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,
2010




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  ̈ No





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  ̈ Yes  ̈ No





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





Large accelerated filer  ̈
            Accelerated filer x
            Non-accelerated
      filer  ̈
            Smaller reporting company  ̈(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).         ̈ Yes x No





The
number of Common Shares, without par value, outstanding as of October 22, 2010
was 25,974,765.





STONERIDGE,
INC. AND SUBSIDIARIES


INDEXPage No.PART
      I–FINANCIAL INFORMATIONItem
      1.
                  Financial
      Statements
                  2Condensed
      Consolidated Balance Sheets as of September 30, 2010 (Unaudited) and
      December 31, 2009
                  2Condensed
      Consolidated Statements of Operations (Unaudited) For the Three and Nine
      Months Ended September 30, 2010 and 2009
                  3Condensed
      Consolidated Statements of Cash Flows (Unaudited) For the Nine Months
      Ended September 30, 2010 and 2009
                  4Notes
      to Condensed Consolidated Financial Statements (Unaudited)
                  5Item
      2.
                  Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  28Item
      3.
                  Quantitative
      and Qualitative Disclosures About Market Risk
                  41Item
      4.
                  Controls
      and Procedures
                  41PART
      II–OTHER INFORMATIONItem
      1.
                  Legal
      Proceedings
                  41Item
      1A.
                  Risk
      Factors
                  41Item
      2.
                  Unregistered
      Sales of Equity Securities and Use of Proceeds
                  49Item
      3.
                  Defaults
      Upon Senior Securities
                  49Item
      4.
                  (Removed
      and Reserved)
                  49Item
      5.
                  Other
      Information
                  49Item
      6.
                  Exhibits
                  49Signatures
                  
                  50Index
      to Exhibits
                  51EX
      – 4.1EX
      – 4.2EX
      – 10.1EX
      – 10.2EX
      – 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
      31,2010
                      
                      
                      2009(Unaudited)
                      
                      
                      (Audited)ASSETSCurrent
      Assets:Cash
      and cash equivalents
                      
                      $
                      84,894
                      
                      
                      $
                      91,907Accounts
      receivable, less reserves of $1,589 and $2,350,
    respectively
                      
                      
                      109,780
                      
                      
                      
                      81,272Inventories,
      net
                      
                      
                      51,336
                      
                      
                      
                      40,244Prepaid
      expenses and other current assets
                      
                      
                      17,899
                      
                      
                      
                      17,247Total
      current assets
                      
                      
                      263,909
                      
                      
                      
                      230,670Long-Term
      Assets:Property,
      plant and equipment, net
                      
                      
                      73,111
                      
                      
                      
                      76,991Investments
      and other long-term assets, net
                      
                      
                      63,035
                      
                      
                      
                      54,864Total
      long-term assets
                      
                      
                      136,146
                      
                      
                      
                      131,855Total
      Assets
                      
                      $
                      400,055
                      
                      
                      $
                      362,525LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      Liabilities:Accounts
      payable
                      
                      $
                      67,015
                      
                      
                      $
                      50,947Accrued
      expenses and other current liabilities
                      
                      
                      51,895
                      
                      
                      
                      36,827Total
      current liabilities
                      
                      
                      118,910
                      
                      
                      
                      87,774Long-Term
      Liabilities:Long-term
      debt
                      
                      
                      183,240
                      
                      
                      
                      183,431Other
      long-term liabilities
                      
                      
                      13,267
                      
                      
                      
                      17,263Total
      long-term liabilities
                      
                      
                      196,507
                      
                      
                      
                      200,694Shareholders'
      EquityPreferred
      Shares, without par value, authorized 5,000 shares, none
      issued
                      
                      
                      -
                      
                      
                      
                      -Common
      Shares, without par value, authorized 60,000 shares, issued 25,975
      and25,301
      shares and outstanding 25,443 and 25,000 shares,
    respectively,with
      no stated value
                      
                      
                      -
                      
                      
                      
                      -Additional
      paid-in capital
                      
                      
                      160,784
                      
                      
                      
                      158,748Common
      Shares held in treasury, 532 and 301 shares, respectively, at
      cost
                      
                      
                      (413
                      )
                      
                      
                      (292
                      )Accumulated
      deficit
                      
                      
                      (85,177
                      )
                      
                      
                      (91,560
                      )Accumulated
      other comprehensive income
                      
                      
                      5,031
                      
                      
                      
                      2,669Total
      Stoneridge Inc. and Subsidiaries shareholders' equity
                      
                      
                      80,225
                      
                      
                      
                      69,565Noncontrolling
      interest
                      
                      
                      4,413
                      
                      
                      
                      4,492Total
      shareholders' equity
                      
                      
                      84,638
                      
                      
                      
                      74,057Total
      Liabilities and Shareholders' Equity
                      
                      $
                      400,055
                      
                      
                      $
                      362,525





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


2





STONERIDGE,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)


(in
thousands, except per share data)





Three
      Months Ended
                  
                  
                  Nine
      Months EndedSeptember 30,
                  
                  
                  September 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Net
      Sales
                  
                  $
                  160,436
                  
                  
                  $
                  117,992
                  
                  
                  $
                  474,772
                  
                  
                  $
                  341,367Costs
      and Expenses:Cost
      of goods sold
                  
                  
                  124,406
                  
                  
                  
                  90,909
                  
                  
                  
                  365,595
                  
                  
                  
                  281,413Selling,
      general and administrative
                  
                  
                  31,011
                  
                  
                  
                  24,449
                  
                  
                  
                  92,026
                  
                  
                  
                  80,373Operating
      Income (Loss)
                  
                  
                  5,019
                  
                  
                  
                  2,634
                  
                  
                  
                  17,151
                  
                  
                  
                  (20,419
                  )Interest
      expense, net
                  
                  
                  5,720
                  
                  
                  
                  5,559
                  
                  
                  
                  16,956
                  
                  
                  
                  16,594Equity
      in earnings of investees
                  
                  
                  (3,884
                  )
                  
                  
                  (3,386
                  )
                  
                  
                  (6,186
                  )
                  
                  
                  (4,864
                  )Other
      expense (income), net
                  
                  
                  559
                  
                  
                  
                  (198
                  )
                  
                  
                  (1,140
                  )
                  
                  
                  447Income
      (Loss) Before Income Taxes
                  
                  
                  2,624
                  
                  
                  
                  659
                  
                  
                  
                  7,521
                  
                  
                  
                  (32,596
                  )Provision
      (benefit) for income taxes
                  
                  
                  1,975
                  
                  
                  
                  1,502
                  
                  
                  
                  1,217
                  
                  
                  
                  (409
                  )Net
      Income (Loss)
                  
                  
                  649
                  
                  
                  
                  (843
                  )
                  
                  
                  6,304
                  
                  
                  
                  (32,187
                  )Net
      Loss Attributable to Noncontrolling Interest
                  
                  
                  (35
                  )
                  
                  
                  -
                  
                  
                  
                  (79
                  )
                  
                  
                  -Net
      Income (Loss) Attributable to Stoneridge, Inc. and
      Subsidiaries
                  
                  $
                  684
                  
                  
                  $
                  (843
                  )
                  
                  $
                  6,383
                  
                  
                  $
                  (32,187
                  )Basic
      Net Income (Loss) Per Share
                  
                  $
                  0.03
                  
                  
                  $
                  (0.04
                  )
                  
                  $
                  0.27
                  
                  
                  $
                  (1.37
                  )Basic
      Weighted Average Shares Outstanding
                  
                  
                  23,972
                  
                  
                  
                  23,761
                  
                  
                  
                  23,939
                  
                  
                  
                  23,580Diluted
      Net Income (Loss) Per Share
                  
                  $
                  0.03
                  
                  
                  $
                  (0.04
                  )
                  
                  $
                  0.26
                  
                  
                  $
                  (1.37
                  )Diluted
      Weighted Average Shares Outstanding
                  
                  
                  24,357
                  
                  
                  
                  23,761
                  
                  
                  
                  24,359
                  
                  
                  
                  23,580





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 30,2010
                      
                      
                      2009OPERATING
      ACTIVITIES:Net
      income (loss)
                      
                      $
                      6,304
                      
                      
                      $
                      (32,187
                      )Adjustments
      to reconcile net income (loss) to net cash provided by(used
      for) operating activities -Depreciation
                      
                      
                      14,280
                      
                      
                      
                      15,251Amortization
                      
                      
                      876
                      
                      
                      
                      733Deferred
      income taxes
                      
                      
                      (184
                      )
                      
                      
                      (1,207
                      )Earnings
      of equity method investees
                      
                      
                      (6,186
                      )
                      
                      
                      (4,864
                      )(Gain)
      loss on sale of fixed assets
                      
                      
                      (12
                      )
                      
                      
                      292Share-based
      compensation expense, net
                      
                      
                      1,607
                      
                      
                      
                      854Changes
      in operating assets and liabilities -Accounts
      receivable, net
                      
                      
                      (28,163
                      )
                      
                      
                      11,228Inventories,
      net
                      
                      
                      (11,024
                      )
                      
                      
                      18,272Prepaid
      expenses and other
                      
                      
                      (179
                      )
                      
                      
                      (2,704
                      )Accounts
      payable
                      
                      
                      15,425
                      
                      
                      
                      (7,995
                      )Accrued
      expenses and other
                      
                      
                      10,488
                      
                      
                      
                      (251
                      )Net
      cash provided by (used for) operating activities
                      
                      
                      3,232
                      
                      
                      
                      (2,578
                      )INVESTING
      ACTIVITIES:Capital
      expenditures
                      
                      
                      (10,417
                      )
                      
                      
                      (8,779
                      )Proceeds
      from sale of fixed assets
                      
                      
                      25
                      
                      
                      
                      88Net
      cash used for investing activities
                      
                      
                      (10,392
                      )
                      
                      
                      (8,691
                      )FINANCING
      ACTIVITIES:Share-based
      compensation activity, net
                      
                      
                      306
                      
                      
                      
                      -Revolving
      credit facility borrowings, net
                      
                      
                      438
                      
                      
                      
                      -Borrowings
      of debt, net
                      
                      
                      486
                      
                      
                      
                      -Other
      financing costs
                      
                      
                      -
                      
                      
                      
                      (50
                      )Net
      cash provided by (used for) financing activities
                      
                      
                      1,230
                      
                      
                      
                      (50
                      )Effect
      of exchange rate changes on cash and cash equivalents
                      
                      
                      (1,083
                      )
                      
                      
                      3,069Net
      change in cash and cash equivalents
                      
                      
                      (7,013
                      )
                      
                      
                      (8,250
                      )Cash
      and cash equivalents at beginning of period
                      
                      
                      91,907
                      
                      
                      
                      92,692Cash
      and cash equivalents at end of period
                      
                      $
                      84,894
                      
                      
                      $
                      84,442





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


4




STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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




(1)  Basis
of Presentation





The
accompanying condensed consolidated financial statements have been prepared by
Stoneridge, Inc. (the “Company”) without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the “Commission” or
“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 have been
condensed or omitted pursuant to the Commission’s rules and
regulations.  The results of operations for the three and nine months
ended September 30, 2010 are not necessarily indicative of the results to be
expected for the full year.





Although
the Company believes that the disclosures are adequate to make the information
presented not misleading, it is suggested that these condensed consolidated
financial statements be read in conjunction with the audited consolidated
financial statements and the notes thereto included in the Company’s Form 10-K
for the fiscal year ended December 31, 2009.




(2)  Inventories





Inventories
are valued at the lower of cost or market.  Cost is determined by the
last-in, first-out (“LIFO”) method for approximately 72% and 69% of the
Company’s inventories at September 30, 2010 and December 31, 2009, respectively,
and by the first-in, first-out method for all other inventories.  The
Company adjusts its excess and obsolescence reserve at least on a quarterly
basis.  Excess inventories are quantities of items that exceed
anticipated sales or usage for a reasonable period.  The Company has
guidelines 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 at:




September
      30,
                    
                    
                    December
      31,2010
                    
                    
                    2009Raw
      materials
                    
                    $
                    35,512
                    
                    
                    $
                    26,118Work-in-progress
                    
                    
                    9,244
                    
                    
                    
                    9,137Finished
      goods
                    
                    
                    10,251
                    
                    
                    
                    8,226Total
      inventories
                    
                    
                    55,007
                    
                    
                    
                    43,481Less:
      LIFO reserve
                    
                    
                    (3,671
                    )
                    
                    
                    (3,237
                    )Inventories,
      net
                    
                    $
                    51,336
                    
                    
                    $
                    40,244




(3)  Fair
Value of Financial Instruments





Financial Instruments





A financial instrument is cash or a
contract that imposes an obligation to deliver, or conveys a right to receive
cash or another financial instrument.  The carrying values of cash and
cash equivalents, accounts receivable and accounts payable are considered to be
representative of fair value because of the short maturity of these
instruments.  The estimated fair value of the Company’s senior notes
(fixed rate debt) at September 30, 2010 and December 31, 2009, per quoted market
sources, was $182.5 million and 180.3 million, respectively.  The
carrying value was $183.0 million as of September 30, 2010 and December 31,
2009.


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





On
September 30, 2010, the Company had open foreign currency forward contracts and
commodity swaps.  These contracts are used strictly for hedging and
not for speculative purposes.  Management believes that its use of
these instruments to reduce risk is in the Company’s best
interest.  The counterparties to these financial instruments are
financial institutions with strong credit ratings.





The
Company conducts business internationally and therefore is exposed to foreign
currency exchange rate risk.  The Company uses derivative financial
instruments as cash flow hedges to mitigate its exposure to fluctuations in
foreign currency exchange rates by reducing the effect of such fluctuations on
foreign currency denominated intercompany transactions and other foreign
currency exposures.  The currencies currently hedged by the Company
include the Euro, Swedish krona and Mexican peso.  In certain
instances, the foreign currency forward contracts are marked to market, with
gains and losses recognized in the Company’s condensed consolidated statement of
operations as a component of other expense (income), net.  The
Company’s foreign currency forward contracts substantially offset gains and
losses on the underlying foreign currency denominated
transactions.  As of September 30, 2010, the Company held foreign
currency forward contracts to reduce the exposure related to the Company’s
Euro-denominated and Swedish krona-denominated intercompany
receivables.  These contracts expire in November
2010.  During the nine months ended September 30, 2010, the Company
also held a foreign currency hedge contract to reduce the exposure related to
the Company’s British pound-denominated intercompany receivables prior to their
extinguishment.  This contract expired in January 2010.  For
the nine months ended September 30, 2010, the Company recognized a $1,289 gain
related to the Euro, 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 forward
contracts expire monthly throughout 2010.  The effective portion of
the unrealized gain or loss is deferred and reported in the Company’s condensed
consolidated balance sheets as a component of accumulated other comprehensive
income.  The Company’s expectation is that the cash flow hedges will
be highly effective in the future.  The effectiveness of 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 a fixed price commodity swap with a
financial institution to fix the cost of a portion of the Company’s copper
purchases.  In June 2010, the Company entered into a fixed price swap
contract for 0.5 million pounds of copper, which covers the period from August
2010 to December 2010.  Because this contract was executed to hedge
forecasted transactions, the contract is accounted for as a cash flow
hedge.  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. The Company
deems this cash flow hedge to be highly effective.  The Company’s
expectation is that the cash flow hedge 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.


6




STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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





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




Prepaid expenses
                        
                        
                        Accrued expenses andNotional amounts1
                        
                        
                        and other current assets
                        
                        
                        other current liabilitiesSeptember 30,
                        
                        
                        December 31,
                        
                        
                        Sepetember 30,
                        
                        
                        December 31,
                        
                        
                        September 30,
                        
                        
                        December 31,2010
                        
                        
                        2009
                        
                        
                        2010
                        
                        
                        2009
                        
                        
                        2010
                        
                        
                        2009Derivatives
      designated as hedging instruments:Forward
      currency contracts
                        
                        $
                        10,582
                        
                        
                        $
                        43,877
                        
                        
                        $
                        1,256
                        
                        
                        $
                        1,710
                        
                        
                        $
                        -
                        
                        
                        $
                        -Commodity
      contracts
                        
                        
                        848
                        
                        
                        
                        -
                        
                        
                        
                        178
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -11,430
                        
                        
                        
                        43,877
                        
                        
                        
                        1,434
                        
                        
                        
                        1,710
                        
                        
                        
                        -
                        
                        
                        
                        -Derivatives
      not designated as hedging instruments:Forward
      currency contracts
                        
                        
                        27,425
                        
                        
                        
                        8,363
                        
                        
                        
                        -
                        
                        
                        
                        34
                        
                        
                        
                        2,942
                        
                        
                        
                        -Total
      derivatives
                        
                        $
                        38,855
                        
                        
                        $
                        52,240
                        
                        
                        $
                        1,434
                        
                        
                        $
                        1,744
                        
                        
                        $
                        2,942
                        
                        
                        $
                        -




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 income
for the three months ended September 30, 2010 were as follows:




Amount of gainAmount of gain
                    
                    
                    reclassified from
                    
                    Location of gainrecorded in other
                    
                    
                    other comprehensive
                    
                    reclassified from othercomprehensive
                    
                    
                    income into net
                    
                    comprehensive incomeincome
                    
                    
                    income
                    
                    into net incomeDerivatives
      designated as cash flow hedges:Forward
      currency contracts
                    
                    $
                    605
                    
                    
                    $
                    906
                    
                    Cost
      of goods soldCommodity
      contracts
                    
                    
                    230
                    
                    
                    
                    119
                    
                    Cost
      of goods sold$
                    835
                    
                    
                    $
                    1,025





Amounts
recorded in other comprehensive income in shareholder’s equity and in net income
for the nine months ended September 30, 2010 were as follows:





Amount of gainAmount of gain
                        
                        
                        reclassified from
                        
                        Location of gainrecorded in other
                        
                        
                        other comprehensive
                        
                        reclassified from othercomprehensive
                        
                        
                        income into net
                        
                        comprehensive incomeincome
                        
                        
                        income
                        
                        into net incomeDerivatives
      designated as cash flow hedges:Forward
      currency contracts
                        
                        $
                        2,389
                        
                        
                        $
                        2,843
                        
                        Cost
      of goods soldCommodity
      contracts
                        
                        
                        297
                        
                        
                        
                        119
                        
                        Cost
      of goods sold$
                        2,686
                        
                        
                        $
                        2,962




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)





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.




September30,2010
                    
                    
                    December 31,Fair Value Estimated Using
                    
                    
                    2009FairValue
                    
                    
                    Level1inputs(1)
                    
                    
                    Level2inputs(2)
                    
                    
                    FairValueFinancial
      assets carried at fair valueAvailable
      for sale security
                    
                    $
                    276
                    
                    
                    $
                    276
                    
                    
                    $
                    -
                    
                    
                    $
                    261Forward
      currency contracts
                    
                    
                    1,256
                    
                    
                    
                    -
                    
                    
                    
                    1,256
                    
                    
                    
                    1,744Commodity
      contracts
                    
                    
                    178
                    
                    
                    
                    -
                    
                    
                    
                    178
                    
                    
                    
                    -Total
      financial assets carried at fair value
                    
                    $
                    1,710
                    
                    
                    $
                    276
                    
                    
                    $
                    1,434
                    
                    
                    $
                    2,005Financial
      liabilities carried at fair valueForward
      currency contracts
                    
                    $
                    2,942
                    
                    
                    $
                    -
                    
                    
                    $
                    2,942
                    
                    
                    $
                    -




(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 in markets
      that are active or inactive as well as inputs other than quoted prices
      that are observable. For forward currency and commodity contracts, inputs
      include foreign currency exchange rates and commodity
    indexes.


As
discussed in Note 17, on October 4, 2010, the Company entered into a
fixed-to-floating interest rate swap agreement (the “Swap”) with a notional
amount of $45.0 million.  Under the Swap, the Company pays a variable
interest rate equal to the six-month London Interbank Offered Rate (“LIBOR”)
plus 7.19% and it receives a fixed interest rate of 9.5%.  The Swap
requires semi-annual settlements beginning on April 15, 2011 and every April 15
and October 15 thereafter until the Swap’s expiration on October 15,
2017.




(4)  Share-Based
Compensation





Total
compensation expense recognized in the condensed consolidated statements of
operations for share-based compensation arrangements was $689 and $257 for the
three months ended September 30, 2010 and 2009, respectively.  For the
nine months ended September 30, 2010 and 2009, total compensation expense
recognized in the condensed consolidated statements of operations for
share-based compensation arrangements was $1,913 and $854,
respectively.  Included within financing activities within the
condensed consolidated statement of cash flows for the nine months ended
September 30, 2010 is $306 of excess tax benefit expense related to the vesting
of restricted common shares.


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) attributable to Stoneridge, Inc. and
subsidiaries, net of tax are as follows:





Three Months Ended
                  
                  
                  Nine Months EndedSeptember 30,
                  
                  
                  September 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Net
      income (loss)
                  
                  $
                  649
                  
                  
                  $
                  (843
                  )
                  
                  $
                  6,304
                  
                  
                  $
                  (32,187
                  )Other
      comprehensive income (loss):Currency
      translation adjustments
                  
                  
                  3,813
                  
                  
                  
                  3,669
                  
                  
                  
                  (2,461
                  )
                  
                  
                  5,563Pension
      liability adjustments
                  
                  
                  -
                  
                  
                  
                  61
                  
                  
                  
                  5,089
                  
                  
                  
                  (189
                  )Unrealized
      gain (loss) on marketable securities
                  
                  
                  14
                  
                  
                  
                  9
                  
                  
                  
                  10
                  
                  
                  
                  (10
                  )Unrecognized
      gain (loss) on derivatives
                  
                  
                  (190
                  )
                  
                  
                  493
                  
                  
                  
                  (276
                  )
                  
                  
                  4,667Other
      comprehensive income
                  
                  
                  3,637
                  
                  
                  
                  4,232
                  
                  
                  
                  2,362
                  
                  
                  
                  10,031Consolidated
      comprehensive income (loss)
                  
                  
                  4,286
                  
                  
                  
                  3,389
                  
                  
                  
                  8,666
                  
                  
                  
                  (22,156
                  )Comprehensive
      loss attributable to noncontrolling interest
                  
                  
                  35
                  
                  
                  
                  -
                  
                  
                  
                  79
                  
                  
                  
                  -Comprehensive
      income (loss) attributable to Stoneridge, Inc. and
      subsidiaries
                  
                  $
                  4,321
                  
                  
                  $
                  3,389
                  
                  
                  $
                  8,745
                  
                  
                  $
                  (22,156
                  )




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




September
      30,
                  
                  
                  December
      31,2010
                  
                  
                  2009Currency
      translation adjustments
                  
                  $
                  3,611
                  
                  
                  $
                  6,072Pension
      liability adjustments
                  
                  
                  -
                  
                  
                  
                  (5,089
                  )Unrealized
      loss on marketable securities
                  
                  
                  (14
                  )
                  
                  
                  (24
                  )Unrecognized
      gain on derivatives
                  
                  
                  1,434
                  
                  
                  
                  1,710Accumulated
      other comprehensive income
                  
                  $
                  5,031
                  
                  
                  $
                  2,669






(6)  Long-Term
Debt





Senior
Notes





The
Company had $183.0 million of senior notes outstanding at September 30, 2010 and
December 31, 2009, respectively.  The outstanding senior notes bear
interest at an annual rate of 11.5% and mature on May 1, 2012.  The
senior notes are redeemable, at the Company’s option, at par until the maturity
date.  Interest is payable on May 1 and November 1 of each
year.  The senior notes do not contain restrictive financial
performance covenants.  The Company was in compliance with all
non-financial covenants at September 30, 2010 and December 31,
2009.





On
September 20, 2010, the Company commenced a tender offer to purchase for cash
any and all of its 11.5% senior notes due May 1, 2012.  The consent
payment deadline was October 1, 2010 and the tender offer expired on October 18,
2010.  For senior notes tendered before the consent payment deadline,
the note holders received $1,002.50 for each $1,000.00 of principal amount of
notes tendered.  There was $109,733 of senior notes tendered prior to
the consent payment deadline and an additional $154 tendered after the consent
payment deadline but before the tender offer deadline.  Holders
tendering senior notes after the consent payment deadline were eligible to
receive only the tender offer consideration of $1,000.00 per $1,000.00 principal
amount of senior notes.  On November 4, 2010 all senior notes which
were not tendered will be redeemed by the Company at par.





As
discussed in Note 17, on October 4, 2010, the Company issued $175.0 million of
9.5% senior secured notes due on October 15, 2017.


9




STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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





Credit
Facilities





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, 2010 and December 31, 2009, there were no
borrowings on the credit facility.  The available borrowing capacity
on the credit facility is based on eligible current assets less outstanding
letters of credit, as defined.  At September 30, 2010 and December 31,
2009, the Company had borrowing capacity of $72.4 million and $54.1 million,
respectively, based on eligible current assets less outstanding letters of
credit.  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 requires a commitment fee of 0.375% on the unused
balance.  Interest is payable quarterly at either (i) the higher of
the prime rate or the Federal Funds rate plus 0.50%, plus a margin of 0.00% to
0.25% or (ii) LIBOR plus a margin of 1.00% to 1.75%, depending upon the
Company’s undrawn availability, as defined.  The Company was in compliance
with all covenants at September 30, 2010 and December 31, 2009.





As
discussed in Note 17, on September 20, 2010, the Company entered into an Amended
and Restated Credit and Security Agreement relating to the credit facility which
became effective on October 4, 2010 and extended the expiration of the
credit facility to November 1, 2012.





On
October 13, 2009, the Company’s majority owned consolidated subsidiary, Bolton
Conductive Systems, LLC (“BCS”) entered into a master revolving note (the
“Revolver”), which permits borrowing up to a maximum level of $3.0 million. On
September 29, 2010, BCS amended the Revolver to extend the maturity date to
September 29, 2011 and reduced the interest rate margin to 2.0%.  At
September 30, 2010 and December 31, 2009, BCS had $1,126 and $688 in borrowings
outstanding on the Revolver, respectively, which are included on the condensed
consolidated balance sheets as a component of accrued expenses and other current
liabilities.  Interest is payable monthly at the prime referenced rate
plus a 2.0% margin.  At September 30, 2010 and December 31, 2009, the
interest rate on the Revolver was 5.25% and 5.5%, respectively.  The
Company is a guarantor of BCS as it relates to the Revolver.





Other
Debt





BCS has
an installment note (“installment note”).  Interest on the installment
note is the prime referenced rate plus a 2.25% margin.  At September
30, 2010 and December 31, 2009, the interest rate on the installment note was
5.5%.  The installment note calls for monthly installment payments of
principal and interest and matures in 2012.  At September 30, 2010 and
December 31, 2009, the principal amount due on the installment note was $366 and
$483, respectively.





On August
20, 2010, the Company’s subsidiary located in Suzhou, China (“Suzhou”) entered
into a term loan of 4,690 Chinese Yuan, which was approximately $700 at
September 30, 2010 and is included on the condensed consolidated balance sheet
as a component of accrued expenses and other current liabilities. The term loan
matures on August 5, 2011.  Interest is payable quarterly at the
one-year lending rate published by The People’s Bank of China multiplied by
110.0%.  At September 30, 2010, the interest rate on the term loan was
5.84%.





(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.


10




STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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





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, 302010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Basic
      weighted-average shares outstanding
                    
                    
                    23,972,045
                    
                    
                    
                    23,761,019
                    
                    
                    
                    23,938,839
                    
                    
                    
                    23,580,024Effect
      of dilutive securities
                    
                    
                    384,482
                    
                    
                    
                    -
                    
                    
                    
                    420,110
                    
                    
                    
                    -Diluted
      weighted-average shares outstanding
                    
                    
                    24,356,527
                    
                    
                    
                    23,761,019
                    
                    
                    
                    24,358,949
                    
                    
                    
                    23,580,024





Options
not included in the computation of diluted net income (loss) per share to
purchase 113,250 and 180,250 Common Shares at an average price of $12.89 and
$9.57, respectively, per share were outstanding at September 30, 2010 and 2009,
respectively.  These outstanding options were not included in the
computation of diluted net income (loss) per share because their respective
exercise prices were greater than the average market price of the Common Shares.
These options were excluded from the computation of diluted earnings per share
under the treasury stock method.





As of
September 30, 2010, 455,400 performance-based restricted shares were
outstanding.  These shares were not included in the computation of
diluted net income per share because not all vesting conditions were achieved as
of September 30, 2010.  These shares may or may not become dilutive
based on the Company’s ability to meet or exceed future earnings performance
targets.





(8)  Restructuring





On
October 29, 2007, the Company announced restructuring initiatives to improve
manufacturing efficiency and cost position by ceasing manufacturing operations
at its Sarasota, Florida and Mitcheldean, United Kingdom
locations.  During 2008, the Company began additional restructuring
initiatives in its Canton, Massachusetts, Orebro, Sweden and Tallinn, Estonia
locations.  In response to the depressed conditions in the North
American and European commercial and automotive vehicle markets, the Company
also began restructuring initiatives in its Juarez, Monclova and Chihuahua,
Mexico, Orebro and Bromma, Sweden, Tallinn, Estonia, Dundee, Scotland,
Lexington, Ohio and Canton, Massachusetts locations during 2009.  In
addition, during 2009, as part of the Company’s continuing overall restructuring
initiatives, the Company consolidated certain management positions at its
Lexington, Ohio and Canton, Massachusetts facilities.   During
the first nine months of 2010, the Company continued the restructuring
initiative in Dundee, Scotland which began in 2009 and recorded amounts related
to its cancelled lease in Mitcheldean, United Kingdom.   In
connection with these initiatives, the Company recorded restructuring charges of
$1,310 in the Company’s condensed consolidated statement of operations for
the quarter ended September 30, 2009, as a component of selling, general
and administrative.  There were no restructuring charges for the
quarter ended September 30, 2010.. Restructuring charges for the nine months
ended September 30, 2010 and 2009 were $304 and $3,843, respectively.
Restructuring expenses that were general and administrative in nature of $304
and $3,818 for the nine months ended September 30, 2010 and 2009, respectively,
were included in the Company’s condensed consolidated statement of operations as
part of selling, general and administrative, while the remaining restructuring
related charges were included in cost of goods sold.


11




STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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





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





ContractSeverance
                      
                      
                      Termination
                      
                      
                      Other
      ExitCosts
                      
                      
                      Costs
                      
                      
                      Costs
                      
                      
                      TotalTotal
      expected restructuring charges
                      
                      $
                      5,718
                      
                      
                      $
                      2,337
                      
                      
                      $
                      2,504
                      
                      
                      $
                      10,5592007
      charge to expense
                      
                      $
                      468
                      
                      
                      $
                      -
                      
                      
                      $
                      103
                      
                      
                      $
                      571Cash
      payments
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (103
                      )
                      
                      
                      (103
                      )Accrued
      balance at December 31, 2007
                      
                      
                      468
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      4682008
      charge to expense
                      
                      
                      2,830
                      
                      
                      
                      1,305
                      
                      
                      
                      2,401
                      
                      
                      
                      6,536Cash
      payments
                      
                      
                      (2,767
                      )
                      
                      
                      -
                      
                      
                      
                      (2,221
                      )
                      
                      
                      (4,988
                      )Accrued
      balance at December 31, 2008
                      
                      
                      531
                      
                      
                      
                      1,305
                      
                      
                      
                      180
                      
                      
                      
                      2,0162009
      charge to expense
                      
                      
                      2,237
                      
                      
                      
                      374
                      
                      
                      
                      -
                      
                      
                      
                      2,611Foreign
      currency translation effect
                      
                      
                      -
                      
                      
                      
                      400
                      
                      
                      
                      -
                      
                      
                      
                      400Cash
      payments
                      
                      
                      (2,641
                      )
                      
                      
                      (656
                      )
                      
                      
                      (180
                      )
                      
                      
                      (3,477
                      )Accrued
      balance at December 31, 2009
                      
                      
                      127
                      
                      
                      
                      1,423
                      
                      
                      
                      -
                      
                      
                      
                      1,550First
      quarter 2010 charge to expense
                      
                      
                      81
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      81Second
      quarter 2010 charge to expense
                      
                      
                      102
                      
                      
                      
                      121
                      
                      
                      
                      -
                      
                      
                      
                      223Foreign
      currency translation effect
                      
                      
                      -
                      
                      
                      
                      137
                      
                      
                      
                      -
                      
                      
                      
                      137Cash
      payments
                      
                      
                      (272
                      )
                      
                      
                      (491
                      )
                      
                      
                      -
                      
                      
                      
                      (763
                      )Accrued
      balance at September 30, 2010
                      
                      $
                      38
                      
                      
                      $
                      1,190
                      
                      
                      $
                      -
                      
                      
                      $
                      1,228





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





Severance
                            
                            
                            Other ExitCosts
                            
                            
                            Costs
                            
                            
                            TotalTotal
      expected restructuring charges
                            
                            $
                            3,912
                            
                            
                            $
                            6,447
                            
                            
                            $
                            10,3592007
      charge to expense
                            
                            $
                            357
                            
                            
                            $
                            99
                            
                            
                            $
                            456Accrued
      balance at December 31, 2007
                            
                            
                            357
                            
                            
                            
                            99
                            
                            
                            
                            4562008
      charge to expense
                            
                            
                            2,521
                            
                            
                            
                            6,325
                            
                            
                            
                            8,846Cash
      payments
                            
                            
                            (1,410
                            )
                            
                            
                            (6,024
                            )
                            
                            
                            (7,434
                            )Accrued
      balance at December 31, 2008
                            
                            
                            1,468
                            
                            
                            
                            400
                            
                            
                            
                            1,8682009
      charge to expense
                            
                            
                            1,034
                            
                            
                            
                            23
                            
                            
                            
                            1,057Cash
      payments
                            
                            
                            (2,463
                            )
                            
                            
                            (164
                            )
                            
                            
                            (2,627
                            )Accrued
      Balance at December 31, 2009
                            
                            
                            39
                            
                            
                            
                            259
                            
                            
                            
                            298Cash
      payments
                            
                            
                            (39
                            )
                            
                            
                            -
                            
                            
                            
                            (39
                            )Accrued
      balance at September 30, 2010
                            
                            $
                            -
                            
                            
                            $
                            259
                            
                            
                            $
                            259




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 exit 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 were transferred to other locations for continued
production.


12




STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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




(9)  Commitments
and Contingencies





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





On
October 13, 2009, the Company acquired 51% membership interest in
BCS.  The purchase agreement provides that the Company may be required
to make additional payments to the previous owners of BCS for its 51% membership
interest based on BCS achieving financial performance targets as defined by the
purchase agreement.  The maximum amount of additional payments to the
prior owners of BCS is $3,200 per year in 2011, 2012 and 2013 and is contingent
upon BCS achieving profitability targets based on earnings before interest,
income taxes, depreciation and amortization in each of the years 2010, 2011 and
2012.  In addition, the Company may be required to make additional payments
to BCS of approximately $450 in 2011 and $500 in 2012 based on BCS achieving
annual revenue targets in 2010 and 2011, respectively.  The Company
recorded $893, which represents the fair value of the estimated future
additional payments to the prior owners of BCS as of the acquisition date,
December 31, 2009 and September 30, 2010 on the condensed consolidated balance
sheets as a component of other long-term liabilities.  The purchase
agreement provides the Company with the option to purchase the remaining 49%
interest in BCS in 2013 at a price determined in accordance with the purchase
agreement.  If the Company does not exercise this option the minority
owners of BCS have the option in 2014 to purchase the Company’s 51% interest in
BCS at a price determined in accordance with the purchase agreement or to
jointly market BCS for sale.





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 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.  Product warranty and recall is included as a component of
accrued expenses and other current liabilities on the condensed consolidated
balance sheets.





The
following provides a reconciliation of changes in product warranty and recall
liability for the nine months ended September 30, 2010 and 2009:





2010
                    
                    
                    2009Product
      warranty and recall at beginning of period
                    
                    $
                    4,764
                    
                    
                    $
                    5,527Accruals
      for products shipped during period
                    
                    
                    2,545
                    
                    
                    
                    1,747Aggregate
      changes in pre-existing liabilities due to claim
    developments
                    
                    
                    4
                    
                    
                    
                    440Settlements
      made during the period (in cash or in kind)
                    
                    
                    (2,730
                    )
                    
                    
                    (4,053
                    )Product
      warranty and recall at end of period
                    
                    $
                    4,583
                    
                    
                    $
                    3,661


13




STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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




(10)  Employee
Benefit Plans





The
Company had a single defined benefit pension plan that covered certain former
employees in the United Kingdom.  As a result of placing Stoneridge
Pollak Limited (“SPL”) into administration during the nine months ended
September 30, 2010, as described in Note 12, the Company settled the defined
benefit pension plan.  The components of net periodic cost under the
defined benefit pension plan are as follows:





Three
      Months Ended
                  
                  
                  Nine
      Months EndedSeptember 30,
                  
                  
                  September 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Service
      cost
                  
                  $
                  -
                  
                  
                  $
                  14
                  
                  
                  $
                  -
                  
                  
                  $
                  42Interest
      cost
                  
                  
                  -
                  
                  
                  
                  219
                  
                  
                  
                  163
                  
                  
                  
                  657Expected
      return on plan assets
                  
                  
                  -
                  
                  
                  
                  (165
                  )
                  
                  
                  (126
                  )
                  
                  
                  (495
                  )Amortization
      of actuarial loss
                  
                  
                  -
                  
                  
                  
                  43
                  
                  
                  
                  62
                  
                  
                  
                  129Settlement
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  33
                  
                  
                  
                  -Net
      periodic cost
                  
                  $
                  -
                  
                  
                  $
                  111
                  
                  
                  $
                  132
                  
                  
                  $
                  333





The
Company made contributions of approximately $16 during the nine months ended
September 30, 2010, prior to placing SPL into administration.





In March
2009, the Company adopted the Stoneridge, Inc. Long-Term Cash Incentive
Plan (“LTCIP”) and granted awards to certain officers and key
employees.  Awards under the LTCIP provide recipients with the right
to receive cash three years from the date of grant depending on the Company’s
actual earnings per share performance for a performance period comprised of
three fiscal years from the date of grant.  The Company will record an
accrual for an award to be paid in the period earned based on anticipated
achievement of the performance goal.  If the participant voluntarily
terminates employment or is discharged for cause, as defined in the LTCIP, the
award will be forfeited.  In May 2009, the LTCIP was approved by the
Company’s shareholders.  The Company has recorded an accrual of $61
for awards granted under the LTCIP at September 30, 2010 which is included on
the condensed consolidated balance sheet as a component of other long-term
liabilities.





(11)  Income
Taxes





The
Company recognized a provision for income taxes of $1,975, or 75.3% and $1,502,
or 227.9% of pretax income, for federal, state and foreign income taxes for the
three months ended September 30, 2010 and 2009, respectively.  The
Company recognized a provision for income taxes of $1,217 or 16.2% of pre-tax
income, and a benefit of $409 or 1.3% of pre-tax loss, for federal, state and
foreign income taxes for the nine months ended September 30, 2010 and 2009,
respectively. As reported at December 31, 2009, the Company is in a cumulative
loss position and provides a valuation allowance offsetting federal, state and
certain foreign deferred tax assets.  The increase in tax expense for
the three months and nine months ended September 30, 2010 compared to those same
periods for 2009, was primarily attributable to the improved financial
performance in the U.S. and most foreign locations as well as the improved
financial performance of the PST joint venture. That increase in tax expense was
partially offset with a tax benefit related to our United Kingdom
operations.  As a result of placing SPL into administration, as
described in Note 12, the Company recognized a tax benefit of $1,170 during the
nine months ended September 30, 2010, from the reversal of deferred tax
liabilities, primarily employee benefit related, that were previously included
as a component of accumulated other comprehensive income within shareholders’
equity.


14




STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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




(12)  SPL
Administration





On
February 23, 2010, the Company placed its wholly-owned subsidiary, SPL into
administration (a structured bankruptcy) in the United Kingdom.  The
Company had previously ceased manufacturing operations at the facility as of
December 2008 as part of the restructuring initiatives announced on October 29,
2007, as described in Note 8.  All SPL customer contracts were
transferred to other subsidiaries of the Company at the time that SPL filed for
administration.  As a result of placing SPL into administration the
Company recognized a net gain of $3,423 during the nine months ended September
30, 2010.  This gain was primarily related to the reversal of the
cumulative translation adjustment account (“CTA”) and deferred tax liabilities,
which had previously been included as a component of accumulated other
comprehensive income within shareholders’ equity.  The net gain of
$2,253, primarily due to reversing the CTA balance, is included as a component
of other expense (income), net on the condensed consolidated statement of
operations.  The benefit from reversing the deferred tax liabilities,
primarily employee benefit related of $1,170, is included as a component of
provision (benefit) for income taxes on the condensed consolidated
statement of operations, as described in Note 11.





(13)  Segment
Reporting





Operating
segments are defined as components of an enterprise that are evaluated regularly
by the Company’s chief operating decision maker in deciding how to allocate
resources and in assessing performance.  The Company’s chief operating
decision maker is the president and chief executive officer.





The
Company has two reportable segments: Electronics and Control
Devices.  The Company’s operating segments are aggregated based on
sharing similar economic characteristics.  Other aggregation factors
include the nature of the products offered and management and oversight
responsibilities.   The Electronics reportable segment produces
electronic instrument clusters, electronic control units, driver information
systems and electrical distribution systems, primarily wiring harnesses and
connectors for electrical power and signal distribution.  The Control
Devices reportable segment produces electronic and electromechanical switches
and control actuation devices and sensors.





The
accounting policies of the Company’s reportable segments are the same as those
described in Note 2, “Summary of Significant Accounting Policies” of the
Company’s December 31, 2009 Form 10-K.  The Company’s management
evaluates the performance of its reportable segments based primarily on net
sales from external customers, capital expenditures and income (loss) before
income taxes.  Inter-segment sales are accounted for on terms similar
to those to third parties and are eliminated upon
consolidation.


15


STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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




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




Three Months Ended
                  
                  
                  Nine Months EndedSeptember 30,
                  
                  
                  September 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Net
      SalesElectronics
                  
                  $
                  99,912
                  
                  
                  $
                  70,165
                  
                  
                  $
                  296,477
                  
                  
                  $
                  218,830Inter-Segment
      sales
                  
                  
                  5,023
                  
                  
                  
                  2,734
                  
                  
                  
                  11,487
                  
                  
                  
                  6,531Electronics
      net sales
                  
                  
                  104,935
                  
                  
                  
                  72,899
                  
                  
                  
                  307,964
                  
                  
                  
                  225,361Control
      Devices
                  
                  
                  60,524
                  
                  
                  
                  47,827
                  
                  
                  
                  178,295
                  
                  
                  
                  122,537Inter-Segment
      sales
                  
                  
                  742
                  
                  
                  
                  852
                  
                  
                  
                  2,526
                  
                  
                  
                  2,237Control
      Devices net sales
                  
                  
                  61,266
                  
                  
                  
                  48,679
                  
                  
                  
                  180,821
                  
                  
                  
                  124,774Eliminations
                  
                  
                  (5,765
                  )
                  
                  
                  (3,586
                  )
                  
                  
                  (14,013
                  )
                  
                  
                  (8,768
                  )Total
      consolidated net sales
                  
                  $
                  160,436
                  
                  
                  $
                  117,992
                  
                  
                  $
                  474,772
                  
                  
                  $
                  341,367Income
      (Loss) Before Income TaxesElectronics
      (A)
                  
                  $
                  1,369
                  
                  
                  $
                  (348
                  )
                  
                  $
                  40,122
                  
                  
                  $
                  (11,508
                  )Control
      Devices (A)
                  
                  
                  3,600
                  
                  
                  
                  2,035
                  
                  
                  
                  11,886
                  
                  
                  
                  (10,393
                  )Other
      corporate activities (A)
                  
                  
                  2,989
                  
                  
                  
                  4,459
                  
                  
                  
                  (28,744
                  )
                  
                  
                  5,775Corporate
      interest expense
                  
                  
                  (5,334
                  )
                  
                  
                  (5,487
                  )
                  
                  
                  (15,743
                  )
                  
                  
                  (16,470
                  )Total
      consolidated income (loss) before income taxes
                  
                  $
                  2,624
                  
                  
                  $
                  659
                  
                  
                  $
                  7,521
                  
                  
                  $
                  (32,596
                  )Depreciation
      and AmortizationElectronics
                  
                  $
                  2,201
                  
                  
                  $
                  2,179
                  
                  
                  $
                  6,726
                  
                  
                  $
                  6,704Control
      Devices
                  
                  
                  2,463
                  
                  
                  
                  2,725
                  
                  
                  
                  7,489
                  
                  
                  
                  8,343Other
      corporate activities
                  
                  
                  50
                  
                  
                  
                  80
                  
                  
                  
                  222
                  
                  
                  
                  204Total
      consolidated depreciation and amortization (B)
                  
                  $
                  4,714
                  
                  
                  $
                  4,984
                  
                  
                  $
                  14,437
                  
                  
                  $
                  15,251





(A)
            During
      the nine months ended September 30, 2010, the Company placed SPL into
      administration.  As a result of placing SPL into administration
      the Company recognized a gain within the Electronics reportable segment of
      $35,512 and losses within other corporate activities and within the
      Control Devices reportable segment of $32,039 and $473,
      respectively.  These results were primarily due to eliminating
      SPL’s intercompany debt and equity
structure.





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


16


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 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Interest
      Expense (Income), netElectronics
                  
                  $
                  376
                  
                  
                  $
                  73
                  
                  
                  $
                  1,197
                  
                  
                  $
                  127Control
      Devices
                  
                  
                  10
                  
                  
                  
                  (1
                  )
                  
                  
                  16
                  
                  
                  
                  (3
                  )Corporate
      activities
                  
                  
                  5,334
                  
                  
                  
                  5,487
                  
                  
                  
                  15,743
                  
                  
                  
                  16,470Total
      consolidated interest expense, net
                  
                  $
                  5,720
                  
                  
                  $
                  5,559
                  
                  
                  $
                  16,956
                  
                  
                  $
                  16,594Capital
      ExpendituresElectronics
                  
                  $
                  1,517
                  
                  
                  $
                  900
                  
                  
                  $
                  6,303
                  
                  
                  $
                  3,314Control
      Devices
                  
                  
                  1,834
                  
                  
                  
                  989
                  
                  
                  
                  4,158
                  
                  
                  
                  4,665Corporate
      activities
                  
                  
                  3
                  
                  
                  
                  148
                  
                  
                  
                  (44
                  )
                  
                  
                  800Total
      consolidated capital expenditures
                  
                  $
                  3,354
                  
                  
                  $
                  2,037
                  
                  
                  $
                  10,417
                  
                  
                  $
                  8,779





September 30,
                      
                      
                      December 31,2010
                      
                      
                      2009Total
      AssetsElectronics
                      
                      $
                      195,275
                      
                      
                      $
                      163,414Control
      Devices
                      
                      
                      97,345
                      
                      
                      
                      91,631Corporate
      (C)
                      
                      
                      227,003
                      
                      
                      
                      236,110Eliminations
                      
                      
                      (119,568
                      )
                      
                      
                      (128,630
                      )Total
      consolidated assets
                      
                      $
                      400,055
                      
                      
                      $
                      362,525




(C)  Assets
located at Corporate consist primarily of cash 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 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Net
      SalesNorth
      America
                  
                  $
                  131,611
                  
                  
                  $
                  95,212
                  
                  
                  $
                  388,103
                  
                  
                  $
                  277,517Europe
      and Other
                  
                  
                  28,825
                  
                  
                  
                  22,780
                  
                  
                  
                  86,669
                  
                  
                  
                  63,850Total
      consolidated net sales
                  
                  $
                  160,436
                  
                  
                  $
                  117,992
                  
                  
                  $
                  474,772
                  
                  
                  $
                  341,367




September 30,
                    
                    
                    December 31,2010
                    
                    
                    2009Non-Current
      AssetsNorth
      America
                    
                    $
                    123,538
                    
                    
                    $
                    121,149Europe
      and Other
                    
                    
                    12,608
                    
                    
                    
                    10,706Total
      non-current assets
                    
                    $
                    136,146
                    
                    
                    $
                    131,855




17




STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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





(14)  Investments





In June
2009, the Financial Accounting Standards Board (“FASB”) revised the
authoritative guidance for determining the primary beneficiary of a variable
interest entity (“VIE”).  In December 2009, the FASB issued Accounting
Standards Update No. 2009-17, Improvements to Financial Reporting
by Enterprises Involved with Variable Interest Entities, which provides
amendments to Accounting Standards Codification Topic No. 810, Consolidation (“ASC 810”) to reflect the
revised guidance.  Among other things, the new guidance requires a
qualitative rather than a quantitative assessment to determine the primary
beneficiary of a VIE based on whether the entity (1) has the power to
direct matters that most significantly impact the activities of the VIE and
(2) has the obligation to absorb losses or the right to receive benefits of
the VIE that could potentially be significant to the VIE. In addition, the
amended guidance requires an ongoing reconsideration of the primary beneficiary.
The provisions of this new guidance were effective as of January 1, 2010, and
the adoption did not have an impact on the Company’s financial
statements.  The Company analyzed its joint ventures in accordance
with ASC 810 to determine whether they are VIE’s and, if so, whether the Company
is the primary beneficiary.  Both of the Company’s joint ventures at
September 30, 2010 were determined under the provisions of ASC 810 to be
unconsolidated joint ventures and were accounted for under the equity method of
accounting.





PST
Eletrônica S.A.





The
Company has a 50% equity interest in PST Eletrônica S.A. (“PST”), a Brazilian
electronic system provider focused on security and convenience applications
primarily for the automotive vehicle and motorcycle industry.  The
investment is accounted for under the equity method of accounting. The Company’s
investment in PST was $41,964 and $35,824 at September 30, 2010 and December 31,
2009, respectively.





Condensed
financial information for PST is as follows:




Three Months Ended
                  
                  
                  Nine Months EndedSeptember 30,
                  
                  
                  September 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Revenues
                  
                  $
                  49,520
                  
                  
                  $
                  38,596
                  
                  
                  $
                  123,642
                  
                  
                  $
                  90,584Cost
      of sales
                  
                  $
                  24,695
                  
                  
                  $
                  19,231
                  
                  
                  $
                  63,861
                  
                  
                  $
                  46,229Total
      pre-tax income
                  
                  $
                  8,965
                  
                  
                  $
                  6,018
                  
                  
                  $
                  13,588
                  
                  
                  $
                  9,324The
      Company's share of pre-tax income
                  
                  $
                  4,483
                  
                  
                  $
                  3,009
                  
                  
                  $
                  6,794
                  
                  
                  $
                  4,662




Equity in
earnings of PST included in the condensed consolidated statements of operations
was $3,711 and $3,241 for the three months ended September 30, 2010 and 2009,
respectively.  For the nine months ended September 30, 2010 and 2009,
equity in earnings of PST was $5,544 and $4,629, 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, automotive vehicle and commercial vehicle
market.  The Company’s investment in Minda was $6,096 and $5,220 at
September 30, 2010 and December 31, 2009, respectively.  Equity in
earnings of Minda included in the condensed consolidated statements of
operations was $172 and $145, for the three months ended September 30, 2010 and
2009, respectively.  For the nine months ended September 30, 2010 and
2009, equity in earnings of Minda was $642 and $235,
respectively.


18




STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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




(15)  Guarantor
Financial Information





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





Presented
below are 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, 2010 and December 31, 2009 and for each of the three
and nine months ended September 30, 2010 and 2009.





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.


19




STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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





September 30, 2010Non-Guarantor
                        
                        
                        GuarantorParent
                        
                        
                        Subsidiaries
                        
                        
                        Subsidiaries
                        
                        
                        Eliminations
                        
                        
                        ConsolidatedASSETSCurrent
      Assets:Cash
      and cash equivalents
                        
                        $
                        49,331
                        
                        
                        $
                        19
                        
                        
                        $
                        35,544
                        
                        
                        $
                        -
                        
                        
                        $
                        84,894Accounts
      receivable, net
                        
                        
                        58,439
                        
                        
                        
                        22,441
                        
                        
                        
                        28,900
                        
                        
                        
                        -
                        
                        
                        
                        109,780Inventories,
      net
                        
                        
                        27,583
                        
                        
                        
                        8,991
                        
                        
                        
                        14,762
                        
                        
                        
                        -
                        
                        
                        
                        51,336Prepaid
      expenses and other current assets
                        
                        
                        (310,444
                        )
                        
                        
                        317,256
                        
                        
                        
                        11,087
                        
                        
                        
                        -
                        
                        
                        
                        17,899Total
      current assets
                        
                        
                        (175,091
                        )
                        
                        
                        348,707
                        
                        
                        
                        90,293
                        
                        
                        
                        -
                        
                        
                        
                        263,909Long-Term
      Assets:Property,
      plant and equipment, net
                        
                        
                        43,274
                        
                        
                        
                        17,225
                        
                        
                        
                        12,612
                        
                        
                        
                        -
                        
                        
                        
                        73,111Investments
      and other long-term assets, net
                        
                        
                        50,709
                        
                        
                        
                        280
                        
                        
                        
                        12,046
                        
                        
                        
                        -
                        
                        
                        
                        63,035Investment
      in subsidiaries
                        
                        
                        414,915
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (414,915
                        )
                        
                        
                        -Total
      long-term assets
                        
                        
                        508,898
                        
                        
                        
                        17,505
                        
                        
                        
                        24,658
                        
                        
                        
                        (414,915
                        )
                        
                        
                        136,146Total
      Assets
                        
                        $
                        333,807
                        
                        
                        $
                        366,212
                        
                        
                        $
                        114,951
                        
                        
                        $
                        (414,915
                        )
                        
                        $
                        400,055LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      Liabilities:Accounts
      payable
                        
                        $
                        35,661
                        
                        
                        $
                        17,151
                        
                        
                        $
                        14,203
                        
                        
                        $
                        -
                        
                        
                        $
                        67,015Accrued
      expenses and other current liabilities
                        
                        
                        22,954
                        
                        
                        
                        11,150
                        
                        
                        
                        17,791
                        
                        
                        
                        -
                        
                        
                        
                        51,895Total
      current liabilities
                        
                        
                        58,615
                        
                        
                        
                        28,301
                        
                        
                        
                        31,994
                        
                        
                        
                        -
                        
                        
                        
                        118,910Long-Term
      Liabilities:Long-term
      debt
                        
                        
                        183,000
                        
                        
                        
                        -
                        
                        
                        
                        240
                        
                        
                        
                        -
                        
                        
                        
                        183,240Other
      long-term liabilities
                        
                        
                        11,967
                        
                        
                        
                        360
                        
                        
                        
                        940
                        
                        
                        
                        -
                        
                        
                        
                        13,267Total
      long-term liabilities
                        
                        
                        194,967
                        
                        
                        
                        360
                        
                        
                        
                        1,180
                        
                        
                        
                        -
                        
                        
                        
                        196,507Stoneridge,
      Inc. and Subsidiaries Shareholders' Equity
                        
                        
                        80,225
                        
                        
                        
                        337,551
                        
                        
                        
                        77,364
                        
                        
                        
                        (414,915
                        )
                        
                        
                        80,225Noncontrolling
      Interest
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        4,413
                        
                        
                        
                        -
                        
                        
                        
                        4,413Total
      Shareholders' Equity
                        
                        
                        80,225
                        
                        
                        
                        337,551
                        
                        
                        
                        81,777
                        
                        
                        
                        (414,915
                        )
                        
                        
                        84,638Total
      Liabilities and Shareholders’ Equity
                        
                        $
                        333,807
                        
                        
                        $
                        366,212
                        
                        
                        $
                        114,951
                        
                        
                        $
                        (414,915
                        )
                        
                        $
                        400,055


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):




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


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):




Three Months Ended September 30,
      2010Non-Guarantor
                  
                  
                  GuarantorParent
                  
                  
                  Subsidiaries
                  
                  
                  Subsidiaries
                  
                  
                  Eliminations
                  
                  
                  ConsolidatedNet
      Sales
                  
                  $
                  92,465
                  
                  
                  $
                  43,500
                  
                  
                  $
                  49,149
                  
                  
                  $
                  (24,678
                  )
                  
                  $
                  160,436Costs
      and Expenses:Cost
      of goods sold
                  
                  
                  79,634
                  
                  
                  
                  33,543
                  
                  
                  
                  35,172
                  
                  
                  
                  (23,943
                  )
                  
                  
                  124,406Selling,
      general and administrative
                  
                  
                  15,077
                  
                  
                  
                  6,476
                  
                  
                  
                  10,193
                  
                  
                  
                  (735
                  )
                  
                  
                  31,011Operating
      Income (Loss)
                  
                  
                  (2,246
                  )
                  
                  
                  3,481
                  
                  
                  
                  3,784
                  
                  
                  
                  -
                  
                  
                  
                  5,019Interest
      expense, net
                  
                  
                  5,653
                  
                  
                  
                  -
                  
                  
                  
                  67
                  
                  
                  
                  -
                  
                  
                  
                  5,720Other
      expense (income), net
                  
                  
                  (5,548
                  )
                  
                  
                  869
                  
                  
                  
                  1,354
                  
                  
                  
                  -
                  
                  
                  
                  (3,325
                  )Equity
      earnings from subsidiaries
                  
                  
                  (5,030
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5,030
                  
                  
                  
                  -Income
      Before Income Taxes
                  
                  
                  2,679
                  
                  
                  
                  2,612
                  
                  
                  
                  2,363
                  
                  
                  
                  (5,030
                  )
                  
                  
                  2,624Provision
      (benefit) for income taxes
                  
                  
                  2,030
                  
                  
                  
                  -
                  
                  
                  
                  (55
                  )
                  
                  
                  -
                  
                  
                  
                  1,975Net
      Income
                  
                  
                  649
                  
                  
                  
                  2,612
                  
                  
                  
                  2,418
                  
                  
                  
                  (5,030
                  )
                  
                  
                  649Net
      Loss Attributable to Noncontrolling Interest
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (35
                  )
                  
                  
                  -
                  
                  
                  
                  (35
                  )Net
      Income Attributable to Stoneridge, Inc. and Subsidiaries
                  
                  $
                  649
                  
                  
                  $
                  2,612
                  
                  
                  $
                  2,453
                  
                  
                  $
                  (5,030
                  )
                  
                  $
                  684


22





STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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





Supplemental
condensed consolidating financial statements (continued):




Three Months Ended September 30,
      2009Non-Guarantor
                  
                  
                  GuarantorParent
                  
                  
                  Subsidiaries
                  
                  
                  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
                  
                  
                  11,114
                  
                  
                  
                  5,845
                  
                  
                  
                  8,074
                  
                  
                  
                  (584
                  )
                  
                  
                  24,449Operating
      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
                  )Net
      Loss Attributable to Noncontrolling Interest
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Net
      Loss Attributable to Stoneridge, Inc. and Subsidiaries
                  
                  $
                  (843
                  )
                  
                  $
                  1,431
                  
                  
                  $
                  151
                  
                  
                  $
                  (1,582
                  )
                  
                  $
                  (843
                  )


23




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):




Nine Months Ended September 30,
      2010Non-Guarantor
                  
                  
                  GuarantorParent
                  
                  
                  Subsidiaries
                  
                  
                  Subsidiaries
                  
                  
                  Eliminations
                  
                  
                  ConsolidatedNet
      Sales
                  
                  $
                  271,964
                  
                  
                  $
                  130,808
                  
                  
                  $
                  139,512
                  
                  
                  $
                  (67,512
                  )
                  
                  $
                  474,772Costs
      and Expenses:Cost
      of goods sold
                  
                  
                  230,151
                  
                  
                  
                  99,141
                  
                  
                  
                  101,743
                  
                  
                  
                  (65,440
                  )
                  
                  
                  365,595Selling,
      general and administrative
                  
                  
                  44,059
                  
                  
                  
                  18,903
                  
                  
                  
                  31,136
                  
                  
                  
                  (2,072
                  )
                  
                  
                  92,026Operating
      Income (Loss)
                  
                  
                  (2,246
                  )
                  
                  
                  12,764
                  
                  
                  
                  6,633
                  
                  
                  
                  -
                  
                  
                  
                  17,151Interest
      expense, net
                  
                  
                  16,803
                  
                  
                  
                  -
                  
                  
                  
                  153
                  
                  
                  
                  -
                  
                  
                  
                  16,956Other
      expense (income), net
                  
                  
                  (8,793
                  )
                  
                  
                  3,033
                  
                  
                  
                  (1,566
                  )
                  
                  
                  -
                  
                  
                  
                  (7,326
                  )Equity
      earnings from subsidiaries
                  
                  
                  (19,450
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  19,450
                  
                  
                  
                  -Income
      Before Income Taxes
                  
                  
                  9,194
                  
                  
                  
                  9,731
                  
                  
                  
                  8,046
                  
                  
                  
                  (19,450
                  )
                  
                  
                  7,521Provision
      (benefit) for income taxes
                  
                  
                  2,890
                  
                  
                  
                  -
                  
                  
                  
                  (1,673
                  )
                  
                  
                  -
                  
                  
                  
                  1,217Net
      Income
                  
                  
                  6,304
                  
                  
                  
                  9,731
                  
                  
                  
                  9,719
                  
                  
                  
                  (19,450
                  )
                  
                  
                  6,304Net
      Loss Attributable to Noncontrolling Interest
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (79
                  )
                  
                  
                  -
                  
                  
                  
                  (79
                  )Net
      Income Attributable to Stoneridge, Inc. and Subsidiaries
                  
                  $
                  6,304
                  
                  
                  $
                  9,731
                  
                  
                  $
                  9,798
                  
                  
                  $
                  (19,450
                  )
                  
                  $
                  6,383




24





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):




Nine Months Ended September 30,
      2009Non-Guarantor
                  
                  
                  GuarantorParent
                  
                  
                  Subsidiaries
                  
                  
                  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
                  
                  
                  35,405
                  
                  
                  
                  19,022
                  
                  
                  
                  27,909
                  
                  
                  
                  (1,963
                  )
                  
                  
                  80,373Operating
      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
                  )Net
      Loss Attributable to Noncontrolling Interest
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Net
      Loss Attributable to Stoneridge, Inc. and Subsidiaries
                  
                  $
                  (32,187
                  )
                  
                  $
                  (5,635
                  )
                  
                  $
                  (7,987
                  )
                  
                  $
                  13,622
                  
                  
                  $
                  (32,187
                  )


25




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):




Nine Months Ended September 30,
      2010Non-Guarantor
                  
                  
                  GuarantorParent
                  
                  
                  Subsidiaries
                  
                  
                  Subsidiaries
                  
                  
                  ConsolidatedNet
      cash provided by (used for) operating activities
                  
                  $
                  (4,935
                  )
                  
                  $
                  1,240
                  
                  
                  $
                  6,927
                  
                  
                  $
                  3,232INVESTING
      ACTIVITIES:Capital
      expenditures
                  
                  
                  (5,672
                  )
                  
                  
                  (1,291
                  )
                  
                  
                  (3,454
                  )
                  
                  
                  (10,417
                  )Proceeds
      from the sale of fixed assets
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  25
                  
                  
                  
                  25Net
      cash used for investing activities
                  
                  
                  (5,672
                  )
                  
                  
                  (1,291
                  )
                  
                  
                  (3,429
                  )
                  
                  
                  (10,392
                  )FINANCING
      ACTIVITIES:Share-based
      compensation activity, net
                  
                  
                  245
                  
                  
                  
                  52
                  
                  
                  
                  9
                  
                  
                  
                  306Revolving
      credit facilities borrowings, net
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,134
                  
                  
                  
                  1,134Repayments
      of debt
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (210
                  )
                  
                  
                  (210
                  )Net
      cash provided by financing activities
                  
                  
                  245
                  
                  
                  
                  52
                  
                  
                  
                  933
                  
                  
                  
                  1,230Effect
      of exchange rate changes on cash and cash equivalents
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (1,083
                  )
                  
                  
                  (1,083
                  )Net
      change in cash and cash equivalents
                  
                  
                  (10,362
                  )
                  
                  
                  1
                  
                  
                  
                  3,348
                  
                  
                  
                  (7,013
                  )Cash
      and cash equivalents at beginning of period
                  
                  
                  59,693
                  
                  
                  
                  18
                  
                  
                  
                  32,196
                  
                  
                  
                  91,907Cash
      and cash equivalents at end of period
                  
                  $
                  49,331
                  
                  
                  $
                  19
                  
                  
                  $
                  35,544
                  
                  
                  $
                  84,894





Nine
      Months Ended September 30, 2009Non-Guarantor
                    
                    
                    GuarantorParent
                    
                    
                    Subsidiaries
                    
                    
                    Subsidiaries
                    
                    
                    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




26




STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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




(16)  Related
Party Transaction





In
connection with the Offering as defined and discussed in Note 17, the Company
has incurred certain costs which are recoverable from Jeffrey P. Draime and
certain members of his family (the “Draime family”).  Jeffrey P.
Draime is a member of the Company’s Board of Directors.  At September
30, 2010, the Company had a balance of $113 receivable from the Draime family in
connection with costs of the Offering, which is included as a component of
accounts receivable on the condensed consolidated balance sheet.





(17)  Subsequent
Events





On
October 4, 2010, the Company issued $175.0 million of senior secured
notes.  These senior secured notes bear interest at an annual rate of
9.5% and mature on October 15, 2017.  The senior secured notes were
offered only to qualified institutional buyers and outside the U.S. in
accordance with Rule 144A and Regulation S, respectively, under the Securities
Act of 1933.  The senior secured notes were issued at a 2.5% discount
to the initial purchasers.  The Company will accrete this discount
using the effective interest method over the life of the senior secured
notes.  The senior secured notes are redeemable, at the Company’s
option, beginning October 15, 2014 at 104.75%.  Interest payments
commence on April 15, 2011 and are payable on April 15 and October 15 of each
year, thereafter.  The senior secured notes indenture limits the
Company and its restricted subsidiaries amount of its indebtedness, restricts
certain payments and includes various other non-financial restrictive
covenants.  The senior secured notes are guaranteed by all of the
Company’s existing domestic restricted subsidiaries.  All other
restricted subsidiaries that guarantee any indebtedness of the Company or the
guarantors will also guarantee the senior secured notes.





In
connection with the senior secured notes issuance, the Company entered into an
Amended and Restated Credit and Security Agreement relating to the credit
facility on September 20, 2010, which became effective on October 4,
2010.  The Amended and Restated Agreement (i) provided certain
consents necessary for the issuance of the senior secured notes, (ii) extended
the expiration date of the credit facility to November 1, 2012 and (iii) granted
the facility agent, for the benefit of the lenders, second priority liens and
security interests in the collateral subject to first priority liens and
security interests in favor of the collateral agent for the holders of the
senior secured notes.





On
October 4, 2010, the Company entered into the Swap with a notional amount of
$45.0 million.  The Swap was designated as a fair value hedge of the
fixed interest rate obligation under the Company’s $175.0 million 9.5% senior
secured notes due October 15, 2017.  The Company pays variable
interest equal to the six-month LIBOR plus 7.19% and it receives a fixed
interest rate of 9.5% under the Swap.  The Swap requires semi-annual
settlements on April 15 and October 15, beginning on April 15,
2011.  The critical terms of the Swap are aligned with the terms of
the senior secured notes, including maturity of October 15, 2017, resulting in
no hedge ineffectiveness.





On
October 7, 2010, the Company filed a Form S-3 with the SEC in order for certain
members of the Draime family (the “selling shareholders”) to conduct a secondary
offering of Company common shares (the “Offering”).  All proceeds from
the Offering would be received by the selling shareholders.  The
selling shareholders have agreed to reimburse the Company for all external
expenses incurred in connection with the Offering.


27




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





Overview





We are an
independent designer and manufacturer of highly engineered electrical and
electronic components, modules and systems for the commercial, automotive,
agricultural and off-highway vehicle markets.





We
recognized net income for the quarter ended September 30, 2010 of $0.7 million,
or $0.03 per diluted share, compared with a net loss of $0.8 million, or $(0.04)
per diluted share, for the third quarter of 2009.





Our third
quarter 2010 results were positively affected by improvements in the North
American automotive and North American and European commercial vehicle markets
as well as the economy as a whole.  Production volumes in the North
American automotive vehicle market increased by 26.3% during the quarter ended
September 30, 2010 when compared to the quarter ended September 30,
2009.  These automotive vehicle market production volume increases had
a positive effect on our North American automotive vehicle market net sales of
approximately $10.3 million, primarily within our Control Devices
segment.  The commercial vehicle market production volumes in North
America improved by 25.1% during the quarter ended September 30, 2010 when
compared to the prior year third quarter, which resulted in increased net sales
of approximately $8.1 million, primarily within our Electronics
segment.  Our net sales were also favorably affected by increased
European commercial vehicle production volumes of 76.0% during the quarter ended
September 30, 2010 as compared to the prior year third quarter.  This
increased production volume had a positive effect on our net sales of
approximately $7.5 million, principally within the Electronics
segment.  These increases in net sales were partially offset by
unfavorable foreign currency exchange rates of approximately $1.8 million during
the quarter ended September 30, 2010 when compared to the quarter ended
September 30, 2009, approximately $1.3 million of premium freight expense and
approximately $1.5 million of additional product launch costs, largely due to
increased headcount, operating inefficiencies and a special production bonus
awarded during the current quarter.  We expect to reduce these
inefficiencies during the fourth quarter of 2010.  Our gross margin
percentage remained consistent with the prior year gross margin, decreasing
slightly from 23.0% for quarter ended September 30, 2009 to 22.5% for the
current quarter.





Our
selling, general and administrative expenses (“SG&A”) increased from $24.4
million for the quarter ended September 30, 2009 to $31.0 million for the
quarter ended September 30, 2010.  This $6.6 million, or 27.0%,
increase in SG&A was largely due to increased compensation and compensation
related expenses.  Excluding design and development, our compensation
and compensation related expenses increased by approximately $2.8 million from
the third quarter of 2009, primarily as a result of increased incentive
compensation expenses.  In addition, our design and development costs
increased by approximately $2.3 million between periods due to our support of
new product launches by our customers.





Our
results for the nine months ended September 30, 2010 were also favorably
affected by the wind down of our wholly-owned subsidiary, Stoneridge Pollak
Limited (“SPL”), located in Mitcheldean, United Kingdom.  On February
23, 2010, we placed SPL into administration (a structured bankruptcy) in the
United Kingdom.  We had previously ceased SPL’s manufacturing
operations in December of 2008, as part of the restructuring initiatives
announced in October 2007.  All SPL customer contracts were
transferred to our other subsidiaries when we placed SPL into
administration.  We recognized a net gain within other expense
(income), net of approximately $2.3 million, primarily from the reversal of the
cumulative translation adjustment account, which had previously been included as
a component of accumulated other comprehensive income within shareholders’
equity.  In addition, we recognized a tax benefit of approximately
$1.2 million from the reversal of deferred tax liabilities; primarily employee
benefit related which were also previously included as a component of
accumulated other comprehensive income.





At
September 30, 2010 and December 31, 2009, we maintained a cash and equivalents
balance of $84.9 million and $91.9 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,
2010 and December 31, 2009, we had borrowing capacity of $72.4 million and $54.1
million, respectively.


28




Outlook





The North
American automotive vehicle market has recovered significantly from 2009 levels,
which has had a favorable effect on our Control Devices segment’s
results.  We expect that the North American automotive vehicle market
volumes will continue at current levels through the remainder of
2010.





During
the first nine months of 2010, the North American and European commercial
vehicle markets that we serve also recovered from 2009 levels.  We
anticipate that these markets will improve through the remainder of
2010.





Through
our restructuring activities initiated in prior years we have been able to
reduce our cost structure.  Our fixed overhead costs are lower due to the
2008 cessation of manufacturing operations at our Sarasota, Florida and
Mitcheldean, United Kingdom locations.  We were able to maintain our
manufacturing capacity in light of these closures by transferring the
manufacturing lines to other operating facilities.  As our sales
volumes have increased in 2010 our operating margin has benefited from our
reduced cost structure.





During
2010, we experienced component shortages in our supply base, which has had an
adverse effect on our results.  Continued or escalated component
shortages in our supply base for the remainder of 2010 may adversely affect our
results.





In
connection with the tender offer and redemption of our 11.5% senior notes due
May 1, 2012 discussed in the notes to the condensed consolidated financial
statements, we expect to incur expense related to the tender offer premium of
approximately $0.3 million in the fourth quarter of 2010.  In
addition, as a result of the redemption of the senior notes, we will expense
approximately $1.0 million, the unamortized balance of the deferred financing
costs related to the senior notes.  Until the senior notes are
redeemed on November 4, 2010, we will incur interest expense on both the 9.5%
senior secured notes due on October 15, 2017 and the 11.5% senior notes, which
were not tendered during the tender period and will result in additional
interest expense incurred during the fourth quarter of 2010 of approximately
$0.7 million.  The benefit from the lower interest rate on the senior
secured notes and the result of the fixed-to-variable interest rate swap which
we entered into in October 2010 are expected to more than offset the effect of
incurring duplicate interest expense for a portion of the fourth
quarter.




Results
of Operations




We are
primarily organized by markets served and products produced.  Under
this organizational structure, our operations have been aggregated into two
reportable segments: Electronics and Control Devices.  The Electronics
reportable segment includes results of operations that design and manufacture
electronic instrument clusters, electronic control units, driver information
systems and electrical distribution systems, primarily wiring harnesses and
connectors for electrical power and signal distribution.  The Control
Devices reportable segment includes results of operations that design and
manufacture electronic and electromechanical switches, control actuation devices
and sensors.




Three
Months Ended September 30, 2010 Compared to Three Months Ended September 30,
2009





Net Sales. Net sales for our
reportable segments, excluding inter-segment sales, for the three months ended
September 30, 2010 and 2009 are summarized in the following table (in
thousands):





Three
      Months EndedSeptember 30,
                    
                    
                    Dollar
                    
                    
                    Percent2010
                    
                    
                    2009
                    
                    
                    Increase
                    
                    
                    IncreaseElectronics
                    
                    $
                    99,912
                    
                    
                    
                    62.3
                    %
                    
                    $
                    70,165
                    
                    
                    
                    59.5
                    %
                    
                    $
                    29,747
                    
                    
                    
                    42.4
                    %Control
      Devices
                    
                    
                    60,524
                    
                    
                    
                    37.7
                    
                    
                    
                    47,827
                    
                    
                    
                    40.5
                    
                    
                    
                    12,697
                    
                    
                    
                    26.5
                    %Total
      net sales
                    
                    $
                    160,436
                    
                    
                    
                    100.0
                    %
                    
                    $
                    117,992
                    
                    
                    
                    100.0
                    %
                    
                    $
                    42,444
                    
                    
                    
                    36.0
                    %


29




Our
Electronics segment was positively affected by increased volume in our served
markets by approximately $28.2 million for the quarter ended September 30, 2010
when compared to the prior year third quarter.  The increase in net
sales for our Electronics segment was primarily due to volume increases in our
North American and European commercial vehicle products.  Commercial
vehicle market production volumes in North America and Europe increased by 25.1%
and 76.0%, respectively, during the quarter ended September 30, 2010 when
compared to the prior year third quarter.  The increase in North
American and European commercial vehicle production positively affected net
sales in our Electronics segment for the quarter ended September 30, 2010 by
approximately $8.4 million, or 23.1%, and $7.5 million, or 36.8%,
respectively.  Our Electronics segment net sales were favorably
affected by increased volumes within the agricultural vehicle market of
approximately $12.3 million.  Net sales within the Electronics segment
were also favorably affected by approximately $2.4 million during the quarter
ended September 30, 2010 due to the inclusion of Bolton Conductive Systems, LLC
(“BCS”), which was acquired in the fourth quarter of 2009.  These
increases were partially offset by unfavorable foreign exchange rates of
approximately $1.8 million for the quarter ended September 30, 2010 when
compared to the prior year third quarter.





Our
Control Devices segment was positively affected by increased volume in our
served markets by approximately $11.3 million for the quarter ended September
30, 2010 when compared to the prior year third quarter.  The increase
in net sales for our Control Devices segment was primarily attributable to
production volume increases at our major customers in the North American
automotive vehicle market.  Production volumes in the North American
automotive vehicle market increased by 26.3% during the quarter ended September
30, 2010 when compared to the quarter ended September 30, 2009.  These
volume increases resulted in additional net sales of approximately $10.1
million, or 24.9%.  In addition, our Control Devices segment was
favorably affected by increased volume within the agricultural vehicle market of
approximately $1.4 million during the quarter ended September 30, 2010 when
compared to the quarter ended September 30, 2009.





Net sales
by geographic location for the three months ended September 30, 2010 and 2009
are summarized in the following table (in thousands):




Three
      Months EndedSeptember 30,
                    
                    
                    Dollar
                    
                    
                    Percent2010
                    
                    
                    2009
                    
                    
                    Increase
                    
                    
                    IncreaseNorth
      America
                    
                    $
                    131,611
                    
                    
                    
                    82.0
                    %
                    
                    $
                    95,212
                    
                    
                    
                    80.7
                    %
                    
                    $
                    36,399
                    
                    
                    
                    38.2
                    %Europe
      and other
                    
                    
                    28,825
                    
                    
                    
                    18.0
                    
                    
                    
                    22,780
                    
                    
                    
                    19.3
                    
                    
                    
                    6,045
                    
                    
                    
                    26.5
                    %Total
      net sales
                    
                    $
                    160,436
                    
                    
                    
                    100.0
                    %
                    
                    $
                    117,992
                    
                    
                    
                    100.0
                    %
                    
                    $
                    42,444
                    
                    
                    
                    36.0
                    %





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





The
increase in North American net sales was primarily attributable to increased
sales volume in our North American automotive, commercial and agricultural
vehicle markets, which had a positive effect on our net sales for the quarter
ended September 30, 2010 of $10.3 million, $8.1 million and $13.3 million,
respectively.  North American net sales for the quarter ended
September 30, 2010 were also favorably affected by approximately $2.4 million
due to the inclusion of BCS.  Our increase in net sales outside North
America was principally due to increased sales of European commercial vehicle
market products, which had a positive effect on our net sales for the quarter
ended September 30, 2010 of approximately $7.5 million.  This increase
was partially offset by foreign currency fluctuations which negatively affected
our net sales outside of North America by approximately $1.8 million during the
quarter ended September 30, 2010 when compared to the prior year third
quarter.


30


Condensed
consolidated statements of operations as a percentage of net sales for the three
months ended September 30, 2010 and 2009 are presented in the following table
(in thousands):





Three Months Ended
                  
                  
                  DollarSeptember 30,
                  
                  
                  Increase /2010
                  
                  
                  2009
                  
                  
                  (Decrease)Net
      Sales
                  
                  $
                  160,436
                  
                  
                  
                  100.0
                  %
                  
                  $
                  117,992
                  
                  
                  
                  100.0
                  %
                  
                  $
                  42,444Costs
      and Expenses:Cost
      of goods sold
                  
                  
                  124,406
                  
                  
                  
                  77.5
                  
                  
                  
                  90,909
                  
                  
                  
                  77.0
                  
                  
                  
                  33,497Selling,
      general and administrative
                  
                  
                  31,011
                  
                  
                  
                  19.3
                  
                  
                  
                  24,449
                  
                  
                  
                  20.7
                  
                  
                  
                  6,562Operating
      Income
                  
                  
                  5,019
                  
                  
                  
                  3.2
                  
                  
                  
                  2,634
                  
                  
                  
                  2.3
                  
                  
                  
                  2,385Interest
      expense, net
                  
                  
                  5,720
                  
                  
                  
                  3.6
                  
                  
                  
                  5,559
                  
                  
                  
                  4.7
                  
                  
                  
                  161Equity
      in earnings of investees
                  
                  
                  (3,884
                  )
                  
                  
                  (2.4
                  )
                  
                  
                  (3,386
                  )
                  
                  
                  (2.9
                  )
                  
                  
                  (498
                  )Other
      expense (income), net
                  
                  
                  559
                  
                  
                  
                  0.3
                  
                  
                  
                  (198
                  )
                  
                  
                  (0.2
                  )
                  
                  
                  757Income
      Before Income Taxes
                  
                  
                  2,624
                  
                  
                  
                  1.7
                  
                  
                  
                  659
                  
                  
                  
                  0.7
                  
                  
                  
                  1,965Provision
      for income taxes
                  
                  
                  1,975
                  
                  
                  
                  1.2
                  
                  
                  
                  1,502
                  
                  
                  
                  1.3
                  
                  
                  
                  473Net
      Income (Loss)
                  
                  
                  649
                  
                  
                  
                  0.5
                  
                  
                  
                  (843
                  )
                  
                  
                  (0.6
                  )
                  
                  
                  1,492Net
      Loss Attributable to Noncontrolling Interest
                  
                  
                  (35
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (35
                  )Net
      Income (Loss) Attributable to Stoneridge, Inc. and
      Subsidiaries
                  
                  $
                  684
                  
                  
                  
                  0.5
                  %
                  
                  $
                  (843
                  )
                  
                  
                  (0.6
                  )%
                  
                  $
                  1,527





Cost of Goods Sold.The
increase in cost of goods sold as a percentage of net sales was largely due to
increased premium freight expense of approximately $1.3 million during the
quarter ended September 30, 2010 when compared to the prior year third
quarter.  In addition, we incurred approximately $1.5 million of
additional product launch costs, largely due to increased headcount, operating
inefficiencies and a special production bonus awarded during the current
quarter.  We expect to reduce these inefficiencies during the fourth
quarter of 2010.  Our material cost as a percentage of net sales for
our Electronics segment for the third quarter of 2010 and 2009 was 56.3% and
54.6%, respectively.  Our materials cost as a percentage of net sales
for the Control Devices segment increased slightly from 52.3% for the quarter
ended September 30, 2009 to 52.5% for the third quarter of 2010.





Selling, General and Administrative
Expenses. Design and development expenses are included within SG&A
and were $9.2 million and $6.9 million for the third quarter of 2010 and 2009,
respectively.  Design and development expenses for our Electronics
segment increased from $3.6 million for the quarter ended September 30, 2009 to
$5.6 million for the third quarter of 2010.  This increase in design
and development costs was a result of our customers’ new product launches
scheduled in the near term.  Design and development expenses for our
Control Devices segment increased from $3.3 million for the third quarter of
2009 to $3.5 million for the quarter ended September 30, 2010.  As a
result of our product platform launches scheduled for 2010 and in the future, we
believe that our design and development costs for the remainder of 2010 will
increase from 2009 levels and will remain consistent to the current quarter
expense.  The increase in SG&A costs excluding design and
development expenses was largely due to higher employee related costs of
approximately $2.8 million, primarily incentive compensation.  Our
SG&A costs decreased as a percentage of net sales because of the significant
increase in net sales recognized in the current quarter when compared to the
prior year third quarter.





We had no
costs for restructuring initiatives for the quarter ended September 30,
2010.  Third quarter 2009 restructuring expenses were approximately
$1.3 million and were primarily comprised of one-time termination benefits and
were included in our condensed consolidated statements of operations as a
component of SG&A.


31




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





TotalConsolidatedRestructuringElectronics
                    
                    
                    Control Devices
                    
                    
                    ChargesSeverance
      costs
                    
                    $
                    939
                    
                    
                    $
                    371
                    
                    
                    $
                    1,310


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





Equity in Earnings of
Investees.The increase in equity earnings of investees was
attributable to the increase in equity earnings recognized from our PST
Eletrônica S.A. (“PST”) and Minda Stoneridge Instruments Ltd. (“Minda”) joint
ventures.  Equity earnings for PST increased from $3.2 million for the
quarter ended September 30, 2009 to $3.7 million for the quarter ended September
30, 2010.  This increase primarily reflects higher volumes for PST’s
product lines during the quarter ended September 30, 2010.  In
addition, PST benefited from favorable foreign currency fluctuations during the
current quarter when compared to the quarter ended September 30,
2009.  Equity earnings for Minda increased from $0.1 million for the
quarter ended September 30, 2009 to $0.2 million for the quarter ended September
30, 2010.





Other Expense
(Income), net.  We record certain foreign currency
transaction and forward currency hedge contract gains and losses as a component
of other expense (income), net on the condensed consolidated statement of
operations.  Our results for the quarter ended September 30, 2010 when
compared to the third quarter of 2009 were negatively affected by approximately
$0.8 million due to the volatility in certain foreign exchange rates between
periods.





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




ThreeMonths
      Ended
                    
                    
                    Dollar
                    
                    
                    PercentSeptember 30,
                    
                    
                    Increase
      /
                    
                    
                    Increase
      /2010
                    
                    
                    2009
                    
                    
                    (Decrease)
                    
                    
                    (Decrease)Electronics
                    
                    $
                    1,369
                    
                    
                    $
                    (348
                    )
                    
                    $
                    1,717
                    
                    
                    
                    493.4
                    %Control
      Devices
                    
                    
                    3,600
                    
                    
                    
                    2,035
                    
                    
                    
                    1,565
                    
                    
                    
                    76.9
                    %Other
      corporate activities
                    
                    
                    2,989
                    
                    
                    
                    4,459
                    
                    
                    
                    (1,470
                    )
                    
                    
                    (33.0
                    )%Corporate
      interest expense
                    
                    
                    (5,334
                    )
                    
                    
                    (5,487
                    )
                    
                    
                    153
                    
                    
                    
                    2.8
                    %Income
      before income taxes
                    
                    $
                    2,624
                    
                    
                    $
                    659
                    
                    
                    $
                    1,965
                    
                    
                    
                    298.2
                    %




The
increase in profitability in the Electronics segment was primarily related to
increased revenue within our North American and European commercial and
agriculture vehicle markets.  Excluding the results of BCS, production
volume increases favorably affected our Electronics segment by $28.2 million
during the quarter ended September 30, 2010 when compared to the prior year
third quarter.  In addition, restructuring related expenses for the
Electronics reportable segment were approximately $0.9 million lower for the
third quarter of 2010 when compared to the quarter ended September 30,
2009.  These factors were partially offset by unfavorable foreign
exchange rates during the quarter ended September 30, 2010.





The
increase in profitability in the Control Devices reportable segment was
primarily due to higher revenue within our North American automotive vehicle
market.  Production volume increases favorably affected our net sales
within the Control Devices segment by approximately $11.3 million for the
quarter ended September 30, 2010 when compared to the prior year third
quarter.





The
decrease in income before income taxes from other corporate activities was
primarily due to the increase in compensation related expenses, primarily
incentive compensation incurred in the third quarter of 2010.  This
increase in expense is partially offset by the $0.5 million increase in equity
earnings from our PST and Minda joint ventures.





32




Income
before income taxes by geographic location for the three months ended September
30, 2010 and 2009 is summarized in the following table (in
thousands):





Three Months EndedSeptember 30,
                  
                  
                  Dollar
                  
                  
                  Percent2010
                  
                  
                  2009
                  
                  
                  Increase
                  
                  
                  IncreaseNorth
      America
                  
                  $
                  1,879
                  
                  
                  
                  71.6
                  %
                  
                  $
                  486
                  
                  
                  
                  73.7
                  %
                  
                  $
                  1,393
                  
                  
                  
                  286.3
                  %Europe
      and other
                  
                  
                  745
                  
                  
                  
                  28.4
                  
                  
                  
                  173
                  
                  
                  
                  26.3
                  
                  
                  
                  572
                  
                  
                  
                  331.7
                  %Income
      before income taxes
                  
                  $
                  2,624
                  
                  
                  
                  100.0
                  %
                  
                  $
                  659
                  
                  
                  
                  100.0
                  %
                  
                  $
                  1,965
                  
                  
                  
                  298.2
                  %





North
American income before income taxes includes interest expense of approximately
$5.7 million and $5.6 million for the quarters ended September 30, 2010 and
2009, respectively.





The
increase in our profitability in North America was primarily attributable to
higher sales volumes within our North American commercial, automotive and
agricultural vehicle markets during the quarter ended September 30,
2010.  The improved results outside North America was primarily due to
higher sales volumes within our European commercial vehicle market during the
quarter ended September 30, 2010.





Provision for Income Taxes.
We recognized a provision for income taxes of $2.0 million, or 75.3%, and $1.5
million, or 227.9% of the pre-tax income, for federal, state and foreign income
taxes for the quarters ended September 30, 2010 and 2009, respectively. As
reported at December 31, 2009, the Company is in a cumulative loss position and
provides a valuation allowance offsetting federal, state and certain foreign
deferred tax assets.  The increase in tax expense for the three months
ended September 30, 2010 compared to the same period for 2009 was primarily
attributable to the improved financial performance in the U.S. and most foreign
locations as well as the improved financial performance of the PST joint
venture.





Nine
Months Ended September 30, 2010 Compared to Nine Months Ended September 30,
2009





Net Sales. Net sales for our
reportable segments, excluding inter-segment sales, for the nine months ended
September 30, 2010 and 2009 are summarized in the following table (in
thousands):





Nine Months EndedSeptember 30,
                    
                    
                    Dollar
                    
                    
                    Percent2010
                    
                    
                    2009
                    
                    
                    Increase
                    
                    
                    IncreaseElectronics
                    
                    $
                    296,477
                    
                    
                    
                    62.4
                    %
                    
                    $
                    218,830
                    
                    
                    
                    64.1
                    %
                    
                    $
                    77,647
                    
                    
                    
                    35.5
                    %Control
      Devices
                    
                    
                    178,295
                    
                    
                    
                    37.6
                    
                    
                    
                    122,537
                    
                    
                    
                    35.9
                    
                    
                    
                    55,758
                    
                    
                    
                    45.5
                    %Total
      net sales
                    
                    $
                    474,772
                    
                    
                    
                    100.0
                    %
                    
                    $
                    341,367
                    
                    
                    
                    100.0
                    %
                    
                    $
                    133,405
                    
                    
                    
                    39.1
                    %





Our
Electronics segment was positively affected by increased volume in our served
markets by approximately $71.3 million for the nine months ended September 30,
2010 when compared to the first nine months of the prior year.  The
increase in net sales for our Electronics segment was primarily due to volume
increases in our North American and European commercial vehicle
products.  Commercial vehicle market production volumes in North
America and Europe increased by 22.8%, and 46.8%, respectively, during the nine
months ended September 30, 2010 when compared to the first nine months of the
prior year.  The increase in North American and European commercial
vehicle production positively affected net sales in our Electronics segment for
the nine months ended September 30, 2010 by approximately $32.0 million, or
30.0%, and $21.4 million, or 39.0%, respectively.  Our net sales were
favorably affected by approximately $6.5 million during the nine months ended
September 30, 2010 due to the inclusion of BCS.  Net sales within our
Electronics segment were also favorably affected by approximately $18.5 million
as a result of production volume increases in the agricultural vehicle market
during the nine months ended September 30, 2010 when compared to the first nine
months of 2009.  These increases were partially offset by unfavorable
foreign exchange rates of approximately $1.5 million for the nine months ended
September 30, 2010 when compared to the first nine months of
2009.


33




Our
Control Devices segment was positively affected by increased volume in our
served markets by approximately $49.8 million for the nine months ended
September 30, 2010 when compared to the nine months ended September 30,
2009.  The increase in net sales for our Control Devices segment was
primarily attributable to production volume increases at our major customers in
the North American automotive vehicle market, which increased by 53.8% during
the nine months ended September 30, 2010 when compared to the nine months ended
September 30, 2009.  Volume increases within the automotive vehicle
market of our Control Devices segment increased net sales for the nine months
ended September, 2010 by approximately $45.3 million, or 45.2%, when compared to
the prior year comparative period.





Net sales
by geographic location for the nine months ended September 30, 2010 and 2009 are
summarized in the following table (in thousands):




Nine Months EndedSeptember 30,
                    
                    
                    Dollar
                    
                    
                    Percent2010
                    
                    
                    2009
                    
                    
                    Increase
                    
                    
                    IncreaseNorth
      America
                    
                    $
                    388,103
                    
                    
                    
                    81.7
                    %
                    
                    $
                    277,517
                    
                    
                    
                    81.3
                    %
                    
                    $
                    110,586
                    
                    
                    
                    39.8
                    %Europe
      and other
                    
                    
                    86,669
                    
                    
                    
                    18.3
                    
                    
                    
                    63,850
                    
                    
                    
                    18.7
                    
                    
                    
                    22,819
                    
                    
                    
                    35.7
                    %Total
      net sales
                    
                    $
                    474,772
                    
                    
                    
                    100.0
                    %
                    
                    $
                    341,367
                    
                    
                    
                    100.0
                    %
                    
                    $
                    133,405
                    
                    
                    
                    39.1
                    %





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





The
increase in North American net sales was primarily attributable to increased
sales volume in our North American automotive and commercial vehicle
markets.  These increased volume levels had a positive effect on our
net sales for the nine months ended September 30, 2010 of $45.2 million and
$32.0 million for our North American automotive and commercial vehicle markets,
respectively.  Production volume increases within the agricultural
vehicle market during the nine months ended September 30, 2010 favorably
affected our North American net sales by approximately $21.6
million.  North American net sales for the nine months ended September
30, 2010 were also favorably affected by approximately $6.5 million due to the
inclusion of BCS.  Our increase in net sales outside North America was
primarily due to increased sales of European commercial vehicle market products,
which had a positive effect on our net sales for the nine months ended September
30, 2010 of approximately $21.5 million.




34




Condensed
consolidated statements of operations as a percentage of net sales for the nine
months ended September 30, 2010 and 2009 are presented in the following table
(in thousands):





Nine
      Months Ended
                      
                      
                      DollarSeptember 30,
                      
                      
                      Increase/2010
                      
                      
                      2009
                      
                      
                      (Decrease)Net
      Sales
                      
                      $
                      474,772
                      
                      
                      
                      100.0
                      %
                      
                      $
                      341,367
                      
                      
                      
                      100.0
                      %
                      
                      $
                      133,405Costs
      and Expenses:Cost
      of goods sold
                      
                      
                      365,595
                      
                      
                      
                      77.0
                      
                      
                      
                      281,413
                      
                      
                      
                      82.4
                      
                      
                      
                      84,182Selling,
      general and administrative
                      
                      
                      92,026
                      
                      
                      
                      19.4
                      
                      
                      
                      80,373
                      
                      
                      
                      23.5
                      
                      
                      
                      11,653Operating
      Income (Loss)
                      
                      
                      17,151
                      
                      
                      
                      3.6
                      
                      
                      
                      (20,419
                      )
                      
                      
                      (5.9
                      )
                      
                      
                      37,570Interest
      expense, net
                      
                      
                      16,956
                      
                      
                      
                      3.6
                      
                      
                      
                      16,594
                      
                      
                      
                      4.9
                      
                      
                      
                      362Equity
      in earnings of investees
                      
                      
                      (6,186
                      )
                      
                      
                      (1.3
                      )
                      
                      
                      (4,864
                      )
                      
                      
                      (1.4
                      )
                      
                      
                      (1,322
                      )Other
      expense (income), net
                      
                      
                      (1,140
                      )
                      
                      
                      (0.2
                      )
                      
                      
                      447
                      
                      
                      
                      0.1
                      
                      
                      
                      (1,587
                      )Income
      (Loss) Before Income Taxes
                      
                      
                      7,521
                      
                      
                      
                      1.5
                      
                      
                      
                      (32,596
                      )
                      
                      
                      (9.5
                      )
                      
                      
                      40,117Provision
      (benefit) for income taxes
                      
                      
                      1,217
                      
                      
                      
                      0.3
                      
                      
                      
                      (409
                      )
                      
                      
                      (0.1
                      )
                      
                      
                      1,626Net
      Income (Loss)
                      
                      
                      6,304
                      
                      
                      
                      1.2
                      
                      
                      
                      (32,187
                      )
                      
                      
                      (9.4
                      )
                      
                      
                      38,491Net
      Loss Attributable to Noncontrolling Interest
                      
                      
                      (79
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (79
                      )Net
      Income (Loss) Attributable to Stoneridge, Inc. and
      Subsidiaries
                      
                      $
                      6,383
                      
                      
                      
                      1.2
                      %
                      
                      $
                      (32,187
                      )
                      
                      
                      (9.4
                      )%
                      
                      $
                      38,570





Cost of Goods Sold. The
decrease in cost of goods sold as a percentage of net sales was primarily due to
the significant increase in volume of our European and North American commercial
and automotive vehicle markets during the nine months ended September 30, 2010
when compared to the prior year period.  A portion of our cost
structure is fixed in nature, such as overhead and depreciation
costs.  These fixed costs combined with significantly higher net sales
in the first nine months of 2010, resulted in a lower cost of goods sold as a
percentage of net sales for the nine months ended September 30,
2010.  Our material cost as a percentage of net sales for our
Electronics segment for the nine months ended September 30, 2010 and 2009 was
56.3% and 54.8%, respectively.  Our material cost as a percentage of
net sales for the Control Devices segment decreased from 54.0% for the nine
months ended September 30, 2009 to 52.6% for the nine months ended September, 30
2010.  This decrease is largely due to inventory related charges taken
in 2009 as a result of lower sales volumes in our served markets.





Selling, General and Administrative
Expenses.  Design and development expenses included in SG&A
were $28.3 million and $24.9 million for the nine months ended September 30,
2010 and 2009, respectively.  The increase in design and development
costs is a result of our customers’ new product launches in the near term. The
increase in SG&A costs excluding design and development expenses was mainly
due to higher employee related costs of approximately $6.7 million, primarily
incentive compensation.  Our SG&A costs decreased as a percentage
of net sales because of the increase in net sales recognized in the current
period when compared to the prior year period.





Costs
from our restructuring initiatives for the nine months ended September 30, 2010
decreased compared to the nine months ended September 30, 2009 as a result
of our restructuring initiatives nearing completion.  Costs incurred
during the nine months ended September 30, 2010 related to restructuring
initiatives amounted to approximately $0.3 million and were comprised of
one-time termination benefits and contract termination costs.  These
restructuring actions were a combination of severance costs as a result of the
continuation of restructuring initiatives which began in 2009 in Dundee,
Scotland and related to our cancelled lease in Mitcheldean, United
Kingdom.  Restructuring charges for the nine months ended September
30, 2009 were approximately $3.8 million and were primarily comprised of
one-time termination benefits.  These restructuring actions were in
response to the depressed conditions in the European and North American
commercial vehicle markets as well as the North American automotive vehicle
market.  Restructuring expenses that were general and administrative
in nature were included in the Company’s condensed consolidated statements of
operations as a component of SG&A, while the remaining restructuring related
expenses were included in cost of goods sold.


35




Restructuring
charges, general and administrative in nature, recorded by reportable segment
during the nine months ended September 30, 2010 were as follows (in
thousands):





TotalConsolidatedRestructuringElectronics
                  
                  
                  Control Devices
                  
                  
                  ChargesSeverance
      costs
                  
                  $
                  183
                  
                  
                  $
                  -
                  
                  
                  $
                  183Contract
      termination costs
                  
                  
                  121
                  
                  
                  
                  -
                  
                  
                  
                  121Total
      general and administrative restructuring charges
                  
                  $
                  304
                  
                  
                  $
                  -
                  
                  
                  $
                  304





All
restructuring charges result in cash outflows.  Severance costs
related to a reduction in workforce.  Contract termination costs
represent expenditures associated with long-term lease obligations 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, 2009 were as follows (in
thousands):




TotalConsolidatedRestructuringElectronics
                  
                  
                  Control Devices
                  
                  
                  ChargesSeverance
      costs
                  
                  $
                  2,743
                  
                  
                  $
                  984
                  
                  
                  $
                  3,727Contract
      termination costs
                  
                  
                  91
                  
                  
                  
                  -
                  
                  
                  
                  91Total
      general and administrative restructuring charges
                  
                  $
                  2,834
                  
                  
                  $
                  984
                  
                  
                  $
                  3,818




Equity in Earnings of
Investees.The increase in equity earnings of investees was
attributable to the increase in equity earnings recognized from our PST and
Minda joint ventures.  Equity earnings for PST increased from $4.6
million for the nine months ended September 30, 2009 to $5.5 million for the
nine months ended September 30, 2010. The increase primarily reflects higher
volumes for PST’s product lines during the nine months ended September 30,
2010.  In addition, PST benefited from favorable foreign currency
fluctuations during the nine months ended September 30, 2010 when compared to
the first nine months of 2009.  Equity earnings for Minda increased
from $0.2 million for the nine months ended September 30, 2009 to $0.6 million
for the nine months ended September 30, 2010.





Other Expense
(Income), net.  As a result of placing SPL into
administration, we recognized a gain of approximately $2.3 million during the
nine months ended September 30, 2010 within other expense (income), net on the
condensed consolidated statement of operations.  This gain is
primarily related to the reversal of the cumulative translation adjustment
account, which had previously been included as a component of other
comprehensive income within Shareholders’ Equity.  The gain is
partially offset by foreign currency loss during the nine months ended September
30, 2010 of approximately $0.7 million when compared to the first nine months of
2009.




36




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





Nine
                      Months
      Ended
                    
                    
                    Dollar
                    
                    
                    PercentSeptember 30,
                    
                    
                    Increase
      /
                    
                    
                    Increase
      /2010
                    
                    
                    2009
                    
                    
                    (Decrease)
                    
                    
                    (Decrease)Electronics
      (A)
                    
                    $
                    7,610
                    
                    
                    $
                    (11,508
                    )
                    
                    $
                    19,118
                    
                    
                    
                    166.1
                    %Control
      Devices (A)
                    
                    
                    12,359
                    
                    
                    
                    (10,393
                    )
                    
                    
                    22,752
                    
                    
                    
                    218.9
                    %Other
      corporate activities (A)
                    
                    
                    3,295
                    
                    
                    
                    5,775
                    
                    
                    
                    (2,480
                    )
                    
                    
                    (42.9
                    )%Corporate
      interest expense
                    
                    
                    (15,743
                    )
                    
                    
                    (16,470
                    )
                    
                    
                    727
                    
                    
                    
                    4.4
                    %Income
      (loss) before income taxes
                    
                    $
                    7,521
                    
                    
                    $
                    (32,596
                    )
                    
                    $
                    40,117
                    
                    
                    
                    123.1
                    %




(A) -
Income before income taxes amount excludes the impact of placing SPL into
administration during the nine months ended September 30, 2010.  As a
result of placing SPL into administration, we recognized a gain within the
Electronics segment of $32,512  and a loss within the Control Devices
segment and other corporate activities of $473 and $32,039,
respectively.  These gains and losses were primarily the result of
eliminating SPL's intercompany debt and equity structure.




The
increase in profitability in the Electronics reportable segment was principally
related to the increased sales volume, primarily to our commercial vehicle
customers for the nine months ended September 30, 2010 when compared to the
first nine months of 2009.  Excluding the results of BCS, production
volume increases favorably affected our Electronics segment by $71.3 million
during the nine months ended September 30, 2010 when compared to the the first
nine months of the prior year.  In addition, restructuring related
expenses for the Electronics segment were approximately $2.5 million lower for
the nine months ended September 30, 2010 when compared to the first nine months
of 2009.





The
increase in profitability in the Control Devices reportable segment was
primarily due to increased sales volume for the nine months ended September 30,
2010 when compared to the nine months ended September 30,
2009.  Production volume increases favorably affected our net sales
within the Control Devices segment by approximately $49.8 million for the nine
months ended September 30, 2010 when compared to the first nine months of the
prior year.





The
decrease in profitability from other corporate activities was primarily due to
higher employee related costs, largely incentive compensation costs incurred
during the nine months ended September 30, 2010 when compared to the first nine
months of 2009.





Income
(loss) before income taxes by geographic location for the nine months ended
September 30, 2010 and 2009 is summarized in the following table (in
thousands):




Nine
      Months EndedSeptember 30,
                              
                              
                              Dollar
                              
                              
                              Percent2010
                              
                              
                              2009
                              
                              
                              Increase
                              
                              
                              IncreaseNorth
      America (A)
                              
                              $
                              6,098
                              
                              
                              
                              81.1
                              %
                              
                              $
                              (21,643
                              )
                              
                              
                              66.4
                              %
                              
                              $
                              27,741
                              
                              
                              
                              128.2
                              %Europe
      and other (A)
                              
                              
                              1,423
                              
                              
                              
                              18.9
                              
                              
                              
                              (10,953
                              )
                              
                              
                              33.6
                              
                              
                              
                              12,376
                              
                              
                              
                              113.0
                              %Income
      (loss) before income taxes
                              
                              $
                              7,521
                              
                              
                              
                              100.0
                              %
                              
                              $
                              (32,596
                              )
                              
                              
                              100.0
                              %
                              
                              $
                              40,117
                              
                              
                              
                              123.1
                              %




(A) -
Income before income taxes amount excludes the impact of placing SPL into
administration during the nine months ended September 30, 2010.  As a
result of placing SPL into administration, we recognized a gain within Europe
and other and a loss within North America of $32,430.  These gains and
losses were primarily the result of eliminating SPL's intercompany debt and
equity structure.


North
American income before income taxes includes interest expense of approximately
$17.0 million and $16.6 million for the nine months ended September 30, 2010 and
2009, respectively.


37




Excluding
the effect of the SPL administration, our North American results improved,
primarily as a result of increased volume in the North American automotive and
commercial vehicle markets during the nine months ended September 30, 2010 as
compared to the first nine months of 2009.  Our results in Europe and
other were favorably affected by our increased European commercial vehicle
market sales during the current period.





Provision (Benefit) from Income
Taxes. We recognized a provision for income taxes of $1.2 million,
or 16.2% of pre-tax income, and a benefit of $0.4 million, or 1.3% of the
pre-tax loss, for federal, state and foreign income taxes for the nine months
ended September 30, 2010 and 2009, respectively. As reported at December 31,
2009, the Company is in a cumulative loss position and provides a valuation
allowance offsetting federal, state and certain foreign deferred tax
assets.  The increase in tax expense for the nine months ended
September 30, 2010 compared to the same period for 2009 was primarily
attributable to the improved financial performance in the U.S. and most foreign
locations as well as the improved financial performance of the PST joint
venture. That increase in tax expense for the nine months ended September 30,
2010 was partially offset with a tax benefit related to our United Kingdom
operations.  As a result of placing SPL into administration, as
described in Note 12, the Company recognized a tax benefit of $1.2 million
during the nine months ended September 30, 2010, from the reversal of deferred
tax liabilities, primarily employee benefit related, that were previously
included as a component of accumulated other comprehensive income within
shareholders’ equity.




Liquidity
and Capital Resources





Summary
of Cash Flows (in thousands):




Nine
      Months Ended
                    
                    
                    DollarSeptember 30,
                    
                    
                    Increase
      /2010
                    
                    
                    2009
                    
                    
                    (Decrease)Net
      cash provided by (used for):Operating
      activities
                    
                    $
                    3,232
                    
                    
                    $
                    (2,578
                    )
                    
                    $
                    5,810Investing
      activities
                    
                    
                    (10,392
                    )
                    
                    
                    (8,691
                    )
                    
                    
                    (1,701
                    )Financing
      activities
                    
                    
                    1,230
                    
                    
                    
                    (50
                    )
                    
                    
                    1,280Effect
      of exchange rate changes on cash and cash equivalents
                    
                    
                    (1,083
                    )
                    
                    
                    3,069
                    
                    
                    
                    (4,152
                    )Net
      change in cash and cash equivalents
                    
                    $
                    (7,013
                    )
                    
                    $
                    (8,250
                    )
                    
                    $
                    1,237




The
increase in net cash provided by operating activities was due to higher net
income during the nine months ended September 30, 2010.  This was
partially offset by higher working capital funding requirements, primarily
accounts receivable balances.  Our higher accounts receivable balance
at September 30, 2010 was attributable to the higher sales volume in the current
period.  Our receivable terms and collections rates have remained
consistent between periods presented.  As our served markets improve
we expect that our working capital requirements will continue to increase
accordingly.





The
increase in net cash used for investing activities reflects an increase in cash
used for capital projects of approximately $1.6 million.  Our 2009
capital expenditures were historically lower than normal as a result of our
customers delaying product launches.  We expect our future capital
expenditures to increase from 2009 levels and be more consistent with our
historical expenditures.





The
increase in net cash provided by financing activities was primarily due to cash
received from borrowings on the BCS master revolving note (the “Revolver”) and
the term loan that our subsidiary located in Suzhou, China (“Suzhou”) entered
into.





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.


38




On
September 20, 2010, we commenced a tender offer to purchase for cash any and all
of our 11.5% senior notes due May 1, 2012.  The consent payment
deadline was October 1, 2010 and the tender offer expired on October 18,
2010.  For senior notes tendered before the consent payment deadline,
the note holders received $1,002.50 for each $1,000.00 of principal amount of
notes tendered.  There was $109.7 million of senior notes tendered
prior to the consent payment deadline and an additional $0.2 million was
tendered after the consent payment deadline, but before the tender offer
deadline.  Holders tendering senior notes after the consent payment
deadline are eligible to receive only the tender offer consideration of
$1,000.00 per $1,000.00 principal amount of senior notes.  On November
4, 2010 all senior notes which were not tendered will be redeemed by us at
par.





On
October 4, 2010, we issued $175.0 million of senior secured
notes.  These senior secured notes bear interest at an annual rate of
9.5% and mature on October 15, 2017.  The senior secured notes were
offered only to qualified institutional buyers and outside the U.S. in
accordance with Rule 144A and Regulation S, respectively, under the Securities
Act of 1933.  The senior secured notes were issued at a 2.5% discount
to the initial purchasers.  We will accrete this discount using the
effective interest method over the life of the senior secured
notes.  The senior secured notes are redeemable, at our option,
beginning October 15, 2014 at 104.75%.  Interest payments commence on
April 15, 2011 and are payable on April 15 and October 15 of each year,
thereafter.  The senior secured notes indenture limits our and our
restricted subsidiaries amount of  indebtedness, restricts certain
payments and includes various other non-financial restrictive
covenants.  The senior secured notes are guaranteed by all of our
existing domestic restricted subsidiaries.  All other restricted
subsidiaries that guarantee any of our or our guarantors’ indebtedness will also
guarantee the senior secured notes.





On
October 4, 2010, we entered into a fixed-to-variable interest rate swap
agreement (the “Swap”) with a notional amount of $45.0 million.  The
Swap was designated as a fair value hedge of the fixed interest rate obligation
under our $175.0 million 9.5% senior secured notes due October 15,
2017.  We pay variable interest equal to the six-month LIBOR plus
7.19% and we receive a fixed interest rate of 9.5% under the
Swap.  The critical terms of the Swap match the terms of the senior
secured notes, including maturity of October 15, 2017, resulting in no hedge
ineffectiveness.





As
outlined in Note 6 to our condensed consolidated financial statements, our
asset-based credit facility (the “credit facility”) permits borrowing up to a
maximum level of $100.0 million.  At September 30, 2010, there were no
borrowings on the credit facility.  The available borrowing capacity
on the credit facility is based on eligible current assets, as
defined.  At September 30, 2010, the Company had borrowing capacity of
$72.4 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, 2010.  In connection with the
senior secured notes issuance, we entered into an Amended and Restated Credit
and Security Agreement on September 20, 2010.  The Amended and
Restated Credit and Security Agreement which became effective on October 4, 2010
(i) provided certain consents necessary for the issuance of the senior secured
notes, (ii) extended the expiration date of the credit facility to November 1,
2012 and (iii) granted the facility agent, for the benefit of the lenders,
second priority liens and security interests in the collateral subject to first
priority liens and security interests in favor of the collateral agent for the
holders of the senior secured notes.





The BCS
Revolver permits borrowing up to a maximum level of $3.0 million.  On
September 29, 2010, BCS amended the Revolver to extend the maturity date to
September 29, 2011 and reduced the interest rate margin to 2.0%.  At
September 30, 2010, BCS had approximately $1.2 million in borrowings outstanding
on the Revolver, which is included on the condensed consolidated balance sheet
as a component of accrued expenses and other current liabilities. Interest
is payable monthly at the prime referenced rate plus a 2.0%
margin.  At September 30, 2010 the interest rate on the Revolver was
5.25%.  The Company is a guarantor as it relates to the
Revolver.





The
Suzhou term loan is in the amount of 4,690 Chinese Yuan, which was approximately
$0.7 at September 30, 2010 and is included on the condensed consolidated balance
sheet as a component of accrued expenses and other current
liabilities.   The term loan matures on August 5,
2011.  Interest is payable quarterly at the one-year lending rate
published by The People’s Bank of China multiplied by 110.0%.  At
September 30, 2010, the interest rate on the term loan was 5.84%.





As part
of our 2009 acquisition of BCS, we may be required to make additional payments
to the previous owners of BCS for our 51% membership interest based on BCS
achieving financial performance targets as defined by the purchase
agreement.  The maximum amount of additional payments to the prior
owners of BCS is $3.2 million per year in 2011, 2012 and 2013 and are contingent
upon BCS achieving profitability targets based on earnings before interest,
income taxes, depreciation and amortization in each of the years 2010, 2011 and
2012. In addition, we may be required to make additional payments to BCS of
approximately $0.5 million in 2011 and 2012 based on BCS achieving annual
revenue targets in 2010 and 2011, respectively.  We recorded $0.9
million, which represents the fair value of the estimated future additional
payments to the prior owners of BCS as of the acquisition date, December 31,
2009 and September 30, 2010 on the condensed consolidated balance sheet as a
component of other long-term liabilities.  The purchase agreement
provides us with the option to purchase the remaining 49% interest in BCS in
2013 at a price determined in accordance with the purchase
agreement.  If we do not exercise this option the minority owners of
BCS have the option in 2014 to purchase our 51% interest in BCS at a price
determined in accordance with the purchase agreement or to jointly market BCS
for sale.


We have
significant U.S. federal income tax net operating loss carryforwards and
research credit carryforwards. The Internal Revenue Code of 1986, as amended,
imposes an annual limitation on the ability of a corporation that undergoes an
“ownership change” to use its net operating loss and credit carryforwards to
reduce its tax liability. As a result of the possible secondary offering of our
common shares discussed in the Note 17 to the condensed consolidated financial
statements, the likelihood that we may experience an ownership change will
increase significantly. Our use of our net operating loss and credit
carryforwards could be limited by the annual limitation, which could subject us
to U.S. federal income taxes on an accelerated basis.


39




At
September 30, 2010, we had a cash and cash equivalents balance of approximately
$84.9 million, of which $46.1 million was held domestically and $38.8 million
was held in foreign locations.  None of our cash balance was
restricted at September 30, 2010.





As a result of placing SPL into
administration during the nine months ended September 30, 2010, our defined
benefit plan was settled.  As a result of this settlement there will
be no further funding of the defined benefit plan.During the fourth quarter of 2010 we
will have either accepted tenders for, or redeemed, $183.0 million of our
outstanding 11.5% senior notes due 2012 (the "Old Notes").  In addition, in
October 2010 we issued $175.0 million of new 9.5% senior secured notes due
October 15, 2017 and used the proceeds from that issuance and availalbe
cash to fund the aforementioned tender offer and redemption of the Old
Notes. There have been no
other material changes to the table of contractual obligations presented in Part
II, Item 7 (“Liquidity and Capital Resources”) of the Company’s 2009 Form
10-K.




Critical
Accounting Policies and Estimates





The
Company’s significant accounting policies, which include management’s best
estimates and judgments, are included in Item 7, Part II to the consolidated
financial statements of the Company’s 2009 Form 10-K. Certain of these
accounting policies are considered critical as disclosed in the Critical
Accounting Policies and Estimates section of Management’s Discussion and
Analysis of the Company’s 2009 Form 10-K because of the potential for a
significant impact on the financial statements due to the inherent uncertainty
in such estimates. There have been no significant changes in the Company’s
critical accounting policies since December 31, 2009.




Inflation





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




Forward-Looking
Statements





Portions
of this report contain “forward-looking statements” under the Private Securities
Litigation Reform Act of 1995. These statements appear in a number of places in
this report and include statements regarding the intent, belief or current
expectations of the Company, with respect to, among other things, our (i) future
product and facility expansion, (ii) acquisition strategy, (iii) investments and
new product development, and (iv) growth opportunities related to awarded
business.  Forward-looking statements may be identified by the words
“will,” “may,” “should,” “designed to,” “believes,” “plans,” “projects,”
“intends,” “expects,” “estimates,” “anticipates,” “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;


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


·
            a
      significant change in commercial vehicle, automotive, agricultural or
      off-highway vehicle production;


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


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


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


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


40





·
            the
      amount of our indebtedness and the restrictive covenants contained in the
      agreements governing our indebtedness, including our credit facility and
      the senior secured notes;


·
            customer
      acceptance of new products;


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


·
            the
      failure to achieve the successful integration of any acquired company or
      business;


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


·
            the
      items described in Part II, Item IA (“Risk
  Factors”).





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





Item
3.   Quantitative and Qualitative Disclosures About Market
Risk.





There
have been no material changes in market risk presented within Part II, Item 7A
of the Company’s 2009 Form 10-K.





Item
4.  Controls and Procedures.





Evaluation
of Disclosure Controls and Procedures





As of
September 30, 2010, an evaluation was performed under the supervision and with
the participation of the Company’s management, including the principal executive
officer (“PEO”) and principal financial officer (“PFO”), of the effectiveness of
the design and operation of the Company’s disclosure controls and procedures.
Based on that evaluation, the Company’s management, including the PEO and PFO,
concluded that the Company’s disclosure controls and procedures were effective
as of September 30, 2010.





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, 2010 that materially affected,
or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.




PART
II–OTHER INFORMATION




Item
1.  Legal Proceedings.





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





Item
1A.  Risk Factors.





Set forth
below are some of the principal risks and uncertainties that could cause our
actual business results to differ materially from any forward-looking statements
contained in this Quarterly Report. In addition, future results could be
materially affected by general industry and market conditions, changes in laws
or accounting rules, general U.S. and non-U.S. economic and political
conditions, including a global economic slow-down, fluctuation of interest rates
or currency exchange rates, terrorism, political unrest or international
conflicts, political instability or major health concerns, natural disasters,
commodity prices or other disruptions of expected economic and business
conditions. These risk factors should be considered in addition to our
cautionary comments concerning forward-looking statements in this Quarterly
Report, including statements related to markets for our products and trends in
our business that involve a number of risks and uncertainties. Our separate
section, "Forward-Looking Statements," on page 40 should be considered in
addition to the following statements.


41




Our
business is cyclical and seasonal in nature and downturns in the medium- and
heavy-duty truck, automotive, agricultural and off-highway vehicle markets could
reduce the sales and profitability of our business.





The
demand for our products is largely dependent on the domestic and foreign
production of medium- and heavy-duty trucks, automotive, agricultural and
off-highway vehicles. The markets for our products have historically been
cyclical, because new vehicle demand is dependent on, among other things,
consumer spending and is tied closely to the overall strength of the economy.
Because our products are used principally in the production of vehicles for the
medium- and heavy-duty truck, automotive, agricultural and off-highway vehicle
markets, our net sales, and therefore our results of operations, are
significantly dependent on the general state of the economy and other factors
which affect these markets. A decline in medium- and heavy-duty truck,
automotive, agricultural and off-highway vehicle production could adversely
impact our results of operations and financial condition. In 2009, approximately
67% of our net sales were derived from the medium- and heavy-duty truck,
agricultural and off-highway vehicle markets and approximately 33% were derived
from the automotive market. Seasonality experienced by the automotive industry
also impacts our operations.





We
may not realize sales represented by awarded business.





We base
our growth projections, in part, on commitments made by our customers. These
commitments generally renew annually during a program life cycle. Failure of
actual production orders from our customers to approximate these commitments
could have a material adverse effect our business, financial condition or
results of operations.





The
prices that we can charge some of our customers are predetermined and we bear
the risk of costs in excess of our estimates, in addition to the risk of adverse
effects resulting from general customer demands for cost reductions and quality
improvements.





Our
supply agreements with some of our customers require us to provide our products
at predetermined prices. In some cases, these prices decline over the course of
the contract and may require us to meet certain productivity and cost reduction
targets. In addition, our customers may require us to share productivity savings
in excess of our cost reduction targets. The costs that we incur in fulfilling
these contracts may vary substantially from our initial estimates. Unanticipated
cost increases or the inability to meet certain cost reduction targets may occur
as a result of several factors, including increases in the costs of labor,
components or materials. In some cases, we are permitted to pass on to our
customers the cost increases associated with specific materials. Cost overruns
that we cannot pass on to our customers could adversely affect our business,
financial condition or results of operations.





OEMs have
exerted considerable pressure on component suppliers to reduce costs, improve
quality and provide additional design and engineering capabilities and continue
to demand and receive price reductions and measurable increases in quality
through their use of competitive selection processes, rating programs, and
various other arrangements. We may be unable to generate sufficient production
cost savings in the future to offset required price reductions. Additionally,
OEMs have generally required component suppliers to provide more design
engineering input at earlier stages of the product development process, the
costs of which have, in some cases, been absorbed by the suppliers. Future price
reductions, increased quality standards and additional engineering capabilities
required by OEMs may reduce our profitability and have a material adverse effect
on our business, financial condition or results of operations.





We
are dependent on the availability and price of raw materials and other
supplies.





We
require substantial amounts of raw materials and other supplies and
substantially all such materials we require are purchased from outside sources.
The availability and prices of raw materials and other supplies may be subject
to curtailment or change due to, among other things, new laws or regulations,
suppliers’ allocations to other purchasers, interruptions in production by
suppliers, changes in exchange rates and worldwide price levels. As demand for
raw materials and other supplies increases as a result of a recovering economy,
we may have difficulties obtaining adequate raw materials and other supplies
from our suppliers to satisfy our customers. At times, we have experienced
difficulty obtaining adequate supplies of semiconductors and memory chips for
our Electronics segment and nylon and resins for our Control Devices segment. If
we cannot obtain adequate raw materials and other supplies or if we experience
an increase in the price of raw materials and other supplies, our business,
financial condition or results of operations could be materially adversely
affected.


42




The
loss or insolvency of any of our major customers would adversely affect our
future results.





We are
dependent on several principal customers for a significant percentage of our net
sales. In 2009, our top three customers were Navistar International Corp., Deere
& Company and Ford Motor Company, which comprised 27%, 12% and 9% of our net
sales, respectively. In 2009, our top ten customers accounted for 69% of our net
sales. The loss of any significant portion of our sales to these customers or
any other customers would have a material adverse impact on our results of
operations and financial condition. The contracts we have entered into with many
of our customers provide for supplying the customers’ requirements for a
particular model, rather than for manufacturing a specific quantity of products.
Such contracts range from one year to the life of the model, which is generally
three to seven years. These contracts are subject to renegotiation, which may
affect product pricing and generally may be terminated by our customers at any
time. Therefore, the loss of a contract for a major model or a significant
decrease in demand for certain key models or any group of related models sold by
any of our major customers could have a material adverse impact on our results
of operations and financial condition by reducing cash flows and our ability to
spread costs over a larger revenue base. We also compete to supply products for
successor models and are subject to the risk that the customer will not select
us to produce products on any such model, which could have a material adverse
impact on our business, financial condition or results of operations. In
addition, we have significant receivable balances related to these customers and
other major customers that would be at risk in the event of their
bankruptcy.





Consolidation
among vehicle parts customers and suppliers could make it more difficult for us
to compete successfully.





The
vehicle part supply industry has undergone a significant consolidation as OEM
customers have sought to lower costs, improve quality and increasingly purchase
complete systems and modules rather than separate components. As a result of the
cost focus of these major customers, we have been, and expect to continue to be,
required to reduce prices. Because of these competitive pressures, we cannot
assure you that we will be able to increase or maintain gross margins on product
sales to our customers. The trend toward consolidation among vehicle parts
suppliers is resulting in fewer, larger suppliers who benefit from purchasing
and distribution economies of scale. If we cannot achieve cost savings and
operational improvements sufficient to allow us to compete successfully in the
future with these larger, consolidated companies, our business, financial
condition or results of operations could be adversely affected.





The
emergence of significant competitors from bankruptcy may adversely affect
us.





Certain
of our significant competitors filed for bankruptcy protection and, recently, a
few of our significant competitors, including Delphi Automotive LLP, emerged
from bankruptcy protection. The bankruptcy protection afforded to these
competitors has allowed them to eliminate or substantially reduce contractual
obligations, including significant amounts of debt, and avoid liabilities. The
elimination or reduction of these obligations has made these competitors
stronger financially, which could have an adverse effect on our competitive
position and results of operations. The emergence of other significant
competitors from bankruptcy protection could have further adverse effects on our
competitive position and our business, financial condition or results of
operations.





Our
physical properties and information systems are subject to damage as a result of
disasters, outages or similar events.





Our
offices and facilities, including those used for design and development,
material procurement, manufacturing, logistics and sales are located throughout
the world and are subject to possible destruction, temporary stoppage or
disruption as a result of any number of unexpected events. If any of these
facilities or offices were to experience a significant loss as a result of any
of the above events, it could disrupt our operations, delay production,
shipments and revenue, and result in large expenses to repair or replace these
facilities or offices.





In
addition, network and information system shutdowns caused by unforeseen events
such as power outages, disasters, hardware or software defects, computer viruses
and computer security violations pose increasing risks. Such an event could also
result in the disruption of our operations, delay production, shipments and
revenue, and result in large expenditures necessary to repair or replace such
network and information systems.


43




We
must implement and sustain a competitive technological advantage in producing
our products to compete effectively.





Our
products are subject to changing technology, which could place us at a
competitive disadvantage relative to alternative products introduced by
competitors. Our success will depend on our ability to continue to meet
customers’ changing specifications with respect to quality, service, price,
timely delivery and technological innovation by implementing and sustaining
competitive technological advances. Our business may, therefore, require
significant ongoing and recurring additional capital expenditures and investment
in product development and manufacturing and management information systems. We
cannot assure you that we will be able to achieve the technological advances or
introduce new products that may be necessary to remain competitive. Our
inability to continuously improve existing products, to develop new products and
to achieve technological advances could have a material adverse effect on our
business, financial condition or results of operations.





We
may experience increased costs and other disruptions to our business associated
with labor unions.





As of
June 30, 2010, we had approximately 5,800 employees, approximately 1,600 of whom
were salaried and the balance of whom were paid on an hourly basis. Although we
have no collective bargaining agreements covering U.S. employees, certain
employees located in Estonia, France, Mexico, Spain, Sweden and the United
Kingdom either (1) are represented by a union and are covered by a collective
bargaining agreement or (2) are covered by works council or other employment
arrangements required by law. We cannot assure you that other of our employees
will not be represented by a labor organization in the future or that any of our
facilities will not experience a work stoppage or other labor disruption. Any
work stoppage or other labor disruption involving our employees, employees of
our customers (many of which customers have employees who are represented by
unions), or employees of our suppliers could have a material adverse effect on
our business, financial condition or results of operations by disrupting our
ability to manufacture our products or reducing the demand for our
products.





Compliance
with environmental and other governmental regulations could be costly and
require us to make significant expenditures.





Our
operations are subject to various federal, state, local and foreign laws and
regulations governing, among other things:





•
            the discharge of pollutants into
      the air and water;


•
            the generation, handling,
      storage, transportation, treatment,
and


•
            disposal of waste and other
      materials; the cleanup of contaminated properties; and the health and
      safety of our employees.





Our
business, operations and facilities are subject to environmental and health and
safety laws and regulations, many of which provide for substantial fines for
violations. The operation of our manufacturing facilities entails risks and we
cannot assure you that we will not incur material costs or liabilities in
connection with these operations. In addition, potentially significant
expenditures could be required in order to comply with evolving environmental,
health and safety laws, regulations or requirements that may be adopted or
imposed in the future. Changes in environmental, health and safety laws,
regulations and requirements or other governmental regulations could increase
our cost of doing business or adversely affect the demand for our
products.





We also
may be required to investigate or clean up contamination resulting from past or
current uses of our properties. At our Sarasota, Florida facility, for example,
groundwater contamination caused by previous operations will likely require
future investigation and/or cleanup. Based on current information, we do not
believe this matter will have a material adverse impact on our business,
financial condition or results of operations, but we cannot assure you that this
matter or other matters involving environmental contamination will not have such
an impact.


44




We
may incur material product liability costs.





We may be
subject to product liability claims in the event that the failure of any of our
products results in personal injury or death and we cannot assure you that we
will not experience material product liability losses in the future. We maintain
insurance against such product liability claims, but we cannot assure you that
such coverage will be adequate for liabilities ultimately incurred or that it
will continue to be available on terms acceptable to us. In addition, if any of
our products prove to be defective, we may be required to participate in
government-imposed or customer OEM-instituted recalls involving such products. A
successful claim brought against us that exceeds available insurance coverage or
a requirement to participate in any product recall could have a material adverse
effect on our business, financial condition or results of
operations.





Increased
or unexpected product warranty claims could adversely affect us.





We
provide our customers a warranty covering workmanship, and in some cases
materials, on products we manufacture. Our warranty generally provides that
products will be free from defects and adhere to customer specifications. If a
product fails to comply with the warranty, we may be obligated or compelled, at
our expense, to correct any defect by repairing or replacing the defective
product. We maintain warranty reserves in an amount based historical trends of
units sold and payment amounts combined with our current understanding of the
status of existing claims. To estimate the warranty reserves, we must forecast
the resolution of existing claims, as well as expected future claims on products
previously sold. The amounts estimated to be due and payable could differ
materially from what we may ultimately be required to pay. An increase in the
rate of warranty claims or the occurrence of unexpected warranty claims could
have a material adverse effect on our customer relations and our financial
condition or results of operations.





Disruptions
in the financial markets are adversely impacting the availability and cost of
credit which could negatively affect our business.





The
credit facility has a maximum borrowing level of $100.0 million and is scheduled
to expire on November 1, 2012. We will need to refinance the credit facility
prior to its expiration. Disruptions in the financial markets, including the
bankruptcy, insolvency or restructuring of certain financial institutions, and
the general lack of liquidity continue to adversely impact the availability and
cost of credit for many companies, including us. We may be required to refinance
the credit facility at terms and rates that are less favorable than our current
terms and rates, which could adversely affect our business, financial condition
or results of operations.





Our
significant debt obligations could limit our flexibility in managing our
business and expose us to risks.





We are
highly leveraged. As of September 30, 2010, after giving effect to the issuance
of the senior secured notes and application of the proceeds therefrom, together
with a portion of our cash on hand, to retire the Old Notes, we would have had
approximately $177.3 million of indebtedness outstanding. In addition, we are
permitted under the credit facility and the indenture governing the senior
secured notes to incur additional debt, subject to specified limitations. Our
high degree of leverage and the terms of our indebtedness may have important
consequences to holders of our securities, including the following:





•
            we may have difficulty satisfying
      our obligations with respect to our indebtedness, and if we fail to comply
      with these requirements, an event of default could
      result;


•
            we may be required to dedicate a
      substantial portion of our cash flow from operations to required payments
      on indebtedness, thereby reducing the availability of cash flow for
      working capital, capital expenditures and other general corporate
      activities;


•
            covenants relating to our debt
      may limit our ability to obtain additional financing for working capital,
      capital expenditures and other general corporate
      activities;


•
            covenants relating to our debt
      may limit our flexibility in planning for, or reacting to, changes in our
      business and the industry in which we
  operate;


•
            we may be more vulnerable than
      our competitors to the impact of economic downturns and adverse
      developments in our business;
and


•
            we may be placed at a competitive
      disadvantage against any less leveraged
  competitors.





These and
other consequences of our substantial leverage and the terms of our indebtedness
could have a material adverse effect on our business, financial condition or
results of operations.


45




Restrictive
covenants in the credit facility and the indenture governing the senior secured
notes may limit our ability to pursue our business strategies.





The
credit facility and the indenture governing the senior secured notes limit our
ability to, among other things:





•
            incur additional debt and
      guarantees;


•
            pay dividends and repurchase our
      stock;


•
            make other restricted payments,
      including investments;


•
            create
    liens;


•
            sell or otherwise dispose of
      assets, including capital stock of
  subsidiaries;


•
            enter into agreements that
      restrict dividends from
subsidiaries;


•
            enter into transactions with our
      affiliates;


•
            consolidate, merge or sell or
      otherwise dispose of all or substantially all of our assets;
      and


•
            substantially change the nature
      of our business.





The
agreement governing the credit facility also requires us to maintain a ratio of
(1) consolidated EBITDA, as defined in the credit facility, less specified items
to (2) consolidated fixed charges, as defined in the credit facility, of at
least 1.10 to 1.00 whenever undrawn availability under the credit facility is
less than $20 million. Our ability to comply with this fixed charge coverage
ratio requirement, as well as the restrictive covenants under the terms of our
indebtedness, may be affected by events beyond our control.





The
restrictions contained in the indenture governing the senior secured notes and
the agreement governing the credit facility could:





•
            limit our ability to plan for or
      react to market conditions or meet capital needs or otherwise restrict our
      activities or business plans;
and


•
            adversely affect our ability to
      finance our operations, strategic acquisitions, investments or alliances
      or other capital needs or to engage in other business activities that
      would be in our interest.





A
breach of any of the restrictive covenants under our indebtedness or our
inability to comply with the fixed charge coverage ratio requirement in the
credit facility could result in a default under the agreement governing the
credit facility and the indenture governing the senior secured notes. If a
default occurs, holders of the senior secured notes could declare all principal
and interest to be due and payable, the lenders under the credit facility could
elect to declare all outstanding borrowings, together with accrued interest and
other fees, to be immediately due and payable and terminate any commitments they
have to provide further borrowings, and holders of the senior secured notes and
the credit facility lenders could pursue foreclosure and other remedies against
us and our assets.





We
may not be able to generate sufficient cash flows to meet our debt service
obligations.





Our
ability to make scheduled payments on, or to refinance, our obligations with
respect to our indebtedness will depend on our financial and operating
performance, which in turn will be affected by general economic conditions and
by financial, competitive, regulatory and other factors beyond our control. We
cannot assure you that our business will generate sufficient cash flow from
operations or that future sources of capital will be available to us in an
amount sufficient to enable us to service our indebtedness or to fund our other
liquidity needs. If we are unable to generate sufficient cash flow to satisfy
our debt obligations, we may have to undertake alternative financing plans, such
as refinancing or restructuring our debt, selling assets, reducing or delaying
capital investments or seeking to raise additional capital. We cannot assure you
that any refinancing would be possible, that any assets could be sold or, if
sold, of the timing of the sales and the amount of proceeds that may be realized
from those sales, or that additional financing could be obtained on acceptable
terms, if at all. The credit facility and the indenture governing the senior
secured notes restrict our ability to dispose of assets and use the proceeds
from the disposition. Our inability to generate sufficient cash flows to satisfy
our debt obligations, or to refinance our indebtedness on commercially
reasonable terms, would materially and adversely affect our business, financial
condition and results of operations.


46




If we
cannot make scheduled payments on our debt, we will be in default and, as a
result, holders of the senior secured notes could declare all outstanding
principal and interest to be due and payable, the lenders under the credit
facility could terminate their commitments to lend us money, holders of the
senior secured notes and the lenders under the credit facility could foreclose
on or exercise other remedies against the assets securing the senior secured
notes and borrowings under the credit facility and we could be forced into
bankruptcy, liquidation or other insolvency proceedings, which, in each case,
could result in your losing your investment in the Common Shares.





We
are subject to risks related to our international operations.





Approximately
19.1% of our net sales in 2009 were derived from sales outside of North America.
Non-current assets outside of North America accounted for approximately 8.1% of
our non-current assets as of December 31, 2009. International sales and
operations are subject to significant risks, including, among
others:





•
            political and economic
      instability;


•
            restrictive trade
      policies;


•
            economic conditions in local
      markets;


•
            currency exchange
      controls;


•
            labor
    unrest;


•
            difficulty in obtaining
      distribution support and potentially adverse tax consequences;
      and


•
            the imposition of product tariffs
      and the burden of complying with a wide variety of international and U.S.
      export laws.





Additionally,
to the extent any portion of our net sales and expenses are denominated in
currencies other than the U.S. dollar, changes in exchange rates could have a
material adverse effect on our results of operations or financial
condition.





We
face risks arising from our equity investments in companies that we do not
control.





Our
consolidated results of operations include significant equity earnings from
unconsolidated subsidiaries. For the year ended December 31, 2009, we recognized
$7.8 million of equity earnings and received $7.3 million in cash dividends from
our unconsolidated joint ventures, PST and Minda. Our ability to direct the
operations of these entities is limited because we do not own a majority
interest in either of them and we are bound by the terms of shareholder
agreements with our joint venture partners. The performance of these joint
ventures could also be adversely affected by disagreements between us and our
joint venture partners, and sales of our equity interests in these entities are
subject to rights of first refusal and other contractual
limitations.





Our
annual effective tax rate could be volatile and materially change as a result of
changes in the mix of earnings and other factors.





Our
overall effective tax rate is equal to our total tax expense as a percentage of
our total earnings before tax. However, tax expense and benefits are not
recognized on a global basis, but rather on a jurisdictional or legal entity
basis. Losses in certain jurisdictions may not provide a current financial
statement tax benefit. As a result, changes in the mix of earnings between
jurisdictions, among other factors, could have a significant impact on our
overall effective tax rate.





If
we fail to protect our intellectual property rights or maintain our rights to
use licensed intellectual property or are found liable for infringing the rights
of others, our business could be adversely affected.





Our
intellectual property, including our patents, trademarks, copyrights, trade
secrets and license agreements, are important in the operation of our
businesses, and we rely on the patent, trademark, copyright and trade secret
laws of the United States and other countries, as well as nondisclosure
agreements, to protect our intellectual property rights. We may not, however, be
able to prevent third parties from infringing, misappropriating or otherwise
violating our intellectual property, breaching any nondisclosure agreements with
us, or independently developing technology that is similar or superior to ours
and not covered by our intellectual property. Any of the foregoing could reduce
any competitive advantage we have developed, cause us to lose sales or otherwise
harm our business. We cannot assure you that any intellectual property will
provide us with any competitive advantage or will not be challenged, rejected,
cancelled, invalidated or declared unenforceable. In the case of pending patent
applications, we may not be successful in securing issued patents, or securing
patents that provide us with a competitive advantage for our businesses. In
addition, our competitors may design products around our patents that avoid
infringement and violation of our intellectual property rights.


47




We cannot
be certain that we have rights to use all intellectual property used in the
conduct of our businesses or that we have complied with the terms of agreements
by which we acquire such rights, which could expose us to infringement,
misappropriation or other claims alleging violations of third party intellectual
property rights. Third parties have asserted and may assert or prosecute
infringement claims against us in connection with the services and products that
we offer, and we may or may not be able to successfully defend these claims.
Litigation, either to enforce our intellectual property rights or to defend
against claims regarding intellectual property rights of others, could result in
substantial costs and in a diversion of our resources. Any such claims and
resulting litigation could require us to enter into licensing agreements (if
available on acceptable terms or at all), pay damages and cease making or
selling certain products and could result in a loss of our intellectual property
protection. Moreover, we may need to redesign some of our products to avoid
future infringement liability. We also may be required to indemnify customers or
other third parties at significant expense in connection with such claims and
actions. Any of the foregoing could have a material adverse effect on our
business, financial condition or results of operations.





Our
inability to recover from natural or man-made disasters or similar events could
adversely affect our business.





Our
business and financial results may be affected by certain events that we cannot
anticipate or that are beyond our control, such as natural or man-made
disasters, national emergencies, significant labor strikes, work stoppages,
political unrest, war or terrorist activities that could curtail production at
our facilities and cause delayed deliveries and canceled orders. In addition, we
purchase components, raw materials, information technology and other services
from numerous suppliers, and, even if our facilities are not directly affected
by such events, we could be affected by interruptions at such suppliers. Such
suppliers may not be able to quickly recover from such events and may be subject
to additional risks such as financial problems that limit their ability to
conduct their operations. We cannot assure you that we will have insurance to
adequately compensate us for any of these events.





Our
business is very competitive and increased competition could reduce our
sales.





The
markets for our products are highly competitive. We compete based on quality,
service, price, performance, timely delivery and technological innovation. Many
of our competitors are more diversified and have greater financial and other
resources than we do. In addition, with respect to certain of our products, some
of our competitors are divisions of our OEM customers. We cannot assure you that
our business will not be adversely affected by competition or that we will be
able to maintain our profitability if the competitive environment
changes.





We
may not be able to successfully integrate acquisitions into our business or may
otherwise be unable to benefit from pursuing acquisitions.





Failure
to successfully identify, complete and/or integrate selective acquisitions could
have a material adverse effect on us. A portion of our growth in sales and
earnings has been generated from acquisitions and subsequent improvements in the
performance of the businesses acquired. We expect to continue a strategy of
selectively identifying and acquiring businesses with complementary products. We
cannot assure you that any business acquired by us will be successfully
integrated with our operations or prove to be profitable. We could incur
substantial indebtedness in connection with our acquisition strategy, which
could significantly increase our interest expense. Covenant restrictions
relating to such indebtedness could restrict our ability to pay dividends, fund
capital expenditures and consummate additional acquisitions. We anticipate that
acquisitions could occur in geographic markets, including foreign markets, in
which we do not currently operate. As a result, the process of integrating
acquired operations into our existing operations may result in unforeseen
operating difficulties and may require significant financial resources that
would otherwise be available for the ongoing development or expansion of
existing operations. Any failure to successfully integrate such acquisitions
could have a material adverse impact on our business, financial condition or
results of operations.


48




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





None.





Item
3.  Defaults Upon Senior Securities.





None.





Item
4.  (Removed and Reserved)





Item
5.  Other Information.





None.





Item
6.  Exhibits.





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


49




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:  October
      26, 2010
            /s/ John C. CoreyJohn
      C. Corey
              President
      and Chief Executive Officer(Principal
      Executive Officer)Date:  October
      26, 2010
            /s/ George E. StricklerGeorge
      E. StricklerExecutive
      Vice President, Chief Financial Officer and
              Treasurer(Principal
      Financial and Accounting Officer)




50





INDEX
TO EXHIBITS





Exhibit
                Number
              
              Exhibit4.1
              
              Senior
      Secured Notes Indenture dated as of October 4, 2010 among Stoneridge, Inc.
      as Issuer, Stoneridge Control Devices, Inc. and Stoneridge Electronics,
      Inc., as Guarantors, and The Bank of New York Mellon Trust Company, N.A.,
      as trustee (incorporated by reference to exhibit 4.1 to the Company’s
      Current Report on Form 8-K filed on October 6, 2010).4.2
              
              First
      Supplemental Indenture to Indenture dated as of October 4, 2010 among
      Stoneridge, Inc., Stoneridge Control Devices, Inc., Stoneridge
      Electronics, Inc. and The Bank of New York Mellon Trust Company, N.A., as
      trustee (incorporated by reference to exhibit 4.2 to the Company’s Current
      Report on Form 8-K filed on October 6, 2010).10.1
              
              Amended
      and Restated Credit and Security Agreement dated as of September 20, 2010
      by and among Stoneridge, Inc., Stoneridge Control Devices, Inc. and
      Stoneridge Electronics, Inc., as Borrowers, the Lending Institutions Named
      Therein as Lenders, PNC Bank, National Association, Comerica Bank,
      JPMorgan Chase Bank, N.A. and Fifth Third Bank, as lenders, filed
      herewith.10.2
              
              Letter
      agreement dated October 7, 2010 by and among Stoneridge, Inc. and certain
      members of, or trustees of trusts for the benefit of members of the D.M.
      Draime family (incorporated by reference to exhibit 10.1 to the Company’s
      Current Report on Form 8-K filed on October 12, 2010).31.1
              
              Chief
      Executive Officer certification pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002, filed herewith.31.2
              
              Chief
      Financial Officer certification pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002, filed herewith.32.1
              
              Chief
      Executive Officer certification pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed
      herewith.32.2
              
              Chief
      Financial Officer certification pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed
      herewith.




51