**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





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





**For
      the quarter ended September 30, 2008**





**OR**





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





**For
      the transition period from________to ________**





**Commission
      file number: 001** - **13337**




**STONERIDGE,
      INC.**





*(Exact
      name of registrant as specified in its charter)*





**Ohio**
            
            **34-1598949**(*State
                or other jurisdiction of*
            
            *(I.R.S.
                Employer**incorporation
                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 is a large accelerated filer, an
      accelerated filer, a non-accelerated filer or a smaller reporting company.
      See
      definition of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act. (Check one):





Large accelerated filero
            Accelerated
                filerx
            Non-accelerated
                filero
            Smaller
                reporting companyo(Do
                not check if a smaller reporting company)





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





The
      number of Common Shares, without par value, outstanding as of October 24, 2008
      was 24,668,295.







**STONERIDGE,
      INC. AND SUBSIDIARIES**





**INDEX**


**Page
                  No.****PART
                  I****–FINANCIAL
                  INFORMATION**Item
                  1.
              Financial
                  StatementsCondensed
                  Consolidated Balance Sheets (Unaudited) as of September 30, 2008
                  and
                  December 31, 2007
              2Condensed
                  Consolidated Statements of Operations(Unaudited)
                  For the Three and Nine Months Ended September 30, 2008 andSeptember
                  30, 2007
              3Condensed
                  Consolidated Statements of Cash Flows (Unaudited) For the Nine
                  Months
                  Ended September 30, 2008 and September 30, 2007
              4Notes
                  to Condensed Consolidated Financial Statements (Unaudited)
              5Item
                  2.
              Management's
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              21Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              30Item
                  4.
              Controls
                  and Procedures
              31**PART
                  II–OTHER INFORMATION**Item
                  1.
              Legal
                  Proceedings
              32Item
                  1A.
              Risk
                  Factors
              32Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              32Item
                  3.
              Defaults
                  Upon Senior Securities
              32Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              32Item
                  5.
              Other
                  Information
              32Item
                  6.
              Exhibits
              32Signatures
              
              33Index
                  to Exhibits
              34


1


**PART
      I–FINANCIAL INFORMATION**





**Item
      1. Financial Statements.**





**STONERIDGE,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**(Unaudited)**


**(in
      thousands)**





**September 30,**
            
            **December 31,****2008**
            
            **2007**ASSETSCurrent
                Assets:Cash
                and cash equivalents
            
            $
            89,611
            
            $
            95,924Accounts
                receivable, less reserves of $5,029 and $4,736, respectively
            
            
            115,324
            
            
            122,288Inventories,
                net
            
            
            67,543
            
            
            57,392Prepaid
                expenses and other
            
            
            16,812
            
            
            15,926Deferred
                income taxes
            
            
            10,150
            
            
            9,829Total
                current assets
            
            
            299,440
            
            
            301,359Long-Term
                Assets:Property,
                plant and equipment, net
            
            
            88,882
            
            
            92,752Other
                Assets:Goodwill
            
            
            65,656
            
            
            65,176Investments
                and other, net
            
            
            46,435
            
            
            39,454Deferred
                income taxes
            
            
            21,714
            
            
            29,028Total
                long-term assets
            
            
            222,687
            
            
            226,410Total
                Assets
            
            $
            522,127
            
            $
            527,769LIABILITIES
                AND SHAREHOLDERS’ EQUITYCurrent
                Liabilities:Accounts
                payable
            
            $
            66,465
            
            $
            69,373Accrued
                expenses and other
            
            
            53,864
            
            
            47,198Total
                current liabilities
            
            
            120,329
            
            
            116,571Long-Term
                Liabilities:Long-term
                debt
            
            
            183,000
            
            
            200,000Deferred
                income taxes
            
            
            2,521
            
            
            2,665Other
                liabilities
            
            
            1,926
            
            
            2,344Total
                long-term liabilities
            
            
            187,447
            
            
            205,009Shareholders'
                Equity:Preferred
                Shares, without par value, authorized 5,000 shares, none
                issued
            
            
            -
            
            
            -Common
                Shares, without par value, authorized 60,000 shares, issued 24,772
                and
                24,601 shares and outstanding 24,668 and 24,209 shares, respectively,
                with
                no stated valueAdditional
                paid-in capital
            
            
            157,281
            
            
            154,173Common
                Shares held in treasury, 104 and 373 shares, respectively, at
                cost
            
            
            (129
            )
            
            (383
            )Retained
                earnings
            
            
            49,239
            
            
            38,372Accumulated
                other comprehensive income
            
            
            7,960
            
            
            14,027Total
                shareholders’ equity
            
            
            214,351
            
            
            206,189Total
                Liabilities and Shareholders' Equity
            
            $
            522,127
            
            $
            527,769





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


2





**STONERIDGE,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**(Unaudited)**


**(in
      thousands, except per share data)**





**Three Months Ended**
            
            **Nine Months Ended****September 30,**
            
            **September 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Net
                Sales
            
            $
            178,434
            
            $
            172,814
            
            $
            594,733
            
            $
            541,644Costs
                and Expenses:Cost
                of goods sold
            
            
            143,089
            
            
            134,944
            
            
            458,217
            
            
            422,045Selling,
                general and administrative
            
            
            31,855
            
            
            32,405
            
            
            104,876
            
            
            99,135(Gain)
                Loss on sale of property, plant and equipment, net
            
            
            (187
            )
            
            223
            
            
            (42
            )
            
            (1,465
            )Restructuring
                charges
            
            
            2,742
            
            
            2
            
            
            5,877
            
            
            74Operating
                Income
            
            
            935
            
            
            5,240
            
            
            25,805
            
            
            21,855Interest
                expense, net
            
            
            5,049
            
            
            5,467
            
            
            15,301
            
            
            16,570Equity
                in earnings of investees
            
            
            (4,371
            )
            
            (3,506
            )
            
            (11,206
            )
            
            (7,924
            )Loss
                on early extinguishment of debt
            
            
            -
            
            
            -
            
            
            770
            
            
            -Other
                expense (income), net
            
            
            (234
            )
            
            273
            
            
            44
            
            
            785Income
                Before Income Taxes
            
            
            491
            
            
            3,006
            
            
            20,896
            
            
            12,424Provision
                for income taxes
            
            
            855
            
            
            381
            
            
            10,029
            
            
            2,234Net
                Income (Loss)
            
            $
            (364
            )
            $
            2,625
            
            $
            10,867
            
            $
            10,190Basic
                net income (loss) per share
            
            $
            (0.02
            )
            $
            0.11
            
            $
            0.47
            
            $
            0.44Basic
                weighted average shares outstanding
            
            
            23,405
            
            
            23,213
            
            
            23,353
            
            
            23,106Diluted
                net income (loss) per share
            
            $
            (0.02
            )
            $
            0.11
            
            $
            0.46
            
            $
            0.43Diluted
                weighted average shares outstanding
            
            
            23,405
            
            
            23,694
            
            
            23,728
            
            
            23,656





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


3





**STONERIDGE,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(Unaudited)**


**(in
      thousands)**





**Nine Months Ended****September 30,****2008**
            
            **2007**OPERATING
                ACTIVITIES:Net
                income
            
            $
            10,867
            
            $
            10,190Adjustments
                to reconcile net income to net cash provided by (used for) operating
                activities -Depreciation
            
            
            20,706
            
            
            21,775Amortization
            
            
            1,050
            
            
            1,196Deferred
                income taxes
            
            
            7,039
            
            
            (1,272
            )Equity
                in earnings of investees
            
            
            (11,206
            )
            
            (7,924
            )(Gain)
                Loss on sale of property, plant and equipment
            
            
            (42
            )
            
            (1,465
            )Share-based
                compensation expense
            
            
            2,666
            
            
            1,858Loss
                on extinguishment of debt
            
            
            770
            
            
            -Changes
                in operating assets and liabilities -Accounts
                receivable, net
            
            
            5,235
            
            
            (15,197
            )Inventories,
                net
            
            
            (12,179
            )
            
            756Prepaid
                expenses and other
            
            
            (1,654
            )
            
            (1,777
            )Accounts
                payable
            
            
            (1,652
            )
            
            (8,446
            )Accrued
                expenses and other
            
            
            9,068
            
            
            8,215Net
                cash provided by operating activities
            
            
            30,668
            
            
            7,909INVESTING
                ACTIVITIES:Capital
                expenditures
            
            
            (17,956
            )
            
            (14,259
            )Proceeds
                from sale of property, plant and equipment
            
            
            435
            
            
            5,042Business
                acquisitions and other
            
            
            (980
            )
            
            -Net
                cash used for investing activities
            
            
            (18,501
            )
            
            (9,217
            )FINANCING
                ACTIVITIES:Repayments
                of long-term debt
            
            
            (17,000
            )
            
            -Share-based
                compensation activity, net
            
            
            1,305
            
            
            1,956Premiums
                related to early extinguishment of debt
            
            
            (553
            )
            
            -Net
                cash provided by (used for) financing activities
            
            
            (16,248
            )
            
            1,956Effect
                of exchange rate changes on cash and cash equivalents
            
            
            (2,232
            )
            
            1,119Net
                change in cash and cash equivalents
            
            
            (6,313
            )
            
            1,767Cash
                and cash equivalents at beginning of period
            
            
            95,924
            
            
            65,882Cash
                and cash equivalents at end of period
            
            $
            89,611
            
            $
            67,649





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 nine
        months ended September 30, 2008 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, 2007.
 
 The
        Company has reclassified the presentation of certain prior-period information
        to
        conform to the current presentation.
 
 **(2)
        Inventories**
 
 Inventories
        are valued at the lower of cost or market. Cost is determined by the last-in,
        first-out (“LIFO”) method for approximately 64% and 66% of the Company’s
        inventories at September 30, 2008 and December 31, 2007, respectively, and
        by
        the first-in, first-out (“FIFO”) method for all other inventories. Inventory
        cost includes material, labor and overhead. Inventories consist of the
        following:
 
 **September 30,**
              
              **December 31,****2008**
              
              **2007**Raw
                  materials
              
              $
              35,741
              
              $
              36,678Work-in-progress
              
              
              11,394
              
              
              9,065Finished
                  goods
              
              
              23,065
              
              
              13,700Total
                  inventories
              
              
              70,200
              
              
              59,443Less:
                  LIFO reserve
              
              
              (2,657
              )
              
              (2,051
              )Inventories,
                  net
              
              $
              67,543
              
              $
              57,392
  **(** **3** **)
        Fair Value of Financial Instruments**
 
 ***Financial
        Instruments***
 
 A
        financial instrument is cash or a contract that imposes an obligation to
        deliver, or conveys a right to receive cash or another financial instrument.
        The
        carrying values of cash and cash equivalents, accounts receivable and accounts
        payable are considered to be representative of fair value because of the
        short
        maturity of these instruments. The estimated fair value of the Company’s senior
        notes (fixed rate debt) at September 30, 2008 and December 31, 2007, per
        quoted
        market sources, was $179.3 million and $199.2 million, respectively. The
        carrying value was $183.0 million and $200.0 million as of September 30,
        2008
        and December 31, 2007, respectively.
 
 ***Derivative
        Instruments and Hedging Activities***
 
 The
        Company makes use of derivative instruments in foreign exchange and commodity
        price hedging programs. Derivative instruments currently in use are foreign
        currency forward and commodity swap contracts. These contracts are used strictly
        for hedging and not for speculative purposes. Management believes that the
        use
        of these instruments in order to reduce risk is in the Company’s best
        interest.
  5
  **STONERIDGE,
        INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 **(in
        thousands, except share and per share data, unless otherwise
        indicated)**
 
 As
        a
        result of the Company’s international business presence it is exposed to foreign
        currency exchange risk. The Company uses derivative instruments, including
        foreign currency forward contracts, to mitigate the effect that fluctuations
        in
        foreign currency exchange rates have on foreign currency denominated
        intercompany transactions and other known foreign currency exposures. The
        principal currency hedged by the Company is the British pound. In certain
        instances, 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 underlying
        foreign currency denominated transactions.
 
 The
        Company’s foreign currency forward contracts had a notional value of $8,239 and
        $8,551 at September 30, 2008 and December 31, 2007, respectively. At September
        30, 2008, the purpose of the foreign currency forward contracts is to reduce
        the
        exposure related to the Company’s British pound-denominated receivables. At
        December 31, 2007, the Company also used forward currency contracts to reduce
        the exposure related to the Company’s Mexican peso- and Swedish
        krona-denominated receivables. The estimated fair value of the existing
        contracts at September 30, 2008 and December 31, 2007, per quoted market
        sources, was approximately $760 and $(28), respectively. For the nine months
        ended September 30, 2008, the Company recognized an $854 gain related to
        these
        contracts in the condensed consolidated statement of operations as a component
        of other expense (income), net. In 2007, the Company used foreign currency
        option contracts to reduce the exposure to the Mexican peso. The Company’s
        foreign currency option contracts expired as of December 31, 2007.
 
 To
        mitigate the risk of future price volatility and, consequently, fluctuations
        in
        gross margins, the Company has entered into fixed price commodity swaps with
        a
        bank to fix the cost of a portion of its copper purchases. In December 2007,
        we
        entered into a fixed price swap contract for 1.0 million pounds of copper,
        which
        will last through December 2008. In September 2008, we entered into a fixed
        price swap contract for 1.4 million pounds of copper, which will last from
        January 2009 to December 2009. Because these contracts were executed to hedge
        forecasted transactions, the contracts are accounted for as cash flow hedges.
        The unrealized gain or loss for the effective portion of the hedge is deferred
        and reported in the Company’s condensed consolidated balance sheets as a
        component of accumulated other comprehensive income. The Company deems these
        cash flow hedges to be highly effective. The effectiveness of the transactions
        has been and will be measured on an ongoing basis using regression analysis.
        The
        ineffectiveness of the transactions is measured using the dollar-offset test.
        The fair value of the fixed price commodity swap contract, per quoted market
        sources, was approximately $32 and $57 at September 30, 2008 and December
        31,
        2007, respectively. For the nine months ended September 30, 2008, the Company
        recognized a $523 gain related to these contracts in the condensed consolidated
        statement of operations as a component of cost of goods sold.
 
 ***Statement
        of Financial Accounting Standard No. 157, Fair Value
        Measurements***
  Effective
        January 1, 2008, we adopted Statement
        of Financial Accounting Standard (“SFAS”)
        No. 157, *Fair
        Value Measurements* (“SFAS
        157”). SFAS 157 clarifies the definition of fair value, prescribes methods
        for measuring fair value, establishes a fair value hierarchy based on the
        inputs
        used to measure fair value and expands disclosures about the use of fair
        value
        measurements. In accordance with Financial Accounting Standards Board Staff
        Position No. FAS 157-2, *Effective
        Date of FASB Statement No. 157* ("FSP
        FAS
        157-2”) *,* we have
        deferred the adoption of SFAS 157 for our nonfinancial assets and nonfinancial
        liabilities until January 1, 2009. Deferring adoption is not expected to
        have a material impact on the Company’s financial statements. On October 10,
        2008, FSP No. FAS 157-3, *Determining
        the Fair Value of a Financial Asset When the Market for That Asset Is Not
        Active* (“FSP
        FAS 157-3”),was issued. FSP FAS 157-3 clarifies the application of SFAS 157 in a
        market that is not active and provides an example to illustrate key
        considerations in determining the fair value of a financial asset when the
        market for that financial asset is not active. FSP FAS 157-3 became
        effective upon issuance and was adopted by the Company for the reporting
        period
        ending September 30, 2008 without material impact on the Company’s
        financial statements.
 
 The
        following table presents the Company’s assets that are measured at fair value on
        a recurring basis and that are categorized using the fair value hierarchy.
        As of
        September 30, 2008 the Company does not have liabilities that are measured
        at
        fair value. The fair value hierarchy has three levels based on the reliability
        of the inputs used to determine fair value.
 
 **Fair Value Measurements at September 30, 2008****Quoted Prices**
              
              **Significant Other**
              
              **Significant****in Active Markets**
              
              **Observable**
              
              **Unobservable****for Identical Assets**
              
              **Inputs**
              
              **Inputs****Assets**
              
              **Total**
              
              **(Level 1)**
              
              **(Level 2)**
              
              **(Level 3)**Available-for-sale
                  equity investments
              
              $
              267
              
              $
              267
              
              $
              -
              
              $
              -Derivatives
              
              
              792
              
              
              -
              
              
              792
              
              
              -Total
                  fair value of assets
              
              $
              1,059
              
              $
              267
              
              $
              792
              
              $
              -
  6
  **STONERIDGE,
        INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 **(in
        thousands, except share and per share data, unless otherwise
        indicated)**
 
 Equity
        investments are valued using a market approach based on the quoted market
        prices
        of identical instruments when available or other observable inputs such as
        trading prices of identical instruments in active markets.  Our
        foreign currency forward contracts are valued using an income approach based
        on
        the present value of the forward rate less the contract rate multiplied by
        the
        notional amount. Commodity swap contracts are valued using an income approach
        based on the present value of the commodity index prices less the contract
        rate
        multiplied by the notional amount.
  **(4)
        Share-Based Compensation**
 
 Total
        compensation expense recognized in the condensed
        consolidated statements of operations for
        share-based compensation arrangements was $764 and $606 for the three
        months ended September 30, 2008 and 2007, respectively. For
        the
        nine months ended September 30, 2008 and 2007, total compensation expense
        recognized in the condensed consolidated statements of operations for
        share-based compensation arrangements was $2,666 and $1,858, respectively.
 
 **(5** **)
        Comprehensive Income (Loss)**
 
 SFAS
        No.
        130, *Reporting
        Comprehensive Income* ,
        establishes standards for the reporting and disclosure of comprehensive
        income.
 
 The
        components of comprehensive income (loss), net of tax are as
        follows:
 
 **Three Months Ended**
              
              **Nine Months Ended****September 30,**
              
              **September 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007**Net
                  income (loss)
              
              $
              (364
              )
              $
              2,625
              
              $
              10,867
              
              $
              10,190Other
                  comprehensive income (loss):Currency
                  translation adjustments
              
              
              (11,230
              )
              
              3,019
              
              
              (6,120
              )
              
              5,001Pension
                  and postretirement liability adjustments
              
              
              48
              
              
              (24
              )
              
              38
              
              
              (60
              )Unrealized
                  gain (loss) on marketable securities
              
              
              11
              
              
              (22
              )
              
              (1
              )
              
              39Unrecognized
                  gain (loss) on derivatives
              
              
              (332
              )
              
              (547
              )
              
              16
              
              
              554Total
                  other comprehensive income (loss)
              
              
              (11,503
              )
              
              2,426
              
              
              (6,067
              )
              
              5,534Comprehensive
                  income (loss)
              
              $
              (11,867
              )
              $
              5,051
              
              $
              4,800
              
              $
              15,724
 
 Accumulated
        other comprehensive income, net of tax is comprised of the
        following:
 
 **September 30,**
              
              **December 31,****2008**
              
              **2007**Foreign
                  currency translation adjustments
              
              $
              8,392
              
              $
              14,512Pension
                  and postretirement liability adjustments
              
              
              (390
              )
              
              (428
              )Unrealized
                  loss on marketable securities
              
              
              (21
              )
              
              (20
              )Unrecognized
                  loss on derivatives
              
              
              (21
              )
              
              (37
              )Accumulated
                  other comprehensive income
              
              $
              7,960
              
              $
              14,027
 
 **(6)
        Long-Term Debt**
 
 ***Senior
        Notes***
 
 The
        Company had $183.0 million and $200.0 million of senior notes outstanding
        at
        September 30, 2008 and December 31, 2007, respectively. During 2008, the
        Company
        purchased and retired $17.0 million in face value of the senior notes. The
        outstanding senior notes bear interest at an annual rate of 11.50% and mature
        on
        May 1, 2012. The senior notes are redeemable, at the Company’s option, at
        103.833 percent of the principal amount until April 30, 2009. The senior
        notes
        will remain redeemable at various levels until the maturity date. Interest
        is
        payable on May 1 and November 1 of each year.
  7
  **STONERIDGE,
        INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 **(in
        thousands, except share and per share data, unless otherwise
        indicated)**
 
 ***Credit
        Facility***
 
 On
        November 2, 2007, the Company entered into an asset-based credit facility,
        which
        permits borrowing up to a maximum level of $100.0 million. At September 30,
        2008, there were no borrowings on this asset-based credit facility. The
        available borrowing capacity on this credit facility is based on eligible
        current assets, as defined. At September 30, 2008, the Company had borrowing
        capacity of $67.8 million based on eligible current assets. The asset-based
        credit facility does not contain financial performance covenants; however,
        restrictions include limits on capital expenditures, operating leases and
        dividends. The asset-based credit facility expires on November 1, 2011. The
        credit facility provides that a commitment fee of 0.25% is due on the unused
        balance and that 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.
 
 **(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 (loss) per share was calculated by dividing net income
        (loss)
        by the weighted-average of all potentially dilutive Common Shares that were
        outstanding during the periods presented.
 
 Actual
        weighted-average shares outstanding used in calculating basic and diluted
        net
        income (loss) per share are as follows:
  **Three Months Ended**
              
              **Nine Months Ended****September 30,**
              
              **September 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007**Basic
                  weighted-average shares outstanding
              
              
              23,405,209
              
              
              23,213,240
              
              
              23,353,085
              
              
              23,105,561Effect
                  of dilutive securities
              
              
              -
              
              
              481,190
              
              
              374,829
              
              
              550,038Diluted
                  weighted-average shares outstanding
              
              
              23,405,209
              
              
              23,694,430
              
              
              23,727,914
              
              
              23,655,599
 
 For
        the
        three months ended September 30, 2008 and 2007, options to purchase 50,000
        and
        139,500 Common Shares at an average price of $15.73 and $15.56, respectively,
        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 and, therefore, their effect would have been
        anti-dilutive. Share options not included in the computation of diluted net
        income (loss) per share to purchase 61,000 and 139,500 Common Shares at an
        average price of $15.54 and $15.56, respectively, were outstanding during
        the
        nine months ended September 30, 2008 and 2007, respectively. In addition,
        the
        calculation of diluted earnings per share for  the quarter ended September
        30, 2008, would have included 147,500 shares for assumed exercise of options
        under the Company’s share incentive plans, except that the Company was in a net
        loss position and no anti-dilution is permitted under SFAS No. 128, *Earnings
        Per Share* .
 
 As
        of
        September 30, 2008, 628,275 performance-based restricted shares were
        outstanding. These shares were not included in the computation of diluted
        net
        income (loss) per share because not all vesting conditions were achieved
        as of
        September 30, 2008. These shares may or may not become dilutive based on
        the
        Company’s ability to exceed future earnings thresholds.
  **(8)
        Restructuring**
 
 In
        January 2005, the Company announced restructuring initiatives related to
        the
        rationalization of certain manufacturing facilities in Europe and North America.
        These restructuring initiatives were completed in 2007.
  8
  **STONERIDGE,
        INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 **(in
        thousands, except share and per share data, unless otherwise
        indicated)**
 
 On
        October 29, 2007, the Company announced restructuring initiatives to improve
        manufacturing efficiency and cost position by ceasing manufacturing operations
        at its Sarasota, Florida, and Mitcheldean, United Kingdom, locations. In
        the
        third quarter of 2008, the Company announced restructuring initiatives at
        our Canton, Massachusetts, location. These rationalizations are part of the
        Company’s cost reduction initiatives. In connection with these initiatives, the
        Company recorded restructuring expenses of $4,828 for the three months ended
        September 30, 2008. Restructuring expenses for the nine months ended September
        30, 2008 were $11,005. Restructuring expenses that were general and
        administrative in nature were included in the Company’s condensed consolidated
        statements of operations as restructuring charges, while the remaining
        restructuring related expenses were included in cost of goods sold.
 
 The
        expenses related to the restructuring initiatives announced on October 29,
        2007
        that belong to the Electronics reportable segment include the
        following:
 
 **Severance**
                **Costs**
              
              **Contract**
                **Termination**
                **Costs**
              
              **Other**
                **Associated**
                **Costs**
              
              **Total**Total
                  expected restructuring charges
              
              $
              3,331
              
              $
              1,681
              
              $
              2,863
              
              $
              7,875Fourth
                  quarter 2007 charge to expense
              
              $
              468
              
              $
              -
              
              $
              103
              
              $
              571Cash
                  payments
              
              
              -
              
              
              -
              
              
              (103
              )
              
              (103
              )Accrued
                  balance at December 31, 2007
              
              
              468
              
              
              -
              
              
              -
              
              
              468First
                  quarter 2008 charge to expense
              
              
              873
              
              
              -
              
              
              614
              
              
              1,487Second
                  quarter 2008 charge to expense
              
              
              819
              
              
              -
              
              
              822
              
              
              1,641Third
                  quarter 2008 charge to expense
              
              
              590
              
              
              703
              
              
              570
              
              
              1,863Cash
                  payments
              
              
              (649
              )
              
              -
              
              
              (1,737
              )
              
              (2,386
              )Accrued
                  balance at September 30, 2008
              
              $
              2,101
              
              $
              703
              
              $
              269
              
              $
              3,073Remaining
                  expected restructuring charge
              
              $
              581
              
              $
              978
              
              $
              754
              
              $
              2,313
 
 The
        expenses related to the restructuring initiatives announced on October 29,
        2007
        that belong to the Control Devices reportable segment include the
        following:
 
 **Severance**
                **Costs**
              
              **Fixed-Asset**
                **Costs**
              
              **Other**
                **Associated**
                **Costs**
              
              **Total (A)**Total
                  expected restructuring charges
              
              $
              2,352
              
              $
              -
              
              $
              5,711
              
              $
              8,063Fourth
                  quarter 2007 charge to expense
              
              $
              357
              
              $
              -
              
              $
              99
              
              $
              456Cash
                  payments
              
              
              -
              
              
              -
              
              
              -
              
              
              -Accrued
                  balance at December 31, 2007
              
              
              357
              
              
              -
              
              
              99
              
              
              456First
                  quarter 2008 charge to expense
              
              
              365
              
              
              -
              
              
              668
              
              
              1,033Second
                  quarter 2008 charge to expense
              
              
              375
              
              
              -
              
              
              1,641
              
              
              2,016Third
                  quarter 2008 charge to expense
              
              
              694
              
              
              -
              
              
              2,271
              
              
              2,965Cash
                  payments
              
              
              (274
              )
              
              -
              
              
              (4,168
              )
              
              (4,442
              )Accrued
                  balance at September 30, 2008
              
              $
              1,517
              
              $
              -
              
              $
              511
              
              $
              2,028Remaining
                  expected restructuring charge
              
              $
              561
              
              $
              -
              
              $
              1,032
              
              $
              1,593
 
 (A)  Total
        expected restructuring charges does not include the expected gain from the
        future sale of the Company’s Sarasota, Florida, facility.
 
 All
        restructuring expenses, except for asset-related charges, result in cash
        outflows. Severance costs relate to a reduction in workforce. Other associated
        costs include premium direct labor, inventory and equipment move costs,
        relocation expenses, increased inventory carrying costs and miscellaneous
        expenditures associated with exiting business activities. No fixed-asset
        impairment charges were incurred because assets are being transferred to
        other
        locations for continued production.
  9
 
 **STONERIDGE,
        INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 **(in
        thousands, except share and per share data, unless otherwise
        indicated)**
 
 **(9)
        Commitments and Contingencies**
 
 In
        the
        ordinary course of business, the Company is involved in various legal
        proceedings and workers’ compensation and product liability disputes. The
        Company is of the opinion that the ultimate resolution of these matters will
        not
        have a material adverse effect on the results of operations, cash flows or
        the
        financial position of the Company.
  ***Product
        Warranty and Recall***
 
 Amounts
        accrued for product warranty and recall claims are established based on the
        Company’s best estimate of the amounts necessary to settle existing and probable
        future claims on products sold as of the balance sheet dates. These accruals
        are
        based on several factors including past experience, production changes, industry
        developments and various other considerations. The Company can provide no
        assurances that it will not experience material claims in the future or that
        it
        will not incur significant costs to defend or settle such claims beyond the
        amounts accrued or beyond what the Company may recover from its
        suppliers.
 
 The
        following provides a reconciliation of changes in product warranty and recall
        liability for the nine months ended September 30, 2008 and 2007:
 
 **2008**
              
              **2007**Product
                  warranty and recall at beginning of period
              
              $
              5,306
              
              $
              5,825Accruals
                  for products shipped during period
              
              
              4,257
              
              
              2,131Aggregate
                  changes in pre-existing liabilities due to claims
                  developments
              
              
              988
              
              
              1,197Settlements
                  made during the period (in cash or in kind)
              
              
              (4,262
              )
              
              (2,518
              )Product
                  warranty and recall at end of period
              
              $
              6,289
              
              $
              6,635
 
 **(10)
        Employee Benefit Plans**
 
 The
        Company has a single defined benefit pension plan that covers certain employees
        in the United Kingdom and a postretirement benefit plan that covers certain
        employees in the U.S. The components of net periodic benefit cost under the
        defined benefit pension plan are as follows:
 
 **Defined Benefit  Pension Plan****Three Months Ended**
              
              **Nine Months Ended****September 30,**
              
              **September 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007**Service
                  cost
              
              $
              35
              
              $
              44
              
              $
              105
              
              $
              129Interest
                  cost
              
              
              316
              
              
              523
              
              
              948
              
              
              1,544Expected
                  return on plan assets
              
              
              (361
              )
              
              (585
              )
              
              (1,083
              )
              
              (1,725
              )Amortization
                  of actuarial loss
              
              
              -
              
              
              114
              
              
              -
              
              
              335Net
                  periodic (benefit) cost
              
              $
              (10
              )
              $
              96
              
              $
              (30
              )
              $
              283
 
 The
        Company previously disclosed in its financial statements for the year ended
        December 31, 2007 that it expected to contribute $259 to its defined benefit
        pension plan in 2008. Of this amount, contributions of $194 have been made
        to
        the defined benefit pension plan as of September 30, 2008.
 
 **(11)
        Income Taxes**
 
 The
        Company recognized a provision for income taxes of $855, or 174.1% of pre-tax
        income, and $381, or 12.7% of pre-tax income, for federal, state and foreign
        income taxes for the three months ended September 30, 2008 and 2007,
        respectively. The Company recognized a provision for income taxes of $10,029,
        or
        48.0% of pre-tax income, and $2,234, or 18.0% of pre-tax income, for federal,
        state and foreign income taxes for the nine months ended September 30, 2008
        and
        2007, respectively. The increase in the effective tax rate for both the three
        and nine months ended September 30, 2008 compared to similar periods in 2007
        was
        primarily attributable to the costs incurred to restructure the Company’s United
        Kingdom operations. As the Company does not believe that the related tax
        benefit
        of those losses will be realized, a valuation allowance was recorded against
        the
        deferred tax assets associated with those foreign losses. In addition, the
        effective tax rate was unfavorably impacted due to the expiration of the
        federal
        research and development tax credit at December 31, 2007.
  10
  **STONERIDGE,
        INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 **(in
        thousands, except share and per share data, unless otherwise
        indicated)**
 
 As
        of
        December 31, 2007, the Company provided a liability of $4,618, excluding
        interest and penalties, for unrecognized tax benefits related to various
        federal, state and foreign income tax matters. The liability for uncertain
        tax
        positions is classified as a non-current income tax liability unless it is
        expected to be paid within one year. At September 30, 2008 the Company has
        classified $1,032 as a current liability and $3,415 as a reduction to
        non-current deferred income tax assets. The liability for unrecognized tax
        positions decreased by $408 for the three months ended September 30, 2008
        and
        decreased by $557 for the nine months ended September 30, 2008 resulting
        in a
        balance at September 30, 2008 of $4,061. Through a combination of anticipated
        state audit settlements and the expiration of certain statutes of limitation,
        the amount of unrecognized tax benefits could decrease by approximately $70
        to
        $200 within the next 12 months.
 
 If
        the
        Company’s tax positions are sustained by the taxing authorities in favor of the
        Company, approximately $3,907 would reduce the Company’s provision for income
        taxes.
 
 The
        Company classifies interest expense and, if applicable, penalties which could
        be
        assessed related to unrecognized tax benefits as a component of income tax
        expense. For the nine months ended September 30, 2008 and 2007, the Company
        recognized approximately $52 and $6 of gross interest and penalties,
        respectively. The Company has accrued approximately $724 and $672 for the
        payment of interest and penalties at September 30, 2008 and December 31,
        2007,
        respectively.
 
 The
        Company conducts business globally and, as a result, the Company or a subsidiary
        of the Company files income tax returns in the U.S. federal jurisdiction
        and
        various state and foreign jurisdictions. In the normal course of business
        the
        Company is subject to examination by taxing authorities throughout the world.
        The following table summarizes the open tax years for each significant
        jurisdiction:
 
 Jurisdiction
              
              Open
                  Tax YearsU.S.
                  Federal
              
              2004-2007France
              
              2003-2007Mexico
              
              2002-2007Spain
              
              2003-2007Sweden
              
              2002-2007United
                  Kingdom
              
              2003-2007
 
 During
        the third quarter of 2007 the U.S. Internal Revenue Service commenced an
        examination of the Company’s 2005 federal income tax return. It is anticipated
        that this examination should be completed during the fourth quarter of 2008.
        The
        Company is also under examination for income and non-income tax filings in
        various state and foreign jurisdictions that should be completed at various
        times throughout 2008.
 
 **(12)
        Accounting Pronouncements**
 
 In
        December 2007, the Financial Accounting Standards Board (“FASB”) issued
        SFAS No. 141(R), *Business
        Combinations* (“SFAS
        141(R)”). This standard improves reporting by creating greater consistency in
        the accounting and financial reporting of business combinations. Additionally,
        SFAS 141(R) requires the acquiring entity in a business combination to
        recognize all (and only) the assets acquired and liabilities assumed in the
        transaction; establishes the acquisition-date fair value as the measurement
        objective for all assets acquired and liabilities assumed; and requires the
        acquirer to disclose to investors and other users all of the information
        they
        need to evaluate and understand the nature and financial effect of the business
        combination. SFAS 141(R) is effective for financial statements issued for
        fiscal years beginning after December 15, 2008. Early adoption of this
        standard is prohibited. In the absence of any planned future business
        combinations, management does not currently expect SFAS 141(R) to have a
        material impact on the Company’s financial position, results of operations or
        cash flows.
  11
 
 **STONERIDGE,
        INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 **(in
        thousands, except share and per share data, unless otherwise
        indicated)**
 
 In
        December 2007, the FASB issued SFAS No. 160, *Noncontrolling
        Interests in Consolidated Financial Statements* (“SFAS
        160”). This standard improves the relevance, comparability and transparency of
        financial information provided to investors by requiring all entities to
        report
        noncontrolling (minority) interests in subsidiaries in the same way.
        Additionally, SFAS 160 eliminates the diversity that currently exists in
        accounting for transactions between an entity and noncontrolling interests
        by
        requiring they be treated as equity transactions. SFAS 160 is effective for
        financial statements issued for fiscal years beginning after December 15,
        2008. Early adoption of this standard is prohibited. In the absence of any
        noncontrolling (minority) interests, management does not currently expect
        SFAS 160 to have a material impact on the Company’s financial position,
        results of operations or cash flows.
 
 In
        March
        2008, the FASB issued SFAS No. 161, *Disclosures
        about Derivative Instruments and Hedging Activities—an amendment of FASB
        Statement No. 133* ,
        (“SFAS
        161”). SFAS 161 requires enhanced disclosures about an entity’s derivative and
        hedging activities, including (i) how and why an entity uses derivative
        instruments, (ii) how derivative instruments and related hedged items are
        accounted for under SFAS No. 133, *Accounting
        for Derivative Instruments and Hedging Activities* (SFAS
        133), and (iii) how derivative instruments and related hedged items affect
        an entity’s financial position, financial performance, and cash flows. This
        standard becomes effective on January 1, 2009. Earlier adoption of SFAS 161
        and, separately, comparative disclosures for earlier periods at initial adoption
        are encouraged. As SFAS 161 only requires enhanced disclosures, this standard
        will have no impact on the Company’s financial position, results of operations
        or cash flows.
 
 In
        May 2008, the FASB issued Financial Accounting Standard
        (FAS) No. 162, “The Hierarchy of Generally Accepted Accounting
        Principles.” The statement is intended to improve financial reporting by
        identifying a consistent hierarchy for selecting accounting principles to
        be
        used in preparing financial statements that are prepared in conformance with
        generally accepted accounting principles. Unlike Statement on Auditing Standards
        (SAS) No. 69, “The Meaning of Present in Conformity With GAAP,” FAS
        No. 162 is directed to the entity rather than the auditor. The statement is
        effective 60 days following the SEC’s approval of the Public Company
        Accounting Oversight Board (PCAOB) amendments to AU Section 411, “The
        Meaning of Present Fairly in Conformity with GAAP,” and is not expected to have
        any impact on the Company’s financial position, results of operations or cash
        flows.
  12
  **STONERIDGE,
        INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 **(in
        thousands, except share and per share data, unless otherwise
        indicated)**
 
 **(13)
        Segment Reporting**
 
 SFAS
        No.
        131, *Disclosures
        about Segments of an Enterprise and Related Information,* establishes standards for reporting information about operating segments
        in
        financial statements. Operating segments are defined as components of an
        enterprise that are evaluated regularly by the Company’s chief operating
        decision maker in deciding how to allocate resources and in assessing
        performance. The Company’s chief operating decision maker is the president and
        chief executive officer.
 
 The
        Company has two reportable segments: Electronics and Control Devices. The
        Company’s operating segments are aggregated based on
        sharing similar economic characteristics. Other aggregation factors include
        the
        nature of the products offered and management and oversight responsibilities. The
        Electronics reportable segment produces electronic instrument clusters,
        electronic control units, driver information systems and electrical distribution
        systems, primarily wiring harnesses and connectors for electrical power and
        signal distribution. The Control Devices reportable segment produces electronic
        and electromechanical switches, 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, 2007 Form 10-K. The Company’s management evaluates the
        performance of its reportable segments based primarily on revenues from external
        customers, capital expenditures and income before income taxes. Inter-segment
        sales are accounted for on terms similar to those to third parties and are
        eliminated upon consolidation.
 
 A
        summary
        of financial information by reportable segment is as follows:
  **Three Months Ended**
              
              **Nine Months Ended****September 30,**
              
              **September 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007****Net
                  Sales**Electronics
              
              $
              126,636
              
              $
              103,021
              
              $
              409,268
              
              $
              321,497Inter-segment
                  sales
              
              
              2,464
              
              
              3,806
              
              
              10,211
              
              
              13,139Electronics
                  net sales
              
              
              129,100
              
              
              106,827
              
              
              419,479
              
              
              334,636Control
                  Devices
              
              
              51,798
              
              
              69,793
              
              
              185,465
              
              
              220,147Inter-segment
                  sales
              
              
              1,067
              
              
              1,077
              
              
              3,671
              
              
              3,560Control
                  Devices net sales
              
              
              52,865
              
              
              70,870
              
              
              189,136
              
              
              223,707Eliminations
              
              
              (3,531
              )
              
              (4,883
              )
              
              (13,882
              )
              
              (16,699
              )Total
                  consolidated net sales
              
              $
              178,434
              
              $
              172,814
              
              $
              594,733
              
              $
              541,644
 **Income
                  (Loss) Before Income Taxes**Electronics
              
              $
              7,001
              
              $
              3,005
              
              $
              32,976
              
              $
              9,146Control
                  Devices
              
              
              (6,523
              )
              
              2,714
              
              
              (5,432
              )
              
              13,601Other
                  corporate activities
              
              
              5,129
              
              
              2,827
              
              
              8,775
              
              
              6,348Corporate
                  interest expense, net
              
              
              (5,116
              )
              
              (5,540
              )
              
              (15,423
              )
              
              (16,671
              )Total
                  consolidated income before income taxes
              
              $
              491
              
              $
              3,006
              
              $
              20,896
              
              $
              12,424
 **Depreciation
                  and Amortization**Electronics
              
              $
              2,724
              
              $
              3,400
              
              $
              9,646
              
              $
              10,164Control
                  Devices
              
              
              3,690
              
              
              3,812
              
              
              11,191
              
              
              11,495Corporate
                  activities
              
              
              26
              
              
              96
              
              
              21
              
              
              270Total
                  consolidated depreciation and amortization(A)
              
              $
              6,440
              
              $
              7,308
              
              $
              20,858
              
              $
              21,929
 
 (A)
        These
        amounts represent depreciation and amortization on fixed and certain intangible
        assets.
  13
  **STONERIDGE,
        INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 **(in
        thousands, except share and per share data, unless otherwise
        indicated)**
 
 **Three Months Ended**
              
              **Nine Months Ended****September 30,**
              
              **September 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007****Interest
                  Expense (Income)**Electronics
              
              $
              (60
              )
              $
              (69
              )
              $
              (113
              )
              $
              (96
              )Control
                  Devices
              
              
              (7
              )
              
              (4
              )
              
              (9
              )
              
              (5
              )Corporate
                  activities
              
              
              5,116
              
              
              5,540
              
              
              15,423
              
              
              16,671Total
                  consolidated interest expense, net
              
              $
              5,049
              
              $
              5,467
              
              $
              15,301
              
              $
              16,570
 **Capital
                  Expenditures, Net**Electronics
              
              $
              2,736
              
              $
              1,569
              
              $
              7,480
              
              $
              6,562Control
                  Devices
              
              
              3,580
              
              
              1,641
              
              
              10,512
              
              
              7,051Corporate
                  activities
              
              
              (1
              )
              
              235
              
              
              (36
              )
              
              646Total
                  consolidated capital expenditures, net
              
              $
              6,315
              
              $
              3,445
              
              $
              17,956
              
              $
              14,259
 
 **September 30,**
              
              **December 31,****2008**
              
              **2007****Total
                  Assets**Electronics
              
              $
              215,761
              
              $
              214,119Control
                  Devices
              
              
              176,741
              
              
              180,785Corporate(B)
              
              
              287,930
              
              
              282,695Eliminations
              
              
              (158,305
              )
              
              (149,830
              )Total
                  consolidated assets
              
              $
              522,127
              
              $
              527,769
 
 (B)
        Assets located at Corporate consist primarily of cash, deferred taxes and
        equity
        investments.
 
 The
        following table presents net sales and non-current assets for each of the
        geographic areas in which the Company operates:
 
 **Three Months Ended**
              
              **Nine Months Ended****September 30,**
              
              **September 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007****Net
                  Sales**North
                  America
              
              $
              131,966
              
              $
              126,882
              
              $
              435,265
              
              $
              393,392Europe
                  and other
              
              
              46,468
              
              
              45,932
              
              
              159,468
              
              
              148,252Total
                  consolidated net sales
              
              $
              178,434
              
              $
              172,814
              
              $
              594,733
              
              $
              541,644
 
 **September 30,**
              
              **December 31,****2008**
              
              **2007****Non-Current
                  Assets**North
                  America
              
              $
              202,718
              
              $
              204,556Europe
                  and other
              
              
              19,969
              
              
              21,854Total
                  consolidated non-current assets
              
              $
              222,687
              
              $
              226,410
 
 **(14)
        Investments**
 
 ***PST
        Eletrônica S.A .***
 
 The
        Company has a 50% equity interest in PST Eletrônica S.A. (“PST”), a Brazilian
        electronic system provider focused on security and convenience applications
        primarily for the vehicle and motorcycle industry. The investment is accounted
        for under the equity method of accounting. The Company’s investment in PST was
        $37,593 and $29,663 at September 30, 2008 and December 31, 2007, respectively.
  14
  **STONERIDGE,
        INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 **(in
        thousands, except share and per share data, unless otherwise
        indicated)**
 
 Condensed
        financial information for PST is as follows:
 
 **Three Months Ended**
              
              **Nine Months Ended****September 30,**
              
              **September 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007**Revenues
              
              $
              50,846
              
              $
              36,278
              
              $
              141,238
              
              $
              94,908Cost
                  of sales
              
              $
              23,073
              
              $
              16,704
              
              $
              66,042
              
              $
              44,210Pre-tax
                  income
              
              $
              10,503
              
              $
              7,462
              
              $
              26,301
              
              $
              17,827The
                  Company's share of pre-tax income
              
              $
              5,251
              
              $
              3,731
              
              $
              13,151
              
              $
              8,914
 
 Equity
        in
        earnings of PST included in the condensed consolidated statements of operations
        were $4,192 and $3,401 for the three months ended September 30, 2008 and
        2007,
        respectively. For
        the
        nine months ended September 30, 2008 and 2007, equity in earnings of PST
        was
        $10,634 and $7,557, respectively.
 
 ***Minda
        Stoneridge Instruments Ltd.***
 
 The
        Company has a 49% interest in Minda Stoneridge Instruments Ltd. (“Minda”), a
        company based in India that manufactures electronics and instrumentation
        equipment for the motorcycle and commercial vehicle market. The
        investment is accounted for under the equity method of accounting. The
        Company’s investment in Minda was $4,673 and $4,547 at September 30, 2008 and
        December 31, 2007, respectively. Equity in earnings of Minda included in
        the
        condensed consolidated statements of operations were $179 and $105, for the
        three months ended September 30, 2008 and 2007, respectively. For the nine
        months ended September 30, 2008 and 2007, equity in earnings of Minda was
        $572
        and $367, respectively.
 
 **(15)
        Guarantor Financial Information**
 
 The
        senior notes and the credit facility are fully and unconditionally guaranteed,
        jointly and severally, by each of the Company’s existing and future domestic
        wholly owned subsidiaries (Guarantor Subsidiaries). The Company’s non-U.S.
        subsidiaries do not guarantee the senior notes or the credit facility
        (Non-Guarantor Subsidiaries).
 
 Presented
        below are summarized consolidating financial statements of the Parent (which
        includes certain of the Company’s operating units), the Guarantor Subsidiaries,
        the Non-Guarantor Subsidiaries and the Company on a condensed consolidated
        basis, as of September 30, 2008 and December 31, 2007 and for each of the
        three
        and nine months ended September 30, 2008 and 2007.
 
 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.
  15
  **STONERIDGE,
        INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 **(in
        thousands, except share and per share data, unless otherwise
        indicated)**
 
 **September 30, 2008****Parent**
              
              **Guarantor**
                **Subsidiaries**
              
              **Non-**
                **Guarantor**
                **Subsidiaries**
              
              **Eliminations**
              
              **Consolidated**ASSETSCurrent
                  Assets:Cash
                  and cash equivalents
              
              $
              47,844
              
              $
              254
              
              $
              41,513
              
              $
              -
              
              $
              89,611Accounts
                  receivable, net
              
              
              60,743
              
              
              21,368
              
              
              33,213
              
              
              -
              
              
              115,324Inventories,
                  net
              
              
              32,141
              
              
              11,251
              
              
              24,151
              
              
              -
              
              
              67,543Prepaid
                  expenses and other
              
              
              (299,865
              )
              
              304,054
              
              
              12,623
              
              
              -
              
              
              16,812Deferred
                  income taxes
              
              
              3,759
              
              
              4,501
              
              
              1,890
              
              
              -
              
              
              10,150Total
                  current assets
              
              
              (155,378
              )
              
              341,428
              
              
              113,390
              
              
              -
              
              
              299,440Long-Term
                  Assets:Property,
                  plant and equipment, net
              
              
              48,716
              
              
              25,293
              
              
              14,873
              
              
              -
              
              
              88,882Other
                  Assets:Goodwill
              
              
              44,584
              
              
              20,591
              
              
              481
              
              
              -
              
              
              65,656Investments
                  and other, net
              
              
              45,692
              
              
              321
              
              
              422
              
              
              -
              
              
              46,435Deferred
                  income taxes
              
              
              25,766
              
              
              (2,790
              )
              
              (1,262
              )
              
              -
              
              
              21,714Investment
                  in subsidiaries
              
              
              438,935
              
              
              -
              
              
              -
              
              
              (438,935
              )
              
              -Total
                  long-term assets
              
              
              603,693
              
              
              43,415
              
              
              14,514
              
              
              (438,935
              )
              
              222,687Total
                  Assets
              
              $
              448,315
              
              $
              384,843
              
              $
              127,904
              
              $
              (438,935
              )
              $
              522,127LIABILITIES
                  AND SHAREHOLDERS’ EQUITYCurrent
                  Liabilities:Accounts
                  payable
              
              $
              26,366
              
              $
              18,625
              
              $
              21,474
              
              $
              -
              
              $
              66,465Accrued
                  expenses and other
              
              
              24,075
              
              
              9,246
              
              
              20,543
              
              
              -
              
              
              53,864Total
                  current liabilities
              
              
              50,441
              
              
              27,871
              
              
              42,017
              
              
              -
              
              
              120,329Long-Term
                  Liabilities:Long-term
                  debt
              
              
              183,000
              
              
              -
              
              
              -
              
              
              -
              
              
              183,000Deferred
                  income taxes
              
              
              -
              
              
              -
              
              
              2,521
              
              
              -
              
              
              2,521Other
                  liabilities
              
              
              523
              
              
              393
              
              
              1,010
              
              
              -
              
              
              1,926Total
                  long-term liabilities
              
              
              183,523
              
              
              393
              
              
              3,531
              
              
              -
              
              
              187,447Shareholders'
                  Equity
              
              
              214,351
              
              
              356,579
              
              
              82,356
              
              
              (438,935
              )
              
              214,351Total
                  Liabilities and Shareholders’ Equity
              
              $
              448,315
              
              $
              384,843
              
              $
              127,904
              
              $
              (438,935
              )
              $
              522,127
  16
  **STONERIDGE,
        INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 **(in
        thousands, except share and per share data, unless otherwise
        indicated)**
 
 Supplemental
        condensed consolidating financial statements (continued):
 
 **December 31, 2007****Parent**
              
              **Guarantor**
                **Subsidiaries**
              
              **Non-**
                **Guarantor**
                **Subsidiaries**
              
              **Eliminations**
              
              **Consolidated**ASSETSCurrent
                  Assets:Cash
                  and cash equivalents
              
              $
              48,705
              
              $
              255
              
              $
              46,964
              
              $
              -
              
              $
              95,924Accounts
                  receivable, net
              
              
              53,456
              
              
              26,798
              
              
              42,034
              
              
              -
              
              
              122,288Inventories,
                  net
              
              
              25,472
              
              
              12,637
              
              
              19,283
              
              
              -
              
              
              57,392Prepaid
                  expenses and other
              
              
              (293,632
              )
              
              294,298
              
              
              15,260
              
              
              -
              
              
              15,926Deferred
                  income taxes
              
              
              3,152
              
              
              4,591
              
              
              2,086
              
              
              -
              
              
              9,829Total
                  current assets
              
              
              (162,847
              )
              
              338,579
              
              
              125,627
              
              
              -
              
              
              301,359Long-Term
                  Assets:Property,
                  plant and equipment, net
              
              
              48,294
              
              
              25,632
              
              
              18,826
              
              
              -
              
              
              92,752Other
                  Assets:Goodwill
              
              
              44,585
              
              
              20,591
              
              
              -
              
              
              -
              
              
              65,176Investments
                  and other, net
              
              
              38,783
              
              
              331
              
              
              340
              
              
              -
              
              
              39,454Deferred
                  income taxes
              
              
              33,169
              
              
              (2,843
              )
              
              (1,298
              )
              
              -
              
              
              29,028Investment
                  in subsidiaries
              
              
              438,271
              
              
              -
              
              
              -
              
              
              (438,271
              )
              
              -Total
                  long-term assets
              
              
              603,102
              
              
              43,711
              
              
              17,868
              
              
              (438,271
              )
              
              226,410Total
                  Assets
              
              $
              440,255
              
              $
              382,290
              
              $
              143,495
              
              $
              (438,271
              )
              $
              527,769LIABILITIES
                  AND SHAREHOLDERS’ EQUITYCurrent
                  Liabilities:Accounts
                  payable
              
              $
              20,924
              
              $
              19,533
              
              $
              28,916
              
              $
              -
              
              $
              69,373Accrued
                  expenses and other
              
              
              12,546
              
              
              9,198
              
              
              25,454
              
              
              -
              
              
              47,198Total
                  current liabilities
              
              
              33,470
              
              
              28,731
              
              
              54,370
              
              
              -
              
              
              116,571Long-Term
                  Liabilities:Long-term
                  debt
              
              
              200,000
              
              
              -
              
              
              -
              
              
              -
              
              
              200,000Deferred
                  income taxes
              
              
              -
              
              
              -
              
              
              2,665
              
              
              -
              
              
              2,665Other
                  liabilities
              
              
              596
              
              
              393
              
              
              1,355
              
              
              -
              
              
              2,344Total
                  long-term liabilities
              
              
              200,596
              
              
              393
              
              
              4,020
              
              
              -
              
              
              205,009Shareholders'
                  Equity
              
              
              206,189
              
              
              353,166
              
              
              85,105
              
              
              (438,271
              )
              
              206,189Total
                  Liabilities and Shareholders’ Equity
              
              $
              440,255
              
              $
              382,290
              
              $
              143,495
              
              $
              (438,271
              )
              $
              527,769
  17
  **STONERIDGE,
        INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 **(in
        thousands, except share and per share data, unless otherwise
        indicated)**
 
 Supplemental
        condensed consolidating financial statements (continued):
 
 **For the Three Months Ended September 30, 2008****Parent**
              
              **Guarantor**
                **Subsidiaries**
              
              **Non-**
                **Guarantor**
                **Subsidiaries**
              
              **Eliminations**
              
              **Consolidated**Net
                  Sales
              
              $
              98,697
              
              $
              42,054
              
              $
              62,368
              
              $
              (24,685
              )
              $
              178,434Costs
                  and Expenses:Cost
                  of goods sold
              
              
              83,677
              
              
              34,053
              
              
              49,205
              
              
              (23,846
              )
              
              143,089Selling,
                  general and administrative
              
              
              12,380
              
              
              7,588
              
              
              12,726
              
              
              (839
              )
              
              31,855(Gain)
                  Loss on sale of property, plant and equipment, net
              
              
              119
              
              
              (3
              )
              
              (303
              )
              
              -
              
              
              (187
              )Restructuring
                  charges
              
              
              1,448
              
              
              -
              
              
              1,294
              
              
              -
              
              
              2,742Operating
                  Income (Loss)
              
              
              1,073
              
              
              416
              
              
              (554
              )
              
              -
              
              
              935Interest
                  expense (income), net
              
              
              5,313
              
              
              -
              
              
              (264
              )
              
              -
              
              
              5,049Other
                  income, net
              
              
              (4,371
              )
              
              -
              
              
              (234
              )
              
              -
              
              
              (4,605
              )Equity
                  earnings from subsidiaries
              
              
              (223
              )
              
              -
              
              
              -
              
              
              223
              
              
              -Income
                  (Loss) Before Income Taxes
              
              
              354
              
              
              416
              
              
              (56
              )
              
              (223
              )
              
              491Provision
                  for income taxes
              
              
              718
              
              
              -
              
              
              137
              
              
              -
              
              
              855Net
                  Income (Loss)
              
              $
              (364
              )
              $
              416
              
              $
              (193
              )
              $
              (223
              )
              $
              (364
              )
 
 **For the Three Months Ended September 30, 2007****Parent**
              
              **Guarantor**
                **Subsidiaries**
              
              **Non-**
                **Guarantor**
                **Subsidiaries**
              
              **Eliminations**
              
              **Consolidated**Net
                  Sales
              
              $
              83,251
              
              $
              50,588
              
              $
              57,843
              
              $
              (18,868
              )
              $
              172,814Costs
                  and Expenses:Cost
                  of goods sold
              
              
              69,451
              
              
              40,369
              
              
              43,342
              
              
              (18,218
              )
              
              134,944Selling,
                  general and administrative
              
              
              13,595
              
              
              7,417
              
              
              12,043
              
              
              (650
              )
              
              32,405(Gain)
                  Loss on sale of property, plant and equipment, net
              
              
              231
              
              
              -
              
              
              (8
              )
              
              -
              
              
              223Restructuring
                  charges
              
              
              2
              
              
              -
              
              
              -
              
              
              -
              
              
              2Operating
                  Income (Loss)
              
              
              (28
              )
              
              2,802
              
              
              2,466
              
              
              -
              
              
              5,240Interest
                  expense (income), net
              
              
              5,830
              
              
              -
              
              
              (363
              )
              
              -
              
              
              5,467Other
                  (income) expense, net
              
              
              (3,696
              )
              
              -
              
              
              463
              
              
              -
              
              
              (3,233
              )Equity
                  earnings from subsidiaries
              
              
              (4,285
              )
              
              -
              
              
              -
              
              
              4,285
              
              
              -Income
                  Before Income Taxes
              
              
              2,123
              
              
              2,802
              
              
              2,366
              
              
              (4,285
              )
              
              3,006Provision
                  (benefit) for income taxes
              
              
              (502
              )
              
              4
              
              
              879
              
              
              -
              
              
              381Net
                  Income
              
              $
              2,625
              
              $
              2,798
              
              $
              1,487
              
              $
              (4,285
              )
              $
              2,625
  18
  **STONERIDGE,
        INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 **(in
        thousands, except share and per share data, unless otherwise
        indicated)**
 
 Supplemental
        condensed consolidating financial statements (continued):
 
 **For the Nine Months Ended September 30, 2008****Parent**
              
              **Guarantor**
                **Subsidiaries**
              
              **Non-**
                **Guarantor**
                **Subsidiaries**
              
              **Eliminations**
              
              **Consolidated**Net
                  Sales
              
              $
              316,543
              
              $
              148,421
              
              $
              206,233
              
              $
              (76,464
              )
              $
              594,733Costs
                  and Expenses:Cost
                  of goods sold
              
              
              258,914
              
              
              117,353
              
              
              156,190
              
              
              (74,240
              )
              
              458,217Selling,
                  general and administrative
              
              
              40,463
              
              
              23,942
              
              
              42,695
              
              
              (2,224
              )
              
              104,876(Gain)
                  Loss on sale of property, plant and equipment, net
              
              
              198
              
              
              21
              
              
              (261
              )
              
              -
              
              
              (42
              )Restructuring
                  charges
              
              
              2,873
              
              
              -
              
              
              3,004
              
              
              -
              
              
              5,877Operating
                  Income
              
              
              14,095
              
              
              7,105
              
              
              4,605
              
              
              -
              
              
              25,805Interest
                  expense (income), net
              
              
              16,019
              
              
              -
              
              
              (718
              )
              
              -
              
              
              15,301Other
                  (income) expense, net
              
              
              (10,436
              )
              
              -
              
              
              44
              
              
              -
              
              
              (10,392
              )Equity
                  earnings from subsidiaries
              
              
              (10,689
              )
              
              -
              
              
              -
              
              
              10,689
              
              
              -Income
                  Before Income Taxes
              
              
              19,201
              
              
              7,105
              
              
              5,279
              
              
              (10,689
              )
              
              20,896Provision
                  for income taxes
              
              
              8,334
              
              
              82
              
              
              1,613
              
              
              -
              
              
              10,029Net
                  Income
              
              $
              10,867
              
              $
              7,023
              
              $
              3,666
              
              $
              (10,689
              )
              $
              10,867
 
 **For the Nine Months Ended September 30, 2007****Parent**
              
              **Guarantor**
                **Subsidiaries**
              
              **Non-**
                **Guarantor**
                **Subsidiaries**
              
              **Eliminations**
              
              **Consolidated**Net
                  Sales
              
              $
              257,119
              
              $
              157,187
              
              $
              186,914
              
              $
              (59,576
              )
              $
              541,644Costs
                  and Expenses:Cost
                  of goods sold
              
              
              217,081
              
              
              123,231
              
              
              139,251
              
              
              (57,518
              )
              
              422,045Selling,
                  general and administrative
              
              
              40,645
              
              
              23,090
              
              
              37,458
              
              
              (2,058
              )
              
              99,135Gain
                  on sale of property, plant and equipment, net
              
              
              (116
              )
              
              (1,349
              )
              
              -
              
              
              -
              
              
              (1,465
              )Restructuring
                  charges
              
              
              74
              
              
              -
              
              
              -
              
              
              -
              
              
              74Operating
                  Income (Loss)
              
              
              (565
              )
              
              12,215
              
              
              10,205
              
              
              -
              
              
              21,855Interest
                  expense (income), net
              
              
              17,498
              
              
              -
              
              
              (928
              )
              
              -
              
              
              16,570Other
                  (income) expense, net
              
              
              (7,594
              )
              
              -
              
              
              455
              
              
              -
              
              
              (7,139
              )Equity
                  earnings from subsidiaries
              
              
              (20,819
              )
              
              -
              
              
              -
              
              
              20,819
              
              
              -Income
                  Before Income Taxes
              
              
              10,350
              
              
              12,215
              
              
              10,678
              
              
              (20,819
              )
              
              12,424Provision
                  for income taxes
              
              
              160
              
              
              11
              
              
              2,063
              
              
              -
              
              
              2,234Net
                  Income
              
              $
              10,190
              
              $
              12,204
              
              $
              8,615
              
              $
              (20,819
              )
              $
              10,190
 
  19
  **STONERIDGE,
        INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 **(in
        thousands, except share and per share data, unless otherwise
        indicated)**
 
 Supplemental
        condensed consolidating financial statements (continued):
 
 **For the Nine Months Ended September 30, 2008****Parent**
              
              **Guarantor**
                **Subsidiaries**
              
              **Non-**
                **Guarantor**
                **Subsidiaries**
              
              **Eliminations**
              
              **Consolidated**Net
                  cash provided by operating activities
              
              $
              25,365
              
              $
              4,658
              
              $
              645
              
              $
              -
              
              $
              30,668INVESTING
                  ACTIVITIES:Capital
                  expenditures
              
              
              (10,119
              )
              
              (4,663
              )
              
              (3,174
              )
              
              -
              
              
              (17,956
              )Proceeds
                  from the sale of fixed assets
              
              
              141
              
              
              4
              
              
              290
              
              
              -
              
              
              435Business
                  acquisitions and other
              
              
              -
              
              
              -
              
              
              (980
              )
              
              -
              
              
              (980
              )Net
                  cash used for investing activities
              
              
              (9,978
              )
              
              (4,659
              )
              
              (3,864
              )
              
              -
              
              
              (18,501
              )FINANCING
                  ACTIVITIES:Repayments
                  of long-term debt
              
              
              (17,000
              )
              
              -
              
              
              -
              
              
              -
              
              
              (17,000
              )Share-based
                  compensation activity, net
              
              
              1,305
              
              
              -
              
              
              -
              
              
              -
              
              
              1,305Premiums
                  related to early extinguishment of debt
              
              
              (553
              )
              
              -
              
              
              -
              
              
              -
              
              
              (553
              )Net
                  cash used for financing activities
              
              
              (16,248
              )
              
              -
              
              
              -
              
              
              -
              
              
              (16,248
              )Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              -
              
              
              -
              
              
              (2,232
              )
              
              -
              
              
              (2,232
              )Net
                  change in cash and cash equivalents
              
              
              (861
              )
              
              (1
              )
              
              (5,451
              )
              
              -
              
              
              (6,313
              )Cash
                  and cash equivalents at beginning of period
              
              
              48,705
              
              
              255
              
              
              46,964
              
              
              -
              
              
              95,924Cash
                  and cash equivalents at end of period
              
              $
              47,844
              
              $
              254
              
              $
              41,513
              
              $
              -
              
              $
              89,611
 
 **For the Nine Months Ended September 30, 2007****Parent**
              
              **Guarantor**
                **Subsidiaries**
              
              **Non-**
                **Guarantor**
                **Subsidiaries**
              
              **Eliminations**
              
              **Consolidated**Net
                  cash provided by (used for) operating activities
              
              $
              8,237
              
              $
              (1,561
              )
              $
              1,533
              
              $
              (300
              )
              $
              7,909INVESTING
                  ACTIVITIES:Capital
                  expenditures
              
              
              (7,772
              )
              
              (3,038
              )
              
              (3,449
              )
              
              -
              
              
              (14,259
              )Proceeds
                  from sale of fixed assets
              
              
              392
              
              
              4,643
              
              
              7
              
              
              -
              
              
              5,042Business
                  acquisitions and other
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  cash (used for) provided by investing activities
              
              
              (7,380
              )
              
              1,605
              
              
              (3,442
              )
              
              -
              
              
              (9,217
              )FINANCING
                  ACTIVITIES:Repayments
                  of long-term debt
              
              
              -
              
              
              -
              
              
              (300
              )
              
              300
              
              
              -Share-based
                  compensation activity, net
              
              
              1,956
              
              
              -
              
              
              -
              
              
              -
              
              
              1,956Net
                  cash provided by (used for) financing activities
              
              
              1,956
              
              
              -
              
              
              (300
              )
              
              300
              
              
              1,956Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              -
              
              
              -
              
              
              1,119
              
              
              -
              
              
              1,119Net
                  change in cash and cash equivalents
              
              
              2,813
              
              
              44
              
              
              (1,090
              )
              
              -
              
              
              1,767Cash
                  and cash equivalents at beginning of period
              
              
              28,937
              
              
              12
              
              
              36,933
              
              
              -
              
              
              65,882Cash
                  and cash equivalents at end of period
              
              $
              31,750
              
              $
              56
              
              $
              35,843
              
              $
              -
              
              $
              67,649
  20




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





***Overview***





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





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





Our
      revenue for the third quarter of 2008 was affected by increased sales in our
      commercial vehicle and agricultural markets and lower sales volumes to our
      North
      American automotive market.





We
      recognized net loss for the third quarter ended September 30, 2008 of $0.4
      million, or $0.02 per diluted share, compared with net income of $2.6 million,
      or $0.11 per diluted share, for the third quarter of 2007.





We
      recognized net income for the nine-month period ended September 30, 2008 of
      $10.9 million, or $0.46 per diluted share, compared with net income of $10.2
      million, or $0.43 per diluted share, for the comparable period of 2007.





Our
      third
      quarter 2008 results were affected by our PST Eletrônica S.A. (“PST”) joint
      venture in Brazil which continued to perform well. Equity earnings were $4.2
      million for the third quarter of 2008 compared to $3.4 million in the third
      quarter of 2007.





Also
      affecting our profitability were restructuring initiatives that began in the
      fourth quarter of 2007 to improve the Company’s manufacturing efficiency and
      cost position by ceasing manufacturing operations at our Sarasota, Florida,
      and
      Mitcheldean, United Kingdom, locations. Related third quarter 2008 expenses
      were
      approximately $4.8 million, primarily comprised of one-time termination benefits
      and line-transfer expenses. Restructuring expenses that were general and
      administrative in nature were included in the Company's condensed consolidated
      statements of operations as restructuring charges, while the remaining
      restructuring related expenses were included in cost of goods sold. We
      anticipate incurring total pre-tax charges of approximately $13.0 million to
      $15.0 million in 2008 for the restructuring.





We
      believe the recent decline in North American light vehicle production will
      have
      an impact on our sales volumes for the remainder of 2008 and may continue into
      2009. Also, significant factors inherent to our markets that could affect our
      results include the financial stability of our customers and suppliers as well
      as our ability to successfully execute our planned restructuring initiatives.
      Our results also depend on conditions in the automotive and commercial vehicle
      industries, which are generally dependent on domestic and global
      economies.





***Outlook
      for the Remainder of 2008***





We
      are
      cautious about the remainder of 2008. The recent crisis in the financial sector
      and deteriorating global economic conditions have increased uncertainty about
      automotive and commercial vehicle production levels in North America and Europe.
      We expect this unprecedented current economic environment to continue to affect
      near-term results and to create difficult conditions through 2009. We are
      responding to these conditions by continuing to execute our previously announced
      restructuring programs. We remain optimistic about the long-term
      outlook for our business.





***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 from our 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 from our
      operations that design and manufacture electronic and electromechanical
      switches, control actuation devices and sensors.


21





***Three
      Months Ended September 30, 2008 Compared to Three Months Ended September 30,
      2007***





*Net
      Sales.* Net
      sales for our reportable segments, excluding inter-segment sales, for the three
      months ended September 30, 2008 and 2007 are summarized in the following table
      (in thousands):





**Three
                Months Ended****September
                30,**
            
            **$ Increase /**
            
            **% Increase /****2008**
            
            **2007**
            
            **(Decrease)**
            
            **(Decrease)**Electronics
            
            $
            126,636
            
            
            71.0
            %
            $
            103,021
            
            
            59.6
            %
            $
            23,615
            
            
            22.9
            %Control
                Devices
            
            
            51,798
            
            
            29.0
            
            
            69,793
            
            
            40.4
            
            
            (17,995
            )
            
            (25.8)
            %Total
                net sales
            
            $
            178,434
            
            
            100.0
            %
            $
            172,814
            
            
            100.0
            %
            $
            5,620
            
            
            3.3
            %




The
      increase in net sales for our Electronics segment was primarily due to new
      business sales in North America, increased sales volume in our European
      commercial vehicle operations and favorable foreign currency exchange rates.
      Favorable foreign currency exchange rates contributed $4.0 million to sales
      in
      the third quarter compared with the prior year. The increase was partially
      offset by contractual price reductions and the loss of a heated switch product
      at our Mitcheldean, United Kingdom, facility.





The
      decrease in net sales for our Control Devices segment was primarily attributable
      to production volume reductions at our major customers in the automotive vehicle
      market and the loss of a sensor product revenue at our Sarasota, Florida,
      facility.





Net
      sales
      by geographic location for the three months ended September 30, 2008 and 2007
      are summarized in the following table (in thousands):





**Three
                Months Ended****September
                30,****2008**
            
            **2007**
            
            **$ Increase**
            
            **% Increase**North
                America
            
            $
            131,966
            
            
            74.0
            %
            $
            126,882
            
            
            73.4
            %
            $
            5,084
            
            
            4.0
            %Europe
                and other
            
            
            46,468
            
            
            26.0
            
            
            45,932
            
            
            26.6
            
            
            536
            
            
            1.2
            %Total
                net sales
            
            $
            178,434
            
            
            100.0
            %
            $
            172,814
            
            
            100.0
            %
            $
            5,620
            
            
            3.3
            %




The
      increase in North American sales was primarily attributable to new business
      sales of electronics products. The increase was partially offset by lower sales
      volume in our North American automotive market. Our increase in sales outside
      North America for the third quarter was primarily due to favorable foreign
      currency exchange rates. The favorable effect of foreign currency exchange
      rates
      affected net sales outside North America by $4.0 million in the third quarter
      of
      2008 compared with the prior year.


22





Condensed
      consolidated statements of operations as a percentage of net sales for
      the
      three months ended September 30, 2008 and 2007 are
      presented in the following table (in thousands):





**Three
                Months Ended****September
                30,**
            
            **$ Increase /****2008**
            
            **2007**
            
            **(Decrease)**Net
                Sales
            
            $
            178,434
            
            
            100.0
            %
            $
            172,814
            
            
            100.0
            %
            $
            5,620Costs
                and Expenses:Cost
                of goods sold
            
            
            143,089
            
            
            80.2
            
            
            134,944
            
            
            78.1
            
            
            8,145Selling,
                general and administrative
            
            
            31,855
            
            
            17.9
            
            
            32,405
            
            
            18.8
            
            
            (550
            )(Gain)
                Loss on sale of property, plantand
                equipment, net
            
            
            (187
            )
            
            (0.1
            )
            
            223
            
            
            0.1
            
            
            (410
            )Restructuring
                charges
            
            
            2,742
            
            
            1.5
            
            
            2
            
            
            0.0
            
            
            2,740Operating
                Income
            
            
            935
            
            
            0.5
            
            
            5,240
            
            
            3.0
            
            
            (4,305
            )Interest
                expense, net
            
            
            5,049
            
            
            2.8
            
            
            5,467
            
            
            3.2
            
            
            (418
            )Equity
                in earnings of investees
            
            
            (4,371
            )
            
            (2.5
            )
            
            (3,506
            )
            
            (2.0
            )
            
            (865
            )Other
                expense (income), net
            
            
            (234
            )
            
            (0.1
            )
            
            273
            
            
            0.2
            
            
            (507
            )Income
                Before Income Taxes
            
            
            491
            
            
            0.2
            
            
            3,006
            
            
            1.6
            
            
            (2,515
            )Provision
                for income taxes
            
            
            855
            
            
            0.5
            
            
            381
            
            
            0.2
            
            
            474Net
                Income
            
            $
            (364
            )
            
            (0.2)
            %
            $
            2,625
            
            
            1.4
            %
            $
            (2,989
            )




*Cost
      of Goods Sold.* The
      increase in cost of goods sold as a percentage of sales was primarily due to
      $2.1 million of restructuring expenses included in cost of goods sold in the
      third quarter of 2008 and the loss of overhead recoveries because of lower
      production volumes which were the result of restructuring inventories built
      during 2008.





*Selling,
      General and Administrative Expenses.* Product
      development expenses included in SG&A were $10.2 million and $10.5 million
      for the third quarters ended September 30, 2008 and 2007, respectively.





*Restructuring
      Charges.* The
      increase in restructuring charges that were general and administrative in
      nature, was primarily the result of the ratable recognition of costs associated
      with moving production equipment out of our Sarasota, Florida, and Mitcheldean,
      United Kingdom, locations. No fixed-asset impairment charges were incurred
      because assets are expected to be transferred to our other locations for
      continued production. Restructuring expenses that were general and
      administrative in nature were included in the Company’s condensed consolidated
      statements of operations as restructuring charges, while the remaining
      restructuring related expenses were included in cost of goods sold. We expect
      these initiatives to be substantially completed in 2008.





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




**Three
                Months Ended****September
                30, 2008****Electronics**
            
            **Control Devices**
            
            **Total**
              **Consolidated**
              **Restructuring**
              **Charges**Severance
                costs
            
            $
            590
            
            $
            486
            
            $
            1,076Contract
                termination costs
            
            
            703
            
            
            -
            
            
            703Other
                exit costs
            
            
            1
            
            
            962
            
            
            963Total
                general and administrative restructuring charges
            
            $
            1,294
            
            $
            1,448
            
            $
            2,742





Severance
      costs relate to a reduction in workforce. Other exit costs include miscellaneous
      expenditures associated with exiting business activities.


23




No
      significant restructuring charges were incurred at either the Electronics
      or Control Devices reportable segment for the three months ended September
      30, 2007.





Restructuring
      related expenses, general and administrative in nature, for the third quarter
      of
      2007 were due to severance costs related to the rationalization of certain
      manufacturing facilities in North America that were previously announced in
      2005. These restructuring initiatives were completed in 2007.




*Equity
      in Earnings of Investees.* The
      increase in equity earnings of investees was predominately attributable to
      the
      increase in equity earnings recognized from our PST joint venture. The increase
      primarily reflects higher volume for PST’s security product lines and favorable
      exchange rates.





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





**Three
                Months Ended****September
                30,**
            
            **$ Increase /**
            
            **% Increase /****2008**
            
            **2007**
            
            **(Decrease)**
            
            **(Decrease)**Electronics
                income
            
            $
            7,001
            
            $
            3,005
            
            $
            3,996
            
            
            133.0
            %Control
                Devices income (loss)
            
            
            (6,523
            )
            
            2,714
            
            
            (9,237
            )
            
            (340.3)
            %Other
                corporate activities
            
            
            5,129
            
            
            2,827
            
            
            2,302
            
            
            81.4
            %Corporate
                interest expense, net
            
            
            (5,116
            )
            
            (5,540
            )
            
            424
            
            
            7.7
            %Income
                before income taxes
            
            $
            491
            
            $
            3,006
            
            $
            (2,515
            )
            
            (83.7)
            %




The
      increase in income before income taxes in the Electronics segment was related
      to
      increased revenue and favorable product mix. These factors were partially offset
      by higher restructuring related expenses.





The
      decrease in income before income taxes in the Control Devices reportable segment
      was primarily due to lower revenue and increased restructuring related expenses.





The
      decrease in income before income taxes was also attributable to the loss of
      overhead recoveries because of lower production volumes which were the result
      of
      restructuring inventories built primarily in the first half of
      2008.





Income
      before income taxes by geographic location for the three months ended September
      30, 2008 and 2007 is summarized in the following table (in
      thousands):





**Three
                Months Ended****September
                30,**
            
            **$ Increase /**
            
            **% Increase /****2008**
            
            **2007**
            
            **(Decrease)**
            
            **(Decrease)**North
                America
            
            $
            2,688
            
            
            547.5
            %
            $
            1,842
            
            
            61.3
            %
            $
            846
            
            
            45.9
            %Europe
                and other
            
            
            (2,197
            )
            
            (447.5
            )
            
            1,164
            
            
            38.7
            
            
            (3,361
            )
            
            (288.7)
            %Income
                before income taxes
            
            $
            491
            
            
            100.0
            %
            $
            3,006
            
            
            100.0
            %
            $
            (2,515
            )
            
            (83.7)
            %





The
      increase in our profitability in North America was primarily attributable to
      new
      business sales and additional sales volume to existing customers, mostly from
      electronics products. The increase was primarily offset by increased
      restructuring related expenses and lower North American automotive production.
      The decrease in profitability outside North America was primarily due to
      increased restructuring related and selling expenses.





*Provision
      for Income Taxes.* We
      recognized a provision for income taxes of $0.9 million, or 174.1% of pre-tax
      income, and $0.4 million, or 12.7% of the pre-tax income, for federal, state
      and
      foreign income taxes for the third quarters ended September 30, 2008 and 2007,
      respectively. The increase in the effective tax rate for the third quarter
      ended
      September 30, 2008 compared to the third quarter ended September 30, 2007,
      was
      primarily attributable to the costs incurred to restructure our United Kingdom
      operations. Since we do not believe that the related tax benefit of those losses
      will be realized, a valuation allowance was recorded against the deferred tax
      assets associated with those foreign losses. In addition, the effective tax
      rate
      was unfavorably impacted by the expiration of the federal research and
      development tax credit at December 31, 2007.


24





***Nine
      Months Ended September 30, 2008 Compared to Nine Months Ended September 30,
      2007***





*Net
      Sales.* Net
      sales for our reportable segments, excluding inter-segment sales, for the nine
      months ended September 30, 2008 and 2007 are summarized in the following table
      (in thousands):





**Nine
                Months Ended****September
                30,**
            
            **$ Increase /**
            
            **% Increase /****2008**
            
            **2007**
            
            **(Decrease)**
            
            **(Decrease)**Electronics
            
            $
            409,268
            
            
            68.8
            %
            $
            321,497
            
            
            59.4
            %
            $
            87,771
            
            
            27.3
            %Control
                Devices
            
            
            185,465
            
            
            31.2
            
            
            220,147
            
            
            40.6
            
            
            (34,682
            )
            
            (15.8)
            %Total
                net sales
            
            $
            594,733
            
            
            100.0
            %
            $
            541,644
            
            
            100.0
            %
            $
            53,089
            
            
            9.8
            %





The
      increase in net sales for our Electronics segment was primarily due to new
      business sales in North America, increased sales volume in our European
      commercial vehicle operations and favorable foreign currency exchange rates.
      Favorable foreign currency exchange rates contributed $12.5 million to sales
      in
      the first nine months of 2008 compared with the first nine months of the prior
      year.





The
      decrease in net sales for our Control Devices segment was primarily attributable
      to production volume reductions at our major customers in the automotive vehicle
      market and the loss of sensor product revenue at our Sarasota, Florida,
      facility.





Net
      sales
      by geographic location for the nine months ended September 30, 2008 and 2007
      are
      summarized in the following table (in thousands):




**Nine
                Months Ended****September
                30,**
            
            **$ Increase /**
            
            **% Increase /****2008**
            
            **2007**
            
            **(Decrease)**
            
            **(Decrease)**North
                America
            
            $
            435,265
            
            
            73.2
            %
            $
            393,392
            
            
            72.6
            %
            $
            41,873
            
            
            10.6
            %Europe
                and other
            
            
            159,468
            
            
            26.8
            
            
            148,252
            
            
            27.4
            
            
            11,216
            
            
            7.6
            %Total
                net sales
            
            $
            594,733
            
            
            100.0
            %
            $
            541,644
            
            
            100.0
            %
            $
            53,089
            
            
            9.8
            %




The
      increase in North American sales was primarily attributable to new business
      sales of electronics products. The increase was partially offset by lower sales
      volume in our North American automotive market. Our increase in sales outside
      North America for the first nine months was primarily due to increased European
      commercial vehicle sales volume and favorable foreign currency exchange rates.
      The favorable effect of foreign currency exchange rates affected net sales
      outside North America by $12.8 million in the first nine months of 2008 compared
      with the first nine months of the prior year.


25





Condensed
      consolidated statements of operations as a percentage of net sales for the
      nine
      months ended September 30, 2008 and 2007 are presented in the following table
      (in thousands):





**Nine
                Months Ended****September
                30,**
            
            **$ Increase /****2008**
            
            **2007**
            
            **(Decrease)**Net
                Sales
            
            $
            594,733
            
            
            100.0
            %
            $
            541,644
            
            
            100.0
            %
            $
            53,089Costs
                and Expenses:Cost
                of goods sold
            
            
            458,217
            
            
            77.0
            
            
            422,045
            
            
            77.9
            
            
            36,172Selling,
                general and administrative
            
            
            104,876
            
            
            17.6
            
            
            99,135
            
            
            18.3
            
            
            5,741Gain
                on sale of property, plantand
                equipment, net
            
            
            (42
            )
            
            (0.0
            )
            
            (1,465
            )
            
            (0.2
            )
            
            1,423Restructuring
            
            
            5,877
            
            
            1.0
            
            
            74
            
            
            0.0
            
            
            5,803Operating
                Income
            
            
            25,805
            
            
            4.4
            
            
            21,855
            
            
            4.0
            
            
            3,950Interest
                expense, net
            
            
            15,301
            
            
            2.6
            
            
            16,570
            
            
            3.1
            
            
            (1,269
            )Equity
                in earnings of investees
            
            
            (11,206
            )
            
            (1.9
            )
            
            (7,924
            )
            
            (1.5
            )
            
            (3,282
            )Loss
                on early extinguishment of debt
            
            
            770
            
            
            0.1
            
            
            -
            
            
            -
            
            
            770Other
                expense, net
            
            
            44
            
            
            0.0
            
            
            785
            
            
            0.1
            
            
            (741
            )Income
                Before Income Taxes
            
            
            20,896
            
            
            3.6
            
            
            12,424
            
            
            2.3
            
            
            8,472Provision
                for income taxes
            
            
            10,029
            
            
            1.7
            
            
            2,234
            
            
            0.4
            
            
            7,795Net
                Income
            
            $
            10,867
            
            
            1.9
            %
            $
            10,190
            
            
            1.8
            %
            $
            677





*Cost
      of Goods Sold.* The
      decrease in cost of goods sold as a percentage of sales was due to a more
      favorable product mix and new business sales. The decrease was partially offset
      by $5.1 million of restructuring expenses included in cost of goods sold in
      the
      first nine months of 2008.





*Selling,
      General and Administrative Expenses.* Product
      development expenses included in SG&A were $35.8 million and $32.3 million
      for the nine months ended September 30, 2008 and 2007, respectively. The
      increase was primarily due to development spending in the areas of
      instrumentation and wiring.





The
      increase in SG&A expenses, excluding product development expenses, for the
      first nine months of 2008 compared with the first nine months of 2007 was
      primarily attributable to the increase in compensation related
      expenses.





*Gain
      on Sale of Property, Plant and Equipment, net.* The gain
      during the first nine months of 2007 was primarily attributable to the sale
      of
      two closed facilities.





*Restructuring
      Charges.* The
      increase in restructuring charges that were general and administrative in
      nature, was primarily the result of the ratable recognition of one-time
      termination benefits that will be due to employees upon the closure of our
      Sarasota, Florida, and Mitcheldean, United Kingdom, locations. No fixed-asset
      impairment charges were incurred because assets are expected to be transferred
      to our other locations for continued production. Restructuring expenses that
      were general and administrative in nature were included in the Company’s
      condensed consolidated statements of operations as restructuring charges, while
      the remaining restructuring related expenses were included in cost of goods
      sold. We expect these initiatives to be substantially completed in
      2008.


26





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





**Nine
                Months Ended****September
                30, 2008****Electronics**
            
            **Control**
              **Devices**
            
            **Total**
              **Consolidated**
              **Restructuring**
              **Charges**Severance
                costs
            
            $
            2,282
            
            $
            1,226
            
            $
            3,508Contract
                termination costs
            
            
            703
            
            
            -
            
            
            703Other
                exit costs
            
            
            19
            
            
            1,647
            
            
            1,666Total
                general and administrative restructuring charges
            
            $
            3,004
            
            $
            2,873
            
            $
            5,877





Severance
      costs related to a reduction in workforce. Other exit costs include
      miscellaneous expenditures associated with exiting business activities.





Within
      the Electronics reportable segment, the Company incurred restructuring charges
      of approximately $0.1 that were general and administrative in nature during
      the
      nine months ended September 30, 2007. There were no such charges incurred within
      the Control Devices reportable segment for the nine months ended September
      30,
      2007.





Restructuring
      related expenses, general and administrative in nature, for the first nine
      months of 2007 were due to severance costs related to the rationalization of
      certain manufacturing facilities in North America that were previously announced
      in 2005. These restructuring initiatives were completed in 2007.





*Equity
      in Earnings of Investees.* The
      increase in equity earnings of investees was predominately attributable to
      the
      increase in equity earnings recognized from our PST joint venture. The increase
      primarily reflects higher volume for PST’s security product lines and favorable
      exchange rates.





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




**Nine
                Months Ended****September
                30,**
            
            **$ Increase /**
            
            **% Increase /****2008**
            
            **2007**
            
            **(Decrease)**
            
            **(Decrease)**Electronics
                income
            
            $
            32,976
            
            $
            9,146
            
            $
            23,830
            
            
            260.6
            %Control
                Devices income (loss)
            
            
            (5,432
            )
            
            13,601
            
            
            (19,033
            )
            
            (139.9)
            %Other
                corporate activities
            
            
            8,775
            
            
            6,348
            
            
            2,427
            
            
            38.2
            %Corporate
                interest expense, net
            
            
            (15,423
            )
            
            (16,671
            )
            
            1,248
            
            
            7.5
            %Income
                before income taxes
            
            $
            20,896
            
            $
            12,424
            
            $
            8,472
            
            
            68.2
            %





The
      increase in income before income taxes in the Electronics segment was related
      to
      increased revenue and favorable product mix. These factors were partially offset
      by higher restructuring related expenses and higher SG&A expenses due to
      increased development spending in the areas of instrumentation and
      wiring.





The
      decrease in income before income taxes in the Control Devices reportable segment
      was primarily due to lower revenue and increased restructuring related expenses.
      The decrease was partially offset by operating inefficiencies related to a
      new
      product launch in the first quarter of 2007.


27





Income
      before income taxes by geographic location for the nine months ended September
      30, 2008 and 2007 is summarized in the following table (in
      thousands):





**Nine
                Months Ended****September
                30,**
            
            **$ Increase /**
            
            **% Increase /****2008**
            
            **2007**
            
            **(Decrease)**
            
            **(Decrease)**North
                America
            
            $
            20,824
            
            
            99.7
            %
            $
            5,667
            
            
            45.6
            %
            $
            15,157
            
            
            267.5
            %Europe
                and other
            
            
            72
            
            
            0.3
            
            
            6,757
            
            
            54.4
            
            
            (6,685
            )
            
            (98.9)
            %Income
                before income taxes
            
            $
            20,896
            
            
            100.0
            %
            $
            12,424
            
            
            100.0
            %
            $
            8,472
            
            
            68.2
            %





The
      increase in our profitability in North America was primarily attributable to
      new
      business sales and additional sales volume to existing customers, primarily
      from
      electronic products. The increase was primarily offset by increased
      restructuring related expenses and lower North American automotive production.
      The decrease in profitability outside North America was primarily due to
      increased restructuring related and design and development expenses. The
      decrease was partially offset by increased European commercial vehicle
      production.





*Provision
      for Income Taxes.* We
      recognized a provision for income taxes of $10.0 million, or 48.0% of pre-tax
      income, and $2.2 million, or 18.0% of the pre-tax income, for federal, state
      and
      foreign income taxes for the nine months ended September 30, 2008 and 2007,
      respectively. The increase in the effective tax rate for the third quarter
      ended
      September 30, 2008 compared to the third quarter ended September 30, 2007,
      was
      primarily attributable to the costs incurred to restructure our United Kingdom
      operations. Since we do not believe that the related tax benefit of those losses
      will be realized, a valuation allowance was recorded against the deferred tax
      assets associated with those foreign losses. In addition, the effective tax
      rate
      was unfavorably impacted by the expiration of the federal research and
      development tax credit at December 31, 2007.





***Liquidity
      and Capital Resources***





*Summary
      of Cash Flows (in thousands):*





**Nine
                Months Ended****September
                30,**
            
            **$ Increase /****2008**
            
            **2007**
            
            **(Decrease)**Cash
                provided by (used for):Operating
                activities
            
            $
            30,668
            
            $
            7,909
            
            $
            22,759Investing
                activities
            
            
            (18,501
            )
            
            (9,217
            )
            
            (9,284
            )Financing
                activities
            
            
            (16,248
            )
            
            1,956
            
            
            (18,204
            )Effect
                of exchange rate changes on cash and cash equivalents
            
            
            (2,232
            )
            
            1,119
            
            
            (3,351
            )Net
                change in cash and cash equivalents
            
            $
            (6,313
            )
            $
            1,767
            
            $
            (8,080
            )





The
      increase in net cash provided by operating activities was primarily due to
      higher earnings and lower accounts receivable balances in the current year.
      The
      increase in cash provided by operating activities was partially offset by cash
      used for our restructuring initiatives, primarily to build inventory levels
      for
      line-transfers, which will decline as production transfers to our other
      facilities.





The
      increase in net cash used for investing activities reflects an increase in
      cash
      used for capital projects. In addition, 2007 net cash used for investing
      activities includes the proceeds from the sale of two facilities.





The
      increase in net cash used by financing activities was primarily due to cash
      used
      to purchase and retire $17.0 million in par value of the Company’s senior notes
      during 2008.





Our
      consolidated cash and cash equivalents were $89.6 million as of September 30,
      2008. Approximately $62.9 million of our cash and cash equivalents were in
      North
      America; the majority of which was invested in U.S. Government guaranteed
      funds.





Future
      capital expenditures are expected to be consistent with recent levels.
      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 credit facilities will provide sufficient liquidity to meet
      our
      future growth and operating needs.


28





As
      outlined in Note 6 to our condensed consolidated financial statements, on
      November 2, 2007, we finalized our new asset-based credit facility, which
      permits borrowing up to a maximum level of $100.0 million. This facility
      provides us with lower borrowing rates and allows us the flexibility to
      refinance our outstanding debt. At September 30, 2008, there were no borrowings
      on this asset-based credit facility. At September 30, 2008, the Company had
      borrowing capacity of $67.8 million based on eligible current assets, as defined
      by the credit agreement. As of June 30, 2008 our borrowing capacity was $90.0
      million. The decrease in borrowing capacity was due primarily to lower accounts
      receivable balances. The Company was in compliance with all covenants at
      September 30, 2008.





As
      of
      September 30, 2008, the Company’s $183.0 million of senior notes were redeemable
      at 103.833 percent of the principal amount. Given the Company’s senior notes are
      redeemable, we may seek to retire the senior notes through redemptions, cash
      purchases, open market purchases, privately negotiated transactions or
      otherwise. Such redemptions, purchases or exchanges, if any, will depend on
      prevailing market conditions, our liquidity requirements, contractual
      restrictions and other factors. The amounts involved may be material. During
      2008, we purchased and retired $17.0 million in face value of the Company’s
      senior notes.





We
      announced restructuring initiatives in the fourth quarter of 2007 and expect
      them to be substantially complete by December 31, 2008. We anticipate incurring
      total pre-tax charges of approximately $13.0 million to $15.0 million in 2008
      for the restructuring.





There
      have been no material changes to the table of contractual obligations as
      disclosed in the Company’s 2007 Form 10-K.





***Critical
      Accounting Policies and Estimates***





The
      Company’s significant accounting policies, which include management’s best
      estimates and judgments, are included in Item 7, Part II to the consolidated
      financial statements of the Company’s 2007 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 2007 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, 2007.





***Inflation
      and International Presence***





Given
      the
      current economic climate and recent increases in certain commodity prices,
      we
      believe that a continuation of such price increases would significantly affect
      our profitability. Furthermore, by operating internationally, we are affected
      by
      the economic conditions of certain countries.





***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,” “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 automotive, medium- and heavy-duty, 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;


29





·
            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 2007
                Form 10-K.





**Item
      3.** **Quantitative
      and Qualitative Disclosures About Market Risk** **.**





***Interest
      Rate Risk***





From
      time
      to time, we are exposed to certain market risks, primarily resulting from the
      effects of changes in interest rates. At September 30, 2008, however, all of
      our
      debt was fixed rate debt. At this time, we do not intend to use financial
      instruments to manage this risk.





***Commodity
      Price Risk***





Given
      the
      current economic climate and the recent increases in certain commodity costs,
      we
      presently are experiencing an increased risk, particularly with respect to
      the
      purchase of copper, zinc, resins and certain other commodities. We manage this
      risk through a combination of fixed price agreements, staggered short-term
      contract maturities and commercial negotiations with our suppliers. We may
      also
      consider pursuing alternative commodities or alternative suppliers to mitigate
      this risk over a period of time. The recent increases in certain commodity
      costs
      have negatively affected our operating results, and a continuation of such
      price
      increases could significantly affect our profitability.





In
      December 2007, we entered into a fixed price swap contract for 1.0 million
      pounds of copper, which will last through December 2008. In September 2008,
      we
      entered into a fixed price swap contract for 1.4 million pounds of copper,
      which
      will last from January 2009 to December 2009. The purpose of these contracts
      is
      to reduce our price risk as it relates to copper prices.





Going
      forward, we believe that our mitigation efforts will offset a substantial
      portion of the financial impact of these increased costs. However, no assurances
      can be given that the magnitude or duration of these increased costs will not
      have a material impact on our future operating results. A hypothetical pre-tax
      gain or loss in fair value from a 10.0% favorable or adverse change in commodity
      prices would not significantly affect our results of operations, financial
      position or cash flows.





***Foreign
      Currency Exchange Risk***





We
      have
      currency exposures related to buying, selling and financing in currencies other
      than the local currency in which we operate. In some instances, we choose to
      reduce our exposures through financial instruments that provide offsets or
      limits to our exposures. Currently, our most significant currency exposures
      relate to the British pound. We have used derivative financial instruments,
      including foreign currency forward and option contracts, to mitigate our
      exposure to fluctuations in foreign currency exchange rates by reducing the
      effect of such fluctuations on foreign currency denominated intercompany
      transactions and other known foreign currency exposures.





As
      discussed in Note 3 to our condensed consolidated financial statements, we
      have
      entered into foreign currency forward contracts related to our British pound
      exposures. The existing foreign currency forward contracts at September 30,
      2008
      and December 31, 2007 had a notional value of $8,239 and $8,551, respectively.
      The estimated net fair value of these contracts at September 30, 2008 and
      December 31, 2007, per quoted market sources, was approximately $760 and $(28),
      respectively.





We
      do not
      expect the effects of this risk to be material in the future based on the
      current operating and economic conditions in the countries in which we operate.
      A hypothetical pre-tax gain or loss in fair value from a 10.0% favorable or
      adverse change in quoted foreign currencies would not significantly affect
      our
      results of operations, financial position or cash flows.


30





**Item
      4. Controls and Procedures.**





***Evaluation
      of Disclosure Controls and Procedures***




As
      of
      September 30, 2008, an evaluation was performed under the supervision and with
      the participation of the Company’s management, including the chief executive
      officer (CEO) and chief financial officer (CFO), of the effectiveness of the
      design and operation of the Company’s disclosure controls and procedures. Based
      on that evaluation, the Company’s management, including the CEO and CFO,
      concluded that the Company’s disclosure controls and procedures were effective
      as of September 30, 2008.





***Changes
      in Internal Control Over Financial Reporting***





There
      were no changes in the Company’s internal control over financial reporting
      during the nine months ended September 30, 2008 that materially affected, or
      are
      reasonably likely to materially affect, the Company’s internal control over
      financial reporting.





31


**PART
      II–OTHER INFORMATION**





**Item
      1. Legal Proceedings.**





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





**Item
      1A. Risk Factors.**





There
      were no material changes from risk factors previously disclosed in the Company’s
      Annual Report on Form 10-K for the fiscal year ended December 31,
      2007.





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





None.





**Item
      3. Defaults Upon Senior Securities.**





None.





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





None.





**Item
      5. Other Information.**





None.





**Item
      6. Exhibits.**





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


32


**SIGNATURES**





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





STONERIDGE,
                INC.Date:
                November 7, 2008
            /s/
                John C. CoreyJohn
                C. Corey
              *President
                and Chief Executive Officer*(Principal
                Executive Officer)Date:
                November 7, 2008
            /s/
                George E. StricklerGeorge
                E. Strickler*Executive
                Vice President, Chief Financial Officer and
                Treasurer*(Principal
                Financial and Accounting
                Officer)


33





**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.


34