium and heavy-
duty truck, and agricultural vehicle markets. Due to the nature of these
industries, a significant portion of sales and related accounts receivable are
concentrated in a relatively low number of customers. In 2000, the top three
customers accounted for approximately 18%, 17% and 17% of net sales, while the
top five customers accounted for 66% of net sales. The top four customers
accounted for approximately 21%, 18%, 17% and 10% of the Company's 1999 net
sales, and its top five customers accounted for approximately 74% of its 1999
net sales. Accounts receivable from the Company's five largest customers
aggregated approximately $47,876 and $58,685 at December 31, 2000 and 1999,
respectively.
Inventories
Cost is determined by the last-in, first-out (LIFO) method for
approximately 77% and 78% of the Company's inventories at December 31, 2000 and
1999, respectively, and by the first-in, first-out (FIFO) method for all other
inventories. Inventory cost includes material, labor and overhead. Inventories
consist of the following at December 31:
2000 1999
--------- ---------
Raw materials $ 45,552 $ 42,876
Work in progress 9,369 9,636
Finished goods 15,261 13,400
Less: LIFO reserve (23) (211)
--------- ---------
Total $ 70,159 $ 65,701
========= =========
21
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except share and per share data, unless otherwise indicated)
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and consist of the
following at December 31:
2000 1999
--------- ---------
Land and land improvements $ 5,560 $ 5,816
Buildings and improvements 43,855 44,719
Machinery and equipment 89,345 73,131
Office furniture and fixtures 20,825 17,303
Tooling 38,350 31,613
Vehicles 1,115 1,125
Leasehold improvements 1,110 1,043
--------- ---------
200,160 174,750
Less: Accumulated depreciation
and amortization 86,305 68,587
--------- ---------
$ 113,855 $ 106,163
========= =========
Depreciation is provided by both the straight-line and accelerated methods
over the estimated useful lives of the assets. Depreciation expense for the
years ended December 31, 2000, 1999 and 1998 was $18,218, $17,057 and $11,779,
respectively. Depreciable lives within each property classification are as
follows:
Buildings and improvements 10-40 years
Machinery and equipment 5-10 years
Office furniture and fixtures 3-10 years
Tooling 2-5 years
Vehicles 3-5 years
Leasehold improvements 3-8 years
Maintenance and repair expenditures that are not considered betterments and
do not extend the useful life of property are charged to expense as incurred.
Expenditures for improvements and major renewals are capitalized. When assets
are retired or otherwise disposed of, the related cost and accumulated
depreciation are removed from the accounts, and any gain or loss on the
disposition is credited or charged to income.
Goodwill and Other Intangibles
Goodwill and other intangibles, net, which result principally from
acquisitions, consist of the following at December 31:
Estimated
Useful Life 2000 1999
------------ --------- ----------
Goodwill 40 years $354,912 $ 365,845
Patents 6-13 years 2,614 2,975
Non-compete agreements 2 years -- 445
--------- ----------
$357,526 $ 369,265
========= ==========
22
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except share and per share data, unless otherwise indicated)
Goodwill and other intangibles are presented net of accumulated
amortization of $28,653 and $19,215 as of December 31, 2000 and 1999,
respectively. Goodwill and other intangible asset amortization expense totaled
approximately $10,462, $10,793, and $2,643 in 2000, 1999 and 1998, respectively.
The Company regularly evaluates its accounting for goodwill and other intangible
assets. No impairment charges were recorded in 2000, 1999 and 1998. Impairment
would be recognized when events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. Measurement of the amount
of impairment would be based on appraisal, market value of similar assets or
estimated discounted future cash flows resulting from the use and ultimate
disposition of the asset.
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following at
December 31:
2000 1999
-------- --------
Compensation-related obligations $ 14,028 $ 13,861
Insurance-related obligations 8,036 7,441
Income taxes -- 3,401
Other 12,860 22,411
-------- --------
$ 34,924 $ 47,114
======== ========
Income Taxes
The Company accounts for income taxes, using the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes." Deferred income taxes reflect the tax consequences on future years of
differences between the tax basis of assets and liabilities and their financial
reporting amounts. Future tax benefits are recognized to the extent that
realization of such benefits is more likely than not.
Currency Translation Adjustment
The financial statements of foreign subsidiaries, where the local currency
is the functional currency, are translated into U.S. dollars using exchange
rates in effect at the period end for assets and liabilities and average
exchange rates during each reporting period for results of operations.
Adjustments resulting from translation of financial statements are reflected as
accumulated other comprehensive loss.
The financial statements of foreign subsidiaries, where the U.S. dollar is
the functional currency and which have certain transactions denominated in a
local currency, are re-measured as if the functional currency were the U.S.
dollar. The re-measurement of local currencies into U.S. dollars creates
translation adjustments which are included in net income. All translation and
transaction activities were insignificant in 2000, 1999 and 1998.
Revenue Recognition
The Company recognizes revenues from the sale of products at the point of
passage of title, which is generally at the time of shipment. Revenue is
recognized in accordance with the Securities and Exchange Commission's Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements."
23
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except share and per share data, unless otherwise indicated)
Product Development Expenses
Expenses associated with the development of new products and changes to
existing products are charged to expense as incurred. The costs amounted to
$26,750, $21,976 and $17,418 in 2000, 1999 and 1998, respectively.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25 (APB 25), "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its employee share options. Since the exercise
price of the Company's employee share options equals the market price of the
shares on the date of grant, no compensation expense is recorded. The Company
has adopted the disclosure-only provisions of Statement of Financial Accounting
Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation."
Financial Instruments and Derivative Financial Instruments
Financial instruments held by the Company include cash and cash
equivalents, accounts receivable, accounts payable, long-term debt, interest
rate swap agreements and forward currency contracts. The carrying value of cash
and cash equivalents, accounts receivable and accounts payable is considered to
be representative of fair value because of the short maturity of these
instruments. The fair values of borrowings under the long-term debt facilities
are based on rates available to the Company for debt with comparable terms and
maturities. Refer to Note 10 for fair value disclosures of the interest rate
swaps and currency forward contracts.
Accounting Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, including certain self-insured risks and liabilities, and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Since actual results could differ from those estimates,
the Company revises its estimates and assumptions as new information becomes
available.
Net Income Per Share
Net income per share amounts for all periods are presented in accordance
with Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
which requires the presentation of basic net income per share and diluted net
income per share. Basic net income per share is computed by dividing net income
by the weighted average number of common shares outstanding. Diluted net income
per share is calculated by dividing net income by the weighted average of all
potentially dilutive common shares that were outstanding during the period.
Potentially dilutive securities are not significant and do not create
differences between reported basic and diluted net income per share for all
periods presented.
Impairment of Assets
The Company reviews its long-lived assets and identifiable intangible
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. No impairment charges
were recorded in 2000, 1999 and 1998. Measurement of the amount of impairment
may be based on appraisal, market values of similar assets or estimated
discounted future cash flows resulting from the use and ultimate disposition of
the asset.
24
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except share and per share data, unless otherwise indicated)
Comprehensive Income
During 1998, the Company adopted SFAS 130, "Reporting Comprehensive
Income," which established standards for the reporting and display of
comprehensive income and its components. Comprehensive income is defined as all
changes in a company's net assets except changes resulting from transactions
with shareholders. Comprehensive income differs from net income in that certain
items currently recorded directly to shareholders' equity are included in
comprehensive income.
Accounting Standards
The Company adopted SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities" (as amended by SFAS 138) in the first quarter of its fiscal
year ending 2001. SFAS 133 establishes new accounting and reporting standards
for derivatives and hedging activities. In accordance with the standard, the
Company will prospectively recognize the fair value of its derivative
instruments as assets or liabilities in its consolidated balance sheet once SFAS
133 is adopted. The offset will be reflected as other comprehensive income or in
earnings, depending upon the achievement of hedge accounting criteria. The
adoption of this standard does not significantly affect the Company's balance
sheet, shareholders' equity position or statements of income at the time of
adoption.
Effective January 1, 2000 the Company adopted EITF 99-5, "Accounting for
Pre-Production Costs Related to Long-Term Supply Arrangements." EITF 99-5
established new accounting rules for costs related to the design and development
of products and for costs incurred to develop molds, dies and other tools to be
used to produce products that will be sold under long-term supply agreements.
The Company elected to adopt the requirements of EITF 99-5 on a prospective
basis, as permitted. In accordance with the criteria set forth in EITF 99-5, the
Company is now required to expense as incurred certain costs that were
previously capitalized. The adoption of EITF 99-5 did not have a significant
impact on the Company's financial statements during the year ended December 31,
2000.
In December 1999, the Securities and Exchange Commission issued SAB 101,
"Revenue Recognition in Financial Statements." SAB 101 provides guidance on
applying generally accepted accounting principles to the recognition,
presentation and disclosure of revenue in financial statements. The Company
adopted the provisions of this bulletin in 2000. The adoption did not impact the
Company's recognition of revenue in 2000.
Reclassifications
Certain prior year amounts have been reclassified to conform to their 2000
presentation in the consolidated financial statements.
3. Acquisitions
On August 27, 1999, the Company purchased all the outstanding shares of TVI
Europe, Limited (TVI) for approximately $20,700. TVI is a United Kingdom
manufacturer of vehicle information and management systems for the European
commercial vehicle market. The transaction was accounted for as a purchase. The
excess of the purchase price over the fair value of assets acquired, totaling
approximately $17,400 is being amortized over 40 years on a straight-line basis.
The purchase price was funded with proceeds from the credit agreement discussed
in Note 5. The results of operations of TVI are included in the accompanying
financial statements from the date of acquisition.
On March 6, 1999, the Company purchased certain assets and assumed certain
liabilities of Delta Schoeller, Limited (Delta) for approximately $12,200. Delta
is a United Kingdom manufacturer of switches for the automotive industry. The
transaction was accounted for as a purchase. The purchase price was funded with
proceeds from the credit agreement discussed in Note 5. The results of
operations of Delta are included in the accompanying financial statements from
the date of acquisition.
25
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except share and per share data, unless otherwise indicated)
On December 31, 1998, the Company purchased all of the outstanding
common shares of Hi-Stat Manufacturing Company, Inc. (Hi-Stat) for approximately
$361,500. Hi-Stat manufactures engineered sensors, switches and solenoids for
the automotive industry. The transaction was accounted for as a purchase.
Accordingly, the assets acquired and liabilities assumed of Hi-Stat were
included in the consolidated balance sheet as of December 31, 1998. The purchase
price was funded with cash on hand and with proceeds from the credit agreement
discussed in Note 5. All assets acquired and liabilities assumed were stated at
fair value. The purchase price paid in excess of identifiable net assets was
allocated to goodwill. The components of intangible assets included in the
allocation of purchase price, along with the related straight-line amortization
periods, are:
Amortization
Amount Period (years)
------ --------------
Non-compete agreements $ 590 2
Patents 2,580 6-13
Goodwill 312,616 40
The results of operations of Hi-Stat are included in the accompanying
financial statements from the date of acquisition.
The unaudited pro forma consolidated results of operations as though
Hi-Stat had been acquired at the beginning of fiscal 1998 are as follows:
1998
----
Net sales $ 659,151
Operating income $ 73,269
Net income $ 24,736
Basic and diluted net income per
share $ 1.10
The pro forma data do not purport to be indicative of the results that
would have been obtained had these events actually occurred at the beginning of
the periods presented and are not intended to be a projection of future results.
The pro forma amounts reflect the results of operations for the Company, Hi-Stat
and the pertinent purchase accounting and other adjustments for the periods
presented.
4. Investments
The Company has a 50% interest in PST Industria Eletronica da Amazonia
Ltda. (PST), a Brazilian electronic components business that specializes in
electronic vehicle security devices. The investment is accounted for under the
equity method of accounting. The Company has loaned PST $5,000, which was used
for the repayment of existing debt. The note is secured by certain assets of
PST.
The Company has also entered into two joint venture agreements with
Connecto AB, a Swedish manufacturer of power distribution systems. Pursuant to
the terms of the agreements, the Company has a 79% interest in a Brazilian joint
venture and a 40% interest in a European joint venture. The Brazilian joint
venture is consolidated with the results of the Company and the European joint
venture is accounted for under the equity method of accounting. As of December
31, 2000, the Company incurred costs of approximately $3,132 related to these
joint ventures. The joint ventures are establishing production facilities in
Brazil and Europe for the purpose of manufacturing and selling power
distribution systems in South America and Europe, respectively.
26
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except share and per share data, unless otherwise indicated)
5. Long-Term Debt
The Company has a $425.0 million credit agreement with a bank group.
The credit agreement, as amended on May 25, 2000, has the following components:
a $100.0 million revolving facility including a $5.0 million swing line
facility, a $150.0 million term facility, and a $175.0 million term facility.
The $100.0 million revolving facility and the $150.0 million term facility
expire on December 31, 2003 and require a commitment fee of 0.37% to 0.50% on
the unused balance. The revolving facility permits the Company to borrow up to
half its borrowings in specified foreign currencies. Interest is payable
quarterly at either (i) the prime rate plus a margin of 0.00% to 1.00% or (ii)
LIBOR plus a margin of 1.25% to 2.50%, depending upon the Company's ratio of
consolidated total debt to consolidated earnings before interest, taxes,
depreciation and amortization, as defined. The $5.0 million swing line facility
expires on December 31, 2003. Interest is payable monthly at an overnight money
market borrowing rate. The $175.0 million term facility expires on December 31,
2005. Interest is payable quarterly at either (i) the prime rate plus a margin
of 2.00% or (ii) LIBOR plus a margin of 3.50%.
The weighted average interest rate in effect for the years ended
December 31, 2000, 1999 and 1998 was approximately 7.75%, 8.40% and 7.10%,
respectively, including the effects of the interest rate swap agreements.
Long-term debt consists of the following at December 31:
2000 1999
---------- -----------
Borrowings under credit agreement $323,670 $ 346,862
Borrowings payable to foreign banks 4,826 7,917
Other 2,145 2,872
---------- ------------
330,641 357,651
Less: Current portion 34,562 25,753
---------- ------------
$ 296,079 $ 331,898
========== ============
The credit agreement contains various covenants that require, among
other things, the maintenance of certain minimum amounts of consolidated net
worth and consolidated EBITDA and certain specified ratios of consolidated total
debt to consolidated EBITDA, interest coverage and fixed charge coverage.
Restrictions also include limits on capital expenditures and dividends. The
Company was in compliance with these covenants, which were amended on January
26, 2001.
Future maturities of long-term debt as of December 31, 2000 are as
follows:
2001 $ 34,562
2002 39,572
2003 91,851
2004 45,000
2005 119,656
The credit agreement requires certain debt prepayments based upon the
achievement of defined levels of EBITDA.
27
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except share and per share data, unless otherwise indicated)
6. Income Taxes
The provisions for income taxes included in the accompanying financial
statements represent federal, state and foreign income taxes. The provision for
income taxes consists of the following for the years ended December 31:
2000 1999 1998
----------- ----------- -----------
Current:
Federal $ 3,003 $ 12,281 $ 20,414
State and foreign 2,763 3,966 3,924
----------- ----------- -----------
5,766 16,247 24,338
----------- ----------- -----------
Deferred:
Federal 7,602 8,618 (1,489)
State and foreign 717 985 (213)
----------- ----------- -----------
8,319 9,603 (1,702)
----------- ----------- -----------
Total $ 14,085 $ 25,850 $ 22,636
=========== =========== ===========
A reconciliation of the Company's effective income tax rate to the
statutory federal tax rate for 2000, 1999 and 1998 is as follows:
2000 1999 1998
---------- ---------- ----------
Statutory U.S. federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit 1.5 3.0 4.7
Tax credits (1.0) -- --
Goodwill amortization 0.5 0.7 0.8
Foreign sales corporation (3.8) (1.4) (1.0)
Foreign losses (2.4) -- --
Other items 0.3 1.3 0.9
---------- ---------- ----------
Effective income tax rate 30.1% 38.6% 40.4%
========== ========== ==========
Unremitted earnings of foreign subsidiaries are $9,529 as of December
31, 2000. Because these earnings have been indefinitely reinvested in foreign
operations, no provision has been made for U.S. income taxes. It is
impracticable to determine the amount of unrecognized deferred taxes with
respect to these earnings; however, foreign tax credits should be available to
reduce U.S. income taxes in the event of a distribution.
Deferred tax assets and liabilities consist of the following at
December 31:
2000 1999
----------- ------------
Deferred tax assets:
Inventories $ 2,275 $ 2,001
Employee benefits 2,863 2,468
Insurance 2,922 3,134
Other nondeductible reserves 7,615 6,884
----------- ------------
Gross deferred tax assets 15,675 14,487
Deferred tax liabilities:
Depreciation and amortization (24,515) (16,614)
Other (3,295) (3,294)
----------- ------------
Gross deferred tax liabilities (27,810) (19,908)
----------- ------------
Net deferred tax liability $ (12,135) $ (5,421)
=========== ============
28
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except share and per share data, unless otherwise indicated)
7. Operating Lease Commitments
The Company leases equipment, vehicles and buildings from third parties
under operating lease agreements.
The Company also leases some of its facilities from certain related
parties. The leases are accounted for as operating leases and are for various
terms with additional renewal options. The Company is generally responsible for
repairs and maintenance, taxes and insurance.
For the years ended December 31, 2000, 1999 and 1998, lease expense
totaled $3,576, $3,620 and $3,015, under these agreements including related
party lease expense of $575, $465 and $451, respectively.
Future minimum operating lease commitments at December 31, 2000 are as
follows:
Third Related
Party Party
------------ -----------
2001 $ 2,851 $ 489
2002 2,380 460
2003 1,760 460
2004 221 382
2005 209 403
Thereafter -- 1,610
8. Share Option Plans
In October 1997, the Company adopted a Long-Term Incentive Plan
(Incentive Plan). The Company has reserved 1,000,000 Common Shares for issuance
under the Incentive Plan. Under the Incentive Plan, the Company has granted
cumulative options to purchase 661,000 Common Shares to management with exercise
prices equal to the fair market value of the Company's Common Shares at the date
of grant. The options vest from one to five years after the date of grant.
Information relating to the Company's outstanding options is as
follows:
Weighted
Share Excercise Average
Options Prices Exercise Price
---------------- ------------------- ----------------------
Outstanding at December 31, 1997 498,000 $16.44-17.50 $17.48
Forfeited in 1998 (6,000) 17.50 17.50
----------------
Outstanding at December 31, 1998 492,000 16.44-17.50 17.48
Granted in 1999 103,000 14.72 14.72
Forfeited in 1999 (14,000) 14.72-17.50 16.31
----------------
Outstanding at December 31, 1999 581,000 14.72-17.50 17.02
Granted in 2000 60,000 7.82 7.82
Forfeited in 2000 (65,000) 14.72-17.50 17.07
----------------
Outstanding at December 31, 2000 576,000 7.82-17.50 16.05
================
Of the options issued and outstanding under the Incentive Plan, 429,000
are currently exercisable as of December 31, 2000.
29
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except share and per share data, unless otherwise indicated)
The following pro forma information regarding net income and net income
per share is required by SFAS 123, and has been determined as if the Company had
accounted for its share options under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions:
2000 1999 1998
----------------- ---------------- -----------
Risk-free interest rate 6.09 - 6.14% 5.29-5.32% 5.97-6.16%
Expected dividend yield 0.00% 0.00% 0.00%
Expected lives 7.5 - 8.5 years 7.5 - 8.5 years 7.5 years
Expected volatility 38.54 - 39.00% 33.90% 33.19%
The Black-Scholes option pricing model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected share price
volatility. Because the Company's share options have characteristics
significantly different from traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its share options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma net earnings per share is as follows:
2000 1999 1998
------------- --------------- --------------
Net income - as reported $ 32,709 $ 41,172 $ 33,400
Net income - pro forma $ 32,381 $ 39,302 $ 31,236
Basic and diluted net income per share - as reported $ 1.46 $ 1.84 $ 1.49
Basic and diluted net income per share - pro forma $ 1.45 $ 1.75 $ 1.39
9. Employee Benefit Plans
The Company has certain defined contribution profit sharing and 401(k)
plans covering substantially all of the employees. Company contributions are
generally discretionary; however, a portion of these contributions are based
upon a percentage of employee compensation, as defined in the plans. The
Company's policy is to fund all benefit costs accrued. There are no unfunded
prior service costs. For the years ended December 31, 2000, 1999 and 1998,
contributions amounted to $3,479, $6,310 and $3,149, respectively.
The Company does not provide any other material retirement,
postretirement or postemployment benefits to its employees.
10. Fair Value of Financial Instruments
A financial instrument is cash or a contract that imposes an obligation
to deliver, or conveys a right to receive cash or another financial instrument.
The carrying values of cash and cash equivalents, accounts receivable and
accounts payable are considered to be representative of fair value because of
the short maturity of these instruments. In management's opinion, the estimated
fair value of the Company's long-term debt approximates book value, as under the
terms of the borrowing arrangements, a significant portion of the obligations
are subject to fluctuating market rates of interest.
30
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except share and per share data, unless otherwise indicated)
The Company uses derivative financial instruments to reduce exposures
to market risks resulting from fluctuations in interest rates and currency
rates. The Company does not enter into financial instruments for trading
purposes. Management believes that its use of these instruments to reduce risk
is in the Company's best interest.
Derivative financial instruments as of December 31, 2000 and 1999,
include the following interest rate swap agreements:
Expected
Notional Amount Fixed Rate Maturity
2000 1999 Paid Date
---- ---- ---- ----
$ -- $ 63,425 6.50-7.75% Dec. 29, 2000
-- 63,425 6.50-7.75 Dec. 29, 2000
-- 86,625 8.15 Dec. 31, 2000
-- 86,625 8.15 Dec. 31, 2000
54,375 -- 6.76 Dec. 31, 2002
85,750 -- 6.77 Dec. 31, 2002
The fair market value of these interest rate swap agreements, which was
estimated based on quoted market sources, approximated a net payable of $2,500
and a net receivable of $4,025, at December 31, 2000 and 1999, respectively.
The interest rate swap agreements require the Company to pay a fixed
interest rate to counterparties while receiving a floating interest rate based
on LIBOR. The fixed rate paid to the counterparties is dependent on the
Company's ratio of consolidated total debt to consolidated EBITDA as defined by
the Company's $425,000 credit agreement discussed in Note 5. The counterparties
to each of the interest rate swap agreements are major commercial banks.
Management believes that losses related to credit risk are remote.
The Company also entered into a foreign currency forward contract to
purchase $10.5 million of Swedish Krona to satisfy Krona denominated debt
obligations. The estimated fair value of the forward at December 31, 2000, per
quoted market sources, was not materially different from the carrying value.
11. Commitments and Contingencies
In the ordinary course of business, the Company is involved in various
legal proceedings, workers' compensation and product liability disputes. The
Company is of the opinion that the ultimate resolution of these matters will not
have a material adverse effect on the results of operations or the financial
position of the Company.
12. Geographic Areas
Effective January 1, 1998, the Company adopted SFAS 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS 131 requires the
financial statement disclosures for operating segments, products and services,
and geographic areas. The Company operates in one business segment based on the
aggregation criteria set forth in SFAS 131.
31
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except share and per share data, unless otherwise indicated)
The following table presents net sales and non-current assets for each
of the geographic areas in which the Company operates:
2000 1999 1998
------------ ------------ ----------
Net sales:
North America $ 579,877 $ 599,309 $ 456,813
Europe and other 87,315 75,912 47,008
------------ ------------ ----------
Total $ 667,192 $ 675,221 $ 503,821
============ ============ ==========
Non-current assets:
North America $ 446,744 $ 452,774 $ 458,679
Europe and other 55,497 53,219 21,971
------------ ------------ ----------
Total $ 502,241 $ 505,993 $ 480,650
============ ============ ==========
13. Unaudited Quarterly Financial Data
The following is a condensed summary of actual quarterly results of
operations for 2000 and 1999:
Quarter Ended
------------------------------------------------------------
Dec. 31 Sep. 30 June 30 Mar. 31
----------- ------------- ------------ -----------
(in millions, except per share data)
2000
Net sales $ 146.4 $ 153.8 $ 182.8 $ 184.2
Gross profit 30.7 38.0 50.7 51.7
Operating income 7.9 15.4 25.2 26.6
Net income $ 1.1 $ 7.5 $ 11.6 $ 12.5
=========== ============= ============ ===========
Basic and diluted net income per share $ 0.05 $ 0.34 $ 0.52 $ 0.56
=========== ============= ============ ===========
1999
Net sales $ 162.5 $ 157.0 $ 178.0 $ 177.7
Gross profit 44.6 44.0 49.8 49.5
Operating income 23.9 21.5 25.7 26.2
Net income $ 10.5 $ 8.7 $ 11.2 $ 10.8
=========== ============= ============ ===========
Basic and diluted net income per share $ 0.47 $ 0.39 $ 0.50 $ 0.48
=========== ============= ============ ===========
32
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Stoneridge, Inc.:
We have audited in accordance with auditing standards generally
accepted in the United States, the consolidated financial statements of
Stoneridge, Inc. and Subsidiaries included in this Form 10-K, and have issued
our report thereon dated January 23, 2001. Our audits were made for the purpose
of forming an opinion on those financial statements taken as a whole. The
schedule on page 34 is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
January 23, 2001.
33
STONERIDGE, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Liabilities
Balance at Charged to Assumed in
Beginning Costs and Purchase Balance at
of Period Expenses Accounting Write-offs End of Period
--------- -------- ---------- ---------- -------------
Allowance for doubtful accounts:
Year ended December 31, 1998 $ 231 $ 254 $ 545 $ 24 $ 1,006
Year ended December 31, 1999 1,006 728 125 310 1,549
Year ended December 31, 2000 1,549 1,356 -- 248 2,657
34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no disagreement between the management of the Company
and the Company's accountants on any matter of accounting principles or
practices of financial statement disclosures.
35
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is incorporated by reference to
the information under the headings "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" contained in the Company's Proxy
Statement in connection with its Annual Meeting of Shareholders to be held on
May 7, 2001, and the information under the heading "Executive Officers" in Part
I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference to
the information under the heading "Executive Compensation" contained in the
Company's Proxy Statement in connection with its Annual Meeting of Shareholders
to be held on May 7, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated by reference to
the information under the heading "Security Ownership of Certain Beneficial
Owners and Management" contained in the Company's Proxy Statement in connection
with its Annual Meeting of Shareholders to be held on May 7, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated by reference to
the information under the heading "Certain Relationships and Related
Transactions" contained in the Company's Proxy Statement in connection with its
Annual Meeting of Shareholders to be held on May 7, 2001.
36
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K.
Page in
Form 10-K
---------
1. Consolidated Financial Statements:
Report of Independent Public Accountants 16
Consolidated Balance Sheets as of December 31, 2000 and 1999 17
Consolidated Statements of Income for the years ended December 31, 2000, 1999
and 1998 18
Consolidated Statements of Cash Flows for the years ended December 31, 2000,
1999 and 1998 19
Consolidated Statements of Shareholders' Equity for the years ended December
31, 2000, 1999 and 1998 20
Notes to Consolidated Financial Statements 21
2. Financial Statement Schedules:
Report of Independent Public Accountants 33
Schedule II - Valuation and Qualifying Accounts 34
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
(b) The following reports on Form 8-K were filed during the quarter ended
December 31, 2000.
None.
(c) The exhibits listed on the Index to Exhibits on page 38 are filed with
this Form 10-K or incorporated by reference as set forth below.
(d) Additional Financial Statement Schedules.
None.
37
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------ -------
3.1 Proposed Form of Second Amended and Restated Articles of Incorporation
of the Company (incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (No. 333-33285)).
3.2 Proposed Form of Amended and Restated Code of Regulations of the
Company (incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (No. 333-33285)).
4.1 Common Share Certificate (incorporated by reference to Exhibit 4.1 to
the Company's Annual Report on Form 10-K for the year ended December
31, 1997).
10.1 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to
the Company's Registration Statement on Form S-1 (No. 333-33285)).
10.2 Lease Agreement between Industrial Development Associates and the
Alphabet Division, with respect to the Company's Mebane, North
Carolina facility (incorporated by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1999).
10.3 Lease Agreement between Stoneridge, Inc. and Alphabet, Inc., with
respect to the Company's division headquarters for the Alphabet
Division (incorporated by reference to Exhibit 10.4 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1999).
10.4 Contract Manufacturing Agreement dated January 3, 1993 with a division
of General Motors (incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement on Form S-1 (No. 333-33285)).
10.5 Share Exchange Agreement relating to the Berifors Acquisition
(incorporated by reference to Exhibit 10.6 to the Company's
Registration Statement on Form S-1 (No. 333-33285)).
10.6 Joint Venture and Shareholders' Agreements and Cooperation Agreement
with Connecto AB (incorporated by reference to Exhibit 10.7 to the
Company's Registration Statement on Form S-1 (No. 333-33285)).
10.7 Credit Agreement dated as of December 30, 1998 among Stoneridge, Inc.,
as Borrower, the Lending Institutions Named Therein, as Lenders, DLJ
Capital Funding, Inc., as Syndication Agent, National City Bank as
Administrative Agent and Collateral Agent, PNC Bank, NA as
Documentation Agent (incorporated by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1998).
10.8 Amendment No. 1 dated as of January 28, 1999 to Credit Agreement dated
as of December 30, 1998 among Stoneridge, Inc. as Borrower, the
Lenders named therein as Lenders, DLJ Capital Funding, Inc. as
Syndication Agent, National City Bank as a Lender, a Letter of Credit
Issuer, the Administrative Agent and the Collateral Agent, PNC Bank NA
as Documentation Agent (incorporated by reference to Exhibit 10.15 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).
10.9 Amendment No. 2 dated as of September 7, 1999 to Credit Agreement
dated as of December 30, 1998 among Stoneridge, Inc. as Borrower, the
Lenders named therein as Lenders, DLJ Capital Funding, Inc. as
Syndication Agent, National City Bank as a Lender, a Letter of Credit
Issuer, the Administrative Agent and the Collateral Agent, PNC Bank NA
as Documentation Agent (incorporated by reference to Exhibit 10.16 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).
10.10 Amendment No. 3 dated as of May 25, 2000 to Credit Agreement dated as
of December 30, 1998 among Stoneridge, Inc. as Borrower, the Lenders
named therein as Lenders, DLJ Capital Funding, Inc. as Syndication
Agent, National City Bank as a Lender, a Letter of Credit Issuer, the
Administrative Agent and the Collateral Agent, PNC Bank NA as
Documentation Agent (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
2000).
38
10.11 Amendment No. 4 dated as of January 26, 2001 to Credit Agreement dated
as of December 30, 1998 among Stoneridge, Inc. as Borrower, the
Lenders named therein as Lenders, DLJ Capital Funding, Inc. as
Syndication Agent, National City Bank as a Lender, a Letter of Credit
Issuer, the Administrative Agent and the Collateral Agent, PNC Bank NA
as Documentation Agent, filed herewith.
10.12 Agreement with DAV (Labinal) dated June 9, 1994 (incorporated by
reference to Exhibit 10.9 to the Company's Registration Statement on
Form S-1 (No. 333-33285)).
10.13 Proposed Form of Tax Indemnification Agreement (incorporated by
reference to Exhibit 10.10 to the Company's Registration Statement on
Form S-1 (No. 333-33285)).
10.14 Agreement for the Purchase and Sale of Quotas of P.S.T. Industria
Eletronica da Amazonia Ltda dated October 29, 1997(incorporated by
reference to Exhibit 10.11 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997).
10.15 Quotaholders' Agreement among Marcos Ferretti, Sergio De Cerqueira
Leite, Stoneridge, Inc. and P.S.T. Industria Eletronica da Amazonia
Ltda dated October 29, 1997 (incorporated by reference to Exhibit
10.12 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997).
10.16 Stock Purchase Agreement by and among Stoneridge, Inc. and the
Shareholders of Hi-Stat Manufacturing Co., Inc., dated as of December
7, 1998 (incorporated by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K as of December 31, 1998).
10.17 Form of Change in Control Agreement (incorporated by reference to
Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998).
21.1 Subsidiaries and Affiliates of the Company, filed herewith.
23.1 Consent of Independent Public Accountants, filed herewith.
39
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
STONERIDGE, INC.
Date: March 22, 2001 /s/ KEVIN P. BAGBY
--------------------------------------------
Kevin P. Bagby
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Date: March 22, 2001 /s/ D.M. DRAIME
--------------------------------------------
D.M. Draime
Chairman of the Board of Directors
Date: March 22, 2001 /s/ CLOYD J. ABRUZZO
--------------------------------------------
Cloyd J. Abruzzo
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 22, 2001 /s/ AVERY S. COHEN
--------------------------------------------
Avery S. Cohen
Secretary and Director
Date: March 22, 2001 /s/ RICHARD E. CHENEY
--------------------------------------------
Richard E. Cheney
Director
Date: March 22, 2001 /s/ SHELDON J. EPSTEIN
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Sheldon J. Epstein
Director
Date: March 22, 2001 /s/ CHARLES J. HIRE
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Charles J. Hire
Director
Date: March 22, 2001 /s/ RICHARD G. LEFAUVE
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Richard G. LeFauve
Director
Date: March 22, 2001 /s/ EARL L. LINEHAN
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Earl L. Linehan
Director
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