UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





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





For the quarter ended June 30,
2010





OR





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





For the transition period
from________to ________





Commission file number:
001-13337





STONERIDGE,
INC.


(Exact
name of registrant as specified in its charter)





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





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





(330) 856-2443


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 (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).   o 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 “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.





Large
accelerated filer o   
     Accelerated filer x     
   Non-accelerated filer oSmaller
reporting company o


(Do not check if a smaller reporting company)





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





The
number of Common Shares, without par value, outstanding as of July 23, 2010 was
25,968,765.







STONERIDGE,
INC. AND SUBSIDIARIES




INDEXPage No.PART
      I–FINANCIAL INFORMATIONItem
      1.
                                Financial
      StatementsCondensed
      Consolidated Balance Sheets as of June 30, 2010 (Unaudited) and December
      31, 2009
                                
                                2Condensed
      Consolidated Statements of Operations (Unaudited) For the Three and Six
      Months Ended June 30, 2010 and 2009
                                
                                3Condensed
      Consolidated Statements of Cash Flows (Unaudited) For the Six Months Ended
      June 30, 2010 and 2009
                                
                                4Notes
      to Condensed Consolidated Financial Statements (Unaudited)
                                
                                5Item
      2.
                                Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                
                                26Item
      3.
                                Quantitative
      and Qualitative Disclosures About Market Risk
                                
                                37Item
      4.
                                Controls
      and Procedures
                                
                                38PART
      II–OTHER INFORMATIONItem
      1.
                                Legal
      Proceedings
                                
                                38Item
      1A.
                                Risk
      Factors
                                
                                38Item
      2.
                                Unregistered
      Sales of Equity Securities and Use of Proceeds
                                
                                38Item
      3.
                                Defaults
      Upon Senior Securities
                                
                                38Item
      4.
                                (Removed
      and Reserved)
                                
                                38Item
      5.
                                Other
      Information
                                
                                38Item
      6.
                                Exhibits
                                
                                38Signatures
                                
                                
                                39Index
      to Exhibits
                                
                                40


EX –
31.1


EX –
31.2


EX –
32.1


EX –
32.2




1




PART
I–FINANCIAL INFORMATION




Item
1.  Financial Statements.





STONERIDGE,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(in
thousands)




June
      30,
                                                      
                                                      
                                                      December
      31,2010
                                                      
                                                      
                                                      2009(Unaudited)
                                                      
                                                      
                                                      (Audited)ASSETSCurrent
      Assets:Cash
      and cash equivalents
                                                      
                                                      $
                                                      74,608
                                                      
                                                      
                                                      $
                                                      91,907Accounts
      receivable, less reserves of $1,363 and $2,350,
    respectively
                                                      
                                                      
                                                      106,813
                                                      
                                                      
                                                      
                                                      81,272Inventories,
      net
                                                      
                                                      
                                                      47,061
                                                      
                                                      
                                                      
                                                      40,244Prepaid
      expenses and other current assets
                                                      
                                                      
                                                      20,434
                                                      
                                                      
                                                      
                                                      17,247Total
      current assets
                                                      
                                                      
                                                      248,916
                                                      
                                                      
                                                      
                                                      230,670Long-Term
      Assets:Property,
      plant and equipment, net
                                                      
                                                      
                                                      73,424
                                                      
                                                      
                                                      
                                                      76,991Investments
      and other long-term assets, net
                                                      
                                                      
                                                      55,553
                                                      
                                                      
                                                      
                                                      54,864Total
      long-term assets
                                                      
                                                      
                                                      128,977
                                                      
                                                      
                                                      
                                                      131,855Total
      Assets
                                                      
                                                      $
                                                      377,893
                                                      
                                                      
                                                      $
                                                      362,525LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      Liabilities:Accounts
      payable
                                                      
                                                      $
                                                      63,471
                                                      
                                                      
                                                      $
                                                      50,947Accrued
      expenses and other current liabilities
                                                      
                                                      
                                                      40,977
                                                      
                                                      
                                                      
                                                      36,827Total
      current liabilities
                                                      
                                                      
                                                      104,448
                                                      
                                                      
                                                      
                                                      87,774Long-Term
      Liabilities:Long-term
      debt
                                                      
                                                      
                                                      183,290
                                                      
                                                      
                                                      
                                                      183,431Other
      long-term liabilities
                                                      
                                                      
                                                      10,485
                                                      
                                                      
                                                      
                                                      17,263Total
      long-term liabilities
                                                      
                                                      
                                                      193,775
                                                      
                                                      
                                                      
                                                      200,694Shareholders'
      EquityPreferred
      Shares, without par value, authorized 5,000 shares, none
      issued
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -Common
      Shares, without par value, authorized 60,000 shares, issued 25,969
      and25,301
      shares and outstanding 25,440 and 25,000 shares,
    respectively,with
      no stated value
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -Additional
      paid-in capital
                                                      
                                                      
                                                      160,100
                                                      
                                                      
                                                      
                                                      158,748Common
      Shares held in treasury, 529 and 301 shares, respectively, at
      cost
                                                      
                                                      
                                                      (411
                                                      )
                                                      
                                                      
                                                      (292
                                                      )Accumulated
      deficit
                                                      
                                                      
                                                      (85,861
                                                      )
                                                      
                                                      
                                                      (91,560
                                                      )Accumulated
      other comprehensive income
                                                      
                                                      
                                                      1,394
                                                      
                                                      
                                                      
                                                      2,669Total
      Stoneridge Inc. and Subsidiaries shareholders' equity
                                                      
                                                      
                                                      75,222
                                                      
                                                      
                                                      
                                                      69,565Noncontrolling
      interest
                                                      
                                                      
                                                      4,448
                                                      
                                                      
                                                      
                                                      4,492Total
      shareholders' equity
                                                      
                                                      
                                                      79,670
                                                      
                                                      
                                                      
                                                      74,057Total
      Liabilities and Shareholders' Equity
                                                      
                                                      $
                                                      377,893
                                                      
                                                      
                                                      $
                                                      362,525





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


2




STONERIDGE,
INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 (in
thousands, except per share data)


Three
      Months Ended
                                          
                                          
                                          Six
      Months EndedJune
      30,
                                          
                                          
                                          June
      30,2010
                                          
                                          
                                          2009
                                          
                                          
                                          2010
                                          
                                          
                                          2009Net
      Sales
                                          
                                          $
                                          166,262
                                          
                                          
                                          $
                                          102,290
                                          
                                          
                                          $
                                          314,336
                                          
                                          
                                          $
                                          223,375Costs
      and Expenses:Cost
      of goods sold
                                          
                                          
                                          126,642
                                          
                                          
                                          
                                          88,694
                                          
                                          
                                          
                                          241,189
                                          
                                          
                                          
                                          190,504Selling,
      general and administrative
                                          
                                          
                                          31,447
                                          
                                          
                                          
                                          27,889
                                          
                                          
                                          
                                          61,015
                                          
                                          
                                          
                                          55,924Operating
      Income (Loss)
                                          
                                          
                                          8,173
                                          
                                          
                                          
                                          (14,293
                                          )
                                          
                                          
                                          12,132
                                          
                                          
                                          
                                          (23,053
                                          )Interest
      expense, net
                                          
                                          
                                          5,630
                                          
                                          
                                          
                                          5,538
                                          
                                          
                                          
                                          11,236
                                          
                                          
                                          
                                          11,035Equity
      in earnings of investees
                                          
                                          
                                          (1,611
                                          )
                                          
                                          
                                          (903
                                          )
                                          
                                          
                                          (2,302
                                          )
                                          
                                          
                                          (1,478
                                          )Other
      expense (income), net
                                          
                                          
                                          (749
                                          )
                                          
                                          
                                          639
                                          
                                          
                                          
                                          (1,699
                                          )
                                          
                                          
                                          645Income
      (Loss) Before Income Taxes
                                          
                                          
                                          4,903
                                          
                                          
                                          
                                          (19,567
                                          )
                                          
                                          
                                          4,897
                                          
                                          
                                          
                                          (33,255
                                          )Provision
      (benefit) for income taxes
                                          
                                          
                                          731
                                          
                                          
                                          
                                          197
                                          
                                          
                                          
                                          (758
                                          )
                                          
                                          
                                          (1,911
                                          )Net
      Income (Loss)
                                          
                                          
                                          4,172
                                          
                                          
                                          
                                          (19,764
                                          )
                                          
                                          
                                          5,655
                                          
                                          
                                          
                                          (31,344
                                          )Net
      Loss Attributable to Noncontrolling Interest
                                          
                                          
                                          (21
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (44
                                          )
                                          
                                          
                                          -Net
      Income (Loss) Attributable to Stoneridge, Inc.and
      Subsidiaries
                                          
                                          $
                                          4,193
                                          
                                          
                                          $
                                          (19,764
                                          )
                                          
                                          $
                                          5,699
                                          
                                          
                                          $
                                          (31,344
                                          )Basic
      net income (loss) per share
                                          
                                          $
                                          0.17
                                          
                                          
                                          $
                                          (0.84
                                          )
                                          
                                          $
                                          0.24
                                          
                                          
                                          $
                                          (1.33
                                          )Basic
      weighted average shares outstanding
                                          
                                          
                                          23,965
                                          
                                          
                                          
                                          23,516
                                          
                                          
                                          
                                          23,922
                                          
                                          
                                          
                                          23,490Diluted
      net income (loss) per share
                                          
                                          $
                                          0.17
                                          
                                          
                                          $
                                          (0.84
                                          )
                                          
                                          $
                                          0.23
                                          
                                          
                                          $
                                          (1.33
                                          )Diluted
      weighted average shares outstanding
                                          
                                          
                                          24,389
                                          
                                          
                                          
                                          23,516
                                          
                                          
                                          
                                          24,351
                                          
                                          
                                          
                                          23,490





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


3




STONERIDGE,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)


(in
thousands)





Six
      Months EndedJune
      30,2010
                                        
                                        
                                        2009OPERATING
      ACTIVITIES:Net
      income (loss)
                                        
                                        $
                                        5,655
                                        
                                        
                                        $
                                        (31,344
                                        )Adjustments
      to reconcile net income (loss) to net cashused
      for operating activities -Depreciation
                                        
                                        
                                        9,623
                                        
                                        
                                        
                                        10,267Amortization
                                        
                                        
                                        577
                                        
                                        
                                        
                                        485Deferred
      income taxes
                                        
                                        
                                        (1,710
                                        )
                                        
                                        
                                        (2,282
                                        )Earnings
      of equity method investees
                                        
                                        
                                        (2,302
                                        )
                                        
                                        
                                        (1,478
                                        )(Gain)
      loss on sale of fixed assets
                                        
                                        
                                        (8
                                        )
                                        
                                        
                                        280Share-based
      compensation expense, net
                                        
                                        
                                        930
                                        
                                        
                                        
                                        597Changes
      in operating assets and liabilities -Accounts
      receivable, net
                                        
                                        
                                        (27,989
                                        )
                                        
                                        
                                        25,974Inventories,
      net
                                        
                                        
                                        (7,888
                                        )
                                        
                                        
                                        11,584Prepaid
      expenses and other
                                        
                                        
                                        (8,575
                                        )
                                        
                                        
                                        (3,384
                                        )Accounts
      payable
                                        
                                        
                                        13,651
                                        
                                        
                                        
                                        (10,333
                                        )Accrued
      expenses and other
                                        
                                        
                                        10,603
                                        
                                        
                                        
                                        (2,966
                                        )Net
      cash used for operating activities
                                        
                                        
                                        (7,433
                                        )
                                        
                                        
                                        (2,600
                                        )INVESTING
      ACTIVITIES:Capital
      expenditures
                                        
                                        
                                        (7,063
                                        )
                                        
                                        
                                        (6,743
                                        )Proceeds
      from sale of fixed assets
                                        
                                        
                                        21
                                        
                                        
                                        
                                        92Net
      cash used for investing activities
                                        
                                        
                                        (7,042
                                        )
                                        
                                        
                                        (6,651
                                        )FINANCING
      ACTIVITIES:Share-based
      compensation activity, net
                                        
                                        
                                        294
                                        
                                        
                                        
                                        -Revolving
      credit facility borrowings, net
                                        
                                        
                                        477
                                        
                                        
                                        
                                        -Repayments
      of debt
                                        
                                        
                                        (141
                                        )
                                        
                                        
                                        -Net
      cash provided by financing activities
                                        
                                        
                                        630
                                        
                                        
                                        
                                        -Effect
      of exchange rate changes on cash and cash equivalents
                                        
                                        
                                        (3,454
                                        )
                                        
                                        
                                        2,040Net
      change in cash and cash equivalents
                                        
                                        
                                        (17,299
                                        )
                                        
                                        
                                        (7,211
                                        )Cash
      and cash equivalents at beginning of period
                                        
                                        
                                        91,907
                                        
                                        
                                        
                                        92,692Cash
      and cash equivalents at end of period
                                        
                                        $
                                        74,608
                                        
                                        
                                        $
                                        85,481





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


4





STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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





(1)  Basis
of Presentation





The
accompanying condensed consolidated financial statements have been prepared by
Stoneridge, Inc. (the “Company”) without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the
“Commission”).  The information furnished in the condensed
consolidated financial statements includes normal recurring adjustments and
reflects all adjustments, which are, in the opinion of management, necessary for
a fair presentation of such financial statements.  Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with U.S. generally accepted accounting principles have been
condensed or omitted pursuant to the Commission’s rules and
regulations.  The results of operations for the three and six months
ended June 30, 2010 are not necessarily indicative of the results to be expected
for the full year.





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




(2)  Inventories





Inventories
are valued at the lower of cost or market.  Cost is determined by the
last-in, first-out (“LIFO”) method for approximately 74% and 69% of the
Company’s inventories at June 30, 2010 and December 31, 2009, respectively, and
by the first-in, first-out method for all other inventories.  The
Company adjusts its excess and obsolescence reserve at least on a quarterly
basis.  Excess inventories are quantities of items that exceed
anticipated sales or usage for a reasonable period.  The Company has
guidelines for calculating provisions for excess inventories based on the number
of months of inventories on hand compared to anticipated sales or
usage.  Management uses its judgment to forecast sales or usage and to
determine what constitutes a reasonable period.  Inventory cost
includes material, labor and overhead.  Inventories consist of the
following at:




June
      30,
                          
                          
                          December
      31,2010
                          
                          
                          2009Raw
      materials
                          
                          $
                          31,995
                          
                          
                          $
                          26,118Work-in-progress
                          
                          
                          8,776
                          
                          
                          
                          9,137Finished
      goods
                          
                          
                          9,524
                          
                          
                          
                          8,226Total
      inventories
                          
                          
                          50,295
                          
                          
                          
                          43,481Less:
      LIFO reserve
                          
                          
                          (3,234
                          )
                          
                          
                          (3,237
                          )Inventories,
      net
                          
                          $
                          47,061
                          
                          
                          $
                          40,244





(3)  Fair
Value of Financial Instruments





Financial Instruments





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


5


STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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





Derivative
Instruments and Hedging Activities





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





The
Company conducts business internationally and therefore is exposed to foreign
currency exchange risk.  The Company uses derivative financial
instruments as cash flow hedges to mitigate its exposure to fluctuations in
foreign currency exchange rates by reducing the effect of such fluctuations on
foreign currency denominated intercompany transactions and other foreign
currency exposures.  The currencies currently hedged by the Company
include the Euro, Swedish krona and Mexican peso.  In certain
instances, the foreign currency forward contracts are marked to market, with
gains and losses recognized in the Company’s condensed consolidated statement of
operations as a component of other expense (income), net.  The
Company’s foreign currency forward contracts substantially offset gains and
losses on the underlying foreign currency denominated
transactions.  As of June 30, 2010, the Company held foreign currency
forward contracts to reduce the exposure related to the Company’s
Euro-denominated and Swedish krona-denominated intercompany
receivables.  These contracts expire in October
2010.  During the six months ended June 30, 2010, the Company also
held a foreign currency hedge contract to reduce the exposure related to the
Company’s British pound-denominated intercompany receivables prior to their
repayment.  This contract expired in January 2010.  For the
six months ended June 30, 2010, the Company recognized a $4,019 gain related to
the Euro, British pound and Swedish krona contracts in the condensed
consolidated statement of operations as a component of other expense (income),
net.  The Company also holds contracts intended to reduce exposure to
the Mexican peso.  These contracts were executed to hedge forecasted
transactions, and therefore the contracts are accounted for as cash flow
hedges.  These Mexican peso-denominated foreign currency forward
contracts expire monthly throughout 2010.  The effective portion of
the unrealized gain or loss is deferred and reported in the Company’s condensed
consolidated balance sheets as a component of accumulated other comprehensive
income.  The Company’s expectation is that the cash flow hedges will
be highly effective in the future.  The effectiveness of the
transactions has been and will be measured on an ongoing basis using regression
analysis.





To
mitigate the risk of future price volatility and, consequently, fluctuations in
gross margins, the Company entered into a fixed price commodity swap with a
financial institution to fix the cost of copper purchases.  In June
2010, the Company entered into a fixed price swap contract for 0.5 million
pounds of copper, which covers the period from August 2010 to December
2010.  Because this contract was executed to hedge forecasted
transactions, the contract is accounted for as a cash flow hedge.  The
unrealized gain or loss for the effective portion of the hedge is deferred and
reported in the Company’s condensed consolidated balance sheets as a component
of accumulated other comprehensive income. The Company deems this cash flow
hedge to be highly effective.  The Company’s expectation is that the
cash flow hedge will be highly effective in the future. The effectiveness of the
transactions has been and will be measured on an ongoing basis using regression
analysis.


6





STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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




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





Prepaid expensesNotional amounts1
                                
                                
                                and other current assetsJune 30,
                                
                                
                                December 31,
                                
                                
                                June 30,
                                
                                
                                December 31,2010
                                
                                
                                2009
                                
                                
                                2010
                                
                                
                                2009Derivatives
      designated as hedging instruments:Forward
      currency contracts
                                
                                $
                                20,422
                                
                                
                                $
                                43,877
                                
                                
                                $
                                1,557
                                
                                
                                $
                                1,710Commodity
      contracts
                                
                                
                                1,413
                                
                                
                                
                                -
                                
                                
                                
                                67
                                
                                
                                
                                -21,835
                                
                                
                                
                                43,877
                                
                                
                                
                                1,624
                                
                                
                                
                                1,710Derivatives
      not designated as hedging instruments:Forward
      currency contracts
                                
                                
                                27,016
                                
                                
                                
                                8,363
                                
                                
                                
                                2,278
                                
                                
                                
                                34Total
      derivatives
                                
                                $
                                48,851
                                
                                
                                $
                                52,240
                                
                                
                                $
                                3,902
                                
                                
                                $
                                1,744





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





Amounts
recorded in other comprehensive income in shareholders’ equity and in net income
for the three months ended June 30, 2010 were as follows:





Amount of gain
                        
                        
                        Amount of gain(loss) recorded
                        
                        
                        reclassified from
                        
                        Location of gainin other
                        
                        
                        other comprehensive
                        
                        reclassified from othercomprehensive
                        
                        
                        income into net
                        
                        comprehensive incomeincome
                        
                        
                        income
                        
                        into net incomeDerivatives designated
      as cash flow hedges:Forward
      currency contracts
                        
                        $
                        (939
                        )
                        
                        $
                        1,043
                        
                        Cost
      of goods soldCommodity
      contracts
                        
                        
                        67
                        
                        
                        
                        -
                        
                        Cost
      of goods sold$
                        (872
                        )
                        
                        $
                        1,043





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





Amount of gain
                    recorded in other
                    comprehensive
                    income
                  
                  
                  Amount of gain
                    reclassified from
                    other comprehensive
                    income into net
                    income
                  
                  Location of gain
                    reclassified from other
                    comprehensive income
                    into net incomeDerivatives
      designated as cash flow hedges:Forward
      currency contracts
                  
                  $
                  1,784
                  
                  
                  $
                  1,937
                  
                  Cost
      of goods soldCommodity
      contracts
                  
                  
                  67
                  
                  
                  
                  -
                  
                  Cost
      of goods sold$
                  1,851
                  
                  
                  $
                  1,937





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


7


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


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





June 30, 2010
                                  
                                  
                                  December 31,Fair Value Estimated Using
                                  
                                  
                                  2009Fair Value
                                  
                                  
                                  Level 1 inputs(1)
                                  
                                  
                                  Level 2 inputs(2)
                                  
                                  
                                  Fair ValueFinancial
      assets carried at fair valueAvailable
      for sale security
                                  
                                  $
                                  255
                                  
                                  
                                  $
                                  255
                                  
                                  
                                  
                                  -
                                  
                                  
                                  $
                                  261Forward
      currency contracts
                                  
                                  
                                  3,835
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  3,835
                                  
                                  
                                  
                                  1,744Commodity
      contracts
                                  
                                  
                                  67
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  67
                                  
                                  
                                  
                                  -Total
      financial assetscarried at fair value
                                  
                                  $
                                  4,157
                                  
                                  
                                  $
                                  255
                                  
                                  
                                  $
                                  3,902
                                  
                                  
                                  $
                                  2,005





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





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





(4)  Share-Based
Compensation





Total
compensation expense recognized in the condensed consolidated statements of
operations for share-based compensation arrangements was $699 and $33 for the
three months ended June 30, 2010 and 2009, respectively.  For the six
months ended June 30, 2010 and 2009, total compensation expense recognized in
the condensed consolidated statements of operations for share-based compensation
arrangements was $1,224 and $597, respectively.  Included within
financing activities within the condensed consolidated statement of cash flows
for the six months ended June 30, 2010 is $294 of excess tax benefit expense
related to the vesting of restricted common shares.


8


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


(5)  Comprehensive
Income (Loss)





The
components of comprehensive income (loss) attributable to Stoneridge, Inc. and
subsidiaries, net of tax are as follows:





Three Months Ended
                                        
                                        
                                        Six Months EndedJune 30,
                                        
                                        
                                        June 30,2010
                                        
                                        
                                        2009
                                        
                                        
                                        2010
                                        
                                        
                                        2009Net
      income (loss)
                                        
                                        $
                                        4,172
                                        
                                        
                                        $
                                        (19,764
                                        )
                                        
                                        $
                                        5,655
                                        
                                        
                                        $
                                        (31,344
                                        )Other
      comprehensive income (loss):Currency
      translation adjustments
                                        
                                        
                                        (913
                                        )
                                        
                                        
                                        4,784
                                        
                                        
                                        
                                        (6,274
                                        )
                                        
                                        
                                        1,894Pension
      liability adjustments
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (292
                                        )
                                        
                                        
                                        5,089
                                        
                                        
                                        
                                        (250
                                        )Unrealized
      gain (loss) on marketable securities
                                        
                                        
                                        (1
                                        )
                                        
                                        
                                        35
                                        
                                        
                                        
                                        (4
                                        )
                                        
                                        
                                        (19
                                        )Unrecognized
      gain (loss) on derivatives
                                        
                                        
                                        (1,915
                                        )
                                        
                                        
                                        2,936
                                        
                                        
                                        
                                        (86
                                        )
                                        
                                        
                                        4,174Other
      comprehensive income (loss)
                                        
                                        
                                        (2,829
                                        )
                                        
                                        
                                        7,463
                                        
                                        
                                        
                                        (1,275
                                        )
                                        
                                        
                                        5,799Consolidated
      comprehensive income (loss)
                                        
                                        
                                        1,343
                                        
                                        
                                        
                                        (12,301
                                        )
                                        
                                        
                                        4,380
                                        
                                        
                                        
                                        (25,545
                                        )Comprehensive
      loss attributable to noncontrolling interest
                                        
                                        
                                        21
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        44
                                        
                                        
                                        
                                        -Comprehensive
      income (loss) attributable to Stoneridge, Inc. and
      subsidiaries
                                        
                                        $
                                        1,364
                                        
                                        
                                        $
                                        (12,301
                                        )
                                        
                                        $
                                        4,424
                                        
                                        
                                        $
                                        (25,545
                                        )





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





June 30,
                      
                      
                      December 31,2010
                      
                      
                      2009Currency
      translation adjustments
                      
                      $
                      (202
                      )
                      
                      $
                      6,072Pension
      liability adjustments
                      
                      
                      -
                      
                      
                      
                      (5,089
                      )Unrealized
      loss on marketable securities
                      
                      
                      (28
                      )
                      
                      
                      (24
                      )Unrecognized
      gain on derivatives
                      
                      
                      1,624
                      
                      
                      
                      1,710Accumulated
      other comprehensive income
                      
                      $
                      1,394
                      
                      
                      $
                      2,669





(6)  Long-Term
Debt





Senior
Notes





The
Company had $183.0 million of senior notes outstanding at June 30, 2010 and
December 31, 2009, respectively.  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 par until the maturity
date.  Interest is payable on May 1 and November 1 of each
year.  The senior notes do not contain restrictive financial
performance covenants.  The Company was in compliance with all
non-financial covenants at June 30, 2010 and December 31, 2009.





Credit
Facility





On
November 2, 2007, the Company entered into an asset-based credit facility (the
“credit facility”), which permits borrowing up to a maximum level of $100.0
million.  At June 30, 2010 and December 31, 2009, there were no
borrowings on this credit facility.   The available borrowing
capacity on this credit facility is based on eligible current assets and
outstanding letters of credit, as defined.  At June 30, 2010 and
December 31, 2009, the Company had borrowing capacity of $71.8 million and $54.1
million, respectively, based on eligible current assets and outstanding letters
of credit.  The credit facility does not contain financial performance
covenants which would constrain our borrowing capacity. However, restrictions do
include limits on capital expenditures, operating leases, dividends and
investment activities in a negative covenant which limits investment activities
to $15.0 million minus certain guarantees and obligations.  The credit
facility expires on November 1, 2011, and requires a commitment fee of 0.375% on
the unused balance.  Interest is payable quarterly at either (i) the
higher of the prime rate or the Federal Funds rate plus 0.50%, plus a margin of
0.00% to 0.25% or (ii) LIBOR plus a margin of 1.00% to 1.75%, depending upon the
Company’s undrawn availability, as defined.  The Company was in compliance
with all covenants at June 30, 2010 and December 31, 2009.


9




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




On
October 13, 2009, the Company’s majority owned consolidated subsidiary, Bolton
Conductive Systems, LLC (“BCS”) entered into a master revolving note (the
“Revolver”), which permits borrowing up to a maximum level of $3.0
million.  At June 30, 2010 and December 31, 2009, BCS had $1,165 and
$688 in borrowings outstanding on the Revolver, respectively, which are included
on the condensed consolidated balance sheets as a component of accrued expenses
and other.  The Revolver expires on October 1,
2010.  Interest is payable monthly at the prime referenced rate plus a
2.25% margin.  At June 30, 2010 and December 31, 2009, the interest
rate on the Revolver was 5.5%.  The Company is a guarantor of BCS as
it relates to the Revolver.





Other
Debt





BCS has
an installment note (“installment note”) and other notes payable for the
purchase of various fixed assets (“fixed asset notes”).  Interest on
the installment note is the prime referenced rate plus a 2.25%
margin.  At June 30, 2010 and December 31, 2009, the interest rate on
the installment note was 5.5%.  The installment note calls for monthly
installment payments of principal and interest and matures in
2012.  The weighted average interest rate on the fixed asset notes was
6.6% at June 30,
2010 and December 31, 2009.  At June 30, 2010 and December 31, 2009,
the principal amounts due on the installment and fixed asset notes were $411 and
$152 and $483 and $221, respectively.





(7)  Net
Income (Loss) Per Share





Basic net
income (loss) per share was computed by dividing net income (loss) by the
weighted-average number of Common Shares outstanding for each respective
period.  Diluted net income per share was calculated by dividing net
income by the weighted-average of all potentially dilutive Common Shares that
were outstanding during the periods presented.  For all periods in
which the Company recognized a net loss the Company has recognized zero dilutive
effect from securities as no anti-dilution is permitted.





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





Three Months Ended
                
                
                Six Months EndedJune 30,
                
                
                June 30,2010
                
                
                2009
                
                
                2010
                
                
                2009Basic
      weighted-average shares outstanding
                
                
                23,964,609
                
                
                
                23,515,543
                
                
                
                23,922,193
                
                
                
                23,489,561Effect
      of dilutive securities
                
                
                424,635
                
                
                
                -
                
                
                
                429,004
                
                
                
                -Diluted
      weighted-average shares outstanding
                
                
                24,389,244
                
                
                
                23,515,543
                
                
                
                24,351,197
                
                
                
                23,489,561





Options
not included in the computation of diluted net income (loss) per share to
purchase 115,250 and 183,250 Common Shares at an average price of $12.84 and
$9.57, respectively, per share were outstanding at June 30, 2010 and 2009,
respectively.  These outstanding options were not included in the
computation of diluted net income (loss) per share because their respective
exercise prices were greater than the average market price of Common Shares.
These options were excluded from the computation of diluted earnings per share
under the treasury stock method.





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


10




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




(8)  Restructuring





On
October 29, 2007, the Company announced restructuring initiatives to improve
manufacturing efficiency and cost position by ceasing manufacturing operations
at its Sarasota, Florida and Mitcheldean, United Kingdom
locations.  During 2008, the Company began additional restructuring
initiatives in its Canton, Massachusetts, Orebro, Sweden and Tallinn, Estonia
locations.  In response to the depressed conditions in the North
American and European commercial and automotive vehicle markets, the Company
also began restructuring initiatives in its Juarez, Monclova and Chihuahua,
Mexico, Orebro and Bromma, Sweden, Tallinn, Estonia, Dundee, Scotland,
Lexington, Ohio and Canton, Massachusetts locations during 2009.  In
addition, during 2009, as part of the Company’s continuing overall restructuring
initiatives, the Company consolidated certain management positions at its
Lexington, Ohio and Canton, Massachusetts facilities.   During
the first half of 2010, the Company continued the restructuring initiative in
Dundee, Scotland which began in 2009 and made an adjustment to certain
assumptions related to our cancelled lease in Mitcheldean, United
Kingdom.  This lease was cancelled as part of our 2008 restructuring
initiative.  In connection with these initiatives, the Company
recorded restructuring charges of $223 and $1,551 in the Company’s condensed
consolidated statement of operations for the three months ended June 30, 2010
and 2009, respectively.  Restructuring charges for the six months
ended June 30, 2010 and 2009 were $304 and $2,532, respectively. Restructuring
expenses that were general and administrative in nature were included in the
Company’s condensed consolidated statement of operations as part of selling,
general and administrative, while the remaining restructuring related charges
were included in cost of goods sold.





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





Severance
                                      Costs
                                    
                                    
                                    Contract
                                      Termination
                                      Costs
                                    
                                    
                                    Other Exit
                                      Costs
                                    
                                    
                                    TotalTotal
      expected restructuring charges
                                    
                                    $
                                    5,718
                                    
                                    
                                    $
                                    2,137
                                    
                                    
                                    $
                                    2,504
                                    
                                    
                                    $
                                    10,3592007
      charge to expense
                                    
                                    $
                                    468
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    103
                                    
                                    
                                    $
                                    571Cash
      payments
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (103
                                    )
                                    
                                    
                                    (103
                                    )Accrued
      balance at December 31, 2007
                                    
                                    
                                    468
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    4682008
      charge to expense
                                    
                                    
                                    2,830
                                    
                                    
                                    
                                    1,305
                                    
                                    
                                    
                                    2,401
                                    
                                    
                                    
                                    6,536Cash
      payments
                                    
                                    
                                    (2,767
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (2,221
                                    )
                                    
                                    
                                    (4,988
                                    )Accrued
      balance at December 31, 2008
                                    
                                    
                                    531
                                    
                                    
                                    
                                    1,305
                                    
                                    
                                    
                                    180
                                    
                                    
                                    
                                    2,0162009
      charge to expense
                                    
                                    
                                    2,237
                                    
                                    
                                    
                                    374
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,611Foreign
      currency translation effect
                                    
                                    
                                    -
                                    
                                    
                                    
                                    400
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    400Cash
      payments
                                    
                                    
                                    (2,641
                                    )
                                    
                                    
                                    (656
                                    )
                                    
                                    
                                    (180
                                    )
                                    
                                    
                                    (3,477
                                    )Accrued
      balance at December 31, 2009
                                    
                                    
                                    127
                                    
                                    
                                    
                                    1,423
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,550First
      quarter 2010 charge to expense
                                    
                                    
                                    81
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    81Second
      quarter 2010 charge to expense
                                    
                                    
                                    102
                                    
                                    
                                    
                                    121
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    223Foreign
      currency translation effect
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (63
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (63
                                    )Cash
      payments
                                    
                                    
                                    (187
                                    )
                                    
                                    
                                    (251
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (438
                                    )Accrued
      balance at June 30, 2010
                                    
                                    $
                                    123
                                    
                                    
                                    $
                                    1,230
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    1,353




11




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




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





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





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





(9)  Commitments
and Contingencies





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





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


12




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


Product
Warranty and Recall





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





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





2010
                
                
                2009Product
      warranty and recall at beginning of period
                
                $
                4,764
                
                
                $
                5,527Accruals
      for products shipped during period
                
                
                1,153
                
                
                
                293Aggregate
      changes in pre-existing liabilities due to claim
    developments
                
                
                652
                
                
                
                463Settlements
      made during the period (in cash or in kind)
                
                
                (2,179
                )
                
                
                (2,179
                )Product
      warranty and recall at end of period
                
                $
                4,390
                
                
                $
                4,104





(10)  Employee
Benefit Plans





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





Three Months Ended
                
                
                Six Months EndedJune 30,
                
                
                June 30,2010
                
                
                2009
                
                
                2010
                
                
                2009Service
      cost
                
                $
                -
                
                
                $
                14
                
                
                $
                -
                
                
                $
                28Interest
      cost
                
                
                -
                
                
                
                219
                
                
                
                163
                
                
                
                438Expected
      return on plan assets
                
                
                -
                
                
                
                (165
                )
                
                
                (126
                )
                
                
                (330
                )Amortization
      of actuarial loss
                
                
                -
                
                
                
                43
                
                
                
                62
                
                
                
                86Settlement
      loss
                
                
                -
                
                
                
                -
                
                
                
                33
                
                
                
                -Net
      periodic cost
                
                $
                -
                
                
                $
                111
                
                
                $
                132
                
                
                $
                222





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





In March
2009, the Company adopted the Stoneridge, Inc. Long-Term Cash Incentive
Plan (“LTCIP”) and granted awards to certain officers and key
employees.  Awards under the LTCIP provide recipients with the right
to receive cash three years from the date of grant depending on the Company’s
actual earnings per share performance for a performance period comprised of
three fiscal years from the date of grant.  The Company will record an
accrual for an award to be paid in the period earned based on anticipated
achievement of the performance goal.  If the participant voluntarily
terminates employment or is discharged for cause, as defined in the LTCIP, the
award will be forfeited.  In May 2009, the LTCIP was approved by the
Company’s shareholders.  The Company has not recorded an accrual for
the awards granted under the LTCIP at June 30, 2010 as the achievement of the
performance goals are not considered probable at this time.




13




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 for income taxes of $731, or 14.9% of pre-tax
income, and $197, or (1.0)% of pretax loss, for federal, state and foreign
income taxes for the three months ended June 30, 2010 and 2009,
respectively.  The Company recognized a benefit from income taxes of
$758, or (15.5%) of pre-tax income, and $1,911, or 5.7% of pre-tax loss, for
federal, state and foreign income taxes for the six months ended June 30, 2010
and 2009, respectively. As reported at December 31, 2009, the Company is in a
cumulative loss position and provides a valuation allowance offsetting federal,
state and certain foreign deferred tax assets.  The increase in tax
expense for the three months ended June 30, 2010 as well as the decrease in the
tax benefit for the six months ended June 30, 2010 compared to those same
periods for 2009, was primarily attributable to lower losses from the foreign
operations and the resulting decrease in tax benefits related to losses in those
foreign jurisdictions. That reduction in benefit was partially offset with a tax
benefit related to our United Kingdom operations.  As a result of
placing SPL into administration, as described in Note 12, the Company recognized
a tax benefit of approximately $1,170 during the six months ended June 30, 2010,
from the reversal of deferred tax liabilities, primarily employee benefit
related, that were previously included as a component of accumulated other
comprehensive income within Shareholders’ Equity.





(12)  SPL
Administration





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





(13)  Segment
Reporting





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





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





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


14




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




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





Three Months Ended
                
                
                Six Months EndedJune 30,
                
                
                June 30,2010
                
                
                2009
                
                
                2010
                
                
                2009Net
      SalesElectronics
                
                $
                104,927
                
                
                $
                65,894
                
                
                $
                196,565
                
                
                $
                148,665Inter-Segment
      sales
                
                
                3,353
                
                
                
                1,939
                
                
                
                6,464
                
                
                
                3,797Electronics
      net sales
                
                
                108,280
                
                
                
                67,833
                
                
                
                203,029
                
                
                
                152,462Control
      Devices
                
                
                61,335
                
                
                
                36,396
                
                
                
                117,771
                
                
                
                74,710Inter-Segment
      sales
                
                
                936
                
                
                
                676
                
                
                
                1,784
                
                
                
                1,385Control
      Devices net sales
                
                
                62,271
                
                
                
                37,072
                
                
                
                119,555
                
                
                
                76,095Eliminations
                
                
                (4,289
                )
                
                
                (2,615
                )
                
                
                (8,248
                )
                
                
                (5,182
                )Total
      consolidated net sales
                
                $
                166,262
                
                
                $
                102,290
                
                
                $
                314,336
                
                
                $
                223,375Income
      (Loss) Before Income TaxesElectronics
      (A)
                
                $
                4,404
                
                
                $
                (8,954
                )
                
                $
                38,753
                
                
                $
                (11,160
                )Control
      Devices (A)
                
                
                5,130
                
                
                
                (5,408
                )
                
                
                8,286
                
                
                
                (12,428
                )Other
      corporate activities (A)
                
                
                617
                
                
                
                301
                
                
                
                (31,733
                )
                
                
                1,316Corporate
      interest expense
                
                
                (5,248
                )
                
                
                (5,506
                )
                
                
                (10,409
                )
                
                
                (10,983
                )Total
      consolidated income (loss) before income taxes
                
                $
                4,903
                
                
                $
                (19,567
                )
                
                $
                4,897
                
                
                $
                (33,255
                )Depreciation
      and AmortizationElectronics
                
                $
                2,283
                
                
                $
                2,313
                
                
                $
                4,525
                
                
                $
                4,525Control
      Devices
                
                
                2,561
                
                
                
                2,829
                
                
                
                5,026
                
                
                
                5,618Other
      corporate activities
                
                
                85
                
                
                
                64
                
                
                
                172
                
                
                
                124Total
      consolidated depreciation and amortization (B)
                
                $
                4,929
                
                
                $
                5,206
                
                
                $
                9,723
                
                
                $
                10,267





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




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


15




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




Three Months Ended
                        
                        
                        Six Months EndedJune 30,
                        
                        
                        June 30,2010
                        
                        
                        2009
                        
                        
                        2010
                        
                        
                        2009Interest
      Expense (Income), netElectronics
                        
                        $
                        376
                        
                        
                        $
                        33
                        
                        
                        $
                        821
                        
                        
                        $
                        54Control
      Devices
                        
                        
                        6
                        
                        
                        
                        (1
                        )
                        
                        
                        6
                        
                        
                        
                        (2
                        )Corporate
      activities
                        
                        
                        5,248
                        
                        
                        
                        5,506
                        
                        
                        
                        10,409
                        
                        
                        
                        10,983Total
      consolidated interest expense, net
                        
                        $
                        5,630
                        
                        
                        $
                        5,538
                        
                        
                        $
                        11,236
                        
                        
                        $
                        11,035Capital
      ExpendituresElectronics
                        
                        $
                        2,323
                        
                        
                        $
                        904
                        
                        
                        $
                        4,786
                        
                        
                        $
                        2,414Control
      Devices
                        
                        
                        1,040
                        
                        
                        
                        1,741
                        
                        
                        
                        2,324
                        
                        
                        
                        3,676Corporate
      activities
                        
                        
                        81
                        
                        
                        
                        153
                        
                        
                        
                        (47
                        )
                        
                        
                        653Total
      consolidated capital expenditures
                        
                        $
                        3,444
                        
                        
                        $
                        2,798
                        
                        
                        $
                        7,063
                        
                        
                        $
                        6,743





June 30,
                  
                  
                  December 31,2010
                  
                  
                  2009Total
      AssetsElectronics
                  
                  $
                  188,666
                  
                  
                  $
                  163,414Control
      Devices
                  
                  
                  95,885
                  
                  
                  
                  91,631Corporate
      (C)
                  
                  
                  212,957
                  
                  
                  
                  236,110Eliminations
                  
                  
                  (119,615
                  )
                  
                  
                  (128,630
                  )Total
      consolidated assets
                  
                  $
                  377,893
                  
                  
                  $
                  362,525





(C)  Assets
located at Corporate consist primarily of cash and equity
investments.





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





Three Months Ended
                
                
                Six Months EndedJune 30,
                
                
                June 30,2010
                
                
                2009
                
                
                2010
                
                
                2009Net
      SalesNorth
      America
                
                $
                135,749
                
                
                $
                83,075
                
                
                $
                256,492
                
                
                $
                182,305Europe
      and Other
                
                
                30,513
                
                
                
                19,215
                
                
                
                57,844
                
                
                
                41,070Total
      consolidated net sales
                
                $
                166,262
                
                
                $
                102,290
                
                
                $
                314,336
                
                
                $
                223,375





June 30,
                  
                  
                  December 31,2010
                  
                  
                  2009Non-Current
      AssetsNorth
      America
                  
                  $
                  118,382
                  
                  
                  $
                  121,149Europe
      and Other
                  
                  
                  10,595
                  
                  
                  
                  10,706Total
      non-current assets
                  
                  $
                  128,977
                  
                  
                  $
                  131,855




16




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




(14)  Investments





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





PST
Eletrônica S.A.





The
Company has a 50% equity interest in PST Eletrônica S.A. (“PST”), a Brazilian
electronic system provider focused on security and convenience applications
primarily for the vehicle and motorcycle industry.  The investment is
accounted for under the equity method of accounting. The Company’s investment in
PST was $36,869 and $35,824 at June 30, 2010 and December 31, 2009,
respectively.





Condensed
financial information for PST is as follows:





Three
      Months Ended
                
                
                Six
      Months EndedJune 30,
                
                
                June 30,2010
                
                
                2009
                
                
                2010
                
                
                2009Revenues
                
                $
                40,812
                
                
                $
                30,588
                
                
                $
                74,122
                
                
                $
                51,988Cost
      of sales
                
                $
                21,552
                
                
                $
                15,947
                
                
                $
                39,166
                
                
                $
                26,998Total
      pre-tax income
                
                $
                3,426
                
                
                $
                2,046
                
                
                $
                4,623
                
                
                $
                3,306The
      Company's share of pre-tax income
                
                $
                1,713
                
                
                $
                1,023
                
                
                $
                2,312
                
                
                $
                1,653





Equity in
earnings of PST included in the condensed consolidated statements of operations
was $1,350 and $785 for the three months ended June 30, 2010 and 2009,
respectively.  For the six months ended June 30, 2010 and 2009, equity
in earnings of PST was $1,833 and $1,388, 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
Company’s investment in Minda was $5,678 and $5,220 at June 30, 2010 and
December 31, 2009, respectively.  Equity in earnings of Minda included
in the condensed consolidated statements of operations was $261 and $118, for
the three months ended June 30, 2010 and 2009, respectively.  For the
six months ended June 30, 2010 and 2009, equity in earnings of Minda was $469
and $90, respectively.


17




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





Presented
below are summarized consolidating financial statements of the Parent (which
includes certain of the Company’s operating units), the Guarantor Subsidiaries,
the Non-Guarantor Subsidiaries and the Company on a condensed consolidated
basis, as of June 30, 2010 and December 31, 2009 and for each of the three and
six months ended June 30, 2010 and 2009.





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


18




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




June
      30, 2010Parent
                                      
                                      
                                      Guarantor
                                        Subsidiaries
                                      
                                      
                                      Non-
                                        Guarantor
                                        Subsidiaries
                                      
                                      
                                      Eliminations
                                      
                                      
                                      ConsolidatedASSETSCurrent
      Assets:Cash
      and cash equivalents
                                      
                                      $
                                      42,085
                                      
                                      
                                      $
                                      20
                                      
                                      
                                      $
                                      32,503
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      74,608Accounts
      receivable, net
                                      
                                      
                                      57,617
                                      
                                      
                                      
                                      22,323
                                      
                                      
                                      
                                      26,873
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      106,813Inventories,
      net
                                      
                                      
                                      26,458
                                      
                                      
                                      
                                      8,163
                                      
                                      
                                      
                                      12,440
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      47,061Prepaid
      expenses and other current assets
                                      
                                      
                                      (306,326
                                      )
                                      
                                      
                                      314,775
                                      
                                      
                                      
                                      11,985
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      20,434Total
      current assets.
                                      
                                      
                                      (180,166
                                      )
                                      
                                      
                                      345,281
                                      
                                      
                                      
                                      83,801
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      248,916Long-Term
      Assets:Property,
      plant and equipment, net
                                      
                                      
                                      43,980
                                      
                                      
                                      
                                      17,872
                                      
                                      
                                      
                                      11,572
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      73,424Investments
      and other long-term assets, net
                                      
                                      
                                      44,343
                                      
                                      
                                      
                                      263
                                      
                                      
                                      
                                      10,947
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      55,553Investment
      in subsidiaries
                                      
                                      
                                      407,119
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (407,119
                                      )
                                      
                                      
                                      -Total
      long-term assets
                                      
                                      
                                      495,442
                                      
                                      
                                      
                                      18,135
                                      
                                      
                                      
                                      22,519
                                      
                                      
                                      
                                      (407,119
                                      )
                                      
                                      
                                      128,977Total
      Assets
                                      
                                      $
                                      315,276
                                      
                                      
                                      $
                                      363,416
                                      
                                      
                                      $
                                      106,320
                                      
                                      
                                      $
                                      (407,119
                                      )
                                      
                                      $
                                      377,893LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      Liabilities:Accounts
      payable
                                      
                                      $
                                      32,986
                                      
                                      
                                      $
                                      17,171
                                      
                                      
                                      $
                                      13,314
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      63,471Accrued
      expenses and other current liabilities
                                      
                                      
                                      14,883
                                      
                                      
                                      
                                      10,947
                                      
                                      
                                      
                                      15,147
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      40,977Total
      current liabilities
                                      
                                      
                                      47,869
                                      
                                      
                                      
                                      28,118
                                      
                                      
                                      
                                      28,461
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      104,448Long-Term
      Liabilities:Long-term
      debt
                                      
                                      
                                      183,000
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      290
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      183,290Other
      long-term liabilities
                                      
                                      
                                      9,185
                                      
                                      
                                      
                                      360
                                      
                                      
                                      
                                      940
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      10,485Total
      long-term liabilities
                                      
                                      
                                      192,185
                                      
                                      
                                      
                                      360
                                      
                                      
                                      
                                      1,230
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      193,775Stoneridge,
      Inc. and Subsidiaries Shareholders' Equity
                                      
                                      
                                      75,222
                                      
                                      
                                      
                                      334,938
                                      
                                      
                                      
                                      72,181
                                      
                                      
                                      
                                      (407,119
                                      )
                                      
                                      
                                      75,222Noncontrolling
      Interest
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      4,448
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      4,448Total
      Shareholders' Equity
                                      
                                      
                                      75,222
                                      
                                      
                                      
                                      334,938
                                      
                                      
                                      
                                      76,629
                                      
                                      
                                      
                                      (407,119
                                      )
                                      
                                      
                                      79,670Total
      Liabilities and Shareholders’ Equity
                                      
                                      $
                                      315,276
                                      
                                      
                                      $
                                      363,416
                                      
                                      
                                      $
                                      106,320
                                      
                                      
                                      $
                                      (407,119
                                      )
                                      
                                      $
                                      377,893


19


STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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





Supplemental
condensed consolidating financial statements (continued):





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




20


STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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





Supplemental
condensed consolidating financial statements (continued):





Three Months Ended June 30, 2010Parent
                
                
                Guarantor
                  Subsidiaries
                
                
                Non-
                  Guarantor
                  Subsidiaries
                
                
                Eliminations
                
                
                ConsolidatedNet
      Sales
                
                $
                96,393
                
                
                $
                44,825
                
                
                $
                47,351
                
                
                $
                (22,307
                )
                
                $
                166,262Costs
      and Expenses:Cost
      of goods sold
                
                
                80,182
                
                
                
                33,305
                
                
                
                34,798
                
                
                
                (21,643
                )
                
                
                126,642Selling,
      general and administrative
                
                
                15,065
                
                
                
                6,113
                
                
                
                10,933
                
                
                
                (664
                )
                
                
                31,447Operating
      Income
                
                
                1,146
                
                
                
                5,407
                
                
                
                1,620
                
                
                
                -
                
                
                
                8,173Interest
      expense, net
                
                
                5,590
                
                
                
                -
                
                
                
                40
                
                
                
                -
                
                
                
                5,630Other
      expense (income), net
                
                
                (3,288
                )
                
                
                868
                
                
                
                60
                
                
                
                -
                
                
                
                (2,360
                )Equity
      earnings from subsidiaries
                
                
                (6,008
                )
                
                
                -
                
                
                
                -
                
                
                
                6,008
                
                
                
                -Income
      Before Income Taxes
                
                
                4,852
                
                
                
                4,539
                
                
                
                1,520
                
                
                
                (6,008
                )
                
                
                4,903Provision
      for income taxes
                
                
                680
                
                
                
                -
                
                
                
                51
                
                
                
                -
                
                
                
                731Net
      Income
                
                
                4,172
                
                
                
                4,539
                
                
                
                1,469
                
                
                
                (6,008
                )
                
                
                4,172Net
      Loss Attributable to Noncontrolling Interest
                
                
                -
                
                
                
                -
                
                
                
                (21
                )
                
                
                -
                
                
                
                (21
                )Net
      Income Attributable to Stoneridge, Inc. and Subsidiaries
                
                $
                4,172
                
                
                $
                4,539
                
                
                $
                1,490
                
                
                $
                (6,008
                )
                
                $
                4,193




21





STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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





Supplemental
condensed consolidating financial statements (continued):




Three Months Ended June 30, 2009Parent
                
                
                Guarantor
                  Subsidiaries
                
                
                Non-
                  Guarantor
                  Subsidiaries
                
                
                Eliminations
                
                
                ConsolidatedNet
      Sales
                
                $
                60,063
                
                
                $
                28,541
                
                
                $
                31,006
                
                
                $
                (17,320
                )
                
                $
                102,290Costs
      and Expenses:Cost
      of goods sold
                
                
                54,502
                
                
                
                24,940
                
                
                
                25,814
                
                
                
                (16,562
                )
                
                
                88,694Selling,
      general and administrative
                
                
                12,233
                
                
                
                6,129
                
                
                
                10,285
                
                
                
                (758
                )
                
                
                27,889Operating
      Loss
                
                
                (6,672
                )
                
                
                (2,528
                )
                
                
                (5,093
                )
                
                
                -
                
                
                
                (14,293
                )Interest
      expense (income), net
                
                
                5,566
                
                
                
                (1
                )
                
                
                (27
                )
                
                
                -
                
                
                
                5,538Other
      expense (income), net
                
                
                (3,969
                )
                
                
                1,323
                
                
                
                2,382
                
                
                
                -
                
                
                
                (264
                )Equity
      earnings from subsidiaries
                
                
                10,102
                
                
                
                -
                
                
                
                -
                
                
                
                (10,102
                )
                
                
                -Loss
      Before Income Taxes
                
                
                (18,371
                )
                
                
                (3,850
                )
                
                
                (7,448
                )
                
                
                10,102
                
                
                
                (19,567
                )Provision
      (benefit) for income taxes
                
                
                1,393
                
                
                
                -
                
                
                
                (1,196
                )
                
                
                -
                
                
                
                197Net
      Loss
                
                
                (19,764
                )
                
                
                (3,850
                )
                
                
                (6,252
                )
                
                
                10,102
                
                
                
                (19,764
                )Net
      Loss Attributable to Noncontrolling Interest
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Net
      Loss Attributable to Stoneridge, Inc. and Subsidiaries
                
                $
                (19,764
                )
                
                $
                (3,850
                )
                
                $
                (6,252
                )
                
                $
                10,102
                
                
                $
                (19,764
                )




22


STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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





Supplemental
condensed consolidating financial statements (continued):





Six Months Ended June 30, 2010Parent
                
                
                Guarantor
                  Subsidiaries
                
                
                Non-
                  Guarantor
                  Subsidiaries
                
                
                Eliminations
                
                
                ConsolidatedNet
      Sales
                
                $
                179,499
                
                
                $
                87,308
                
                
                $
                90,363
                
                
                $
                (42,834
                )
                
                $
                314,336Costs
      and Expenses:Cost
      of goods sold
                
                
                150,517
                
                
                
                65,598
                
                
                
                66,571
                
                
                
                (41,497
                )
                
                
                241,189Selling,
      general and administrative
                
                
                28,982
                
                
                
                12,427
                
                
                
                20,943
                
                
                
                (1,337
                )
                
                
                61,015Operating
      Income
                
                
                -
                
                
                
                9,283
                
                
                
                2,849
                
                
                
                -
                
                
                
                12,132Interest
      expense, net
                
                
                11,150
                
                
                
                -
                
                
                
                86
                
                
                
                -
                
                
                
                11,236Other
      expense (income), net
                
                
                (3,245
                )
                
                
                2,164
                
                
                
                (2,920
                )
                
                
                -
                
                
                
                (4,001
                )Equity
      earnings from subsidiaries
                
                
                (14,420
                )
                
                
                -
                
                
                
                -
                
                
                
                14,420
                
                
                
                -Income
      Before Income Taxes
                
                
                6,515
                
                
                
                7,119
                
                
                
                5,683
                
                
                
                (14,420
                )
                
                
                4,897Provision
      (benefit) for income taxes
                
                
                860
                
                
                
                -
                
                
                
                (1,618
                )
                
                
                -
                
                
                
                (758
                )Net
      Income
                
                
                5,655
                
                
                
                7,119
                
                
                
                7,301
                
                
                
                (14,420
                )
                
                
                5,655Net
      Loss Attributable to Noncontrolling Interest
                
                
                -
                
                
                
                -
                
                
                
                (44
                )
                
                
                -
                
                
                
                (44
                )Net
      Income Attributable to Stoneridge, Inc. and Subsidiaries
                
                $
                5,655
                
                
                $
                7,119
                
                
                $
                7,345
                
                
                $
                (14,420
                )
                
                $
                5,699




23


STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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





Supplemental
condensed consolidating financial statements (continued):





Six Months Ended June 30, 2009Parent
                
                
                Guarantor
                  Subsidiaries
                
                
                Non-
                  Guarantor
                  Subsidiaries
                
                
                Eliminations
                
                
                ConsolidatedNet
      Sales
                
                $
                132,635
                
                
                $
                60,167
                
                
                $
                65,598
                
                
                $
                (35,025
                )
                
                $
                223,375Costs
      and Expenses:Cost
      of goods sold
                
                
                117,895
                
                
                
                52,734
                
                
                
                53,521
                
                
                
                (33,646
                )
                
                
                190,504Selling,
      general and administrative
                
                
                24,291
                
                
                
                13,177
                
                
                
                19,835
                
                
                
                (1,379
                )
                
                
                55,924Operating
      Loss
                
                
                (9,551
                )
                
                
                (5,744
                )
                
                
                (7,758
                )
                
                
                -
                
                
                
                (23,053
                )Interest
      expense (income), net
                
                
                11,110
                
                
                
                (1
                )
                
                
                (74
                )
                
                
                -
                
                
                
                11,035Other
      expense (income), net
                
                
                (4,541
                )
                
                
                1,323
                
                
                
                2,385
                
                
                
                -
                
                
                
                (833
                )Equity
      earnings from subsidiaries
                
                
                15,204
                
                
                
                -
                
                
                
                -
                
                
                
                (15,204
                )
                
                
                -Loss
      Before Income Taxes
                
                
                (31,324
                )
                
                
                (7,066
                )
                
                
                (10,069
                )
                
                
                15,204
                
                
                
                (33,255
                )Provision
      (benefit) for income taxes
                
                
                20
                
                
                
                -
                
                
                
                (1,931
                )
                
                
                -
                
                
                
                (1,911
                )Net
      Loss
                
                
                (31,344
                )
                
                
                (7,066
                )
                
                
                (8,138
                )
                
                
                15,204
                
                
                
                (31,344
                )Net
      Loss Attributable to Noncontrolling Interest
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Net
      Loss Attributable to Stoneridge, Inc. and Subsidiaries
                
                $
                (31,344
                )
                
                $
                (7,066
                )
                
                $
                (8,138
                )
                
                $
                15,204
                
                
                $
                (31,344
                )




24





STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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





Supplemental
condensed consolidating financial statements (continued):




Six Months Ended June 30, 2010Parent
                      
                      
                      Guarantor
                        Subsidiaries
                      
                      
                      Non-
                        Guarantor
                        Subsidiaries
                      
                      
                      ConsolidatedNet
      cash provided by (used for) operating activities
                      
                      $
                      (13,758
                      )
                      
                      $
                      538
                      
                      
                      $
                      5,787
                      
                      
                      $
                      (7,433
                      )INVESTING
      ACTIVITIES:Capital
      expenditures
                      
                      
                      (4,078
                      )
                      
                      
                      (592
                      )
                      
                      
                      (2,393
                      )
                      
                      
                      (7,063
                      )Proceeds
      from the sale of fixed assets
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      21
                      
                      
                      
                      21Net
      cash used for investing activities
                      
                      
                      (4,078
                      )
                      
                      
                      (592
                      )
                      
                      
                      (2,372
                      )
                      
                      
                      (7,042
                      )FINANCING
      ACTIVITIES:Share-based
      compensation activity, net
                      
                      
                      228
                      
                      
                      
                      56
                      
                      
                      
                      10
                      
                      
                      
                      294Revolving
      credit facility borrowings, net
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      477
                      
                      
                      
                      477Repayments
      of debt
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (141
                      )
                      
                      
                      (141
                      )Net
      cash provided by financing activities
                      
                      
                      228
                      
                      
                      
                      56
                      
                      
                      
                      346
                      
                      
                      
                      630Effect
      of exchange rate changes on cash and cash equivalents
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (3,454
                      )
                      
                      
                      (3,454
                      )Net
      change in cash and cash equivalents
                      
                      
                      (17,608
                      )
                      
                      
                      2
                      
                      
                      
                      307
                      
                      
                      
                      (17,299
                      )Cash
      and cash equivalents at beginning of period
                      
                      
                      59,693
                      
                      
                      
                      18
                      
                      
                      
                      32,196
                      
                      
                      
                      91,907Cash
      and cash equivalents at end of period
                      
                      $
                      42,085
                      
                      
                      $
                      20
                      
                      
                      $
                      32,503
                      
                      
                      $
                      74,608







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




25





STONERIDGE,
INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


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





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





Overview





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





We
recognized net income for the quarter ended June 30, 2010 of $4.2 million, or
$0.17 per diluted share, compared with a net loss of $19.8 million, or $(0.84)
per diluted share, for the second quarter of 2009.





Our
second quarter 2010 results were positively affected by improvements in the
North American automotive and North American and European commercial vehicle
markets as well as the economy as a whole.  Production volumes in the
North American automotive vehicle market increased by 72.7% during the quarter
ended June 30, 2010 when compared to the quarter ended June 30,
2009.  These automotive vehicle market production volume increases had
a positive effect on our North American automotive vehicle market net sales of
approximately $19.8 million, primarily within our Control Devices
segment.  The commercial vehicle market production volumes in North
America improved by 28.3% during the quarter ended June 30, 2010 when compared
to the prior year second quarter, which resulted in increased net sales of
approximately $19.7 million, primarily within our Electronics
segment.  Our net sales were also favorably affected by increased
European commercial vehicle production volumes of 58.1% during the quarter ended
June 30, 2010 as compared to the prior year second quarter.  This
increased production volume had a positive effect on our net sales of
approximately $11.9 million, principally within the Electronics
segment.  These increases in net sales were partially offset by
unfavorable foreign currency exchange rates.  Our revenues were
unfavorably affected by foreign currency translation of approximately $3.0
million during the quarter ended June 30, 2010 when compared to the quarter
ended June 30, 2009.  Our gross margin percentage increased from 13.3%
for the quarter ended June 30, 2009 to 23.8% for the quarter ended June 30,
2010, primarily due to the significant increases in sales and the leveraging
of our cost structure resulting from our prior restructuring
initiatives.





Our
selling, general and administrative expenses (“SG&A”) increased from $27.9
million for the quarter ended June 30, 2009 to $31.4 million for the quarter
ended June 30, 2010.  This $3.5 million, or 12.5%, increase in
SG&A was mainly due to increased compensation and compensation related
expenses incurred during the quarter ended June 30, 2010 of approximately $2.0
million primarily as a result of increased incentive compensation
expenses.  In addition, our design and development costs increased by
approximately $0.5 million between periods due to our support of new product
launches by our customers.





Our
results for the six months ended June 30, 2010 were also favorably affected by
the wind down of our wholly-owned subsidiary, Stoneridge Pollak Limited (“SPL”),
located in Mitcheldean, United Kingdom.  On February 23, 2010, we
placed SPL into administration (a structured bankruptcy) in the United
Kingdom.  We had previously ceased SPL’s manufacturing operations in
December of 2008, as part of the restructuring initiatives announced in October
2007.  All SPL customer contracts were transferred to our other
subsidiaries prior to placing SPL into administration.  We recognized
a net gain within other expense (income), net of approximately $2.2 million,
primarily from the reversal of the cumulative translation adjustment account,
which had previously been included as a component of accumulated other
comprehensive income within Shareholders’ Equity.  In addition, we
recognized a tax benefit of approximately $1.2 million from the reversal of
deferred tax liabilities; primarily employee benefit related which were also
previously included as a component of accumulated other comprehensive
income.





At June
30, 2010 and December 31, 2009, we maintained a cash and equivalents balance of
$74.6 million and $91.9 million, respectively.  As discussed in Note 6
to the condensed consolidated financial statements, we have no borrowings under
our asset-based credit facility.  At June 30, 2010 and December 31,
2009, we had borrowing capacity of $71.8 million and $54.1 million,
respectively.





Outlook





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


26





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





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





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





Results
of Operations





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





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





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




Three Months EndedJune 30,
                    
                    
                    Dollar
                    
                    
                    Percent2010
                    
                    
                    2009
                    
                    
                    Increase
                    
                    
                    IncreaseElectronics
                    
                    $
                    104,927
                    
                    
                    
                    63.1
                    %
                    
                    $
                    65,894
                    
                    
                    
                    64.4
                    %
                    
                    $
                    39,033
                    
                    
                    
                    59.2
                    %Control
      Devices
                    
                    
                    61,335
                    
                    
                    
                    36.9
                    
                    
                    
                    36,396
                    
                    
                    
                    35.6
                    
                    
                    
                    24,939
                    
                    
                    
                    68.5
                    %Total
      net sales
                    
                    $
                    166,262
                    
                    
                    
                    100.0
                    %
                    
                    $
                    102,290
                    
                    
                    
                    100.0
                    %
                    
                    $
                    63,972
                    
                    
                    
                    62.5
                    %




Our
Electronics segment was positively affected by increased volume in our served
markets by approximately $40.9 million for the quarter ended June 30, 2010 when
compared to the prior year second quarter.  The increase in net sales
for our Electronics segment was primarily due to volume increases in our North
American and European commercial vehicle products.  Commercial vehicle
market production volumes in North America and Europe increased by 28.3% and
58.1%, respectively, during the quarter ended June 30, 2010 when compared to the
prior year second quarter.  The increase in North American and
European commercial vehicle production positively affected net sales in our
Electronics segment for the quarter ended June 30, 2010 by approximately $19.6
million, or 58.3%, and $11.8 million, or 69.8%, respectively.  Our
Electronics segment net sales were favorably affected by increased volumes
within the agricultural vehicle market of approximately $7.2
million.  Net sales within the Electronics segment were also favorably
affected by approximately $2.2 million during the quarter ended June 30, 2010
due to the inclusion of Bolton Conductive Systems, LLC (“BCS”), which was
acquired in the fourth quarter of 2009.  These increases were
partially offset by unfavorable foreign exchange rates.  Our
Electronics segment net sales were unfavorably affected by foreign currency
fluctuations of approximately $3.0 million for the quarter ended June 30, 2010
when compared to the prior year second quarter.





Our
Control Devices segment was positively affected by increased volume in our
served markets by approximately $21.9 million for the quarter ended June 30,
2010 when compared to the prior year second quarter.  The increase in
net sales for our Control Devices segment was primarily attributable to
production volume increases at our major customers in the North American
automotive vehicle market.  Production volumes in the North American
automotive vehicle market increased by 72.7% during the quarter ended June 30,
2010 when compared to the quarter ended June 30, 2009.  Volume
increases within the automotive vehicle market of our Control Devices segment
increased net sales for the quarter ended June 30, 2010 by approximately $19.8
million, or 67.5%, when compared to the prior year second quarter.  In
addition, our Control Devices segment was favorably affected by increased volume
within the agricultural vehicle market of approximately $1.9 million during the
quarter ended June 30, 2010 when compared to the quarter ended June 30,
2009.


27





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


Three Months EndedJune 30,
                            
                            
                            Dollar
                            
                            
                            Percent2010
                            
                            
                            2009
                            
                            
                            Increase
                            
                            
                            IncreaseNorth
      America
                            
                            $
                            135,749
                            
                            
                            
                            81.6
                            %
                            
                            $
                            83,075
                            
                            
                            
                            81.2
                            %
                            
                            $
                            52,674
                            
                            
                            
                            63.4
                            %Europe
      and other
                            
                            
                            30,513
                            
                            
                            
                            18.4
                            
                            
                            
                            19,215
                            
                            
                            
                            18.8
                            
                            
                            
                            11,298
                            
                            
                            
                            58.8
                            %Total
      net sales
                            
                            $
                            166,262
                            
                            
                            
                            100.0
                            %
                            
                            $
                            102,290
                            
                            
                            
                            100.0
                            %
                            
                            $
                            63,972
                            
                            
                            
                            62.5
                            %




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





The
increase in North American net sales was primarily attributable to increased
sales volume in our North American automotive, commercial and agricultural
vehicle markets, which had a positive effect on our net sales for the quarter
ended June 30, 2010 of $19.8 million, $19.7 million and $8.6 million,
respectively.  North American net sales for the quarter ended June 30,
2010 were also favorably affected by approximately $2.2 million due to the
inclusion of BCS.  Our increase in net sales outside North America was
principally due to increased sales of European commercial vehicle market
products, which had a positive effect on our net sales for the quarter ended
June 30, 2010 of approximately $11.9 million.  Foreign currency
fluctuations negatively affected our net sales outside of North America by
approximately $3.1 million during the quarter ended June 30, 2010 when compared
to the quarter ended June 30, 2009.





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





Three Months EndedJune 30,
                    
                    
                    $ Increase /2010
                    
                    
                    2009
                    
                    
                    (Decrease)Net
      Sales
                    
                    $
                    166,262
                    
                    
                    
                    100.0
                    %
                    
                    $
                    102,290
                    
                    
                    
                    100.0
                    %
                    
                    $
                    63,972Costs
      and Expenses:Cost
      of goods sold
                    
                    
                    126,642
                    
                    
                    
                    76.2
                    
                    
                    
                    88,694
                    
                    
                    
                    86.7
                    
                    
                    
                    37,948Selling,
      general and administrative
                    
                    
                    31,447
                    
                    
                    
                    18.9
                    
                    
                    
                    27,889
                    
                    
                    
                    27.3
                    
                    
                    
                    3,558Operating
      Income (Loss)
                    
                    
                    8,173
                    
                    
                    
                    4.9
                    
                    
                    
                    (14,293
                    )
                    
                    
                    (14.0
                    )
                    
                    
                    22,466Interest
      expense, net
                    
                    
                    5,630
                    
                    
                    
                    3.4
                    
                    
                    
                    5,538
                    
                    
                    
                    5.4
                    
                    
                    
                    92Equity
      in earnings of investees
                    
                    
                    (1,611
                    )
                    
                    
                    (1.0
                    )
                    
                    
                    (903
                    )
                    
                    
                    (0.9
                    )
                    
                    
                    (708
                    )Other
      expense (income), net
                    
                    
                    (749
                    )
                    
                    
                    (0.5
                    )
                    
                    
                    639
                    
                    
                    
                    0.6
                    
                    
                    
                    (1,388
                    )Income
      (Loss) Before Income Taxes
                    
                    
                    4,903
                    
                    
                    
                    3.0
                    
                    
                    
                    (19,567
                    )
                    
                    
                    (19.1
                    )
                    
                    
                    24,470Provision
      for income taxes
                    
                    
                    731
                    
                    
                    
                    0.4
                    
                    
                    
                    197
                    
                    
                    
                    0.2
                    
                    
                    
                    534Net
      Income (Loss)
                    
                    
                    4,172
                    
                    
                    
                    2.6
                    
                    
                    
                    (19,764
                    )
                    
                    
                    (19.3
                    )
                    
                    
                    23,936Net
      Loss Attributable to Noncontrolling Interest
                    
                    
                    (21
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (21
                    )Net
      Income (Loss) Attributable to Stoneridge, Inc. and
      Subsidiaries
                    
                    $
                    4,193
                    
                    
                    
                    2.6
                    %
                    
                    $
                    (19,764
                    )
                    
                    
                    (19.3
                    )%
                    
                    $
                    23,957





Cost of Goods Sold.The
decrease in cost of goods sold as a percentage of net sales was primarily due to
the significant increase in volume of our European and North American commercial
and North American automotive vehicle markets during the quarter ended June 30,
2010 when compared to the prior year second quarter.  A portion of our
cost structure is fixed in nature, such as overhead and depreciation
costs.  These fixed costs combined with significantly higher net sales
recognized in the second quarter of 2010, resulted in a lower cost of goods sold
as a percentage of net sales in the second quarter of 2010.  Our
material cost as a percentage of net sales for our Electronics segment for the
second quarter of 2010 and 2009 was 57.4% and 57.7%,
respectively.  Our materials cost as a percentage of net sales for the
Control Devices segment decreased from 55.5% for the quarter ended June 30, 2009
to 52.3% for the second quarter of 2010. This decrease is largely due to
inventory related charges taken in 2009 as a result of lower sales volumes in
our served markets.


28





Selling, General and Administrative
Expenses. Design and development expenses are included within SG&A
and were $10.0 million and $9.5 million for the second quarter of 2010 and 2009,
respectively.  Design and development expenses for our Electronics
segment increased from $5.7 million for the quarter ended June 30, 2009 to $6.7
million for the second quarter of 2010.  This increase in design and
development costs was a result of our customers’ new product launches scheduled
in the near term.  Design and development expenses for our Control
Devices segment decreased from $3.8 million for the second quarter of 2009 to
$3.3 million for the quarter ended June 30, 2010.  As a result of our
product platform launches scheduled for 2010 and in the future, we believe that
our design and development costs for the remainder of 2010 will increase from
2009 levels and will remain consistent to the current quarter
expense.  The increase in SG&A costs excluding design and
development expenses was largely due to higher employee related costs of
approximately $2.0 million, primarily incentive compensation.  Our
SG&A costs decreased as a percentage of net sales because of the significant
increase in net sales recognized in the current quarter when compared to the
prior year second quarter.





Costs
from our restructuring initiatives for the quarter ended June 30, 2010 decreased
compared to the second quarter of 2009 as a result of our restructuring
initiatives nearing completion.  Costs incurred during the quarter
ended June 30, 2010 related to restructuring initiatives amounted to
approximately $0.2 million and were comprised of one-time termination benefits
and contract termination costs.  These restructuring actions were a
combination of severance costs as a result of the continuation of restructuring
initiatives which began in 2009 in Dundee, Scotland and an adjustment that was
made to certain assumptions related to our cancelled lease in Mitcheldean,
United Kingdom.  This lease was cancelled in 2008 as part of our
restructuring initiative.  Second quarter 2009 restructuring expenses
were approximately $1.6 million and were primarily comprised of one-time
termination benefits.  Restructuring expenses that were general and
administrative in nature were included in the Company’s condensed consolidated
statements of operations as a component of SG&A, while the remaining
restructuring related expenses were included in cost of goods sold.





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





Electronics
                        
                        
                        ControlDevices
                        
                        
                        Total
                          Consolidated
                          Restructuring
                          ChargesSeverance
      costs
                        
                        $
                        102
                        
                        
                        $
                        -
                        
                        
                        $
                        102Contract
      termination costs
                        
                        
                        121
                        
                        
                        
                        -
                        
                        
                        
                        121Total
      general and administrative restructuring charges
                        
                        $
                        223
                        
                        
                        $
                        -
                        
                        
                        $
                        223





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





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





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




29





Equity in Earnings of
Investees.The increase in equity earnings of investees was
attributable to the increase in equity earnings recognized from our PST
Eletrônica S.A. (“PST”) and Minda Stoneridge Instruments Ltd. (“Minda”) joint
ventures.  Equity earnings for PST increased from $0.8 million for the
quarter ended June 30, 2009 to $1.4 million for the quarter ended June 30,
2010.  This increase primarily reflects higher volumes for PST’s
product lines during the quarter ended June 30, 2010.  Equity earnings
for Minda increased from $0.1 million for the quarter ended June 30, 2009 to
$0.3 million for the quarter ended June 30, 2010.





Other Expense
(Income), net.  We record certain foreign currency
transaction and forward currency hedge contract gains and losses as a component
of other expense (income), net on the condensed consolidated statement of
operations.  Our results for the quarter ended June 30, 2010 when
compared to the second quarter of 2009 were favorably affected by approximately
$1.4 million due to the volatility in certain foreign exchange rates between
periods.





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





Three Months EndedJune 30,
                  
                  
                  Dollar
                  
                  
                  Percent2010
                  
                  
                  2009
                  
                  
                  Increase
                  
                  
                  IncreaseElectronics
                  
                  $
                  4,404
                  
                  
                  $
                  (8,954
                  )
                  
                  $
                  13,358
                  
                  
                  
                  149.2
                  %Control
      Devices
                  
                  
                  5,130
                  
                  
                  
                  (5,408
                  )
                  
                  
                  10,538
                  
                  
                  
                  194.9
                  %Other
      corporate activities
                  
                  
                  617
                  
                  
                  
                  301
                  
                  
                  
                  316
                  
                  
                  
                  105.0
                  %Corporate
      interest expense
                  
                  
                  (5,248
                  )
                  
                  
                  (5,506
                  )
                  
                  
                  258
                  
                  
                  
                  4.7
                  %Income
      (loss) before income taxes
                  
                  $
                  4,903
                  
                  
                  $
                  (19,567
                  )
                  
                  $
                  24,470
                  
                  
                  
                  125.1
                  %





The
increase in profitability in the Electronics segment was primarily related to
increased revenue within our North American and European commercial and
agriculture vehicle markets.  In addition, restructuring related
expenses for the Electronics reportable segment were approximately $1.2 million
lower for the second quarter of 2010 when compared to the quarter ended June 30,
2009.  These factors were partially offset by unfavorable foreign
exchange rates during the quarter ended June 30, 2010.





The
increase in profitability in the Control Devices reportable segment was
primarily due to higher revenue within our North American automotive vehicle
market.  Production volume increases favorably affected our net sales
within the Control Devices segment by approximately $21.9 million for the
quarter ended June 30, 2010 when compared to the prior year second
quarter.





The
increase in income before income taxes from other corporate activities was
primarily due to the $0.7 million increase in equity earnings from our PST and
Minda joint ventures.  The increase is partially offset by an increase
in compensation related expenses, primarily incentive compensation incurred in
the second quarter of 2010.





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




Three Months EndedJune 30,
                    
                    
                    Dollar
                    
                    
                    Percent2010
                    
                    
                    2009
                    
                    
                    Increase
                    
                    
                    IncreaseNorth
      America
                    
                    $
                    5,080
                    
                    
                    
                    103.6
                    %
                    
                    $
                    (13,053
                    )
                    
                    
                    66.7
                    %
                    
                    $
                    18,133
                    
                    
                    
                    138.9
                    %Europe
      and other
                    
                    
                    (177
                    )
                    
                    
                    (3.6
                    )
                    
                    
                    (6,514
                    )
                    
                    
                    33.3
                    
                    
                    
                    6,337
                    
                    
                    
                    97.3
                    %Income
      (loss) before income taxes
                    
                    $
                    4,903
                    
                    
                    
                    100.0
                    %
                    
                    $
                    (19,567
                    )
                    
                    
                    100.0
                    %
                    
                    $
                    24,470
                    
                    
                    
                    125.1
                    %




North
American income (loss) before income taxes includes interest expense of
approximately $5.6 million and $5.5 million for the quarters ended June 30, 2010
and 2009, respectively.


30





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





Provision for Income Taxes.
We recognized a provision for income taxes of $0.7 million, or 14.9% of pre-tax
income, and $0.2 million, or (1.0)% of the pre-tax loss, for federal, state and
foreign income taxes for the quarters ended June 30, 2010 and 2009,
respectively. As reported at December 31, 2009, the Company is in a cumulative
loss position and provides a valuation allowance offsetting federal, state and
certain foreign deferred tax assets. The increase in tax expense for the three
months ended June 30, 2010 compared to three months ended June 30, 2009, was
primarily attributable to lower losses from our foreign operations and the
resulting decrease in tax benefits related to losses in those foreign
jurisdictions.




Six
Months Ended June 30, 2010 Compared to Six Months Ended June 30,
2009





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




Six Months EndedJune 30,
                    
                    
                    Dollar
                    
                    
                    Percent2010
                    
                    
                    2009
                    
                    
                    Increase
                    
                    
                    IncreaseElectronics
                    
                    $
                    196,565
                    
                    
                    
                    62.5
                    %
                    
                    $
                    148,665
                    
                    
                    
                    66.6
                    %
                    
                    $
                    47,900
                    
                    
                    
                    32.2
                    %Control
      Devices
                    
                    
                    117,771
                    
                    
                    
                    37.5
                    
                    
                    
                    74,710
                    
                    
                    
                    33.4
                    
                    
                    
                    43,061
                    
                    
                    
                    57.6
                    %Total
      net sales
                    
                    $
                    314,336
                    
                    
                    
                    100.0
                    %
                    
                    $
                    223,375
                    
                    
                    
                    100.0
                    %
                    
                    $
                    90,961
                    
                    
                    
                    40.7
                    %




Our
Electronics segment was positively affected by increased volume in our served
markets by approximately $47.2 million for the six months ended June 30, 2010
when compared to the first half of the prior year.  The increase in
net sales for our Electronics segment was primarily due to volume increases in
our North American and European commercial vehicle
products.  Commercial vehicle market production volumes in North
America and Europe increased by 21.7%, and 25.5%, respectively, during the six
months ended June 30, 2010 when compared to the first half of the prior
year.  The increase in North American and European commercial vehicle
production positively affected net sales in our Electronics segment for the six
months ended June 30, 2010 by approximately $23.6 million, or 33.5%, and $13.9
million, or 40.3%, respectively.  Our net sales were favorably
affected by approximately $4.1 million during the six months ended June 30, 2010
due to the inclusion of BCS.  Net sales within our Electronics segment
were also favorably affected by approximately $6.2 million as a result of
production volume increases in the agricultural vehicle market during the six
months ended June 30, 2010 when compared to the first half of 2009.





Our
Control Devices segment was positively affected by increased volume in our
served markets by approximately $38.5 million for the six months ended June 30,
2010 when compared to the prior year first half.  The increase in net
sales for our Control Devices segment was primarily attributable to production
volume increases at our major customers in the North American automotive vehicle
market, which increased by 71.8% during the six months ended June 30, 2010 when
compared to the six months ended June 30, 2009.  Volume increases
within the automotive vehicle market of our Control Devices segment increased
net sales for the six months ended June 30, 2010 by approximately $35.2 million,
or 59.0%, when compared to the first half of the prior year.


31




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




Six Months EndedJune 30,
                    
                    
                    Dollar
                    
                    
                    Percent2010
                    
                    
                    2009
                    
                    
                    Increase
                    
                    
                    IncreaseNorth
      America
                    
                    $
                    256,492
                    
                    
                    
                    81.6
                    %
                    
                    $
                    182,305
                    
                    
                    
                    81.6
                    %
                    
                    $
                    74,187
                    
                    
                    
                    40.7
                    %Europe
      and other
                    
                    
                    57,844
                    
                    
                    
                    18.4
                    
                    
                    
                    41,070
                    
                    
                    
                    18.4
                    
                    
                    
                    16,774
                    
                    
                    
                    40.8
                    %Total
      net sales
                    
                    $
                    314,336
                    
                    
                    
                    100.0
                    %
                    
                    $
                    223,375
                    
                    
                    
                    100.0
                    %
                    
                    $
                    90,961
                    
                    
                    
                    40.7
                    %





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





The
increase in North American net sales was primarily attributable to increased
sales volume in our North American automotive and commercial vehicle
markets.  These increased volume levels had a positive effect on our
net sales for the six months ended June 30, 2010 of $34.9 million and $23.9
million for our North American automotive and commercial vehicle markets,
respectively.  Production volume increases within the agricultural
vehicle market during the six months ended June 30, 2010 favorably affected our
North American net sales by approximately $8.3 million.  North
American net sales for the six months ended June 30, 2010 were also favorably
affected by approximately $4.1 million due to the inclusion of
BCS.  Our increase in net sales outside North America was primarily
due to increased sales of European commercial vehicle market products, which had
a positive effect on our net sales for the six months ended June 30, 2010 of
approximately $14.0 million.





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





Six Months EndedJune 30,
                        
                        
                        $ Increase /2010
                        
                        
                        2009
                        
                        
                        (Decrease)Net
      Sales
                        
                        $
                        314,336
                        
                        
                        
                        100.0
                        %
                        
                        $
                        223,375
                        
                        
                        
                        100.0
                        %
                        
                        $
                        90,961Costs
      and Expenses:Cost
      of goods sold
                        
                        
                        241,189
                        
                        
                        
                        76.7
                        
                        
                        
                        190,504
                        
                        
                        
                        85.3
                        
                        
                        
                        50,685Selling,
      general and administrative
                        
                        
                        61,015
                        
                        
                        
                        19.4
                        
                        
                        
                        55,924
                        
                        
                        
                        25.0
                        
                        
                        
                        5,091Operating
      Income (Loss)
                        
                        
                        12,132
                        
                        
                        
                        3.9
                        
                        
                        
                        (23,053
                        )
                        
                        
                        (10.3
                        )
                        
                        
                        35,185Interest
      expense, net
                        
                        
                        11,236
                        
                        
                        
                        3.6
                        
                        
                        
                        11,035
                        
                        
                        
                        4.9
                        
                        
                        
                        201Equity
      in earnings of investees
                        
                        
                        (2,302
                        )
                        
                        
                        (0.7
                        )
                        
                        
                        (1,478
                        )
                        
                        
                        (0.7
                        )
                        
                        
                        (824
                        )Other
      expense (income), net
                        
                        
                        (1,699
                        )
                        
                        
                        (0.5
                        )
                        
                        
                        645
                        
                        
                        
                        0.3
                        
                        
                        
                        (2,344
                        )Income
      (Loss) Before Income Taxes
                        
                        
                        4,897
                        
                        
                        
                        1.5
                        
                        
                        
                        (33,255
                        )
                        
                        
                        (14.8
                        )
                        
                        
                        38,152Benefit
      from income taxes
                        
                        
                        (758
                        )
                        
                        
                        (0.2
                        )
                        
                        
                        (1,911
                        )
                        
                        
                        (0.9
                        )
                        
                        
                        1,153Net
      Income (Loss)
                        
                        
                        5,655
                        
                        
                        
                        1.8
                        
                        
                        
                        (31,344
                        )
                        
                        
                        (13.9
                        )
                        
                        
                        36,999Net
      Loss Attributable to Noncontrolling Interest
                        
                        
                        (44
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (44
                        )Net
      Income (Loss) Attributable to Stoneridge, Inc. and
      Subsidiaries
                        
                        $
                        5,699
                        
                        
                        
                        1.8
                        %
                        
                        $
                        (31,344
                        )
                        
                        
                        (13.9
                        )%
                        
                        $
                        37,043





Cost of Goods Sold. The
decrease in cost of goods sold as a percentage of net sales was primarily due to
the significant increase in volume of our European and North American commercial
and automotive vehicle markets during the six months ended June 30, 2010 when
compared to the prior year comparative period.  A portion of our cost
structure is fixed in nature, such as overhead and depreciation
costs.  These fixed costs combined with significantly higher net sales
in the first half of 2010, resulted in a lower cost of goods sold as a
percentage of net sales for the first half of 2010.  Our material cost
as a percentage of net sales for our Electronics segment for the first half of
2010 and 2009 was 56.4% and 54.9%, respectively.  Our material cost as
a percentage of net sales for the Control Devices segment decreased from 55.0%
for the six months ended June 30, 2009 to 52.6% for the first half of 2010. This
decrease is largely due to inventory related charges taken in 2009 as a result
of lower sales volumes in our served markets.


32




Selling, General and Administrative
Expenses.  Design and development expenses included in SG&A
were $19.1 million and $18.0 million for the six months ended June 30, 2010 and
2009, respectively.  The increase in design and development costs is a
result of our customers’ new product launches in the near term. The increase in
SG&A costs excluding design and development expenses was mainly due to
higher employee related costs of approximately $3.8 million, primarily incentive
compensation.  Our SG&A costs decreased as a percentage of net
sales because of the increase in net sales recognized in the current period when
compared to the prior year period.





Costs
from our restructuring initiatives for the six months ended June 30, 2010
decreased compared to the first six months of 2009 as a result of our
restructuring initiatives nearing completion.  Costs incurred during
the six months ended June 30, 2010 related to restructuring initiatives amounted
to approximately $0.3 million and were comprised of one-time termination
benefits and contract termination costs.  These restructuring actions
were a combination of severance costs as a result of the continuation of
restructuring initiatives which began in 2009 in Dundee, Scotland and an
adjustment that was made to certain assumptions related to our cancelled lease
in Mitcheldean, United Kingdom.  This lease was cancelled in 2008 as
part of our restructuring initiative.  Restructuring charges for the
first six months of 2009 were approximately $2.5 million and were primarily
comprised of one-time termination benefits.  These restructuring
actions were in response to the depressed conditions in the European and North
American commercial vehicle markets as well as the North American automotive
vehicle market.  Restructuring expenses that were general and
administrative in nature were included in the Company’s condensed consolidated
statements of operations as a component of SG&A, while the remaining
restructuring related expenses were included in cost of goods sold.





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





Electronics
                        
                        
                        ControlDevices
                        
                        
                        Total
                          Consolidated
                          Restructuring
                          ChargesSeverance
      costs
                        
                        $
                        183
                        
                        
                        $
                        -
                        
                        
                        $
                        183Contract
      termination costs
                        
                        
                        121
                        
                        
                        
                        -
                        
                        
                        
                        121Total
      general and administrative restructuring charges
                        
                        $
                        304
                        
                        
                        $
                        -
                        
                        
                        $
                        304





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





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





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





Equity in Earnings of
Investees.The increase in equity earnings of investees was
attributable to the increase in equity earnings recognized from our PST and
Minda joint ventures.  Equity earnings for PST increased from $1.4
million for the six months ended June 30, 2009 to $1.8 million for the six
months ended June 30, 2010. The increase primarily reflects higher volumes for
PST’s product lines during the six months ended June 30, 2010.  Equity
earnings for Minda increased from $0.1 million for the six months ended June 30,
2009 to $0.5 million for the six months ended June 30, 2010.


33





Other Expense
(Income), net.  As a result of placing SPL into
administration, we recognized a gain of approximately $2.2 million during the
six months ended June 30, 2010 within other expense (income), net on the
condensed consolidated statement of operations.  This gain is
primarily related to the reversal of the cumulative translation adjustment
account, which had previously been included as a component of other
comprehensive income within Shareholders’ Equity.





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





Six Months Ended
                        
                        
                        Dollar
                        
                        
                        PercentJune 30,
                        
                        
                        Increase
                        
                        
                        Increase2010
                        
                        
                        2009
                        
                        
                        (Decrease)
                        
                        
                        (Decrease)Electronics
      (A)
                        
                        $
                        6,241
                        
                        
                        $
                        (11,160
                        )
                        
                        $
                        17,401
                        
                        
                        
                        155.9
                        %Control
      Devices (A)
                        
                        
                        8,759
                        
                        
                        
                        (12,428
                        )
                        
                        
                        21,187
                        
                        
                        
                        170.5
                        %Other
      corporate activities (A)
                        
                        
                        306
                        
                        
                        
                        1,316
                        
                        
                        
                        (1,010
                        )
                        
                        
                        (76.7
                        )%Corporate
      interest expense
                        
                        
                        (10,409
                        )
                        
                        
                        (10,983
                        )
                        
                        
                        574
                        
                        
                        
                        5.2
                        %Income
      (loss) before income taxes
                        
                        $
                        4,897
                        
                        
                        $
                        (33,255
                        )
                        
                        $
                        38,152
                        
                        
                        
                        114.7
                        %





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




The
increase in profitability in the Electronics reportable segment was principally
related to the increased sales volume, primarily to our commercial vehicle
customers for the six months ended June 30, 2010 when compared to the first half
of 2009.  In addition, restructuring related expenses for the
Electronics segment were approximately $2.2 million lower for the six months
ended June 30, 2010 when compared to the first half of 2009.





The
increase in profitability in the Control Devices reportable segment was
primarily due to increased sales volume for the six months ended June 30, 2010
when compared to the six months ended June 30, 2009.  Production
volume increases favorably affected our net sales within the Control Devices
segment by approximately $38.5 million for the six months ended June 30, 2010
when compared to the first half of the prior year.





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


34


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





Six Months Ended
                  
                  
                  Dollar
                  
                  
                  PercentJune 30, 2010
                  
                  
                  June 30, 2009
                  
                  
                  Increase
                  
                  
                  IncreaseNorth
      America (A)
                  
                  $
                  4,219
                  
                  
                  
                  86.2
                  %
                  
                  $
                  (22,129
                  )
                  
                  
                  66.5
                  %
                  
                  $
                  26,348
                  
                  
                  
                  119.1
                  %Europe
      and other (A)
                  
                  
                  678
                  
                  
                  
                  13.8
                  
                  
                  
                  (11,126
                  )
                  
                  
                  33.5
                  
                  
                  
                  11,804
                  
                  
                  
                  106.1
                  %Income
      (loss) before income taxes
                  
                  $
                  4,897
                  
                  
                  
                  100.0
                  %
                  
                  $
                  (33,255
                  )
                  
                  
                  100.0
                  %
                  
                  $
                  38,152
                  
                  
                  
                  114.7
                  %





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





North
American loss before income taxes includes interest expense of approximately
$11.3 million and $11.1 million for the six months ended June 30, 2010 and 2009,
respectively.





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





Benefit from Income
Taxes. We recognized a benefit from income taxes of $0.8 million, or
(15.5%) of pre-tax income, and  $1.9 million, or 5.7% of the pre-tax
loss, for federal, state and foreign income taxes for the six months ended June
30, 2010 and 2009, respectively. As reported at December 31, 2009, the Company
is in a cumulative loss position and provides a valuation allowance offsetting
federal, state and certain foreign deferred tax assets. The decrease in the tax
benefit for the six months ended June 30, 2010 compared to the six months ended
June 30, 2009, was primarily attributable to lower losses from our foreign
operations and the resulting decrease in tax benefits related to losses in those
foreign jurisdictions. That reduction in benefit was partially offset with a tax
benefit related to our United Kingdom operations.  As a result of
placing SPL into administration, the Company recognized a tax benefit of
approximately $1.2 million during the six months ended June 30, 2010, from the
reversal of deferred tax liabilities, primarily employee benefit related, that
were previously included as a component of accumulated other comprehensive
income within Shareholders’ Equity.





Liquidity
and Capital Resources





Summary
of Cash Flows (in thousands):


Six Months EndedJune 30,
                  
                  
                  $
      Increase /2010
                  
                  
                  2009
                  
                  
                  (Decrease)Cash
      provided by (used for):Operating
      activities
                  
                  $
                  (7,433
                  )
                  
                  $
                  (2,600
                  )
                  
                  $
                  (4,833
                  )Investing
      activities
                  
                  
                  (7,042
                  )
                  
                  
                  (6,651
                  )
                  
                  
                  (391
                  )Financing
      activities
                  
                  
                  630
                  
                  
                  
                  -
                  
                  
                  
                  630Effect
      of exchange rate changes on cash and cash equivalents
                  
                  
                  (3,454
                  )
                  
                  
                  2,040
                  
                  
                  
                  (5,494
                  )Net
      change in cash and cash equivalents
                  
                  $
                  (17,299
                  )
                  
                  $
                  (7,211
                  )
                  
                  $
                  (10,088
                  )





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


35





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





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





Management
will continue to focus on reducing its weighted average cost of capital and
believes that cash flows from operations and the availability of funds from our
asset-based credit facility will provide sufficient liquidity to meet our future
growth and operating needs.





As
outlined in Note 6 to our condensed consolidated financial statements, our
asset-based credit facility permits borrowing up to a maximum level of $100.0
million.  At June 30, 2010, there were no borrowings on this
asset-based credit facility.  The available borrowing capacity on this
credit facility is based on eligible current assets, as defined.  At
June 30, 2010, the Company had borrowing capacity of $71.8 million based on
eligible current assets.  The credit facility does not contain
financial performance covenants which would constrain our borrowing capacity.
However, restrictions do include limits on capital expenditures, operating
leases, dividends and investment activities in a negative covenant which limits
investment activities to $15.0 million minus certain guarantees and
obligations.  The Company was in compliance with all covenants at June
30, 2010.





The BCS
master revolving note (the “Revolver”) permits borrowing up to a maximum level
of $3.0 million.  At June 30, 2010, BCS had approximately $1.2 million
in borrowings outstanding on the Revolver, which are included on the condensed
consolidated balance sheet as a component of accrued expenses and
other.  The Revolver expires on October 1, 2010.  Interest
is payable monthly at the prime referenced rate plus a 2.25%
margin.  At June 30, 2010 the interest rate on the Revolver was
5.5%.  The Company is a guarantor as it relates to the
Revolver.





As of
June 30, 2010, the Company’s $183.0 million of senior notes were redeemable at
par.  Given that the Company’s senior notes are redeemable, we may
seek to retire the senior notes through redemptions, cash purchases, open market
purchases, privately negotiated transactions or otherwise.  Such
redemptions, purchases or exchanges, if any, will depend on prevailing market
conditions, our liquidity requirements, contractual restrictions and other
factors.  The amounts involved may be material.





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





At June
30, 2010, we had a cash and cash equivalents balance of approximately $74.6
million, of which $38.5 million was held domestically and $36.1 million was held
in foreign locations.  None of our cash balance was restricted at June
30, 2010.





As a
result of placing SPL into administration during the six months ended June 30,
2010, our defined benefit plan was settled.  As a result of this
settlement there will be no further funding of the defined benefit
plan.  There have been no other material changes to the table of
contractual obligations presented in Part II, Item 7 (“Liquidity and Capital
Resources”) of the Company’s 2009 Form 10-K.


36





Critical
Accounting Policies and Estimates





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





Inflation





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





Forward-Looking
Statements





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





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


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


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


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


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


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


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


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


·
            customer
      acceptance of new products;


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


·
            the
      successful integration of any acquired
  businesses;


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


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





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





Item
3.   Quantitative and Qualitative Disclosures About Market
Risk.





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


37





Item
4.  Controls and Procedures.





Evaluation
of Disclosure Controls and Procedures





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





Changes
in Internal Control Over Financial Reporting





There
were no changes in the Company’s internal control over financial reporting
during the six months ended June 30, 2010 that materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.





PART
II–OTHER INFORMATION





Item
1.  Legal Proceedings.





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





Item
1A.  Risk Factors.





There
were no material changes from risk factors previously disclosed in the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31,
2009.





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





None.





Item
3.  Defaults Upon Senior Securities.





None.





Item
4.  (Removed and Reserved)





Item
5.  Other Information.





None.





Item
6.  Exhibits.





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


38





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:  July
      28, 2010
            /s/ John C. CoreyJohn
      C. Corey
              President
      and Chief Executive Officer(Principal
      Executive Officer)Date:  July
      28, 2010
            /s/ George E. StricklerGeorge
      E. StricklerExecutive
      Vice President, Chief Financial Officer and
              Treasurer(Principal
      Financial and Accounting Officer)




39





INDEX
TO EXHIBITS





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




40