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, 2008
 
 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) 856-2443Registrant’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 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, 2008, the aggregate market value of the registrant’s Common Shares,
without par value, held by non-affiliates of the registrant was approximately
$247.1 million.  The closing price of the Common Shares on June 30,
2008 as reported on the New York Stock Exchange was $17.06 per
share.  As of June 30, 2008, the number of Common Shares outstanding
was 24,660,471.
 
 The
number of Common Shares, without par value, outstanding as of February 20, 2009
was 24,664,529.
 
 DOCUMENTS
INCORPORATED BY REFERENCE
 
 Definitive
Proxy Statement for the Annual Meeting of Shareholders to be held on May 4,
2009, into Part III, Items 10, 11, 12, 13 and 14.
 1
 STONERIDGE,
INC. AND SUBSIDIARIES
  INDEX
 Page No.PART
      IItem
      1.
                    Business
                    
                    3Item
      1A.
                    Risk
      Factors
                    
                    9Item
      1B.
                    Unresolved
      Staff Comments
                    
                    12Item
      2.
                    Properties
                    
                    13Item
      3.
                    Legal
      Proceedings
                    
                    14Item
      4.
                    Submission
      of Matters to a Vote of Security Holders
                    
                    14PART
      IIItem
      5.
                    Market
      for Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                    
                    15Item
      6.
                    Selected
      Financial Data
                    
                    16Item
      7.
                    Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                    
                    17Item
      7A.
                    Quantitative
      and Qualitative Disclosures About Market Risk
                    
                    33Item
      8.
                    Financial
      Statements and Supplementary Data
                    
                    34Item
      9.
                    Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
                    
                    72Item
      9A.
                    Controls
      and Procedures
                    
                    72Item
      9B.
                    Other
      Information
                    
                    74PART
      IIIItem
      10.
                    Directors,
      Executive Officers and Corporate Governance
                    
                    74Item
      11.
                    Executive
      Compensation
                    
                    74Item
      12.
                    Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                    
                    74Item
      13.
                    Certain
      Relationships and Related Transactions, and Director
      Independence
                    
                    75Item
      14.
                    Principal
      Accounting Fees and Services
                    
                    75PART
      IVItem
      15.
                    Exhibits,
      Financial Statement Schedules
                    
                    75Signatures
                    
                    76
 
 2
  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, agricultural, automotive 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. Under the provisions of Statement of Financial Accounting Standard
(“SFAS”) No. 131, Disclosures
about Segments of an Enterprise and Related Information, 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 parts:
 
 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.
  3
 
 The
following table presents net sales by reportable segment, as a percentage of
total net sales:
 
 For the Years EndedDecember 31,2008
                    
                    2007
                    
                    2006Electronics
                    
                    
                    69
                    %
                    
                    
                    61
                    %
                    
                    
                    62
                    %Control
      Devices
                    
                    
                    31
                    
                    
                    
                    39
                    
                    
                    
                    38Total
                    
                    
                    100
                    %
                    
                    
                    100
                    %
                    
                    
                    100
                    %
 
 For
further information related to our reportable segments and financial information
about geographic areas, see Note 13, “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 readily
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.  Any change
in the supply of, or price for, these raw materials 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, agricultural, automotive 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, agricultural,
automotive and off-highway vehicle production of our principal customers could
adversely impact the Company.  Approximately 70%, 60% and 62% of our
net sales in 2008, 2007 and 2006, respectively, were derived from the medium-
and heavy-duty truck, agricultural and off-highway vehicle
markets.  Approximately 30%, 40% and 38% of our net sales in 2008,
2007 and 2006, respectively, were made to the automotive market.
 
 We
typically experience decreased sales during the third calendar quarter of each
year due to the impact of scheduled OEM plant shutdowns in July for vacations
and new model changeovers. The fourth quarter is similarly impacted by plant
shutdowns for the holidays.
 
 Customers
 
 We are
dependent on a small number of principal 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.
  4
 
 The
following table presents the Company’s principal customers, as a percentage of
net sales:
 
 For
      the EndedDecember 31,2008
                    
                    
                    2007
                    
                    
                    2006Navistar
      International
                    
                    
                    26
                    %
                    
                    
                    20
                    %
                    
                    
                    25
                    %Deere
      & Company
                    
                    
                    10
                    
                    
                    
                    7
                    
                    
                    
                    6Ford
      Motor Company
                    
                    
                    6
                    
                    
                    
                    8
                    
                    
                    
                    6Chrysler
      LLC
                    
                    
                    6
                    
                    
                    
                    5
                    
                    
                    
                    5MAN
      AG
                    
                    
                    4
                    
                    
                    
                    6
                    
                    
                    
                    6General
      Motors
                    
                    
                    4
                    
                    
                    
                    6
                    
                    
                    
                    5Other
                    
                    
                    44
                    
                    
                    
                    48
                    
                    
                    
                    47Total
                    
                    
                    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 Continental AG/Siemens VDO, Delphi and
Leoni.
 
 Control
Devices.Our primary competitors include Methode, Denso,
Delphi, Bosch, Continental AG/Siemens VDO, Hella, TRW and BEI
Duncan.
 
 Product
Development
 
 Our
research and development efforts 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.
  5
 
 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.  Research and 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 $45.6 million, $44.2 million and $40.8 million for 2008, 2007 and
2006, respectively, or 6.1%, 6.1% and 5.8% 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.  This shift is essential to the future growth of
the Company.  However, 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 waters
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, 2008, we had approximately 6,400 employees, approximately 1,600 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.
 
 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.
  6
 
 Our joint
ventures have contributed positively to our financial results in 2008, 2007 and
2006.  Equity earnings by joint venture for the years ended December
31, 2008, 2007 and 2006 are summarized in the following table (in
thousands):
 
 For
      the Years EndedDecember 31,2008
                    
                    
                    2007
                    
                    
                    2006PST
                    
                    $
                    12,788
                    
                    
                    $
                    10,351
                    
                    
                    $
                    6,771Minda
                    
                    
                    702
                    
                    
                    
                    542
                    
                    
                    
                    354Total
      equity earnings of investees
                    
                    $
                    13,490
                    
                    
                    $
                    10,893
                    
                    
                    $
                    7,125
 
 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 $174.3 million, $133.0
million and $94.1 million in 2008, 2007 and 2006, respectively.  We
also received dividend payments of $4.2 million, $5.6 million and $3.7 million
from PST in 2008, 2007 and 2006, 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
                    
                    61
                    
                    President,
      Chief Executive Officer and DirectorGeorge
      E. Strickler
                    
                    61
                    
                    Executive
      Vice President, Chief Financial Officer and TreasurerThomas A. Beaver
                    
                    55
                    
                    Vice
      President of Global Sales and Systems EngineeringMark
      J. Tervalon
                    
                    42
                    
                    Vice
      President of the Company and President of the Stoneridge Electronics
      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.
 
 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.
 
 Thomas A. Beaver,
Vice President of Global Sales and Systems Engineering.Mr. Beaverhas served as Vice
President of Global Sales and Systems Engineering of the Company since January
of 2005.  Prior to this time, 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.
  7
  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 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.
  8
  Item
1A.  Risk Factors.
 
 Set forth
below and elsewhere in this Annual Report on Form 10-K 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
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 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 32 should be considered in addition to the following
statements.
 
 Current
worldwide economic conditions and credit tightening may adversely affect our
business, operating results and financial condition.
 
 General
worldwide economic conditions have experienced a downturn due to the effects of
the sub-prime lending crisis, general credit market crisis, collateral effects
on the finance and banking industries, concerns about inflation, slower economic
activity, decreased consumer confidence, reduced corporate profits and capital
spending, adverse business conditions and liquidity concerns.  We are
not immune to changes in economic conditions.  We  believe
the current worldwide economic crisis has resulted and may continue to result in
a further decline in current and forecasted production volumes for light and
commercial vehicles, which will likely result in decreased demand for our
products.  The worldwide economic crisis also may have other adverse
implications on our business.  For example, the ability of our
customers to borrow money from their existing lenders or to obtain credit from
other sources to purchase our products may be impaired.  Although we
maintain an allowance for doubtful accounts for estimating losses resulting from
the inability of our customers to make required payments and such losses have
historically been within our expectations and the provisions established, we
cannot guarantee that we will continue to experience the same loss rates that we
have in the past, especially given the current turmoil in the worldwide
economy.  A significant change in the liquidity or financial condition
of our customers could cause unfavorable trends in our receivable collections
and additional allowances may be required, which could adversely affect our
operating results.  In addition, the worldwide economic crisis may
adversely impact the ability of suppliers to provide us with materials and
components, which could adversely affect our business and operating
results.
 
 The
North American and European automotive industries are in distress and further
deterioration could adversely impact our business.
 
 Global
automotive market sales represented 30%, 40% and 38% of our total net sales in
2008, 2007 and 2006, respectively.  A number of companies in the
global automotive industry are facing severe financial difficulties. In North
America, General Motors, Ford, and Chrysler have experienced a market decline.
They have announced significant restructuring actions in an effort to improve
profitability and some have received Federal financing assistance. The North
American automotive manufacturers are also burdened with substantial structural
costs, such as pension and healthcare costs, that have impacted their
profitability and labor relations and may ultimately result in severe financial
difficulty, including bankruptcy. Automakers across Europe and Japan are also
experiencing difficulties from a weakened economy and tightening credit markets.
Automotive industry conditions have adversely affected our supply base. Lower
production levels for some of our key suppliers, increases in certain raw
material, commodity and energy costs and the global credit market crisis has
resulted in severe financial distress among many companies within the automotive
supply base. The continuation of financial distress within the automotive
industry and the supply base and/or the bankruptcy of one or more of the
automakers may lead to supplier bankruptcies, commercial disputes, supply chain
interruptions, supplier requests for company sponsored capital support, or a
collapse of the supply chain.
 
 Our
business is cyclical and seasonal in nature and downturns in the medium- and
heavy-duty truck, agricultural, automotive and off-road 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, agricultural, automobiles and
off-road 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, agricultural, automotive and off-road vehicle
markets, our 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,
agricultural, automotive and off-highway vehicle production could adversely
impact our results of operations and financial condition. In 2008, approximately
70% were derived from the medium- and heavy-duty truck, agricultural and
off-highway vehicle markets and approximately 30% of our net sales were made to
the automotive market.  Seasonality experienced by the automotive
industry also impacts our operations.  We typically experience
decreased sales during the third quarter of each year due to the impact of
scheduled OEM customer plant shutdowns in July for vacations and new model
changeovers.  The fourth quarter is also impacted by plant shutdowns
for the holidays.
  9
  We
may not realize sales represented by awarded business.
 
 We base
our growth projections, in part, on commitments made by our
customers.  There commitments generally renewyearly 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. Any change in the supply of, or price for, these raw
materials could materially affect our results of operations and financial
condition.
 
 The
loss or insolvency of any of our major customers would adversely affect our
future results.
  We are
dependent on a small number of principal customers for a significant percentage
of our net sales.  In 2008, our top three principal customers were
Navistar International, Deere & Company and Ford Motor Company, which
comprised 26%, 10% and 6% of our net sales respectively.  In 2008, our
top ten customers accounted for 68% 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.
  10
  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.
 
 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 research and 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 and 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, 2008, we had approximately 6,400 employees, approximately 1,600 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 and health and safety
laws, regulations or requirements that may be adopted or imposed in the
future.
  11
  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.  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.  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.  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.
  We
are subject to risks related to our international operations.
  Approximately
25.9% of our net sales in 2008 were derived from sales outside of North America.
Non-current assets outside of North America accounted for approximately 13.6% of
our non-current assets as of December 31, 2008.  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 net
earnings include significant equity earnings from unconsolidated
subsidiaries.  For the year ended December 31, 2008, we recognized
$13.5 million of equity earnings and received $4.2 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.
  12
  Item
2.  Properties.
 
 The
Company and our joint ventures currently own or lease 16 manufacturing
facilities, which together contain approximately 1.4 million square feet of
manufacturing space.  Of these manufacturing facilities, nine are used
by our Electronics reportable segment, four 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
                          
                          FootageElectronicsPortland,
      Indiana
                          
                          Owned
                          
                          Manufacturing
                          
                          182,000Juarez,
      Mexico
                          
                          Owned
                          
                          Manufacturing/Division
      Office
                          
                          178,000Chihuahua,
      Mexico
                          
                          Owned
                          
                          Manufacturing
                          
                          135,569El
      Paso, Texas
                          
                          Leased
                          
                          Warehouse
                          
                          93,000Tallinn,
      Estonia
                          
                          Leased
                          
                          Manufacturing
                          
                          85,911Orebro,
      Sweden
                          
                          Leased
                          
                          Manufacturing
                          
                          77,472Mitcheldean,
      England
                          
                          Leased
                          
                          Manufacturing
      (Vacant)
                          
                          74,790Monclova,
      Mexico
                          
                          Leased
                          
                          Manufacturing
                          
                          68,436Chihuahua,
      Mexico
                          
                          Leased
                          
                          Manufacturing
                          
                          49,805Cheltenham,
      England
                          
                          Leased
                          
                          Manufacturing
      (Vacant)
                          
                          39,983Stockholm,
      Sweden
                          
                          Leased
                          
                          Engineering
      Office/Division Office
                          
                          37,714Dundee,
      Scotland
                          
                          Leased
                          
                          Manufacturing/Sales
      Office/Engineering Office
                          
                          32,753Warren,
      Ohio
                          
                          Leased
                          
                          Engineering
      Office/Division Office
                          
                          24,570Chihuahua,
      Mexico
                          
                          Leased
                          
                          Manufacturing
                          
                          10,000Bayonne,
      France
                          
                          Leased
                          
                          Sales
      Office/Warehouse
                          
                          8,267Portland,
      Indiana
                          
                          Leased
                          
                          Warehouse
                          
                          8,250Madrid,
      Spain
                          
                          Leased
                          
                          Sales
      Office/Warehouse
                          
                          1,560Rome,
      Italy
                          
                          Leased
                          
                          Sales
      Office
                          
                          1,216Control DevicesLexington,
      Ohio
                          
                          Owned
                          
                          Manufacturing/Division
      Office
                          
                          209,492Canton,
      Massachusetts
                          
                          Owned
                          
                          Manufacturing/Division
      Office
                          
                          132,560Sarasota,
      Florida
                          
                          Owned
                          
                          Manufacturing
      (Vacant)
                          
                          115,000Suzhou,
      China
                          
                          Leased
                          
                          Manufacturing/Warehouse
                          
                          25,737Lexington,
      Ohio
                          
                          Owned
                          
                          Manufacturing
                          
                          10,120Sarasota,
      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
                          
                          1,000Shanghai,
      China
                          
                          Leased
                          
                          Sales
      Office
                          
                          270Seoul,
      South Korea
                          
                          Leased
                          
                          Sales
      Office
                          
                          154Joint VenturesPune,
      India
                          
                          Owned
                          
                          Manufacturing/Engineering
      Office/Sales Office
                          
                          76,000Manaus,
      Brazil
                          
                          Owned
                          
                          Manufacturing
                          
                          73,550São
      Paulo, Brazil
                          
                          Owned
                          
                          Manufacturing/Engineering
      Office/Sales Office
                          
                          45,343Buenos
      Aires, Argentina
                          
                          Leased
                          
                          Sales
      Office
                          
                          3,551
  13
 
 Item
3.  Legal Proceedings.
 
 The
Company is involved in certain legal actions and claims arising in the ordinary
course of business.  The Company, however, does not believe that any
of the litigation in which it is currently engaged, either individually or in
the aggregate, will have a material adverse effect on its business, consolidated
financial position or results of operations.  The Company is subject
to the risk of exposure to product liability claims in the event that the
failure of any of its products causes personal injury or death to users of the
Company’s products and there can be no assurance that the Company will not
experience any material product liability losses in the future.  The
Company maintains insurance against such product liability claims.  In
addition, if any of the Company’s products prove to be defective, the Company
may be required to participate in the government-imposed or customer
OEM-instituted recall involving such products.
 
 Item
4.  Submission of Matters to a Vote of Security Holders.
 
 No
matters were submitted to a vote of security holders during the fourth quarter
of 2008.
  14
  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 20, 2009, we had 24,664,529 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 2,000 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 2008 and 2007 are as follows:
 
 Quarter
      Ended
                    
                    High
                    
                    
                    Low2008
                    March
      31
                    
                    $
                    14.15
                    
                    
                    $
                    6.97June
      30
                    
                    $
                    17.98
                    
                    
                    $
                    13.04September
      30
                    
                    $
                    19.06
                    
                    
                    $
                    11.25December
      31
                    
                    $
                    10.32
                    
                    
                    $
                    2.422007
                    March
      31
                    
                    $
                    12.17
                    
                    
                    $
                    8.25June
      30
                    
                    $
                    13.53
                    
                    
                    $
                    10.29September
      30
                    
                    $
                    13.76
                    
                    
                    $
                    9.15December
      31
                    
                    $
                    10.98
                    
                    
                    $
                    8.00
 
 The Company did not repurchase any
Common Shares in 2008 or 2007.
 
 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, 2003, 2004, 2005, 2006, 2007 and 2008 assuming in
each case an initial investment of $100 on December 31, 2003, and reinvestment
of dividends.
  
 
 2003
                      
                      
                      2004
                      
                      
                      2005
                      
                      
                      2006
                      
                      
                      2007
                      
                      
                      2008Stoneridge,
      Inc
                      
                      
                      100.00
                      
                      
                      
                      100.53
                      
                      
                      
                      43.99
                      
                      
                      
                      54.42
                      
                      
                      
                      53.42
                      
                      
                      
                      30.30Hemscott
      Group–Industry Group 333 Index
                      
                      
                      100.00
                      
                      
                      
                      102.92
                      
                      
                      
                      91.50
                      
                      
                      
                      103.09
                      
                      
                      
                      110.76
                      
                      
                      
                      48.02NYSE
      Market Index
                      
                      
                      100.00
                      
                      
                      
                      112.92
                      
                      
                      
                      122.25
                      
                      
                      
                      143.23
                      
                      
                      
                      150.88
                      
                      
                      
                      94.76
 
 For
information on “Related Stockholder Matters” required by Item 201(d) of
Regulation S-K, refer to Item 12 of this report.
  15
  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 31,2008
                                  
                                  
                                  2007
                                  
                                  
                                  2006
                                  
                                  
                                  2005
                                  
                                  
                                  2004(in
      thousands, except per share data)Statement of Operations
      Data:Net
      sales:Electronics
                                  
                                  $
                                  533,328
                                  
                                  
                                  $
                                  458,672
                                  
                                  
                                  $
                                  456,932
                                  
                                  
                                  $
                                  401,663
                                  
                                  
                                  $
                                  403,322Control
      Devices
                                  
                                  
                                  236,038
                                  
                                  
                                  
                                  289,979
                                  
                                  
                                  
                                  271,943
                                  
                                  
                                  
                                  291,434
                                  
                                  
                                  
                                  299,408Eliminations
                                  
                                  
                                  (16,668
                                  )
                                  
                                  
                                  (21,531
                                  )
                                  
                                  
                                  (20,176
                                  )
                                  
                                  
                                  (21,513
                                  )
                                  
                                  
                                  (20,935
                                  )Consolidated
                                  
                                  $
                                  752,698
                                  
                                  
                                  $
                                  727,120
                                  
                                  
                                  $
                                  708,699
                                  
                                  
                                  $
                                  671,584
                                  
                                  
                                  $
                                  681,795Gross
      profit
                                  
                                  $
                                  166,287
                                  
                                  
                                  $
                                  167,723
                                  
                                  
                                  $
                                  158,906
                                  
                                  
                                  $
                                  148,588
                                  
                                  
                                  $
                                  174,987Operating
      income (loss) (A)
                                  
                                  $
                                  (43,271
                                  )
                                  
                                  $
                                  34,799
                                  
                                  
                                  $
                                  35,063
                                  
                                  
                                  $
                                  23,303
                                  
                                  
                                  $
                                  (125,570
                                  )Equity
      in earnings of investees
                                  
                                  $
                                  13,490
                                  
                                  
                                  $
                                  10,893
                                  
                                  
                                  $
                                  7,125
                                  
                                  
                                  $
                                  4,052
                                  
                                  
                                  $
                                  1,698Income
      (loss) before income taxes (A)Electronics
                                  
                                  $
                                  38,713
                                  
                                  
                                  $
                                  20,692
                                  
                                  
                                  $
                                  20,882
                                  
                                  
                                  $
                                  (216
                                  )
                                  
                                  $
                                  27,562Control
      Devices
                                  
                                  
                                  (78,858
                                  )
                                  
                                  
                                  15,825
                                  
                                  
                                  
                                  13,987
                                  
                                  
                                  
                                  19,429
                                  
                                  
                                  
                                  (147,960
                                  )Other
      corporate activities
                                  
                                  
                                  10,078
                                  
                                  
                                  
                                  8,676
                                  
                                  
                                  
                                  6,392
                                  
                                  
                                  
                                  8,217
                                  
                                  
                                  
                                  (4,477
                                  )Corporate
      interest
                                  
                                  
                                  (20,708
                                  )
                                  
                                  
                                  (21,969
                                  )
                                  
                                  
                                  (21,622
                                  )
                                  
                                  
                                  (22,994
                                  )
                                  
                                  
                                  (24,281
                                  )Consolidated
                                  
                                  $
                                  (50,775
                                  )
                                  
                                  $
                                  23,224
                                  
                                  
                                  $
                                  19,639
                                  
                                  
                                  $
                                  4,436
                                  
                                  
                                  $
                                  (149,156
                                  )Net
      income (loss) (A)
                                  
                                  $
                                  (97,527
                                  )
                                  
                                  $
                                  16,671
                                  
                                  
                                  $
                                  14,513
                                  
                                  
                                  $
                                  933
                                  
                                  
                                  $
                                  (92,503
                                  )Basic
      net income (loss) per share (A)
                                  
                                  $
                                  (4.17
                                  )
                                  
                                  $
                                  0.72
                                  
                                  
                                  $
                                  0.63
                                  
                                  
                                  $
                                  0.04
                                  
                                  
                                  $
                                  (4.09
                                  )Diluted
      net income (loss) per share (A)
                                  
                                  $
                                  (4.17
                                  )
                                  
                                  $
                                  0.71
                                  
                                  
                                  $
                                  0.63
                                  
                                  
                                  $
                                  0.04
                                  
                                  
                                  $
                                  (4.09
                                  )Other
      Data:Product
      development expenses
                                  
                                  $
                                  45,508
                                  
                                  
                                  $
                                  44,203
                                  
                                  
                                  $
                                  40,840
                                  
                                  
                                  $
                                  39,193
                                  
                                  
                                  $
                                  36,145Capital
      expenditures
                                  
                                  $
                                  24,573
                                  
                                  
                                  $
                                  18,141
                                  
                                  
                                  $
                                  25,895
                                  
                                  
                                  $
                                  28,934
                                  
                                  
                                  $
                                  23,917Depreciation
      and amortization (B)
                                  
                                  $
                                  26,399
                                  
                                  
                                  $
                                  28,503
                                  
                                  
                                  $
                                  26,180
                                  
                                  
                                  $
                                  26,157
                                  
                                  
                                  $
                                  24,802Balance
      Sheet Data (at period end):Working
      capital
                                  
                                  $
                                  160,387
                                  
                                  
                                  $
                                  184,788
                                  
                                  
                                  $
                                  135,915
                                  
                                  
                                  $
                                  116,689
                                  
                                  
                                  $
                                  123,317Total
      assets
                                  
                                  $
                                  382,437
                                  
                                  
                                  $
                                  527,769
                                  
                                  
                                  $
                                  501,807
                                  
                                  
                                  $
                                  463,038
                                  
                                  
                                  $
                                  473,001Long-term
      debt, less current portion
                                  
                                  $
                                  183,000
                                  
                                  
                                  $
                                  200,000
                                  
                                  
                                  $
                                  200,000
                                  
                                  
                                  $
                                  200,000
                                  
                                  
                                  $
                                  200,052Shareholders'
      equity
                                  
                                  $
                                  91,758
                                  
                                  
                                  $
                                  206,189
                                  
                                  
                                  $
                                  178,622
                                  
                                  
                                  $
                                  153,991
                                  
                                  
                                  $
                                  155,605
 
 (A)
                Our
      2008 and 2004 operating loss, loss before income taxes, net loss, and
      related basic and diluted loss per share amounts include non-cash, pre-tax
      goodwill impairment losses of $65,175 and $183,450,
      respectively.
 
 (B)
                These
      amounts represent depreciation and amortization on fixed and certain
      finite-lived intangible assets.
  16
  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,
agricultural, automotive and off-highway markets.
 
 For the
year ended December 31, 2008, net sales were $752.7 million, an increase of
$25.6 million compared with $727.1 million for the year ended December 31,
2007.
 
 Our net
loss for the year ended December 31, 2008 was $97.5 million, or $(4.17) per
diluted share, compared with net income of $16.7 million, or $0.71 per diluted
share, for 2007. Earnings per share for 2008 include $(5.15) per share for
restructuring expenses, an after-tax non-cash goodwill impairment charge and a
non-cash deferred tax asset valuation allowance.
 
 Our
increase in net sales was predominantly attributable to net new business
sales.  This increase was partially offset by volume reductions and
contractual price reductions at our major customers in the automotive vehicle
market for the year ended December 31, 2008.
 
 Our 2008
net loss was due to a non-cash goodwill impairment charge of $65.2 million and a
non-cash deferred tax asset valuation of $62.0 million.
 
 We
achieved income from continuing operations excluding restructuring, the effect
of the goodwill impairment charge and the deferred tax asset valuation allowance
(“other non-recurring items”) in 2008 of $22.8 million, or $0.98 per share,
compared with $17.6 million, or $0.75 per share, in 2007.  We
aggressively pursued restructuring efforts starting in late 2007 and during 2008
to adjust the cost structure and eliminate overhead centers to enhance
profitability in robust economic times and protect profitability when market
adversity occurs.  We recorded after-tax restructuring expenses of
$12.3 million, or $0.53 per share in 2008.  In accordance with
Statement of Financial Accounting Standard (“SFAS”) No. 142, Goodwill and Other Intangible Assets
(“SFAS 142”) and SFAS 109, Accounting
for Income Taxes, the 2008 results also include an after-tax non-cash
goodwill impairment charge in our Control Device reporting segment of $46.1
million, or $1.97 per share, and a non-cash valuation allowance against deferred
tax assets of $62.0 million or $2.65 per share.  The impact of the
non-cash impairment charge and deferred tax asset valuation allowance was driven
by adverse equity market conditions that caused a decrease in current market
multiples and our stock price as of December 31, 2008.
 
 Affecting
our profitability were restructuring initiatives that began in the fourth
quarter of 2007 to improve the Company’s manufacturing efficiency and cost
position by ceasing manufacturing operations at our Sarasota, Florida and
Mitcheldean, United Kingdom locations.  Related 2008 expenses,
primarily comprised of one-time termination benefits and line-transfer
expenses of approximately $15.4 million.  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.
 
 In 2008,
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, continued to perform well, resulting in equity
earnings of $12.8 million compared to $10.4 million in the previous
year.  We also received dividend payments from PST of $4.2 million and
$5.6 million in 2008 and 2007, respectively. We currently hold a 50% equity
interest in PST.  The results of PST in 2009 will be impacted by
fluctuations in foreign exchange rates.
  17
 
 To
supplement the Company’s consolidated financial statements presented on a basis
in accordance with generally accepted accounting principles (“GAAP”) in the United
States, the Company's management also uses and discloses certain non-GAAP
financial measures. These non-GAAP financial measures are not in accordance
with, nor are they alternatives for, GAAP-based financial measures. The Company
includes these non-GAAP financial measures because it believes they provide
useful information with which to evaluate the performance of the Company. The
non-GAAP measures included in this Annual Report on Form 10-K have been
reconciled to the comparable GAAP measures within the accompanying table, as
required under Securities and Exchange Commission rules regarding the use of
non-GAAP financial measures. They should not be considered in isolation or as a
substitute for analysis of the Company's results as reported under
GAAP.
 
 A
reconciliation of GAAP net loss and earnings per share (“EPS”) to adjusted net
income before restructuring related expenses and other non-recurring costs and
EPS is presented below (in thousands except per share data):
 
 For
      the Year EndedDecember
      31,2008
                            
                            
                            2007Dollars
                            
                            
                            EPS
                            
                            
                            Dollars
                            
                            
                            EPSAdjusted
      net income per share before restructuring related expenses and other
      non-recurring itemsNet
      income (loss)
                            
                            $
                            (97,527
                            )
                            
                            $
                            (4.17
                            )
                            
                            $
                            16,671
                            
                            
                            $
                            0.71Total
      restructuring related expenses, net of tax benefits
                            
                            
                            12,286
                            
                            
                            
                            0.53
                            
                            
                            
                            915
                            
                            
                            
                            0.04Goodwill
      impairment, net of tax benefits
                            
                            
                            46,052
                            
                            
                            
                            1.97
                            
                            
                            
                            -
                            
                            
                            
                            -Deferred
      tax asset valuation allowance
                            
                            
                            62,006
                            
                            
                            
                            2.65
                            
                            
                            
                            -
                            
                            
                            
                            -Adjusted
      net income before restructuring related expenses and other non-recurring
      items
                            
                            $
                            22,817
                            
                            
                            $
                            0.98
                            
                            
                            $
                            17,586
                            
                            
                            $
                            0.75Diluted weighted average shares outstanding 1
                            
                            
                            23,367
                            
                            
                            
                            
                            
                            
                            
                            23,548
 
 1 - Basic
and Diluted weighted average shares outstanding are the same for 2008 periods as
a net loss caused the dilutive shares to have an anti-dilutive
effect.
 
 Recent Trends and Market
Conditions
 
 The
automotive and commercial vehicle industries experienced significantly
unfavorable developments during 2008 (primarily the second half of 2008),
particularly in North America and Europe. These trends
include:
 
 General Economic Factors:
 
 Disruptions
in financial markets and restrictions on liquidity are adversely impacting the
availability and cost of incremental credit for many companies. These
disruptions are also adversely affecting the global economy, further negatively
impacting consumer spending patterns in the automotive and commercial
vehicle industries. Our customers and suppliers are attempting to respond to
rapidly changing consumer preferences, restricted liquidity and increased
cost of capital any of which could negatively impact their
business and could result in further restructuring or even reorganization
or liquidation under bankruptcy laws. Any such negative event could, in turn,
negatively affect our business either through loss of sales to our customers or
through our inability to meet our commitments (or inability to meet them without
excess expense), due to the loss of supplies from any of our suppliers so
affected.
 
 Production Levels and Product
Mix:
 
 In the
U.S. and Europe, overall negative economic conditions, including the
deterioration of global financial markets, reduced credit availability and lower
consumer confidence have significantly impacted the automotive and commercial
vehicle industries. As such, automotive and commercial vehicle production and
sales have deteriorated substantially and are not expected to recover
significantly in the near term. Therefore, considering the drastic changes to
consumer demand for vehicles, and corresponding decrease in production and
demand for our products, as well as are common share price, we tested our
goodwill for impairment and recognized a pre-tax non-cash $65.2 million goodwill
impairment charge in 2008.
  18
  In recent
years, and continuing into 2008, General Motors, Ford and Chrysler (“Detroit
Three”) have seen a steady decline in their market share for vehicle sales in
North America. Declining market share, inherent legacy issues with the Detroit
Three and the impact of declining consumer confidence have led to recent,
unprecedented production cuts and permanent capacity reductions. During 2008,
the Detroit Three North American production levels declined approximately 21%
compared to 2007. These declines will have a continuing negative impact on our
sales, liquidity and results of operations.
  In
addition, in order to address market share declines, reduced production levels,
negative industry trends (such as change in mix of vehicles), general
macroeconomic conditions and other structural issues specific to their companies
(such as significant overcapacity and pension and healthcare costs), the Detroit
Three and certain of our other customers continue to implement or may implement
various forms of restructuring initiatives (including, in certain cases,
reorganization under bankruptcy laws). These restructuring actions have had and
may continue to have a significant impact throughout our industry, including our
supply base.
 
 Outlook
 
 In the
fourth quarter of 2008 the North American automotive and the global commercial
vehicle markets experienced the beginning of a significant decline that is
unprecedented in its breadth, depth and speed.  It is currently
accelerating into the first part of 2009.  The uncertainty of the
activity of the global economy makes it difficult to predict how demand for
automotive and commercial vehicle products will develop in 2009.
 
 Significant
factors inherent to our markets that could affect our results for 2009 include
general economic conditions and the financial stability of our customers and
suppliers as well as our ability to successfully execute our planned
restructuring, productivity and cost reduction initiatives.  We are
undertaking these initiatives to mitigate significant sales volume reductions in
our served markets and customer-demanded price reductions.  Our
management team is focused on improving operational efficiency while adapting to
the needs of our customers.
 
 We
continue our transition to low-cost manufacturing
locations.  Initially, this initiative will result in restructuring
costs stemming from facility closures and production
relocations.  However, the longer-term effects of such an initiative
will enable us to reduce our operating costs and increase global sourcing
capacity to our customers.
 
 We will
continue to monitor business conditions and will take the necessary steps to
address the current economic environment.
 
 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, 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
                        %
  19
 
 The
increase in net sales for our Electronics segment was primarily due to new
business sales 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, the loss of sensor product revenue
at our Sarasota, Florida, facility had a negative impact on net
sales.
 
 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 net new business
sales of 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 volume in
light vehicle products and reduced European commercial vehicle sales
volume.
 
 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 the
year ended December 31, 2008.  The negative impact of restructuring
expenses were 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 $45.6 million and $44.2 million for the years ended December 31, 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 was due primarily to increased compensation related
items.
  20
 
 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.  These
initiatives were substantially completed in 2008.
 
 Restructuring
charges recorded by reportable segment during the year ended December 31, 2008
were as follows (in thousands):
 
 Electronics
                      
                      
                      ControlDevices
                      
                      
                      Total
                        Consolidated
                        Restructuring
                        ChargesSeverance
      costs
                      
                      $
                      2,564
                      
                      
                      $
                      2,521
                      
                      
                      $
                      5,085Contract
      termination costs
                      
                      
                      1,305
                      
                      
                      
                      -
                      
                      
                      
                      1,305Other
      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
                      
                      
                      ControlDevices
                      
                      
                      Total
                        Consolidated
                        Restructuring
                        ChargesSeverance
      costs
                      
                      $
                      542
                      
                      
                      $
                      357
                      
                      
                      $
                      899Other
      costs
                      
                      
                      -
                      
                      
                      
                      27
                      
                      
                      
                      27Total
      restructuring charges
                      
                      $
                      542
                      
                      
                      $
                      384
                      
                      
                      $
                      926
  21
 
 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
                          )
                          
                          
                          (598.3
                          )%Other
      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
                          )%
 
 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.
  22
 
 Year
Ended December 31, 2007 Compared To Year Ended December 31, 2006
 
 Net Sales. Net sales for our
reportable segments, excluding inter-segment sales, for the years ended December
31, 2007 and 2006 are summarized in the following table (in
thousands):
 
 For
      the Years Ended December 31,
                        
                        
                        $
      Increase /
                        
                        
                        %
      Increase /2007
                        
                        
                        2006
                        
                        
                        (Decrease)
                        
                        
                        (Decrease)Electronics
                        
                        $
                        441,717
                        
                        
                        
                        60.7
                        %
                        
                        $
                        442,427
                        
                        
                        
                        62.4
                        %
                        
                        $
                        (710
                        )
                        
                        
                        (0.2
                        )%Control
      Devices
                        
                        
                        285,403
                        
                        
                        
                        39.3
                        
                        
                        
                        266,272
                        
                        
                        
                        37.6
                        
                        
                        
                        19,131
                        
                        
                        
                        7.2
                        %Total
      net sales
                        
                        $
                        727,120
                        
                        
                        
                        100.0
                        %
                        
                        $
                        708,699
                        
                        
                        
                        100.0
                        %
                        
                        $
                        18,421
                        
                        
                        
                        2.6
                        %
 
 The
decrease in net sales for our Electronics segment was primarily due to a
substantial decline in medium- and heavy-duty truck production in North
America.  Medium- and heavy-duty truck production in 2007 was
unfavorably impacted by the new 2007 diesel emissions regulations that were
implemented on January 1, 2007 in the U.S.  Offsetting the unfavorable
impact of the new diesel emissions standards were new program revenues in North
America and Europe, increased production volume in our European commercial
vehicle operations and favorable foreign currency exchange.  Favorable
foreign currency exchange rates contributed $18.6 million to net sales for the
year ended December 31, 2007.
 
 The
increase in net sales for our Control Devices segment was primarily attributable
to new product launches in our temperature and speed sensor
businesses.  The increase was partially offset by production volume
reductions at our major automotive customers.
 
 Net sales
by geographic location for the years ended December 31, 2007 and 2006 are
summarized in the following table (in thousands):
 
 For
      the Years Ended December 31,
                        
                        
                        $
      Increase /
                        
                        
                        %
      Increase /2007
                        
                        
                        2006
                        
                        
                        (Decrease)
                        
                        
                        (Decrease)North
      America
                        
                        $
                        522,730
                        
                        
                        
                        71.9
                        %
                        
                        $
                        541,479
                        
                        
                        
                        76.4
                        %
                        
                        $
                        (18,749
                        )
                        
                        
                        (3.5
                        )%Europe
      and other
                        
                        
                        204,390
                        
                        
                        
                        28.1
                        
                        
                        
                        167,220
                        
                        
                        
                        23.6
                        
                        
                        
                        37,170
                        
                        
                        
                        22.2
                        %Total
      net sales
                        
                        $
                        727,120
                        
                        
                        
                        100.0
                        %
                        
                        $
                        708,699
                        
                        
                        
                        100.0
                        %
                        
                        $
                        18,421
                        
                        
                        
                        2.6
                        %
 
 The
decrease in North American sales was primarily attributable to lower sales to
our commercial vehicle customers as a result of lower demand because of the new
2007 U.S. diesel emission regulations and lower production volume from our North
American light vehicle customers.  The decrease was partially offset
by sales related to new program launches of sensor products and new electronic
products supplied for the production of military vehicles.  Our
increase in sales outside of North America for the year was primarily due to
increased production volume, new product revenues and favorable foreign currency
exchange rates.  The favorable effect of foreign currency exchange
rates affected net sales outside North America by $18.6 million for the year
ended December 31, 2007.
  23
 
 Consolidated
statements of operations as a percentage of net sales for the years ended
December 31, 2007 and 2006 are presented in the following table (in
thousands):
 
 For
      the Years Ended December 31,
                                            
                                            
                                            $
      Increase /2007
                                            
                                            
                                            2006
                                            
                                            
                                            (Decrease)Net
      Sales
                                            
                                            $
                                            727,120
                                            
                                            
                                            
                                            100.0
                                            %
                                            
                                            $
                                            708,699
                                            
                                            
                                            
                                            100.0
                                            %
                                            
                                            $
                                            18,421Costs
      and Expenses:Cost
      of goods sold
                                            
                                            
                                            559,397
                                            
                                            
                                            
                                            76.9
                                            
                                            
                                            
                                            549,793
                                            
                                            
                                            
                                            77.6
                                            
                                            
                                            
                                            9,604Selling,
      general and administrative
                                            
                                            
                                            133,708
                                            
                                            
                                            
                                            18.4
                                            
                                            
                                            
                                            124,538
                                            
                                            
                                            
                                            17.6
                                            
                                            
                                            
                                            9,170Gain
      on sale of property, plant and equipment, net
                                            
                                            
                                            (1,710
                                            )
                                            
                                            
                                            (0.2
                                            )
                                            
                                            
                                            (1,303
                                            )
                                            
                                            
                                            (0.2
                                            )
                                            
                                            
                                            (407
                                            )Restructuring
      charges
                                            
                                            
                                            926
                                            
                                            
                                            
                                            0.1
                                            
                                            
                                            
                                            608
                                            
                                            
                                            
                                            0.1
                                            
                                            
                                            
                                            318Operating
      Income
                                            
                                            
                                            34,799
                                            
                                            
                                            
                                            4.8
                                            
                                            
                                            
                                            35,063
                                            
                                            
                                            
                                            4.9
                                            
                                            
                                            
                                            (264
                                            )Interest
      expense, net
                                            
                                            
                                            21,759
                                            
                                            
                                            
                                            3.0
                                            
                                            
                                            
                                            21,744
                                            
                                            
                                            
                                            3.1
                                            
                                            
                                            
                                            15Equity
      in earnings of investees
                                            
                                            
                                            (10,893
                                            )
                                            
                                            
                                            (1.5
                                            )
                                            
                                            
                                            (7,125
                                            )
                                            
                                            
                                            (1.0
                                            )
                                            
                                            
                                            (3,768
                                            )Other
      expense, net
                                            
                                            
                                            709
                                            
                                            
                                            
                                            0.1
                                            
                                            
                                            
                                            805
                                            
                                            
                                            
                                            0.1
                                            
                                            
                                            
                                            (96
                                            )Income
      Before Income Taxes
                                            
                                            
                                            23,224
                                            
                                            
                                            
                                            3.2
                                            
                                            
                                            
                                            19,639
                                            
                                            
                                            
                                            2.7
                                            
                                            
                                            
                                            3,585Provision
      for income taxes
                                            
                                            
                                            6,553
                                            
                                            
                                            
                                            0.9
                                            
                                            
                                            
                                            5,126
                                            
                                            
                                            
                                            0.7
                                            
                                            
                                            
                                            1,427Net
      Income
                                            
                                            $
                                            16,671
                                            
                                            
                                            
                                            2.3
                                            %
                                            
                                            $
                                            14,513
                                            
                                            
                                            
                                            2.0
                                            %
                                            
                                            $
                                            2,158
 
 Cost of Goods
Sold.  The decrease in cost of goods sold as a percentage of
sales was due to increased sales volume from new business awards, ongoing
procurement initiatives and favorable product mix.  The decrease was
partially offset by unfavorable material costs, operational inefficiencies
related to new product launches and higher depreciation expense.
 
 Selling, General and Administrative
Expenses. Product development expenses included in SG&A were $44.2
million and $40.8 million for the years ended December 31, 2007 and 2006,
respectively.  The increase related to development spending in the
areas of tachographs and instrumentation.
 
 The
increase in SG&A expenses, excluding product development expenses, in 2007
compared with 2006 was primarily attributable to the increase in our selling and
marketing activity to support new products in Europe, the increase in systems
implementation expenses related to a new information system in Europe, and a
$1.2 million one-time gain in the third quarter of 2006 related to the
settlement of the life insurance benefits portion of a postretirement
plan.
 
 Restructuring
Charges.  The increase in restructuring charges was primarily
the result of one-time termination benefits related to the restructuring
initiatives announced in 2007 to improve manufacturing efficiency and cost
position by ceasing manufacturing operations at our Sarasota, Florida and
Mitcheldean, United Kingdom locations.  No fixed-asset impairment
charges were incurred because assets are primarily being transferred to our
other locations for continued production.
 
 Restructuring
charges recorded by reportable segment during the year ended December 31, 2007
were as follows (in thousands):
 
 Electronics
                        
                        
                        Control
      Devices
                        
                        
                        TotalConsolidatedRestructuringChargesSeverance
      costs
                        
                        $
                        542
                        
                        
                        $
                        357
                        
                        
                        $
                        899Other
      costs
                        
                        
                        -
                        
                        
                        
                        27
                        
                        
                        
                        27Total
      restructuring charges
                        
                        $
                        542
                        
                        
                        $
                        384
                        
                        
                        $
                        926
  24


Also
included in severance costs for the Electronics reporting segment in 2007 was
$0.1 million of expense related to the rationalization of certain manufacturing
facilities in Europe and North America announced in 2005.  These
restructuring initiatives were completed in 2007.
 
 Restructuring
charges recorded by reportable segment during the year ended December 31, 2006
were as follows (in thousands):
 
 Electronics
                      
                      
                      ControlDevices
                      
                      
                      Total
                        Consolidated
                        Restructuring
                        ChargesSeverance
      costs
                      
                      $
                      369
                      
                      
                      $
                      156
                      
                      
                      $
                      525Other
      costs
                      
                      
                      -
                      
                      
                      
                      83
                      
                      
                      
                      83Total
      restructuring charges
                      
                      $
                      369
                      
                      
                      $
                      239
                      
                      
                      $
                      608
 
 Severance
costs related to a reduction in workforce.  Other associated costs
include miscellaneous expenditures associated with exiting business
activities.
 
 Gain on Sale of Property, Plant and
Equipment, net.The increase was primarily attributable to a gain on the
sale of two closed facilities during 2007 exceeding the gain on the sale of land
during the first quarter of 2006.
 
 Equity in Earnings of
Investees.The increase in equity earnings from investees was
predominately attributable to the increase in equity earnings recognized from
our PST joint venture in Brazil.  The increase primarily reflects
higher volume for PST’s security product lines.
 
 Income Before Income
Taxes.  Income before income taxes is summarized in the
following table by reportable segment (in thousands):
 
 For the Years Ended
                      December 31,
                    
                    
                    $ Increase /2007
                    
                    
                    2006
                    
                    
                    (Decrease)Electronics
                    
                    $
                    20,692
                    
                    
                    $
                    20,882
                    
                    
                    $
                    (190
                    )Control
      Devices
                    
                    
                    15,825
                    
                    
                    
                    13,987
                    
                    
                    
                    1,838Other
      corporate activities
                    
                    
                    8,676
                    
                    
                    
                    6,392
                    
                    
                    
                    2,284Corporate
      interest expense
                    
                    
                    (21,969
                    )
                    
                    
                    (21,622
                    )
                    
                    
                    (347
                    )Income
      before income taxes
                    
                    $
                    23,224
                    
                    
                    $
                    19,639
                    
                    
                    $
                    3,585
 
 The
decrease in income before income taxes in the Electronics segment was related to
reduced volume and increased SG&A expenses.  The increased
SG&A expenses were predominantly due to increased development spending in
the areas of tachographs and instrumentation and higher selling and marketing
costs associated with new product introductions.
 
 The
increase in income before income taxes in the Control Devices reportable segment
was primarily due to increased sales volume and new product
launches.  These factors were offset by operating inefficiencies
related to a new product launch.
 
 The
increase in income before income taxes from other corporate activities was
primarily due to a reduction in foreign exchange losses recorded in the previous
year and an increase in equity earnings from our PST joint venture of $3.6
million.
  25
 
 Income
before income taxes by geographic location for the years ended December 31, 2007
and 2006 is summarized in the following table (in thousands):
 
 For the Years Ended December 31,2007
                      
                      
                      2006
                      
                      
                      $ Increase
                      
                      
                      % IncreaseNorth
      America
                      
                      $
                      12,405
                      
                      
                      
                      53.4
                      %
                      
                      $
                      10,847
                      
                      
                      
                      55.2
                      %
                      
                      $
                      1,558
                      
                      
                      
                      14.4
                      %Europe
      and other
                      
                      
                      10,819
                      
                      
                      
                      46.6
                      
                      
                      
                      8,792
                      
                      
                      
                      44.8
                      
                      
                      
                      2,027
                      
                      
                      
                      23.1
                      %Income
      before income taxes
                      
                      $
                      23,224
                      
                      
                      
                      100.0
                      %
                      
                      $
                      19,639
                      
                      
                      
                      100.0
                      %
                      
                      $
                      3,585
                      
                      
                      
                      18.3
                      %
 
 The
increase in our profitability in North America was primarily attributable to
increased revenue from new sensor product launches and new electronic products
supplied for the production of military vehicles.  The increase was
primarily offset by unfavorable variances related to a new product launch, lower
North American automotive and commercial vehicle production and contractual
price reductions with our customers.  The increase in our
profitability outside North America was primarily due to increased European
commercial vehicle production and revenue from new program
launches.  The increase was offset by higher SG&A related to
increased development spending in the areas of tachographs and instrumentation
and higher selling and marketing costs associated with new product
introductions.
 
 Provision for Income Taxes.
We recognized a provision for income taxes of $6.6 million, or 28.2% of pre-tax
income, and $5.1 million, or 26.1% of pre-tax income, for federal, state and
foreign income taxes for the years ended December 31, 2007 and 2006,
respectively. The increase in the effective tax rate was primarily attributable
to the increase in higher taxed domestic earnings and the increase over the
prior year of the valuation allowance recorded against deferred tax assets in
the United Kingdom. These increases were partially offset by a deferred tax
benefit related to a change in state tax law.
 
 Liquidity
and Capital Resources
 
 Summary
of Cash Flows (in thousands):
 
 For the YearsEndedDecember31,
                    
                    
                    $ 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.
 
 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 $8.8 million
and $8.6 million at December 31, 2008 and 2007, respectively.  The
purpose of these investments is to reduce exposure related to our British
pound-denominated receivables and Mexican peso-denominated
payables.  At December 31, 2007, the Company also used forward
currency contracts to reduce the exposure related to the Company’s Mexican peso-
and Swedish krona-denominated receivables. The estimated fair value of the
British pound contract at December 31, 2008 and 2007, per quoted market sources,
was approximately $2.1 million and $(0.03) million, respectively.  The
estimated fair market value of the Mexican peso-denominated contracts at
December 31, 2008, per quoted market sources, was approximately $(2.9)
million.  For the year ended December 31, 2008, we recognized a $2.2
million gain related to foreign currency contracts in the consolidated statement
of operations as a component of other expense (income), net.  As
discussed in Note 9, we entered into a fixed price swap contract in December
2007 for 1.0 million pounds of copper, which lasted through December
2008.  In September 2008, we entered into a fixed price swap contract
for 1.4 million pounds of copper, which will last from January 2009 to December
2009.  The purpose of these contracts is to reduce our price risk as
it relates to copper prices.  As of December 31, 2008 and 2007, the
fair value of the fixed price commodity swap contract, per quoted market
sources, was approximately $(2.1) million and $0.1 million,
respectively.
  26
 
 The
following table summarizes our future cash outflows resulting from financial
contracts and commitments, as of December 31, 2008 (in thousands):
 
 Contractual Obligations:
                    
                    Total
                    
                    
                    Less than 1
                      year
                    
                    
                    2-3 years
                    
                    
                    4-5 years
                    
                    
                    After 5yearsLong-term
      debt
                    
                    $
                    183,000
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    183,000
                    
                    
                    $
                    -Operating
      leases
                    
                    
                    20,703
                    
                    
                    
                    5,122
                    
                    
                    
                    6,521
                    
                    
                    
                    4,144
                    
                    
                    
                    4,916Employee
      benefit plans
                    
                    
                    8,695
                    
                    
                    
                    731
                    
                    
                    
                    1,549
                    
                    
                    
                    1,666
                    
                    
                    
                    4,749Total
      contractual obligations
                    
                    $
                    212,398
                    
                    
                    $
                    5,853
                    
                    
                    $
                    8,070
                    
                    
                    $
                    188,810
                    
                    
                    $
                    9,665
 
 Our 2009
capital expenditures are expected to be slightly lower than our 2008
expenditures, due to lower expected demand in the markets that we
serve.  Management will continue to focus on reducing its weighted
average cost of capital and believes that cash flows from operations and the
availability of funds from our asset-based credit facility will provide
sufficient liquidity to meet our future growth and operating needs.
 
 We will
continue to monitor business conditions and will take the necessary steps to
ensure our position in the current economic environment.
 
 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, 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, 2008
and 2007, the Company had borrowing capacity of $57.7 million and $73.5 million,
respectively, based on eligible current assets.  The decrease in
borrowing capacity was due primarily to lower accounts receivable balances. The
Company was in compliance with all covenants at December 31, 2008.
 
 As of
December 31, 2008, the Company’s $183.0 million senior notes were redeemable at
103.833%.  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.  During 2008, we have purchased and retired $17.0 million in
face value of our senior notes.
 
 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 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.
  27
  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 instances in 2008.  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
collectibility 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 collectibility 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.
 
 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 in accordance with Statement of Financial
Accounting Standard (“SFAS”) No. 5, Accounting for Contingencies,
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.
  28
 
 Inventory Valuation.Inventories are valued
at the lower of cost or market.  Cost is determined by the last-in,
first-out (“LIFO”) method for U.S. inventories and by the first-in, first-out
(“FIFO”) 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, 2008, 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, 2008, the yield was approximately 6.7%.
 
 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 carry forwards 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 will begin to expire, if unused,
no later than 2026 and 2021, respectively.
 
 SFAS No.
109, Accounting for Income
Taxes, 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, our forecast of taxable income for the
current year and future years and tax planning strategies.  Risk
factors include the continuing deterioration in economic conditions in the U.S.
automotive and commercial vehicle markets of which the Company has
significant U.S. operations and higher than planned volume or price reductions
from key customers.
 
 During
the fourth quarter of this year, we 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, in the amount of $63.8 million with respect to
our U.S. deferred tax assets. 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.
  29
 
 Effective
January 1, 2007, we adopted the provisions of Financial Accounting
Standards Board (“FASB”) interpretation No. 48, Accounting for Uncertainty in Income
Taxes – An Interpretation of FASB Statement No. 109(“FIN
48”).  FIN 48 contains a
two-step approach to recognizing and measuring uncertain tax positions accounted
for in accordance with SFAS No. 109.  The first step is to
evaluate the tax position for recognition by determining if the weight of
available evidence indicates it is more likely than not that the position will
be sustained on audit, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit as the largest
amount which is more than 50% likely of being realized upon ultimate
settlement.  We consider many factors when evaluating and estimating
our tax positions and tax benefits, which may require periodic adjustments and
which may not accurately anticipate actual outcomes.
 
 Derivative Instruments and Hedging
Activities.We follow
SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities” (“SFAS 133”), as
amended, in accounting for financial instruments. Under SFAS 133, the gain
or loss on derivative instruments that have been designated and qualify as
hedges of the exposure to changes in the fair value of an asset or a liability,
as well as the offsetting gain or loss on the hedged item, are recognized in net
earnings during the period of the change in fair values. For derivative
instruments that have been designated and qualify as hedges of the exposure to
variability in expected future cash flows, the gain or loss on the derivative is
initially reported as a component of other comprehensive earnings and
reclassified to the consolidated statement of operations when the hedged
transaction affects net earnings. Any gain or loss on the derivative in excess
of the cumulative change in the present value of future cash flows of the hedged
item is recognized on the consolidated statement of operations during the period
of change.
 
 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 12 to our consolidated
financial statements included in this report.
 
 Recently
Issued Accounting Standards
 
 New
accounting standards to be implemented:
 
 In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements(“SFAS 157”),
which provides a definition of fair value, establishes a framework for measuring
fair value and requires expanded disclosures about fair value measurements.
SFAS 157 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 SFAS 157 were applied prospectively.  The Company
adopted SFAS 157 for financial assets and liabilities in 2008 with no material
impact to the consolidated financial statements.  The Company does not
anticipate the adoption of SFAS 157 to nonfinancial assets and liabilities will
have a material impact on the Company’s financial position, results of
operations or cash flows.
 
 In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations(“SFAS
141(R)”).  This standard improves reporting by creating greater
consistency in the accounting and financial reporting of business
combinations.  Additionally, SFAS 141(R) requires the acquiring entity
in a business combination to recognize all (and only) the assets acquired and
liabilities assumed in the transaction; establishes the acquisition-date fair
value as the measurement objective for all assets acquired and liabilities
assumed; and requires the acquirer to disclose to investors and other users all
of the information they need to evaluate and understand the nature and financial
effect of the business combination.  SFAS 141(R) is effective for financial
statements issued for years beginning after December 15, 2008. Early
adoption of this standard is prohibited.  In the absence of any
planned future business combinations, Management does not currently expect
SFAS 141(R) to have a material impact on the Company’s financial condition
or results of operations.
 
 In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements(“SFAS 160”).  This standard
improves the relevance, comparability and transparency of financial information
provided to investors by requiring all entities to report noncontrolling
(minority) interests in subsidiaries in the same way.  Additionally,
SFAS 160 eliminates the diversity that currently exists in accounting for
transactions between an entity and noncontrolling interests by requiring they be
treated as equity transactions.  SFAS 160 is effective for
financial statements issued for years beginning after December 15,
2008.  Early adoption of this standard is prohibited. In the absence
of any noncontrolling (minority) interests, management does not currently expect
SFAS 160 to have a material impact on the Company’s financial condition or
results of operations.
  30
  In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement
No. 133, (“SFAS 161”).  SFAS 161 requires enhanced
disclosures about an entity’s derivative and hedging activities, including
(i) how and why an entity uses derivative instruments, (ii) how
derivative instruments and related hedged items are accounted for under SFAS No.
133, Accounting for Derivative
Instruments and Hedging Activities, and (iii) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows.  This standard becomes
effective on January 1, 2009.  Earlier adoption of SFAS 161 and,
separately, comparative disclosures for earlier periods at initial adoption are
encouraged.  As SFAS 161 only requires enhanced disclosures, this
standard will have no impact on the Company’s financial position, results of
operations or cash flows.
 
 New
accounting standards implemented:
 
 In June
2006, the FASB issued interpretation No. 48, Accounting for Uncertainty in Income
Taxes – An Interpretation of FASB Statement No. 109(“FIN
48”).  FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with SFAS No.
109, Accounting for Income
Taxes.  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 FIN
48 as of January 1, 2007.  The adoption of FIN 48 did not have a
material impact on the Company’s financial statements.
 
 In
September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin (“SAB”) No. 108, Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements(“SAB 108”), which expresses the SEC’s views regarding the
process of quantifying financial statement misstatements.  Registrants
are required to quantify the impact of correcting all misstatements, including
both the carryover and reversing effects of prior year misstatements, on the
current year financial statements.  The financial statements would
require adjustment when either approach results in quantifying a misstatement
that is material, after considering all relevant quantitative and qualitative
factors. SAB 108 was effective for the first quarter of 2007.  The
adoption of SAB 108 did not have an impact on the Company’s consolidated
financial statements.
 
 In May
2007, the FASB issued FASB Staff Position (“FSP”), Definition of Settlement in FASB
Interpretation No. 48 (“FSP FIN 48-1”). FSP FIN 48-1 provides guidance on
determining whether a tax position is effectively settled for the purpose of
recognizing previously unrecognized tax benefits.  FSP FIN 48-1 was
effective retroactively to January 1, 2007.  The implementation of
this standard did not have a material impact on the Company’s consolidated
financial position or results of operations.
  31
 
 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, agricultural,
      automotive or off-highway vehicle
  production;
 ·
              our
      ability to achieve cost reductions that offset or exceed customer-mandated
      selling price reductions;
 ·
              a
      significant change in general economic conditions in any of the various
      countries in which we operate;
 ·
              labor
      disruptions at our facilities or at any of our significant customers or
      suppliers;
 ·
              the
      ability of our suppliers to supply us with parts and components at
      competitive prices on a timely
basis;
 ·
              the
      amount of debt and the restrictive covenants contained in our credit
      facility;
 ·
              customer
      acceptance of new products;
 ·
              capital
      availability or costs, including changes in interest rates or market
      perceptions;
 ·
              the
      successful integration of any acquired
  businesses;
 ·
              the
      occurrence or non-occurrence of circumstances beyond our control;
      and
 ·
              those
      items described in Part I, Item IA (“Risk
  Factors”).
  32
 
 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.  At December 31, 2008, however,
all of our debt was fixed rate debt.  At this time, we do not use
financial instruments to manage this risk.
 
 Commodity
Price Risk
 
 Given the
current economic climate and fluctuations in certain commodity costs throughout
most of 2008, we currently are experiencing an increased risk, particularly with
respect to the purchase of copper, zinc, resins and certain other
commodities.  We manage this risk through a combination of fixed price
agreements, staggered short-term contract maturities and commercial negotiations
with our suppliers.  We may also consider pursuing alternative
commodities or alternative suppliers to mitigate this risk over a period of
time.  The recent decline in certain commodity costs has positively
affected our operating results; however an increase in certain commodity costs
could adversely impact our profitability.
 
 In
December 2007, we entered into a fixed price swap contract for 1.0 million
pounds of copper, which lasted through December 2008.  In September
2008, we entered into a fixed price swap contract for 1.4 million pounds of
copper, which will last from January 2009 to December 2009.  The
purpose of these contracts is to reduce our price risk as it relates to copper
prices.
 
 Going
forward, we believe that our mitigation efforts will offset a substantial
portion of any financial impact caused by these costs
increasing.  However, no assurances can be given that the magnitude or
duration of any increased costs will not have a material impact on our future
operating results.  A hypothetical pre-tax gain or loss in fair value
from a 10.0% favorable or adverse change in commodity prices would not
significantly affect our results of operations, financial position or cash
flows.
 
 Foreign
Currency Exchange Risk
 
 Our risks
related to foreign currency exchange rates have historically not been material;
however, given the current economic climate, we are more closely monitoring this
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 $8.8 million and $8.6 million at December 31, 2008 and 2007,
respectively.  The purpose of these foreign currency contracts is to
reduce exposure related to the Company’s British pound-denominated
receivables.  At December 31, 2008, the Company used forward currency
contracts to reduce exposure to future Mexico peso-denominated
purchases.  At December 31, 2007, the Company also used forward
currency contracts to reduce the exposure related to Swedish krona-denominated
receivables.   The estimated fair value of these contracts at
December 31, 2008 and 2007, per quoted market sources, was approximately $(0.8)
million and $(0.03) million, respectively.  The Company’s foreign
currency option contracts expire throughout 2009.  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 $0.6 million or
$(0.7) million and $3.7 million or $(3.0) million for the Company’s British
pound-denominated receivables and for the Company’s Mexican peso-denominated
receivables, respectively, as of December 31, 2008.  For foreign
currency contracts outstanding at December 31, 2007, 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 $0.8 million or $(0.9) million as of
December 31, 2007.  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.
  33
  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
                      
                      35Consolidated
      Balance Sheets as of December 31, 2008 and 2007
                      
                      36Consolidated
      Statements of Operations for the Years Ended December 31, 2008, 2007
      and 2006
                      
                      37Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2008, 2007
      and 2006
                      
                      38Consolidated
      Statements of Shareholders' Equity for the Years Ended December 31,
      2008, 2007 and 2006
                      
                      39Notes
      to Consolidated Financial Statements
                      
                      40Financial Statement
    Schedule:Schedule II
      –Valuation and
      Qualifying Accounts
                      
                      71
  34
  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, 2008 and 2007, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 2008. Our audit 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 consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Stoneridge,
Inc. and Subsidiaries at December 31, 2008 and 2007, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2008, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statements
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 5 to the consolidated financial statements, effective January
1, 2007, the Company adopted FIN 48, Accounting for Uncertainty in Income Taxes,
an interpretation of FASB Statement No. 109.
 
 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, 2008, 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
11, 2009 expressed an unqualified opinion thereon.
 
 /s/ Ernst
& Young LLP
 
 Cleveland,
Ohio
 March 11,
2009
  35
  STONERIDGE,
INC. AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 (in
thousands)
 
 December 31,2008
                        
                        
                        2007ASSETSCurrent
      Assets:Cash
      and cash equivalents
                        
                        $
                        92,692
                        
                        
                        $
                        95,924Accounts
      receivable, less reserves of $4,204 and $4,736,
    respectively
                        
                        
                        96,535
                        
                        
                        
                        122,288Inventories,
      net
                        
                        
                        54,800
                        
                        
                        
                        57,392Prepaid
      expenses and other
                        
                        
                        9,069
                        
                        
                        
                        15,926Deferred
      income taxes, net of valuation allowance
                        
                        
                        1,495
                        
                        
                        
                        9,829Total
      current assets
                        
                        
                        254,591
                        
                        
                        
                        301,359Long-Term
      Assets:Property,
      plant and equipment, net
                        
                        
                        87,701
                        
                        
                        
                        92,752Other
      Assets:Goodwill
                        
                        
                        -
                        
                        
                        
                        65,176Investments
      and other, net
                        
                        
                        40,145
                        
                        
                        
                        39,454Deferred
      income taxes, net of valuation allowance
                        
                        
                        -
                        
                        
                        
                        29,028Total
      long-term assets
                        
                        
                        127,846
                        
                        
                        
                        226,410Total
      Assets
                        
                        $
                        382,437
                        
                        
                        $
                        527,769LIABILITIES AND SHAREHOLDERS’
      EQUITYCurrent
      Liabilities:Accounts
      payable
                        
                        $
                        50,719
                        
                        
                        $
                        69,373Accrued
      expenses and other
                        
                        
                        43,485
                        
                        
                        
                        47,198Total
      current liabilities
                        
                        
                        94,204
                        
                        
                        
                        116,571Long-Term
      Liabilities:Long-term
      debt
                        
                        
                        183,000
                        
                        
                        
                        200,000Deferred
      income taxes
                        
                        
                        7,002
                        
                        
                        
                        2,665Other
      liabilities
                        
                        
                        6,473
                        
                        
                        
                        2,344Total
      long-term liabilities
                        
                        
                        196,475
                        
                        
                        
                        205,009Shareholders'
      Equity:Preferred
      Shares, without par value, authorized 5,000 shares, none
      issued
                        
                        
                        -
                        
                        
                        
                        -Common
      Shares, without par value, authorized 60,000 shares, issued 24,772 and
      24,601shares
      and outstanding 24,665 and 24,209 shares, respectively, with no stated
      value
                        
                        
                        -
                        
                        
                        
                        -Additional
      paid-in capital
                        
                        
                        158,039
                        
                        
                        
                        154,173Common
      Shares held in treasury, 107 and 392 shares, respectively, at
      cost
                        
                        
                        (129
                        )
                        
                        
                        (383
                        )Retained
      earnings (deficit)
                        
                        
                        (59,155
                        )
                        
                        
                        38,372Accumulated
      other comprehensive income (loss)
                        
                        
                        (6,997
                        )
                        
                        
                        14,027Total
      shareholders’ equity
                        
                        
                        91,758
                        
                        
                        
                        206,189Total
      Liabilities and Shareholders' Equity
                        
                        $
                        382,437
                        
                        
                        $
                        527,769
  The
accompanying notes are an integral part of these consolidated financial
statements.
  36
 
 STONERIDGE,
INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (in
thousands, except per share data)
 
 For the Years EndedDecember 31,2008
                  
                  
                  2007
                  
                  
                  2006Net
      Sales
                  
                  $
                  752,698
                  
                  
                  $
                  727,120
                  
                  
                  $
                  708,699Costs
      and Expenses:Cost
      of goods sold
                  
                  
                  586,411
                  
                  
                  
                  559,397
                  
                  
                  
                  549,793Selling,
      general and administrative
                  
                  
                  136,563
                  
                  
                  
                  133,708
                  
                  
                  
                  124,538Gain
      on sale of property, plant and equipment, net
                  
                  
                  (571
                  )
                  
                  
                  (1,710
                  )
                  
                  
                  (1,303
                  )Goodwill
      impairment charge
                  
                  
                  65,175
                  
                  
                  
                  -
                  
                  
                  
                  -Restructuring
      charges
                  
                  
                  8,391
                  
                  
                  
                  926
                  
                  
                  
                  608Operating
      Income (Loss)
                  
                  
                  (43,271
                  )
                  
                  
                  34,799
                  
                  
                  
                  35,063Interest
      expense, net
                  
                  
                  20,575
                  
                  
                  
                  21,759
                  
                  
                  
                  21,744Equity
      in earnings of investees
                  
                  
                  (13,490
                  )
                  
                  
                  (10,893
                  )
                  
                  
                  (7,125
                  )Loss
      on early extinguishment of debt
                  
                  
                  770
                  
                  
                  
                  -
                  
                  
                  
                  -Other
      expense (income), net
                  
                  
                  (351
                  )
                  
                  
                  709
                  
                  
                  
                  805Income
      (Loss) Before Income Taxes
                  
                  
                  (50,775
                  )
                  
                  
                  23,224
                  
                  
                  
                  19,639Provision
      for income taxes
                  
                  
                  46,752
                  
                  
                  
                  6,553
                  
                  
                  
                  5,126Net
      Income (Loss)
                  
                  $
                  (97,527
                  )
                  
                  $
                  16,671
                  
                  
                  $
                  14,513Basic
      net income (loss) per share
                  
                  $
                  (4.17
                  )
                  
                  $
                  0.72
                  
                  
                  $
                  0.63Basic
      weighted average shares outstanding
                  
                  
                  23,367
                  
                  
                  
                  23,133
                  
                  
                  
                  22,866Diluted
      net income (loss) per share
                  
                  $
                  (4.17
                  )
                  
                  $
                  0.71
                  
                  
                  $
                  0.63Diluted
      weighted average shares outstanding
                  
                  
                  23,367
                  
                  
                  
                  23,548
                  
                  
                  
                  23,062
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  37
 
 STONERIDGE,
INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (in
thousands)
 
 For the Years EndedDecember 31,2008
                        
                        
                        2007
                        
                        
                        2006OPERATING
      ACTIVITIES:Net
      income (loss)
                        
                        $
                        (97,527
                        )
                        
                        $
                        16,671
                        
                        
                        $
                        14,513Adjustments to
      reconcile net income to net cash provided (used) by operating
      activities -Depreciation
                        
                        
                        26,196
                        
                        
                        
                        28,299
                        
                        
                        
                        25,904Amortization
                        
                        
                        1,320
                        
                        
                        
                        1,522
                        
                        
                        
                        1,657Deferred
      income taxes
                        
                        
                        46,239
                        
                        
                        
                        3,823
                        
                        
                        
                        3,466Earnings
      of equity method investees, less dividends received
                        
                        
                        (9,277
                        )
                        
                        
                        (5,299
                        )
                        
                        
                        (3,455
                        )Gain
      on sale of fixed assets
                        
                        
                        (571
                        )
                        
                        
                        (1,710
                        )
                        
                        
                        (1,303
                        )Gain
      on sale of partnership interest
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (1,627
                        )Share-based
      compensation expense
                        
                        
                        3,425
                        
                        
                        
                        2,431
                        
                        
                        
                        1,953Loss
      on early extinguishment of debt
                        
                        
                        770
                        
                        
                        
                        -
                        
                        
                        
                        -Postretirement
      benefit settlement gain
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (1,242
                        )Goodwill
      impairment charge
                        
                        
                        65,175
                        
                        
                        
                        -
                        
                        
                        
                        -Changes
      in operating assets and liabilities -Accounts
      receivable, net
                        
                        
                        20,087
                        
                        
                        
                        (13,424
                        )
                        
                        
                        (2,739
                        )Inventories,
      net
                        
                        
                        (1,786
                        )
                        
                        
                        933
                        
                        
                        
                        (2,350
                        )Prepaid
      expenses and other
                        
                        
                        2,617
                        
                        
                        
                        1,563
                        
                        
                        
                        1,742Other
      assets
                        
                        
                        39
                        
                        
                        
                        (89
                        )
                        
                        
                        2,228Accounts
      payable
                        
                        
                        (14,769
                        )
                        
                        
                        (4,881
                        )
                        
                        
                        14,084Accrued
      expenses and other
                        
                        
                        518
                        
                        
                        
                        3,686
                        
                        
                        
                        (6,291
                        )Net
      cash provided by operating activities
                        
                        
                        42,456
                        
                        
                        
                        33,525
                        
                        
                        
                        46,540INVESTING
      ACTIVITIES:Capital
      expenditures
                        
                        
                        (24,573
                        )
                        
                        
                        (18,141
                        )
                        
                        
                        (25,895
                        )Proceeds
      from sale of fixed assets
                        
                        
                        1,652
                        
                        
                        
                        12,315
                        
                        
                        
                        2,266Proceeds
      from sale of partnership interest
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,153Business
      acquisitions and other
                        
                        
                        (980
                        )
                        
                        
                        -
                        
                        
                        
                        (2,133
                        )Net
      cash used by investing activities
                        
                        
                        (23,901
                        )
                        
                        
                        (5,826
                        )
                        
                        
                        (24,609
                        )FINANCING
      ACTIVITIES:Repayments
      of long-term debt
                        
                        
                        (17,000
                        )
                        
                        
                        -
                        
                        
                        
                        (44
                        )Share-based
      compensation activity
                        
                        
                        1,322
                        
                        
                        
                        2,119
                        
                        
                        
                        301Premiums
      related to early extinguishment of debt
                        
                        
                        (553
                        )
                        
                        
                        -
                        
                        
                        
                        -Other
      financing costs
                        
                        
                        -
                        
                        
                        
                        (1,219
                        )
                        
                        
                        (150
                        )Net
      cash provided (used) by financing activities
                        
                        
                        (16,231
                        )
                        
                        
                        900
                        
                        
                        
                        107Effect
      of exchange rate changes on cash and cash equivalents
                        
                        
                        (5,556
                        )
                        
                        
                        1,443
                        
                        
                        
                        3,060Net
      change in cash and cash equivalents
                        
                        
                        (3,232
                        )
                        
                        
                        30,042
                        
                        
                        
                        25,098Cash
      and cash equivalents at beginning of period
                        
                        
                        95,924
                        
                        
                        
                        65,882
                        
                        
                        
                        40,784Cash
      and cash equivalents at end of period
                        
                        $
                        92,692
                        
                        
                        $
                        95,924
                        
                        
                        $
                        65,882Supplemental
      disclosure of cash flow information:Cash
      paid for interest, net
                        
                        $
                        20,048
                        
                        
                        $
                        20,637
                        
                        
                        $
                        20,565Cash
      paid for income taxes, net
                        
                        $
                        4,466
                        
                        
                        $
                        3,672
                        
                        
                        $
                        2,394
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  38
  
 STONERIDGE,
INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
 (in
thousands)
 
 Numberof
                    Common
                    Shares
                  
                  
                  Numberof
                    Treasury
                    Shares
                  
                  
                  Additional
                    Paid-inCapital
                  
                  
                  Common
                    SharesHeld
                    inTreasury
                  
                  
                  Retained
                    Earnings
                    (Deficit)
                  
                  
                  AccumulatedOther
                    Comprehensive
                    Income (Loss)
                  
                  
                  TotalShareholders'
                    Equity
                  
                  
                  Comprehensive
                    Income (Loss)BALANCE,
      DECEMBER 31, 2005
                  
                  
                  23,178
                  
                  
                  
                  54
                  
                  
                  $
                  147,440
                  
                  
                  $
                  (65
                  )
                  
                  $
                  7,188
                  
                  
                  $
                  (572
                  )
                  
                  $
                  153,991Net
      income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  14,513
                  
                  
                  
                  -
                  
                  
                  
                  14,513
                  
                  
                  $
                  14,513Exercise
      of share options
                  
                  
                  64
                  
                  
                  
                  -
                  
                  
                  
                  393
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  393
                  
                  
                  
                  -Issuance
      of restricted Common Shares
                  
                  
                  694
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Forfeited
      restricted Common Shares
                  
                  
                  (118
                  )
                  
                  
                  118
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Repurchased
      Common Shares for treasury
                  
                  
                  (14
                  )
                  
                  
                  14
                  
                  
                  
                  -
                  
                  
                  
                  (86
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (86
                  )
                  
                  
                  -Share-based
      compensation matters
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,245
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,245
                  
                  
                  
                  -Other
      comprehensive income (loss):Minimum
      pension liability adjustments
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,625
                  
                  
                  
                  1,625
                  
                  
                  
                  1,625Unrealized
      loss on marketable securities
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (84
                  )
                  
                  
                  (84
                  )
                  
                  
                  (84
                  )Currency
      translation adjustments
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  6,025
                  
                  
                  
                  6,025
                  
                  
                  
                  6,025Comprehensive
      income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  22,079BALANCE,
      DECEMBER 31, 2006
                  
                  
                  23,804
                  
                  
                  
                  186
                  
                  
                  
                  150,078
                  
                  
                  
                  (151
                  )
                  
                  
                  21,701
                  
                  
                  
                  6,994
                  
                  
                  
                  178,622Net
      income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  16,671
                  
                  
                  
                  -
                  
                  
                  
                  16,671
                  
                  
                  $
                  16,671Exercise
      of share options
                  
                  
                  164
                  
                  
                  
                  -
                  
                  
                  
                  1,552
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,552
                  
                  
                  
                  -Issuance
      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
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,543
                  
                  
                  
                  -Other
      comprehensive income (loss):Pension
      liability adjustments
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,039
                  
                  
                  
                  1,039
                  
                  
                  
                  1,039Unrealized
      gain on marketable securities
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  44
                  
                  
                  
                  44
                  
                  
                  
                  44Unrealized
      loss on derivatives
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (37
                  )
                  
                  
                  (37
                  )
                  
                  
                  (37
                  )Currency
      translation adjustments
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5,987
                  
                  
                  
                  5,987
                  
                  
                  
                  5,987Comprehensive
      income (loss)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  23,704BALANCE,
      DECEMBER 31, 2007
                  
                  
                  24,209
                  
                  
                  
                  392
                  
                  
                  
                  154,173
                  
                  
                  
                  (383
                  )
                  
                  
                  38,372
                  
                  
                  
                  14,027
                  
                  
                  
                  206,189Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (97,527
                  )
                  
                  
                  -
                  
                  
                  
                  (97,527
                  )
                  
                  $
                  (97,527
                  )Exercise
      of share options
                  
                  
                  88
                  
                  
                  
                  -
                  
                  
                  
                  795
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  795
                  
                  
                  
                  -Issuance
      of restricted Common Shares
                  
                  
                  462
                  
                  
                  
                  (379
                  )
                  
                  
                  -
                  
                  
                  
                  383
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  383
                  
                  
                  
                  -Forfeited
      restricted Common Shares
                  
                  
                  (73
                  )
                  
                  
                  73
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Repurchased
      Common Shares for treasury
                  
                  
                  (21
                  )
                  
                  
                  21
                  
                  
                  
                  -
                  
                  
                  
                  (129
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (129
                  )
                  
                  
                  -Share-based
      compensation matters
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,071
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,071
                  
                  
                  
                  -Other
      comprehensive income (loss):Pension
      liability adjustments
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (1,531
                  )
                  
                  
                  (1,531
                  )
                  
                  
                  (1,531
                  )Unrealized
      loss on marketable securities
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (10
                  )
                  
                  
                  (10
                  )
                  
                  
                  (10
                  )Unrealized
      loss on derivatives
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (4,977
                  )
                  
                  
                  (4,977
                  )
                  
                  
                  (4,977
                  )Currency
      translation adjustments
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (14,506
                  )
                  
                  
                  (14,506
                  )
                  
                  
                  (14,506
                  )Comprehensive
      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (118,551
                  )BALANCE,
      DECEMBER 31, 2008
                  
                  
                  24,665
                  
                  
                  
                  107
                  
                  
                  $
                  158,039
                  
                  
                  $
                  (129
                  )
                  
                  $
                  (59,155
                  )
                  
                  $
                  (6,997
                  )
                  
                  $
                  91,758
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  39


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, agricultural, automotive 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 as prescribed by Accounting
Principles Board Opinion No. 18,The Equity Method of Accounting for
Investments in Common Stock(Note 3).





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, agricultural,
automotive and off-highway vehicle markets. The Company’s largest customers were
Navistar International and Deere & Company, which accounted for
approximately 26%, 20% and 25% and 10%, 7% and 6% of net sales for the years
ended December 31, 2008, 2007 and 2006, respectively.





Inventories





Inventories
are valued at the lower of cost or market. Cost is determined by the last-in,
first-out (“LIFO”) method for approximately 72% and 66% of the Company’s
inventories at December 31, 2008 and 2007, respectively, and by the first-in,
first-out (“FIFO”) method for all other inventories. Inventory cost includes
material, labor and overhead. Inventories consist of the following at December
31:





2008
                  
                  
                  2007Raw
      materials
                  
                  $
                  32,981
                  
                  
                  $
                  36,678Work-in-progress
                  
                  
                  8,876
                  
                  
                  
                  9,065Finished
      goods
                  
                  
                  15,890
                  
                  
                  
                  13,700Total
      inventories
                  
                  
                  57,747
                  
                  
                  
                  59,443Less:
      LIFO reserve
                  
                  
                  (2,947
                  )
                  
                  
                  (2,051
                  )Inventories,
      net
                  
                  $
                  54,800
                  
                  
                  $
                  57,392


40


STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





Property,
Plant and Equipment





Property,
plant and equipment are recorded at cost and consist of the following at
December 31:





2008
                
                
                2007Land
      and land improvements
                
                $
                3,872
                
                
                $
                3,956Buildings
      and improvements
                
                
                35,325
                
                
                
                35,869Machinery
      and equipment
                
                
                152,775
                
                
                
                147,931Office
      furniture and fixtures
                
                
                6,586
                
                
                
                10,607Tooling
                
                
                62,163
                
                
                
                81,976Vehicles
                
                
                314
                
                
                
                403Leasehold
      improvements
                
                
                2,359
                
                
                
                2,981Construction
      in progress
                
                
                14,878
                
                
                
                10,909Total
      property, plant and equipment
                
                
                278,272
                
                
                
                294,632Less:
      Accumulated depreciation
                
                
                (190,571
                )
                
                
                (201,880
                )Property,
      plant and equipment, net
                
                $
                87,701
                
                
                $
                92,752





As a
result of the restructuring plan approved on October 29, 2007 (See Note 12), the
manufacturing facility located in Sarasota, Florida was closed in 2008. The 2008
amounts above include $760, $6,125 and ($3,128) of land and improvements,
buildings and improvements and accumulated depreciation, respectively, related
to the Sarasota facility. The Sarasota facility is currently being marketed for
sale and the fair value of the property is expected to exceed the carrying
value.





Depreciation
is provided using the straight-line method over the estimated useful lives of
the assets. Depreciation expense for the years ended December 31, 2008, 2007 and
2006 was $26,196, $28,299 and $25,904, 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
      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
property 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 Statement of
Operations as a component of gain on sale of property, plant and equipment,
net.





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 2008, 2007 or 2006. 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.





Goodwill
and Other Intangible Assets





Under
Statement of Financial Accounting Standard (“SFAS”) No. 142, Goodwill and Other Intangible Assets
(“SFAS 142”), goodwill is subject to an annual assessment for impairment
(or more frequently if impairment indicators arise) by applying a fair
value-based test.


41


STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





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, the 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
October 1, 2007 and determined that no impairment existed as of either
date.





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, which is included in the Control Devices
reportable segment and as a component of operating loss in the accompanying
consolidated statements of operations.





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 has 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.





The
change in the carrying value of goodwill by reportable segment during 2008 was
as follows:





ControlElectronics
                  
                  
                  Devices
                  
                  
                  TotalGoodwill
      at beginning of period
                  
                  $
                  -
                  
                  
                  $
                  65,176
                  
                  
                  $
                  65,176Impairment
      charge
                  
                  
                  -
                  
                  
                  
                  (65,176
                  )
                  
                  
                  (65,176
                  )Goodwill
      at end of period
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -





The net
carrying amount of the Company’s patents at December 31, 2008 and 2007 was $0
and $203, respectively, and was included in the Company’s consolidated balance
sheets as a component of other assets. Aggregate amortization expense on patents
was $203 and $204 for the years ended December 31, 2008 and December 31, 2007,
respectively. There is no amortization expense for the year ended December 31,
2009 based upon the Company’s intangible asset portfolio at December 31,
2008.


42


STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





Accrued
Expenses and Other Current Liabilities





Accrued
expenses and other current liabilities consist of the following at December
31:





2008
                  
                  
                  2007Compensation
      related obligations
                  
                  $
                  16,041
                  
                  
                  $
                  19,053Insurance
      related obligations
                  
                  
                  1,986
                  
                  
                  
                  4,084Warranty
      and recall related obligations
                  
                  
                  5,527
                  
                  
                  
                  5,306Other
      (1)
                  
                  
                  19,931
                  
                  
                  
                  18,755Total
      accrued expenses and other current liabilities
                  
                  $
                  43,485
                  
                  
                  $
                  47,198




(1)           “Other”
is comprised of miscellaneous accruals; none of which contributed a significant
portion of the total.





Income
Taxes





The
Company accounts for income taxes using the provisions of SFAS No. 109, Accounting for Income Taxes.
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.





In May
2007, the FASB issued FSP FIN 48-1, Definition of Settlement in FASB
Interpretation No. 48 (“FSP FIN 48-1”). FSP FIN 48-1 provides guidance on
determining whether a tax position is effectively settled for the purpose of
recognizing previously unrecognized tax benefits. FSP FIN 48-1 is effective
retroactively to January 1, 2007. The implementation of this standard did not
have a material impact on the Company’s consolidated financial position or
results of operations.





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. 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 in the results
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. Actual and 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 collectibility 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
collectibility 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.


43


STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





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.





The
following provides a reconciliation of changes in product warranty and recall
liability for the years ended December 31, 2008 and 2007:





2008
                  
                  
                  2007Product
      warranty and recall at beginning of period
                  
                  $
                  5,306
                  
                  
                  $
                  5,825Accruals
      for products shipped during period
                  
                  
                  5,487
                  
                  
                  
                  2,689Aggregate
      changes in pre-existing liabilities due to claims
    developments
                  
                  
                  1,157
                  
                  
                  
                  1,756Settlements
      made during the period (in cash or in kind)
                  
                  
                  (6,423
                  )
                  
                  
                  (4,964
                  )Product
      warranty and recall at end of period
                  
                  $
                  5,527
                  
                  
                  $
                  5,306





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 $45,626, $44,203 and
$40,840 in years ended December 31, 2008, 2007 and 2006, respectively or 6.1%,
6.1% and 5.8% of net sales for these periods.





Share-Based
Compensation





At
December 31, 2008, 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. Prior to the second quarter of 2005, the Company
accounted for its plans under the fair value recognition provisions of SFAS No.
123, Accounting for
Stock-Based Compensation, (“SFAS 123”) adopted prospectively for all
employee and director awards granted, modified or settled after January 1, 2003,
under the provisions of SFAS No. 148, Accounting for Stock-Based
Compensation – Transition and Disclosure – an amendment of SFAS 123.
Effective at the beginning of the second quarter of 2005, the Company adopted
SFAS No. 123(R), Share-Based
Payment, (“SFAS 123(R)”) using the modified-prospective-transition
method.





Total compensation expense recognized
as a component of selling, general and administrative on the consolidated
statements of operations for share-based compensation arrangements was $3,425,
$2,431 and $1,953 for the years ended December 31, 2008, 2007 and 2006,
respectively. There was no share-based compensation expense capitalized as
inventory in 2008, 2007 or 2006.





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 fixed price commodity
swap and foreign currency swap contracts.


44


STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





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. generally accepted
accounting principles 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.





Net
Income (Loss) Per Share





Net
income (loss) per share amounts for all periods is presented in accordance with
SFAS No. 128, Earnings Per
Share (“SFAS 128”), which requires the presentation of basic and diluted
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 under SFAS 128. Actual weighted-average shares outstanding used in
calculating basic and diluted net income (loss) per share were as
follows:





For
      the Years EndedDecember 31,2008
                
                
                2007
                
                
                2006Basic
      weighted-average shares outstanding
                
                
                23,366,515
                
                
                
                23,132,814
                
                
                
                22,866,015Effect
      of dilutive securities
                
                
                -
                
                
                
                415,669
                
                
                
                195,870Diluted
      weighted-average shares outstanding
                
                
                23,366,515
                
                
                
                23,548,483
                
                
                
                23,061,885





Options
not included in the computation of diluted net income (loss) per share to
purchase 74,000, 89,500 and 599,850 Common Shares at an average price of $14.86,
$14.61 and $12.17 per share were outstanding at December 31, 2008, 2007 and
2006, respectively. These outstanding options were not included in the
computation of diluted net income (loss) per share because their respective
exercise prices were greater than the average market price of Common Shares.
These options were excluded from the computation of diluted earnings per share
under the treasury stock method. In addition, the calculation of diluted
earnings per share for the year ended December 31, 2008, would have included
123,750 shares for the assumed exercise of options under the Company’s share
incentive plans, except that the Company was in a net loss position and no
anti-dilution is permitted under SFAS 128.





As of
December 31, 2008, 628,275 performance-based restricted shares were outstanding.
These shares were not included in the computation of diluted net income per
share because associated performance targets were not achieved as of December
31, 2008. These shares may or may not become dilutive based on the Company’s
ability to meet or exceed future performance targets.





Comprehensive
Income (Loss)





SFAS No.
130, Reporting Comprehensive
Income, establishes standards for the reporting and display of
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.


45


STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





The
components of accumulated other comprehensive income (loss), as reported in the
statement of consolidated 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
                  Loss on
                  Derivatives
                
                
                Accumulated
                  Other
                  Comprehensive
                  Income (Loss)Balance, January 1, 2006
                
                $
                2,500
                
                
                $
                (3,092
                )
                
                $
                20
                
                
                $
                -
                
                
                $
                (572
                )Current
      year change
                
                
                6,025
                
                
                
                1,625
                
                
                
                (84
                )
                
                
                -
                
                
                
                7,566Balance,
      December 31, 2006
                
                
                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
                )





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





Before Tax
                        Amount
                      
                      
                      Benefit /
                        (Provision)
                      
                      
                      After-Tax
                        Amount2006Foreign
      currency translation adjustments
                      
                      $
                      6,025
                      
                      
                      $
                      -
                      
                      
                      $
                      6,025Pension
      liability adjustments
                      
                      
                      1,625
                      
                      
                      
                      -
                      
                      
                      
                      1,625Unrealized
      loss on marketable securities
                      
                      
                      (129
                      )
                      
                      
                      45
                      
                      
                      
                      (84
                      )Other
      comprehensive income
                      
                      $
                      7,521
                      
                      
                      $
                      45
                      
                      
                      $
                      7,5662007Foreign
      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
                      )





At
December 31, 2008 and 2007, the Company recorded valuation allowances of $675
and $407, respectively, which fully offset the deferred tax asset related to the
accumulated 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, 2008, 2007 and 2006 was $1,117, $1,318 and $1,379,
respectively.


46


STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





Recently
Issued Accounting Standards





New
accounting standards to be implemented:





In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements(“SFAS 157”),
which provides a definition of fair value, establishes a framework for measuring
fair value and requires expanded disclosures about fair value measurements.
SFAS 157 was effective for financial assets and financial liabilities in
years beginning after November 15, 2007 and for nonfinancial assests and
liabilities in years beginning after November 15, 2008. The provisions of
SFAS 157 were applied prospectively. The Company adopted SFAS 157 for
financial assets and liabilities in 2008 with no material impact to the
consolidated financial statements. The Company does not anticipate the adoption
of SFAS 157 to nonfinancial assets and liabilities will have a material impact
on the Company’s financial position, results of operations or cash
flows.





In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations(“SFAS
141(R)”). This standard improves reporting by creating greater consistency in
the accounting and financial reporting of business combinations. Additionally,
SFAS 141(R) requires the acquiring entity in a business combination to
recognize all (and only) the assets acquired and liabilities assumed in the
transaction; establishes the acquisition-date fair value as the measurement
objective for all assets acquired and liabilities assumed; and requires the
acquirer to disclose to investors and other users all of the information they
need to evaluate and understand the nature and financial effect of the business
combination. SFAS 141(R) is effective for financial statements issued for
years beginning after December 15, 2008. Early adoption of this standard is
prohibited. In the absence of any planned future business combinations,
Management does not currently expect SFAS 141(R) to have a material impact
on the Company’s financial condition or results of operations.





In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements(“SFAS 160”). This standard improves
the relevance, comparability and transparency of financial information provided
to investors by requiring all entities to report noncontrolling (minority)
interests in subsidiaries in the same way. Additionally, SFAS 160
eliminates the diversity that currently exists in accounting for transactions
between an entity and noncontrolling interests by requiring they be treated as
equity transactions. SFAS 160 is effective for financial statements issued
for years beginning after December 15, 2008. Early adoption of this
standard is prohibited. In the absence of any noncontrolling (minority)
interests, management does not currently expect SFAS 160 to have a material
impact on the Company’s financial condition or results of
operations.





In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement
No. 133, (“SFAS 161”). SFAS 161 requires enhanced disclosures about
an entity’s derivative and hedging activities, including (i) how and why an
entity uses derivative instruments, (ii) how derivative instruments and
related hedged items are accounted for under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, and (iii) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows. This standard becomes effective on
January 1, 2009. Earlier adoption of SFAS 161 and, separately, comparative
disclosures for earlier periods at initial adoption are encouraged. As SFAS 161
only requires enhanced disclosures, this standard will have no impact on the
Company’s financial position, results of operations or cash flows.





New
accounting standards implemented:





In June
2006, the FASB issued interpretation No. 48, Accounting for Uncertainty in Income
Taxes – An Interpretation of FASB Statement No. 109(“FIN 48”). FIN 48
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes.
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 FIN 48 as of January 1, 2007. The adoption of FIN 48 did not have a material
impact on the Company’s financial statements.





In
September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin (“SAB”) No. 108, Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements(“SAB 108”), which expresses the SEC’s views regarding the
process of quantifying financial statement misstatements. Registrants are
required to quantify the impact of correcting all misstatements, including both
the carryover and reversing effects of prior year misstatements, on the current
year financial statements. The financial statements would require adjustment
when either approach results in quantifying a misstatement that is material,
after considering all relevant quantitative and qualitative factors. SAB 108 was
effective for the first quarter of 2007. The adoption of SAB 108 did not have an
impact on the Company’s consolidated financial statements.


47


STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





In May
2007, the FASB issued FASB Staff Position (“FSP”), Definition of Settlement in FASB
Interpretation No. 48 (“FSP FIN 48-1”). FSP FIN 48-1 provides guidance on
determining whether a tax position is effectively settled for the purpose of
recognizing previously unrecognized tax benefits. FSP FIN 48-1 was effective
retroactively to January 1, 2007. The implementation of this standard did not
have a material impact on the Company’s consolidated financial position or
results of operations.





Reclassifications





Certain
prior period amounts have been reclassified to conform to their 2008
presentation in the consolidated financial statements.





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 $31,021 and $29,663 at
December 31, 2008 and 2007, respectively.





Condensed
financial information for PST is as follows:





December 31,2008
                
                
                2007Cash
      and cash equivalents
                
                $
                5,678
                
                
                $
                7,124Accounts
      receivable, net
                
                
                12,533
                
                
                
                12,306Inventories,
      net
                
                
                21,091
                
                
                
                20,114Property,
      plant and equipment, net
                
                
                18,379
                
                
                
                16,865Other
      assets
                
                
                4,272
                
                
                
                5,331Total
      Assets
                
                $
                61,953
                
                
                $
                61,740Current
      liabilities
                
                $
                17,268
                
                
                $
                25,569Long-term
      liabilities
                
                
                10,183
                
                
                
                3,957Equity
      of:Stoneridge
                
                
                17,251
                
                
                
                16,107Others
                
                
                17,251
                
                
                
                16,107Total
      Liabilities and Equity
                
                $
                61,953
                
                
                $
                61,740





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 $11.3 million at December 31, 2008 and
2007.


48


STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





For
      the Years EndedDecember 31,2008
                
                
                2007
                
                
                2006Net
      sales
                
                $
                174,305
                
                
                $
                133,039
                
                
                $
                94,097Cost
      of goods sold
                
                $
                80,924
                
                
                $
                61,575
                
                
                $
                47,451Total
      pre-tax income
                
                $
                31,788
                
                
                $
                25,152
                
                
                $
                17,939The
      Company's share of pre-tax income
                
                $
                15,894
                
                
                $
                12,576
                
                
                $
                8,970





Equity in earnings of PST
included in the consolidated statements of operations was $12,788, $10,351 and
$6,771 for the years ended December 31, 2008, 2007 and 2006, respectively.
During 2008 and 2007, PST declared dividends payable to its joint venture
partners, which included the Company. The Company received dividend payments
from PST of $4,213 and $5,594 in 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 $4,808 and $4,547 at December 31, 2008 and 2007, respectively. Equity
in earnings of Minda included in the consolidated statements of operations was
$702, $542 and $354, for the years ended December 31, 2008, 2007 and 2006,
respectively. The Company increased its ownership in Minda from 20% to 49% in
2006.





4.
Long-Term Debt





Senior
Notes





The
Company had $183.0 million and $200.0 million of senior notes outstanding at
December 31, 2008 and 2007, 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 103.833% of
the principal amount until April 30, 2009. The senior notes will remain
redeemable at various levels until the maturity date. Interest is payable on May
1 and November 1 of each year. On July 1, 2002, the Company completed an
exchange offer of the senior notes for substantially identical notes registered
under the Securities Act of 1933. The senior notes do not contain financial
covenants. The Company was in compliance with all non-financial covenants at
December 31, 2008 and 2007.





Credit
Facility





On
November 2, 2007, the Company entered into an asset-based credit facility, which
permits borrowing up to a maximum level of $100.0 million. At December 31, 2008
and 2007, 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, 2008 and 2007, the Company had
borrowing capacity of $57.7 million and $73.5 million, respectively, based on
eligible current assets. The asset-based credit facility does not contain
financial performance covenants; however, restrictions include limits on capital
expenditures, operating leases and dividends. The asset-based credit facility
expires on November 1, 2011. The credit facility provides that a commitment fee
of 0.25% on the unused balance and that interest is payable monthly at either
(i) the higher of the prime rate or the Federal Funds rate plus 0.50%, plus a
margin of 0.00% to 0.25% or (ii) LIBOR plus a margin of 1.00% to 1.75%,
depending upon the Company’s undrawn availability, as defined. The Company was
in compliance with all covenants at December 31, 2008 and 2007.


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 for income taxes consist of
the following:





For
      the Years EndedDecember 31,2008
                  
                  
                  2007
                  
                  
                  2006Income
      (loss) before income taxes:Domestic
                  
                  $
                  (52,320
                  )
                  
                  $
                  9,186
                  
                  
                  $
                  6,581Foreign
                  
                  
                  1,545
                  
                  
                  
                  14,038
                  
                  
                  
                  13,058Total
      income (loss) before income taxes
                  
                  $
                  (50,775
                  )
                  
                  $
                  23,224
                  
                  
                  $
                  19,639Provision
      (benefit) for income taxes:Current:Federal
                  
                  $
                  (1,434
                  )
                  
                  $
                  (55
                  )
                  
                  $
                  (807
                  )State
      and foreign
                  
                  
                  1,947
                  
                  
                  
                  2,785
                  
                  
                  
                  3,176Total
      current provision
                  
                  
                  513
                  
                  
                  
                  2,730
                  
                  
                  
                  2,369Deferred:Federal
                  
                  
                  47,590
                  
                  
                  
                  3,450
                  
                  
                  
                  2,175State
      and foreign
                  
                  
                  (1,351
                  )
                  
                  
                  373
                  
                  
                  
                  582Total
      deferred provision
                  
                  
                  46,239
                  
                  
                  
                  3,823
                  
                  
                  
                  2,757Total
      provision for income taxes
                  
                  $
                  46,752
                  
                  
                  $
                  6,553
                  
                  
                  $
                  5,126





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





For
      the Years EndedDecember 31,2008
                
                
                2007
                
                
                2006Statutory
      U.S. federal income tax rate
                
                
                (35.0
                )
      %
                
                
                35.0
                %
                
                
                35.0
                %State
      income taxes, net of federal tax benefit
                
                
                (1.8
                )
                
                
                (1.0
                )
                
                
                0.8Tax
      credits
                
                
                (2.0
                )
                
                
                (4.0
                )
                
                
                (5.6
                )Tax
      benefit for export sales
                
                
                -
                
                
                
                -
                
                
                
                (1.4
                )Foreign
      rate differential
                
                
                (4.4
                )
                
                
                (10.9
                )
                
                
                (8.9
                )Reduction
      of income tax accruals
                
                
                (1.2
                )
                
                
                (2.4
                )
                
                
                (4.5
                )Foreign
      deemed dividends, net of foreign tax credits
                
                
                1.8
                
                
                
                1.8
                
                
                
                4.5Reduction
      (increase) of deferred taxes
                
                
                (2.8
                )
                
                
                1.3
                
                
                
                -Valuation
      allowances
                
                
                129.2
                
                
                
                7.4
                
                
                
                4.1Non-deductible
      goodwill
                
                
                9.0
                
                
                
                -
                
                
                
                -Other
                
                
                (0.7
                )
                
                
                1.0
                
                
                
                2.1Effective
      income tax rate
                
                
                92.1
                %
                
                
                28.2
                %
                
                
                26.1
                %





The
increase in the effective tax rate for 2008 was attributable to the recording of
a valuation allowance against our domestic deferred tax assets. Pursuant to the
accounting guidance, this valuation allowance was recorded based on our domestic
pre-tax losses for the period 2006-2008 including the goodwill impairment
charge.





Unremitted
earnings of foreign subsidiaries were $24,155, $22,451 and $16,703 as of
December 31, 2008, 2007 and 2006, 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.


50


STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





Significant
components of the Company’s deferred tax assets and (liabilities) as of December
31, 2008 and 2007 are as follows:





2008
                    
                    
                    2007Deferred
      tax assets:Inventories
                    
                    $
                    1,606
                    
                    
                    $
                    2,028Employee
      benefits
                    
                    
                    2,568
                    
                    
                    
                    1,942Insurance
                    
                    
                    1,306
                    
                    
                    
                    1,029Depreciation
      and amortization
                    
                    
                    35,735
                    
                    
                    
                    28,244Net
      operating loss carryforwards
                    
                    
                    32,169
                    
                    
                    
                    17,430General
      business credit carryforwards
                    
                    
                    8,550
                    
                    
                    
                    6,670Reserves
      not currently deductible
                    
                    
                    7,204
                    
                    
                    
                    8,814Gross
      deferred tax assets
                    
                    
                    89,138
                    
                    
                    
                    66,157Less:
      Valuation allowance
                    
                    
                    (82,379
                    )
                    
                    
                    (16,020
                    )Deferred
      tax assets less valuation allowance
                    
                    
                    6,759
                    
                    
                    
                    50,137Deferred
      tax liabilities:Depreciation
      and amortization
                    
                    
                    (4,293
                    )
                    
                    
                    (5,404
                    )Other
                    
                    
                    (7,973
                    )
                    
                    
                    (8,541
                    )Gross
      deferred tax liabilities
                    
                    
                    (12,266
                    )
                    
                    
                    (13,945
                    )Net
      deferred tax asset (liability)
                    
                    $
                    (5,507
                    )
                    
                    $
                    36,192





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.
Recording this valuation allowance for accounting purposes will have no impact
on our ability to utilize the U.S. net operating losses and credits to offset
future U.S. taxable income. The Company believes that it will 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 $32,169. The net operating losses relate to U.S.
federal, state and foreign tax jurisdictions. The U.S. net operating losses
expire beginning in 2025 through 2028, 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 $646 net of a valuation allowance of $7,904. The U.S. federal
general business credit carry forwards expire beginning in 2021 through 2028 and
the state tax credits expire at various times.





The
Company recognized a provision for income taxes of $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, 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 a goodwill impairment charge the Company was in a pre-tax cumulative loss
position for the period 2006-2008. Additionally, the effective tax rate was
unfavorably impacted 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.


51


STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





FIN
48, Accounting for Uncertainty in Income Taxes – An Interpretation of FASB
Statement No. 109





In June
2006, the FASB issued FIN 48. FIN 48 clarifies the accounting for uncertainty in
income taxes recognized in an enterprise’s financial statements in accordance
with SFAS No. 109, Accounting
for Income Taxes. 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 FIN 48 as of the January 1,
2007. The adoption of FIN 48 did not have a material impact on the Company’s
financial statements.





The
following is a reconciliation of the Company’s total gross unrecognized tax
benefits, from adoption, to December 31, 2008:





2008
                  
                  
                  2007Balance
      at January 1
                  
                  $
                  4,618
                  
                  
                  $
                  4,731Tax
      positions related to the current year:Additions
                  
                  
                  362
                  
                  
                  
                  357Tax
      positions related to the prior years:Additions
                  
                  
                  -
                  
                  
                  
                  272Reductions
                  
                  
                  (84
                  )
                  
                  
                  (655
                  )Settlements
                  
                  
                  (1,683
                  )
                  
                  
                  -Expiration
      of statutes of limitation
                  
                  
                  (614
                  )
                  
                  
                  (87
                  )Balance
      at December 31
                  
                  $
                  2,599
                  
                  
                  $
                  4,618





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, 2008 the
Company has classified $798 as a current liability and $1,802 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 $75
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 $2,468 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, 2008 and 2007, the Company recognized approximately $(246)
and $(149) of gross interest and penalties, respectively. The Company has
accrued approximately $426 and $672 for the payment of interest and penalties at
December 31, 2008 and December 31, 2007, 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
                  
                  2005-2008France
                  
                  2004-2008Mexico
                  
                  2003-2008Spain
                  
                  2004-2008Sweden
                  
                  2003-2008United
      Kingdom
                  
                  2004-2008


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 and 2006. 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, 2008, 2007 and 2006, lease expense totaled $7,206,
$7,114 and $6,691, respectively.





Future
minimum operating lease commitments at December 31, 2008 are as
follows:





2009
                      
                      $
                      5,1222010
                      
                      
                      3,7442011
                      
                      
                      2,7772012
                      
                      
                      2,1152013
                      
                      
                      2,029Thereafter
                      
                      
                      4,916Total
                      
                      $
                      20,703





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, 2008, 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 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, 2008, the Company has issued 418,700 restricted Common
Shares, of which 194,900 are time-based with cliff- vesting using the
straight-line method and 223,800 are performance based.





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 first, second, third and fourth 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.


53


STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





In 2006,
pursuant to the Incentive Plan, the Company granted time-based restricted shares
and performance-based restricted shares. 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
and 2008, pursuant to the Incentive Plan, the Company granted time-based
restricted shares and performance-based restricted shares. 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
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 173,900 restricted Common Shares. Shares issued under the
Director Share Plan during 2008 and 2007 will cliff vest one year after the
grant date.





Options





A summary
of option activity under the plans noted above as of December 31, 2008, and
changes during the years ended are presented below:





Share
                      Options
                    
                    
                    Weighted-
                      Average
                      Exercise
                      Price
                    
                    Weighted-
                      Average
                      Remaining
                      Contractual
                      TermOutstanding
      at December 31, 2007
                    
                    
                    288,750
                    
                    
                    $
                    10.57Expired
                    
                    
                    (3,500
                    )
                    
                    
                    10.39Exercised
                    
                    
                    (87,500
                    )
                    
                    
                    9.01Outstanding
      and Exercisable at December 31, 2008
                    
                    
                    197,750
                    
                    
                    
                    11.26
                    
                    3.74





There
were no options granted during the years ended December 31, 2008, 2007 and 2006
and all outstanding options have vested.





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,
2008, 2007 and 2006 was $471, $482 and $176, respectively.





As of
December 31, 2008 and 2007, the aggregate intrinsic value of both outstanding
and exercisable options was $15 and $62, respectively. The total fair value of
options that vested during the years ended December 31, 2006 was $115. Prior to
2006, all outstanding option grants had vested, and therefore, the number of
exercisable and outstanding options is equal.





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, 2008, 2007 and 2006 was $10.81,
$12.00 and $7.79, respectively.


54


STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





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 calculated using the market value of the shares on the date
of issuance. The fair value of the non-vested performance-based restricted
Common Share awards with a market condition, which measures the Company’s
performance against a peer group’s performance in terms of total return to
shareholders, was estimated at the date of issuance using valuation techniques
incorporating the Company’s historical total return to shareholders in
comparison to its peers to determine the expected outcomes related to these
awards.





A summary
of the status of the Company’s non-vested restricted Common Shares as of
December 31, 2008 and the changes during the year then ended, are presented
below:





Time-Based Awards
                                
                                
                                Performance-Based AwardsNon-vested Restricted Common Shares
                                
                                Shares
                                
                                
                                Weighted-
                                  Average
                                  Grant-Date
                                  Fair Value
                                
                                
                                Shares
                                
                                
                                Weighted-
                                  Average
                                  Grant-Date
                                  Fair ValueNon-vested
      at December 31, 2007
                                
                                
                                503,824
                                
                                
                                $
                                9.76
                                
                                
                                
                                490,050
                                
                                
                                $
                                9.78Granted
                                
                                
                                238,100
                                
                                
                                
                                10.81
                                
                                
                                
                                223,800
                                
                                
                                
                                10.77Vested
                                
                                
                                (106,510
                                )
                                
                                
                                9.53
                                
                                
                                
                                (21,756
                                )
                                
                                
                                6.25Forfeited
                                
                                
                                (9,153
                                )
                                
                                
                                10.79
                                
                                
                                
                                (63,819
                                )
                                
                                
                                9.01Non-vested
      at December 31, 2008
                                
                                
                                626,261
                                
                                
                                
                                10.18
                                
                                
                                
                                628,275
                                
                                
                                
                                10.33





As of
December 31, 2008, total unrecognized compensation cost related to non-vested
time-based restricted Common Share awards granted was $2,394. That cost is
expected to be recognized over a weighted-average period of 0.49 years. For the
years ended December 31, 2008, 2007 and 2006, the total fair value of time-based
restricted Common Share awards vested was $1,366, $1,541 and $1,064,
respectively.





As of
December 31, 2008, total unrecognized compensation cost related to non-vested
performance-based restricted Common Share awards granted was $944. That cost is
expected to be recognized over a weighted-average period of 0.54 years. 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.
However, the awards that measure performance against a peer group are expensed
even if the market condition is not met.





Cash
received from option exercises under all share-based payment arrangements for
the years ended December 31, 2008, 2007 and 2006 was $575, $1,409 and $301,
respectively. The actual tax benefit realized for the tax deductions from the
vesting of restricted Common Shares and option exercises of the share-based
payment arrangements totaled $731, $360 and $176 for the years ended December
31, 2008, 2007 and 2006, respectively.





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; however, a portion
of these contributions is based upon a percentage of employee compensation, as
defined in the plans. The Company’s policy is to fund all benefit costs accrued.
For the years ended December 31, 2008, 2007 and 2006, expenses related to these
plans amounted to $2,743, $3,800 and $3,556, respectively.





The
Company has a single defined benefit pension plan that covers certain 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.





55


STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





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:





2008
                          
                          
                          2007Change
      in projected benefit obligation:Projected
      benefit obligation at beginning of year
                          
                          $
                          22,301
                          
                          
                          $
                          22,681Service
      cost
                          
                          
                          128
                          
                          
                          
                          140Interest
      cost
                          
                          
                          1,154
                          
                          
                          
                          1,180Actuarial
      gain
                          
                          
                          (2,730
                          )
                          
                          
                          (1,281
                          )Benefits
      paid
                          
                          
                          (1,118
                          )
                          
                          
                          (820
                          )Settlement
                          
                          
                          (861
                          )
                          
                          
                          -Translation
      adjustments
                          
                          
                          (5,254
                          )
                          
                          
                          401Projected
      benefit obligation at end of year
                          
                          $
                          13,620
                          
                          
                          $
                          22,301Change
      in plan assets:Fair
      value of plan assets at beginning of year
                          
                          $
                          20,946
                          
                          
                          $
                          20,056Actual
      return on plan assets
                          
                          
                          (3,628
                          )
                          
                          
                          1,100Employer
      contributions
                          
                          
                          238
                          
                          
                          
                          260Benefits
      paid
                          
                          
                          (1,118
                          )
                          
                          
                          (820
                          )Settlement
                          
                          
                          (696
                          )
                          
                          
                          -Translation
      adjustments
                          
                          
                          (4,533
                          )
                          
                          
                          350Fair
      value of plan assets at end of year
                          
                          $
                          11,209
                          
                          
                          $
                          20,946Accumulated
      benefit obligation at end of year
                          
                          $
                          13,620
                          
                          
                          $
                          22,301Funded
      status at end of year
                          
                          
                          (2,411
                          )
                          
                          
                          (1,355
                          )Amounts recognized
      in the consolidated balance sheet
      consist
    of:Accrued
      liabilities
                          
                          
                          (2,411
                          )
                          
                          
                          (1,355
                          )





2008
                              
                              
                              2007Weighted average
      assumptions used to determine
      benefit obligation at December 31:Discount
      rate
                              
                              
                              6.70
                              %
                              
                              
                              5.80
                              %Rate
      of increase to pensions in payment
                              
                              
                              3.30
                              %
                              
                              
                              3.30
                              %Rate
      of future price inflation
                              
                              
                              2.90
                              %
                              
                              
                              3.20
                              %Measurement
      date
                              
                              12/31/08
                              
                              
                              12/31/07Weighted average
      assumptions used to determine
      net periodic benefit cost for the years
      ended December
      31:Discount
      rate
                              
                              
                              5.80
                              %
                              
                              
                              5.15
                              %Expected
      long-term return on plan assets
                              
                              
                              6.10
                              %
                              
                              
                              7.00
                              %Rate
      of increase to pensions in payment
                              
                              
                              3.30
                              %
                              
                              
                              3.00
                              %Rate
      of future price inflation
                              
                              
                              2.90
                              %
                              
                              
                              2.90
                              %Measurement
      date
                              
                              12/31/08
                              
                              
                              12/31/07


56


STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





In the
year ended December 31, 2006, the Company adopted the provisions of SFAS No.
158, Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB
Statements No. 87, 88, 106, and 132(R) (“SFAS 158”). Prior to the
adoption of SFAS 158, the Company’s accumulated benefit obligations and
projected benefit obligations were equal, therefore upon adoption, there was no
significant impact on the Company’s consolidated statement of financial position
as of December 31, 2008. In addition, the provisions of SFAS 158 require the
Company to disclose costs recognized in other comprehensive income (loss) for
the period pursuant and the amortization amounts to be recognized in the next
year, which are shown in the following tables:





In the
year ended December 31, 2008, the Company’s only change in plan assets and
benefit obligations recognized in other comprehensive income (loss) was a result
of net actuarial losses incurred in 2008 for $2,034. The Company recognized
$2,016 in net periodic pension cost and other comprehensive income
(loss) for 2008.





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 31,2008
                  
                  
                  2007
                  
                  
                  2006Service
      cost
                  
                  $
                  128
                  
                  
                  $
                  140
                  
                  
                  $
                  92Interest
      cost
                  
                  
                  1,154
                  
                  
                  
                  1,180
                  
                  
                  
                  994Expected
      return on plan assets
                  
                  
                  (1,300
                  )
                  
                  
                  (1,420
                  )
                  
                  
                  (1,086
                  )Amortization
      of actuarial loss
                  
                  
                  -
                  
                  
                  
                  80
                  
                  
                  
                  258Net
      periodic cost (benefit)
                  
                  $
                  (18
                  )
                  
                  $
                  (20
                  )
                  
                  $
                  258








The
Company’s defined benefit pension plan fair value weighted-average asset
allocations at December 31, 2008 and 2007 by asset category are as
follows:





2008
                  
                  
                  2007Asset Category:Equity
      securities
                  
                  
                  69
                  %
                  
                  
                  74
                  %Debt
      securities
                  
                  
                  30
                  
                  
                  
                  25Other
                  
                  
                  1
                  
                  
                  
                  1Total
                  
                  
                  100
                  %
                  
                  
                  100
                  %





The
Company’s target asset allocation, with a permitted range of ± 7.50%, as of
December 31, 2008, by asset category, is as follows:





Asset Category:Equity
      securities
                    
                    
                    75
                    %Debt
      securities
                    
                    
                    25
                    %


57


STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





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.





The
Company expects to contribute $190 to its defined benefit pension plan in 2009.
The following pension payments are expected to be paid:





2009
                      
                      $
                      7312010
                      
                      
                      7602011
                      
                      
                      7892012
                      
                      
                      8182013
                      
                      
                      8482014
      to 2018
                      
                      
                      4,749




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, 2008 and 2007, per quoted market sources, was $124.4 million and
$199.2 million, respectively. The carrying value at December 31, 2008 and 2007
was $183.0 million and $200.0 million, respectively.





Derivative Instruments and
Hedging Activities





We make use of derivative
instruments in foreign exchange and commodity price hedging programs.
Derivatives currently in use are foreign currency forward contracts and
commodity swaps. These contracts are used strictly for hedging and not for
speculative purposes. Management believes that its use of these instruments to
reduce risk is in the Company’s best interest.





The Company conducts business
internationally and therefore is exposed to foreign currency exchange risk. The
Company uses derivative financial instruments, including foreign currency
forward contracts 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 principal currencies hedged by the Company include the
British pound and Mexican peso. In certain instances, the foreign currency
forward contracts are marked to market, with gains and losses recognized in the
Company’s 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. In addition, the Company’s contracts intended to reduce exposure
to the Mexican peso were executed to hedge forecasted transactions, and
therefore the contracts are accounted for as cash flow hedges. 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.




The
Company’s foreign currency forward contracts have a notional value of $8,762 and
$8,551 at December 31, 2008 and 2007, respectively. The purpose of these
investments is to reduce exposure related to the Company’s British
pound-denominated receivables. For the year ended December 31, 2008, the Company
recognized a $2,219 gain related to these contracts in the consolidated
statement of operations as a component of other expense (income), net. The
British pound foreign currency hedge expires on January 2, 2009. At December 31,
2008 and 2007, the Company also used forward currency contracts to reduce the
exposure related to the Company’s Mexican peso-denominated receivables. In 2008,
the Company entered into foreign currency option contracts to reduce the risk of
exposures to the Mexican peso. The Company’s foreign currency option contracts
expire monthly throughout 2009.


58


STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





To
mitigate the risk of future price volatility and, consequently, fluctuations in
gross margins, the Company has entered into fixed price commodity swaps with a
bank to fix the cost of copper purchases. In December 2007, we entered into a
fixed price swap contract for 1.0 million pounds of copper, which expired on
December 31, 2008. In September 2008, we entered into a fixed price swap
contract for 1.4 million pounds of copper, which will last from January 2009 to
December 2009. Because these contracts were executed to hedge forecasted
transactions, the contracts are accounted for as cash flow hedges. The
unrealized gain or loss for the effective portion of the hedge is deferred and
reported in the Company’s consolidated balance sheets as a component of
accumulated other comprehensive income (loss). The Company deems these cash flow
hedges to be highly effective. The effectiveness of the transactions has been
and will be measured on an ongoing basis using regression analysis. For the year
ended December 31, 2008, the Company recognized a net $180 gain related to these
contracts in the consolidated statement of operations as a component of cost of
goods sold.





The
following table presents the Company’s financial instruments that are carried at
fair value:


December 31, 2008
                    
                    
                    December 31,Fair Value Estimated Using
                    
                    
                    2007Fair Value
                    
                    
                    Level 1 inputs(1)
                    
                    
                    Level 2 inputs(2)
                    
                    
                    Fair ValueFinancial assets
      carried at
      fair valueAvailable
      for sale security
                    
                    $
                    252
                    
                    
                    $
                    252
                    
                    
                    $
                    -
                    
                    
                    $
                    269Forward
      currency contracts
                    
                    
                    2,101
                    
                    
                    
                    -
                    
                    
                    
                    2,101
                    
                    
                    
                    (28
                    )Total
      financial assets carried at fair value
                    
                    $
                    2,353
                    
                    
                    $
                    252
                    
                    
                    $
                    2,101
                    
                    
                    $
                    241Financial
      liabilities carried at fair valueForward
      currency contracts
                    
                    $
                    2,930
                    
                    
                    $
                    -
                    
                    
                    $
                    2,930
                    
                    
                    $
                    -Commodity
      hedge contracts
                    
                    
                    2,104
                    
                    
                    
                    -
                    
                    
                    
                    2,104
                    
                    
                    
                    (57
                    )Total
      financial liabilities carried at fair value
                    
                    $
                    5,034
                    
                    
                    $
                    -
                    
                    
                    $
                    5,034
                    
                    
                    $
                    (57
                    )





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





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


59


STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





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.





11.
Related Party Transactions





Hunters Square. See Note 6 to
the Company’s consolidated financial statements for information on the Company’s
related party transactions involving operating leases.





Industrial Development Associates LP
(“IDA”). The Company owned a 30% interest in IDA, a Maryland limited
partnership. In addition, Earl L. Linehan, a member of Stoneridge’s Board of
Directors owns an interest in IDA and the Estate of D.M. Draime (D.M. Draime was
Chairman of the Board of Directors until his death in July 2006) owned an
interest in IDA. IDA is a real estate development company of certain commercial
properties in Mebane, North Carolina. Stoneridge previously leased a facility
from IDA.





On
December 29, 2006, the Company entered into a Partnership Interest Purchase
Agreement (the “Purchase Agreement”) with Heritage Real Estate Fund V, LLC, a
Maryland limited liability company (“Heritage”). Pursuant to the Purchase
Agreement, on December 29, 2006, Stoneridge sold its 30% general partnership
interest in IDA to Heritage for $1,035 in cash and recognized a gain of $1,627
that is included in the consolidated statement of operations as a component of
other expense (income), net. The transaction price was determined by the average
of two independent appraisals.





Mr.
Linehan is a member of Heritage owning a 14.2% membership interest in Heritage.
The managing member of Heritage is Heritage Properties, Inc. Mr. Linehan is
member of the Board of Directors of Heritage Properties, Inc. Mr. Linehan
also owns approximately 26.35% of MI Holding Company, a Maryland corporation,
which is a 5.0% general partner of IDA. On December 29, 2006, the estate of D.M.
Draime also entered into a Partnership Interest Purchase Agreement with Heritage
to sell the estate’s 10% limited partnership interest to Heritage for $345. The
son of D.M. Draime, Jeffrey P. Draime, is a member of Stoneridge’s Board of
Directors.





12.
Restructuring





In
January 2005, the Company announced restructuring initiatives related to the
rationalization of certain manufacturing facilities in Europe and North America.
These restructuring initiatives were completed in 2007.





On
October 29, 2007, the Company announced restructuring initiatives to improve
manufacturing efficiency and cost position by ceasing manufacturing operations
at its Sarasota, Florida and Mitcheldean, United Kingdom locations. In the third
quarter of 2008, the Company announced restructuring initiatives in our Canton,
Massachusetts, location. In the fourth quarter of 2008, the Company announced
restructuring initiatives in our Orebro, Sweden and Tallinn, Estonia locations
as well as additional initiatives in our Canton, Massachusetts location. These
activities are part of the Company’s cost reduction initiatives. In connection
with these initiatives, the Company recorded restructuring charges of $15,382
and $1,027 in the Company’s consolidated statement of operations for the years
ended December 31, 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.


60


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 Electronics
reportable segment include the following:





Severance
                                Costs
                              
                              
                              Contract
                                Termination
                                Costs
                              
                              
                              Other
                                Associated
                                Costs
                              
                              
                              TotalTotal
      expected restructuring charges
                              
                              $
                              3,298
                              
                              
                              $
                              1,305
                              
                              
                              $
                              2,504
                              
                              
                              $
                              7,1072007
      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
                              
                              
                              $
                              2,016Remaining
      expected restructuring charge
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              -





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





Severance
                                  Costs
                                
                                
                                Other
                                  Associated
                                  Costs
                                
                                
                                TotalTotal
      expected restructuring charges
                                
                                $
                                2,878
                                
                                
                                $
                                6,897
                                
                                
                                $
                                9,7752007
      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
                                
                                
                                $
                                1,868Remaining
      expected restructuring charge
                                
                                $
                                -
                                
                                
                                $
                                473
                                
                                
                                $
                                473





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 associated
costs include premium direct labor, inventory and equipment move costs,
relocation expense, increased inventory carrying cost and miscellaneous
expenditures associated with exiting business activities. No fixed-asset
impairment charges were incurred because assets were transferred to other
locations for continued production.





13.
Segment Reporting





SFAS No.
131, Disclosures about
Segments of an Enterprise and Related Information, establishes standards
for reporting information about operating segments in financial statements.
Operating segments are defined as components of an enterprise that are evaluated
regularly by the Company’s chief operating decision maker in deciding how to
allocate resources and in assessing performance. The Company’s chief operating
decision maker is the 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.


61


STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





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.





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





For
      the Years EndedDecember 31,Net
      Sales
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006Electronics
                  
                  $
                  520,936
                  
                  
                  $
                  441,717
                  
                  
                  $
                  442,427Intersegment
      sales
                  
                  
                  12,392
                  
                  
                  
                  16,955
                  
                  
                  
                  14,505Electronics
      net sales
                  
                  
                  533,328
                  
                  
                  
                  458,672
                  
                  
                  
                  456,932Control
      Devices
                  
                  
                  231,762
                  
                  
                  
                  285,403
                  
                  
                  
                  266,272Intersegment
      sales
                  
                  
                  4,276
                  
                  
                  
                  4,576
                  
                  
                  
                  5,671Control
      Devices net sales
                  
                  
                  236,038
                  
                  
                  
                  289,979
                  
                  
                  
                  271,943Eliminations
                  
                  
                  (16,668
                  )
                  
                  
                  (21,531
                  )
                  
                  
                  (20,176
                  )Total
      consolidated net sales
                  
                  $
                  752,698
                  
                  
                  $
                  727,120
                  
                  
                  $
                  708,699Income
      (Loss) Before Income TaxesElectronics
                  
                  $
                  38,713
                  
                  
                  $
                  20,692
                  
                  
                  $
                  20,882Control
      Devices
                  
                  
                  (78,858
                  )
                  
                  
                  15,825
                  
                  
                  
                  13,987Other
      corporate activities
                  
                  
                  10,078
                  
                  
                  
                  8,676
                  
                  
                  
                  6,392Corporate
      interest expense
                  
                  
                  (20,708
                  )
                  
                  
                  (21,969
                  )
                  
                  
                  (21,622
                  )Total
      consolidated income (loss) before income taxes
                  
                  $
                  (50,775
                  )
                  
                  $
                  23,224
                  
                  
                  $
                  19,639Depreciation
      and AmortizatonElectronics
                  
                  $
                  12,189
                  
                  
                  $
                  13,392
                  
                  
                  $
                  10,564Control
      Devices
                  
                  
                  14,130
                  
                  
                  
                  14,823
                  
                  
                  
                  15,191Corporate
      activities
                  
                  
                  80
                  
                  
                  
                  288
                  
                  
                  
                  425Total
      consolidated depreciation and amortization (A)
                  
                  $
                  26,399
                  
                  
                  $
                  28,503
                  
                  
                  $
                  26,180Interest
      Expense (Income), netElectronics
                  
                  $
                  (117
                  )
                  
                  $
                  (203
                  )
                  
                  $
                  130Control
      Devices
                  
                  
                  (16
                  )
                  
                  
                  (7
                  )
                  
                  
                  (8
                  )Corporate
      activities
                  
                  
                  20,708
                  
                  
                  
                  21,969
                  
                  
                  
                  21,622Total
      consolidated interest expense, net
                  
                  $
                  20,575
                  
                  
                  $
                  21,759
                  
                  
                  $
                  21,744Capital
      ExpendituresElectronics
                  
                  $
                  11,374
                  
                  
                  $
                  8,777
                  
                  
                  $
                  13,522Control
      Devices
                  
                  
                  13,306
                  
                  
                  
                  8,699
                  
                  
                  
                  12,191Corporate
      activities
                  
                  
                  (107
                  )
                  
                  
                  665
                  
                  
                  
                  182Total
      consolidated capital expenditures
                  
                  $
                  24,573
                  
                  
                  $
                  18,141
                  
                  
                  $
                  25,895


62


STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





December 31,Total
      Assets
                          
                          2008
                          
                          
                          2007
                          
                          
                          2006Electronics
                          
                          $
                          183,574
                          
                          
                          $
                          214,119
                          
                          
                          $
                          213,715Control
      Devices
                          
                          
                          98,608
                          
                          
                          
                          180,785
                          
                          
                          
                          187,004Corporate
      (B)
                          
                          
                          239,425
                          
                          
                          
                          282,695
                          
                          
                          
                          266,117Eliminations
                          
                          
                          (139,170
                          )
                          
                          
                          (149,830
                          )
                          
                          
                          (165,029
                          )Total
      consolidated assets
                          
                          $
                          382,437
                          
                          
                          $
                          527,769
                          
                          
                          $
                          501,807





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


(B)
            Assets
      located at Corporate consist primarily of cash, fixed assets, deferred
      taxes and equity investments.





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
                        
                        2008
                        
                        
                        2007
                        
                        
                        2006North
      America
                        
                        $
                        557,990
                        
                        
                        $
                        522,730
                        
                        
                        $
                        541,479Europe
      and other
                        
                        
                        194,708
                        
                        
                        
                        204,390
                        
                        
                        
                        167,220Total
      consolidated net sales
                        
                        $
                        752,698
                        
                        
                        $
                        727,120
                        
                        
                        $
                        708,699





December 31,Non-Current
      Assets
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006North
      America
                    
                    $
                    110,507
                    
                    
                    $
                    204,556
                    
                    
                    $
                    215,429Europe
      and other
                    
                    
                    17,339
                    
                    
                    
                    21,854
                    
                    
                    
                    32,346Total
      non-current assets
                    
                    $
                    127,846
                    
                    
                    $
                    226,410
                    
                    
                    $
                    247,775





14.
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 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, 2008 and December 31, 2007 and for each of the three
years ended December 31, 2008, 2007 and 2006.





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.


63


STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





December 31, 2008Parent
                    
                    
                    Guarantor
                      Subsidiaries
                    
                    
                    Non-
                      Guarantor
                      Subsidiaries
                    
                    
                    Eliminations
                    
                    
                    ConsolidatedASSETSCurrent
      Assets:Cash
      and cash equivalents
                    
                    $
                    55,237
                    
                    
                    $
                    27
                    
                    
                    $
                    37,428
                    
                    
                    $
                    -
                    
                    
                    $
                    92,692Accounts
      receivable, net
                    
                    
                    51,274
                    
                    
                    
                    15,888
                    
                    
                    
                    29,373
                    
                    
                    
                    -
                    
                    
                    
                    96,535Inventories,
      net
                    
                    
                    28,487
                    
                    
                    
                    10,927
                    
                    
                    
                    15,386
                    
                    
                    
                    -
                    
                    
                    
                    54,800Prepaid
      expenses and other
                    
                    
                    (304,638
                    )
                    
                    
                    301,387
                    
                    
                    
                    12,320
                    
                    
                    
                    -
                    
                    
                    
                    9,069Deferred
      income taxes, net of valuation allowance
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,495
                    
                    
                    
                    -
                    
                    
                    
                    1,495Total
      current assets
                    
                    
                    (169,640
                    )
                    
                    
                    328,229
                    
                    
                    
                    96,002
                    
                    
                    
                    -
                    
                    
                    
                    254,591Long-Term
      Assets:Property,
      plant and equipment, net
                    
                    
                    50,458
                    
                    
                    
                    24,445
                    
                    
                    
                    12,798
                    
                    
                    
                    -
                    
                    
                    
                    87,701Other
      Assets:Investments
      and other, net
                    
                    
                    38,984
                    
                    
                    
                    319
                    
                    
                    
                    842
                    
                    
                    
                    -
                    
                    
                    
                    40,145Investment
      in subsidiaries
                    
                    
                    407,199
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (407,199
                    )
                    
                    
                    -Total
      long-term assets
                    
                    
                    496,641
                    
                    
                    
                    24,764
                    
                    
                    
                    13,640
                    
                    
                    
                    (407,199
                    )
                    
                    
                    127,846Total
      Assets
                    
                    $
                    327,001
                    
                    
                    $
                    352,993
                    
                    
                    $
                    109,642
                    
                    
                    $
                    (407,199
                    )
                    
                    $
                    382,437LIABILITIES AND SHAREHOLDERS’
      EQUITYCurrent
      Liabilities:Accounts
      payable
                    
                    $
                    23,778
                    
                    
                    $
                    13,652
                    
                    
                    $
                    13,289
                    
                    
                    $
                    -
                    
                    
                    $
                    50,719Accrued
      expenses and other
                    
                    
                    21,429
                    
                    
                    
                    5,065
                    
                    
                    
                    16,991
                    
                    
                    
                    -
                    
                    
                    
                    43,485Total
      current liabilities
                    
                    
                    45,207
                    
                    
                    
                    18,717
                    
                    
                    
                    30,280
                    
                    
                    
                    -
                    
                    
                    
                    94,204Long-Term
      Liabilities:Long-term
      debt
                    
                    
                    183,000
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    183,000Deferred
      income taxes
                    
                    
                    3,873
                    
                    
                    
                    41
                    
                    
                    
                    3,088
                    
                    
                    
                    -
                    
                    
                    
                    7,002Other
      liabilities
                    
                    
                    3,163
                    
                    
                    
                    360
                    
                    
                    
                    2,950
                    
                    
                    
                    -
                    
                    
                    
                    6,473Total
      long-term liabilities
                    
                    
                    190,036
                    
                    
                    
                    401
                    
                    
                    
                    6,038
                    
                    
                    
                    -
                    
                    
                    
                    196,475Shareholders'
      Equity
                    
                    
                    91,758
                    
                    
                    
                    333,875
                    
                    
                    
                    73,324
                    
                    
                    
                    (407,199
                    )
                    
                    
                    91,758Total
      Liabilities and Shareholders’ Equity
                    
                    $
                    327,001
                    
                    
                    $
                    352,993
                    
                    
                    $
                    109,642
                    
                    
                    $
                    (407,199
                    )
                    
                    $
                    382,437




64


STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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










December 31, 2007Parent
                    
                    
                    Guarantor
                      Subsidiaries
                    
                    
                    Non-
                      Guarantor
                      Subsidiaries
                    
                    
                    Eliminations
                    
                    
                    ConsolidatedASSETSCurrent
      Assets:Cash
      and cash equivalents
                    
                    $
                    48,705
                    
                    
                    $
                    255
                    
                    
                    $
                    46,964
                    
                    
                    $
                    -
                    
                    
                    $
                    95,924Accounts
      receivable, net
                    
                    
                    53,456
                    
                    
                    
                    26,798
                    
                    
                    
                    42,034
                    
                    
                    
                    -
                    
                    
                    
                    122,288Inventories,
      net
                    
                    
                    25,472
                    
                    
                    
                    12,637
                    
                    
                    
                    19,283
                    
                    
                    
                    -
                    
                    
                    
                    57,392Prepaid
      expenses and other
                    
                    
                    (293,632
                    )
                    
                    
                    294,298
                    
                    
                    
                    15,260
                    
                    
                    
                    -
                    
                    
                    
                    15,926Deferred
      income taxes, net of valuation allowance
                    
                    
                    3,152
                    
                    
                    
                    4,591
                    
                    
                    
                    2,086
                    
                    
                    
                    -
                    
                    
                    
                    9,829Total
      current assets
                    
                    
                    (162,847
                    )
                    
                    
                    338,579
                    
                    
                    
                    125,627
                    
                    
                    
                    -
                    
                    
                    
                    301,359Long-Term
      Assets:Property,
      plant and equipment, net
                    
                    
                    48,294
                    
                    
                    
                    25,632
                    
                    
                    
                    18,826
                    
                    
                    
                    -
                    
                    
                    
                    92,752Other
      Assets:Goodwill
                    
                    
                    44,585
                    
                    
                    
                    20,591
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    65,176Investments
      and other, net
                    
                    
                    38,783
                    
                    
                    
                    331
                    
                    
                    
                    340
                    
                    
                    
                    -
                    
                    
                    
                    39,454Deferred
      income taxes, net of valuation allowance
                    
                    
                    33,169
                    
                    
                    
                    (2,843
                    )
                    
                    
                    (1,298
                    )
                    
                    
                    -
                    
                    
                    
                    29,028Investment
      in subsidiaries
                    
                    
                    438,271
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (438,271
                    )
                    
                    
                    -Total
      long-term assets
                    
                    
                    603,102
                    
                    
                    
                    43,711
                    
                    
                    
                    17,868
                    
                    
                    
                    (438,271
                    )
                    
                    
                    226,410Total
      Assets
                    
                    $
                    440,255
                    
                    
                    $
                    382,290
                    
                    
                    $
                    143,495
                    
                    
                    $
                    (438,271
                    )
                    
                    $
                    527,769LIABILITIES AND SHAREHOLDERS’
      EQUITYCurrent
      Liabilities:Accounts
      payable
                    
                    $
                    20,924
                    
                    
                    $
                    19,533
                    
                    
                    $
                    28,916
                    
                    
                    $
                    -
                    
                    
                    $
                    69,373Accrued
      expenses and other
                    
                    
                    12,546
                    
                    
                    
                    9,198
                    
                    
                    
                    25,454
                    
                    
                    
                    -
                    
                    
                    
                    47,198Total
      current liabilities
                    
                    
                    33,470
                    
                    
                    
                    28,731
                    
                    
                    
                    54,370
                    
                    
                    
                    -
                    
                    
                    
                    116,571Long-Term
      Liabilities:Long-term
      debt
                    
                    
                    200,000
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    200,000Deferred
      income taxes
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    2,665
                    
                    
                    
                    -
                    
                    
                    
                    2,665Other
      liabilities
                    
                    
                    596
                    
                    
                    
                    393
                    
                    
                    
                    1,355
                    
                    
                    
                    -
                    
                    
                    
                    2,344Total
      long-term liabilities
                    
                    
                    200,596
                    
                    
                    
                    393
                    
                    
                    
                    4,020
                    
                    
                    
                    -
                    
                    
                    
                    205,009Shareholders'
      Equity
                    
                    
                    206,189
                    
                    
                    
                    353,166
                    
                    
                    
                    85,105
                    
                    
                    
                    (438,271
                    )
                    
                    
                    206,189Total
      Liabilities and Shareholders’ Equity
                    
                    $
                    440,255
                    
                    
                    $
                    382,290
                    
                    
                    $
                    143,495
                    
                    
                    $
                    (438,271
                    )
                    
                    $
                    527,769




65




Supplemental condensed
consolidating financial statements
(continued):


STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





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
                
                
                54,012
                
                
                
                31,636
                
                
                
                53,779
                
                
                
                (2,864
                )
                
                
                136,563(Gain)
      Loss on sale of property, plant and equipment, net
                
                
                (6
                )
                
                
                21
                
                
                
                (586
                )
                
                
                -
                
                
                
                (571
                )Goodwill
      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
                )





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
                
                
                55,050
                
                
                
                31,543
                
                
                
                49,801
                
                
                
                (2,686
                )
                
                
                133,708Gain
      on sale of property, plant and equipment, net
                
                
                (392
                )
                
                
                (1,318
                )
                
                
                -
                
                
                
                -
                
                
                
                (1,710
                )Restructuring
      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
                )
                
                $
                16,671





66




Supplemental
condensed consolidating financial statements
(continued):


STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





For the Year Ended December 31, 2006Parent
                
                
                Guarantor
                  Subsidiaries
                
                
                Non-
                  Guarantor
                  Subsidiaries
                
                
                Eliminations
                
                
                ConsolidatedNet
      Sales
                
                $
                352,050
                
                
                $
                223,332
                
                
                $
                219,870
                
                
                $
                (86,553
                )
                
                $
                708,699Costs
      and Expenses:Cost
      of goods sold
                
                
                304,042
                
                
                
                167,707
                
                
                
                161,870
                
                
                
                (83,826
                )
                
                
                549,793Selling,
      general and administrative
                
                
                51,493
                
                
                
                34,877
                
                
                
                40,895
                
                
                
                (2,727
                )
                
                
                124,538(Gain)
      Loss on sale of property, plant and equipment, net
                
                
                (1,312
                )
                
                
                4
                
                
                
                5
                
                
                
                -
                
                
                
                (1,303
                )Restructuring
      charges
                
                
                368
                
                
                
                224
                
                
                
                16
                
                
                
                -
                
                
                
                608Operating
      Income (Loss)
                
                
                (2,541
                )
                
                
                20,520
                
                
                
                17,084
                
                
                
                -
                
                
                
                35,063Interest
      expense (income), net
                
                
                22,366
                
                
                
                -
                
                
                
                (622
                )
                
                
                -
                
                
                
                21,744Other
      expense (income), net
                
                
                (7,919
                )
                
                
                (291
                )
                
                
                1,890
                
                
                
                -
                
                
                
                (6,320
                )Equity
      earnings from subsidiaries
                
                
                (32,998
                )
                
                
                -
                
                
                
                -
                
                
                
                32,998
                
                
                
                -Income
      Before Income Taxes
                
                
                16,010
                
                
                
                20,811
                
                
                
                15,816
                
                
                
                (32,998
                )
                
                
                19,639Provision
      for income taxes
                
                
                1,497
                
                
                
                15
                
                
                
                3,614
                
                
                
                -
                
                
                
                5,126Net
      Income
                
                $
                14,513
                
                
                $
                20,796
                
                
                $
                12,202
                
                
                $
                (32,998
                )
                
                $
                14,513





67




Supplemental
condensed consolidating financial statements
(continued):


STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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








For the Year Ended December 31, 2008Parent
                    
                    
                    Guarantor
                      Subsidiaries
                    
                    
                    Non-
                      Guarantor
                      Subsidiaries
                    
                    
                    Eliminations
                    
                    
                    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 and other
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (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, net
                    
                    
                    1,322
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,322Other
      financing costs
                    
                    
                    (553
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (553
                    )Net
      cash used for financing activities
                    
                    
                    (16,231
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (16,231
                    )Effect
      of exchange rate changes on cash and 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 beginning of period
                    
                    
                    48,705
                    
                    
                    
                    255
                    
                    
                    
                    46,964
                    
                    
                    
                    -
                    
                    
                    
                    95,924Cash
      and cash equivalents at end of period
                    
                    $
                    55,237
                    
                    
                    $
                    27
                    
                    
                    $
                    37,428
                    
                    
                    $
                    -
                    
                    
                    $
                    92,692








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 (used for) provided by investing activities
                      
                      
                      (1,371
                      )
                      
                      
                      748
                      
                      
                      
                      (5,203
                      )
                      
                      
                      -
                      
                      
                      
                      (5,826
                      )FINANCING ACTIVITIES:Repayments
      of long-term debt
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (300
                      )
                      
                      
                      300
                      
                      
                      
                      -Share-based
      compensation activity, net
                      
                      
                      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 cash and cash equivalents
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,443
                      
                      
                      
                      -
                      
                      
                      
                      1,443Net
      change in cash and cash equivalents
                      
                      
                      19,768
                      
                      
                      
                      243
                      
                      
                      
                      10,031
                      
                      
                      
                      -
                      
                      
                      
                      30,042Cash
      and cash equivalents at beginning of period
                      
                      
                      28,937
                      
                      
                      
                      12
                      
                      
                      
                      36,933
                      
                      
                      
                      -
                      
                      
                      
                      65,882Cash
      and cash equivalents at end of period
                      
                      $
                      48,705
                      
                      
                      $
                      255
                      
                      
                      $
                      46,964
                      
                      
                      $
                      -
                      
                      
                      $
                      95,924





68




Supplemental
condensed consolidating financial statements
(continued):


STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





For the Year Ended December 31, 2006Parent
                    
                    
                    Guarantor
                      Subsidiaries
                    
                    
                    Non-
                      Guarantor
                      Subsidiaries
                    
                    
                    Eliminations
                    
                    
                    ConsolidatedNet
      cash provided by operating activities
                    
                    $
                    10,415
                    
                    
                    $
                    5,603
                    
                    
                    $
                    42,241
                    
                    
                    $
                    (11,719
                    )
                    
                    $
                    46,540INVESTING ACTIVITIES:Capital
      expenditures
                    
                    
                    (12,412
                    )
                    
                    
                    (5,619
                    )
                    
                    
                    (7,864
                    )
                    
                    
                    -
                    
                    
                    
                    (25,895
                    )Proceeds
      from sale of fixed assets
                    
                    
                    2,266
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    2,266Proceeds
      from sale of partnership interest
                    
                    
                    1,153
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,153Business
      acquisitions and other
                    
                    
                    (1,476
                    )
                    
                    
                    245
                    
                    
                    
                    (6
                    )
                    
                    
                    (896
                    )
                    
                    
                    (2,133
                    )Net
      cash used for investing activities
                    
                    
                    (10,469
                    )
                    
                    
                    (5,374
                    )
                    
                    
                    (7,870
                    )
                    
                    
                    (896
                    )
                    
                    
                    (24,609
                    )FINANCING ACTIVITIES:Borrowings
      (repayments) of long-term debt
                    
                    
                    2,426
                    
                    
                    
                    -
                    
                    
                    
                    (14,189
                    )
                    
                    
                    11,719
                    
                    
                    
                    (44
                    )Share-based
      compensation activity, net
                    
                    
                    1,337
                    
                    
                    
                    -
                    
                    
                    
                    (1,036
                    )
                    
                    
                    -
                    
                    
                    
                    301Shareholder
      distributions
                    
                    
                    10,854
                    
                    
                    
                    -
                    
                    
                    
                    (10,854
                    )
                    
                    
                    -
                    
                    
                    
                    -Other
      financing costs
                    
                    
                    6,620
                    
                    
                    
                    (264
                    )
                    
                    
                    (7,402
                    )
                    
                    
                    896
                    
                    
                    
                    (150
                    )Net
      cash provided by (used for) financing activities
                    
                    
                    21,237
                    
                    
                    
                    (264
                    )
                    
                    
                    (33,481
                    )
                    
                    
                    12,615
                    
                    
                    
                    107Effect
      of exchange rate changes on cash  and cash
      equivalents
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    3,060
                    
                    
                    
                    -
                    
                    
                    
                    3,060Net
      change in cash and cash equivalents
                    
                    
                    21,183
                    
                    
                    
                    (35
                    )
                    
                    
                    3,950
                    
                    
                    
                    -
                    
                    
                    
                    25,098Cash
      and cash equivalents at beginning of period
                    
                    
                    7,754
                    
                    
                    
                    47
                    
                    
                    
                    32,983
                    
                    
                    
                    -
                    
                    
                    
                    40,784Cash
      and cash equivalents at end of period
                    
                    $
                    28,937
                    
                    
                    $
                    12
                    
                    
                    $
                    36,933
                    
                    
                    $
                    -
                    
                    
                    $
                    65,882


69


STONERIDGE,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


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





15.
Unaudited Quarterly Financial Data





The
following is a summary of quarterly results of operations for 2008 and
2007:





Quarter EndedDec. 31
                
                
                Sept. 30
                
                
                Jun. 30
                
                
                Mar. 31(in
      millions, except per share data)2008Net
      sales
                
                $
                158.0
                
                
                $
                178.4
                
                
                $
                213.2
                
                
                $
                203.1Gross
      profit
                
                
                29.8
                
                
                
                35.3
                
                
                
                49.4
                
                
                
                51.8Goodwill
      impairment charge
                
                
                (65.2
                )
                
                
                -
                
                
                
                -
                
                
                
                -Operating
      income (loss)
                
                
                (69.1
                )
                
                
                0.9
                
                
                
                10.8
                
                
                
                14.1Provision
      for income taxes
                
                
                36.7
                
                
                
                0.9
                
                
                
                4.1
                
                
                
                5.1Net
      income (loss)
                
                
                (108.4
                )
                
                
                (0.4
                )
                
                
                4.7
                
                
                
                6.5Earnings
      per share:Basic
      (A)
                
                
                (4.63
                )
                
                
                (0.02
                )
                
                
                0.20
                
                
                
                0.28Diluted
      (A)
                
                
                (4.63
                )
                
                
                (0.02
                )
                
                
                0.20
                
                
                
                0.28





Quarter EndedDec. 31
                
                
                Sept. 30
                
                
                Jun. 30
                
                
                Mar. 312007Net
      sales
                
                $
                185.5
                
                
                $
                172.8
                
                
                $
                183.8
                
                
                $
                185.0Gross
      profit
                
                
                48.1
                
                
                
                37.9
                
                
                
                38.9
                
                
                
                42.8Goodwill
      impairment charge
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Operating
      income
                
                
                13.0
                
                
                
                5.2
                
                
                
                6.9
                
                
                
                9.7Provision
      for income taxes
                
                
                4.3
                
                
                
                0.4
                
                
                
                0.7
                
                
                
                1.2Net
      income
                
                
                6.5
                
                
                
                2.6
                
                
                
                2.7
                
                
                
                4.9Earnings
      per share:Basic
      (A)
                
                
                0.28
                
                
                
                0.11
                
                
                
                0.12
                
                
                
                0.21Diluted
      (A)
                
                
                0.28
                
                
                
                0.11
                
                
                
                0.11
                
                
                
                0.21





(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.


70


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 ofPeriodAccounts
      receivable reserves:Year
      ended December 31, 2006
                
                $
                4,562
                
                
                $
                1,877
                
                
                $
                (1,196
                )
                
                $
                5,243Year
      ended December 31, 2007
                
                
                5,243
                
                
                
                905
                
                
                
                (1,412
                )
                
                
                4,736Year
      ended December 31, 2008
                
                
                4,736
                
                
                
                151
                
                
                
                (683
                )
                
                
                4,204





Balance at
                  Beginning of
                  Period
                
                
                Net additions
                  charged to
                  income
                
                
                Exchange rate
                  fluctuations
                  and other
                  items
                
                
                Balance at
                  End of
                  PeriodValuation
      allowance for deferred tax assets:Year
      ended December 31, 2006
                
                $
                18,172
                
                
                $
                795
                
                
                $
                (1,587
                )
                
                $
                17,380Year
      ended December 31, 2007
                
                
                17,380
                
                
                
                (1,104
                )
                
                
                (256
                )
                
                
                16,020Year
      ended December 31, 2008
                
                
                16,020
                
                
                
                66,271
                
                
                
                88
                
                
                
                82,379


71


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, 2008, an evaluation was performed under the supervision and with
the participation of the Company’s management, including the chief executive
officer (“CEO”) and chief financial officer (“CFO”), of the effectiveness of the
design and operation of the Company’s disclosure controls and procedures. Based
on that evaluation, the Company’s management, including the CEO and CFO,
concluded that the Company’s disclosure controls and procedures were effective
as of December 31, 2008.





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, 2008 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, 2008. 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, 2008.





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, 2008 has been audited by Ernst & Young LLP, an independent
registered public accounting firm, as stated in their report which appears
herein.


72


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, 2008, 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, 2008,
based onthe 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, 2008 and 2007, and the related
consolidated statements of operations, shareholders’ equity and cash flows for
each of the three years in the period ended December 31, 2008 of Stoneridge,
Inc. and Subsidiaries and our report dated March 11, 2009 expressed an
unqualified opinion thereon.





/s/
      Ernst & Young
LLP





Cleveland,
Ohio


March 11,
2009


73


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 4, 2009. The information required by this Item 10 regarding our executive
officers appears as a Supplementary Item in 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 4, 2009.





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 4,
2009.





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, 2008, 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 Availablefor Future IssuanceUnderEquity
                    CompensationPlans (1)Equity
      compensation plans approved by shareholders
                  
                  
                  197,750
                  
                  
                  $
                  11.26
                  
                  
                  
                  1,208,000Equity
      compensation plans not approved 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 1,224,686 restricted Common Shares
issued and outstanding to key employees pursuant to the Company’s Long-Term
Incentive Plan and 43,200 restricted Common Shares issued and outstanding to
directors under the Directors’ Restricted Shares Plan as of December 31,
2008.


74


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 4,
2009.





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 4, 2009.





PART
IV





Item
15. Exhibits, Financial Statement Schedules.





(a)
      The following documents are filed as part of this Form
    10-K.








Page
      in
                        Form 10-K(1)   Consolidated
      Financial Statements:Report
      of Independent Registered Public Accounting Firm
                      35Consolidated
      Balance Sheets as of December 31, 2008 and 2007
                      36Consolidated
      Statements of Operations for the Years Ended December 31, 2008, 2007 and
      2006
                      37Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and
      2006
                      38Consolidated
      Statements of Shareholders' Equity for the Years Ended December 31, 2008,
      2007 and 2006
                      39Notes
      to Consolidated Financial Statements
                      40(2)   Financial
      Statement Schedule:Schedule
      II – Valuation and
      Qualifying Accounts
                      71(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.


75


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 9, 2009
                    /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 9, 2009
              /s/
      JOHN C. COREYJohn
      C. Corey
                President,
      Chief Executive Officer, and Director
                (Principal
      Executive Officer)Date:
      March 9, 2009
              /s/
      WILLIAM M. LASKYWilliam
      M. Lasky
                Chairman
      of the Board of DirectorsDate:
      March 9, 2009
              /s/
      JEFFREY P. DRAIMEJeffrey
      P. Draime
                DirectorDate:
      March 9, 2009
              /s/
      SHELDON J. EPSTEINSheldon
      J. Epstein
                DirectorDate:
      March 9, 2009
              /s/
      DOUGLAS C. JACOBSDouglas
      C. Jacobs
                DirectorDate:
      March 9, 2009
              /s/
      KIM KORTHKim
      Korth
                DirectorDate:
      March 9, 2009
              /s/
      EARL L. LINEHANEarl
      L. Linehan
                Director


76


INDEX
TO EXHIBITS





Exhibit
                  Number
                
                Exhibit3.1
                
                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
                
                Lease
      Agreement between Stoneridge, Inc. and Hunters Square, Inc., with respect
      to the Company’s division headquarters for Alphabet (incorporated by
      reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for
      the year ended December 31, 1999).10.2
                
                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)).10.11
                
                Directors’
      Share Option Plan (incorporated by reference to Exhibit 4 of the Company’s
      Registration Statement on Form S-8 (No. 333-96953)).10.12
                
                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).10.13
                
                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).10.14
                
                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).10.15
                
                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)).10.16
                
                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).10.17
                
                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).10.18
                
                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).10.19
                
                Employment
      Agreement between the Company and John C. Corey (incorporated by reference
      to Exhibit 10.3 to the Company’s Current Report on Form 10-Q filed on May
      8, 2006).10.20
                
                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).10.21
                
                Outside
      Directors’ Deferred Compensation Plan (incorporated by reference to
      Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on July 26,
      2006).10.22
                
                Employees’
      Deferred Compensation Plan (incorporated by reference to Exhibit 99.2 to
      the Company’s Current Report on Form 8-K filed on July 26,
      2006).10.23
                
                Form
      of 2006 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).


77





Exhibit
                    Number
                  
                  Exhibit10.24
                  
                  Form
      of 2006 Directors’ Restricted Shares Grant Agreement (incorporated by
      reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K
      filed on July 26, 2006).10.25
                  
                  Annual
      Incentive Plan approved by Company’s Board of Directors (incorporated by
      reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K
      filed on November 2, 2006).10.26
                  
                  Partnership
      Interest Purchase Agreement for the Sale of Company’s partnership interest
      in Industrial Development Associates Limited, dated December 29, 2006,
      (incorporated by reference to Exhibit 10.31 to the Company’s Annual Report
      on Form 10-K for the year ended December 31, 2006).10.28
                  
                  Annual
      Incentive Plan approved by Company’s Board of Directors (incorporated by
      reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K
      filed on August 9, 2007).10.29
                  
                  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).10.30
                  
                  Amended
      and Restated Change in Control Agreement (incorporated by reference to
      Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December
      21, 2007).10.31
                  
                  Amendment
      Employment Agreement between Stoneridge, Inc. and John C. Corey, filed
      herewith.10.32
                  
                  Amended
      and Restated Change in Control Agreement, 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.




78