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 June 30,
2009





OR





 ̈
              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
                  
                  (I.R.S.
      Employerincorporation
      or organization)
                  
                  Identification
      No.)





9400
      East Market Street, Warren, Ohio
                  
                  44484(Address
      of principal executive offices)
                  
                  (Zip
      Code)





(330)
      856-2443Registrant’s
      telephone number, including area
code





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for 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.


x Yes o No





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).


o Yes o No




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 x
                  
                  Non-accelerated
      filer o
                  
                  Smaller
      reporting company o(Do
      not check if a smaller reporting company)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).  o Yes x No





The
number of Common Shares, without par value, outstanding as of July 24, 2009 was
25,175,801.








STONERIDGE,
INC. AND SUBSIDIARIES


INDEXPage No.PART
      I–FINANCIAL INFORMATIONItem
      1.
                    Financial
      StatementsCondensed
      Consolidated Balance Sheets (Unaudited) as of June 30, 2009 and December
      31, 2008
                    2Condensed
      Consolidated Statements of Operations (Unaudited) For the Three and Six
      Months Ended June 30, 2009 and 2008
                    3Condensed
      Consolidated Statements of Cash Flows (Unaudited) For the Six Months Ended
      June 30, 2009 and 2008
                    4Notes
      to Condensed Consolidated Financial Statements (Unaudited)
                    5Item
      2.
                    Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                    24Item
      3.
                    Quantitative
      and Qualitative Disclosures About Market Risk
                    33Item
      4.
                    Controls
      and Procedures
                    34PART
      II–OTHER INFORMATIONItem
      1.
                    Legal
      Proceedings
                    34Item
      1A.
                    Risk
      Factors
                    34Item
      2.
                    Unregistered
      Sales of Equity Securities and Use of Proceeds
                    34Item
      3.
                    Defaults
      Upon Senior Securities
                    34Item
      4.
                    Submission
      of Matters to a Vote of Security Holders
                    35Item
      5.
                    Other
      Information
                    35Item
      6.
                    Exhibits
                    35Signatures
                    36Index
      to Exhibits
                    37EX
      – 10.1EX
      – 10.2EX
      – 10.3EX
      – 31.1EX
      – 31.2EX
      – 32.1EX
      – 32.2





1




PART
I–FINANCIAL INFORMATION


Item
1.  Financial Statements.





STONERIDGE,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(Unaudited)


(in
thousands)





June
      30,
                    
                    
                    December
      31,2009
                    
                    
                    2008(Unaudited)
                    
                    
                    (Audited)ASSETSCurrent
      Assets:Cash
      and cash equivalents
                    
                    $
                    85,481
                    
                    
                    $
                    92,692Accounts
      receivable, less reserves of $4,186 and $4,204,
    respectively
                    
                    
                    70,689
                    
                    
                    
                    96,535Inventories,
      net
                    
                    
                    43,683
                    
                    
                    
                    54,800Prepaid
      expenses and other
                    
                    
                    16,453
                    
                    
                    
                    9,069Deferred
      income taxes
                    
                    
                    1,957
                    
                    
                    
                    1,495Total
      current assets
                    
                    
                    218,263
                    
                    
                    
                    254,591Long-Term
      Assets:Property,
      plant and equipment, net
                    
                    
                    80,287
                    
                    
                    
                    87,701Other
      Assets:Investments
      and other, net
                    
                    
                    43,279
                    
                    
                    
                    40,145Total
      long-term assets
                    
                    
                    123,566
                    
                    
                    
                    127,846Total
      Assets
                    
                    $
                    341,829
                    
                    
                    $
                    382,437LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      Liabilities:Accounts
      payable
                    
                    $
                    41,020
                    
                    
                    $
                    50,719Accrued
      expenses and other
                    
                    
                    39,040
                    
                    
                    
                    43,485Total
      current liabilities
                    
                    
                    80,060
                    
                    
                    
                    94,204Long-Term
      Liabilities:Long-term
      debt
                    
                    
                    183,000
                    
                    
                    
                    183,000Deferred
      income taxes
                    
                    
                    5,379
                    
                    
                    
                    7,002Other
      liabilities
                    
                    
                    6,987
                    
                    
                    
                    6,473Total
      long-term liabilities
                    
                    
                    195,366
                    
                    
                    
                    196,475Shareholders'
      Equity:Preferred
      Shares, without par value, authorized 5,000 shares, none
      issued.
                    
                    
                    -
                    
                    
                    
                    -Common
      Shares, without par value, authorized 60,000 shares, issued 25,286 and
      24,772 shares and outstanding 25,176 and 24,665 shares, respectively,
      with no stated value
                    
                    
                    -
                    
                    
                    
                    -Additional
      paid-in capital.
                    
                    
                    158,232
                    
                    
                    
                    158,039Common
      Shares held in treasury, 110 and 107 shares, respectively, at
      cost
                    
                    
                    (132
                    )
                    
                    
                    (129
                    )Accumulated
      deficit
                    
                    
                    (90,499
                    )
                    
                    
                    (59,155
                    )Accumulated
      other comprehensive loss
                    
                    
                    (1,198
                    )
                    
                    
                    (6,997
                    )Total
      shareholders’ equity
                    
                    
                    66,403
                    
                    
                    
                    91,758Total
      Liabilities and Shareholders' Equity
                    
                    $
                    341,829
                    
                    
                    $
                    382,437





The
accompanying notes are an integral part of these condensed consolidated
financial statements.





2





STONERIDGE,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)


(in
thousands, except per share data)





Three
      Months Ended
                
                
                Six
      Months EndedJune 30,
                
                
                June 30,2009
                
                
                2008
                
                
                2009
                
                
                2008Net
      Sales
                
                $
                102,290
                
                
                $
                213,229
                
                
                $
                223,375
                
                
                $
                416,299Costs
      and Expenses:Cost
      of goods sold
                
                
                88,694
                
                
                
                163,875
                
                
                
                190,504
                
                
                
                315,128Selling,
      general and administrative
                
                
                26,338
                
                
                
                36,884
                
                
                
                53,415
                
                
                
                73,166Restructuring
      charges
                
                
                1,551
                
                
                
                1,713
                
                
                
                2,509
                
                
                
                3,135Operating
      Income (Loss)
                
                
                (14,293
                )
                
                
                10,757
                
                
                
                (23,053
                )
                
                
                24,870Interest
      expense, net
                
                
                5,538
                
                
                
                4,880
                
                
                
                11,035
                
                
                
                10,252Equity
      in earnings of investees
                
                
                (903
                )
                
                
                (3,016
                )
                
                
                (1,478
                )
                
                
                (6,835
                )Loss
      on early extinguishment of debt
                
                
                -
                
                
                
                271
                
                
                
                -
                
                
                
                770Other
      expense (income), net.
                
                
                639
                
                
                
                (124
                )
                
                
                645
                
                
                
                278Income
      (Loss) Before Income Taxes
                
                
                (19,567
                )
                
                
                8,746
                
                
                
                (33,255
                )
                
                
                20,405Provision
      (benefit) for income taxes
                
                
                197
                
                
                
                4,062
                
                
                
                (1,911
                )
                
                
                9,174Net
      Income (Loss)
                
                $
                (19,764
                )
                
                $
                4,684
                
                
                $
                (31,344
                )
                
                $
                11,231Basic
      net income (loss) per share
                
                $
                (0.84
                )
                
                $
                0.20
                
                
                $
                (1.33
                )
                
                $
                0.48Basic
      weighted average shares outstanding
                
                
                23,516
                
                
                
                23,286
                
                
                
                23,490
                
                
                
                23,327Diluted
      net income (loss) per share
                
                $
                (0.84
                )
                
                $
                0.20
                
                
                $
                (1.33
                )
                
                $
                0.47Diluted
      weighted average shares outstanding
                
                
                23,516
                
                
                
                23,690
                
                
                
                23,490
                
                
                
                23,722





The
accompanying notes are an integral part of these condensed consolidated
financial statements.





3





STONERIDGE,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)


(in
thousands)





Six
      Months EndedJune
      30,2009
                    
                    
                    2008OPERATING
      ACTIVITIES:Net
      income (loss)
                    
                    $
                    (31,344
                    )
                    
                    $
                    11,231Adjustments
      to reconcile net income (loss) to net cash provided by (used for)
      operating activities -Depreciation
                    
                    
                    10,267
                    
                    
                    
                    14,316Amortization.
                    
                    
                    485
                    
                    
                    
                    784Deferred
      income taxes
                    
                    
                    (2,282
                    )
                    
                    
                    7,281Equity
      in earnings of investees
                    
                    
                    (1,478
                    )
                    
                    
                    (6,835
                    )Loss
      on sale of property, plant and equipment
                    
                    
                    280
                    
                    
                    
                    145Share-based
      compensation expense
                    
                    
                    597
                    
                    
                    
                    1,903Changes
      in operating assets and liabilities -Accounts
      receivable, net
                    
                    
                    25,974
                    
                    
                    
                    (17,924
                    )Inventories,
      net.
                    
                    
                    11,584
                    
                    
                    
                    (11,739
                    )Prepaid
      expenses and other
                    
                    
                    (3,384
                    )
                    
                    
                    (625
                    )Accounts
      payable
                    
                    
                    (10,333
                    )
                    
                    
                    6,081Accrued
      expenses and other
                    
                    
                    (2,966
                    )
                    
                    
                    7,956Net
      cash provided by (used for) operating activities
                    
                    
                    (2,600
                    )
                    
                    
                    12,574INVESTING
      ACTIVITIES:Capital
      expenditures
                    
                    
                    (6,743
                    )
                    
                    
                    (11,641
                    )Proceeds
      from sale of property, plant and equipment
                    
                    
                    92
                    
                    
                    
                    307Business
      acquisitions and other
                    
                    
                    -
                    
                    
                    
                    (980
                    )Net
      cash used for investing activities
                    
                    
                    (6,651
                    )
                    
                    
                    (12,314
                    )FINANCING
      ACTIVITIES:Repayments
      of long-term debt
                    
                    
                    -
                    
                    
                    
                    (17,000
                    )Share-based
      compensation activity, net
                    
                    
                    -
                    
                    
                    
                    1,162Premiums
      related to early extinguishment of debt
                    
                    
                    -
                    
                    
                    
                    (553
                    )Net
      cash used for financing activities
                    
                    
                    -
                    
                    
                    
                    (16,391
                    )Effect
      of exchange rate changes on cash and cash equivalents
                    
                    
                    2,040
                    
                    
                    
                    1,549Net
      change in cash and cash equivalents
                    
                    
                    (7,211
                    )
                    
                    
                    (14,582
                    )Cash
      and cash equivalents at beginning of period
                    
                    
                    92,692
                    
                    
                    
                    95,924Cash
      and cash equivalents at end of period
                    
                    $
                    85,481
                    
                    
                    $
                    81,342





The
accompanying notes are an integral part of these condensed consolidated
financial statements.





4





STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(in
thousands, except share and per share data, unless otherwise
indicated)





(1) 
Basis of Presentation





The
accompanying condensed consolidated financial statements have been prepared by
Stoneridge, Inc. (the “Company”) without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the “Commission”).The
information furnished in the condensed consolidated financial statements
includes normal recurring adjustments and reflects all adjustments, which are,
in the opinion of management, necessary for a fair presentation of such
financial statements.Certain information and footnote disclosures normally
included in financial statements prepared in accordance with U.S. generally
accepted accounting principles have been condensed or omitted pursuant to the
Commission’s rules and regulations.The results of operations for the six months
ended June 30, 2009 are not necessarily indicative of the results to be expected
for the full year.





Although
the Company believes that the disclosures are adequate to make the information
presented not misleading, it is suggested that these condensed consolidated
financial statements be read in conjunction with the audited consolidated
financial statements and the notes thereto included in the Company’s Form 10-K
for the fiscal year ended December 31, 2008.





(2)
 Inventories





Inventories
are valued at the lower of cost or market.Cost is determined by the last-in,
first-out (“LIFO”) method for approximately 70% and 72% of the Company’s
inventories at June 30, 2009 and December 31, 2008, respectively, and by the
first-in, first-out (“FIFO”) method for all other inventories.The Company
adjusts its excess and obsolescence reserve at least on a quarterly basis.Excess
inventories are quantities of items that exceed anticipated sales or usage for a
reasonable period.The Company has guidelines for calculating provisions for
excess inventories based on the number of months of inventories on hand compared
to anticipated sales or usage.Management uses its judgment to forecast sales or
usage and to determine what constitutes a reasonable period.Inventory cost
includes material, labor and overhead.Inventories consist of the
following:





June 30,
                
                
                December 31,2009
                
                
                2008Raw
      materials
                
                $
                21,926
                
                
                $
                32,981Work-in-progress
                
                
                3,138
                
                
                
                8,876Finished
      goods
                
                
                22,103
                
                
                
                15,890Total
      inventories
                
                
                47,167
                
                
                
                57,747Less:
      LIFO reserve
                
                
                (3,484
                )
                
                
                (2,947
                )Inventories,
      net
                
                $
                43,683
                
                
                $
                54,800





(3)  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 Company’s senior notes (fixed rate
debt) at June 30, 2009 and December 31, 2008, per quoted market sources, was
$146.4 million and $124.4 million, respectively.The carrying value was $183.0
million as of June 30, 2009 and December 31, 2008.





Derivative Instruments and Hedging
Activities





Effective
January 1, 2009, the Company adopted Statement of Financial Accounting Standard
(“SFAS”) No. 161, Disclosures
About Derivative Instruments and Hedging Activities – an amendment of FASB
Statement No. 133, which expands the quarterly and annual disclosure
requirements about the Company’s derivative instruments and hedging
activities.The adoption of SFAS 161 did not have an effect on the Company’s
financial position, results of operations or cash flows.





5





STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(in
thousands, except share and per share data, unless otherwise
indicated)





We make
use of derivative instruments in foreign exchange and commodity price hedging
programs.Derivatives currently in use are foreign currency forward contracts and
commodity swaps.These contracts are used strictly for hedging and not for
speculative purposes.They are used to mitigate uncertainty and volatility and to
cover underlying exposures.Management believes that its use of these instruments
to reduce risk is in the Company’s best interest.The counterparties to these
financial instruments are financial institutions with strong credit
ratings.





The
Company conducts business internationally and therefore is exposed to foreign
currency exchange risk.The Company uses derivative financial instruments as cash
flow hedges 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 foreign currency exposures.The
currencies hedged by the Company include the British pound and Mexican peso.In
certain instances, the foreign currency forward contracts are marked to market,
with gains and losses recognized in the Company’s condensed consolidated
statement of operations as a component of other expense (income), net.The
Company’s foreign currency forward contracts substantially offset gains and
losses on the underlying foreign currency denominated transactions.As of June
30, 2009 and December 31, 2008, the Company held foreign currency forward
contracts to reduce the exposure related to the Company’s British
pound-denominated intercompany receivables.These contracts expire in September
2009.For the six months ended June 30, 2009, the Company recognized a $191 loss
related to the British pound contract in the condensed consolidated statement of
operations as a component of other expense (income), net.The Company also holds
contracts intended to reduce exposure to the Mexican peso.These contracts were
executed to hedge forecasted transactions, and therefore the contracts are
accounted for as cash flow hedges.These Mexican peso-denominated foreign
currency option contracts expire monthly throughout 2009.The effective portion
of the unrealized gain or loss is deferred and reported in the Company’s
condensed consolidated balance sheets as a component of accumulated other
comprehensive loss.The Company’s expectation is that the cash flow hedges will
be highly effective in the future.The effectiveness of the transactions has been
and will be measured on an ongoing basis using regression analysis.





To
mitigate the risk of future price volatility and, consequently, fluctuations in
gross margins, the Company has entered into fixed price commodity swaps with a
financial institution to fix the cost of copper purchases. In December 2007, the
Company entered into a fixed price swap contract for 1.0 million pounds of
copper, which expired on December 31, 2008.In September 2008, the Company
entered into a fixed price swap contract for 1.4 million pounds of copper, which
covers the period from January 2009 to December 2009.Because these contracts
were executed to hedge forecasted transactions, the contracts are accounted for
as cash flow hedges.The unrealized gain or loss for the effective portion of the
hedge is deferred and reported in the Company’s condensed consolidated balance
sheets as a component of accumulated other comprehensive loss. The Company deems
these cash flow hedges to be highly effective.The effectiveness of the
transactions has been and will be measured on an ongoing basis using regression
analysis.





6





STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(in
thousands, except share and per share data, unless otherwise
indicated)





The
notional amounts and fair values of derivative instruments in the condensed
consolidated balance sheets were as follows:




Prepaid
      expenses
                
                
                Accrued
      expenses andNotional amounts1
                
                
                and other assets
                
                
                other liabilitiesJune
      30,
                
                
                December
      31,
                
                
                June
      30,
                
                
                December
      31,
                
                
                June
      30,
                
                
                December
      31,2009
                
                
                2008
                
                
                2009
                
                
                2008
                
                
                2009
                
                
                2008Derivatives
      designated as hedging instruments under SFAS 133:Forward
      currency contracts
                
                $
                17,258
                
                
                $
                35,457
                
                
                $
                -
                
                
                $
                -
                
                
                $
                396
                
                
                $
                2,930Commodity
      contracts
                
                
                2,042
                
                
                
                4,085
                
                
                
                -
                
                
                
                -
                
                
                
                464
                
                
                
                2,10419,300
                
                
                
                39,542
                
                
                
                -
                
                
                
                -
                
                
                
                860
                
                
                
                5,034Derivatives
      not designated as hedging instruments under SFAS 133:Forward
      currency contracts.
                
                
                6,686
                
                
                
                8,762
                
                
                
                22
                
                
                
                2,101
                
                
                
                -
                
                
                
                -Total
      derivatives.
                
                $
                25,986
                
                
                $
                48,304
                
                
                $
                22
                
                
                $
                2,101
                
                
                $
                860
                
                
                $
                5,034





1
- Notional amounts represent the gross contract / notional amount of the
derivatives outstanding.





Amounts
recorded in other comprehensive loss in shareholders’ equity and in net loss for
the three months ended June 30, 2009 were as follows:





Amount of gain
                        recorded in other
                        comprehensive loss
                      
                      
                      Amount of loss
                        reclassified from
                        othercomprehensive
                        loss intonet loss
                      
                      Location of loss
                        reclassified from other
                        comprehensive loss into
                        net lossDerivatives designated
      as cash flow hedgesForward
      currency contracts
                      
                      $
                      2,273
                      
                      
                      $
                      -Commodity
      contracts
                      
                      
                      663
                      
                      
                      
                      (281
                      )
                      Cost of goods sold$
                      2,936
                      
                      
                      $
                      (281
                      )





Amounts
recorded in other comprehensive loss in shareholders’ equity and in net loss for
the six months ended June 30, 2009 were as follows:





Amount of gain
                        recorded in other
                        comprehensive loss
                      
                      
                      Amount of loss
                        reclassified from
                        othercomprehensive
                        loss intonet loss
                      
                      Location of loss
                        reclassified from other
                        comprehensive loss into
                        net lossDerivatives
      designated as cash flow hedgesForward
      currency contracts
                      
                      $
                      2,534
                      
                      
                      $
                      -Commodity
      contracts
                      
                      
                      1,640
                      
                      
                      
                      (758
                      )
                      Cost of goods sold$
                      4,174
                      
                      
                      $
                      (758
                      )





These
derivatives will be reclassified from other comprehensive loss to the
consolidated statement of operations over the next six months.





7





STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(in
thousands, except share and per share data, unless otherwise
indicated)





Statement
of Financial Accounting Standard No. 157, Fair Value
Measurements




Effective
January 1, 2009, the Company adopted SFAS No. 157, Fair Value Measurements(“SFAS 157”) as it relates to nonfinancial assets and nonfinancial
liabilities measured on a non-recurring basis.The Company adopted SFAS 157 for
financial assets and financial liabilities on January 1, 2008.SFAS 157 clarifies
the definition of fair value, prescribes methods for measuring fair value,
establishes a fair value hierarchy based on the inputs used to measure fair
value and expands disclosures about the use of fair value measurements.The
adoption of SFAS 157 did not have a material effect on the Company’s fair value
measurements.





The
following table presents our assets and liabilities that are measured at fair
value on a recurring basis and are categorized using the fair value
hierarchy.The fair value hierarchy has three levels based on the reliability of
the inputs used to determine fair value.





June 30, 2009
                          
                          
                          December 31,Fair Value Estimated Using
                          
                          
                          2008Fair Value
                          
                          
                          Level 1 inputs(1)
                          
                          
                          Level 2 inputs(2)
                          
                          
                          Fair ValueFinancial
      assets carried at fair valueAvailable
      for sale security
                          
                          $
                          223
                          
                          
                          $
                          223
                          
                          
                          $
                          -
                          
                          
                          $
                          252Forward
      currency contracts
                          
                          
                          22
                          
                          
                          
                          -
                          
                          
                          
                          22
                          
                          
                          
                          2,101Total
      financial assets carried at fair value.
                          
                          $
                          245
                          
                          
                          $
                          223
                          
                          
                          $
                          22
                          
                          
                          $
                          2,353Financial
      liabilities carried at fair valueForward
      currency contracts
                          
                          $
                          396
                          
                          
                          $
                          -
                          
                          
                          $
                          396
                          
                          
                          $
                          2,930Commodity
      hedge contracts
                          
                          
                          464
                          
                          
                          
                          -
                          
                          
                          
                          464
                          
                          
                          
                          2,104Total
      financial liabilities carried at fair value
                          
                          $
                          860
                          
                          
                          $
                          -
                          
                          
                          $
                          860
                          
                          
                          $
                          5,034





(1)
            Fair
      values estimated using Level 1 inputs, which consist of quoted prices in
      active markets for identical assets or liabilities that the Company has
      the ability to access at the measurement date.The available for sale
      security is an equity security that is publically
  traded.





(2)
            Fair
      values estimated using Level 2 inputs, other than quoted prices, that are
      observable for the asset or liability, either directly or indirectly and
      include among other things, quoted prices for similar assets or
      liabilities in markets that are active or inactive as well as inputs other
      than quoted prices that are observable.For forward currency and commodity
      hedge contracts, inputs include foreign currency exchange rates and
      commodity indexes.





8





STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(in
thousands, except share and per share data, unless otherwise
indicated)





(4) 
Share-Based Compensation





Total
compensation expense recognized in the condensed consolidated statements of
operations for share-based compensation arrangements was $33 and $822 for the
three months ended June 30, 2009 and 2008, respectively.For the six months ended
June 30, 2009 and 2008, total compensation expense recognized in the condensed
consolidated statements of operations for share-based compensation arrangements
was $597 and $1,903, respectively.





(5) 
Comprehensive Income (Loss)





SFAS No.
130, Reporting Comprehensive
Income, establishes standards for the reporting and disclosure of
comprehensive income (loss).





The
components of comprehensive income (loss), net of tax are as
follows:





Three
      Months Ended
                
                
                Six
      Months EndedJune 30,
                
                
                June 30,2009
                
                
                2008
                
                
                2009
                
                
                2008Net
      income (loss).
                
                $
                (19,764
                )
                
                $
                4,684
                
                
                $
                (31,344
                )
                
                $
                11,231Other
      comprehensive income (loss):Currency
      translation adjustments
                
                
                4,784
                
                
                
                1,294
                
                
                
                1,894
                
                
                
                5,110Pension
      liability adjustments.
                
                
                (292
                )
                
                
                (1
                )
                
                
                (250
                )
                
                
                (10
                )Unrealized
      gain (loss) on marketable securities
                
                
                35
                
                
                
                5
                
                
                
                (19
                )
                
                
                (12
                )Unrecognized
      gain (loss) on derivatives
                
                
                2,936
                
                
                
                (170
                )
                
                
                4,174
                
                
                
                348Total
      other comprehensive income
                
                
                7,463
                
                
                
                1,128
                
                
                
                5,799
                
                
                
                5,436Comprehensive
      income (loss).
                
                $
                (12,301
                )
                
                $
                5,812
                
                
                $
                (25,545
                )
                
                $
                16,667





Accumulated
other comprehensive loss, net of tax is comprised of the following:





June
      30,
                
                
                December
      31,2009
                
                
                2008Foreign
      currency translation adjustments
                
                $
                1,900
                
                
                $
                6Pension
      liability adjustments
                
                
                (2,209
                )
                
                
                (1,959
                )Unrealized
      loss on marketable securities
                
                
                (49
                )
                
                
                (30
                )Unrecognized
      loss on derivatives
                
                
                (840
                )
                
                
                (5,014
                )Accumulated
      other comprehensive loss
                
                $
                (1,198
                )
                
                $
                (6,997
                )





6) 
Long-Term Debt





Senior
Notes





The
Company had $183.0 million of senior notes outstanding at June 30, 2009 and
December 31, 2008, respectively.During the first half of 2008, the Company
repurchased and retired $17.0 million in face value of the senior notes.The
outstanding senior notes bear interest at an annual rate of 11.50% and mature on
May 1, 2012.The senior notes are redeemable, at the Company’s option, at 101.917
until April 30, 2010.The senior notes will remain redeemable at various levels
until the maturity date.Interest is payable on May 1 and November 1 of each
year.The senior notes do not contain financial covenants.The Company was in
compliance with all non-financial covenants at June 30, 2009 and December 31,
2008.








9





STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(in
thousands, except share and per share data, unless otherwise
indicated)





Credit
Facility





On
November 2, 2007, the Company entered into an asset-based credit facility (the
“credit facility”), which permits borrowing up to a maximum level of $100.0
million.At June 30, 2009 and December 31, 2008, there were no borrowings on this
credit facility. The available borrowing capacity on this credit facility is
based on eligible current assets, as defined.At June 30, 2009 and December 31,
2008, the Company had borrowing capacity of $45.5 million and $57.7 million,
respectively based on eligible current assets.The credit facility does not
contain financial performance covenants which would constrain our borrowing
capacity. However, restrictions do include limits on capital expenditures,
operating leases, dividends and investment activities in a negative covenant
which limits investment activities to $15.0 million minus certain guarantees and
obligations.The credit facility expires on November 1, 2011, and requires a
commitment fee of 0.25% on the unused balance.Interest is payable quarterly at
either (i) the higher of the prime rate or the Federal Funds rate plus 0.50%,
plus a margin of 0.00% to 0.25% or (ii) LIBOR plus a margin of 1.00% to 1.75%,
depending upon the Company’s undrawn availability, as defined.The Company was in
compliance with all covenants at June 30, 2009 and December 31,
2008.





(7) 
Net Income (Loss) 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 per share was calculated by dividing net income by the
weighted-average of all potentially dilutive Common Shares that were outstanding
during the periods presented.For all periods in which the Company recognized a
net loss the Company has recognized zero dilutive effect from securities as no
anti-dilution is permitted under SFAS No. 128, Earnings Per
Share.





Actual
weighted-average shares outstanding used in calculating basic and diluted net
income (loss) per share are as follows:





Three
      Months Ended
                
                
                Six
      Months EndedJune 30,
                
                
                June 30,2009
                
                
                2008
                
                
                2009
                
                
                2008Basic
      weighted-average shares outstanding
                
                
                23,515,543
                
                
                
                23,285,848
                
                
                
                23,489,561
                
                
                
                23,327,024Effect
      of dilutive securities
                
                
                -
                
                
                
                403,988
                
                
                
                -
                
                
                
                394,793Diluted
      weighted-average shares outstanding
                
                
                23,515,543
                
                
                
                23,689,836
                
                
                
                23,489,561
                
                
                
                23,721,817





Options
not included in the computation of diluted net income (loss) per share to
purchase 183,250 and 50,000 Common Shares at an average price of $9.57 and
$15.73, respectively, per share were outstanding at June 30, 2009 and June 30,
2008, 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.





As of
June 30, 2009 and 2008, 628,275 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 achieved as of
June 30, 2009 and 2008.These shares may or may not become dilutive based on the
Company’s ability to exceed future earnings thresholds.





(8) 
Restructuring





On
October 29, 2007, the Company announced restructuring initiatives to improve
manufacturing efficiency and cost position by ceasing manufacturing operations
at its Sarasota, Florida and Mitcheldean, United Kingdom locations.In the third
quarter of 2008, the Company announced restructuring initiatives in our Canton,
Massachusetts location. In the fourth quarter of 2008, the Company announced
restructuring initiatives in our Orebro, Sweden and Tallinn, Estonia locations
as well as additional initiatives in our Canton, Massachusetts location.In
response to the depressed conditions in the North American and European
commercial vehicle and automotive markets, the Company began additional
restructuring initiatives in our Juarez, Mexico, Tallinn, Estonia and Canton,
Massachusetts locations during the first quarter of 2009.The Company began
additional restructuring initiatives during the second quarter of 2009 in our
Lexington, Ohio, Orebro and Bromma, Sweden and Juarez and Monclova, Mexico
locations as a result of decline in the North American and European commercial
vehicle and automotive market conditions.In connection with these initiatives,
the Company recorded restructuring charges of $1,551 and $3,657 in the Company’s
condensed consolidated statement of operations for the three months ended June
30, 2009 and 2008, respectively.Restructuring charges for the six months ended
June 30, 2009 and 2008 were $2,532 and $6,177, respectively.Restructuring
expenses that were general and administrative in nature were included in the
Company’s condensed consolidated statement of operations as part of
restructuring charges, while the remaining restructuring related charges were
included in cost of goods sold.








10





STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(in
thousands, except share and per share data, unless otherwise
indicated)





The
charges related to the restructuring initiatives that belong to the Electronics
reportable segment included the following:





Severance
                      Costs
                    
                    
                    Contract
                      Termination
                      Costs
                    
                    
                    Other
                      Associated
                      Costs
                    
                    
                    TotalTotal
      expected restructuring charges
                    
                    $
                    5,555
                    
                    
                    $
                    1,720
                    
                    
                    $
                    2,504
                    
                    
                    $
                    9,7792007
      charge to expense
                    
                    $
                    468
                    
                    
                    $
                    -
                    
                    
                    $
                    103
                    
                    
                    $
                    571Cash
      payments
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (103
                    )
                    
                    
                    (103
                    )Accrued
      balance at December 31, 2007
                    
                    
                    468
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    4682008
      charge to expense.
                    
                    
                    2,830
                    
                    
                    
                    1,305
                    
                    
                    
                    2,401
                    
                    
                    
                    6,536Cash
      payments
                    
                    
                    (2,767
                    )
                    
                    
                    -
                    
                    
                    
                    (2,221
                    )
                    
                    
                    (4,988
                    )Accrued
      balance at December 31, 2008
                    
                    
                    531
                    
                    
                    
                    1,305
                    
                    
                    
                    180
                    
                    
                    
                    2,016First
      quarter 2009 charge to expense
                    
                    
                    369
                    
                    
                    
                    92
                    
                    
                    
                    -
                    
                    
                    
                    461Second
      quarter 2009 charge to expense
                    
                    
                    1,435
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,435Foreign
      currency translation effect
                    
                    
                    -
                    
                    
                    
                    323
                    
                    
                    
                    -
                    
                    
                    
                    323Cash
      payments
                    
                    
                    (1,519
                    )
                    
                    
                    (241
                    )
                    
                    
                    (180
                    )
                    
                    
                    (1,940
                    )Accrued
      Balance at June 30, 2009
                    
                    $
                    816
                    
                    
                    $
                    1,479
                    
                    
                    $
                    -
                    
                    
                    $
                    2,295Remaining
      expected restructuring charge
                    
                    $
                    453
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    453








11





STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(in
thousands, except share and per share data, unless otherwise
indicated)





The
charges related to the restructuring initiatives that belong to the Control
Devices reportable segment included the following:





Severance
                      Costs
                    
                    
                    Other
                      Associated
                      Costs
                    
                    
                    Total
      (A)Total
      expected restructuring charges
                    
                    $
                    3,491
                    
                    
                    $
                    6,449
                    
                    
                    $
                    9,9402007
      charge to expense
                    
                    $
                    357
                    
                    
                    $
                    99
                    
                    
                    $
                    456Cash
      payments
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Accrued
      balance at December 31, 2007
                    
                    
                    357
                    
                    
                    
                    99
                    
                    
                    
                    4562008
      charge to expense
                    
                    
                    2,521
                    
                    
                    
                    6,325
                    
                    
                    
                    8,846Cash
      payments
                    
                    
                    (1,410
                    )
                    
                    
                    (6,024
                    )
                    
                    
                    (7,434
                    )Accrued
      balance at December 31, 2008
                    
                    
                    1,468
                    
                    
                    
                    400
                    
                    
                    
                    1,868First
      quarter 2009 charge to expense
                    
                    
                    497
                    
                    
                    
                    25
                    
                    
                    
                    522Second
      quarter 2009 charge to expense
                    
                    
                    116
                    
                    
                    
                    -
                    
                    
                    
                    116Cash
      payments
                    
                    
                    (2,060
                    )
                    
                    
                    (135
                    )
                    
                    
                    (2,195
                    )Accrued
      Balance at June 30, 2009
                    
                    $
                    21
                    
                    
                    $
                    290
                    
                    
                    $
                    311Remaining
      expected restructuring charge
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -





(A)
            Total
      expected restructuring charges does not include the expected gain from the
      future sale of the Company’s Sarasota, Florida,
  facility.





All
restructuring charges, except for asset-related charges, result in cash
outflows. Severance costs relate to a reduction in workforce.Contract
termination costs represent costs associated with long-term lease obligations
that were cancelled as part of the restructuring initiatives.Other associated
costs include premium direct labor, inventory and equipment move costs,
relocation expense, increased inventory carrying cost and miscellaneous
expenditures associated with exiting business activities.No fixed-asset
impairment charges were incurred because assets are being transferred to other
locations for continued production.





(9) 
Commitments and Contingencies





In the
ordinary course of business, the Company is involved in various legal
proceedings, workers’ compensation disputes and other commercial matters. 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.





Product
Warranty and Recall





Amounts
accrued for product warranty and recall claims are established based on the
Company’s 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.





12





STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(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 six months ended June 30, 2009 and 2008:





2009
                  
                  
                  2008Product
      warranty and recall at beginning of period
                  
                  $
                  5,527
                  
                  
                  $
                  5,306Accruals
      for products shipped during period
                  
                  
                  293
                  
                  
                  
                  3,417Aggregate
      changes in pre-existing liabilities due to claims
    developments
                  
                  
                  463
                  
                  
                  
                  745Settlements
      made during the period (in cash or in kind)
                  
                  
                  (2,179
                  )
                  
                  
                  (2,157
                  )Product
      warranty and recall at end of period
                  
                  $
                  4,104
                  
                  
                  $
                  7,311





(10) 
Employee Benefit Plans





The
Company has a single defined benefit pension plan that covers certain former
employees in the United Kingdom.The components of net periodic cost (benefit)
under the defined benefit pension plan are as follows:





Three
      Months Ended
                    
                    
                    Six
      Months EndedJune 30,
                    
                    
                    June 30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Service
      cost
                    
                    $
                    14
                    
                    
                    $
                    35
                    
                    
                    $
                    28
                    
                    
                    $
                    70Interest
      cost
                    
                    
                    219
                    
                    
                    
                    316
                    
                    
                    
                    438
                    
                    
                    
                    632Expected
      return on plan assets
                    
                    
                    (165
                    )
                    
                    
                    (361
                    )
                    
                    
                    (330
                    )
                    
                    
                    (722
                    )Amortization
      of actuarial loss
                    
                    
                    43
                    
                    
                    
                    -
                    
                    
                    
                    86
                    
                    
                    
                    -Net
      periodic cost (benefit)
                    
                    $
                    111
                    
                    
                    $
                    (10
                    )
                    
                    $
                    222
                    
                    
                    $
                    (20
                    )





The
Company expects to contribute $94 to its pension plan in 2009.Of this amount,
contributions of $53 have been made to the pension plan as of June 30,
2009.





Effective
June 1, 2009 the Company discontinued matching contributions to the Company’s
401(k) plan covering substantially all of its employees in the United
States.





(11) 
Income Taxes





The
Company recognized a provision from income taxes of $197, or (1.0)% of pre-tax
loss, and $4,062, or 46.4% of pre-tax income, for federal, state and foreign
income taxes for the three months ended June 30, 2009 and 2008, respectively.The
Company recognized a provision (benefit) for income taxes of $(1,911), or 5.7%
of pre-tax loss, and $9,174, or 45.0% of pre-tax income, for federal, state and
foreign income taxes for the six months ended June 30, 2009 and 2008,
respectively. As reported at December 31, 2008, the Company is in a cumulative
loss position and provides a valuation allowance offsetting federal, state and
certain foreign deferred tax assets. As a result, a tax benefit is not being
provided for losses incurred in the first half of 2009, for federal, state and
certain foreign jurisdictions. The inability to recognize a tax benefit for
these losses and other deferred tax assets has a significant impact on our
effective tax rate as well as the comparability of the current quarter and
year-to-date effective tax rate to prior periods in which the Company had not
recorded a federal valuation allowance.The difference in the effective tax rate
for the three and six month periods ended June 30, 2009 compared to the three
and six month periods ended June 30, 2008, was primarily attributable to the
valuation allowance for federal and state deferred tax assets provided against
the current year domestic loss which was partially offset by recording a tax
benefit related to current period losses in certain foreign jurisdictions in
which it is more likely than not that the benefit of those losses will be
realized in the current year.





13





STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(in
thousands, except share and per share data, unless otherwise
indicated)





(12) 
Accounting Pronouncements





In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
SFAS No. 141(R), Business
Combinations(“SFAS 141(R)”).This standard improves reporting by creating
greater consistency in the accounting and financial reporting of business
combinations.Additionally, SFAS 141(R) requires the acquiring entity in a
business combination to recognize all (and only) the assets acquired and
liabilities assumed in the transaction; establishes the acquisition-date fair
value as the measurement objective for all assets acquired and liabilities
assumed; and requires the acquirer to disclose to investors and other users all
of the information they need to evaluate and understand the nature and financial
effect of the business combination.SFAS 141(R) was effective for financial
statements issued for fiscal years beginning after December 15, 2008. The
adoption of SFAS 141(R) did not have a material effect on the Company’s
financial position, results of operations or cash flows.





In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements(“SFAS 160”).This standard improves the
relevance, comparability and transparency of financial information provided to
investors by requiring all entities to report noncontrolling (minority)
interests in subsidiaries in the same way.Additionally, SFAS 160 eliminates
the diversity that currently exists in accounting for transactions between an
entity and noncontrolling interests by requiring they be treated as equity
transactions.SFAS 160 was effective for financial statements issued for
fiscal years beginning after December 15, 2008.The adoption of SFAS 160 did
not have a material effect on the Company’s financial position, results of
operations or cash flows.





In
December 2008, the FASB issued Staff Position 132(R)-1, Employers’ Disclosures about
Postretirement Benefit Plan Assets (“FSP 132(R)-1”).FSP 132(R)-1 requires
entities to provide enhanced disclosures about how investment allocation
decisions are made, the major categories of plan assets, the inputs and
valuation techniques used to measure fair value of plan assets, the effect of
fair value measurements using significant unobservable inputs on changes in plan
assets for the period and significant concentrations of risk within plan
assets.FSP 132(R)-1 is effective for the Company beginning with its year ending
December 31, 2009.The Company is currently assessing the potential effect, if
any, on its consolidated financial statements.





In June
2009, the FASB issued SFAS No. 166, Accounting for Transfers of
Financial Assets—an
amendment of FASB Statement No. 140, (“SFAS 166”). SFAS 166 amends
various provisions of SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities—a
replacement of FASB Statement No. 125, by removing the concept of a
qualifying special-purpose entity and removes the exception from applying FASB
Interpretation No. 46, Consolidation of Variable Interest
Entities—an interpretation of ARB No. 51, (“FIN 46(R)”)to variable
interest entities that are qualifying special-purpose entities; limits the
circumstances in which a transferor derecognizes a portion or component of a
financial asset; defines a participating interest; requires a transferor to
recognize and initially measure at fair value all assets obtained and
liabilities incurred as a result of a transfer accounted for as a sale; and
requires enhanced disclosure; among others. SFAS 166 becomes effective for the
Company on January 1, 2010. Management does not currently expect SFAS 166
to have a material effect on the Company’s financial position, results of
operations or cash flow.





In June
2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R), (“SFAS 167”). SFAS 167 amends FIN 46(R), to require an
enterprise to perform an analysis to determine whether the enterprise’s variable
interest or interests give it a controlling financial interest in a variable
interest entity; to require ongoing reassessments of whether an enterprise is
the primary beneficiary of a variable interest entity; to eliminate the
quantitative approach previously required for determining the primary
beneficiary of a variable interest entity; to add an additional reconsideration
event for determining whether an entity is a variable interest entity when any
changes in facts and circumstances occur such that holders of the equity
investment at risk, as a group, lose the power from voting rights or similar
rights of those investments to direct the activities of the entity that most
significantly impact the entity’s economic performance; and to require enhanced
disclosures that will provide users of financial statements with more
transparent information about an enterprise’s involvement in a variable interest
entity. SFAS 167 becomes effective for the Company on January 1, 2010.
Management does not currently expect SFAS 167 to have a material effect on the
Company’s financial position, results of operations or cash flow.





14


STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(in
thousands, except share and per share data, unless otherwise
indicated)





In June
2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
CodificationTMand the Hierarchy of Generally
Accepted Accounting Principles—a replacement of FASB Statement
No. 162, (“SFAS 168”). SFAS 168 replaces SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles, and establishes the FASB Accounting Standards
CodificationTM
(“Codification”) as the source of authoritative accounting principles recognized
by the FASB to be applied by nongovernmental entities in the preparation of
financial statements in conformity with GAAP. Rules and interpretive releases of
the Securities and Exchange Commission (“SEC”) under authority of federal
securities laws are also sources of authoritative GAAP for SEC registrants. The
FASB will no longer issue new standards in the form of Statements, FASB Staff
Positions, or Emerging Issues Task Force Abstracts; instead the FASB will issue
Accounting Standards Updates. Accounting Standards Updates will not be
authoritative in their own right as they will only serve to update the
Codification. The issuance of SFAS 168 and the Codification does not change
GAAP. SFAS 168 becomes effective for the Company for the period ending
September 30, 2009. Management has determined that the adoption of SFAS 168
will not have an effect on the Company’s financial position, results of
operations or cash flow.





(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 Company’s chief operating
decision maker in deciding how to allocate resources and in assessing
performance.  The Company’s chief operating decision maker is the
president and chief executive officer.





The
Company has two reportable segments: Electronics and Control
Devices.  The Company’s operating segments are aggregated based on
sharing similar economic characteristics.  Other aggregation factors
include the nature of the products offered and management and oversight
responsibilities.   The Electronics 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.





The
accounting policies of the Company’s reportable segments are the same as those
described in Note 2, “Summary of Significant Accounting Policies” of the
Company’s December 31, 2008 Form 10-K.  The Company’s management
evaluates the performance of its reportable segments based primarily on net
sales from external customers, capital expenditures and income (loss) before
income taxes.  Inter-segment sales are accounted for on terms similar
to those to third parties and are eliminated upon
consolidation.


15


STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(in
thousands, except share and per share data, unless otherwise
indicated)





A summary
of financial information by reportable segment is as follows:





Three
      Months Ended
                        
                        
                        Six
      Months EndedJune 30,
                        
                        
                        June 30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Net
      SalesElectronics
                        
                        $
                        65,894
                        
                        
                        $
                        149,416
                        
                        
                        $
                        148,665
                        
                        
                        $
                        282,632Inter-segment
      sales
                        
                        
                        1,939
                        
                        
                        
                        4,004
                        
                        
                        
                        3,797
                        
                        
                        
                        7,747Electronics
      net sales
                        
                        
                        67,833
                        
                        
                        
                        153,420
                        
                        
                        
                        152,462
                        
                        
                        
                        290,379Control
      Devices
                        
                        
                        36,396
                        
                        
                        
                        63,813
                        
                        
                        
                        74,710
                        
                        
                        
                        133,667Inter-segment
      sales
                        
                        
                        676
                        
                        
                        
                        1,284
                        
                        
                        
                        1,385
                        
                        
                        
                        2,604Control
      Devices net sales
                        
                        
                        37,072
                        
                        
                        
                        65,097
                        
                        
                        
                        76,095
                        
                        
                        
                        136,271Eliminations
                        
                        
                        (2,615
                        )
                        
                        
                        (5,288
                        )
                        
                        
                        (5,182
                        )
                        
                        
                        (10,351
                        )Total
      consolidated net sales
                        
                        $
                        102,290
                        
                        
                        $
                        213,229
                        
                        
                        $
                        223,375
                        
                        
                        $
                        416,299Income
      (Loss) Before Income TaxesElectronics
                        
                        $
                        (8,954
                        )
                        
                        $
                        12,984
                        
                        
                        $
                        (11,160
                        )
                        
                        $
                        25,975Control
      Devices
                        
                        
                        (5,408
                        )
                        
                        
                        (985
                        )
                        
                        
                        (12,428
                        )
                        
                        
                        1,091Other
      corporate activities
                        
                        
                        301
                        
                        
                        
                        1,739
                        
                        
                        
                        1,316
                        
                        
                        
                        3,646Corporate
      interest expense, net
                        
                        
                        (5,506
                        )
                        
                        
                        (4,992
                        )
                        
                        
                        (10,983
                        )
                        
                        
                        (10,307
                        )Total
      consolidated income (loss) before income taxes
                        
                        $
                        (19,567
                        )
                        
                        $
                        8,746
                        
                        
                        $
                        (33,255
                        )
                        
                        $
                        20,405Depreciation
      and AmortizationElectronics
                        
                        $
                        2,313
                        
                        
                        $
                        3,406
                        
                        
                        $
                        4,525
                        
                        
                        $
                        6,922Control
      Devices
                        
                        
                        2,829
                        
                        
                        
                        3,672
                        
                        
                        
                        5,618
                        
                        
                        
                        7,501Corporate
      activities
                        
                        
                        64
                        
                        
                        
                        1
                        
                        
                        
                        124
                        
                        
                        
                        (5
                        )Total
      consolidated depreciation and amortization(A)
                        
                        $
                        5,206
                        
                        
                        $
                        7,079
                        
                        
                        $
                        10,267
                        
                        
                        $
                        14,418





(A)  These
amounts represent depreciation and amortization on fixed and certain intangible
assets.





Three
      Months Ended
                            
                            
                            Six
      Months EndedJune 30,
                            
                            
                            June 30,2009
                            
                            
                            2008
                            
                            
                            2009
                            
                            
                            2008Interest Expense (Income),
      netElectronics
                            
                            $
                            33
                            
                            
                            $
                            (110
                            )
                            
                            $
                            54
                            
                            
                            $
                            (53
                            )Control
      Devices
                            
                            
                            (1
                            )
                            
                            
                            (2
                            )
                            
                            
                            (2
                            )
                            
                            
                            (2
                            )Corporate
      activities
                            
                            
                            5,506
                            
                            
                            
                            4,992
                            
                            
                            
                            10,983
                            
                            
                            
                            10,307Total
      consolidated interest expense, net
                            
                            $
                            5,538
                            
                            
                            $
                            4,880
                            
                            
                            $
                            11,035
                            
                            
                            $
                            10,252Capital
      ExpendituresElectronics
                            
                            $
                            904
                            
                            
                            $
                            2,973
                            
                            
                            $
                            2,414
                            
                            
                            $
                            4,744Control
      Devices
                            
                            
                            1,741
                            
                            
                            
                            3,238
                            
                            
                            
                            3,676
                            
                            
                            
                            6,932Corporate
      activities
                            
                            
                            153
                            
                            
                            
                            (83
                            )
                            
                            
                            653
                            
                            
                            
                            (35
                            )Total
      consolidated capital expenditures
                            
                            $
                            2,798
                            
                            
                            $
                            6,128
                            
                            
                            $
                            6,743
                            
                            
                            $
                            11,641


16





STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(in
thousands, except share and per share data, unless otherwise
indicated)





June
      30,
                  
                  
                  December
      31,2009
                  
                  
                  2008Total
    AssetsElectronics
                  
                  $
                  158,187
                  
                  
                  $
                  183,574Control
      Devices
                  
                  
                  88,014
                  
                  
                  
                  98,608Corporate(B)
                  
                  
                  242,023
                  
                  
                  
                  239,425Eliminations
                  
                  
                  (146,395
                  )
                  
                  
                  (139,170
                  )Total
      consolidated assets
                  
                  $
                  341,829
                  
                  
                  $
                  382,437





(B)  Assets
located at Corporate consist primarily of cash, deferred taxes and equity
investments.





The
following table presents net sales and non-current assets for each of the
geographic areas in which the Company operates:





Three
      Months Ended
                  
                  
                  Six
      Months EndedJune 30,
                  
                  
                  June 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Net
SalesNorth
      America
                  
                  $
                  83,075
                  
                  
                  $
                  156,101
                  
                  
                  $
                  182,305
                  
                  
                  $
                  303,299Europe
      and other
                  
                  
                  19,215
                  
                  
                  
                  57,128
                  
                  
                  
                  41,070
                  
                  
                  
                  113,000Total
      consolidated net sales
                  
                  $
                  102,290
                  
                  
                  $
                  213,229
                  
                  
                  $
                  223,375
                  
                  
                  $
                  416,299





June
      30,
                  
                  
                  December
      31,2009
                  
                  
                  2008Non-Current
      AssetsNorth
      America
                  
                  $
                  105,398
                  
                  
                  $
                  110,507Europe
      and other
                  
                  
                  18,168
                  
                  
                  
                  17,339Total
      consolidated non-current assets
                  
                  $
                  123,566
                  
                  
                  $
                  127,846





(14)  Investments





PST
Eletrônica S.A.





The
Company has a 50% equity interest in PST Eletrônica S.A. (“PST”), a Brazilian
electronic system provider focused on security and convenience applications
primarily for the vehicle and motorcycle industry.  The investment is
accounted for under the equity method of accounting. The Company’s investment in
PST was $34,639 and $31,021 at June 30, 2009 and December 31, 2008,
respectively.





Condensed
financial information for PST is as follows:





Three
      Months Ended
                
                
                Six
      Months EndedJune 30,
                
                
                June 30,2009
                
                
                2008
                
                
                2009
                
                
                2008Revenues
                
                $
                30,588
                
                
                $
                46,446
                
                
                $
                51,988
                
                
                $
                90,392Cost
      of sales
                
                $
                15,947
                
                
                $
                21,921
                
                
                $
                26,998
                
                
                $
                42,969Total
      pre-tax income
                
                $
                2,046
                
                
                $
                7,036
                
                
                $
                3,306
                
                
                $
                15,799The
      Company's share of pre-tax income
                
                $
                1,023
                
                
                $
                3,518
                
                
                $
                1,653
                
                
                $
                7,900


17


STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(in
thousands, except share and per share data, unless otherwise
indicated)





Equity in
earnings of PST included in the condensed consolidated statements of operations
was $785 and $2,848 for the three months ended June 30, 2009 and 2008,
respectively.  For the six months ended June 30, 2009 and 2008, equity
in earnings of PST was $1,388 and $6,442, respectively.





Minda
Stoneridge Instruments Ltd.





The
Company has a 49% interest in Minda Stoneridge Instruments Ltd. (“Minda”), a
company based in India that manufactures electronics and instrumentation
equipment for the motorcycle and commercial vehicle market.  The
investment is accounted for under the equity method of
accounting.  The Company’s investment in Minda was $4,778 and $4,808
at June 30, 2009 and December 31, 2008, respectively.  Equity in
earnings of Minda included in the condensed consolidated statements of
operations were $118 and $168, for the three months ended June 30, 2009 and
2008, respectively.  For the six months ended June 30, 2009 and 2008,
equity in earnings of Minda was $90 and $393, respectively.





(15)  Guarantor
Financial Information





The
senior notes and the credit facility are fully and unconditionally guaranteed,
jointly and severally, by each of the Company’s existing and future domestic
wholly owned subsidiaries (Guarantor Subsidiaries). The Company’s non-U.S.
subsidiaries do not guarantee the senior notes (Non-Guarantor
Subsidiaries).





Presented
below are summarized consolidating financial statements of the Parent (which
includes certain of the Company’s operating units), the Guarantor Subsidiaries,
the Non-Guarantor Subsidiaries and the Company on a condensed consolidated
basis, as of June 30, 2009 and December 31, 2008 and for each of the three and
six months ended June 30, 2009 and 2008.





These
summarized condensed consolidating financial statements are prepared under the
equity method.  Separate financial statements for the Guarantor
Subsidiaries are not presented based on management’s determination that they do
not provide additional information that is material to
investors.  Therefore, the Guarantor Subsidiaries are combined in the
presentations on the subsequent pages.


18


STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(in
thousands, except share and per share data, unless otherwise
indicated)





June 30, 2009Parent
                  
                  
                  Guarantor
                    Subsidiaries
                  
                  
                  Non-
                    Guarantor
                    Subsidiaries
                  
                  
                  Eliminations
                  
                  
                  ConsolidatedASSETSCurrent
      Assets:Cash
      and cash equivalents
                  
                  $
                  45,938
                  
                  
                  $
                  124
                  
                  
                  $
                  39,419
                  
                  
                  $
                  -
                  
                  
                  $
                  85,481Accounts
      receivable, net
                  
                  
                  39,007
                  
                  
                  
                  14,304
                  
                  
                  
                  17,378
                  
                  
                  
                  -
                  
                  
                  
                  70,689Inventories,
      net
                  
                  
                  21,745
                  
                  
                  
                  8,620
                  
                  
                  
                  13,318
                  
                  
                  
                  -
                  
                  
                  
                  43,683Prepaid
      expenses and other
                  
                  
                  (302,030
                  )
                  
                  
                  299,437
                  
                  
                  
                  19,046
                  
                  
                  
                  -
                  
                  
                  
                  16,453Deferred
      income taxes, net of valuation allowance
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,957
                  
                  
                  
                  -
                  
                  
                  
                  1,957Total
      current assets
                  
                  (195,340)
                  
                  
                  
                  322,485
                  
                  
                  
                  91,118
                  
                  
                  
                  -
                  
                  
                  
                  218,263Long-Term
      Assets:Property,
      plant and equipment, net
                  
                  
                  45,854
                  
                  
                  
                  22,494
                  
                  
                  
                  11,939
                  
                  
                  
                  -
                  
                  
                  
                  80,287Other
      Assets:Investments
      and other, net
                  
                  
                  42,137
                  
                  
                  
                  281
                  
                  
                  
                  861
                  
                  
                  
                  -
                  
                  
                  
                  43,279Investment
      in subsidiaries
                  
                  
                  390,439
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (390,439
                  )
                  
                  
                  -Total
      long-term assets
                  
                  
                  478,430
                  
                  
                  
                  22,775
                  
                  
                  
                  12,800
                  
                  
                  
                  (390,439
                  )
                  
                  
                  123,566Total
      Assets
                  
                  $
                  283,090
                  
                  
                  $
                  345,260
                  
                  
                  $
                  103,918
                  
                  
                  $
                  (390,439
                  )
                  
                  $
                  341,829LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      Liabilities:Accounts
      payable
                  
                  $
                  19,581
                  
                  
                  $
                  11,292
                  
                  
                  $
                  10,147
                  
                  
                  $
                  -
                  
                  
                  $
                  41,020Accrued
      expenses and other
                  
                  
                  6,168
                  
                  
                  
                  9,873
                  
                  
                  
                  22,999
                  
                  
                  
                  -
                  
                  
                  
                  39,040Total
      current liabilities
                  
                  
                  25,749
                  
                  
                  
                  21,165
                  
                  
                  
                  33,146
                  
                  
                  
                  -
                  
                  
                  
                  80,060Long-Term
      Liabilities:Long-term
      debt
                  
                  
                  183,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  183,000Deferred
      income taxes
                  
                  
                  4,828
                  
                  
                  
                  -
                  
                  
                  
                  551
                  
                  
                  
                  -
                  
                  
                  
                  5,379Other
      liabilities
                  
                  
                  3,110
                  
                  
                  
                  360
                  
                  
                  
                  3,517
                  
                  
                  
                  -
                  
                  
                  
                  6,987Total
      long-term liabilities
                  
                  
                  190,938
                  
                  
                  
                  360
                  
                  
                  
                  4,068
                  
                  
                  
                  -
                  
                  
                  
                  195,366Shareholders'
      Equity
                  
                  
                  66,403
                  
                  
                  
                  323,735
                  
                  
                  
                  66,704
                  
                  
                  
                  (390,439
                  )
                  
                  
                  66,403Total
      Liabilities and Shareholders' Equity
                  
                  $
                  283,090
                  
                  
                  $
                  345,260
                  
                  
                  $
                  103,918
                  
                  
                  $
                  (390,439
                  )
                  
                  $
                  341,829




19





STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(in
thousands, except share and per share data, unless otherwise
indicated)





Supplemental
condensed consolidating financial statements (continued):





December 31, 2008Parent
                
                
                Guarantor
                  Subsidiaries
                
                
                Non-Guarantor
                  Subsidiaries
                
                
                Eliminations
                
                
                ConsolidatedASSETSCurrent
      Assets:Cash
      and cash equivalents
                
                $
                55,237
                
                
                $
                27
                
                
                $
                37,428
                
                
                $
                -
                
                
                $
                92,692Accounts
      receivable, net
                
                
                51,274
                
                
                
                15,888
                
                
                
                29,373
                
                
                
                -
                
                
                
                96,535Inventories,
      net
                
                
                28,487
                
                
                
                10,927
                
                
                
                15,386
                
                
                
                -
                
                
                
                54,800Prepaid
      expenses and other
                
                
                (304,638
                )
                
                
                301,387
                
                
                
                12,320
                
                
                
                -
                
                
                
                9,069Deferred
      income taxes, net of valuation allowance
                
                
                -
                
                
                
                -
                
                
                
                1,495
                
                
                
                -
                
                
                
                1,495Total
      current assets
                
                
                (169,640
                )
                
                
                328,229
                
                
                
                96,002
                
                
                
                -
                
                
                
                254,591Long-Term
      Assets:Property,
      plant and equipment, net
                
                
                50,458
                
                
                
                24,445
                
                
                
                12,798
                
                
                
                -
                
                
                
                87,701Other
      Assets:Investments
      and other, net
                
                
                38,984
                
                
                
                319
                
                
                
                842
                
                
                
                -
                
                
                
                40,145Investment
      in subsidiaries
                
                
                407,199
                
                
                
                -
                
                
                
                -
                
                
                
                (407,199
                )
                
                
                -Total
      long-term assets
                
                
                496,641
                
                
                
                24,764
                
                
                
                13,640
                
                
                
                (407,199
                )
                
                
                127,846Total
      Assets
                
                $
                327,001
                
                
                $
                352,993
                
                
                $
                109,642
                
                
                $
                (407,199
                )
                
                $
                382,437LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      Liabilities:Accounts
      payable
                
                $
                23,778
                
                
                $
                13,652
                
                
                $
                13,289
                
                
                $
                -
                
                
                $
                50,719Accrued
      expenses and other
                
                
                21,429
                
                
                
                5,065
                
                
                
                16,991
                
                
                
                -
                
                
                
                43,485Total
      current liabilities
                
                
                45,207
                
                
                
                18,717
                
                
                
                30,280
                
                
                
                -
                
                
                
                94,204Long-Term
      Liabilities:Long-term
      debt
                
                
                183,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                183,000Deferred
      income taxes
                
                
                3,873
                
                
                
                41
                
                
                
                3,088
                
                
                
                -
                
                
                
                7,002Other
      liabilities
                
                
                3,163
                
                
                
                360
                
                
                
                2,950
                
                
                
                -
                
                
                
                6,473Total
      long-term liabilities
                
                
                190,036
                
                
                
                401
                
                
                
                6,038
                
                
                
                -
                
                
                
                196,475Shareholders'
      Equity
                
                
                91,758
                
                
                
                333,875
                
                
                
                73,324
                
                
                
                (407,199
                )
                
                
                91,758Total
      Liabilities and Shareholders' Equity
                
                $
                327,001
                
                
                $
                352,993
                
                
                $
                109,642
                
                
                $
                (407,199
                )
                
                $
                382,437


20


STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(in
thousands, except share and per share data, unless otherwise
indicated)





Supplemental
condensed consolidating financial statements (continued):





For the Three Months Ended June 30, 2009Parent
                
                
                Guarantor
                  Subsidiaries
                
                
                Non-
                  Guarantor
                  Subsidiaries
                
                
                Eliminations
                
                
                ConsolidatedNet
      Sales
                
                $
                60,063
                
                
                $
                28,541
                
                
                $
                31,006
                
                
                $
                (17,320
                )
                
                $
                102,290Costs
      and Expenses:Cost
      of goods sold
                
                
                54,502
                
                
                
                24,940
                
                
                
                25,814
                
                
                
                (16,562
                )
                
                
                88,694Selling,
      general and administrative
                
                
                11,927
                
                
                
                6,123
                
                
                
                9,046
                
                
                
                (758
                )
                
                
                26,338Restructuring
      charges
                
                
                306
                
                
                
                6
                
                
                
                1,239
                
                
                
                -
                
                
                
                1,551Operating
      Loss
                
                
                (6,672
                )
                
                
                (2,528
                )
                
                
                (5,093
                )
                
                
                -
                
                
                
                (14,293
                )Interest
      expense (income), net
                
                
                5,566
                
                
                
                (1
                )
                
                
                (27
                )
                
                
                -
                
                
                
                5,538Other
      expense (income), net
                
                
                (3,969
                )
                
                
                1,323
                
                
                
                2,382
                
                
                
                -
                
                
                
                (264
                )Equity
      earnings from subsidiaries
                
                
                10,102
                
                
                
                -
                
                
                
                -
                
                
                
                (10,102
                )
                
                
                -Loss
      Before Income Taxes
                
                
                (18,371
                )
                
                
                (3,850
                )
                
                
                (7,448
                )
                
                
                10,102
                
                
                
                (19,567
                )Provision
      (benefit) for income taxes
                
                
                1,393
                
                
                
                -
                
                
                
                (1,196
                )
                
                
                -
                
                
                
                197Net
      Loss
                
                $
                (19,764
                )
                
                $
                (3,850
                )
                
                $
                (6,252
                )
                
                $
                10,102
                
                
                $
                (19,764
                )





For the Three Months Ended June 30,
      2008Parent
                
                
                Guarantor
                  Subsidiaries
                
                
                Non-Guarantor
                  Subsidiaries
                
                
                Eliminations
                
                
                ConsolidatedNet
      Sales
                
                $
                113,800
                
                
                $
                53,800
                
                
                $
                73,534
                
                
                $
                (27,905
                )
                
                $
                213,229Costs
      and Expenses:Cost
      of goods sold
                
                
                92,680
                
                
                
                43,041
                
                
                
                55,318
                
                
                
                (27,164
                )
                
                
                163,875Selling,
      general and administrative
                
                
                13,809
                
                
                
                7,910
                
                
                
                15,753
                
                
                
                (741
                )
                
                
                36,731Loss
      on sale of property, plant and equipment, net
                
                
                88
                
                
                
                23
                
                
                
                42
                
                
                
                -
                
                
                
                153Restructuring
      charges
                
                
                884
                
                
                
                -
                
                
                
                829
                
                
                
                -
                
                
                
                1,713Operating
      Income
                
                
                6,339
                
                
                
                2,826
                
                
                
                1,592
                
                
                
                -
                
                
                
                10,757Interest
      expense (income), net
                
                
                5,183
                
                
                
                -
                
                
                
                (303
                )
                
                
                -
                
                
                
                4,880Other
      income, net
                
                
                (2,744
                )
                
                
                -
                
                
                
                (125
                )
                
                
                -
                
                
                
                (2,869
                )Equity
      earnings from subsidiaries
                
                
                (4,341
                )
                
                
                -
                
                
                
                -
                
                
                
                4,341
                
                
                
                -Income
      Before Income Taxes
                
                
                8,241
                
                
                
                2,826
                
                
                
                2,020
                
                
                
                (4,341
                )
                
                
                8,746Provision
      for income taxes
                
                
                3,557
                
                
                
                19
                
                
                
                486
                
                
                
                -
                
                
                
                4,062Net
      Income
                
                $
                4,684
                
                
                $
                2,807
                
                
                $
                1,534
                
                
                $
                (4,341
                )
                
                $
                4,684


21


STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(in
thousands, except share and per share data, unless otherwise
indicated)





Supplemental
condensed consolidating financial statements (continued):





For the Six Months Ended June 30,
      2009Parent
                
                
                Guarantor
                  Subsidiaries
                
                
                Non-Guarantor
                  Subsidiaries
                
                
                Eliminations
                
                
                ConsolidatedNet
      Sales
                
                $
                132,635
                
                
                $
                60,167
                
                
                $
                65,598
                
                
                $
                (35,025
                )
                
                $
                223,375Costs
      and Expenses:Cost
      of goods sold
                
                
                117,895
                
                
                
                52,734
                
                
                
                53,521
                
                
                
                (33,646
                )
                
                
                190,504Selling,
      general and administrative
                
                
                23,969
                
                
                
                12,689
                
                
                
                18,136
                
                
                
                (1,379
                )
                
                
                53,415Restructuring
      charges
                
                
                322
                
                
                
                488
                
                
                
                1,699
                
                
                
                -
                
                
                
                2,509Operating
      Loss
                
                
                (9,551
                )
                
                
                (5,744
                )
                
                
                (7,758
                )
                
                
                -
                
                
                
                (23,053
                )Interest
      expense (income), net
                
                
                11,110
                
                
                
                (1
                )
                
                
                (74
                )
                
                
                -
                
                
                
                11,035Other
      expense (income), net
                
                
                (4,541
                )
                
                
                1,323
                
                
                
                2,385
                
                
                
                -
                
                
                
                (833
                )Equity
      earnings from subsidiaries
                
                
                15,204
                
                
                
                -
                
                
                
                -
                
                
                
                (15,204
                )
                
                
                -Loss
      Before Income Taxes
                
                
                (31,324
                )
                
                
                (7,066
                )
                
                
                (10,069
                )
                
                
                15,204
                
                
                
                (33,255
                )Provision
      (benefit) for income taxes
                
                
                20
                
                
                
                -
                
                
                
                (1,931
                )
                
                
                -
                
                
                
                (1,911
                )Net
      Loss
                
                $
                (31,344
                )
                
                $
                (7,066
                )
                
                $
                (8,138
                )
                
                $
                15,204
                
                
                $
                (31,344
                )





For the Six Months Ended June 30,
      2008Parent
                  
                  
                  Guarantor
                    Subsidiaries
                  
                  
                  Non-Guarantor
                    Subsidiaries
                  
                  
                  Eliminations
                  
                  
                  ConsolidatedNet
      Sales
                  
                  $
                  217,846
                  
                  
                  $
                  106,367
                  
                  
                  $
                  143,865
                  
                  
                  $
                  (51,779
                  )
                  
                  $
                  416,299Costs
      and Expenses:Cost
      of goods sold
                  
                  
                  175,237
                  
                  
                  
                  83,300
                  
                  
                  
                  106,985
                  
                  
                  
                  (50,394
                  )
                  
                  
                  315,128Selling,
      general and administrative
                  
                  
                  28,083
                  
                  
                  
                  16,354
                  
                  
                  
                  29,969
                  
                  
                  
                  (1,385
                  )
                  
                  
                  73,021Loss
      on sale of property, plant and equipment, net
                  
                  
                  79
                  
                  
                  
                  24
                  
                  
                  
                  42
                  
                  
                  
                  -
                  
                  
                  
                  145Restructuring
      charges
                  
                  
                  1,425
                  
                  
                  
                  -
                  
                  
                  
                  1,710
                  
                  
                  
                  -
                  
                  
                  
                  3,135Operating
      Income
                  
                  
                  13,022
                  
                  
                  
                  6,689
                  
                  
                  
                  5,159
                  
                  
                  
                  -
                  
                  
                  
                  24,870Interest
      expense (income), net
                  
                  
                  10,706
                  
                  
                  
                  -
                  
                  
                  
                  (454
                  )
                  
                  
                  -
                  
                  
                  
                  10,252Other
      (income) expense, net
                  
                  
                  (6,065
                  )
                  
                  
                  -
                  
                  
                  
                  278
                  
                  
                  
                  -
                  
                  
                  
                  (5,787
                  )Equity
      earnings from subsidiaries
                  
                  
                  (10,466
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  10,466
                  
                  
                  
                  -Income
      Before Income Taxes
                  
                  
                  18,847
                  
                  
                  
                  6,689
                  
                  
                  
                  5,335
                  
                  
                  
                  (10,466
                  )
                  
                  
                  20,405Provision
      for income taxes
                  
                  
                  7,616
                  
                  
                  
                  82
                  
                  
                  
                  1,476
                  
                  
                  
                  -
                  
                  
                  
                  9,174Net
      Income
                  
                  $
                  11,231
                  
                  
                  $
                  6,607
                  
                  
                  $
                  3,859
                  
                  
                  $
                  (10,466
                  )
                  
                  $
                  11,231


22


STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(in
thousands, except share and per share data, unless otherwise
indicated)





Supplemental
condensed consolidating financial statements (continued):





For the Six Months Ended June 30,
      2009Parent
                
                
                GuarantorSubsidiaries
                
                
                Non-GuarantorSubsidiaries
                
                
                Eliminations
                
                
                ConsolidatedNet
      cash provided by (used for) operating activities
                
                $
                (4,863
                )
                
                $
                1,483
                
                
                $
                780
                
                
                $
                -
                
                
                $
                (2,600
                )INVESTING
      ACTIVITIES:Capital
      expenditures
                
                
                (4,439
                )
                
                
                (1,440
                )
                
                
                (864
                )
                
                
                -
                
                
                
                (6,743
                )Proceeds
      from the sale of fixed assets
                
                
                3
                
                
                
                54
                
                
                
                35
                
                
                
                -
                
                
                
                92Net
      cash used for investing activities
                
                
                (4,436
                )
                
                
                (1,386
                )
                
                
                (829
                )
                
                
                -
                
                
                
                (6,651
                )Effect
      of exchange rate changes on cash and cash equivalents
                
                
                -
                
                
                
                -
                
                
                
                2,040
                
                
                
                -
                
                
                
                2,040Net
      change in cash and cash equivalents
                
                
                (9,299
                )
                
                
                97
                
                
                
                1,991
                
                
                
                -
                
                
                
                (7,211
                )Cash
      and cash equivalents at beginning of period
                
                
                55,237
                
                
                
                27
                
                
                
                37,428
                
                
                
                -
                
                
                
                92,692Cash
      and cash equivalents at end of period
                
                $
                45,938
                
                
                $
                124
                
                
                $
                39,419
                
                
                $
                -
                
                
                $
                85,481





For the Six Months Ended June 30,
      2008Parent
                
                
                GuarantorSubsidiaries
                
                
                Non-GuarantorSubsidiaries
                
                
                Eliminations
                
                
                ConsolidatedNet
      cash provided by operating activities
                
                $
                8,318
                
                
                $
                2,224
                
                
                $
                2,032
                
                
                $
                -
                
                
                $
                12,574INVESTING
      ACTIVITIES:Capital
      expenditures
                
                
                (6,831
                )
                
                
                (2,435
                )
                
                
                (2,375
                )
                
                
                -
                
                
                
                (11,641
                )Proceeds
      from the sale of fixed assets
                
                
                141
                
                
                
                1
                
                
                
                165
                
                
                
                -
                
                
                
                307Business
      acquisitions and other
                
                
                -
                
                
                
                -
                
                
                
                (980
                )
                
                
                -
                
                
                
                (980
                )Net
      cash used for investing activities
                
                
                (6,690
                )
                
                
                (2,434
                )
                
                
                (3,190
                )
                
                
                -
                
                
                
                (12,314
                )FINANCING
      ACTIVITIES:Repayments
      of long-term debt
                
                
                (17,000
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (17,000
                )Share-based
      compensation activity, net
                
                
                1,162
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,162Premiums
      related to early extinguishment of debt
                
                
                (553
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (553
                )Net
      cash used for financing activities
                
                
                (16,391
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (16,391
                )Effect
      of exchange rate changes on cash and cash equivalents
                
                
                -
                
                
                
                -
                
                
                
                1,549
                
                
                
                -
                
                
                
                1,549Net
      change in cash and cash equivalents
                
                
                (14,763
                )
                
                
                (210
                )
                
                
                391
                
                
                
                -
                
                
                
                (14,582
                )Cash
      and cash equivalents at beginning of period
                
                
                48,705
                
                
                
                255
                
                
                
                46,964
                
                
                
                -
                
                
                
                95,924Cash
      and cash equivalents at end of period
                
                $
                33,942
                
                
                $
                45
                
                
                $
                47,355
                
                
                $
                -
                
                
                $
                81,342





(16)  Subsequent
Events





Management
evaluated all activity of the Company through August 6, 2009 (the issue date of
the financial statements) and concluded that no subsequent events have occurred
that would require recognition in the condensed consolidated financial
statements or disclosure in the Notes thereto.




23


STONERIDGE,
INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (in
thousands, except share and per share data, unless otherwise
indicated)




Item
2.   Management’s 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 medium- and heavy-duty truck,
agricultural, automotive and off-highway vehicle markets.





We
recognized a net loss for the quarter ended June 30, 2009 of $19.8 million, or
$(0.84) per diluted share, compared with net income of $4.7 million, or $0.20
per diluted share, for the second quarter of 2008.





Our
second quarter 2009 results were negatively affected by the continued dramatic
decline in the global commercial and North American automotive vehicle markets
as well as the economy as a whole.  Production volumes in North
American passenger car/light truck declined by 49.6% during the quarter ended
June 30, 2009.  The commercial vehicle market production volumes in
Europe and North America declined by 70.0% and 50.3%, respectively during the
current quarter.  In addition, our results were affected by foreign
currency exchange rates.  Foreign exchange translation adversely
affected our revenues by approximately $5.1 million during the quarter ended
June 30, 2009 when compared to the quarter ended June 30, 2008.  In
addition, the results of our PST Eletrônica S.A. (“PST”) joint venture in Brazil
declined between the two periods.  Equity earnings in the joint
venture declined from $2.8 million for the second quarter of 2008 to $0.8
million in the second quarter of 2009 due to lower demand for PST’s security
products.  Foreign currency fluctuations negatively affected our
equity earnings from PST by approximately $0.2 million during the quarter ended
June 30, 2009 as compared to the quarter ended June 30, 2008.





The
decrease in selling, general and administrative expenses (“SG&A”) was
primarily due to decreased design and development and reduced compensation and
compensation related expenses incurred during the quarter ended June 30,
2009.  The decrease in design and development costs were caused by
customers delaying new product launches in the near term as well as planned
reductions in our design activities.





Also
affecting our results were our restructuring initiatives. Costs incurred during
the quarter ended June 30, 2009 related to these restructuring initiatives
amounted to approximately $1.6 million and were primarily comprised of one-time
termination benefits.  These restructuring actions were in response to
the depressed conditions in the North American and European commercial vehicle
and North American light vehicle markets.  Second quarter 2008
restructuring expenses were approximately $3.7 million and were comprised of
one-time termination benefits and line-transfer expenses related to our
initiative to improve the Company’s manufacturing efficiency and cost position
by ceasing manufacturing operations at our Sarasota, Florida, and Mitcheldean,
United Kingdom locations.





At June
30, 2009 and December 31, 2008, we maintained a cash and equivalents balance of
$85.5 million and $92.7 million, respectively.  As discussed in Note 6
to the condensed consolidated financial statements, we have no borrowings under
our asset-based credit facility.  At June 30, 2009 and December 31,
2008, we had borrowing capacity of $45.5 million and $57.7 million,
respectively.





Significant
factors inherent to our markets that could affect our results for the remainder
of 2009 include the financial stability of our customers and
suppliers.  Our results for 2009 also depend on conditions in the
commercial and automotive vehicle markets, which are generally dependent on
domestic and global economies.





On April
24, 2009, we entered into the United State Treasury’s Auto Supplier Program (the
“Program”).  Entrance into the Program was retroactive to March 18,
2009.  As part of entrance into the Program, we were required to amend
our credit facility, to allow us to sell certain accounts receivables due from
General Motors Corporation (“GM”) or Chrysler, LLC (“Chrysler”) to GM Supplier
Receivables LLC and Chrysler Receivables SPV LLC, respectively, special purpose
entities created by the United States Treasury Department.  The
Program guarantees these receivables, net of a two percent administrative fee
imposed on the receivables included in the Program.  As a result of GM
and Chrysler exiting bankruptcy, we opted out of the GM Program on June 25,
2009 and the Chrysler Program was terminated upon their exit from
bankruptcy.


24





Results
of Operations





We are
primarily organized by markets served and products produced.  Under
this organizational structure, our operations have been aggregated into two
reportable segments: Electronics and Control Devices.  The Electronics
reportable segment includes results of operations that design and manufacture
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 includes results of operations from our operations
that design and manufacture electronic and electromechanical switches, control
actuation devices and sensors.




Three
Months Ended June 30, 2009 Compared to Three Months Ended June 30,
2008





Net Sales. Net sales for our
reportable segments, excluding inter-segment sales, for the three months ended
June 30, 2009 and 2008 are summarized in the following table (in
thousands):





Three
      Months EndedJune
      30,
                      
                      Dollar
                      
                      
                      Percent2009
                      
                      2008
                      
                      Decrease
                      
                      
                      DecreaseElectronics
                      
                      $
                      65,894
                      
                      
                      
                      64.4
                      %
                      
                      $
                      149,416
                      
                      
                      
                      70.1
                      %
                      
                      $
                      (83,522
                      )
                      
                      
                      (55.9
                      )
      %Control
      Devices
                      
                      
                      36,396
                      
                      
                      
                      35.6
                      
                      
                      
                      63,813
                      
                      
                      
                      29.9
                      
                      
                      
                      (27,417
                      )
                      
                      
                      (43.0
                      )
      %Total
      net sales
                      
                      $
                      102,290
                      
                      
                      
                      100.0
                      %
                      
                      $
                      213,229
                      
                      
                      
                      100.0
                      %
                      
                      $
                      (110,939
                      )
                      
                      
                      (52.0
                      )
      %





The
decrease in net sales for our Electronics segment was primarily due to volume
declines in North American and European commercial vehicle
production.  Our net sales were negatively affected by foreign
currency exchange rates of approximately $5.1 million between the two
periods.





The
decrease in net sales for our Control Devices segment was primarily attributable
to production volume reductions at our major customers in the North American
light vehicle market.





Net sales
by geographic location for the three months ended June 30, 2009 and 2008 are
summarized in the following table (in thousands):





Three
      Months EndedJune
      30,
                      
                      Dollar
                      
                      
                      Percent2009
                      
                      2008
                      
                      Decrease
                      
                      
                      DecreaseNorth
      America
                      
                      $
                      83,075
                      
                      
                      
                      81.2
                      %
                      
                      $
                      156,101
                      
                      
                      
                      73.2
                      %
                      
                      $
                      (73,026
                      )
                      
                      
                      (46.8
                      )
      %Europe
      and other
                      
                      
                      19,215
                      
                      
                      
                      18.8
                      
                      
                      
                      57,128
                      
                      
                      
                      26.8
                      
                      
                      
                      (37,913
                      )
                      
                      
                      (66.4
                      )
      %Total
      net sales
                      
                      $
                      102,290
                      
                      
                      
                      100.0
                      %
                      
                      $
                      213,229
                      
                      
                      
                      100.0
                      %
                      
                      $
                      (110,939
                      )
                      
                      
                      (52.0
                      )
      %





The
decrease in North American sales was primarily attributable to lower sales
volume in our North American light vehicle and commercial vehicle
markets.  Our decrease in sales outside North America was primarily
due to lower sales volume in the European commercial vehicle market and adverse
foreign exchange rate movements.


25





Condensed
consolidated statements of operations as a percentage of net sales for the three
months ended June 30, 2009 and 2008 are presented in the following table (in
thousands):





Three
      Months EndedJune 30,
                
                
                $
      Increase /2009
                
                
                2008
                
                
                (Decrease)Net
      Sales
                
                $
                102,290
                
                
                
                100.0
                %
                
                $
                213,229
                
                
                
                100.0
                %
                
                $
                (110,939
                )Costs
      and Expenses:Cost
      of goods sold
                
                
                88,694
                
                
                
                86.7
                
                
                
                163,875
                
                
                
                76.9
                
                
                
                (75,181
                )Selling,
      general and administrative
                
                
                26,338
                
                
                
                25.7
                
                
                
                36,884
                
                
                
                17.3
                
                
                
                (10,546
                )Restructuring
      charges
                
                
                1,551
                
                
                
                1.5
                
                
                
                1,713
                
                
                
                0.8
                
                
                
                (162
                )Operating
      Income (Loss)
                
                
                (14,293
                )
                
                
                (13.9
                )
                
                
                10,757
                
                
                
                5.0
                
                
                
                (25,050
                )Interest
      expense, net
                
                
                5,538
                
                
                
                5.4
                
                
                
                4,880
                
                
                
                2.3
                
                
                
                658Equity
      in earnings of investees
                
                
                (903
                )
                
                
                (0.9
                )
                
                
                (3,016
                )
                
                
                (1.4
                )
                
                
                2,113Loss
      on early extinguishment of debt
                
                
                -
                
                
                
                -
                
                
                
                271
                
                
                
                0.1
                
                
                
                (271
                )Other
      expense (income), net
                
                
                639
                
                
                
                0.6
                
                
                
                (124
                )
                
                
                (0.1
                )
                
                
                763Income
      (Loss) Before Income Taxes
                
                
                (19,567
                )
                
                
                (19.0
                )
                
                
                8,746
                
                
                
                4.1
                
                
                
                (28,313
                )Provision
      for income taxes
                
                
                197
                
                
                
                0.2
                
                
                
                4,062
                
                
                
                1.9
                
                
                
                (3,865
                )Net
      Income (Loss)
                
                $
                (19,764
                )
                
                
                (19.2
                )
      %
                
                $
                4,684
                
                
                
                2.2
                %
                
                $
                (24,448
                )





Cost of Goods Sold.The
increase in cost of goods sold as a percentage of sales was due to the
significant decline in volume and a less favorable product mix related to our
European commercial vehicle and North American commercial and light vehicle
products during the quarter ended June 30, 2009.





Selling, General and Administrative
Expenses. Product development expenses included in SG&A were $9.5
million and $13.3 million for the second quarters ended June 30, 2009 and 2008,
respectively.  The decrease in design and development costs was caused
by customers delaying new product launches in the near term as well as planned
reductions in our design activities. The decrease in SG&A costs excluding
product development expenses was due to lower employee related costs, primarily
incentive compensation.





Restructuring Charges. Costs
from our restructuring initiatives for the quarter ended June 30, 2009 decreased
compared to the second quarter of 2008. Costs incurred during the quarter ended
June 30, 2009 related to restructuring initiatives amounted to approximately
$1.6 million and were primarily comprised of one-time termination
benefits.  These restructuring actions were in response to the
depressed conditions in the European and North American commercial vehicle
markets as well as the North American automotive market.  Second
quarter 2008 restructuring expenses were approximately $3.7 million and were
comprised of one-time termination benefits and line-transfer expenses related to
our initiative to improve the Company’s manufacturing efficiency and cost
position by ceasing manufacturing operations at our Sarasota, Florida, and
Mitcheldean, United Kingdom locations.  Restructuring expenses that
were general and administrative in nature were included in the Company’s
condensed consolidated statements of operations as restructuring charges, while
the remaining restructuring related expenses were included in cost of goods
sold.


26





Restructuring
charges, general and administrative in nature, recorded by reportable segment
during the three months ended June 30, 2009 were as follows (in
thousands):





Electronics
                      
                      
                      Control
                        Devices
                      
                      
                      Total
                        Consolidated
                        Restructuring
                        ChargesSeverance
      costs
                      
                      $
                      1,435
                      
                      
                      $
                      116
                      
                      
                      $
                      1,551





Severance
costs relate to a reduction in workforce.





Restructuring
charges, general and administrative in nature, recorded by reportable segment
during the three months ended June 30, 2008 were as follows (in
thousands):





Electronics
                  
                  
                  Control
                    Devices
                  
                  
                  Total
                    Consolidated
                    Restructuring
                    ChargesSeverance
      costs.
                  
                  $
                  819
                  
                  
                  $
                  375
                  
                  
                  $
                  1,194Other
      exit costs.
                  
                  
                  10
                  
                  
                  
                  509
                  
                  
                  
                  519Total
      general and administrative restructuring charges
                  
                  $
                  829
                  
                  
                  $
                  884
                  
                  
                  $
                  1,713





Other
exit costs include miscellaneous expenditures associated with exiting business
activities.





Equity in Earnings of
Investees.The decrease in equity earnings of investees was
predominately attributable to the decrease in equity earnings recognized from
our PST joint venture.  Equity earnings for PST declined from $2.8
million for the quarter ended June 30, 2008 to $0.8 million for the quarter
ended June 30, 2009. The decrease primarily reflects lower volumes for PST’s
product lines and unfavorable exchange rates during the quarter ended June 30,
2009.  Foreign currency fluctuations negatively affected our equity
earnings from PST by approximately $0.2 million during the quarter ended June
30, 2009 as compared to the quarter ended June 30, 2008.





Income (Loss) Before Income
Taxes.  Income (loss) before income taxes is summarized in the
following table by reportable segment (in thousands).





Three
      Months EndedJune 30,
                
                
                Dollar
                
                
                Percent2009
                
                
                2008
                
                
                Decrease
                
                
                DecreaseElectronics
                
                $
                (8,954
                )
                
                $
                12,984
                
                
                $
                (21,938
                )
                
                
                (169.0
                )
      %Control
      Devices
                
                
                (5,408
                )
                
                
                (985
                )
                
                
                (4,423
                )
                
                
                (449.0
                )
      %Other
      corporate activities
                
                
                301
                
                
                
                1,739
                
                
                
                (1,438
                )
                
                
                (82.7
                )
      %Corporate
      interest expense, net
                
                
                (5,506
                )
                
                
                (4,992
                )
                
                
                (514
                )
                
                
                (10.3
                )
      %Income
      (loss) before income taxes
                
                $
                (19,567
                )
                
                $
                8,746
                
                
                $
                (28,313
                )
                
                
                (323.7
                )
      %





The
decrease in income (loss) before income taxes in the Electronics segment was
primarily related to decreased revenue within our North American and European
commercial vehicle markets and unfavorable product mix.  Additionally,
these factors were favorably affected by foreign exchange rates during the
quarter ended June 30, 2009 when converting functional currency to United States
Dollars.





The
increase in loss before income taxes in the Control Devices reportable segment
was primarily due to lower revenue within our North American light vehicle
market.


27


The
decrease in income before income taxes from other corporate activities was
primarily due to the $2.0 million decrease in equity earnings from our PST joint
venture.  The decrease is partially offset by a decrease in
compensation related expenses and the loss recognized on the purchase and
retirement of $6.0 million in face value of our senior notes in the second
quarter of 2008.





Income
(loss) before income taxes by geographic location for the three months ended
June 30, 2009 and 2008 is summarized in the following table (in
thousands):





Three
      Months EndedJune 30,
                
                Dollar
                
                
                Percent2009
                
                2008
                
                Decrease
                
                
                DecreaseNorth
      America
                
                $
                (13,053
                )
                
                
                66.7
                %
                
                $
                8,215
                
                
                
                93.9
                %
                
                $
                (21,268
                )
                
                
                (258.9
                )
      %Europe
      and other
                
                
                (6,514
                )
                
                
                33.3
                
                
                
                531
                
                
                
                6.1
                
                
                
                (7,045
                )
                
                NMIncome
      (loss) before income taxes
                
                $
                (19,567
                )
                
                
                100.0
                %
                
                $
                8,746
                
                
                
                100.0
                %
                
                $
                (28,313
                )
                
                
                (323.7
                )
      %





NM - not
meaningful





The
decrease in our profitability in North America was primarily attributable to
lower sales volumes within our North American commercial and light vehicle
markets during the quarter ended June 30, 2009.  The decrease in
profitability outside North America was primarily due to lower sales volumes
during the quarter ended June 30, 2009.





Provision for Income Taxes.
We recognized a provision for income taxes of $0.2 million, or (1.0)% of pre-tax
loss, and $4.1 million, or 46.4% of the pre-tax income, for federal, state and
foreign income taxes for the second quarters ended June 30, 2009 and 2008,
respectively. As reported at December 31, 2008, the Company is in a cumulative
loss position and provides a valuation allowance offsetting federal, state and
certain foreign deferred tax assets. As a result, a tax benefit is not being
provided for losses incurred in the first half of 2009, for federal, state and
certain foreign jurisdictions. The inability to recognize a tax benefit for
these losses and other deferred tax assets has a significant impact on our
effective tax rate as well as the comparability of the current quarter and
year-to-date effective tax rate to prior periods in which the Company had not
recorded a federal valuation allowance.  The difference in the
effective tax rate for the three months ended June 30, 2009 compared to the
three months ended June 30, 2008, was primarily attributable to the federal
valuation allowance provided against the current year domestic loss which was
partially offset by recording a tax benefit related to current period losses in
certain foreign jurisdictions in which it is more likely than not that the
benefit of those losses will be realized in the current year.





Six
Months Ended June 30, 2009 Compared to Six Months Ended June 30,
2008





Net Sales. Net sales for our
reportable segments, excluding inter-segment sales, for the six months ended
June 30, 2009 and 2008 are summarized in the following table (in
thousands):





Six
      Months EndedJune 30,
                
                Dollar
                
                
                Percent2009
                
                2008
                
                Decrease
                
                
                DecreaseElectronics
                
                $
                148,665
                
                
                
                66.6
                %
                
                $
                282,632
                
                
                
                67.9
                %
                
                $
                (133,967
                )
                
                
                (47.4
                )
      %Control
      Devices
                
                
                74,710
                
                
                
                33.4
                
                
                
                133,667
                
                
                
                32.1
                
                
                
                (58,957
                )
                
                
                (44.1
                )
      %Total
      net sales
                
                $
                223,375
                
                
                
                100.0
                %
                
                $
                416,299
                
                
                
                100.0
                %
                
                $
                (192,924
                )
                
                
                (46.3
                )
      %




The
decrease in net sales for our Electronics segment was primarily due to volume
declines in commercial vehicle production.  Our net sales were
negatively affected by foreign currency exchange rates of approximately $11.8
million between the two periods.


28





The
decrease in net sales for our Control Devices segment was primarily attributable
to production volume reductions at our major customers in the North American
light vehicle market.




Net sales
by geographic location for the six months ended June 30, 2009 and 2008 are
summarized in the following table (in thousands):





Six
      Months EndedJune 30,
                
                Dollar
                
                
                Percent2009
                
                2008
                
                Decrease
                
                
                DecreaseNorth
      America
                
                $
                182,305
                
                
                
                81.6
                %
                
                $
                303,299
                
                
                
                72.9
                %
                
                $
                (120,994
                )
                
                
                (39.9
                )
      %Europe
      and other
                
                
                41,070
                
                
                
                18.4
                
                
                
                113,000
                
                
                
                27.1
                
                
                
                (71,930
                )
                
                
                (63.7
                )
      %Total
      net sales
                
                $
                223,375
                
                
                
                100.0
                %
                
                $
                416,299
                
                
                
                100.0
                %
                
                $
                (192,924
                )
                
                
                (46.3
                )
      %





The
decrease in North American sales was primarily attributable to lower sales
volume in our North American light vehicle and commercial vehicle
markets.  Our decrease in sales outside North America was primarily
due to lower sales volume in the European commercial vehicle market and adverse
foreign exchange rate movements.





Condensed
consolidated statements of operations as a percentage of net sales for the six
months ended June 30, 2009 and 2008 are presented in the following table (in
thousands):





Six
      Months EndedJune 30,
                
                
                $
      Increase /2009
                
                
                2008
                
                
                (Decrease)Net
      Sales
                
                $
                223,375
                
                
                
                100.0
                %
                
                $
                416,299
                
                
                
                100.0
                %
                
                $
                (192,924
                )Costs
      and Expenses:Cost
      of goods sold
                
                
                190,504
                
                
                
                85.3
                
                
                
                315,128
                
                
                
                75.7
                
                
                
                (124,624
                )Selling,
      general and administrative
                
                
                53,415
                
                
                
                23.9
                
                
                
                73,166
                
                
                
                17.6
                
                
                
                (19,751
                )Restructuring
                
                
                2,509
                
                
                
                1.1
                
                
                
                3,135
                
                
                
                0.8
                
                
                
                (626
                )-Operating
      Income (Loss)
                
                
                (23,053
                )
                
                
                (10.3
                )
                
                
                24,870
                
                
                
                5.9
                
                
                
                (47,923
                )Interest
      expense, net
                
                
                11,035
                
                
                
                4.9
                
                
                
                10,252
                
                
                
                2.5
                
                
                
                783Equity
      in earnings of investees
                
                
                (1,478
                )
                
                
                (0.7
                )
                
                
                (6,835
                )
                
                
                (1.6
                )
                
                
                5,357Loss
      on early extinguishment of debt
                
                
                -
                
                
                
                -
                
                
                
                770
                
                
                
                0.2
                
                
                
                (770
                )Other
      expense, net
                
                
                645
                
                
                
                0.3
                
                
                
                278
                
                
                
                0.1
                
                
                
                367-Income
      (Loss) Before Income Taxes
                
                
                (33,255
                )
                
                
                (14.8
                )
                
                
                20,405
                
                
                
                4.7
                
                
                
                (53,660
                )Provision
      (benefit) for income taxes
                
                
                (1,911
                )
                
                
                (0.9
                )
                
                
                9,174
                
                
                
                2.2
                
                
                
                (11,085
                )Net
      Income (Loss)
                
                $
                (31,344
                )
                
                
                (13.9
                )
      %
                
                $
                11,231
                
                
                
                2.5
                %
                
                $
                (42,575
                )





Cost of Goods Sold. The
increase in cost of goods sold as a percentage of sales was due to the
significant decline in volume and a less favorable product mix related to our
European commercial vehicle and North American commercial and light vehicle
products during the six months ended June 30, 2009.





Selling, General and Administrative
Expenses.  Product development expenses included in SG&A
were $18.0 million and $25.5 million for the six months ended June 30, 2009 and
2008, respectively.  The decrease in design and development costs was
caused by customers delaying new product launches in the near term as well as
planned reductions in our design activities. The decrease in SG&A costs
excluding product development expenses was due to lower employee related costs,
primarily incentive compensation.


29




Restructuring Charges. Costs
from our restructuring initiatives for the six months ended June 30, 2009
decreased compared to the first six months of 2008. Costs incurred during the
six months ended June 30, 2009 related to restructuring initiatives amounted to
approximately $2.5 million and were primarily comprised of one-time termination
benefits.  These restructuring actions were in response to the
depressed conditions in the European and North American commercial vehicle
markets as well as the North American automotive
market.  Restructuring charges for the first six months of 2008 were
approximately $3.7 million and were comprised of one-time termination benefits
and line-transfer expenses related to our initiative to improve the Company’s
manufacturing efficiency and cost position by ceasing manufacturing operations
at our Sarasota, Florida, and Mitcheldean, United Kingdom
locations.  Restructuring expenses that were general and
administrative in nature were included in the Company’s condensed consolidated
statements of operations as restructuring charges, while the remaining
restructuring related expenses were included in cost of goods sold.





Restructuring
charges, general and administrative in nature, recorded by reportable segment
during the six months ended June 30, 2009 were as follows (in
thousands):





Electronics
                    
                    
                    ControlDevices
                    
                    
                    Total
                      Consolidated
                      Restructuring
                      ChargesSeverance
      costs
                    
                    $
                    1,804
                    
                    
                    $
                    613
                    
                    
                    $
                    2,417Contract
      termination costs
                    
                    
                    92
                    
                    
                    
                    -
                    
                    
                    
                    92Total
      general and administrative restructuring charges
                    
                    $
                    1,896
                    
                    
                    $
                    613
                    
                    
                    $
                    2,509





Severance
costs related to a reduction in workforce.  Contract termination cost
represent costs associated with long-term lease objectives that were cancelled
as part of the restructuring initiatives.





Restructuring
charges, general and administrative in nature, recorded by reportable segment
during the six months ended June 30, 2008 were as follows (in
thousands):





Electronics
                    
                    
                    ControlDevices
                    
                    
                    Total
                      Consolidated
                      Restructuring
                      ChargesSeverance
      costs
                    
                    $
                    1,692
                    
                    
                    $
                    740
                    
                    
                    $
                    2,432Other
      exit costs
                    
                    
                    18
                    
                    
                    
                    685
                    
                    
                    
                    703Total
      general and administrative restructuring charges
                    
                    $
                    1,710
                    
                    
                    $
                    1,425
                    
                    
                    $
                    3,135





Other
exit costs include miscellaneous expenditures associated with exiting business
activities.





Equity in Earnings of
Investees.The decrease in equity earnings of investees was
predominately attributable to the decrease in equity earnings recognized from
our PST joint venture.  Equity earnings for PST declined from $6.4
million for the six months ended June 30, 2008 to $1.4 million for the six
months ended June 30, 2009. The decrease primarily reflects lower volumes for
PST’s product lines and unfavorable exchange
rates during the six months ended June 30, 2009.  Foreign
currency fluctuations negatively affected the Company’s equity earnings in PST
by approximately $0.4 million for the six months ended June 30, 2009 as compared
to the first six months of 2008.





Income (Loss) Before Income
Taxes.  Income (loss) before income taxes is summarized in the
following table by reportable segment (in thousands).


30





Six Months EndedJune 30,
                      
                      
                      Dollar
                      
                      
                      Percent2009
                      
                      
                      2008
                      
                      
                      Decrease
                      
                      
                      DecreaseElectronics
                      
                      $
                      (11,160
                      )
                      
                      $
                      25,975
                      
                      
                      $
                      (37,135
                      )
                      
                      
                      (143.0
                      )
      %Control
      Devices
                      
                      
                      (12,428
                      )
                      
                      
                      1,091
                      
                      
                      
                      (13,519
                      )
                      
                      NMOther
      corporate activities
                      
                      
                      1,316
                      
                      
                      
                      3,646
                      
                      
                      
                      (2,330
                      )
                      
                      
                      (63.9
                      )
      %Corporate
      interest expense, net
                      
                      
                      (10,983
                      )
                      
                      
                      (10,307
                      )
                      
                      
                      (676
                      )
                      
                      
                      (6.6
                      )
      %Income
      (loss) before income taxes
                      
                      $
                      (33,255
                      )
                      
                      $
                      20,405
                      
                      
                      $
                      (53,660
                      )
                      
                      
                      (263.0
                      )
      %





NM - Not
meaningful





The
decrease in income (loss) before income taxes in the Electronics segment was
primarily related to decreased revenue from the North American and European
commercial vehicle markets, as well as an unfavorable product mix during the six
months ended June 30, 2009 when compared to the first six months of
2008.  Additionally, these factors were favorably affected by foreign
exchange rates during the six months ended June 30, 2009 when converting
functional currency to United States Dollars.





The
decrease in income (loss) before income taxes in the Control Devices reportable
segment was primarily due to lower revenue within our North American light
vehicle market.





The
decrease in income before income taxes from other corporate activities was
primarily due to the $5.0 million decrease in equity earnings from our PST joint
venture and a decrease in compensation related expenses.  This was
partially offset by the loss recognized on the purchase and retirement of $17.0
million in face value of our senior notes in the six months ended June 30,
2008.





Income
(loss) before income taxes by geographic location for the six months ended June
30, 2009 and 2008 is summarized in the following table (in
thousands):





Six Months Ended
                            
                            
                            Dollar
                            
                            
                            PercentJune 30, 2009
                            
                            
                            June 30, 2008
                            
                            
                            Decrease
                            
                            
                            DecreaseNorth
      America
                            
                            $
                            (22,129
                            )
                            
                            
                            66.5
                            %
                            
                            $
                            18,136
                            
                            
                            
                            88.9
                            %
                            
                            $
                            (40,265
                            )
                            
                            
                            (222.0
                            )
      %Europe
      and other
                            
                            
                            (11,126
                            )
                            
                            
                            33.5
                            
                            
                            
                            2,269
                            
                            
                            
                            11.1
                            
                            
                            
                            (13,395
                            )
                            
                            
                            (590.3
                            )
      %Income
      (loss) before income taxes
                            
                            $
                            (33,255
                            )
                            
                            
                            100.0
                            %
                            
                            $
                            20,405
                            
                            
                            
                            100.0
                            %
                            
                            $
                            (53,660
                            )
                            
                            
                            (263.0
                            )
      %





The
decrease in our profitability in North America was primarily attributable to
lower commercial and light vehicle sales volumes during the six months ended
June 30, 2009.  The decrease in profitability outside North America
was primarily due to lower sales volumes which was offset by favorable foreign
exchange rates during the six months ended June 30, 2009.





Provision (Benefit) for Income
Taxes. We recognized a benefit for income taxes of $1.9 million, or
5.7% of pre-tax loss, and a provision for income taxes of $9.2 million, or 45.0%
of the pre-tax income, for federal, state and foreign income taxes for the six
months ended June 30, 2009 and 2008, respectively. As reported at December 31,
2008, the Company is in a cumulative loss position and provides a valuation
allowance offsetting federal, state and certain foreign deferred tax assets. As
a result, a tax benefit is not being provided for losses incurred in the first
half of 2009, for federal, state and certain foreign jurisdictions. The
inability to recognize a tax benefit for these losses and other deferred tax
assets has a significant impact on our effective tax rate as well as the
comparability of the current quarter and year-to-date effective tax rate to
prior periods in which the Company had not recorded a federal valuation
allowance.  The difference in the effective tax rate for the six
months ended June 30, 2009 compared to the six months ended June 30, 2008, was
primarily attributable to the federal valuation allowance provided against the
current year domestic loss which was partially offset by recording a tax benefit
related to current period losses in certain foreign jurisdictions in which it is
more likely than not that the benefit of those losses will be realized in the
current year.


31


Liquidity
and Capital Resources





Summary
of Cash Flows (in thousands):


Six Months EndedJune 30,
                  
                  
                  $ Increase /2009
                  
                  
                  2008
                  
                  
                  (Decrease)Cash
      provided by (used for):Operating
      activities
                  
                  $
                  (2,600
                  )
                  
                  $
                  12,574
                  
                  
                  $
                  (15,174
                  )Investing
      activities
                  
                  
                  (6,651
                  )
                  
                  
                  (12,314
                  )
                  
                  
                  5,663Financing
      activities
                  
                  
                  -
                  
                  
                  
                  (16,391
                  )
                  
                  
                  16,391Effect
      of exchange rate changes on cash and cash equivalents
                  
                  
                  2,040
                  
                  
                  
                  1,549
                  
                  
                  
                  491Net
      change in cash and cash equivalents
                  
                  $
                  (7,211
                  )
                  
                  $
                  (14,582
                  )
                  
                  $
                  7,371





The
decrease in net cash provided by operating activities was primarily due
to lower earnings offset by lower accounts receivable balances at June
30, 2009.





The
decrease in net cash used for investing activities reflects a decrease in cash
used for capital projects and $1.1 million of cash used to acquire a
Swedish aftermarket distributor of Stoneridge products in the first quarter of
2008.





The
decrease in net cash used by financing activities was due to the cash
purchase and retirement of $17.0 million in face value of the Company’s senior
notes in the first six months of 2008.  There was no similar activity
during the first six months of 2009.





Future
capital expenditures are expected to be slightly lower than our recent
expenditures, due to lower expected demand in the markets that we
serve.  Our business plan continues to emphasize conserving cash while
investing in near-term product launches and selectively investing in longer-term
development projects.  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 asset-based credit facility
will provide sufficient liquidity to meet our future growth and operating
needs.





As
outlined in Note 6 to our condensed consolidated financial statements, our
asset-based credit facility, permits borrowing up to a maximum level of $100.0
million.  At June 30, 2009, there were no borrowings on this
asset-based credit facility.  The available borrowing capacity on this
credit facility is based on eligible current assets, as defined.  At
June 30, 2009, the Company had borrowing capacity of $45.5 million based on
eligible current assets.  The credit facility does not contain financial
performance covenants which would constrain our borrowing capacity. However,
restrictions do include limits on capital expenditures, operating leases,
dividends and investment activities in a negative covenant which limits
investment activities to $15.0 million minus certain guarantees and
obligations.  The Company was in compliance with all covenants at June
30, 2009.





As of
June 30, 2009, the Company’s $183.0 million of senior notes were redeemable at
101.917 percent of the principal amount.  Given that the Company’s
senior notes are redeemable, we may seek to retire the senior notes through
redemptions, 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.  During the first half of 2008, we purchased and retired
$17.0 million in face value of the Company’s senior notes.





We are
currently developing plans to consolidate our control devices business from two
business units to one during the third quarter with the intent of further
lowering our cost structure.  We anticipate that we will announce the
projected costs and benefits of this consolidation during the third
quarter.





There
have been no material changes to the table of contractual obligations presented
in Part II, Item 7 (“Liquidity and Capital Resources”) of the Company’s 2008
Form 10-K.


32


Critical
Accounting Policies and Estimates





The
Company’s significant accounting policies, which include management’s best
estimates and judgments, are included in Item 7, Part II to the consolidated
financial statements of the Company’s 2008 Form 10-K. Certain of these
accounting policies are considered critical as disclosed in the Critical
Accounting Policies and Estimates section of Management’s Discussion and
Analysis of the Company’s 2008 Form 10-K because of the potential for a
significant impact on the financial statements due to the inherent uncertainty
in such estimates. There have been no significant changes in the Company’s
critical accounting policies since December 31, 2008.





Inflation





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.





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, 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:





·
            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 medium- and heavy-duty,
      agricultural, automotive 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 2008
      Form 10-K.





Item
3.   Quantitative and Qualitative Disclosures About Market
Risk.





There
have been no material changes in market risk presented within Part II, Item 7A
of the Company’s 2008 Form 10-K.


33


Item
4.  Controls and Procedures.





Evaluation
of Disclosure Controls and Procedures





As of
June 30, 2009, an evaluation was performed under the supervision and with the
participation of the Company’s management, including the chief executive officer
(“CEO”) and chief financial officer (“CFO”), of the effectiveness of the design
and operation of the Company’s disclosure controls and procedures. Based on that
evaluation, the Company’s management, including the CEO and CFO, concluded that
the Company’s disclosure controls and procedures were effective as of June 30,
2009.





Changes
in Internal Control Over Financial Reporting





There
were no changes in the Company’s internal control over financial reporting
during the six months ended June 30, 2009 that materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.





PART
II–OTHER INFORMATION





Item
1.  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
Company’s products and there can be no assurance that the Company will not
experience any material product liability losses in the future.  In
addition, if any of the Company’s products prove to be defective, the Company
may be required to participate in government-imposed or other instituted recalls
involving such products.  The Company maintains insurance against such
liability claims.





Item
1A.  Risk Factors.





There
were no material changes from risk factors previously disclosed in the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31,
2008.





Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds.





None.





Item
3.  Defaults Upon Senior Securities.





None.


34


Item
4.  Submission of Matters to a Vote of Security Holders.





(a)
            The
      Annual Meeting of Shareholders of Stoneridge, Inc. was held on May 4,
      2009.





(b)
            The
      following matters were submitted to a vote at the
  meeting:





The
election of the following nominees, as directors of the Company. The vote with
respect to each nominee was as follows:





Nominee
              
              For
              
              WithheldJohn
      C. Corey
              
              23,048,467
              
              341,713Jeffrey
      P. Draime
              
              23,031,236
              
              358,944Douglas
      C. Jacobs
              
              22,637,030
              
              753,150Ira
      C. Kaplan
              
              23,030,803
              
              359,377Kim
      Korth
              
              14,448,019
              
              8,942,161William
      M. Lasky
              
              13,110,944
              
              10,279,236Paul
      J. Schlather
              
              23,030,812
              
              359,368





The
ratification of the appointment of Ernst & Young LLP as the Company’s
independent registered public accounting firm for the year ended December 31,
2009. The results of the vote were as follows:





For
                
                Against
                
                AbstainRatify
      Appointment of Accounting Firm
                
                
                22,762,389
                
                
                
                621,603
                
                
                
                6,190





The
proposal to approve the Long-Term Cash Incentive Plan. The results of the vote
were as follows:





For
                
                Against
                
                AbstainAdopt
      Annual Incentive Plan
                
                
                23,123,692
                
                
                
                249,833
                
                
                
                16,653





Item
5.  Other Information.





None.





Item
6.  Exhibits.





Reference
is made to the separate, “Index to Exhibits,” filed herewith.


35


SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.





STONERIDGE,
      INC.Date:  August
      4, 2009
                  /s/
      John C. CoreyJohn
      C. Corey
                    President
      and Chief Executive Officer and Director(Principal
      Executive Officer)Date:  August
      4, 2009
                  /s/
      George E. StricklerGeorge
      E. StricklerExecutive
      Vice President, Chief Financial Officer and Treasurer(Principal
      Financial and Accounting
Officer)


36


INDEX
TO EXHIBITS





Exhibit
                  Number
                
                Exhibit10.1
                
                Stoneridge,
      Inc. Long-Term Incentive Plan - 2007 form of amendment to the restricted
      shares grant agreement, filed herewith.10.2
                
                Stoneridge,
      Inc. Long-Term Incentive Plan - 2008 form of amendment to the restricted
      shares grant agreement, filed herewith.10.3
                
                Stoneridge,
      Inc. Long-Term Cash Incentive Plan, filed herewith.31.1
                
                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.


37