<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 June 30, 1999. Commission file number 001-13337
STONERIDGE, INC.
---------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Ohio 34-1598949
-------------------------------- ------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
9400 East Market Street, Warren, Ohio 44484
----------------------------------------- ------------------
(Address of Principal Executive Offices) (Zip Code)
(330) 856-2443
--------------------------------------------
Registrant's Telephone Number, Including Area Code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No .
----- ------
The number of Common Shares, without par value, outstanding as of August 11,
1999 : 22,397,311
<PAGE>
STONERIDGE, INC.
INDEX
<TABLE>
<CAPTION>
Part I Financial Information Page No.
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1999
and December 31, 1998 2
Condensed Consolidated Statements of Income for the three
months and six months ended June 30, 1999 and 1998 3
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1999 and 1998 4
Notes to Condensed Consolidated Financial Statements 5-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-12
Item 3. Quantitative and Qualitative Disclosure About Market
Risk 12
Part II Other Information 13-14
Signatures 15
Exhibit Index 16
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STONERIDGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
(unaudited) (audited)
ASSETS
- ------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,232 $ 1,876
Accounts receivable, net 100,131 84,655
Inventories 56,976 53,273
Prepaid expenses and other 9,803 5,983
Deferred income taxes 12,839 11,679
------------ ----------
Total current assets 183,981 157,466
------------ ----------
PROPERTY, PLANT AND EQUIPMENT, net 98,495 94,770
OTHER ASSETS:
Goodwill, net 349,729 351,501
Other intangible assets, net 3,889 3,928
Investments and other 27,454 30,451
------------ ----------
TOTAL ASSETS $ 663,548 $ 638,116
============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 22,782 $ 21,213
Accounts payable 44,110 45,835
Accrued expenses and other 57,484 48,234
------------ ----------
Total current liabilities 124,376 115,282
------------ ----------
LONG-TERM DEBT, net of current portion 315,031 322,724
DEFERRED INCOME TAXES 10,628 8,088
OTHER LIABILITIES 1,361 1,480
------------ ----------
Total long term liabilities 327,020 332,292
------------ ----------
SHAREHOLDERS' EQUITY:
Preferred shares, without par value, 5,000 authorized, none issued -- --
Common shares, without par value, 60,000 authorized, 22,397 issued and
outstanding at June 30, 1999 and December 31, 1998, stated at -- --
Additional paid-in capital 141,506 141,506
Retained earnings 71,311 49,330
Accumulated other comprehensive income (665) (294)
------------ ----------
Total shareholders' equity 212,152 190,542
------------ ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 663,548 $ 638,116
============ ==========
</TABLE>
The accompanying notes to condensed consolidated financial statements are
an integral part of these condensed consolidated balance sheets.
2
<PAGE>
STONERIDGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands except for per share data)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
-------------------------------- ----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 178,048 $ 121,763 $ 355,703 $ 252,979
COST AND EXPENSES:
Cost of goods sold 128,237 92,143 256,451 191,656
Selling, general and administrative expenses 24,150 14,939 47,334 30,604
------------- ------------- ------------ --------------
Operating income 25,661 14,681 51,918 30,719
Interest expense, net 7,326 266 15,576 540
Other income 225 -- 225 --
------------- ------------- ------------ --------------
INCOME BEFORE INCOME TAXES 18,560 14,415 36,567 30,179
Provision for income taxes 7,352 5,622 14,586 12,004
------------- ------------- ------------ --------------
NET INCOME $ 11,208 $ 8,793 $ 21,981 $ 18,175
============= ============= ============ ==============
BASIC AND DILUTED NET INCOME
PER SHARE $ 0.50 $ 0.39 $ 0.98 $ 0.81
============= ============= ============ ==============
WEIGHTED AVERAGE SHARES
OUTSTANDING 22,397 22,397 22,397 22,397
============= ============= ============ ==============
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated statements.
3
<PAGE>
STONERIDGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
For the six months ended
June 30,
-----------------------------
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 21,981 $ 18,175
Adjustments to reconcile net income to net cash from operating activities-
Depreciation and amortization 14,748 7,221
Deferred income taxes 1,644 (978)
Changes in operating assets and liabilities-
Accounts receivable, net (11,670) 2,907
Inventories 961 (2,287)
Prepaid expenses and other (3,426) (1,921)
Other assets, net 735 (1,384)
Accounts payable (3,856) (1,255)
Accrued expenses and other 4,662 (2,012)
---------- ---------
Net cash from operating activities 25,779 18,466
---------- ---------
INVESTING ACTIVITIES:
Capital expenditures (5,241) (4,565)
Proceeds from sale of fixed assets -- 12
Business acquisitions (12,038) (5,361)
---------- ---------
Net cash from investing activities (17,279) (9,914)
---------- ---------
FINANCING ACTIVITIES:
Shareholder distributions paid -- (2,600)
Proceeds from long-term debt 3,166 --
Repayments of long-term debt (83) (4,477)
Net repayments under credit agreement (9,207) (768)
---------- ---------
Net cash from financing activities (6,124) (7,845)
---------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
(20) --
NET CHANGE IN CASH AND CASH EQUIVALENTS 2,356 707
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,876 1,338
---------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,232 $ 2,045
========== =========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated statements.
4
<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
Commission). The information furnished in the condensed consolidated
financial statements includes normal recurring adjustments and reflects all
adjustments which are, in the opinion of management, necessary for a fair
presentation of such financial statements. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the Commission's rules and regulations.
Although the Company believes that the disclosures are adequate to make the
information presented not misleading, it is suggested that these condensed
consolidated financial statements be read in conjunction with the audited
financial statements and the notes thereto included in the Company's 1998
Annual Report to Shareholders.
The results of operations for the three and six months ended June 30, 1999
are not necessarily indicative of the results to be expected for the full
year.
2. Inventories are valued at the lower of cost or market. Cost is determined
by the last-in, first-out (LIFO) method for approximately 69% and 76% of
the Company's inventories at June 30, 1999 and December 31, 1998,
respectively, and by the first-in, first-out (FIFO) method for all other
inventories. Inventory cost includes material, labor and overhead.
Inventories consist of the following:
June 30, 1999 December 31, 1998
------------- -----------------
Raw materials $37,772 $32,453
Work in progress 8,169 10,673
Finished goods 13,477 12,379
Less-LIFO reserve (2,442) (2,232)
------------ ------------
Total $56,976 $53,273
============ ============
3. On March 6, 1999, the Company purchased certain assets and assumed certain
liabilities of Delta Schoeller, Ltd. (Delta), a United Kingdom manufacturer
of switches for the automotive industry. The transaction was accounted for
as a purchase. The preliminary purchase price approximates $12.0 million.
On December 31, 1998, the Company purchased all the outstanding common
shares of Hi-Stat Manufacturing Company, Inc. (Hi-Stat) for approximately
$362,000. Hi-Stat manufactures engineered sensors, switches and solenoids
for the automotive industry. The transaction was accounted for as a
purchase. Accordingly, the assets acquired and liabilities assumed of Hi-
Stat are included in the consolidated balance sheet as of June 30, 1999 and
December 31, 1998. The purchase price was funded with the Company's cash
on hand and with proceeds from the Company's senior secured credit
agreement. The components of intangible assets included in the allocation
of purchase price at December 31, 1998 and the related straight-line
amortization periods is summarized as follows:
5
<PAGE>
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(in thousands, except for share and per share data)
Amortization
Amount Period (years)
------ --------------
Non-compete covenants $ 590 2
Patents 2,580 6-13
Goodwill 309,613 40
--------
Total $312,783
========
The results of operations of Hi-Stat have been included in the accompanying
financial statements from the date of acquisition. As such, Hi-Stat has no
effect on fiscal year 1998 net income.
The unaudited proforma consolidated results of operations as though Hi-Stat
had been acquired as of the beginning of fiscal 1998 is as follows:
Three months ended Six months ended
June 30, 1998 June 30, 1998
------------- -------------
Net sales $158,446 $331,315
Operating income $20,694 $43,434
Net income $5,787 $13,106
Basic and diluted earnings per share $0.26 $0.59
The pro forma data does not purport to be indicative of the results that
would have been obtained had these events actually occurred at the
beginning of the periods presented and is not intended to be a projection
of future results. The pro forma amounts reflect the results of operations
for the Company, Hi-Stat and the following assumed purchase accounting
adjustments for the periods presented:
. Elimination of historical management costs and interest expense of Hi-
Stat
. Interest expense on borrowings used to fund the acquisition
. Amortization of intangible assets based on the purchase price allocation
. Estimated income tax effect on the results of operations and the pro
forma adjustments assuming both companies were subject to tax as C
corporations
4. Other comprehensive income includes foreign currency translation
adjustments, net of related tax. Comprehensive income consists of the
following:
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
-------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $11,208 $8,793 $21,981 $18,175
Other comprehensive income (456) (93) (371) (3)
-------------------------- -------------------------
Comprehensive income $10,752 $8,700 $21,610 $18,172
========================== ========================
</TABLE>
6
<PAGE>
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
(in thousands, except for share and per share data)
5. The Company has a $425,000 credit agreement with a bank group. The credit
agreement has three components: a $100,000 revolving credit facility, a
$150,000 term facility and a $175,000 term facility. The $100,000 revolving
facility and the $150,000 term facility expire on December 31, 2003, and
require a commitment fee of 0.37% to 0.50% on the unused balance. Interest
is payable quarterly at either (i) the prime rate plus a margin of 0.25% to
1.50% or (ii) LIBOR plus a margin of 1.75% to 3.00%, depending upon the
Company's ratio of consolidated total debt to consolidated earnings before
interest, taxes, depreciation and amortization, as defined. The $175,000
term facility expires on December 31, 2005. Interest is payable quarterly
at either (i) the prime rate plus a margin of 2.00% or (ii) LIBOR plus a
margin of 3.50%.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30, 1999 December 31,1998
------------- ----------------
<S> <C> <C>
Borrowings under credit agreement $333,808 $342,150
Other 4,005 1,787
------------- ----------------
337,813 343,937
Less: Current maturities 22,782 21,213
------------- ----------------
$315,031 $322,724
============= ================
</TABLE>
6. The Company presents basic and diluted earnings per share in accordance with
Statement of Financial Accounting Standard No. 128, "Earnings per Share".
Potentially dilutive securities are not significant and do not create
differences between reported basic and diluted earnings per share for all
periods presented.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Six Months Ended June 30, 1999 Compared To Six Months Ended June 30, 1998
- -------------------------------------------------------------------------
Net Sales. Net sales for the six months ended June 30, 1999 increased by $102.7
million, or 40.6%, to $355.7 million from $253.0 million for the same period in
1998. Sales of core products increased by $120.9 million, or 56.8%, to $333.8
million during the first six months of 1999 compared to $212.9 million for the
same period of 1998. Sales of core products from the recent acquisitions of Hi-
Stat and Delta accounted for $99.9 million of the change, while sales of
existing core products increased by $21.0 million, or 9.9%, compared to the same
period in 1998. Sales revenues for the six months ended June 30, 1999 were
favorably impacted by strong OEM production volumes in both the passenger
car/light truck and the commercial vehicle markets which was offset by lower
production volumes in the agricultural vehicle market.
Sales for the six months ended June 30, 1999 for North America increased by
$91.4 million to $322.2 million from $230.8 million for the same period in 1998.
North American sales accounted for 90.6% of total sales for the six months ended
June 30, 1999 compared with 91.2% for the same period in 1998. Sales for the
first six months of 1999 outside North America increased by $11.3 million to
$33.5 million from $22.2 million for the same period in 1998. Sales outside
North America accounted for 9.4% of total sales for the six months ended June
30, 1999 compared with 8.8% for the same period in 1998.
During the second quarter of 1999, the Company completed the planned phase out
of its contract manufacturing business. As expected, contract manufacturing
sales for the first six months of 1999 declined by $18.1 million to $21.9
million, or 6.2% of the Company's total sales revenue compared with $40.0
million, or 15.8% of total sales revenue for the same period in 1998.
Cost of Goods Sold. Cost of goods sold for the first six months of 1999
increased by $64.8 million, or 33.8%, to $256.5 million from $191.7 million
in the first six months of 1998. As a percentage of sales, cost of goods sold
decreased to 72.1% for the first six months of 1999 from 75.8% for the same
period in 1998. The decrease as a percent of sales was due primarily to a shift
in product mix to higher value added electrical and electronic core products and
lower contract manufacturing sales.
Selling, General and Administrative Expenses. Selling, general and
administrative (SG&A) expenses increased by $16.7 million to $47.3 million in
the first six months of 1999 from $30.6 million for the same period in 1998. As
a percentage of sales, SG&A expenses increased to 13.3% for the first six months
of 1999 from 12.1% for the same period in 1998. The majority of the increase
was attributable to additional costs of the newly acquired business.
Interest Expense. Interest expense for the first six months of 1999 was $15.6
million compared with $0.5 million for the same period in 1998. Average
outstanding indebtedness was $345.4 million and $12.1 million for the first six
months of 1999 and 1998, respectively. The increase in average outstanding
indebtedness was primarily due to borrowings to finance recent acquisitions.
Income Before Income Taxes. As a result of the foregoing, income before taxes
increased by $6.4 million for the first six months of 1999 to $36.6 million
from $30.2 million for the same period in 1998.
8
<PAGE>
Provision for Income Taxes. The Company recognized provisions for income taxes
of $14.6 million and $12.0 million for federal, state and foreign income taxes
for the first six months of 1999 and 1998, respectively.
Net Income. As a result of the foregoing, net income increased by $3.8 million,
or 20.9%, to $22.0 million for the first six months of 1999 from $18.2
million for the same period in 1998.
Three Months Ended June 30, 1999 Compared To Three Months Ended June 30, 1998
- -----------------------------------------------------------------------------
Net Sales. Net sales for the quarter ended June 30, 1999 increased by $56.2
million, or 46.1%, to $178.0 million from $121.8 million for the same period in
1998. Sales of core products increased by $66.9 million, or 64.0%, to $171.4
million during the second quarter of 1999 compared to $104.5 million for the
same period of 1998. Sales of core products from the recent acquisitions of Hi-
Stat and Delta accounted for $52.7 million of the change, while sales of
existing core products increased by $14.2 million, or 13.6%, compared to same
period in 1998. Sales revenues for the second quarter of 1999 were favorably
impacted by strong OEM production volumes in both the passenger car/light truck
and the commercial vehicle markets which was offset by lower production volumes
in the agricultural vehicle market.
Sales for the quarter ended June 30, 1999 for North America increased by $50.8
million to $161.0 million from $110.2 million for the same period in 1998.
North American sales accounted for 90.4% of total sales for the second quarter
of 1999 compared with 90.5% for the same period in 1998. Sales for the second
quarter of 1999 outside North America increased by $5.4 million to $17.0 million
from $11.6 million for the same period in 1998. Sales outside North America
accounted for 9.6% of total sales for the second quarter of 1999 compared with
9.5% for the same period in 1998.
As previously mentioned, the Company completed its planned phase out of the
contract manufacturing business. As expected, contract manufacturing sales for
the second quarter of 1999 declined by $10.7 million to $6.7 million, or 3.8%,
of the Company's total sales revenue compared with $17.2 million, or 14.2%, of
total sales revenue for the same period in 1998.
Cost of Goods Sold. Cost of goods sold for the second quarter of 1999 increased
by $36.1 million, or 39.2%, to $128.2 million from $92.1 million in the second
quarter of 1998. As a percentage of sales, cost of goods sold decreased to
72.0% in 1999 from 75.7% in 1998. The decrease as a percent of sales was due
primarily to a shift in product mix to higher value added electrical and
electronic core products and lower contract manufacturing sales.
Selling, General and Administrative Expenses. Selling, general and
administrative (SG&A) expenses increased by $9.3 million to $24.2 million in the
second quarter of 1999 from $14.9 million for the same period in 1998. As a
percentage of sales, SG&A expenses increased to 13.6% for the second quarter of
1999 from 12.2% for the same period in 1998. The majority of the increase was
attributable to the additional costs of the newly acquired business.
Interest Expense. Interest expense for the second quarter of 1999 was $7.3
million compared with $0.3 million for the same period in 1998. Average
outstanding indebtedness was $342.6 million and $10.8 million for the second
quarter of 1999 and 1998, respectively. The increase in average outstanding
indebtedness was primarily due to borrowings to finance recent acquisitions.
Income Before Income Taxes. As a result of the foregoing, income before taxes
increased by $4.2 million for the second quarter of 1999 to $18.6 million from
$14.4 million in 1998.
9
<PAGE>
Provision for Income Taxes. The Company recognized provisions for income taxes
of $7.4 million and $5.6 million for federal, state and foreign income taxes for
the second quarters of 1999 and 1998, respectively.
Net Income. As a result of the foregoing, net income increased by $2.4 million,
or 27.3%, to $11.2 million for the second quarter of 1999 from $8.8 million for
the same period in 1998.
Liquidity and Capital Resources
Net cash provided by operating activities was $25.8 million and $18.5
million for the six months ended June 30, 1999 and 1998, respectively. The
increase in net cash from operating activities of $7.3 million was due primarily
to the increase in net income of $3.8 million and the increase in depreciation
and amortization of $7.5 million which was offset by the increase in working
capital and other operating assets of $4.0 million.
Net cash used for investing activities was $17.3 million and $9.9 million
for the six months ended June 30, 1999 and 1998, respectively. The increase in
cash used for investing activities of $7.4 million was primarily the result of
the acquisition of Delta. The acquisition of Delta was financed with funds from
the Company's $425.0 million credit agreement.
Net cash used for financing activities was $6.1 million for the six months
ended June 30, 1999 as compared to net cash used for financing activities of
$7.8 million for the six months ended June 30, 1998.
The Company has a $425.0 million credit agreement (of which $333.8 million
was outstanding at June 30, 1999) with a bank group. The credit agreement has
three components: a $100.0 million revolving facility (of which $93.0 million is
currently available), a $150.0 million term facility, and a $175.0 million term
facility. The $100.0 million revolving facility and the $150.0 million term
facility expire on December 31, 2003, and require a commitment fee of 0.37% to
0.50% on the unused balance. Interest is payable quarterly at either (i) the
prime rate plus a margin of 0.25% to 1.50% or (ii) LIBOR plus a margin of 1.75%
to 3.00%, depending upon the Company's ratio of consolidated total debt to
consolidated earnings before interest, taxes, depreciation and amortization, as
defined. The $175,000 term facility expires on December 31, 2005. Interest is
payable quarterly at either (i) the prime rate plus a margin of 2.00% or (ii)
LIBOR plus a margin of 3.50%.
The Company has entered into five interest rate swap agreements with a
total notional amount of $350.0 million. The interest rate swap agreements
exchange variable interest rates on the senior secured credit facility for fixed
interest rates. The Company does not use derivatives for speculative or profit-
motivated purposes. To the extent that the notional amount of the swap
agreements exceed the carrying value of the underlying debt, a mark to market
adjustment is reflected in the financial statements.
Management believes that cash flows from operations and the availability of
funds from the Company's credit facilities will provide sufficient liquidity to
meet the Company's growth and operating needs.
10
<PAGE>
Inflation and International Presence
Management believes that the Company's operations have not been adversely
affected by inflation. By operating internationally, the Company is affected by
the economic conditions of certain countries. Based on the current economic
conditions in these countries, management believes they are not significantly
exposed to adverse economic conditions.
Recently Issued Accounting Standards
Effective January 1, 1998 the Company adopted Statement of Financial
Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 requires the financial statement
disclosures for operating segments, products and services, and geographic areas.
The Company operates in one business segment based on the criteria set forth in
SFAS 131. Therefore, SFAS 131 will not affect the Company's financial position,
results of operations or financial statement disclosures.
The Company is required to adopt Statement of Financial Accounting
Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities". SFAS 133 establishes new accounting and reporting standards for
derivatives and hedging activities. In May 1999, the Financial Accounting
Standards Board announced a deferral in the implementation date of SFAS 133 to
January 1, 2001. The Company has not yet evaluated the financial accounting
and reporting impact of SFAS 133.
Year 2000 Initiative
The Company has conducted an evaluation of the actions necessary in order
to gain assurance that its information and non-information technology systems
will be able to function without disruption with respect to the application of
dating systems in the Year 2000. As a result of this evaluation, the Company is
engaged in the process of upgrading, replacing and testing information systems,
computer applications and other systems to be able to operate without
disruption due to Year 2000 issues. The Company's remedial actions are scheduled
to be completed by the end of the third quarter of 1999.
There can be no assurance that the remedial actions being implemented by
the Company will be able to be completed by the time necessary to avoid Year
2000 dating systems problems or that the cost of doing so will not be in excess
of the amounts discussed below. If the Company is unable to complete its
remedial actions in the planned timeframe, contingency plans will be developed
to address systems that may not be Year 2000 compliant. These contingency plans
could include accelerating the implementation of third party Year 2000 compliant
software.
The Company estimates total historical Year 2000 expenditures to be
approximately $3.0 million. Year 2000 expenditures relate to modifying software,
purchasing new software and hardware, and replacing non-compliant software and
hardware. Year 2000 expenditures to be incurred through December 31, 1999 are
estimated to be an additional $0.9 million. These costs include both internal
and external personnel costs related to the assessment process, as well as the
cost of purchasing certain hardware and software. There can be no guarantee that
these estimates will be achieved, and actual results may differ from those
planned. The cost of remedial actions to rectify non-information technology
systems is not anticipated to be material to the Company's financial position or
results of operations. The Company intends to use cash provided from operations
to fund expenditures related to Year 2000 issues.
11
<PAGE>
The Company currently believes the most likely worst case scenario with
respect to the Year 2000 issue is a disruption in the supply of products and
services from the Company's vendors, including utility providers. Such a supply
disruption could result in the Company not being able to produce certain
products for a period of time, which could have a material adverse effect on the
financial condition and results of operations of the Company.
The Company intends to develop contingency plans to address potential third
party system failures resulting from a Year 2000 problem. The Company has an
ongoing assessment process to gain assurances and certifications of customers'
and suppliers' Year 2000 readiness programs. Based on the results of the
assessment process, the Company will develop contingency plans for those
suppliers who are unable or unwilling to develop remediation plans to become
Year 2000 compliant. Although these plans are not yet complete, the Company
expects that these plans will include a combination of the resourcing of
materials to Year 2000 compliant vendors and the stockpiling of components. The
Company expects the implementation of these plans to occur by the end of the
third quarter of 1999.
Portions of this Year 2000 section contain statements that constitute forward-
looking statements. The forward-looking statements include statements regarding
the Company's intent, belief and expectations with respect to, among other
things, the timing of the Company's Year 2000 remedial actions and the
development of the Company's contingency plans, and the future expenses related
to the Company's Year 2000 compliance programs. Investors are cautioned that any
such forward-looking statement is not a guarantee and involves risks and
uncertainties, and that actual events may differ materially from those in the
forward-looking statement as a result of various factors, including, among
others, the discovery of a currently unknown material Year 2000 issue, the
failure of third parties to address Year 2000 issues, the failure to implement
the Company's Year 2000 plan as scheduled, and a material increase in the costs
of external consultants.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to certain market risks, primarily resulting from
the effects of changes in interest rates. To reduce exposures to market risks
resulting from fluctuations in interest rates, the Company uses derivative
financial instruments. Specifically, the Company uses interest rate swap
agreements to mitigate the effects of interest rate fluctuations on net income
by changing the floating interest rates on certain portions of the Company's
debt to fixed interest rates. The effect of changes in interest rates on the
Company's net income generally has been small relative to other factors that
also affect net income, such as sales and operating margins. Management believes
that its use of these financial instruments to reduce risk is in the Company's
best interest. The Company does not enter into financial instruments for
trading purposes.
The Company's risks related to commodity price and foreign currency
exchange risks have historically not been material. The Company does not expect
the effects of these risks to be material based on current operating and
economic conditions in the countries and markets in which it operates.
12
<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
- ---------------------------------------------------------------
(a) The Annual Meeting of Shareholders of Stoneridge, Inc. was held on
May 3, 1999.
(b) The following matter was submitted to a vote at the meeting
(1) The election of the following nominees as directors of the
Company. The vote with respect to each nominee was as follows:
Nominee For Withheld
------- --- ---------
D.M. Draime 17,724,398 4,672,913
Cloyd J. Abruzzo 17,724,898 4,672,413
Avery S. Cohen 17,724,198 4,673,113
Richard E. Cheney 17,726,298 4,671,013
Sheldon J. Epstein 17,727,598 4,669,713
C.J. Hire 17,721,443 4,675,868
Richard G. LeFauve 17,724,043 4,673,268
Earl L. Linehan 17,723,498 4,673,813
No other matters were voted on at the Annual Meeting of Shareholders or
otherwise during the quarter.
ITEM 5. OTHER INFORMATION
- -----------------------------
None.
13
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------
(a) Exhibits
27.1 Financial Data Schedule for the six months ended June 30, 1999
(b) Reports on Forms 8-K
None.
14
<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: August 16, 1999 /s/ Cloyd J. Abruzzo
-------------------------------
Cloyd J. Abruzzo
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 16, 1999 /s/ Kevin P. Bagby
-------------------------------
Kevin P. Bagby
Treasurer and Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
15
<PAGE>
STONERIDGE, INC.
EXHIBIT INDEX
Exhibit
Number Exhibit
------- -------
27.1 Financial Data Schedule for the six months ended June 30, 1999, filed
herewith.
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
STONERIDGE, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS
OF JUNE 30, 1999 AND FOR THE SIX MONTHS THEN ENDED AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,232
<SECURITIES> 0
<RECEIVABLES> 101,137
<ALLOWANCES> (1,006)
<INVENTORY> 56,976
<CURRENT-ASSETS> 183,981
<PP&E> 163,974
<DEPRECIATION> (65,479)
<TOTAL-ASSETS> 663,548
<CURRENT-LIABILITIES> 124,376
<BONDS> 315,031
0
0
<COMMON> 0
<OTHER-SE> 212,152
<TOTAL-LIABILITY-AND-EQUITY> 663,548
<SALES> 355,703
<TOTAL-REVENUES> 355,703
<CGS> 256,451
<TOTAL-COSTS> 256,451
<OTHER-EXPENSES> 47,109
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,576
<INCOME-PRETAX> 36,567
<INCOME-TAX> 14,586
<INCOME-CONTINUING> 21,981
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,981
<EPS-BASIC> 0.98
<EPS-DILUTED> 0.98
</TABLE>
