UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





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





For
the fiscal year ended December 31, 2009





OR





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





For
the transition period from ________to ________





Commission
file number: 001-13337





STONERIDGE,
INC.


(Exact
name of registrant as specified in its charter)





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





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





(330)
856-2443


Registrant’s
telephone number, including area code





Securities
registered pursuant to Section 12(b) of the Act:





Title of each
      class
            Name of each exchange
      on which registeredCommon
      Shares, without par value
            New
      York Stock Exchange





Securities
registered pursuant to section 12(g) of the Act:


None





Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.


o Yes x No





Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act.


o Yes x No





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


x Yes o No





Indicate by check mark whether
the registrant has submitted electronically and posted on its corporate Website,
if any every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files).


o Yes o No





Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form
10-K.


o





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 filer o
              Accelerated
      filer x
              Non-accelerated
      filer o
              Smaller
      reporting company o(Do
      not check if a smaller reporting company)


Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the
Act).


o Yes x No





As of
June 30, 2009, the aggregate market value of the registrant’s Common Shares,
without par value, held by non-affiliates of the registrant was approximately
$72.1 million.  The closing price of the Common Shares on June 30,
2009 as reported on the New York Stock Exchange was $4.80 per
share.  As of June 30, 2009, the number of Common Shares outstanding
was 25,175,801.





The
number of Common Shares, without par value, outstanding as of February 19, 2010
was 25,968,765.





DOCUMENTS
INCORPORATED BY REFERENCE





Definitive
Proxy Statement for the Annual Meeting of Shareholders to be held on May 17,
2010, into Part III, Items 10, 11, 12, 13 and 14.










STONERIDGE,
INC. AND SUBSIDIARIES





INDEXPage No.PART
      IItem
      1.
            Business
            1Item
      1A.
            Risk
      Factors
            7Item
      1B.
            Unresolved
      Staff Comments
            10Item
      2.
            Properties
            11Item
      3.
            Legal
      Proceedings
            12Item
      4.
            (Removed
      and Reserved)
            12PART
      IIItem
      5.
            Market
      for Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
            13Item
      6.
            Selected
      Financial Data
            15Item
      7.
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
            16Item
      7A.
            Quantitative
      and Qualitative Disclosures About Market Risk
            32Item
      8.
            Financial
      Statements and Supplementary Data
            33Item
      9.
            Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
            75Item
      9A.
            Controls
      and Procedures
            75Item
      9B.
            Other
      Information
            77PART
      IIIItem
      10.
            Directors,
      Executive Officers and Corporate Governance
            77Item
      11.
            Executive
      Compensation
            77Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            77Item
      13.
            Certain
      Relationships and Related Transactions, and Director
      Independence
            78Item
      14.
            Principal
      Accounting Fees and Services
            78PART
      IVItem
      15.
            Exhibits,
      Financial Statement
      Schedules
            78Signatures
            79










PART
I





Item
1.  Business.





Overview





Founded
in 1965, Stoneridge, Inc. (the “Company”) is an independent designer and
manufacturer of highly engineered electrical and electronic components, modules
and systems for the medium- and heavy-duty truck, automotive, agricultural and
off-highway vehicle markets.  Our custom-engineered products are
predominantly sold on a sole-source basis and consist of application-specific
control devices, sensors, vehicle management electronics and power and signal
distribution systems.  These products comprise the elements of every
vehicle’s electrical system, and individually interface with a vehicle’s
mechanical and electrical systems to (i) activate equipment and accessories,
(ii) display and monitor vehicle performance and (iii) control and distribute
electrical power and signals.  Our products improve the performance,
safety, convenience and environmental monitoring capabilities of our customers’
vehicles.  As such, the growth in many of the product areas in which
we compete is driven by the increasing consumer desire for safety, security and
convenience.  This is coupled with the need for original equipment
manufacturers (“OEM”) to meet safety requirements in addition to the general
trend of increased electrical and electronic content per vehicle.  Our
technology and our partnership-oriented approach to product design and
development enables us to develop next-generation products and to excel in the
transition from mechanical-based components and systems to electrical and
electronic components, modules and systems.





Products





We
conduct our business in 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 core products of the Electronics
reportable segment include vehicle electrical power and distribution systems and
electronic instrumentation and information display products. The core products
of the Control Devices reportable segment include electronic and electrical
switch products, control actuation devices and sensors.  We design and
manufacture the following vehicle products:





Electronics. 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.  These products collect, store and display vehicle
information such as speed, pressure, maintenance data, trip information,
operator performance, temperature, distance traveled and driver messages related
to vehicle performance.  In addition, power distribution systems
regulate, coordinate and direct the operation of the entire electrical system
within a vehicle compartment.  These products use state-of-the-art
hardware, software and multiplexing technology and are sold principally to the
medium- and heavy-duty truck, agricultural and off-highway vehicle
markets.





Control Devices.The Control
Devices reportable segment produces products that monitor, measure or activate a
specific function within the vehicle.  Product lines included within
the Control Devices segment are sensors, switches, actuators, as well as other
electronic products.  Sensor products are employed in most major
vehicle systems, including the emissions, safety, powertrain, braking, climate
control, steering and suspension systems.  Switches transmit a signal
that activates specific functions.  Hidden switches are not typically
seen by vehicle passengers, but are used to activate or deactivate selected
functions.  Customer activated switches are used by a vehicle's
operator or passengers to manually activate headlights, rear defrosters and
other accessories.  In addition, the Control Devices segment designs
and manufactures electromechanical actuator products that enable users to deploy
power functions in a vehicle and can be designed to integrate switching and
control functions.  We sell these products principally to the
automotive market.




1




The
following table presents net sales by reportable segment, as a percentage of
total net sales:





For
      the Years EndedDecember
      31,2009
            
            
            2008
            
            
            2007Electronics
            
            
            63
            %
            
            
            69
            %
            
            
            61
            %Control
      Devices
            
            
            37
            
            
            
            31
            
            
            
            39Total
            
            
            100
            %
            
            
            100
            %
            
            
            100
            %





For
further information related to our reportable segments and financial information
about geographic areas, see Note 12, “Segment Reporting,” to the consolidated
financial statements included in this report.





Production
Materials





The
principal production materials used in the manufacturing process for both
reportable segments include: copper wire, zinc, cable, resins, plastics, printed
circuit boards, and certain electrical components such as microprocessors,
memory devices, resistors, capacitors, fuses, relays and
connectors.  We purchase such materials pursuant to both annual
contract and spot purchasing methods.  Such materials are available
from multiple sources, but we generally establish collaborative relationships
with a qualified supplier for each of our key production materials in order to
lower costs and enhance service and quality.  As demand for our
production materials increases as a result of a recovering economy, we may have
difficulties obtaining adequate production materials from our suppliers to
satisfy our customers.  Any extended period of time, which we cannot
obtain adequate production material or which we experience an increase in the
price of the production material could materially affect our results of
operations and financial condition.





Patents
and Intellectual Property





Both of
our reportable segments maintain and have pending various U.S. and foreign
patents and other rights to intellectual property relating to our business,
which we believe are appropriate to protect the Company's interests in existing
products, new inventions, manufacturing processes and product developments. We
do not believe any single patent is material to our business, nor would the
expiration or invalidity of any patent have a material adverse effect on our
business or ability to compete. We are not currently engaged in any material
infringement litigation, nor are there any material infringement claims pending
by or against the Company.





Industry
Cyclicality and Seasonality





The
markets for products in both of our reportable segments have historically been
cyclical. Because these products are used principally in the production of
vehicles for the medium- and heavy-duty truck, automotive, agricultural and
off-highway vehicle markets, sales, and therefore results of operations, are
significantly dependent on the general state of the economy and other factors,
like the impact of environmental regulations on our customers, which affect
these markets. A decline in medium- and heavy-duty truck, automotive,
agricultural and off-highway vehicle production of our principal customers could
adversely impact the Company.  Approximately 67%, 70% and 60% of our
net sales in 2009, 2008 and 2007, respectively, were derived from the medium-
and heavy-duty truck, agricultural and off-highway vehicle
markets.  Approximately 33%, 30% and 40% of our net sales in 2009,
2008 and 2007, respectively, were made to the automotive market.


2




Customers
 
 We are
dependent on several customers for a significant percentage of our sales. The
loss of any significant portion of our sales to these customers or the loss of a
significant customer would have a material adverse impact on the financial
condition and results of operations of the Company.  We supply
numerous different parts to each of our principal
customers.  Contracts with several of our customers provide for
supplying their requirements for a particular model, rather than for
manufacturing a specific quantity of products. Such contracts range from one
year to the life of the model, which is generally three to seven years.
Therefore, the loss of a contract for a major model or a significant decrease in
demand for certain key models or group of related models sold by any of our
major customers could have a material adverse impact on the Company. We may also
enter into contracts to supply parts, the introduction of which may then be
delayed or not used at all.  We also compete to supply products for
successor models and are therefore subject to the risk that the customer will
not select the Company to produce products on any such model, which could have a
material adverse impact on the financial condition and results of operations of
the Company.  In addition, we sell products to other customers that
are ultimately sold to our principal customers.
 
 The
following table presents the Company’s principal customers, as a percentage of
net sales:
 
 For
      the Years EndedDecember
      31,2009
              
              
              2008
              
              
              2007Navistar
      International
              
              
              27
              %
              
              
              26
              %
              
              
              20
              %Deere
      & Company
              
              
              12
              
              
              
              10
              
              
              
              7Ford
      Motor Company
              
              
              9
              
              
              
              6
              
              
              
              8General
      Motors
              
              
              5
              
              
              
              4
              
              
              
              6Chrysler
      LLC
              
              
              4
              
              
              
              6
              
              
              
              5MAN
      AG
              
              
              3
              
              
              
              4
              
              
              
              6Other
              
              
              40
              
              
              
              44
              
              
              
              48Total
              
              
              100
              %
              
              
              100
              %
              
              
              100
              %
 
 Backlog
 
 Our
products are produced from readily available materials and have a relatively
short manufacturing cycle; therefore our products are not on backlog
status.  Each of our production facilities maintains its own
inventories and production schedules.  Production capacity is adequate
to handle current requirements and can be expanded to handle increased growth if
needed.
 
 Competition
 
 Markets
for our products in both reportable segments are highly
competitive.  The principal methods of competition are technological
innovation, price, quality, service and timely delivery.  We compete
for new business both at the beginning of the development of new models and upon
the redesign of existing models.  New model development generally
begins two to five years before the marketing of such models to the
public.  Once a supplier has been selected to provide parts for a new
program, an OEM customer will usually continue to purchase those parts from the
selected supplier for the life of the program, although not necessarily for any
model redesigns.
 
 Our
diversity in products creates a wide range of competitors, which vary depending
on both market and geographic location.  We compete based on strong
customer relations and a fast and flexible organization that develops
technically effective solutions at or below target price.  We compete
against the following primary competitors:
 
 Electronics.Our
primary competitors include Actia Automotive, AEES Platinum Equity Bosch,
Continental AG, Delphi, Leoni, Nexans and Yazaki.
 
 Control
Devices.Our primary competitors include BEI Duncan
Electronics, Bosch, Continental AG, Delphi, Denso, Hella, Methode Electronics
and TRW.
  3
  Product
Development
 
 Our
research and development efforts for both reportable segments are largely
product design and development oriented and consist primarily of applying known
technologies to customer generated problems and situations.  We work
closely with our customers to creatively solve problems using innovative
approaches.  The majority of our development expenses are related to
customer-sponsored programs where we are involved in designing custom-engineered
solutions for specific applications or for next generation
technology.  To further our vehicles platform penetration, we have
also developed collaborative relationships with the design and engineering
departments of key customers.  These collaborative efforts have
resulted in the development of new and complimentary products and the
enhancement of existing products.
 
 Development
work at the Company is largely performed on a decentralized basis.  We
have engineering and product development departments located at a majority of
our manufacturing facilities.  To ensure knowledge sharing among
decentralized development efforts, we have instituted a number of mechanisms and
practices whereby innovation and best practices are shared.  The
decentralized product development operations are complimented by larger
technology groups in Canton, Massachusetts, Lexington, Ohio and Stockholm,
Sweden.
 
 We use
efficient and quality oriented work processes to address our customers’ high
standards.  Our product development technical resources include a full
complement of computer-aided design and engineering (“CAD/CAE”) software
systems, including (i) virtual three-dimensional modeling, (ii) functional
simulation and analysis capabilities and (iii) data links for rapid
prototyping.  These CAD/CAE systems enable the Company to expedite
product design and the manufacturing process to shorten the development time and
ultimately time to market.
 
 We have
further strengthened our electrical engineering competencies through investment
in equipment such as (i) automotive electro-magnetic compliance test chambers,
(ii) programmable automotive and commercial vehicle transient generators, (iii)
circuit simulators and (iv) other environmental test
equipment.  Additional investment in product machining equipment has
allowed us to fabricate new product samples in a fraction of the time required
historically.  Our product development and validation efforts are
supported by full service, on-site test labs at most manufacturing facilities,
thus enabling cross-functional engineering teams to optimize the product,
process and system performance before tooling initiation.
 
 We have
invested, and will continue to invest in technology to develop new products for
our customers.  Product development costs incurred in connection with
the development of new products and manufacturing methods, to the extent not
recoverable from the customer, are charged to selling, general and
administrative expenses, as incurred.  Such costs amounted to
approximately $33.0 million, $45.5 million and $45.2 million for 2009, 2008 and
2007, respectively, or 6.9%, 6.0% and 6.2% of net sales for these
periods.
 
 We will
continue shifting our investment spending toward the design and development of
new products rather than focusing on sustaining existing product programs for
specific customers.  The typical product development process takes
three to five years to show tangible results.  As part of our effort
to shift our investment spending, we reviewed our current product portfolio and
adjusted our spending to either accelerate or eliminate our investment in these
products, based on our position in the market and the potential of the market
and product.
 
 Environmental
and Other Regulations
 
 Our
operations are subject to various federal, state, local and foreign laws and
regulations governing, among other things, emissions to air, discharge to water
and the generation, handling, storage, transportation, treatment and disposal of
waste and other materials. We believe that our business, operations and
facilities have been and are being operated in compliance, in all material
respects, with applicable environmental and health and safety laws and
regulations, many of which provide for substantial fines and criminal sanctions
for violations.
 
 Employees
 
 As of
December 31, 2009, we had approximately 5,200 employees, approximately 1,500 of
whom were salaried and the balance of whom were paid on an hourly
basis.  Except for certain employees located in Mexico, Sweden, and
the United Kingdom, our employees are not represented by a union. Our unionized
workers are not covered by collective bargaining agreements.  We
believe that relations with our employees are good.
  4
 
 Joint
Ventures
 
 We form
joint ventures in order to achieve several strategic objectives including
gaining access to new markets, exchanging technology and intellectual capital,
broadening our customer base and expanding our product
offerings.  Specifically we have formed joint ventures in Brazil, PST
Eletrônica S.A. (“PST”) and India, Minda Stoneridge Instruments Ltd. (“Minda”)
and continue to explore similar business opportunities in other global
markets.  We have a 50% interest in PST and a 49% interest in
Minda.  We entered into our PST joint venture in October 1997 and our
Minda joint venture in August 2004.  Each of these investments is
accounted for using the equity method of accounting.
 
 Our joint
ventures have contributed positively to our financial results in 2009, 2008 and
2007.  Equity earnings by joint venture for the years ended December
31, 2009, 2008 and 2007 are summarized in the following table (in
thousands):
 
 For
      the Years EndedDecember
      31,2009
              
              
              2008
              
              
              2007PST
              
              $
              7,385
              
              
              $
              12,788
              
              
              $
              10,351Minda
              
              
              390
              
              
              
              702
              
              
              
              542Total
      equity earnings of investees
              
              $
              7,775
              
              
              $
              13,490
              
              
              $
              10,893
 
 In
Brazil, our PST joint venture, which is an electronic system provider
focused on security and convenience applications primarily for the vehicle and
motorcycle industry, generated net sales of $140.7 million, $174.3
million and $133.0 million in 2009, 2008 and 2007, respectively.  We
received dividend payments of $7.3 million, $4.2 million and $5.6 million from
PST in 2009, 2008 and 2007, respectively.
 
 Executive
Officers of the Company
 
 Each
executive officer of the Company is appointed by the Board of Directors, serves
at its pleasure and holds office until a successor is appointed, or until the
earlier of death, resignation or removal.  The Board of Directors
generally appoints executive officers annually.  The executive
officers of the Company are as follows:
 
 Name
              
              Age
              
              PositionJohn
      C. Corey
              
              62
              
              President,
      Chief Executive Officer and DirectorGeorge
      E. Strickler
              
              62
              
              Executive
      Vice President, Chief Financial Officer and TreasurerThomas
      A. Beaver
              
              56
              
              Vice
      President of the Company and Vice President of Global Sales and Systems
      EngineeringMark
      J. Tervalon
                Michael
      D. Sloan
              
              43
                53
              
              Vice
      President of the Company and President of the Stoneridge Electronics
      Division
                Vice
      President of the Company and President of the Control Devices
      Division
 
 John C. Corey,
President, Chief Executive Officer and Director.Mr. Corey has served as
President and Chief Executive Officer since being appointed by the Board of
Directors in January 2006.  Mr. Corey has served as a Director on the
Board of Directors since January 2004.  Prior to his employment with
the Company, Mr. Corey served from October 2000, as President and Chief
Executive Officer and Director of Safety Components International, a supplier of
airbags and components, with worldwide operations.   Mr. Corey
has served as a director and Chairman of the Board of Haynes International,
Inc., a producer of metal alloys since 2004.
 
 George E.
Strickler, Executive Vice President, Chief Financial Officer and
Treasurer.Mr. Strickler has
served as Executive Vice President and Chief Financial Officer since joining the
Company in January of 2006.  Mr. Strickler was appointed Treasurer of
the Company in February 2007.  Prior to his employment with the
Company, Mr. Strickler served as Executive Vice President and Chief Financial
Officer for Republic Engineered Products, Inc. (“Republic”), from February 2004
to January of 2006.  Before joining Republic, Mr. Strickler was
BorgWarner Inc.’s Executive Vice President and Chief Financial Officer from
February 2001 to November 2003.
  5
  Thomas A. Beaver,
Vice President of the Company and Vice President of Global Sales and Systems
Engineering.Mr. Beaverhas served as Vice
President of the Company and Vice President of Global Sales and Systems
Engineering since January of 2005.  Prior to that, Mr. Beaver served
as Vice President of Stoneridge Sales and Marketing from January 2000 to January
2005.
 
 Mark J. Tervalon,
Vice President of the Company and President of the Stoneridge Electronics
Division.Mr. Tervalon has served as President of the
Stoneridge Electronics Division and Vice President of the Company since August
of 2006.  Prior to that, Mr. Tervalon served as Vice President and
General Manager of the Electronic Products Division from May 2002 to December
2003 when he became Vice President and General Manager of the Stoneridge
Electronics Group until August 2006.
 
 Michael D. Sloan,
Vice President of the Company and President of the Control Devices
Division.  Mr. Sloan has served as President of the Control
Devices Division since July of 2009 and Vice President of the Company since
December of 2009.  Prior to that, Mr. Sloan served as Vice President
and General Manager of Stoneridge Hi-Stat from February 2004 to July
2009.
 
 Available
Information
 
 We make
available, free of charge through our website (www.stoneridge.com), our Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K, all amendments to those reports, and other filings with the U.S. Securities
and Exchange Commission (“SEC”), as soon as reasonably practicable after they
are filed with the SEC.  Our Corporate Governance Guidelines, Code of
Business Conduct and Ethics, Code of Ethics for Senior Financial Officers,
Whistleblower Policy and Procedures and the charters of the Board’s Audit,
Compensation and Nominating and Corporate Governance Committees are posted on
our website as well.  Copies of these documents will be available to
any shareholder upon request.  Requests should be directed in writing
to Investor Relations at 9400 East Market Street, Warren, Ohio
44484.
 
 The
public may read and copy any materials we file with the SEC at the SEC’s Public
Reference Room at 100 F. Street, NE, Washington, DC 20549.  The public
may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330.  The SEC maintains a website (www.sec.gov)
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC, including the
Company.
  6
  Item
1A.  Risk Factors.
 
 Set forth
below are some of the principal risks and uncertainties that could cause our
actual business results to differ materially from any forward-looking statements
contained in this Annual Report. In addition, future results could be materially
affected by general industry and market conditions, changes in laws or
accounting rules, general U.S. and non-U.S. economic and political conditions,
including a global economic slow-down, fluctuation of interest rates or currency
exchange rates, terrorism, political unrest or international conflicts,
political instability or major health concerns, natural disasters, commodity
prices or other disruptions of expected economic and business conditions. These
risk factors should be considered in addition to our cautionary comments
concerning forward-looking statements in this Annual Report, including
statements related to markets for our products and trends in our business that
involve a number of risks and uncertainties. Our separate section to follow,
"Forward-Looking Statements," on page 31 should be considered in addition
to the following statements.
 
 Our
business is cyclical and seasonal in nature and downturns in the medium- and
heavy-duty truck, automotive, agricultural and off-highway vehicle markets could
reduce the sales and profitability of our business.
  The
demand for our products is largely dependent on the domestic and foreign
production of medium- and heavy-duty trucks, automotive, agricultural and
off-highway vehicles.  The markets for our products have historically
been cyclical, because new vehicle demand is dependent on, among other things,
consumer spending and is tied closely to the overall strength of the economy.
Because our products are used principally in the production of vehicles for the
medium- and heavy-duty truck, automotive, agricultural and off-highway vehicle
markets, our net sales, and therefore our results of operations, are
significantly dependent on the general state of the economy and other factors
which affect these markets.  A decline in medium- and heavy-duty
truck, automotive, agricultural and off-highway vehicle production could
adversely impact our results of operations and financial condition. In 2009,
approximately 67% of our net sales were derived from the medium- and heavy-duty
truck, agricultural and off-highway vehicle markets and approximately 33% were
made to the automotive market.  Seasonality experienced by the
automotive industry also impacts our operations.
 
 We
may not realize sales represented by awarded business.
 
 We base
our growth projections, in part, on commitments made by our
customers.  These commitments generally renewannually during a
program life cycle.  If actual production orders from our customers do
not approximate such commitments, it could adversely affect our business.
 
 The
prices that we can charge some of our customers are predetermined and we bear
the risk of costs in excess of our estimates.
  Our
supply agreements with some of our customers require us to provide our products
at predetermined prices.  In some cases, these prices decline over the
course of the contract and may require us to meet certain productivity and cost
reduction targets.  In addition, our customers may require us to share
productivity savings in excess of our cost reduction targets.  The
costs that we incur in fulfilling these contracts may vary substantially from
our initial estimates.  Unanticipated cost increases or the inability
to meet certain cost reduction targets may occur as a result of several factors,
including increases in the costs of labor, components or
materials.  In some cases, we are permitted to pass on to our
customers the cost increases associated with specific materials. Cost overruns
that we cannot pass on to our customers could adversely affect our business,
results of operations and financial condition.
 
 We
are dependent on the availability and price of raw materials.
  We
require substantial amounts of raw materials and substantially all raw materials
we require are purchased from outside sources.  The availability and
prices of raw materials may be subject to curtailment or change due to, among
other things, new laws or regulations, suppliers’ allocations to other
purchasers, interruptions in production by suppliers, changes in exchange rates
and worldwide price levels. As demand for our raw materials increases as a
result of a recovering economy, we may have difficulties obtaining adequate raw
materials from our suppliers to satisfy our customers.  Any extended
period of time, which we cannot obtain adequate raw material or which we
experience an increase in the price of the raw material could materially affect
our results of operations and financial condition.
  7
  The
loss or insolvency of any of our major customers would adversely affect our
future results.
  We are
dependent on several principal customers for a significant percentage of our net
sales.  In 2009, our top three principal customers were Navistar
International, Deere & Company and Ford Motor Company, which comprised 27%,
12% and 9% of our net sales respectively.  In 2009, our top ten
customers accounted for 69% of our net sales.  The loss of any
significant portion of our sales to these customers or any other customers would
have a material adverse impact on our results of operations and financial
condition.  The contracts we have entered into with many of our
customers provide for supplying the customers’ requirements for a particular
model, rather than for manufacturing a specific quantity of products. Such
contracts range from one year to the life of the model, which is generally three
to seven years.  These contracts are subject to renegotiation, which
may affect product pricing and generally may be terminated by our customers at
any time.  Therefore, the loss of a contract for a major model or a
significant decrease in demand for certain key models or group of related models
sold by any of our major customers could have a material adverse impact on our
results of operations and financial condition by reducing cash flows and our
ability to spread costs over a larger revenue base. We also compete to supply
products for successor models and are subject to the risk that the customer will
not select us to produce products on any such model, which could have a material
adverse impact on our results of operations and financial
condition.  In addition, we have significant receivable balances
related to these customers and other major customers that would be at risk in
the event of their bankruptcy.
  Consolidation
among vehicle parts customers and suppliers could make it more difficult for us
to compete favorably.
  The
vehicle part supply industry has undergone a significant consolidation as OEM
customers have sought to lower costs, improve quality and increasingly purchase
complete systems and modules rather than separate components. As a result of the
cost focus of these major customers, we have been, and expect to continue to be,
required to reduce prices. Because of these competitive pressures, we cannot
assure you that we will be able to increase or maintain gross margins on product
sales to our customers.  The trend toward consolidation among vehicle
parts suppliers is resulting in fewer, larger suppliers who benefit from
purchasing and distribution economies of scale.  If we cannot achieve
cost savings and operational improvements sufficient to allow us to compete
favorably in the future with these larger, consolidated companies, our results
of operations and financial condition could be adversely affected.
 
 Adverse
effects from the bankruptcy emergence of significant
competitors.
 
 Recently,
a few of our significant competitors filed and emerged from bankruptcy
protection.  The bankruptcy of these competitors has allowed them to
eliminate or substantially reduce contractual obligations, including significant
amounts of debt and avoid liabilities.  The elimination or reduction
of these obligations has made these competitors stronger financially, which
could have an adverse effect on our competitive position and results of
operations.
 
 Our
physical properties and information systems are subject to damage as a result of
disasters, outages or similar events.
  Our
offices and facilities, including those used for design and development,
material procurement, manufacturing, logistics and sales are located throughout
the world and are subject to possible destruction, temporary stoppage or
disruption as a result of any number of unexpected events.  If any of
these facilities or offices were to experience a significant loss as a result of
any of the above events, it could disrupt our operations, delay production,
shipments and revenue, and result in large expenses to repair or replace these
facilities or offices.
 
 In
addition, network and information system shutdowns caused by unforeseen events
such as power outages, disasters, hardware or software defects; computer viruses
and computer security breaks pose increasing risks.  Such an event
could also result in the disruption of our operations, delay production,
shipments and revenue, and result in large expenditures necessary to repair or
replace such network and information systems.
  8
 
 We
must implement and sustain a competitive technological advantage in producing
our products to compete effectively.
  Our
products are subject to changing technology, which could place us at a
competitive disadvantage relative to alternative products introduced by
competitors.  Our success will depend on our ability to continue to
meet customers’ changing specifications with respect to quality, service, price,
timely delivery and technological innovation by implementing and sustaining
competitive technological advances.  Our business may, therefore,
require significant ongoing and recurring additional capital expenditures and
investment in product development and manufacturing and management information
systems.  We cannot assure you that we will be able to achieve the
technological advances or introduce new products that may be necessary to remain
competitive.  Our inability to continuously improve existing products,
to develop new products and to achieve technological advances could have a
material adverse effect on our results of operations and financial
condition.
  We
may experience increased costs associated with labor unions that could adversely
affect our financial performance and results of operations.
  As of
December 31, 2009, we had approximately 5,200 employees, approximately 1,500 of
whom were salaried and the balance of whom were paid on an hourly basis. Certain
employees located in Mexico, Sweden, and the United Kingdom are represented by a
union but not collective bargaining agreements.  We cannot assure you
that our employees will not be covered by collective bargaining agreements in
the future or that any of our facilities will not experience a work stoppage or
other labor disruption.  Any prolonged labor disruption involving our
employees, employees of our customers, a large percentage of which are covered
by collective bargaining agreements, or employees of our suppliers could have a
material adverse impact on our results of operations and financial condition by
disrupting our ability to manufacture our products or the demand for our
products.
  Compliance
with environmental and other governmental regulations could be costly and
require us to make significant expenditures.
  Our
operations are subject to various federal, state, local and foreign laws and
regulations governing, among other things:
  ·
              the
      discharge of pollutants into the air and
water;
  ·
              the
      generation, handling, storage, transportation, treatment, and disposal of
      waste and other materials;
  ·
              the
      cleanup of contaminated properties;
and
  ·
              the
      health and safety of our employees.
  We
believe that our business, operations and facilities have been and are being
operated in compliance in all material respects with applicable environmental
and health and safety laws and regulations, many of which provide for
substantial fines and criminal sanctions for violations.  The
operation of our manufacturing facilities entails risks and we cannot assure you
that we will not incur material costs or liabilities in connection with these
operations.  In addition, potentially significant expenditures could
be required in order to comply with evolving environmental, health and safety
laws, regulations or requirements that may be adopted or imposed in the
future.
  We
may incur material product liability costs.
  We are
subject to the risk of exposure to product liability claims in the event that
the failure of any of our products results in personal injury or death and we
cannot assure you that we will not experience material product liability losses
in the future.  We maintain insurance against such product liability
claims, but we cannot assure you that such coverage will be adequate for
liabilities ultimately incurred or that it will continue to be available on
terms acceptable to us.  In addition, if any of our products prove to
be defective, we may be required to participate in government-imposed or
customer OEM-instituted recalls involving such products.  A successful
claim brought against us that exceeds available insurance coverage or a
requirement to participate in any product recall could have a material adverse
effect on our results of operations and financial condition.
  9
 
 Disruptions
in the financial markets are adversely impacting the availability and cost of
credit which could negatively affect our business.
 
 Our
senior notes with a face value of $183.0 million at December 31, 2009 mature on
May 1, 2012.  Our asset-based credit facility with a maximum borrowing
level of $100.0 million expires on November 1, 2011.  Collectively
these (“debt instruments”) will need to be refinanced prior to their respective
maturities.  Disruptions in the financial markets, including the
bankruptcy, insolvency or restructuring of certain financial institutions, and
the general lack of liquidity continue to adversely impact the availability and
cost of credit for many companies, including us.  We may be required
to refinance these debt instruments at terms and rates that are less favorable
than our current rates and terms, which could adversely affect our business,
results of operations and financial condition.
 
 We
are subject to risks related to our international operations.
  Approximately
19.1% of our net sales in 2009 were derived from sales outside of North America.
Non-current assets outside of North America accounted for approximately 8.1% of
our non-current assets as of December 31, 2009.  International sales
and operations are subject to significant risks, including, among
others:
  ·
              political
      and economic instability;
  ·
              restrictive
      trade policies;
  ·
              economic
      conditions in local markets;
  ·
              currency
      exchange controls;
  ·
              labor
      unrest;
  ·
              difficulty
      in obtaining distribution support and potentially adverse tax
      consequences; and
  ·
              the
      imposition of product tariffs and the burden of complying with a wide
      variety of international and U.S. export
laws.
  Additionally,
to the extent any portion of our net sales and expenses are denominated in
currencies other than the U.S. dollar, changes in exchange rates could have a
material adverse effect on our results of operations and financial condition.
 
 We
face risks through our equity investments in companies that we do not
control.
 
 Our
consolidated results of operations include significant equity earnings from
unconsolidated subsidiaries.  For the year ended December 31, 2009, we
recognized $7.8 million of equity earnings and received $7.3 million in cash
dividends from our unconsolidated subsidiaries.  Our equity
investments may not always perform at the levels we have seen in recent
years.
 
 Our
annual effective tax rate could be volatile and materially change as a result of
changes in mix of earnings and other factors.
 
 The
overall effective tax rate is equal to our total tax expense as a percentage of
our total earnings before tax.  However, tax expense and benefits are
not recognized on a global basis but rather on a jurisdictional or legal entity
basis.  Losses in certain jurisdictions provide no current financial
statement tax benefit.  As a result, changes in the mix of earnings
between jurisdictions, among other factors, could have a significant impact on
our overall effective tax rate.
 
 Item
1B.  Unresolved Staff Comments.
  None.
  10
  Item
2.  Properties.
 
 The
Company and its joint ventures currently own or lease 17 manufacturing
facilities that are in use, which together contain approximately 1.6 million
square feet of manufacturing space.  Of these manufacturing
facilities, 11 are used by our Electronics reportable segment, three are used by
our Control Devices reportable segment and three are owned by our joint venture
companies.  The following table provides information regarding our
facilities:
 
 Owned/
              
              
              
              SquareLocation
              
              Leased
              
              Use
              
              FootageElectronicsJuarez,
      Mexico
              
              Owned
              
              Manufacturing/Division
      Office
              
              183,854Portland,
      Indiana
              
              Owned
              
              Manufacturing
              
              182,000Chihuahua,
      Mexico
              
              Owned
              
              Manufacturing
              
              135,569Tallinn,
      Estonia
              
              Leased
              
              Manufacturing
              
              85,911Walled
      Lake, Michigan
              
              Leased
              
              Manufacturing/Division
      Office
              
              78,225Orebro,
      Sweden
              
              Leased
              
              Manufacturing
              
              77,472Mitcheldean,
      England
              
              Leased
              
              Manufacturing
      (Vacant)
              
              74,790Monclova,
      Mexico
              
              Leased
              
              Manufacturing
              
              68,436Chihuahua,
      Mexico
              
              Leased
              
              Manufacturing
              
              61,619El
      Paso, Texas
              
              Leased
              
              Warehouse
              
              50,000Chihuahua,
      Mexico
              
              Leased
              
              Manufacturing
              
              49,805Stockholm,
      Sweden
              
              Leased
              
              Engineering
      Office/Division Office
              
              37,714Dundee,
      Scotland
              
              Leased
              
              Manufacturing/Sales
      Office/Engineering Office
              
              32,753Portland,
      Indiana
              
              Leased
              
              Warehouse
              
              25,000Warren,
      Ohio
              
              Leased
              
              Engineering
      Office/Division Office
              
              24,570Chihuahua,
      Mexico
              
              Leased
              
              Engineering
      Office/Manufacturing
              
              10,000Bayonne,
      France
              
              Leased
              
              Sales
      Office/Warehouse
              
              9,655Madrid,
      Spain
              
              Leased
              
              Sales
      Office/Warehouse
              
              1,560Rome,
      Italy
              
              Leased
              
              Sales
      Office
              
              1,216Control
      DevicesLexington,
      Ohio
              
              Owned
              
              Manufacturing/Division
      Office
              
              219,612Canton,
      Massachusetts
              
              Owned
              
              Manufacturing
              
              132,560Sarasota,
      Florida
              
              Owned
              
              Manufacturing
      (Vacant)
              
              115,000Suzhou,
      China
              
              Leased
              
              Manufacturing/Warehouse/Division
      Office
              
              25,737Sarasota,
      Florida
              
              Owned
              
              Warehouse
      (Vacant)
              
              7,500Lexington,
      Ohio
              
              Leased
              
              Warehouse
              
              5,000Lexington,
      Ohio
              
              Leased
              
              Warehouse
              
              4,000CorporateNovi,
      Michigan
              
              Leased
              
              Sales
      Office/Engineering Office
              
              9,400Warren,
      Ohio
              
              Owned
              
              Headquarters
              
              7,500Stuttgart,
      Germany
              
              Leased
              
              Sales
      Office/Engineering Office
              
              1,000Seoul,
      South Korea
              
              Leased
              
              Sales
      Office
              
              330Shanghai,
      China
              
              Leased
              
              Sales
      Office
              
              323Joint
      VenturesManaus,
      Brazil
              
              Owned
              
              Manufacturing
              
              102,247Pune,
      India
              
              Owned
              
              Manufacturing/Engineering
      Office/Sales Office
              
              80,000São
      Paulo, Brazil
              
              Owned
              
              Manufacturing/Engineering
      Office/Sales Office
              
              52,178Buenos
      Aires, Argentina
              
              Leased
              
              Sales
      Office
              
              3,551
  11
  Item
3.  Legal Proceedings.
 
 We are involved in certain legal
actions and claims arising in the ordinary course of
business.  However, we do not believe that any of the litigation in
which we are currently engaged, either individually or in the aggregate, will
have a material adverse effect on our business, consolidated financial position
or results of operations.  We are subject to the risk of exposure to
product liability claims in the event that the failure of any of our products
causes personal injury or death to users of our products and there can be no
assurance that we will not experience any material product liability losses in
the future.  We maintain insurance against such product liability
claims.  In addition, if any of our products prove to be defective, we
may be required to participate in a government-imposed or customer
OEM-instituted recall involving such products.
 
 Item
4.  (Removed and Reserved)
  12
  PART
II
 
 Item
5.  Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
 
 Our
shares are listed on the New York Stock Exchange (“NYSE”) under the symbol
“SRI.”  As of February 19, 2010, we had 25,968,765 Common Shares
without par value, issued and outstanding, which were owned by approximately 300
registered holders, including Common Shares held in the names of brokers and
banks (so-called “street name” holdings) who are record holders with
approximately 1,600 beneficial owners.
 
 The
Company has not historically paid or declared dividends, which are restricted
under both the senior notes and the asset-based credit facility, on our Common
Shares.  We may only pay cash dividends in the future if immediately
prior to and immediately after the payment is made, no event of default shall
have occurred and outstanding indebtedness under our asset-based credit facility
is not greater than or equal to $20.0 million before and after the payment of
the dividend.  We currently intend to retain earnings for
acquisitions, working capital, capital expenditures, general corporate purposes
and reduction in outstanding indebtedness.  Accordingly, we do not
expect to pay cash dividends in the foreseeable future.
 
 High and
low sales prices (as reported on the NYSE composite tape) for our Common Shares
for each quarter ended during 2009 and 2008 are as follows:
 
 Quarter
      Ended
              
              High
              
              
              Low2009
              
              March
      31
              
              $
              4.76
              
              
              $
              1.51June
      30
              
              $
              4.80
              
              
              $
              2.04September
      30
              
              $
              7.08
              
              
              $
              3.85December
      31
              
              $
              9.28
              
              
              $
              6.782008
              
              March
      31
              
              $
              14.15
              
              
              $
              6.97June
      30
              
              $
              17.98
              
              
              $
              13.04September
      30
              
              $
              19.06
              
              
              $
              11.25December
      31
              
              $
              10.32
              
              
              $
              2.42
  The
Company did not repurchase any Common Shares in 2009 or 2008.
 
  13
 
  Set forth
below is a line graph comparing the cumulative total return of a hypothetical
investment in our Common Shares with the cumulative total return of hypothetical
investments in the Hemscott Group–Industry Group 333 (Automotive Parts) Index
and the NYSE Market Index based on the respective market price of each
investment at December 31, 2004, 2005, 2006, 2007, 2008 and 2009 assuming in
each case an initial investment of $100 on December 31, 2004, and reinvestment
of dividends.
  
 
 2004
              
              
              2005
              
              
              2006
              
              
              2007
              
              
              2008
              
              
              2009Stoneridge,
      Inc
              
              $
              100
              
              
              $
              44
              
              
              $
              54
              
              
              $
              53
              
              
              $
              30
              
              
              $
              60Hemscott
      Group–Industry Group 333 Index
              
              $
              100
              
              
              $
              109
              
              
              $
              132
              
              
              $
              143
              
              
              $
              87
              
              
              $
              112NYSE
      Market Index
              
              $
              100
              
              
              $
              89
              
              
              $
              100
              
              
              $
              108
              
              
              $
              47
              
              
              $
              102
  For
information on “Related Stockholder Matters” required by Item 201(d) of
Regulation S-K, refer to Item 12 of this report.
  14
  Item
6.  Selected Financial Data.
 
 The
following table sets forth selected historical financial data and should be read
in conjunction with the consolidated financial statements and notes related
thereto and other financial information included elsewhere
herein.  The selected historical data was derived from our
consolidated financial statements.
 
 For
      the Years Ended December 31,2009
              
              
              2008
              
              
              2007
              
              
              2006
              
              
              2005Statement
      of Operations Data:
              
              (in
      thousands, except per share data)Net
      sales:Electronics
              
              $
              311,268
              
              
              $
              533,328
              
              
              $
              458,672
              
              
              $
              456,932
              
              
              $
              401,663Control
      Devices
              
              
              176,815
              
              
              
              236,038
              
              
              
              289,979
              
              
              
              271,943
              
              
              
              291,434Eliminations
              
              
              (12,931
              )
              
              
              (16,668
              )
              
              
              (21,531
              )
              
              
              (20,176
              )
              
              
              (21,513
              )Consolidated
              
              $
              475,152
              
              
              $
              752,698
              
              
              $
              727,120
              
              
              $
              708,699
              
              
              $
              671,584Gross
      profit
              
              $
              87,985
              
              
              $
              166,287
              
              
              $
              167,723
              
              
              $
              158,906
              
              
              $
              148,588Operating
      income (loss) (A)
              
              $
              (18,243
              )
              
              $
              (43,271
              )
              
              $
              34,799
              
              
              $
              35,063
              
              
              $
              23,303Equity
      in earnings of investees
              
              $
              7,775
              
              
              $
              13,490
              
              
              $
              10,893
              
              
              $
              7,125
              
              
              $
              4,052Income
      (loss) before income taxes(A)Electronics
              
              $
              (13,911
              )
              
              $
              38,713
              
              
              $
              20,692
              
              
              $
              20,882
              
              
              $
              (216
              )Control
      Devices
              
              
              (5,712
              )
              
              
              (78,858
              )
              
              
              15,825
              
              
              
              13,987
              
              
              
              19,429Corporate
      interest
              
              
              (21,782
              )
              
              
              (20,708
              )
              
              
              (21,969
              )
              
              
              (21,622
              )
              
              
              (22,994
              )Other
      corporate activities
              
              
              8,079
              
              
              
              10,078
              
              
              
              8,676
              
              
              
              6,392
              
              
              
              8,217Consolidated.
              
              $
              (33,326
              )
              
              $
              (50,775
              )
              
              $
              23,224
              
              
              $
              19,639
              
              
              $
              4,436Net
      income (loss) (A),
      (B)
              
              $
              (32,323
              )
              
              $
              (97,527
              )
              
              $
              16,671
              
              
              $
              14,513
              
              
              $
              933Net
      income attributable to noncontrolling interest
              
              
              82
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      income (loss) attributable to Stoneridge, Inc.and
      Subsidiaries (A),
      (B)
              
              $
              (32,405
              )
              
              $
              (97,527
              )
              
              $
              16,671
              
              
              $
              14,513
              
              
              $
              933Basic
      net income (loss) per share(A),
      (B)
              
              $
              (1.37
              )
              
              $
              (4.17
              )
              
              $
              0.72
              
              
              $
              0.63
              
              
              $
              0.04Diluted
      net income (loss) per share (A),
      (B)
              
              $
              (1.37
              )
              
              $
              (4.17
              )
              
              $
              0.71
              
              
              $
              0.63
              
              
              $
              0.04Other
      Data:Product
      development expenses
              
              $
              32,993
              
              
              $
              45,509
              
              
              $
              45,223
              
              
              $
              40,840
              
              
              $
              39,193Capital
      expenditures.
              
              $
              11,998
              
              
              $
              24,573
              
              
              $
              18,141
              
              
              $
              25,895
              
              
              $
              28,934Depreciation
      and amortization (C)
              
              $
              19,939
              
              
              $
              26,399
              
              
              $
              28,503
              
              
              $
              26,180
              
              
              $
              26,157Balance
      Sheet Data (at period end):Working
      capital
              
              $
              142,896
              
              
              $
              160,387
              
              
              $
              184,788
              
              
              $
              135,915
              
              
              $
              116,689Total
      assets
              
              $
              362,525
              
              
              $
              382,437
              
              
              $
              527,769
              
              
              $
              501,807
              
              
              $
              463,038Long-term
      debt, less current portion
              
              $
              183,431
              
              
              $
              183,000
              
              
              $
              200,000
              
              
              $
              200,000
              
              
              $
              200,000Shareholders'
      equity
              
              $
              74,057
              
              
              $
              91,758
              
              
              $
              206,189
              
              
              $
              178,622
              
              
              $
              153,991
  
 (A)
              Our
      2008 operating loss, loss before income taxes, net loss, net loss
      attributable to Stoneridge, Inc. and Subsidiaries and related basic and
      diluted loss per share amounts includes a non-cash, pre-tax goodwill
      impairment loss of $65,175.
  (B)
              Our
      2008 net loss, net loss attributable to Stoneridge, Inc. and Subsidiaries
      and related basic and diluted loss per share amounts includes a non-cash
      deferred tax asset valuation allowance of
  $62,006.
  (C)
              These
      amounts represent depreciation and amortization on fixed and certain
      finite-lived intangible assets.
  15
 
 Item
7.   Management’s Discussion and Analysis of Financial Condition
and Results of Operations.
 
 Overview
 
 The
following Management Discussion and Analysis (“MD&A”) is intended to help
the reader understand the results of operations and financial condition of
Stoneridge, Inc. (the “Company”).  This MD&A is provided as a
supplement to, and should be read in conjunction with, our financial statements
and the accompanying notes to the financial statements.
 
 We are an
independent designer and manufacturer of highly engineered electrical and
electronic components, modules and systems for the medium- and heavy-duty truck,
automotive, agricultural and off-highway vehicle markets.
 
 For the
year ended December 31, 2009, net sales were $475.2 million, a decrease of
$277.5 million compared with $752.7 million for the year ended December 31,
2008.  The decrease in our net sales was primarily due to the severe
reduction in sales volumes that we experienced in all of our markets in
2009.  Our net loss for the year ended December 31, 2009 was $32.4
million, or $(1.37) per diluted share, compared with a net loss of $97.5
million, or $(4.17) per diluted share, for 2008.  In 2008, we
recognized a non-cash goodwill impairment charge of $65.2 million and a non-cash
deferred tax asset valuation allowance of $62.0 million.  There was no
goodwill impairment recognized in 2009.
 
 Our 2009
results were negatively affected by the decline in the North American and
European commercial and North American automotive vehicle markets as well as the
economy as a whole.  Production volumes in the North American
automotive vehicle market declined by 32.3% during the year ended December 31,
2009 when compared to the prior year.  These automotive market
production volume reductions had a negative effect on our North American
automotive market net sales of approximately $41.9 million, primarily within our
Control Devices segment.  Net sales to the automotive market outside
of North America declined by approximately $19.0 million between the current and
prior years due to volume reductions.  The commercial vehicle market
production volumes in Europe and North America declined by 64.1% and 39.8%,
respectively, during the current year when compared to the prior year, which
resulted in lower net sales of approximately $158.5 million, primarily within
our Electronics segment.  Our agricultural net sales also decreased
during the current year due to volume reductions.  These volume
reductions had a negative effect on our net sales of approximately $26.6
million, which was primarily within our Electronics segment.  In
aggregate, production declines had an unfavorable effect on our consolidated net
sales of approximately $246.0 million for the year ended December 31,
2009.  In addition, our results were affected by foreign currency
exchange rates.  Foreign exchange translation adversely affected our
net sales by approximately $15.3 million for the year ended December 31, 2009
when compared to the year ended December 31, 2008.  Product pricing
had a minimal effect on our current year net sales when compared to our net
sales for the 2008 year.  Our gross margin percentage decreased from
22.1% for the year ended December 31, 2008 to 18.5% for the current year,
primarily due to the significant reductions in customer production schedules for
the markets that we serve.
 
 Our
selling, general and administrative expenses (“SG&A”) decreased from $136.0
million for the year ended December 31, 2008 to $102.6 million for the year
ended December 31, 2009.  This $33.4 million or 24.6% decrease in
SG&A, was primarily due to reduced compensation and compensation related
expenses incurred during the year ended December 31, 2009 of approximately $21.0
million as a result of lower headcount and incentive compensation
expenses.  These reduced compensation and compensation related
expenses are largely due to cost benefits realized in the current year from
prior period restructuring initiatives.  In addition, our design and
development costs decreased between periods due to customers delaying new
product launches in the near term as well as planned reductions in our design
activities.  Our design and development costs declined by
approximately $8.8 million between the two periods, excluding compensation and
compensation related expenses.  In addition to our restructuring
initiatives, we reduced discretionary spending in 2009, which has reduced our
current year cost structure.
 
 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.  These restructuring
initiatives continued throughout 2008 and 2009, primarily in the form of
headcount reductions to adjust our headcount levels to reflect current market
conditions.  The related 2009 expenses of $3.7 million were primarily
comprised of one-time termination benefits.  The 2008 expenses of
$15.4 million were primarily comprised of one-time termination benefits,
line-transfer expenses and contract termination costs.  Restructuring
expenses that were general and administrative in nature were included in the
Company’s consolidated statements of operations as restructuring charges, while
the remaining restructuring related expenses were included in cost of goods
sold.
  16
  In 2009,
our PST Eletrônica S.A. (“PST”) joint venture in Brazil, which is anelectronic system provider
focused on security and convenience applications primarily for the vehicle and
motorcycle industry also experienced declines in net sales as a result of
the world-wide economic recession, resulting in equity earnings declining from
$12.8 million for the year ended December 31, 2008 to $7.4 million in the
current year.  However, our dividend payments received from PST
increased from $4.2 million in 2008 to $7.3 million in 2009.  We
currently hold a 50% equity interest in PST.  Foreign currency
fluctuations did not have a significant effect on the results of
PST.
 
 On
October 13, 2009, we acquired a 51% membership interest in Bolton Conductive
Systems, LLC (“BCS”) for a purchase price of approximately $6.0 million, net of
cash acquired.  Results of operations of BCS were included in our
consolidated results from the date of acquisition within our Electronics
reportable segment.  As a result of the acquisition, we have
preliminarily allocated the BCS purchase price to net tangible assets acquired,
intangible assets, goodwill and noncontrolling interest, of $0.9 million, $1.1
million, $9.2 million and $4.4 million, respectively as of the acquisition
date.
 
 Outlook
 
 During
the second half of 2009 the North American automotive vehicle market began to
recover, which had a favorable effect on our Control Devices segment’s
results.  While we do not expect a full recovery within the domestic
automotive vehicle market in 2010, we do expect volumes to increase from 2009
levels.
 
 The North
American commercial vehicle market improved slightly during the latter part of
2009, however the European commercial vehicle market continued to decline
throughout 2009.  We believe that net sales will increase slightly in
2010 due to increased demand for the products we produce.
 
 Through
our restructuring initiatives initiated in prior years, we have been able to
reduce our cost structure.  Our fixed overhead costs are lower due to the
cessation of manufacturing at our Sarasota, Florida and Mitcheldean United
Kingdom locations while our selling, general and administrative costs are lower
due to an overall reduction in employees.  As sales volumes increase in
2010, we expect our operating margin will benefit from our reduced cost
structure.
 
 Results
of Operations
 
 We are
primarily organized by markets served and products produced.  Under
this organizational structure, our operations have been aggregated into two
reportable segments: Electronics and Control Devices.  The Electronics
reportable segment includes results of operations that design and manufacture
electronic instrument clusters, electronic control units, driver information
systems and electrical distribution systems, primarily wiring harnesses and
connectors for electrical power and signal distribution.  The Control
Devices reportable segment includes results from our operations that design and
manufacture electronic and electromechanical switches, control actuation devices
and sensors.
 
 Year
Ended December 31, 2009 Compared To Year Ended December 31, 2008
 
 Net Sales. Net sales for our
reportable segments, excluding inter-segment sales, for the years ended December
31, 2009 and 2008 are summarized in the following table (in
thousands):
 
 For
      the Years Ended December 31,2009
              
              
              2008
              
              
              $
      Decrease
              
              
              %
      DecreaseElectronics
              
              $
              301,424
              
              
              
              63.4
              %
              
              $
              520,936
              
              
              
              69.2
              %
              
              $
              (219,512
              )
              
              
              (42.1
              )
      %Control
      Devices
              
              
              173,728
              
              
              
              36.6
              
              
              
              231,762
              
              
              
              30.8
              
              
              
              (58,034
              )
              
              
              (25.0
              )
      %Total
      net sales
              
              $
              475,152
              
              
              
              100.0
              %
              
              $
              752,698
              
              
              
              100.0
              %
              
              $
              (277,546
              )
              
              
              (36.9
              )
      %
 
 Our
Electronics segment was adversely affected by reduced volume in our served
markets by approximately $198.1 million for the year ended December 31, 2009
when compared to the prior year.  The decrease in net sales for our
Electronics segment was primarily due to volume declines in our North American
and European commercial vehicle production.  Commercial vehicle market
production volumes in Europe and North America declined by 64.1% and 39.8%,
respectively, during the year ended December 31, 2009 compared to the prior
year.   The reductions in European and North American commercial
vehicle production negatively affected net sales in our Electronics segment for
the year ended December 31, 2009 by approximately $65.3 million or 42.3% and
$88.7 million or 37.3%, respectively.  The balance of the decrease was
primarily related to volume declines in the agricultural and automotive vehicle
markets of approximately $22.6 million and $21.5 million,
respectively.  In addition, our Electronics segment net sales were
unfavorably affected by foreign currency fluctuations of approximately $15.3
million in 2009 when compared to 2008.
  17
  Our
Control Devices segment was adversely affected by reduced volume in our served
markets by approximately $49.4 million for the year ended December 31, 2009 when
compared to 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 North American automotive vehicle
market.  Production volumes in the North American automotive vehicle
market declined by 32.3% during the year ended December 31, 2009 when compared
to the year ended December 31, 2008.  Volume reductions within the
automotive market of our Control Devices segment reduced net sales for the year
ended December 31, 2009 by approximately $39.4 million, or 20.7%, when compared
to the prior year.  In addition, our current year net sales were
adversely affected by sales losses during the year ended December 31, 2009 of
approximately $10.0 million.  These sales losses were primarily a
result of our products being decontented or removed from certain customer
products.  The balance of the decrease was related to volume declines
in the agricultural and commercial vehicle markets of approximately $5.6 million
and $4.4 million, respectively during the year ended December 31, 2009 when
compared to the prior year.
 
 Net sales
by geographic location for the years ended December 31, 2009 and 2008 are
summarized in the following table (in thousands):
  For
      the Years Ended December 31,2009
              
              
              2008
              
              
              $
      Decrease
              
              
              %
      DecreaseNorth
      America
              
              $
              384,467
              
              
              
              80.9
              %
              
              $
              557,990
              
              
              
              74.1
              %
              
              $
              (173,523
              )
              
              
              (31.1
              )
      %Europe
      and other
              
              
              90,685
              
              
              
              19.1
              
              
              
              194,708
              
              
              
              25.9
              
              
              
              (104,023
              )
              
              
              (53.4
              )
      %Total
      net sales
              
              $
              475,152
              
              
              
              100.0
              %
              
              $
              752,698
              
              
              
              100.0
              %
              
              $
              (277,546
              )
              
              
              (36.9
              )
      %
  The North
American geographic location consists of the results of our operations in the
United States and Mexico.
 
 The
decrease in North American net sales was primarily attributable to lower sales
volume in our North American commercial vehicle, automotive and agricultural
markets.  These lower volume levels had a negative effect on our net
sales for the year ended December 31, 2009 of $93.1 million, $41.9 million and
$25.8 million for our North American commercial vehicle, automotive vehicle and
agricultural markets, respectively.  Our decrease in net sales outside
North America was primarily due to lower sales volumes in the European
commercial and automotive vehicle markets, which had a negative effect on net
sales for the year ended December 31, 2009 of approximately $65.4 million and
$19.0 million, respectively.  In addition, our 2009 net sales outside
of North America were negatively affected by foreign currency fluctuations of
approximately $15.3 million.
  18
  Consolidated
statements of operations as a percentage of net sales for the years ended
December 31, 2009 and 2008 are presented in the following table (in
thousands):
 
 For
      the Years Ended December 31,
              
              
              $
      Increase /2009
              
              
              2008
              
              
              (Decrease)Net
      Sales
              
              $
              475,152
              
              
              
              100.0
              %
              
              $
              752,698
              
              
              
              100.0
              %
              
              $
              (277,546
              )Costs
      and Expenses:Cost
      of goods sold
              
              
              387,167
              
              
              
              81.5
              
              
              
              586,411
              
              
              
              77.9
              
              
              
              (199,244
              )Selling,
      general and administrative
              
              
              102,583
              
              
              
              21.6
              
              
              
              135,992
              
              
              
              18.1
              
              
              
              (33,409
              )Goodwill
      impairment charge
              
              
              -
              
              
              
              -
              
              
              
              65,175
              
              
              
              8.7
              
              
              
              (65,175
              )Restructuring
      charges
              
              
              3,645
              
              
              
              0.8
              
              
              
              8,391
              
              
              
              1.1
              
              
              
              (4,746
              )Operating
      Loss
              
              
              (18,243
              )
              
              
              (3.9
              )
              
              
              (43,271
              )
              
              
              (5.8
              )
              
              
              25,028Interest
      expense, net
              
              
              21,965
              
              
              
              4.6
              
              
              
              20,575
              
              
              
              2.7
              
              
              
              1,390Equity
      in earnings of investees
              
              
              (7,775
              )
              
              
              (1.6
              )
              
              
              (13,490
              )
              
              
              (1.8
              )
              
              
              5,715Other
      expense, net
              
              
              893
              
              
              
              0.2
              
              
              
              419
              
              
              
              0.1
              
              
              
              474Loss
      Before Income Taxes
              
              
              (33,326
              )
              
              
              (7.1
              )
              
              
              (50,775
              )
              
              
              (6.8
              )
              
              
              17,449Provision
      (benefit) for income taxes
              
              
              (1,003
              )
              
              
              (0.2
              )
              
              
              46,752
              
              
              
              6.2
              
              
              
              (47,755
              )Net
      Loss
              
              
              (32,323
              )
              
              
              (6.9
              )
      %
              
              
              (97,527
              )
              
              
              (13.0
              )
      %
              
              
              65,204Net
      Income Attributable to Noncontrolling Interest
              
              
              82
              
              
              
              -
              %
              
              
              -
              
              
              
              -
              %
              
              
              82Net
      Loss Attributable to Stoneridge, Inc. and Subsidiaries
              
              $
              (32,405
              )
              
              
              (6.9
              )
      %
              
              $
              (97,527
              )
              
              
              (13.0
              )
      %
              
              $
              65,122
 
 Cost of Goods
Sold.  The increase in cost of goods sold as a percentage of
net sales was due to the significant decline in volume of our European and North
American commercial and automotive vehicle markets net sales during
2009.  A portion of our cost structure is fixed in nature, such as
overhead and depreciation costs.  These fixed costs combined with
significantly lower net sales have increased our cost of goods sold as a
percentage of net sales.  In addition, our cost of goods sold for 2008
included approximately $7.0 million of restructuring charges.  In
2009, there was approximately $0.1 million of restructuring costs included in
cost of goods sold.  Our material cost as a percentage of net sales
for our Electronics segment for 2009 and 2008 was 55.4% and 51.8%,
respectively.  This increase is primarily due to significantly lower
volume from our military related commercial vehicle products in the current
year.  Our materials cost as a percentage of sales for the Control
Devices segment increased from 50.7% for 2008 to 52.9% for 2009.  Our
material costs as a percent of sales increased during the current period due to
the outsourcing of a stamping operation and inventory related
charges.  As a result of outsourcing the stamping operation, the
entire cost of the stamping was included in direct material.  Prior to
outsourcing the stamping operation, the cost was split between direct labor,
direct material and overhead.
 
 Selling, General and Administrative
Expenses.  Design and development expenses included in SG&A
were $33.0 million and $45.5 million for 2009 and 2008,
respectively.  Design and development expenses for our Electronics and
Control Devices segments decreased from $29.5 million and $16.0 million for 2008
to $19.5 million and $13.5 million for 2009, respectively.  The
decrease in design and development costs for both segments was a result of
our customers delaying new product launches in the near term as well as planned
reductions in our design activities.  As a result of our product
platform launches scheduled for 2010 and in the future, we believe that our
design and development costs will increase in 2010 from our 2009
level.  The decrease in SG&A costs excluding design and
development expenses was due to lower employee related costs of approximately
$17.3 million caused by reduced headcount and lower incentive compensation
expenses, company-wide.  These current year cost reductions are
benefits related to a combination of restructuring initiatives incurred in prior
periods and temporary cost control measures, such as wage and benefit freezes
and unpaid leaves.  Our SG&A costs increased as a percentage of
net sales because net sales declined faster than we were able to reduce our
SG&A costs.
 
 Goodwill Impairment
Charge.A goodwill impairment charge of $65.2 million was
recorded during 2008.  During the fourth quarter of 2008, as a result
of the deterioration of the global economy and its effects on the automotive and
commercial vehicle markets, we recognized the goodwill impairment charge within
our Control Devices reportable segment.  There were no similar
impairment charges taken in 2009.
  19
 
 Restructuring
Charges. Costs from our restructuring initiatives for 2009 decreased
compared to 2008. Costs incurred during 2009 related to restructuring
initiatives amounted to approximately $3.7 million and were primarily comprised
of one-time termination benefits.  Restructuring related expenses of
$3.6 million that were general and administrative in nature were included in our
consolidated statement of operations as restructuring charges, while the
remaining $0.1 million of restructuring related expenses was included in cost of
goods sold.  These restructuring actions were in response to the
depressed conditions in the European and North American commercial vehicle
markets as well as the North American automotive vehicle
market.  Restructuring charges for 2008 were approximately $15.4
million and were comprised of one-time termination benefits and line-transfer
expenses related to our initiative to improve the Company’s manufacturing
efficiency and cost position by ceasing manufacturing operations at our Control
Devices segment facility in Sarasota, Florida and our Electronics segment
facility in Mitcheldean, United Kingdom.  Restructuring related
expenses of $8.4 million that were general and administrative in nature were
included in our consolidated statements of operations as restructuring charges,
while the remaining $7.0 million of restructuring related expenses were included
in cost of goods sold.  These initiatives were substantially completed
in 2009.
 
 Restructuring
charges, general and administrative in nature, recorded by reportable segment
during the year ended December 31, 2009 were as follows (in
thousands):
 
 Electronics
              
              
              Control
      Devices
              
              
              Total
      Consolidated Restructuring ChargesSeverance
      costs
              
              $
              2,237
              
              
              $
              1,034
              
              
              $
              3,271Contract
      termination costs
              
              
              374
              
              
              
              -
              
              
              
              374Total
      restructuring charges
              
              $
              2,611
              
              
              $
              1,034
              
              
              $
              3,645
  Severance
costs relate to a reduction in workforce.  Contract termination costs
represent expenditures associated with long-term lease obligations that were
cancelled as part of the restructuring initiatives.
 
 Restructuring
charges, general and administrative in nature, recorded by reportable segment
during the year ended December 31, 2008 were as follows (in
thousands):
 
 Electronics
              
              
              Control
      Devices
              
              
              Total
      Consolidated Restructuring ChargesSeverance
      costs
              
              $
              2,564
              
              
              $
              2,521
              
              
              $
              5,085Contract
      termination costs
              
              
              1,305
              
              
              
              -
              
              
              
              1,305Other
      exit costs
              
              
              23
              
              
              
              1,978
              
              
              
              2,001Total
      restructuring charges
              
              $
              3,892
              
              
              $
              4,499
              
              
              $
              8,391
  Other
exit costs include miscellaneous expenditures associated with exiting business
activities, such as the transferring of production equipment.
 
 Equity in Earnings of
Investees.The decrease in equity earnings of investees was
predominately attributable to the decrease in equity earnings recognized from
our PST joint venture.  Equity earnings for PST declined from $12.8
million for the year ended December 31, 2008 to $7.4 million for the year ended
December 31, 2009. The decrease was caused by a 19.3% decline in PST’s net
sales.
  20
  Income (Loss) Before Income
Taxes.  Income (loss) before income taxes is summarized in the
following table by reportable segment (in thousands):
 
 For
      the Years Ended December 31,
              
              
              $
      Increase /
              
              
              %
      Increase /2009
              
              
              2008
              
              
              (Decrease)
              
              
              (Decrease)Electronics
              
              $
              (13,911
              )
              
              $
              38,713
              
              
              $
              (52,624
              )
              
              
              (135.9
              )
      %Control
      Devices
              
              
              (5,712
              )
              
              
              (78,858
              )
              
              
              73,146
              
              
              
              92.8
              %Other
      corporate activities
              
              
              8,079
              
              
              
              10,078
              
              
              
              (1,999
              )
              
              
              (19.8
              )
      %Corporate
      interest expense, net
              
              
              (21,782
              )
              
              
              (20,708
              )
              
              
              (1,074
              )
              
              
              (5.2
              )
      %Loss
      before income taxes
              
              $
              (33,326
              )
              
              $
              (50,775
              )
              
              $
              17,449
              
              
              
              34.4
              %
 
 
 The
decrease in our profitability in the Electronics reportable segment was
primarily related to the significant decline in net sales, primarily related to
volume declines in 2009 when compared to 2008.  Volume reductions
reduced our net sales within the Electronics segment by approximately $198.1
million for the year ended December 31, 2009 when compared to the prior
year.
 
 The
decrease in loss before income taxes in the Control Devices reportable segment
was primarily due to the goodwill impairment charge of $65.2 million recognized
in 2008.  Additionally, the Control Devices segment recognized an
additional $7.8 million of restructuring related expenses in 2008 as compared to
2009.  Volume reductions reduced our net sales within the Control
Devices segment by approximately $49.4 million for the year ended December 31,
2009 when compared to the prior year.
 
 The
increase in interest expense, net from 2008 to 2009 was a result of a lower
amount of interest income realized in the current year to offset our interest
expense.  The decreased interest income is attributable to lower
yields on investments during 2009 when compared to 2008.
 
 The
decrease in income before income taxes from other corporate activities was
primarily due to a decrease in equity earnings from our PST joint venture of
$5.4 million in 2009 when compared to 2008.  This was partially offset
by reduced compensation and compensation related costs recognized during 2009
when compared to 2008, due to cost reduction
initiatives.  Compensation and compensation related costs were
approximately $1.7 million lower in 2009 than they were in 2008.
 
 Loss
before income taxes by geographic location for the years ended December 31, 2009
and 2008 are summarized in the following table (in thousands):
 
 For
      the Years Ended December 31,
              
              
              $
      Increase
              
              
              %
      Increase2009
              
              
              2008
              
              
              (Decrease)
              
              
              (Decrease)North
      America
              
              $
              (16,715
              )
              
              
              50.2
              %
              
              $
              (47,795
              )
              
              
              94.1
              %
              
              $
              31,080
              
              
              
              65.0
              %Europe
      and other
              
              
              (16,611
              )
              
              
              49.8
              
              
              
              (2,980
              )
              
              
              5.9
              
              
              
              (13,631
              )
              
              NMLoss
      before income taxes
              
              $
              (33,326
              )
              
              
              100.0
              %
              
              $
              (50,775
              )
              
              
              100.0
              %
              
              $
              17,449
              
              
              
              34.4
              %
  NM - not
meaningful
 
 North
America loss before income taxes includes interest expense of approximately
$21.4 million and $21.6 million for the year ended December 31, 2009 and 2008,
respectively.
 
 Our North
American 2008 profitability was adversely affected by the $65.2 million goodwill
impairment charge.  Excluding the goodwill impairment charge, the
decrease in our profitability in North America was primarily attributable to
lower commercial and automotive vehicle sales volumes during the year ended
December 31, 2009 of approximately $93.1 million and $41.9 million,
respectively, when compared to 2008.  The decrease in profitability
outside North America was primarily due to lower sales volumes within our
European commercial vehicle market of approximately $65.4 million for the year
ended December 31, 2009, as compared to the year ended December 31,
2008.
  21
 
 Provision (Benefit) for Income
Taxes.  We recognized a provision (benefit) for income taxes of
$(1.0) million, or 3.0% of our pre-tax net loss, and $46.8 million, or (92.1) %
of pre-tax net income, for federal, state and foreign income taxes for 2009 and
2008, respectively. The effective tax rate for 2009 decreased compared to 2008
primarily as a result of the difference in the amount of valuation allowance
recorded against our domestic deferred tax assets. Prior to 2008 the Company had
not provided a valuation allowance against its domestic deferred tax assets,
therefore the amount of valuation allowance provided in 2008 was based on the
total domestic deferred tax asset amount. The amount of valuation allowance
provided in 2009 is significantly less than 2008 as it relates only to the
change in domestic deferred tax assets from 2008 to 2009.   Due
to the impairment of goodwill in 2008, the Company is in a cumulative loss
position for the period 2007-2009 and has provided a valuation allowance
offsetting federal, state and certain foreign net deferred tax
assets.  Additionally, the 2008 effective tax rate was negatively
affected by non-deductible goodwill.
 
 Year
Ended December 31, 2008 Compared To Year Ended December 31, 2007
 
 Net Sales. Net sales for our
reportable segments, excluding inter-segment sales, for the years ended December
31, 2008 and 2007 are summarized in the following table (in
thousands):
 
 For
      the Years Ended December 31,
              
              
              $
      Increase /
              
              
              %
      Increase /2008
              
              
              2007
              
              
              (Decrease)
              
              
              (Decrease)Electronics
              
              $
              520,936
              
              
              
              69.2
              %
              
              $
              441,717
              
              
              
              60.7
              %
              
              $
              79,219
              
              
              
              17.9
              %Control
      Devices
              
              
              231,762
              
              
              
              30.8
              
              
              
              285,403
              
              
              
              39.3
              
              
              
              (53,641
              )
              
              
              (18.8
              )
      %Total
      net sales
              
              $
              752,698
              
              
              
              100.0
              %
              
              $
              727,120
              
              
              
              100.0
              %
              
              $
              25,578
              
              
              
              3.5
              %
 
 The
increase in net sales for our Electronics segment was primarily due to new
business sales of military related products and increased sales volume in
2008.  Contractual price reductions and foreign currency exchange
rates negatively affected net sales by approximately $2.0 million in
2008.
 
 The
decrease in net sales for our Control Devices segment was primarily attributable
to production volume reductions at our major customers in the North American
automotive market.  Additionally, our 2008 net sales were $3.3 million
lower than 2007 net sales due to a customer cancelation of our pressure sensor
product at our Sarasota, Florida, facility.  The contract for this
business was scheduled to expire in 2009.
 
 Net sales
by geographic location for the years ended December 31, 2008 and 2007 are
summarized in the following table (in thousands):
  For
      the Years Ended December 31,
              
              
              $
      Increase /
              
              
              %
      Increase /2008
              
              
              2007
              
              
              (Decrease)
              
              
              (Decrease)North
      America
              
              $
              557,990
              
              
              
              74.1
              %
              
              $
              522,730
              
              
              
              71.9
              %
              
              $
              35,260
              
              
              
              6.7
              %Europe
      and other
              
              
              194,708
              
              
              
              25.9
              
              
              
              204,390
              
              
              
              28.1
              
              
              
              (9,682
              )
              
              
              (4.7
              )
      %Total
      net sales
              
              $
              752,698
              
              
              
              100.0
              %
              
              $
              727,120
              
              
              
              100.0
              %
              
              $
              25,578
              
              
              
              3.5
              %
 
 The
increase in North American sales was primarily attributable to new business
sales of military related electronics products.  The increase was
partially offset by lower sales volume in our North American automotive
market.  Our decrease in sales outside North America was primarily due
to reduced European commercial vehicle sales volume and reduced volume in
automotive products.
  22
  Consolidated
statements of operations as a percentage of net sales for the years ended
December 31, 2008 and 2007 are presented in the following table (in
thousands):
 
 For
      the Years Ended December 31,
              
              
              $
      Increase /2008
              
              
              2007
              
              
              (Decrease)Net
      Sales
              
              $
              752,698
              
              
              
              100.0
              %
              
              $
              727,120
              
              
              
              100.0
              %
              
              $
              25,578Costs
      and Expenses:Cost
      of goods sold
              
              
              586,411
              
              
              
              77.9
              
              
              
              559,397
              
              
              
              76.9
              
              
              
              27,014Selling,
      general and administrative
              
              
              136,563
              
              
              
              18.1
              
              
              
              133,708
              
              
              
              18.4
              
              
              
              2,855Gain
      on sale of property, plant & equipment, net
              
              
              (571
              )
              
              
              (0.1
              )
              
              
              (1,710
              )
              
              
              (0.2
              )
              
              
              1,139Goodwill
      impairment charge
              
              
              65,175
              
              
              
              8.7
              
              
              
              -
              
              
              
              -
              
              
              
              65,175Restructuring
      charges
              
              
              8,391
              
              
              
              1.1
              
              
              
              926
              
              
              
              0.1
              
              
              
              7,465Operating
      Income (Loss)
              
              
              (43,271
              )
              
              
              (5.7
              )
              
              
              34,799
              
              
              
              4.8
              
              
              
              (78,070
              )Interest
      expense, net
              
              
              20,575
              
              
              
              2.7
              
              
              
              21,759
              
              
              
              3.0
              
              
              
              (1,184
              )Equity
      in earnings of investees
              
              
              (13,490
              )
              
              
              (1.8
              )
              
              
              (10,893
              )
              
              
              (1.5
              )
              
              
              (2,597
              )Loss
      on early extinguishment of debt
              
              
              770
              
              
              
              0.1
              
              
              
              -
              
              
              
              -
              
              
              
              770Other
      (income) expense, net
              
              
              (351
              )
              
              
              -
              
              
              
              709
              
              
              
              0.1
              
              
              
              (1,060
              )Income
      (Loss) Before Income Taxes
              
              
              (50,775
              )
              
              
              (6.7
              )
              
              
              23,224
              
              
              
              3.2
              
              
              
              (73,999
              )Provision
      for income taxes
              
              
              46,752
              
              
              
              6.2
              
              
              
              6,553
              
              
              
              0.9
              
              
              
              40,199Net
      Income (Loss)
              
              $
              (97,527
              )
              
              
              (12.9
              )
      %
              
              $
              16,671
              
              
              
              2.3
              %
              
              $
              (114,198
              )
 
 Cost of Goods Sold. The
increase in cost of goods sold as a percentage of sales was primarily due to
$7.0 million of restructuring expenses included in cost of goods sold for
2008.  The negative impact of restructuring expenses was partially
offset by a more favorable product mix and new business sales.
 
 Selling, General and Administrative
Expenses.  Product development expenses included in SG&A
were $45.5 million and $45.2 million for 2008 and 2007,
respectively.  The increase was primarily related to development
spending in the areas of instrumentation and wiring.
 
 The
Company intends to reallocate its resources to focus on the design and
development of new products rather than primarily focusing on sustaining
existing product programs.  The increase in SG&A expenses,
excluding product development expenses was due primarily to compensation related
items in 2008.
 
 Gain on Sale of Property, Plant and
Equipment, net.  The gain for 2008 was primarily a result of
selling manufacturing lines which was part of the line transfer initiative at
our Mitcheldean, United Kingdom facility.  The gain for the year ended
December 31, 2007 was primarily attributable to the sale of non-strategic assets
including two idle facilities and the Company airplane.
 
 Goodwill Impairment
Charge.A goodwill impairment charge of $65.2 million was
recorded during the year ended December 31, 2008.  During the fourth
quarter, as a result of the deterioration of the global economy and its effects
on the automotive and commercial vehicle markets, we were required to perform an
additional goodwill impairment test subsequent to our annual October 1, 2008
test.  The result of the December 31, 2008 impairment test was that
our goodwill was determined to be significantly impaired and was written
off.  The goodwill related to two reporting units in the Control
Devices segment.
 
 Restructuring Charges. The
increase in restructuring charges that were general and administrative in
nature, were primarily the result of the ratable recognition of one-time
termination benefits that were due to employees and the cancellation of certain
contracts upon the closure of our Sarasota, Florida, and Mitcheldean, United
Kingdom, locations.  Additionally, in 2008, we announced additional
restructuring initiatives at our Canton, Massachusetts, Orebro, Sweden and
Tallinn, Estonia locations.  The majority of this charge resulted in
the recognition of one-time termination benefits that were due to affected
employees.  No fixed-asset impairment charges were incurred because
the assets were transferred to our other locations for continued
production.  Restructuring expenses that were general and
administrative in nature were included in the Company’s consolidated statements
of operations as restructuring charges, while the remaining restructuring
related expenses were included in cost of goods sold.
  23
 
 Restructuring
charges recorded by reportable segment during the year ended December 31, 2008
were as follows (in thousands):
 
 Electronics
              
              
              Control
      Devices
              
              
              Total
      Consolidated Restructuring ChargesSeverance
      costs
              
              $
              2,564
              
              
              $
              2,521
              
              
              $
              5,085Contract
      termination costs
              
              
              1,305
              
              
              
              -
              
              
              
              1,305Other
      exit costs
              
              
              23
              
              
              
              1,978
              
              
              
              2,001Total
      restructuring charges
              
              $
              3,892
              
              
              $
              4,499
              
              
              $
              8,391
  Severance
costs relate to a reduction in workforce.  Contract termination costs
represent expenditures associated with long-term lease obligations that were
cancelled as part of the restructuring initiatives.  Other exit costs
include miscellaneous expenditures associated with exiting business activities,
such as the transferring of production equipment.
 
 Restructuring
charges recorded by reportable segment during the year ended December 31, 2007
were as follows (in thousands):
 
 Electronics
              
              
              Control
      Devices
              
              
              Total
      Consolidated Restructuring ChargesSeverance
      costs
              
              $
              542
              
              
              $
              357
              
              
              $
              899Other
      exit costs
              
              
              -
              
              
              
              27
              
              
              
              27Total
      restructuring charges
              
              $
              542
              
              
              $
              384
              
              
              $
              926
  Restructuring
related expenses, general and administrative in nature, for the year ended
December 31, 2007 were primarily severance costs as a result of the ratable
recognition of one-time termination benefits that were due to employees upon the
closure of our Sarasota, Florida and Mitcheldean, United Kingdom locations that
were announced in 2007.
 
 Equity in Earnings of Investees.The increase 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 throughout most of 2008.
 
 Income (Loss) Before Income
Taxes.  Income (loss) before income taxes is summarized in the
following table by reportable segment (in thousands):
 
 For
      the Years EndedDecember 31,
              
              
              $
      Increase /
              
              
              %
      Increase /2008
              
              
              2007
              
              
              (Decrease)
              
              
              (Decrease)Electronics
              
              $
              38,713
              
              
              $
              20,692
              
              
              $
              18,021
              
              
              
              87.1
              %Control
      Devices
              
              
              (78,858
              )
              
              
              15,825
              
              
              
              (94,683
              )
              
              NMOther
      corporate activities
              
              
              10,078
              
              
              
              8,676
              
              
              
              1,402
              
              
              
              16.2
              %Corporate
      interest expense
              
              
              (20,708
              )
              
              
              (21,969
              )
              
              
              1,261
              
              
              
              5.7
              %Income
      (loss) before income taxes
              
              $
              (50,775
              )
              
              $
              23,224
              
              
              $
              (73,999
              )
              
              
              (318.6
              )
      %
  NM - not
meaningful
  24
 
 The
increase in income before income taxes in the Electronics segment was related to
higher net sales, which  increased by $79.2 million
in  2008.  This was partially offset by increased
restructuring related expenses of $3.4 million in 2008 when compared to
2007.
 
 The
decrease in income before income taxes in the Control Devices reportable segment
was primarily due to the goodwill impairment charge of $65.2 million recognized
in 2008.  Additionally, net sales reduced by $53.6 million and the
segment recognized an additional $4.1 million of restructuring related expenses
in 2008.
 
 The
increase in income before income taxes from other corporate activities was
primarily due to an increase in equity earnings from our PST joint venture of
$2.4 million in 2008.
 
 Income
(loss) before income taxes by geographic location for the years ended December
31, 2008 and 2007 are summarized in the following table (in
thousands):
 
 For
      the Years Ended December 31,2008
              
              
              2007
              
              
              $
      Decrease
              
              
              %
      DecreaseNorth
      America
              
              $
              (47,795
              )
              
              
              94.1
              %
              
              $
              12,405
              
              
              
              53.4
              %
              
              $
              (60,200
              )
              
              
              (485.3
              )
      %Europe
      and other
              
              
              (2,980
              )
              
              
              5.9
              
              
              
              10,819
              
              
              
              46.6
              
              
              
              (13,799
              )
              
              
              (127.5
              )
      %Income
      (loss) before income taxes
              
              $
              (50,775
              )
              
              
              100.0
              %
              
              $
              23,224
              
              
              
              100.0
              %
              
              $
              (73,999
              )
              
              
              (318.6
              )
      %
 
 Our North
American 2008 profitability was adversely affected by the $65.2 million goodwill
impairment charge, which was offset by new business sales of electronic
products.  Other factors impacting the 2008 results were increased
restructuring related expenses of $8.9 million and lower North American
automotive production.  The decrease in profitability outside North
America was primarily due to increased restructuring related expenses of $6.5
million and design and development expenses.  The decrease was
partially offset by increased European commercial vehicle production during the
first half of 2008.
 
 Provision for Income Taxes.
We recognized a provision for income taxes of $46.8 million, or (92.1)% of
pre-tax loss, and $6.6 million, or 28.2% of pre-tax income, for federal, state
and foreign income taxes for the years ended December 31, 2008 and 2007,
respectively. The increase in the effective tax rate for 2008 was primarily
attributable to the recording of a valuation allowance against our domestic
deferred tax assets. Due to the impairment of goodwill the Company was in a
cumulative loss position for the period 2006-2008. Pursuant to the accounting
guidance the Company was required to record a valuation allowance. Additionally,
the effective tax rate was unfavorably affected by 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 foreign deferred tax assets associated with those foreign
losses. Finally, offsetting the impact of the current year valuation allowances,
the effective tax rate was favorably impacted by a combination of audit
settlements, successful litigation and the expiration of certain statutes of
limitation.  We believe that we should ultimately generate sufficient
U.S. taxable income during the remaining tax loss and credit carry forward
periods in order to realize substantially all of the benefits of the net
operating losses and credits before they expire.
 
 Liquidity
and Capital Resources
 
 Summary
of Cash Flows for the years ended December 31, 2009 and 2008 (in
thousands):
 
 $
      Increase /2009
              
              
              2008
              
              
              (Decrease)Cash
      provided by (used for):Operating
      activities
              
              $
              13,824
              
              
              $
              42,456
              
              
              $
              (28,632
              )Investing
      activities
              
              
              (17,764
              )
              
              
              (23,901
              )
              
              
              6,137Financing
      activities
              
              
              336
              
              
              
              (16,231
              )
              
              
              16,567Effect
      of exchange rate changes on cash and cash equivalents
              
              
              2,819
              
              
              
              (5,556
              )
              
              
              8,375Net
      change in cash and cash equivalents
              
              $
              (785
              )
              
              $
              (3,232
              )
              
              $
              2,447
  25
 
 The
decrease in net cash provided by operating activities was primarily due to lower
earnings, partially offset by lower inventory balances at December 31, 2009 when
compared to December 31, 2008.  In particular, we reduced inventories
in 2009 because of lower production requirements and the reduction of inventory
safety stock resulting from the transfer of production from our Sarasota,
Florida and Mitcheldean, United Kingdom factories to other Stoneridge facilities
during the last six months of 2008.
 
 The
decrease in net cash used for investing activities reflects a decrease in cash
used for capital projects of approximately $12.6 million offset by an increase
in business acquisitions of $5.0 million in 2009.  We acquired a 51%
membership interest in BCS during 2009.  Capital expenditures were
lower for the year ended December 31, 2009 when compared to the prior year due
to our customers delaying new product launches.  We believe that our
capital expenditures will increase as the markets that we serve continue to
recover.
 
 The
decrease in net cash used by financing activities was primarily due to cash used
to purchase and retire $17.0 million in face value of the Company’s senior notes
during 2008.  There was no similar activity during 2009.
 
 Summary
of Cash Flows for the years ended December 31, 2008 and 2007 (in
thousands):
 
 $
      Increase /2008
              
              
              2007
              
              
              (Decrease)Cash
      provided by (used for):Operating
      activities
              
              $
              42,456
              
              
              $
              33,525
              
              
              $
              8,931Investing
      activities
              
              
              (23,901
              )
              
              
              (5,826
              )
              
              
              (18,075
              )Financing
      activities
              
              
              (16,231
              )
              
              
              900
              
              
              
              (17,131
              )Effect
      of exchange rate changes on cash and cash equivalents
              
              
              (5,556
              )
              
              
              1,443
              
              
              
              (6,999
              )Net
      change in cash and cash equivalents
              
              $
              (3,232
              )
              
              $
              30,042
              
              
              $
              (33,274
              )
  The
increase in net cash provided by operating activities was primarily due
to lower accounts receivable balances in the current year due to lower
fourth quarter net sales.
 
 The
increase in net cash used for investing activities reflects an increase in cash
used for capital projects.  The increase was due in part to the
expansion of our Lexington facility during 2008.  In addition, 2007
net cash used for investing activities includes the proceeds from the sale of
non-strategic assets, including two idle facilities and the Company
airplane.
 
 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.
 
 As
discussed in Note 9 to our consolidated financial statements, we have entered
into foreign currency forward contracts with a notional value of $52.2 million
and $44.2 million at December 31, 2009 and 2008, respectively.  The
purpose of these investments is to reduce exposure related to our British pound
and Swedish krona-denominated receivables and Mexican peso-denominated
payables.  The estimated fair value of the British pound contract at
December 31, 2009 and 2008, per quoted market sources, was approximately $30
thousand and $2.1 million, respectively.  The estimated fair market
value of the Mexican peso-denominated contracts at December 31, 2009 and 2008,
per quoted market sources, was approximately $1.7 million and $(2.9) million,
respectively.
 
 The
following table summarizes our future cash outflows resulting from financial
contracts and commitments, as of December 31, 2009 (in thousands):
 
 Total
              
              
              Less
      than
                1
      year
              
              
              2-3
      years
              
              
              4-5
      years
              
              
              After
      5 yearsDebt
              
              $
              183,704
              
              
              $
              273
              
              
              $
              183,407
              
              
              $
              24
              
              
              $
              -Operating
      leases
              
              
              21,361
              
              
              
              5,516
              
              
              
              7,642
              
              
              
              5,111
              
              
              
              3,092Employee
      benefit plans
              
              
              8,809
              
              
              
              727
              
              
              
              1,552
              
              
              
              1,681
              
              
              
              4,849Total
      contractual obligations
              
              $
              213,874
              
              
              $
              6,516
              
              
              $
              192,601
              
              
              $
              6,816
              
              
              $
              7,941
  26
 
 These
future cash outlows for benefit plans were prior to placing our wholly owned
subsidiary, Stoneridge Pollak Limited into administration in the United Kingdom
on February 23, 2010.
 
 Management
will continue to focus on reducing its weighted average cost of capital and
believes that cash flows from operations and the availability of funds from our
asset-based credit facility will provide sufficient liquidity to meet our future
growth and operating needs.  We expect working capital levels to
increase to coincide with higher expected future sales levels.
 
 As
outlined in Note 4 to our consolidated financial statements, our asset-based
credit facility, permits borrowing up to a maximum level of $100.0
million.  This facility provides us with lower borrowing rates and
allows us the flexibility to refinance our outstanding debt.  At
December 31, 2009, there were no borrowings on this asset-based credit
facility.  The available borrowing capacity on this credit facility is
based on eligible current assets, as defined.  At December 31, 2009
and 2008, the Company had borrowing capacity of $54.1 million and $57.7 million,
respectively, based on eligible current assets.  The Company was in
compliance with all covenants at December 31, 2009 and 2008.  We
believe that we will be in compliance with all covenants in 2010.
 
 On
October 13, 2009, BCS entered into a master revolving note (the “Revolver”),
which permits borrowing up to a maximum level of $3.0 million.  At
December 31, 2009, BCS had approximately $0.7 million in borrowings outstanding
on the Revolver, which are included on the consolidated balance sheet as a
component of accrued expenses and other.  The Revolver expires on
October 1, 2010.  Interest is payable monthly at the prime referenced
rate plus a 2.25% margin.  At December 31, 2009, the interest rate on
the revolver was 5.5%.  The Company is a guarantor as it relates to
the Revolver.
 
 As of
December 31, 2009, the Company’s $183.0 million senior notes were redeemable at
101.917%.  Given the Company’s senior notes are redeemable, we may
seek to retire the senior notes through a redemption, 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.
 
 BCS had
an installment note (“installment note”) of approximately $0.5 million and other
notes payable for the purchase of various fixed assets (“fixed asset notes”) of
approximately $0.2 million as of the acquisition date.  Interest on
the installment notes is the prime referenced rate plus a 2.25%
margin.  At December 31, 2009, the interest rate on the installment
note was 5.5%.  The installment note calls for monthly installment
payments of principal and interest and matures in 2012.  The weighted
average interest rate on the fixed asset notes was 6.6% at December 31,
2009.  At December 31, 2009, the principal amounts due on the
installment and fixed asset notes was approximately $0.5 million and $0.2
million, respectively.    The Company is a guarantor as it
relates to the installment note.
 
 As
outlined in Note 2, the October 13, 2009 BCS purchase agreement provides that
the Company may be required to make additional payments to the previous owners
of BCS for its 51% membership interest based on BCS achieving financial
performance targets as defined by the purchase agreement.  The maximum
amount of additional payments to the prior owners of BCS is $3.2 million per
year in 2011, 2012 and 2013 are contingent upon BCS achieving profitability
targets based on earnings before interest, income taxes, depreciation and
amortization in the years 2010, 2011 and 2012, respectively. In addition, the
Company may be required to make additional payments to BCS of approximately $0.5
million in 2011 and 2012 based on BCS achieving annual revenue targets in 2010
and 2011, respectively.  The purchase agreement provides the Company
with the option to purchase the remaining 49% interest in BCS in 2013 at a price
determined in accordance with the purchase agreement.  If the Company
does not exercise this option then the minority owners of BCS have the option in
2014 to purchase the Company’s 51% interest in BCS at a price determined in
accordance with the purchase agreement or to jointly market BCS for
sale.  BCS’s results of operations are included in the Company’s
consolidated statement of operations from its date of acquisition.
 
 At
December 31, 2009, we had a cash and cash equivalents balance of approximately
$91.9 million, of which $57.1 million was held domestically and $34.8 million
was held in foreign locations.  None of our cash balance was
restricted at December 31, 2009.
  27
 
 Inflation
and International Presence
 
 Given the
current economic climate and recent fluctuations in certain commodity prices, we
believe that an increase in such items could significantly affect our
profitability.  Furthermore, by operating internationally, we are
affected by foreign currency exchange rates and the economic conditions of
certain countries.  Based on the current economic conditions in these
countries, we believe we are not significantly exposed to adverse exchange rate
risk or economic conditions.
 
 Critical
Accounting Policies and Estimates
 
 Estimates.  The
preparation of financial statements in conformity with U.S. Generally Accepted
Accounting Principles (“GAAP”) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent liabilities at the date of the consolidated financial
statements, and the reported amounts of revenues and expenses during the
reporting period.
 
 On an
ongoing basis, we evaluate estimates and assumptions used in our financial
statements.  We base our estimates on historical experience and on
various other factors that we believe to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources.  Actual results could differ from these
estimates.
 
 We
believe the following are “critical accounting policies” – those most important
to the financial presentation and those that require the most difficult,
subjective or complex judgments.
 
 Revenue Recognition and Sales
Commitments.We recognize revenues from the sale of products,
net of actual and estimated returns of products sold based on authorized
returns, at the point of passage of title, which is generally at the time of
shipment.  We often enter into agreements with our customers at the
beginning of a given vehicle’s expected production life.  Once such
agreements are entered into, it is our obligation to fulfill the customers’
purchasing requirements for the entire production life of the
vehicle.  These agreements are subject to renegotiation, which may
affect product pricing.  In certain limited instances, we may be
committed under existing agreements to supply products to our customers at
selling prices which are not sufficient to cover the direct cost to produce such
products.  In such situations, we recognize losses
immediately.  There were no such significant instances of this in
2009.  These agreements generally may also be terminated by our
customers at any time.
 
 On an
ongoing basis, we receive blanket purchase orders from our customers, which
include pricing terms.  Purchase orders do not always specify
quantities.  We recognize revenue based on the pricing terms included
in our purchase orders as our products are shipped to our
customers.  We are asked to provide our customers with annual cost
reductions as part of certain agreements.  In addition, we have
ongoing adjustments to our pricing arrangements with our customers based on the
related content, the cost of our products and other commercial
factors.  Such pricing adjustments are recognized as they are
negotiated with our customers.
 
 Warranties.Our warranty
reserve is established based on our best estimate of the amounts necessary to
settle future and existing claims on products sold as of the balance sheet
dates.  This estimate is based on historical trends of units sold and
payment amounts, combined with our current understanding of the status of
existing claims.  To estimate the warranty reserve, we are required to
forecast the resolution of existing claims as well as expected future claims on
products previously sold.  Although we believe that our warranty
reserve is adequate and that the judgment applied is appropriate, such amounts
estimated to be due and payable could differ materially from what will actually
transpire in the future.  Our customers are increasingly seeking to
hold suppliers responsible for product warranties, which could negatively impact
our exposure to these costs.
 
 Allowance for Doubtful
Accounts. We have concentrations of sales and trade receivable balances
with a few key customers. Therefore, it is critical that we evaluate the
collectability of accounts receivable based on a combination of
factors.  In circumstances where we are aware of a specific customer’s
inability to meet their financial obligations, a specific allowance for doubtful
accounts is recorded against amounts due to reduce the net recognized receivable
to the amount we reasonably believe will be collected.  Additionally,
we review historical trends for collectability in determining an estimate for
our allowance for doubtful accounts.  If economic circumstances change
substantially, estimates of the recoverability of amounts due to the Company
could be reduced by a material amount.  We do not have collateral
requirements with our customers.
  28
 
 Contingencies. We are subject
to legal proceedings and claims, including product liability claims, commercial
or contractual disputes, environmental enforcement actions and other claims that
arise in the normal course of business.  We routinely assess the
likelihood of any adverse judgments or outcomes to these matters, as well as
ranges of probable losses, by consulting with internal personnel principally
involved with such matters and with our outside legal counsel handling such
matters.
 
 We have
accrued for estimated losses when it is probable that a liability or loss has
been incurred and the amount can be reasonably
estimated.  Contingencies by their nature relate to uncertainties that
require the exercise of judgment both in assessing whether or not a liability or
loss has been incurred and estimating that amount of probable
loss.  The reserves may change in the future due to new developments
or changes in circumstances.  The inherent uncertainty related to the
outcome of these matters can result in amounts materially different from any
provisions made with respect to their resolution.
 
 Inventory Valuation.Inventories are valued
at the lower of cost or market.  Cost is determined by the last-in,
first-out method for U.S. inventories and by the first-in, first-out method for
non-U.S. inventories.  Where appropriate, standard cost systems are
utilized for purposes of determining cost and the standards are adjusted as
necessary to ensure they approximate actual costs.  Estimates of the
lower of cost or market value of inventory are determined based upon current
economic conditions, historical sales quantities and patterns and, in some
cases, the specific risk of loss on specifically identified
inventories.
 
 Goodwill. Goodwill is tested
for impairment at least annually and whenever events or changes in circumstances
indicate that the carrying value may not be recoverable.  The
valuation methodologies employed by the Company use subjective measures
including forward looking financial information and discount rates that directly
impact the resulting fair values used to test the Company’s business units for
impairment.  See Note 2 to our consolidated financial statements for
more information on our application of this accounting standard, including the
valuation techniques used to determine the fair value of goodwill.
 
 Share-Based Compensation.The
estimate for our share-based compensation expense involves a number of
assumptions.  We believe each assumption used in the valuation is
reasonable because it takes into account the experience of the plan and
reasonable expectations.  We estimate volatility and forfeitures based
on historical data, future expectations and the expected term of the share-based
compensation awards.  The assumptions, however, involve inherent
uncertainties.  As a result, if other assumptions had been used,
share-based compensation expense could have varied.
 
 Pension
Benefits.The amounts recognized in the consolidated financial
statements related to pension benefits are determined from actuarial valuations.
Inherent in these valuations are assumptions including expected return on plan
assets, discount rates at which the liabilities could be settled at
December 31, 2009, rate of increase in future compensation levels and
mortality rates.  These assumptions are updated annually and are
disclosed in Note 8 to the consolidated financial statements.
 
 The
expected long-term return on assets is determined as a weighted average of the
expected returns for each asset class held by the defined-benefit pension plan
at the date.  The expected return on bonds has been based on the yield
available on similar bonds (by currency, issuer and duration) at that
date.  The expected return on equities is based on an equity risk
premium of return above that available on long-term government bonds of a
similar duration and the same currency as the liabilities.
 
 Discount
rates for our defined benefit pension plan in the United Kingdom are determined
using the weighted average long-term sterling AA corporate bond.  On
December 31, 2009, the yield was approximately 5.7%.
 
 Deferred Income
Taxes.Deferred income taxes are provided for temporary
differences between amounts of assets and liabilities for financial reporting
purposes and the basis of such assets and liabilities as measured by tax laws
and regulations.  Our deferred tax assets include, among other items,
net operating loss carryforwards and tax credits that can be used to offset
taxable income in future periods and reduce income taxes payable in those future
periods.  These deferred tax assets for net operating loss
carryforwards and tax credits will begin to expire, if unused, no later than
2026 and 2021, respectively.  The Company believes that it should
ultimately generate sufficient U.S. taxable income during the remaining tax loss
and credit carry forward periods in order to realize substantially all of the
benefits of the net operating losses and credits before they
expire.
 
 Statement
of Financial Accounting Standard (“SFAS”) No. 109, Accounting for Income
Taxes(ASC Topic
740), requires that deferred tax assets be reduced by a valuation allowance if,
based on all available evidence, it is considered more likely than not that some
portion or all of the recorded deferred tax assets will not be realized in
future periods.  This assessment requires significant judgment, and in
making this evaluation, the Company considers available positive and negative
evidence, including past results, the existence of cumulative losses in recent
periods, and our forecast of taxable income for the current year and future
years and tax planning strategies.
  29
 
 During
the fourth quarter of 2008, the Company concluded that it was no longer
more-likely-than-not that we would realize our U.S. deferred tax assets. As a
result we provided a full valuation allowance, net of certain future reversing
taxable temporary differences, with respect to our U.S. deferred tax
assets. This conclusion did not change for 2009. To the extent that realization
of a portion or all of the tax assets becomes more-likely-than-not to be
realized based on changes in circumstances a reversal of that portion of the
deferred tax asset valuation allowance will be recorded.
 
 The
Company does not provide deferred income taxes on unremitted earnings of certain
non-U.S. subsidiaries, which are deemed permanently reinvested.
 
 Derivative Instruments and Hedging
Activities.Effective January 1,
2009, the Company adopted SFAS No. 161, Disclosures About Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No.
133 (ASC Topic 815-10) which expands the quarterly and annual
disclosure requirements about the Company’s derivative instruments and hedging
activities.  The adoption of ASC Topic 815 did not have an effect on
the Company’s financial position, results of operations or cash
flows.
 
 Restructuring.  We
have recorded restructuring charges in the recent period in connection with
improving manufacturing efficiency and cost position by transferring production
to other locations.  These charges are recorded when management has
committed to a plan and incurred a liability related to the
plan.  Also in connection with this initiative, we recorded
liabilities for severance costs.  No fixed-asset impairment charges
were incurred because assets are primarily being transferred to our other
locations for continued production.  Estimates for work force
reductions and other costs savings are recorded based upon estimates of the
number of positions to be terminated, termination benefits to be provided and
other information as necessary.  Management evaluates the estimates on
a quarterly basis and will adjust the reserve when information indicates that
the estimate is above or below the initial estimate.  For further
discussion of our restructuring activities, see Note 11 to our consolidated
financial statements included in this report.
 
 Recently
Issued Accounting Standards
 
 New
accounting standards to be implemented:
 
 In June
2009, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 167, Amendments to
FASB Interpretation No. 46(R) (ASC Topic 810-10).  This
updated guidance requires an enterprise to perform an analysis to determine
whether the enterprise’s variable interest or interests give it a controlling
financial interest in a variable interest entity; to require ongoing
reassessments of whether an enterprise is the primary beneficiary of a variable
interest entity; to eliminate the quantitative approach previously required for
determining the primary beneficiary of a variable interest entity; to add an
additional reconsideration event for determining whether an entity is a variable
interest entity when any changes in facts and circumstances occur such that
holders of the equity investment at risk, as a group, lose the power from voting
rights or similar rights of those investments to direct the activities of the
entity that most significantly impact the entity’s economic performance; and to
require enhanced disclosures that will provide users of financial statements
with more transparent information about an enterprise’s involvement in a
variable interest entity. This update became effective for the Company on
January 1, 2010. The adoption of this update did not have a material effect
on the Company’s financial position, results of operations or cash
flow.
 
 New
accounting standards implemented:
 
 In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (ASC
Topic 820-10), which
provides a definition of fair value, establishes a framework for measuring fair
value and requires expanded disclosures about fair value measurements. ASC Topic
820-10 was effective for financial assets and financial liabilities in years
beginning after November 15, 2007 and for nonfinancial assets and
liabilities in years beginning after November 15, 2008.  The
provisions of ASC Topic 820-10 were applied prospectively.  The
Company adopted ASC Topic 820-10 for financial assets and liabilities in 2008
and for nonfinancial assets and liabilities in 2009 with no material impact to
the consolidated financial statements.
  30
  In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations (ASC
Topic 805).  This standard improves reporting by creating greater
consistency in the accounting and financial reporting of business
combinations.  Additionally, ASC Topic 805 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.  ASC Topic 805 was effective for
financial statements issued for years beginning after December 15, 2008.
The adoption of ASC Topic 805 did not have a material impact on our financial
condition or results of operations.
 
 In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements-an amendment of Accounting Research Bulletin
No. 51(ASC Topic 810-10-65).  This guidance improves the
relevance, comparability and transparency of financial information provided to
investors by requiring all entities to report noncontrolling (minority)
interests in subsidiaries in the same way.  Additionally, it
eliminates the diversity that currently exists in accounting for transactions
between an entity and noncontrolling interests by requiring they be treated as
equity transactions.  We adopted this guidance effective January 1,
2009.  In connection with our acquisition of BCS during 2009, we
recorded $4.4 of noncontrolling interest as a component of shareholders’ equity
as of the acquisition date.
 
 In
December 2008, the FASB issued Staff Position 132(R)-1, Employers’ Disclosures about
Postretirement Benefit Plan Assets (ASC Topic
715-20-65).  This guidance requires entities to provide enhanced
disclosures about how investment allocation decisions are made, the major
categories of plan assets, the inputs and valuation techniques used to measure
fair value of plan assets, the effect of fair value measurements using
significant unobservable inputs on changes in plan assets for the period and
significant concentrations of risk within plan assets.  This guidance
was effective for the Company beginning with its year ending December 31,
2009.  The adoption of this guidance did not have a material effect on
our financial position, results of operations or cash flows.
 
 Forward-Looking
Statements
 
 Portions
of this report contain “forward-looking statements” under the Private Securities
Litigation Reform Act of 1995. These statements appear in a number of places in
this report and include statements regarding the intent, belief or current
expectations of the Company, our directors or officers with respect to, among
other things, our (i) future product and facility expansion, (ii) acquisition
strategy, (iii) investments and new product development, and (iv) growth
opportunities related to awarded business.  Forward-looking statements
may be identified by the words “will,” “may,” “designed to,” “believes,”
“plans,” “expects,” “continue,” and similar words and
expressions.  The forward-looking statements in this report are
subject to risks and uncertainties that could cause actual events or results to
differ materially from those expressed in or implied by the statements.
Important factors that could cause actual results to differ materially from
those in the forward-looking statements include, among other
factors:
 
 ·
              the
      loss or bankruptcy of a major
customer;
  ·
              the
      costs and timing of facility closures, business realignment, or similar
      actions;
  ·
              a
      significant change in medium- and heavy-duty, automotive, agricultural or
      off-highway vehicle production;
  ·
              our
      ability to achieve cost reductions that offset or exceed customer-mandated
      selling price reductions;
  ·
              a
      significant change in general economic conditions in any of the various
      countries in which we operate;
  ·
              labor
      disruptions at our facilities or at any of our significant customers or
      suppliers;
  ·
              the
      ability of our suppliers to supply us with parts and components at
      competitive prices on a timely
basis;
  ·
              the
      amount of debt and the restrictive covenants contained in our credit
      facility;
  ·
              customer
      acceptance of new products;
  ·
              capital
      availability or costs, including changes in interest rates or market
      perceptions;
  ·
              the
      successful integration of any acquired
  businesses;
  ·
              the
      occurrence or non-occurrence of circumstances beyond our control;
      and
  ·
              those
      items described in Part I, Item IA (“Risk
  Factors”).
  31
  Item
7A.   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.  Our senior notes with a face
value of $183.0 million have a fixed rate.  We currently have no
amounts outstanding on our revolving credit facility.  At this time,
we do not use financial instruments to manage this risk.
 
 Commodity
Price Risk
 
 Given the
current economic climate and recent fluctuations in certain commodity costs, we
currently are experiencing an increased risk, particularly with respect to the
purchase of copper, zinc, resins and certain other commodities.  In
the past, we managed this risk through a combination of fixed price agreements,
staggered short-term contract maturities and commercial negotiations with our
suppliers.  In the future if we believe that the terms of a fixed
price agreement become beneficial to us, we will enter into another such
instrument.  We may also consider pursuing alternative commodities or
alternative suppliers to mitigate this risk over a period of
time.  The recent increase in certain commodity costs has negatively
affected our operating results.
 
 In
September 2008, we entered into a fixed price swap contract for 1.4 million
pounds of copper, which lasted through December 2009.  We continue to
monitor the fixed price commodity market and will pursue a contract if we
believe that the terms of the contract become beneficial to us.  The
purpose of this contract was to reduce our price risk as it relates to copper
prices.
 
 Foreign
Currency Exchange Risk
 
 We use
derivative financial instruments, including foreign currency forward 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 foreign currency exposures.  As
discussed in Note 9 to our consolidated financial statements, we have entered
into foreign currency forward contracts that had a notional value of $52.2
million and $44.2 million at December 31, 2009 and 2008,
respectively.  The purpose of these foreign currency contracts is to
reduce exposure related to the Company’s British pound and Swedish
krona-denominated receivables as well as to reduce exposure to future Mexican
peso-denominated purchases.  The estimated fair value of these
contracts at December 31, 2009 and 2008, per quoted market sources, was
approximately $1.7 million and $(0.8) million, respectively.  The
Company’s foreign currency option contracts expire during 2010.  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 (loss) in fair value from a 10.0% favorable or adverse
change in quoted currency exchange rates would be approximately $0.7 million or
$(0.9) million for the Company’s British pound and Swedish krona-denominated
receivables, as of December 31, 2009.  A hypothetical pre-tax gain
(loss) in fair value from a 10.0% favorable or adverse change in quoted currency
exchange rates would be approximately $4.2 million or $(5.2) million for the
Company’s Mexican peso-denominated payables as of December 31,
2009.  It is important to note that gains and losses indicated in the
sensitivity analysis would generally be offset by gains and losses on the
underlying exposures being hedged.  Therefore, 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.
  32
  Item
8.  Financial Statements and Supplementary Data.
 
 INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
 AND
FINANCIAL STATEMENT SCHEDULE
 
 PageConsolidated Financial
      Statements:Report
      of Independent Registered Public Accounting Firm
              
              34Consolidated
      Balance Sheets as of December 31, 2009 and 2008
              
              35Consolidated
      Statements of Operations for the Years Ended December 31, 2009, 2008
      and 2007
              
              36Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2009, 2008
      and 2007
              
              37Consolidated
      Statements of Comprehensive Income (Loss) and Shareholders' Equity for the
      Years Ended December 31, 2009, 2008 and 2007
              
              38Notes
      to Consolidated Financial Statements
              
              39Financial Statement
      Schedule:Schedule II
      –Valuation and
      Qualifying Accounts
              
              74
 
 33
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
 
 The Board
of Directors and Shareholders of
 Stoneridge,
Inc. and Subsidiaries
 
 We have audited the accompanying consolidated balance sheets
of Stoneridge, Inc. and Subsidiaries as of December 31, 2009 and 2008, and the
related consolidated statements of operations, other comprehensive income (loss)
and shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 2009. Our audits also included the financial statement
schedule listed in the Index at Item 15. These financial statements and schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
 In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Stoneridge, Inc. and Subsidiaries at December 31, 2009 and 2008, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2009, in conformity with U.S.
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
 
 As
discussed in Note 2 to the consolidated financial statements, in 2009 the
Company changed its method of accounting for business combinations.
 
 We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Stoneridge, Inc. and Subsidiaries’ internal
control over financial reporting as of December 31, 2009, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated March
16, 2010 expressed an unqualified opinion thereon.
 
 
 /s/ Ernst
& Young LLP
 
 March 16,
2010
  34
  STONERIDGE,
INC. AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 (in
thousands)
 
 December
      31,2009
              
              
              2008ASSETSCurrent
      Assets:Cash
      and cash equivalents
              
              $
              91,907
              
              
              $
              92,692Accounts
      receivable, less reserves of $2,350 and $4,204,
    respectively
              
              
              81,272
              
              
              
              96,535Inventories,
      net
              
              
              40,244
              
              
              
              54,800Prepaid
      expenses and other
              
              
              17,247
              
              
              
              10,564Total
      current assets
              
              
              230,670
              
              
              
              254,591Long-Term
      Assets:Property,
      plant and equipment, net
              
              
              76,991
              
              
              
              87,701Investments
      and other, net
              
              
              54,864
              
              
              
              40,145Total
      long-term assets
              
              
              131,855
              
              
              
              127,846Total
      Assets
              
              $
              362,525
              
              
              $
              382,437LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      Liabilities:Accounts
      payable
              
              $
              50,947
              
              
              $
              50,719Accrued
      expenses and other
              
              
              36,827
              
              
              
              43,485Total
      current liabilities
              
              
              87,774
              
              
              
              94,204Long-Term
      Liabilities:Long-term
      debt
              
              
              183,431
              
              
              
              183,000Other
      long-term liabilities
              
              
              17,263
              
              
              
              13,475Total
      long-term liabilities
              
              
              200,694
              
              
              
              196,475Shareholders'
      Equity:Preferred
      Shares, without par value, authorized 5,000 shares, none
      issued
              
              
              -
              
              
              
              -Common
      Shares, without par value, authorized 60,000 shares, issued 25,301 and
      24,772shares
      and outstanding 25,000 and 24,665 shares, respectively, with no stated
      value
              
              
              -
              
              
              
              -Additional
      paid-in capital
              
              
              158,748
              
              
              
              158,039Common
      Shares held in treasury, 301 and 107 shares, respectively, at
      cost
              
              
              (292
              )
              
              
              (129
              )Accumulated
      deficit
              
              
              (91,560
              )
              
              
              (59,155
              )Accumulated
      other comprehensive income (loss)
              
              
              2,669
              
              
              
              (6,997
              )Total
      Stoneridge Inc. and Subsidiaries shareholders’ equity
              
              
              69,565
              
              
              
              91,758Noncontrolling
      interest
              
              
              4,492
              
              
              
              -Total
      shareholders' equity
              
              
              74,057
              
              
              
              91,758Total
      Liabilities and Shareholders' Equity
              
              $
              362,525
              
              
              $
              382,437
  The
accompanying notes are an integral part of these consolidated financial
statements.
  35
  STONERIDGE,
INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (in
thousands, except per share data)
 
 For
      the Years EndedDecember
      31,2009
              
              
              2008
              
              
              2007Net
      Sales
              
              $
              475,152
              
              
              $
              752,698
              
              
              $
              727,120Costs
      and Expenses:Cost
      of goods sold
              
              
              387,167
              
              
              
              586,411
              
              
              
              559,397Selling,
      general and administrative
              
              
              102,583
              
              
              
              135,992
              
              
              
              131,998Goodwill
      impairment charge
              
              
              -
              
              
              
              65,175
              
              
              
              -Restructuring
      charges
              
              
              3,645
              
              
              
              8,391
              
              
              
              926Operating
      Income (Loss)
              
              
              (18,243
              )
              
              
              (43,271
              )
              
              
              34,799Interest
      expense, net
              
              
              21,965
              
              
              
              20,575
              
              
              
              21,759Equity
      in earnings of investees
              
              
              (7,775
              )
              
              
              (13,490
              )
              
              
              (10,893
              )Other
      expense, net
              
              
              893
              
              
              
              419
              
              
              
              709Income
      (Loss) Before Income Taxes
              
              
              (33,326
              )
              
              
              (50,775
              )
              
              
              23,224Provision
      (benefit) for income taxes
              
              
              (1,003
              )
              
              
              46,752
              
              
              
              6,553Net
      Income (Loss)
              
              
              (32,323
              )
              
              
              (97,527
              )
              
              
              16,671Net
      Income Attributable to Noncontrolling Interest
              
              
              82
              
              
              
              -
              
              
              
              -Net
      Income (Loss) Attributable to Stoneridge, Inc. and
      Subsidiaries
              
              $
              (32,405
              )
              
              $
              (97,527
              )
              
              $
              16,671Basic
      net income (loss) per share
              
              $
              (1.37
              )
              
              $
              (4.17
              )
              
              $
              0.72Basic
      weighted average shares outstanding
              
              
              23,626
              
              
              
              23,367
              
              
              
              23,133Diluted
      net income (loss) per share
              
              $
              (1.37
              )
              
              $
              (4.17
              )
              
              $
              0.71Diluted
      weighted average shares outstanding
              
              
              23,626
              
              
              
              23,367
              
              
              
              23,548
  The
accompanying notes are an integral part of these consolidated financial
statements.
  36
  STONERIDGE,
INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (in
thousands)
 
 For
      the Years EndedDecember
      31,2009
              
              
              2008
              
              
              2007OPERATING
      ACTIVITIES:Net
      income (loss)
              
              $
              (32,323
              )
              
              $
              (97,527
              )
              
              $
              16,671Adjustments
      to reconcile net income (loss) to net cash provided byoperating
      activities -Depreciation
              
              
              19,875
              
              
              
              26,196
              
              
              
              28,299Amortization
              
              
              1,053
              
              
              
              1,320
              
              
              
              1,522Deferred
      income taxes
              
              
              (3,200
              )
              
              
              46,239
              
              
              
              3,823Earnings
      of equity method investees, less dividends received
              
              
              (474
              )
              
              
              (9,277
              )
              
              
              (5,299
              )Loss
      (Gain) on sale of fixed assets
              
              
              219
              
              
              
              (571
              )
              
              
              (1,710
              )Share-based
      compensation expense
              
              
              1,252
              
              
              
              3,425
              
              
              
              2,431Loss
      on early extinguishment of debt
              
              
              -
              
              
              
              770
              
              
              
              -Goodwill
      impairment charge
              
              
              -
              
              
              
              65,175
              
              
              
              -Changes
      in operating assets and liabilities -Accounts
      receivable, net
              
              
              16,619
              
              
              
              20,087
              
              
              
              (13,424
              )Inventories,
      net
              
              
              17,255
              
              
              
              (1,786
              )
              
              
              933Prepaid
      expenses and other
              
              
              (1,060
              )
              
              
              2,656
              
              
              
              1,474Accounts
      payable
              
              
              (2,111
              )
              
              
              (14,769
              )
              
              
              (4,881
              )Accrued
      expenses and other
              
              
              (3,281
              )
              
              
              518
              
              
              
              3,686Net
      cash provided by operating activities
              
              
              13,824
              
              
              
              42,456
              
              
              
              33,525INVESTING
      ACTIVITIES:Capital
      expenditures
              
              
              (11,998
              )
              
              
              (24,573
              )
              
              
              (18,141
              )Proceeds
      from sale of fixed assets
              
              
              201
              
              
              
              1,652
              
              
              
              12,315Business
      acquisitions
              
              
              (5,967
              )
              
              
              (980
              )
              
              
              -Net
      cash used by investing activities
              
              
              (17,764
              )
              
              
              (23,901
              )
              
              
              (5,826
              )FINANCING
      ACTIVITIES:Repayments
      of long-term debt
              
              
              -
              
              
              
              (17,000
              )
              
              
              -Revolving
      credit facility borrowings
              
              
              336
              
              
              
              -
              
              
              
              -Share-based
      compensation activity
              
              
              -
              
              
              
              1,322
              
              
              
              2,119Premiums
      related to early extinguishment of debt
              
              
              -
              
              
              
              (553
              )
              
              
              -Other
      financing costs
              
              
              -
              
              
              
              -
              
              
              
              (1,219
              )Net
      cash provided (used) by financing activities
              
              
              336
              
              
              
              (16,231
              )
              
              
              900Effect
      of exchange rate changes on cash and cash equivalents
              
              
              2,819
              
              
              
              (5,556
              )
              
              
              1,443Net
      change in cash and cash equivalents
              
              
              (785
              )
              
              
              (3,232
              )
              
              
              30,042Cash
      and cash equivalents at beginning of period
              
              
              92,692
              
              
              
              95,924
              
              
              
              65,882Cash
      and cash equivalents at end of period
              
              $
              91,907
              
              
              $
              92,692
              
              
              $
              95,924Supplemental
      disclosure of cash flow information:Cash
      paid for interest, net
              
              $
              20,981
              
              
              $
              20,048
              
              
              $
              20,637Cash
      paid for income taxes, net
              
              $
              2,319
              
              
              $
              4,466
              
              
              $
              3,672
  The
accompanying notes are an integral part of these consolidated financial
statements.
  37
  STONERIDGE,
INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF OTHER COMPREHENSIVE INCOME (LOSS)
 AND
SHAREHOLDERS’ EQUITY
 (in
thousands)
 
 Number
      of Common Shares
              
              
              Number
      of Treasury Shares
              
              
              Additional
      Paid-in Capital
              
              
              Common
      Shares Held in Treasury
              
              
              Retained
      Earnings (Accumulated Deficit)
              
              
              Accumulated
      Other Comprehensive Income (Loss)
              
              
              Noncontrolling
      Interest
              
              
              Total
      Shareholders' EquityBALANCE,
      DECEMBER 31, 2006
              
              
              23,804
              
              
              
              186
              
              
              $
              150,078
              
              
              $
              (151
              )
              
              $
              21,701
              
              
              $
              6,994
              
              
              $
              -
              
              
              $
              178,622Net
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              16,671
              
              
              
              -
              
              
              
              -
              
              
              
              16,671Pension
      liability adjustments
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,039
              
              
              
              -
              
              
              
              1,039Unrealized
      gain on marketable securities
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              44
              
              
              
              -
              
              
              
              44Unrealized
      loss on derivatives
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (37
              )
              
              
              -
              
              
              
              (37
              )Currency
      translation adjustments
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              5,987
              
              
              
              -
              
              
              
              5,987Comprehensive
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              23,704Exercise
      of share options
              
              
              164
              
              
              
              -
              
              
              
              1,552
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,552Issuance
      of restricted Common Shares
              
              
              447
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Forfeited
      restricted Common Shares
              
              
              (181
              )
              
              
              181
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Repurchased
      Common Shares for treasury
              
              
              (25
              )
              
              
              25
              
              
              
              -
              
              
              
              (232
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (232
              )Share-based
      compensation matters
              
              
              -
              
              
              
              -
              
              
              
              2,543
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,543BALANCE,
      DECEMBER 31, 2007
              
              
              24,209
              
              
              
              392
              
              
              
              154,173
              
              
              
              (383
              )
              
              
              38,372
              
              
              
              14,027
              
              
              
              -
              
              
              
              206,189Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (97,527
              )
              
              
              -
              
              
              
              -
              
              
              
              (97,527
              )Pension
      liability adjustments
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,531
              )
              
              
              -
              
              
              
              (1,531
              )Unrealized
      loss on marketable securities
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (10
              )
              
              
              -
              
              
              
              (10
              )Unrealized
      loss on derivatives
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (4,977
              )
              
              
              -
              
              
              
              (4,977
              )Currency
      translation adjustments
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (14,506
              )
              
              
              -
              
              
              
              (14,506
              )Comprehensive
      loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (118,551
              )Exercise
      of share options
              
              
              88
              
              
              
              -
              
              
              
              795
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              795Issuance
      of restricted Common Shares
              
              
              462
              
              
              
              (379
              )
              
              
              -
              
              
              
              383
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              383Forfeited
      restricted Common Shares
              
              
              (73
              )
              
              
              73
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Repurchased
      Common Shares for treasury
              
              
              (21
              )
              
              
              21
              
              
              
              -
              
              
              
              (129
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (129
              )Share-based
      compensation matters
              
              
              -
              
              
              
              -
              
              
              
              3,071
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              3,071BALANCE,
      DECEMBER 31, 2008
              
              
              24,665
              
              
              
              107
              
              
              
              158,039
              
              
              
              (129
              )
              
              
              (59,155
              )
              
              
              (6,997
              )
              
              
              -
              
              
              
              91,758Net
      income (loss)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (32,405
              )
              
              
              -
              
              
              
              82
              
              
              
              (32,323
              )Pension
      liability adjustments
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (3,130
              )
              
              
              -
              
              
              
              (3,130
              )Unrealized
      gain on marketable securities
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              6
              
              
              
              -
              
              
              
              6Unrealized
      gain on derivatives
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              6,724
              
              
              
              -
              
              
              
              6,724Currency
      translation adjustments
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              6,066
              
              
              
              -
              
              
              
              6,066Comprehensive
      loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (22,657
              )Business
      acquisition
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              4,410
              
              
              
              4,410Exercise
      of share options
              
              
              7
              
              
              
              -
              
              
              
              3
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              3Issuance
      of restricted Common Shares
              
              
              522
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Forfeited
      restricted Common Shares
              
              
              (153
              )
              
              
              153
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Repurchased
      Common Shares for treasury
              
              
              (41
              )
              
              
              41
              
              
              
              -
              
              
              
              (163
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (163
              )Share-based
      compensation matters
              
              
              -
              
              
              
              -
              
              
              
              706
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              706BALANCE,
      DECEMBER 31, 2009
              
              
              25,000
              
              
              
              301
              
              
              $
              158,748
              
              
              $
              (292
              )
              
              $
              (91,560
              )
              
              $
              2,669
              
              
              $
              4,492
              
              
              $
              74,057
  The
accompanying notes are an integral part of these consolidated financial
statements.
  38
  STONERIDGE,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in
thousands, except share and per share data, unless otherwise
indicated)
 
 1.
Organization and Nature of Business
 
 Stoneridge,
Inc. and its subsidiaries are independent designers and manufacturers of highly
engineered electrical and electronic components, modules and systems for the
medium- and heavy-duty truck, automotive, agricultural and off-highway vehicle
markets.
 
 2.
Summary of Significant Accounting Policies
 
 Basis
of Presentation
 
 The
accompanying consolidated financial statements include the accounts of
Stoneridge, Inc. and its wholly-owned and majority-owned subsidiaries
(collectively, the “Company”).  Intercompany transactions and balances
have been eliminated in consolidation.  The Company accounts for
investments in joint ventures in which it owns between 20% and 50% of equity or
otherwise acquires management influence using the equity method (Note
3).
 
 Accounting
Standards Codification
 
 During
2009, the Company adopted the Financial Accounting Standards Board (“FASB”) -
Accounting Standards Update No. 2009-01,Generally Accepted Accounting
Principles(“GAAP”), which establishes the FASB Accounting Standards
CodificationTM (“ASC”
or “Codification”) as the official single source of authoritative U.S.
GAAP.  All existing accounting standards were
superseded.  All other accounting guidance not included in the
Codification will be considered non-authoritative.  The Codification
also includes all relevant Securities and Exchange Commission (“SEC”) guidance
organized using the same topical structure in separate sections within the
Codification.  In order to ease the transition to the Codification,
the Company is providing the Codification cross-reference alongside the
references to the standards issued and adopted prior to the adoption of the
Codification.
 
 Cash
and Cash Equivalents
 
 The
Company considers all short-term investments with original maturities of three
months or less to be cash equivalents. Cash equivalents are stated at cost,
which approximates fair value, due to the highly liquid nature and short-term
duration of the underlying securities.
 
 Accounts
Receivable and Concentration of Credit Risk
 
 Revenues
are principally generated from the medium- and heavy-duty truck, automotive,
agricultural and off-highway vehicle markets.  The Company’s largest
customers were Navistar International and Deere & Company, which accounted
for approximately 27%, 26% and 20% and 12%, 10% and 7% of net sales for the
years ended December 31, 2009, 2008 and 2007, respectively.
  39
 
 STONERIDGE,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in
thousands, except share and per share data, unless otherwise
indicated)
 
 Inventories
 
 Inventories
are valued at the lower of cost or market.  Cost is determined by the
last-in, first-out (“LIFO”) method for approximately 69% and 72% of the
Company’s inventories at December 31, 2009 and 2008, respectively, and by the
first-in, first-out method for all other inventories.  The Company
adjusts its excess and obsolescence reserve at least on a quarterly
basis.  Excess inventories are quantities of items that exceed
anticipated sales or usage for a reasonable period.  The Company uses
guidelines and judgment for calculating provisions for excess inventories based
on the number of months of inventories on hand compared to anticipated sales or
usage.  Inventory cost includes material, labor and overhead.
Inventories consist of the following at December 31:
 
 2009
              
              
              2008Raw
      materials
              
              $
              26,118
              
              
              $
              32,981Work-in-progress
              
              
              9,137
              
              
              
              8,876Finished
      goods
              
              
              8,226
              
              
              
              15,890Total
      inventories
              
              
              43,481
              
              
              
              57,747Less:
      LIFO reserve
              
              
              (3,237
              )
              
              
              (2,947
              )Inventories,
      net
              
              $
              40,244
              
              
              $
              54,800
 
 Property,
Plant and Equipment
 
 Property,
plant and equipment are recorded at cost and consist of the following at
December 31:
 
 2009
              
              
              2008Land
      and land improvements
              
              $
              3,131
              
              
              $
              3,872Buildings
      and improvements
              
              
              34,610
              
              
              
              35,325Machinery
      and equipment
              
              
              132,936
              
              
              
              131,061Office
      furniture and fixtures
              
              
              7,163
              
              
              
              6,586Tooling
              
              
              63,566
              
              
              
              62,163Information
      technology
              
              
              24,070
              
              
              
              21,714Vehicles
              
              
              431
              
              
              
              314Leasehold
      improvements
              
              
              2,904
              
              
              
              2,359Construction
      in progress
              
              
              11,779
              
              
              
              14,878Total
      property, plant and equipment
              
              
              280,590
              
              
              
              278,272Less:
      Accumulated depreciation
              
              
              (203,599
              )
              
              
              (190,571
              )Property,
      plant and equipment, net
              
              $
              76,991
              
              
              $
              87,701
 
 As a
result of the restructuring plan approved on October 29, 2007 (See Note 11), the
manufacturing facility located in Sarasota, Florida was closed in
2008.  This facility was included within the Control Devices
segment.  In 2009, the Company classified the Sarasota, Florida
facility as an asset held for sale and has included the net book value of the
facility of $3,757 within the December 31, 2009 consolidated balance sheet as a
component of prepaid expenses and other.
  40
 
 STONERIDGE,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in
thousands, except share and per share data, unless otherwise
indicated)
 
 Depreciation
is provided using the straight-line method over the estimated useful lives of
the assets. Depreciation expense for the years ended December 31, 2009, 2008 and
2007 was $19,875, $26,196 and $28,299, respectively.  Depreciable
lives within each property classification are as follows:
 
 Buildings
      and improvements
              
              10–40
      yearsMachinery
      and equipment
              
              3–20
      yearsOffice
      furniture and fixtures
              
              3–10
      yearsTooling
              
              2–5
      yearsInformation
      technology
              
              3–5
      yearsVehicles
              
              3–5
      yearsLeasehold
      improvements
              
              3–8
      years
 
 Maintenance
and repair expenditures that are not considered improvements and do not extend
the useful life of the property, plant and equipment are charged to expense as
incurred.  Expenditures for improvements and major renewals are
capitalized.  When assets are retired or otherwise disposed of, the
related cost and accumulated depreciation are removed from the accounts, and any
gain or loss on the disposition is recorded in the consolidated statement of
operations as a component of selling, general and administrative.
 
 Impairment
of Finite-Lived Assets
 
 The
Company reviews its long-lived assets and identifiable intangible assets with
finite lives for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.  No
significant impairment charges were recorded in 2009, 2008 or 2007 for finite
lived assets.  Impairment would be recognized when events or changes
in circumstances indicate that the carrying amount of the asset may not be
recovered.  Measurement of the amount of impairment may be based on
appraisal, market values of similar assets or estimated discounted future cash
flows resulting from the use and ultimate disposition of the asset.
 
 Acquisitions
 
 Effective
January 1, 2009, the Company adopted Statement of Financial Accounting Standard
(“SFAS”) No. 141(R), Business
Combinations (ASC Topic 805) which requires, among other things, the
acquiring entity in a business combination to recognize the fair value of all
the assets acquired and liabilities assumed; the recognition of
acquisition-related costs in the consolidated statement of operations and
contingent purchase consideration to be recognized at their fair values on the
acquisition date with subsequent adjustments recognized in the consolidated
statement of operations.
 
 On
October 13, 2009, the Company acquired a 51% membership interest in Bolton
Conductive Systems, LLC (“BCS”) for a purchase price of $5,967, net of cash
acquired.  BCS designs and manufactures a wide variety of electrical
solutions for the military, automotive, marine and specialty vehicle markets and
is based in Walled Lake, Michigan.  The Company acquired a majority
interest in BCS in order to expand its presence in the military
channel.  The Company may be required to make an additional payment to
the prior owners of BCS for its 51% membership interest based on BCS achieving
financial performance targets as defined by the purchase
agreement.  The maximum amount of additional payments to the prior
owners of BCS is $3,200 per year in 2011, 2012 and 2013 and is contingent upon
BCS achieving profitability targets based on earnings before interest, income
taxes, depreciation and amortization in 2010, 2011 and 2012, respectively. In
addition, the Company may be required to make additional payments to BCS of $450
in 2011 and $500 in 2012 based on BCS achieving annual revenue targets in 2010
and 2011, respectively.  Per ASC Topic 805, the Company recorded $893;
the fair value of the estimated future additional payments to the prior owners
of BCS as of the acquisition date on the consolidated balance sheet as a
component of other long-term liabilities.  The estimated future
additional payments to the prior owners of BCS were based upon an analysis of
forecasted operating results and the probability of achieving the forecasted
targets.  The purchase agreement provides the Company with the option
to purchase the remaining 49% interest in BCS in 2013 at a price determined in
accordance with the purchase agreement.  If the Company does not
exercise this option then the minority owners of BCS have the option in 2014 to
purchase the Company’s 51% interest in BCS at a price determined in accordance
with the purchase agreement or to jointly market BCS for sale.  BCS’s
results of operations are included in the Company’s consolidated statement of
operations from its date of acquisition.
  41
 
 STONERIDGE,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in
thousands, except share and per share data, unless otherwise
indicated)
 
 The
Company has preliminarily allocated the consideration transferred to net
tangible assets acquired, intangible assets, goodwill and noncontrolling
interest, of $927, $1,144, $9,199 and $4,410, respectively as of the acquisition
date.
 
 The
Company incurred approximately $300 of acquisition costs related to the BCS
purchase.  These costs are included in selling, general and
administrative on the consolidated statement of operations for the year ended
December 31, 2009.
 
 On March
31, 2008, the Company acquired Magnum Trade AB, a commercial vehicle aftermarket
distributor operating in northern Europe for $980.
 
 Noncontrolling Interest
 
 Effective
January 1, 2009, the Company adopted SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements – an amendment of Accounting Research Bulletin
No. 51 (ASC Topic 810-10-65).  ASC Topic 810-10-65 requires
that noncontrolling interests be reported as a component of equity; net income
(loss) attributable to the parent and the noncontrolling interest be separately
identified in the consolidated statement of operations; changes in a parent's
ownership interest be treated as equity transactions if control is maintained;
and upon a loss of control, any gain or loss on the interest be recognized in
the consolidated statement of operations.  ASC Topic 810-10-65 also
requires expanded disclosures to clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners. In
connection with the Company’s acquisition of BCS during 2009, it recorded $4,410
of noncontrolling interest as a component of shareholders’ equity as of the
acquisition date.
 
 Goodwill
and Other Intangible Assets
 
 Goodwill
is subject to an annual assessment for impairment (or more frequently if
impairment indicators arise) by applying a fair value-based test.
 
 The
Company performs its annual impairment test of goodwill as of the beginning of
the fourth quarter.  The Company uses a combination of valuation
techniques, which include consideration of a market-based approach (guideline
company method) and an income approach (discounted cash flow method), in
determining the fair value of the Company’s applicable reporting units in the
annual impairment test of goodwill.  The Company believes that the
combination of the valuation models provides a more appropriate valuation of the
Company’s reporting units by taking into account different marketplace
participant assumptions.  Both methods utilize market data in the
derivation of a value estimate and are forward-looking in nature.  The
guideline assessment of future performance and the discounted cash flow method
utilize a market-derived rate of return to discount anticipated
performance.
 
 These
methodologies are applied to the reporting units’ historical and projected
financial performance.  The impairment review is highly judgmental and
involves the use of significant estimates and assumptions.  These
estimates and assumptions have a significant impact on the amount of any
impairment charge recorded.  Discounted cash flow methods are
dependent upon assumption of future sales trends, market conditions and cash
flows of each reporting unit over several years.  Actual cash flows in
the future may differ significantly from those previously
forecasted.  Other significant assumptions include growth rates and
the discount rate applicable to future cash flows.
 
 As of the
beginning of the fourth quarter of 2008, the Company’s goodwill balance of $65.2
million was related to the Control Devices reportable segment.  The
Company completed its annual assessment of any potential goodwill impairment as
of October 1, 2008 and determined that no impairment existed.
 
 Due to
significant declines in the automotive sector and the world economy as a whole
during the fourth quarter of 2008, the Company performed an additional
impairment test as of December 31, 2008.  The initial December 31,
2008 impairment test indicated that the carrying value of the Company’s
reporting units significantly exceeded the corresponding fair value of the
reporting units.  The implied fair value of goodwill in these
reporting units were then determined through the allocation of the fair value to
the underlying assets and liabilities.  At December 31, 2008, the
carrying value of the reporting units was greater than the implied fair value;
therefore the Company recorded a goodwill impairment charge of $65.2 million,
within the Control Devices reportable segment as a component of operating loss
in the accompanying consolidated statements of operations.
  42
 
 STONERIDGE,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in
thousands, except share and per share data, unless otherwise
indicated)
 
 The
goodwill impairment charge resulted primarily from the significant deterioration
in the global economic environment including tightening credit markets, stock
market declines and significant reductions in current and forecasted production
volumes for light and commercial vehicles during the quarter ended December 31,
2008.  This lead to a significant decline in the Company’s stock
price, which resulted in a market capitalization less than the Company’s
carrying value at December 31, 2008 prior to the impairment test.
 
 During
the fourth quarter of 2009, the Company allocated $715 of the BCS purchase price
to intangible assets related to customer relationships, with a weighted average
useful life of 8.1 years and $429 to trademarks with a useful life of 3.0
years.  These intangible assets are included on the consolidated
balance sheet as a component of investments and other, net.  The
Company recognized $64 of amortization expense in 2009 from the BCS intangible
assets, which is included as a component of selling, general and administrative
on the consolidated statement of operations for the year ended December 31,
2009.  Amortization expense for these intangible assets is estimated
to be $231, $231, $201, $88 and $75 for 2010, 2011, 2012, 2013 and 2014,
respectively.
 
 The
Company recorded goodwill of $9,199 within the Electronics segment from the BCS
acquisition.  Goodwill is included on the consolidated balance sheet
as a component of investments and other, net.  This goodwill is not
deductible for income tax purposes.
 
 In 2008,
the Company recorded $544 of goodwill from the Magnum Trade AB acquisition,
which is included in investments and other, net on the consolidated balance
sheet.
 
 The
change in the carrying value of goodwill by reportable segment during 2009 and
2008 was as follows:
 
 2009
              
              
              2008Control
              
              
              
              
              
              ControlElectronics
              
              
              Devices
              
              
              Electronics
              
              
              DevicesGoodwill
      at beginning of period
              
              $
              494
              
              
              $
              -
              
              
              $
              -
              
              
              $
              65,176Goodwill
      acquired
              
              
              9,199
              
              
              
              -
              
              
              
              544
              
              
              
              -Translation
      adjustment
              
              
              50
              
              
              
              -
              
              
              
              (50
              )
              
              
              -Impairment
      charge
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (65,176
              )Goodwill
      at end of period
              
              $
              9,743
              
              
              $
              -
              
              
              $
              494
              
              
              $
              -
  The
Company fully amortized its patents during the year ended December 31,
2008.  Aggregate amortization expense on patents was $203 and $204 for
the years ended December 31, 2008 and December 31, 2007, respectively and was
included on the consolidated statement of operations as a component of selling,
general and administrative.
 
 Accrued
Expenses and Other Current Liabilities
 
 Accrued
expenses and other current liabilities consist of the following at December
31:
 
 2009
              
              
              2008Compensation
      related obligations
              
              $
              13,553
              
              
              $
              18,027Warranty
      and recall related obligations
              
              
              4,764
              
              
              
              5,527Other
      (1)
              
              
              18,510
              
              
              
              19,931Total
      accrued expenses and other current liabilities
              
              $
              36,827
              
              
              $
              43,485
  
  43
  STONERIDGE,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in
thousands, except share and per share data, unless otherwise
indicated)
 
 Income
Taxes
 
 The
Company accounts for income taxes using the liability method. Deferred income
taxes reflect the tax consequences on future years of differences between the
tax basis of assets and liabilities and their financial reporting amounts.
Future tax benefits are recognized to the extent that realization of such
benefits is more likely than not to occur.  During the year ended
December 31, 2008, primarily as a result of the goodwill impairment charge
incurred, the Company determined that it was more likely than not that the
Company would not be able to realize its deferred tax asset in the
U.S..  As a result, the Company recorded a valuation allowance of
$62,006 in 2008.  The Company has recorded a full valuation allowance
in 2009.
 
 The
Company's policy is to provide for uncertain tax positions and the related
interest and penalties based upon management's assessment of whether a tax
benefit is more likely than not to be sustained upon examination by tax
authorities.  At December 31, 2009, the Company believes it has
appropriately accounted for any unrecognized tax benefits.  To the
extent the Company prevails in matters for which a liability for an unrecognized
tax benefit is established or is required to pay amounts in excess of the
liability, the Company's effective tax rate in a given financial statement
period may be affected.
 
 Currency
Translation
 
 The
financial statements of foreign subsidiaries, where the local currency is the
functional currency, are translated into U.S. dollars using exchange rates in
effect at the period end for assets and liabilities and average exchange rates
during each reporting period for the results of
operations.  Adjustments resulting from translation of financial
statements are reflected as a component of accumulated other comprehensive
income (loss).  Foreign currency transactions are remeasured into the
functional currency using translation rates in effect at the time of the
transaction, with the resulting adjustments included on the consolidated
statement of operations.
 
 Revenue
Recognition and Sales Commitments
 
 The
Company recognizes revenues from the sale of products, net of actual and
estimated returns, at the point of passage of title, which is generally at the
time of shipment.  Estimated returns are based on authorized
returns.  The Company often enters into agreements with its customers
at the beginning of a given vehicle’s expected production life.  Once
such agreements are entered into, it is the Company’s obligation to fulfill the
customers’ purchasing requirements for the entire production life of the
vehicle.  These agreements are subject to renegotiation, which may
affect product pricing.
 
 Allowance
for Doubtful Accounts
 
 The
Company evaluates the collectability of accounts receivable based on a
combination of factors.  In circumstances where the Company is aware
of a specific customer’s inability to meet its financial obligations, a specific
allowance for doubtful accounts is recorded against amounts due to reduce the
net recognized receivable to the amount the Company reasonably believes will be
collected.  Additionally, the Company reviews historical trends for
collectability in determining an estimate for its allowance for doubtful
accounts.  If economic circumstances change substantially, estimates
of the recoverability of amounts due to the Company could be reduced by a
material amount.  The Company does not have collateral requirements
with its customers.
 
 Product
Warranty and Recall Reserves
 
 Amounts
accrued for product warranty and recall claims are established based on the
Company’s best estimate of the amounts necessary to settle future and existing
claims on products sold as of the balance sheet dates.  These accruals
are based on several factors including past experience, production changes,
industry developments and various other considerations.  The Company
can provide no assurances that it will not experience material claims in the
future or that it will not incur significant costs to defend or settle such
claims beyond the amounts accrued or beyond what the Company may recover from
its suppliers.
  44
  STONERIDGE,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in
thousands, except share and per share data, unless otherwise
indicated)
  The
following provides a reconciliation of changes in product warranty and recall
liability for the years ended December 31:
 
 2009
              
              
              2008Product
      warranty and recall at beginning of period
              
              $
              5,527
              
              
              $
              5,306Accruals
      for products shipped during period
              
              
              2,166
              
              
              
              5,487Aggregate
      changes in pre-existing liabilities due to claims
    developments
              
              
              1,945
              
              
              
              1,157Settlements
      made during the period (in cash or in kind)
              
              
              (4,874
              )
              
              
              (6,423
              )Product
      warranty and recall at end of period
              
              $
              4,764
              
              
              $
              5,527
 
 Product
Development Expenses
 
 Expenses
associated with the development of new products and changes to existing products
are charged to expense as incurred.  These costs amounted to $32,993,
$45,509 and $45,223 in years ended December 31, 2009, 2008 and 2007,
respectively or 6.9%, 6.0% and 6.2% of net sales for these periods.
 
 Share-Based
Compensation
 
 At
December 31, 2009, the Company had three types of share-based compensation
plans: (1) Long-Term Incentive Plan (the “Incentive Plan”), (2) Directors’ Share
Option Plan and (3) the Directors’ Restricted Shares Plan.  One plan
is for employees and two plans are for non-employee directors.  The
Incentive Plan is made up of the Long-Term Incentive Plan that
was approved by the Company's shareholders on September 30, 1997
and expired on June 30, 2007 and the Amended and Restated Long-Term
Incentive Plan that was approved by the Company's shareholders on April 24,
2006 and expires on April 24, 2016.
 
 Total
compensation expense recognized as a component of selling, general and
administrative on the consolidated statements of operations for share-based
compensation arrangements was $1,252, $3,425 and $2,431 for the years ended
December 31, 2009, 2008 and 2007, respectively.  There was no
share-based compensation expense capitalized as inventory in 2009, 2008 or
2007.
 
 Financial
Instruments and Derivative Financial Instruments
 
 Financial
instruments, including derivative financial instruments, held by the Company
include cash and cash equivalents, accounts receivable, accounts payable,
long-term debt and foreign currency forward contracts. The carrying value of
cash and cash equivalents, accounts receivable and accounts payable is
considered to be representative of fair value because of the short maturity of
these instruments.  Refer to Note 9 of the Company’s consolidated
financial statements for fair value disclosures of the Company’s foreign
currency forward contracts.
 
 Common
Shares Held in Treasury
 
 The
Company accounts for Common Shares held in treasury under the cost method and
includes such shares as a reduction of total shareholders’ equity.
 
 Accounting
Estimates
 
 The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, including certain self-insured risks and liabilities,
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Because actual results could differ from those estimates,
the Company revises its estimates and assumptions as new information becomes
available.
  45





STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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




Net
Income (Loss) Per Share





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





For
      the Years EndedDecember
      31,2009
            
            
            2008
            
            
            2007Basic
      weighted-average shares outstanding
            
            
            23,625,923
            
            
            
            23,366,515
            
            
            
            23,132,814Effect
      of dilutive securities
            
            
            -
            
            
            
            -
            
            
            
            415,669Diluted
      weighted-average shares outstanding
            
            
            23,625,923
            
            
            
            23,366,515
            
            
            
            23,548,483





Options
not included in the computation of diluted net income (loss) per share to
purchase 169,750, 74,000 and 89,500 Common Shares at an average price of $9.57,
$14.86 and $14.61 per share were outstanding at December 31, 2009, 2008 and
2007, respectively.  These outstanding options were not included in
the computation of diluted net income (loss) per share because their respective
exercise prices were greater than the average market price of Common
Shares.





There
were 395,925 and 628,275 performance-based restricted Common Shares outstanding
at December 31, 2009 and 2008, respectively. These shares were not included in
the computation of diluted net income (loss) per share because not all vesting
conditions were achieved as of December 31, 2009 and 2008.  These
shares may or may not become dilutive based on the Company’s ability to exceed
future earnings thresholds.





Comprehensive
Income (Loss)





Other
comprehensive income (loss) includes foreign currency translation adjustments
and gains and losses from certain foreign currency transactions, the effective
portion of gains and losses on certain hedging activities, pension liability
adjustments and unrealized gains and losses on available-for-sale marketable
securities.





The
components of accumulated other comprehensive income (loss), as reported on the
consolidated statement of other comprehensive income (loss) and shareholders’
equity as of December 31, net of tax were as follows:





Currency
              Translation
              Adjustments
            
            
            Pension
              Liability
              Adjustments
            
            
            Unrealized
              Gain
      (Loss) on
              Marketable
              Securities
            
            
            Unrealized
              Gain
      (Loss) on
              Derivatives
            
            
            Accumulated
              Other
              Comprehensive
              Income
      (Loss)Balance,
      January 1, 2007
            
            $
            8,525
            
            
            $
            (1,467
            )
            
            $
            (64
            )
            
            $
            -
            
            
            $
            6,994Current
      year change
            
            
            5,987
            
            
            
            1,039
            
            
            
            44
            
            
            
            (37
            )
            
            
            7,033Balance,
      December 31, 2007
            
            
            14,512
            
            
            
            (428
            )
            
            
            (20
            )
            
            
            (37
            )
            
            
            14,027Current
      year change
            
            
            (14,506
            )
            
            
            (1,531
            )
            
            
            (10
            )
            
            
            (4,977
            )
            
            
            (21,024
            )Balance,
      December 31, 2008
            
            
            6
            
            
            
            (1,959
            )
            
            
            (30
            )
            
            
            (5,014
            )
            
            
            (6,997
            )Current
      year change
            
            
            6,066
            
            
            
            (3,130
            )
            
            
            6
            
            
            
            6,724
            
            
            
            9,666Balance,
      December 31, 2009
            
            $
            6,072
            
            
            $
            (5,089
            )
            
            $
            (24
            )
            
            $
            1,710
            
            
            $
            2,669




46


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


The tax
effects related to each component of other comprehensive income (loss) were as
follows:





Before
      Tax
              Amount
            
            
            Benefit
      /
              (Provision)
            
            
            After-Tax
              Amount2007Foreign
      currency translation adjustments
            
            $
            5,987
            
            
            $
            -
            
            
            $
            5,987Pension
      liability adjustments
            
            
            1,039
            
            
            
            -
            
            
            
            1,039Unrealized
      gain on marketable securities
            
            
            68
            
            
            
            (24
            )
            
            
            44Unrealized
      loss on derivatives
            
            
            (57
            )
            
            
            20
            
            
            
            (37
            )Other
      comprehensive income
            
            $
            7,037
            
            
            $
            (4
            )
            
            $
            7,0332008Foreign
      currency translation adjustments
            
            $
            (14,506
            )
            
            $
            -
            
            
            $
            (14,506
            )Pension
      liability adjustments
            
            
            (1,531
            )
            
            
            -
            
            
            
            (1,531
            )Unrealized
      loss on marketable securities
            
            
            (16
            )
            
            
            6
            
            
            
            (10
            )Unrealized
      loss on derivatives
            
            
            (4,977
            )
            
            
            -
            
            
            
            (4,977
            )Other
      comprehensive loss
            
            $
            (21,030
            )
            
            $
            6
            
            
            $
            (21,024
            )2009Foreign
      currency translation adjustments
            
            $
            6,066
            
            
            $
            -
            
            
            $
            6,066Pension
      liability adjustments
            
            
            (3,130
            )
            
            
            -
            
            
            
            (3,130
            )Unrealized
      gain on marketable securities
            
            
            9
            
            
            
            (3
            )
            
            
            6Unrealized
      gain on derivatives
            
            
            6,724
            
            
            
            -
            
            
            
            6,724Other
      comprehensive income
            
            $
            9,669
            
            
            $
            (3
            )
            
            $
            9,666




At
December 31, 2009 and 2008, the Company recorded valuation allowances of $1,675
and $675, respectively, which fully offset the deferred tax asset related to the
pension liability adjustments.





Deferred
Finance Costs





Deferred
finance costs are being amortized over the life of the related financial
instrument using the straight-line method. The annual amortization for the years
ended December 31, 2009, 2008 and 2007 was $989, $1,117 and $1,318,
respectively.





Recently
Issued Accounting Standards





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





Reclassifications





Certain
prior period amounts have been reclassified to conform to their 2009
presentation in the consolidated financial statements.




47





STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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




3.
Investments





PST
Eletrônica S.A.





The
Company has a 50% 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
$35,824 and $31,021 at December 31, 2009 and 2008, respectively.





Condensed
financial information for PST is as follows:





December
      31,2009
            
            
            2008Cash
      and cash equivalents
            
            $
            1,246
            
            
            $
            5,678Accounts
      receivable, net
            
            
            21,427
            
            
            
            12,533Inventories,
      net
            
            
            25,952
            
            
            
            21,091Property,
      plant and equipment, net
            
            
            27,592
            
            
            
            18,379Other
      assets
            
            
            9,489
            
            
            
            4,272Total
      Assets
            
            $
            85,706
            
            
            $
            61,953Current
      liabilities
            
            $
            30,306
            
            
            $
            17,268Long-term
      liabilities
            
            
            6,266
            
            
            
            10,183Equity
      of:Stoneridge
            
            
            24,567
            
            
            
            17,251Others
            
            
            24,567
            
            
            
            17,251Total
      Liabilities and Equity
            
            $
            85,706
            
            
            $
            61,953





The
difference between the Company’s carrying amount of its investment in PST and
the Company’s underlying equity in the net assets of PST is primarily due to a
net goodwill balance of $11,296 at December 31, 2009 and 2008.





For
      the Years EndedDecember
      31,2009
            
            
            2008
            
            
            2007Net
      sales
            
            $
            140,690
            
            
            $
            174,305
            
            
            $
            133,039Cost
      of goods sold
            
            $
            69,291
            
            
            $
            80,924
            
            
            $
            61,575Total
      pre-tax income
            
            $
            15,623
            
            
            $
            31,788
            
            
            $
            25,152The
      Company's share of pre-tax income
            
            $
            7,812
            
            
            $
            15,894
            
            
            $
            12,576





Equity in
earnings of PST included in the consolidated statements of operations was
$7,385, $12,788 and $10,351 for the years ended December 31, 2009, 2008 and
2007, respectively.  During 2009, 2008 and 2007, PST declared
dividends payable to its joint venture partners, which included the
Company.  The Company received dividend payments from PST of $7,301,
$4,213 and $5,594 in 2009, 2008 and 2007, respectively, which decreased the
Company’s investment in PST.





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 $5,220 and $4,808
at December 31, 2009 and 2008, respectively. Equity in earnings of Minda
included in the consolidated statements of operations was $390, $702 and $542,
for the years ended December 31, 2009, 2008 and 2007, respectively.




48


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


4.
Long-Term Debt





Senior
Notes





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





Credit
Facilities





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
December 31, 2009 and 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 December 31, 2009
and 2008, the Company had borrowing capacity of $54.1 million and $57.7 million,
respectively, based on eligible current assets.  The credit facility
does not contain financial performance covenants which would constrain the
Company’s borrowing capacity. However, restrictions do include limits on capital
expenditures, operating leases, dividends and investment activities in a
negative covenant which limits investment activities to $15.0 million minus
certain guarantees and obligations.  The credit facility expires on
November 1, 2011 and requires a commitment fee of 0.375% on the unused
balance.  Interest is payable quarterly at either (i) the higher of
the prime rate or the Federal Funds rate plus 0.50%, plus a margin of 0.00% to
0.25% or (ii) LIBOR plus a margin of 1.00% to 1.75%, depending upon the
Company’s undrawn availability, as defined.  The Company was in compliance
with all covenants at December 31, 2009 and December 31, 2008.





On
October 9, 2009, the Company entered into Amendment No. 3 (the “Amendment”) to
the asset based credit facility.  The Amendment enabled the Company to
acquire a 51% equity interest in BCS and have an option to purchase the
remaining 49% of BCS, with BCS being excluded from certain restrictive covenants
in the asset based credit facility applicable to subsidiaries.  The
acquisition of BCS is discussed within Note 2.  In addition, the
Amendment redefines certain foreign subsidiaries of the Company as non borrowers
and permits certain internal transactions that will facilitate the
implementation of a more efficient cash management structure.  The
Amendment did not change the Company’s borrowing capacity.





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





Installment
Notes





BCS had
an installment note (“installment note”) in the amount of $527 and other notes
payable for the purchase of various fixed assets (“fixed asset notes”) in the
amount of $231 as of the acquisition date.  Interest on the
installment notes is the prime referenced rate plus a 2.25%
margin.  At December 31, 2009, the interest rate on the installment
note was 5.5%.  The installment note calls for monthly installment
payments of principal and interest and matures in 2012.  The weighted
average interest rate on the fixed asset notes was 6.6% at December 31,
2009.  At December 31, 2009, the principal amounts due on the
installment and fixed asset notes was $483 and $221,
respectively.  The installment and fixed asset notes require annual
principal payments of $273, $250, $157, $16 and $8 in 2010, 2011, 2012, 2013 and
2014, respectively. The Company is a guarantor of BCS on the installment
note.




49


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


5.
Income Taxes





The
provision for income taxes included in the accompanying consolidated financial
statements represents federal, state and foreign income taxes.  The
components of income (loss) before income taxes and the provision (benefit) for
income taxes consist of the following:





For
      the Years EndedDecember
      31,2009
            
            
            2008
            
            
            2007Income
      (loss) before income taxes:Domestic
            
            $
            (21,282
            )
            
            $
            (52,320
            )
            
            $
            9,186Foreign
            
            
            (12,044
            )
            
            
            1,545
            
            
            
            14,038Total
      income (loss) before income taxes
            
            $
            (33,326
            )
            
            $
            (50,775
            )
            
            $
            23,224Provision
      (benefit) for income taxes:Current:Federal
            
            $
            9
            
            
            $
            (1,434
            )
            
            $
            (55
            )State
      and foreign
            
            
            2,188
            
            
            
            1,947
            
            
            
            2,785Total
      current provision
            
            
            2,197
            
            
            
            513
            
            
            
            2,730Deferred:Federal
            
            
            (1,242
            )
            
            
            47,590
            
            
            
            3,450State
      and foreign
            
            
            (1,958
            )
            
            
            (1,351
            )
            
            
            373Total
      deferred provision (benefit)
            
            
            (3,200
            )
            
            
            46,239
            
            
            
            3,823Total
      provision (benefit) for income taxes
            
            $
            (1,003
            )
            
            $
            46,752
            
            
            $
            6,553





A
reconciliation of the Company’s effective income tax rate to the statutory
federal tax rate is as follows:





For
      the Years EndedDecember
      31,2009
            
            
            2008
            
            
            2007Statutory
      U.S. federal income tax rate
            
            
            (35.0
            )
      %
            
            
            (35.0
            )
      %
            
            
            35.0
            %State
      income taxes, net of federal tax benefit
            
            
            1.2
            
            
            
            (1.8
            )
            
            
            (1.0
            )Tax
      credits
            
            
            (2.8
            )
            
            
            (2.0
            )
            
            
            (4.0
            )Foreign
      rate differential
            
            
            0.7
            
            
            
            (4.4
            )
            
            
            (10.9
            )Reduction
      of income tax accruals
            
            
            (0.1
            )
            
            
            (1.2
            )
            
            
            (2.4
            )Tax
      on foreign dividends, net of foreign tax credits
            
            
            24.4
            
            
            
            1.8
            
            
            
            1.8Reduction
      (increase) of deferred taxes
            
            
            2.3
            
            
            
            (2.8
            )
            
            
            1.3Valuation
      allowances
            
            
            7.1
            
            
            
            129.2
            
            
            
            7.4Non-deductible
      goodwill
            
            
            -
            
            
            
            9.0
            
            
            
            -Other
            
            
            (0.8
            )
            
            
            (0.7
            )
            
            
            1.0Effective
      income tax rate
            
            
            (3.0
            )
      %
            
            
            92.1
            %
            
            
            28.2
            %





The
Company recognized a provision (benefit) for income taxes of $(1,003), or 3.0%,
$46,752, or (92.1)% of pre-tax loss and $6,553 or 28.2% of pre-tax income, for
federal, state and foreign income taxes for the years ended December 31, 2009,
2008 and 2007, respectively.  The effective tax rate for 2009
decreased compared to 2008 primarily as a result of the difference in the amount
of valuation allowance recorded against our domestic deferred tax
assets.  Prior to 2008 the Company had not provided a valuation
allowance against its domestic deferred tax assets, therefore the amount of
valuation allowance provided in 2008 was based on the total domestic deferred
tax asset amount as of December 31, 2008.  The amount of valuation
allowance provided in 2009 is significantly less than 2008 as it relates only to
the change in domestic deferred tax assets from December 31, 2008 to December
31, 2009.  Due to the impairment of goodwill in 2008, the Company is
in a cumulative loss position for the period 2007 to 2009 and has provided a
valuation allowance offsetting federal, state and certain foreign deferred tax
assets.  Additionally, the 2008 effective tax rate was negatively
affected by non-deductible goodwill.




50


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


During
2009, the Company reorganized its European legal structure and remitted earnings
to the U.S..  Due to the Company’s U.S. tax position, a full U.S. tax
was provided on the remittance. The reorganization did not have an impact on the
overall tax benefit provided and resulting effective tax rate as without the
reorganization the Company would have provided an additional valuation allowance
equal to the amount of tax provided on the remittance.





Unremitted
earnings of foreign subsidiaries were $2,590, $24,155 and $22,451 as of December
31, 2009, 2008 and 2007, respectively.  Because these earnings have
been indefinitely reinvested in foreign operations, no provision has been made
for U.S. income taxes.  It is impracticable to determine the amount of
unrecognized deferred taxes with respect to these earnings; however, foreign tax
credits may be available to reduce U.S. income taxes in the event of a
distribution.





Significant
components of the Company’s deferred tax assets and liabilities as of December
31, 2009 and 2008 are as follows:





2009
            
            
            2008Deferred
      tax assets:Inventories
            
            $
            2,049
            
            
            $
            1,606Employee
      benefits
            
            
            2,461
            
            
            
            2,568Insurance
            
            
            1,290
            
            
            
            1,306Depreciation
      and amortization
            
            
            28,390
            
            
            
            35,735Net
      operating loss carryforwards
            
            
            38,228
            
            
            
            32,169General
      business credit carryforwards
            
            
            8,973
            
            
            
            8,550Reserves
      not currently deductible
            
            
            6,971
            
            
            
            7,204Gross
      deferred tax assets
            
            
            88,362
            
            
            
            89,138Less:
      Valuation allowance
            
            
            (83,963
            )
            
            
            (82,379
            )Deferred
      tax assets less valuation allowance
            
            
            4,399
            
            
            
            6,759Deferred
      tax liabilities:Depreciation
      and amortization
            
            
            (1,347
            )
            
            
            (4,293
            )Other
            
            
            (9,297
            )
            
            
            (7,973
            )Gross
      deferred tax liabilities
            
            
            (10,644
            )
            
            
            (12,266
            )Net
      deferred tax liability
            
            $
            (6,245
            )
            
            $
            (5,507
            )





The
valuation allowance represents the amount of tax benefit related to U.S., state
and foreign net operating losses, credits and other deferred tax assets. This
valuation allowance has no impact on the Company’s ability to utilize the U.S.
net operating losses and credits to offset future U.S. taxable income. The
Company believes that it should ultimately generate sufficient U.S. taxable
income during the remaining tax loss and credit carry forward periods in order
to realize substantially all of the benefits of the net operating losses and
credits before they expire.





The
Company has deferred tax assets for net operating loss carry forwards of $0 net
of a valuation allowance of $38,228.  The net operating losses relate
to U.S. federal, state and foreign tax jurisdictions.  The U.S.
federal net operating losses expire beginning in 2026, the state net operating
losses expire at various times and the foreign net operating losses have
indefinite expiration dates.  The Company has a deferred tax asset for
general business credit carry forwards of $633 net of a valuation allowance of
$8,340.  The U.S. federal general business credit carry forwards begin
to expire in 2021 and the state tax credits expire at various
times.




51


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


In June
2006, the FASB issued FIN 48Accounting for Uncertainty in Income
Taxes – An Interpretation of FASB Statement No. 109(ASC Topic
740).  ASC Topic 740 clarifies the accounting for uncertainty in
income taxes recognized in an enterprise’s financial statements.  This
interpretation prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return.  This interpretation also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition.  The
Company adopted the provisions of ASC Topic 740 as of January 1,
2007.  The adoption of ASC Topic 740 did not have a material effect on
the Company’s financial statements.





The
following is a reconciliation of the Company’s total gross unrecognized tax
benefits:





2009
            
            
            2008Balance
      at January 1
            
            $
            2,599
            
            
            $
            4,618Tax
      positions related to the current year:Additions
            
            
            369
            
            
            
            362Tax
      positions related to prior years:Reductions
            
            
            (26
            )
            
            
            (84
            )Settlements
            
            
            (104
            )
            
            
            (1,683
            )Expiration
      of statutes of limitation
            
            
            -
            
            
            
            (614
            )Balance
      at December 31
            
            $
            2,838
            
            
            $
            2,599




The
liability for uncertain tax benefits is classified as a non-current liability
unless it is expected to be paid within one year.  At December 31,
2009 the Company has classified $719 as a current liability and $2,119 as a
reduction to non-current deferred income tax assets. 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 $100 within the next 12 months.  Management is currently
unaware of issues under review that could result in a significant change or a
material deviation in this estimate.





If the
Company’s tax positions are sustained by the taxing authorities in favor of the
Company, approximately $2,707 would affect the Company’s effective tax
rate.





Consistent
with historical financial reporting, the Company has elected to classify
interest expense and, if applicable, penalties which could be assessed related
to unrecognized tax benefits as a component of income tax
expense.  For the years ended December 31, 2009 and 2008, the Company
recognized approximately $104 and $(246) of gross interest and penalties,
respectively.  The Company has accrued approximately $530 and $426 for
the payment of interest and penalties at December 31, 2009 and December 31,
2008, respectively.





The
Company conducts business globally and, as a result, 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 important
jurisdiction:




Jurisdiction
            
            Open Tax YearsU.S.
      Federal
            
            2006-2009France
            
            2005-2009Mexico
            
            2004-2009Spain
            
            2005-2009Sweden
            
            2004-2009United
      Kingdom
            
            2005-2009




52


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


6.
Operating Lease Commitments





The
Company leases equipment, vehicles and buildings from third parties under
operating lease agreements.





The
Estate of the late D.M. Draime, former Chairman of the Board of Directors, owned
50% of Hunters Square, Inc. (“HSI”), an Ohio corporation, which owns Hunters
Square, an office complex and shopping mall located in Warren,
Ohio.  The estate sold its investment in HSI in 2007.  The
Company leases office space in Hunters Square.  The Company pays all
maintenance, tax and insurance costs related to the operation of the
office.  Lease payments made by the Company to HSI were $342 in
2007.  The Company believes the terms of the lease were no less
favorable to it than would be the terms of a third-party lease.





For the
years ended December 31, 2009, 2008 and 2007, lease expense totaled $6,461,
$7,206 and $7,114, respectively.





Future
minimum operating lease commitments at December 31, 2009 are as
follows:





2010
            
            $
            5,5162011
            
            
            4,3942012
            
            
            3,2482013
            
            
            2,9702014
            
            
            2,141Thereafter
            
            
            3,092Total
            
            $
            21,361




7.
Share-Based Compensation Plans





In
October 1997, the Company adopted a Long-Term Incentive Plan (“Incentive Plan”).
The Company reserved 2,500,000 Common Shares for issuance to officers and other
key employees under the Incentive Plan.  Under the Incentive Plan, as
of December 31, 2009, the Company granted cumulative options to purchase
1,594,500 Common Shares to management with exercise prices equal to the fair
market value of the Company’s Common Shares on the date of grant. The options
issued cliff-vest from one to five years after the date of grant and have a
contractual life of 10 years.  In addition, the Company has also
issued 1,553,125 restricted Common Shares under the Incentive Plan, of which
814,250 are time-based with either graded or cliff vesting using the
straight-line method while the remaining 738,875 restricted Common Shares are
performance-based.  Restricted Common Shares awarded under the
Incentive Plan entitle the shareholder to all the rights of Common Share
ownership except that the shares may not be sold, transferred, pledged,
exchanged, or otherwise disposed of during the vesting period.  The
Incentive Plan expired on June 30, 2007.





In May
2002, the Company adopted the Director Share Option Plan (“Director Option
Plan”).  The Company reserved 500,000 Common Shares for issuance under
the Director Option Plan.  Under the Director Option Plan, the Company
granted cumulative options to purchase 93,000 Common Shares to directors of the
Company with exercise prices equal to the fair market value of the Company’s
Common Shares on the date of grant.  The options granted cliff-vested
one year after the date of grant and have a contractual life of 10
years.





In April
2006, the Company’s shareholders approved the Amended and Restated Long-Term
Incentive Plan (the "2006 Plan").  There are 1,500,000 Common Shares
reserved for awards under the 2006 Plan of which the maximum number of Common
Shares which may be issued subject to Incentive Stock Options is
500,000.  Under the 2006 Plan, as of December 31, 2009, the Company
has issued 853,934 restricted Common Shares, of which 657,900 are time-based
with cliff- vesting using the straight-line method and 223,800 are performance
based.




53


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


In 2005,
pursuant to the Incentive Plan, the Company granted time-based restricted Common
Share awards and performance-based restricted Common Share
awards.  The time-based restricted Common Share awards vest over a one
to four year period in equal increments on the grant-date
anniversaries.  Approximately one-half of the performance-based
restricted Common Share awards vest and are no longer subject to forfeiture upon
the recipient remaining an employee of the Company for three years from date of
grant and upon achieving certain net income per share targets established by the
Company.  The remaining one-half of the performance-based restricted
Common Share awards also vest and are no longer  subject to forfeiture
upon the recipient remaining an employee for three years from date of grant and
upon the Company attaining  certain targets of performance measured
against a peer group’s performance in terms of total return to
shareholders.  The actual number of restricted Common Shares to
ultimately vest will depend on the Company’s level of achievement of the
targeted performance measures and the employees’ attainment of the defined
service requirements.





In 2006,
pursuant to the Incentive Plan, the Company granted time-based restricted Common
Share and performance-based restricted Common Share awards.  Certain
time-based restricted Common Share awards cliff-vest three years after the grant
date.  Other time-based restricted Common Share awards are subject to
graded vesting using the straight-line method over a three or four year
period.  The performance-based restricted Common Share awards vest and
are no longer subject to forfeiture upon the recipient remaining an employee of
the Company for three years from date of grant and upon achieving certain net
income per share targets established by the Company.





In 2007
pursuant to the Incentive Plan and in 2008, pursuant to the 2006 Plan, the
Company granted time-based restricted Common Share and performance-based
restricted Common Share awards.  The time-based restricted Common
Share awards cliff-vest three years after the grant date.  The
performance-based restricted Common Share awards vest and are no longer subject
to forfeiture upon the recipient remaining an employee of the Company for three
years from date of grant and upon achieving certain net income per share targets
established by the Company.





In 2009,
pursuant to the 2006 Plan, the Company granted time-based restricted Common
Share awards.  These restricted Common Share awards cliff-vest three
years after the grant date.





In
April 2005, the Company adopted the Directors’ Restricted Shares Plan
(“Director Share Plan”).  The Company reserved 300,000 Common Shares
for issuance under the Director Share Plan.  Under the Director Share
Plan, the Company has cumulatively issued 225,000 restricted Common
Shares.  Shares issued under the Director Share Plan during 2008 and
certain shares in 2009 will cliff vest one year after the grant
date.  Other shares issued under the Director Share Plan during 2009
will cliff vest six months after the date of grant.





Options





A summary
of option activity under the plans noted above as of December 31, 2009, and
changes during the year ended are presented below:





Share
      Options
            
            
            Weighted-Average
      Exercise Price
            
            
            Weighted-Average
      Remaining Contractual TermOutstanding
      at December 31, 2008
            
            
            197,750
            
            
            $
            11.26Expired
            
            
            (21,000
            )
            
            
            12.19Exercised
            
            
            (7,000
            )
            
            
            7.93Outstanding
      and Exercisable at December 31, 2009
            
            
            169,750
            
            
            
            11.28
            
            
            
            2.99





There
were no options granted during the years ended December 31, 2009, 2008 and 2007
and all outstanding options have vested.




54


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


The
intrinsic value of options outstanding and exercisable is the difference between
the fair market value of the Company’s Common Shares on the applicable date
(“Measurement Value”) and the exercise price of those options that had an
exercise price that was less than the Measurement Value. The intrinsic value of
options exercised is the difference between the fair market value of the
Company’s Common Shares on the date of exercise and the exercise
price.  The total intrinsic value of options exercised during the
years ended December 31, 2009, 2008 and 2007 was $9, $471 and $482,
respectively.





As of
December 31, 2009 and 2008, the aggregate intrinsic value of both outstanding
and exercisable options was $57 and $15, respectively.  The total fair
value of options that vested during the year ended December 31, 2007 was
$62.





Restricted
Shares





The fair
value of the non-vested time-based restricted Common Share awards was calculated
using the market value of the shares on the date of issuance.  The
weighted-average grant-date fair value of time-based restricted Common Shares
granted during the years ended December 31, 2009, 2008 and 2007 was $1.84,
$10.81 and $12.00, respectively.





The fair
value of the non-vested performance-based restricted Common Share awards with a
performance condition, requiring the Company to obtain certain net income per
share targets, was estimated using the market value of the shares on the date of
grant.





A summary
of the status of the Company’s non-vested restricted Common Shares as of
December 31, 2009 and the changes during the year then ended, are presented
below:





Time-Based
      Awards
            
            
            Performance-Based
      AwardsShares
            
            
            Weighted-Average
      Grant-Date Fair Value
            
            
            Shares
            
            
            Weighted-Average
      Grant-Date Fair ValueNon-vested
      at December 31, 2008
            
            
            626,261
            
            
            $
            10.18
            
            
            
            628,275
            
            
            $
            10.33Granted
            
            
            522,404
            
            
            
            1.84
            
            
            
            -
            
            
            
            -Vested
            
            
            (285,796
            )
            
            
            8.27
            
            
            
            (101,039
            )
            
            
            8.39Forfeited
            
            
            (21,865
            )
            
            
            5.53
            
            
            
            (131,311
            )
            
            
            8.77Non-vested
      at December 31, 2009
            
            
            841,004
            
            
            
            5.77
            
            
            
            395,925
            
            
            
            11.34





As of
December 31, 2009, total unrecognized compensation cost related to non-vested
time-based restricted Common Share awards granted was $1,374.  That
cost is expected to be recognized over a weighted-average period of 1.48
years.  For the years ended December 31, 2009, 2008 and 2007, the
total fair value of time-based restricted Common Share awards vested was $1,595,
$1,366 and $1,541, respectively.





As of
December 31, 2009, total unrecognized compensation cost related to non-vested
performance-based restricted Common Share awards granted was $0.  As
noted above, the Company has issued and outstanding performance-based restricted
Common Share awards that use different performance targets.  The
awards that use net income per share as the performance target will not be
expensed until it is probable that the Company will meet the underlying
performance condition.





Cash
received from option exercises under all share-based payment arrangements for
the years ended December 31, 2009, 2008 and 2007 was $0, $575 and $1,409,
respectively.  There was no actual tax benefit realized for the tax
deductions from the vesting of restricted Common Shares and option exercises of
the share-based payment arrangements for the years ended December 31, 2009, 2008
and 2007.




55


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


8.
Employee Benefit Plans





The
Company has certain defined contribution profit sharing and 401(k) plans
covering substantially all of its employees in the United States and United
Kingdom. Company contributions are generally discretionary.  The
Company’s policy is to fund all benefit costs accrued. For the years ended
December 31, 2009, 2008 and 2007, expenses related to these plans amounted to
$649, $2,743 and $3,800, respectively.





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





The
Company has a single defined benefit pension plan that covers certain former
employees in the United Kingdom.  As of December 31, 2003, employees
covered under the United Kingdom defined benefit pension plan no longer accrue
benefits related to future service and wage increases.





The
following table sets forth the benefit obligation, fair value of plan assets,
and the funded status of the Company’s defined benefit pension plan; amounts
recognized in the Company’s financial statements; and the principal weighted
average assumptions used:




2009
            
            
            2008Change
      in projected benefit obligation:Projected
      benefit obligation at beginning of year
            
            $
            13,620
            
            
            $
            22,301Service
      cost
            
            
            62
            
            
            
            128Interest
      cost
            
            
            951
            
            
            
            1,154Actuarial
      loss (gain)
            
            
            4,895
            
            
            
            (2,730
            )Benefits
      paid
            
            
            (686
            )
            
            
            (1,118
            )Settlement
            
            
            -
            
            
            
            (861
            )Translation
      adjustments
            
            
            1,639
            
            
            
            (5,254
            )Projected
      benefit obligation at end of year
            
            $
            20,481
            
            
            $
            13,620Change
      in plan assets:Fair
      value of plan assets at beginning of year
            
            $
            11,209
            
            
            $
            20,946Actual
      return on plan assets
            
            
            2,604
            
            
            
            (3,628
            )Employer
      contributions
            
            
            109
            
            
            
            238Benefits
      paid
            
            
            (686
            )
            
            
            (1,118
            )Settlement
            
            
            -
            
            
            
            (696
            )Translation
      adjustments
            
            
            1,264
            
            
            
            (4,533
            )Fair
      value of plan assets at end of year
            
            $
            14,500
            
            
            $
            11,209Accumulated
      benefit obligation at end of year
            
            $
            20,481
            
            
            $
            13,620Funded
      status at end of year
            
            
            (5,981
            )
            
            
            (2,411
            )Amounts
      recognized in the consolidated balancesheet
      consist of:Other
      long-term liabilities
            
            
            (5,981
            )
            
            
            (2,411
            )




56


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


2009
            
            
            2008Weighted
      average assumptions used todetermine
      benefit obligation at December 31:Discount
      rate
            
            
            5.70
            %
            
            
            6.70
            %Rate
      of increase to pensions in payment
            
            
            3.80
            %
            
            
            3.30
            %Rate
      of future price inflation
            
            
            3.60
            %
            
            
            2.90
            %Measurement
      date
            
            12/31/09
            
            
            12/31/08Weighted
      average assumptions used todetermine
      net periodic benefit cost for theyears
      ended December 31:Discount
      rate
            
            
            6.70
            %
            
            
            5.80
            %Expected
      long-term return on plan assets
            
            
            6.10
            %
            
            
            6.90
            %Rate
      of increase to pensions in payment
            
            
            3.30
            %
            
            
            3.30
            %Rate
      of future price inflation
            
            
            2.90
            %
            
            
            3.20
            %Measurement
      date
            
            12/31/09
            
            
            12/31/08




For the
year ended December 31, 2009, the Company’s only change in plan assets and
benefit obligations recognized in other comprehensive income (loss) was a result
of net actuarial gains incurred in 2009 for $3,009.  The Company
recognized $3,492 in net periodic pension cost and other comprehensive income
(loss) for 2009.





No net
amortization on actuarial gains or losses will be recognized in the next
year.





The
Company’s expected long-term return on plan assets assumption is based on a
periodic review and modeling of the plan’s asset allocation and liability
structure over a long-term horizon.  Expectations of returns for each
asset class are the most important of the assumptions used in the review and
modeling and are based on comprehensive reviews of historical data and economic
/ financial market theory.  The expected long-term rate of return on
assets was selected from within the reasonable range of rates determined by (a)
historical real returns, net of inflation, for the asset classes covered by the
investment policy, and (b) projections of inflation over the long-term period
during which benefits are payable to plan participants.





Components
of net periodic pension cost (benefit) are as follows:





For
      the Years EndedDecember
      31,2009
            
            
            2008
            
            
            2007Service
      cost
            
            $
            62
            
            
            $
            128
            
            
            $
            140Interest
      cost
            
            
            951
            
            
            
            1,154
            
            
            
            1,180Expected
      return on plan assets
            
            
            (717
            )
            
            
            (1,300
            )
            
            
            (1,420
            )Amortization
      of actuarial loss
            
            
            187
            
            
            
            -
            
            
            
            80Net
      periodic cost (benefit)
            
            $
            483
            
            
            $
            (18
            )
            
            $
            (20
            )




In
December 2008, the FASB issued Staff Position 132(R)-1, Employers’ Disclosures about
Postretirement Benefit Plan Assets (ASC Topic 715-20-65).  This
guidance requires that entities provide enhanced disclosures about how
investment allocation decisions are made, the major categories of plan assets,
the inputs and valuation techniques used to measure fair value of plan assets,
the effect of fair value measurements using significant unobservable inputs on
changes in plan assets for the period and significant concentrations of risk
within plan assets.  This Company adopted ASC Topic 715-20-65
beginning with its year ended December 31, 2009.  The adoption of ASC
Topic 715-20-65 did not have a material impact on the Company’s consolidated
financial position or results of operations.




57


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


The
Company’s defined benefit pension plan fair value weighted-average asset
allocations at December 31, 2009 and 2008 by asset category are as
follows:





2009
            
            
            2008Asset
      Category:Equity
      securities
            
            
            81
            %
            
            
            69
            %Debt
      securities
            
            
            18
            
            
            
            30Other
            
            
            1
            
            
            
            1Total
            
            
            100
            %
            
            
            100
            %





The
Company’s target asset allocation, with a permitted range of ± 7.50%, as of
December 31, 2009, by asset category, is as follows:





Asset
      Category:Equity
      securities
            
            
            75
            %Debt
      securities
            
            
            25
            %





The
Company’s investment policy for the defined benefit pension plan includes
various guidelines and procedures designed to ensure assets are invested in a
manner necessary to meet expected future benefits earned by
participants.  The investment guidelines consider a broad range of
economic conditions.  Central to the policy are target allocation
ranges (shown above) by major asset categories.  The objectives of the
target allocations are to maintain investment portfolios that diversify risk
through prudent asset allocation parameters, achieve asset returns that meet or
exceed the plans’ actuarial assumptions, and achieve asset returns that are
competitive with like institutions employing similar investment strategies. The
Company and a designated third-party fiduciary periodically review the
investment policy.  The policy is established and administered in a
manner so as to comply at all times with applicable government
regulations.





Prior to
placing Stoneridge Pollak Limited (“SPL”) into administration in the United
Kingdom, which is disclosed in note 15, the Company expected to contribute $97
to its defined benefit pension plan in 2010.  The following pension
payments were expected to be paid prior to SPL being placed into
administration:





2010
            
            $
            7272011
            
            
            7602012
            
            
            7922013
            
            
            8242014
            
            
            8572015
      to 2019
            
            
            4,849







The fair
values of the Company’s defined benefit pension plan assets at December 31,
2009, utilizing the fair value hierarchy discussed in Note 9 are as
follows:





Fair
      Value Estimated UsingFair
      Value
            
            
            Level
      2 inputsEquities:Common
      collective trusts
            
            $
            11,843
            
            
            $
            11,843Debt:Common
      collective trusts
            
            
            2,657
            
            
            
            2,657Total
            
            $
            14,500
            
            
            $
            14,500




58
 STONERIDGE,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in
thousands, except share and per share data, unless otherwise
indicated)


In March
2009, the Company adopted the Stoneridge, Inc. Long-Term Cash Incentive Plan
(“LTCIP”) and granted awards to certain officers and key
employees.  For 2009, the awards under the LTCIP provide recipients
with the right to receive cash three years from the date of grant depending on
the Company’s actual earnings per share performance for a performance period
comprised of 2009, 2010 and 2011 fiscal years.  The Company will
record an accrual for an award to be paid in the period earned based on
anticipated achievement of the performance goal.  If the participant
voluntarily terminates employment or is discharged for cause, as defined in the
LTCIP, the award will be forfeited.  In May 2009, the LTCIP was
approved by the Company’s shareholders.  The Company has not recorded
an accrual for the awards granted under the LTCIP at December 31, 2009 as the
achievement of the performance goal is not considered probable at this
time.





9.
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 December
31, 2009 and 2008, per quoted market sources, was $180.3 million and $124.4
million, respectively.  The carrying value at December 31, 2009 and
2008 was $183.0 million.





Derivative
Instruments and Hedging Activities





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





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





The
Company conducts business internationally and therefore is exposed to foreign
currency exchange risk.  The Company uses derivative financial
instruments as cash flow hedges to mitigate its exposure to fluctuations in
foreign currency exchange rates by reducing the effect of such fluctuations on
foreign currency denominated intercompany transactions and other foreign
currency exposures.  The currencies hedged by the Company include the
British pound, Swedish krona and Mexican peso.  In certain instances,
the foreign currency forward contracts are marked to market, with gains and
losses recognized in the Company’s consolidated statement of operations as a
component of other expense (income), net.  The Company’s foreign
currency forward contracts substantially offset gains and losses on the
underlying foreign currency denominated transactions.  As of December
31, 2009 and 2008, the Company held foreign currency forward contracts to reduce
the exposure related to the Company’s British pound-denominated intercompany
receivables.  This contract expires in January 2010.  In
addition, at December 31, 2009 the Company held a foreign currency hedge
contract to reduce the exposure related to the Company’s Swedish
krona-denominated intercompany receivables.  This contract expires in
February 2010.  For the year ended December 31, 2009, the Company
recognized a $902 loss related to the British pound and Swedish krona contracts
in the consolidated statement of operations as a component of other expense
(income), net.  The Company also holds contracts intended to reduce
exposure to the Mexican peso.  These contracts were executed to hedge
forecasted transactions, and therefore the contracts are accounted for as cash
flow hedges.  These Mexican peso-denominated foreign currency option
contracts expire during 2010.  The effective portion of the unrealized
gain or loss is deferred and reported in the Company’s consolidated balance
sheets as a component of accumulated other comprehensive income
(loss).  The Company’s expectation is that the cash flow hedges will
be highly effective in the future.  The effectiveness of the
transactions has been and will be measured on an ongoing basis using regression
analysis.




59




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


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





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




Notional
      amounts1
                
                
                Prepaid
      expenses
                  and
      other assets
                
                
                Accrued
      expenses and
                  other
      liabilitiesDecember
      31,
                
                
                December
      31,
                
                
                December
      31,
                
                
                December
      31,
                
                
                December
      31,
                
                
                December 31,2009
                
                
                2008
                
                
                2009
                
                
                2008
                
                
                2009
                
                
                2008Derivatives
      designated as hedginginstruments:Forward
      currency contracts
                
                $
                43,877
                
                
                $
                35,457
                
                
                $
                1,710
                
                
                $
                -
                
                
                $
                -
                
                
                $
                2,910Commodity
      contracts
                
                
                -
                
                
                
                4,085
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,10443,877
                
                
                
                39,542
                
                
                
                1,710
                
                
                
                -
                
                
                
                -
                
                
                
                5,014Derivatives
      not designated as hedginginstruments:Forward
      currency contracts
                
                
                8,363
                
                
                
                8,762
                
                
                
                34
                
                
                
                2,101
                
                
                
                -
                
                
                
                -Total
      derivatives
                
                $
                52,240
                
                
                $
                48,304
                
                
                $
                1,744
                
                
                $
                2,101
                
                
                $
                -
                
                
                $
                5,014


Amounts
recorded in other comprehensive income (loss) in shareholders’ equity and in net
loss for the year ended December 31, 2009 are as follows:





Amount
      of gain recorded in other comprehensive income (loss)
              
              
              Amount
      of loss reclassified from other comprehensive income (loss) into net
      loss
              
              Location
      of loss reclassified from other comprehensive income into net
      lossDerivatives
      designated as cash flow hedges:Forward
      currency contracts
              
              $
              2,862
              
              
              $
              1,758
              
              Cost
      of goods soldCommodity
      contracts
              
              
              1,290
              
              
              
              814
              
              Cost
      of goods sold$
              4,152
              
              
              $
              2,572




These
derivatives will be reclassified from other comprehensive income (loss) to the
consolidated statement of operations over the next twelve months.





Effective
January 1, 2009, the Company adopted SFAS No. 157, Fair Value Measurements(ASC
Topic 820-10) as it relates to nonfinancial assets and nonfinancial
liabilities measured on a non-recurring basis.  The Company adopted
ASC Topic 820 for financial assets and financial liabilities on January 1,
2008.  This guidance clarifies the definition of fair value,
prescribes methods for measuring fair value, establishes a fair value hierarchy
based on the inputs used to measure fair value and expands disclosures about the
use of fair value measurements.  The adoption of ASC Topic
820 did not have a material effect on the Company’s fair value
measurements.




60
 
 STONERIDGE,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in
thousands, except share and per share data, unless otherwise
indicated)




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




December
      31, 2009
              
              
              December
      31,Fair
      Value Estimated Using
              
              
              2008Fair
      Value
              
              
              Level
      1 inputs(1)
              
              
              Level
      2 inputs(2)
              
              
              Fair
      ValueFinancial
      assets carriedat
      fair valueAvailable
      for sale security
              
              $
              261
              
              
              $
              261
              
              
              $
              -
              
              
              $
              252Forward
      currency contracts
              
              
              1,744
              
              
              
              -
              
              
              
              1,744
              
              
              
              2,101Total
      financial assetscarried
      at fair value
              
              $
              2,005
              
              
              $
              261
              
              
              $
              1,744
              
              
              $
              2,353Financial
      liabilities carriedat
      fair valueForward
      currency contracts
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              2,910Commodity
      hedge contracts
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,104Total
      financial liabilitiescarried
      at fair value
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              5,014
  (1)
                Fair
      values estimated using Level 1 inputs, which consist of quoted prices in
      active markets for identicalassets
      or liabilities that the Company has the ability to access at the
      measurement date. The available forsale
      security is an equity security that is publically
  traded.
 
 (2)
              Fair
      values estimated using Level 2 inputs, other than quoted prices, that are
      observable for the asset orliability,
      either directly or indirectly and include among other things, quoted
      prices for similar assets orliabilities
      in markets that are active or inactive as well as inputs other than quoted
      prices that are observable.For
      forward currency and commodity hedge contracts, inputs include foreign
      currency exchange rates andcommodity
      indexes.




10.
Commitments and Contingencies





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




61
 
 STONERIDGE,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in
thousands, except share and per share data, unless otherwise
indicated)


11.
Restructuring





On
October 29, 2007, the Company announced restructuring initiatives to improve
manufacturing efficiency and cost position by ceasing manufacturing operations
at its Sarasota, Florida and Mitcheldean, United Kingdom
locations.  During 2008, the Company began additional restructuring
initiatives in our Canton, Massachusetts, Orebro, Sweden and Tallinn, Estonia
locations.  In response to the depressed conditions in the North
American and European commercial vehicle and automotive markets, the Company
also began restructuring initiatives in our Juarez, Monclova and Chihuahua,
Mexico, Orebro and Bromma, Sweden, Tallinn, Estonia, Lexington, Ohio and Canton,
Massachusetts locations during 2009.  In addition, during the third
quarter of 2009, as part of the Company’s continuing overall restructuring
initiatives the Company consolidated certain management positions at its
Lexington, Ohio and Canton, Massachusetts facilities.   In
connection with these initiatives, the Company recorded restructuring charges of
$3,668, $15,382 and $1,027 in the Company’s consolidated statement of operations
for the years ended December 31, 2009, 2008 and 2007, respectively.
Restructuring expenses that were general and administrative in nature were
included in the Company’s consolidated statement of operations as part of
restructuring charges, while the remaining restructuring related charges were
included in cost of goods sold.





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





ContractSeverance
              
              
              Termination
              
              
              Other
      ExitCosts
              
              
              Costs
              
              
              Costs
              
              
              TotalTotal
      expected restructuring charges
              
              $
              5,671
              
              
              $
              2,079
              
              
              $
              2,504
              
              
              $
              10,2542007
      charge to expense
              
              $
              468
              
              
              $
              -
              
              
              $
              103
              
              
              $
              571Cash
      payments
              
              
              -
              
              
              
              -
              
              
              
              (103
              )
              
              
              (103
              )Accrued
      balance at December 31, 2007
              
              
              468
              
              
              
              -
              
              
              
              -
              
              
              
              4682008
      charge to expense
              
              
              2,830
              
              
              
              1,305
              
              
              
              2,401
              
              
              
              6,536Cash
      payments
              
              
              (2,767
              )
              
              
              -
              
              
              
              (2,221
              )
              
              
              (4,988
              )Accrued
      balance at December 31, 2008
              
              
              531
              
              
              
              1,305
              
              
              
              180
              
              
              
              2,0162009
      charge to expense
              
              
              2,237
              
              
              
              374
              
              
              
              -
              
              
              
              2,611Foreign
      currency translation effect
              
              
              -
              
              
              
              400
              
              
              
              -
              
              
              
              400Cash
      payments
              
              
              (2,641
              )
              
              
              (656
              )
              
              
              (180
              )
              
              
              (3,477
              )Accrued
      balance at December 31, 2009
              
              $
              127
              
              
              $
              1,423
              
              
              $
              -
              
              
              $
              1,550Remaining
      expected restructuring charge
              
              $
              136
              
              
              $
              -
              
              
              $
              -
              
              
              $
              136






62
 
 STONERIDGE,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in
thousands, except share and per share data, unless otherwise
indicated)


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




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







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





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





12.
Segment Reporting





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





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





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






63
 
 STONERIDGE,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in
thousands, except share and per share data, unless otherwise
indicated)


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


For
      the Years EndedDecember
      31,Net
      Sales
                
                2009
                
                
                2008
                
                
                2007Electronics
                
                $
                301,424
                
                
                $
                520,936
                
                
                $
                441,717Inter-segment
      sales
                
                
                9,844
                
                
                
                12,392
                
                
                
                16,955Electronics
      net sales
                
                
                311,268
                
                
                
                533,328
                
                
                
                458,672Control
      Devices
                
                
                173,728
                
                
                
                231,762
                
                
                
                285,403Inter-segment
      sales
                
                
                3,087
                
                
                
                4,276
                
                
                
                4,576Control
      Devices net sales
                
                
                176,815
                
                
                
                236,038
                
                
                
                289,979Eliminations
                
                
                (12,931
                )
                
                
                (16,668
                )
                
                
                (21,531
                )Total
      consolidated net sales
                
                $
                475,152
                
                
                $
                752,698
                
                
                $
                727,120Income
      (Loss) Before Income TaxesElectronics
                
                $
                (13,911
                )
                
                $
                38,713
                
                
                $
                20,692Control
      Devices
                
                
                (5,712
                )
                
                
                (78,858
                )
                
                
                15,825Other
      corporate activities
                
                
                8,079
                
                
                
                10,078
                
                
                
                8,676Corporate
      interest expense
                
                
                (21,782
                )
                
                
                (20,708
                )
                
                
                (21,969
                )Total
      consolidated income (loss) before income taxes
                
                $
                (33,326
                )
                
                $
                (50,775
                )
                
                $
                23,224Depreciation
      and AmortizatonElectronics
                
                $
                9,061
                
                
                $
                12,189
                
                
                $
                13,392Control
      Devices
                
                
                10,591
                
                
                
                14,130
                
                
                
                14,823Corporate
      activities
                
                
                287
                
                
                
                80
                
                
                
                288Total
      consolidated depreciation and amortization (A)
                
                $
                19,939
                
                
                $
                26,399
                
                
                $
                28,503Interest
      Expense (Income), netElectronics
                
                $
                187
                
                
                $
                (117
                )
                
                $
                (203
                )Control
      Devices
                
                
                (3
                )
                
                
                (16
                )
                
                
                (7
                )Corporate
      activities
                
                
                21,781
                
                
                
                20,708
                
                
                
                21,969Total
      consolidated interest expense, net
                
                $
                21,965
                
                
                $
                20,575
                
                
                $
                21,759
 Capital
      ExpendituresElectronics
                
                $
                5,139
                
                
                $
                11,374
                
                
                $
                8,777Control
      Devices
                
                
                5,975
                
                
                
                13,306
                
                
                
                8,699Corporate
      activities
                
                
                884
                
                
                
                (107
                )
                
                
                665Total
      consolidated capital expenditures
                
                $
                11,998
                
                
                $
                24,573
                
                
                $
                18,141
 
 December
      31,Total
      Assets
                
                2009
                
                
                2008
                
                
                2007Electronics
                
                $
                163,414
                
                
                $
                183,574
                
                
                $
                214,119Control
      Devices
                
                
                91,631
                
                
                
                98,608
                
                
                
                180,785Corporate
      activities(B)
                
                
                236,110
                
                
                
                239,425
                
                
                
                282,695Eliminations
                
                
                (128,630
                )
                
                
                (139,170
                )
                
                
                (149,830
                )Total
      consolidated assets
                
                $
                362,525
                
                
                $
                382,437
                
                
                $
                527,769


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




(B)
            Assets
      located at Corporate consist primarily of cash, intercompany receivables
      and equity investments.






64
 
 STONERIDGE,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in
thousands, except share and per share data, unless otherwise
indicated)


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




For
      the Years EndedDecember
      31,Net
      Sales
              
              2009
              
              
              2008
              
              
              2007North
      America
              
              $
              384,467
              
              
              $
              557,990
              
              
              $
              522,730Europe
      and other
              
              
              90,685
              
              
              
              194,708
              
              
              
              204,390Total
      consolidated net sales
              
              $
              475,152
              
              
              $
              752,698
              
              
              $
              727,120


December
      31,Non-Current
      Assets
              
              2009
              
              
              2008
              
              
              2007North
      America
              
              $
              121,149
              
              
              $
              110,507
              
              
              $
              204,556Europe
      and other
              
              
              10,706
              
              
              
              17,339
              
              
              
              21,854Total
      non-current assets
              
              $
              131,855
              
              
              $
              127,846
              
              
              $
              226,410




13.
Guarantor Financial Information





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





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




65
 
 STONERIDGE,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in
thousands, except share and per share data, unless otherwise
indicated)


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






66
 
 STONERIDGE,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in
thousands, except share and per share data, unless otherwise
indicated)


Supplemental
condensed consolidating financial statements (continued):





December
      31, 2008Parent
              
              
              Guarantor
                Subsidiaries
              
              
              Non-Guarantor
                Subsidiaries
              
              
              Eliminations
              
              
              ConsolidatedASSETSCurrent
      Assets:Cash
      and cash equivalents
              
              $
              55,237
              
              
              $
              27
              
              
              $
              37,428
              
              
              $
              -
              
              
              $
              92,692Accounts
      receivable, net
              
              
              51,274
              
              
              
              15,888
              
              
              
              29,373
              
              
              
              -
              
              
              
              96,535Inventories,
      net
              
              
              28,487
              
              
              
              10,927
              
              
              
              15,386
              
              
              
              -
              
              
              
              54,800Prepaid
      expenses and other
              
              
              (304,638
              )
              
              
              301,387
              
              
              
              13,815
              
              
              
              -
              
              
              
              10,564Total
      current assets
              
              
              (169,640
              )
              
              
              328,229
              
              
              
              96,002
              
              
              
              -
              
              
              
              254,591Long-Term
      Assets:Property,
      plant and equipment, net
              
              
              50,458
              
              
              
              24,445
              
              
              
              12,798
              
              
              
              -
              
              
              
              87,701Investments
      and other, net
              
              
              38,984
              
              
              
              319
              
              
              
              842
              
              
              
              -
              
              
              
              40,145Investment
      in subsidiaries
              
              
              407,199
              
              
              
              -
              
              
              
              -
              
              
              
              (407,199
              )
              
              
              -Total
      long-term assets
              
              
              496,641
              
              
              
              24,764
              
              
              
              13,640
              
              
              
              (407,199
              )
              
              
              127,846Total
      Assets
              
              $
              327,001
              
              
              $
              352,993
              
              
              $
              109,642
              
              
              $
              (407,199
              )
              
              $
              382,437LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      Liabilities:Accounts
      payable
              
              $
              23,778
              
              
              $
              13,652
              
              
              $
              13,289
              
              
              $
              -
              
              
              $
              50,719Accrued
      expenses and other
              
              
              21,429
              
              
              
              5,065
              
              
              
              16,991
              
              
              
              -
              
              
              
              43,485Total
      current liabilities
              
              
              45,207
              
              
              
              18,717
              
              
              
              30,280
              
              
              
              -
              
              
              
              94,204Long-Term
      Liabilities:Long-term
      debt
              
              
              183,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              183,000Other
      long-term liabilities
              
              
              7,036
              
              
              
              401
              
              
              
              6,038
              
              
              
              -
              
              
              
              13,475Total
      long-term liabilities
              
              
              190,036
              
              
              
              401
              
              
              
              6,038
              
              
              
              -
              
              
              
              196,475Total
      Shareholders' Equity
              
              
              91,758
              
              
              
              333,875
              
              
              
              73,324
              
              
              
              (407,199
              )
              
              
              91,758Total
      Liabilities and Shareholders’ Equity
              
              $
              327,001
              
              
              $
              352,993
              
              
              $
              109,642
              
              
              $
              (407,199
              )
              
              $
              382,437
  67
 
 STONERIDGE,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in
thousands, except share and per share data, unless otherwise
indicated)


Supplemental
condensed consolidating financial statements (continued):





For
      the Year Ended December 31, 2009Parent
              
              
              Guarantor
                Subsidiaries
              
              
              Non-Guarantor
                Subsidiaries
              
              
              Eliminations
              
              
              ConsolidatedNet
      Sales
              
              $
              273,494
              
              
              $
              132,867
              
              
              $
              139,430
              
              
              $
              (70,639
              )
              
              $
              475,152Costs
      and Expenses:Cost
      of goods sold
              
              
              236,881
              
              
              
              109,199
              
              
              
              109,087
              
              
              
              (68,000
              )
              
              
              387,167Selling,
      general and administrative
              
              
              46,688
              
              
              
              23,322
              
              
              
              35,212
              
              
              
              (2,639
              )
              
              
              102,583Restructuring
      charges
              
              
              1,065
              
              
              
              684
              
              
              
              1,896
              
              
              
              -
              
              
              
              3,645Operating
      Loss
              
              
              (11,140
              )
              
              
              (338
              )
              
              
              (6,765
              )
              
              
              -
              
              
              
              (18,243
              )Interest
      expense (income), net
              
              
              22,263
              
              
              
              -
              
              
              
              (298
              )
              
              
              -
              
              
              
              21,965Other
      expense (income), net
              
              
              (12,539
              )
              
              
              2,645
              
              
              
              3,012
              
              
              
              -
              
              
              
              (6,882
              )Equity
      deficit from subsidiaries
              
              
              10,810
              
              
              
              -
              
              
              
              -
              
              
              
              (10,810
              )
              
              
              -Loss
      Before Income Taxes
              
              
              (31,674
              )
              
              
              (2,983
              )
              
              
              (9,479
              )
              
              
              10,810
              
              
              
              (33,326
              )Provision
      (benefit) for income taxes
              
              
              649
              
              
              
              -
              
              
              
              (1,652
              )
              
              
              -
              
              
              
              (1,003
              )Net
      Loss
              
              
              (32,323
              )
              
              
              (2,983
              )
              
              
              (7,827
              )
              
              
              10,810
              
              
              
              (32,323
              )Net
      Income Attributable to Noncontrolling Interest
              
              
              -
              
              
              
              -
              
              
              
              82
              
              
              
              -
              
              
              
              82Net
      Loss Attributable to Stoneridge, Inc. and Subsidiaries
              
              $
              (32,323
              )
              
              $
              (2,983
              )
              
              $
              (7,909
              )
              
              $
              10,810
              
              
              $
              (32,405
              )
 68
 
 STONERIDGE,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in
thousands, except share and per share data, unless otherwise
indicated)


Supplemental
condensed consolidating financial statements (continued):





For
      the Year Ended December 31, 2008Parent
              
              
              Guarantor
                Subsidiaries
              
              
              Non-Guarantor
                Subsidiaries
              
              
              Eliminations
              
              
              ConsolidatedNet
      Sales
              
              $
              409,577
              
              
              $
              185,747
              
              
              $
              255,153
              
              
              $
              (97,779
              )
              
              $
              752,698Costs
      and Expenses:Cost
      of goods sold
              
              
              339,871
              
              
              
              147,154
              
              
              
              194,301
              
              
              
              (94,915
              )
              
              
              586,411Selling,
      general and administrative
              
              
              54,006
              
              
              
              31,657
              
              
              
              53,193
              
              
              
              (2,864
              )
              
              
              135,992Goodwill
      impairment charge
              
              
              44,585
              
              
              
              20,590
              
              
              
              -
              
              
              
              -
              
              
              
              65,175Restructuring
      charges
              
              
              3,675
              
              
              
              824
              
              
              
              3,892
              
              
              
              -
              
              
              
              8,391Operating
      Income (Loss)
              
              
              (32,560
              )
              
              
              (14,478
              )
              
              
              3,767
              
              
              
              -
              
              
              
              (43,271
              )Interest
      expense (income), net
              
              
              21,468
              
              
              
              -
              
              
              
              (893
              )
              
              
              -
              
              
              
              20,575Other
      income, net
              
              
              (12,648
              )
              
              
              -
              
              
              
              (423
              )
              
              
              -
              
              
              
              (13,071
              )Equity
      deficit from subsidiaries
              
              
              10,887
              
              
              
              -
              
              
              
              -
              
              
              
              (10,887
              )
              
              
              -Income
      (Loss) Before Income Taxes
              
              
              (52,267
              )
              
              
              (14,478
              )
              
              
              5,083
              
              
              
              10,887
              
              
              
              (50,775
              )Provision
      for income taxes
              
              
              45,260
              
              
              
              -
              
              
              
              1,492
              
              
              
              -
              
              
              
              46,752Net
      Income (Loss)
              
              
              (97,527
              )
              
              
              (14,478
              )
              
              
              3,591
              
              
              
              10,887
              
              
              
              (97,527
              )Net
      Income Attributable to Noncontrolling Interest
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      Income (Loss) Attributable to Stoneridge, Inc. and
      Subsidiaries
              
              $
              (97,527
              )
              
              $
              (14,478
              )
              
              $
              3,591
              
              
              $
              10,887
              
              
              $
              (97,527
              )





69
 
 STONERIDGE,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in
thousands, except share and per share data, unless otherwise
indicated)


Supplemental
condensed consolidating financial statements (continued):





For
      the Year Ended December 31, 2007Parent
              
              
              Guarantor
                Subsidiaries
              
              
              Non-Guarantor
                Subsidiaries
              
              
              Eliminations
              
              
              ConsolidatedNet
      Sales
              
              $
              345,212
              
              
              $
              205,384
              
              
              $
              256,357
              
              
              $
              (79,833
              )
              
              $
              727,120Costs
      and Expenses:Cost
      of goods sold
              
              
              286,419
              
              
              
              160,501
              
              
              
              189,624
              
              
              
              (77,147
              )
              
              
              559,397Selling,
      general and administrative
              
              
              54,658
              
              
              
              30,225
              
              
              
              49,801
              
              
              
              (2,686
              )
              
              
              131,998Restructuring
      charges
              
              
              458
              
              
              
              -
              
              
              
              468
              
              
              
              -
              
              
              
              926Operating
      Income
              
              
              3,677
              
              
              
              14,658
              
              
              
              16,464
              
              
              
              -
              
              
              
              34,799Interest
      expense (income), net
              
              
              23,058
              
              
              
              -
              
              
              
              (1,299
              )
              
              
              -
              
              
              
              21,759Other
      expense (income), net
              
              
              (10,545
              )
              
              
              -
              
              
              
              361
              
              
              
              -
              
              
              
              (10,184
              )Equity
      earnings from subsidiaries
              
              
              (28,673
              )
              
              
              -
              
              
              
              -
              
              
              
              28,673
              
              
              
              -Income
      Before Income Taxes
              
              
              19,837
              
              
              
              14,658
              
              
              
              17,402
              
              
              
              (28,673
              )
              
              
              23,224Provision
      for income taxes
              
              
              3,166
              
              
              
              17
              
              
              
              3,370
              
              
              
              -
              
              
              
              6,553Net
      Income
              
              
              16,671
              
              
              
              14,641
              
              
              
              14,032
              
              
              
              (28,673
              )
              
              
              16,671Net
      Income Attributable to Noncontrolling Interest
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      Income Attributable to Stoneridge, Inc. and Subsidiaries
              
              $
              16,671
              
              
              $
              14,641
              
              
              $
              14,032
              
              
              $
              (28,673
              )
              
              $
              16,671
  70
 
 STONERIDGE,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in
thousands, except share and per share data, unless otherwise
indicated)


Supplemental
condensed consolidating financial statements (continued):





For
      the Year Ended December 31, 2009Parent
              
              
              Guarantor
                Subsidiaries
              
              
              Non-Guarantor
                Subsidiaries
              
              
              ConsolidatedNet
      cash provided by (used for) operating activities
              
              $
              18,391
              
              
              $
              2,175
              
              
              $
              (6,742
              )
              
              $
              13,824INVESTING
      ACTIVITIES:Capital
      expenditures
              
              
              (8,070
              )
              
              
              (2,241
              )
              
              
              (1,687
              )
              
              
              (11,998
              )Proceeds
      from the sale of fixed assets
              
              
              102
              
              
              
              57
              
              
              
              42
              
              
              
              201Business
      acquisitions
              
              
              (5,967
              )
              
              
              -
              
              
              
              -
              
              
              
              (5,967
              )Net
      cash used for investing activities
              
              
              (13,935
              )
              
              
              (2,184
              )
              
              
              (1,645
              )
              
              
              (17,764
              )FINANCING
      ACTIVITIES:Revolving
      credit facility borrowings
              
              
              -
              
              
              
              -
              
              
              
              336
              
              
              
              336Net
      cash provided by financing activities
              
              
              -
              
              
              
              -
              
              
              
              336
              
              
              
              336Effect
      of exchange rate changes on cashand
      cash equivalents
              
              
              -
              
              
              
              -
              
              
              
              2,819
              
              
              
              2,819Net
      change in cash and cash equivalents
              
              
              4,456
              
              
              
              (9
              )
              
              
              (5,232
              )
              
              
              (785
              )Cash
      and cash equivalents at beginningof
      period
              
              
              55,237
              
              
              
              27
              
              
              
              37,428
              
              
              
              92,692Cash
      and cash equivalents at end of period
              
              $
              59,693
              
              
              $
              18
              
              
              $
              32,196
              
              
              $
              91,907




For
      the Year Ended December 31, 2008Parent
              
              
              Guarantor
                Subsidiaries
              
              
              Non-Guarantor
                Subsidiaries
              
              
              ConsolidatedNet
      cash provided by operating activities
              
              $
              37,167
              
              
              $
              4,889
              
              
              $
              400
              
              
              $
              42,456INVESTING
      ACTIVITIES:Capital
      expenditures
              
              
              (14,679
              )
              
              
              (5,121
              )
              
              
              (4,773
              )
              
              
              (24,573
              )Proceeds
      from sale of fixed assets
              
              
              275
              
              
              
              4
              
              
              
              1,373
              
              
              
              1,652Business
      acquisitions
              
              
              -
              
              
              
              -
              
              
              
              (980
              )
              
              
              (980
              )Net
      cash used for investing activities
              
              
              (14,404
              )
              
              
              (5,117
              )
              
              
              (4,380
              )
              
              
              (23,901
              )FINANCING
      ACTIVITIES:Repayments
      of long-term debt
              
              
              (17,000
              )
              
              
              -
              
              
              
              -
              
              
              
              (17,000
              )Share-based
      compensation activity
              
              
              1,322
              
              
              
              -
              
              
              
              -
              
              
              
              1,322Other
      financing costs
              
              
              (553
              )
              
              
              -
              
              
              
              -
              
              
              
              (553
              )Net
      cash used for financing activities
              
              
              (16,231
              )
              
              
              -
              
              
              
              -
              
              
              
              (16,231
              )Effect
      of exchange rate changes on cashand
      cash equivalents
              
              
              -
              
              
              
              -
              
              
              
              (5,556
              )
              
              
              (5,556
              )Net
      change in cash and cash equivalents
              
              
              6,532
              
              
              
              (228
              )
              
              
              (9,536
              )
              
              
              (3,232
              )Cash
      and cash equivalents at beginningof
      period
              
              
              48,705
              
              
              
              255
              
              
              
              46,964
              
              
              
              95,924Cash
      and cash equivalents at end of period
              
              $
              55,237
              
              
              $
              27
              
              
              $
              37,428
              
              
              $
              92,692
  71
 
 STONERIDGE,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in
thousands, except share and per share data, unless otherwise
indicated)


Supplemental
condensed consolidating financial statements (continued):
  For
      the Year Ended December 31, 2007Parent
                
                
                Guarantor
                  Subsidiaries
                
                
                Non-
                  Guarantor
                  Subsidiaries
                
                
                Eliminations
                
                
                ConsolidatedNet
      cash provided by (used for) operating activities
                
                $
                20,239
                
                
                $
                (505
                )
                
                $
                14,091
                
                
                $
                (300
                )
                
                $
                33,525INVESTING
      ACTIVITIES:Capital
      expenditures
                
                
                (9,034
                )
                
                
                (3,895
                )
                
                
                (5,212
                )
                
                
                -
                
                
                
                (18,141
                )Proceeds
      from sale of fixed assets
                
                
                7,663
                
                
                
                4,643
                
                
                
                9
                
                
                
                -
                
                
                
                12,315Net
      cash provided by (used for) investing activities
                
                
                (1,371
                )
                
                
                748
                
                
                
                (5,203
                )
                
                
                -
                
                
                
                (5,826
                )FINANCING
      ACTIVITIES:Repayments
      of long-term debt
                
                
                -
                
                
                
                -
                
                
                
                (300
                )
                
                
                300
                
                
                
                -Share-based
      compensation activity
                
                
                2,119
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,119Other
      financing costs
                
                
                (1,219
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,219
                )Net
      cash provided by (used for) financing activities
                
                
                900
                
                
                
                -
                
                
                
                (300
                )
                
                
                300
                
                
                
                900Effect
      of exchange rate changes on cashand
      cash equivalents
                
                
                -
                
                
                
                -
                
                
                
                1,443
                
                
                
                -
                
                
                
                1,443Net
      change in cash and cash equivalents
                
                
                19,768
                
                
                
                243
                
                
                
                10,031
                
                
                
                -
                
                
                
                30,042Cash
      and cash equivalents at beginningof
      period
                
                
                28,937
                
                
                
                12
                
                
                
                36,933
                
                
                
                -
                
                
                
                65,882Cash
      and cash equivalents at end of period
                
                $
                48,705
                
                
                $
                255
                
                
                $
                46,964
                
                
                $
                -
                
                
                $
                95,924
  72
 
 STONERIDGE,
INC. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (in
thousands, except share and per share data, unless otherwise
indicated)


14.
Unaudited Quarterly Financial Data





The
following is a summary of quarterly results of operations for 2009 and
2008:





Quarter
      EndedDec.
      31
              
              
              Sep.
      30
              
              
              Jun.
      30
              
              
              Mar.
      312009Net
      sales
              
              $
              133,785
              
              
              $
              117,992
              
              
              $
              102,290
              
              
              $
              121,085Gross
      profit
              
              
              28,031
              
              
              
              27,083
              
              
              
              13,596
              
              
              
              19,275Operating
      income (loss)
              
              
              2,176
              
              
              
              2,634
              
              
              
              (14,293
              )
              
              
              (8,760
              )Provision
      (benefit) for income taxes
              
              
              (594
              )
              
              
              1,502
              
              
              
              197
              
              
              
              (2,108
              )Net
      loss
              
              
              (136
              )
              
              
              (843
              )
              
              
              (19,764
              )
              
              
              (11,580
              )Net
      income attributable to noncontrolling interests
              
              
              82
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      loss attributable to Stoneridge, Inc. and Subsidiaries
              
              
              (218
              )
              
              
              (843
              )
              
              
              (19,764
              )
              
              
              (11,580
              )Earnings
      per share:Basic
      (A)
              
              
              (0.01
              )
              
              
              (0.04
              )
              
              
              (0.84
              )
              
              
              (0.49
              )Diluted
      (A)
              
              
              (0.01
              )
              
              
              (0.04
              )
              
              
              (0.84
              )
              
              
              (0.49
              )
  Quarter
      EndedDec.
      31
              
              
              Sep.
      30
              
              
              Jun.
      30
              
              
              Mar.
      312008Net
      sales
              
              $
              157,965
              
              
              $
              178,434
              
              
              $
              213,229
              
              
              $
              203,070Gross
      profit
              
              
              29,771
              
              
              
              35,345
              
              
              
              49,354
              
              
              
              51,817Goodwill
      impairment charge
              
              
              65,175
              
              
              
              -
              
              
              
              -
              
              
              
              -Operating
      income (loss)
              
              
              (69,076
              )
              
              
              935
              
              
              
              10,757
              
              
              
              14,113Provision
      for income taxes
              
              
              36,723
              
              
              
              855
              
              
              
              4,062
              
              
              
              5,112Net
      income (loss)
              
              
              (108,394
              )
              
              
              (364
              )
              
              
              4,684
              
              
              
              6,547Earnings
      per share:Basic
      (A)
              
              
              (4.63
              )
              
              
              (0.02
              )
              
              
              0.20
              
              
              
              0.28Diluted
      (A)
              
              
              (4.63
              )
              
              
              (0.02
              )
              
              
              0.20
              
              
              
              0.28





(A)
            Earnings per share
      for the year may not equal the sum of the four historical quarters
      earnings per share due to changes in basic and diluted shares
      outstanding.




15.
Subsequent Event





On
February 23, 2010 the Company placed its wholly owned subsidiary, Stoneridge
Pollak Limited (“SPL”) into administration in the United Kingdom.  The
Company had previously ceased operations at the facility as of December 2008 as
part of the restructuring initiatives announced on October 29, 2007, see Note
11.  All SPL customer contracts were transferred to other subsidiaries
of the Company at the time that SPL filed for administration.  The
Company is currently evaluating the effect that this filing will have on its
consolidated results.  The Company anticipates recognizing a gain on
the reversal of certain items included within other comprehensive income during
the quarter ended March 31, 2010 as a result of the administration
process.




73


STONERIDGE,
INC. AND SUBSIDIARIES
 SCHEDULE
II – VALUATION AND QUALIFYING ACCOUNTS
 (in
thousands)
  Balance
      at Beginning of Period
              
              
              Charged
      to Costs and Expenses
              
              
              Write-offs
              
              
              Balance
      at End of PeriodAccounts
      receivable reserves:Year
      ended December 31, 2007
              
              $
              5,243
              
              
              $
              905
              
              
              $
              (1,412
              )
              
              $
              4,736Year
      ended December 31, 2008
              
              
              4,736
              
              
              
              151
              
              
              
              (683
              )
              
              
              4,204Year
      ended December 31, 2009
              
              
              4,204
              
              
              
              917
              
              
              
              (2,771
              )
              
              
              2,350
 
 Balance at Beginning
      ofPeriod
              
              
              Net
      Additions Charged to Income
              
              
              Exchange
      Rate Fluctuations and Other Items
              
              
              Balance at End ofPeriodValuation
      allowance for deferred tax assets:Year
      ended December 31, 2007
              
              $
              17,380
              
              
              $
              (1,104
              )
              
              $
              (256
              )
              
              $
              16,020Year
      ended December 31, 2008
              
              
              16,020
              
              
              
              66,271
              
              
              
              88
              
              
              
              82,379Year
      ended December 31, 2009
              
              
              82,379
              
              
              
              2,245
              
              
              
              (661
              )
              
              
              83,963
 74




Item
9.  Changes In and Disagreements With Accountants On Accounting and
Financial Disclosure.





There has
been no disagreement between the management of the Company and its independent
auditors on any matter of accounting principles or practices of financial
statement disclosures, or auditing scope or procedure.





Item
9A.  Controls and Procedures.





Evaluation
of Disclosure Controls and Procedures





As of
December 31, 2009, an evaluation was performed under the supervision and with
the participation of the Company’s management, including the principal executive
officer (“PEO”) and principal financial officer (“PFO”), of the effectiveness of
the design and operation of the Company’s disclosure controls and procedures as
defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of
1934, as amended. Based on that evaluation, the Company’s PEO and PFO, concluded
that the Company’s disclosure controls and procedures were effective as of
December 31, 2009.





Changes
in Internal Control Over Financial Reporting





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





Management’s
Report on Internal Control Over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f) and 15d-15(f).  In evaluating the Company’s internal control
over financial reporting, management has adopted the framework in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.  Under the supervision and with the participation
of our management, including the principal executive officer and principal
financial and accounting officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting, as of December
31, 2009.  Based on our evaluation under the framework inInternal Control-Integrated
Framework, our management has concluded that our internal control over
financial reporting was effective as of December 31, 2009.





Because
of inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.





The
effectiveness of the Company’s internal control over financial reporting as of
December 31, 2009 has been audited by Ernst & Young LLP, an independent
registered public accounting firm, as stated in their report which appears
herein.





75




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





The Board
of Directors and Shareholders of


Stoneridge,
Inc. and Subsidiaries





We have
audited Stoneridge, Inc. and Subsidiaries’ internal control over financial
reporting as of December 31, 2009, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (the COSO criteria). Stoneridge, Inc. and
Subsidiaries’ management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the company’s internal control over
financial reporting based on our audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.





A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the company’s
assets that could have a material effect on the financial
statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





In our
opinion, Stoneridge, Inc. and Subsidiaries maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2009,
based on the COSO criteria.





We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Stoneridge,
Inc. and Subsidiaries as of December 31, 2009 and 2008, and the related
consolidated statements of operations, other comprehensive income (loss) and
shareholders’ equity and cash flows for each of the three years in the period
ended December 31, 2009 of Stoneridge, Inc. and Subsidiaries and our report
dated March 16, 2010 expressed an unqualified opinion thereon.






/s/ Ernst
& Young LLP


Cleveland,
Ohio


March 16,
2010




76




Item
9B.  Other Information.





None.





PART
III





Item
10.  Directors, Executive Officers and Corporate
Governance.





The
information required by this Item 10 regarding our directors is incorporated by
reference to the information under the sections and subsections entitled,
“Proposal One: Election of Directors,” “Nominating and Corporate Governance
Committee,” “Audit Committee,” “Section 16(a) Beneficial Ownership Reporting
Compliance” and “Corporate Governance Guidelines” contained in the Company's
Proxy Statement in connection with its Annual Meeting of Shareholders to be held
on May 17, 2010.  The information required by this Item 10 regarding
our executive officers appears as a Supplementary Item following Item 1 under
Part I hereof.





Item
11.  Executive Compensation.





The
information required by this Item 11 is incorporated by reference to the
information under the sections and subsections “Compensation Committee,”
“Compensation Committee Interlocks and Insider
Participation,”  “Compensation Committee Report” and “Executive
Compensation” contained in the Company's Proxy Statement in connection with its
Annual Meeting of Shareholders to be held on May 17, 2010.





Item
12.  Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.





The
information required by this Item 12 (other than the information required by
Item 201(d) of Regulation S-K which is set forth below) is incorporated by
reference to the information under the heading “Security Ownership of Certain
Beneficial Owners and Management” contained in the Company's Proxy Statement in
connection with its Annual Meeting of Shareholders to be held on May 17,
2010.





In
October 1997, we adopted a Long-Term Incentive Plan for our employees, which
expired on June 30, 2007. In May 2002, we adopted a Director Share Option Plan
for our directors.  In April 2005, we adopted a Directors’ Restricted
Shares Plan.  In April 2006, we adopted an Amended and Restated
Long-Term Incentive Plan.  Our shareholders approved each
plan.  Equity compensation plan information, as of December 31, 2009,
is as follows:





Number
      of Securities to be Issued Upon the Exercise of Outstanding Share
      Options
              
              
              Weighted-Average
      Exercise Price of Outstanding Share Options
              
              
              Number
      of Securities Remaining Available for Future Issuance Under Equity
      Compensation Plans (1)Equity
      compensation plansapproved
      by shareholders
              
              
              169,750
              
              
              $
              11.28
              
              
              
              712,762Equity
      compensation plans notapproved
      by shareholders
              
              
              -
              
              
              $
              -
              
              
              
              -







(1)
            Excludes securities
      reflected in the first column, “Number of securities to be issued upon the
      exercise of outstanding share options.”  Also excludes 1,194,059
      restricted Common Shares issued and outstanding to key employees pursuant
      to the Company’s Long-Term Incentive Plan and 59,400 restricted Common
      Shares issued and outstanding to directors under the Directors’ Restricted
      Shares Plan as of December 31,
2009.





77




Item
13.  Certain Relationships and Related Transactions, and Director
Independence.





The
information required by this Item 13 is incorporated by reference to the
information under the sections and subsections “Transactions with Related
Persons” and “Director Independence” contained in the Company's Proxy Statement
in connection with its Annual Meeting of Shareholders to be held on May 17,
2010.





Item
14.  Principal Accounting Fees and Services.





The
information required by this Item 14 is incorporated by reference to the
information under the sections and subsections “Service Fees Paid to Independent
Registered Accounting Firm” and “Pre-Approval Policy” contained in the Company's
Proxy Statement in connection with its Annual Meeting of Shareholders to be held
on May 17, 2010.





PART
IV





Item
15.  Exhibits, Financial Statement Schedules.







Page
      in
                Form 10-K(a)  
      The following documents are filed as part of this Form 10-K.(1)  Consolidated
      Financial Statements:Report
      of Independent Registered Public Accounting Firm
              
              34Consolidated
      Balance Sheets as of December 31, 2009 and 2008
              
              35Consolidated
      Statements of Operations for the Years Ended December 31, 2009, 2008 and
      2007
              
              36Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and
      2007
              
              37Consolidated
      Statements of Other Comprehensive Income (Loss) and Shareholders' Equity
      for the Years Ended December 31, 2009, 2008 and 2007
              
              38Notes
      to Consolidated Financial Statements
              
              39(2)  Financial
      Statement Schedule:Schedule
      II – Valuation and
      Qualifying Accounts
              
              74(3)  Exhibits:See
      the list of exhibits on the Index to Exhibits following the signature
      page.(b)  
      The exhibits listed on the Index to Exhibits are filed as part of or
      incorporated by reference into this report.(c)  
      Additional Financial Statement Schedules.None.
  78


SIGNATURES





Pursuant
to the requirements of the Section 13 or 15(d) 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:  March
      15, 2010
            /s/
      GEORGE E. STRICKLERGeorge
      E. StricklerExecutive
      Vice President, Chief Financial Officer and Treasurer(Principal
      Financial and Accounting Officer)





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





Date:  March
      15, 2010
            /s/
      JOHN C. COREYJohn
      C. Corey
              President,
      Chief Executive Officer and Director
              (Principal
      Executive Officer)Date:  March
      15, 2010
            /s/
      WILLIAM M. LASKYWilliam
      M. Lasky
              Chairman
      of the Board of DirectorsDate:  March
      15, 2010
            /s/
      JEFFREY P. DRAIMEJeffrey
      P. Draime
              DirectorDate:  March
      15, 2010
            /s/
      DOUGLAS C. JACOBSDouglas
      C. Jacobs
              DirectorDate:  March
      15, 2010
            /s/
      IRA C. KAPLANIra
      C. Kaplan
              DirectorDate:  March
      15, 2010
            /s/
      KIM KORTHKim
      Korth
              DirectorDate:  March
      15, 2010
            /s/
      PAUL J. SCHLATHERPaul
      J. Schlather
              Director





79




INDEX
TO EXHIBITS





Exhibit
                Number
              
              Exhibit2.1
              
              Asset
      Purchase and Contribution Agreement, dated October 9, 2009, by and among
      the Company and Bolton Conductive Systems LLC, Martin Kochis, Joseph
      Malecke, Bolton Investments LLC, William Bolton and New Bolton Systems,
      filed herewith.3.1
              
              Second
      Amended and Restated Articles of Incorporation of the Company
      (incorporated by reference to Exhibit 3.1 to the Company’s Registration
      Statement on Form S-1 (No. 333-33285)).3.2
              
              Amended
      and Restated Code of Regulations of the Company (incorporated by reference
      to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (No.
      333-33285)).4.1
              
              Common
      Share Certificate (incorporated by reference to Exhibit 4.1 to the
      Company’s Annual Report on Form 10-K for the year ended December 31,
      1997).4.2
              
              Indenture
      dated as of May 1, 2002 among Stoneridge, Inc. as Issuer, Stoneridge
      Control Devices, Inc. and Stoneridge Electronics, Inc., as Guarantors, and
      Fifth Third Bank, as trustee (incorporated by reference to Exhibit 4.1 to
      the Company’s Current Report on Form 8-K filed on May 7,
      2002).10.1
              
              Form
      of Tax Indemnification Agreement (incorporated by reference to Exhibit
      10.10 to the Company’s Registration Statement on Form S-1 (No.
      333-33285)).10.2
              
              Directors’
      Share Option Plan (incorporated by reference to Exhibit 4 of the Company’s
      Registration Statement on Form S-8 (No. 333-96953))*.10.3
              
              Form
      of Long-Term Incentive Plan Share Option Agreement (incorporated by
      reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-K for
      the year ended December 31, 2004)*.10.4
              
              Form
      of Directors’ Share Option Plan Share Option Agreement (incorporated by
      reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K for
      the year ended December 31, 2004)*.10.5
              
              Form
      of Long-Term Incentive Plan Restricted Shares Grant Agreement
      (incorporated by reference to Exhibit 10.18 to the Company’s Annual Report
      on Form 10-K for the year ended December 31, 2004)*.10.6
              
              Director’s
      Restricted Shares Plan (incorporated by reference to Exhibit 4.3 of the
      Company’s Registration Statement on Form S-8 (No.
      333-127017))*.10.7
              
              Form
      of Director’s Restricted Shares Plan Agreement (incorporated by reference
      to Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the year
      ended December 31, 2005)*.10.8
              
              Form
      of Long-Term Incentive Plan Restricted Shares Grant Agreement including
      Performance and Time-Based Restricted Shares (incorporated by reference to
      Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the year
      ended December 31, 2005)*.10.9
              
              Amendment
      to Restricted Shares Grant Agreement (incorporated by reference to Exhibit
      10.24 to the Company’s Annual Report on Form 10-K for the year ended
      December 31, 2005)*.10.10
              
              Employment
      Agreement between the Company and John C. Corey (incorporated by reference
      to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the
      quarter ended April 1, 2006)*.10.11
              
              Amended
      and Restated Long-Term Incentive Plan (incorporated by reference to
      Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on April
      28, 2006)*.10.12
              
              Form
      of 2006 Long-Term Incentive Plan Restricted Shares Grant Agreement
      (incorporated by reference to Exhibit 99.3 to the Company’s Current Report
      on Form 8-K filed on July 26, 2006)*.10.13
              
              Form
      of 2006 Directors’ Restricted Shares Plan Grant Agreement (incorporated by
      reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K
      filed on July 26, 2006)*.
  80
  Exhibit
                Number
              
              Exhibit10.14
              
              Annual
      Incentive Plan (incorporated by reference to Exhibit 99.1 to the Company’s
      Current Report on Form 8-K filed on November 2, 2006)*.10.15
              
              Annual
      Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s
      Quarterly Report on Form 10-Q for the quarter ended June 30,
      2007)*.10.16
              
              Credit
      Agreement dated as of November 2, 2007 among Stoneridge, Inc., as
      Borrower, the Lending Institutions Named Therein, as Lenders, National
      City Business Credit, Inc., as Administrative Agent and Collateral Agent,
      and National City Bank, as Lead Arranger and Issuer (incorporated by
      reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
      filed on November 8, 2007).10.17
              
              Amended
      and Restated Change in Control Agreement (incorporated by reference to
      Exhibit 10.1 to the Company’s Amendment No. 1 to its Quarterly Report on
      Form 10-Q for the quarter ended September 30, 2007)*.10.18
              
              Amended
      Employment Agreement between Stoneridge, Inc. and John C. Corey
      (incorporated by reference to Exhibit 10.31 to the Company’s Annual Report
      on Form 10-K for the year ended December 31, 2008)*.10.19
              
              Amended
      and Restated Change in Control Agreement (incorporated by reference to
      Exhibit 10.32 to the Company’s Annual Report on Form 10-K for the year
      ended December 31, 2008)*.10.20
              
              Amendment
      No. 1 dated April 24, 2009 to Credit and Security Agreement dated as of
      November 2, 2007 by and among the Company as Borrower, the Lending
      Institutions Named Therein, as Lenders, National City Business Credit,
      Inc., Comerica Bank, JP Morgan Chase, PNC Bank, National Association and
      Fifth Third Bank, as lenders (incorporated by reference to Exhibit 99.1 to
      the Company’s Current Report on Form 8-K filed on April 30,
      2009).10.21
              
              Amendment
      No. 2 dated April 24, 2009 to Credit and Security Agreement dated as of
      November 2, 2007 by and among the Company as Borrower, the Lending
      Institutions Named Therein, as Lenders, National City Business Credit,
      Inc., Comerica Bank, JP Morgan Chase, PNC Bank, National Association and
      Fifth Third Bank, as lenders (incorporated by reference to Exhibit 99.2 to
      the Company’s Current Report on Form 8-K filed on April 30,
      2009).10.22
              
              Form
      of Stoneridge, Inc. Long-Term Incentive Plan – Restricted Shares Grant
      Agreement (incorporated by reference to Exhibit 10.1 to the Company’s
      Quarterly Report on Form 10-Q for the quarter ended March 31,
      2009)*.10.23
              
              Form
      of Stoneridge, Inc. Long-Term Cash Incentive Plan – Grant Agreement
      (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly
      Report on Form 10-Q for the quarter ended March 31,
  2009)*.10.24
              
              Form
      of Stoneridge, Inc. Long-Term Incentive Plan – 2007 amendment to the
      restricted shares grant agreement (incorporated by reference to Exhibit
      10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
      June 30, 2009)*.10.25
              
              Form
      of Stoneridge, Inc. Long-Term Incentive Plan – 2008 amendment to the
      restricted shares grant agreement (incorporated by reference to Exhibit
      10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
      June 30, 2009)*.10.26
              
              Stoneridge,
      Inc. Long-Term Cash Incentive Plan (incorporated by reference to Exhibit
      10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
      June 30, 2009)*.10.27
              
              Stoneridge,
      Inc. Officers’ and Key Employees’ Severance Plan (incorporated by
      reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K
      filed on October 9, 2009)*.10.28
              
              Stoneridge,
      Inc. Retention Award between the Company and John C. Corey (incorporated
      by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K
      filed on October 9, 2009)*.
  81
  Exhibit
                Number
              
              Exhibit10.29
              
              Stoneridge,
      Inc. Form of the Retention Awards between the Company and George E.
      Strickler, Mark J. Tervalon, Thomas A. Beaver and Michael D. Sloan
      (incorporated by reference to Exhibit 99.3 to the Company’s Current Report
      on Form 8-K filed on October 9, 2009)*.10.30
              
              Amendment
      No. 3 dated October 9, 2009 to Credit and Security Agreement dated as of
      November 2, 2007 by and among the Company as Borrower, the Lending
      Institutions Named Therein, as Lenders, National City Business Credit,
      Inc., Comerica Bank, JP Morgan Chase, PNC Bank, National Association and
      Fifth Third Bank, as lenders, filed herewith.10.31
              
              Stoneridge,
      Inc. Form of indemnification agreement between the Company and John C.
      Corey, George E. Strickler, Kenneth A. Kure and James E. Malcolm filed
      herewith.14.1
              
              Code
      of Ethics for Senior Financial Officers (incorporated by reference to
      Exhibit 14.1 to the Company’s Annual Report on Form 10-K for the year
      ended December 31, 2003).21.1
              
              Principal
      Subsidiaries and Affiliates of the Company, filed
  herewith.23.1
              
              Consent
      of Independent Registered Public Accounting Firm, filed
      herewith.23.2
              
              Consent
      of Independent Registered Public Accounting Firm, filed
      herewith.31.1
              
              Chief
      Executive Officer certification pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002, filed herewith.31.2
              
              Chief
      Financial Officer certification pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002, filed herewith.32.1
              
              Chief
      Executive Officer certification pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed
      herewith.32.2
              
              Chief
      Financial Officer certification pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed
      herewith.99.1
              
              Financial
      Statements of PST Eletrônica S.A., filed herewith.*  -
      Reflects management contract or compensatory plan or arrangement required
      to be filed as an exhibit pursuant to Item 15(b) of this Annual Report on
      Form 10-K.




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