##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the quarter ended March 31, 2007
 OR
 o
    
    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)
 Ohio
    
    34-1598949(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 9400 East Market Street, Warren, Ohio
    
    44484(Address of principal executive offices)
    
    (Zip Code)
 (330) 856-2443
 
  þ o
  o þ o
 o þ




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##### 



STONERIDGE, INC. AND SUBSIDIARIES
 INDEX
 Page No.PART IFINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets as of March 31, 2007 (Unaudited) and December 31, 2006 (Audited)
    
    
    2Condensed Consolidated Statements of Operations (Unaudited) For the 3 Months Ended March 31, 2007 and 13 Weeks Ended April 1, 2006
    
    
    3Condensed Consolidated Statements of Cash Flows (Unaudited) For the 3 Months Ended March 31, 2007 and 13 Weeks Ended April 1, 2006
    
    
    4Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4.
    
    Controls and Procedures
    
    
    26PART IIOTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    27Item 1A.
    
    Risk Factors
    
    
    27Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 3.
    
    Defaults Upon Senior Securities
    
    
    27Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    27Item 5.
    
    Other Information
    
    
    27Item 6.
    
    Exhibits
    
    
    27Signatures
    
    
    28Index to Exhibits
    
    
    29EX-31.1EX-31.2EX-32.1EX-32.2
  1




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##### Table of Contents



PART IFINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 
 STONERIDGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 March 31,
    
    
    December 31,2007
    
    
    2006(Unaudited)
    
    
    (Audited)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    54,267
    
    
    $
    65,882Accounts receivable, less allowances for doubtful accounts of $6,069 and $5,243,
respectively
    
    
    119,838
    
    
    
    106,985Inventories, net
    
    
    60,200
    
    
    
    58,521Prepaid expenses and other
    
    
    15,855
    
    
    
    13,448Deferred income taxes
    
    
    8,177
    
    
    
    9,196Total current assets
    
    
    258,337
    
    
    
    254,032Long-Term Assets:Property, plant and equipment, net
    
    
    114,043
    
    
    
    114,586Other Assets:Goodwill
    
    
    65,176
    
    
    
    65,176Investments and other, net
    
    
    33,005
    
    
    
    30,875Deferred income taxes
    
    
    37,734
    
    
    
    37,138Total long-term assets
    
    
    249,958
    
    
    
    247,775Total Assets
    
    $
    508,295
    
    
    $
    501,807LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    66,621
    
    
    $
    72,493Accrued expenses and other
    
    
    50,860
    
    
    
    45,624Total current liabilities
    
    
    117,481
    
    
    
    118,117Long-Term Liabilities:Long-term debt
    
    
    200,000
    
    
    
    200,000Deferred income taxes
    
    
    1,883
    
    
    
    1,923Other liabilities
    
    
    3,557
    
    
    
    3,145Total long-term liabilities
    
    
    205,440
    
    
    
    205,068Shareholders Equity:Preferred Shares, without par value, authorized 5,000 shares, none issued
    
    
    
    
    
    
    Common Shares, without par value, authorized 60,000 shares, issued 24,483 and 23,990
shares and outstanding 24,280 and 23,804 shares, respectively, with no stated value
    
    
    
    
    
    
    Additional paid-in capital
    
    
    151,102
    
    
    
    150,078Common Shares held in treasury, 203 and 186 shares, respectively, at cost
    
    
    (277
    )
    
    
    (151
    )Retained earnings
    
    
    26,591
    
    
    
    21,701Accumulated other comprehensive income
    
    
    7,958
    
    
    
    6,994Total shareholders equity
    
    
    185,374
    
    
    
    178,622Total Liabilities and Shareholders Equity
    
    $
    508,295
    
    
    $
    501,807
  2




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##### Table of Contents



STONERIDGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
 Three Months EndedMarch 31,
    
    
    April 1,2007
    
    
    2006Net Sales
    
    $
    185,028
    
    
    $
    179,634Costs and Expenses:Cost of goods sold
    
    
    142,181
    
    
    
    138,942Selling, general and administrative
    
    
    33,173
    
    
    
    31,819Gain on sale of property, plant and equipment, net
    
    
    (35
    )
    
    
    (1,489
    )Operating Income
    
    
    9,709
    
    
    
    10,362Interest expense, net
    
    
    5,484
    
    
    
    5,919Equity in earnings of investees
    
    
    (2,120
    )
    
    
    (1,416
    )Other loss, net
    
    
    288
    
    
    
    7Income Before Income Taxes
    
    
    6,057
    
    
    
    5,852Provision for income taxes
    
    
    1,187
    
    
    
    2,085Net Income
    
    $
    4,870
    
    
    $
    3,767Basic net income per share
    
    $
    0.21
    
    
    $
    0.17Basic weighted average shares outstanding
    
    
    22,990
    
    
    
    22,766Diluted net income per share
    
    $
    0.21
    
    
    $
    0.16Diluted weighted average shares outstanding
    
    
    23,403
    
    
    
    22,884
  3




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##### Table of Contents



STONERIDGE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 Three Months EndedMarch 31,
    
    
    April 1,2007
    
    
    2006OPERATING ACTIVITIES:Net income
    
    $
    4,870
    
    
    $
    3,767Adjustments to reconcile net income to net cash provided by (used for)
operating activities Depreciation
    
    
    7,165
    
    
    
    6,246Amortization
    
    
    398
    
    
    
    403Deferred income taxes
    
    
    434
    
    
    
    1,143Earnings of equity method investees, less dividends received
    
    
    (2,120
    )
    
    
    (1,416
    )Gain on sale of property, plant and equipment
    
    
    (35
    )
    
    
    (1,489
    )Share-based compensation expense
    
    
    587
    
    
    
    634Changes in operating assets and liabilities Accounts receivable, net
    
    
    (13,325
    )
    
    
    (20,674
    )Inventories, net
    
    
    (1,748
    )
    
    
    (1,093
    )Prepaid expenses and other
    
    
    (2,462
    )
    
    
    (276
    )Other assets
    
    
    324
    
    
    
    204Accounts payable
    
    
    (5,544
    )
    
    
    13,140Accrued expenses and other
    
    
    6,400
    
    
    
    5,632Net cash provided by (used for) operating activities
    
    
    (5,056
    )
    
    
    6,221INVESTING ACTIVITIES:Capital expenditures
    
    
    (6,807
    )
    
    
    (6,563
    )Proceeds from sale of property, plant and equipment
    
    
    35
    
    
    
    2,266Business acquisitions and other
    
    
    
    
    
    
    (1,034
    )Net cash used for investing activities
    
    
    (6,772
    )
    
    
    (5,331
    )FINANCING ACTIVITIES:Repayments of long-term debt
    
    
    
    
    
    
    (44
    )Share-based compensation activity, net
    
    
    355
    
    
    
    (69
    )Other financing costs
    
    
    
    
    
    
    (150
    )Net cash provided by (used for) financing activities
    
    
    355
    
    
    
    (263
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (142
    )
    
    
    363Net change in cash and cash equivalents
    
    
    (11,615
    )
    
    
    990Cash and cash equivalents at beginning of period
    
    
    65,882
    
    
    
    40,784Cash and cash equivalents at end of period
    
    $
    54,267
    
    
    $
    41,774
  4




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##### Table of Contents



STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data, unless otherwise
indicated)
 (1) Basis of Presentation
     (2) Inventories
  March 31,
    
    
    December 31,2007
    
    
    2006Raw materials
    
    $
    33,959
    
    
    $
    39,832Work in progress
    
    
    9,544
    
    
    
    8,196Finished goods
    
    
    18,185
    
    
    
    12,614Total inventories
    
    
    61,688
    
    
    
    60,642Less: LIFO reserve
    
    
    (1,488
    )
    
    
    (2,121
    )Inventories, net
    
    $
    60,200
    
    
    $
    58,521
 (3) Fair Value of Financial Instruments
 Financial Instruments
  Derivative Instruments and Hedging Activities
  5




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##### Table of Contents



STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data, unless otherwise
indicated)
     (4) Share-Based Compensation
  (5) Comprehensive Income (Loss)
 Reporting Comprehensive Income
 6




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##### Table of Contents



STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data, unless otherwise
indicated)
  First Quarter EndedMarch 31,
    
    
    April 1,2007
    
    
    2006Net income
    
    $
    4,870
    
    
    $
    3,767Other comprehensive income:Currency translation adjustments
    
    
    449
    
    
    
    1,223Pension liability adjustments
    
    
    (8
    )
    
    
    (37
    )Unrealized loss on marketable securities
    
    
    51
    
    
    
    (147
    )Unrecognized gain on derivatives
    
    
    472
    
    
    
    Total other comprehensive income
    
    
    964
    
    
    
    1,039Comprehensive income
    
    $
    5,834
    
    
    $
    4,806
  March 31,
    
    
    December 31,2007
    
    
    2006Foreign currency translation adjustments
    
    $
    8,974
    
    
    $
    8,525Pension liability adjustments
    
    
    (1,475
    )
    
    
    (1,467
    )Unrealized loss on marketable securities
    
    
    (13
    )
    
    
    (64
    )Unrecognized gain on derivatives
    
    
    472
    
    
    
    Accumulated other comprehensive income
    
    $
    7,958
    
    
    $
    6,994
 (6) Long-Term Debt
 Senior Notes
  Credit Agreement
  7




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##### Table of Contents



STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data, unless otherwise
indicated)
 (7) Net Income Per Share
   First Quarter EndedMarch 31,
    
    
    April 1,2007
    
    
    2006Basic weighted-average shares outstanding
    
    
    22,989,615
    
    
    
    22,766,293Effect of dilutive securities
    
    
    413,185
    
    
    
    117,911Diluted weighted-average shares outstanding
    
    
    23,402,800
    
    
    
    22,884,204
   8




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##### Table of Contents



STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data, unless otherwise
indicated)
 (8) Restructuring
   Severance
    
    
    
    Asset-RelatedCosts
    
    
    Charges
    
    
    TotalTotal expected restructuring charges
    
    $
    964
    
    
    $
    127
    
    
    $
    1,091Balance at December 31, 2004
    
    $
    
    
    
    $
    
    
    
    $
    First quarter charge to expense
    
    
    88
    
    
    
    127
    
    
    
    215Second quarter charge to expense
    
    
    9
    
    
    
    
    
    
    
    9Third quarter charge to expense
    
    
    356
    
    
    
    
    
    
    
    356Fourth quarter charge to expense
    
    
    70
    
    
    
    
    
    
    
    70Cash payments
    
    
    (111
    )
    
    
    
    
    
    
    (111
    )Non-cash utilization
    
    
    
    
    
    
    (127
    )
    
    
    (127
    )Balance at December 31, 2005
    
    $
    412
    
    
    $
    
    
    
    $
    412First quarter charge to expense
    
    
    176
    
    
    
    
    
    
    
    176Second quarter charge to expense
    
    
    (370
    )
    
    
    
    
    
    
    (370
    )Third quarter charge to expense
    
    
    127
    
    
    
    
    
    
    
    127Fourth quarter charge to expense
    
    
    436
    
    
    
    
    
    
    
    436Cash payments
    
    
    (343
    )
    
    
    
    
    
    
    (343
    )Balance at December 31, 2006
    
    $
    438
    
    
    $
    
    
    
    $
    438First quarter charge to expense
    
    
    41
    
    
    
    
    
    
    
    41Cash payments
    
    
    (42
    )
    
    
    
    
    
    
    (42
    )Balance at March 31, 2007
    
    $
    437
    
    
    $
    
    
    
    $
    437Remaining expected restructuring charge
    
    $
    31
    
    
    $
    
    
    
    $
    31
 9




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STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data, unless otherwise
indicated)
  Asset-
    
    
    FacilitySeverance
    
    
    Related
    
    
    Closure
    
    
    Other ExitCosts
    
    
    Charges
    
    
    Costs
    
    
    Costs
    
    
    TotalTotal expected restructuring charges
    
    $
    3,665
    
    
    $
    983
    
    
    $
    1,137
    
    
    $
    653
    
    
    $
    6,438Balance at March 31, 2004
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Second quarter charge to expense
    
    
    
    
    
    
    205
    
    
    
    
    
    
    
    
    
    
    
    205Third quarter charge to expense
    
    
    
    
    
    
    202
    
    
    
    
    
    
    
    118
    
    
    
    320Fourth quarter charge to expense
    
    
    1,068
    
    
    
    207
    
    
    
    
    
    
    
    287
    
    
    
    1,562Cash payments
    
    
    (590
    )
    
    
    
    
    
    
    
    
    
    
    (405
    )
    
    
    (995
    )Non-cash utilization
    
    
    
    
    
    
    (614
    )
    
    
    
    
    
    
    
    
    
    
    (614
    )Balance at December 31, 2004
    
    $
    478
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    478First quarter charge to expense
    
    
    1,698
    
    
    
    206
    
    
    
    
    
    
    
    7
    
    
    
    1,911Second quarter charge to expense
    
    
    586
    
    
    
    163
    
    
    
    746
    
    
    
    174
    
    
    
    1,669Third quarter charge to expense
    
    
    214
    
    
    
    
    
    
    
    218
    
    
    
    35
    
    
    
    467Fourth quarter charge to expense
    
    
    (57
    )
    
    
    
    
    
    
    140
    
    
    
    (18
    )
    
    
    65Cash payments
    
    
    (2,722
    )
    
    
    
    
    
    
    (140
    )
    
    
    (198
    )
    
    
    (3,060
    )Non-cash utilization
    
    
    
    
    
    
    (369
    )
    
    
    
    
    
    
    
    
    
    
    (369
    )Balance at December 31, 2005
    
    $
    197
    
    
    $
    
    
    
    $
    964
    
    
    $
    
    
    
    $
    1,161First quarter charge to expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    48Second quarter charge to expense
    
    
    204
    
    
    
    
    
    
    
    14
    
    
    
    2
    
    
    
    220Third quarter charge to expense
    
    
    (48
    )
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    (47
    )Fourth quarter charge to expense
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    18Cash payments
    
    
    (353
    )
    
    
    
    
    
    
    (569
    )
    
    
    (50
    )
    
    
    (972
    )Balance at December 31, 2006
    
    $
    
    
    
    $
    
    
    
    $
    428
    
    
    $
    
    
    
    $
    428First quarter charge to expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash payments
    
    
    
    
    
    
    
    
    
    
    (319
    )
    
    
    
    
    
    
    (319
    )Balance at March 31, 2007
    
    $
    
    
    
    $
    
    
    
    $
    109
    
    
    $
    
    
    
    $
    109Remaining expected restructuring charge
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
  (9) Commitments and Contingencies
  Product Warranty and Recall
  10




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STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data, unless otherwise
indicated)
   2007
    
    
    2006Product warranty and recall at beginning of period
    
    $
    5,825
    
    
    $
    6,220Accruals for products shipped during period
    
    
    557
    
    
    
    715Changes in estimates of existing liabilities
    
    
    510
    
    
    
    584Settlements made during the period (in cash or in kind)
    
    
    (1,021
    )
    
    
    (813
    )Product warranty and recall at end of period
    
    $
    5,871
    
    
    $
    6,706
 (10) Employee Benefit Plans
  Pension Benefit Plan
    
    
    Postretirement Benefit PlanFirst Quarter Ended
    
    
    First Quarter EndedMarch 31,
    
    
    April 1,
    
    
    March 31,
    
    
    April 1,2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    $
    42
    
    
    $
    28
    
    
    $
    3
    
    
    $
    4Interest cost
    
    
    507
    
    
    
    254
    
    
    
    6
    
    
    
    4Expected return on plan assets
    
    
    (566
    )
    
    
    (273
    )
    
    
    
    
    
    
    Amortization of actuarial loss (gain)
    
    
    110
    
    
    
    65
    
    
    
    (1
    )
    
    
    Net periodic benefit cost
    
    $
    93
    
    
    $
    74
    
    
    $
    8
    
    
    $
    8
  (11) Income Taxes
  Accounting for Uncertainty in Income Taxes  An Interpretation of FASB Statement No. 109 Accounting for Income Taxes
 11




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STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data, unless otherwise
indicated)
     Jurisdiction
    
    Open Tax YearsFederal
    
    
    2003-2006France
    
    
    2003-2006Mexico
    
    
    2001-2006Spain
    
    
    2002-2006Sweden
    
    
    2001-2006United Kingdom
    
    
    2002-2006
 (12) Accounting Pronouncements
 Fair Value Measurements,
 Accounting for Planned Major Maintenance Activities
 The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of FASB Statement No. 115
 12




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STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data, unless otherwise
indicated)
 (13) Segment Reporting
 Disclosures about Segments of an Enterprise and Related Information,
    First Quarter EndedMarch 31,
    
    
    April 1,2007
    
    
    2006Net SalesElectronics
    
    $
    100,801
    
    
    $
    100,364Inter-segment sales
    
    
    5,131
    
    
    
    4,469Electronics net sales
    
    
    105,932
    
    
    
    104,833Control Devices
    
    
    84,227
    
    
    
    79,270Inter-segment sales
    
    
    801
    
    
    
    918Control Devices net sales
    
    
    85,028
    
    
    
    80,188Eliminations
    
    
    (5,932
    )
    
    
    (5,387
    )Total consolidated net sales
    
    $
    185,028
    
    
    $
    179,634Income Before Income TaxesElectronics
    
    $
    6,135
    
    
    $
    6,197Control Devices
    
    
    2,381
    
    
    
    4,409Other corporate activities
    
    
    3,067
    
    
    
    932Corporate interest expense
    
    
    (5,526
    )
    
    
    (5,686
    )Total consolidated income before income taxes
    
    $
    6,057
    
    
    $
    5,852Depreciation and AmortizationElectronics
    
    $
    2,330
    
    
    $
    1,790Control Devices
    
    
    4,805
    
    
    
    4,430Corporate activities
    
    
    85
    
    
    
    91Total consolidated depreciation and amortization(A)
    
    $
    7,220
    
    
    $
    6,311
 13




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##### Table of Contents



STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data, unless otherwise
indicated)
 First Quarter EndedMarch 31,
    
    
    April 1,2007
    
    
    2006Interest Expense (Income)Electronics
    
    $
    (88
    )
    
    $
    (106
    )Control Devices
    
    
    46
    
    
    
    339Corporate activities
    
    
    5,526
    
    
    
    5,686Total consolidated interest expense, net
    
    $
    5,484
    
    
    $
    5,919Capital ExpendituresElectronics
    
    $
    2,727
    
    
    $
    2,200Control Devices
    
    
    3,414
    
    
    
    4,317Corporate activities
    
    
    666
    
    
    
    46Total consolidated capital expenditures
    
    $
    6,807
    
    
    $
    6,563
 March 31,
    
    
    December 31,2007
    
    
    2006Total AssetsElectronics
    
    $
    176,096
    
    
    $
    184,327Control Devices
    
    
    225,281
    
    
    
    216,523Corporate(B)
    
    
    267,347
    
    
    
    265,986Eliminations
    
    
    (160,429
    )
    
    
    (165,029
    )Total consolidated assets
    
    $
    508,295
    
    
    $
    501,807
 
 (A)
    
    These amounts represent depreciation and amortization on fixed and certain intangible
assets.(B)
    
    Assets located at Corporate consist primarily of cash, deferred taxes and equity
investments.
  First Quarter EndedMarch 31,
    
    
    April 1,2007
    
    
    2006Net SalesNorth America
    
    $
    134,061
    
    
    $
    141,024Europe and other
    
    
    50,967
    
    
    
    38,610Total consolidated net sales
    
    $
    185,028
    
    
    $
    179,634
 March 31,
    
    
    December 31,2007
    
    
    2006Non-Current AssetsNorth America
    
    $
    221,575
    
    
    $
    215,429Europe and other
    
    
    28,383
    
    
    
    32,346Total
consolidated non-current assets
    
    $
    249,958
    
    
    $
    247,775
 (14) Investments
 PST Indústria Eletrônica da Amazônia Ltda.
  14




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##### Table of Contents



STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data, unless otherwise
indicated)
  Three Months EndedMarch 31,2007
    
    
    2006Revenues
    
    $
    27,351
    
    
    $
    20,999Cost of sales
    
    $
    12,823
    
    
    $
    10,674Total pre-tax income
    
    $
    5,325
    
    
    $
    4,196The Companys share of pre-tax income
    
    $
    2,663
    
    
    $
    2,098
  Minda Instruments Ltd.
  (15) Guarantor Financial Information
    15




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##### Table of Contents



STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data, unless otherwise
indicated)
 March 31, 2007Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    23,171
    
    
    $
    44
    
    
    $
    31,052
    
    
    $
    
    
    
    $
    54,267Accounts receivable, net
    
    
    53,309
    
    
    
    32,054
    
    
    
    34,475
    
    
    
    
    
    
    
    119,838Inventories, net
    
    
    26,505
    
    
    
    14,850
    
    
    
    18,845
    
    
    
    
    
    
    
    60,200Prepaid expenses and other
    
    
    (274,791
    )
    
    
    274,937
    
    
    
    15,709
    
    
    
    
    
    
    
    15,855Deferred income taxes
    
    
    2,793
    
    
    
    4,244
    
    
    
    1,140
    
    
    
    
    
    
    
    8,177Total current assets
    
    
    (169,013
    )
    
    
    326,129
    
    
    
    101,221
    
    
    
    
    
    
    
    258,337Long-Term Assets:Property, plant and equipment, net
    
    
    61,398
    
    
    
    31,068
    
    
    
    21,577
    
    
    
    
    
    
    
    114,043Other Assets:Goodwill
    
    
    44,585
    
    
    
    20,591
    
    
    
    
    
    
    
    
    
    
    
    65,176Investments and other, net
    
    
    32,476
    
    
    
    363
    
    
    
    166
    
    
    
    
    
    
    
    33,005Deferred income taxes
    
    
    40,688
    
    
    
    (3,055
    )
    
    
    101
    
    
    
    
    
    
    
    37,734Investment in subsidiaries
    
    
    417,485
    
    
    
    
    
    
    
    
    
    
    
    (417,485
    )
    
    
    Total long-term assets
    
    
    596,632
    
    
    
    48,967
    
    
    
    21,844
    
    
    
    (417,485
    )
    
    
    249,958Total Assets
    
    $
    427,619
    
    
    $
    375,096
    
    
    $
    123,065
    
    
    $
    (417,485
    )
    
    $
    508,295LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    21,280
    
    
    $
    22,581
    
    
    $
    22,760
    
    
    $
    
    
    
    $
    66,621Accrued expenses and other
    
    
    20,533
    
    
    
    6,884
    
    
    
    23,443
    
    
    
    
    
    
    
    50,860Total current liabilities
    
    
    41,813
    
    
    
    29,465
    
    
    
    46,203
    
    
    
    
    
    
    
    117,481Long-Term Liabilities:Long-term debt
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,000Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    1,883
    
    
    
    
    
    
    
    1,883Other liabilities
    
    
    432
    
    
    
    457
    
    
    
    2,668
    
    
    
    
    
    
    
    3,557Total long-term liabilities
    
    
    200,432
    
    
    
    457
    
    
    
    4,551
    
    
    
    
    
    
    
    205,440Shareholders Equity
    
    
    185,374
    
    
    
    345,174
    
    
    
    72,311
    
    
    
    (417,485
    )
    
    
    185,374Total Liabilities and Shareholders Equity
    
    $
    427,619
    
    
    $
    375,096
    
    
    $
    123,065
    
    
    $
    (417,485
    )
    
    $
    508,295
 16




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##### Table of Contents



STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data, unless otherwise
indicated)
  December 31, 2006Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    28,937
    
    
    $
    12
    
    
    $
    36,933
    
    
    $
    
    
    
    $
    65,882Accounts receivable, net
    
    
    48,187
    
    
    
    28,376
    
    
    
    30,422
    
    
    
    
    
    
    
    106,985Inventories, net
    
    
    26,173
    
    
    
    12,502
    
    
    
    19,846
    
    
    
    
    
    
    
    58,521Prepaid expenses and other
    
    
    (273,206
    )
    
    
    275,577
    
    
    
    11,077
    
    
    
    
    
    
    
    13,448Deferred income taxes
    
    
    3,724
    
    
    
    4,379
    
    
    
    1,093
    
    
    
    
    
    
    
    9,196Total current assets
    
    
    (166,185
    )
    
    
    320,846
    
    
    
    99,371
    
    
    
    
    
    
    
    254,032Long-Term Assets:Property, plant and equipment, net
    
    
    61,320
    
    
    
    31,643
    
    
    
    21,623
    
    
    
    
    
    
    
    114,586Other Assets:Goodwill
    
    
    44,585
    
    
    
    20,591
    
    
    
    
    
    
    
    
    
    
    
    65,176Investments and other, net
    
    
    30,874
    
    
    
    131
    
    
    
    170
    
    
    
    (300
    )
    
    
    30,875Deferred income taxes
    
    
    40,713
    
    
    
    (3,341
    )
    
    
    (234
    )
    
    
    
    
    
    
    37,138Investment in subsidiaries
    
    
    411,366
    
    
    
    
    
    
    
    
    
    
    
    (411,366
    )
    
    
    Total long-term assets
    
    
    588,858
    
    
    
    49,024
    
    
    
    21,559
    
    
    
    (411,666
    )
    
    
    247,775Total Assets
    
    $
    422,673
    
    
    $
    369,870
    
    
    $
    120,930
    
    
    $
    (411,666
    )
    
    $
    501,807LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    26,690
    
    
    $
    19,044
    
    
    $
    26,759
    
    
    $
    
    
    
    $
    72,493Accrued expenses and other
    
    
    17,291
    
    
    
    7,314
    
    
    
    21,019
    
    
    
    
    
    
    
    45,624Total current liabilities
    
    
    43,981
    
    
    
    26,358
    
    
    
    47,778
    
    
    
    
    
    
    
    118,117Long-Term Liabilities:Long-term debt
    
    
    200,000
    
    
    
    
    
    
    
    300
    
    
    
    (300
    )
    
    
    200,000Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    1,923
    
    
    
    
    
    
    
    1,923Other liabilities
    
    
    70
    
    
    
    450
    
    
    
    2,625
    
    
    
    
    
    
    
    3,145Total long-term liabilities
    
    
    200,070
    
    
    
    450
    
    
    
    4,848
    
    
    
    (300
    )
    
    
    205,068Shareholders Equity
    
    
    178,622
    
    
    
    343,062
    
    
    
    68,304
    
    
    
    (411,366
    )
    
    
    178,622Total Liabilities and Shareholders Equity
    
    $
    422,673
    
    
    $
    369,870
    
    
    $
    120,930
    
    
    $
    (411,666
    )
    
    $
    501,807
 17




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##### Table of Contents



STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data, unless otherwise
indicated)
  For the First Quarter Ended March 31, 2007Non-Guarantor
    
    
    GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet Sales
    
    $
    88,851
    
    
    $
    52,071
    
    
    $
    63,975
    
    
    $
    (19,869
    )
    
    $
    185,028Costs and Expenses:Cost of goods sold
    
    
    78,544
    
    
    
    36,581
    
    
    
    46,267
    
    
    
    (19,211
    )
    
    
    142,181Selling, general and administrative
    
    
    13,066
    
    
    
    8,033
    
    
    
    12,732
    
    
    
    (658
    )
    
    
    33,173(Gain) Loss on sale of property, plant
and equipment, net
    
    
    (43
    )
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    (35
    )Operating Income (Loss)
    
    
    (2,716
    )
    
    
    7,457
    
    
    
    4,968
    
    
    
    
    
    
    
    9,709Interest expense (income), net
    
    
    5,798
    
    
    
    
    
    
    
    (314
    )
    
    
    
    
    
    
    5,484Other (income) loss, net
    
    
    (2,033
    )
    
    
    26
    
    
    
    175
    
    
    
    
    
    
    
    (1,832
    )Equity earnings from subsidiaries
    
    
    (11,491
    )
    
    
    
    
    
    
    
    
    
    
    11,491
    
    
    
    Income Before Income Taxes
    
    
    5,010
    
    
    
    7,431
    
    
    
    5,107
    
    
    
    (11,491
    )
    
    
    6,057Provision for income taxes
    
    
    140
    
    
    
    4
    
    
    
    1,043
    
    
    
    
    
    
    
    1,187Net Income (Loss)
    
    $
    4,870
    
    
    $
    7,427
    
    
    $
    4,064
    
    
    $
    (11,491
    )
    
    $
    4,870
 For the First Quarter Ended April 1, 2006Non-Guarantor
    
    
    GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet Sales
    
    $
    90,327
    
    
    $
    58,860
    
    
    $
    52,600
    
    
    $
    (22,153
    )
    
    $
    179,634Costs and Expenses:Cost of goods sold
    
    
    77,798
    
    
    
    43,364
    
    
    
    39,253
    
    
    
    (21,473
    )
    
    
    138,942Selling, general and administrative
    
    
    16,712
    
    
    
    6,788
    
    
    
    8,999
    
    
    
    (680
    )
    
    
    31,819Gain on sale of property, plant and equipment
    
    
    (1,489
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,489
    )Operating Income (Loss)
    
    
    (2,694
    )
    
    
    8,708
    
    
    
    4,348
    
    
    
    
    
    
    
    10,362Interest expense
    
    
    5,879
    
    
    
    
    
    
    
    40
    
    
    
    
    
    
    
    5,919Other income, net
    
    
    (1,147
    )
    
    
    
    
    
    
    (262
    )
    
    
    
    
    
    
    (1,409
    )Equity earnings from subsidiaries
    
    
    (11,756
    )
    
    
    
    
    
    
    
    
    
    
    11,756
    
    
    
    Income Before Income Taxes
    
    
    4,330
    
    
    
    8,708
    
    
    
    4,570
    
    
    
    (11,756
    )
    
    
    5,852Provision for income taxes
    
    
    563
    
    
    
    19
    
    
    
    1,503
    
    
    
    
    
    
    
    2,085Net Income (Loss)
    
    $
    3,767
    
    
    $
    8,689
    
    
    $
    3,067
    
    
    $
    (11,756
    )
    
    $
    3,767
 18




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##### Table of Contents



STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data, unless otherwise
indicated)
  For the First Quarter Ended March 31, 2007Non-Guarantor
    
    
    GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by (used for) operating activities
    
    $
    (2,597
    )
    
    $
    1,504
    
    
    $
    (3,663
    )
    
    $
    (300
    )
    
    $
    (5,056
    )INVESTING ACTIVITIES:Capital expenditures
    
    
    (3,403
    )
    
    
    (1,472
    )
    
    
    (1,932
    )
    
    
    
    
    
    
    (6,807
    )Proceeds from the sale of fixed assets
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35Net cash used for investing activities
    
    
    (3,368
    )
    
    
    (1,472
    )
    
    
    (1,932
    )
    
    
    
    
    
    
    (6,772
    )FINANCING ACTIVITIES:Borrowings (repayments) of long-term debt
    
    
    (156
    )
    
    
    
    
    
    
    (144
    )
    
    
    300
    
    
    
    Share-based compensation activity, net
    
    
    355
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    355Other financing costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash provided by (used for) financing activities
    
    
    199
    
    
    
    
    
    
    
    (144
    )
    
    
    300
    
    
    
    355Effect of exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (142
    )
    
    
    
    
    
    
    (142
    )Net change in cash and cash equivalents
    
    
    (5,766
    )
    
    
    32
    
    
    
    (5,881
    )
    
    
    
    
    
    
    (11,615
    )Cash and cash equivalents at beginning
of period
    
    
    28,937
    
    
    
    12
    
    
    
    36,933
    
    
    
    
    
    
    
    65,882Cash and cash equivalents at end of period
    
    $
    23,171
    
    
    $
    44
    
    
    $
    31,052
    
    
    $
    
    
    
    $
    54,267
 For the First Quarter Ended April 1, 2006Non-Guarantor
    
    
    GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by (used for) operating activities
    
    $
    (5,398
    )
    
    $
    4,773
    
    
    $
    6,691
    
    
    $
    155
    
    
    $
    6,221INVESTING ACTIVITIES:Capital expenditures
    
    
    (2,891
    )
    
    
    (1,977
    )
    
    
    (1,695
    )
    
    
    
    
    
    
    (6,563
    )Proceeds from sale of fixed assets
    
    
    2,266
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,266Business acquisitions and other
    
    
    (1,720
    )
    
    
    (63
    )
    
    
    
    
    
    
    749
    
    
    
    (1,034
    )Net cash provided by (used for) investing activities
    
    
    (2,345
    )
    
    
    (2,040
    )
    
    
    (1,695
    )
    
    
    749
    
    
    
    (5,331
    )FINANCING ACTIVITIES:Repayments of long-term debt
    
    
    348
    
    
    
    
    
    
    
    (237
    )
    
    
    (155
    )
    
    
    (44
    )Share-based compensation activity
    
    
    4,255
    
    
    
    (2,728
    )
    
    
    (847
    )
    
    
    (749
    )
    
    
    (69
    )Other financing costs
    
    
    (150
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (150
    )Net cash provided by (used for) financing activities
    
    
    4,453
    
    
    
    (2,728
    )
    
    
    (1,084
    )
    
    
    (904
    )
    
    
    (263
    )Effect of exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    
    
    
    
    363
    
    
    
    
    
    
    
    363Net change in cash and cash equivalents
    
    
    (3,290
    )
    
    
    5
    
    
    
    4,275
    
    
    
    
    
    
    
    990Cash and cash equivalents at beginning
of period
    
    
    7,754
    
    
    
    48
    
    
    
    32,982
    
    
    
    
    
    
    
    40,784Cash and cash equivalents at end of period
    
    $
    4,464
    
    
    $
    53
    
    
    $
    37,257
    
    
    $
    
    
    
    $
    41,774
 19




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Overview
         Results of Operations
  20




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##### Table of Contents



First Quarter Ended March 31, 2007 Compared to First Quarter Ended April 1, 2006
 Net Sales.
 First Quarter Ended
    
    
    $ Increase /
    
    
    % Increase /March 31, 2007
    
    
    April 1, 2006
    
    
    (Decrease)
    
    
    (Decrease)Electronics
    
    $
    100,801
    
    
    
    54.5
    %
    
    $
    100,364
    
    
    
    55.9
    %
    
    $
    437
    
    
    
    0.4
    %Control Devices
    
    
    84,227
    
    
    
    45.5
    
    
    
    79,270
    
    
    
    44.1
    
    
    
    4,957
    
    
    
    6.3
    %Total net sales
    
    $
    185,028
    
    
    
    100.0
    %
    
    $
    179,634
    
    
    
    100.0
    %
    
    $
    5,394
    
    
    
    3.0
    %
    First Quarter Ended
    
    
    $ Increase /
    
    
    % Increase /March 31, 2007
    
    
    April 1, 2006
    
    
    (Decrease)
    
    
    (Decrease)North America
    
    $
    134,061
    
    
    
    72.5
    %
    
    $
    141,024
    
    
    
    78.5
    %
    
    $
    (6,963
    )
    
    
    (4.9
    )%Europe and other
    
    
    50,967
    
    
    
    27.5
    
    
    
    38,610
    
    
    
    21.5
    
    
    
    12,357
    
    
    
    32.0
    %Total net sales
    
    $
    185,028
    
    
    
    100.0
    %
    
    $
    179,634
    
    
    
    100.0
    %
    
    $
    5,394
    
    
    
    3.0
    %
  21




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##### Table of Contents



First Quarter Ended
    
    
    $ Increase /March 31, 2007
    
    
    April 1, 2006
    
    
    (Decrease)Net Sales
    
    $
    185,028
    
    
    
    100.0
    %
    
    $
    179,634
    
    
    
    100.0
    %
    
    $
    5,394Costs and Expenses:Cost of goods sold
    
    
    142,181
    
    
    
    76.8
    
    
    
    138,942
    
    
    
    77.3
    
    
    
    3,239Selling, general and administrative
    
    
    33,173
    
    
    
    17.9
    
    
    
    31,819
    
    
    
    17.7
    
    
    
    1,354Gain on sale of property, plant &
equipment, net
    
    
    (35
    )
    
    
    (0.0
    )
    
    
    (1,489
    )
    
    
    (0.8
    )
    
    
    1,454Operating Income
    
    
    9,709
    
    
    
    5.3
    
    
    
    10,362
    
    
    
    5.8
    
    
    
    (653
    )Interest expense, net
    
    
    5,484
    
    
    
    3.0
    
    
    
    5,919
    
    
    
    3.3
    
    
    
    (435
    )Equity in earnings of investees
    
    
    (2,120
    )
    
    
    (1.2
    )
    
    
    (1,416
    )
    
    
    (0.8
    )
    
    
    (704
    )Other loss, net
    
    
    288
    
    
    
    0.2
    
    
    
    7
    
    
    
    0.0
    
    
    
    281Income Before Income Taxes
    
    
    6,057
    
    
    
    3.3
    
    
    
    5,852
    
    
    
    3.3
    
    
    
    205Provision for income taxes
    
    
    1,187
    
    
    
    0.6
    
    
    
    2,085
    
    
    
    1.2
    
    
    
    (898
    )Net Income
    
    $
    4,870
    
    
    
    2.6
    %
    
    $
    3,767
    
    
    
    2.1
    %
    
    $
    1,103
 Cost of Goods Sold.
 Selling, General and Administrative Expenses.
  Equity in Earnings of Investees.
 Income Before Income Taxes.
 First Quarter Ended
    
    
    $ Increase /
    
    
    % Increase /March 31, 2007
    
    
    April 1, 2006
    
    
    (Decrease)
    
    
    (Decrease)Electronics
    
    $
    7,106
    
    
    $
    6,197
    
    
    $
    909
    
    
    
    14.7
    %Control Devices
    
    
    2,528
    
    
    
    4,409
    
    
    
    (1,881
    )
    
    
    (42.7
    )%Other corporate activities
    
    
    1,949
    
    
    
    932
    
    
    
    1,017
    
    
    
    109.1
    %Corporate interest expense
    
    
    (5,526
    )
    
    
    (5,686
    )
    
    
    160
    
    
    
    2.8
    %Income before income taxes
    
    $
    6,057
    
    
    $
    5,852
    
    
    $
    205
    
    
    
    3.5
    %
  22




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##### Table of Contents



First Quarter Ended
    
    
    $ Increase /
    
    
    % Increase /March 31, 2007
    
    
    April 1, 2006
    
    
    (Decrease)
    
    
    (Decrease)North America
    
    $
    2,394
    
    
    
    39.5
    %
    
    $
    2,889
    
    
    
    49.4
    %
    
    $
    (495
    )
    
    
    (17.1
    )%Europe and other
    
    
    3,663
    
    
    
    60.5
    
    
    
    2,963
    
    
    
    50.6
    
    
    
    700
    
    
    
    23.6
    %Income before income taxes
    
    $
    6,057
    
    
    
    100.0
    %
    
    $
    5,852
    
    
    
    100.0
    %
    
    $
    205
    
    
    
    3.5
    %
  Provision for Income Taxes.
 Liquidity and Capital Resources
      23




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##### Table of Contents



Critical Accounting Policies and Estimates
  Inflation and International Presence
  Forward-Looking Statements
  
    
    the loss or bankruptcy of a major customer or supplier;
    
    the costs and timing of facility closures, business realignment, or similar actions;
    
    a significant change in automotive, medium- and heavy-duty, agricultural or off-highway vehicle production;
    
    our ability to achieve cost reductions that offset or exceed customer-mandated selling price reductions;
    
    a significant change in general economic conditions in any of the various countries in which we operate;
    
    labor disruptions at our facilities or at any of our significant customers or suppliers;
    
    the ability of our suppliers to supply us with parts and components at competitive prices on a timely basis;
    
    the amount of debt and the restrictive covenants contained in our credit facility;
    
    customer acceptance of new products;
    
    capital availability or costs, including changes in interest rates or market perceptions;
    
    the successful integration of any acquired businesses;
    
    the occurrence or non-occurrence of circumstances beyond our control; and
    
    those items described in Part I, Item IA (Risk Factors) of the Companys 2006 Form 10-K.
 24




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 Interest Rate Risk
  Commodity Price Risk
    Foreign Currency Exchange Risk
    25




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##### Table of Contents



Item 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  26




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##### Table of Contents



PART IIOTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  
 Item 6. Exhibits.
  27




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##### Table of Contents



SIGNATURES
   Date:  May 10, 2007
    /s/ John C. CoreyJohn C. CoreyPresident, Chief Executive Officer and Director
(Principal Executive Officer)Date: May 10, 2007
    /s/ George E. StricklerGeorge E. StricklerExecutive Vice President, Chief Financial Officer and
Treasurer
(Principal Financial Officer) 28




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##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    Exhibit31.1
    
    
    Chief Executive Officer
certification pursuant to Section
302 of the Sarbanes-Oxley Act of
2002, filed herewith.31.2
    
    
    Chief Financial Officer
certification pursuant to Section
302 of the Sarbanes-Oxley Act of
2002, filed herewith.32.1
    
    
    Chief Executive Officer
certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002, filed herewith.32.2
    
    
    Chief Financial Officer
certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002, filed herewith.
 29