<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998. Commission file number 001-
13337
STONERIDGE, INC.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Ohio 34-1598949
- ------------------------------- ------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
9400 East Market Street, Warren, Ohio 44484
- ------------------------------------------- ------------------------
(Address of Principal Executive Offices) (Zip Code)
(330) 856-2443
--------------------------------------------------------------------
Registrant's Telephone Number, Including Area Code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No .
----- -----
The number of Common Shares, without par value, outstanding as of May 8, 1998:
22,397,311
<PAGE>
STONERIDGE, INC.
INDEX
Page
No.
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1998
and December 31, 1997 2
Condensed Consolidated Statements of Income for the three
months ended March 31, 1998 and 1997 3
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1998 and 1997 4
Notes to Condensed Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-8
Item 3. Quantitative and Qualitative Disclosure About Market
Risk 8
Part II -- Other Information 9
Signatures 10
Exhibit Index 11
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------
STONERIDGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------------- -----------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 954 $ 1,338
Accounts receivable, net 71,686 57,873
Inventories 38,785 38,594
Deferred income taxes 6,561 5,829
Prepaid expenses and other 8,823 6,842
----------------- -----------------
Total current assets 126,809 110,476
----------------- -----------------
PROPERTY, PLANT AND EQUIPMENT, net 57,476 58,696
OTHER ASSETS:
Goodwill and other intangible assets, net 46,880 46,892
Investments and other 23,299 19,009
----------------- -----------------
TOTAL ASSETS $254,464 $235,073
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 223 $ 456
Accounts payable 37,055 31,459
Accrued expenses and other 33,118 31,105
Accrued shareholder distributions -- 2,600
----------------- -----------------
Total current liabilities 70,396 65,620
----------------- -----------------
LONG-TERM DEBT, net of current portion 14,547 9,139
DEFERRED INCOME TAXES 2,839 3,104
----------------- -----------------
Total long term liabilities 17,386 12,243
----------------- -----------------
SHAREHOLDERS' EQUITY:
Preferred Shares, without par value, 5,000 authorized, none issued -- --
Common shares, without par value, 60,000 authorized, 22,397
outstanding at March 31, 1998 and December 31, 1997, stated at -- --
Additional paid-in capital 141,506 141,506
Retained earnings 25,312 15,930
Cumulative currency translation adjustment (136) (226)
----------------- -----------------
Total shareholders' equity 166,682 157,210
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$254,464 $235,073
================= =================
</TABLE>
The accompanying notes to condensed consolidated financial statements are
an integral part of these condensed consolidated balance sheets.
2
<PAGE>
STONERIDGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except for per share data)
<TABLE>
<CAPTION>
Three months ended March 31,
------------------------------
1998 1997
------------ -------------
<S> <C> <C>
NET SALES $131,216 $108,064
COSTS AND EXPENSES:
Cost of goods sold 99,513 82,125
Selling, general and administrative expenses 15,665 12,226
------------ -------------
Operating income 16,038 13,713
Gain on sale of equipment -- (1,733)
Interest expense, net 274 913
------------ -------------
INCOME BEFORE INCOME TAXES 15,764 14,533
Provision for income taxes 6,382 136
------------ -------------
NET INCOME $ 9,382 $ 14,397
=========== ============
BASIC AND DILUTED NET INCOME PER SHARE $0.42 $1.03
=========== ============
WEIGHTED AVERAGE SHARES OUTSTANDING 22,397 13,964
=========== ============
1997 PRO FORMA INCOME DATA:
Income before income taxes $15,764 $14,533
Pro forma adjustment - provision for income taxes 6,382 6,039
------------ -------------
Pro forma net income $ 9,382 $ 8,494
============ =============
Pro forma net income per share $ 0.42 $ 0.39
============ =============
Pro forma weighted average shares outstanding 22,397 21,640
============ =============
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these condensed consolidated statements.
3
<PAGE>
STONERIDGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
For the three months ended
March 31,
----------------------------------
1998 1997
--------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 9,382 $ 14,397
Adjustments to reconcile net income to net cash
from operating activities-
Depreciation and amortization 3,559 3,055
Deferred income taxes (997) --
Gain on sale of equipment -- (1,733)
Changes in operating assets and liabilities-
Accounts receivable, net (13,815) (5,454)
Inventories (161) 755
Prepaid expenses and other (1,064) (955)
Other assets, net (995) (298)
Accounts payable 4,325 2,735
Accrued expenses and other (1,027) 6,878
------------- --------------
Net cash from operating activities (793) 19,380
------------- --------------
INVESTING ACTIVITIES:
Capital expenditures (1,734) (2,290)
Proceeds from sale of property, plant and
equipment 12 2,300
------------- --------------
Net cash from investing activities (1,722) 10
------------- --------------
FINANCING ACTIVITIES:
Cash distributions paid (2,600) (5,300)
Proceeds from long-term debt -- --
Repayments of long-term debt (140) (90)
Net borrowings (repayments) under credit facility 4,871 (14,357)
------------- --------------
Net cash from financing activities 2,131 (19,747)
------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (384) (357)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,338 357
------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 954 $ --
============= ==============
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these condensed consolidated statements.
4
<PAGE>
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except for share and per share data)
1. The accompanying condensed consolidated financial statements have been
prepared by Stoneridge, Inc. (the "Company"), without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. The
information furnished in the condensed consolidated financial statements
includes normal recurring adjustments and reflects all adjustments which
are, in the opinion of management, necessary for a fair presentation of
such financial statements. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. Although the Company believes that
the disclosures are adequate to make the information presented not
misleading, it is suggested that these condensed consolidated financial
statements be read in conjunction with the audited financial statements and
the notes thereto included in the Company's 1997 Annual Report to
Shareholders.
The results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the results to be expected for the full year.
2. On October 10, 1997, the Company completed an initial public offering of
6,727,500 Common Shares at $17.50 per share (the "Offering"). The Company
received net cash proceeds of $108,693 from the Offering. Net proceeds of
the Offering were used to fund a payment to the pre-Offering shareholders
of approximately $83,000 as an S Corporation Distribution ("S Corporation
Distribution") and the remaining proceeds were used to repay net borrowings
under the Company's credit facility. Concurrent with the Offering, certain
officers and directors of the Company purchased 510,181 Common Shares
("Management Reinvestment") resulting in net proceeds of $8,326.
Immediately prior to the completion of the Offering, the Company amended
its Articles of Incorporation to change the authorized capital shares of
the Company from 37,724 shares of Class A Common Shares (voting), without
par value, and 87,276 shares of Class B Common Shares (non-voting), without
par value, to 60,000,000 Common Shares, and 5,000,000 Preferred Shares,
without par value. In addition, the amended Articles of Incorporation
provided that each Class A Common Share and Class B Common Share
automatically became 139.0856 Common Shares. All applicable share and per
share data in the accompanying unaudited condensed consolidated financial
statements have been adjusted accordingly.
Concurrent with the Offering, the Company acquired, through a share
exchange, the remaining 55% of Berifors AB ("Berifors") it did not own, in
exchange for 757,063 Common Shares, of which 52,500 Common Shares were held
in escrow pending final closing in February 1998. The acquisition was
accounted for as a purchase and the excess of the cost over the fair value
of assets acquired, totaling $10,439, was reflected as goodwill which will
be amortized over 40 years on a straight-line basis. As of October 10,
1997, the accounts of Berifors AB were consolidated in the financial
statements of the Company.
5
<PAGE>
3. Pro forma net income assumes that the Company was subject to income taxes
as a C Corporation for all income statement periods presented.
Pro forma net income per share has been calculated by dividing pro forma
net income per share by the weighted average number of Common Shares
outstanding as of March 31, 1997 (13,964,448), the number of Common Shares
issued in connection with the exercise of share options (438,119), the
number of Common Shares issued in connection with the Offering (6,727,500),
and the number of Common Shares issued in connection with the Management
Reinvestment (510,181).
4. Inventories are valued at the lower of cost or market, determined by using
the last-in, first-out (LIFO) method of inventory accounting. Inventory
cost includes material, labor and overhead and consists of the following:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
---------------------- ----------------------
<S> <C> <C>
Raw materials $23,527 $24,725
Work in progress 9,087 9,397
Finished goods 8,422 6,723
Less-LIFO reserve (2,251) (2,251)
------- -------
Total $38,785 $38,594
======= =======
</TABLE>
5. Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income."
SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components. The adoption of SFAS 130 requires
that certain items including currency translation adjustments be included
in other comprehensive income, which prior to adoption were reported
separately in shareholders' equity.
The component of comprehensive income, net of related tax, for the first
quarter of 1998 is as follows:
Net income $9,382
Currency translation adjustment, net 90
of income taxes ------
Comprehensive income $9,472
======
Accumulated other comprehensive income (deficit), net of related tax, at
March 31, 1998 was comprised of currency translation adjustments and
totaled ($136). The accumulated comprehensive income adjustments and
accumulated balance were zero for the three months ended March 31, 1997,
consequently prior year financial statements do not require
reclassification to conform to SFAS 130.
6
<PAGE>
ITEM 2.
- -------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
- -------------------------------------------------------------------------------
Net Sales. Net sales for the quarter ended March 31, 1998 increased by $23.1
million, or 21.4%, to $131.2 million from $108.1 million for the same period in
1997. Sales of core electrical and electronic components, modules, and systems
increased by $24.2 million, or 28.7%, to $108.4 million during the first quarter
of 1998 compared with $84.2 million for the same period in 1997. Sales related
to Berifors AB, the acquisition, which was completed concurrently with the
Company's initial public offering in October 1997, accounted for $10.1 million
of the $24.2 million increase in the first quarter of 1998. Excluding the impact
of the Berifors AB acquisition, net sales of core products increased by $14.1
million, or 16.7%, compared with 1997.
Net sales for the quarter ended March 31, 1998 of power distribution products,
exclusive of contract manufacturing, increased by $8.5 million, or 31.8%, to
$35.2 million due to increased market penetration in the medium and heavy duty
truck market and higher net sales to the agricultural vehicle market of $6.5
million and $2.7 million, respectively. Sales for 1998 of electrical
instrumentation and information displays increased by $12.9 million, or 123.9%,
due to the acquisition of Berifors AB and to higher industry volume for the
medium and heavy duty truck market. Sales for 1998 of switch products increased
by $0.9 million, or 3.2%, reflecting higher production levels in served markets.
Sales for 1998 of actuator products increased by $1.9 million, or 10.3%, due
primarily to the new four-wheel drive actuator product.
Net sales of contract manufacturing wire harnesses of $22.8 million were $1.1
million, or 4.3%, lower than 1997 reflecting declining customer production
levels. As expected, contract manufacturing sales declined to 17.4% of the
Company's total sales revenue for the first quarter of 1998 compared with 22.1%
of total sales for the same period in 1997.
Cost of Goods Sold. Cost of goods sold for the first quarter of 1998 increased
by $17.4 million, or 21.2%, to $99.5 million from $82.1 million in the first
quarter of 1997. As a percentage of sales, cost of goods sold decreased to 75.8%
in 1998 from 76.0% in 1997 while the corresponding gross profit margin increased
to 24.2% in 1998 from 24.0% in 1997. The improvement in gross profit margin
primarily resulted from improved operating leverage associated with increased
sales volumes. The margin rate performance was impacted by sales mix of
products.
Selling, General and Administrative Expenses. Selling, general and
administrative (SG&A) expenses for the first quarter of 1998 increased by $3.4
million, or 28.1%, to $15.7 million from $12.3 million in the same period in
1997. As a percentage of sales, SG&A expenses increased to 11.9% for 1998 from
11.3% in 1997. The increase reflected the consolidation of Berifors AB, which
accounted for $1.6 million of the increase. In addition, the Company increased
its investment in product development, which accounted for $1.6 million, $0.9
million relating to Berifors AB. Other marketing, support and administrating
overhead cost increased an additional $1.1 million due to higher sales levels
and expenditures related to new business expansion.
7
<PAGE>
Interest Expense. Interest expense for the first quarter of 1998 decreased by
$0.6 million, or 70.0%, to $0.3 million from $0.9 million in the first quarter
of 1997. The decrease was due to a lower average outstanding indebtedness.
Other Income. Other income for the first quarter of 1997 was $1.7 million, which
represents a gain on the sale of fixed assets.
Income Before Income Taxes. As a result of the foregoing, income before taxes
increased by $1.2 million for the first quarter of 1998 to $15.8 million from
$14.5 million in 1997. Excluding the one-time gain on sale of fixed assets, the
increase in income before taxes would have been $2.9 million or 23.1%.
Provision for Income Taxes. The Company recognized income taxes of $6.4 million
and $0.2 million for federal, state and foreign income taxes for the first
quarters of 1998 and 1997, respectively. This increase in the tax provision was
due to the change in tax status from a S corporation to a C corporation.
Accordingly, had the Company been subject to federal and state income taxes at
the corporate level for all of 1997, the Company would have recorded provisions
for income taxes of $6.0 million for the quarter ended March 31, 1997.
Net Income. Net income decreased by $5.0 million to $9.4 million in the first
quarter of 1998 from $14.4 million in the first quarter of 1997 due to the
change in tax status from a S corporation to a C corporation. Had the Company
been subject to federal and state income taxes at the corporate level, the
Company's pro forma net income would have been $8.5 for the quarter ended March
31, 1997, which would represent a $0.9 million increase for the quarter ended
March 31, 1998.
Liquidity and Capital Resources
- -------------------------------
The Company's consolidated debt to capital ratio increased slightly to 5.7% at
March 31, 1998 from 3.9% at December 31, 1997. Net cash used by operations was
$0.8 million reflecting higher working capital requirements from increased sales
levels.
The Company spent $1.7 million in capital expenditures during the quarter.
Final shareholder distributions totaled $2.6 million and the Company increased
its borrowings under the credit facility by $4.8 million.
As a result of the foregoing, cash decreased to $1.0 million at March 31, 1998
from $1.3 million at December 31, 1997.
The Company has a $125.0 million unsecured credit facility (of which $7.5
million was outstanding as of March 31, 1998), which expires on June 30, 2002.
Interest on the credit facility is payable at the Company's option at either
prime rate or LIBOR plus 0.75% to 2.0%. Currently the Company is borrowing at
LIBOR plus 0.75%. The Company has entered into two interest rate swap agreements
with notional amounts of $25.0 and $20.0 million. The interest rate swap
agreements exchange the variable interest rate on the credit facility for fixed
rates. The Company is exposed to credit loss under the swap agreements in the
event of nonperformance by the bank. As of March 31, 1998, the Company would
have paid approximately $0.1 million to the bank had it elected to terminate
these interest rate swap agreements. The Company has accrued these termination
costs in these financial statements, as the outstanding credit facility
borrowings were less than the combined notional amounts of the swap agreements.
ITEM 3.
- -------
QUANTITIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not Applicable.
8
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- -----------------------------
In the ordinary course of business, the Company is involved in various
legal proceedings, workers' compensation and product liability disputes. The
Company is of the opinion that the ultimate resolution of these matters will not
have a material adverse effect on the results of operations or the financial
position of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
- -----------------------------------------------------
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- -------------------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ---------------------------------------------------------------
None.
ITEM 5. OTHER INFORMATION
- -----------------------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------
(a) Exhibits
27.1 Financial Data Schedule for the three months ended March 31, 1998
(b) Reports on Forms 8-K
None.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STONERIDGE, INC.
Date: May 8, 1998 /s/ CLOYD J. ABRUZZO
-------------------------
Cloyd J. Abruzzo
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 8, 1998 /s/ KEVIN P. BAGBY
-------------------------
Kevin P. Bagby
Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
10
<PAGE>
STONERIDGE, INC.
EXHIBIT INDEX
Exhibit
Number Exhibit
------- -------
27.1 Financial Data Schedule for the three months ended March 31, 1998,
filed herewith.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STONERIDGE,
INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH
31, 1998 AND FOR THE THREE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
<CAPTION>
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 954
<SECURITIES> 0
<RECEIVABLES> 71,917
<ALLOWANCES> (231)
<INVENTORY> 38,785
<CURRENT-ASSETS> 126,809
<PP&E> 105,405
<DEPRECIATION> (47,929)
<TOTAL-ASSETS> 254,464
<CURRENT-LIABILITIES> 70,396
<BONDS> 14,547
0
0
<COMMON> 0
<OTHER-SE> 166,682
<TOTAL-LIABILITY-AND-EQUITY> 254,464
<SALES> 131,216
<TOTAL-REVENUES> 131,216
<CGS> 99,513
<TOTAL-COSTS> 99,513
<OTHER-EXPENSES> 15,665
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 274
<INCOME-PRETAX> 15,764
<INCOME-TAX> 6,382
<INCOME-CONTINUING> 9,382
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,382
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
</TABLE>
