UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





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





For the quarter ended September 30,
2009





OR





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





For the transition period
from________to ________





Commission file number:
001-13337





STONERIDGE,
INC.


(Exact
name of registrant as specified in its charter)





Ohio
                  
                  34-1598949(State or other jurisdiction
      of
                  
                  (I.R.S.
      Employerincorporation
      or organization)
                  
                  Identification
      No.)





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





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





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90
days.                         
   x
Yes o
No





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such
files).                   o Yes o No





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.  (Check one):





Large
accelerated filer o          Accelerated
filer x                Non-accelerated
filer oSmaller
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 October 23, 2009
was 25,294,335.









STONERIDGE,
INC. AND SUBSIDIARIES





INDEXPage No.PART
      I–FINANCIAL INFORMATIONItem
      1.
                                    Financial
      StatementsCondensed
      Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and
      December 31, 2008
                                    2Condensed
      Consolidated Statements of Operations (Unaudited) For the Three and Nine
      Months Ended September 30, 2009 and 2008
                                    3Condensed
      Consolidated Statements of Cash Flows (Unaudited) For the Nine Months
      Ended September 30, 2009 and 2008
                                    4Notes
      to Condensed Consolidated Financial Statements (Unaudited)
                                    5Item
      2.
                                    Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                    24Item
      3.
                                    Quantitative
      and Qualitative Disclosures About Market Risk
                                    35Item
      4.
                                    Controls
      and Procedures
                                    35PART
      II–OTHER INFORMATIONItem
      1.
                                    Legal
      Proceedings
                                    36Item
      1A.
                                    Risk
      Factors
                                    36Item
      2.
                                    Unregistered
      Sales of Equity Securities and Use of Proceeds
                                    36Item
      3.
                                    Defaults
      Upon Senior Securities
                                    36Item
      4.
                                    Submission
      of Matters to a Vote of Security Holders
                                    36Item
      5.
                                    Other
      Information
                                    36Item
      6.
                                    Exhibits
                                    36Signatures
                                    
                                    37Index
      to Exhibits
                                    38EX
      – 31.1EX
      – 31.2EX
      – 32.1EX
      – 32.2




1




PART
I–FINANCIAL INFORMATION





Item
1.  Financial Statements.





STONERIDGE,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(in
thousands)





September 30,
                      
                      
                      December 31,2009
                      
                      
                      2008(Unaudited)ASSETSCurrent
      Assets:Cash
      and cash equivalents
                      
                      $
                      84,442
                      
                      
                      $
                      92,692Accounts
      receivable, less reserves of $3,492 and $4,204,
    respectively
                      
                      
                      86,245
                      
                      
                      
                      96,535Inventories,
      net
                      
                      
                      37,541
                      
                      
                      
                      54,800Prepaid
      expenses and other
                      
                      
                      16,789
                      
                      
                      
                      9,069Deferred
      income taxes
                      
                      
                      1,868
                      
                      
                      
                      1,495Total
      current assets
                      
                      
                      226,885
                      
                      
                      
                      254,591Long-Term
      Assets:Property,
      plant and equipment, net
                      
                      
                      77,941
                      
                      
                      
                      87,701Other
      Assets:Investments
      and other, net
                      
                      
                      48,575
                      
                      
                      
                      40,145Total
      long-term assets
                      
                      
                      126,516
                      
                      
                      
                      127,846Total
      Assets
                      
                      $
                      353,401
                      
                      
                      $
                      382,437LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      Liabilities:Accounts
      payable
                      
                      $
                      44,104
                      
                      
                      $
                      50,719Accrued
      expenses and other
                      
                      
                      42,427
                      
                      
                      
                      43,485Total
      current liabilities
                      
                      
                      86,531
                      
                      
                      
                      94,204Long-Term
      Liabilities:Long-term
      debt
                      
                      
                      183,000
                      
                      
                      
                      183,000Deferred
      income taxes
                      
                      
                      7,073
                      
                      
                      
                      7,002Other
      liabilities
                      
                      
                      6,905
                      
                      
                      
                      6,473Total
      long-term liabilities
                      
                      
                      196,978
                      
                      
                      
                      196,475Shareholders'
      Equity:Preferred
      Shares, without par value, authorized 5,000 shares, none
      issued
                      
                      
                      -
                      
                      
                      
                      -Common
      Shares, without par value, authorized 60,000 shares, issued 25,294 and
      24,772 shares and outstanding 25,010 and 24,665 shares, respectively, with
      no stated value
                      
                      
                      -
                      
                      
                      
                      -Additional
      paid-in capital
                      
                      
                      158,489
                      
                      
                      
                      158,039Common
      Shares held in treasury, 284 and 107 shares, respectively, at
      cost
                      
                      
                      (289)
                      
                      
                      
                      (129)Accumulated
      deficit
                      
                      
                      (91,342)
                      
                      
                      
                      (59,155)Accumulated
      other comprehensive income (loss)
                      
                      
                      3,034
                      
                      
                      
                      (6,997)Total
      shareholders’ equity
                      
                      
                      69,892
                      
                      
                      
                      91,758Total
      Liabilities and Shareholders' Equity
                      
                      $
                      353,401
                      
                      
                      $
                      382,437





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




2




STONERIDGE,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)


(in
thousands, except per share data)





Three Months Ended
                                                
                                                
                                                Nine Months EndedSeptember 30,
                                                
                                                
                                                September 30,2009
                                                
                                                
                                                2008
                                                
                                                
                                                2009
                                                
                                                
                                                2008Net
      Sales
                                                
                                                $
                                                117,992
                                                
                                                
                                                $
                                                178,434
                                                
                                                
                                                $
                                                341,367
                                                
                                                
                                                $
                                                594,733Costs
      and Expenses:Cost
      of goods sold
                                                
                                                
                                                90,909
                                                
                                                
                                                
                                                143,089
                                                
                                                
                                                
                                                281,413
                                                
                                                
                                                
                                                458,217Selling,
      general and administrative
                                                
                                                
                                                23,139
                                                
                                                
                                                
                                                31,668
                                                
                                                
                                                
                                                76,554
                                                
                                                
                                                
                                                104,834Restructuring
      charges
                                                
                                                
                                                1,310
                                                
                                                
                                                
                                                2,742
                                                
                                                
                                                
                                                3,819
                                                
                                                
                                                
                                                5,877Operating
      Income (Loss)
                                                
                                                
                                                2,634
                                                
                                                
                                                
                                                935
                                                
                                                
                                                
                                                (20,419)
                                                
                                                
                                                
                                                25,805Interest
      expense, net
                                                
                                                
                                                5,559
                                                
                                                
                                                
                                                5,049
                                                
                                                
                                                
                                                16,594
                                                
                                                
                                                
                                                15,301Equity
      in earnings of investees
                                                
                                                
                                                (3,386)
                                                
                                                
                                                
                                                (4,371)
                                                
                                                
                                                
                                                (4,864)
                                                
                                                
                                                
                                                (11,206)Loss
      on early extinguishment of debt
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                770Other
      expense (income), net
                                                
                                                
                                                (198)
                                                
                                                
                                                
                                                (234)
                                                
                                                
                                                
                                                447
                                                
                                                
                                                
                                                44Income
      (Loss) Before Income Taxes
                                                
                                                
                                                659
                                                
                                                
                                                
                                                491
                                                
                                                
                                                
                                                (32,596)
                                                
                                                
                                                
                                                20,896Provision
      (benefit) for income taxes
                                                
                                                
                                                1,502
                                                
                                                
                                                
                                                855
                                                
                                                
                                                
                                                (409)
                                                
                                                
                                                
                                                10,029Net
      Income (Loss)
                                                
                                                $
                                                (843)
                                                
                                                
                                                $
                                                (364)
                                                
                                                
                                                $
                                                (32,187)
                                                
                                                
                                                $
                                                10,867Basic
      net income (loss) per share
                                                
                                                $
                                                (0.04)
                                                
                                                
                                                $
                                                (0.02)
                                                
                                                
                                                $
                                                (1.37)
                                                
                                                
                                                $
                                                0.47Basic
      weighted average shares outstanding
                                                
                                                
                                                23,761
                                                
                                                
                                                
                                                23,405
                                                
                                                
                                                
                                                23,580
                                                
                                                
                                                
                                                23,353Diluted
      net income (loss) per share
                                                
                                                $
                                                (0.04)
                                                
                                                
                                                $
                                                (0.02)
                                                
                                                
                                                $
                                                (1.37)
                                                
                                                
                                                $
                                                0.46Diluted
      weighted average shares outstanding
                                                
                                                
                                                23,761
                                                
                                                
                                                
                                                23,405
                                                
                                                
                                                
                                                23,580
                                                
                                                
                                                
                                                23,728





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)





Nine Months EndedSeptember 30,2009
                                      
                                      
                                      2008OPERATING
      ACTIVITIES:Net
      income (loss)
                                      
                                      $
                                      (32,187)
                                      
                                      
                                      $
                                      10,867Adjustments
      to reconcile net income (loss) to net cash provided by (used
      for) operating activities -Depreciation
                                      
                                      
                                      15,251
                                      
                                      
                                      
                                      20,706Amortization
                                      
                                      
                                      733
                                      
                                      
                                      
                                      1,050Deferred
      income taxes
                                      
                                      
                                      (1,207)
                                      
                                      
                                      
                                      7,039Equity
      in earnings of investees
                                      
                                      
                                      (4,864)
                                      
                                      
                                      
                                      (11,206)Loss
      (gain) on sale of property, plant and equipment
                                      
                                      
                                      292
                                      
                                      
                                      
                                      (42)Share-based
      compensation expense
                                      
                                      
                                      854
                                      
                                      
                                      
                                      2,666Loss
      on extinguishment of debt
                                      
                                      
                                      -
                                      
                                      
                                      
                                      770Changes
      in operating assets and liabilities -Accounts
      receivable, net
                                      
                                      
                                      11,228
                                      
                                      
                                      
                                      5,235Inventories,
      net
                                      
                                      
                                      18,272
                                      
                                      
                                      
                                      (12,179)Prepaid
      expenses and other
                                      
                                      
                                      (2,704)
                                      
                                      
                                      
                                      (1,654)Accounts
      payable
                                      
                                      
                                      (7,995)
                                      
                                      
                                      
                                      (1,652)Accrued
      expenses and other
                                      
                                      
                                      (251)
                                      
                                      
                                      
                                      9,068Net
      cash provided by (used for) operating activities
                                      
                                      
                                      (2,578)
                                      
                                      
                                      
                                      30,668INVESTING
      ACTIVITIES:Capital
      expenditures
                                      
                                      
                                      (8,779)
                                      
                                      
                                      
                                      (17,956)Proceeds
      from sale of property, plant and equipment
                                      
                                      
                                      88
                                      
                                      
                                      
                                      435Business
      acquisitions and other
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (980)Net
      cash used for investing activities
                                      
                                      
                                      (8,691)
                                      
                                      
                                      
                                      (18,501)FINANCING
      ACTIVITIES:Repayments
      of long-term debt
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (17,000)Share-based
      compensation activity, net
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,305Premiums
      related to early extinguishment of debt
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (553)Other
      financing costs
                                      
                                      
                                      (50)
                                      
                                      
                                      
                                      -Net
      cash used for financing activities
                                      
                                      
                                      (50)
                                      
                                      
                                      
                                      (16,248)Effect
      of exchange rate changes on cash and cash equivalents
                                      
                                      
                                      3,069
                                      
                                      
                                      
                                      (2,232)Net
      change in cash and cash equivalents
                                      
                                      
                                      (8,250)
                                      
                                      
                                      
                                      (6,313)Cash
      and cash equivalents at beginning of period
                                      
                                      
                                      92,692
                                      
                                      
                                      
                                      95,924Cash
      and cash equivalents at end of period
                                      
                                      $
                                      84,442
                                      
                                      
                                      $
                                      89,611





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




4


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




(1)  Basis
of Presentation





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





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





The
company has reclassified the presentation of certain prior-period information to
conform to the current presentation.




(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 67% and 72% of the
Company’s inventories at September 30, 2009 and December 31, 2008, respectively,
and by the first-in, first-out (“FIFO”) method for all other
inventories.  The Company adjusts its excess and obsolescence reserve
at least on a quarterly basis.  Excess inventories are quantities of
items that exceed anticipated sales or usage for a reasonable
period.  The Company has guidelines for calculating provisions for
excess inventories based on the number of months of inventories on hand compared
to anticipated sales or usage.  Management uses its judgment to
forecast sales or usage and to determine what constitutes a reasonable
period.  Inventory cost includes material, labor and
overhead.  Inventories consist of the following:





September 30,
                
                
                December 31,2009
                
                
                2008Raw
      materials
                
                $
                18,377
                
                
                $
                32,981Work-in-progress
                
                
                7,406
                
                
                
                8,876Finished
      goods
                
                
                14,981
                
                
                
                15,890Total
      inventories
                
                
                40,764
                
                
                
                57,747Less:
      LIFO reserve
                
                
                (3,223)
                
                
                
                (2,947)Inventories,
      net
                
                $
                37,541
                
                
                $
                54,800




(3)  Fair
Value of Financial Instruments





Financial Instruments





A financial instrument is cash or a
contract that imposes an obligation to deliver or conveys a right to receive
cash or another financial instrument.  The carrying values of cash and
cash equivalents, accounts receivable and accounts payable are considered to be
representative of fair value because of the short maturity of these
instruments.  The estimated fair value of the Company’s senior notes
(fixed rate debt) at September 30, 2009 and December 31, 2008, per quoted market
sources, was $173.9 million and $124.4 million, respectively.  The
carrying value was $183.0 million as of September 30, 2009 and December 31,
2008.




5




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




Derivative Instruments and
Hedging Activities





Effective
January 1, 2009, the Company adopted Statement of Financial Accounting Standard
(“SFAS”) No. 161, Disclosures
About Derivative Instruments and Hedging Activities – an amendment of FASB
Statement No. 133 (Accounting Standards Codification TM (“ASC”)
Topic 815) which expands the quarterly and annual disclosure requirements
about the Company’s derivative instruments and hedging activities.  The
adoption of ASC Topic 815 did not have an effect on the Company’s financial
position, results of operations or cash flows.





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





The
Company conducts business internationally and therefore is exposed to foreign
currency exchange risk.  The Company uses derivative financial
instruments as cash flow hedges to mitigate its exposure to fluctuations in
foreign currency exchange rates by reducing the affect of such fluctuations on
foreign currency denominated intercompany transactions and other foreign
currency exposures.  The currencies hedged by the Company include the
British pound, 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.  As of September 30, 2009 and December 31, 2008, the
Company held foreign currency forward contracts to reduce the exposure related
to the Company’s British pound-denominated intercompany
receivables.  In addition, at September 30, 2009 the Company held a
foreign currency hedge contract to reduce the exposure related to the Company’s
Swedish krona-denominated intercompany receivables.  These contracts
expire in December 2009.  For the nine months ended September 30,
2009, the Company recognized a $548 loss related to the British pound 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
2009.  The effective portion of the unrealized gain or loss is
deferred and reported in the Company’s condensed consolidated balance sheets as
a component of accumulated other comprehensive income (loss).  The
Company’s expectation is that the cash flow hedges will be highly effective in
the future.  The effectiveness of the transactions has been and will
be measured on an ongoing basis using regression analysis.





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




6




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




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





Notional amounts1
                                        
                                        
                                        Prepaid expenses
                                          and other assets
                                        
                                        
                                        Accrued expenses and
                                          other liabilitiesSeptember 30,
                                        
                                        
                                        December 31,
                                        
                                        
                                        September 30,
                                        
                                        
                                        December 31,
                                        
                                        
                                        September 30,
                                        
                                        
                                        December 31,2009
                                        
                                        
                                        2008
                                        
                                        
                                        2009
                                        
                                        
                                        2008
                                        
                                        
                                        2009
                                        
                                        
                                        2008Derivatives
      designated as hedging instruments:Forward
      currency contracts
                                        
                                        $
                                        8,748
                                        
                                        
                                        $
                                        35,457
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        323
                                        
                                        
                                        $
                                        2,930Commodity
      contracts
                                        
                                        
                                        1,021
                                        
                                        
                                        
                                        4,085
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        44
                                        
                                        
                                        
                                        2,1049,769
                                        
                                        
                                        
                                        39,542
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        367
                                        
                                        
                                        
                                        5,034Derivatives
      not designated as hedging instruments:Forward
      currency contracts
                                        
                                        
                                        8,239
                                        
                                        
                                        
                                        8,762
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        2,101
                                        
                                        
                                        
                                        23
                                        
                                        
                                        
                                        -Total
      derivatives
                                        
                                        $
                                        18,008
                                        
                                        
                                        $
                                        48,304
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        2,101
                                        
                                        
                                        $
                                        390
                                        
                                        
                                        $
                                        5,034





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





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





Amount of gain
                          recorded in other
                          comprehensive
                          income
                        
                        
                        Amount of gain (loss)
                          reclassified from
                          other comprehensive
                          income into net loss
                        
                        Location of loss
                          reclassified from other
                          comprehensive income
                          into net lossDerivatives
      designated as cash flow hedges:Forward
      currency contracts
                        
                        $
                        73
                        
                        
                        $
                        217
                        
                        Cost
      of goods soldCommodity
      contracts
                        
                        
                        420
                        
                        
                        
                        (91)
                        
                        Cost
      of goods sold$
                        493
                        
                        
                        $
                        126





Amounts
recorded in other comprehensive income in shareholder’s equity and in net loss
for the nine months ended September 30, 2009 are as follows:





Amount of gain
                        recorded in other
                        comprehensive
                        income
                      
                      
                      Amount of loss
                        reclassified from
                        other comprehensive
                        income into net loss
                      
                      Location of loss
                        reclassified from other
                        comprehensive income
                        into net lossDerivatives
      designated as cash flow hedges:Forward
      currency contracts
                      
                      $
                      2,607
                      
                      
                      $
                      (1,748)
                      
                      Cost
      of goods soldCommodity
      contracts
                      
                      
                      2,060
                      
                      
                      
                      (849)
                      
                      Cost
      of goods sold$
                      4,667
                      
                      
                      $
                      (2,597)





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




7




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




Effective
January 1, 2009, the Company adopted SFAS No. 157, Fair Value Measurements(ASC
Topic 820) as it relates to nonfinancial assets and nonfinancial
liabilities measured on a non-recurring basis.  The Company adopted
ASC Topic 820 for financial assets and financial liabilities on January 1,
2008.  This guidance clarifies the definition of fair value,
prescribes methods for measuring fair value, establishes a fair value hierarchy
based on the inputs used to measure fair value and expands disclosures about the
use of fair value measurements.  The adoption of ASC Topic
820 did not have a material effect on the Company’s fair value
measurements.





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




September 30, 2009
                                  
                                  
                                  December 31,Fair Value Estimated Using
                                  
                                  
                                  2008Fair Value
                                  
                                  
                                  Level 1 inputs(1)
                                  
                                  
                                  Level 2 inputs(2)
                                  
                                  
                                  Fair ValueFinancial
      assets carried at fair valueAvailable
      for sale security
                                  
                                  $
                                  242
                                  
                                  
                                  $
                                  242
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  252Forward
      currency contracts
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  2,101Total
      financial assets carried at fair value
                                  
                                  $
                                  242
                                  
                                  
                                  $
                                  242
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  2,353Financial
      liabilities carried at fair valueForward
      currency contracts
                                  
                                  $
                                  323
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  323
                                  
                                  
                                  $
                                  2,930Commodity
      hedge contracts
                                  
                                  
                                  44
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  44
                                  
                                  
                                  
                                  2,104Total
      financial liabilities carried at fair value
                                  
                                  $
                                  367
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  367
                                  
                                  
                                  $
                                  5,034





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





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





(4)  Share-Based
Compensation





Total
compensation expense recognized in the condensed consolidated statements of
operations for share-based compensation arrangements was $257 and $764 for the
three months ended September 30, 2009 and 2008, respectively.  For the
nine months ended September 30, 2009 and 2008, total compensation expense
recognized in the condensed consolidated statements of operations for
share-based compensation arrangements was $854 and $2,666,
respectively.




8




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




(5)  Comprehensive
Income (Loss)





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




Three Months Ended
                            
                            
                            Nine Months EndedSeptember 30,
                            
                            
                            September 30,2009
                            
                            
                            2008
                            
                            
                            2009
                            
                            
                            2008Net
      income (loss)
                            
                            $
                            (843)
                            
                            
                            $
                            (364)
                            
                            
                            $
                            (32,187)
                            
                            
                            $
                            10,867Other
      comprehensive income (loss):Currency
      translation adjustments
                            
                            
                            3,669
                            
                            
                            
                            (11,230)
                            
                            
                            
                            5,563
                            
                            
                            
                            (6,120)Pension
      liability adjustments
                            
                            
                            61
                            
                            
                            
                            48
                            
                            
                            
                            (189)
                            
                            
                            
                            38Unrealized
      gain (loss) on marketable securities
                            
                            
                            9
                            
                            
                            
                            11
                            
                            
                            
                            (10)
                            
                            
                            
                            (1)Unrecognized
      gain (loss) on derivatives
                            
                            
                            493
                            
                            
                            
                            (332)
                            
                            
                            
                            4,667
                            
                            
                            
                            16Total
      other comprehensive income (loss)
                            
                            
                            4,232
                            
                            
                            
                            (11,503)
                            
                            
                            
                            10,031
                            
                            
                            
                            (6,067)Comprehensive
      income (loss)
                            
                            $
                            3,389
                            
                            
                            $
                            (11,867)
                            
                            
                            $
                            (22,156)
                            
                            
                            $
                            4,800




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





September 30,
                
                
                December 31,2009
                
                
                2008Currency
      translation adjustments
                
                $
                5,569
                
                
                $
                6Pension
      liability adjustments
                
                
                (2,148)
                
                
                
                (1,959)Unrealized
      loss on marketable securities
                
                
                (40)
                
                
                
                (30)Unrecognized
      loss on derivatives
                
                
                (347)
                
                
                
                (5,014)Accumulated
      other comprehensive income (loss)
                
                $
                3,034
                
                
                $
                (6,997)




6)  Long-Term
Debt





Senior
Notes





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





Credit
Facility





On
November 2, 2007, the Company entered into an asset-based credit facility (the
“credit facility”), which permits borrowing up to a maximum level of $100.0
million.  At September 30, 2009 and December 31, 2008, there were no
borrowings on this credit facility.   The available borrowing
capacity on this credit facility is based on eligible current assets, as
defined.  At September 30, 2009 and December 31, 2008, the Company had
borrowing capacity of $51.5 million and $57.7 million, respectively based on
eligible current assets.  The credit facility does not contain
financial performance covenants which would constrain our borrowing capacity.
However, restrictions do include limits on capital expenditures, operating
leases, dividends and investment activities in a negative covenant which limits
investment activities to $15.0 million minus certain guarantees and
obligations.  The credit facility expires on November 1, 2011 and
requires a commitment fee of 0.25% on the unused balance.  Interest is
payable quarterly at either (i) the higher of the prime rate or the Federal
Funds rate plus 0.50%, plus a margin of 0.00% to 0.25% or (ii) LIBOR plus a
margin of 1.00% to 1.75%, depending upon the Company’s undrawn availability, as
defined.  The Company was in compliance with all covenants at September 30,
2009 and December 31, 2008.




9




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




On
October 9, 2009, the Company entered into Amendment No. 3 (the “Amendment”) to
the credit facility.  The Amendment enabled the Company to acquire a
51% equity interest in New Bolton Conductive Systems, LLC (“New BCS”), a wiring
business located in Walled Lake, Michigan and have an option to purchase the
remaining 49% of New BCS, with New BCS being excluded from certain restrictive
covenants in the credit facility applicable to subsidiaries.  The
acquisition of New BCS is discussed within Note 16, Subsequent
Events.  In addition, the Amendment redefines certain foreign
subsidiaries of the Company as non borrowers and permits certain internal
transactions that will facilitate the implementation of a more efficient cash
management structure.  The Amendment did not change the Company’s
borrowing capacity.




(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 Ended
                        
                        
                        Nine Months EndedSeptember 30,
                        
                        
                        September 30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Basic
      weighted-average shares outstanding
                        
                        
                        23,761,019
                        
                        
                        
                        23,405,209
                        
                        
                        
                        23,580,024
                        
                        
                        
                        23,353,085Effect
      of dilutive securities
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        374,829Diluted
      weighted-average shares outstanding
                        
                        
                        23,761,019
                        
                        
                        
                        23,405,209
                        
                        
                        
                        23,580,024
                        
                        
                        
                        23,727,914





Options
not included in the computation of diluted net income (loss) per share to
purchase 180,250 and 50,000 Common Shares at an average price of $9.57 and
$15.73, respectively, per share were outstanding at September 30, 2009 and
September 30, 2008, respectively.  These outstanding options were not
included in the computation of diluted net income (loss) per share because their
respective exercise prices were greater than the average market price of Common
Shares.





There
were 400,425 and 628,275 performance-based restricted shares outstanding at
September 30, 2009 and September 30, 2008, respectively. These shares were not
included in the computation of diluted net income (loss) per share because not
all vesting conditions were achieved as of September 30, 2009 and
2008.  These shares may or may not become dilutive based on the
Company’s ability to exceed future earnings thresholds.




(8)  Restructuring





On
October 29, 2007, the Company announced restructuring initiatives to improve
manufacturing efficiency and cost position by ceasing manufacturing operations
at its Sarasota, Florida and Mitcheldean, United Kingdom
locations.  In the third quarter of 2008, the Company began additional
restructuring initiatives in our Canton, Massachusetts location and in the
fourth quarter of 2008, the Company began additional restructuring initiatives
in our Orebro, Sweden and Tallinn, Estonia locations as well as additional
initiatives in our Canton, Massachusetts location.  In response to the
depressed conditions in the North American and European commercial vehicle and
automotive markets, the Company also began restructuring initiatives in our
Juarez, Mexico, Tallinn, Estonia and Canton, Massachusetts locations during the
first quarter of 2009.  The Company began additional restructuring
initiatives during the second quarter of 2009 in our Lexington, Ohio, Orebro and
Bromma, Sweden and Juarez and Monclova, Mexico locations as a result of decline
in the North American and European commercial vehicle and automotive market
conditions.  In the third quarter of 2009, as part of the Company’s
continuing overall restructuring initiatives the Company consolidated of certain
management positions at our Lexington, Ohio and Canton, Massachusetts facilities
and the Company began further restructuring initiatives at our Juarez, Chihuahua
and Monclova, Mexico locations as a result of the continued decline of the
North American commercial vehicle market.  The Company continued
restructuring initiatives begun during the second quarter of 2009 in our Bromma,
Sweden location.  In connection with these initiatives, the Company
recorded restructuring charges of $1,310 and $4,828 in the Company’s condensed
consolidated statement of operations for the three months ended September 30,
2009 and 2008, respectively.  Restructuring charges for the nine
months ended September 30, 2009 and 2008 were $3,843 and $11,005,
respectively.  Restructuring expenses that were general and
administrative in nature were included in the Company’s condensed consolidated
statement of operations as part of restructuring charges, while the remaining
restructuring related charges were included in cost of goods sold.




10




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




In 2009,
the Company has classified the Sarasota, Florida facility as an asset held for
sale and has included the net book value of the facility within the September
30, 2009 condensed consolidated balance sheet as a component of prepaid expenses
and other.





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





Severance
                  Costs
                
                
                Contract
                  Termination
                  Costs
                
                
                Other
                  Associated
                  Costs
                
                
                TotalTotal
      expected restructuring charges
                
                $
                5,608
                
                
                $
                1,685
                
                
                $
                2,401
                
                
                $
                9,694Accrued
      balance at December 31, 2007
                
                
                468
                
                
                
                -
                
                
                
                -
                
                
                
                4682008
      charge to expense
                
                
                2,830
                
                
                
                1,305
                
                
                
                2,401
                
                
                
                6,536Cash
      payments
                
                
                (2,767)
                
                
                
                -
                
                
                
                (2,221)
                
                
                
                (4,988)Accrued
      balance at December 31, 2008
                
                
                531
                
                
                
                1,305
                
                
                
                180
                
                
                
                2,016First
      quarter 2009 charge to expense
                
                
                369
                
                
                
                91
                
                
                
                -
                
                
                
                460Second
      quarter 2009 charge to expense
                
                
                1,435
                
                
                
                -
                
                
                
                -
                
                
                
                1,435Third
      quarter 2009 charge to expense
                
                
                939
                
                
                
                -
                
                
                
                -
                
                
                
                939Foreign
      currency translation effect
                
                
                -
                
                
                
                289
                
                
                
                -
                
                
                
                289Cash
      payments
                
                
                (2,891)
                
                
                
                (464)
                
                
                
                (180)
                
                
                
                (3,535)Accrued
      balance at September 30, 2009
                
                $
                383
                
                
                $
                1,221
                
                
                $
                -
                
                
                $
                1,604Remaining
      expected restructuring charge
                
                $
                35
                
                
                $
                -
                
                
                $
                -
                
                
                $
                35




11




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




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





Severance
                    Costs
                  
                  
                  Other
                    Associated
                    Costs
                  
                  
                  Total
      (A)Total
      expected restructuring charges
                  
                  $
                  3,505
                  
                  
                  $
                  6,350
                  
                  
                  $
                  9,855Accrued
      balance at December 31, 2007
                  
                  
                  357
                  
                  
                  
                  99
                  
                  
                  
                  4562008
      charge to expense
                  
                  
                  2,521
                  
                  
                  
                  6,325
                  
                  
                  
                  8,846Cash
      payments
                  
                  
                  (1,410)
                  
                  
                  
                  (6,024)
                  
                  
                  
                  (7,434)Accrued
      balance at December 31, 2008
                  
                  
                  1,468
                  
                  
                  
                  400
                  
                  
                  
                  1,868First
      quarter 2009 charge to expense
                  
                  
                  497
                  
                  
                  
                  25
                  
                  
                  
                  522Second
      quarter 2009 charge to expense
                  
                  
                  116
                  
                  
                  
                  -
                  
                  
                  
                  116Third
      quarter 2009 charge to expense
                  
                  
                  371
                  
                  
                  
                  -
                  
                  
                  
                  371Cash
      payments
                  
                  
                  (2,137)
                  
                  
                  
                  (166)
                  
                  
                  
                  (2,303)Accrued
      balance at September 30, 2009
                  
                  $
                  315
                  
                  
                  $
                  259
                  
                  
                  $
                  574Remaining
      expected restructuring charge
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -





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





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




(9)  Commitments
and Contingencies





In the
ordinary course of business, the Company is involved in various legal
proceedings, workers’ compensation disputes and other commercial
matters.  The Company is of the opinion that the ultimate resolution
of these matters will not have a material adverse effect on the results of
operations, cash flows or the financial position of the Company.





Product
Warranty and Recall





Amounts
accrued for product warranty and recall claims are established based on the
Company’s best estimate of the amounts necessary to settle future and existing
claims on products sold as of the balance sheet dates.  These accruals
are based on several factors including past experience, production changes,
industry developments and various other considerations.  The Company
can provide no assurances that it will not experience material claims in the
future or that it will not incur significant costs to defend or settle such
claims beyond the amounts accrued or beyond what the Company may recover from
its suppliers.




12




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




The
following provides a reconciliation of changes in product warranty and recall
liability for the nine months ended September 30, 2009 and 2008:





2009
                  
                  
                  2008Product
      warranty and recall at beginning of period
                  
                  $
                  5,527
                  
                  
                  $
                  5,306Accruals
      for products shipped during period
                  
                  
                  1,747
                  
                  
                  
                  4,257Aggregate
      changes in pre-existing liabilities due to claims
    developments
                  
                  
                  440
                  
                  
                  
                  988Settlements
      made during the period (in cash or in kind)
                  
                  
                  (4,053)
                  
                  
                  
                  (4,262)Product
      warranty and recall at end of period
                  
                  $
                  3,661
                  
                  
                  $
                  6,289




(10)  Employee
Benefit Plans





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





Three Months Ended
                        
                        
                        Nine Months EndedSeptember 30,
                        
                        
                        September 30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Service
      cost
                        
                        $
                        14
                        
                        
                        $
                        35
                        
                        
                        $
                        42
                        
                        
                        $
                        105Interest
      cost
                        
                        
                        219
                        
                        
                        
                        316
                        
                        
                        
                        657
                        
                        
                        
                        948Expected
      return on plan assets
                        
                        
                        (165)
                        
                        
                        
                        (361)
                        
                        
                        
                        (495)
                        
                        
                        
                        (1,083)Amortization
      of actuarial loss
                        
                        
                        43
                        
                        
                        
                        -
                        
                        
                        
                        129
                        
                        
                        
                        -Net
      periodic cost (benefit)
                        
                        $
                        111
                        
                        
                        $
                        (10)
                        
                        
                        $
                        333
                        
                        
                        $
                        (30)





The
Company expects to contribute $94 to its pension plan in 2009.  Of
this amount, contributions of $78 have been made to the pension plan as of
September 30, 2009.





In March
2009, the Company adopted the Stoneridge, Inc. Long-Term Cash Incentive
Plan (“LTCIP”) and granted awards to certain officers and key
employees.  For 2009, the 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 2009, 2010 and 2011 fiscal years.  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 September 30, 2009 as the
achievement of the performance goal is not considered probable at this
time.





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




(11)  Income
Taxes





The
Company recognized a provision for income taxes of $1,502, or 228.3% of pre-tax
income, and $855, or 174.1% of pre-tax income, for federal, state and foreign
income taxes for the three months ended September 30, 2009 and 2008,
respectively.  The Company recognized a provision (benefit) for income
taxes of $(409), or (1.3)% of pre-tax loss, and $10,029, or 48.0% of pre-tax
income, for federal, state and foreign income taxes for the nine months ended
September 30, 2009 and 2008, respectively. As reported at December 31, 2008, the
Company is in a cumulative loss position and provides a valuation allowance
offsetting federal, state and certain foreign deferred tax assets. As a result,
a tax benefit is not being provided for losses incurred during the first nine
months of 2009, for federal, state and certain foreign jurisdictions. The
inability to recognize a tax benefit for these losses and other deferred tax
assets has a significant negative affect on our effective tax rate as well as
the comparability of the current quarter and year-to-date effective tax rate to
prior periods in which the Company had not recorded a federal valuation
allowance.  The difference in the effective tax rate for the three and
nine month periods ended September 30, 2009 compared to the three and nine month
periods ended September 30, 2008, was primarily attributable to the valuation
allowance for federal and state deferred tax assets provided against the current
year domestic loss which was partially offset by recording a tax benefit related
to current period losses in certain foreign jurisdictions in which it is more
likely than not that the benefit of those losses will be realized.




13




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




(12)  Accounting
Pronouncements





In June
2009, the FASB issued Accounting Standards Update No. 2009-01,Generally Accepted Accounting
Principles (ASC Topic 105), which establishes the FASB Accounting
Standards CodificationTM
(“Codification”) as the official single source of authoritative U.S.
GAAP.  All existing accounting standards are
superseded.  All other accounting guidance not included in the
Codification will be considered non-authoritative.  The Codification
also includes all relevant SEC guidance organized using the same topical
structure in separate sections within the Codification.  The
Codification is effective for the Company’s financial statements for the quarter
ended September 30, 2009 and the principal effect on our financial statements is
limited to disclosures as all future references to authoritative accounting
literature will be referenced in accordance with the Codification.  In
order to ease the transition to the Codification, the Company is providing the
Codification cross-reference alongside the references to the standards issued
and adopted prior to the adoption of the Codification.





In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations(ASC
Topic 805).  This guidance improves reporting by creating greater
consistency in the accounting and financial reporting of business
combinations.  Additionally, it requires the acquiring entity in a
business combination to recognize all (and only) the assets acquired and
liabilities assumed in the transaction; establishes the acquisition-date fair
value as the measurement objective for all assets acquired and liabilities
assumed; and requires the acquirer to disclose to investors and other users all
of the information they need to evaluate and understand the nature and financial
effect of the business combination.  We adopted this guidance
effective January 1, 2009.  We do not expect the adoption of ASC Topic
805 to have a material effect on the Company’s financial position, results of
operations or cash flows from the acquisition of New BCS, which is discussed
further in Note 16, Subsequent Events.





In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements-an amendment of Accounting Research Bulletin
No. 51(ASC Topic 810-10-65).  This guidance improves the
relevance, comparability and transparency of financial information provided to
investors by requiring all entities to report noncontrolling (minority)
interests in subsidiaries in the same way.  Additionally, it
eliminates the diversity that currently exists in accounting for transactions
between an entity and noncontrolling interests by requiring they be treated as
equity transactions.  We adopted this guidance effective January 1,
2009.  The adoption of this guidance did not have a material effect on
the Company’s financial position, results of operations or cash
flows.





In
December 2008, the FASB issued Staff Position 132(R)-1, Employers’ Disclosures about
Postretirement Benefit Plan Assets (ASC Topic 715-20-65).  This
guidance will require entities to provide enhanced disclosures about how
investment allocation decisions are made, the major categories of plan assets,
the inputs and valuation techniques used to measure fair value of plan assets,
the effect of fair value measurements using significant unobservable inputs on
changes in plan assets for the period and significant concentrations of risk
within plan assets.  This guidance is effective for the Company
beginning with its year ending December 31, 2009.  The Company is
currently assessing the potential effect, if any, on its consolidated financial
statements.





In June
2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R) (ASC Topic 810-10).  This updated guidance
requires an enterprise to perform an analysis to determine whether the
enterprise’s variable interest or interests give it a controlling financial
interest in a variable interest entity; to require ongoing reassessments of
whether an enterprise is the primary beneficiary of a variable interest entity;
to eliminate the quantitative approach previously required for determining the
primary beneficiary of a variable interest entity; to add an additional
reconsideration event for determining whether an entity is a variable interest
entity when any changes in facts and circumstances occur such that holders of
the equity investment at risk, as a group, lose the power from voting rights or
similar rights of those investments to direct the activities of the entity that
most significantly impact the entity’s economic performance; and to require
enhanced disclosures that will provide users of financial statements with more
transparent information about an enterprise’s involvement in a variable interest
entity. This update becomes effective for the Company on January 1, 2010.
Management does not currently expect that the update will have a material effect
on the Company’s financial position, results of operations or cash
flow.




14




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




(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, 2008 Form 10-K.  The Company’s management
evaluates the performance of its reportable segments based primarily on net
sales from external customers, capital expenditures and income (loss) before
income taxes.  Inter-segment sales are accounted for on terms similar
to those to third parties and are eliminated upon consolidation.





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





Three Months Ended
                                        
                                        
                                        Nine Months EndedSeptember 30,
                                        
                                        
                                        September 30,2009
                                        
                                        
                                        2008
                                        
                                        
                                        2009
                                        
                                        
                                        2008Net SalesElectronics
                                        
                                        $
                                        70,165
                                        
                                        
                                        $
                                        126,636
                                        
                                        
                                        $
                                        218,830
                                        
                                        
                                        $
                                        409,268Inter-segment
      sales
                                        
                                        
                                        2,734
                                        
                                        
                                        
                                        2,464
                                        
                                        
                                        
                                        6,531
                                        
                                        
                                        
                                        10,211Electronics
      net sales
                                        
                                        
                                        72,899
                                        
                                        
                                        
                                        129,100
                                        
                                        
                                        
                                        225,361
                                        
                                        
                                        
                                        419,479Control
      Devices
                                        
                                        
                                        47,827
                                        
                                        
                                        
                                        51,798
                                        
                                        
                                        
                                        122,537
                                        
                                        
                                        
                                        185,465Inter-segment
      sales
                                        
                                        
                                        852
                                        
                                        
                                        
                                        1,067
                                        
                                        
                                        
                                        2,237
                                        
                                        
                                        
                                        3,671Control
      Devices net sales
                                        
                                        
                                        48,679
                                        
                                        
                                        
                                        52,865
                                        
                                        
                                        
                                        124,774
                                        
                                        
                                        
                                        189,136Eliminations
                                        
                                        
                                        (3,586)
                                        
                                        
                                        
                                        (3,531)
                                        
                                        
                                        
                                        (8,768)
                                        
                                        
                                        
                                        (13,882)Total
      consolidated net sales
                                        
                                        $
                                        117,992
                                        
                                        
                                        $
                                        178,434
                                        
                                        
                                        $
                                        341,367
                                        
                                        
                                        $
                                        594,733


Income
      (Loss) Before Income TaxesElectronics
                          
                          $
                          (348)
                          
                          
                          $
                          7,001
                          
                          
                          $
                          (11,508)
                          
                          
                          $
                          32,976Control
      Devices
                          
                          
                          2,035
                          
                          
                          
                          (6,523)
                          
                          
                          
                          (10,393)
                          
                          
                          
                          (5,432)Other
      corporate activities
                          
                          
                          4,459
                          
                          
                          
                          5,129
                          
                          
                          
                          5,775
                          
                          
                          
                          8,775Corporate
      interest expense, net
                          
                          
                          (5,487)
                          
                          
                          
                          (5,116)
                          
                          
                          
                          (16,470)
                          
                          
                          
                          (15,423)Total
      consolidated income (loss) before income taxes
                          
                          $
                          659
                          
                          
                          $
                          491
                          
                          
                          $
                          (32,596)
                          
                          
                          $
                          20,896


Depreciation
      and AmortizationElectronics
                          
                          $
                          2,179
                          
                          
                          $
                          2,724
                          
                          
                          $
                          6,704
                          
                          
                          $
                          9,646Control
      Devices
                          
                          
                          2,725
                          
                          
                          
                          3,690
                          
                          
                          
                          8,343
                          
                          
                          
                          11,191Corporate
      activities
                          
                          
                          80
                          
                          
                          
                          26
                          
                          
                          
                          204
                          
                          
                          
                          21Total
      consolidated depreciation and amortization(A)
                          
                          $
                          4,984
                          
                          
                          $
                          6,440
                          
                          
                          $
                          15,251
                          
                          
                          $
                          20,858





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




15




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




Three Months Ended
                                
                                
                                Nine Months EndedSeptember 30,
                                
                                
                                September 30,2009
                                
                                
                                2008
                                
                                
                                2009
                                
                                
                                2008Interest Expense (Income), netElectronics
                                
                                $
                                73
                                
                                
                                $
                                (60)
                                
                                
                                $
                                127
                                
                                
                                $
                                (113)Control
      Devices
                                
                                
                                (1)
                                
                                
                                
                                (7)
                                
                                
                                
                                (3)
                                
                                
                                
                                (9)Corporate
      activities
                                
                                
                                5,487
                                
                                
                                
                                5,116
                                
                                
                                
                                16,470
                                
                                
                                
                                15,423Total
      consolidated interest expense, net
                                
                                $
                                5,559
                                
                                
                                $
                                5,049
                                
                                
                                $
                                16,594
                                
                                
                                $
                                15,301


Capital
      ExpendituresElectronics
                          
                          $
                          900
                          
                          
                          $
                          2,736
                          
                          
                          $
                          3,314
                          
                          
                          $
                          7,480Control
      Devices
                          
                          
                          989
                          
                          
                          
                          3,580
                          
                          
                          
                          4,665
                          
                          
                          
                          10,512Corporate
      activities
                          
                          
                          148
                          
                          
                          
                          (1)
                          
                          
                          
                          800
                          
                          
                          
                          (36)Total
      consolidated capital expenditures
                          
                          $
                          2,037
                          
                          
                          $
                          6,315
                          
                          
                          $
                          8,779
                          
                          
                          $
                          17,956





September 30,
                  
                  
                  December 31,Total Assets
                  
                  2009
                  
                  
                  2008Electronics
                  
                  $
                  160,617
                  
                  
                  $
                  183,574Control
      Devices
                  
                  
                  93,905
                  
                  
                  
                  98,608Corporate(B)
                  
                  
                  247,584
                  
                  
                  
                  239,425Eliminations
                  
                  
                  (148,705)
                  
                  
                  
                  (139,170)Total
      consolidated assets
                  
                  $
                  353,401
                  
                  
                  $
                  382,437




(B)       Assets
contained 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 Ended
                        
                        
                        Nine Months EndedSeptember 30,
                        
                        
                        September 30,Net Sales
                        
                        2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008North
      America
                        
                        $
                        95,212
                        
                        
                        $
                        131,966
                        
                        
                        $
                        277,517
                        
                        
                        $
                        435,265Europe
      and other
                        
                        
                        22,780
                        
                        
                        
                        46,468
                        
                        
                        
                        63,850
                        
                        
                        
                        159,468Total
      consolidated net sales
                        
                        $
                        117,992
                        
                        
                        $
                        178,434
                        
                        
                        $
                        341,367
                        
                        
                        $
                        594,733





September 30,
                  
                  
                  December 31,Non-Current Assets
                  
                  2009
                  
                  
                  2008North
      America
                  
                  $
                  108,659
                  
                  
                  $
                  110,507Europe
      and other
                  
                  
                  17,857
                  
                  
                  
                  17,339Total
      consolidated non-current assets
                  
                  $
                  126,516
                  
                  
                  $
                  127,846




(14)  Investments





PST
Eletrônica S.A.





The
Company has a 50% equity interest in PST Eletrônica S.A. (“PST”), a Brazilian
electronic system provider focused on security and convenience applications
primarily for the vehicle and motorcycle industry.  The investment is
accounted for under the equity method of accounting. The Company’s investment in
PST was $39,957 and $31,021 at September 30, 2009 and December 31, 2008,
respectively.




16


STONERIDGE,
INC.


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 Ended
                  
                  
                  Nine Months EndedSeptember 30,
                  
                  
                  September 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Revenues
                  
                  $
                  38,596
                  
                  
                  $
                  50,846
                  
                  
                  $
                  90,584
                  
                  
                  $
                  141,238Cost
      of sales
                  
                  $
                  19,231
                  
                  
                  $
                  20,073
                  
                  
                  $
                  46,229
                  
                  
                  $
                  66,042Total
      pre-tax income
                  
                  $
                  6,018
                  
                  
                  $
                  10,503
                  
                  
                  $
                  9,324
                  
                  
                  $
                  26,301The
      Company's share of pre-tax income
                  
                  $
                  3,009
                  
                  
                  $
                  5,251
                  
                  
                  $
                  4,662
                  
                  
                  $
                  13,151





Equity in
earnings of PST included in the condensed consolidated statements of operations
was $3,241 and $4,192 for the three months ended September 30, 2009 and 2008,
respectively.  For the nine months ended September 30, 2009 and 2008,
equity in earnings of PST was $4,629 and $10,634, respectively.





Minda
Stoneridge Instruments Ltd.





The
Company has a 49% interest in Minda Stoneridge Instruments Ltd. (“Minda”), a
company based in India that manufactures electronics and instrumentation
equipment for the motorcycle and commercial vehicle market.  The
investment is accounted for under the equity method of
accounting.  The Company’s investment in Minda was $4,887 and $4,673
at September 30, 2009 and December 31, 2008, respectively.  Equity in
earnings of Minda included in the condensed consolidated statements of
operations were $145 and $179, for the three months ended September 30, 2009 and
2008, respectively.  For the nine months ended September 30, 2009 and
2008, equity in earnings of Minda was $235 and $572,
respectively.





(15)  Guarantor
Financial Information





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





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





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


17





STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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





September
      30, 2009Parent
                
                
                Guarantor
                  Subsidiaries
                
                
                Non-
                  Guarantor
                  Subsidiaries
                
                
                Eliminations
                
                
                ConsolidatedASSETSCurrent
      Assets:Cash
      and cash equivalents
                
                $
                47,997
                
                
                $
                26
                
                
                $
                36,419
                
                
                $
                -
                
                
                $
                84,442Accounts
      receivable, net
                
                
                50,203
                
                
                
                19,047
                
                
                
                16,995
                
                
                
                -
                
                
                
                86,245Inventories,
      net
                
                
                18,416
                
                
                
                6,749
                
                
                
                12,376
                
                
                
                -
                
                
                
                37,541Prepaid
      expenses and other
                
                
                (305,234)
                
                
                
                301,199
                
                
                
                20,824
                
                
                
                -
                
                
                
                16,789Deferred
      income taxes,
                
                
                -
                
                
                
                -
                
                
                
                1,868
                
                
                
                -
                
                
                
                1,868Total
      current assets
                
                
                (188,618)
                
                
                
                327,021
                
                
                
                88,482
                
                
                
                -
                
                
                
                226,885Long-Term
      Assets:Property,
      plant and equipment, net
                
                
                45,013
                
                
                
                21,071
                
                
                
                11,857
                
                
                
                -
                
                
                
                77,941Other
      Assets:Investments
      and other, net
                
                
                47,317
                
                
                
                295
                
                
                
                963
                
                
                
                -
                
                
                
                48,575Investment
      in subsidiaries
                
                
                394,175
                
                
                
                -
                
                
                
                -
                
                
                
                (394,175)
                
                
                
                -Total
      long-term assets
                
                
                486,505
                
                
                
                21,366
                
                
                
                12,820
                
                
                
                (394,175)
                
                
                
                126,516Total
      Assets
                
                $
                297,887
                
                
                $
                348,387
                
                
                $
                101,302
                
                
                $
                (394,175)
                
                
                $
                353,401LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      Liabilities:Accounts
      payable
                
                $
                23,048
                
                
                $
                13,276
                
                
                $
                7,780
                
                
                $
                -
                
                
                $
                44,104Accrued
      expenses and other
                
                
                11,788
                
                
                
                9,584
                
                
                
                21,055
                
                
                
                -
                
                
                
                42,427Total
      current liabilities
                
                
                34,836
                
                
                
                22,860
                
                
                
                28,835
                
                
                
                -
                
                
                
                86,531Long-Term
      Liabilities:Long-term
      debt
                
                
                183,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                183,000Deferred
      income taxes
                
                
                7,135
                
                
                
                -
                
                
                
                (62)
                
                
                
                -
                
                
                
                7,073Other
      liabilities
                
                
                3,024
                
                
                
                360
                
                
                
                3,521
                
                
                
                -
                
                
                
                6,905Total
      long-term liabilities
                
                
                193,159
                
                
                
                360
                
                
                
                3,459
                
                
                
                -
                
                
                
                196,978Shareholders'
      Equity
                
                
                69,892
                
                
                
                325,167
                
                
                
                69,008
                
                
                
                (394,175)
                
                
                
                69,892Total
      Liabilities and Shareholders’ Equity
                
                $
                297,887
                
                
                $
                348,387
                
                
                $
                101,302
                
                
                $
                (394,175)
                
                
                $
                353,401




18


STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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





Supplemental
condensed consolidating financial statements (continued):





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




19





STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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





Supplemental
condensed consolidating financial statements (continued):





For
      the Three Months Ended September 30, 2009Parent
                
                
                Guarantor
                  Subsidiaries
                
                
                Non-
                  Guarantor
                  Subsidiaries
                
                
                Eliminations
                
                
                ConsolidatedNet
      Sales
                
                $
                66,457
                
                
                $
                34,802
                
                
                $
                33,515
                
                
                $
                (16,782)
                
                
                $
                117,992Costs
      and Expenses:Cost
      of goods sold
                
                
                56,038
                
                
                
                26,864
                
                
                
                24,205
                
                
                
                (16,198)
                
                
                
                90,909Selling,
      general and administrative
                
                
                10,422
                
                
                
                5,664
                
                
                
                7,637
                
                
                
                (584)
                
                
                
                23,139Restructuring
      charges
                
                
                692
                
                
                
                181
                
                
                
                437
                
                
                
                -
                
                
                
                1,310Operating
      Income (Loss)
                
                
                (695)
                
                
                
                2,093
                
                
                
                1,236
                
                
                
                -
                
                
                
                2,634Interest
      expense (income), net
                
                
                5,565
                
                
                
                1
                
                
                
                (7)
                
                
                
                -
                
                
                
                5,559Other
      expense (income), net
                
                
                (5,536)
                
                
                
                661
                
                
                
                1,291
                
                
                
                -
                
                
                
                (3,584)Equity
      earnings from subsidiaries
                
                
                (1,582)
                
                
                
                -
                
                
                
                -
                
                
                
                1,582
                
                
                
                -Income
      (Loss) Before Income Taxes
                
                
                858
                
                
                
                1,431
                
                
                
                (48)
                
                
                
                (1,582)
                
                
                
                659Provision
      (benefit) for income taxes
                
                
                1,701
                
                
                
                -
                
                
                
                (199)
                
                
                
                -
                
                
                
                1,502Net
      Income (Loss)
                
                $
                (843)
                
                
                $
                1,431
                
                
                $
                151
                
                
                $
                (1,582)
                
                
                $
                (843)





For
      the Three Months Ended September 30, 2008Parent
                
                
                Guarantor
                  Subsidiaries
                
                
                Non-
                  Guarantor
                  Subsidiaries
                
                
                Eliminations
                
                
                ConsolidatedNet
      Sales
                
                $
                98,697
                
                
                $
                42,054
                
                
                $
                62,368
                
                
                $
                (24,685)
                
                
                $
                178,434Costs
      and Expenses:Cost
      of goods sold
                
                
                83,677
                
                
                
                34,053
                
                
                
                49,205
                
                
                
                (23,846)
                
                
                
                143,089Selling,
      general and administrative
                
                
                12,499
                
                
                
                7,585
                
                
                
                12,423
                
                
                
                (839)
                
                
                
                31,668Restructuring
      charges
                
                
                1,448
                
                
                
                -
                
                
                
                1,294
                
                
                
                -
                
                
                
                2,742Operating
      Income (Loss)
                
                
                1,073
                
                
                
                416
                
                
                
                (554)
                
                
                
                -
                
                
                
                935Interest
      expense (income), net
                
                
                5,313
                
                
                
                -
                
                
                
                (264)
                
                
                
                -
                
                
                
                5,049Other
      income, net
                
                
                (4,371)
                
                
                
                -
                
                
                
                (234)
                
                
                
                -
                
                
                
                (4,605)Equity
      earnings from subsidiaries
                
                
                (223)
                
                
                
                -
                
                
                
                -
                
                
                
                223
                
                
                
                -Income
      (Loss) Before Income Taxes
                
                
                354
                
                
                
                416
                
                
                
                (56)
                
                
                
                (223)
                
                
                
                491Provision
      for income taxes
                
                
                718
                
                
                
                -
                
                
                
                137
                
                
                
                -
                
                
                
                855Net
      Income (Loss)
                
                $
                (364)
                
                
                $
                416
                
                
                $
                (193)
                
                
                $
                (223)
                
                
                $
                (364)




20


STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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





Supplemental
condensed consolidating financial statements (continued):





For the Nine Months Ended September 30,
      2009Parent
                
                
                Guarantor
                  Subsidiaries
                
                
                Non-
                  Guarantor
                  Subsidiaries
                
                
                Eliminations
                
                
                ConsolidatedNet
      Sales
                
                $
                199,092
                
                
                $
                94,969
                
                
                $
                99,113
                
                
                $
                (51,807)
                
                
                $
                341,367Costs
      and Expenses:Cost
      of goods sold
                
                
                173,933
                
                
                
                79,598
                
                
                
                77,726
                
                
                
                (49,844)
                
                
                
                281,413Selling,
      general and administrative
                
                
                34,391
                
                
                
                18,353
                
                
                
                25,773
                
                
                
                (1,963)
                
                
                
                76,554Restructuring
      charges
                
                
                1,014
                
                
                
                669
                
                
                
                2,136
                
                
                
                -
                
                
                
                3,819Operating
      Loss
                
                
                (10,246)
                
                
                
                (3,651)
                
                
                
                (6,522)
                
                
                
                -
                
                
                
                (20,419)Interest
      expense (income), net
                
                
                16,675
                
                
                
                -
                
                
                
                (81)
                
                
                
                -
                
                
                
                16,594Other
      expense (income), net
                
                
                (10,077)
                
                
                
                1,984
                
                
                
                3,676
                
                
                
                -
                
                
                
                (4,417)Equity
      earnings from subsidiaries
                
                
                13,622
                
                
                
                -
                
                
                
                -
                
                
                
                (13,622)
                
                
                
                -Loss
      Before Income Taxes
                
                
                (30,466)
                
                
                
                (5,635)
                
                
                
                (10,117)
                
                
                
                13,622
                
                
                
                (32,596)Provision
      (benefit) for income taxes
                
                
                1,721
                
                
                
                -
                
                
                
                (2,130)
                
                
                
                -
                
                
                
                (409)Net
      Loss
                
                $
                (32,187)
                
                
                $
                (5,635)
                
                
                $
                (7,987)
                
                
                $
                13,622
                
                
                $
                (32,187)




For the Nine Months Ended September 30,
      2008Parent
                
                
                Guarantor
                  Subsidiaries
                
                
                Non-
                  Guarantor
                  Subsidiaries
                
                
                Eliminations
                
                
                ConsolidatedNet
      Sales
                
                $
                316,543
                
                
                $
                148,421
                
                
                $
                206,233
                
                
                $
                (76,464)
                
                
                $
                594,733Costs
      and Expenses:Cost
      of goods sold
                
                
                258,914
                
                
                
                117,353
                
                
                
                156,190
                
                
                
                (74,240)
                
                
                
                458,217Selling,
      general and administrative
                
                
                40,661
                
                
                
                23,963
                
                
                
                42,434
                
                
                
                (2,224)
                
                
                
                104,834Restructuring
      charges
                
                
                2,873
                
                
                
                -
                
                
                
                3,004
                
                
                
                -
                
                
                
                5,877Operating
      Income
                
                
                14,095
                
                
                
                7,105
                
                
                
                4,605
                
                
                
                -
                
                
                
                25,805Interest
      expense (income), net
                
                
                16,019
                
                
                
                -
                
                
                
                (718)
                
                
                
                -
                
                
                
                15,301Other
      (income) expense, net
                
                
                (10,436)
                
                
                
                -
                
                
                
                44
                
                
                
                -
                
                
                
                (10,392)Equity
      earnings from subsidiaries
                
                
                (10,689)
                
                
                
                -
                
                
                
                -
                
                
                
                10,689
                
                
                
                -Income
      Before Income Taxes
                
                
                19,201
                
                
                
                7,105
                
                
                
                5,279
                
                
                
                (10,689)
                
                
                
                20,896Provision
      for income taxes
                
                
                8,334
                
                
                
                82
                
                
                
                1,613
                
                
                
                -
                
                
                
                10,029Net
      Income
                
                $
                10,867
                
                
                $
                7,023
                
                
                $
                3,666
                
                
                $
                (10,689)
                
                
                $
                10,867




21


STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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





Supplemental
condensed consolidating financial statements (continued):





For the Nine Months Ended September 30, 2009Parent
                        
                        
                        Guarantor
                          Subsidiaries
                        
                        
                        Non-
                          Guarantor
                          Subsidiaries
                        
                        
                        Eliminations
                        
                        
                        ConsolidatedNet
      cash provided by (used for) operating activities
                        
                        $
                        (1,243)
                        
                        
                        $
                        1,580
                        
                        
                        $
                        (2,915)
                        
                        
                        $
                        -
                        
                        
                        $
                        (2,578)INVESTING
      ACTIVITIES:Capital
      expenditures
                        
                        
                        (5,950)
                        
                        
                        
                        (1,627)
                        
                        
                        
                        (1,202)
                        
                        
                        
                        -
                        
                        
                        
                        (8,779)Proceeds
      from the sale of fixed assets
                        
                        
                        3
                        
                        
                        
                        46
                        
                        
                        
                        39
                        
                        
                        
                        -
                        
                        
                        
                        88Net
      cash used for investing activities
                        
                        
                        (5,947)
                        
                        
                        
                        (1,581)
                        
                        
                        
                        (1,163)
                        
                        
                        
                        -
                        
                        
                        
                        (8,691)FINANCING
      ACTIVITIES:Other
      financing costs
                        
                        
                        (50)
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (50)Net
      cash used for financing activities
                        
                        
                        (50)
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (50)Effect
      of exchange rate changes on cash and cash equivalents
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        3,069
                        
                        
                        
                        -
                        
                        
                        
                        3,069Net
      change in cash and cash equivalents
                        
                        
                        (7,240)
                        
                        
                        
                        (1)
                        
                        
                        
                        (1,009)
                        
                        
                        
                        -
                        
                        
                        
                        (8,250)Cash
      and cash equivalents at beginning of period
                        
                        
                        55,237
                        
                        
                        
                        27
                        
                        
                        
                        37,428
                        
                        
                        
                        -
                        
                        
                        
                        92,692Cash
      and cash equivalents at end of period
                        
                        $
                        47,997
                        
                        
                        $
                        26
                        
                        
                        $
                        36,419
                        
                        
                        $
                        -
                        
                        
                        $
                        84,442





For the Nine Months Ended September 30,
      2008Parent
                    
                    
                    Guarantor
                      Subsidiaries
                    
                    
                    Non-
                      Guarantor
                      Subsidiaries
                    
                    
                    Eliminations
                    
                    
                    ConsolidatedNet
      cash provided by operating activities
                    
                    $
                    25,365
                    
                    
                    $
                    4,658
                    
                    
                    $
                    645
                    
                    
                    $
                    -
                    
                    
                    $
                    30,668INVESTING
      ACTIVITIES:Capital
      expenditures
                    
                    
                    (10,119)
                    
                    
                    
                    (4,663)
                    
                    
                    
                    (3,174)
                    
                    
                    
                    -
                    
                    
                    
                    (17,956)Proceeds
      from the sale of fixed assets
                    
                    
                    141
                    
                    
                    
                    4
                    
                    
                    
                    290
                    
                    
                    
                    -
                    
                    
                    
                    435Business
      acquisitions and other
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (980)
                    
                    
                    
                    -
                    
                    
                    
                    (980)Net
      cash used for investing activities
                    
                    
                    (9,978)
                    
                    
                    
                    (4,659)
                    
                    
                    
                    (3,864)
                    
                    
                    
                    -
                    
                    
                    
                    (18,501)FINANCING
      ACTIVITIES:Repayments
      of long-term debt
                    
                    
                    (17,000)
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (17,000)Share-based
      compensation activity, net
                    
                    
                    1,305
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,305Premiums
      related to early extinguishment of debt
                    
                    
                    (553)
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (553)Net
      cash used for financing activities
                    
                    
                    (16,248)
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (16,248)Effect
      of exchange rate changes on cash  and cash
      equivalents
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (2,232)
                    
                    
                    
                    -
                    
                    
                    
                    (2,232)Net
      change in cash and cash equivalents
                    
                    
                    (861)
                    
                    
                    
                    (1)
                    
                    
                    
                    (5,451)
                    
                    
                    
                    -
                    
                    
                    
                    (6,313)Cash
      and cash equivalents at beginning of period
                    
                    
                    48,705
                    
                    
                    
                    255
                    
                    
                    
                    46,964
                    
                    
                    
                    -
                    
                    
                    
                    95,924Cash
      and cash equivalents at end of period
                    
                    $
                    47,844
                    
                    
                    $
                    254
                    
                    
                    $
                    41,513
                    
                    
                    $
                    -
                    
                    
                    $
                    89,611





22





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





(16)  Subsequent
Events





On
October 9, 2009, Stoneridge, Inc. (the “Company”) entered into an Asset Purchase
and Contribution Agreement (the “Purchase Agreement”) with Bolton Conductive
Systems LLC (“Old BCS”), Martin Kochis, Joseph Malecke, Bolton Investments LLC,
William Bolton and New BCS.  After the transaction closed on October
13, 2009, New BCS changed its name to Bolton Conductive Systems, LLC and will
continue the business of Old BCS.  Bolton Conductive Systems, LLC
designs and manufactures a wide variety of electrical solutions for the
military, automotive, and marine and specialty vehicle markets and is based in
Walled Lake, Michigan.  The Company acquired a 51% membership interest
in New BCS in exchange for contributing $5,865, subject to certain post closing
adjustments.  The Company may be required to make additional capital
contributions to New BCS for its 51% membership interest based on New BCS
achieving financial performance targets as defined by the Purchase
Agreement.  The additional capital contributions of a maximum of
$3,200 each year in 2011, 2012 and 2013 are contingent upon New 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 capital contributions
to New BCS of $450 in 2011 and $500 in 2012 based on New BCS achieving annual
revenue targets in 2010 and 2011, respectively.  Old BCS contributed
and sold substantially all of its assets (except for certain retained assets as
set forth in the Purchase Agreement) to New BCS in exchange for a 49% membership
interest in New BCS and the assumption by New BCS of certain of Old BCS’s
liabilities.  The Purchase Agreement provides the Company with the
option to purchase the remaining 49% interest in New BCS in 2013 at a price
determined in accordance with the Purchase Agreement.  If the Company
does not exercise this option then Old BCS has the option in 2014 to purchase
the Company’s 51% interest in New BCS at a price determined in accordance with
the Purchase Agreement or to jointly put New BCS up for sale.  The
Company was required to amend its credit facility in order to acquire a majority
membership interest in New BCS.





Management
evaluated all activity of the Company through November 9, 2009 (the issue date
of the financial statements) and concluded that no additional subsequent events
other than the aforementioned have occurred that would require recognition in
the condensed consolidated financial statements or disclosure in the notes
thereto.





23




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





Item
2.   Management’s Discussion and Analysis of Financial Condition
and Results of Operations.





Overview





The
following Management Discussion and Analysis (“MD&A”) is intended to help
the reader understand the results of operations and financial condition of the
Company. This MD&A is provided as a supplement to, and should be read in
conjunction with, our financial statements and the accompanying notes to the
financial statements.





We are an
independent designer and manufacturer of highly engineered electrical and
electronic components, modules and systems for the medium- and heavy-duty truck,
agricultural, light vehicle and off-highway vehicle markets.





We
recognized a net loss for the quarter ended September 30, 2009 of $0.9 million,
or $(0.04) per diluted share, compared with net loss of $0.4 million, or $(0.02)
per diluted share, for the third quarter of 2008.  The decrease in net
income was primarily due to the severe reduction in sales volume that we
experienced in all of our markets.  However the reduction in net
income was mitigated by the benefits of previous restructuring and
cost-reduction initiatives.





Our third
quarter 2009 results were negatively affected by the continued decline in the
North American and European commercial and North American light vehicle markets
as well as the economy as a whole.  Production volumes in North
American light vehicle declined by 20.6% during the quarter ended September 30,
2009 when compared to the quarter ended September 30, 2008.  These
production volume reductions had a negative effect on our Control Devices
segment net sales of approximately $2.1 million.  The commercial
vehicle market production volumes in Europe and North America declined by 68.6%
and 38.4%, respectively during the current quarter when compared to the prior
year third quarter, which resulted in lower net sales for our Electronics
segment of approximately $49.1 million.  In aggregate these production
declines had an unfavorable effect on our consolidated net sales of
approximately $51.2 million for the quarter ended September 30,
2009.  Product pricing had a minimal affect on our current quarter net
sales when compared to our net sales for the third quarter of
2008.  Our gross margin percentage increased from 19.8% for the
quarter ended September 30, 2008 to 23.0% for the current
quarter.  Restructuring charges included in prior year cost of goods
sold of approximately $2.1 million had a negative affect of approximately 1.2%
on the gross margin percentage for the quarter ended September 30,
2008.  There were no restructuring charges included in current quarter
cost of goods sold.





Our
selling, general and administrative expenses (“SG&A”) decreased from $31.7
million for the quarter ended September 30, 2008 to $23.1 million for the
quarter ended September 30, 2009.  This $8.6 million or 27.1% decrease
in SG&A, was primarily due to reduced compensation and compensation related
expenses incurred during the quarter ended September 30, 2009 of approximately
$6.2 million as a result of lower headcount and incentive compensation
expenses.  The reduction of current quarter SG&A expenses is
largely due to cost benefits realized in the current quarter from prior period
restructuring initiatives.  In addition, our design and development
costs decreased between periods due to customers delaying new product launches
in the near term as well as planned reductions in our design
activities.  Our design and development costs declined by
approximately $3.3 million between the two periods, which was primarily
attributable to our Electronics segment.  In addition to our
restructuring initiatives, we have reduced discretionary spending in 2009, which
has reduced our current quarter cost structure.





Also
affecting our results were our restructuring initiatives. Costs incurred during
the quarter ended September 30, 2009 related to these restructuring initiatives
amounted to approximately $1.3 million and was comprised of one-time termination
benefits.  These restructuring actions were in response to the
depressed conditions in the North American and European commercial vehicle
markets.  In addition, during the third quarter of 2009 we
consolidated certain marketing and administrative positions at two of our
Control Devices facilities.  Third quarter 2008 restructuring expenses
were approximately $4.8 million and were comprised of one-time termination
benefits and line-transfer expenses related to our initiative to improve the
Company’s manufacturing efficiency and cost position by ceasing manufacturing
operations at our Control Devices facility in Sarasota, Florida, and our
Electronics facility in Mitcheldean, United Kingdom.  We may incur
additional restructuring charges in the future related to the further
consolidation of our Control Devices operations.





Equity
earnings in our PST Eletrônica S.A. (“PST”) joint venture in Brazil declined
from $4.2 million for the third quarter of 2008 to $3.2 million in the third
quarter of 2009 due to lower demand for PST’s security products and adverse
foreign currency exchange fluctuations.





24





At
September 30, 2009 and December 31, 2008, we maintained a cash and cash
equivalents balance of $84.4 million and $92.7 million,
respectively.  As discussed in Note 6 to the condensed consolidated
financial statements, we have no borrowings under our asset-based credit
facility.  At September 30, 2009 and December 31, 2008, we had
borrowing capacity of $51.5 million and $57.7 million, respectively based upon
eligible current assets.





In April
2009, we entered into the United State Treasury’s Auto Supplier Program (the
“Program”).  Entrance into the Program was retroactive to March 18,
2009.  As part of entrance into the Program, we were required to amend
our credit facility, to allow us to sell certain accounts receivables due from
General Motors Corporation (“GM”) or Chrysler, LLC (“Chrysler”) to GM Supplier
Receivables LLC and Chrysler Receivables SPV LLC, respectively, special purpose
entities created by the United States Treasury Department.  The
Program guaranteed these receivables, net of a two percent administrative fee
imposed on the receivables included in the Program.  As a result of GM
and Chrysler exiting bankruptcy, we opted out of the GM Program in June 2009
and the Chrysler Program was terminated upon their exit from
bankruptcy.  We have not experienced any losses related to the
collection of GM or Chrysler receivables as a result of their bankruptcy
filings.  Subsequent to the GM and Chrysler bankruptcies, we have been
collecting our GM and Chrysler receivables under normal terms.





Our
results for 2009 depend on conditions in the global commercial and light vehicle
markets, which are generally dependent on domestic
economies.  Significant factors inherent to our markets that could
affect our results for the remainder of 2009 include the financial stability of
our customers and suppliers.  In addition, the ability of our supplier
base to adjust to production volatility in the market may also affect our
results.





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 Electronics
reportable segment primarily sells products to the commercial vehicle
market. The Control Devices reportable segment includes results of
operations that design and manufacture electronic and electromechanical
switches, control actuation devices and sensors. The Control Devices reportable
segment primarily sells products to the light vehicle market.





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





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





Three
      Months EndedSeptember 30,
                      
                      Dollar
                      
                      
                      Percent2009
                      
                      2008
                      
                      Decrease
                      
                      
                      DecreaseElectronics
                      
                      $
                      70,165
                      
                      
                      
                      59.5
                      %
                      
                      $
                      126,636
                      
                      
                      
                      71.0
                      %
                      
                      $
                      (56,471)
                      
                      
                      
                      (44.6)
                      %Control
      Devices
                      
                      
                      47,827
                      
                      
                      
                      40.5
                      
                      
                      
                      51,798
                      
                      
                      
                      29.0
                      
                      
                      
                      (3,971)
                      
                      
                      
                      (7.7)
                      %Total
      net sales
                      
                      $
                      117,992
                      
                      
                      
                      100.0
                      %
                      
                      $
                      178,434
                      
                      
                      
                      100.0
                      %
                      
                      $
                      (60,442)
                      
                      
                      
                      (33.9)
                      %





The
decrease in net sales for our Electronics segment was primarily due to volume
declines in our North American and European commercial vehicle
production.  The commercial vehicle market production volumes in
Europe and North America declined by 68.6% and 38.4%, respectively, during the
current quarter when compared to the prior year third quarter.  Our
Electronics segment was adversely affected by reduced volume by approximately
$49.1 million for the quarter ended September 30, 2009 when compared to the
prior year quarter.  The reductions in North American and European
commercial vehicle production negatively affected our Electronics segment for
the quarter ended September 30, 2009 by $21.2 million and $16.4 million,
respectively.  The balance of the decrease was primarily related to
volume declines in the agricultural and light vehicle markets.





The
decrease in net sales for our Control Devices segment was attributable to sales
losses and production volume reductions at our major customers in the North
American light vehicle market.  Our current quarter sales were
adversely affected by sales losses during the quarter ended September 30, 2009
of approximately $3.3 million.  These sales losses were primarily a
result of our products being decontented or removed from certain customer
products.  Our net sales were also negatively affected by
approximately $2.1 million due to the reduced volume during the quarter ended
September 30, 2009 when compared to the prior year
quarter.  Production volumes in North American light vehicle declined
by 20.6% during the quarter ended September 30, 2009 when compared to the
quarter ended September 30, 2008.





25





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





Three
      Months EndedSeptember 30,
                        
                        Dollar
                        
                        
                        Percent2009
                        
                        2008
                        
                        Decrease
                        
                        
                        DecreaseNorth
      America
                        
                        $
                        95,212
                        
                        
                        
                        80.7
                        %
                        
                        $
                        131,966
                        
                        
                        
                        74.0
                        %
                        
                        $
                        (36,754)
                        
                        
                        
                        (27.9)
                        %Europe
      and other
                        
                        
                        22,780
                        
                        
                        
                        19.3
                        
                        
                        
                        46,468
                        
                        
                        
                        26.0
                        
                        
                        
                        (23,688)
                        
                        
                        
                        (51.0)
                        %Total
      net sales
                        
                        $
                        117,992
                        
                        
                        
                        100.0
                        %
                        
                        $
                        178,434
                        
                        
                        
                        100.0
                        %
                        
                        $
                        (60,442)
                        
                        
                        
                        (33.9)
                        %





The
decrease in North American sales was primarily attributable to lower sales
volume in the North American commercial vehicle and agricultural markets in our
Electronics segment.  Net sales declined as a result of lower sales
volume by approximately $21.5 and $10.7 million in our North American commercial
vehicle and agricultural markets, respectively between the periods
presented.  Our decrease in sales outside North America was primarily
due to lower sales volume of approximately $16.4 million in the European
commercial vehicle market.





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





Three
      Months EndedSeptember 30,
                            
                            
                            $
      Increase /2009
                            
                            
                            2008
                            
                            
                            (Decrease)Net
      Sales
                            
                            $
                            117,992
                            
                            
                            
                            100.0
                            %
                            
                            $
                            178,434
                            
                            
                            
                            100.0
                            %
                            
                            $
                            (60,442)Costs
      and Expenses:Cost
      of goods sold
                            
                            
                            90,909
                            
                            
                            
                            77.0
                            
                            
                            
                            143,089
                            
                            
                            
                            80.2
                            
                            
                            
                            (52,180)Selling,
      general and administrative
                            
                            
                            23,139
                            
                            
                            
                            19.6
                            
                            
                            
                            31,668
                            
                            
                            
                            17.7
                            
                            
                            
                            (8,529)Restructuring
      charges
                            
                            
                            1,310
                            
                            
                            
                            1.1
                            
                            
                            
                            2,742
                            
                            
                            
                            1.5
                            
                            
                            
                            (1,432)Operating
      Income
                            
                            
                            2,634
                            
                            
                            
                            2.3
                            
                            
                            
                            935
                            
                            
                            
                            0.6
                            
                            
                            
                            1,699Interest
      expense, net
                            
                            
                            5,559
                            
                            
                            
                            4.7
                            
                            
                            
                            5,049
                            
                            
                            
                            2.8
                            
                            
                            
                            510Equity
      in earnings of investees
                            
                            
                            (3,386)
                            
                            
                            
                            (2.9)
                            
                            
                            
                            (4,371)
                            
                            
                            
                            (2.4)
                            
                            
                            
                            985Other
      expense (income), net
                            
                            
                            (198)
                            
                            
                            
                            (0.2)
                            
                            
                            
                            (234)
                            
                            
                            
                            (0.1)
                            
                            
                            
                            36Income
      Before Income Taxes
                            
                            
                            659
                            
                            
                            
                            0.7
                            
                            
                            
                            491
                            
                            
                            
                            0.3
                            
                            
                            
                            168Provision
      for income taxes
                            
                            
                            1,502
                            
                            
                            
                            1.3
                            
                            
                            
                            855
                            
                            
                            
                            0.5
                            
                            
                            
                            647Net
      Loss
                            
                            $
                            (843)
                            
                            
                            
                            (0.6)
                            %
                            
                            $
                            (364)
                            
                            
                            
                            (0.2)
                            %
                            
                            $
                            (479)





Cost of Goods Sold.The
decrease in cost of goods sold was due to the significant decline in volume
during the current quarter when compared to the prior year
quarter.  The decrease in cost of goods sold as a percentage of sales
was primarily due to benefits realized in the current quarter cost structure as
a result of prior period restructuring initiatives.  In addition, our
cost of goods sold for the quarter ended September 30, 2008 included
approximately $2.1 million of restructuring charges.  There were no
such charges included in cost of goods sold for the current
quarter.  Our material cost as a percentage of net sales for our
Electronics segment for the quarters ended September 30, 2009 and 2008 was 54.6%
and 52.0%, respectively.  This increase is primarily due to lower
volume from our military related commercial vehicle products in the current
quarter.  Our materials cost as a percent of sales for the Control
Devices segment increased from 49.0% for the quarter ended September 30, 2008 to
52.3% for the third quarter of 2009.  Our material costs as a percent
of sales increased during the current quarter due to the outsourcing of a
stamping operation and minor shifts in product mix.





26





Selling, General and Administrative
Expenses. Design and development expenses included in SG&A were $6.9
million and $10.2 million for the quarters ended September 30, 2009 and 2008,
respectively.  Design and development expenses for our Electronics and
Control Devices segments decreased from $6.2 million and $4.0 million for the
quarter ended September 30, 2008 to $3.6 million and $3.3 million for the
quarter ended September 30, 2009, respectively.  The decrease in
design and development costs was a result of our customers delaying new product
launches in the near term as well as planned reductions in our design
activities. The decrease in SG&A costs excluding design and development
expenses was due to lower employee related costs of approximately $4.2 million
due to reduced headcount and lower incentive compensation expenses
company-wide.  These current quarter cost reductions were primarily
due to prior period restructuring initiatives.  Our SG&A costs
increased as a percent of sales because net sales declined faster
than we were able to reduce our SG&A costs.





Restructuring Charges. Costs
from our restructuring initiatives for the quarter ended September 30, 2009
decreased compared to the third quarter of 2008. Costs incurred during the
quarter ended September 30, 2009 related to restructuring initiatives amounted
to approximately $1.3 million and was comprised of one-time termination
benefits.  These restructuring costs were general and administrative
in nature and were included in our condensed consolidated statements of
operations as restructuring charges.  During the current quarter we
consolidated certain marketing and administrative positions at two of our
Control Devices facilities and we initiated additional restructuring
actions in our Electronics segment in response to the depressed conditions in
the European and North American commercial vehicle markets.  Third
quarter 2008 restructuring expenses were approximately $4.8 million and were
comprised of one-time termination benefits and line-transfer expenses related to
our initiative to improve the Company’s manufacturing efficiency and cost
position by ceasing manufacturing operations at our Control Devices segment
facility in Sarasota, Florida and our Electronics segment facility in
Mitcheldean, United Kingdom.  Restructuring expenses of $2.7 million
that were general and administrative in nature were included in the Company’s
condensed consolidated statements of operations as restructuring charges, while
the remaining $2.1 million of restructuring related expenses were included in
cost of goods sold.





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





Electronics
                
                
                ControlDevices
                
                
                Total
                  Consolidated
                  Restructuring
                  ChargesSeverance
      costs
                
                $
                939
                
                
                $
                371
                
                
                $
                1,310





Severance
costs relate to a reduction in workforce.





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





Electronics
                
                
                ControlDevices
                
                
                Total
                  Consolidated
                  Restructuring
                  ChargesSeverance
      costs
                
                $
                590
                
                
                $
                486
                
                
                $
                1,076Contract
      termination costs
                
                
                703
                
                
                
                -
                
                
                
                703Other
      exit costs
                
                
                1
                
                
                
                962
                
                
                
                963Total
      general and administrative restructuring charges
                
                $
                1,294
                
                
                $
                1,448
                
                
                $
                2,742





Contract
termination costs represent expenditures associated with long-term lease
obligations that were cancelled as part of the restructuring
initiatives.  Other exit costs include miscellaneous expenditures
associated with exiting business activities.





27





Equity in Earnings of
Investees.The decrease in equity earnings of investees was
predominately attributable to the decrease in equity earnings recognized from
our PST joint venture.  Equity earnings for PST declined from $4.2
million for the quarter ended September 30, 2008 to $3.2 million for the quarter
ended September 30, 2009.  This decrease was caused by a 10.6% decline
in PST’s net sales and the negative effect of foreign currency translation
during the quarter ended September 30, 2009 when compared to the prior year
quarter.





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





Three
      Months Ended
                
                
                Dollar
                
                
                PercentSeptember 30,
                
                
                Increase
                
                
                Increase2009
                
                
                2008
                
                
                (Decrease)
                
                
                (Decrease)Electronics
                
                $
                (348)
                
                
                $
                7,001
                
                
                $
                (7,349)
                
                
                
                (105.0)
                %Control
      Devices
                
                
                2,035
                
                
                
                (6,523)
                
                
                
                8,558
                
                
                
                131.2
                %Other
      corporate activities
                
                
                4,459
                
                
                
                5,129
                
                
                
                (670)
                
                
                
                (13.1)
                %Corporate
      interest expense, net
                
                
                (5,487)
                
                
                
                (5,116)
                
                
                
                (371)
                
                
                
                (7.3)
                %Income
      before income taxes
                
                $
                659
                
                
                $
                491
                
                
                $
                168
                
                
                
                34.2
                %




The
decrease in profitability in the Electronics segment was primarily related to
decreased net sales and resulting gross margin within our North American and
European commercial vehicle and North American agricultural
markets.  Our net sales within our Electronics segment decreased by
$21.2 million, $16.4 million and $9.6 million, respectively, due to volume
reductions within the North American and European commercial vehicle and
agricultural markets.





The
increase in income before income taxes in the Control Devices reportable segment
was primarily due to lower restructuring charges of approximately $2.6 million
incurred during the third quarter of 2009 when compared to the third quarter of
2008.  Additionally, the third quarter of 2009 benefited from a lower
cost structure as a result of prior period restructuring
initiatives.  Compensation and compensation related SG&A costs
declined by approximately $2.9 million from the quarter ended September 30, 2008
to the quarter ended September 30, 2009 as a result of reduced headcount and
lower incentive compensation expenses.





The
decrease in income before income taxes from other corporate activities was
primarily due to the $1.0 million decrease in equity earnings from our PST joint
venture.  The decrease is partially offset by a decrease in
compensation related expenses.





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





Three
      Months Ended
                      
                      Dollar
                      
                      
                      PercentSeptember 30,
                      
                      Increase
                      
                      
                      Increase2009
                      
                      2008
                      
                      (Decrease)
                      
                      
                      (Decrease)North
      America
                      
                      $
                      486
                      
                      
                      
                      73.7
                      %
                      
                      $
                      2,688
                      
                      
                      
                      547.5
                      %
                      
                      $
                      (2,202)
                      
                      
                      
                      (81.9)
                      %Europe
      and other
                      
                      
                      173
                      
                      
                      
                      26.3
                      
                      
                      
                      (2,197)
                      
                      
                      
                      (447.5)
                      
                      
                      
                      2,370
                      
                      
                      
                      107.9
                      %Income
      before income taxes
                      
                      $
                      659
                      
                      
                      
                      100.0
                      %
                      
                      $
                      491
                      
                      
                      
                      100.0
                      %
                      
                      $
                      168
                      
                      
                      
                      34.2
                      %





The
decrease in our profitability in North America was primarily attributable to
lower sales volumes within our North American commercial vehicle and
agricultural markets of approximately $21.5 million and $10.7 million,
respectively during the quarter ended September 30, 2009.  The
increase in profitability outside North America was due to benefits realized in
our cost structure from prior restructuring initiatives during the quarter ended
September 30, 2009 as well as a reduction in restructuring costs of
approximately $1.8 million between periods.





28





Provision for Income Taxes.
We recognized a provision for income taxes of $1.5 million, or 227.9% and $0.9
million, or 174.1% of pre-tax income, for federal, state and foreign income
taxes for the third quarters ended September 30, 2009 and 2008, respectively. As
reported at December 31, 2008, the Company is in a cumulative loss position and
provides a valuation allowance offsetting federal, state and certain foreign
deferred tax assets. As a result, a tax benefit is not being provided for losses
incurred in the first nine months of 2009, for federal, state and certain
foreign jurisdictions. The inability to recognize a tax benefit for these losses
and other deferred tax assets has a significant effect on our effective tax rate
as well as the comparability of the current quarter and year-to-date effective
tax rate to prior periods in which the Company had not recorded a federal
valuation allowance.  The difference in the effective tax rate for the
three months ended September 30, 2009 compared to the three months ended
September 30, 2008, was primarily attributable to the federal valuation
allowance provided against the current year domestic loss which was partially
offset by recording a tax benefit related to current period losses in certain
foreign jurisdictions in which it is more likely than not that the benefit of
those losses will be realized in the current year.





Nine
Months Ended September 30, 2009 Compared to Nine Months Ended September 30,
2008





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





Nine
      Months EndedSeptember 30,
                  
                  Dollar
                  
                  
                  Percent2009
                  
                  2008
                  
                  Decrease
                  
                  
                  DecreaseElectronics
                  
                  $
                  218,830
                  
                  
                  
                  64.1
                  %
                  
                  $
                  409,268
                  
                  
                  
                  68.8
                  %
                  
                  $
                  (190,438)
                  
                  
                  
                  (46.5)
                  %Control
      Devices
                  
                  
                  122,537
                  
                  
                  
                  35.9
                  
                  
                  
                  185,465
                  
                  
                  
                  31.2
                  
                  
                  
                  (62,928)
                  
                  
                  
                  (33.9)
                  %Total
      net sales
                  
                  $
                  341,367
                  
                  
                  
                  100.0
                  %
                  
                  $
                  594,733
                  
                  
                  
                  100.0
                  %
                  
                  $
                  (253,366)
                  
                  
                  
                  (42.6)
                  %





The
decrease in net sales for our Electronics segment was primarily due to volume
declines in our North American and European commercial vehicle
production.  Commercial vehicle market production volumes in Europe
and North America declined by 67.2% and 45.7%, respectively during the nine
months ended September 30, 2009 compared to the prior year comparative
period.  Our Electronics segment was adversely affected by reduced
volume in our served markets by approximately $179.0 million for the nine months
ended September 30, 2009 when compared to the prior year comparative
period.  The reductions in North American and European commercial
vehicle production negatively affected our Electronics segment for the nine
months ended September 30, 2009 by approximately $77.6 million and $73.1
million, respectively.  The balance of the decrease was primarily
related to volume declines in the agricultural and light vehicle
markets.





The
decrease in net sales for our Control Devices segment was primarily attributable
to production volume reductions at our major customers in the North American
light vehicle market and sales losses.  Production volumes in the
North American light vehicle market declined by 41.4% during the nine months
ended September 30, 2009 when compared to the nine months ended September 30,
2008.  Volume reductions within our Control Devices segment reduced
net sales for the nine months ended September 30, 2009 by approximately $55.1
million when compared to the prior year comparative period.  The
reduction in the North American light vehicle market production negatively
affected our Control Devices segment for the nine months ended September 30,
2009 by approximately $45.0 million.  The balance of the decrease was
related to volume declines in the agricultural and commercial vehicle markets.
Our net sales for the nine months ended September 30, 2009 were also adversely
affected by sales losses of approximately $12.0 million.  These sales
losses were primarily a result of our products being decontented or removed from
certain customer products.





29





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





Nine
      Months EndedSeptember 30,
                    
                    Dollar
                    
                    
                    Percent2009
                    
                    2008
                    
                    Decrease
                    
                    
                    DecreaseNorth
      America
                    
                    $
                    277,517
                    
                    
                    
                    81.3
                    %
                    
                    $
                    435,265
                    
                    
                    
                    73.2
                    %
                    
                    $
                    (157,748)
                    
                    
                    
                    (36.2)
                    %Europe
      and other
                    
                    
                    63,850
                    
                    
                    
                    18.7
                    
                    
                    
                    159,468
                    
                    
                    
                    26.8
                    
                    
                    
                    (95,618)
                    
                    
                    
                    (60.0)
                    %Total
      net sales
                    
                    $
                    341,367
                    
                    
                    
                    100.0
                    %
                    
                    $
                    594,733
                    
                    
                    
                    100.0
                    %
                    
                    $
                    (253,366)
                    
                    
                    
                    (42.6)
                    %





The
decrease in North American sales was primarily attributable to lower sales
volume in our North American commercial vehicle, light vehicle and agricultural
markets.  These lower volume levels had a negative effect on our net
sales for the nine months ended September 30, 2009 of $82.7 million, $46.8
million and $16.8 million for our North American commercial vehicle, light
vehicle and agricultural markets, respectively.  Our decrease in sales
outside North America was primarily due to lower sales volume in the European
commercial vehicle market, which had a negative effect on net sales for the nine
months ended September 30, 2009 of approximately $73.1 million.  The
balance of the decrease was related to volume declines in the light vehicle and
agricultural markets.





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





Nine
      Months EndedSeptember 30,
                            
                            
                            $
      Increase /2009
                            
                            
                            2008
                            
                            
                            (Decrease)Net
      Sales
                            
                            $
                            341,367
                            
                            
                            
                            100.0
                            %
                            
                            $
                            594,733
                            
                            
                            
                            100.0
                            %
                            
                            $
                            (253,366)Costs
      and Expenses:Cost
      of goods sold
                            
                            
                            281,413
                            
                            
                            
                            82.4
                            
                            
                            
                            458,217
                            
                            
                            
                            77.0
                            
                            
                            
                            (176,804)Selling,
      general and administrative
                            
                            
                            76,554
                            
                            
                            
                            22.4
                            
                            
                            
                            104,834
                            
                            
                            
                            17.6
                            
                            
                            
                            (28,280)Restructuring
                            
                            
                            3,819
                            
                            
                            
                            1.1
                            
                            
                            
                            5,877
                            
                            
                            
                            1.0
                            
                            
                            
                            (2,058)Operating
      Income (Loss)
                            
                            
                            (20,419)
                            
                            
                            
                            (5.9)
                            
                            
                            
                            25,805
                            
                            
                            
                            4.4
                            
                            
                            
                            (46,224)Interest
      expense, net
                            
                            
                            16,594
                            
                            
                            
                            4.9
                            
                            
                            
                            15,301
                            
                            
                            
                            2.6
                            
                            
                            
                            1,293Equity
      in earnings of investees
                            
                            
                            (4,864)
                            
                            
                            
                            (1.4)
                            
                            
                            
                            (11,206)
                            
                            
                            
                            (1.9)
                            
                            
                            
                            6,342Loss
      on early extinguishment of debt
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            770
                            
                            
                            
                            0.1
                            
                            
                            
                            (770)Other
      expense, net
                            
                            
                            447
                            
                            
                            
                            0.1
                            
                            
                            
                            44
                            
                            
                            
                            -
                            
                            
                            
                            403Income
      (Loss) Before Income Taxes
                            
                            
                            (32,596)
                            
                            
                            
                            (9.5)
                            
                            
                            
                            20,896
                            
                            
                            
                            3.6
                            
                            
                            
                            (53,492)Provision
      (benefit) for income taxes
                            
                            
                            (409)
                            
                            
                            
                            (0.1)
                            
                            
                            
                            10,029
                            
                            
                            
                            1.7
                            
                            
                            
                            (10,438)Net
      Income (Loss)
                            
                            $
                            (32,187)
                            
                            
                            
                            (9.4)
                            %
                            
                            $
                            10,867
                            
                            
                            
                            1.9
                            %
                            
                            $
                            (43,054)





Cost of Goods Sold. The
increase in cost of goods sold as a percentage of sales was due to the
significant decline in volume of our European and North American commercial and
light vehicle net sales during the nine months ended September 30,
2009.    In addition, our cost of goods sold for the nine
months ended September 30, 2008 included approximately $5.1 million of
restructuring charges.  There were no such charges included in cost of
goods sold for the nine months ended September 30, 2009. Our material cost as a
percentage of net sales for our Electronics segment for the nine months ended
September 30, 2009 and 2008 was 54.8% and 51.8%, respectively.  This
increase is primarily due to lower volume from our military related commercial
vehicle products in the current period.  Our materials cost as a
percentage of sales for the Control Devices segment increased from 50.5% for the
nine months ended September 30, 2008 to 54.0% for the nine months ended
September 30, 2009.   Our material costs as a percent of sales
increased during the current period due to the outsourcing of a stamping
operation and minor shifts in product mix.





30





Selling, General and Administrative
Expenses.  Design and development expenses included in SG&A
were $24.9 million and $35.8 million for the nine months ended September 30,
2009 and 2008, respectively.  Design and development expenses for our
Electronics and Control Devices segments decreased from $23.6 million and $12.2
million for the nine months ended September 30, 2008 to $14.4 million and $10.5
million for the nine months ended September 30, 2009.  The decrease in
design and development costs for both segments was a result of our
customers delaying new product launches in the near term as well as planned
reductions in our design activities.  The decrease in SG&A costs
excluding design and development expenses was due to lower employee related
costs of approximately $13.9 million caused by reduced headcount and lower
incentive compensation expenses company wide.  These current year to
date cost reductions were primarily due to prior period restructuring
initiatives.  Our SG&A costs increased as a percent of sales
because net sales declined faster than we were able to reduce our SG&A
costs.





Restructuring Charges. Costs
from our restructuring initiatives for the nine months ended September 30, 2009
decreased compared to the first nine months of 2008. Costs incurred during the
nine months ended September 30, 2009 related to restructuring initiatives
amounted to approximately $3.8 million and were primarily comprised of one-time
termination benefits.  These restructuring costs were general and
administrative in nature and were included in our condensed consolidated
statements of operations as restructuring charges.  These
restructuring actions were in response to the depressed conditions in the
European and North American commercial vehicle markets as well as the North
American light vehicle market.  Restructuring charges for the first
nine months of 2008 were approximately $11.0 million and were comprised of
one-time termination benefits and line-transfer expenses related to our
initiative to improve the Company’s manufacturing efficiency and cost position
by ceasing manufacturing operations at our Control Devices segment facility in
Sarasota, Florida and our Electronics segment facility in Mitcheldean, United
Kingdom.  Restructuring expenses of $5.9 million that were general and
administrative in nature were included in the Company’s condensed consolidated
statements of operations as restructuring charges, while the remaining $5.1
million of restructuring related expenses were included in cost of goods
sold.





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





Electronics
                
                
                ControlDevices
                
                
                Total
                  Consolidated
                  Restructuring
                  ChargesSeverance
      costs
                
                $
                2,743
                
                
                $
                984
                
                
                $
                3,727Contract
      termination costs
                
                
                91
                
                
                
                -
                
                
                
                91Total
      general and administrative restructuring charges
                
                $
                2,834
                
                
                $
                984
                
                
                $
                3,818





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





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





Electronics
                
                
                ControlDevices
                
                
                Total
                  Consolidated
                  Restructuring
                  ChargesSeverance
      costs
                
                $
                2,282
                
                
                $
                1,226
                
                
                $
                3,508Contract
      termination costs
                
                
                703
                
                
                
                -
                
                
                
                703Other
      exit costs
                
                
                19
                
                
                
                1,647
                
                
                
                1,666Total
      general and administrative restructuring charges
                
                $
                3,004
                
                
                $
                2,873
                
                
                $
                5,877





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





31





Equity in Earnings of
Investees.The decrease in equity earnings of investees was
predominately attributable to the decrease in equity earnings recognized from
our PST joint venture.  Equity earnings for PST declined from $10.6
million for the nine months ended September 30, 2008 to $4.6 million for the
nine months ended September 30, 2009. The decrease was caused by a 20.1% decline
in PST’s net sales and the negative effect of foreign currency translation
during the nine months ended September 30, 2009 when compared to the prior year
comparative period.





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


Nine
      Months EndedSeptember 30,
                
                
                Dollar
                
                
                Percent2009
                
                
                2008
                
                
                Decrease
                
                
                DecreaseElectronics
                
                $
                (11,508)
                
                
                $
                32,976
                
                
                $
                (44,484)
                
                
                
                (134.9)
                %Control
      Devices
                
                
                (10,393)
                
                
                
                (5,432)
                
                
                
                (4,961)
                
                
                
                (91.3)
                %Other
      corporate activities
                
                
                5,775
                
                
                
                8,775
                
                
                
                (3,000)
                
                
                
                (34.2)
                %Corporate
      interest expense, net
                
                
                (16,470)
                
                
                
                (15,423)
                
                
                
                (1,047)
                
                
                
                (6.8)
                %Income
      (loss) before income taxes
                
                $
                (32,596)
                
                
                $
                20,896
                
                
                $
                (53,492)
                
                
                
                (256.0)
                %





The
decrease in our profitability in the Electronics segment was primarily related
to decreased net sales from the North American and European commercial
vehicle market volume reduction of approximately $77.6 million and $48.0
million, respectively, during the nine months ended September 30, 2009 when
compared to the first nine months of 2008,





The
decrease in profitability in the Control Devices reportable segment was
primarily due to lower net sales within our North American light vehicle market
of approximately $43.4 million.  Partially offsetting the lower sales
and contribution margin were lower restructuring costs of $1.8 million during
the nine months ended September 30, 2009 as well as benefits realized from our
prior period restructuring initiatives.





The
decrease in income before income taxes from other corporate activities was
primarily due to the $6.0 million decrease in equity earnings from our PST joint
venture and a decrease in compensation related expenses.  This was
partially offset by the loss of $0.8 million recognized on the purchase and
retirement of $17.0 million in face value of our senior notes in the nine months
ended September 30, 2008.





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





Nine
      Months EndedSeptember 30,
                    
                    Dollar
                    
                    
                    Percent2009
                    
                    2008
                    
                    Decrease
                    
                    
                    DecreaseNorth
      America
                    
                    $
                    (21,643)
                    
                    
                    
                    66.4
                    %
                    
                    $
                    20,824
                    
                    
                    
                    99.7
                    %
                    
                    $
                    (42,467)
                    
                    
                    
                    (203.9)
                    %Europe
      and other
                    
                    
                    (10,953)
                    
                    
                    
                    33.6
                    
                    
                    
                    72
                    
                    
                    
                    0.3
                    
                    
                    
                    (11,025)
                    
                    
                    NMIncome
      (loss) before income taxes
                    
                    $
                    (32,596)
                    
                    
                    
                    100.0
                    %
                    
                    $
                    20,896
                    
                    
                    
                    100.0
                    %
                    
                    $
                    (53,492)
                    
                    
                    
                    (256.0)
                    %





NM - not
meaningful





The
decrease in our profitability in North America was primarily attributable to
lower commercial and light vehicle sales volumes during the nine months ended
September 30, 2009 of approximately $82.7 million an $46.8 million,
respectively.  The decrease in profitability outside North America was
primarily due to lower sales volumes within our European commercial vehicle
market of approximately $73.1 million for the nine months ended September 30,
2009 as compared to the nine months ended September 30, 2009.





32





Provision (Benefit) for Income
Taxes. We recognized a benefit from income taxes of $0.4 million, or
1.3% of pre-tax loss, and a provision for income taxes of $10.0 million, or
48.0% of the pre-tax income, for federal, state and foreign income taxes for the
nine months ended September 30, 2009 and 2008, respectively. As reported at
December 31, 2008, the Company is in a cumulative loss position and provides a
valuation allowance offsetting federal, state and certain foreign deferred tax
assets. As a result, a tax benefit is not being provided for losses incurred in
the nine months ended September 30, 2009, for federal, state and certain foreign
jurisdictions. The inability to recognize a tax benefit for these losses and
other deferred tax assets has a significant effect on our effective tax rate as
well as the comparability of the current quarter and year-to-date effective tax
rate to prior periods in which the Company had not recorded a federal valuation
allowance.  The difference in the effective tax rate for the nine
months ended September 30, 2009 compared to the nine months ended September 30,
2008, was primarily attributable to the federal valuation allowance provided
against the current year domestic loss which was partially offset by recording a
tax benefit related to current period losses in certain foreign jurisdictions in
which it is more likely than not that the benefit of those losses will be
realized in the current year.





Liquidity
and Capital Resources





Summary
of Cash Flows (in thousands):


Nine
      Months EndedSeptember 30,
                
                
                $
      Increase /2009
                
                
                2008
                
                
                (Decrease)Cash
      provided by (used for):Operating
      activities
                
                $
                (2,578)
                
                
                $
                30,668
                
                
                $
                (33,246)Investing
      activities
                
                
                (8,691)
                
                
                
                (18,501)
                
                
                
                9,810Financing
      activities
                
                
                (50)
                
                
                
                (16,248)
                
                
                
                16,198Effect
      of exchange rate changes on cash and cash equivalents
                
                
                3,069
                
                
                
                (2,232)
                
                
                
                5,301Net
      change in cash and cash equivalents
                
                $
                (8,250)
                
                
                $
                (6,313)
                
                
                $
                (1,937)





The
decrease in net cash provided by operating activities was primarily due
to lower earnings offset by lower inventory and accounts receivable
balances at September 30, 2009.  Our lower inventory balance at
September 30, 2009 was due to lower production requirements and the reduction of
inventory safety stock from our 2008 Sarasota, Florida and Mitcheldean, UK
factory closures.    Our lower accounts receivable balance
at September 30, 2009 was attributable to the lower sales volume in the current
quarter, however our receivable terms and collections rates have remained
consistent between periods presented.





The
decrease in net cash used for investing activities reflects a decrease in cash
used for capital projects of approximately $9.2 million and $1.1 million of
cash used to acquire a Swedish aftermarket distributor of Stoneridge products in
the first quarter of 2008.  Capital expenditures were lower for the nine
months ended September 30, 2009 when compared to the prior year comparative
period due to our customers delaying new product launches.





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




Capital
expenditures in 2009 are expected to be slightly lower than our 2008
expenditures, however as the markets that we serve begin to recover our capital
expenditures are expected to increase.  Our business plan continues to
emphasize conserving cash while investing in near-term product launches and
selectively investing in longer-term development projects.  We expect
to receive a dividend of $4.0 million to $5.0 million from our PST joint venture
during the quarter ended December 31, 2009.  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.





33





As
outlined in Note 6 to our condensed consolidated financial statements, our
asset-based credit facility, permits borrowing up to a maximum level of $100.0
million.  At September 30, 2009, there were no borrowings on this
asset-based credit facility.  The available borrowing capacity on this
credit facility is based on eligible current assets, as defined.  At
September 30, 2009, the Company had borrowing capacity of $51.5 million based on
eligible current assets.  The credit facility does not contain
financial performance covenants which would constrain our borrowing capacity.
However, restrictions do include limits on capital expenditures, operating
leases, dividends and investment activities in a negative covenant which limits
investment activities to $15.0 million minus certain guarantees and
obligations.  The Company was in compliance with all covenants at
September 30, 2009.





At
September 30, 2009, we had $183.0 million of senior notes
outstanding.  These senior notes are redeemable at 101.917 percent of
the principal amount until April 30, 2010.  Given that the Company’s
senior notes are redeemable, we may seek to retire the senior notes through
redemptions, cash purchases, open market purchases, privately negotiated
transactions or otherwise.  Such redemptions, purchases or exchanges,
if any, will depend on prevailing market conditions, our liquidity requirements,
contractual restrictions and other factors.  The amounts involved may
be material.  During 2008, we purchased and retired $17.0 million in
face value of the Company’s senior notes.





On
October 9, 2009, we entered into an Asset Purchase and Contribution Agreement
(the “Purchase Agreement”) with Bolton Conductive Systems LLC (“Old BCS”),
Martin Kochis, Joseph Malecke, Bolton Investments LLC, William Bolton and New
Bolton Conductive Systems (“New BCS”).  After the transaction closed
on October 13, 2009, New BCS changed its name to Bolton Conductive Systems, LLC
and will continue the business of Old BCS.  Bolton Conductive Systems,
LLC designs and manufactures a wide variety of electrical solutions for the
military, automotive, and marine and specialty vehicle markets and is based in
Walled Lake, Michigan.  We acquired a 51% membership interest in New
BCS in exchange for contributing approximately $5.9 million, subject to certain
post closing adjustments.  We may be required to make additional
capital contributions to New BCS for its 51% membership interest based on New
BCS achieving financial performance targets as defined by the Purchase
Agreement.  The additional capital contributions of a maximum of $3.2
million each year in 2011, 2012 and 2013 are contingent upon New 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 capital contributions to New BCS
of approximately $0.5 million in 2011 and 2012 based on New BCS achieving annual
revenue targets in 2010 and 2011, respectively.  Old BCS contributed
and sold substantially all of its assets (except for certain retained assets as
set forth in the Purchase Agreement) to New BCS in exchange for a 49% membership
interest in New BCS and the assumption by New BCS of certain of Old BCS’s
liabilities.  The Purchase Agreement provides us with the option to
purchase the remaining 49% interest in New BCS in 2013 at a price determined in
accordance with the Purchase Agreement.  If we do not exercise this
option then Old BCS has the option in 2014 to purchase our 51% interest in New
BCS at a price determined in accordance with the Purchase Agreement or to
jointly put New BCS up for sale.  We were required to amend our credit
facility in order to acquire a majority membership interest in New
BCS.





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





Critical
Accounting Policies and Estimates





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





Inflation





Given the
current economic climate and recent fluctuations in certain commodity prices, we
believe that a continuation of such price fluctuations would significantly
affect our profitability. Furthermore, by operating internationally, we are
affected by the economic conditions of certain countries. Based on the current
economic conditions in these countries, we believe we are not significantly
exposed to adverse economic conditions.





34





Forward-Looking
Statements





Portions
of this report contain “forward-looking statements” under the Private Securities
Litigation Reform Act of 1995. These statements appear in a number of places in
this report and include statements regarding the intent, belief or current
expectations of the Company, with respect to, among other things, our (i) future
product and facility expansion, (ii) acquisition strategy, (iii) investments and
new design and development, and (iv) growth opportunities related to awarded
business.  Forward-looking statements may be identified by the words
“will,” “may,” “designed to,” “believes,” “plans,” “expects,” “continue,” and
similar words and expressions.  The forward-looking statements in this
report are subject to risks and uncertainties that could cause actual events or
results to differ materially from those expressed in or implied by the
statements. Important factors that could cause actual results to differ
materially from those in the forward-looking statements include, among other
factors:





·
            the
      loss or bankruptcy of a major customer or
  supplier;


·
            the
      costs and timing of facility closures, business realignment, or similar
      actions;


·
            a
      significant change in medium- and heavy-duty,
      agricultural, automotive or off-highway vehicle
      production;


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


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


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


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


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


·
            customer
      acceptance of new products;


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


·
            the
      successful integration of any acquired
  businesses;


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


·
            those
      items described in Part I, Item IA (“Risk Factors”) of the Company’s 2008
      Form 10-K.





Item
3.   Quantitative and Qualitative Disclosures About Market
Risk.





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





Item
4.  Controls and Procedures.





Evaluation
of Disclosure Controls and Procedures





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





Changes
in Internal Control Over Financial Reporting





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





35





PART
II–OTHER INFORMATION





Item
1.  Legal Proceedings.





The Company is involved in certain
legal actions and claims arising in the ordinary course of
business.  The Company, however, does not believe that any of the
litigation in which it is currently engaged, either individually or in the
aggregate, will have a material adverse effect on its business, consolidated
financial position or results of operations.  The Company is subject
to the risk of exposure to product liability claims in the event that the
failure of any of its products causes personal injury or death to users of the
Company’s products and there can be no assurance that the Company will not
experience any material product liability losses in the future.  In
addition, if any of the Company’s products prove to be defective, the Company
may be required to participate in government-imposed or other instituted recalls
involving such products.  The Company maintains insurance against such
liability claims.





Item
1A.  Risk Factors.





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





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





None.





Item
3.  Defaults Upon Senior Securities.





None.





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





None.





Item
5.  Other Information.





None.





Item
6.  Exhibits.





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





36





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:  November
      9, 2009
                    /s/ John C. CoreyJohn
      C. Corey
                      President
      and Chief Executive Officer and Director(Principal
      Executive Officer)Date:  November
      9, 2009
                    /s/ George E. StricklerGeorge
      E. StricklerExecutive
      Vice President, Chief Financial Officer and Treasurer(Principal
      Financial and Accounting
Officer)





37





INDEX
TO EXHIBITS





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





38