Kenneth A. Kure - Corporate Treasurer and Director of Corporate Finance John C. Corey - President, Chief Executive Officer and Director George E. Strickler - Executive Vice President, Chief Financial Officer and Treasurer

Matt Mishan - KeyBanc Capital Markets Keith Schicker - Robert W Baird Bennett Lin [ph] - Jefferies & Company Brett Hoselton – KeyBanc Capital Markets Gary Moorman [ph] - Alpine Associates

Good day, ladies and gentlemen, and welcome to the Q4 2009 Stoneridge Earnings Conference Call. (Operator Instructions). I would now like to turn call over to Mr. Ken Kure, Corporate Treasurer and Director of Finance. Please proceed, sir.

Good morning, everyone, and thank you for joining us on today's call. By now you should have received our fourth quarter earnings release. The release has been filed with the SEC and has been posted at our website at www.stoneridge.com. Joining me on today's call are John Corey, our President and Chief Executive Officer, and George Strickler, our Chief Financial Officer. Before we begin, I need to inform you that certain statements today may be forward-looking statements. Forward-looking statements include those statements that are not historical in nature and include information concerning our future results or plans. Although we believe such statements are based upon reasonable assumptions, you should understand that these statements are subject to risks and uncertainties and actual results may differ materially. Additional information about such factors and uncertainties that could cause actual results to differ may be found in our 10-K filed with the Securities and Exchange Commission under the heading forward-looking statements. During today's call, we may be referring to certain non-GAAP financial measures. Please see the Investor Relations section of our website for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. John will begin the call with an update on our growth strategies and business development and his thoughts on the market conditions. George will discuss the financial and operational details of the quarter and future outlook. After John and George have finished their formal remarks, we will then open up the call for questions. With that, I'd like to turn the call over to John.

Good morning. After a year as bad as 2009, one can lose perspective on the trend of performance and only see the current blip in performance. However, as we’ve discussed, we have put a plan in place several years ago to transform our company. I would like to review our trends and how we are carrying it forward into the future. Since the market downturn in the third quarter of 2008, we’ve been focused on the critical items to maintain our competitiveness while positioning our company for longer-term profitable growth. The four critical items that our management team has been executing on were, reducing cost and lowering our break even sales level to mitigate the market downturn and to position the company for improved operating income as volume returns, protecting our liquidity and to drive positive cash flow. We focused on cash flow to ensure that we could weather the downturn in the market and provide the funds needed for investment once the market recovers. Third was to provide additional liquidity through our revolving credit lines and investments and acquisitions like the BCS acquisition we completed on October 11th of the last year. And finally to pursue growth opportunities and business wins to drive our top line growth. How have we performed to these targets? As we have reported on previous calls we started restructuring the company in the fourth quarter of 2007 and further expanded those programs to adjust to the industry realities of significantly lower market. George will share with you the details of all our programs, but it is important to note that our company generated an operating income of $4.8 million in the second half of 2009 after recording an operational loss of $23.1 million in the first half of 2009. We generated operating income in…

Thank you, John. As John indicated, 2009 was indeed a year of transition. Though we encountered significant challenges posed by the severely reduced market conditions, our management team saw this as an opportunity to demonstrate their tenacity and resolve to further improve Stoneridge to benefit both the near term and the long term. During 2009, we embarked upon numerous projects that will help Stoneridge to do more than merely survive but to thrive in the near future. All these initiatives undertaken were efforts to increase value and improve our processes. During 2009, many customers and suppliers encountered problems with their own customers and suppliers. Certain customers experienced liquidity problems while others like General Motors and Chrysler went through a bankruptcy process. Through cross functional team efforts, we were on-boarded in GM and Chrysler's government guaranteed program and through our other actions we were able to limit our bad debt write off to less than a $100,000 in 2009. We were also able to limit disruptions from our supply chain by monitoring our vendor base closely and moving tools and equipment if necessary to more financially stable suppliers. In positioning Stoneridge for the future, certain aspects of our revolving credit facilities needed to be amended in order to allow important value added projects to proceed. During October, our team amended our revolving credit agreement to permit us to proceed with three important initiatives. We completed the European restructuring, which provided us the opportunity to repatriate about $38 million in value from Europe with minimal expense as well as repatriate approximately $5 million in cash in December. As mentioned in our previous call, Stoneridge acquired Bolton Conductive Systems in October of last year. With the acquisition we believe this will provide us with the opportunity to expand in new military customers as…

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I just wanted to get the sales guidance again. I heard 590 to 615, is that correct?

That is correct.

Okay. As far as operating income goes, 3Q to 4Q you saw a increase in sales of about $16 million, but you saw a decrease in operating income. Can you basket and elaborate a little bit more on that?

Well, Matt, if you go down through the key components of our cost structure, we clearly, were influenced in our cost side. One is, copper has taken a significant upturn and copper was trading as high as 3.40 in the fourth quarter at times and it persisted there and it’s backed off to -- it was down to 2.90, now it’s back up to 3.10. So that cost us a little bit of money probably in the range of $400,000 to $500,000. In our product development area, as we shared with you earlier, that we had increased cost that we are doing, it is about a $1 million in the D&D side and that was essentially for the two key platforms we have going in Europe. That was a smaller piece of it, but the larger piece was what John shared earlier, was our new launch of the commercial wiring business which we won in the fourth quarter. We literally have opened a facility. We’ve manned it and staffed it with equipment. We started our first production in February with full gear up by April. That cost us close to about $800,000 in the D&D side and overall had a cost of about a $1 million in our overhead side. As part of that, we had taken furloughs in the third quarter both in Europe and in North America. We had to re-staff as the market started coming back. And those furloughs were about $700,000 in North America. They were about $500,000 in Europe. So those are the key highlights, but I think now that we have those in place and with the volume coming back that we can control the cost, but it was critical for those three key launches. Two in Europe and then the one we talked about, John shared with you, on the wiring and the North America that starting up in February and hitting full capacity by April.

I think it's always been part of our plan as we've discussed in past calls, as we took the financial discipline to conserve our cash and store it up, so to speak, that we weren't going to jeopardize opportunities for future growth. And I think as we saw these opportunities come down, you're going to see it. The shift by wire was a relatively new program for our company this year. The wiring business is a relatively new program -- is a new program that we've now been able to launch and we will start to reap the benefits of that in this year. So we've done, I think we've done what are the right things for the business. While we've taken a hit to the fourth quarter profitability because of this D&D investment we will start to see the revenue streams come on 2010 and beyond.

So would it be fair to say that if, I know you're guiding higher, but if sales would remain at the same levels of fourth quarter of $135 million level in the first quarter you'd see higher operating income because of these one timers?

Yes we would. As we have shared before our marginal contribution is roughly around $0.30 per dollar sale. So if the sales begin to ramp up, that is usually the key factor, we track our improvement at the sales level, Matt. We did have to incur to start up of these three and I think we alluded to that in the third quarter call that we would be incurring these expenses. The new business win we had in North America for the wiring, we literally have leased a new facility, opened it up. We've manned it, we staffed it, we put equipment in. That's been ongoing for the last four to five months and accelerated in the fourth quarter, and that leads up to our first production in February and ramping up to more full levels by April.

As you look into 2010, I think there are a couple of headwinds, as far as some of your costs goes. Can you talk a little bit about your exposure to copper and also some of the temporary costs that might actually have to come back in 2010 as well?

Well right now, as we see it, copper is one that’s going back up. But in the past, we’ve hedged on copper and we will monitor that going forward, and when we see opportunities to go in and buy copper or hedge copper we will do so. The other side of it is that, we do have some programs with our customers where we have price adjustment mechanisms, so that will help us offset some of that. I think for the nearer term, the biggest issue we see is probably the supply base disruptions, which I think a lot of the electronics people are experiencing and some of the non-electronics people are experiencing. And we are going to have to manage through that as capacity starts to come back on stream. And so, in the short-term, that’s our biggest concern. That’s a good news, bad news situation, so to speak, because it does mean that the markets are improving, not only in the transportation markets, but in other markets, so that’s what driving some of the capacity requirements. But I think as we said, we are seeing all of the markets improve over 2009. The North American automotive market is a little bit stronger than we expected, the commercial vehicle market in North America is a little bit delayed and a little bit lower than we expected, but we see it happening and growing back in the third to fourth quarter. And I think the European markets, as we plan will be stronger in the second half than in the first half. And Matt, one thing I think is important to note and you’ve noted in some of your own releases, is that we are seeing a dichotomy in the market right now, the pass car and light vehicle continues to get more robust and stronger than originally projected. Whereas on the other side, the commercial tends to be a little weaker, especially in Europe. In fact it’s down. The latest forecast is showing down, it’s rather insignificant compared to where the previous forecast is.

Little bit of an update on the backlog, I believe it was a $120 million over the next three years and a $170 million over the next five years. Over the next three years, what's the cadence of that backlog. I mean 2010, 2011, 2012, is it more weighted upfront or is there some more upside that can come in 2011, 2012?

It’s pretty evenly split, Matt, over the three year period. So it's roughly about the same over the three years.

You also mentioned a lot of programs you are bidding on, you think you could win. Could you put a dollar figure on that, of programs you think that could provide some upside to that backlog?

Well, we won't do it now, but we'll continually update you as the quarters go, but I think it was clear to us that we -- this is an effort that we've really been driving and John is clearly taking it through, and we'll continue to focus on that as top line is now our priority. We will maintain cost but restructuring was a number one priority and liquidity but we quickly shifted into our growth and we'll give you an update as we progress quarter to quarter.

That transition immediate to the restructure, I noticed there was only about $242,000 of restructuring cost in the quarter. Are we, what are you forecasting for 2010 in restructuring, is it pretty much done at this point?

Our restructuring is done, I mean we really pretty much through – most of the restructuring is done through the second half of 2009 with some minor things going on. So last half, I think as George said, we are now shifted away from, it’s really a game of containing the cost structure that we put in place, we believe we can do that, because we've taken out fixed cost structure both in the overheads, with plant closures and the consolidation of business units, and then driving forward on volume growth. So I don't think there will be much more in the way of restructuring because if you look at our manufacturing footprint, we’re down to probably where we want to stay for the foreseeable future and will continue to, as we win new business to expand in low cost regions.

On the Brazilian joint venture, can you give an update on where you're at with that? I know the first step was to try and get a majority stake and then maybe consolidate into your revenue and then possible IPO. Where is that at now?

Well, Brazil, actually their economy went down and so in the middle of the year, we were looking at similar things to what we see in North America. However, they've rebounded much quicker as George indicated in the financial results. They have come back strongly. Our position was initially to try to consolidate them under accounting terminology, and that with the new accounting pronouncements, which George can give you the specifics on; we will not be able to consolidate them. We continue to watch the IPO markets. Right now the IPO markets in Brazil are returning only in the large companies. So we'll continue to watch that, but I think we don't see any plans in the next couple of quarters to do anything there.

Yeah, just to add to that is that we – there’s a new standard out called the FAS 167 and it's got different characteristics than the FIN 46. So under those guidelines, it's a little tougher to get to the level of consolidation, and so that doesn't look to be a real possibility. So the two items that you mentioned are always on our list. Can we buy greater percentage or can we do an IPO, and John stated properly is that the large cap markets returned and the small mid cap is just not robust enough in Brazil at this time.

Okay, last question, then I'll jump out and let some other people have the chance. Agriculture increased quarter-over-quarter pretty significantly. Is that a sustainable increase or is that seasonal and what are you expecting for 2010 in agriculture?

Well, I think that’s a sustainable increase we expected. In other words, we try to see and I think we have to read from our customers, they’re starting to see improvement back in the market. So I don’t -- I don’t believe we’ll see a reduction in the agricultural sector. So it might shift, it’s mixed somewhat.

Your next question comes from Keith Schicker - Robert W Baird.

Hey good morning it’s Keith Schicker. Just a couple of questions left over here. Can you kind of comment, I think you kind of danced around it a little bit, but what is the expectation for the quarterly cadence in terms of revenue during the course of the year? Is this sort of like the North American commercial vehicle market where we’re going to be kind of barbellish with a soft spot in the middle? How would you characterize how the year shapes up for you guys?

Yeah, I think on the commercial vehicle market we would say that in North America and Europe the second half is going to be stronger than the first. Maybe some others see a bigger barbell in commercial vehicle in North America. I don’t think we see that as much as maybe others might. We see a stronger market in the automotive than we have been previously anticipating. So, I think that it's a nice balance for our company. We’re down a little bit maybe in looking in what we thought commercial vehicle in the first half, but we were up in what we saw in automotive and then we expect the balance of the year to strengthen in both sections.

Keith, we see the first quarter, the lowest of the quarters. Third, would follow that little trend, I think we will be looking at an increase in the first quarter in the range of 4% to 6%, and then third quarter would be slightly above that. And then the third – the second quarter and the fourth quarter would be fairly equal because we got some of the launches coming out in the fourth quarter. So I think that will help you sort of put the pieces together in terms of how we're looking at the market for the year.

So essentially this new business that you're launching in 2010 seems to be a little bit weighted towards the back part of the year?

Well, other than the one I've mentioned in our wiring section, that does come up in late first quarter, second quarter.

It just how it ramps up through the year.

The contribution margin, that jumps right up to the normal level this next quarter or is there still additional costs that's going to be coming back?

I think there's still additional cost in the first quarter. So I think we're looking for that trending a little on the lower level and then it really starts to build throughout the rest of the year.

Lastly, can you comment what you're hearing specifically from your customers, key customers? Volvo in Europe and Navistar in North America seem to be doing a little bit better relative to the market here recently. What's the expectation or can you kind of provide any color about that for the upcoming year?

I would hesitate to provide any color on that. I think you've said it there. They're experiencing slight improvements. So we're looking at that as an indicative sign of maybe the overall market coming back and they're ahead of it. But we're certainly not going to provide any more color to what they've said I think. We've seen the market in the past -- I mean when you look at the projections that are going on, you'll see, projections are still moving all around, although maybe -- they are still moving up, but some are moving up above previous forecasts, some are moving down below previous forecasts, although all are up over 2009. So, we are just trying to manage within the range.

Lastly, if you look at your commercial vehicle exposure and your light vehicle exposure, for each segment, can you roughly just describe how that splits between North America and Europe, just ballparkish?

Yeah, well almost all of our light truck is -- I mean light vehicle is in North America, a very little piece in Europe, not significant, although we are going to grow that. And then on the commercial vehicle it’s -- I think it’s -- what is it about…

It’s two-thirds, one.

Two-thirds Europe or two-thirds North America?

North America.

Two-thirds North America, one-third Europe.

Your next question comes from Bennett Lim [ph] - Jefferies & Company. Bennett Lim - Jefferies & Company: Just wanted to find out what your D&A expense was in the fourth quarter, depreciation and amortization?

Yeah, I think we said it was $4.7 million. Let me double-check that, it was $4.7 million. Bennett Lim - Jefferies & Company: For 2010, would you say that the CapEx would be around $25 million ballpark?

Yeah, I think it’s going to run in that range. Bennett Lim - Jefferies & Company: The other thing you’ve mentioned, the availability under the revolver, was that $51 million?

Yeah, that was availability under the revolver, yes. Bennett Lim - Jefferies & Company: Were there any letters of credit drawn on that facility?

Yes, that includes the letter of credit which they run, they run about $2.5 million.

Your next question comes from Brett Hoselton – KeyBanc Capital Markets.

I just want to follow up quickly on the copper cost pass-through, just to ask you. How should we think about, I guess let me ask some specific questions here I guess. What percentage of your contracts have some form of pass-through mechanism?

I'd say about half that have that.

As we think about this 400,000 to 500,000 increase in the third and fourth quarter, is there any sort of a delay in that mechanism that may cause that to be, let’s say overstated as you went from the third to fourth quarter or is it generally pretty consistent with the price increase or decrease of copper?

No, there is a delay to that pricing mechanism that runs anywhere from 90 to 120 days, Brett.

Switching to the kind of the outlook. It sounds like you feel pretty good about the outlook for the Ag-business, maybe a little less so for North American commercial vehicle but feel pretty good about the back half of the year. But European commercial vehicles, what are customers telling you at this point in time in terms of their expectations into the first half of the year and into the second half of the year. Are they kind of mixed, are they felling like it’s bottomed, or are they feeling a little bit more confident, we are going to see some improvement. Where are your customers at?

Well I think, again you'd get a mixed story because some of them are asking us how much, how fast we ramp up production, and you look at that and say okay, this is what we think and others are not even asking that question, you are still seeing some shutdowns. But I think in general, when you look at your – I mean it's starting to rebound and starting to recover, customers are becoming a little more positive, so I'm very positive on it. So I think they’re starting to see some improvements in their market space. But I always hesitate to listen to that because if you recall in 2008, up until the third quarter, that market was going great guns and everybody was saying their order books are full for the rest of the year. And all of a sudden in the fourth quarter, they dropped like a rock. So we try to look at the trend and projection of what we see and balance our plans according to that. So I would say we are not seeing an aggressive growth pattern there but we’re not seeing a decline. We’re seeing a, I guess a moderate recovery, which is stronger in the second half than it will be in the first half. That’s really what we’re seeing from our customers.

And at the same time, Brett, a couple of customers are putting their platform launches back in the schedules they had before. So we keep watching the forecast coming out from at least the market research side and some of those don't seem to be in sync with what we’re reacting to our customers with.

Your next question comes from Matt Mishan - KeyBanc Capital Markets.

I think KeyBanc is monopolizing all the questions here. Just a real quick one as far as cash. You had guided previously – you saw as production ramp, working capital would ramp a little bit and you see a modest decrease in cash, and instead I think in the fourth quarter we got an increase about $7 million or $8 million. What are your cash flow assumptions for 2010?

Well, I think still, Matt, we can manage to incremental about $0.12 per dollar of sale. So we will have to fund that level and primarily what we’re seeing already as we are making great strides in lean, that we’re able to balance our inventories and maintain or reduce them. But we will increase our receivables and our receivable days run in the range of 54 to 58 for the customers. So we will see a build in that level and then inventories may pick up some. We were able to manage our payables very well in the fourth quarter as our demand started to pick up in September and October. So we’ll see the payables increased around $8 million to $9 million through the course of the whole fourth quarter from September to December. I think we can hold that level for the rest of the year and then our challenge will be to continue to manage our receivable portfolio and work on inventory as we continue to take lean across a broader range of our operations.

Any guidance you could pass, I know it’s extraordinarily volatile here, but any guidance you can give on the 2010 tax rate?

Well, I think that one is going to be a difficult one because it’s got to do with the mix and where the sale are coming from and I think what I tried to share with you is, we'll end up accruing a sort of a federal tax rate out of our Europe operations and clearly PST. We accrue U.S income tax on that at 35%, but as you know that all the U.S income will be shielded and so if you sort of get a rough estimate of that, that’s about how the taxes will flow.

Your next question comes from Gary Moorman [ph] - Alpine Associates.

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It was a positive $15.3 million

Have you guys, with the 11.5% notes, the call price dropping this year.

Yes.

In May, drops down to par, have you guys given any thought or have you been pursuing the possibility of refinancing that debt?

We have been actively looking at the capital markets for probably six months now. And as you know, the capital markets have been improving. The rates haven't quite come back in the level that we're satisfied with and we're not under any real needs that we have to refinance. So once we find the opportunity we will continue to pursue that as a benefit for the company and we will continue to look at it.

Can you give me an idea of what kind of coupon you guys would need to refinance it? I mean I assume obviously lower than 11.5.

Well when John and I trying to refinance in '07 before the markets really corrected themselves, we thought we can get it done around 8%. So I think if we could get a rate somewhere there versus with the 11.5% today that we felt was beneficial that we would go after that.

I think the other thing for us is we're also -- again we're going to -- we try to look out to the future and say what are the things that we are prepared for? And one of them is, if we have to refinance debt at this rate, well, we refinance a lower level of debt. So we're looking at both sides.

There are no further questions at this time. I will now turn the call back over to management for closing remarks.

Good. I'd like to thank you all for joining us. 2009, as I said, it really was a very difficult year. But if you look what happened in the industry, I mean you look at the number of suppliers who disappointed their shareholders by going in and filing and the number of suppliers who disappointed their bond holders by having that same thing happen, so they didn’t – quickly as we said, we followed a plan, it may be rather boring, but it’s rather consistent. We are going to improve the operations, improve the financial structure and then go after the marketing side. That’s what our plan has been and we were well on track for that in 2008 until the markets did turn. Then we shifted quickly to again reemphasize as we talked about our financial portfolio to make sure we strengthen that, and that’s what we’ve done. : So as we see these business improve, as we see these markets improve, we are going to see our performance continue to go up with that and that’s really a testament to the work that’s been done, but it’s not exciting, it’s just plain basic. This is how we are going to run our business and we are going to adjust to both risk and opportunities as we see those things come up. And I think you’ll see things in 2009 like the wiring award and the shift-by-wire when we get that, those were opportunities that came up in front us and we had not only the management strength to take care of them, but also the financial strength. So, we are looking forward to 2010 and even 2011, because as everything happens, these things will turn around and improve, and we think we have positioned ourselves for those. So, thanks again for joining us on the call.

Thank you for your participation in today’s conference call. This concludes the presentation, you may now disconnect. Good day.