UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





x
            QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
the quarter ended March 31, 2010





OR





o
            TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
the transition period from________to ________





Commission
file number: 001-13337





STONERIDGE,
INC.


(Exact
name of registrant as specified in its charter)




Ohio
                  
                  34-1598949(State or other jurisdiction
      of
                  
                  (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 (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).   o o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.





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 April 23, 2010 was
25,968,765.









STONERIDGE,
INC. AND SUBSIDIARIES


INDEXPage No.PART
      I–FINANCIAL INFORMATIONItem
      1.
                  Financial
      StatementsCondensed
      Consolidated Balance Sheets as of March 31, 2010 (Unaudited) and December
      31, 2009
                  2Condensed
      Consolidated Statements of Operations (Unaudited) For the Three Months
      Ended March 31, 2010 and 2009
                  3Condensed
      Consolidated Statements of Cash Flows (Unaudited) For the Three Months
      Ended March 31, 2010 and 2009
                  4Notes
      to Condensed Consolidated Financial Statements (Unaudited)
                  5Item
      2.
                  Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  22Item
      3.
                  Quantitative
      and Qualitative Disclosures About Market Risk
                  30Item
      4.
                  Controls
      and Procedures
                  30PART
      II–OTHER INFORMATIONItem
      1.
                  Legal
      Proceedings
                  30Item
      1A.
                  Risk
      Factors
                  30Item
      2.
                  Unregistered
      Sales of Equity Securities and Use of Proceeds
                  30Item
      3.
                  Defaults
      Upon Senior Securities
                  30Item
      4.
                  (Removed
      and Reserved)
                  30Item
      5.
                  Other
      Information
                  30Item
      6.
                  Exhibits
                  30Signatures
                  
                  31Index
      to Exhibits
                  32


EX –
10.1


EX –
10.2


EX –
31.1


EX –
31.2


EX –
32.1


EX –
32.2




1




PART
I–FINANCIAL INFORMATION


Item
1.  Financial Statements.





STONERIDGE,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(in
thousands)





March 31,
                            
                            
                            December 31,2010
                            
                            
                            2009(Unaudited)
                            
                            
                            (Audited)ASSETSCurrent
      Assets:Cash
      and cash equivalents
                            
                            $
                            80,048
                            
                            
                            $
                            91,907Accounts
      receivable, less reserves of $1,755 and $2,350,
    respectively
                            
                            
                            103,172
                            
                            
                            
                            81,272Inventories,
      net
                            
                            
                            45,632
                            
                            
                            
                            40,244Prepaid
      expenses and other
                            
                            
                            18,534
                            
                            
                            
                            17,247Total
      current assets
                            
                            
                            247,386
                            
                            
                            
                            230,670Long-Term
      Assets:Property,
      plant and equipment, net
                            
                            
                            75,513
                            
                            
                            
                            76,991Investments
      and other, net
                            
                            
                            52,623
                            
                            
                            
                            54,864Total
      long-term assets
                            
                            
                            128,136
                            
                            
                            
                            131,855Total
      Assets
                            
                            $
                            375,522
                            
                            
                            $
                            362,525LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      Liabilities:Accounts
      payable
                            
                            $
                            59,482
                            
                            
                            $
                            50,947Accrued
      expenses and other liabilities
                            
                            
                            45,408
                            
                            
                            
                            36,827Total
      current liabilities
                            
                            
                            104,890
                            
                            
                            
                            87,774Long-Term
      Liabilities:Long-term
      debt
                            
                            
                            183,362
                            
                            
                            
                            183,431Other
      long-term liabilities
                            
                            
                            9,610
                            
                            
                            
                            17,263Total
      long-term liabilities
                            
                            
                            192,972
                            
                            
                            
                            200,694Shareholders'
      Equity:Preferred
      Shares, without par value, authorized 5,000 shares, none
      issued
                            
                            
                            -
                            
                            
                            
                            -Common
      Shares, without par value, authorized 60,000 shares, issued 25,969 and
      25,301shares
      and outstanding 25,475 and 25,000 shares, respectively, with no stated
      value
                            
                            
                            -
                            
                            
                            
                            -Additional
      paid-in capital
                            
                            
                            159,401
                            
                            
                            
                            158,748Common
      Shares held in treasury, 494 and 301 shares, respectively, at
      cost
                            
                            
                            (379
                            )
                            
                            
                            (292
                            )Accumulated
      deficit
                            
                            
                            (90,054
                            )
                            
                            
                            (91,560
                            )Accumulated
      other comprehensive income
                            
                            
                            4,223
                            
                            
                            
                            2,669Total
      Stoneridge, Inc. and Subsidiaries shareholders' equity
                            
                            
                            73,191
                            
                            
                            
                            69,565Noncontrolling
      interest
                            
                            
                            4,469
                            
                            
                            
                            4,492Total
      shareholders' equity
                            
                            
                            77,660
                            
                            
                            
                            74,057Total
      Liabilities and Shareholders' Equity
                            
                            $
                            375,522
                            
                            
                            $
                            362,525





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 EndedMarch 31,2010
                
                
                2009Net
      Sales
                
                $
                148,074
                
                
                $
                121,085Costs
      and Expenses:Cost
      of goods sold
                
                
                114,547
                
                
                
                101,810Selling,
      general and administrative
                
                
                29,487
                
                
                
                27,077Restructuring
      charges
                
                
                81
                
                
                
                958Operating
      Income (Loss)
                
                
                3,959
                
                
                
                (8,760
                )Interest
      expense, net
                
                
                5,606
                
                
                
                5,497Equity
      in earnings of investees
                
                
                (691
                )
                
                
                (575
                )Other
      expense (income), net
                
                
                (950
                )
                
                
                6Loss
      Before Income Taxes
                
                
                (6
                )
                
                
                (13,688
                )Benefit
      from income taxes
                
                
                (1,489
                )
                
                
                (2,108
                )Net
      Income (Loss)
                
                
                1,483
                
                
                
                (11,580
                )Net
      Loss Attributable to Noncontrolling Interest
                
                
                (23
                )
                
                
                -Net
      Income (Loss) Attributable to Stoneridge, Inc. and
      Subsidiaries
                
                $
                1,506
                
                
                $
                (11,580
                )Basic
      net income (loss) per share
                
                $
                0.06
                
                
                $
                (0.49
                )Basic
      weighted average shares outstanding
                
                
                23,880
                
                
                
                23,464Diluted
      net income (loss) per share
                
                $
                0.06
                
                
                $
                (0.49
                )Diluted
      weighted average shares outstanding
                
                
                24,324
                
                
                
                23,464





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)




Three Months EndedMarch 31,2010
                    
                    
                    2009OPERATING
      ACTIVITIES:Net
      income (loss)
                    
                    $
                    1,483
                    
                    
                    $
                    (11,580
                    )Adjustments
      to reconcile net income (loss) to net cash provided by (used
      for)operating
      activities -Depreciation
                    
                    
                    4,753
                    
                    
                    
                    5,061Amortization
                    
                    
                    279
                    
                    
                    
                    239Deferred
      income taxes
                    
                    
                    (1,871
                    )
                    
                    
                    (2,506
                    )Earnings
      of equity method investees, less dividends received
                    
                    
                    (691
                    )
                    
                    
                    (575
                    )(Gain)
      loss on sale of fixed assets
                    
                    
                    (19
                    )
                    
                    
                    2Share-based
      compensation expense, net
                    
                    
                    231
                    
                    
                    
                    564Changes
      in operating assets and liabilities -Accounts
      receivable, net
                    
                    
                    (22,441
                    )
                    
                    
                    9,424Inventories,
      net
                    
                    
                    (5,811
                    )
                    
                    
                    6,055Prepaid
      expenses and other
                    
                    
                    899
                    
                    
                    
                    (399
                    )Accounts
      payable
                    
                    
                    8,709
                    
                    
                    
                    (7,236
                    )Accrued
      expenses and other
                    
                    
                    7,206
                    
                    
                    
                    2,149Net
      cash provided by (used for) operating activities
                    
                    
                    (7,273
                    )
                    
                    
                    1,198INVESTING
      ACTIVITIES:Capital
      expenditures
                    
                    
                    (3,619
                    )
                    
                    
                    (3,945
                    )Proceeds
      from sale of fixed assets
                    
                    
                    20
                    
                    
                    
                    92Net
      cash used for investing activities
                    
                    
                    (3,599
                    )
                    
                    
                    (3,853
                    )FINANCING
      ACTIVITIES:Share-based
      compensation activity
                    
                    
                    294
                    
                    
                    
                    -Revolving
      credit facility borrowings, net
                    
                    
                    214
                    
                    
                    
                    -Repayments
      of debt
                    
                    
                    (70
                    )
                    
                    
                    -Net
      cash provided by financing activities
                    
                    
                    438
                    
                    
                    
                    -Effect
      of exchange rate changes on cash and cash equivalents
                    
                    
                    (1,425
                    )
                    
                    
                    (860
                    )Net
      change in cash and cash equivalents
                    
                    
                    (11,859
                    )
                    
                    
                    (3,515
                    )Cash
      and cash equivalents at beginning of period
                    
                    
                    91,907
                    
                    
                    
                    92,692Cash
      and cash equivalents at end of period
                    
                    $
                    80,048
                    
                    
                    $
                    89,177





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




4
 
  STONERIDGE,
INC. AND SUBSIDIARIES
 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 these 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 three months ended
March 31, 2010 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, 2009.





(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 73% and 69% of the
Company’s inventories at March 31, 2010 and December 31, 2009, respectively, and
by the first-in, first-out 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 and judgments 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:





March 31,
                
                
                December 31,2010
                
                
                2009Raw
      materials
                
                $
                27,064
                
                
                $
                26,118Work-in-progress
                
                
                9,071
                
                
                
                9,137Finished
      goods
                
                
                13,097
                
                
                
                8,226Total
      inventories
                
                
                49,232
                
                
                
                43,481Less:
      LIFO reserve
                
                
                (3,600
                )
                
                
                (3,237
                )Inventories,
      net
                
                $
                45,632
                
                
                $
                40,244





(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 March
31, 2010 and December 31, 2009, per quoted market sources, was $183.2 million
and $180.3 million, respectively.  The carrying value of the Company’s
senior notes was $183.0 million as of March 31, 2010 and December 31,
2009.





Derivative
Instruments and Hedging Activities





The
Company currently has open foreign currency forward contracts.  These
contracts are used strictly for hedging and not for speculative
purposes.  Management believes that its use of these instruments to
reduce risk is in the Company’s best interest.  The counterparties to
these financial instruments are financial institutions with strong credit
ratings.




5




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




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 currently hedged by the Company
include the Euro, Swedish krona 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.  At December 31, 2009, the Company held foreign currency
forward contracts to reduce the exposure related to the Company’s British
pound-denominated intercompany receivables.  This contract expired in
January 2010.  As of March 31, 2010, the Company held foreign currency
forward contracts to reduce the exposure related to the Company’s
Euro-denominated intercompany receivables.  This contract expires in
July 2010.   In addition, at March 31, 2010 the Company held a
foreign currency hedge contract to reduce the exposure related to the Company’s
Swedish krona-denominated intercompany receivables.  This contract
also expires in July 2010.  For the three months ended March 31, 2010,
the Company recognized a $1,750 gain related to the Euro and Swedish krona
contracts 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 2010.  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 income.  The Company’s expectation is that the
cash flow hedges will be highly effective in the future.  The
effectiveness of these cash flow hedges has been and will be measured on an
ongoing basis using regression analysis.





In 2009,
to mitigate the risk of future price volatility and, consequently, fluctuations
in gross margins, the Company entered into fixed price commodity swaps with a
financial institution to fix the cost of copper purchases.  In
September 2008, the Company entered into a fixed price swap contract for 1.4
million pounds of copper, which expired monthly throughout
2009.  Because this contract was executed to hedge forecasted
transactions, the contract was accounted for as a cash flow hedge.





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





Notional amounts1
                        
                        
                        Prepaid expenses
                            and other
      assets
                        
                        
                        Accrued expenses and
                            other liabilitiesMarch 31,
                        
                        
                        December 31,
                        
                        
                        March 31,
                        
                        
                        December 31,
                        
                        
                        March 31,
                        
                        
                        December 31,2010
                        
                        
                        2009
                        
                        
                        2010
                        
                        
                        2009
                        
                        
                        2010
                        
                        
                        2009Derivatives
      designated as hedging instruments:Forward
      currency contracts
                        
                        $
                        31,748
                        
                        
                        $
                        43,877
                        
                        
                        $
                        3,539
                        
                        
                        $
                        1,710
                        
                        
                        $
                        -
                        
                        
                        $
                        -Derivatives
      not designated as hedging instruments:Forward
      currency contracts
                        
                        
                        26,631
                        
                        
                        
                        8,363
                        
                        
                        
                        -
                        
                        
                        
                        34
                        
                        
                        
                        170
                        
                        
                        
                        -Total
      derivatives
                        
                        $
                        58,379
                        
                        
                        $
                        52,240
                        
                        
                        $
                        3,539
                        
                        
                        $
                        1,744
                        
                        
                        $
                        170
                        
                        
                        $
                        -





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




6




STONERIDGE,
INC. AND SUBSIDIARIES


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




Amounts
recorded in accumulated other comprehensive income within Shareholders’ Equity
and in net income for the three months ended March 31, 2010 were as
follows:





Amount of gain
                  recorded in
                  accumulated other
                  comprehensive
                  income
                
                
                Amount of gain
                  reclassified from
                  accumulated other
                  comprehensive
                  income into net
                  income
                
                Location of gain
                  reclassified from
                  accumulated other
                  comprehensive income
                  into net incomeDerivatives
      designated as cash flow hedgesForward
      currency contracts
                
                $
                2,723
                
                
                $
                894
                
                Cost
      of goods sold





These
derivatives will be reclassified from other comprehensive income to the
condensed consolidated statement of operations over the next nine
months.





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.





March 31, 2010
                          
                          
                          December 31,Fair Value Estimated Using
                          
                          
                          2009Fair Value
                          
                          
                          Level 1 inputs(1)
                          
                          
                          Level 2 inputs(2)
                          
                          
                          Fair ValueFinancial
      assets carried at fair valueAvailable
      for sale security
                          
                          $
                          256
                          
                          
                          $
                          256
                          
                          
                          $
                          -
                          
                          
                          $
                          261Forward
      currency contracts
                          
                          
                          3,539
                          
                          
                          
                          -
                          
                          
                          
                          3,539
                          
                          
                          
                          1,744Total
      financial assetscarried
      at fair value
                          
                          $
                          3,795
                          
                          
                          $
                          256
                          
                          
                          $
                          3,539
                          
                          
                          $
                          2,005Financial
      liabilities carried at fair valueForward
      currency contracts
                          
                          $
                          170
                          
                          
                          $
                          -
                          
                          
                          $
                          170
                          
                          
                          $
                          -





(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
      contracts, inputs include foreign currency exchange
  rates.




7




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




(4)  Share-Based
Compensation





Total
compensation related expense for share-based compensation arrangements
recognized in the condensed consolidated statements of operations as a component
of selling, general and administrative expenses was $525 and $564 for the three
months ended March 31, 2010 and 2009, respectively.  Included within
financing activities within the condensed consolidated statement of cash flows
for the quarter ended March 31, 2010 is $294 of excess tax benefit
expense.





During
the quarter ended March 31, 2010, the Company granted 247,950 performance based
restricted shares under the Amended and Restated Long-Term Incentive Plan and
recognized approximately $81 of expense.





(5)  Comprehensive
Income (Loss)





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





Three Months EndedMarch 31,2010
                  
                  
                  2009Net
      income (loss)
                  
                  $
                  1,483
                  
                  
                  $
                  (11,580
                  )Other
      comprehensive income (loss):Currency
      translation adjustments
                  
                  
                  (5,361
                  )
                  
                  
                  (2,890
                  )Pension
      liability adjustments
                  
                  
                  5,089
                  
                  
                  
                  42Unrealized
      loss on marketable security
                  
                  
                  (3
                  )
                  
                  
                  (54
                  )Unrealized
      gain on derivatives
                  
                  
                  1,829
                  
                  
                  
                  1,238Other
      comprehensive income (loss)
                  
                  
                  1,554
                  
                  
                  
                  (1,664
                  )Consolidated
      comprehensive income (loss)
                  
                  
                  3,037
                  
                  
                  
                  (13,244
                  )Comprehensive
      loss attributable to the noncontrolling interest
                  
                  
                  23
                  
                  
                  
                  -Comprehensive
      income (loss) attributable to Stoneridge, Inc. and
      Subsidiaries
                  
                  $
                  3,060
                  
                  
                  $
                  (13,244
                  )





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





March 31,
                  
                  
                  December 31,2010
                  
                  
                  2009Currency
      translation adjustments
                  
                  $
                  711
                  
                  
                  $
                  6,072Pension
      liability adjustments
                  
                  
                  -
                  
                  
                  
                  (5,089
                  )Unrealized
      loss on marketable security
                  
                  
                  (27
                  )
                  
                  
                  (24
                  )Unrecognized
      gain on derivatives
                  
                  
                  3,539
                  
                  
                  
                  1,710Accumulated
      other comprehensive income
                  
                  $
                  4,223
                  
                  
                  $
                  2,669





(6)  Long-Term
Debt





Senior
Notes





The
Company had $183.0 million of senior notes outstanding at March 31, 2010 and
December 31, 2009.  The outstanding senior notes bear interest at an
annual rate of 11.50% and mature on May 1, 2012.  Beginning May 1,
2010 the senior notes were redeemable, at the Company’s option, at 101.917%
until April 30, 2010.  After April 30, 2010, the senior notes will
remain redeemable at par until the maturity date.  Interest is payable
on May 1 and November 1 of each year.  The senior notes do not contain
restrictive financial performance covenants.  The Company was in
compliance with all non-financial covenants at March 31, 2010 and December 31,
2009.




8




STONERIDGE,
INC. AND SUBSIDIARIES
 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
(“credit facility”), which permits borrowing up to a maximum level of $100.0
million.  At March 31, 2010 and December 31, 2009, there were no
borrowings on the credit facility.  The available borrowing capacity
on this credit facility is based on eligible current assets and outstanding
letters of credit, as defined.  At March 31, 2010 and December 31,
2009, the Company had borrowing capacity of $68.0 million and $54.1 million,
respectively, based on eligible current assets and outstanding letters of
credit.  The credit facility does not contain financial performance
covenants which would constrain the Company’s 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 0.375% 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 March
31, 2010 and December 31, 2009.





On
October 13, 2009, the Company’s majority owned consolidated subsidiary, Bolton
Conductive Systems, LLC (“BCS”) entered into a master revolving note (the
“Revolver”), which permits borrowing up to a maximum level of $3.0
million.  At March 31, 2010 and December 31, 2009, BCS had $902 and
$688 in borrowings outstanding on the Revolver, respectively, which are included
on the condensed consolidated balance sheets as a component of accrued expenses
and other.  The Revolver expires on October 1,
2010.  Interest is payable monthly at the prime referenced rate plus a
2.25% margin.  At March 31, 2010 and December 31, 2009, the interest
rate on the Revolver was 5.5%.  The Company is a guarantor of BCS as
it relates to the Revolver.





Installment
Notes





BCS has
an installment note (“installment note”) and other notes payable for the
purchase of various fixed assets (“fixed asset notes”).  Interest on
the installment notes is the prime referenced rate plus a 2.25%
margin.  At March 31, 2010 and December 31, 2009, the interest rate on
the installment note was 5.5%.  The installment note calls for monthly
installment payments of principal and interest and matures in
2012.  The weighted average interest rate on the fixed asset notes was
6.6% at March 31, 2010 and December 31, 2009.  At March 31, 2010 and
December 31, 2009, the principal amounts due on the installment and fixed asset
notes were $455 and $179 and $483 and $221, respectively.





(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.





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





Three Months EndedMarch 31,2010
                
                
                2009Basic
      weighted-average shares outstanding
                
                
                23,879,778
                
                
                
                23,463,578Effect
      of dilutive securities
                
                
                443,947
                
                
                
                -Diluted
      weighted-average shares outstanding
                
                
                24,323,725
                
                
                
                23,463,578




9




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


Options
not included in the computation of diluted net income (loss) per share to
purchase 115,250 and 195,750 Common Shares at an average price of $12.58 and
$10.22 per share were outstanding at March 31, 2010 and March 31, 2009,
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.  These options were excluded from the computation of diluted
earnings per share under the treasury stock method.





As of
March 31, 2010, 463,050 performance-based restricted shares were
outstanding.  These shares were not included in the computation of
diluted net income per share because not all vesting conditions were achieved as
of March 31, 2010.  These shares may or may not become dilutive based
on the Company’s ability to meet or exceed future performance
targets.





(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.  During 2008, the Company began additional restructuring
initiatives in its Canton, Massachusetts, Orebro, Sweden and Tallinn, Estonia
locations.  In response to the depressed conditions in the North
American and European commercial vehicle and automotive markets, the Company
also began restructuring initiatives in its Juarez, Monclova and Chihuahua,
Mexico, Orebro and Bromma, Sweden, Tallinn, Estonia, Dundee, Scotland,
Lexington, Ohio and Canton, Massachusetts locations during 2009.  In
addition, during 2009, as part of the Company’s continuing overall restructuring
initiatives the Company consolidated certain management positions at its
Lexington, Ohio and Canton, Massachusetts facilities.   During
the first quarter of 2010, the Company continued the restructuring initiative in
Dundee, Scotland which began in 2009.  In connection with these
initiatives, the Company recorded restructuring charges of $81 and $982 in the
Company’s condensed consolidated statement of operations for the three months
ended March 31, 2010 and 2009, 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.





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





Severance
                              Costs
                            
                            
                            Contract
                              Termination
                              Costs
                            
                            
                            Other Exit
                              Costs
                            
                            
                            TotalTotal
      expected restructuring charges
                            
                            $
                            5,639
                            
                            
                            $
                            2,033
                            
                            
                            $
                            2,504
                            
                            
                            $
                            10,1762007
      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
                            
                            
                            
                            2,0162009
      charge to expense
                            
                            
                            2,237
                            
                            
                            
                            374
                            
                            
                            
                            -
                            
                            
                            
                            2,611Foreign
      currency translation effect
                            
                            
                            -
                            
                            
                            
                            400
                            
                            
                            
                            -
                            
                            
                            
                            400Cash
      payments
                            
                            
                            (2,641
                            )
                            
                            
                            (656
                            )
                            
                            
                            (180
                            )
                            
                            
                            (3,477
                            )Accrued
      balance at December 31, 2009
                            
                            
                            127
                            
                            
                            
                            1,423
                            
                            
                            
                            -
                            
                            
                            
                            1,550First
      quarter 2010 charge to expense
                            
                            
                            81
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            81Foreign
      currency translation effect
                            
                            
                            -
                            
                            
                            
                            (46
                            )
                            
                            
                            -
                            
                            
                            
                            (46
                            )Cash
      payments
                            
                            
                            (65
                            )
                            
                            
                            (134
                            )
                            
                            
                            -
                            
                            
                            
                            (199
                            )Accrued
      balance at March 31, 2010
                            
                            $
                            143
                            
                            
                            $
                            1,243
                            
                            
                            $
                            -
                            
                            
                            $
                            1,386Remaining
      expected restructuring charge
                            
                            $
                            23
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            23




10




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




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





Severance
                    Costs
                  
                  
                  Other Exit
                    Costs
                  
                  
                  TotalTotal
      expected restructuring charges
                  
                  $
                  3,912
                  
                  
                  $
                  6,447
                  
                  
                  $
                  10,3592007
      charge to expense
                  
                  $
                  357
                  
                  
                  $
                  99
                  
                  
                  $
                  456Accrued
      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
                  
                  
                  
                  1,8682009
      charge to expense
                  
                  
                  1,034
                  
                  
                  
                  23
                  
                  
                  
                  1,057Cash
      payments
                  
                  
                  (2,463
                  )
                  
                  
                  (164
                  )
                  
                  
                  (2,627
                  )Accrued
      Balance at December 31, 2009
                  
                  
                  39
                  
                  
                  
                  259
                  
                  
                  
                  298Cash
      payments
                  
                  
                  (39
                  )
                  
                  
                  -
                  
                  
                  
                  (39
                  )Accrued
      balance at March 31, 2010
                  
                  $
                  -
                  
                  
                  $
                  259
                  
                  
                  $
                  259




All
restructuring 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 exit costs include premium
direct labor, inventory and equipment move costs, relocation expense, increased
inventory carrying costs and miscellaneous expenditures associated with exiting
business activities.  No fixed-asset impairment charges were incurred
because assets were 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 and product liability
disputes.  The Company is of the opinion that the ultimate resolution
of these matters will not have a material adverse effect on the results of
operations, cash flows or the financial position of the Company.





On
October 13, 2009, the Company acquired 51% membership interest in
BCS.  The purchase agreement provides that the Company may be required
to make additional payments to the previous owners of BCS for its 51% membership
interest based on BCS achieving financial performance targets as defined by the
purchase agreement.  The maximum amount of additional payments to the
prior owners of BCS is $3,200 per year in 2011, 2012 and 2013 and is contingent
upon BCS achieving profitability targets based on earnings before interest,
income taxes, depreciation and amortization in the years 2010, 2011 and 2012,
respectively.  In addition, the Company may be required to make additional
payments to BCS of approximately $450 in 2011 and $500 in 2012 based on BCS
achieving annual revenue targets in 2010 and 2011, respectively.  The
Company recorded $893; the fair value of the estimated future additional
payments to the prior owners of BCS as of the acquisition date, December 31,
2009 and March 31, 2010 on the condensed consolidated balance sheet as a
component of other long-term liabilities.  The purchase agreement
provides the Company with the option to purchase the remaining 49% interest in
BCS in 2013 at a price determined in accordance with the purchase
agreement.  If the Company does not exercise this option then the
minority owners of BCS have the option in 2014 to purchase the Company’s 51%
interest in BCS at a price determined in accordance with the purchase agreement
or to jointly market BCS for sale.




11
 
  STONERIDGE,
INC. AND SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (in
thousands, except share and per share data, unless otherwise
indicated)


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.





The
following provides a reconciliation of changes in product warranty and recall
liability for the three months ended March 31, 2010 and 2009:





2010
                
                
                2009Product
      warranty and recall at beginning of period
                
                $
                4,764
                
                
                $
                5,527Accruals
      for products shipped during the period
                
                
                761
                
                
                
                468Aggregate
      changes in pre-existing liabilities due to claims
    developments
                
                
                471
                
                
                
                7Settlements
      made during the period (in cash or in kind)
                
                
                (1,314
                )
                
                
                (1,264
                )Product
      warranty and recall at end of period
                
                $
                4,682
                
                
                $
                4,738





(10)  Employee
Benefit Plans





The
Company had a single defined benefit pension plan that covered certain former
employees in the United Kingdom.  As a result of placing Stoneridge
Pollak Limited (“SPL”) into administration during the quarter ended March 31,
2010, as described in Note 12, the Company settled the defined benefit pension
plan.  The components of net periodic cost under the defined benefit
pension plan are as follows:





Three Months EndedMarch 31,2010
                  
                  
                  2009Service
      cost
                  
                  $
                  -
                  
                  
                  $
                  14Interest
      cost
                  
                  
                  163
                  
                  
                  
                  219Expected
      return on plan assets
                  
                  
                  (126
                  )
                  
                  
                  (165
                  )Amortization
      of actuarial loss
                  
                  
                  62
                  
                  
                  
                  42Settlement
      loss
                  
                  
                  33
                  
                  
                  
                  -Net
      periodic cost
                  
                  $
                  132
                  
                  
                  $
                  110





The
Company made contributions of approximately $16 during the quarter ended March
31, 2010, prior to placing SPL into administration.





In March
2009, the Company adopted the Stoneridge, Inc. Long-Term Cash Incentive
Plan (“LTCIP”) and granted awards to certain officers and key
employees.  Awards under the LTCIP provide recipients with the right
to receive cash three years from the date of grant depending on the Company’s
actual earnings per share performance for a performance period comprised
of three fiscal years from the date of grant.  The Company will
record an accrual for an award to be paid in the period earned based on
anticipated achievement of the performance goal.  If the participant
voluntarily terminates employment or is discharged for cause, as defined in the
LTCIP, the award will be forfeited.  In May 2009, the LTCIP was
approved by the Company’s shareholders.  The Company has not recorded
an accrual for the awards granted under the LTCIP at March 31, 2010 as the
achievement of the performance goals are not considered probable at this
time.




12


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




(11)  Income
Taxes





The
Company recognized a benefit from income taxes of $1,489 and $2,108, for
federal, state and foreign income taxes for the three months ended March 31,
2010 and 2009, respectively.  As reported at December 31, 2009, the
Company is in a cumulative loss position and provides a valuation allowance
offsetting federal, state and certain foreign deferred tax
assets.  The decrease in the tax benefit for the three months ended
March 31, 2010 compared to the three months ended March 31, 2009, was primarily
attributable to a decrease in tax benefits related to 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 offset with a tax benefit related to
our United Kingdom operations.  As a result of placing SPL into
administration, as described in Note 12, the Company recognized a tax benefit of
approximately $1,170 during the quarter ended March 31, 2010 from the reversal
of deferred tax liabilities, primarily employee benefit related, that were
previously included as a component of other comprehensive income within
Shareholders’ Equity.





(12)  SPL
Administration





On
February 23, 2010, the Company placed its wholly owned subsidiary, SPL into
administration (a structured bankruptcy) in the United Kingdom.  The
Company had previously ceased operations at the facility as of December 2008 as
part of the restructuring initiatives announced on October 29, 2007, as
described in Note 8.  All SPL customer contracts were transferred to
other subsidiaries of the Company at the time that SPL filed for
administration.  As a result of placing SPL into administration the
Company recognized a net gain of approximately $3,423 during the quarter ended
March 31, 2010.  This gain was primarily related to the reversal of
the cumulative translation adjustment account (“CTA”) and deferred tax
liabilities, which had previously been included as a component of other
comprehensive income within Shareholders’ Equity.  The net gain of
approximately $2,253, primarily due to reversing the CTA balance is included as
a component of other expense (income), net on the condensed consolidated
statement of operations.  The benefit from reversing the deferred tax
liabilities, primarily employee benefit related of approximately $1,170 is
included as a component of benefit from income taxes on the condensed
consolidated statement of operations, as described in Note 11.





(13)  Segment
Reporting





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, 2009 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.




13


STONERIDGE,
INC. AND SUBSIDIARIES
 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 EndedMarch
      31,2010
                      
                      
                      2009Net
      SalesElectronics
                      
                      $
                      91,638
                      
                      
                      $
                      82,771Inter-segment
      sales
                      
                      
                      3,111
                      
                      
                      
                      1,858Electronics
      net sales
                      
                      
                      94,749
                      
                      
                      
                      84,629Control
      Devices
                      
                      
                      56,436
                      
                      
                      
                      38,314Inter-segment
      sales
                      
                      
                      848
                      
                      
                      
                      709Control
      Devices net sales
                      
                      
                      57,284
                      
                      
                      
                      39,023Eliminations
                      
                      
                      (3,959
                      )
                      
                      
                      (2,567
                      )Total
      consolidated net sales
                      
                      $
                      148,074
                      
                      
                      $
                      121,085Income
      (Loss) Before Income TaxesElectronics
      (A)
                      
                      $
                      34,349
                      
                      
                      $
                      (2,206
                      )Control
      Devices (A)
                      
                      
                      3,156
                      
                      
                      
                      (7,020
                      )Other
      corporate activities (A)
                      
                      
                      (32,350
                      )
                      
                      
                      1,015Corporate
      interest expense
                      
                      
                      (5,161
                      )
                      
                      
                      (5,477
                      )Total
      consolidated loss before income taxes
                      
                      $
                      (6
                      )
                      
                      $
                      (13,688
                      )Electronics
                      
                      $
                      2,242
                      
                      
                      $
                      2,212Control
      Devices
                      
                      
                      2,465
                      
                      
                      
                      2,789Corporate
      activities
                      
                      
                      87
                      
                      
                      
                      60Total
      consolidated depreciation and amortization (B)
                      
                      $
                      4,794
                      
                      
                      $
                      5,061Interest
      Expense (Income), netElectronics
                      
                      $
                      445
                      
                      
                      $
                      21Control
      Devices
                      
                      
                      -
                      
                      
                      
                      (1
                      )Corporate
      activities
                      
                      
                      5,161
                      
                      
                      
                      5,477Total
      consolidated interest expense, net
                      
                      $
                      5,606
                      
                      
                      $
                      5,497Capital
      ExpendituresElectronics
                      
                      $
                      2,463
                      
                      
                      $
                      1,510Control
      Devices
                      
                      
                      1,284
                      
                      
                      
                      1,935Corporate
      activities
                      
                      
                      (128
                      )
                      
                      
                      500Total
      consolidated capital expenditures
                      
                      $
                      3,619
                      
                      
                      $
                      3,945





(A)
            During
      the quarter ended March 31, 2010, the Company placed SPL into
      administration.  As a result of placing SPL into administration
      the Company recognized a gain within the Electronics reportable segment of
      $35,512 and losses within other corporate activities and within the
      Control Devices reportable segment of approximately $32,039 and $473,
      respectively.  These results were primarily due to eliminating
      SPL’s intercompany debt and equity
structure.





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




14




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


March
      31,
                    
                    
                    December 31,2010
                    
                    
                    2009Total
      AssetsElectronics
                    
                    $
                    182,105
                    
                    
                    $
                    163,414Control
      Devices
                    
                    
                    96,796
                    
                    
                    
                    91,631Corporate
      activities (C)
                    
                    
                    219,232
                    
                    
                    
                    236,110Eliminations
                    
                    
                    (122,611
                    )
                    
                    
                    (128,630
                    )Total
      consolidated assets
                    
                    $
                    375,522
                    
                    
                    $
                    362,525





(C)     
Assets located at Corporate consist primarily of cash, intercompany receivables
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 EndedMarch
      31,2010
                      
                      
                      2009Net
      SalesNorth
      America
                      
                      $
                      120,743
                      
                      
                      $
                      99,230Europe
      and other
                      
                      
                      27,331
                      
                      
                      
                      21,855Total
      consolidated net sales
                      
                      $
                      148,074
                      
                      
                      $
                      121,085





March 31,
                      
                      
                      December 31,2010
                      
                      
                      2009Non-Current
      AssetsNorth
      America
                      
                      $
                      117,445
                      
                      
                      $
                      121,149Europe
      and other
                      
                      
                      10,691
                      
                      
                      
                      10,706Total
      non-current assets
                      
                      $
                      128,136
                      
                      
                      $
                      131,855





(14)  Investments





In June
2009, the Financial Accounting Standards Board (“FASB”) revised the
authoritative guidance for determining the primary beneficiary of a variable
interest entity (“VIE”).  In December 2009, the FASB issued Accounting
Standards Update No. 2009-17, Improvements to Financial Reporting
by Enterprises Involved with Variable Interest Entities, which provides
amendments to Accounting Standards Codification Topic No. 810, Consolidation (“ASC 810”) to reflect the
revised guidance.  Among other things, the new guidance requires a
qualitative rather than a quantitative assessment to determine the primary
beneficiary of a VIE based on whether the entity (1) has the power to
direct matters that most significantly impact the activities of the VIE and
(2) has the obligation to absorb losses or the right to receive benefits of
the VIE that could potentially be significant to the VIE. In addition, the
amended guidance requires an ongoing reconsideration of the primary beneficiary.
The provisions of this new guidance were effective as of January 1, 2010, and
the adoption did not have an impact on the Company’s financial
statements.  The Company analyzed its joint ventures in accordance
with ASC 810 to determine whether they are VIE’s and, if so, whether the Company
is the primary beneficiary.  Both of the Company’s joint ventures at
March 31, 2010 were determined under the provisions of ASC 810 to be
unconsolidated joint ventures and were accounted for under the equity method of
accounting.





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 Company’s
investment in PST was $34,143 and $35,824 at March 31, 2010 and December 31,
2009, respectively.




15


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




Condensed
financial information for PST is as follows:
 Three Months EndedMarch 31,2010
                
                
                2009Revenues
                
                $
                33,310
                
                
                $
                21,400Cost
      of sales
                
                $
                17,614
                
                
                $
                11,051Total
      pre-tax income
                
                $
                1,197
                
                
                $
                1,260The
      Company's share of pre-tax income
                
                $
                599
                
                
                $
                630





Equity in
earnings of PST included in the condensed consolidated statements of operations
was $483 and $603 for the three months ended March 31, 2010 and 2009,
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 commercial vehicle and motorcycle market.  The
Company’s investment in Minda was $5,600 and $5,220 at March 31, 2010 and
December 31, 2009, respectively.  Equity in earnings (loss) of Minda
included in the condensed consolidated statements of operations was $208 and
$(28), for the three months ended March 31, 2010 and 2009,
respectively.





(15)  Guarantor
Financial Information





Our
senior notes 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 and non-wholly
owned domestic subsidiaries do not guarantee the senior notes (Non-Guarantor
Subsidiaries).





Presented
below are condensed 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 consolidated basis as of
March 31, 2010 and December 31, 2009 and for each of the three months ended
March 31, 2010 and 2009, respectively.





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.




16




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


March 31, 2010Parent
                
                
                Guarantor
                  Subsidiaries
                
                
                Non-Guarantor
                  Subsidiaries
                
                
                Eliminations
                
                
                ConsolidatedASSETSCurrent
      Assets:Cash
      and cash equivalents
                
                $
                49,760
                
                
                $
                19
                
                
                $
                30,269
                
                
                $
                -
                
                
                $
                80,048Accounts
      receivable, net
                
                
                51,843
                
                
                
                23,011
                
                
                
                28,318
                
                
                
                -
                
                
                
                103,172Inventories,
      net
                
                
                25,333
                
                
                
                7,661
                
                
                
                12,638
                
                
                
                -
                
                
                
                45,632Prepaid
      expenses and other
                
                
                (301,742
                )
                
                
                310,444
                
                
                
                9,832
                
                
                
                -
                
                
                
                18,534Total
      current assets
                
                
                (174,806
                )
                
                
                341,135
                
                
                
                81,057
                
                
                
                -
                
                
                
                247,386Long-Term
      Assets:Property,
      plant and equipment, net
                
                
                44,510
                
                
                
                18,997
                
                
                
                12,006
                
                
                
                -
                
                
                
                75,513Investments
      and other, net
                
                
                42,033
                
                
                
                17
                
                
                
                10,573
                
                
                
                -
                
                
                
                52,623Investment
      in subsidiaries
                
                
                402,441
                
                
                
                -
                
                
                
                -
                
                
                
                (402,441
                )
                
                
                -Total
      long-term assets
                
                
                488,984
                
                
                
                19,014
                
                
                
                22,579
                
                
                
                (402,441
                )
                
                
                128,136Total
      Assets
                
                $
                314,178
                
                
                $
                360,149
                
                
                $
                103,636
                
                
                $
                (402,441
                )
                
                $
                375,522LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      Liabilities:Accounts
      payable
                
                $
                32,012
                
                
                $
                17,973
                
                
                $
                9,497
                
                
                $
                -
                
                
                $
                59,482Accrued
      expenses and other
                
                
                17,421
                
                
                
                11,420
                
                
                
                16,567
                
                
                
                -
                
                
                
                45,408Total
      current liabilities
                
                
                49,433
                
                
                
                29,393
                
                
                
                26,064
                
                
                
                -
                
                
                
                104,890Long-Term
      Liabilities:Long-term
      debt
                
                
                183,000
                
                
                
                -
                
                
                
                362
                
                
                
                -
                
                
                
                183,362Other
      long-term liabilities
                
                
                8,554
                
                
                
                360
                
                
                
                696
                
                
                
                -
                
                
                
                9,610Total
      long-term liabilities
                
                
                191,554
                
                
                
                360
                
                
                
                1,058
                
                
                
                -
                
                
                
                192,972Stoneridge,
      Inc. and Subsidiaries Shareholders' Equity
                
                
                73,191
                
                
                
                330,396
                
                
                
                72,045
                
                
                
                (402,441
                )
                
                
                73,191Noncontrolling
      Interest
                
                
                -
                
                
                
                -
                
                
                
                4,469
                
                
                
                -
                
                
                
                4,469Total
      Shareholders' Equity
                
                
                73,191
                
                
                
                330,396
                
                
                
                76,514
                
                
                
                (402,441
                )
                
                
                77,660Total
      Liabilities and Shareholders’ Equity
                
                $
                314,178
                
                
                $
                360,149
                
                
                $
                103,636
                
                
                $
                (402,441
                )
                
                $
                375,522




17


STONERIDGE,
INC. AND SUBSIDIARIES
 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, 2009Parent
                
                
                Guarantor
                  Subsidiaries
                
                
                Non-Guarantor
                  Subsidiaries
                
                
                Eliminations
                
                
                ConsolidatedASSETSCurrent
      Assets:Cash
      and cash equivalents
                
                $
                59,693
                
                
                $
                18
                
                
                $
                32,196
                
                
                $
                -
                
                
                $
                91,907Accounts
      receivable, net
                
                
                42,804
                
                
                
                18,136
                
                
                
                20,332
                
                
                
                -
                
                
                
                81,272Inventories,
      net
                
                
                21,121
                
                
                
                6,368
                
                
                
                12,755
                
                
                
                -
                
                
                
                40,244Prepaid
      expenses and other
                
                
                (313,004
                )
                
                
                308,571
                
                
                
                21,680
                
                
                
                -
                
                
                
                17,247Total
      current assets
                
                
                (189,386
                )
                
                
                333,093
                
                
                
                86,963
                
                
                
                -
                
                
                
                230,670Long-Term
      Assets:Property,
      plant and equipment, net
                
                
                45,063
                
                
                
                20,152
                
                
                
                11,776
                
                
                
                -
                
                
                
                76,991Investments
      and other, net
                
                
                41,567
                
                
                
                23
                
                
                
                13,274
                
                
                
                -
                
                
                
                54,864Investment
      in subsidiaries.
                
                
                395,041
                
                
                
                -
                
                
                
                -
                
                
                
                (395,041
                )
                
                
                -Total
      long-term assets
                
                
                481,671
                
                
                
                20,175
                
                
                
                25,050
                
                
                
                (395,041
                )
                
                
                131,855Total
      Assets
                
                $
                292,285
                
                
                $
                353,268
                
                
                $
                112,013
                
                
                $
                (395,041
                )
                
                $
                362,525LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      Liabilities:Accounts
      payable
                
                $
                27,147
                
                
                $
                15,136
                
                
                $
                8,664
                
                
                $
                -
                
                
                $
                50,947Accrued
      expenses and other
                
                
                4,172
                
                
                
                9,952
                
                
                
                22,703
                
                
                
                -
                
                
                
                36,827Total
      current liabilities
                
                
                31,319
                
                
                
                25,088
                
                
                
                31,367
                
                
                
                -
                
                
                
                87,774Long-Term
      Liabilities:Long-term
      debt
                
                
                183,000
                
                
                
                -
                
                
                
                431
                
                
                
                -
                
                
                
                183,431Other
      long-term liabilities
                
                
                8,401
                
                
                
                360
                
                
                
                8,502
                
                
                
                -
                
                
                
                17,263Total
      long-term liabilities
                
                
                191,401
                
                
                
                360
                
                
                
                8,933
                
                
                
                -
                
                
                
                200,694Stoneridge,
      Inc. and Subsidiaries Shareholders' Equity
                
                
                69,565
                
                
                
                327,820
                
                
                
                67,221
                
                
                
                (395,041
                )
                
                
                69,565Noncontrolling
      Interest
                
                
                -
                
                
                
                -
                
                
                
                4,492
                
                
                
                -
                
                
                
                4,492Total
      Shareholders' Equity
                
                
                69,565
                
                
                
                327,820
                
                
                
                71,713
                
                
                
                (395,041
                )
                
                
                74,057Total
      Liabilities and Shareholders’ Equity
                
                $
                292,285
                
                
                $
                353,268
                
                
                $
                112,013
                
                
                $
                (395,041
                )
                
                $
                362,525




18




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




Supplemental
condensed consolidating financial statements (continued):





Three Months Ended March 31, 2010Parent
                
                
                Guarantor
                  Subsidiaries
                
                
                Non-Guarantor
                  Subsidiaries
                
                
                Eliminations
                
                
                ConsolidatedNet
      Sales
                
                $
                83,106
                
                
                $
                42,483
                
                
                $
                43,012
                
                
                $
                (20,527
                )
                
                $
                148,074Costs
      and Expenses:Cost
      of goods sold
                
                
                70,335
                
                
                
                32,293
                
                
                
                31,773
                
                
                
                (19,854
                )
                
                
                114,547Selling,
      general and administrative
                
                
                13,917
                
                
                
                6,314
                
                
                
                9,929
                
                
                
                (673
                )
                
                
                29,487Restructuring
      charges
                
                
                -
                
                
                
                -
                
                
                
                81
                
                
                
                -
                
                
                
                81Operating
      Income (Loss)
                
                
                (1,146
                )
                
                
                3,876
                
                
                
                1,229
                
                
                
                -
                
                
                
                3,959Interest
      expense, net
                
                
                5,560
                
                
                
                -
                
                
                
                46
                
                
                
                -
                
                
                
                5,606Other
      expense (income), net
                
                
                43
                
                
                
                1,296
                
                
                
                (2,980
                )
                
                
                -
                
                
                
                (1,641
                )Equity
      earnings from subsidiaries
                
                
                (8,412
                )
                
                
                -
                
                
                
                -
                
                
                
                8,412
                
                
                
                -Income
      (Loss) Before Income Taxes
                
                
                1,663
                
                
                
                2,580
                
                
                
                4,163
                
                
                
                (8,412
                )
                
                
                (6
                )Benefit
      from income taxes
                
                
                180
                
                
                
                -
                
                
                
                (1,669
                )
                
                
                -
                
                
                
                (1,489
                )Net
      Income
                
                
                1,483
                
                
                
                2,580
                
                
                
                5,832
                
                
                
                (8,412
                )
                
                
                1,483Net
      Loss Attributable to Noncontrolling Interest
                
                
                -
                
                
                
                -
                
                
                
                (23
                )
                
                
                -
                
                
                
                (23
                )Net
      Income Attributable to Stoneridge, Inc. and Subsidiaries
                
                $
                1,483
                
                
                $
                2,580
                
                
                $
                5,855
                
                
                $
                (8,412
                )
                
                $
                1,506




19







STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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








Three Months Ended March 31, 2009Parent
                
                
                Guarantor
                  Subsidiaries
                
                
                Non-Guarantor
                  Subsidiaries
                
                
                Eliminations
                
                
                ConsolidatedNet
      Sales
                
                $
                72,572
                
                
                $
                31,626
                
                
                $
                34,592
                
                
                $
                (17,705
                )
                
                $
                121,085Costs
      and Expenses:Cost
      of goods sold
                
                
                63,393
                
                
                
                27,794
                
                
                
                27,707
                
                
                
                (17,084
                )
                
                
                101,810Selling,
      general and administrative
                
                
                12,042
                
                
                
                6,566
                
                
                
                9,090
                
                
                
                (621
                )
                
                
                27,077Restructuring
      charges
                
                
                16
                
                
                
                482
                
                
                
                460
                
                
                
                -
                
                
                
                958Operating
      Loss
                
                
                (2,879
                )
                
                
                (3,216
                )
                
                
                (2,665
                )
                
                
                -
                
                
                
                (8,760
                )Interest
      expense (income), net
                
                
                5,544
                
                
                
                -
                
                
                
                (47
                )
                
                
                -
                
                
                
                5,497Other
      expense (income), net
                
                
                (572
                )
                
                
                -
                
                
                
                3
                
                
                
                -
                
                
                
                (569
                )Equity
      deficit from subsidiaries
                
                
                5,102
                
                
                
                -
                
                
                
                -
                
                
                
                (5,102
                )
                
                
                -Loss
      Before Income Taxes
                
                
                (12,953
                )
                
                
                (3,216
                )
                
                
                (2,621
                )
                
                
                5,102
                
                
                
                (13,688
                )Benefit
      from income taxes
                
                
                (1,373
                )
                
                
                -
                
                
                
                (735
                )
                
                
                -
                
                
                
                (2,108
                )Net
      Loss
                
                
                (11,580
                )
                
                
                (3,216
                )
                
                
                (1,886
                )
                
                
                5,102
                
                
                
                (11,580
                )Net
      Income Attributable to Noncontrolling Interest
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Net
      Loss Attributable to Stoneridge, Inc. and Subsidiaries
                
                $
                (11,580
                )
                
                $
                (3,216
                )
                
                $
                (1,886
                )
                
                $
                5,102
                
                
                $
                (11,580
                )




20


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








Three Months Ended March 31, 2010Parent
                    
                    
                    Guarantor
                      Subsidiaries
                    
                    
                    Non-
                      Guarantor
                      Subsidiaries
                    
                    
                    ConsolidatedNet
      cash provided by (used for) operating activities
                    
                    $
                    (8,004
                    )
                    
                    $
                    239
                    
                    
                    $
                    492
                    
                    
                    $
                    (7,273
                    )INVESTING
      ACTIVITIES:Capital
      expenditures
                    
                    
                    (2,157
                    )
                    
                    
                    (294
                    )
                    
                    
                    (1,168
                    )
                    
                    
                    (3,619
                    )Proceeds
      from the sale of fixed assets
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    20
                    
                    
                    
                    20Net
      cash used for investing activities
                    
                    
                    (2,157
                    )
                    
                    
                    (294
                    )
                    
                    
                    (1,148
                    )
                    
                    
                    (3,599
                    )FINANCING
      ACTIVITIES:Share-based
      compensation activity
                    
                    
                    228
                    
                    
                    
                    56
                    
                    
                    
                    10
                    
                    
                    
                    294Revolving
      credit facility borrowings, net
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    214
                    
                    
                    
                    214Repayments
      of long-term debt
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (70
                    )
                    
                    
                    (70
                    )Net
      cash provided by financing activities
                    
                    
                    228
                    
                    
                    
                    56
                    
                    
                    
                    154
                    
                    
                    
                    438Effect
      of exchange rate changes on cashand
      cash equivalents
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (1,425
                    )
                    
                    
                    (1,425
                    )Net
      change in cash and cash equivalents.
                    
                    
                    (9,933
                    )
                    
                    
                    1
                    
                    
                    
                    (1,927
                    )
                    
                    
                    (11,859
                    )Cash
      and cash equivalents at beginning of period
                    
                    
                    59,693
                    
                    
                    
                    18
                    
                    
                    
                    32,196
                    
                    
                    
                    91,907Cash
      and cash equivalents at end of period
                    
                    $
                    49,760
                    
                    
                    $
                    19
                    
                    
                    $
                    30,269
                    
                    
                    $
                    80,048




Three Months Ended March 31, 2009Parent
                    
                    
                    Guarantor
                      Subsidiaries
                    
                    
                    Non-
                      Guarantor
                      Subsidiaries
                    
                    
                    ConsolidatedNet
      cash provided by (used for) operating activities
                    
                    $
                    (5,682
                    )
                    
                    $
                    894
                    
                    
                    $
                    5,986
                    
                    
                    $
                    1,198INVESTING
      ACTIVITIES:Capital
      expenditures
                    
                    
                    (2,434
                    )
                    
                    
                    (792
                    )
                    
                    
                    (719
                    )
                    
                    
                    (3,945
                    )Proceeds
      from the sale of fixed assets
                    
                    
                    2
                    
                    
                    
                    57
                    
                    
                    
                    33
                    
                    
                    
                    92Net
      cash used for investing activities
                    
                    
                    (2,432
                    )
                    
                    
                    (735
                    )
                    
                    
                    (686
                    )
                    
                    
                    (3,853
                    )Effect
      of exchange rate changes on cashand
      cash equivalents
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (860
                    )
                    
                    
                    (860
                    )Net
      change in cash and cash equivalents
                    
                    
                    (8,114
                    )
                    
                    
                    159
                    
                    
                    
                    4,440
                    
                    
                    
                    (3,515
                    )Cash
      and cash equivalents at beginning of period
                    
                    
                    55,237
                    
                    
                    
                    27
                    
                    
                    
                    37,428
                    
                    
                    
                    92,692Cash
      and cash equivalents at end of period
                    
                    $
                    47,123
                    
                    
                    $
                    186
                    
                    
                    $
                    41,868
                    
                    
                    $
                    89,177




21


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
Stoneridge, Inc. (the “Company”).  This MD&A is provided as a
supplement to, and should be read in conjunction with, our condensed
consolidated 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,
automotive, agricultural and off-highway vehicle markets.





We
recognized net income for the quarter ended March 31, 2010 of $1.5 million, or
$0.06 per diluted share, compared with net loss of $11.6 million, or $(0.49) per
diluted share, for the first quarter of 2009.  The increase in our
profitability was primarily due to the improvement of the markets that we serve,
which resulted in increased sales volume in the current quarter.





Our first
quarter 2010 results were positively affected by improvements in the North
American automotive and global commercial vehicle markets as well as the economy
as a whole.  Production volumes in the North American automotive
vehicle market increased by 69.5% during the quarter ended March 31, 2010 when
compared to the quarter ended March 31, 2009.  These automotive market
production volume increases had a positive effect on our North American
automotive market net sales of approximately $15.1 million, primarily within our
Control Devices segment.  The commercial vehicle market production
volumes in North America improved by 17.3% during the quarter ended March 31,
2010 when compared to the prior year first quarter, which resulted in increased
net sales of approximately $4.2 million, primarily within our Electronics
segment.  Our net sales to European commercial vehicle customers were
also favorably affected by volume increases during the quarter ended March 31,
2010 as compared to the prior year first quarter of approximately $2.1 million,
also primarily within the Electronics segment.  In addition, our
results were affected by foreign currency exchange rates.  Our
revenues were favorably affected by foreign currency translation of
approximately $3.3 million during the quarter ended March 31, 2010 when compared
to the quarter ended March 31, 2009.  Our gross margin percentage
increased from 15.9% for the quarter ended March 31, 2009 to 22.6% for the
quarter ended March 31, 2010, primarily due to the significant increases in
sales activity and benefits from our prior restructuring
initiatives.





Our
selling, general and administrative expenses (“SG&A”) increased from $27.1
million for the quarter ended March 31, 2009 to $29.5 million for the quarter
ended March 31, 2010.  This $2.4 million or 8.9% increase in SG&A,
was due to increased compensation and compensation related expenses incurred
during the quarter ended March 31, 2010 of approximately $2.6 million primarily
as a result of increased incentive compensation expenses.  In
addition, our design and development costs increased by approximately $0.6
million between periods due to new product launches by our
customers.





Also
affecting our results was the decline in our restructuring initiatives. Costs
incurred during the quarter ended March 31, 2010, related to these restructuring
initiatives amounted to approximately $0.1 million and were primarily comprised
of one-time termination benefits.  These restructuring actions were a
continuation of restructuring initiatives which began in 2009.  First
quarter 2009 restructuring expenses were approximately $1.0 million and were
also primarily comprised of one-time termination benefits.





Our
results for the quarter ended March 31, 2010 were also favorably affected by the
wind down of our wholly-owned subsidiary, Stoneridge Pollak Limited (“SPL”),
located in Mitcheldean, United Kingdom.  On February 23, 2010, we
placed SPL into administration (a structured bankruptcy) in the United
Kingdom.  We had previously ceased SPL’s operations in December of
2008, as part of the restructuring initiatives announced in October
2007.  All SPL customer contracts were transferred to our other
subsidiaries prior to placing SPL into administration.  We recognized
a net gain within other expense (income), net of approximately $2.2 million,
primarily from the reversal of the cumulative translation adjustment account,
which had previously been included as a component of other comprehensive income
within Shareholders’ Equity.  In addition, we recognized a tax benefit
of approximately $1.2 million from the reversal of deferred tax liabilities;
primarily employee benefit related which were also previously included as a
component of other comprehensive income.




22




At March
31, 2010 and December 31, 2009, we maintained a cash and equivalents balance of
$80.0 million and $91.9 million, respectively.  Our cash and
equivalents balance declined during the current quarter as a result of increased
working capital requirements.  As discussed in Note 6 to the condensed
consolidated financial statements, we have no borrowings under our asset-based
credit facility.  At March 31, 2010 and December 31, 2009, we had
borrowing capacity of $68.0 million and $54.1 million,
respectively.





Outlook





During
the second half of 2009 the North American automotive vehicle market began to
recover, which had a favorable effect on our Control Devices segment’s
results.  While we do not expect a full recovery within the domestic
automotive vehicle market in 2010, we do expect volumes to increase from 2009
levels.





The North
American commercial vehicle market improved slightly during the latter part of
2009, however the European commercial vehicle market continued to decline
throughout 2009.  We believe that net sales will increase slightly in
2010 due to increased demand for the products we produce.





Through
our restructuring initiatives initiated in prior years, we have been able to
reduce our cost structure.  Our fixed overhead costs are lower due to the
cessation of manufacturing at our Sarasota, Florida and Mitcheldean United
Kingdom locations.  As sales volumes increase in 2010, we expect our
operating margin will benefit from our reduced cost structure.





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 that design and
manufacture electronic and electromechanical switches, control actuation devices
and sensors.





Three
Months Ended March 31, 2010 Compared to Three Months Ended March 31,
2009





Net Sales. Net sales for our
reportable segments, excluding inter-segment sales, for the three months ended
March 31, 2010 and 2009 are summarized in the following table (in
thousands):





Three Months EndedMarch 31,2010
                  
                  
                  2009
                  
                  
                  $ Increase
                  
                  
                  % IncreaseElectronics
                  
                  $
                  91,638
                  
                  
                  
                  61.9
                  %
                  
                  $
                  82,771
                  
                  
                  
                  68.4
                  %
                  
                  $
                  8,867
                  
                  
                  
                  10.7
                  %Control
      Devices
                  
                  
                  56,436
                  
                  
                  
                  38.1
                  
                  
                  
                  38,314
                  
                  
                  
                  31.6
                  
                  
                  
                  18,122
                  
                  
                  
                  47.3
                  %Total
      net sales
                  
                  $
                  148,074
                  
                  
                  
                  100.0
                  %
                  
                  $
                  121,085
                  
                  
                  
                  100.0
                  %
                  
                  $
                  26,989
                  
                  
                  
                  22.3
                  %





Our
Electronics segment was positively affected by increased volume in our served
markets by approximately $4.4 million for the quarter ended March 31, 2010 when
compared to the prior year first quarter.  The increase in net sales
for our Electronics segment was primarily due to volume increases in our North
American and European commercial vehicle products.  Commercial vehicle
market production volumes in North America increased by 17.3%, during the
quarter ended March 31, 2010 when compared to the prior year first
quarter.  The increase in North American commercial vehicle production
positively affected net sales in our Electronics segment for the quarter ended
March 31, 2010 by approximately $4.0 million or 11.0%.  Our net sales
were also favorably affected by approximately $1.9 million during the quarter
ended March 31, 2010 due to the inclusion of Bolton Conductive Systems, LLC
(“BCS”), which was acquired in the fourth quarter of 2009.  Our net
sales to European commercial vehicle customers increased by approximately $2.0
million or 11.6% during the quarter ended March 31, 2010 as compared to the
prior year first quarter. The balance of the change was primarily related to
volume declines in the agricultural vehicle markets of approximately $1.0
million.  In addition, our Electronics segment net sales were
favorably affected by foreign currency fluctuations of approximately $3.3
million for the quarter ended March 31, 2010 when compared to the prior year
first quarter.





23


Our
Control Devices segment was positively affected by increased volume in our
served markets by approximately $16.6 million for the quarter ended March 31,
2010 when compared to the prior year first quarter.  The increase in
net sales for our Control Devices segment was primarily attributable to
production volume increases at our major customers in the North American
automotive vehicle market.  Production volumes in the North American
automotive vehicle market increased by 69.5% during the quarter ended March 31,
2010 when compared to the quarter ended March 31, 2009.  Volume
increases within the automotive market of our Control Devices segment increased
net sales for the quarter ended March 31, 2010 by approximately $15.4 million,
or 50.8%, when compared to the prior year first quarter.





Net sales
by geographic location for the three months ended March 31, 2010 and 2009 are
summarized in the following table (in thousands):





Three Months EndedMarch 31,2010
                  
                  
                  2009
                  
                  
                  $ Increase
                  
                  
                  % IncreaseNorth
      America
                  
                  $
                  120,743
                  
                  
                  
                  81.5
                  %
                  
                  $
                  99,230
                  
                  
                  
                  82.0
                  %
                  
                  $
                  21,513
                  
                  
                  
                  21.7
                  %Europe
      and other
                  
                  
                  27,331
                  
                  
                  
                  18.5
                  
                  
                  
                  21,855
                  
                  
                  
                  18.0
                  
                  
                  
                  5,476
                  
                  
                  
                  25.1
                  %Total
      net sales
                  
                  $
                  148,074
                  
                  
                  
                  100.0
                  %
                  
                  $
                  121,085
                  
                  
                  
                  100.0
                  %
                  
                  $
                  26,989
                  
                  
                  
                  22.3
                  %





The North
American geographic location consists of the results of our operations in the
United States and Mexico.





The
increase in North American net sales was primarily attributable to increased
sales volume in our North American automotive and commercial vehicle
markets.  These increased volume levels had a positive effect on our
net sales for the quarter ended March 31, 2010 of $15.1 million, and $4.2
million for our North American automotive and commercial vehicle markets,
respectively.  North American net sales for the quarter ended March
31, 2010 were favorably affected by approximately $1.9 million due to the
inclusion of BCS.  Our increase in net sales outside North America was
primarily due to increased sales of European commercial vehicle market products,
which had a positive effect on our net sales for the quarter ended March 31,
2010 of approximately $2.1 million.  In addition, our first quarter
2010 net sales outside of North America were positively affected by foreign
currency fluctuations of approximately $3.3 million.





Condensed
consolidated statements of operations as a percentage of net sales for the three
months ended March 31, 2010 and 2009 are presented in the following table (in
thousands):




Three Months EndedMarch 31,
                  
                  
                  $ Increase /2010
                  
                  
                  2009
                  
                  
                  (Decrease)Net
      Sales
                  
                  $
                  148,074
                  
                  
                  
                  100.0
                  %
                  
                  $
                  121,085
                  
                  
                  
                  100.0
                  %
                  
                  $
                  26,989Costs
      and Expenses:Cost
      of goods sold
                  
                  
                  114,547
                  
                  
                  
                  77.4
                  
                  
                  
                  101,810
                  
                  
                  
                  84.1
                  
                  
                  
                  12,737Selling,
      general and administrative
                  
                  
                  29,487
                  
                  
                  
                  19.9
                  
                  
                  
                  27,077
                  
                  
                  
                  22.4
                  
                  
                  
                  2,410Restructuring
      charges
                  
                  
                  81
                  
                  
                  
                  0.1
                  
                  
                  
                  958
                  
                  
                  
                  0.8
                  
                  
                  
                  (877
                  )Operating
      Income (loss
                  
                  
                  3,959
                  
                  
                  
                  2.6
                  
                  
                  
                  (8,760
                  )
                  
                  
                  (7.3
                  )
                  
                  
                  12,719Interest
      expense, net
                  
                  
                  5,606
                  
                  
                  
                  3.8
                  
                  
                  
                  5,497
                  
                  
                  
                  4.5
                  
                  
                  
                  109Equity
      in earnings of investees
                  
                  
                  (691
                  )
                  
                  
                  (0.5
                  )
                  
                  
                  (575
                  )
                  
                  
                  (0.5
                  )
                  
                  
                  (116
                  )Other
      expense (income), net
                  
                  
                  (950
                  )
                  
                  
                  (0.6
                  )
                  
                  
                  6
                  
                  
                  
                  -
                  
                  
                  
                  (956
                  )Loss
      Before Income Taxes
                  
                  
                  (6
                  )
                  
                  
                  (0.1
                  )
                  
                  
                  (13,688
                  )
                  
                  
                  (11.3
                  )
                  
                  
                  13,682Benefit
      from income taxes
                  
                  
                  (1,489
                  )
                  
                  
                  (1.0
                  )
                  
                  
                  (2,108
                  )
                  
                  
                  (1.7
                  )
                  
                  
                  619Net
      Income (Loss)
                  
                  
                  1,483
                  
                  
                  
                  0.9
                  
                  
                  
                  (11,580
                  )
                  
                  
                  (9.6
                  )
                  
                  
                  13,063Net
      Loss Attributable to Noncontrolling Interest
                  
                  
                  (23
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (23
                  )Net
      Income (Loss) Attributable to Stoneridge, Inc. and
      Subsidiaries
                  
                  $
                  1,506
                  
                  
                  
                  0.9
                  %
                  
                  $
                  (11,580
                  )
                  
                  
                  (9.6
                  )%
                  
                  $
                  13,086




24


Cost of Goods Sold.The
decrease in cost of goods sold as a percentage of net sales was primarily due to
the increase in volume of our European and North American commercial and
automotive vehicle markets during the quarter ended March 31, 2010 when compared
to the prior year first quarter.  A portion of our cost structure is
fixed in nature, such as overhead and depreciation costs.  These fixed
costs combined with significantly lower net sales recognized in the first
quarter of 2009, resulted in a higher cost of goods sold as a percentage of net
sales in the first quarter of 2009.  Our material cost as a percentage
of net sales for our Electronics segment for the first quarter of 2010 and 2009
was 55.2% and 52.6%, respectively.  This increase is primarily due to
a less favorable product mix within our North American wiring
business.  Our materials cost as a percentage of sales for the Control
Devices segment decreased from 54.6% for the quarter ended March 31, 2009 to
53.0% for the first quarter of 2010.





Selling, General and Administrative
Expenses.  Design and development expenses are included within
SG&A and were $9.1 million and $8.6 million for the first quarter of 2010
and 2009, respectively.  Design and development expenses for our
Electronics segment increased from $5.2 million for the quarter ended March 31,
2009 to $5.8 million for the first quarter of 2010.  This increase in
design and development costs was a result of our customers’ new product launches
scheduled in the near term.  Design and development expenses for our
Control Devices segment decreased from $3.4 million for the first quarter of
2009 to $3.3 million for the quarter ended March 31, 2010.  As a
result of our product platform launches scheduled for 2010 and in the future, we
believe that our design and development costs will increase in 2010 from our
2009 level.  The increase in SG&A costs excluding design and
development expenses was due to higher employee related costs of
approximately $2.6 million, primarily incentive compensation.  Our
SG&A costs decreased as a percentage of net sales because of the increase in
net sales recognized in the current quarter when compared to the prior year
first quarter.





Restructuring Charges. Costs
from our restructuring initiatives for the quarter ended March 31, 2010
decreased compared to the first quarter of 2009 as our current restructuring
initiatives near completion. Costs incurred during the quarter ended March 31,
2010, related to restructuring initiatives amounted to approximately $0.1
million and were primarily comprised of one-time termination
benefits.  These restructuring actions were a continuation of
restructuring initiatives which began in 2009 in Dundee,
Scotland.  First quarter 2009 restructuring expenses were
approximately $1.0 million and were primarily comprised of one-time termination
benefits.  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 recorded by reportable segment during the three months ended March 31,
2010 were as follows (in thousands):





Electronics
                
                
                Control Devices
                
                
                Total
                  Consolidated
                  Restructuring
                  ChargesSeverance
      costs
                
                $
                81
                
                
                $
                -
                
                
                $
                81Total
      general and administrative restructuring charges
                
                $
                81
                
                
                $
                -
                
                
                $
                81





All
restructuring charges result in cash outflows.  Severance costs
related to a reduction in workforce.





Restructuring
charges recorded by reportable segment during the three months ended March 31,
2009 were as follows (in thousands):





Electronics
                
                
                Control Devices
                
                
                Total
                  Consolidated
                  Restructuring
                  ChargesSeverance
      costs
                
                $
                369
                
                
                $
                497
                
                
                $
                866Other
      exit costs
                
                
                92
                
                
                
                -
                
                
                
                92Total
      general and administrative restructuring charges
                
                $
                461
                
                
                $
                497
                
                
                $
                958




25


Equity in Earnings of
Investees.The increase in equity earnings of investees was
attributable to the increase in equity earnings recognized from our Minda joint
venture, partially offset by lower earnings recognized from our PST joint
venture.  Equity earnings for Minda increased from a deficit of $28
thousand for the quarter ended March 31, 2009 to earnings of $0.2 million for
the quarter ended March 31, 2010.  The increase primarily reflects
higher volumes for Minda’s product lines during the quarter ended March 31,
2010.  Equity earnings for PST declined from $0.6 million for the
quarter ended March 31, 2009 to $0.5 million for the quarter ended March 31,
2010.  Brazilian government incentives in the first quarter of 2010
increased the sales of fully equipped new cars which favorably affected PST’s
net sales in the first quarter of 2010 to original equipment manufacturers
(“OEM’s”).  These government incentives caused more vehicles to be
sold with more accessories at the OEM level which had a negative impact on PST’s
aftermarket and dealer businesses.  As a result of PST having higher
margins on aftermarket products than OEM products, our earnings from PST
declined in the current quarter.  These Brazilian government
incentives expired at the end of the first quarter and we expect sales to PST’s
aftermarket customers and margins to increase during the remainder of
2010.





Other Expense (Income),net.  As a result
of placing SPL into administration, we recognized a gain of approximately $2.2
million during the quarter ended March 31, 2010 within other expense (income),
net on the condensed consolidated statement of operations.  This gain
is primarily related to the reversal of the cumulative translation adjustment
account, which had previously been included as a component of other
comprehensive income within Shareholders’ Equity.





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





Three Months EndedMarch 31,
                
                
                $ Increase /
                
                
                % Increase /2010
                
                
                2009
                
                
                (Decrease)
                
                
                (Decrease)Electronics
                
                $
                34,349
                
                
                $
                (2,206
                )
                
                $
                36,555
                
                
                NMControl
      Devices
                
                
                3,156
                
                
                
                (7,020
                )
                
                
                10,176
                
                
                
                145.0
                %Other
      corporate activities
                
                
                (32,350
                )
                
                
                1,015
                
                
                
                (33,365
                )
                
                NMCorporate
      interest expense
                
                
                (5,161
                )
                
                
                (5,477
                )
                
                
                316
                
                
                
                5.8
                %Loss
      before income taxes
                
                $
                (6
                )
                
                $
                (13,688
                )
                
                $
                13,682
                
                
                
                100.0
                %








The
increase in our profitability in the Electronics reportable segment was
primarily related to placing SPL into administration during the first quarter of
2010.  As a result of placing SPL into administration, we recognized a
gain within the Electronics segment of approximately $32.5
million.  These gains were primarily a result of eliminating SPL’s
intercompany debt and equity structure.  Excluding this gain, our
results were favorably affected by increased volume, primarily to our commercial
vehicle customers for the quarter ended March 31, 2010 as compared to the first
quarter of 2009.  In addition, restructuring related expenses for the
Electronics reportable segment were approximately $0.4 million lower for the
quarter ended March 31, 2010 when compared to the quarter ended March 31,
2009.





The
increase in profitability in the Control Devices reportable segment was
primarily due to increased sales volume and lower restructuring related expenses
for the quarter ended March 31, 2010 when compared to the quarter ended March
31, 2009.  Production volume increases favorably affected our net
sales within the Control Devices segment by approximately $16.6 million for the
quarter ended March 31, 2010 when compared to the prior year first
quarter.  In addition, restructuring related expenses for the Control
Devices reportable segment were approximately $0.5 million lower for the quarter
ended March 31, 2010 when compared to the quarter ended March 31,
2009.





The
decrease in income before income taxes from other corporate activities was
primarily due to recognition of a loss of approximately $32.0 million in the
quarter ended March 31, 2010 from placing SPL into administration, which caused
the reversal of SPL’s intercompany debt and equity
structure.




26


Income
(loss) before income taxes by geographic location for the three months ended
March 31, 2010 and 2009 is summarized in the following table (in
thousands):





Three Months EndedMarch 31,
                
                
                $ Increase /
                
                % Increase /2010
                
                2009
                
                
                (Decrease)
                
                (Decrease)North
      America
                
                $
                (33,291
                )
                NM
                
                $
                (9,076
                )
                
                
                66.3
                %
                
                $
                (24,215
                )
                NMEurope
      and other
                
                
                33,285
                
                NM
                
                
                (4,612
                )
                
                
                33.7
                
                
                
                37,897
                
                NMLoss
      before income taxes
                
                $
                (6
                )
                
                
                $
                (13,688
                )
                
                
                100.0
                %
                
                $
                13,682





NM - Not
Meaningful





North
American loss before income taxes includes interest expense of approximately
$5.4 million and $5.3 million for the quarters ended March 31, 2010 and 2009,
respectively.





The
decrease in our profitability in North America and increase in profitability in
Europe and other was primarily attributable to the loss of $32.5 million
recognized within North America and the gain recognized within Europe and other
resulting from placing SPL into administration during the quarter ended March
31, 2010.  Excluding the effect of the SPL administration, our North
American results improved, primarily as a result of increased volume in the
North American automotive and commercial vehicle markets during the quarter
ended March 31, 2010 as compared to the first quarter of 2009.  Our
results in Europe and other were favorably affected by our increased European
commercial vehicle market sales during the current quarter.





Benefit from Income Taxes. We
recognized a benefit from income taxes of $1.5 million and $2.1 million, for
federal, state and foreign income taxes for the quarters ended March 31, 2010
and 2009, respectively. As reported at December 31, 2009, the Company is in a
cumulative loss position and provides a valuation allowance offsetting federal,
state and certain foreign deferred tax assets.  The decrease in the
tax benefit for the three months ended March 31, 2010 compared to the three
months ended March 31, 2009, was primarily attributable to a decrease in tax
benefits related to 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 offset with a tax benefit related to our United Kingdom
operations.  As a result of placing SPL into administration, we
recognized a tax benefit of approximately $1.2 million during the quarter ended
March 31, 2010 from the reversal of deferred tax liabilities, primarily employee
benefit related, that were previously included as a component of other
comprehensive income within Shareholders’ Equity.





Liquidity
and Capital Resources





Summary of Cash Flows (in
thousands):


Three Months EndedMarch 31,
                
                
                $ Increase /2010
                
                
                2009
                
                
                (Decrease)Cash
      provided by (used for):Operating
      activities
                
                $
                (7,273
                )
                
                $
                1,198
                
                
                $
                (8,471
                )Investing
      activities
                
                
                (3,599
                )
                
                
                (3,853
                )
                
                
                254Financing
      activities
                
                
                438
                
                
                
                -
                
                
                
                438Effect
      of exchange rate changes on cash and cash equivalents
                
                
                (1,425
                )
                
                
                (860
                )
                
                
                (565
                )Net
      change in cash and cash equivalents
                
                $
                (11,859
                )
                
                $
                (3,515
                )
                
                $
                (8,344
                )





The
decrease in net cash provided by operating activities was due to higher working
capital funding requirements, primarily accounts receivable balances to support
higher sales levels.  This was partially offset by higher net income
for the quarter ended March 31, 2010.  Our higher accounts receivable
balance at March 31, 2010 was attributable to the higher sales volume in the
current quarter.  Our receivable terms and collections rates have
remained consistent between periods presented.  As our served markets
improve we expect that our working capital requirements will continue to
increase accordingly.





27




The
decrease in net cash used for investing activities reflects a decrease in cash
used for capital projects of approximately $0.3 million.  Our 2009
capital expenditures were historically lower than normal as a result of our
customers delaying product launches.  As the markets that we serve
recover in 2010, we expect our future capital expenditures to increase from 2009
levels and be more consistent with our historical expenditures.





The
increase in net cash provided by financing activities was primarily due to cash
received from the borrowings on the BCS credit facility.





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.  This facility provides us with lower borrowing rates and
allows us the flexibility to refinance our outstanding debt.  At March
31, 2010, there were no borrowings on this asset-based credit
facility.  The available borrowing capacity on this credit facility is
based on eligible current assets and outstanding letters of credit, as
defined.  At March 31, 2010, the Company had borrowing capacity of
$68.0 million based on eligible current assets and outstanding letters of
credit.  The Company was in compliance with all covenants at March 31,
2010.





The BCS
master revolving note (the “Revolver”) permits borrowing up to a maximum level
of $3.0 million.  At March 31, 2010, BCS had approximately $0.9
million in borrowings outstanding on the Revolver, which are included on the
consolidated balance sheet as a component of accrued expenses and
other.  The Revolver expires on October 1, 2010.  Interest
is payable monthly at the prime referenced rate plus a 2.25%
margin.  At March 31, 2010 the interest rate on the Revolver was
5.5%.  The Company is a guarantor as it relates to the
Revolver.





As of
March 31, 2010, the Company had $183.0 million of senior notes
outstanding.  Beginning on May 1, 2010 the senior notes are redeemable
at par until the maturity date.  Given 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.





BCS had
an installment note (“installment note”) of approximately $0.5 million and other
notes payable for the purchase of various fixed assets (“fixed asset notes”) of
approximately $0.2 million at March 31, 2010.  Interest on the
installment notes is the prime referenced rate plus a 2.25%
margin.  At March 31, 2010, the interest rate on the installment note
was 5.5%.  The installment note calls for monthly installment payments
of principal and interest and matures in 2012.  The weighted average
interest rate on the fixed asset notes was 6.6% at March 31,
2001.  The Company is a guarantor on the installment
note.





As part
of our 2009 acquisition of BCS, we may be required to make additional payments
to the previous owners of BCS for our 51% membership interest based on BCS
achieving financial performance targets as defined by the purchase
agreement.  The maximum amount of additional payments to the prior
owners of BCS is $3.2 million per year in 2011, 2012 and 2013 are contingent
upon BCS achieving profitability targets based on earnings before interest,
income taxes, depreciation and amortization in the years 2010, 2011 and 2012,
respectively. In addition, we may be required to make additional payments to BCS
of approximately $0.5 million in 2011 and 2012 based on BCS achieving annual
revenue targets in 2010 and 2011, respectively.  We recorded $0.9
million; the fair value of the estimated future additional payments to the prior
owners of BCS as of the acquisition date, December 31, 2009 and March 31, 2010
on the condensed consolidated balance sheet as a component of other long-term
liabilities.  The purchase agreement provides us with the option to
purchase the remaining 49% interest in BCS in 2013 at a price determined in
accordance with the purchase agreement.  If we do not exercise this
option then the minority owners of BCS have the option in 2014 to purchase our
51% interest in BCS at a price determined in accordance with the purchase
agreement or to jointly market BCS for sale.





At March
31, 2010, we had a cash and cash equivalents balance of approximately $80.0
million, of which $44.7 million was held domestically and $35.3 million was held
in foreign locations.  None of our cash balance was restricted at
March 31, 2010.





28


As a
result of placing SPL into administration during the quarter ended March 31,
2010, our defined benefit plan was settled.  As a result there will be
no further funding of the defined benefit plan.  There have been no
other material changes to the table of contractual obligations presented in Part
II, Item 7 (“Liquidity and Capital Resources”) of the Company’s 2009 Form
10-K.





Critical
Accounting Policies and Estimates





The
Company’s critical 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 2009 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 2009 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, 2009.





Inflation





Given the
current economic climate and recent volatility in certain commodity prices, we
believe that changes in commodity prices could 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, our directors or officers with respect to, among
other things, our (i) future product and facility expansion, (ii) acquisition
strategy, (iii) investments and new product development, and (iv) growth
opportunities related to awarded business.  Forward-looking statements
may be identified by the words “will,” “may,” “designed to,” “believes,”
“plans,” “expects,” “continue,” and similar words and
expressions.  The forward-looking statements in this report are
subject to risks and uncertainties that could cause actual events or results to
differ materially from those expressed in or implied by the statements.
Important factors that could cause actual results to differ materially from
those in the forward-looking statements include, among other
factors:





·
            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, automotive, agricultural or
      off-highway vehicle production;


·
            our
      ability to achieve cost reductions that offset or exceed customer-mandated
      selling price reductions;


·
            a
      significant change in general economic conditions in any of the various
      countries in which we operate;


·
            labor
      disruptions at our facilities or at any of our significant customers or
      suppliers;


·
            the
      ability of our suppliers to supply us with parts and components at
      competitive prices on a timely
basis;


·
            the
      amount of debt and the restrictive covenants contained in our credit
      facility;


·
            customer
      acceptance of new products;


·
            capital
      availability or costs, including changes in interest rates or market
      perceptions;


·
            the
      successful integration of any acquired
  businesses;


·
            the
      occurrence or non-occurrence of circumstances beyond our control;
      and


·
            those
      items described in Part I, Item IA (“Risk Factors”) of the Company’s 2009
      Form 10-K.





In
addition, the forward-looking statements contained herein represent our
estimates only as of the date of this filing and should not be relied upon as
representing our estimates as of any subsequent date.  While we may
elect to update these forward-looking statements at some point in the future, we
specifically disclaim any obligation to do so, whether to reflect actual
results, changes in assumptions, changes in other factors affecting such
forward-looking statements or otherwise.





29


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 2009 Form 10-K.





Item
4.  Controls and Procedures.





Evaluation
of Disclosure Controls and Procedures





As of
March 31, 2010, an evaluation was performed under the supervision and with the
participation of the Company’s management, including the principal executive
officer (“PEO”) and principal financial officer (“PFO”), 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 PEO and PFO,
concluded that the Company’s disclosure controls and procedures were effective
as of March 31, 2010.





Changes
in Internal Control Over Financial Reporting





There
were no changes in the Company’s internal control over financial reporting
during the three months ended March 31, 2010 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,
2009.





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





None.





Item
3.  Defaults Upon Senior Securities.





None.





Item
4.  (Removed and Reserved)




Item
5.  Other Information.





None.





Item
6.  Exhibits.





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





30




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:  May
      7, 2010
                  
                  /s/ John C. CoreyJohn
      C. CoreyPresident,
      Chief Executive Officer and Director(Principal
      Executive Officer)Date:  May
      7, 2010
                  
                  /s/ George E. StricklerGeorge
      E. StricklerExecutive
      Vice President, Chief Financial Officer and Treasurer(Principal
      Financial and Accounting
Officer)





31




INDEX
TO EXHIBITS





Exhibit
                    Number
                  
                  Exhibit10.1
                  
                  Stoneridge,
      Inc. Amended and Restated Long-Term Incentive Plan – form of 2010
      Restricted Shares Grant Agreement, filed herewith.10.2
                  
                  Stoneridge,
      Inc. Long-Term Cash Incentive Plan – form of 2010 Phantom Share Grant
      Agreement, 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.




32