Stoneridge, Inc. 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2006
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-13337
STONERIDGE, INC.
(Exact name of registrant as specified in its charter)
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Ohio
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34-1598949 |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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9400 East Market Street, Warren, Ohio
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44484 |
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(Address of principal executive offices)
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(Zip Code) |
(330) 856-2443
Registrants telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered |
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Common Shares, without par value
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New York Stock Exchange |
Securities registered pursuant to section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
o Yes þ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act.
o Yes þ No
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.
þ Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to
the best of registrants 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. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). o Yes þ No
As of July 1, 2006, the aggregate market value of the registrants Common Shares, without par
value, held by non-affiliates of the registrant was approximately $112.6 million. The closing
price of the Common Shares on June 30, 2006 as reported on the New York Stock Exchange was $8.30
per share. As of July 1, 2006, the number of Common Shares outstanding was 23,225,949.
The number of Common Shares, without par value, outstanding as of February 16, 2007 was
23,804,417.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 7, 2007,
into Part III, Items 10, 11, 12, 13 and 14.
STONERIDGE, INC. AND SUBSIDIARIES
INDEX
2
PART I
Item 1. Business.
Overview
Founded in 1965, Stoneridge, Inc. (the Company) is an independent designer and manufacturer
of highly engineered electrical and electronic components, modules and systems for the automotive,
medium- and heavy-duty truck, agricultural and off-highway vehicle markets. Our custom-engineered
products are predominantly sold on a sole-source basis and consist of application-specific control
devices, sensors, vehicle management electronics and power and signal distribution systems. These
products comprise the elements of every vehicles electrical system, and individually interface
with a vehicles mechanical and electrical systems to (i) activate equipment and accessories, (ii)
display and monitor vehicle performance and (iii) control and distribute electrical power and
signals. Our products improve the performance, safety, convenience and environmental monitoring
capabilities of our customers vehicles. As such, the growth in many of the product areas in which
we compete is driven by the increasing consumer desire for safety, security and convenience coupled
with the need for original equipment manufacturers (OEM) to meet safety requirements in addition
to the general trend of increased electrical and electronic content per vehicle. Our technology
and our partnership-oriented approach to product design and development enables us to develop
next-generation products and to excel in the transition from mechanical-based components and
systems to electrical and electronic components, modules and systems.
Products
We conduct our business in two reportable segments: Vehicle Management & Power Distribution
and Control Devices. Under the provisions of Statement Financial of Accounting Standard (SFAS)
No. 131, Disclosures about Segments of an Enterprise and Related Information, two of the Companys
four operating segments are aggregated into the Vehicle Management & Power Distribution reportable
segment and two are aggregated into the Control Devices reportable segment. The core products of
the Vehicle Management & Power Distribution reportable segment include vehicle electrical power and
distribution systems and electronic instrumentation and information display products. The core
products of the Control Devices reportable segment include electronic and electrical switch
products, actuator products and sensor products. We design and manufacture the following vehicle
parts:
Vehicle Management & Power Distribution. The Vehicle Management & Power Distribution
reportable segment produces electronic instrument clusters, electronic control units, and
electrical distribution systems, primarily wiring harnesses and connectors for electrical power and
signal distribution. 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. In addition, power distribution systems
regulate, coordinate and direct the operation of the entire electrical system within a vehicle
compartment. These products use state-of-the-art hardware, software and multiplexing technology
and are sold principally to the medium- and heavy-duty truck, agricultural and off-highway vehicle
markets.
Control Devices. The Control Devices reportable segment produces products that monitor,
measure or activate a specific function within the vehicle. Product lines included within the
Control Devices segment are sensors, switches, actuators, as well as other electronic products.
Sensor products are employed in most major vehicle systems, including the emissions, safety,
powertrain, braking, climate control, steering and suspension systems. Switches transmit a signal
that activates specific functions. Hidden switches are not typically seen by vehicle passengers,
but are used to activate or deactivate selected functions. Customer activated switches are used by
a vehicles operator or passengers to manually activate headlights, rear defrosters and other
accessories. In addition, the Control Devices segment 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. We sell these products principally to the automotive
market.
3
The following table presents core product lines by reportable segment, as a percentage of net
sales:
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For the Fiscal Years Ended |
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December 31, |
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2006 |
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2005 |
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2004 |
Vehicle Management & Power Distribution: |
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Vehicle electrical and power distribution systems |
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32 |
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29 |
% |
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28 |
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Electronic instrumentation and information display products |
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25 |
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24 |
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24 |
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Total |
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57 |
% |
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53 |
% |
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52 |
% |
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Control Devices: |
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Actuator and sensor products |
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18 |
% |
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21 |
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20 |
% |
Switch and sensor products |
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25 |
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26 |
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28 |
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Total |
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43 |
% |
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47 |
% |
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48 |
% |
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For further information related to our reportable segments and financial information about
geographic areas, see Note 13, Segment Reporting, to the consolidated financial statements
included in this report.
Production Materials
The principal production materials used in the manufacturing process for both reportable
segments include: copper wire, cable, resins, plastics, printed circuit boards, metal stamping and
certain electrical components such as microprocessors, memories, resistors, capacitors, fuses,
relays and connectors. We purchase such materials pursuant to both annual contract and spot
purchasing methods. Such materials are readily available from multiple sources, but we generally
establish collaborative relationships with a qualified supplier for each of our key production
materials in order to lower costs and enhance service and quality. Any change in the supply of, or
price for, these raw materials could materially affect our results of operations and financial
condition.
Patents and Intellectual Property
Both of our reportable segments maintain and have pending various U.S. and foreign patents and
other rights to intellectual property relating to our business, which we believe are appropriate to
protect the Companys interests in existing products, new inventions, manufacturing processes and
product developments. We do not believe any single patent is material to our business, nor would
the expiration or invalidity of any patent have a material adverse effect on our business or
ability to compete. We are not currently engaged in any material infringement litigation, nor are
there any material infringement claims pending by or against the Company.
Industry Cyclicality and Seasonality
The markets for products in both of our reportable segments have historically been cyclical.
Because these products are used principally in the production of vehicles for the automotive,
medium- and heavy-duty truck, agricultural and off-highway vehicle markets, sales, and therefore
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,
agricultural and off-highway vehicle production of our principal customers could adversely impact
the Company. Approximately 38%, 43% and 46% of our net sales in 2006, 2005 and 2004, respectively,
were made to the automotive market. Approximately 62%, 57% and 54% of our net sales in 2006, 2005
and 2004, respectively, were derived from the medium- and heavy-duty truck, agricultural and
off-highway vehicle markets.
We typically experience 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.
4
Customers
We are dependent on a small number of principal customers for a significant percentage of our
sales. The loss of any significant portion of our 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. We supply numerous different parts to each of our principal customers.
Contracts with several of our customers provide for supplying their 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 our major customers could have a material adverse impact on the
Company. We may also enter into contracts to supply parts, the introduction of which may then be
delayed or not used at all. We also compete to supply products for successor models and are
therefore 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. In addition, we sell products to other customers that are ultimately
sold to our principal customers.
The following table presents the Companys principal customers, as a percentage of net sales:
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For the Fiscal Years Ended |
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December 31, |
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2006 |
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2005 |
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2004 |
Navistar International |
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25 |
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22 |
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21 |
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DaimlerChrysler |
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10 |
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12 |
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Ford Motor Company |
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6 |
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7 |
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7 |
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MAN AG |
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6 |
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2 |
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2 |
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Deere & Company |
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6 |
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6 |
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6 |
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General Motors |
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5 |
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5 |
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7 |
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Other |
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42 |
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46 |
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46 |
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Total |
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100 |
% |
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100 |
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100 |
% |
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Backlog
Our products are produced from readily available materials and have a relatively short
manufacturing cycle; therefore our products are not on backlog status. Each of our production
facilities maintains its own inventories and production schedules. Production capacity is adequate
to handle current requirements and can be expanded to handle increased growth if needed.
Competition
Markets for our products in both reportable segments are highly competitive. The principle
methods of competition are quality, service, price, timely delivery and technological innovation.
We compete 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 customer will usually continue to purchase those parts from the selected
supplier for the life of the program, although not necessarily for any model redesigns.
Our diversity in products creates a wide range of competitors, which vary depending on both
market and geographic location. We compete based on strong customer relations and a fast and
flexible organization that develops technically effective solutions at or below target price. We
compete against the following primary competitors:
Vehicle Management & Power Distribution. Our primary competitors include Alcoa Fujikura,
Ametek, Delphi, Sumitomo Electric, Siemens VDO, Visteon and Yazaki.
Control Devices. Our primary competitors include Bosch, Cherry, CTS, Delphi, Denso, Lear,
Methode, Sensata and Siemens VDO.
5
Product Development
Our research and development efforts are largely product development oriented and consist
primarily of applying known technologies to customer generated problems and situations. We work
closely with our customers to creatively solve problems using innovative approaches. The vast
majority of our development expenses are related to customer-sponsored programs where we are
involved in designing custom-engineered solutions for specific applications or for next generation
technology. To further our vehicles platform penetration, we have also developed collaborative
relationships with the design and engineering departments of key customers. These collaborative
efforts have resulted in the development of new and complimentary products and the enhancement of
existing products.
Development work at the Company is largely performed on a decentralized basis. We have
engineering and product development departments located at a majority of our manufacturing
facilities. To ensure knowledge sharing among decentralized development efforts, we have
instituted a number of mechanisms and practices whereby innovation and best practices are shared.
The decentralized product development operations are complimented by larger technology groups in
Canton, Massachusetts and Stockholm, Sweden.
We use efficient and quality oriented work processes to address our customers high standards.
Our product development technical resources include a full complement of computer-aided design and
engineering (CAD/CAE) software systems, including (i) virtual three-dimensional modeling, (ii)
functional simulation and analysis capabilities and (iii) data links for rapid prototyping. These
CAD/CAE systems enable the Company to expedite product design and the manufacturing process to
shorten the development time and ultimately time to market.
We are further strengthening our electrical engineering competencies through investment in
equipment such as (i) automotive electro-magnetic compliance test chambers, (ii) programmable
automotive and commercial vehicle transient generators, (iii) circuit simulators and (iv) other
environmental test equipment. Additional investment in product machining equipment has allowed us
to fabricate new product samples in a fraction of the time required historically. Our product
development and validation efforts are supported by full service, on-site test labs at most
manufacturing facilities, thus enabling cross-functional engineering teams to optimize the product,
process and system performance before tooling initiation.
We have invested, and will continue to invest in technology to develop new products for our
customers. Research and development costs incurred in connection with the development of new
products and manufacturing methods, to the extent not recoverable from the customer, are charged to
selling, general and administrative expenses, as incurred. Such costs amounted to approximately
$40.8 million, $39.2 million and $36.1 million for 2006, 2005 and 2004, respectively, or 5.8%, 5.8%
and 5.3% of net sales for these periods.
We will shift more of our investment spending toward design and development of new products
rather than focusing on sustaining existing product programs for specific customers. This shift is
essential to the future growth of the Company. However, the typical product development process
takes three to five years to show tangible results. As part of our effort to shift our investment
spending, we have reviewed our current product portfolio and we are adjusting our spending to
either accelerate or eliminate our investment in these products, based on our position in the
market and the potential of the market and product.
Environmental and Other Regulations
Our 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. We believe that our
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.
Employees
As of December 31, 2006, we had approximately 6,000 employees, approximately 1,450 of whom
were salaried and the balance of whom were paid on an hourly basis. Except for certain employees
located in Mexico, Sweden, and the United Kingdom, our employees are not represented by a union.
Our unionized workers are not covered by collective bargaining agreements. We believe that
relations with our employees are good.
6
Joint Ventures
We form joint ventures in order to achieve several strategic objectives including gaining
access to new markets, exchanging technology and intellectual capital, broadening our customer base
and expanding our product offerings. Specifically we have formed joint ventures in Brazil, PST
Indústria Eletrônica da Amazônia Ltda. (PST), and India, Minda Instruments Ltd. (Minda), and
continue to explore similar business opportunities in other global markets. We have a 50% interest
in PST and a 49% interest in Minda. We entered into our PST joint venture in October 1997 and our
Minda joint venture in August 2004. Each of these investments is accounted for using the equity
method of accounting.
Our joint ventures have contributed positively to our financial results in 2006 and 2005. In
Brazil, our PST joint venture, which serves the vehicle electrical and electronic markets as well
as the vehicle security system aftermarket, contributed $6.8 million and $4.0 million of equity
earnings in 2006 and 2005, respectively. The increase in earnings at PST was primarily the result
of a $23.3 million increase in net sales to $94.1 million in 2006 from $70.8 million in 2005. We
also received divided payments of $3.7 million and $2.2 million from PST in 2006 and 2005,
respectively. During 2006, we increased our ownership in Minda, which produces electronic
instrumentation products for the truck and automotive markets in India, from 20% to 49% for $2.6
million in cash. Minda contributed $0.4 million and $0.1 million of equity earnings in 2006 and
2005, respectively.
Available Information
We make available, free of charge through our website (www.stoneridge.com), our Annual Report
on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all amendments to those
reports, and other filings with the Securities and Exchange Commission (SEC), as soon as
reasonably practicable after they are filed with the SEC. Our Corporate Governance Guidelines,
Code of Business Conduct and Ethics, Code of Ethics for Senior Financial Officers, Whistleblower
Policy and Procedures and the charters of the Boards Audit, Compensation and Nominating and
Corporate Governance Committees are posted on our website as well. Copies of these documents will
be available to any shareholder upon request. Requests should be directed in writing to Investor
Relations at 9400 East Market Street, Warren, Ohio 44484.
The public may read and copy any materials we file with the SEC at the SECs Public Reference
Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site (www.sec.gov) that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC, including the Company.
7
Item 1A. Risk Factors.
The loss or insolvency of any of our major customers would adversely affect our future results.
We are dependent on a small number of principal customers for a significant percentage of our net
sales. In 2006, Navistar International, DaimlerChrysler, Ford Motor Company, MAN AG, Deere &
Company and General Motors accounted for 25%, 10%, 6%, 6%, 6% and 5%, respectively, of our net
sales. The loss of any significant portion of our sales to these customers or any other significant
customers would have a material adverse impact on our results of operations and financial
condition. The contracts we have entered into with many of our 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. These contracts are subject to renegotiation, which may affect product pricing and
generally may be terminated by our customers at any time. 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 our major customers could have a material adverse impact on our results of
operations and financial condition by reducing cash flows and our ability to spread costs over a
larger revenue base. We also compete to supply products for successor models and are subject to the
risk that the customer will not select us to produce products on any such model, which could have a
material adverse impact on our results of operations and financial condition. In addition, we have
significant receivable balances related to these customers and other major customers that would be
at risk in the event of their bankruptcy.
Our business is cyclical and seasonal in nature and downturns in the automotive, medium- and
heavy-duty truck, agricultural and off-road vehicle industries could reduce the sales and
profitability of our business.
The demand for our products is largely dependent on the domestic and foreign production of
automobiles, medium- and heavy-duty trucks, agricultural and off-road vehicles. The markets for our
products have historically been cyclical, because new vehicle demand is dependent on, among other
things, consumer spending and is tied closely to the overall strength of the economy. Because our
products are used principally in the production of vehicles for the automotive, medium- and
heavy-duty truck, agricultural and off-road vehicle markets, our sales, and therefore our 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, agricultural and
off-highway vehicle production could adversely impact our results of operations and financial
condition. In 2006, approximately 38% of our net sales were made to the automotive market and
approximately 62% were derived from the medium- and heavy-duty truck, agricultural and off-highway
vehicle markets. Seasonality experienced by the automotive industry also impacts our operations. We
typically experience decreased sales during the third quarter of each year due to the impact of
scheduled OEM customer plant shutdowns in July for vacations and new model changeovers. The fourth
quarter is also impacted by plant shutdowns for the holidays.
Consolidation among vehicle parts customers and suppliers could make it more difficult for us
to compete favorably.
Since the early 1980s the vehicle part supply industry has undergone a significant
consolidation as OEM customers have sought to lower costs, improve quality and increasingly
purchase complete systems and modules rather than separate components. As a result of the cost
focus of these major customers, we have been, and expect to continue to be, required to reduce
prices. Because of these competitive pressures, we cannot assure you that we will be able to
increase or maintain gross margins on product sales to our customers. The trend toward
consolidation among vehicle parts suppliers is resulting in fewer, larger suppliers who benefit
from purchasing and distribution economies of scale. If we cannot achieve cost savings and
operational improvements sufficient to allow us to compete favorably in the future with these
larger, consolidated companies, our results of operations and financial condition could be
adversely affected.
Our physical properties and information systems are subject to damage as a result of disasters,
outages or similar events.
Our offices and facilities, including those used for design and development, material
procurement, manufacturing, logistics and sales are located throughout the world and are subject to
possible destruction, temporary stoppage or disruption as a result of any number of unexpected
events. If any of these facilities or offices were to experience a significant loss as a result of
any of the above events, it could disrupt our operations, delay production, shipments and revenue,
and result in large expenses to repair or replace these facilities or offices.
8
In addition, network and information system shutdowns caused by unforeseen events such as
power outages, disasters, hardware or software defects, computer viruses and computer hacking pose
increasing risks. Such an event could also result in the disruption of our operations, delay
production, shipments and revenue, and result in large expenditures necessary to repair or replace
such network and information systems.
Our business is very competitive and increased competition could reduce our sales.
Markets for our products are highly competitive and the company can offer no assurance that we
can maintain our product pricing levels with our customers. We compete based on quality, service,
price, timely delivery and technological innovation. Many of our competitors are more diversified
and have greater financial and other resources than we do. We cannot assure you that our business
will not be adversely affected by competition or that we will be able to maintain our profitability
if the competitive environment changes.
We must implement and sustain a competitive technological advantage in producing our products
to compete effectively.
Our products are subject to changing technology, which could place us at a competitive
disadvantage relative to alternative products introduced by competitors. Our success will depend on
our ability to continue to meet customers changing specifications with respect to quality,
service, price, timely delivery and technological innovation by implementing and sustaining
competitive technological advances. Our business may, therefore, require, significant ongoing and
recurring additional capital expenditures and investment in research and development and
manufacturing and management information systems. We cannot assure you that we will be able to
achieve the technological advances or introduce new products that may be necessary to remain
competitive. Our inability to continuously improve existing products and to develop new products
and to achieve technological advances could have a material adverse affect on our results of
operations and financial condition.
We may experience increased costs associated with labor unions that could adversely affect our
financial performance and results of operations.
As of December 31, 2006, we had approximately 6,000 employees, approximately 1,450 of whom
were salaried and the balance of whom were paid on an hourly basis. Certain employees located in
Mexico, Sweden, and the United Kingdom are represented by a union but not collective bargaining
agreements. We cannot assure you that our employees will not be covered by collective bargaining
agreements in the future or that any of our facilities will not experience a work stoppage or other
labor disruption. Any prolonged labor disruption involving our employees, employees of our
customers, a large percentage of which are covered by collective bargaining agreements, or
employees of our suppliers could have a material adverse impact on our results of operations and
financial condition by disrupting our ability to manufacture our products or the demand for our
products.
Compliance with environmental and other governmental regulations could be costly and require us
to make significant expenditures.
Our operations are subject to various federal, state, local and foreign laws and regulations
governing, among other things:
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the discharge of pollutants into the air and water; |
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the generation, handling, storage, transportation, treatment, and disposal of waste and other materials; |
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the cleanup of contaminated properties; and |
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the health and safety of our employees. |
We believe that our 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. The
operation of our manufacturing facilities entails risks and we cannot assure you that we will not
incur material costs or liabilities in connection with these operations. In addition, potentially
significant expenditures could be required in order to comply with evolving environmental and
health and safety laws, regulations or requirements that may be adopted or imposed in the future.
9
We may incur material product liability costs.
We are subject to the risk of exposure to product liability claims in the event that the
failure of any of our products results in personal injury or death and we cannot assure you that we
will not experience material product liability losses in the future. In addition, if any of our
products prove to be defective, we may be required to participate in government-imposed or
OEM-instituted recalls involving such products. We maintain insurance against such product
liability claims, but we cannot assure you that such coverage will be adequate for liabilities
ultimately incurred or that it will continue to be available on terms acceptable to us. A
successful claim brought against us that exceeds available insurance coverage or a requirement to
participate in any product recall could have a material adverse affect on our results of operations
and financial condition.
We are subject to risks related to our international operations.
Approximately 24% of our net sales in 2006 were derived from sales of our European and other
international operations, and European and other international non-current assets accounted for
approximately 13% of our non-current assets as of December 31, 2006. International sales and
operations are subject to significant risks, including, among others:
|
|
|
political and economic instability; |
|
|
|
|
restrictive trade policies; |
|
|
|
|
economic conditions in local markets; |
|
|
|
|
currency exchange controls; |
|
|
|
|
labor unrest; |
|
|
|
|
difficulty in obtaining distribution support and potentially adverse tax consequences; and |
|
|
|
|
the imposition of product tariffs and the burden of complying with a wide variety of
international and U.S. export laws. |
Additionally, to the extent any portion of our net sales and expenses are denominated in
currencies other than the U.S. dollar, changes in exchange rates could have a material adverse
affect on our results of operations and financial condition.
The prices that we can charge some of our customers are predetermined and we bear the risk of
costs in excess of our estimates.
Our supply agreements with some of our customers require us to provide our products at
predetermined prices. In some cases, these prices decline over the course of the contract and may
require us to meet certain productivity, cost reduction targets. In addition, our customers may
require us to share productivity savings in excess of our cost reduction targets. The costs that
we incur in fulfilling these contracts may vary substantially from our initial estimates.
Unanticipated cost increases or the inability to meet certain cost reduction targets may occur as a
result of several factors, including increases in the costs of labor, components or materials. In
some cases, we are permitted to pass on to our customers the cost increases associated with
specific materials. Cost overruns that we cannot pass on to our customers could adversely affect
our business, results of operations and financial condition.
We are dependent on the availability and price of raw materials.
We require substantial amounts of raw materials and substantially all raw materials we require
are purchased from outside sources. The availability and prices of raw materials may be subject to
curtailment or change due to, among other things, new laws or regulations, suppliers allocations
to other purchasers, interruptions in production by suppliers, changes in exchange rates and
worldwide price levels. Any change in the supply of, or price for, these raw materials could
materially affect our results of operations and financial condition.
Item 1B. Unresolved Staff Comments.
None.
10
Item 2. Properties.
The Company and our joint ventures currently own or lease 22 manufacturing facilities, which
together contain approximately 1.8 million square feet of manufacturing space. Of these
manufacturing facilities, ten are used by our Vehicle Management & Power Distribution reportable
segment, nine are used by our Control Devices reportable segment and three are owned by our joint
venture companies. The following table provides information regarding our facilities:
|
|
|
|
|
|
|
|
|
|
|
Owned/ |
|
|
|
Square |
|
Location |
|
Leased |
|
Use |
|
Footage |
|
Vehicle Management
& Power Distribution |
|
|
|
|
|
|
Portland, Indiana |
|
Owned |
|
Manufacturing |
|
|
182,000 |
|
Juarez, Mexico |
|
Owned |
|
Manufacturing/Division Office |
|
|
178,000 |
|
Chihuahua, Mexico |
|
Owned |
|
Manufacturing/Warehouse |
|
|
135,447 |
|
El Paso, Texas |
|
Leased |
|
Warehouse |
|
|
93,000 |
|
Orebro, Sweden |
|
Leased |
|
Manufacturing |
|
|
77,472 |
|
Monclova, Mexico |
|
Leased |
|
Manufacturing |
|
|
68,436 |
|
Orwell, Ohio |
|
Owned |
|
Manufacturing |
|
|
62,000 |
|
Chihuahua, Mexico |
|
Leased |
|
Manufacturing/Warehouse |
|
|
49,250 |
|
Stockholm, Sweden |
|
Leased |
|
Engineering Office/Division Office |
|
|
41,979 |
|
Dundee, Scotland |
|
Leased |
|
Manufacturing/Division Office |
|
|
30,000 |
|
Tallinn, Estonia |
|
Leased |
|
Manufacturing/Office/Warehouse |
|
|
28,352 |
|
Warren, Ohio |
|
Leased |
|
Division Office |
|
|
24,570 |
|
Tallinn, Estonia |
|
Leased |
|
Manufacturing/Warehouse |
|
|
21,635 |
|
Chihuahua, Mexico |
|
Leased |
|
Warehouse |
|
|
10,000 |
|
Bayonne, France |
|
Leased |
|
Sales Office/Warehouse |
|
|
8,267 |
|
Madrid, Spain |
|
Leased |
|
Sales Office/Warehouse |
|
|
1,560 |
|
Stuttgart, Germany |
|
Leased |
|
Sales Office/Engineering Office |
|
|
1,000 |
|
Control Devices |
|
|
|
|
|
|
Lexington, Ohio |
|
Owned |
|
Manufacturing/Division Office |
|
|
152,742 |
|
Canton, Massachusetts |
|
Owned |
|
Manufacturing/Division Office |
|
|
132,560 |
|
Boston, Massachusetts |
|
Owned |
|
Manufacturing/ (Vacant) |
|
|
130,000 |
|
Sarasota, Florida |
|
Owned |
|
Manufacturing/Division Office |
|
|
115,000 |
|
Mitcheldean, England |
|
Leased |
|
Manufacturing/Division Office |
|
|
74,790 |
|
Cheltenham, England |
|
Leased |
|
Manufacturing/ (Vacant) |
|
|
58,500 |
|
Canton, Massachusetts |
|
Leased |
|
Manufacturing |
|
|
58,077 |
|
Suzhou, China |
|
Leased |
|
Manufacturing/Division Office |
|
|
18,923 |
|
Juarez, Mexico |
|
Leased |
|
Warehouse |
|
|
12,884 |
|
Lexington, Ohio |
|
Owned |
|
Manufacturing |
|
|
10,120 |
|
Sarasota, Florida |
|
Owned |
|
Warehouse |
|
|
7,500 |
|
Lexington, Ohio |
|
Leased |
|
Warehouse |
|
|
5,000 |
|
Corporate |
|
|
|
|
|
|
Novi, Michigan |
|
Leased |
|
Sales Office/Engineering Office |
|
|
9,400 |
|
Warren, Ohio |
|
Owned |
|
Headquarters |
|
|
7,500 |
|
Shanghai, China |
|
Leased |
|
Purchasing Office/Sales Office |
|
|
270 |
|
Joint Ventures |
|
|
|
|
|
|
Manaus, Brazil |
|
Owned |
|
Manufacturing/Fabricating/Warehouse |
|
|
73,550 |
|
Pune, India |
|
Owned |
|
Manufacturing/Engineering/Purchasing/Sales/Warehouse |
|
|
61,000 |
|
São Paulo, Brazil |
|
Owned |
|
Manufacturing/Purchasing/Engineering/Sales |
|
|
38,632 |
|
11
Item 3. Legal Proceedings.
The Company is involved in certain legal actions and claims arising in the ordinary course of
business. The Company, however, does not believe that any of the litigation in which it is
currently engaged, either individually or in the aggregate, will have a material adverse effect on
its business, consolidated financial position or results of operations. 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 Companys products and there can be no
assurance that the Company will not experience any material product liability losses in the future.
The Company maintains insurance against such product liability claims. In addition, if any of the
Companys products prove to be defective, the Company may be required to participate in the
government-imposed or OEM customer-instituted recall involving such products.
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 2006.
Executive Officers of the Company
Each executive officer of the Company is appointed by the Board of Directors, serves at its
pleasure and holds office until a successor is appointed, or until the earlier of death,
resignation or removal. The Board of Directors generally appoints executive officers annually.
The executive officers of the Company are as follows:
|
|
|
|
|
|
|
Name |
|
Age |
|
Position |
John C. Corey
|
|
|
59 |
|
|
President, Chief Executive Officer and Director |
George E. Strickler
|
|
|
59 |
|
|
Executive Vice President, Chief Financial Officer and Treasurer |
Edward F. Mosel
|
|
|
58 |
|
|
Vice President and President of the Control Devices Division |
Thomas A. Beaver
|
|
|
53 |
|
|
Vice President of Global Sales and Systems Engineering |
Andrew Mark Oakes
|
|
|
48 |
|
|
Vice President and General Manager of China Operations |
Mark J. Tervalon
|
|
|
40 |
|
|
Vice President and President of the Vehicle Management & Power Distribution
Division |
John C. Corey, President, Chief Executive Officer and Director. Mr. Corey has served as
President and Chief Executive Officer since being appointed by the Board of Directors in January
2006. Mr. Corey has served as a Director on the Board of Directors since January 2004. Prior to
his employment with the Company, Mr. Corey served from October 2000, as President and Chief
Executive Officer and Director of Safety Components International, a supplier of airbags and
components, with worldwide operations.
George E. Strickler, Executive Vice President, Chief Financial Officer and Treasurer. Mr.
Strickler has served as Executive Vice President and Chief Financial Officer since joining the
Company in January of 2006. Mr. Strickler was appointed Treasurer of the Company in February 2007.
Prior to his employment with the Company, Mr. Strickler served as Executive Vice President and
Chief Financial Officer for Republic Engineered Products, Inc. (Republic), from February 2004 to
January of 2006. Before joining Republic, Mr. Strickler was BorgWarner Inc.s Executive Vice
President and Chief Financial Officer from February 2001 to November 2003.
Edward F. Mosel, Vice President and President of the Control Devices Division. Mr. Mosel has
served as President of the Control Devices Division and Vice President of the Company since August
of 2006. Prior to this time, Mr. Mosel served as Vice President of Pollak Sales and Marketing from
1987 to 1993, Vice President and General Manager of Pollak Central Services from 1993 to 1995, Vice
President and General Manager of the Switch Products Division from 1996 to 2000, Vice President and
General Manager of the Switch and Sensor Products Group from 2001 to
2003, and Executive Vice
President and Chief Operating Officer of the Company from 2003 to 2004.
Thomas A. Beaver, Vice President of Global Sales and Systems Engineering. Mr. Beaver has
served as Vice President of Global Sales and Systems Engineering of the Company since January of
2005. Prior to this time, Mr. Beaver served as Vice President of Stoneridge Sales and Marketing from January 2000 to January 2005 and Vice
President of Sales and Systems Engineering of the Stoneridge Engineered Products Group from
February 1995 to December 1999.
12
Andrew Mark Oakes, Vice President and General Manager of China Operations. Mr. Oakes
has served as Chairman and General Manager of Stoneridge Asia Pacific Electronics (Suzhou) Co.,
Ltd., a Stoneridge wholly owned subsidiary undergoing start-up in China since September 2005, and
in August 2006 he assumed additional duties as Vice President and General Manager of Stoneridge
China Business Development and Purchasing Operations. Prior to that, Mr. Oakes served as Vice
President and General Manager of the Actuator & Sensor Products Group from 2001 to July 2006 and as
General Manager of the Actuator Products Division from 1996 to 2000.
Mark J. Tervalon, Vice President and President of the Vehicle Management & Power Distribution
Division. Mr. Tervalon served as President of the Vehicle Management & Power Distribution Division
and Vice President of the Company since August of 2006. Prior to that, Mr. Tervalon served as Vice
President and General Manager of the Electronic Products Division from May 2002 to December 2003
when he became Vice President and General Manager of the Stoneridge Electronics Group. Mr.
Tervalon served as a Vice President and General Manager at Power-One, Inc. from August 1998 to
November 2001.
13
PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Our shares are listed on the New York Stock Exchange (NYSE) under the symbol SRI. As of
February 16, 2007, we had 23,804,417 Common Shares without par value, issued and outstanding, which
were owned by approximately 300 registered holders, including Common Shares held in the names of
brokers and banks (so-called street name holdings) who are record holders with approximately
2,000 beneficial owners.
We have not historically paid or declared dividends, which are restricted under both the
senior notes and the credit agreement, on our Common Shares. We may only pay cash dividends in the
future if immediately prior to and immediately after the payment is made no event of default has
occurred, we remain in compliance with certain leverage ratio requirements, and the amount paid
does not exceed 5% of our excess cash flow for the preceding fiscal year. We currently intend to
retain earnings for acquisitions, working capital, capital expenditures, general corporate purposes
and reduction in outstanding indebtedness. Accordingly, we do not expect to pay cash dividends in
the foreseeable future.
High and low sales prices (as reported on the NYSE composite tape) for our Common Shares for
each quarter ended during 2006 and 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
Low |
2006 |
|
April 1 |
|
$ |
7.11 |
|
|
$ |
4.95 |
|
|
|
July 1 |
|
$ |
8.45 |
|
|
$ |
5.60 |
|
|
|
September 30 |
|
$ |
9.89 |
|
|
$ |
7.05 |
|
|
|
December 31 |
|
$ |
8.32 |
|
|
$ |
6.71 |
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
April 2 |
|
$ |
15.20 |
|
|
$ |
11.20 |
|
|
|
July 2 |
|
$ |
12.47 |
|
|
$ |
6.10 |
|
|
|
October 1 |
|
$ |
10.40 |
|
|
$ |
6.60 |
|
|
|
December 31 |
|
$ |
8.80 |
|
|
$ |
5.95 |
|
The Company did not repurchase any Common Shares in 2006 or 2005.
Set forth below is a line graph comparing the cumulative total return of a hypothetical
investment in our Common Shares with the cumulative total return of hypothetical investments in the
NYSE Market Index and the Hemscott Group-Industry Group 333 (Automotive Parts) Index based on the
respective market price of each investment at December 31, 2001, 2002, 2003, 2004, 2005 and 2006,
assuming in each case an initial investment of $100 on December 31, 2001, and reinvestment of
dividends.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 |
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
Stoneridge, Inc. |
|
|
|
100.00 |
|
|
|
|
130.77 |
|
|
|
|
165.38 |
|
|
|
|
166.26 |
|
|
|
|
72.75 |
|
|
|
|
90.00 |
|
|
|
Hemscott Group Index |
|
|
|
100.00 |
|
|
|
|
89.18 |
|
|
|
|
131.69 |
|
|
|
|
135.54 |
|
|
|
|
120.5 |
|
|
|
|
135.77 |
|
|
|
NYSE Market Index |
|
|
|
100.00 |
|
|
|
|
81.69 |
|
|
|
|
105.82 |
|
|
|
|
119.5 |
|
|
|
|
129.37 |
|
|
|
|
151.57 |
|
|
|
For information on Related Stockholder Matters required by Item 201(d) of Regulation S-K,
refer to Item 12 of this report.
14
Item 6. Selected Financial Data.
The following table sets forth selected historical financial data 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 our
consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
|
(in thousands, except per share data) |
|
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle Management & Power Distribution |
|
$ |
425,185 |
|
|
$ |
375,226 |
|
|
$ |
368,625 |
|
|
$ |
289,653 |
|
|
$ |
273,654 |
|
Control Devices |
|
|
304,804 |
|
|
|
316,064 |
|
|
|
331,622 |
|
|
|
333,051 |
|
|
|
377,021 |
|
Eliminations |
|
|
(21,290 |
) |
|
|
(19,706 |
) |
|
|
(18,452 |
) |
|
|
(16,039 |
) |
|
|
(14,168 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
708,699 |
|
|
$ |
671,584 |
|
|
$ |
681,795 |
|
|
$ |
606,665 |
|
|
$ |
636,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
$ |
158,906 |
|
|
$ |
148,588 |
|
|
$ |
174,987 |
|
|
$ |
156,030 |
|
|
$ |
165,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) (A) |
|
$ |
35,063 |
|
|
$ |
23,303 |
|
|
$ |
(125,570 |
) |
|
$ |
58,370 |
|
|
$ |
74,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and
cumulative effect of accounting change (A) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle Management & Power Distribution |
|
$ |
24,473 |
|
|
$ |
13,573 |
|
|
$ |
29,623 |
|
|
$ |
13,772 |
|
|
$ |
9,168 |
|
Control Devices |
|
|
10,396 |
|
|
|
5,640 |
|
|
|
(150,021 |
) |
|
|
48,033 |
|
|
|
69,366 |
|
Other corporate activities |
|
|
6,392 |
|
|
|
8,217 |
|
|
|
(4,477 |
) |
|
|
(3,644 |
) |
|
|
(7,344 |
) |
Corporate interest |
|
|
(21,622 |
) |
|
|
(22,994 |
) |
|
|
(24,281 |
) |
|
|
(27,141 |
) |
|
|
(33,101 |
) |
Loss on extinguishment of debt (B) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,771 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
19,639 |
|
|
$ |
4,436 |
|
|
$ |
(149,156 |
) |
|
$ |
31,020 |
|
|
$ |
32,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of
accounting change (C) |
|
$ |
14,513 |
|
|
$ |
933 |
|
|
$ |
(92,503 |
) |
|
$ |
21,379 |
|
|
$ |
21,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) (C) |
|
$ |
14,513 |
|
|
$ |
933 |
|
|
$ |
(92,503 |
) |
|
$ |
21,379 |
|
|
$ |
(48,778 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) before cumulative effect of
accounting change per share |
|
$ |
0.63 |
|
|
$ |
0.04 |
|
|
$ |
(4.09 |
) |
|
$ |
0.95 |
|
|
$ |
0.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) before cumulative effect
of accounting change per share |
|
$ |
0.63 |
|
|
$ |
0.04 |
|
|
$ |
(4.09 |
) |
|
$ |
0.94 |
|
|
$ |
0.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share |
|
$ |
0.63 |
|
|
$ |
0.04 |
|
|
$ |
(4.09 |
) |
|
$ |
0.95 |
|
|
$ |
(2.18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share |
|
$ |
0.63 |
|
|
$ |
0.04 |
|
|
$ |
(4.09 |
) |
|
$ |
0.94 |
|
|
$ |
(2.16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development expenses |
|
$ |
40,840 |
|
|
$ |
39,193 |
|
|
$ |
36,145 |
|
|
$ |
28,714 |
|
|
$ |
25,332 |
|
Capital expenditures |
|
|
25,895 |
|
|
|
28,934 |
|
|
|
23,917 |
|
|
|
26,382 |
|
|
|
14,656 |
|
Depreciation and amortization (D) |
|
|
26,180 |
|
|
|
26,157 |
|
|
|
24,802 |
|
|
|
22,188 |
|
|
|
21,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data (at period end): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital |
|
$ |
135,915 |
|
|
$ |
116,689 |
|
|
$ |
123,317 |
|
|
$ |
72,832 |
|
|
$ |
87,112 |
|
Total assets |
|
|
501,807 |
|
|
|
463,038 |
|
|
|
473,001 |
|
|
|
573,001 |
|
|
|
564,461 |
|
Long-term debt, less current portion |
|
|
200,000 |
|
|
|
200,000 |
|
|
|
200,052 |
|
|
|
200,245 |
|
|
|
248,918 |
|
Shareholders equity |
|
|
178,622 |
|
|
|
153,991 |
|
|
|
155,605 |
|
|
|
243,406 |
|
|
|
215,902 |
|
15
|
|
|
(A) |
|
Our 2004 operating loss, loss before income taxes and cumulative effect of accounting change,
net loss, and related basic and diluted loss per share amounts include a non-cash, pre-tax
goodwill impairment loss of $183,450, which was recorded in the fourth quarter of 2004. |
|
(B) |
|
During the second quarter of 2002, the Company recognized a non-cash, pre-tax loss on
extinguishment of debt of $5,771, as the result of an early extinguishment of debt. |
|
(C) |
|
In accordance with the transition provisions of Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible
Assets, we determined during 2002 that the carrying value of the Companys goodwill exceeded
its fair value. Effective January 1, 2002, we recorded a non-cash, after-tax impairment charge
of $69,834 as a cumulative effect of accounting change. |
|
(D) |
|
These amounts represent depreciation and amortization on fixed and finite-lived intangible
assets. |
16
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Overview
The following Management Discussion and Analysis (MD&A) is intended to help the reader
understand the results of operations and financial condition of the Company. This MD&A is provided
as a supplement to, and should be read in conjunction with, our financial statements and the
accompanying notes to the financial statements.
We are an independent designer and manufacturer of highly engineered electrical and electronic
components, modules and systems for the automotive, medium- and heavy-duty truck, agricultural and
off-highway vehicle markets.
Our net income for the year ended December 31, 2006 was $14.5 million, or $0.63 per diluted
share, compared with net income of $0.9 million, or $0.04 per diluted share, for 2005.
Our 2006 operating results were favorably affected by a number of items, including improved
operational performance at our United Kingdom facility and increased commercial vehicle volumes in
North America and Europe. Our results were also favorably impacted by a $4.5 million pretax
reduction in our restructuring expense and a $3.5 million pretax reduction in our bad debt expense.
Furthermore, our PST Indústria Eletrônica da Amazônia Ltda. (PST) joint venture in Brazil
continued to perform well, resulting in equity earnings of $6.8 million compared with $4.0 million
in the previous year.
These benefits were mitigated by a number of challenging industry-wide issues, including
intense competition, product price reductions, and higher commodity costs. We continuously work to
address these challenges by implementing a broad range of initiatives aimed to improve operating
performance. During 2006, we employed teams to implement best practices in our underperforming
operations and focused our purchasing initiatives to reduce material procurement costs. Our
operational improvements and working capital management yielded a $27.4 million increase in cash
flow from operating activities increased to $46.5 million and $19.1 million for the fiscal years
ended December 31, 2006 and 2005, respectively.
On July 29, 2006 we announced that we would begin work on our second major instrument panel
assembly contract for the North American commercial vehicle market. Production is expected to
begin in the first quarter of 2007 and the contract is expected to contribute net sales of
approximately $40.0 million annually at full production. It is currently anticipated that the
program will reach full-production levels by 2009.
In 2007, management expects a significant decline in North American production for medium- and
heavy-trucks as more stringent diesel emissions standards become effective in the U.S. We expect
our overall sales decline will be less than the industry production decline because our second
instrument panel award and stable demand outside the U.S. partially offsets reduced North American medium- and
heavy-duty truck production. Our expected performance will be based on our continued drive toward
operational excellence across the organization, ongoing cost reduction initiatives and successful
launches of several key products in 2007.
Significant factors inherent to our markets that could affect our results for 2007 include the
financial stability of our customers and suppliers as well as our ability to successfully execute
our planned productivity and cost reduction initiatives. We are undertaking these initiatives to
mitigate commodity price increases and customer-demanded price reductions. As part of these
programs, we have implemented a nonspeculative hedging program to reduce our exposure to copper
price fluctuations. Our results for 2007 also depend on conditions in the automotive and
commercial vehicle industries, which are generally dependent on domestic and global economies.
Going forward, we look to continue our transition to low-cost manufacturing locations.
Initially, this initiative may result in restructuring costs stemming from facility closures and
production relocations. However, the longer-term effects of such an initiative will enable us to
reduce our operating costs and provide global sourcing capacity to our customers.
Results of Operations
We are primarily organized by markets served and products produced. Under this organization
structure, our operations have been aggregated into two reportable segments: Vehicle Management &
Power Distribution and Control Devices. The Vehicle Management & Power Distribution reportable
segment includes results of operations from our operations that primarily design and manufacture
electronic instrument clusters, electronic control units, driver information systems and electrical
17
distribution systems, primarily wiring harnesses and connectors for electrical power and
signal distribution. The Control Devices reportable segment includes results of operations from
our operations that primarily design and manufacture electronic and electromechanical switches,
control actuation devices and sensors.
Beginning in 2005, we changed from a calendar year-end to a 52-53 week fiscal year-end. Since
then, our fiscal quarters were comprised of 13-week periods. On October 30, 2006, we changed back
to a calendar (December 31) fiscal year end, and therefore the 2006 fiscal year ended on December
31, 2006. Our fiscal quarters are now comprised of three month periods.
Fiscal Year Ended December 31, 2006 Compared To Fiscal Year Ended December 31, 2005
Net Sales. Net sales for our reportable segments, excluding inter-segment sales, for the
fiscal years ended December 31, 2006 and 2005 are summarized in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended December 31, |
|
|
$ Increase / |
|
|
% Increase / |
|
|
|
2006 |
|
|
2005 |
|
|
(Decrease) |
|
|
(Decrease) |
|
Vehicle Management & Power
Distribution |
|
$ |
407,706 |
|
|
|
57.5 |
% |
|
$ |
358,683 |
|
|
|
53.4 |
% |
|
$ |
49,023 |
|
|
|
13.7 |
% |
Control Devices |
|
|
300,993 |
|
|
|
42.5 |
|
|
|
312,901 |
|
|
|
46.6 |
|
|
|
(11,908 |
) |
|
|
(3.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
708,699 |
|
|
|
100.0 |
% |
|
$ |
671,584 |
|
|
|
100.0 |
% |
|
$ |
37,115 |
|
|
|
5.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in net sales for our Vehicle Management & Power Distribution segment was
primarily due to increased sales to our commercial vehicle customers because North American demand
was strong during the year. The most significant factor behind the increase in demand is related
to the 2007 implementation of more stringent diesel emissions standards in the U.S. Overall
commercial vehicle demand increased in 2006 in anticipation of the 2007 emission changes. As of
result of this pull ahead in demand, we expect a substantial decline in North American demand in
2007. In addition to the North American volume increase, our revenues also increased as a result
of new product sales in Europe and a $1.4 million impact from foreign currency exchange rates for
the year. Net sales for our Control Devices segment declined as a result of lower production
volumes at the traditional domestic automakers and product price reductions. These declines were
partially offset by new product sales in our European operations. For the full year, the Control
Devices segment was impacted by $0.2 million from favorable foreign currency exchange.
Net sales by geographic location for the fiscal years ended December 31, 2006 and 2005 are
summarized in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended December 31, |
|
|
$ Increase / |
|
|
% Increase / |
|
|
|
2006 |
|
|
2005 |
|
|
(Decrease) |
|
|
(Decrease) |
|
North America |
|
$ |
541,541 |
|
|
|
76.4 |
% |
|
$ |
532,523 |
|
|
|
79.3 |
% |
|
$ |
9,018 |
|
|
|
1.7 |
% |
Europe and other |
|
|
167,158 |
|
|
|
23.6 |
|
|
|
139,061 |
|
|
|
20.7 |
|
|
|
28,097 |
|
|
|
20.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
708,699 |
|
|
|
100.0 |
% |
|
$ |
671,584 |
|
|
|
100.0 |
% |
|
$ |
37,115 |
|
|
|
5.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in North American sales was primarily attributable to increased sales to our
commercial vehicle customers as a result of strong North American demand. The increase was
substantially offset by unfavorable North American light vehicle production and product price
reductions. The increase in sales outside North America was primarily due to new product revenues
and favorable foreign currency exchange rates. The favorable effect of foreign
currency exchange rates impacted net sales outside North America by $1.6 million for the fiscal
year ended December 31, 2006.
18
Consolidated statements of operations as a percentage of net sales for the fiscal years ended
December 31, 2006 and 2005 are presented in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended December 31, |
|
|
$ Increase / |
|
|
|
2006 |
|
|
2005 |
|
|
(Decrease) |
|
Net Sales |
|
$ |
708,699 |
|
|
|
100.0 |
% |
|
$ |
671,584 |
|
|
|
100.0 |
% |
|
$ |
37,115 |
|
Costs and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
549,793 |
|
|
|
77.6 |
|
|
|
522,996 |
|
|
|
77.9 |
|
|
|
26,797 |
|
Selling, general and administrative |
|
|
124,302 |
|
|
|
17.5 |
|
|
|
116,836 |
|
|
|
17.4 |
|
|
|
7,466 |
|
Provision for doubtful accounts |
|
|
236 |
|
|
|
0.0 |
|
|
|
3,711 |
|
|
|
0.6 |
|
|
|
(3,475 |
) |
Gain on sale of property, plant & equipment, net |
|
|
(1,303 |
) |
|
|
(0.2 |
) |
|
|
(360 |
) |
|
|
(0.1 |
) |
|
|
(943 |
) |
Restructuring charges |
|
|
608 |
|
|
|
0.1 |
|
|
|
5,098 |
|
|
|
0.7 |
|
|
|
(4,490 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income |
|
|
35,063 |
|
|
|
5.0 |
|
|
|
23,303 |
|
|
|
3.5 |
|
|
|
11,760 |
|
Interest expense, net |
|
|
21,744 |
|
|
|
3.1 |
|
|
|
23,872 |
|
|
|
3.6 |
|
|
|
(2,128 |
) |
Equity in earnings of investees |
|
|
(7,125 |
) |
|
|
(1.0 |
) |
|
|
(4,052 |
) |
|
|
(0.6 |
) |
|
|
(3,073 |
) |
Other (income) loss, net |
|
|
805 |
|
|
|
0.1 |
|
|
|
(953 |
) |
|
|
(0.1 |
) |
|
|
1,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes |
|
|
19,639 |
|
|
|
2.8 |
|
|
|
4,436 |
|
|
|
0.6 |
|
|
|
15,203 |
|
Provision for income taxes |
|
|
5,126 |
|
|
|
0.7 |
|
|
|
3,503 |
|
|
|
0.5 |
|
|
|
1,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
14,513 |
|
|
|
2.1 |
% |
|
$ |
933 |
|
|
|
0.1 |
% |
|
$ |
13,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold. This decrease in cost of goods sold as a percentage of sales was
predominately due to operational improvements and increased sales volume. Offsetting these factors
were unfavorable material price variances resulting from raw material price increases and product
price reductions. We expect that pricing and raw material price challenges will continue to affect
our gross margin into 2007. Our management team is working to offset these pressures through our
focused operational improvement efforts, commodity hedging and purchasing programs.
Selling, General and Administrative Expenses. The increase in non-product development SG&A
expenses in 2006 compared with 2005 is primarily attributable to the increase in sales and
infrastructure costs related to a new product launch and costs related to a consulting agreement
for a former employee. These increases were partially offset by a $1.2 million one-time gain
related to the settlement of the life insurance benefits portion of a postretirement benefit plan.
During 2005, our SG&A costs benefited from non-recurring legal and commercial settlements. Product
development expenses included in selling, general and administrative (SG&A) were $40.8 million
and $39.2 million for the fiscal years ended December 31, 2006 and 2005, respectively. In the
future, the company intends to reallocate its resources to focus on the design and development of
new products rather than focusing on sustaining existing product programs for specific customers.
Provision for Doubtful Accounts. The decrease in the provision for doubtful accounts was
primarily a function of bad debt charges associated with customer bankruptcies in 2005 exceeding
the bad debt charges associated with customer bankruptcies in 2006.
Restructuring Charges. In January 2005, we announced that we would undertake restructuring
efforts related to the rationalization of certain manufacturing facilities in Europe and North
America. The restructuring is a result of our cost reduction initiatives. The decrease in
restructuring charges was a result of the substantial completion of our previously announced
restructuring initiatives.
Interest Expense, Net. The decrease in interest expense, net was primarily due to an increase
in interest income in 2006. Interest income in 2006 and 2005 was $2.9 million and $0.9 million,
respectively. This increase was related to a $1.2 million past due interest payment from PST and
increased interest generated from our cash and cash equivalents.
Equity in Earnings of Investees. The increase in equity in earnings of investees was
predominately attributable to the increase in equity earnings recognized from our PST joint venture
in Brazil. The increase primarily reflects higher volume for PSTs security and electric power
component product lines.
19
Other (Income) Loss, Net. The decrease in other income was primarily the result of
unfavorable foreign exchange contract variances. The decrease was offset by a $1.6 million gain
on the sale of our partnership interest in Industrial Development Associates (IDA).
Income Before Income Taxes. Income before income taxes is summarized in the following table
by reportable segment (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years |
|
|
|
|
|
|
Ended December 31, |
|
|
$ Increase / |
|
|
|
2006 |
|
|
2005 |
|
|
(Decrease) |
|
Vehicle Management & Power Distribution |
|
$ |
24,473 |
|
|
$ |
13,573 |
|
|
$ |
10,900 |
|
Control Devices |
|
|
10,396 |
|
|
|
5,640 |
|
|
|
4,756 |
|
Other corporate activities |
|
|
6,392 |
|
|
|
8,217 |
|
|
|
(1,825 |
) |
Corporate interest expense |
|
|
(21,622 |
) |
|
|
(22,994 |
) |
|
|
1,372 |
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
19,639 |
|
|
$ |
4,436 |
|
|
$ |
15,203 |
|
|
|
|
|
|
|
|
|
|
|
The increase in income before income taxes at the Vehicle Management & Power Distribution
reportable segment was primarily the result of increased sales volume, a reduction in bad debt
expense, and operational improvements. Offsetting these gains were unfavorable raw material
purchase price variances and product price reductions.
The increase in income before income taxes at the Control Devices reportable segment was
primarily the result of improved operating efficiencies at our United Kingdom operation and a
reduction in restructuring and bad debt expenses. These factors were partially offset by ongoing
product price reductions and increased raw material costs.
Income before income taxes by geographic location for the fiscal years ended December 31, 2006
and 2005 are summarized in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended December 31, |
|
|
$ Increase / |
|
|
% Increase / |
|
|
|
2006 |
|
|
2005 |
|
|
(Decrease) |
|
|
(Decrease) |
|
North America |
|
$ |
10,847 |
|
|
|
55.2 |
% |
|
$ |
7,208 |
|
|
|
162.5 |
% |
|
$ |
3,639 |
|
|
|
50.5 |
% |
Europe and other |
|
|
8,792 |
|
|
|
44.8 |
|
|
|
(2,772 |
) |
|
|
(62.5 |
) |
|
|
11,564 |
|
|
|
417.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
19,639 |
|
|
|
100.0 |
% |
|
$ |
4,436 |
|
|
|
100.0 |
% |
|
$ |
15,203 |
|
|
|
342.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in our profitability in North America was primarily attributable to increased
North American commercial vehicle volume and lower bad debt expenses. The positive variance was
partially offset by unfavorable raw material variances and product price reductions. The increase
in our profitability outside North America was primarily due to the operational improvement at our
United Kingdom operations, which experienced significant operational inefficiencies in 2005, and
increased sales volume. These improvements were partially offset by costs related to the start-up
of our Suzhou, China, manufacturing facility.
Provision (Benefit) for Income Taxes. We recognized a provision for income taxes of $5.1
million, or 26.1% of pre-tax income, and $3.5 million, or 79.0% of the pre-tax income, for federal,
state and foreign income taxes for the years ended December 31, 2006 and 2005, respectively. The
decrease in the effective tax rate was primarily attributable to an increase in pre-
tax earnings and a corresponding reduction in the amount of additional valuation allowance
needed that resulted from the improved performance of our United Kingdom operations.
20
Fiscal Year Ended December 31, 2005 Compared To Fiscal Year Ended December 31, 2004
Net Sales. Net sales for our reportable segments, excluding inter-segment sales, for the
fiscal years ended December 31, 2005 and 2004 are summarized in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended December 31, |
|
|
$ Increase / |
|
|
% Increase / |
|
|
|
2005 |
|
|
2004 |
|
|
(Decrease) |
|
|
(Decrease) |
|
Vehicle Management & Power
Distribution |
|
$ |
358,683 |
|
|
|
53.4 |
% |
|
$ |
352,706 |
|
|
|
51.7 |
% |
|
$ |
5,977 |
|
|
|
1.7 |
% |
Control Devices |
|
|
312,901 |
|
|
|
46.6 |
|
|
|
329,089 |
|
|
|
48.3 |
|
|
|
(16,188 |
) |
|
|
(4.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
671,584 |
|
|
|
100.0 |
% |
|
$ |
681,795 |
|
|
|
100.0 |
% |
|
$ |
(10,211 |
) |
|
|
(1.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in net sales for our Vehicle Management & Power Distribution reportable segment
was primarily due to increased North American commercial vehicle production, mitigated by product
price reductions and a European product phase-out. The decrease in net sales for our Control
Devices reportable segment during the fiscal year 2005 was primarily attributable to product price
reductions and reduced North American light vehicle production for our customers.
Net sales by geographic location for the fiscal years ended December 31, 2005 and 2004 are
summarized in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended December 31, |
|
|
$ Increase / |
|
|
% Increase / |
|
|
|
2005 |
|
|
2004 |
|
|
(Decrease) |
|
|
(Decrease) |
|
North America |
|
$ |
532,523 |
|
|
|
79.3 |
% |
|
$ |
539,412 |
|
|
|
79.1 |
% |
|
$ |
(6,889 |
) |
|
|
(1.3 |
)% |
Europe and other |
|
|
139,061 |
|
|
|
20.7 |
|
|
|
142,383 |
|
|
|
20.9 |
|
|
|
(3,322 |
) |
|
|
(2.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
671,584 |
|
|
|
100.0 |
% |
|
$ |
681,795 |
|
|
|
100.0 |
% |
|
$ |
(10,211 |
) |
|
|
(1.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in sales outside North America was primarily attributed to lower light vehicle
volume and a product phase-out. The decrease was partially offset by increased commercial vehicle
production. The decline in North American sales is attributable to reduced light vehicle volumes
and price reductions.
Consolidated statements of operations as a percentage of net sales for the fiscal years ended
December 31, 2005 and 2004 are presented in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended December 31, |
|
|
$ Increase / |
|
|
|
2005 |
|
|
2004 |
|
|
(Decrease) |
|
Net Sales |
|
$ |
671,584 |
|
|
|
100.0 |
% |
|
$ |
681,795 |
|
|
|
100.0 |
% |
|
$ |
(10,211 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
522,996 |
|
|
|
77.9 |
|
|
|
506,808 |
|
|
|
74.3 |
|
|
|
16,188 |
|
Selling, general and administrative |
|
|
116,836 |
|
|
|
17.4 |
|
|
|
114,480 |
|
|
|
16.8 |
|
|
|
2,356 |
|
Provision for doubtful accounts |
|
|
3,711 |
|
|
|
0.6 |
|
|
|
354 |
|
|
|
0.1 |
|
|
|
3,357 |
|
(Gain) loss on sale of property,
plant and equipment, net |
|
|
(360 |
) |
|
|
(0.1 |
) |
|
|
186 |
|
|
|
0.0 |
|
|
|
(546 |
) |
Goodwill impairment charge |
|
|
|
|
|
|
|
|
|
|
183,450 |
|
|
|
26.9 |
|
|
|
(183,450 |
) |
Restructuring charges |
|
|
5,098 |
|
|
|
0.7 |
|
|
|
2,087 |
|
|
|
0.3 |
|
|
|
3,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (loss) |
|
|
23,303 |
|
|
|
3.5 |
|
|
|
(125,570 |
) |
|
|
(18.4 |
) |
|
|
148,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
23,872 |
|
|
|
3.6 |
|
|
|
24,456 |
|
|
|
3.6 |
|
|
|
(584 |
) |
Equity in earnings of investees |
|
|
(4,052 |
) |
|
|
(0.6 |
) |
|
|
(1,698 |
) |
|
|
(0.2 |
) |
|
|
(2,354 |
) |
Other (income) loss, net |
|
|
(953 |
) |
|
|
(0.1 |
) |
|
|
828 |
|
|
|
0.1 |
|
|
|
(1,781 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes |
|
|
4,436 |
|
|
|
0.6 |
|
|
|
(149,156 |
) |
|
|
(21.9 |
) |
|
|
153,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
3,503 |
|
|
|
0.5 |
|
|
|
(56,653 |
) |
|
|
(8.3 |
) |
|
|
60,156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
933 |
|
|
|
0.1 |
% |
|
$ |
(92,503 |
) |
|
|
(13.6 |
)% |
|
$ |
93,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
Cost of Goods Sold. This increase in cost of goods sold as a percentage of sales was
predominately due to operational inefficiencies resulting from the execution of our restructuring
efforts, price reductions and reduced North American light vehicle volume.
Selling, General and Administrative Expenses. Included in SG&A expenses for the fiscal year
ended December 31, 2005 and 2004 were product development expenses of $39.2 million and $36.1
million, respectively. The increase in SG&A expenses primarily reflects increased investment in
our product development activities, which are focused on driver information products, emissions
system products, chassis and occupant safety. The increase also reflects increased sales and
marketing activity partially offset by decreased Sarbanes-Oxley compliance expenses.
Provision for Doubtful Accounts. The increase in the provision for doubtful accounts was
primarily a function of bad debt charges associated with customer bankruptcies in 2005 exceeding
the bad debt charges associated with customer bankruptcies in 2004.
Restructuring Charges. The increase in restructuring charges was a result of our
restructuring initiatives announced in January 2005 that we would undertake restructuring efforts
related to the rationalization of certain manufacturing facilities in the high cost regions of
Europe and North America. This rationalization was a result of our cost reduction initiatives.
Equity in Earnings of Investees. The increase in equity earnings from investees was
predominately attributable to the increase in equity earnings recognized from our PST joint venture
in Brazil. The increase primarily reflects higher volume and pricing for PSTs security product
lines.
Other (Income) Loss, Net. The increase in other income was primarily the result of favorable
foreign currency forward and option contracts.
Income (Loss) Before Income Taxes. Income (loss) before income taxes, which is the primary
profitability measure used by our chief executive officer, is summarized in the following table by
reportable segment for the fiscal years ended December 31, 2005 and 2004 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years |
|
|
|
|
|
|
Ended December 31, |
|
|
$ Increase / |
|
|
|
2005 |
|
|
2004 |
|
|
(Decrease) |
|
Vehicle Management & Power Distribution |
|
$ |
13,573 |
|
|
$ |
29,623 |
|
|
$ |
(16,050 |
) |
Control Devices |
|
|
5,640 |
|
|
|
(150,021 |
) |
|
|
155,661 |
|
Other corporate activities |
|
|
8,217 |
|
|
|
(4,477 |
) |
|
|
12,694 |
|
Corporate interest expense |
|
|
(22,994 |
) |
|
|
(24,281 |
) |
|
|
1,287 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
4,436 |
|
|
$ |
(149,156 |
) |
|
$ |
153,592 |
|
|
|
|
|
|
|
|
|
|
|
The decrease in income (loss) before income taxes at the Vehicle Management & Power
Distribution reportable segment was primarily the result of operational inefficiencies, bad debt
expenses related to customer bankruptcies, increased product development expenses, restructuring
charges and product price reductions. Customer bankruptcies resulted in a charge of $1.0 million
in 2005 for the Vehicle Management & Power Distribution reportable segment.
The increase in income (loss) before income taxes at the Control Devices reportable segment
was primarily the result of the $183.5 million goodwill impairment charge recorded in 2004 that did
not recur in 2005. Excluding this charge, income declined year-over-year due to operational
inefficiencies, product price reductions, decreased North American light vehicle volume, and a $2.6
million charge related to customer bankruptcies.
22
Income before income taxes by geographic location for the fiscal years ended December 31, 2005
and 2004 is summarized in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended December 31, |
|
|
$ Increase / |
|
|
% Increase / |
|
|
|
2005 |
|
|
2004 |
|
|
(Decrease) |
|
|
(Decrease) |
|
North America |
|
$ |
7,208 |
|
|
|
162.5 |
% |
|
$ |
(157,868 |
) |
|
|
105.8 |
% |
|
$ |
165,076 |
|
|
|
104.6 |
% |
Europe and other |
|
|
(2,772 |
) |
|
|
(62.5 |
) |
|
|
8,712 |
|
|
|
(5.8 |
) |
|
|
(11,484 |
) |
|
|
(131.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
4,436 |
|
|
|
100.0 |
% |
|
$ |
(149,156 |
) |
|
|
100.0 |
% |
|
$ |
153,592 |
|
|
|
103.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in our overall profitability, excluding the goodwill impairment charge recorded
in 2004, was primarily due to operating inefficiencies, restructuring charges, customer
bankruptcies, product price reductions, and increased product development activities.
Provision (Benefit) for Income Taxes. We recognized a provision (benefit) for income taxes of
$3.5 million, or 79% of pre-tax income, and $(56.7) million, or (38%) of the pre-tax loss, for
federal, state and foreign income taxes for the fiscal years ended December 31, 2005 and 2004,
respectively. The increase in the effective rate for the fiscal year ended December 31, 2005
compared to 2004 was attributable to net operating loss carryforwards and certain other deferred
tax assets in the United Kingdom that required a full valuation allowance in 2005.
Liquidity and Capital Resources
Net cash provided by operating activities was $46.5 million and $19.1 million for the fiscal
years ended December 31, 2006 and 2005, respectively. The increase in net cash provided by
operating activities of $27.4 million was primarily due to improvements in net income and lower
working capital levels. Our cash management strategy of better matching our suppliers terms with
our customers terms increased our accounts payable balance and resulted in increased cash flows
for 2006.
Net cash used by investing activities was $24.6 million and $27.6 million for the fiscal years
ended December 31, 2006 and 2005, respectively. The decrease in net cash used by investing
activities of $3.0 million was attributable to a decrease in capital expenditures during the year.
During 2006, major capital spending initiatives included the launch of new products in the areas of
customer-actuated switches, power distribution systems and sensor products. We also invested
approximately $2.6 million for an additional 29% stake in our Minda Instruments Limited (Minda)
joint venture, increasing our investment in Minda from 20% to 49%. In 2006, capital and investment
spending was offset by $2.3 million in proceeds from a property sale and $1.2 million in proceeds
from the sale of our partnership interest in IDA.
Net cash provided (used) by financing activities was $0.1 million and $(0.4) million for the
fiscal years ended December 31, 2006 and 2005, respectively. Cash provided by financing activities
for the year ended December 31, 2006 was primarily related to proceeds from the exercise of share
options, partially offset by cash used for fees related to the completion of our credit agreement
amendment during the first quarter. See Note 4 to the Companys consolidated financial statements
for further information on the Companys senior notes and credit facilities.
As discussed in Note 9 to our consolidated financial statements, we have entered into foreign
currency forward contracts with a notional value of $16.1 million and $23.0 million at December 31,
2006 and 2005, respectively. The purpose of these investments is to reduce exposure related to our
krona- and pound-denominated receivables. The estimated fair value of these contracts at December
31, 2006 and 2005, per quoted market sources, was approximately $(0.5) million and $0.2 million,
respectively. The Companys foreign currency option contracts were expired as of December 31, 2006
and 2005, respectively. As discussed in Note 9, we have entered into a fixed price swap for 480
metric tonnes of copper. The purpose of these contracts
is to reduce our price risk as it relates to copper prices. As of December 31, 2006, the
change in value of the commodity swaps was approximately $(0.1) million.
Our credit facilities contain various covenants that require, among other things, the
maintenance of certain specified ratios of consolidated total debt to consolidated EBITDA, interest
coverage and fixed charge coverage. Restrictions also include limits on capital expenditures,
operating leases and dividends. We were in compliance with all covenants at December 31, 2006. On
March 7, 2006, we amended our credit agreement dated May 1, 2002. The amendment modifies certain
financial covenant requirements, changes certain reporting requirements, sets borrowing levels
based on certain asset levels and prohibits us from
23
repurchasing, repaying or redeeming any of our
outstanding subordinated notes unless certain covenant levels are met. See Note 4 to the Companys
consolidated financial statements for further information on the Companys senior notes and credit
facilities.
The following table summarizes our future cash outflows resulting from financial contracts and
commitments, as of December 31, 2006 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 1 |
|
|
|
|
|
|
|
|
|
|
Contractual Obligations: |
|
Total |
|
|
year |
|
|
2-3 years |
|
|
4-5 years |
|
|
After 5 years |
|
Long-term debt |
|
$ |
200,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
200,000 |
|
Operating leases |
|
|
17,839 |
|
|
|
5,737 |
|
|
|
6,499 |
|
|
|
1,493 |
|
|
|
4,110 |
|
Employee benefit plans |
|
|
9,988 |
|
|
|
763 |
|
|
|
1,527 |
|
|
|
1,835 |
|
|
|
5,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations |
|
$ |
227,827 |
|
|
$ |
6,500 |
|
|
$ |
8,026 |
|
|
$ |
3,328 |
|
|
$ |
209,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys $200.0 million senior notes are redeemable in May 2007 at 105.75. Given
the Companys senior notes are redeemable in the near future, we may seek to retire the notes
through cash purchases, open market purchases, privately negotiated transactions or otherwise. Such
redemptions, purchases or exchanges, if any, will depend on prevailing market conditions, our
liquidity requirements, contractual restrictions and other factors. The amounts involved may be
material.
Future capital expenditures are expected to be consistent with recent levels and future
organic growth is expected to be funded through cash flows from operations. Management will
continue to focus on reducing its weighted average cost of capital and believes that cash flows
from operations and the availability of funds from our credit facilities will provide sufficient
liquidity to meet our future growth and operating needs. As outlined in Note 4 to our consolidated
financial statements, the Company is party to a $100.0 million revolving credit facility. On March
7, 2006, the Company amended the credit agreement, which, among other things, gave the Company
substantially all of its borrowing capacity on the $100.0 million credit facility. As of December
31, 2006, $96.7 million of the $100.0 million was available.
Inflation and International Presence
Given the current economic climate and recent increases in certain commodity prices, we
believe that a continuation of such price increases would significantly affect our profitability.
Furthermore, by operating internationally, we are affected by the economic conditions of certain
countries. Based on the current economic conditions in these countries, we believe we are not
significantly exposed to adverse economic conditions.
Critical Accounting Policies and Estimates
Estimates. The preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date
of the consolidated financial statements, and the reported amounts of revenues and expenses during
the reporting period.
On an ongoing basis, we evaluate estimates and assumptions used in our financial statements.
We base our estimates on historical experience and on various other factors that we believe to be
reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results could differ from these estimates.
We believe the following are critical accounting policies those most important to the
financial presentation and those that require the most difficult, subjective or complex judgments.
Revenue Recognition and Sales Commitments. We recognize revenues from the sale of products,
net of actual and estimated returns of products sold based on authorized returns and historical
trends in sales returns, at the point of passage of title, which is generally at the time of
shipment. We often enter into agreements with our customers at the beginning of a given vehicles
expected production life. Once such agreements are entered into, it is our obligation to fulfill
the customers purchasing requirements for the entire production life of the vehicle. These
agreements are subject to renegotiation, which may affect product pricing. In certain limited
instances, we may be committed under existing agreements to supply products to our
24
customers at
selling prices which are not sufficient to cover the direct cost to produce such products. In such
situations, we recognize losses immediately. These agreements generally may also be terminated by
our customers at any time.
On an ongoing basis, we receive blanket purchase orders from our customers, which include
pricing terms. Purchase orders do not always specify quantities. We recognize revenue based on
the pricing terms included in our purchase orders as our products are shipped to our customers. We
are asked to provide our customers with annual cost reductions as part of certain agreements. In
addition, we have ongoing adjustments to our pricing arrangements with our customers based on the
related content, the cost of our products and other commercial factors. Such pricing accruals are
adjusted as they are settled with our customers.
Warranties. Our warranty reserve is established based on our best estimate of the amounts
necessary to settle future and existing claims on products sold as of the balance sheet dates.
This estimate is based on historical trends of units sold and payment amounts, combined with our
current understanding of the status of existing claims. To estimate the warranty reserve, we are
required to forecast the resolution of existing claims as well as expected future claims on
products previously sold. Although, we believe that our warranty reserve is adequate and that the
judgment applied is appropriate, such amounts estimated to be due and payable could differ
materially from what will actually transpire in the future. Our customers are increasingly seeking
to hold suppliers responsible for product warranties, which could negatively impact our exposure to
these costs.
Allowance for Doubtful Accounts. We have concentrations of sales and trade receivable balances
with a few key customers. Therefore, it is critical that we evaluate the collectibility of accounts
receivable based on a combination of factors. In circumstances where we are aware of a specific
customers inability to meet their financial obligations, a specific allowance for doubtful
accounts is recorded against amounts due to reduce the net recognized receivable to the amount we
reasonably believe will be collected. Additionally, we review historical trends for collectibility
in determining an estimate for our allowance for doubtful accounts. If economic circumstances
change substantially, estimates of the recoverability of amounts due to the Company could be
reduced by a material amount. We do not have collateral requirements with our customers.
Contingencies. We are subject to legal proceedings and claims, including product liability
claims, commercial or contractual disputes, environmental enforcement actions and other claims that
arise in the normal course of business. We routinely assess the likelihood of any adverse
judgments or outcomes to these matters, as well as ranges of probable losses, by consulting with
internal personnel principally involved with such matters and with our outside legal council
handling such matters.
We have accrued for estimated losses in accordance with Statement of Financial Accounting
Standard (SFAS) No. 5, Accounting for Contingencies, when it is probable that a liability or loss
has been incurred and the amount can be reasonably estimated. Contingencies by their nature relate
to uncertainties that require the exercise of judgment both in assessing whether or not a liability
or loss has been incurred and estimated that amount of probable loss. The reserves may change in
the future due to new developments or changes in circumstances. The inherent uncertainty related
to the outcome of these matters can result in amounts materially different from any provisions made
with respect to their resolution.
Inventory Valuation. Inventories are valued at the lower of cost or market. Cost is
determined by the last-in, first-out (LIFO) method for U.S. inventories and by the first-in,
first-out (FIFO) method for non-U.S. inventories. Where appropriate, standard cost systems are
utilized for purposes of determining cost and the standards are adjusted as necessary to ensure
they approximate actual costs. Estimates of the lower of cost or market value of inventory are
determined based upon current economic conditions, historical sales quantities and patterns and, in
some cases, the specific risk of loss on specifically identified inventories.
Goodwill. In connection with the adoption of SFAS No. 142, Goodwill and Other Intangible
Assets, we discontinued the amortization of goodwill on January 1, 2002. In lieu of amortization,
this standard requires that goodwill be tested for impairment at least annually and whenever events
or changes in circumstances indicate that the carrying value may not be recoverable. The valuation
methodologies employed by the Company use subjective measures including forward looking financial
information and
discount rates that directly impact the resulting fair values used to test the Companys
business units for impairment. See Note 2 to our consolidated financial statements for more
information on our application of this accounting standard, including the valuation techniques used
to determine the fair value of goodwill.
Share-Based Compensation. The valuing of our share-based compensation awards involves a number
of assumptions. We believe each assumption used in the valuation is reasonable because it takes
into account the experience of the plan and reasonable expectations. We estimate volatility and
forfeitures based on historical data and the expected term of the share-based
25
compensation awards.
The assumptions, however, involve inherent uncertainties. As a result, if other assumptions had
been used, share-based compensation expense could have varied.
Pension and Other Postretirement Benefits. The amounts recognized in the consolidated
financial statements related to pension and other postretirement benefits are determined from
actuarial valuations. Inherent in these valuations are assumptions including expected return on
plan assets, discount rates at which the liabilities could be settled at December 31, 2006, rate of
increase in future compensation levels, mortality rates and health care cost trend rates. These
assumptions are updated annually and are disclosed in Note 8 to the consolidated financial
statements. In accordance with U.S. GAAP, actual results that differ from the assumptions are
accumulated and amortized over future periods and, therefore, affect expense.
The expected long-term return on assets is determined as a weighted average of the expected
returns for each asset class held by the defined-benefit pension plan at the date. The expected
return on bonds has been based on the yield available on similar bonds (by currency, issuer and
duration) at that date. The expected return on equities is based on an equity risk premium of
return above that available on long-term government bonds of a similar duration and the same
currency as the liabilities.
Discount rates for our defined benefit pension plan in the United Kingdom are determined using
the average long-term sterling AA corporate bond. On December 29, 2006, the yield was
approximately 5.15%, with the individual yields on most of these yields of most of the bonds being
within a range of 5.0% 5.4%.
Discount rates for our other postretirement benefit plan in the U.S. are determined using the
Moodys Aa Corporate Bond Index. The average equivalent annual rate on a Aa Corporate bond at
December 31, 2006 was 5.8%.
Deferred Income Taxes. Deferred income taxes are provided for temporary differences between
amounts of assets and liabilities for financial reporting purposes and the basis of such assets and
liabilities as measured by tax laws and regulations. Our deferred tax assets include net operating
loss carryforwards and tax credits that can be used to offset taxable income in future periods and
reduce income taxes payable in those future periods. Due to the length of the carryover period it
is unlikely that the deferred tax assets will expire prior to being utilized. The Company does not
provide deferred income taxes on unremitted earnings of certain non-U.S. subsidiaries, which are
deemed permanently reinvested.
SFAS No. 109, Accounting for Income Taxes, requires that deferred tax assets be reduced by a
valuation allowance if, based on all available evidence, it is considered more likely than not that
some portion or all of the recorded deferred tax assets will not be realized in future periods.
This assessment requires significant judgment, and in making this evaluation, the Company considers
available positive and negative evidence, including past results, the existence of cumulative
losses in recent periods, and our forecast of taxable income for the current year and future years.
A valuation allowance may need to be recorded against U.S. deferred tax assets in the event that
future U.S. taxable income is materially different than estimated amounts. The primary risk factor
is a more than expected severe downturn in the U.S. automotive and commercial vehicle segments of
which the Company has significant U.S. operations. The impact of the risk factor would be offset
by raw material cost management and restructuring initiatives which are expected to result in
savings in future periods.
Recently Issued Accounting Standards
New accounting standards to be implemented:
In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48
(FIN 48), Accounting for Uncertainty in Income Taxes, which prescribes a recognition threshold
and measurement process for recording in the financial statements uncertain tax positions taken or
expected to be taken in a tax return. Additionally, FIN 48 provides criteria for subsequently
recognizing, derecognizing and measuring changes in uncertain tax positions and requires expanded
disclosures with respect to the uncertainty of income taxes. The accounting provisions of FIN 48
will be effective for the Company beginning January 1, 2007 with the cumulative effect of the
change in accounting principle recorded as an adjustment to opening retained
earnings. We are currently reviewing this new standard to determine its effects, if any, on
our results of operations or financial position.
In September 2006, the FASB issued SFAS No. 157 (SFAS 157), Fair Value Measurements, which
provides a definition of fair value, establishes a framework for measuring fair value and requires
expanded disclosures about fair value measurements. SFAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim periods
26
within those years.
The provisions of SFAS 157 will be applied prospectively. We are currently evaluating the impact
SFAS 157 will have on our financial statements.
New accounting standards implemented:
In September 2006, the FASB issued FASB Staff Position (FSP) No. AUG AIR-1 (FSP No. AUG
AIR-1), Accounting for Planned Major Maintenance Activities. This position prohibits the use of
the accrue-in-advance method of accounting for planned major maintenance activities in annual and
interim financial reporting periods. The provisions of the pronouncement are effective for fiscal
years beginning after December 15, 2006. We adopted the provisions of this FSP as of January 1,
2007, as required. The adoption did not have a material impact on our consolidated results of
operations or financial condition.
In September 2006, the SEC issued Staff Accounting Bulletin (SAB) No. 108 (SAB 108),
Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements, which expresses the SECs views regarding the process of quantifying
financial statement misstatements. Registrants are required to quantify the impact of correcting
all misstatements, including both the carryover and reversing effects of prior year misstatements,
on the current year financial statements. The financial statements would require adjustment when
either approach results in quantifying a misstatement that is material, after considering all
relevant quantitative and qualitative factors. SAB 108 is effective for financial statements
covering the first fiscal year ending after November 15, 2006. The adoption of SAB 108 did not have
an impact on our consolidated financial statements.
In September 2006, the FASB issued SFAS No. 158 (SFAS 158), Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans an amendment of FASB Statements No. 87,
88, 106, and 132(R). This statement requires an entity to recognize the funded status of its
defined benefit pension plans and other postretirement benefit plans, such as a retiree health care
plan, on the balance sheet and to recognize changes in the funded status, that arise during the
period but are not recognized as components of net periodic benefit cost, within other
comprehensive income, net of income taxes. SFAS 158 also requires measurement of the funded status
of the plans as of the balance sheet date. SFAS 158 is effective for recognition of the funded
status of the plans for fiscal years ending after December 15, 2006 and is effective for the
measurement date provisions for fiscal years ending after December 15, 2008. Upon adoption of SFAS
158, there was no significant impact on our consolidated statement of financial position.
Forward-Looking Statements
Portions of this report 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, our
directors or officers with respect to, among other things, our (i) future product and facility
expansion, (ii) acquisition strategy, (iii) investments and new product development, and (iv)
growth opportunities related to awarded business. Forward-looking statements may be identified by
the words will, may, designed to, believes, plans, expects, continue, and similar
words and expressions. The forward-looking statements in this report are subject to risks and
uncertainties that could cause actual events or results to differ materially from those expressed
in or implied by the statements. Important factors that could cause actual results to differ
materially from those in the forward-looking statements include, among other factors:
|
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the loss or bankruptcy of a major customer; |
|
|
|
|
the costs and timing of facility closures, business realignment, or similar actions; |
|
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|
|
a significant change in automotive, medium- and heavy-duty or agricultural and off-highway vehicle production; |
|
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|
|
our ability to achieve cost reductions that offset or exceed customer-mandated selling price reductions; |
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a significant change in general economic conditions in any of the various countries in which we operate; |
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labor disruptions at our facilities or at any of our significant customers or suppliers; |
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|
|
the ability of our suppliers to supply us with parts and components at competitive prices on a timely basis; |
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|
the amount of debt and the restrictive covenants contained in our credit facility; |
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|
customer acceptance of new products; |
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|
|
capital availability or costs, including changes in interest rates or market perceptions; |
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|
the successful integration of any acquired businesses; |
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|
|
the occurrence or non-occurrence of circumstances beyond our control; and |
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those items described in Part I, Item IA (Risk Factors). |
27
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
From time to time, we are exposed to certain market risks, primarily resulting from the
effects of changes in interest rates. At December 31, 2006, however, all of our debt was fixed
rate debt. At this time, we do not use financial instruments to manage this risk.
Commodity Price Risk
Given the current economic climate and the recent increases in certain commodity costs, we
currently are experiencing an increased risk, particularly with respect to the purchase of copper,
zinc, resins and certain other commodities. We manage this risk through a combination of fixed
price agreements, staggered short-term contract maturities and commercial negotiations with our
suppliers. In December 2006, we entered into a fixed price swap for 480 metric tonnes of copper.
The purpose of these contracts is to reduce our price risk as it relates to copper prices. The
recent increases in certain commodity costs have negatively affected our operating results, and a
continuation of such price increases could significantly affect our profitability. Going forward,
we believe that our mitigation efforts will offset a substantial portion of the financial impact of
these increased costs. However, no assurances can be given that the magnitude or duration of these
increased costs will not have a material impact on our future operating results. A hypothetical
pre-tax gain or loss in fair value from a 10.0% favorable or adverse change in commodity prices
would not significantly affect our results of operations, financial position or cash flows.
Foreign Currency Exchange Risk
Our risks related to foreign currency exchange rates have historically not been material;
however, given the current economic climate, we are monitoring this risk. We use derivative
financial instruments, including foreign currency forward and option contracts, to mitigate our
exposure to fluctuations in foreign currency exchange rates by reducing the effect of such
fluctuations on foreign currency denominated intercompany transactions and other known foreign
currency exposures. As discussed in Note 9 to our consolidated financial statements, we have
entered into foreign currency forward contracts that had a notional value of $16.1 million and
$23.0 million at December 31, 2006 and 2005, respectively. The purpose of these investments is to
reduce exposure related to the Companys Swedish krona and British pound denominated receivables.
The estimated fair value of these contracts at December 31, 2006 and 2005, per quoted market
sources, was approximately $(0.5) million and $0.2 million, respectively. The Companys foreign
currency option contracts expired as of December 31, 2006. We do not expect the effects of this
risk to be material in the future based on the current operating and economic conditions in the
countries in which we operate.
A hypothetical pre-tax gain (loss) in fair value from a 10% favorable or adverse change in
quoted currency exchange rates would be approximately $1.5 million or $(1.8) million as of December
31, 2006. A hypothetical pre-tax gain (loss) in fair value from a 10% favorable or adverse change
in quoted currency exchange rates would be approximately $2.1 million or $(2.5) million as of
December 31, 2005. These estimated changes assume a parallel shift in all currency exchange rates
and include the gain or loss on financial instruments used to hedge known foreign currency
exposures. Because exchange rates typically do not all move in the same direction, the estimate
may overstate the impact of changing exchange rates on the net fair value of the Companys currency
derivatives. It is also important to note that gains and losses indicated in the sensitivity
analysis would generally be offset by gains and losses on the underlying exposures being hedged.
Therefore, a hypothetical pre-tax gain or loss in fair value from a 10.0% favorable or adverse
change in quoted foreign currencies would not significantly affect our results of operations,
financial position or cash flows.
28
Item 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
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Page |
Consolidated Financial Statements: |
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30 |
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31 |
|
|
|
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32 |
|
|
|
|
33 |
|
|
|
|
34 |
|
|
|
|
35 |
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|
|
|
|
|
Financial Statement Schedule: |
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|
|
|
|
|
|
|
|
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|
|
69 |
|
29
Report of Independent Registered Public Accounting Firm
Board of
Directors and Shareholders of Stoneridge, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Stoneridge, Inc. and
Subsidiaries as of December 31, 2006 and 2005 and the related consolidated statements of
operations, shareholders equity, and cash flows for each of the three years in the period ended
December 31, 2006. Our audit also included the financial statement schedule listed in the Index at
Item 15. These financial statements and schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements and schedule
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (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 consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Stoneridge, Inc. and Subsidiaries at
December 31, 2006 and 2005 and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 2006, in conformity with U.S.
generally accepted accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, effective at the beginning
of the second quarter of 2005, the Company adopted FASB Statement No. 123 (revised 2004), Share-Based Payment (FAS 123(R)) using the modified-prospective-transition method.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Stoneridge,
Inc. and Subsidiaries internal control over
financial reporting as of December 31, 2006, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 12, 2007 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Cleveland, Ohio
March 12, 2007
30
STONERIDGE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
65,882 |
|
|
$ |
40,784 |
|
Accounts receivable, less allowances for
doubtful accounts of $3,831 and $3,829,
respectively |
|
|
106,985 |
|
|
|
100,362 |
|
Inventories, net |
|
|
58,521 |
|
|
|
53,791 |
|
Prepaid expenses and other |
|
|
13,448 |
|
|
|
14,490 |
|
Deferred income taxes |
|
|
9,196 |
|
|
|
9,253 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
254,032 |
|
|
|
218,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Assets: |
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
114,586 |
|
|
|
113,478 |
|
Other Assets: |
|
|
|
|
|
|
|
|
Goodwill |
|
|
65,176 |
|
|
|
65,176 |
|
Investments and other, net |
|
|
30,875 |
|
|
|
26,491 |
|
Deferred income taxes |
|
|
37,138 |
|
|
|
39,213 |
|
|
|
|
|
|
|
|
Total long-term assets |
|
|
247,775 |
|
|
|
244,358 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
501,807 |
|
|
$ |
463,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
$ |
|
|
|
$ |
44 |
|
Accounts payable |
|
|
72,493 |
|
|
|
55,344 |
|
Accrued expenses and other |
|
|
45,624 |
|
|
|
46,603 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
118,117 |
|
|
|
101,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities: |
|
|
|
|
|
|
|
|
Long-term debt, net of current portion |
|
|
200,000 |
|
|
|
200,000 |
|
Deferred income taxes |
|
|
1,923 |
|
|
|
923 |
|
Other liabilities |
|
|
3,145 |
|
|
|
6,133 |
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
205,068 |
|
|
|
207,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity: |
|
|
|
|
|
|
|
|
Preferred Shares, without par value,
authorized 5,000 shares, none issued |
|
|
|
|
|
|
|
|
Common Shares, without par value, authorized
60,000 shares, issued 23,990 and 23,232
shares and outstanding 23,804 and 23,178 shares,
respectively, with no stated value |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
150,078 |
|
|
|
147,440 |
|
Common Shares held in treasury, 186 and 54
shares, respectively, at cost |
|
|
(151 |
) |
|
|
(65 |
) |
Retained earnings |
|
|
21,701 |
|
|
|
7,188 |
|
Accumulated other comprehensive income (loss) |
|
|
6,994 |
|
|
|
(572 |
) |
|
|
|
|
|
|
|
Total shareholders equity |
|
|
178,622 |
|
|
|
153,991 |
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity |
|
$ |
501,807 |
|
|
$ |
463,038 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
31
STONERIDGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended |
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Net Sales |
|
$ |
708,699 |
|
|
$ |
671,584 |
|
|
$ |
681,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
549,793 |
|
|
|
522,996 |
|
|
|
506,808 |
|
Selling, general and administrative |
|
|
124,302 |
|
|
|
116,836 |
|
|
|
114,480 |
|
Provision for doubtful accounts |
|
|
236 |
|
|
|
3,711 |
|
|
|
354 |
|
(Gain) loss on sale of property, plant and equipment, net |
|
|
(1,303 |
) |
|
|
(360 |
) |
|
|
186 |
|
Goodwill impairment charge |
|
|
|
|
|
|
|
|
|
|
183,450 |
|
Restructuring charges |
|
|
608 |
|
|
|
5,098 |
|
|
|
2,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
35,063 |
|
|
|
23,303 |
|
|
|
(125,570 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
21,744 |
|
|
|
23,872 |
|
|
|
24,456 |
|
Equity in earnings of investees |
|
|
(7,125 |
) |
|
|
(4,052 |
) |
|
|
(1,698 |
) |
Other (income) loss, net |
|
|
805 |
|
|
|
(953 |
) |
|
|
828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes |
|
|
19,639 |
|
|
|
4,436 |
|
|
|
(149,156 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes |
|
|
5,126 |
|
|
|
3,503 |
|
|
|
(56,653 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
14,513 |
|
|
$ |
933 |
|
|
$ |
(92,503 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share |
|
$ |
0.63 |
|
|
$ |
0.04 |
|
|
$ |
(4.09 |
) |
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
|
22,866 |
|
|
|
22,709 |
|
|
|
22,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share |
|
$ |
0.63 |
|
|
$ |
0.04 |
|
|
$ |
(4.09 |
) |
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding |
|
|
23,062 |
|
|
|
22,775 |
|
|
|
22,622 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
32
STONERIDGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended |
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
14,513 |
|
|
$ |
933 |
|
|
$ |
(92,503 |
) |
Adjustments to reconcile net income to net cash provided (used) by
operating activities - |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
25,904 |
|
|
|
25,861 |
|
|
|
25,137 |
|
Amortization |
|
|
1,657 |
|
|
|
1,560 |
|
|
|
1,620 |
|
Deferred income taxes |
|
|
3,466 |
|
|
|
815 |
|
|
|
(57,563 |
) |
Earnings of equity method investees, less dividends received |
|
|
(3,455 |
) |
|
|
(1,894 |
) |
|
|
(1,639 |
) |
(Gain) loss on sale of fixed assets |
|
|
(1,303 |
) |
|
|
(360 |
) |
|
|
186 |
|
Gain on sale of partnership interest |
|
|
(1,627 |
) |
|
|
|
|
|
|
|
|
Share-based compensation expense |
|
|
1,953 |
|
|
|
1,695 |
|
|
|
1,389 |
|
Postretirement benefit settlement gain |
|
|
(1,242 |
) |
|
|
|
|
|
|
|
|
Goodwill impairment charge |
|
|
|
|
|
|
|
|
|
|
183,450 |
|
Changes in operating assets and liabilities - |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
(2,739 |
) |
|
|
(3,516 |
) |
|
|
(9,511 |
) |
Inventories, net |
|
|
(2,350 |
) |
|
|
517 |
|
|
|
(6,981 |
) |
Prepaid expenses and other |
|
|
1,742 |
|
|
|
(3,744 |
) |
|
|
(440 |
) |
Other assets |
|
|
2,228 |
|
|
|
(1,762 |
) |
|
|
505 |
|
Accounts payable |
|
|
14,084 |
|
|
|
505 |
|
|
|
2,596 |
|
Accrued expenses and other |
|
|
(6,291 |
) |
|
|
(1,549 |
) |
|
|
2,030 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
46,540 |
|
|
|
19,061 |
|
|
|
48,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(25,895 |
) |
|
|
(28,934 |
) |
|
|
(23,917 |
) |
Proceeds from sale of fixed assets |
|
|
2,266 |
|
|
|
1,664 |
|
|
|
1 |
|
Proceeds from sale of partnership interest |
|
|
1,153 |
|
|
|
|
|
|
|
|
|
Business acquisitions and other |
|
|
(2,133 |
) |
|
|
(282 |
) |
|
|
(702 |
) |
Collection of loan receivable from joint venture |
|
|
|
|
|
|
|
|
|
|
4,695 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(24,609 |
) |
|
|
(27,552 |
) |
|
|
(19,923 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt |
|
|
(44 |
) |
|
|
(118 |
) |
|
|
(524 |
) |
Share-based compensation activity |
|
|
301 |
|
|
|
1 |
|
|
|
(380 |
) |
Other financing costs |
|
|
(150 |
) |
|
|
(241 |
) |
|
|
(134 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities |
|
|
107 |
|
|
|
(358 |
) |
|
|
(1,038 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
3,060 |
|
|
|
(2,699 |
) |
|
|
875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
25,098 |
|
|
|
(11,548 |
) |
|
|
28,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
40,784 |
|
|
|
52,332 |
|
|
|
24,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
65,882 |
|
|
$ |
40,784 |
|
|
$ |
52,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net |
|
$ |
20,565 |
|
|
$ |
22,683 |
|
|
$ |
23,321 |
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes, net |
|
$ |
2,394 |
|
|
$ |
4,891 |
|
|
$ |
4,536 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
33
STONERIDGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Number of |
|
|
|
|
|
|
Common |
|
|
|
|
|
|
Accumulated Other |
|
|
|
|
|
|
|
|
|
Common |
|
|
Treasury |
|
|
Additional |
|
|
Shares Held |
|
|
Retained |
|
|
Comprehensive |
|
|
Total Shareholders |
|
|
Comprehensive |
|
|
|
Shares |
|
|
Shares |
|
|
Paid-in Capital |
|
|
in Treasury |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Equity |
|
|
Income (Loss) |
|
BALANCE, DECEMBER 31, 2003 |
|
|
22,459 |
|
|
|
|
|
|
$ |
143,535 |
|
|
|
|
|
|
$ |
98,758 |
|
|
$ |
1,113 |
|
|
$ |
243,406 |
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(92,503 |
) |
|
|
|
|
|
|
(92,503 |
) |
|
$ |
(92,503 |
) |
Exercise of share options |
|
|
221 |
|
|
|
|
|
|
|
840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
840 |
|
|
|
|
|
Issuance of restricted Common Shares |
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited restricted Common Shares |
|
|
(8 |
) |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
compensation matters |
|
|
|
|
|
|
|
|
|
|
1,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,389 |
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,224 |
) |
|
|
(2,224 |
) |
|
|
(2,224 |
) |
Unrealized gain on marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
12 |
|
|
|
12 |
|
Currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,685 |
|
|
|
4,685 |
|
|
|
4,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(90,030 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 2004 |
|
|
22,780 |
|
|
|
8 |
|
|
|
145,764 |
|
|
|
|
|
|
|
6,255 |
|
|
|
3,586 |
|
|
|
155,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
933 |
|
|
|
|
|
|
|
933 |
|
|
|
933 |
|
Exercise of share options |
|
|
10 |
|
|
|
|
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48 |
|
|
|
|
|
Issuance of restricted Common Shares |
|
|
434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited restricted Common Shares |
|
|
(39 |
) |
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchased Common Shares for treasury |
|
|
(7 |
) |
|
|
7 |
|
|
|
|
|
|
|
(65 |
) |
|
|
|
|
|
|
|
|
|
|
(65 |
) |
|
|
|
|
Share-based compensation matters |
|
|
|
|
|
|
|
|
|
|
1,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,628 |
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
396 |
|
|
|
396 |
|
|
|
396 |
|
Unrealized gain on marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89 |
|
|
|
89 |
|
|
|
89 |
|
Currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,643 |
) |
|
|
(4,643 |
) |
|
|
(4,643 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(3,225 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 2005 |
|
|
23,178 |
|
|
|
54 |
|
|
|
147,440 |
|
|
|
(65 |
) |
|
|
7,188 |
|
|
|
(572 |
) |
|
|
153,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,513 |
|
|
|
|
|
|
|
14,513 |
|
|
|
14,513 |
|
Exercise of share options |
|
|
64 |
|
|
|
|
|
|
|
393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
393 |
|
|
|
|
|
Issuance of restricted Common Shares |
|
|
694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited restricted Common Shares |
|
|
(118 |
) |
|
|
118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchased Common Shares for treasury |
|
|
(14 |
) |
|
|
14 |
|
|
|
|
|
|
|
(86 |
) |
|
|
|
|
|
|
|
|
|
|
(86 |
) |
|
|
|
|
Share-based compensation matters |
|
|
|
|
|
|
|
|
|
|
2,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,245 |
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,625 |
|
|
|
1,625 |
|
|
|
1,625 |
|
Cumulative effect of adopting
SFAS No. 158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84 |
) |
|
|
(84 |
) |
|
|
(84 |
) |
Currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,025 |
|
|
|
6,025 |
|
|
|
6,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
22,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 2006 |
|
|
23,804 |
|
|
|
186 |
|
|
$ |
150,078 |
|
|
$ |
(151 |
) |
|
$ |
21,701 |
|
|
$ |
6,994 |
|
|
$ |
178,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
34
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. and its subsidiaries are independent designers and manufacturers of highly
engineered electrical and electronic components, modules and systems for the automotive, medium-
and heavy-duty truck, agricultural and off-highway vehicle markets.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the accounts of Stoneridge, Inc.
and its wholly-owned and majority-owned subsidiaries (collectively, the Company). Intercompany
transactions and balances have been eliminated in consolidation. Joint ventures in which the
Company does not have control, but does have the ability to exercise influence over operating and
principal policies are accounted for under the equity method (Note 3).
Beginning in 2005, we changed from a calendar year-end to a 52-53 week fiscal year-end. Since
then, our fiscal quarters were comprised of 13-week periods. On October 30, 2006, we changed back
to a calendar (December 31) fiscal year end, and therefore the 2006 fiscal year ended on December
31, 2006. Our fiscal quarters are now comprised of three month periods.
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,
due to the highly liquid nature and short-term duration of the underlying securities.
Accounts Receivable and Concentration of Credit Risk
Revenues are principally generated from the automotive, medium- and heavy-duty truck,
agricultural and off-highway vehicle markets. Due to the nature of these industries, a
significant portion of sales and related accounts receivable are concentrated in a relatively small
number of customers. The following table presents the Companys principal customers, as a
percentage of net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended |
|
|
December 31, |
|
|
2006 |
|
2005 |
|
2004 |
Navistar International |
|
|
25 |
% |
|
|
22 |
% |
|
|
21 |
% |
DaimlerChrysler |
|
|
10 |
|
|
|
12 |
|
|
|
11 |
|
Ford Motor Company |
|
|
6 |
|
|
|
7 |
|
|
|
7 |
|
MAN AG |
|
|
6 |
|
|
|
2 |
|
|
|
2 |
|
Deere & Company |
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
General Motors |
|
|
5 |
|
|
|
5 |
|
|
|
7 |
|
Other |
|
|
42 |
|
|
|
46 |
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable from the Companys five largest customer balances aggregated to
approximately $57,376, $50,507 and $65,319 at December 31, 2006, 2005 and 2004, respectively.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined by the last-in,
first-out (LIFO) method for approximately 67% and 72% of the Companys inventories at December
31, 2006 and 2005, respectively, and by the first-in, first-
35
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
out (FIFO) method for all other
inventories. Inventory cost includes material, labor and overhead. Inventories consist of the
following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Raw materials |
|
$ |
39,832 |
|
|
$ |
34,026 |
|
Work in progress |
|
|
8,196 |
|
|
|
8,644 |
|
Finished goods |
|
|
12,614 |
|
|
|
12,400 |
|
|
|
|
|
|
|
|
Total inventories |
|
|
60,642 |
|
|
|
55,070 |
|
Less: LIFO reserve |
|
|
(2,121 |
) |
|
|
(1,279 |
) |
|
|
|
|
|
|
|
Inventories, net |
|
$ |
58,521 |
|
|
$ |
53,791 |
|
|
|
|
|
|
|
|
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and consist of the following at December
31:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Land and land improvements |
|
$ |
4,654 |
|
|
$ |
5,370 |
|
Buildings and improvements |
|
|
44,526 |
|
|
|
43,954 |
|
Machinery and equipment |
|
|
130,323 |
|
|
|
113,377 |
|
Office furniture and fixtures |
|
|
36,103 |
|
|
|
30,799 |
|
Tooling |
|
|
80,579 |
|
|
|
72,523 |
|
Vehicles |
|
|
470 |
|
|
|
486 |
|
Leasehold improvements |
|
|
2,190 |
|
|
|
1,763 |
|
Construction in progress |
|
|
18,835 |
|
|
|
17,827 |
|
|
|
|
|
|
|
|
Total property, plant and equipment |
|
|
317,680 |
|
|
|
286,099 |
|
Less: Accumulated depreciation |
|
|
(203,094 |
) |
|
|
(172,621 |
) |
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
$ |
114,586 |
|
|
$ |
113,478 |
|
|
|
|
|
|
|
|
Depreciation is provided by both the straight-line and accelerated methods over the
estimated useful lives of the assets. Depreciation expense for the fiscal years ended December 31,
2006, 2005 and 2004 was $25,904, $25,861 and $25,137, respectively. Depreciable lives within each
property classification are as follows:
|
|
|
Buildings and improvements
|
|
1040 years |
Machinery and equipment
|
|
520 years |
Office furniture and fixtures
|
|
310 years |
Tooling
|
|
25 years |
Vehicles
|
|
35 years |
Leasehold improvements
|
|
38 years |
Maintenance and repair expenditures that are not considered improvements 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 Intangible Assets
Under Statement of Financial Accounting Standard (SFAS) No. 142 (SFAS 142), Goodwill and
Other Intangible Assets, goodwill is subject to an annual assessment for impairment (or more
frequently if impairment indicators arise) by applying a fair value-based test. SFAS 142 requires
goodwill impairment testing to be evaluated at the reporting unit level. The Companys
operations were reviewed to determine whether such operations should be aggregated into reporting
units for testing of goodwill impairment. These operations were reviewed for similar economic
characteristics to determine if aggregation was
36
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
appropriate. The Company determined that a
significant number of qualitative similarities existed to allow for aggregation of
these operations into four reporting units and two of these reporting units have goodwill that
was tested in accordance with the provisions of SFAS 142.
The Company performs its annual impairment test of goodwill as of the beginning of the fourth
quarter. The Company uses a combination of valuation techniques, which include consideration of
market-based approaches and an income approach, in determining the fair value of the Companys
applicable reporting units in the annual impairment test of goodwill. The Company believes that
the combination of the valuation models provides a more appropriate valuation of the Companys
reporting units by taking into account different marketplace participant assumptions. The Company
utilizes market and income approaches, specifically the guideline company method (market), the
transaction method (market), and the discounted cash flow method (income), in its estimates of fair
value of the Companys reporting units being tested and an equal weight is given to each of these
three methods. In addition, all three methods utilize market data in the derivation of a value
estimate and are forward-looking in nature. The guideline assessment of future performance and the
discounted cash flow method utilize a market-derived rate of return to discount anticipated
performance.
These methodologies are applied to the reporting units adjusted historical and projected
financial performance. The impairment review is highly judgmental and involves the use of
significant estimates and assumptions. These estimates and assumptions have a significant impact on
the amount of any impairment charge recorded. Discounted cash flow methods are dependent upon
assumption of future sales trends, market conditions and cash flows of each reporting unit over
several years. Actual cash flows in the future may differ significantly from those previously
forecasted. Other significant assumptions include growth rates and the discount rate applicable to
future cash flows.
As of the beginning of the fourth quarter, the goodwill balance of $65.2 million was related
entirely to the Control Devices reportable segment. The Company completed its assessment of any
potential goodwill impairment as of October 1, 2006 and October 2, 2005 and determined that no
impairment existed as of either date. As of October 1, 2004, the Company determined that the
carrying value of goodwill of one of the Companys reporting units, which is included in the
Control Devices reportable segment, exceeded its fair value by $183.5 million. The corresponding
write-down of goodwill to its fair value was reported as a component of operating loss in the
Companys consolidated statement of operations for the fourth quarter of 2004.
The Company had the following finite-lived intangible assets included as a component of other
assets in the balance sheet at December 31:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Patents: |
|
|
|
|
|
|
|
|
Gross carrying amount |
|
$ |
2,779 |
|
|
$ |
2,779 |
|
Less: Accumulated amortization |
|
|
(2,372 |
) |
|
|
(2,102 |
) |
|
|
|
|
|
|
|
Net carrying amount |
|
$ |
407 |
|
|
$ |
677 |
|
|
|
|
|
|
|
|
Aggregate amortization expense on patents was $270 and $301 for the fiscal years ended
December 31, 2006 and December 31, 2005, respectively. Estimated amortization expense for each succeeding fiscal year based upon the Companys intangible asset portfolio at December
31, 2006 is as follows:
|
|
|
|
|
|
|
Estimated |
|
|
|
Amortization |
|
|
|
Expense |
|
2007 |
|
$ |
204 |
|
2008 |
|
|
203 |
|
37
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Compensation-related obligations |
|
$ |
15,128 |
|
|
$ |
13,712 |
|
Insurance-related obligations |
|
|
4,178 |
|
|
|
5,281 |
|
Income tax-related obligations |
|
|
3,755 |
|
|
|
3,576 |
|
Warranty- and recall-related obligations |
|
|
5,825 |
|
|
|
6,220 |
|
Other |
|
|
16,738 |
|
|
|
17,814 |
|
|
|
|
|
|
|
|
Total accrued expenses and other current liabilities |
|
$ |
45,624 |
|
|
$ |
46,603 |
|
|
|
|
|
|
|
|
Income Taxes
The Company accounts for income taxes using the provisions of SFAS No. 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 to
occur.
Currency Translation
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 the results of
operations. Adjustments resulting from translation of financial statements are reflected as a
component of accumulated other comprehensive income (loss). Foreign currency transactions are
remeasured into the functional currency using translation rates in effect at the time of the
transaction, with the resulting adjustments included in the results of operations.
Revenue Recognition and Sales Commitments
The Company recognizes revenues from the sale of products, net of actual and estimated
returns, at the point of passage of title, which is generally at the time of shipment. Actual and
estimated returns are based on authorized returns and historical trends of sales returns. The
Company often enters into agreements with its customers at the beginning of a given vehicles
expected production life. Once such agreements are entered into, it is the Companys obligation to
fulfill the customers purchasing requirements for the entire production life of the vehicle.
These agreements are subject to renegotiation, which may affect product pricing.
Allowance for Doubtful Accounts
The Company evaluates the collectibility of accounts receivable based on a combination of
factors. In circumstances where the Company is aware of a specific customers inability to meet
its financial obligations, a specific allowance for doubtful accounts is recorded against amounts
due to reduce the net recognized receivable to the amount the Company reasonably believes will be
collected. Additionally, the Company reviews historical trends for collectibility in determining
an estimate for its allowance for doubtful accounts. If economic circumstances change
substantially, estimates of the recoverability of amounts due to the Company could be reduced by a
material amount. The Company does not have collateral requirements with its customers.
Product Warranty and Recall Reserves
Amounts accrued for product warranty and recall claims are established based on the Companys
best estimate of the amounts necessary to settle future and existing claims on products sold as of
the balance sheet dates. These accruals are based on several factors including past experience,
production changes, industry developments and various other considerations. The Company can
provide no assurances that it will not experience material claims in the future or that it will not
incur significant costs to defend or settle such claims beyond the amounts accrued or beyond what
the Company may recover from its suppliers.
38
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
The following provides a reconciliation of changes in product warranty and recall liability
for the fiscal years ended December 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Product warranty and recall at beginning of period |
|
$ |
6,220 |
|
|
$ |
6,644 |
|
Accruals for products shipped during period |
|
|
3,695 |
|
|
|
3,401 |
|
Changes in estimates for existing liabilities |
|
|
31 |
|
|
|
490 |
|
Settlements made during the period (in cash or in kind) |
|
|
(4,121 |
) |
|
|
(4,315 |
) |
|
|
|
|
|
|
|
Product warranty and recall at end of period |
|
$ |
5,825 |
|
|
$ |
6,220 |
|
|
|
|
|
|
|
|
Product Development Expenses
Expenses associated with the development of new products and changes to existing products are
charged to expense as incurred. These costs amounted to $40,840, $39,193 and $36,145 in fiscal
years 2006, 2005 and 2004, respectively.
Share-Based Compensation
At December 31, 2006, the Company had three types of share-based compensation plans: (1)
Long-Term Incentive Plan (the Incentive Plan), (2) Directors Share Option Plan (the Director
Option Plan) and (3) the Directors Restricted Shares Plan. One plan is for employees and two
plans are for non-employee directors. The Incentive Plan is made up of the Long-Term Incentive
Plan that was approved by the Companys shareholders on September 30, 1997 (the 1997 Plan) and
expires on June 30, 2007 and the Amended and Restated Long-Term Incentive Plan (the 2006 Plan)
that was approved by the Companys shareholders on April 24, 2006 and expires on April 24, 2016.
Prior to the second quarter of 2005, the Company accounted for its plans under the fair value
recognition provisions of SFAS No. 123 (SFAS 123), Accounting for Stock-Based Compensation,
adopted prospectively for all employee and director awards granted, modified or settled after
January 1, 2003, under the provisions of SFAS No. 148, Accounting for Stock-Based Compensation
Transition and Disclosure an amendment of SFAS 123.
Effective at the beginning of the second quarter of 2005, the Company adopted SFAS No. 123(R)
(SFAS 123(R)), Share-Based Payment, using the modified-prospective-transition method. Because
the Company had previously adopted the fair value recognition provisions required by SFAS 123, and
due to the fact that all unvested awards at the time of adoption were being recognized under a fair
value approach, the adoption of SFAS 123(R) did not significantly impact the Companys operating
income, income before income taxes, net income, cash flow from operating activities, cash flow from
financing activities, or basic and diluted net income per share for the fiscal years ended December
31, 2006 and 2005.
39
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
The following table illustrates the effect on net income (loss) and net income (loss) per
share if the fair value method had been applied to all outstanding and unvested awards in each
period.
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended |
|
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
Net income (loss), as reported |
|
$ |
933 |
|
|
$ |
(92,503 |
) |
|
|
|
|
|
|
|
|
|
Add: Share-based compensation expense included in reported net income
(loss), net of related tax effects |
|
|
1,102 |
|
|
|
868 |
|
|
|
|
|
|
|
|
|
|
Deduct: Total share-based compensation expense determined under the fair
value method for all awards, net of related tax effects |
|
|
(1,103 |
) |
|
|
(906 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss) |
|
$ |
932 |
|
|
$ |
(92,541 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share: |
|
|
|
|
|
|
|
|
Basic as reported |
|
$ |
0.04 |
|
|
$ |
(4.09 |
) |
|
|
|
|
|
|
|
Basic pro forma |
|
$ |
0.04 |
|
|
$ |
(4.09 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted as reported |
|
$ |
0.04 |
|
|
$ |
(4.09 |
) |
|
|
|
|
|
|
|
Diluted pro forma |
|
$ |
0.04 |
|
|
$ |
(4.09 |
) |
|
|
|
|
|
|
|
Total compensation expense recognized in the consolidated statements of operations for
share-based compensation arrangements was $1,953, $1,695 and $1,389 for the fiscal years ended
December 31, 2006, 2005 and 2004, respectively. The total income tax benefit recognized in the
consolidated statements of operations for share-based compensation arrangements was $355, $593 and
$521 for the fiscal years ended December 31, 2006, 2005 and 2004, respectively. There was no
share-based compensation expense capitalized as inventory or fixed assets for 2006, 2005 or 2004.
The fair value of options granted under the Incentive Plan and Director Option Plan was
estimated at the date of grant using the Black-Scholes option-pricing model. The risk-free rate
for periods within the contractual life of the option is based on the U.S. Treasury yield curve in
effect at the time of grant. The expected life of options granted was the period of time that the
option was expected to remain outstanding. Expected volatility was based on historical volatility
of the Companys Common Shares. The following are assumptions that were used to estimate the fair
value of the options granted in 2004:
|
|
|
|
|
|
|
2004 |
Risk-free interest rate
|
|
|
1.43 |
% |
Expected dividend yield
|
|
|
0.00 |
% |
Expected life (in years)
|
|
|
1.0 |
|
Expected volatility
|
|
|
35.18 |
% |
Financial Instruments and Derivative Financial Instruments
Financial instruments, including derivative financial instruments, held by the Company include
cash and cash equivalents, accounts receivable, accounts payable, long-term debt and foreign
currency forward and option 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 carrying value of the Companys variable rate debt
approximates its fair value. Refer to Note 9 of the Companys consolidated financial statements
for fair value disclosures of the Companys fixed rate debt, foreign currency forward and option
contracts, and currency swap contracts.
40
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
Common Shares Held in Treasury
The Company accounts for Common Shares held in treasury under the cost method and includes
such shares as a reduction of total shareholders equity.
Accounting Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, including certain self-insured risks and liabilities, 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. Because actual results could
differ from those estimates, the Company revises its estimates and assumptions as new information
becomes available.
Net Income (Loss) Per Share
Net income (loss) per share amounts for all periods are presented in accordance with SFAS No.
128 (SFAS 128), Earnings Per Share, which requires the presentation of basic and diluted net income per share.
Basic net income (loss) per share was computed by dividing net income (loss) by the
weighted-average number of Common Shares outstanding for each respective period. Diluted net
income (loss) per share was calculated by dividing net income (loss) by the weighted-average of all
potentially dilutive Common Shares that were outstanding during the periods presented. Actual
weighted-average shares outstanding used in calculating basic and diluted net income (loss) per
share were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended |
|
|
December 31, |
|
|
2006 |
|
2005 |
|
2004 |
Basic weighted-average shares outstanding |
|
|
22,866,015 |
|
|
|
22,709,113 |
|
|
|
22,622,188 |
|
Effect of dilutive securities |
|
|
195,870 |
|
|
|
65,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average shares outstanding |
|
|
23,061,885 |
|
|
|
22,774,974 |
|
|
|
22,622,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net loss per share for the fiscal year ended December 31, 2004, as reported in
the Companys consolidated statements of operations in accordance with SFAS 128, disregards the
effect of potentially dilutive Common Shares, as a net loss causes dilutive shares to have an
anti-dilutive effect.
Options not included in the computation of diluted net income (loss) per share to purchase
599,850, 474,250 and 225,000 Common Shares at an average price of $12.17, $13.93 and $16.56 per
share were outstanding at December 31, 2006, 2005 and 2004, respectively. These outstanding
options were not included in the computation of diluted net income (loss) per share because their
respective exercise prices were greater than the average market price of Common Shares and,
therefore, their effect would have been anti-dilutive.
As of December 31, 2006, 396,825 performance-based restricted shares were outstanding. These
shares were not included in the computation of diluted net income (loss) per share because not all
vesting conditions were met as of the December 31, 2006. Approximately one third of these shares
was associated with a plan that used highly optimistic earnings per share targets. At this time,
we believe that meeting such thresholds is highly unlikely. The remainder may or may not become
dilutive based on the Companys ability to meet or exceed future earnings thresholds.
Comprehensive Income (Loss)
SFAS No. 130, Reporting Comprehensive Income, establishes standards for the reporting and
display of comprehensive income. Other comprehensive income includes foreign currency translation
adjustments and gains and losses from certain foreign currency transactions, the effective portion
of gains and losses on certain hedging activities, minimum pension liability adjustments, and
unrealized gains and losses on available-for-sale marketable securities.
41
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
The components of accumulated other comprehensive income (loss), as reported in the statement
of consolidated shareholders equity as of December 31, net of tax were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Accumulated |
|
|
|
Currency |
|
|
Pension |
|
|
Loss (Gain) on |
|
|
Other |
|
|
|
Translation |
|
|
Liability |
|
|
Marketable |
|
|
Comprehensive |
|
|
|
Adjustments |
|
|
Adjustments |
|
|
Securities |
|
|
Income (Loss) |
|
Balance, January 1, 2004 |
|
$ |
2,458 |
|
|
$ |
(1,264 |
) |
|
$ |
(81 |
) |
|
$ |
1,113 |
|
Current year change |
|
|
4,685 |
|
|
|
(2,224 |
) |
|
|
12 |
|
|
|
2,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004 |
|
|
7,143 |
|
|
|
(3,488 |
) |
|
|
(69 |
) |
|
|
3,586 |
|
Current year change |
|
|
(4,643 |
) |
|
|
396 |
|
|
|
89 |
|
|
|
(4,158 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005 |
|
|
2,500 |
|
|
|
(3,092 |
) |
|
|
20 |
|
|
|
(572 |
) |
Current year change |
|
|
6,025 |
|
|
|
1,625 |
|
|
|
(84 |
) |
|
|
7,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006 |
|
$ |
8,525 |
|
|
$ |
(1,467 |
) |
|
$ |
(64 |
) |
|
$ |
6,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax effects related to each component of other comprehensive income (loss) were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before Tax |
|
|
Benefit / |
|
|
After-Tax |
|
|
|
Amount |
|
|
(Provision) |
|
|
Amount |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
$ |
4,685 |
|
|
$ |
|
|
|
$ |
4,685 |
|
Pension liability adjustments |
|
|
(3,177 |
) |
|
|
953 |
|
|
|
(2,224 |
) |
Unrealized loss on marketable securities |
|
|
18 |
|
|
|
(6 |
) |
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
$ |
1,526 |
|
|
$ |
947 |
|
|
$ |
2,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
$ |
(4,643 |
) |
|
$ |
|
|
|
$ |
(4,643 |
) |
Pension liability adjustments |
|
|
566 |
|
|
|
(170 |
) |
|
|
396 |
|
Unrealized loss on marketable securities |
|
|
137 |
|
|
|
(48 |
) |
|
|
89 |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
$ |
(3,940 |
) |
|
$ |
(218 |
) |
|
$ |
(4,158 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
$ |
6,025 |
|
|
$ |
|
|
|
$ |
6,025 |
|
Pension liability adjustments |
|
|
1,625 |
|
|
|
|
|
|
|
1,625 |
|
Unrealized gain on marketable securities |
|
|
(129 |
) |
|
|
45 |
|
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
$ |
7,521 |
|
|
$ |
45 |
|
|
$ |
7,566 |
|
|
|
|
|
|
|
|
|
|
|
Impairment of Assets
The Company reviews its long-lived assets and identifiable intangible assets with finite lives
for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Except for the impairment of goodwill, no significant impairment
charges were recorded in 2006, 2005 or 2004. Impairment would be recognized when events or changes
in circumstances indicate that the carrying amount of the asset may not be recovered. 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.
Deferred Finance Costs
Deferred finance costs are being amortized over the life of the related financial instrument
using the straight-line method. The annual amortization in 2006, 2005 and 2004 was $1,379, $1,260
and $1,341, respectively.
42
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
Recently Issued Accounting Standards
New accounting standards to be implemented:
In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48
(FIN 48), Accounting for Uncertainty in Income Taxes, which prescribes a recognition threshold
and measurement process for recording in the financial
statements uncertain tax positions taken or expected to be taken in a tax return.
Additionally, FIN 48 provides criteria for subsequently recognizing, derecognizing and measuring
changes in uncertain tax positions and requires expanded disclosures with respect to the
uncertainty of income taxes. The accounting provisions of FIN 48 will be effective for the Company
beginning January 1, 2007 with the cumulative effect of the change in accounting principle recorded
as an adjustment to opening retained earnings. We are currently reviewing this new standard to
determine its effects, if any, on our results of operations or financial position.
In September 2006, the FASB issued SFAS No. 157 (SFAS 157), Fair Value Measurements which
provides a definition of fair value establishes a framework for measuring fair value and requires
expanded disclosures about fair value measurements. SFAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim periods within those years.
The provisions of SFAS 157 will be applied prospectively. We are currently evaluating the impact
SFAS 157 will have on the Companys financial statements.
New accounting standards implemented:
In September 2006, the FASB issued FASB Staff Position (FSP) No. AUG AIR-1 (FSP No. AUG
AIR-1), Accounting for Planned Major Maintenance Activities. This position prohibits the use of
the accrue-in-advance method of accounting for planned major maintenance activities in annual and
interim financial reporting periods. The provisions of the pronouncement are effective for fiscal
years beginning after December 15, 2006. The Company adopted the provisions of this FSP as of
January 1, 2007, as required. The adoption did not have a material impact on our consolidated
results of operations or financial condition.
In September 2006, the SEC issued Staff Accounting Bulletin (SAB) No. 108 (SAB 108),
Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements, which expresses the SECs views regarding the process of quantifying
financial statement misstatements. Registrants are required to quantify the impact of correcting
all misstatements, including both the carryover and reversing effects of prior year misstatements,
on the current year financial statements. The financial statements would require adjustment when
either approach results in quantifying a misstatement that is material, after considering all
relevant quantitative and qualitative factors. SAB 108 is effective for financial statements
covering the first fiscal year ending after November 15, 2006. The adoption of SAB 108 did not have
an impact on the consolidated financial statements.
In September 2006, the FASB issued SFAS No. 158 (SFAS 158), Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans an amendment of FASB Statements No. 87,
88, 106, and 132(R). This statement requires an entity to recognize the funded status of its
defined benefit pension plans and other postretirement benefit plans, such as a retiree health care
plan, on the balance sheet and to recognize changes in the funded status, that arise during the
period but are not recognized as components of net periodic benefit cost, within other
comprehensive income, net of income taxes. SFAS 158 also requires measurement of the funded status
of the plans as of the balance sheet date. SFAS 158 is effective for recognition of the funded
status of the plans for fiscal years ending after December 15, 2006 and is effective for the
measurement date provisions for fiscal years ending after December 15, 2008. Prior to the adoption
of SFAS 158, the Companys accumulated benefit obligations and projected benefit obligations were
equal, therefore upon adoption, there was no impact on the Companys consolidated statement of
financial position.
Reclassifications
Certain prior period amounts have been reclassified to conform to their 2006 presentation in
the consolidated financial statements.
43
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
3. Investments
PST Indústria Eletrônica da Amazônia Ltda.
The Company has a 50% interest in PST Indústria Eletrônica da Amazônia 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 Companys investment in
PST was $21,616 and $17,818 at December 31, 2006 and 2005,
respectively. During 2006, the Company received a payment of past due interest of $2.4
million from PST related to a note receivable that was paid in 2004.
Condensed financial information for PST is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Cash and cash equivalents |
|
$ |
4,785 |
|
|
$ |
5,314 |
|
Accounts receivable |
|
|
11,609 |
|
|
|
7,157 |
|
Inventories |
|
|
10,602 |
|
|
|
9,037 |
|
Property, plant and equipment, net |
|
|
9,868 |
|
|
|
6,868 |
|
Other assets |
|
|
3,191 |
|
|
|
2,224 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
40,055 |
|
|
$ |
30,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
15,854 |
|
|
$ |
11,624 |
|
Long-term liabilities |
|
|
2,791 |
|
|
|
6,055 |
|
Equity of: |
|
|
|
|
|
|
|
|
Stoneridge |
|
|
10,705 |
|
|
|
6,461 |
|
Others |
|
|
10,705 |
|
|
|
6,461 |
|
|
|
|
|
|
|
|
Total Liabilities and Equity |
|
$ |
40,055 |
|
|
$ |
30,600 |
|
|
|
|
|
|
|
|
The difference between the Companys carrying amount of its investment in PST and the
Companys underlying equity in the net assets of PST is primarily due to a net goodwill balance of
$10,911 at December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended |
|
|
December 31, |
|
|
2006 |
|
2005 |
|
2004 |
Net sales |
|
$ |
94,097 |
|
|
$ |
70,819 |
|
|
$ |
47,807 |
|
Cost of goods sold |
|
$ |
47,451 |
|
|
$ |
38,700 |
|
|
$ |
27,444 |
|
Total pretax income |
|
$ |
17,939 |
|
|
$ |
10,956 |
|
|
$ |
3,906 |
|
The Companys share of pretax income |
|
$ |
8,970 |
|
|
$ |
5,478 |
|
|
$ |
1,953 |
|
Equity in earnings of PST included in the consolidated statements of operations were
$6,771, $3,976 and $1,677 for the fiscal years ended December 31, 2006, 2005 and 2004,
respectively. During 2006 and 2005, PST declared dividends payable to its joint venture partners,
which included the Company. The Company received dividend payments from PST of $3,707 and $2,175
in 2006 and 2005, respectively, which decreased the Companys investment in PST.
Minda Instruments Ltd.
The Company has a 49% interest in Minda Instruments Ltd. (Minda), a company based in India
that manufactures electronic instrumentation equipment for the automotive and truck markets. The
investment is accounted for under the equity method of accounting. The Companys investment in
Minda was $3,796, $828 and $781 at December 31, 2006 and 2005,
44
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
respectively. Equity in earnings of
Minda included in the consolidated statements of operations were $354, $76 and $21, for the fiscal
years ended December 31, 2006, 2005 and 2004, respectively.
4. Long-Term Debt
Senior Notes
On May 1, 2002, the Company issued $200.0 million aggregate principal amount of senior notes.
The $200.0 million senior notes bear interest at an annual rate of 11.50% and mature on May 1,
2012. The senior notes are redeemable in May 2007 at 105.75. Interest is payable on May 1 and November 1 of each year. On July 1, 2002, the
Company completed an exchange offer of the senior notes for substantially identical notes
registered under the Securities Act of 1933.
Credit Agreement
On March 7, 2006, the Company amended the existing credit agreement, which provided the
Company with substantially all of its borrowing capacity on the $100.0 million credit facility.
The credit agreement contains various covenants that require, among other things, the maintenance
of certain specified ratios of consolidated total debt to consolidated earnings before interest,
taxes, depreciation and amortization (EBITDA) and interest coverage. Restrictions also include
limits on capital expenditures, operating leases and dividends. The amendment utilizes a borrowing
base composed of accounts receivable and inventory. The borrowing base limitation expires June 30,
2007. In addition, the Company is prohibited from repurchasing, repaying or redeeming subordinated
notes until certain covenant levels are met. As of December 31, $96.7 million of the $100.0
million credit facility was available to the Company. The revolving facility expires on April 30,
2008 and requires a commitment fee of 0.375% to 0.500% 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 0.25% to 1.25% or (ii)
LIBOR plus a margin of 1.75% to 2.75%, depending upon the Companys ratio of consolidated total
debt to consolidated EBITDA, as defined. Interest on the swing line facility is payable monthly at
the quoted overnight borrowing rate plus a margin of 1.75% to 2.75%, depending upon the Companys
ratio of consolidated total debt to consolidated EBITDA, as defined.
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
11 1/2% Senior notes, due 2012 |
|
$ |
200,000 |
|
|
$ |
200,000 |
|
Other |
|
|
|
|
|
|
44 |
|
|
|
|
|
|
|
|
Total debt |
|
|
200,000 |
|
|
|
200,044 |
|
Less: Current portion |
|
|
|
|
|
|
(44 |
) |
|
|
|
|
|
|
|
Total long-term debt less current portion |
|
$ |
200,000 |
|
|
$ |
200,000 |
|
|
|
|
|
|
|
|
Future maturities of long-term debt at December 31, 2006 are as follows:
|
|
|
|
|
2007 |
|
$ |
|
|
2008 |
|
|
|
|
2009 |
|
|
|
|
2010 |
|
|
|
|
2011 |
|
|
|
|
Thereafter |
|
|
200,000 |
|
|
|
|
|
Total |
|
$ |
200,000 |
|
|
|
|
|
45
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
5. Income Taxes
The provision for income taxes on income included in the accompanying consolidated financial
statements represent federal, state and foreign income taxes. The components of income (loss)
before income taxes and the provision for income taxes consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended |
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Income (loss) before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
6,581 |
|
|
$ |
4,441 |
|
|
$ |
(161,275 |
) |
Foreign |
|
|
13,058 |
|
|
|
(5 |
) |
|
|
12,119 |
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) before income taxes |
|
$ |
19,639 |
|
|
$ |
4,436 |
|
|
$ |
(149,156 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(807 |
) |
|
$ |
291 |
|
|
$ |
(3,638 |
) |
State and foreign |
|
|
3,176 |
|
|
|
2,397 |
|
|
|
4,548 |
|
|
|
|
|
|
|
|
|
|
|
Total current provision |
|
|
2,369 |
|
|
|
2,688 |
|
|
|
910 |
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
2,175 |
|
|
|
(1,368 |
) |
|
|
(64,981 |
) |
State and foreign |
|
|
582 |
|
|
|
2,183 |
|
|
|
7,418 |
|
|
|
|
|
|
|
|
|
|
|
Total deferred provision (benefit) |
|
|
2,757 |
|
|
|
815 |
|
|
|
(57,563 |
) |
|
|
|
|
|
|
|
|
|
|
Total income tax provision (benefit) |
|
$ |
5,126 |
|
|
$ |
3,503 |
|
|
$ |
(56,653 |
) |
|
|
|
|
|
|
|
|
|
|
A reconciliation of the Companys effective income tax rate to the statutory federal tax
rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended |
|
|
December 31, |
|
|
2006 |
|
2005 |
|
2004 |
Statutory U.S. federal income tax rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
(35.0 |
)% |
State income taxes, net of federal tax benefit |
|
|
0.8 |
|
|
|
(7.0 |
) |
|
|
(0.6 |
) |
Tax credits |
|
|
(5.6 |
) |
|
|
(24.6 |
) |
|
|
(1.2 |
) |
Goodwill impairment |
|
|
|
|
|
|
|
|
|
|
1.1 |
|
Tax benefit for export sales |
|
|
(1.4 |
) |
|
|
(9.5 |
) |
|
|
(0.4 |
) |
Foreign rate differential |
|
|
(8.9 |
) |
|
|
(23.0 |
) |
|
|
(0.7 |
) |
Reduction of income tax accruals |
|
|
(4.5 |
) |
|
|
(10.3 |
) |
|
|
(1.2 |
) |
Foreign deemed dividends, net of foreign tax credits |
|
|
4.5 |
|
|
|
17.9 |
|
|
|
0.2 |
|
Reduction of deferred taxes |
|
|
|
|
|
|
(22.6 |
) |
|
|
(0.2 |
) |
Foreign valuation allowances |
|
|
4.1 |
|
|
|
120.3 |
|
|
|
|
|
Other |
|
|
2.1 |
|
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate |
|
|
26.1 |
% |
|
|
79.0 |
% |
|
|
(38.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective tax rate for 2006 decreased primarily due to the improved performance of
the United Kingdom operations thus reducing the impact on the effective tax rate of the current
year valuation allowance provided. The decrease in the effective tax
rate was primarily attributable to an increase in pre-tax earnings
and a corresponding reduction in the amount of additional valuation
allowance needed that resulted from the improved performance of our
United Kingdom operations. The
effective tax rate was higher in 2005 due to net operating loss carryforwards and certain other
deferred tax assets in the United Kingdom that required a full valuation allowance.
Unremitted earnings of foreign subsidiaries were $24,656, $18,030 and $20,538 as of December
31, 2006, 2005 and 2004, respectively. Because these earnings have been indefinitely reinvested in
foreign operations, no provision has been made for U.S.
46
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
income taxes. It is impracticable to
determine the amount of unrecognized deferred taxes with respect to these earnings; however,
foreign tax credits may be available to reduce U.S. income taxes in the event of a distribution.
Significant components of the Companys deferred tax assets and (liabilities) as of December
31, 2006 and 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Inventories |
|
$ |
2,002 |
|
|
$ |
2,018 |
|
Employee benefits |
|
|
2,353 |
|
|
|
1,426 |
|
Insurance |
|
|
1,314 |
|
|
|
1,395 |
|
Depreciation and amortization |
|
|
36,326 |
|
|
|
32,073 |
|
Net operating loss carryforwards |
|
|
19,025 |
|
|
|
15,906 |
|
General business credit carryforwards |
|
|
8,273 |
|
|
|
7,081 |
|
Reserves not currently deductible |
|
|
6,896 |
|
|
|
7,144 |
|
|
|
|
|
|
|
|
Gross deferred tax assets |
|
|
76,189 |
|
|
|
67,043 |
|
Less: Valuation allowance |
|
|
(17,380 |
) |
|
|
(18,172 |
) |
|
|
|
|
|
|
|
Deferred tax assets less valuation allowance |
|
|
58,809 |
|
|
|
48,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(10,454 |
) |
|
|
|
|
Other |
|
|
(3,944 |
) |
|
|
(1,328 |
) |
|
|
|
|
|
|
|
Gross deferred tax liabilities |
|
|
(14,398 |
) |
|
|
(1,328 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
44,411 |
|
|
$ |
47,543 |
|
|
|
|
|
|
|
|
The valuation allowance represents the amount of tax benefit related to foreign net
operating losses and other deferred tax assets as well as state deferred tax assets, which
management believes are not likely to be realized.
The Company has deferred tax assets for net operating loss carryforwards of $7,093 net of a
valuation allowance of $11,932. The net operating losses relate to U.S. federal and foreign tax
jurisdictions. The U.S. net operating losses expire beginning in 2023 through 2026 whereas the
foreign net operating losses have indefinite expiration dates. The Company has a deferred tax
asset for general business credit carryforwards of $6,244 net of a valuation allowance of $2,029.
The general business credit carryforwards expire beginning in 2022 through 2026.
6. Operating Lease Commitments
The Company leases equipment, vehicles and buildings from third parties under operating lease
agreements.
The estate of the late D.M. Draime, former Chairman of the Board of Directors, is a 50% owner
of Hunters Square, Inc. (HSI), an Ohio corporation, which owns Hunters Square, an office complex
and shopping mall located in Warren, Ohio. The Company leases office space in Hunters Square. The
Company pays all maintenance, tax and insurance costs related to the operation of the office.
Lease payments made by the Company to HSI were $342, $342 and $301 in 2006, 2005 and 2004,
respectively. The lease terminates in December 2009. The Company believes the terms of the lease
are no less favorable to it than would be the terms of a third-party lease.
For the years ended December 31, 2006, 2005 and 2004, lease expense totaled $6,691, $6,495 and
$6,455, including related party lease expense of $342, $342 and $301, respectively.
47
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
Future minimum operating lease commitments at December 31, 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Third |
|
|
Related |
|
|
|
Party |
|
|
Party |
|
2007 |
|
$ |
5,395 |
|
|
$ |
342 |
|
2008 |
|
|
3,441 |
|
|
|
342 |
|
2009 |
|
|
2,374 |
|
|
|
342 |
|
2010 |
|
|
967 |
|
|
|
|
|
2011 |
|
|
526 |
|
|
|
|
|
Thereafter |
|
|
4,110 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
16,813 |
|
|
$ |
1,026 |
|
|
|
|
|
|
|
|
7. Share-Based Compensation Plans
In October 1997, the Company adopted a Long-Term Incentive Plan (Incentive Plan). The
Company has reserved 2,500,000 Common Shares for issuance to officers and other key employees under
the Incentive Plan. Under the Incentive Plan, as of December 31, 2006, the Company has granted
cumulative options to purchase 1,594,500 Common Shares to management with exercise prices equal to
the fair market value of the Companys Common Shares on the date of grant. The options issued
cliff-vest from one to five years after the date of grant and have a contractual life of 10 years.
In addition, the Company has also issued 1,090,426 restricted Common Shares under the Incentive
Plan, of which 590,701 are time-based with graded vesting using the straight-line method while the
remaining 499,725 restricted Common Shares are performance-based. Restricted Common Shares awarded under
the Incentive Plan entitle the shareholder to all the rights of Common Share ownership except that
the shares may not be sold, transferred, pledged, exchanged, or otherwise disposed of during the
forfeiture period.
In 2004, pursuant to the Incentive Plan, the Company granted time-based restricted Common
Share awards with graded vesting over a three year period. The shares vested in equal increments
on the first, second and third grant-date anniversaries.
In 2005, pursuant to the Incentive Plan, the Company granted time-based restricted Common
Share awards and performance-based restricted Common Share awards. The time-based restricted
Common Share awards vest over a one to four year period in equal increments on the first, second,
third and fourth grant-date anniversaries. Approximately one-half of the performance-based
restricted Common Share awards vest and are no longer subject to forfeiture upon the recipient
remaining an employee of the Company for three years from date of grant and upon achieving certain
net income per share targets established by the Company. The remaining one-half of the
performance-based restricted Common Share awards also vest and are no longer subject to forfeiture
upon the recipient remaining an employee for three years from date of grant and upon the Company
attaining certain targets of performance measured against a peer groups performance in terms of
total return to shareholders. The actual number of restricted Common Shares to ultimately vest will
depend on the Companys level of achievement of the targeted performance measures and the
employees attainment of the defined service requirements.
In 2006, pursuant to the Incentive Plan, the Company granted time-based restricted shares and
performance-based restricted shares. Certain time-based restricted Common Share awards cliff-vest
three years after the grant date. Other time-based restricted Common Share awards are subject to graded vesting using the straight line method over a three
year period. The performance-based restricted Common Share awards vest and
are no longer subject to forfeiture upon the recipient remaining an employee of the Company for
three years from date of grant and upon achieving certain net income per share targets established
by the Company.
In April 2005, the Company adopted the Directors Restricted Shares Plan (Director Share
Plan). The Company has reserved 300,000 Common Shares for issuance under the Director Share Plan.
Under the Director Share Plan, the Company has cumulatively issued 89,900 restricted Common Shares.
Shares issued under the Director Share Plan during 2006 will cliff-vest after a period of 13
months.
In April 2006, the Companys shareholders approved the Amended and Restated Long-Term
Incentive Plan (the 2006 Plan). Common Shares reserved and available for awards under the 2006
Plan is 1,500,000 (this is an additional 1,500,000
Shares to the 2,500,000 Common Shares included in the Companys original equity incentive
plan, as amended, that expires on June 30, 2007), pursuant to which the maximum number of Common
Shares which may be issued subject to Incentive Stock Options is 500,000.
48
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
Options
A summary of option activity under the plans noted above as of December 31, 2006, and changes
during the fiscal years ended are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
Average |
|
|
|
|
|
|
Average |
|
Remaining |
|
|
Share |
|
Exercise |
|
Contractual |
|
|
Options |
|
Price |
|
Term |
Outstanding at December 31, 2005 |
|
|
757,850 |
|
|
$ |
11.30 |
|
|
|
|
|
Expired |
|
|
(69,100 |
) |
|
|
11.70 |
|
|
|
|
|
Exercised |
|
|
(64,000 |
) |
|
|
5.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and Exercisable at December 31, 2006 |
|
|
624,750 |
|
|
$ |
11.88 |
|
|
|
4.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant-date fair value of options granted during the fiscal year
ended December 31, 2004 was $2.28. There were no options granted during the fiscal years ended
December 31, 2006 or 2005.
The intrinsic value of options outstanding and exercisable is the difference between the fair
market value of the Companys Common Shares on the applicable date (Measurement Value) and the
exercise price of those options that had an exercise price that was less than the Measurement
Value. The intrinsic value of options exercised is the difference between the fair market value of
the Companys Common Shares on the date of exercise and the exercise price. The total intrinsic
value of options exercised during the fiscal years ended December 31, 2006, 2005 and 2004 was $176,
$42 and $3,909, respectively.
As of December 31, 2006 and 2005, the aggregate intrinsic value of both outstanding and
exercisable options was $115 and $137, respectively. The total fair value of options that vested
during the fiscal years ended December 31, 2005 and 2004 was $1,465 and $1,646, respectively.
Prior to 2006, all outstanding option grants had vested, and therefore, the number of exercisable
and outstanding options is equal.
Restricted Shares
The fair value of the nonvested time-based restricted Common Share awards was calculated using
the market value of the shares on the date of issuance. The weighted-average grant-date fair value
of time-based restricted shares granted during the fiscal years ended December 31, 2006, 2005 and
2004 was $7.79, $10.23 and $15.15, respectively.
The fair value of the nonvested performance-based restricted Common Share awards with a
performance condition, requiring the Company to obtain certain net income per share targets, was
calculated using the market value of the shares on the date of issuance. The fair value of the
nonvested performance-based restricted Common Share awards with a market condition, which measures
the Companys performance against a peer groups performance in terms of total return to
shareholders, was estimated at the date of issuance using valuation techniques incorporating the
Companys historical total return to shareholders in comparison to its peers to determine the
expected outcomes related to these awards.
49
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
A summary of the status of the Companys nonvested restricted Common Shares as of December 31,
2006, and the changes during the fiscal year ended, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-Based Awards |
|
Performance-Based Awards |
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
|
Grant-Date |
|
|
|
|
|
Grant-Date |
Non-vested Restricted Common Shares |
|
Shares |
|
Fair Value |
|
Shares |
|
Fair Value |
Non-vested at December 31, 2005 |
|
|
207,251 |
|
|
$ |
11.47 |
|
|
|
237,000 |
|
|
$ |
8.24 |
|
Granted |
|
|
431,650 |
|
|
|
7.79 |
|
|
|
262,725 |
|
|
|
8.39 |
|
Vested |
|
|
(155,883 |
) |
|
|
10.37 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(14,626 |
) |
|
|
10.81 |
|
|
|
(102,900 |
) |
|
|
8.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2006 |
|
|
468,392 |
|
|
$ |
8.47 |
|
|
|
396,825 |
|
|
$ |
8.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006, total unrecognized compensation cost related to nonvested
time-based restricted Common Share awards granted was $2,189. That cost is expected to be
recognized over a weighted-average period of 1.72 years. For the fiscal years ended December 31,
2006, 2005 and 2004, the total fair value of time-based restricted Common Share awards vested was
$1,064, $460 and $4, respectively.
As of December 31, 2006, total unrecognized compensation cost related to nonvested
performance-based restricted Common Share awards granted was $695. That cost is expected to be
recognized over a weighted-average period of 2.13 years. As noted above, the Company has issued
and outstanding performance-based restricted Commons Share awards that use different performance
targets. The awards that use net income per share as the performance target will not be expensed
until it is probable that the Company will meet the underlying performance condition. However, the
awards that measure performance against a peer group are expensed even if the performance condition
is not met. No performance-based restricted Common Share awards have vested as of December 31,
2006.
Cash received from option exercises under all share-based payment arrangements for the fiscal
years ended December 31, 2006, 2005 and 2004 was $301, $66 and $561, respectively. In 2005, $65 in
cash was used to settle equity instruments granted under all share-based arrangements; however, for
the fiscal years ended December 31, 2006 and 2004, no cash was used in such settlements. The
actual tax benefit realized for the tax deductions from the vesting
of restricted Common Shares and option exercises of the share-based payment
arrangements totaled $176, $220 and $1,466 for the fiscal years ended December 31, 2006, 2005 and
2004, respectively.
50
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
8. Employee Benefit Plans
The Company has certain defined contribution profit sharing and 401(k) plans covering
substantially all of its employees. Company contributions are generally discretionary; however, a
portion of these contributions is based upon a percentage of employee compensation, as defined in
the plans. The Companys policy is to fund all benefit costs accrued. For the fiscal years ended
December 31, 2006, 2005 and 2004, expenses related to these plans amounted to $3,556, $3,828 and
$4,276, respectively.
The Company has a single defined benefit pension plan that covers certain employees in the
United Kingdom and a single postretirement benefit plan that covers certain employees in the U.S.
As of December 31, 2003, employees covered under the United Kingdom defined benefit pension plan no
longer accrued benefits related to future service and wage increases. In September 2006, the Board
of Directors approved a proposal to discontinue life insurance benefits of all active and retired
employees under the Companys U.S. postretirement benefit plan effective September 30, 2006. The
discontinuance of these benefits was accounted for as a plan settlement, resulting in a one-time
non-cash gain of approximately $1,242. The remaining healthcare portion of the postretirement
benefit plan is contributory, with participants contributions adjusted annually.
The following table sets forth the benefit obligation, fair value of plan assets, and the
funded status of the Companys plans; amounts recognized in the Companys financial statements; and
the principal weighted average assumptions used:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefit Plan |
|
|
Postretirement Benefit Plan |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Change in projected benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year |
|
$ |
19,988 |
|
|
$ |
19,985 |
|
|
$ |
1,702 |
|
|
$ |
1,814 |
|
Service cost |
|
|
92 |
|
|
|
73 |
|
|
|
40 |
|
|
|
114 |
|
Interest cost |
|
|
994 |
|
|
|
981 |
|
|
|
67 |
|
|
|
112 |
|
Actuarial loss (gain) |
|
|
(515 |
) |
|
|
2,035 |
|
|
|
(239 |
) |
|
|
(253 |
) |
Benefits paid |
|
|
(663 |
) |
|
|
(908 |
) |
|
|
(80 |
) |
|
|
(85 |
) |
Settlement |
|
|
|
|
|
|
|
|
|
|
(982 |
) |
|
|
|
|
Translation adjustments |
|
|
2,785 |
|
|
|
(2,178 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of year |
|
$ |
22,681 |
|
|
$ |
19,988 |
|
|
$ |
508 |
|
|
$ |
1,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
$ |
15,898 |
|
|
$ |
15,559 |
|
|
$ |
|
|
|
$ |
|
|
Actual return on plan assets |
|
|
2,209 |
|
|
|
2,798 |
|
|
|
|
|
|
|
|
|
Employer contributions |
|
|
276 |
|
|
|
164 |
|
|
|
387 |
|
|
|
85 |
|
Benefits paid |
|
|
(663 |
) |
|
|
(908 |
) |
|
|
(80 |
) |
|
|
(85 |
) |
Settlement |
|
|
|
|
|
|
|
|
|
|
(307 |
) |
|
|
|
|
Translation adjustments |
|
|
2,336 |
|
|
|
(1,715 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
$ |
20,056 |
|
|
$ |
15,898 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation at end of year |
|
|
22,681 |
|
|
|
19,988 |
|
|
|
508 |
|
|
|
1,702 |
|
Funded status at end of year |
|
|
2,625 |
|
|
|
4,090 |
|
|
|
508 |
|
|
|
1,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance
sheet consist of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities |
|
|
(2,625 |
) |
|
|
(4,090 |
) |
|
|
(508 |
) |
|
|
(2,042 |
) |
At December 31, 2006 and 2005, long-term liabilities of $3,075 and $6,132 related to the
defined benefit plan and postretirement benefit plan were recognized in the accompanying
consolidated balance sheets as components of other liabilities. In addition, a current liability
related to the other postretirement benefit plan of $58 was recognized as a component of accrued
expenses and other on the consolidated balance sheet at December 31, 2006.
51
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefit Plan |
|
Postretirement Benefit Plan |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
Weighted average assumptions used to
determine benefit obligation at December 31: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.15 |
% |
|
|
4.75 |
% |
|
|
5.80 |
% |
|
|
5.50 |
% |
Rate of increase to compensation levels |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
2.50 |
% |
Rate of increase to pensions in payment |
|
|
3.00 |
% |
|
|
3.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
Rate of future price inflation |
|
|
2.90 |
% |
|
|
2.75 |
% |
|
|
N/A |
|
|
|
N/A |
|
Initial health care cost trend rate |
|
|
N/A |
|
|
|
N/A |
|
|
|
11.00 |
% |
|
|
12.00 |
% |
Ultimate health care cost trend rate |
|
|
N/A |
|
|
|
N/A |
|
|
|
6.00 |
% |
|
|
6.00 |
% |
Year that the ultimate trend rate is reached |
|
|
N/A |
|
|
|
N/A |
|
|
|
2011 |
|
|
|
2011 |
|
Measurement date |
|
|
12/31/06 |
|
|
|
12/31/05 |
|
|
|
12/31/06 |
|
|
|
12/31/05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions used to
determine net periodic benefit cost for the
years ended December 31: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
4.75 |
% |
|
|
5.30 |
% |
|
|
5.50 |
% |
|
|
5.75 |
% |
Expected long-term return on plan assets |
|
|
6.40 |
% |
|
|
7.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
Rate of increase to compensation levels |
|
|
N/A |
|
|
|
N/A |
|
|
|
2.50 |
% |
|
|
2.50 |
% |
Rate of increase to pensions in payment |
|
|
3.00 |
% |
|
|
3.00 |
% |
|
|
N/A |
|
|
|
N/A |
|
Rate of future price inflation |
|
|
2.75 |
% |
|
|
2.75 |
% |
|
|
N/A |
|
|
|
N/A |
|
Initial health care cost trend rate |
|
|
N/A |
|
|
|
N/A |
|
|
|
11.00 |
% |
|
|
12.00 |
% |
Ultimate health care cost trend rate |
|
|
N/A |
|
|
|
N/A |
|
|
|
6.00 |
% |
|
|
6.00 |
% |
Year that the ultimate trend rate is reached |
|
|
N/A |
|
|
|
N/A |
|
|
|
2011 |
|
|
|
2011 |
|
Measurement date |
|
|
12/31/06 |
|
|
|
12/31/05 |
|
|
|
12/31/05 |
|
|
|
12/31/04 |
|
In the fiscal year ended December 31, 2006, the Company adopted the provisions of SFAS 158.
Prior to the adoption of SFAS 158, the Companys accumulated benefit obligations and projected
benefit obligations were equal, therefore upon adoption, there was no significant impact on the
Companys consolidated statement of financial position as of December 31, 2006. In addition, the
provisions of SFAS 158 require the Company to disclose costs recognized in other comprehensive
income for the period pursuant and the amortization amounts to be recognized in the next fiscal
year, which are shown in the following tables:
|
|
|
|
|
|
|
Pension Benefit Plan |
|
|
|
2006 |
|
Other changes in plan assets and benefit obligations
recognized in other comprehensive income: |
|
|
|
|
Net actuarial gain |
|
$ |
(1,367 |
) |
Amortization of actuarial gain |
|
|
(258 |
) |
|
|
|
|
Total recognized in other comprehensive income |
|
|
(1,625 |
) |
|
|
|
|
|
|
|
|
|
Total recognized in net periodic pension cost and
other comprehensive income |
|
$ |
(1,367 |
) |
The following table displays the amortization amounts to be recognized in the next fiscal
year:
|
|
|
|
|
|
|
Pension Benefit Plan |
|
|
2007 |
Amortization of net actuarial loss |
|
$ |
|
78 |
|
The Companys expected long-term return on plan assets assumption is based on a periodic
review and modeling of the plans asset allocation and liability structure over a long-term
horizon. Expectations of returns for each asset class are the most
52
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
important of the assumptions
used in the review and modeling and are based on comprehensive reviews of historical data and
economic / financial market theory. The expected long-term rate of return on assets was selected
from within the reasonable range of rates determined by (a) historical real returns, net of
inflation, for the asset classes covered by the investment policy, and (b) projections of inflation
over the long-term period during which benefits are payable to plan participants.
Components of net periodic pension and postretirement benefit cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefit Plan |
|
|
Postretirement Benefit Plan |
|
|
|
For the Fiscal Years Ended |
|
|
For the Fiscal Years Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Service cost |
|
$ |
92 |
|
|
$ |
73 |
|
|
$ |
73 |
|
|
$ |
40 |
|
|
$ |
114 |
|
|
$ |
98 |
|
Interest cost |
|
|
994 |
|
|
|
981 |
|
|
|
879 |
|
|
|
67 |
|
|
|
112 |
|
|
|
95 |
|
Settlement gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,242 |
) |
|
|
|
|
|
|
|
|
Expected return on plan assets |
|
|
(1,086 |
) |
|
|
(999 |
) |
|
|
(989 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of actuarial loss (gain) |
|
|
258 |
|
|
|
291 |
|
|
|
55 |
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic (benefit) cost |
|
$ |
258 |
|
|
$ |
346 |
|
|
$ |
18 |
|
|
$ |
(1,152 |
) |
|
$ |
226 |
|
|
$ |
193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed healthcare cost trend rates have a significant effect on the amounts reported for the
postretirement health benefits. A 1% point change in assumed healthcare cost trend rates would
have the following effects:
|
|
|
|
|
|
|
|
|
|
|
1% Point |
|
1% Point |
|
|
Increase |
|
Decrease |
Effect on total of service and interest components |
|
$ |
2 |
|
|
$ |
(2 |
) |
Effect on postretirement benefits obligation |
|
$ |
40 |
|
|
$ |
(36 |
) |
In December 2003, the Medicare Prescription Drug Improvement and Modernization Act of 2003
(the Act) was signed into law. The Act introduced a prescription drug benefit under Medicare
(Medicare Part D) as well as a federal subsidy to sponsors of retiree health care benefit plans
that provide a benefit that is at least actuarially equivalent to Medicare Part D. As of December
31, 2004, the Company recognized the effects of the Act in the measure of its projected and
accumulated benefit obligation under its postretirement benefit plan in accordance with FSP SFAS
No. 106-2, Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug Improvement and Modernization Act of 2003 and it did not have a material impact on the Companys consolidated financial statements.
The Companys defined benefit pension plan fair value weighted-average asset allocations at
December 31 by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
2005 |
Asset Category: |
|
|
|
|
|
|
|
|
Equity securities |
|
|
81 |
% |
|
|
78 |
% |
Debt securities |
|
|
18 |
|
|
|
21 |
|
Other |
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
53
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
The Companys target asset allocation, with a permitted range of ± 7.50%, as of December 31,
2006, by asset category, is as follows:
|
|
|
|
|
Asset Category: |
|
|
|
|
Equity securities |
|
|
75 |
% |
Debt securities |
|
|
25 |
% |
The Companys investment policy for the defined benefit pension plan includes various
guidelines and procedures designed to ensure assets are invested in a manner necessary to meet
expected future benefits earned by participants. The investment guidelines consider a broad range
of economic conditions. Central to the policy are target allocation ranges (shown above) by major
asset categories. The objectives of the target allocations are to maintain investment portfolios
that diversify risk through prudent asset allocation parameters, achieve asset returns that meet or
exceed the plans actuarial assumptions, and achieve asset returns that are competitive with like
institutions employing similar investment strategies. The Company and a designated third-party
fiduciary periodically review the investment policy. The policy is established and administered in
a manner so as to comply at all times with applicable government regulations.
The Company expects to contribute $353 to its defined benefit pension plan in 2007. The
following pension and postretirement benefit payments, which reflect expected future service, as
appropriate, are expected to be paid:
|
|
|
|
|
|
|
|
|
|
|
Pension Benefit |
|
Postretirement |
|
|
Plan |
|
Benefit Plan |
2007 |
|
$ |
705 |
|
|
$ |
58 |
|
2008 |
|
|
705 |
|
|
|
59 |
|
2009 |
|
|
705 |
|
|
|
58 |
|
2010 |
|
|
744 |
|
|
|
57 |
|
2011 |
|
|
979 |
|
|
|
55 |
|
2012 to 2016 |
|
|
5,640 |
|
|
|
223 |
|
The Company recorded an additional minimum benefit for the defined benefit pension plan of
$2,321 and $565 at December 31, 2006 and 2005, respectively. This liability represents the amount
by which the accumulated benefit obligation exceeds the sum of the fair market value of plan assets
and accrued amounts previously recorded. A corresponding charge was recorded as a component of
accumulated other comprehensive income of $1,625 and $396, net of related tax provision of $696 and
$170, at December 31, 2006 and 2005, respectively. At December 31, 2006 and 2005, the Company was
required to record a valuation allowance of $369 and $1,328, respectively, that fully offset the
deferred tax asset.
9. Fair Value of Financial Instruments
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. The estimated fair value of the
Companys senior notes (fixed rate debt) at December 31, 2006 and 2005, per quoted market sources,
was $206.0 million and $202.1 million, respectively. On both dates, the carrying value was $200.0
million.
Derivative Instruments and Hedging Activities
We make use of derivative instruments in foreign exchange and commodity price hedging
programs. Derivatives currently in use are foreign currency forward and option contracts and
commodity swaps. These contracts are used strictly for hedging and not for speculative purposes.
Management believes that its use of these instruments to reduce risk is in the Companys best
interest.
54
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
As a result of our international business presence, we are exposed to foreign currency
exchange risk. The Company uses derivative financial instruments, including foreign currency
forward and option contracts, to mitigate its exposure to fluctuations in foreign currency exchange
rates by reducing the effect of such fluctuations on foreign currency denominated intercompany
transactions and other known foreign currency exposures. The principal currencies hedged by the
Company include the Swedish krona, British pound, Mexican peso and the Euro. The foreign currency
forward contracts are marked to market, with gains and losses recognized in the Companys
consolidated statement of operations as a component of other income. The
Companys foreign currency forward and option contracts substantially offset gains and losses on
the underlying foreign denominated transactions.
To mitigate the risk of future price volatility and, consequently, fluctuations in gross
margins, we have entered into fixed price swaps for 480 metric tonnes of copper with a bank to fix
the cost of copper purchases with the objective of minimizing changes in cost due to market price
fluctuations. Because these contracts were executed to hedge forecasted transactions, the
contracts are accounted for as a cash flow hedge. The effective portion of the unrealized gain or
loss is deferred and reported as a component of accumulated other comprehensive income. Our
expectation is that the cash flow hedge will be highly effective in the future; however, as of
December 31, 2006 it was not deemed effective and had no impact on other comprehensive income. The
effectiveness of the transaction will be measured on an ongoing basis under the hypothetical
method. As of December 31, 2006, the effect on net income was not significant.
The Companys foreign currency forward contracts have a notional value of $16,147 and $23,077
at December 31, 2006 and 2005, respectively. The purpose of these investments is to reduce
exposure related to the Companys Swedish krona and British pound denominated receivables. The
estimated fair value of these contracts at December 31, 2006 and 2005, per quoted market sources,
was approximately $(502) and $163, respectively. The Companys foreign currency option contracts
expired as of December 31, 2006 and 2005, respectively.
10. 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, cash flows or the financial position of the Company.
Customer Bankruptcies
During 2006 and 2005, some of the Companys customers had filed for Chapter 11 bankruptcy
protection. As a result, the Company established reserves for estimated losses that were expected
to result from the bankruptcies of approximately $627 and $3,570 for the fiscal years ended
December 31, 2006 and 2005, respectively. The charges were recorded in the Companys condensed
consolidated statement of operations as a component of provision for doubtful accounts expense.
These charges established reserves for estimated losses expected to result from the bankruptcies
and were recorded in the Companys consolidated statement of operations as a component of provision
for doubtful accounts expense.
11. Related Party Transactions
Relationship with Counsel. Avery Cohen, a director and Secretary of the Company, is a partner
in Baker & Hostetler LLP, a law firm, which has served as general outside counsel for the Company
since 1993 and is expected to continue to do so in the future. The Company paid $1,081, $1,193 and
$1,255 in legal fees to Baker & Hostetler, LLP for the fiscal years ended December 31, 2006, 2005
and 2004, respectively.
Industrial Development Associates LP (IDA). The Company owned a 30% interest in Industrial
Development Associates Limited Partnership, a Maryland limited partnership (IDA). In addition,
Earl L. Linehan, a member of Stoneridges Board of Directors owns an interest in IDA and the estate
of D.M. Draime (D.M. Draime was Chairman of the Board of Directors until his death in July 2006)
owned an interest in IDA. IDA is a real estate development company of certain commercial
properties in Mebane, North Carolina. Stoneridge previously leased a facility from IDA.
On December 29, 2006, the Company entered into a Partnership Interest Purchase Agreement (the
Purchase Agreement) with Heritage Real Estate Fund V, LLC, a Maryland limited liability company
(Heritage). Pursuant to the Purchase Agreement,
55
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
on December 29, 2006, Stoneridge sold its 30% general partnership interest in IDA to Heritage
for $1,035 in cash and recognized a gain of $1,627 that is included in the consolidated statement
of operations as a component of other (income) loss, net. The transaction price was determined by
the average of two independent appraisals.
Mr. Linehan is a member of Heritage owning a 14.2% membership interest in Heritage. The
managing member of Heritage is Heritage Properties, Inc. Mr. Linehan is member of the Board of
Directors of Heritage Properties, Inc. Mr. Linehan also owns approximately 26.35% of MI Holding
Company, a Maryland corporation, which is a 5% general partner of IDA. On December 29, 2006, the
estate of D.M. Draime also entered into a Partnership Interest Purchase Agreement with Heritage to
sell the estates 10% limited partnership interest to Heritage for $345. The son of D.M. Draime,
Jeffrey P. Draime, is a member of Stoneridges Board of Directors.
Hunters Square. See Note 6 to the Companys consolidated financial statements for information
on the Companys related party transactions involving operating leases.
56
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
12. Restructuring
In January 2005, the Company announced restructuring initiatives related to the
rationalization of certain manufacturing facilities in Europe and North America. This
rationalization is part of the Companys cost reduction initiatives. In connection with these
initiatives, the Company recorded restructuring charges of $608, $5,098 and $2,087 in the Companys
consolidated statement of operations for the fiscal years ended December 31, 2006, 2005 and 2004.
Adjustments in severance costs for the Vehicle Management & Power Distribution segment recognized
during 2006 were the result of changes to the scheduled closure date of a facility. Also included
in the condensed consolidated statements of operations was a gain on the sale of property, plant
and equipment related to our restructuring initiatives of $336 for the fiscal year ended December
31, 2005. This gain is netted within the activity listed in the table on the next page.
The restructuring charges related to the Vehicle Management & Power Distribution reportable
segment included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset- |
|
|
|
|
|
|
Severance |
|
|
Related |
|
|
|
|
|
|
Costs |
|
|
Charges |
|
|
Total |
|
Total expected restructuring charges |
|
$ |
987 |
|
|
$ |
127 |
|
|
$ |
1,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
First quarter charge to expense |
|
|
88 |
|
|
|
127 |
|
|
|
215 |
|
Second quarter charge to expense |
|
|
9 |
|
|
|
|
|
|
|
9 |
|
Third quarter charge to expense |
|
|
356 |
|
|
|
|
|
|
|
356 |
|
Fourth quarter charge to expense |
|
|
70 |
|
|
|
|
|
|
|
70 |
|
Cash payments |
|
|
(111 |
) |
|
|
|
|
|
|
(111 |
) |
Non-cash utilization |
|
|
|
|
|
|
(127 |
) |
|
|
(127 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005 |
|
$ |
412 |
|
|
$ |
|
|
|
$ |
412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter charge to expense |
|
|
176 |
|
|
|
|
|
|
|
176 |
|
Second quarter charge to expense |
|
|
(370 |
) |
|
|
|
|
|
|
(370 |
) |
Third quarter charge to expense |
|
|
127 |
|
|
|
|
|
|
|
127 |
|
Fourth quarter charge to expense |
|
|
436 |
|
|
|
|
|
|
|
436 |
|
Cash payments |
|
|
(343 |
) |
|
|
|
|
|
|
(343 |
) |
Non-cash utilization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006 |
|
$ |
438 |
|
|
$ |
|
|
|
$ |
438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining expected restructuring charge |
|
$ |
95 |
|
|
$ |
|
|
|
$ |
95 |
|
|
|
|
|
|
|
|
|
|
|
57
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
The restructuring charges related to the Control Devices reportable segment included the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset- |
|
|
Facility |
|
|
Other |
|
|
|
|
|
|
Severance |
|
|
Related |
|
|
Closure |
|
|
Exit |
|
|
|
|
|
|
Costs |
|
|
Charges |
|
|
Costs |
|
|
Costs |
|
|
Total |
|
Total expected restructuring charges |
|
$ |
3,665 |
|
|
$ |
983 |
|
|
$ |
1,137 |
|
|
$ |
653 |
|
|
$ |
6,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2004 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Second quarter charge to expense |
|
|
|
|
|
|
205 |
|
|
|
|
|
|
|
|
|
|
|
205 |
|
Third quarter charge to expense |
|
|
|
|
|
|
202 |
|
|
|
|
|
|
|
118 |
|
|
|
320 |
|
Fourth quarter charge to expense |
|
|
1,068 |
|
|
|
207 |
|
|
|
|
|
|
|
287 |
|
|
|
1,562 |
|
Cash payments |
|
|
(590 |
) |
|
|
|
|
|
|
|
|
|
|
(405 |
) |
|
|
(995 |
) |
Non-cash utilization |
|
|
|
|
|
|
(614 |
) |
|
|
|
|
|
|
|
|
|
|
(614 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004 |
|
$ |
478 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter charge to expense |
|
|
1,698 |
|
|
|
206 |
|
|
|
|
|
|
|
7 |
|
|
|
1,911 |
|
Second quarter charge to expense |
|
|
586 |
|
|
|
163 |
|
|
|
746 |
|
|
|
174 |
|
|
|
1,669 |
|
Third quarter charge to expense |
|
|
214 |
|
|
|
|
|
|
|
218 |
|
|
|
35 |
|
|
|
467 |
|
Fourth quarter charge to expense |
|
|
(57 |
) |
|
|
|
|
|
|
140 |
|
|
|
(18 |
) |
|
|
65 |
|
Cash payments |
|
|
(2,722 |
) |
|
|
|
|
|
|
(140 |
) |
|
|
(198 |
) |
|
|
(3,060 |
) |
Non-cash utilization |
|
|
|
|
|
|
(369 |
) |
|
|
|
|
|
|
|
|
|
|
(369 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005 |
|
$ |
197 |
|
|
$ |
|
|
|
$ |
964 |
|
|
$ |
|
|
|
$ |
1,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter charge to expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48 |
|
|
|
48 |
|
Second quarter charge to expense |
|
|
204 |
|
|
|
|
|
|
|
14 |
|
|
|
2 |
|
|
|
220 |
|
Third quarter charge to expense |
|
|
(48 |
) |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
(47 |
) |
Fourth quarter charge to expense |
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
18 |
|
Cash payments |
|
|
(353 |
) |
|
|
|
|
|
|
(569 |
) |
|
|
(50 |
) |
|
|
(972 |
) |
Non-cash utilization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006 |
|
$ |
|
|
|
$ |
|
|
|
$ |
428 |
|
|
$ |
|
|
|
$ |
428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining expected restructuring charge |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All restructuring charges, except for the asset-related charges, result in cash outflows.
Asset-related charges primarily relate to accelerated depreciation and the write-down of property,
plant and equipment, resulting from the closure or streamlining of certain facilities. Severance
costs relate to a reduction in workforce. Facility closure costs primarily relate to asset
relocation and lease termination costs. Other exit costs include miscellaneous expenditures
associated with exiting business activities. The Company expects that all restructuring efforts
will be substantially completed during the second quarter of 2007.
58
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
13. Segment Reporting
SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes
standards for reporting information about operating segments in financial statements. Operating
segments are defined as components of an enterprise that are evaluated regularly by the Companys
chief operating decision maker in deciding how to allocate resources and in assessing performance.
The Companys chief operating decision maker is the chief executive officer.
The Company has two reportable segments: Vehicle Management & Power Distribution and Control
Devices. These reportable segments were determined based on the differences in the nature of the
products offered. The Vehicle Management & Power Distribution reportable segment produces
electronic instrument clusters, electronic control units, driver information systems and electrical
distribution systems, primarily wiring harnesses and connectors for electrical power and signal
distribution. The Control Devices reportable segment produces electronic and electromechanical
switches and control actuation devices and sensors.
As a result of changes in executive leadership during 2004, the Company realigned senior
management responsibilities under four operating units effective for the fourth quarter of 2004.
These four operating segments are aggregated for reporting purposes into the Companys Vehicle
Management & Power Distribution and Control Devices reportable segments. In addition to the 2004
changes, the Company further realigned management responsibilities effective for the second quarter
of 2005. As a result, a component within the Control Devices reportable segment was realigned to
the Vehicle Management & Power Distribution reportable segment. Because the Company changed the
structure of its internal organization in a manner that caused the composition of its reportable
segments to change, the corresponding information for prior periods has been adjusted to conform to
the current year reportable segment presentation.
The accounting policies of the Companys reportable segments are the same as those described
in Note 2, Summary of Significant Accounting Policies. The Companys chief executive officer
evaluates the performance of its reportable segments based primarily on revenues from external
customers, capital expenditures and income before income taxes. Inter-segment sales are accounted
for on terms similar to those to third parties and are eliminated upon consolidation.
A summary of financial information by reportable segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended |
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle Management & Power Distribution |
|
$ |
407,706 |
|
|
$ |
358,683 |
|
|
$ |
352,706 |
|
Intersegment sales |
|
|
17,479 |
|
|
|
16,543 |
|
|
|
15,919 |
|
|
|
|
|
|
|
|
|
|
|
Vehicle Management & Power Distribution net sales |
|
|
425,185 |
|
|
|
375,226 |
|
|
|
368,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control Devices |
|
|
300,993 |
|
|
|
312,901 |
|
|
|
329,089 |
|
Intersegment sales |
|
|
3,811 |
|
|
|
3,163 |
|
|
|
2,533 |
|
|
|
|
|
|
|
|
|
|
|
Control Devices net sales |
|
|
304,804 |
|
|
|
316,064 |
|
|
|
331,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminations |
|
|
(21,290 |
) |
|
|
(19,706 |
) |
|
|
(18,452 |
) |
|
|
|
|
|
|
|
|
|
|
Total consolidated net sales |
|
$ |
708,699 |
|
|
$ |
671,584 |
|
|
$ |
681,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes |
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle Management & Power Distribution |
|
|
24,473 |
|
|
|
13,573 |
|
|
|
29,623 |
|
Control Devices (A) |
|
|
10,396 |
|
|
|
5,640 |
|
|
|
(150,021 |
) |
Other corporate activities |
|
|
6,392 |
|
|
|
8,217 |
|
|
|
(4,477 |
) |
Corporate interest expense |
|
|
(21,622 |
) |
|
|
(22,994 |
) |
|
|
(24,281 |
) |
|
|
|
|
|
|
|
|
|
|
Total consolidated income (loss) before income taxes |
|
$ |
19,639 |
|
|
$ |
4,436 |
|
|
$ |
(149,156 |
) |
|
|
|
|
|
|
|
|
|
|
59
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended |
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Depreciation and Amortizaton |
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle Management & Power Distribution |
|
$ |
7,958 |
|
|
$ |
8,104 |
|
|
$ |
8,559 |
|
Control Devices |
|
|
17,797 |
|
|
|
17,668 |
|
|
|
15,934 |
|
Corporate activities |
|
|
425 |
|
|
|
385 |
|
|
|
309 |
|
|
|
|
|
|
|
|
|
|
|
Total consolidated depreciation and amortization (B) |
|
$ |
26,180 |
|
|
$ |
26,157 |
|
|
$ |
24,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense (Income) |
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle Management & Power Distribution |
|
|
(436 |
) |
|
|
120 |
|
|
|
237 |
|
Control Devices |
|
|
558 |
|
|
|
758 |
|
|
|
(62 |
) |
Corporate activities |
|
|
21,622 |
|
|
|
22,994 |
|
|
|
24,281 |
|
|
|
|
|
|
|
|
|
|
|
Total consolidated interest expense |
|
$ |
21,744 |
|
|
$ |
23,872 |
|
|
$ |
24,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle Management & Power Distribution |
|
|
11,086 |
|
|
|
9,461 |
|
|
|
9,239 |
|
Control Devices |
|
|
14,627 |
|
|
|
19,351 |
|
|
|
14,517 |
|
Corporate activities |
|
|
182 |
|
|
|
122 |
|
|
|
161 |
|
|
|
|
|
|
|
|
|
|
|
Total consolidated capital expenditures |
|
$ |
25,895 |
|
|
$ |
28,934 |
|
|
$ |
23,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Total Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle Management & Power Distribution |
|
$ |
184,327 |
|
|
$ |
158,203 |
|
|
$ |
175,406 |
|
Control Devices |
|
|
216,523 |
|
|
|
223,578 |
|
|
|
199,401 |
|
Corporate (C) |
|
|
265,986 |
|
|
|
248,633 |
|
|
|
239,205 |
|
Eliminations |
|
|
(165,029 |
) |
|
|
(167,376 |
) |
|
|
(141,011 |
) |
|
|
|
|
|
|
|
|
|
|
Total consolidated assets |
|
$ |
501,807 |
|
|
$ |
463,038 |
|
|
$ |
473,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
The Companys 2004 Loss Before Income Taxes for the Control Devices reportable segment
includes a non-cash goodwill impairment charge of $183,450, which was recorded in the fourth
quarter of 2004. |
|
(B) |
|
These amounts represent depreciation and amortization on fixed and certain intangible
assets. |
|
(C) |
|
Assets located at Corporate consist primarily of cash, fixed assets, deferred taxes and
equity investments. |
The following table presents the Companys core product lines by reportable segment, as a
percentage of net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended |
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Vehicle Management & Power Distribution: |
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle electrical power and distribution systems |
|
|
32 |
% |
|
|
29 |
% |
|
|
28 |
% |
Electronic instrumentation and information display products |
|
|
25 |
|
|
|
24 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57 |
% |
|
|
53 |
% |
|
|
52 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control Devices: |
|
|
|
|
|
|
|
|
|
|
|
|
Actuator and sensor products |
|
|
18 |
% |
|
|
21 |
% |
|
|
20 |
% |
Switch and sensor products |
|
|
25 |
|
|
|
26 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43 |
% |
|
|
47 |
% |
|
|
48 |
% |
|
|
|
|
|
|
|
|
|
|
60
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended |
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
541,541 |
|
|
$ |
532,523 |
|
|
$ |
539,412 |
|
Europe and other |
|
|
167,158 |
|
|
|
139,061 |
|
|
|
142,383 |
|
|
|
|
|
|
|
|
|
|
|
Total consolidated net sales |
|
$ |
708,699 |
|
|
$ |
671,584 |
|
|
$ |
681,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
Non-Current Assets |
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
215,429 |
|
|
$ |
218,784 |
|
|
$ |
183,604 |
|
Europe and other |
|
|
32,346 |
|
|
|
25,574 |
|
|
|
55,355 |
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets |
|
$ |
247,775 |
|
|
$ |
244,358 |
|
|
$ |
238,959 |
|
|
|
|
|
|
|
|
|
|
|
61
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
14. Guarantor Financial Information
The senior notes and the credit facility are fully and unconditionally guaranteed, jointly and
severally, by each of the Companys existing and future domestic wholly-owned subsidiaries
(Guarantor Subsidiaries). The Companys non-U.S. subsidiaries do not guarantee the senior notes and
the credit facility (Non-Guarantor Subsidiaries).
Presented below are summarized consolidating financial statements of the Parent (which
includes certain of the Companys operating units), the Guarantor Subsidiaries, the Non-Guarantor
Subsidiaries and the Company on a consolidated basis, as of December 31, 2006 and December 31, 2005
and for each of the three fiscal years ended December 31, 2006, 2005 and 2004.
These summarized condensed consolidating financial statements are prepared under the equity
method. Separate financial statements for the Guarantor Subsidiaries are not presented based on
managements determination that they do not provide additional information that is material to
investors. Therefore, the Guarantor Subsidiaries are combined in the presentation below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
28,937 |
|
|
$ |
12 |
|
|
$ |
36,933 |
|
|
$ |
|
|
|
$ |
65,882 |
|
Accounts receivable, net |
|
|
48,187 |
|
|
|
28,376 |
|
|
|
30,422 |
|
|
|
|
|
|
|
106,985 |
|
Inventories, net |
|
|
26,173 |
|
|
|
12,502 |
|
|
|
19,846 |
|
|
|
|
|
|
|
58,521 |
|
Prepaid expenses and other |
|
|
(273,206 |
) |
|
|
275,577 |
|
|
|
11,077 |
|
|
|
|
|
|
|
13,448 |
|
Deferred income taxes |
|
|
3,724 |
|
|
|
4,379 |
|
|
|
1,093 |
|
|
|
|
|
|
|
9,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
(166,185 |
) |
|
|
320,846 |
|
|
|
99,371 |
|
|
|
|
|
|
|
254,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
61,320 |
|
|
|
31,643 |
|
|
|
21,623 |
|
|
|
|
|
|
|
114,586 |
|
Other Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
44,585 |
|
|
|
20,591 |
|
|
|
|
|
|
|
|
|
|
|
65,176 |
|
Investments and other, net |
|
|
30,874 |
|
|
|
131 |
|
|
|
170 |
|
|
|
(300 |
) |
|
|
30,875 |
|
Deferred income taxes |
|
|
40,713 |
|
|
|
(3,341 |
) |
|
|
(234 |
) |
|
|
|
|
|
|
37,138 |
|
Investment in subsidiaries |
|
|
411,366 |
|
|
|
|
|
|
|
|
|
|
|
(411,366 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term assets |
|
|
588,858 |
|
|
|
49,024 |
|
|
|
21,559 |
|
|
|
(411,666 |
) |
|
|
247,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
422,673 |
|
|
$ |
369,870 |
|
|
$ |
120,930 |
|
|
$ |
(411,666 |
) |
|
$ |
501,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
26,690 |
|
|
$ |
19,044 |
|
|
$ |
26,759 |
|
|
$ |
|
|
|
$ |
72,493 |
|
Accrued expenses and other |
|
|
17,291 |
|
|
|
7,314 |
|
|
|
21,019 |
|
|
|
|
|
|
|
45,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
43,981 |
|
|
|
26,358 |
|
|
|
47,778 |
|
|
|
|
|
|
|
118,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
200,000 |
|
|
|
|
|
|
|
300 |
|
|
|
(300 |
) |
|
|
200,000 |
|
Deferred income taxes |
|
|
|
|
|
|
|
|
|
|
1,923 |
|
|
|
|
|
|
|
1,923 |
|
Other liabilities |
|
|
70 |
|
|
|
450 |
|
|
|
2,625 |
|
|
|
|
|
|
|
3,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
200,070 |
|
|
|
450 |
|
|
|
4,848 |
|
|
|
(300 |
) |
|
|
205,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity |
|
|
178,622 |
|
|
|
343,062 |
|
|
|
68,304 |
|
|
|
(411,366 |
) |
|
|
178,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity |
|
$ |
422,673 |
|
|
$ |
369,870 |
|
|
$ |
120,930 |
|
|
$ |
(411,666 |
) |
|
$ |
501,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
Supplemental condensed consolidating financial statements (continued):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
7,754 |
|
|
$ |
47 |
|
|
$ |
32,983 |
|
|
$ |
|
|
|
$ |
40,784 |
|
Accounts receivable, net |
|
|
46,505 |
|
|
|
30,883 |
|
|
|
23,043 |
|
|
|
(69 |
) |
|
|
100,362 |
|
Inventories, net |
|
|
25,662 |
|
|
|
12,804 |
|
|
|
15,325 |
|
|
|
|
|
|
|
53,791 |
|
Prepaid expenses and other |
|
|
(274,706 |
) |
|
|
258,203 |
|
|
|
30,993 |
|
|
|
|
|
|
|
14,490 |
|
Deferred income taxes |
|
|
4,713 |
|
|
|
4,116 |
|
|
|
424 |
|
|
|
|
|
|
|
9,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
(190,072 |
) |
|
|
306,053 |
|
|
|
102,768 |
|
|
|
(69 |
) |
|
|
218,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
61,620 |
|
|
|
33,683 |
|
|
|
18,175 |
|
|
|
|
|
|
|
113,478 |
|
Other Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
44,585 |
|
|
|
20,591 |
|
|
|
|
|
|
|
|
|
|
|
65,176 |
|
Investments and other, net |
|
|
38,004 |
|
|
|
460 |
|
|
|
46 |
|
|
|
(12,019 |
) |
|
|
26,491 |
|
Deferred income taxes |
|
|
41,547 |
|
|
|
(3,781 |
) |
|
|
1,447 |
|
|
|
|
|
|
|
39,213 |
|
Investment in subsidiaries |
|
|
399,536 |
|
|
|
|
|
|
|
|
|
|
|
(399,536 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term assets |
|
|
585,292 |
|
|
|
50,953 |
|
|
|
19,668 |
|
|
|
(411,555 |
) |
|
|
244,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
395,220 |
|
|
$ |
357,006 |
|
|
$ |
122,436 |
|
|
$ |
(411,624 |
) |
|
$ |
463,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
44 |
|
|
$ |
|
|
|
$ |
44 |
|
Accounts payable |
|
|
20,350 |
|
|
|
17,358 |
|
|
|
17,636 |
|
|
|
|
|
|
|
55,344 |
|
Accrued expenses and other |
|
|
20,879 |
|
|
|
10,351 |
|
|
|
15,442 |
|
|
|
(69 |
) |
|
|
46,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
41,229 |
|
|
|
27,709 |
|
|
|
33,122 |
|
|
|
(69 |
) |
|
|
101,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion |
|
|
200,000 |
|
|
|
|
|
|
|
12,019 |
|
|
|
(12,019 |
) |
|
|
200,000 |
|
Deferred income taxes |
|
|
|
|
|
|
|
|
|
|
923 |
|
|
|
|
|
|
|
923 |
|
Other liabilities |
|
|
|
|
|
|
2,043 |
|
|
|
4,090 |
|
|
|
|
|
|
|
6,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
200,000 |
|
|
|
2,043 |
|
|
|
17,032 |
|
|
|
(12,019 |
) |
|
|
207,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity |
|
|
153,991 |
|
|
|
327,254 |
|
|
|
72,282 |
|
|
|
(399,536 |
) |
|
|
153,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders Equity |
|
$ |
395,220 |
|
|
$ |
357,006 |
|
|
$ |
122,436 |
|
|
$ |
(411,624 |
) |
|
$ |
463,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
Supplemental condensed consolidating financial statements (continued):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Net Sales |
|
$ |
352,050 |
|
|
$ |
223,332 |
|
|
$ |
219,870 |
|
|
$ |
(86,553 |
) |
|
$ |
708,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
304,042 |
|
|
|
167,707 |
|
|
|
161,870 |
|
|
|
(83,826 |
) |
|
|
549,793 |
|
Selling, general and administrative |
|
|
51,493 |
|
|
|
34,877 |
|
|
|
40,895 |
|
|
|
(2,727 |
) |
|
|
124,538 |
|
(Gain) Loss on sale of property, plant
and equipment, net |
|
|
(1,312 |
) |
|
|
4 |
|
|
|
5 |
|
|
|
|
|
|
|
(1,303 |
) |
Restructuring charges |
|
|
368 |
|
|
|
224 |
|
|
|
16 |
|
|
|
|
|
|
|
608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
(2,541 |
) |
|
|
20,520 |
|
|
|
17,084 |
|
|
|
|
|
|
|
35,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (income), net |
|
|
22,366 |
|
|
|
|
|
|
|
(622 |
) |
|
|
|
|
|
|
21,744 |
|
Other (income) expense, net |
|
|
(7,919 |
) |
|
|
(291 |
) |
|
|
1,890 |
|
|
|
|
|
|
|
(6,320 |
) |
Equity earnings from subsidiaries |
|
|
(32,998 |
) |
|
|
|
|
|
|
|
|
|
|
32,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes |
|
|
16,010 |
|
|
|
20,811 |
|
|
|
15,816 |
|
|
|
(32,998 |
) |
|
|
19,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
1,497 |
|
|
|
15 |
|
|
|
3,614 |
|
|
|
|
|
|
|
5,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
14,513 |
|
|
$ |
20,796 |
|
|
$ |
12,202 |
|
|
$ |
(32,998 |
) |
|
$ |
14,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Net Sales |
|
$ |
332,173 |
|
|
$ |
228,975 |
|
|
$ |
183,596 |
|
|
$ |
(73,160 |
) |
|
$ |
671,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
285,332 |
|
|
|
166,796 |
|
|
|
141,894 |
|
|
|
(71,026 |
) |
|
|
522,996 |
|
Selling, general and administrative |
|
|
52,746 |
|
|
|
32,758 |
|
|
|
37,177 |
|
|
|
(2,134 |
) |
|
|
120,547 |
|
(Gain) Loss on sale of property, plant
and equipment, net |
|
|
63 |
|
|
|
|
|
|
|
(423 |
) |
|
|
|
|
|
|
(360 |
) |
Restructuring charges |
|
|
247 |
|
|
|
833 |
|
|
|
4,018 |
|
|
|
|
|
|
|
5,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
(6,215 |
) |
|
|
28,588 |
|
|
|
930 |
|
|
|
|
|
|
|
23,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (income), net |
|
|
23,751 |
|
|
|
(1 |
) |
|
|
122 |
|
|
|
|
|
|
|
23,872 |
|
Other (income) expense, net |
|
|
(5,410 |
) |
|
|
|
|
|
|
405 |
|
|
|
|
|
|
|
(5,005 |
) |
Equity earnings from subsidiaries |
|
|
(24,306 |
) |
|
|
|
|
|
|
|
|
|
|
24,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes |
|
|
(250 |
) |
|
|
28,589 |
|
|
|
403 |
|
|
|
(24,306 |
) |
|
|
4,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes |
|
|
(1,183 |
) |
|
|
28 |
|
|
|
4,658 |
|
|
|
|
|
|
|
3,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
933 |
|
|
$ |
28,561 |
|
|
$ |
(4,255 |
) |
|
$ |
(24,306 |
) |
|
$ |
933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
Supplemental condensed consolidating financial statements (continued):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended December 31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Net Sales |
|
$ |
255,243 |
|
|
$ |
223,854 |
|
|
$ |
233,392 |
|
|
$ |
(30,694 |
) |
|
$ |
681,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
204,639 |
|
|
|
151,776 |
|
|
|
181,087 |
|
|
|
(30,694 |
) |
|
|
506,808 |
|
Selling, general and administrative |
|
|
47,491 |
|
|
|
36,334 |
|
|
|
31,009 |
|
|
|
|
|
|
|
114,834 |
|
Loss on sale of property, plant
and equipment, net |
|
|
80 |
|
|
|
36 |
|
|
|
70 |
|
|
|
|
|
|
|
186 |
|
Goodwill impairment charge |
|
|
183,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
183,450 |
|
Restructuring charges |
|
|
|
|
|
|
|
|
|
|
2,087 |
|
|
|
|
|
|
|
2,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
(180,417 |
) |
|
|
35,708 |
|
|
|
19,139 |
|
|
|
|
|
|
|
(125,570 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (income), net |
|
|
24,692 |
|
|
|
|
|
|
|
(236 |
) |
|
|
|
|
|
|
24,456 |
|
Other (income) expense, net |
|
|
(5,138 |
) |
|
|
3,571 |
|
|
|
697 |
|
|
|
|
|
|
|
(870 |
) |
Equity earnings from subsidiaries |
|
|
(45,159 |
) |
|
|
|
|
|
|
|
|
|
|
45,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes |
|
|
(154,812 |
) |
|
|
32,137 |
|
|
|
18,678 |
|
|
|
(45,159 |
) |
|
|
(149,156 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes |
|
|
(62,309 |
) |
|
|
609 |
|
|
|
5,047 |
|
|
|
|
|
|
|
(56,653 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
(92,503 |
) |
|
$ |
31,528 |
|
|
$ |
13,631 |
|
|
$ |
(45,159 |
) |
|
$ |
(92,503 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
Supplemental condensed consolidating financial statements (continued):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Net cash provided (used) by operating activities |
|
$ |
10,415 |
|
|
$ |
5,603 |
|
|
$ |
42,241 |
|
|
$ |
(11,719 |
) |
|
$ |
46,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(12,412 |
) |
|
|
(5,619 |
) |
|
|
(7,864 |
) |
|
|
|
|
|
|
(25,895 |
) |
Proceeds from sale of fixed assets |
|
|
2,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,266 |
|
Proceeds from sale of partnership interest |
|
|
1,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,153 |
|
Business acquisitions and other |
|
|
(1,476 |
) |
|
|
245 |
|
|
|
(6 |
) |
|
|
(896 |
) |
|
|
(2,133 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(10,469 |
) |
|
|
(5,374 |
) |
|
|
(7,870 |
) |
|
|
(896 |
) |
|
|
(24,609 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings (repayments) of long-term debt |
|
|
2,426 |
|
|
|
|
|
|
|
(14,189 |
) |
|
|
11,719 |
|
|
|
(44 |
) |
Share-based compensation activity, net |
|
|
1,337 |
|
|
|
|
|
|
|
(1,036 |
) |
|
|
|
|
|
|
301 |
|
Shareholder distributions |
|
|
10,854 |
|
|
|
|
|
|
|
(10,854 |
) |
|
|
|
|
|
|
|
|
Other financing costs |
|
|
6,620 |
|
|
|
(264 |
) |
|
|
(7,402 |
) |
|
|
896 |
|
|
|
(150 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities |
|
|
21,237 |
|
|
|
(264 |
) |
|
|
(33,481 |
) |
|
|
12,615 |
|
|
|
107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
and cash equivalents |
|
|
|
|
|
|
|
|
|
|
3,060 |
|
|
|
|
|
|
|
3,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
21,183 |
|
|
|
(35 |
) |
|
|
3,950 |
|
|
|
|
|
|
|
25,098 |
|
Cash and cash equivalents at beginning
of period |
|
|
7,754 |
|
|
|
47 |
|
|
|
32,983 |
|
|
|
|
|
|
|
40,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
28,937 |
|
|
$ |
12 |
|
|
$ |
36,933 |
|
|
$ |
|
|
|
$ |
65,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Net cash provided (used) by operating activities |
|
$ |
3,280 |
|
|
$ |
9,013 |
|
|
$ |
(1,816 |
) |
|
$ |
8,584 |
|
|
$ |
19,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(14,608 |
) |
|
|
(8,992 |
) |
|
|
(5,334 |
) |
|
|
|
|
|
|
(28,934 |
) |
Proceeds from sale of fixed assets |
|
|
|
|
|
|
|
|
|
|
1,664 |
|
|
|
|
|
|
|
1,664 |
|
Business acquisitions and other |
|
|
(1,041 |
) |
|
|
(52 |
) |
|
|
|
|
|
|
811 |
|
|
|
(282 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities |
|
|
(15,649 |
) |
|
|
(9,044 |
) |
|
|
(3,670 |
) |
|
|
811 |
|
|
|
(27,552 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings (repayments) of long-term debt |
|
|
|
|
|
|
|
|
|
|
8,466 |
|
|
|
(8,584 |
) |
|
|
(118 |
) |
Share-based compensation activity, net |
|
|
1 |
|
|
|
61 |
|
|
|
|
|
|
|
(61 |
) |
|
|
1 |
|
Other financing costs |
|
|
(241 |
) |
|
|
|
|
|
|
750 |
|
|
|
(750 |
) |
|
|
(241 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities |
|
|
(240 |
) |
|
|
61 |
|
|
|
9,216 |
|
|
|
(9,395 |
) |
|
|
(358 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
and cash equivalents |
|
|
|
|
|
|
|
|
|
|
(2,699 |
) |
|
|
|
|
|
|
(2,699 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
(12,609 |
) |
|
|
30 |
|
|
|
1,031 |
|
|
|
|
|
|
|
(11,548 |
) |
Cash and cash equivalents at beginning
of period |
|
|
20,363 |
|
|
|
17 |
|
|
|
31,952 |
|
|
|
|
|
|
|
52,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
7,754 |
|
|
$ |
47 |
|
|
$ |
32,983 |
|
|
$ |
|
|
|
$ |
40,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
Supplemental condensed consolidating financial statements (continued):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended December 31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Net cash provided by operating activities |
|
$ |
18,390 |
|
|
$ |
9,241 |
|
|
$ |
5,612 |
|
|
$ |
15,033 |
|
|
$ |
48,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(8,647 |
) |
|
|
(9,399 |
) |
|
|
(5,871 |
) |
|
|
|
|
|
|
(23,917 |
) |
Proceeds from sale of fixed assets |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Business acquisitions and other |
|
|
(745 |
) |
|
|
|
|
|
|
43 |
|
|
|
|
|
|
|
(702 |
) |
Collection of note receivable from joint venture |
|
|
4,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(4,696 |
) |
|
|
(9,399 |
) |
|
|
(5,828 |
) |
|
|
|
|
|
|
(19,923 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings (repayments) of long-term debt |
|
|
(7,300 |
) |
|
|
|
|
|
|
21,809 |
|
|
|
(15,033 |
) |
|
|
(524 |
) |
Share-based compensation activity, net |
|
|
(557 |
) |
|
|
149 |
|
|
|
28 |
|
|
|
|
|
|
|
(380 |
) |
Other financing costs |
|
|
(134 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(134 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities |
|
|
(7,991 |
) |
|
|
149 |
|
|
|
21,837 |
|
|
|
(15,033 |
) |
|
|
(1,038 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
and cash equivalents |
|
|
|
|
|
|
|
|
|
|
875 |
|
|
|
|
|
|
|
875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents. |
|
|
5,703 |
|
|
|
(9 |
) |
|
|
22,496 |
|
|
|
|
|
|
|
28,190 |
|
Cash and cash equivalents at beginning
of period |
|
|
14,660 |
|
|
|
26 |
|
|
|
9,456 |
|
|
|
|
|
|
|
24,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
20,363 |
|
|
$ |
17 |
|
|
$ |
31,952 |
|
|
$ |
|
|
|
$ |
52,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data, unless otherwise indicated)
15. Unaudited Quarterly Financial Data
The following is a summary of actual quarterly results of operations for 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
Dec. 31 |
|
|
Sept. 30 |
|
|
Jul. 1 |
|
|
Apr. 1 |
|
|
|
(in millions, except per share data) |
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
171.2 |
|
|
$ |
172.4 |
|
|
$ |
185.5 |
|
|
$ |
179.6 |
|
Gross profit |
|
|
36.0 |
|
|
|
38.2 |
|
|
|
44.0 |
|
|
|
40.7 |
|
Operating income |
|
|
2.8 |
|
|
|
9.1 |
|
|
|
12.8 |
|
|
|
10.4 |
|
Net income |
|
$ |
1.5 |
|
|
$ |
4.4 |
|
|
$ |
4.9 |
|
|
$ |
3.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share (A) |
|
$ |
0.06 |
|
|
$ |
0.19 |
|
|
$ |
0.21 |
|
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share (A) |
|
$ |
0.06 |
|
|
$ |
0.19 |
|
|
$ |
0.21 |
|
|
$ |
0.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
Dec. 31 |
|
|
Oct. 1 |
|
|
Jul. 2 |
|
|
Apr. 2 |
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
151.8 |
|
|
$ |
158.7 |
|
|
$ |
180.3 |
|
|
$ |
180.8 |
|
Gross profit |
|
|
30.0 |
|
|
|
31.6 |
|
|
|
41.8 |
|
|
|
45.2 |
|
Operating income (loss) |
|
|
1.9 |
|
|
|
(0.3 |
) |
|
|
9.0 |
|
|
|
12.7 |
|
Net income (loss) |
|
$ |
(3.0 |
) |
|
$ |
(3.3 |
) |
|
$ |
2.8 |
|
|
$ |
4.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share (A) |
|
$ |
(0.13 |
) |
|
$ |
(0.14 |
) |
|
$ |
0.12 |
|
|
$ |
0.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share (A) |
|
$ |
(0.13 |
) |
|
$ |
(0.14 |
) |
|
$ |
0.12 |
|
|
$ |
0.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Earnings per share for the year may not equal the sum of the four historical quarters earnings per share due to
changes in basic and diluted shares outstanding. |
68
STONERIDGE, INC. AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
Charged to |
|
|
|
|
|
Balance at |
|
|
Beginning of |
|
Costs and |
|
|
|
|
|
End of |
|
|
Period |
|
Expenses |
|
Write-offs |
|
Period |
Allowance for doubtful accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended December 31, 2004
|
|
$ |
1,483 |
|
|
$ |
354 |
|
|
$ |
40 |
|
|
$ |
1,797 |
|
Fiscal year ended December 31, 2005
|
|
|
1,797 |
|
|
|
3,711 |
|
|
|
1,679 |
|
|
|
3,829 |
|
Fiscal year ended December 31, 2006
|
|
|
3,829 |
|
|
|
236 |
|
|
|
234 |
|
|
|
3,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange rate |
|
|
|
|
Balance at |
|
Net additions |
|
fluctuations |
|
Balance at |
|
|
Beginning of |
|
charged to |
|
and other |
|
End of |
|
|
Period |
|
income |
|
items |
|
Period |
Valuation allowance for deferred tax assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended December 31, 2004
|
|
$ |
2,557 |
|
|
$ |
9,343 |
|
|
$ |
216 |
|
|
$ |
12,116 |
|
Fiscal year ended December 31, 2005
|
|
|
12,116 |
|
|
|
5,676 |
|
|
|
380 |
|
|
|
18,172 |
|
Fiscal year ended December 31, 2006
|
|
|
18,172 |
|
|
|
795 |
|
|
|
(1,587 |
) |
|
|
17,380 |
|
69
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 its independent
auditors on any matter of accounting principles or practices of financial statement disclosures, or
auditing scope or procedure.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of December 31, 2006, an evaluation was performed under the supervision and with the
participation of the Companys management, including the chief executive officer (CEO) and chief
financial officer (CFO), of the effectiveness of the design and operation of the Companys
disclosure controls and procedures. Based on that evaluation, the Companys management, including
the CEO and CFO, concluded that the Companys disclosure controls and procedures were effective as
of December 31, 2006.
Changes in Internal Control Over Financial Reporting
There were no changes in the Companys internal control over financial reporting during the
fourth quarter ended December 31, 2006 that materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
Managements Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). In
evaluating the Companys internal control over financial reporting, management has adopted the
framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Under the supervision and with the participation of our
management, including the principal executive officer and principal financial officer, we conducted
an evaluation of the effectiveness of our internal control over financial reporting, as of December
31, 2006. Based on our evaluation under the framework in Internal Control- Integrated Framework,
our management has concluded that our internal control over financial reporting was effective as of
December 31, 2006.
Because of inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
Our managements assessment of the effectiveness of the internal control over financial
reporting as of December 31, 2006 has been audited by Ernst & Young LLP, an independent registered
public accounting firm, as stated in their report, which follows this report.
70
Report of Independent Registered Public Accounting Firm
Board of
Directors and Shareholders of Stoneridge, Inc. and Subsidiaries
We have audited managements assessment, included in the accompanying Managements Report on
Internal Control Over Financial Reporting, that Stoneridge, Inc. and Subsidiaries maintained
effective internal control over financial reporting as of December 31, 2006, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Stoneridge Inc. and Subsidiaries
management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on managements assessment and an opinion on the
effectiveness of the companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that Stoneridge, Inc. and Subsidiaries maintained
effective internal control over financial reporting as of December 31, 2006, is fairly stated, in
all material respects, based on the COSO criteria. Also, in our opinion, Stoneridge, Inc. and
Subsidiaries maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2006, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of
Stoneridge, Inc. and Subsidiaries as of December 31, 2006 and 2005
and the related consolidated statements of operations, shareholders equity and cash flows for each
of the three years in the period ended December 31, 2006 and
our report dated March 12, 2007 expressed an unqualified opinion thereon.
Cleveland, Ohio
March 12, 2007
71
Item 9B. Other Information.
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by Item 10 regarding our directors is incorporated by reference to
the Proxy Statement sections and subsections entitled, Proposal One: Election of Directors,
Nominating and Corporate Governance Committee, Audit Committee, Section 16(a) Beneficial
Ownership Reporting Compliance and Corporate Governance Guidelines. The information required by
Item 10 regarding our executive officers appears as a Supplementary Item following Item 4 under
Part I hereof.
Item 11. Executive Compensation.
The information required by this Item 11 is incorporated by reference to the information under
the sections and subsections Compensation Committee, Compensation Committee Interlocks and
Insider Participation, Compensation Committee Report and Executive
Compensation contained in the Companys Proxy Statement in connection with its Annual Meeting of
Shareholders to be held on May 7, 2007.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The information required by this Item 12 (other than the information required by Item 201(d)
of Regulation S-K which is set forth below) is incorporated by reference to the information under
the heading Security Ownership of Certain Beneficial Owners and Management contained in the
Companys Proxy Statement in connection with its Annual Meeting of Shareholders to be held on May
7, 2007.
In October 1997, we adopted a Long-Term Incentive Plan for our employees. In May 2002, we
adopted a Director Share Option Plan for our directors. In April 2005, we adopted a Directors
Restricted Shares Plan. In April 2006, we amended the Long-Term Incentive Plan, which expires on
June 30, 2007. Our shareholders approved each plan. Equity compensation plan information, as of
December 31, 2006, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities |
|
|
Number of securities to |
|
Weighted-average |
|
remaining available |
|
|
be issued upon the |
|
exercise price of |
|
for future issuance |
|
|
exercise of outstanding |
|
outstanding share |
|
under equity |
|
|
share options |
|
options |
|
compensation plans (1) |
Equity compensation plans
approved by shareholders |
|
|
624,750 |
|
|
$ |
11.88 |
|
|
|
1,005,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not
approved by shareholders |
|
|
|
|
|
$ |
|
|
|
|
|
|
(1) Excludes securities reflected in the first column, Number of securities to be issued upon
the exercise of outstanding share options. Also excludes 816,917 restricted Common Shares issued
and outstanding to key employees pursuant to the Companys Long-Term Incentive Plan, 1,500,000
restricted Common Shares authorized but not yet registered under the 2006 Plan, and 48,300
restricted Common Shares issued and outstanding to directors under the Directors Restricted Shares
Plan as of December 31, 2006.
72
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item 13 is incorporated by reference to the information
under the sections and subsections Transactions with Related Persons and Director
Independence contained in the Companys Proxy Statement in connection with its Annual Meeting
of Shareholders to be held on May 7, 2007.
Item 14. Principal Accounting Fees and Services.
The information required by this Item 14 is incorporated by reference to the information
under the sections and subsections Service Fees Paid to Independent Registered
Accounting Firm and Pre-Approval Policy contained in the
Companys Proxy Statement in connection with its Annual Meeting of Shareholders to be held on
May 7, 2007.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(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 Registered Public Accounting Firm
|
|
|
30 |
|
|
|
|
|
|
|
Consolidated Balance Sheets as of December 31, 2006 and 2005
|
|
|
31 |
|
|
|
|
|
|
|
Consolidated Statements of Operations for the Fiscal Years Ended December 31, 2006, 2005 and 2004
|
|
|
32 |
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows for the Fiscal Years Ended December 31, 2006, 2005 and 2004
|
|
|
33 |
|
|
|
|
|
|
|
Consolidated Statements of Shareholders Equity for the Fiscal Years Ended December
31, 2006, 2005 and 2004
|
|
|
34 |
|
|
|
|
|
|
|
Notes to Consolidated Financial Statements.
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
Financial Statement Schedule: |
|
|
|
|
|
|
|
|
|
|
Schedule II Valuation and Qualifying Accounts
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
Exhibits: |
|
|
|
|
|
|
|
|
|
|
See the List of Exhibits on the Index to Exhibits following the signature page |
|
|
|
|
(b) The exhibits listed on the Index to Exhibits are filed as part of or incorporated by
reference into this report
(c) Additional Financial Statement Schedules
None
73
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 16, 2007 |
/s/ GEORGE E. STRICKLER
|
|
|
George E. Strickler |
|
|
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer) |
|
|
Pursuant to the requirements of the 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
dates indicated.
|
|
|
|
|
|
|
|
Date: March 16, 2007 |
/s/ JOHN C. COREY
|
|
|
John C. Corey |
|
|
President, Chief Executive Officer, and Director
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
Date: March 16, 2007 |
/s/ WILLIAM M. LASKY
|
|
|
William M. Lasky |
|
|
Chairman of the Board of Directors |
|
|
|
|
|
|
|
|
|
|
Date: March 16, 2007 |
/s/ RICHARD E. CHENEY
|
|
|
Richard E. Cheney |
|
|
Director |
|
|
|
|
|
|
|
|
|
|
Date: March 16, 2007 |
/s/ AVERY S. COHEN
|
|
|
Avery S. Cohen |
|
|
Secretary and Director |
|
|
|
|
|
|
|
|
|
|
Date: March 16, 2007 |
/s/ JEFFREY P. DRAIME
|
|
|
Jeffrey P. Draime |
|
|
Director |
|
|
|
|
|
|
|
|
|
|
Date: March 16, 2007 |
/s/ SHELDON J. EPSTEIN
|
|
|
Sheldon J. Epstein |
|
|
Director |
|
|
|
|
|
|
|
|
|
|
Date: March 16, 2007 |
/s/ DOUGLAS C. JACOBS
|
|
|
Douglas C. Jacobs |
|
|
Director |
|
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Date: March 16, 2007 |
/s/ KIM KORTH
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Kim Korth |
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Director |
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Date: March 16, 2007 |
/s/ EARL L. LINEHAN
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Earl L. Linehan |
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Director |
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74
INDEX TO EXHIBITS
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Exhibit |
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Number |
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Exhibit |
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3.1
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Second Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Companys Registration Statement on
Form S-1 (No. 333-33285)). |
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3.2
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Amended and Restated Code of Regulations of the Company (incorporated by
reference to Exhibit 3.2 to the Companys Registration Statement on Form S-1 (No.
333-33285)). |
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4.1
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Common Share Certificate (incorporated by reference to Exhibit 4.1 to the
Companys Annual Report on Form 10-K for the year ended December 31, 1997). |
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4.2
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Indenture dated as of May 1, 2002 among Stoneridge, Inc. as Issuer,
Stoneridge Control Devices, Inc. and Stoneridge Electronics, Inc., as Guarantors, and
Fifth Third Bank, as trustee (incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K filed on May 7, 2002). |
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10.1
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Long-Term Incentive
Plan (incorporated by reference to Exhibit 10.1 to the Companys Registration
Statement on Form S-1 (No. 333-33285)).
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10.2
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Lease Agreement between Stoneridge, Inc. and Hunters Square, Inc., with respect
to the Companys division headquarters for Alphabet (incorporated by reference to
Exhibit 10.4 to the Companys Annual Report on Form 10-K for the year ended December
31, 1999). |
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10.3
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Credit Agreement dated as of May 1, 2002 among Stoneridge, Inc., as Borrower, the
Lending Institutions Named Therein, as Lenders, National City Bank, as Administrative
Agent, a Joint Lead Arranger and Collateral Agent, Deutsche Bank Securities Inc., as a
Joint Lead Arranger, Comerica Bank and PNC Bank, National Association, as the
Co-Documentation Agents (incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed on May 7, 2002). |
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10.4
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Purchase Agreement dated as of May 1, 2002 among Stoneridge Inc., Stoneridge
Control Devices Inc., Stoneridge Electronics Inc. and Deutsche Bank Securities Inc.,
J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated and NatCity Investments
Inc. (incorporated by reference to Exhibit 10.2 to the Companys Current Report on
Form 8-K filed on May 7, 2002). |
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10.5
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Registration Rights Agreement dated as of May 1, 2002 among Stoneridge Inc.,
Stoneridge Control Devices Inc., Stoneridge Electronics Inc. and Deutsche Bank
Securities Inc., J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated and
NatCity Investments Inc. (incorporated by reference to Exhibit 10.3 to the Companys
Current Report on Form 8-K filed on May 7, 2002). |
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10.6
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Amendment No. 1 dated as of January 31, 2003 to Credit Agreement dated as of May
1, 2002 among Stoneridge, Inc. as Borrower, the Lending Institutions Named Therein,
as Lenders, National City Bank, as Administrative Agent, a Joint Lead Arranger and
Collateral Agent, Deutsche Bank Securities Inc., as a Joint Lead Arranger, Comerica
Bank and PNC Bank, National Association, as the Co-Documentation Agents (incorporated
by reference to Exhibit 10.9 to the Companys Annual Report on Form 10-K for the year
ended December 31, 2002). |
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10.7
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Form of Tax Indemnification Agreement (incorporated by reference to Exhibit 10.10
to the Companys Registration Statement on Form S-1 (No. 333-33285)). |
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10.8
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Form of Change in Control Agreement (incorporated by reference to Exhibit 10.14
to the Companys Annual Report on Form 10-K for the year ended December 31, 1998). |
75