NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data, unless otherwise indicated) REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS Stoneridge, Inc. and Subsidiaries Stoneridge, Inc. and Subsidiaries ARTHUR ANDERSEN LLP Cleveland, Ohio, January 22, 2002. The Company has adopted SFAS 131, “Disclosures about Segments of an Enterprise and Related Information.” SFAS 131 requires the financial statement disclosures for operating segments, products and services, and geo- graphic areas. The Company operates in one business segment based on the aggregation criteria set forth in SFAS 131.  As explained in Note 2 to the consolidated financial statements, effective January 1, 2001, the Company changed its method of accounting for derivative instru- ments. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial posi- tion of Stoneridge, Inc. and Subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. The following is a condensed summary of actual quarterly results of operations for 2001 and 2000:  In the ordinary course of business, the Company is involved in various legal proceedings, workers’ compen- sation and product liability disputes. Management is of the opinion that the ultimate resolution of these matters will not have a material adverse effect on the results of operations or the financial position of the Company. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting princi- ples used and significant estimates made by manage- ment, as well as evaluating the overall financial state- ment presentation. We believe that our audits provide a reasonable basis for our opinion. We have audited the accompanying consolidated balance sheets of Stoneridge, Inc. (an Ohio corporation) and Subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2001. These financial state- ments are the responsibility of the Company’s manage- ment. Our responsibility is to express an opinion on these financial statements based on our audits. To the Board of Directors and Shareholders of Stoneridge, Inc.: The interest rate swap agreements require the Company to pay a fixed interest rate to counterparties while receiv- ing a floating interest rate based on LIBOR. The counter- parties to each of the interest rate swap agreements are major commercial banks. Management believes that loss- es related to credit risk are remote. The Company also entered into a foreign currency for- ward contract to purchase $13.3 million of Swedish krona to satisfy krona denominated debt obligations. The esti- mated fair value of the forward at December 31, 2001, per quoted market sources, was not materially different from the carrying value. The following table presents net sales and non-current assets for each of the geographic areas in which the Company operates: Forward-Looking Statements Portions of this report may contain "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. These statements appear in a num- ber of places in this report and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to, among other things, the Company’s (i) future product and facility expansion, (ii) acquisition strategy, (iii) invest- ments and new product development and (iv) growth opportunities related to awarded business. Forward-look- ing statements may be identified by the words “will,” “may,” “designed to,” “believes,” “plans,” “expects,” “con- tinue,” and similar expressions. The forward-looking statements in this report are subject to risks and uncer- tainties 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-look- ing statements include, among other factors: 23 • the loss of a major customer; • a further decline in automotive, medium- and heavy- duty or agricultural vehicle production; • the failure to achieve successful integration of any acquired company or business; • a decline in general economic conditions in any of the various countries in which the Company oper- ates; • 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; • our significant 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 of the Company; • changes by the Financial Accounting Standards Board or the Securities and Exchange Commission of authoritative generally accepted accounting prin- ciples or policies; • the impact of laws and regulations, including envi- ronmental laws and regulations; and • the occurrence or non-recurrence of circumstances beyond our control. NOTE 13 UNAUDITED QUARTERLY FINANCIAL DATA NOTE 12 GEOGRAPHIC AREAS NOTE 11 COMMITMENTS AND CONTINGENCIES 22 2001 2000 1999 Net sales: North America $ 498,011 $ 579,877 $ 599,309 Europe and other 86,457 87,315 75,912 Total $ 584,468 $ 667,192 $ 675,221 Non-current assets: North America $ 440,915 $ 446,744 $ 452,774 Europe and other 53,183 55,497 53,219 Total $494,098 $ 502,241 $ 505,993 (A) Gross profit represents net sales less cost of goods sold. Quarter Ended Dec. 31 Sep. 30 June 30 Mar. 31 (in millions, except per share data) 2001 Net sales $140.0 $136.4 $151.9 $156.2 Gross profit  (A) 30.0 30.2 36.7 38.1 Operating income 8.4 4.5 9.8 12.9 Net income (loss) $ 0.2 $ (1.8) $ 1.5 $ 3.1 Basic and diluted net income (loss) per share $ .01 $ (.08) $ 0.07 $ 0.14 2000 Net sales $146.4 $153.8 $182.8 $184.2 Gross profit  (A) 30.7 38.0 50.7 51.7 Operating income 7.9 15.4 25.2 26.6 Net income $ 1.1 $ 7.5 $ 11.6 $ 12.5 Basic and diluted net income per share $ 0.05 $ 0.34 $ 0.52 $ 0.56