UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-Q
 
 x
              QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For the quarter ended March 31,
2009
 
 OR
 
 o
                TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For
the transition period from________to ________
 
 Commission file number:
001-13337
 
 STONERIDGE, INC.
 (Exact
name of registrant as specified in its charter)
 
 Ohio
                  
                  34-1598949(State or other jurisdiction
      of
                  
                  (I.R.S.
      Employerincorporation
      or organization)
                  
                  Identification
      No.)9400 East Market Street, Warren,
      Ohio
                  
                  44484(Address
      of principal executive offices)
                  
                  (Zip
      Code)
 
 (330) 856-2443
 Registrant’s
telephone number, including area code
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90
days.                             
x Yes o No
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such
files).                   o Yes o No
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.  (Check one):
 
 Large accelerated filer  ̈
                  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).   o Yes x No
 
 The
number of Common Shares, without par value, outstanding as of April 24, 2009 was
25,177,981.
  
  STONERIDGE,
INC. AND SUBSIDIARIES
 
 INDEX
 
 Page No.PART
      I–FINANCIAL INFORMATIONItem
      1.
                                  Financial
      StatementsCondensed
      Consolidated Balance Sheets (Unaudited) as of March 31, 2009 and December
      31, 2008
                                  
                                  
                                  2Condensed
      Consolidated Statements of Operations (Unaudited) For the Three Months
      Ended March 31, 2009 and March 31, 2008
                                  
                                  
                                  3Condensed
      Consolidated Statements of Cash Flows (Unaudited) For the Three Months
      Ended March 31, 2009 and March 31, 2008
                                  
                                  
                                  4Notes
      to Condensed Consolidated Financial Statements (Unaudited)
                                  
                                  
                                  5Item
      2.
                                  Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                  
                                  
                                  21Item
      3.
                                  Quantitative
      and Qualitative Disclosures About Market Risk
                                  
                                  
                                  27Item
      4.
                                  Controls
      and Procedures
                                  
                                  
                                  27PART
      II–OTHER INFORMATIONItem
      1.
                                  Legal
      Proceedings
                                  
                                  
                                  28Item
      1A.
                                  Risk
      Factors
                                  
                                  
                                  28Item
      2.
                                  Unregistered
      Sales of Equity Securities and Use of Proceeds
                                  
                                  
                                  28Item
      3.
                                  Defaults
      Upon Senior Securities
                                  
                                  
                                  28Item
      4.
                                  Submission
      of Matters to a Vote of Security Holders
                                  
                                  
                                  28Item
      5.
                                  Other
      Information
                                  
                                  
                                  28Item
      6.
                                  Exhibits
                                  
                                  
                                  28Signatures
                                  
                                  
                                  
                                  29Index
      to Exhibits
                                  
                                  
                                  30EX
      – 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
 (Unaudited)
 (in
thousands)
 
 March 31,
                      
                      
                      December 31,2009
                      
                      
                      2008ASSETSCurrent
      Assets:Cash
      and cash equivalents
                      
                      $
                      89,177
                      
                      
                      $
                      92,692Accounts
      receivable, less reserves of $4,274 and $4,204,
    respectively
                      
                      
                      86,124
                      
                      
                      
                      96,535Inventories,
      net
                      
                      
                      48,158
                      
                      
                      
                      54,800Prepaid
      expenses and other
                      
                      
                      12,273
                      
                      
                      
                      9,069Deferred
      income taxes, net of valuation allowance
                      
                      
                      1,548
                      
                      
                      
                      1,495Total
      current assets
                      
                      
                      237,280
                      
                      
                      
                      254,591Long-Term
      Assets:Property,
      plant and equipment, net
                      
                      
                      85,712
                      
                      
                      
                      87,701Other
      Assets:Investments
      and other, net
                      
                      
                      39,687
                      
                      
                      
                      40,145Total
      long-term assets
                      
                      
                      125,399
                      
                      
                      
                      127,846Total
      Assets
                      
                      $
                      362,679
                      
                      
                      $
                      382,437LIABILITIES AND SHAREHOLDERS'
      EQUITYCurrent
      Liabilities:Accounts
      payable
                      
                      $
                      43,226
                      
                      
                      $
                      50,719Accrued
      expenses and other liabilities
                      
                      
                      46,715
                      
                      
                      
                      43,485Total
      current liabilities
                      
                      
                      89,941
                      
                      
                      
                      94,204Long-Term
      Liabilities:Long-term
      debt
                      
                      
                      183,000
                      
                      
                      
                      183,000Deferred
      income taxes
                      
                      
                      4,573
                      
                      
                      
                      7,002Other
      liabilities
                      
                      
                      6,457
                      
                      
                      
                      6,473Total
      long-term liabilities
                      
                      
                      194,030
                      
                      
                      
                      196,475Shareholders'
      Equity:Preferred
      Shares, without par value, authorized 5,000 shares, none
      issued
                      
                      
                      -
                      
                      
                      
                      -Common
      Shares, without par value, authorized 60,000 shares, issued 25,286 and
      24,772 shares and outstanding 25,178 and 24,665 shares, respectively,
      with no stated value
                      
                      
                      -
                      
                      
                      
                      -Additional
      paid-in capital
                      
                      
                      158,233
                      
                      
                      
                      158,039Common
      Shares held in treasury, 108 and 107 shares, respectively, at
      cost
                      
                      
                      (129
                      )
                      
                      
                      (129
                      )Retained
      deficit
                      
                      
                      (70,735
                      )
                      
                      
                      (59,155
                      )Accumulated
      other comprehensive loss
                      
                      
                      (8,661
                      )
                      
                      
                      (6,997
                      )Total
      shareholders' equity
                      
                      
                      78,708
                      
                      
                      
                      91,758Total
      Liabilities and Shareholders' Equity
                      
                      $
                      362,679
                      
                      
                      $
                      382,437
 
 The
accompanying notes are an integral part of these condensed consolidated
financial statements.
  2
 
 STONERIDGE,
INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 (in
thousands, except per share data)
 
 ThreeMonthsEndedMarch31,2009
                    
                    
                    2008Net
      Sales
                    
                    $
                    121,085
                    
                    
                    $
                    203,070Costs
      and Expenses:Cost
      of goods sold
                    
                    
                    101,810
                    
                    
                    
                    151,253Selling,
      general and administrative
                    
                    
                    27,077
                    
                    
                    
                    36,282Restructuring
      charges
                    
                    
                    958
                    
                    
                    
                    1,422Operating
      Income (Loss
                    
                    
                    (8,760
                    )
                    
                    
                    14,113Interest
      expense, net
                    
                    
                    5,497
                    
                    
                    
                    5,372Equity
      in earnings of investees
                    
                    
                    (575
                    )
                    
                    
                    (3,819
                    )Loss
      on early extinguishment of debt
                    
                    
                    -
                    
                    
                    
                    499Other
      expense, net
                    
                    
                    6
                    
                    
                    
                    402Income
      (Loss) Before Income Taxes
                    
                    
                    (13,688
                    )
                    
                    
                    11,659Provision
      (benefit) for income taxes
                    
                    
                    (2,108
                    )
                    
                    
                    5,112Net
      Income (Loss
                    
                    $
                    (11,580
                    )
                    
                    $
                    6,547Basic
      net income (loss) per share
                    
                    $
                    (0.49
                    )
                    
                    $
                    0.28Basic
      weighted average shares outstanding
                    
                    
                    23,464
                    
                    
                    
                    23,286Diluted
      net income (loss) per share
                    
                    $
                    (0.49
                    )
                    
                    $
                    0.28Diluted
      weighted average shares outstanding
                    
                    
                    23,464
                    
                    
                    
                    23,647
 
 The
accompanying notes are an integral part of these condensed consolidated
financial statements.
  3
  STONERIDGE,
INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 (in
thousands)
 
 Three
      Months EndedMarch 31,2009
                            
                            
                            2008OPERATING ACTIVITIES:Net
      income (loss)
                            
                            $
                            (11,580
                            )
                            
                            $
                            6,547Adjustments
      to reconcile net income (loss) to net cash provided by operating
      activities -Depreciation
                            
                            
                            5,061
                            
                            
                            
                            7,287Amortization
                            
                            
                            239
                            
                            
                            
                            433Deferred
      income taxes
                            
                            
                            (2,506
                            )
                            
                            
                            3,656Equity
      in earnings of investees
                            
                            
                            (575
                            )
                            
                            
                            (3,819
                            )Loss
      (gain) on sale of fixed assets
                            
                            
                            2
                            
                            
                            
                            (8
                            )Share-based
      compensation expense
                            
                            
                            564
                            
                            
                            
                            1,081Changes
      in operating assets and liabilities -Accounts
      receivable, net
                            
                            
                            9,424
                            
                            
                            
                            (12,189
                            )Inventories,
      net
                            
                            
                            6,055
                            
                            
                            
                            (8,103
                            )Prepaid
      expenses and other
                            
                            
                            (402
                            )
                            
                            
                            (2,560
                            )Other
      assets
                            
                            
                            3
                            
                            
                            
                            23Accounts
      payable
                            
                            
                            (7,236
                            )
                            
                            
                            5,690Accrued
      expenses and other
                            
                            
                            2,149
                            
                            
                            
                            10,585Net
      cash provided by operating activities
                            
                            
                            1,198
                            
                            
                            
                            8,623INVESTING ACTIVITIES:Capital
      expenditures
                            
                            
                            (3,945
                            )
                            
                            
                            (5,513
                            )Proceeds
      from sale of fixed assets
                            
                            
                            92
                            
                            
                            
                            36Business
      acquisitions and other
                            
                            
                            -
                            
                            
                            
                            (1,061
                            )Net
      cash used for investing activities
                            
                            
                            (3,853
                            )
                            
                            
                            (6,538
                            )FINANCING ACTIVITIES:Repayments
      of long-term debt
                            
                            
                            -
                            
                            
                            
                            (11,000
                            )Share-based
      compensation activity, net
                            
                            
                            -
                            
                            
                            
                            42Premiums
      related to early extinguishment of debt
                            
                            
                            -
                            
                            
                            
                            (358
                            )Net
      cash used for financing activities
                            
                            
                            -
                            
                            
                            
                            (11,316
                            )Effect
      of exchange rate changes on cash and cash equivalents
                            
                            
                            (860
                            )
                            
                            
                            1,580Net
      change in cash and cash equivalents
                            
                            
                            (3,515
                            )
                            
                            
                            (7,651
                            )Cash
      and cash equivalents at beginning of period
                            
                            
                            92,692
                            
                            
                            
                            95,924Cash
      and cash equivalents at end of period
                            
                            $
                            89,177
                            
                            
                            $
                            88,273
 
 The
accompanying notes are an integral part of these condensed consolidated
financial statements.
  4
  STONERIDGE,
INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (in
thousands, except share and per share data, unless otherwise
indicated)
 
 (1)  Basis
of Presentation
 
 The
accompanying condensed consolidated financial statements have been prepared by
Stoneridge, Inc. (the “Company”) without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the
“Commission”).  The information furnished in these condensed
consolidated financial statements includes normal recurring adjustments and
reflects all adjustments, which are, in the opinion of management, necessary for
a fair presentation of such financial statements.  Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with U.S. generally accepted accounting principles have been
condensed or omitted pursuant to the Commission’s rules and
regulations.  The results of operations for the three months ended
March 31, 2009 are not necessarily indicative of the results to be expected for
the full year.
 
 Although
the Company believes that the disclosures are adequate to make the information
presented not misleading, it is suggested that these condensed consolidated
financial statements be read in conjunction with the audited consolidated
financial statements and the notes thereto included in the Company’s Form 10-K
for the fiscal year ended December 31, 2008.
 
 The
Company has reclassified the presentation of certain prior-period information to
conform to the current presentation.
 
 (2)  Inventories
 
 Inventories
are valued at the lower of cost or market.  Cost is determined by the
last-in, first-out (“LIFO”) method for approximately 71% and 72% of the
Company’s inventories at March 31, 2009 and December 31, 2008, respectively, and
by the first-in, first-out (“FIFO”) method for all other
inventories.  Inventory cost includes material, labor and
overhead.  Inventories consist of the following:
 
 March 31,
                  
                  
                  December 31,2009
                  
                  
                  2008Raw
      materials
                  
                  $
                  30,072
                  
                  
                  $
                  32,981Work-in-progress
                  
                  
                  5,029
                  
                  
                  
                  8,876Finished
      goods
                  
                  
                  16,632
                  
                  
                  
                  15,890Total
      inventories
                  
                  
                  51,733
                  
                  
                  
                  57,747Less:
      LIFO reserve
                  
                  
                  (3,575
                  )
                  
                  
                  (2,947
                  )Inventories,
      net
                  
                  $
                  48,158
                  
                  
                  $
                  54,800
 
 (3)  Fair
Value of Financial Instruments
 
 Financial
Instruments
 
 A
financial instrument is cash or a contract that imposes an obligation to
deliver, or conveys a right to receive cash or another financial
instrument.  The carrying values of cash and cash equivalents,
accounts receivable and accounts payable are considered to be representative of
fair value because of the short maturity of these instruments.  The
estimated fair value of the Company’s senior notes (fixed rate debt) at March
31, 2009 and December 31, 2008, per quoted market sources, was $143.7 million
and $124.4 million, respectively.  The carrying value was $183.0
million as of March 31, 2009 and December 31, 2008.
 
 Derivative
Instruments and Hedging Activities
 
 Effective
January 1, 2009, we adopted Statement of Financial Accounting Standard (“SFAS”)
No. 161, Disclosures About
Derivative Instruments and Hedging Activities – an amendment of FASB Statement
No. 133, which expands the quarterly and annual disclosure requirements
about our derivative instruments and hedging activities.  The adoption of
SFAS 161 did not have an impact on the Company’s financial position, results of
operations or cash flows.
  5
  STONERIDGE,
INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (in
thousands, except share and per share data, unless otherwise
indicated)
 
 We make
use of derivative instruments in foreign exchange and commodity price hedging
programs.  Derivatives currently in use are foreign currency forward
contracts and commodity swaps.  These contracts are used strictly for
hedging and not for speculative purposes.  They are used to mitigate
uncertainty and volatility and to cover underlying
exposures.  Management believes that its use of these instruments to
reduce risk is in the Company’s best interest.  The counterparties to
these financial instruments are financial institutions with strong credit
ratings.
 
 The
Company conducts business internationally and therefore is exposed to foreign
currency exchange risk.  The Company uses derivative financial
instruments as cash flow hedges to mitigate its exposure to fluctuations in
foreign currency exchange rates by reducing the effect of such fluctuations on
foreign currency denominated intercompany transactions and other foreign
currency exposures.  The currencies hedged by the Company include the
British pound and Mexican peso.  In certain instances, the foreign
currency forward contracts are marked to market, with gains and losses
recognized in the Company’s condensed consolidated statement of operations as a
component of other expense, net.  The Company’s foreign currency
forward contracts substantially offset gains and losses on the underlying
foreign currency denominated transactions.  As of March 31, 2009 and
December 31, 2008, the Company held foreign currency forward contracts to reduce
the exposure related to the Company’s British pound-denominated intercompany
receivables.  These contracts expire in April 2009.  For the
three months ended March 31, 2009, the Company recognized a $2,247 loss related
to the British pound contract in the condensed consolidated statement of
operations as a component of other expense, net.  The Company also
holds contracts intended to reduce exposure to the Mexican
peso.  These contracts were executed to hedge forecasted transactions,
and therefore the contracts are accounted for as cash flow
hedges.  These Mexican peso-denominated foreign currency option
contracts expire monthly throughout 2009.  The effective portion of
the unrealized gain or loss is deferred and reported in the Company’s condensed
consolidated balance sheets as a component of accumulated other comprehensive
loss.  The Company’s expectation is that the cash flow hedges will be
highly effective in the future.  The effectiveness of the transactions
has been and will be measured on an ongoing basis using regression
analysis.
 
 To
mitigate the risk of future price volatility and, consequently, fluctuations in
gross margins, the Company has entered into fixed price commodity swaps with a
financial institution to fix the cost of copper purchases.   In
December 2007, we entered into a fixed price swap contract for 1.0 million
pounds of copper, which expired on December 31, 2008.  In September
2008, we entered into a fixed price swap contract for 1.4 million pounds of
copper, which cover the period from January 2009 to December
2009.  Because these contracts were executed to hedge forecasted
transactions, the contracts are accounted for as cash flow
hedges.  The unrealized gain or loss for the effective portion of the
hedge is deferred and reported in the Company’s condensed consolidated balance
sheets as a component of accumulated other comprehensive loss. The Company deems
these cash flow hedges to be highly effective.  The effectiveness of
the transactions has been and will be measured on an ongoing basis using
regression analysis.
  6
  STONERIDGE,
INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (in
thousands, except share and per share data, unless otherwise
indicated)
 
 The
notional amounts and fair values of derivative instruments in the condensed
consolidated balance sheets were as follows:
 
 Prepaid expenses
                            
                            
                            Accrued expenses andNotionalamounts1
                            
                            
                            andotherassets
                            
                            
                            otherliabilitiesMarch 31,
                            
                            
                            December 31,
                            
                            
                            March 31,
                            
                            
                            December 31,
                            
                            
                            March 31,
                            
                            
                            December 31,2009
                            
                            
                            2008
                            
                            
                            2009
                            
                            
                            2008
                            
                            
                            2009
                            
                            
                            2008Derivatives
      designated as hedging instruments under SFAS 133:Forward
      currency contracts
                            
                            $
                            26,418
                            
                            
                            $
                            35,457
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            2,669
                            
                            
                            $
                            2,930Commodity
      contracts
                            
                            
                            3,063
                            
                            
                            
                            4,085
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,127
                            
                            
                            
                            2,10429,481
                            
                            
                            
                            39,542
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            3,796
                            
                            
                            
                            5,034Derivatives
      not designated as hedging instruments under SFAS 133:Forward
      currency contracts
                            
                            
                            6,583
                            
                            
                            
                            8,762
                            
                            
                            
                            -
                            
                            
                            
                            2,101
                            
                            
                            
                            16
                            
                            
                            
                            -Total
      derivatives
                            
                            $
                            36,064
                            
                            
                            $
                            48,304
                            
                            
                            $
                            -
                            
                            
                            $
                            2,101
                            
                            
                            $
                            3,812
                            
                            
                            $
                            5,034
 
 1 -
Notional amounts represent the gross contract / notional amount of the
derivatives outstanding.
 
 Amounts
recorded in accumulated other comprehensive loss in Equity and in net loss for
the three months ended March 31, 2009 were as follows:
 
 Amountofgain
                          recordedin
                          accumulatedother
                          comprehensiveloss
                        
                        
                        Amountofloss
                          reclassifiedfrom
                          accumulatedother
                          comprehensiveloss
                          intonetloss
                        
                        Locationofloss
                          reclassifiedfrom
                          accumulatedother
                          comprehensivelossinto
                          netlossDerivatives
      designated as cash flow hedgesForward
      currency contracts
                        
                        $
                        261
                        
                        
                        $
                        -Commodity
      contracts
                        
                        
                        977
                        
                        
                        
                        (477
                        )
                        Cost
      of goods sold$
                        1,238
                        
                        
                        $
                        (477
                        )
 
 These
derivatives will be reclassified from other comprehensive loss to the
consolidated statement of operations over the next twelve months.
 
 Statement
of Financial Accounting Standard No. 157, Fair Value
Measurements
  Effective
January 1, 2009, we adopted SFAS No. 157, Fair Value Measurements(“SFAS 157”) as it relates to nonfinancial assets and nonfinancial
liabilities measured on a non-recurring basis.  We adopted SFAS 157
for financial assets and financial liabilities on January 1,
2008.  SFAS 157 clarifies the definition of fair value, prescribes
methods for measuring fair value, establishes a fair value hierarchy based on
the inputs used to measure fair value and expands disclosures about the use of
fair value measurements.  The adoption of SFAS 157 did not have a
material impact on our fair value measurements.
  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.
 
 March 31, 2009
                          
                          
                          December 31,Fair Value Estimated Using
                          
                          
                          2008Fair Value
                          
                          
                          Level 1 inputs(1)
                          
                          
                          Level 2 inputs(2)
                          
                          
                          Fair ValueFinancial
      assets carried at fair valueAvailable
      for sale security
                          
                          $
                          169
                          
                          
                          $
                          169
                          
                          
                          $
                          -
                          
                          
                          $
                          252Forward
      currency contracts
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          2,101Total
      financial assets carried at fair value
                          
                          $
                          169
                          
                          
                          $
                          169
                          
                          
                          $
                          -
                          
                          
                          $
                          2,353Financial
      liabilities carried at fair valueForward
      currency contracts
                          
                          $
                          2,685
                          
                          
                          $
                          -
                          
                          
                          $
                          2,685
                          
                          
                          $
                          2,930Commodity
      hedge contracts
                          
                          
                          1,127
                          
                          
                          
                          -
                          
                          
                          
                          1,127
                          
                          
                          
                          2,104Total
      financial liabilities carried at fair value
                          
                          $
                          3,812
                          
                          
                          $
                          -
                          
                          
                          $
                          3,812
                          
                          
                          $
                          5,034
 
 (1)
              Fair
      values estimated using Level 1 inputs, which consist of quoted prices in
      active markets for identical assets or liabilities that the Company has
      the ability to access at the measurement date.  The available
      for sale security is an equity security that is publically
      traded.
 
 (2)
              Fair
      values estimated using Level 2 inputs, other than quoted prices, that are
      observable for the asset or liability, either directly or indirectly and
      include among other things, quoted prices for similar assets or
      liabilities in markets that are active or inactive as well as inputs other
      than quoted prices that are observable.  For forward currency
      and commodity hedge contracts, inputs include foreign currency exchange
      rates and commodity indexes.
 
 Available
for sale securities are valued using a market approach based on the quoted
market prices of identical instruments when available or other observable inputs
such as trading prices of identical instruments in active markets. Our foreign
currency forward contracts are valued using an income approach based on the
present value of the forward rate less the contract rate multiplied by the
notional amount.  Commodity swaps are valued using an income approach
based on the present value of the commodity index prices less the contract rate
multiplied by the notional amount.
 
 (4)  Share-Based
Compensation
 
 Total
compensation related expense for share-based compensation arrangements
recognized in the condensed consolidated statements of operations as a component
of selling, general and administrative expenses was $564 and $1,081 for the
three months ended March 31, 2009 and 2008, respectively.
  8
  STONERIDGE,
INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (in
thousands, except share and per share data, unless otherwise
indicated)
 
 (5)  Comprehensive
Income (Loss)
 
 SFAS No.
130, Reporting Comprehensive
Income, establishes standards for the reporting and disclosure of
comprehensive income (loss).
 
 The
components of comprehensive income (loss), net of tax are as
follows:
 
 Three Months EndedMarch 31,2009
                      
                      
                      2008Net
      income (loss)
                      
                      $
                      (11,580
                      )
                      
                      $
                      6,547Other
      comprehensive income (loss):Currency
      translation adjustments
                      
                      
                      (2,890
                      )
                      
                      
                      3,816Pension
      liability adjustments
                      
                      
                      42
                      
                      
                      
                      (9
                      )Unrealized
      loss on marketable securities
                      
                      
                      (54
                      )
                      
                      
                      (17
                      )Unrealized
      gain on derivatives
                      
                      
                      1,238
                      
                      
                      
                      518Total
      other comprehensive income (loss)
                      
                      
                      (1,664
                      )
                      
                      
                      4,308Comprehensive
      income (loss)
                      
                      $
                      (13,244
                      )
                      
                      $
                      10,855
 
 Accumulated
other comprehensive income (loss), net of tax is comprised of the
following:
 
 March 31,
                    
                    
                    December 31,2009
                    
                    
                    2008Foreign
      currency translation adjustments
                    
                    $
                    (2,884
                    )
                    
                    $
                    6Pension
      liability adjustments
                    
                    
                    (1,917
                    )
                    
                    
                    (1,959
                    )Unrealized
      loss on marketable securities
                    
                    
                    (84
                    )
                    
                    
                    (30
                    )Unrecognized
      loss on derivatives
                    
                    
                    (3,776
                    )
                    
                    
                    (5,014
                    )Accumulated
      other comprehensive loss
                    
                    $
                    (8,661
                    )
                    
                    $
                    (6,997
                    )
 
 6)  Long-Term
Debt
 
 Senior
Notes
 
 The
Company had $183.0 million of senior notes outstanding at March 31, 2009 and
December 31, 2008.  During the quarter ended March 31, 2008, the
Company purchased and retired $11.0 million in face value of the senior
notes.  The outstanding senior notes bear interest at an annual rate
of 11.50% and mature on May 1, 2012.  The senior notes are redeemable,
at the Company’s option, at 103.833% until April 30, 2009.  The senior
notes will remain redeemable at various levels until the maturity
date.   Interest is payable on May 1 and November 1 of each
year.  The senior notes do not contain financial
covenants.  The Company was in compliance with all non-financial
covenants at March 31, 2009 and December 31, 2008.
 
 Credit
Facility
 
 On
November 2, 2007, the Company entered into an asset-based credit facility, which
permits borrowing up to a maximum level of $100.0 million.  At March
31, 2009 and December 31, 2008, there were no borrowings on this asset-based
credit facility (the “credit facility”).  The available borrowing
capacity on this credit facility is based on eligible current assets, as
defined.  At March 31, 2009 and December 31, 2008, the Company had
borrowing capacity of $56.3 million and $57.7 million, respectively based on
eligible current assets.  The credit facility does not contain
financial performance covenants; however, restrictions include limits on capital
expenditures, operating leases and dividends.  The credit facility
expires on November 1, 2011, and requires a commitment fee of 0.25% on the
unused balance.  Interest is payable monthly at either (i) the higher
of the prime rate or the Federal Funds rate plus 0.50%, plus a margin of 0.00%
to 0.25% or (ii) LIBOR plus a margin of 1.00% to 1.75%, depending upon the
Company’s undrawn availability, as defined.  The Company was in
compliance with all covenants at March 31, 2009 and December 31,
2008.
  9
  STONERIDGE,
INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (in
thousands, except share and per share data, unless otherwise
indicated)
 
 On April
24, 2009 and April 29, 2009, the Company entered into Amendment No. 1 and
Amendment No. 2 (the “amendments”), respectively to the credit
facility.  These amendments were necessary for the Company to
participate in the United States Department of Treasury Auto Supplier Program,
which is discussed within Note 16, Subsequent Events.  These
amendments had no impact on the significant terms of the credit
facility.
 
 (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 (loss) by the weighted-average of all potentially dilutive Common Shares
that were outstanding during the periods presented.  For all periods
in which the Company recognized a net loss the Company has recognized zero
dilutive effect from securities as no anti-dilution is permitted under SFAS No.
128, Earnings Per
Share.
 
 Actual
weighted-average shares outstanding used in calculating basic and diluted net
income (loss) per share are as follows:
 
 Three Months EndedMarch 31,2009
                    
                    
                    2008Basic
      weighted-average shares outstanding
                    
                    
                    23,463,578
                    
                    
                    
                    23,285,848Effect
      of dilutive securities
                    
                    
                    -
                    
                    
                    
                    360,828Diluted
      weighted-average shares outstanding
                    
                    
                    23,463,578
                    
                    
                    
                    23,646,676
 
 Options
not included in the computation of diluted net income (loss) per share to
purchase 195,750 and 167,750 Common Shares at an average price of $10.22 and
$13.12 per share were outstanding at March 31, 2009 and March 31, 2008,
respectively.  These outstanding options were not included in the
computation of diluted net income (loss) per share because their respective
exercise prices were greater than the average market price of Common
Shares.  These options were excluded from the computation of diluted
earnings per share under the treasury stock method.
 
 As of
March 31, 2009, 628,275 performance-based restricted shares were
outstanding.  These shares were not included in the computation of
diluted net loss per share because not all vesting conditions were achieved as
of March 31, 2009.  These shares may or may not become dilutive based
on the Company’s ability to meet or exceed future performance
targets.
 
 (8)  Restructuring
 
 On
October 29, 2007, the Company announced restructuring initiatives to improve
manufacturing efficiency and cost position by ceasing manufacturing operations
at its Sarasota, Florida and Mitcheldean, United Kingdom
locations.  In the third quarter of 2008, the Company announced
restructuring initiatives in our Canton, Massachusetts, location. In the fourth
quarter of 2008, the Company announced restructuring initiatives in our Orebro,
Sweden and Tallinn, Estonia locations as well as additional initiatives in our
Canton, Massachusetts location.  In response to the depressed
conditions in the North American and European commercial vehicle and automotive
markets, the Company began additional restructuring initiatives in our Juarez,
Mexico, Tallinn, Estonia and Canton, Massachusetts locations during the first
quarter of 2009.  In connection with these initiatives, the Company
recorded restructuring charges of $982 and $2,520 in the Company’s condensed
consolidated statement of operations for the three months ended March 31, 2009
and 2008, respectively.  Restructuring expenses that were general and
administrative in nature were included in the Company’s condensed consolidated
statement of operations as part of restructuring charges, while the remaining
restructuring related charges were included in cost of goods sold.
  10
  STONERIDGE,
INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (in
thousands, except share and per share data, unless otherwise
indicated)
 
 The
expenses related to the restructuring initiatives that belong to the Electronics
reportable segment included the following:
 
 Severance
                    Costs
                  
                  
                  Contract
                    Termination
                    Costs
                  
                  
                  Other
                    Associated
                    Costs
                  
                  
                  TotalTotal
      expected restructuring charges
                  
                  $
                  4,064
                  
                  
                  $
                  1,397
                  
                  
                  $
                  2,504
                  
                  
                  $
                  7,9652007
      charge to expense
                  
                  $
                  468
                  
                  
                  $
                  -
                  
                  
                  $
                  103
                  
                  
                  $
                  571Cash
      payments
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (103
                  )
                  
                  
                  (103
                  )Accrued
      balance at December 31, 2007
                  
                  
                  468
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  4682008
      charge to expense
                  
                  
                  2,830
                  
                  
                  
                  1,305
                  
                  
                  
                  2,401
                  
                  
                  
                  6,536Cash
      payments
                  
                  
                  (2,767
                  )
                  
                  
                  -
                  
                  
                  
                  (2,221
                  )
                  
                  
                  (4,988
                  )Accrued
      balance at December 31, 2008
                  
                  
                  531
                  
                  
                  
                  1,305
                  
                  
                  
                  180
                  
                  
                  
                  2,016First
      quarter 2009 charge to expense
                  
                  
                  369
                  
                  
                  
                  92
                  
                  
                  
                  -
                  
                  
                  
                  461Cash
      Payments
                  
                  
                  (732
                  )
                  
                  
                  (93
                  )
                  
                  
                  (180
                  )
                  
                  
                  (1,005
                  )Accrued
      Balance at March 31, 2009
                  
                  $
                  168
                  
                  
                  $
                  1,304
                  
                  
                  $
                  -
                  
                  
                  $
                  1,472Remaining
      expected restructuring charge
                  
                  $
                  397
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  397
 
 The
expenses related to the restructuring initiatives that belong to the Control
Devices reportable segment included the following:
 
 Severance
                                Costs
                              
                              
                              Other
                                Associated
                                Costs
                              
                              
                              Total(A)Total
      expected restructuring charges
                              
                              $
                              3,375
                              
                              
                              $
                              6,449
                              
                              
                              $
                              9,8242007
      charge to expense
                              
                              $
                              357
                              
                              
                              $
                              99
                              
                              
                              $
                              456Cash
      payments
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Accrued
      balance at December 31, 2007
                              
                              
                              357
                              
                              
                              
                              99
                              
                              
                              
                              4562008
      charge to expense
                              
                              
                              2,521
                              
                              
                              
                              6,325
                              
                              
                              
                              8,846Cash
      payments
                              
                              
                              (1,410
                              )
                              
                              
                              (6,024
                              )
                              
                              
                              (7,434
                              )Accrued
      balance at December 31, 2008
                              
                              
                              1,468
                              
                              
                              
                              400
                              
                              
                              
                              1,868First
      quarter 2009 charge to expense
                              
                              
                              497
                              
                              
                              
                              25
                              
                              
                              
                              522Cash
      Payments
                              
                              
                              (1,740
                              )
                              
                              
                              (25
                              )
                              
                              
                              (1,765
                              )Accrued
      Balance at March 31, 2009
                              
                              $
                              225
                              
                              
                              $
                              400
                              
                              
                              $
                              625Remaining
      expected restructuring charge
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              -
 
 (A)
              Total
      expected restructuring charges does not include the expected gain from the
      future sale of the Company’s Sarasota, Florida,
  facility.
 
 All
restructuring charges result in cash outflows.  Severance costs relate
to a reduction in workforce.  Contract termination costs represent
costs associated with long-term lease obligations that were cancelled as part of
the restructuring initiatives.  Other associated costs include premium
direct labor, inventory and equipment move costs, relocation expense, increased
inventory carrying cost and miscellaneous expenditures associated with exiting
business activities.  No fixed-asset impairment charges were incurred
because assets were transferred to other locations for continued
production.
  11
  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.
 
 Product
Warranty and Recall
 
 Amounts
accrued for product warranty and recall claims are established based on the
Company’s best estimate of the amounts necessary to settle future and existing
claims on products sold as of the balance sheet dates.  These accruals
are based on several factors including past experience, production changes,
industry developments and various other considerations.  The Company
can provide no assurances that it will not experience material claims in the
future or that it will not incur significant costs to defend or settle such
claims beyond the amounts accrued or beyond what the Company may recover from
its suppliers.
 
 The
following provides a reconciliation of changes in product warranty and recall
liability for the three months ended March 31, 2009 and 2008:
 
 2009
                      
                      
                      2008Product
      warranty and recall at beginning of period
                      
                      $
                      5
      ,527
                      
                      
                      $
                      5,306Accruals
      for products shipped during period
                      
                      
                      468
                      
                      
                      
                      841Aggregate
      changes in pre-existing liabilities due to claims
    developments
                      
                      
                      7
                      
                      
                      
                      664Settlements
      made during the period (in cash or in kind
                      
                      
                      (1,264
                      )
                      
                      
                      (617
                      )Product
      warranty and recall at end of period
                      
                      $
                      4,738
                      
                      
                      $
                      6,194
 
 (10)  Employee
Benefit Plans
 
 The
Company has a single defined benefit pension plan that covers certain employees
in the United Kingdom.  The components of net periodic cost (benefit)
cost under the defined benefit pension plan are as follows:
 
 Three Months EndedMarch 31,2009
                      
                      
                      2008Service
      cost
                      
                      $
                      14
                      
                      
                      $
                      35Interest
      cost
                      
                      
                      219
                      
                      
                      
                      316Expected
      return on plan assets
                      
                      
                      (165
                      )
                      
                      
                      (361
                      )Amortization
      of actuarial loss
                      
                      
                      42
                      
                      
                      
                      -Net
      periodic benefit cost (benefit)
                      
                      $
                      110
                      
                      
                      $
                      (10
                      )
 
 The
Company expects to contribute $94 to its defined benefit pension plan in
2009.  Of this amount, contributions of $30 have been made to the
pension plan as of March 31, 2009.
  12
  STONERIDGE,
INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (in
thousands, except share and per share data, unless otherwise
indicated)
 
 (11)  Income
Taxes
 
 The
Company recognized a provision (benefit) from income taxes of $(2,108), or 15.4%
of pre-tax loss, and $5,112, or 43.9% of pre-tax income, for federal, state and
foreign income taxes for the three months ended March 31, 2009 and 2008,
respectively.  As reported at December 31, 2008, the Company is in a
cumulative loss position and provides a valuation allowance offsetting federal,
state and certain foreign deferred tax assets. As a result, a tax benefit is not
be provided for losses incurred during the first quarter of 2009, for federal,
state and certain foreign jurisdictions. The inability to recognize a tax
benefit for these losses and other deferred tax assets had a significant impact
on our effective tax rate as well as the comparability of the current quarter
effective tax rate to prior periods, in which the Company had not recorded a
federal valuation allowance.  The difference in the effective tax rate
for the three months ended March 31, 2009 compared to the three months ended
March 31, 2008, was primarily attributable to the federal valuation allowance
provided against the domestic loss recognized during the three months ended
March 31, 2009 offset by recording a tax benefit related to current period
losses in certain foreign jurisdictions in which it is more likely than not that
the benefit of those losses will be realized in the current year. Additionally,
the effective tax rate for the three months ended March 31, 2008 was negatively
affected by the valuation allowance that was required to be recorded during 2008
related to the restructuring expenses incurred in connection with certain United
Kingdom operations.
 
 (12)  Accounting
Pronouncements
 
 In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations(“SFAS
141(R)”).  This standard improves reporting by creating greater
consistency in the accounting and financial reporting of business
combinations.  Additionally, SFAS 141(R) requires the acquiring
entity in a business combination to recognize all (and only) the assets acquired
and liabilities assumed in the transaction; establishes the acquisition-date
fair value as the measurement objective for all assets acquired and liabilities
assumed; and requires the acquirer to disclose to investors and other users all
of the information they need to evaluate and understand the nature and financial
effect of the business combination.  SFAS 141(R) became effective
for the Company on January 1, 2009.  The adoption of SFAS 141(R) did
not have an impact on the Company’s financial position, results of operations or
cash flows.
 
 In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements(“SFAS 160”).  This standard
improves the relevance, comparability and transparency of financial information
provided to investors by requiring all entities to report noncontrolling
(minority) interests in subsidiaries in the same way.  Additionally,
SFAS 160 eliminates the diversity that currently exists in accounting for
transactions between an entity and noncontrolling interests by requiring they be
treated as equity transactions.  SFAS 160 became effective for
the Company on January 1, 2009.  The adoption of SFAS 160 did not have
an impact on the Company’s financial position, results of operations or cash
flows.
 
 In
December 2008, the FASB issued Staff Position 132(R)-1, Employers’ Disclosures about
Postretirement Benefit Plan Assets (“FAS 132(R)-1”).  FAS
132(R)-1 requires entities to provide enhanced disclosures about how investment
allocation decisions are made, the major categories of plan assets, the inputs
and valuation techniques used to measure fair value of plan assets, the effect
of fair value measurements using significant unobservable inputs on changes in
plan assets for the period, and significant concentrations of risk within plan
assets.  FAS 132(R)-1 is effective for the Company beginning with its
year ending December 31, 2009.  The Company is currently assessing the
potential impacts, if any, on its consolidated financial
statements.
 
 (13)  Segment
Reporting
 
 SFAS No.
131, Disclosures about
Segments of an Enterprise and Related Information, establishes standards
for reporting information about operating segments in financial
statements.  Operating segments are defined as components of an
enterprise that are evaluated regularly by the Company’s chief operating
decision maker in deciding how to allocate resources and in assessing
performance.  The Company’s chief operating decision maker is the
president and chief executive officer.
 
 The
Company has two reportable segments: Electronics and Control
Devices.  The Company’s operating segments are aggregated based on
sharing similar economic characteristics.  Other aggregation factors
include the nature of the products offered and management and oversight
responsibilities.   The Electronics reportable segment produces
electronic instrument clusters, electronic control units, driver information
systems and electrical distribution systems, primarily wiring harnesses and
connectors for electrical power and signal distribution.  The Control
Devices reportable segment produces electronic and electromechanical switches
and control actuation devices and sensors.
 
 The
accounting policies of the Company’s reportable segments are the same as those
described in Note 2, “Summary of Significant Accounting Policies” of the
Company’s December 31, 2008 Form 10-K.  The Company’s management
evaluates the performance of its reportable segments based primarily on net
sales from external customers, capital expenditures and income (loss) before
income taxes.  Inter-segment sales are accounted for on terms similar
to those to third parties and are eliminated upon
consolidation.
  13
  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 EndedMarch 31,2009
                                        
                                        
                                        2008Net
      SalesElectronics
                                        
                                        $
                                        82,771
                                        
                                        
                                        $
                                        133,216Inter-segment
      sales
                                        
                                        
                                        1,858
                                        
                                        
                                        
                                        3,743Electronics
      net sales
                                        
                                        
                                        84,629
                                        
                                        
                                        
                                        136,959Control
      Devices
                                        
                                        
                                        38,314
                                        
                                        
                                        
                                        69,854Inter-segment
      sales
                                        
                                        
                                        709
                                        
                                        
                                        
                                        1,320Control
      Devices net sales
                                        
                                        
                                        39,023
                                        
                                        
                                        
                                        71,174Eliminations
                                        
                                        
                                        (2,567
                                        )
                                        
                                        
                                        (5,063
                                        )Total
      consolidated net sales
                                        
                                        $
                                        121,085
                                        
                                        
                                        $
                                        203,070Income
      (Loss) Before Income TaxesElectronics
                                        
                                        $
                                        (2,206
                                        )
                                        
                                        $
                                        12,991Control
      Devices
                                        
                                        
                                        (7,020
                                        )
                                        
                                        
                                        2,076Other
      corporate activities
                                        
                                        
                                        1,015
                                        
                                        
                                        
                                        1,907Corporate
      interest expense
                                        
                                        
                                        (5,477
                                        )
                                        
                                        
                                        (5,315
                                        )Total
      consolidated income (loss) before income taxes
                                        
                                        $
                                        (13,688
                                        )
                                        
                                        $
                                        11,659Depreciation
      and AmortizationElectronics
                                        
                                        $
                                        2,212
                                        
                                        
                                        $
                                        3,516Control
      Devices
                                        
                                        
                                        2,789
                                        
                                        
                                        
                                        3,829Corporate
      activities
                                        
                                        
                                        60
                                        
                                        
                                        
                                        (6
                                        )Total
      consolidated depreciation and amortization (A)
                                        
                                        $
                                        5,061
                                        
                                        
                                        $
                                        7,339Interest
      Expense (Income), netElectronics
                                        
                                        $
                                        21
                                        
                                        
                                        $
                                        57Control
      Devices
                                        
                                        
                                        (1
                                        )
                                        
                                        
                                        -Corporate
      activities
                                        
                                        
                                        5,477
                                        
                                        
                                        
                                        5,315Total
      consolidated interest expense, net
                                        
                                        $
                                        5,497
                                        
                                        
                                        $
                                        5,372Capital
      ExpendituresElectronics
                                        
                                        $
                                        1,510
                                        
                                        
                                        $
                                        1,771Control
      Devices
                                        
                                        
                                        1,935
                                        
                                        
                                        
                                        3,694Corporate
      activities
                                        
                                        
                                        500
                                        
                                        
                                        
                                        48Total
      consolidated capital expenditures
                                        
                                        $
                                        3,945
                                        
                                        
                                        $
                                        5,513March 31,
                                        
                                        
                                        December 31,2009
                                        
                                        
                                        2008Total
      AssetsElectronics
                                        
                                        $
                                        169,202
                                        
                                        
                                        $
                                        183,574Control
      Devices
                                        
                                        
                                        95,995
                                        
                                        
                                        
                                        98,608Corporate
      (B)
                                        
                                        
                                        236,622
                                        
                                        
                                        
                                        239,425Eliminations
                                        
                                        
                                        (139,140
                                        )
                                        
                                        
                                        (139,170
                                        )Total
      consolidated assets
                                        
                                        $
                                        362,679
                                        
                                        
                                        $
                                        382,437
 
 (A)
              These
      amounts exclude the amortization of deferred financing
    costs.
 (B)
              Assets
      located at Corporate consist primarily of cash, fixed assets, deferred
      income taxes and equity
investments.
  14
  STONERIDGE,
INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (in
thousands, except share and per share data, unless otherwise
indicated)
 
 The
following table presents net sales and non-current assets for each of the
geographic areas in which the Company operates:
 
 ThreeMonthsEndedMarch31,2009
                          
                          
                          2008Net SalesNorth
      America
                          
                          $
                          99,230
                          
                          
                          $
                          147,198Europe
      and other
                          
                          
                          21,855
                          
                          
                          
                          55,872Total
      consolidated net sales
                          
                          $
                          121,085
                          
                          
                          $
                          203,070
 
 March31,
                        
                        
                        December31,2009
                        
                        
                        2008Non-Current AssetsNorth
      America
                        
                        $
                        108,632
                        
                        
                        $
                        110,507Europe
      and other
                        
                        
                        16,767
                        
                        
                        
                        17,339Total
      consolidated non-current assets
                        
                        $
                        125,399
                        
                        
                        $
                        127,846
 
 (14)  Investments
 
 PST
Eletrônica S.A.
 
 The
Company has a 50% equity interest in PST Eletrônica S.A. (“PST”), a Brazilian
electronic system provider focused on security and convenience applications
primarily for the vehicle and motorcycle industry.  The investment is
accounted for under the equity method of accounting.  The Company’s
investment in PST was $31,364 and $31,021 at March 31, 2009 and December 31,
2008, respectively.
 
 Condensed
financial information for PST is as follows:
 
 Three
      Months EndedMarch 31,2009
                  
                  
                  2008Revenues
                  
                  $
                  21,400
                  
                  
                  $
                  43,946Cost
      of sales
                  
                  $
                  11,051
                  
                  
                  $
                  21,048Total
      pre-tax income
                  
                  $
                  1,260
                  
                  
                  $
                  8,763The
      Company's share of pre-tax income
                  
                  $
                  630
                  
                  
                  $
                  4,382
 
 Equity in
earnings of PST included in the condensed consolidated statements of operations
was $603 and $3,594 for the three months ended March 31, 2009 and 2008,
respectively.
 
 Minda
Stoneridge Instruments Ltd.
 
 The
Company has a 49% interest in Minda Stoneridge Instruments Ltd. (“Minda”), a
company based in India that manufactures electronics and instrumentation
equipment for the motorcycle and commercial vehicle market.  The
investment is accounted for under the equity method of
accounting.  The Company’s investment in Minda was $4,367 and $4,808
at March 31, 2009 and December 31, 2008, respectively.  Equity in
earnings (loss) of Minda included in the condensed consolidated statements of
operations was $(28) and $225, for the three months ended March 31, 2009 and
2008, respectively.
  15
  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 do not guarantee
the senior notes (Non-Guarantor Subsidiaries).
 
 Presented
below are condensed consolidating financial statements of the Parent (which
includes certain of the Company’s operating units), the Guarantor Subsidiaries,
the Non-Guarantor Subsidiaries and the Company on a condensed consolidated basis
as of March 31, 2009 and December 31, 2008 and for each of the three months
ended March 31, 2009 and 2008, respectively.
 
 These
summarized condensed consolidating financial statements are prepared under the
equity method.  Separate financial statements for the Guarantor
Subsidiaries are not presented based on management’s determination that they do
not provide additional information that is material to
investors.  Therefore, the Guarantor Subsidiaries are combined in the
presentations on the subsequent pages.
 March 31, 2009Parent
                              
                              
                              Guarantor
                                Subsidiaries
                              
                              
                              Non-
                                Guarantor
                                Subsidiaries
                              
                              
                              Eliminations
                              
                              
                              ConsolidatedASSETSCurrent
      Assets:Cash
      and cash equivalents
                              
                              $
                              47,123
                              
                              
                              $
                              186
                              
                              
                              $
                              41,868
                              
                              
                              $
                              -
                              
                              
                              $
                              89,177Accounts
      receivable, net
                              
                              
                              47,532
                              
                              
                              
                              17,329
                              
                              
                              
                              21,263
                              
                              
                              
                              -
                              
                              
                              
                              86,124Inventories,
      net
                              
                              
                              24,983
                              
                              
                              
                              9,403
                              
                              
                              
                              13,772
                              
                              
                              
                              -
                              
                              
                              
                              48,158Prepaid
      expenses and other
                              
                              
                              (301,816
                              )
                              
                              
                              298,104
                              
                              
                              
                              15,985
                              
                              
                              
                              -
                              
                              
                              
                              12,273Deferred
      income taxes, net of valuation allowance
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,548
                              
                              
                              
                              -
                              
                              
                              
                              1,548Total
      current assets
                              
                              
                              (182,178
                              )
                              
                              
                              325,022
                              
                              
                              
                              94,436
                              
                              
                              
                              -
                              
                              
                              
                              237,280Long-Term
      Assets:Property,
      plant and equipment, net
                              
                              
                              50,155
                              
                              
                              
                              23,510
                              
                              
                              
                              12,047
                              
                              
                              
                              -
                              
                              
                              
                              85,712Other
      Assets:Investments
      and other, net
                              
                              
                              38,648
                              
                              
                              
                              233
                              
                              
                              
                              806
                              
                              
                              
                              -
                              
                              
                              
                              39,687Investment
      in subsidiaries
                              
                              
                              398,036
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (398,036
                              )
                              
                              
                              -Total
      long-term assets
                              
                              
                              486,839
                              
                              
                              
                              23,743
                              
                              
                              
                              12,853
                              
                              
                              
                              (398,036
                              )
                              
                              
                              125,399Total
      Assets
                              
                              $
                              304,661
                              
                              
                              $
                              348,765
                              
                              
                              $
                              107,289
                              
                              
                              $
                              (398,036
                              )
                              
                              $
                              362,679LIABILITIES AND SHAREHOLDERS'
      EQUITYCurrent
      Liabilities:Accounts
      payable
                              
                              $
                              19,019
                              
                              
                              $
                              12,668
                              
                              
                              $
                              11,539
                              
                              
                              $
                              -
                              
                              
                              $
                              43,226Accrued
      expenses and other
                              
                              
                              18,156
                              
                              
                              
                              5,846
                              
                              
                              
                              22,713
                              
                              
                              
                              -
                              
                              
                              
                              46,715Total
      current liabilities
                              
                              
                              37,175
                              
                              
                              
                              18,514
                              
                              
                              
                              34,252
                              
                              
                              
                              -
                              
                              
                              
                              89,941Long-Term
      Liabilities:Long-term
      debt
                              
                              
                              183,000
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              183,000Deferred
      income taxes
                              
                              
                              2,648
                              
                              
                              
                              -
                              
                              
                              
                              1,925
                              
                              
                              
                              -
                              
                              
                              
                              4,573Other
      liabilities
                              
                              
                              3,130
                              
                              
                              
                              360
                              
                              
                              
                              2,967
                              
                              
                              
                              -
                              
                              
                              
                              6,457Total
      long-term liabilities
                              
                              
                              188,778
                              
                              
                              
                              360
                              
                              
                              
                              4,892
                              
                              
                              
                              -
                              
                              
                              
                              194,030Shareholders'
      Equity
                              
                              
                              78,708
                              
                              
                              
                              329,891
                              
                              
                              
                              68,145
                              
                              
                              
                              (398,036
                              )
                              
                              
                              78,708Total
      Liabilities and Shareholders' Equity
                              
                              $
                              304,661
                              
                              
                              $
                              348,765
                              
                              
                              $
                              107,289
                              
                              
                              $
                              (398,036
                              )
                              
                              $
                              362,679
  16
  STONERIDGE,
INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (in
thousands, except share and per share data, unless otherwise
indicated)
 
 Supplemental
condensed consolidating financial statements (continued):
 
 December 31, 2008Parent
                        
                        
                        Guarantor
                          Subsidiaries
                        
                        
                        Non-
                          Guarantor
                          Subsidiaries
                        
                        
                        Eliminations
                        
                        
                        ConsolidatedASSETSCurrent
      Assets:Cash
      and cash equivalents
                        
                        $
                        55,237
                        
                        
                        $
                        27
                        
                        
                        $
                        37,428
                        
                        
                        $
                        -
                        
                        
                        $
                        92,692Accounts
      receivable, net
                        
                        
                        51,274
                        
                        
                        
                        15,888
                        
                        
                        
                        29,373
                        
                        
                        
                        -
                        
                        
                        
                        96,535Inventories,
      net
                        
                        
                        28,487
                        
                        
                        
                        10,927
                        
                        
                        
                        15,386
                        
                        
                        
                        -
                        
                        
                        
                        54,800Prepaid
      expenses and other
                        
                        
                        (304,638
                        )
                        
                        
                        301,387
                        
                        
                        
                        12,320
                        
                        
                        
                        -
                        
                        
                        
                        9,069Deferred
      income taxes, net of valuation allowance
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,495
                        
                        
                        
                        -
                        
                        
                        
                        1,495Total
      current assets
                        
                        
                        (169,640
                        )
                        
                        
                        328,229
                        
                        
                        
                        96,002
                        
                        
                        
                        -
                        
                        
                        
                        254,591Long-Term
      Assets:Property,
      plant and equipment, net
                        
                        
                        50,458
                        
                        
                        
                        24,445
                        
                        
                        
                        12,798
                        
                        
                        
                        -
                        
                        
                        
                        87,701Other
      Assets:Investments
      and other, net
                        
                        
                        38,984
                        
                        
                        
                        319
                        
                        
                        
                        842
                        
                        
                        
                        -
                        
                        
                        
                        40,145Investment
      in subsidiaries
                        
                        
                        407,199
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (407,199
                        )
                        
                        
                        -Total
      long-term assets
                        
                        
                        496,641
                        
                        
                        
                        24,764
                        
                        
                        
                        13,640
                        
                        
                        
                        (407,199
                        )
                        
                        
                        127,846Total
      Assets
                        
                        $
                        327,001
                        
                        
                        $
                        352,993
                        
                        
                        $
                        109,642
                        
                        
                        $
                        (407,199
                        )
                        
                        $
                        382,437LIABILITIES AND SHAREHOLDERS'
      EQUITYCurrent
      Liabilities:Accounts
      payable
                        
                        $
                        23,778
                        
                        
                        $
                        13,652
                        
                        
                        $
                        13,289
                        
                        
                        $
                        -
                        
                        
                        $
                        50,719Accrued
      expenses and other
                        
                        
                        21,429
                        
                        
                        
                        5,065
                        
                        
                        
                        16,991
                        
                        
                        
                        -
                        
                        
                        
                        43,485Total
      current liabilities
                        
                        
                        45,207
                        
                        
                        
                        18,717
                        
                        
                        
                        30,280
                        
                        
                        
                        -
                        
                        
                        
                        94,204Long-Term
      Liabilities:Long-term
      debt
                        
                        
                        183,000
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        183,000Deferred
      income taxes
                        
                        
                        3,873
                        
                        
                        
                        41
                        
                        
                        
                        3,088
                        
                        
                        
                        -
                        
                        
                        
                        7,002Other
      liabilities
                        
                        
                        3,163
                        
                        
                        
                        360
                        
                        
                        
                        2,950
                        
                        
                        
                        -
                        
                        
                        
                        6,473Total
      long-term liabilities
                        
                        
                        190,036
                        
                        
                        
                        401
                        
                        
                        
                        6,038
                        
                        
                        
                        -
                        
                        
                        
                        196,475Shareholders'
      Equity
                        
                        
                        91,758
                        
                        
                        
                        333,875
                        
                        
                        
                        73,324
                        
                        
                        
                        (407,199
                        )
                        
                        
                        91,758Total
      Liabilities and Shareholders' Equity
                        
                        $
                        327,001
                        
                        
                        $
                        352,993
                        
                        
                        $
                        109,642
                        
                        
                        $
                        (407,199
                        )
                        
                        $
                        382,437
  17
  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 March 31,
      2009Parent
                    
                    
                    Guarantor
                      Subsidiaries
                    
                    
                    Non-
                      Guarantor
                      Subsidiaries
                    
                    
                    Eliminations
                    
                    
                    ConsolidatedNet
      Sales
                    
                    $
                    72,572
                    
                    
                    $
                    31,626
                    
                    
                    $
                    34,592
                    
                    
                    $
                    (17,705
                    )
                    
                    $
                    121,085Costs
      and Expenses:Cost
      of goods sold
                    
                    
                    63,393
                    
                    
                    
                    27,794
                    
                    
                    
                    27,707
                    
                    
                    
                    (17,084
                    )
                    
                    
                    101,810Selling,
      general and administrative
                    
                    
                    12,042
                    
                    
                    
                    6,566
                    
                    
                    
                    9,090
                    
                    
                    
                    (621
                    )
                    
                    
                    27,077Restructuring
      charges
                    
                    
                    16
                    
                    
                    
                    482
                    
                    
                    
                    460
                    
                    
                    
                    
                    
                    
                    
                    958Operating
      Loss
                    
                    
                    (2,879
                    )
                    
                    
                    (3,216
                    )
                    
                    
                    (2,665
                    )
                    
                    
                    -
                    
                    
                    
                    (8,760
                    )Interest
      expense (income), net
                    
                    
                    5,544
                    
                    
                    
                    -
                    
                    
                    
                    (47
                    )
                    
                    
                    -
                    
                    
                    
                    5,497Other
      expense (income), net
                    
                    
                    (572
                    )
                    
                    
                    -
                    
                    
                    
                    3
                    
                    
                    
                    -
                    
                    
                    
                    (569
                    )Equity
      deficit from subsidiaries
                    
                    
                    5,102
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (5,102
                    )
                    
                    
                    -Loss
      Before Income Taxes
                    
                    
                    (12,953
                    )
                    
                    
                    (3,216
                    )
                    
                    
                    (2,621
                    )
                    
                    
                    5,102
                    
                    
                    
                    (13,688
                    )Benefit
      for income taxes
                    
                    
                    (1,373
                    )
                    
                    
                    -
                    
                    
                    
                    (735
                    )
                    
                    
                    -
                    
                    
                    
                    (2,108
                    )Net
      Loss
                    
                    $
                    (11,580
                    )
                    
                    $
                    (3,216
                    )
                    
                    $
                    (1,886
                    )
                    
                    $
                    5,102
                    
                    
                    $
                    (11,580
                    )
 
 Three Months Ended March 31,
      2008Parent
                  
                  
                  Guarantor
                    Subsidiaries
                  
                  
                  Non-
                    Guarantor
                    Subsidiaries
                  
                  
                  Eliminations
                  
                  
                  ConsolidatedNet
      Sales
                  
                  $
                  104,046
                  
                  
                  $
                  52,567
                  
                  
                  $
                  70,331
                  
                  
                  $
                  (23,874
                  )
                  
                  $
                  203,070Costs
      and Expenses:Cost
      of goods sold
                  
                  
                  82,557
                  
                  
                  
                  40,259
                  
                  
                  
                  51,667
                  
                  
                  
                  (23,230
                  )
                  
                  
                  151,253Selling,
      general and administrative
                  
                  
                  14,265
                  
                  
                  
                  8,445
                  
                  
                  
                  14,216
                  
                  
                  
                  (644
                  )
                  
                  
                  36,282Restructuring
      charges
                  
                  
                  541
                  
                  
                  
                  -
                  
                  
                  
                  881
                  
                  
                  
                  -
                  
                  
                  
                  1,422Operating
      Income
                  
                  
                  6,683
                  
                  
                  
                  3,863
                  
                  
                  
                  3,567
                  
                  
                  
                  -
                  
                  
                  
                  14,113Interest
      expense (income), net
                  
                  
                  5,523
                  
                  
                  
                  -
                  
                  
                  
                  (151
                  )
                  
                  
                  -
                  
                  
                  
                  5,372Other
      expense (income), net
                  
                  
                  (3,321
                  )
                  
                  
                  -
                  
                  
                  
                  403
                  
                  
                  
                  -
                  
                  
                  
                  (2,918
                  )Equity
      earnings from subsidiaries
                  
                  
                  (6,125
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  6,125
                  
                  
                  
                  -Income
      Before Income Taxes
                  
                  
                  10,606
                  
                  
                  
                  3,863
                  
                  
                  
                  3,315
                  
                  
                  
                  (6,125
                  )
                  
                  
                  11,659Provision
      for income taxes
                  
                  
                  4,059
                  
                  
                  
                  63
                  
                  
                  
                  990
                  
                  
                  
                  -
                  
                  
                  
                  5,112Net
      Income
                  
                  $
                  6,547
                  
                  
                  $
                  3,800
                  
                  
                  $
                  2,325
                  
                  
                  $
                  (6,125
                  )
                  
                  $
                  6,547
  18
  STONERIDGE,
INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (in
thousands, except share and per share data, unless otherwise
indicated)
 
 Supplemental
condensed consolidating financial statements (continued):
 
 Three Months Ended March 31,
      2009Parent
                        
                        
                        Guarantor
                          Subsidiaries
                        
                        
                        Non-
                          Guarantor
                          Subsidiaries
                        
                        
                        Eliminations
                        
                        
                        ConsolidatedNet
      cash provided by (used for) operating activities
                        
                        $
                        (5,682
                        )
                        
                        $
                        894
                        
                        
                        $
                        5,986
                        
                        
                        $
                        -
                        
                        
                        $
                        1,198INVESTING ACTIVITIES:Capital
      expenditures
                        
                        
                        (2,434
                        )
                        
                        
                        (792
                        )
                        
                        
                        (719
                        )
                        
                        
                        -
                        
                        
                        
                        (3,945
                        )Proceeds
      from the sale of fixed assets
                        
                        
                        2
                        
                        
                        
                        57
                        
                        
                        
                        33
                        
                        
                        
                        -
                        
                        
                        
                        92Net
      cash used for investing activities
                        
                        
                        (2,432
                        )
                        
                        
                        (735
                        )
                        
                        
                        (686
                        )
                        
                        
                        -
                        
                        
                        
                        (3,853
                        )Effect
      of exchange rate changes on cash  and cash
equivalents
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (860
                        )
                        
                        
                        -
                        
                        
                        
                        (860
                        )Net
      change in cash and cash equivalents
                        
                        
                        (8,114
                        )
                        
                        
                        159
                        
                        
                        
                        4,440
                        
                        
                        
                        -
                        
                        
                        
                        (3,515
                        )Cash
      and cash equivalents at beginning of period
                        
                        
                        55,237
                        
                        
                        
                        27
                        
                        
                        
                        37,428
                        
                        
                        
                        -
                        
                        
                        
                        92,692Cash
      and cash equivalents at end of period
                        
                        $
                        47,123
                        
                        
                        $
                        186
                        
                        
                        $
                        41,868
                        
                        
                        $
                        -
                        
                        
                        $
                        89,177
 
 Three Months Ended March 31,
      2008Parent
                              
                              
                              Guarantor
                                Subsidiaries
                              
                              
                              Non-
                                Guarantor
                                Subsidiaries
                              
                              
                              Eliminations
                              
                              
                              ConsolidatedNet
      cash provided by (used for) operating activities
                              
                              $
                              8,840
                              
                              
                              $
                              1,151
                              
                              
                              $
                              (1,368
                              )
                              
                              $
                              -
                              
                              
                              $
                              8,623INVESTING ACTIVITIES:Capital
      expenditures
                              
                              
                              (3,501
                              )
                              
                              
                              (1,354
                              )
                              
                              
                              (658
                              )
                              
                              
                              -
                              
                              
                              
                              (5,513
                              )Proceeds
      from the sale of fixed assets
                              
                              
                              36
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              36Business
      acquisitions and other
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (1,061
                              )
                              
                              
                              -
                              
                              
                              
                              (1,061
                              )Net
      cash used for investing activities
                              
                              
                              (3,465
                              )
                              
                              
                              (1,354
                              )
                              
                              
                              (1,719
                              )
                              
                              
                              -
                              
                              
                              
                              (6,538
                              )FINANCING ACTIVITIES:Repayments
      of long-term debt
                              
                              
                              (11,000
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (11,000
                              )Share-based
      compensation activity, net
                              
                              
                              42
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              42Other
      financing costs
                              
                              
                              (358
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (358
                              )Net
      cash used for financing activities
                              
                              
                              (11,316
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (11,316
                              )Effect
      of exchange rate changes on cash  and cash
      equivalents
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,580
                              
                              
                              
                              -
                              
                              
                              
                              1,580Net
      change in cash and cash equivalents
                              
                              
                              (5,941
                              )
                              
                              
                              (203
                              )
                              
                              
                              (1,507
                              )
                              
                              
                              -
                              
                              
                              
                              (7,651
                              )Cash
      and cash equivalents at beginning of period
                              
                              
                              48,705
                              
                              
                              
                              255
                              
                              
                              
                              46,964
                              
                              
                              
                              -
                              
                              
                              
                              95,924Cash
      and cash equivalents at end of period
                              
                              $
                              42,764
                              
                              
                              $
                              52
                              
                              
                              $
                              45,457
                              
                              
                              $
                              -
                              
                              
                              $
                              88,273
  19
  STONERIDGE,
INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (in
thousands, except share and per share data, unless otherwise
indicated)
 
 (16) Subsequent
Events
 
 On April
24, 2009, the Company entered into the United State Treasury’s Auto Supplier
Program (the “Program”).  Entrance into the Program was retroactive to
March 18, 2009.  As part of entrance into the Program, the Company was
required to amend its credit facility, to allow the Company to sell certain
accounts receivables due from General Motors Corporation (“GM”) or Chrysler, LLC
(“Chrysler”) to GM Supplier Receivables LLC and Chrysler Receivables SPV LLC,
respectively, special purpose entities created by the United States Treasury
Department.  The Program guarantees these receivables, net of a two
percent administrative fee imposed on the receivables included in the
Program.
 
 On April
30, 2009, Chrysler filed for bankruptcy protection under Chapter 11 of the
United States Bankruptcy Code. The effect of this bankruptcy is under review by
management at this time. The Company’s sales to Chrysler for the three months
ended March 31, 2009 were $4,955, or approximately 4.1% of consolidated net
sales. Accounts receivable from Chrysler as of March 31, 2009 were
$3,967.  The Company has collected or has been able to include a
significant portion of this receivable amount in the Program.  The
Company believes that it will be able to collect the majority of the remaining
receivable balance from Chrysler.
  20




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





Overview





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





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





We
recognized a net loss for the quarter ended March 31, 2009 of $11.6 million, or
$(0.49) per diluted share, compared with net income of $6.5 million, or $0.28
per diluted share, for the first quarter of 2008.





Our first
quarter 2009 results were negatively effected by the continued dramatic decline
in the global commercial and North American automotive vehicle markets as well
as the economy as a whole.  In addition, our results were effected by
foreign currency exchange rates.  Foreign exchange translation
adversely effected our revenues by approximately $7.5 million during the quarter
ended March 31, 2009 when compared to the quarter ended March 31,
2008.  In addition, the results of our PST Eletrônica S.A. (“PST”)
joint venture in Brazil declined between the two periods.  Equity
earnings in the joint venture declined from $3.6 million for the first quarter
of 2008 to $0.6 million in the first quarter of 2009 due to lower demand for
PST’s security products.





The
decrease in selling, general and administrative expenses (“SG&A”) was
primarily due to decreased design and development and reduced compensation and
compensation related expenses incurred during the quarter ended March 31,
2009.  The decrease in design and development costs were caused by
customers delaying new product launches in the near term as well as planned
reductions in our design activities.





Also
affecting our results were our restructuring initiatives. Costs incurred during
the quarter ended March 31, 2009, related to these restructuring initiatives
amounted to approximately $1.0 million and were primarily comprised of one-time
termination benefits.  These restructuring actions were in response to
the depressed conditions in the North American and European commercial vehicle
and North American light vehicle markets.  First quarter 2008
restructuring expenses were approximately $2.5 million and were comprised of
one-time termination benefits and line-transfer expenses related to our
initiative to improve the Company’s manufacturing efficiency and cost position
by ceasing manufacturing operations at our Sarasota, Florida, and Mitcheldean,
United Kingdom, locations.





At March
31, 2009 and December 31, 2008, we maintained a cash and equivalents balance of
$89.2 million and $92.7 million, respectively.  As discussed in Note 6
to the condensed consolidated financial statements, we have no borrowings under
our asset-based credit facility.  At March 31, 2009 and December 31,
2008, we had borrowing capacity of $56.3 million and $57.7 million,
respectively.





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





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





On April
30, 2009, Chrysler filed for bankruptcy protection under Chapter 11 of the
United States Bankruptcy Code. The effect of this bankruptcy is under review by
management at this time. Our sales to Chrysler for the three months ended March
31, 2009 were approximately $5.0 million or approximately 4.1% of consolidated
net sales. Accounts receivable from Chrysler as of March 31, 2009 were
approximately $4.0 million.  We have collected or have been able to
include a significant portion of this receivable amount in the
Program.   We believe that we will be able to collect the
majority of the remaining receivable balance from Chrysler.




21




Results
of Operations





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





Three
Months Ended March 31, 2009 Compared to Three Months Ended March 31,
2008





Net Sales. Net sales for our
reportable segments, excluding inter-segment sales, for the three months ended
March 31, 2009 and 2008 are summarized in the following table (in
thousands):





Three
      Months EndedMarch
      31,
                                                                        
                                                                        
                                                                        $
      Increase /
                                                                        
                                                                        
                                                                        %
      Increase /2009
                                                                        
                                                                        
                                                                        2008
                                                                        
                                                                        
                                                                        (Decrease)
                                                                        
                                                                        
                                                                        (Decrease)Electronics
                                                                        
                                                                        $
                                                                        82,771
                                                                        
                                                                        
                                                                        
                                                                        68.4
                                                                        %
                                                                        
                                                                        $
                                                                        133,216
                                                                        
                                                                        
                                                                        
                                                                        65.6
                                                                        %
                                                                        
                                                                        $
                                                                        (50,445
                                                                        )
                                                                        
                                                                        
                                                                        (37.9
                                                                        )
      %Control
      Devices
                                                                        
                                                                        
                                                                        38,314
                                                                        
                                                                        
                                                                        
                                                                        31.6
                                                                        
                                                                        
                                                                        
                                                                        69,854
                                                                        
                                                                        
                                                                        
                                                                        34.4
                                                                        
                                                                        
                                                                        
                                                                        (31,540
                                                                        )
                                                                        
                                                                        
                                                                        (45.2
                                                                        )
      %Total
      net sales
                                                                        
                                                                        $
                                                                        121,085
                                                                        
                                                                        
                                                                        
                                                                        100.0
                                                                        %
                                                                        
                                                                        $
                                                                        203,070
                                                                        
                                                                        
                                                                        
                                                                        100.0
                                                                        %
                                                                        
                                                                        $
                                                                        (81,985
                                                                        )
                                                                        
                                                                        
                                                                        (40.4
                                                                        )
      %





The
decrease in net sales for our Electronics segment was primarily due to volume
declines in commercial vehicle production.  Our net sales were
negatively effected by foreign currency exchange rates of approximately $7.5
million between the two periods.





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





Net sales
by geographic location for the three months ended March 31, 2009 and 2008 are
summarized in the following table (in thousands):





Three
      Months EndedMarch
      31,
                                                                        
                                                                        
                                                                        $
      Increase /
                                                                        
                                                                        
                                                                        %
      Increase /2009
                                                                        
                                                                        
                                                                        2008
                                                                        
                                                                        
                                                                        (Decrease)
                                                                        
                                                                        
                                                                        (Decrease)North
      America
                                                                        
                                                                        $
                                                                        99,230
                                                                        
                                                                        
                                                                        
                                                                        82.0
                                                                        %
                                                                        
                                                                        $
                                                                        147,198
                                                                        
                                                                        
                                                                        
                                                                        72.5
                                                                        %
                                                                        
                                                                        $
                                                                        (47,968
                                                                        )
                                                                        
                                                                        
                                                                        (32.6
                                                                        ) %Europe
      and other
                                                                        
                                                                        
                                                                        21,855
                                                                        
                                                                        
                                                                        
                                                                        18.0
                                                                        
                                                                        
                                                                        
                                                                        55,872
                                                                        
                                                                        
                                                                        
                                                                        27.5
                                                                        
                                                                        
                                                                        
                                                                        (34,017
                                                                        )
                                                                        
                                                                        
                                                                        (60.9
                                                                        ) %Total
      net sales
                                                                        
                                                                        $
                                                                        121,085
                                                                        
                                                                        
                                                                        
                                                                        100.0
                                                                        %
                                                                        
                                                                        $
                                                                        203,070
                                                                        
                                                                        
                                                                        
                                                                        100.0
                                                                        %
                                                                        
                                                                        $
                                                                        (81,985
                                                                        )
                                                                        
                                                                        
                                                                        (40.4
                                                                        ) %





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




22




Condensed
consolidated statements of operations as a percentage of net sales for the three
months ended March 31, 2009 and 2008 are presented in the following table (in
thousands):





Three
      Months EndedMarch
      31,
                                                                              
                                                                              
                                                                              $
      Increase /2009
                                                                              
                                                                              
                                                                              2008
                                                                              
                                                                              
                                                                              (Decrease)Net
      Sales
                                                                              
                                                                              $
                                                                              121,085
                                                                              
                                                                              
                                                                              
                                                                              100.0
                                                                              %
                                                                              
                                                                              $
                                                                              203,070
                                                                              
                                                                              
                                                                              
                                                                              100.0
                                                                              %
                                                                              
                                                                              $
                                                                              (81,985
                                                                              )Costs
      and Expenses:Cost
      of goods sold
                                                                              
                                                                              
                                                                              101,810
                                                                              
                                                                              
                                                                              
                                                                              84.1
                                                                              
                                                                              
                                                                              
                                                                              151,253
                                                                              
                                                                              
                                                                              
                                                                              74.5
                                                                              
                                                                              
                                                                              
                                                                              (49,443
                                                                              )Selling,
      general and administrative
                                                                              
                                                                              
                                                                              27,077
                                                                              
                                                                              
                                                                              
                                                                              22.4
                                                                              
                                                                              
                                                                              
                                                                              36,282
                                                                              
                                                                              
                                                                              
                                                                              17.9
                                                                              
                                                                              
                                                                              
                                                                              (9,205
                                                                              )Restructuring
      charges
                                                                              
                                                                              
                                                                              958
                                                                              
                                                                              
                                                                              
                                                                              0.8
                                                                              
                                                                              
                                                                              
                                                                              1,422
                                                                              
                                                                              
                                                                              
                                                                              0.7
                                                                              
                                                                              
                                                                              
                                                                              (464
                                                                              )Operating
      Income (loss)
                                                                              
                                                                              
                                                                              (8,760
                                                                              )
                                                                              
                                                                              
                                                                              (7.3
                                                                              )
                                                                              
                                                                              
                                                                              14,113
                                                                              
                                                                              
                                                                              
                                                                              6.9
                                                                              
                                                                              
                                                                              
                                                                              (22,873
                                                                              )Interest
      expense, net
                                                                              
                                                                              
                                                                              5,497
                                                                              
                                                                              
                                                                              
                                                                              4.5
                                                                              
                                                                              
                                                                              
                                                                              5,372
                                                                              
                                                                              
                                                                              
                                                                              2.6
                                                                              
                                                                              
                                                                              
                                                                              125Equity
      in earnings of investees
                                                                              
                                                                              
                                                                              (575
                                                                              )
                                                                              
                                                                              
                                                                              (0.5
                                                                              )
                                                                              
                                                                              
                                                                              (3,819
                                                                              )
                                                                              
                                                                              
                                                                              (1.9
                                                                              )
                                                                              
                                                                              
                                                                              3,244Loss
      on early extinguishment of debt
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              499
                                                                              
                                                                              
                                                                              
                                                                              0.3
                                                                              
                                                                              
                                                                              
                                                                              (499
                                                                              )Other
      expense, net
                                                                              
                                                                              
                                                                              6
                                                                              
                                                                              
                                                                              
                                                                              -
                                                                              
                                                                              
                                                                              
                                                                              402
                                                                              
                                                                              
                                                                              
                                                                              0.2
                                                                              
                                                                              
                                                                              
                                                                              (396
                                                                              )Income
      (loss) Before Income Taxes
                                                                              
                                                                              
                                                                              (13,688
                                                                              )
                                                                              
                                                                              
                                                                              (11.3
                                                                              )
                                                                              
                                                                              
                                                                              11,659
                                                                              
                                                                              
                                                                              
                                                                              5.7
                                                                              
                                                                              
                                                                              
                                                                              (25,347
                                                                              )Provision
      (benefit) for income taxes
                                                                              
                                                                              
                                                                              (2,108
                                                                              )
                                                                              
                                                                              
                                                                              (1.7
                                                                              )
                                                                              
                                                                              
                                                                              5,112
                                                                              
                                                                              
                                                                              
                                                                              2.5
                                                                              
                                                                              
                                                                              
                                                                              (7,220
                                                                              )Net
      Income (loss)
                                                                              
                                                                              $
                                                                              (11,580
                                                                              )
                                                                              
                                                                              
                                                                              (9.6
                                                                              )
      %
                                                                              
                                                                              $
                                                                              6,547
                                                                              
                                                                              
                                                                              
                                                                              3.2
                                                                              %
                                                                              
                                                                              $
                                                                              (18,127
                                                                              )





Cost of Goods Sold.The
increase in cost of goods sold as a percentage of sales was due to the
significant decline in volume and a less favorable product mix related to North
American commercial vehicle products during the quarter ended March 31,
2009.





Selling, General and Administrative
Expenses.  Product development expenses included in SG&A
were $8.5 million and $12.3 million for the first quarters ended March 31, 2009
and 2008, respectively.  The decrease in design and development costs
was caused by customers delaying new product launches in the near term as well
as planned reductions in our design activities. The decrease in SG&A costs
excluding product development expenses was due to lower employee related costs
primarily incentive compensation.





Restructuring Charges. Costs
from our restructuring initiatives for the quarter ended March 31, 2009
decreased compared to the first quarter of 2008. Costs incurred during the
quarter ended March 31, 2009, related to restructuring initiatives amounted to
approximately $1.0 million and were primarily comprised of one-time termination
benefits.  These restructuring actions were in response to the
depressed conditions in the North American commercial vehicle and automotive
markets.  First quarter 2008 restructuring expenses were approximately
$2.5 million and were comprised of one-time termination benefits and
line-transfer expenses related to our initiative to improve the Company’s
manufacturing efficiency and cost position by ceasing manufacturing operations
at our Sarasota, Florida, and Mitcheldean, United Kingdom
locations.  Restructuring expenses that were general and
administrative in nature were included in the Company’s condensed consolidated
statements of operations as restructuring charges, while the remaining
restructuring related expenses were included in cost of goods sold.





23





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


Three
      Months EndedMarch
      31, 2009Electronics
                                                
                                                
                                                Control
      Devices
                                                
                                                
                                                Total
                                                  Consolidated
                                                  Restructuring
                                                  ChargesSeverance
      costs
                                                
                                                $
                                                369
                                                
                                                
                                                $
                                                497
                                                
                                                
                                                $
                                                866Contract
      termination costs
                                                
                                                
                                                92
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                92Total
      general and administrative restructuring charges
                                                
                                                $
                                                461
                                                
                                                
                                                $
                                                497
                                                
                                                
                                                $
                                                958





All
restructuring charges result in cash outflows.  Severance costs
related to a reduction in workforce.  Contract termination costs
represent costs associated with long-term lease obligations that were cancelled
as part of the restructuring initiatives.  Other associated costs
include miscellaneous expenditures associated with exiting business
activities.





Restructuring
charges recorded by reportable segment during the three months ended March 31,
2008 were as follows (in thousands):





Three
      Months EndedMarch
      31, 2008Electronics
                                              
                                              
                                              Control
      Devices
                                              
                                              
                                              Total
                                                Consolidated
                                                Restructuring
                                                ChargesSeverance
      costs
                                              
                                              $
                                              873
                                              
                                              
                                              $
                                              365
                                              
                                              
                                              $
                                              1,238Other
      costs
                                              
                                              
                                              8
                                              
                                              
                                              
                                              176
                                              
                                              
                                              
                                              184Total
      general and administrative restructuring charges
                                              
                                              $
                                              881
                                              
                                              
                                              $
                                              541
                                              
                                              
                                              $
                                              1,422





Equity in Earnings of
Investees.The decrease in equity earnings of investees was
predominately attributable to the decrease in equity earnings recognized from
our PST joint venture.  Equity earnings for PST declined from $3.6
million for the quarter ended March 31, 2008 to $0.6 million for the quarter
ended March 31, 2009. The decrease primarily reflects lower volumes for PST’s
product lines and unfavorable exchange rates during the quarter ended March 31,
2009.





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





Three
      Months EndedMarch
      31,
                                            
                                            
                                            $
      Increase /
                                            
                                            
                                            %
      Increase /2009
                                            
                                            
                                            2008
                                            
                                            
                                            (Decrease)
                                            
                                            
                                            (Decrease)Electronics
                                            
                                            $
                                            (2,206
                                            )
                                            
                                            $
                                            12,991
                                            
                                            
                                            $
                                            (15,197
                                            )
                                            
                                            
                                            (117.0
                                            ) %Control
      Devices
                                            
                                            
                                            (7,020
                                            )
                                            
                                            
                                            2,076
                                            
                                            
                                            
                                            (9,096
                                            )
                                            
                                            
                                            (438.2
                                            ) %Other
      corporate activities
                                            
                                            
                                            1,015
                                            
                                            
                                            
                                            1,907
                                            
                                            
                                            
                                            (892
                                            )
                                            
                                            
                                            (46.8
                                            ) %Corporate
      interest expense
                                            
                                            
                                            (5,477
                                            )
                                            
                                            
                                            (5,315
                                            )
                                            
                                            
                                            (162
                                            )
                                            
                                            
                                            (3.0
                                            ) %Income
      (loss) before income taxes
                                            
                                            $
                                            (13,688
                                            )
                                            
                                            $
                                            11,659
                                            
                                            
                                            $
                                            (25,347
                                            )
                                            
                                            
                                            (217.4
                                            ) %





The
decrease in income before income taxes in the Electronics segment was primarily
related to decreased revenue and unfavorable product
mix.  Additionally, these factors were negatively effected by foreign
exchange rates during the quarter ended March 31, 2009 when converting
functional currency to United States Dollars.




24




The
decrease in income before income taxes in the Control Devices reportable segment
was primarily due to lower revenue.





The
decrease in income before income taxes from other corporate activities was
primarily due to the $3.0 million decrease in equity earnings from our PST joint
venture.  The decrease is partially offset by a decrease in
compensation related expenses and the loss recognized on the purchase and
retirement of $11.0 million in face value of our senior notes in the first
quarter of 2008.





Income
(loss) before income taxes by geographic location for the three months ended
March 31, 2009 and 2008 is summarized in the following table (in
thousands):





Three
      Months EndedMarch
      31,
                                                                        
                                                                        
                                                                        $
      Increase /
                                                                        
                                                                        
                                                                        %
      Increase /2009
                                                                        
                                                                        
                                                                        2008
                                                                        
                                                                        
                                                                        (Decrease)
                                                                        
                                                                        
                                                                        (Decrease)North
      America
                                                                        
                                                                        $
                                                                        (9,076
                                                                        )
                                                                        
                                                                        
                                                                        66.3
                                                                        %
                                                                        
                                                                        $
                                                                        9,921
                                                                        
                                                                        
                                                                        
                                                                        85.1
                                                                        %
                                                                        
                                                                        $
                                                                        (18,997
                                                                        )
                                                                        
                                                                        
                                                                        (191.5
                                                                        ) %Europe
      and other
                                                                        
                                                                        
                                                                        (4,612
                                                                        )
                                                                        
                                                                        
                                                                        33.7
                                                                        
                                                                        
                                                                        
                                                                        1,738
                                                                        
                                                                        
                                                                        
                                                                        14.9
                                                                        
                                                                        
                                                                        
                                                                        (6,350
                                                                        )
                                                                        
                                                                        
                                                                        (365.4
                                                                        ) %Income
      (loss) before income taxes
                                                                        
                                                                        $
                                                                        (13,688
                                                                        )
                                                                        
                                                                        
                                                                        100.0
                                                                        %
                                                                        
                                                                        $
                                                                        11,659
                                                                        
                                                                        
                                                                        
                                                                        100.0
                                                                        %
                                                                        
                                                                        $
                                                                        (25,347
                                                                        )
                                                                        
                                                                        
                                                                        (217.4
                                                                        ) %





The
decrease in our profitability in North America was primarily attributable to
lower sales volumes during the quarter ended March 31, 2009.  The
decrease in profitability outside North America was primarily due to lower sales
volumes and unfavorable foreign exchange rates during the quarter ended March
31, 2009.





Provision (Benefit) for Income
Taxes. We recognized a provision (benefit) from income taxes of $(2.1)
million, or 15.4% of pre-tax loss, and $5.1 million, or 43.9% of the pre-tax
income, for federal, state and foreign income taxes for the quarters ended March
31, 2009 and 2008, respectively. As reported at December 31, 2008, the Company
is in a cumulative loss position and provides a valuation allowance offsetting
federal, state and certain foreign deferred tax assets. As a result, a tax
benefit is not provided for losses incurred during the first quarter of 2009,
for federal, state and certain foreign jurisdictions. The inability to recognize
a tax benefit for these losses and other deferred tax assets had a significant
impact on our effective tax rate as well as the comparability of the current
quarter effective tax rate to prior periods, in which the Company had not
recorded a federal valuation allowance.  The difference in the
effective tax rate for the quarter ended March 31, 2009 compared to the quarter
ended March 31, 2008, was primarily attributable to the federal valuation
allowance provided against the first quarter domestic loss offset by recording a
tax benefit related to current period losses in certain foreign jurisdictions in
which it is more likely than not that the benefit of those losses will be
realized in the current year. Additionally, the effective tax rate for the
quarter ended March 31, 2008 was negatively affected by the valuation allowance
that was required to be recorded during 2008 related to the restructuring
expenses incurred in connection with certain United Kingdom
operations.





Liquidity
and Capital Resources





Summary of Cash Flows (in
thousands):


Three
      Months EndedMarch
      31,
                                
                                
                                $
      Increase /2009
                                
                                
                                2008
                                
                                
                                (Decrease)Cash
      provided by (used for):Operating
      activities
                                
                                $
                                1,198
                                
                                
                                $
                                8,623
                                
                                
                                $
                                (7,425
                                )Investing
      activities
                                
                                
                                (3,853
                                )
                                
                                
                                (6,538
                                )
                                
                                
                                2,685Financing
      activities
                                
                                
                                -
                                
                                
                                
                                (11,316
                                )
                                
                                
                                11,316Effect
      of exchange rate changes on cash and cash equivalents
                                
                                
                                (860
                                )
                                
                                
                                1,580
                                
                                
                                
                                (2,440
                                )Net
      change in cash and cash equivalents
                                
                                $
                                (3,515
                                )
                                
                                $
                                (7,651
                                )
                                
                                $
                                4,136





The
decrease in net cash provided by operating activities was primarily due
to lower earnings offset by lower accounts receivable balances at
March 31, 2009.




25




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





The
decrease in net cash used by financing activities was primarily due to cash used
to purchase and retire $11.0 million in face value of the Company’s senior notes
in the first quarter of 2008.





Future
capital expenditures are expected to be slightly lower than our recent
expenditures, due to lower expected demand in the markets that we
serve.  Management will continue to focus on reducing its weighted
average cost of capital and believes that cash flows from operations and the
availability of funds from our asset-based credit facility will provide
sufficient liquidity to meet our future growth and operating needs.





As
outlined in Note 6 to our condensed consolidated financial statements, our
asset-based credit facility, permits borrowing up to a maximum level of $100.0
million.  This facility provides us with lower borrowing rates and
allows us the flexibility to refinance our outstanding debt.  At March
31, 2009, there were no borrowings on this asset-based credit
facility.  The available borrowing capacity on this credit facility is
based on eligible current assets, as defined.  At March 31, 2009, the
Company had borrowing capacity of $56.3 million based on eligible current
assets.  The Company was in compliance with all covenants at March 31,
2009.





As of
March 31, 2009, the Company’s $183.0 million of senior notes were redeemable at
103.833%.  Given the Company’s senior notes are redeemable, we may
seek to retire the senior notes through redemptions, cash purchases, open market
purchases, privately negotiated transactions or otherwise.  Such
redemptions, purchases or exchanges, if any, will depend on prevailing market
conditions, our liquidity requirements, contractual restrictions and other
factors.  The amounts involved may be material.  During the
first quarter of 2008, we purchased and retired $11.0 million in face value of
the Company’s senior notes.  In April of 2008, we purchased and
retired an additional $6.0 million in face value of the Company’s senior
notes.





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





Critical
Accounting Policies and Estimates





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





Inflation
and International Presence





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





Forward-Looking
Statements





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




26




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


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


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


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


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


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


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


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


·
            customer
      acceptance of new products;


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


·
            the
      successful integration of any acquired
  businesses;


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


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





Item
3.   Quantitative and Qualitative Disclosures About Market
Risk.





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





Item
4.  Controls and Procedures.





Evaluation
of Disclosure Controls and Procedures





As of
March 31, 2009, an evaluation was performed under the supervision and with the
participation of the Company’s management, including the chief executive officer
(CEO) and chief financial officer (CFO), of the effectiveness of the design and
operation of the Company’s disclosure controls and procedures. Based on that
evaluation, the Company’s management, including the CEO and CFO, concluded that
the Company’s disclosure controls and procedures were effective as of March 31,
2009.





Changes
in Internal Control Over Financial Reporting





There
were no changes in the Company’s internal control over financial reporting
during the three months ended March 31, 2009 that materially affected, or
are reasonably likely to materially affect, the Company’s internal control over
financial reporting.




27




PART
II–OTHER INFORMATION





Item
1.  Legal Proceedings.





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





Item
1A.  Risk Factors.





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





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





None.





Item
3.  Defaults Upon Senior Securities.





None.





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





None.





Item
5.  Other Information.





None.





Item
6.  Exhibits.





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





28





SIGNATURES





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





STONERIDGE,
      INC.Date:  May
      6, 2009
                      /s/
      John C. CoreyJohn
      C. Corey
                        President,
      Chief Executive Officer and Director(Principal
      Executive Officer)Date:  May
      6, 2009
                      /s/
      George E. StricklerGeorge
      E. StricklerExecutive
      Vice President, Chief Financial Officer and Treasurer(Principal
      Financial and Accounting
Officer)





29





INDEX
TO EXHIBITS





Exhibit
                    Number
                  
                  Exhibit10.1
                  
                  Stoneridge,
      Inc. Long-Term Incentive Plan – form of Restricted Shares Grant Agreement,
      filed herewith.10.2
                  
                  Stoneridge,
      Inc. Long-Term Cash Incentive Plan – form of Grant Agreement, filed
      herewith.31.1
                  
                  Chief
      Executive Officer certification pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002, filed herewith.31.2
                  
                  Chief
      Financial Officer certification pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002, filed herewith.32.1
                  
                  Chief
      Executive Officer certification pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed
      herewith.32.2
                  
                  Chief
      Financial Officer certification pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed
      herewith.




30