NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

1. ORGANIZATION AND NATURE OF BUSINESS

Effective January 1, 1994, Alphabet, Inc. (Alphabet) and Alphastac, Inc. (Alphastac) were merged into Stoneridge, Inc. (Stoneridge). Stoneridge was the surviving entity of the above merger transaction. Since Alphabet, Alphastac and Stoneridge shared common ownership, the merger of these entities was accounted for in a manner similar to a pooling of interest.

Stoneridge is an independent designer and manufacturer of engineered electrical and electronic components, modules and systems for the automotive, medium and heavy duty truck, and agricultural vehicle markets and operates in one business segment.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements include the accounts of Stoneridge and its majority-owned subsidiaries (collectively, the Company). All significant intercompany balances have been eliminated in consolidation.

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.

Accounts Receivable

Revenues are principally generated from the automotive, medium and heavy duty truck, and agricultural vehicle markets. Due to the nature of these industries, a significant portion of sales and related accounts receivable are concentrated in a relatively low number of customers. In 1997, three customers accounted for approximately 32%, 21% and 10% of net sales, while the top five customers accounted for 76% of net sales. The same three customers accounted for approximately 39%, 18% and 10% of the Company's 1996 net sales, and its top five customers accounted for approximately 76% of its 1996 net sales. Accounts receivable from the Company's five largest customers aggregated approximately $45,210 and $38,383 at December 31, 1997, and 1996, respectively.

A division of General Motors has notified the Company that it is discontinuing all outsourcing of its wire harness requirements under contract manufacturing arrangements. The Company believes that by 1999, the General Motors division will produce in-house substantially all of its wire harness requirements previously supplied by the Company, although no assurance can be given that such sales by the Company will not end at an earlier date. In 1997, the Company's net sales under this arrangement totaled approximately $95.1 million and contributed approximately $6.7 million in operating income. There can be no assurance that the Company will be able to offset reductions in its sales and operating profits resulting from the reduction in sales to the General Motors division.

                                                             1997     1996
                                                            -------  -------
Raw materials.............................................. $24,725  $17,983
Work in progress...........................................   9,397    6,063
Finished goods.............................................   6,723    8,224
Less-LIFO reserve..........................................  (2,251)  (2,112)
                                                            -------  -------
  Total.................................................... $38,594  $30,158
                                                            =======  =======

                                                              1997    1996
                                                            -------- -------
Land and land improvements................................. $  3,756 $ 3,724
Buildings and improvements.................................   32,795  27,718
Machinery and equipment....................................   37,154  32,947
Office furniture and fixtures..............................    8,242   8,270
Tooling....................................................   16,729  13,630
Vehicles...................................................    3,977   3,911
Leasehold improvements.....................................    1,018   1,416
                                                            -------- -------
                                                             103,671  91,616
Less Accumulated depreciation and amortization.............   44,975  36,416
                                                            -------- -------
                                                            $ 58,696 $55,200
                                                            ======== =======

Depreciation is provided by both the straight-line and accelerated methods over the estimated useful lives of the assets. Depreciation expense for the years ended December 31, 1997, 1996 and 1995 was $11,273, $8,686 and $7,284, respectively. Depreciable lives within each property classification are as follows:

Buildings and improvements....................................... 10-40 years
Machinery and equipment..........................................  5-10 years
Office furniture and fixtures....................................  3-10 years
Tooling..........................................................   2-5 years
Vehicles.........................................................   3-5 years
Leasehold improvements...........................................     8 years

Maintenance and repair expenditures which are not considered betterments 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 credited or charged to income.

STONERIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

Goodwill and Other Intangibles

The primary component of goodwill and other intangible assets, net of accumulated amortization, in the accompanying consolidated balance sheets represents the excess of the purchase price paid over the fair market value of acquired assets and assumed liabilities. Goodwill is being amortized over 40 years on a straight-line basis. Amortization expense totaled approximately $1,495, $1,180 and $695 in 1997, 1996 and 1995, respectively. Accumulated amortization as of December 31, 1997, and 1996 was $6,969 and $5,474, respectively. The Company regularly evaluates its accounting for goodwill. Impairment of goodwill would be recognized when events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Measurement of the amount of impairment will be based on appraisal, market value of similar assets or estimated discounted future cash flows resulting from the use and ultimate disposition of the asset.

                                                              1997    1996
                                                             ------- -------
Compensation-related obligations............................ $11,699 $ 9,402
Insurance-related obligations...............................   3,491   2,329
Income Taxes................................................   5,812     --
Other.......................................................  10,103   5,501
                                                             ------- -------
                                                             $31,105 $17,232
                                                             ======= =======

Income Taxes

Prior to the initial public offering (Offering) discussed in Note 3, the Company was an S corporation. As an S corporation, the Company's profits were taxed directly to its shareholders for federal income tax and certain state income tax purposes. Certain state taxes were paid directly by the Company. Concurrent with the Offering, the Company terminated its S corporation status. The Company is subject to federal, state and foreign income taxes.

The Company accounts for income taxes, using the provisions of Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." Deferred income taxes reflect the tax consequences on future years of differences between the tax bases 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.

Foreign Currency Translation Adjustment

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 results of operations. Adjustments resulting from translation of financial statements are reflected as a separate component of shareholders' equity.

The financial statements of foreign subsidiaries where the U.S. dollar is the functional currency and which have certain transactions denominated in a local currency are remeasured as if the functional currency were the U.S. dollar. The remeasurement of local currencies into U.S. dollars creates translation adjustments which are included in net income. All translation and transaction activity was insignificant in 1997, 1996 and 1995.

STONERIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

Revenue Recognition

The Company recognizes revenues from the sale of products at the point of passage of title, which is generally at the time of shipment.

Product Development Expenses

Expenses associated with the development of new products and changes to existing products are charged to expense as incurred. The costs amounted to $14,114, $9,263 and $6,664 in 1997, 1996, and 1995, respectively.

Stock-Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related interpretations in accounting for its employee stock options. Under APB 25, since the exercise price of employee share options equals the market price of the shares on the date of grant, no compensation expense is recorded. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation."

Financial Instruments and Derivative Financial Instruments

Financial instruments held by the Company include cash and cash equivalents, accounts receivable, accounts payable, credit facility, long-term debt and interest rate swap agreements. The book value of cash and cash equivalents, accounts receivable and payables are considered to be representative of fair value because of the short maturity of these instruments. The fair values of borrowings under the credit facility and long-term debt are based on rates available to the Company for debt with comparable terms and maturities.

The interest rate swap agreements convert floating rate debt under the Company's credit facility to fixed-rate debt. As the outstanding balance on the Company's credit facility was significantly less than the notional amount of the interest rate swap agreements, the carrying value of the interest rate swap agreements was marked to market and recognized in interest expense in 1997.

Accounting Estimates

The preparation of financial statements in conformity with 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, and 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. Since actual results could differ from those estimates, the Company revises its estimates and assumptions as new information becomes available.

Accounting Standards

The Company adopted Statement of Financial Accounting Standard No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," in 1996. SFAS 121 requires long-lived assets and certain identifiable intangible assets to be reviewed for impairment whenever circumstances indicate that the carrying amount of an asset may not be recoverable. The adoption of this Standard did not have an effect on the Company's financial statements. Management periodically reviews the realizability of long-lived assets of the Company in accordance with SFAS 121.

STONERIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

The Company adopted Statement of Financial Accounting Standard No. 128 (SFAS 128), "Earnings per Share," in 1997. SFAS 128 requires the presentation of basic earnings per share and diluted earnings per share. Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share is calculated by dividing net income by all weighted average dilutive potential common shares that were outstanding during the period.

3. OFFERING OF COMMON SHARES

On October 10, 1997, the Company completed its Offering of 6,727,500 Common Shares, resulting in net proceeds (after deducting issuance costs) of $108,693. Net proceeds from the Offering was used to pay an $83,000 S corporation distribution, and the remaining proceeds were used to repay net borrowings under the credit facility discussed in Note 6. Concurrent with the initial public offering, certain officers and management of the Company purchased 510,181 Common Shares (Management Reinvestment), resulting in net proceeds of $8,326. Subsequent to December 31, 1997, a final S corporation distribution of $2,600 was paid.

In connection with the Offering, the Company amended its Articles of Incorporation to change the authorized share capital of the Company from 37,724 shares of Class A Common, voting, without par value, and 87,276 shares of Class B Common, non-voting, without par value, to 60,000,000 Common Shares, without par value and 5,000,000 shares of voting preferred shares, without par value. The amended Articles of Incorporation provided that each Class A Common Share and Class B Common Share automatically became 139.0856 Common Shares. All applicable share and per share data has been adjusted accordingly in these financial statements.

4. ACQUISITIONS

On November 1, 1995, the Company acquired an automotive product line and the related machinery and equipment, intellectual property rights and purchase contracts. The Company also entered into a certain transition services agreement with the seller in conjunction with this acquisition. In connection with the transition services agreement, the seller provided certain services during the period November 1995 through October 1996 for cash consideration of $5,200. The Company recorded $4,254 and $946 of expense in 1996 and 1995, respectively, relative to the transition services agreement. The acquisition was accounted for as a purchase, and the excess of the cost over the fair value of the assets acquired, totaling approximately $14,000, was reflected as goodwill in the accompanying consolidated balance sheets. Total consideration paid by the Company with respect to this acquisition including payments under the transition services agreement was approximately $24,000.

In April 1996, the Company purchased 45% of the outstanding common stock of Berifors AB (Berifors), a Sweden-based manufacturer of electronic instrumentation and information displays for the European truck and commercial vehicle markets, for approximately $8,834. The investment was accounted for under the equity method of accounting. The excess of the amount paid over the book value of the assets acquired, totaling $7,200, is being amortized over 40 years on a straight-line basis. On October 10, 1997, the Company acquired the remaining 55% of Berifors, in exchange for 757,063 Common Shares, of which 52,500 Common Shares are held in escrow pending final closing in February 1998. The transaction was accounted for as a purchase. The excess of the purchase price over the book value of assets acquired, totaling $10,439, is being amortized over 40 years on a straight-line basis. The results of operations of Berifors are included in the accompanying financial statements from the date of acquisition.

STONERIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

5. INVESTMENTS

In October 1997, the Company purchased 50% of the outstanding common stock of PST Industria Eletronica da Amazonia Ltda. (Positron), a Brazilian electronic components business which specializes in electronic vehicle security devices. The investment is accounted for under the equity method of accounting. Total cash consideration paid by the Company with respect to this investment was $17,722 including fees and expenses. The allocation of purchase price resulted in intangibles, primarily non-compete covenants and goodwill of $2,000 and $12,622, respectively, which are being amortized over periods of two to 40 years. Amortization expense was $469 in 1997. The acquisition was financed through borrowings under the credit facility discussed in Note 6. In 1998, the Company issued a $5,000 note to Positron. The proceeds of the note were used for the repayment of existing debt. The note is secured by certain assets of Positron.

In August 1997, the Company entered into two joint venture agreements with Connecto AB, a Swedish manufacturer of power distribution systems. Pursuant to the terms of the agreements, the Company expects to pay approximately $2,400 for a 60% interest in a Brazilian joint venture and $1,100 for a 40% interest in a European joint venture. As of December 31, 1997, the Company incurred costs of approximately $250 related to these joint ventures. The joint ventures are establishing production facilities in Brazil and Europe for the purpose of manufacturing and selling power distribution systems in South America and Europe, respectively. In addition, the joint ventures will pursue sales and marketing efforts for other products and services of joint venture partners to the extent practicable. The Company will finance its investments in the joint ventures through borrowings under the credit facility discussed in Note 6.

6. LONG-TERM DEBT

The Company has a $125,000 unsecured credit facility with a bank group. The credit facility expires on June 30, 2002, and requires a commitment fee of 1/10% to 1/4% on the unused balance. Interest is payable quarterly at the Company's option at either (i) the prime rate or (ii) LIBOR plus a margin of 0.75% to 2.0%, depending upon the Company's fixed charge coverage ratio, as defined. Credit facility borrowings were supported by individual notes with maturities of three months or less.

The Company has entered into a $25,000 interest rate swap agreement with a member of the bank group whereby its contractual interest rate was swapped through February 1999 for a fixed rate of 5.795% plus a margin of 0.75% to 2.0%, depending upon the Company's fixed charge coverage ratio, as defined. The notional amount under the swap agreement remains at $25,000 through maturity. Additionally, the Company has entered into a separate $20,000 interest rate swap agreement with a member of the bank group whereby its contractual interest rate was swapped through August 1999 for a fixed rate of 6.28% plus a margin of 0.75% to 2.0%, depending upon the Company's fixed charge coverage ratio, as defined, provided the LIBOR rate is less than 7.50%. This swap agreement is ineffective when the LIBOR rate is equal to or greater than 7.50%. The notional amount under the swap agreement remains at $20,000 through maturity. The Company is exposed to credit loss under the swap agreements in the event of nonperformance by the bank. As of December 31, 1997, the Company would have paid approximately $157 to the bank had it elected to terminate these interest rate swap agreements. The Company has accrued these termination costs in these financial statements, as the outstanding credit facility borrowings were less than the combined notional amount of the swap agreements.

The weighted average interest rate in effect for the years ended December 31, 1997, 1996 and 1995 was approximately 7.1%, 7.4% and 7.0%, respectively, including the effects of the interest rate swap agreements.

                                                              1997   1996
                                                             ------ -------
Borrowings under credit facility............................ $  497 $47,945
Borrowings denominated in foreign currencies paid in 1998
 with proceeds from credit facility.........................  5,118     --
Note payable to financing company, repaid in full in
 February 1997                                                  --    2,580
Note payable to financing company, collateralized by
 specific property, plant and equipment, due in monthly
 installments of $37, including variable rate interest based
 annually on the yield of two-year Treasury securities,
 constant maturity of United States Government plus 2.15%
 with a balloon payment of $1,087, maturing in April 2006...  3,227   3,415
Other.......................................................    753     217
                                                             ------ -------
                                                              9,595  54,157
Less: Current maturities....................................    456   3,001
                                                             ------ -------
                                                             $9,139 $51,156
                                                             ====== =======

The credit facility contains various covenants which require, among other things, the maintenance of several financial ratios and minimum net worth levels while restricting capital expenditures and dividends. The Company was in compliance with these covenants at December 31, 1997.

Future maturities of long-term debt as of December 31, 1997, are as follows:

1998.................................................................. $  456
1999..................................................................    390
2000..................................................................    407
2001..................................................................    355
2002..................................................................  5,943
Thereafter............................................................  2,044

                                                            1997    1996 1995
                                                           -------  ---- ----
Current:
  Federal................................................. $ 4,441  $--  $--
  State and foreign.......................................   1,744   524  654
                                                           -------  ---- ----
                                                             6,185   524  654
Deferred:
  Federal.................................................    (983)  --   --
  State and foreign.......................................    (104)  --   --
                                                           -------  ---- ----
                                                            (1,087)  --   --
                                                           -------  ---- ----
    Total................................................. $ 5,098  $524 $654
                                                           =======  ==== ====

STONERIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

A reconciliation of the Company's effective income tax rate to the statutory federal tax rate has been omitted, as presentation of such information is not meaningful.

As a result of the Company's conversion to C corporation status on October 9, 1997, current deferred income tax assets and noncurrent deferred income tax liabilities of approximately $4,073 and $2,906, respectively, were recorded offsetting a cumulative effect benefit of $1,167.

Deferred tax assets and liabilities consist of the following at December 31:

                                                                       1997
                                                                      ------
Deferred tax assets:
  Inventories........................................................ $1,103
  Employee Benefits..................................................  2,371
  Insurance..........................................................  1,504
  Other..............................................................  2,396
                                                                      ------
Gross deferred tax assets............................................  7,374
Deferred tax liabilities
  Depreciation and amortization......................................  2,899
  Accounts receivable................................................    412
  Other..............................................................  1,338
                                                                      ------
Gross deferred tax liabilities.......................................  4,649
                                                                      ------
Net deferred tax asset............................................... $2,725
                                                                      ======

8. OPERATING LEASE COMMITMENTS

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

The Company also leases some of its facilities from certain related parties. The leases are accounted for as operating leases and are for various terms ranging from three to 20 years with additional renewal options. The Company is generally responsible for repairs and maintenance, taxes and insurance.

For the years ended December 31, 1997, 1996 and 1995, lease expense totaled $2,313, $2,255 and $1,683, respectively, under these agreements.

Future minimum operating lease commitments at December 31, 1997, are as follows:

                                                               THIRD  RELATED
                                                               PARTY   PARTY
                                                               ------ -------
1998.......................................................... $1,910  $577
1999..........................................................  1,263   584
2000..........................................................    942   590
2001..........................................................    354   486
2002..........................................................      2   382
Thereafter....................................................    --    501

STONERIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

9. SHARE OPTION PLANS

In March 1995, the Company granted 90,545 options to key executives to purchase Common Shares at $4.82 per share. The options were vested upon grant, and all options were exercised in June 1996.

In June 1996, the Company granted an additional 438,119 options to directors and key executives to purchase Common Shares at $5.74 per share. The options were exercised prior to the Offering. The Company recorded compensation expense of $450 in 1997 and 1996, in the accompanying consolidated financial statements relative to these options.

In October 1997, the Company adopted a Long-Term Incentive Plan (Incentive Plan). The Company has reserved 1,000,000 Common Shares for issuance under the Incentive Plan. Under the Incentive Plan, the Company granted options to purchase 498,000 Common Shares to management with exercise prices equal to the fair market value of the Company's Common Shares at the date of grant. The options will vest two years after the date of grant.

Information relating to the Company's outstanding options is as follows at December 31, 1997:

                                                                     WEIGHTED
                                                                     AVERAGE
                                                              TOTAL   OPTION
                                                             OPTIONS  PRICE
                                                             ------- --------
Options granted............................................. 498,000  $17.48
Options exercisable.........................................     --      --

The following pro forma information regarding net income and earnings per share is required by SFAS 123, and has been determined as if the Company had accounted for its share options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:

Risk-free interest rate........................................... 5.97-6.16%
Expected dividend yield...........................................       0.0%
Expected lives....................................................  7.5 years
Expected volatility...............................................     33.19%

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected share price volatility. Because the Company's share options have characteristics significantly different from traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its share options.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma net earnings per share were as follows:

                                                                      1997
                                                                     -------
Net income--as reported............................................. $46,964
Net income--pro forma............................................... $46,485
Basic and diluted earnings per share--as reported................... $  2.92
Basic and diluted earnings per share--pro forma..................... $  2.89

STONERIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

10. EMPLOYEE BENEFIT PLANS

The Company has a defined contribution profit sharing plan covering substantially all of the employees. Company contributions are discretionary; however, a portion of these contributions are based upon a percentage of employee compensation, as defined in the plan. The Company's policy is to fund all profit sharing costs accrued. There are no unfunded prior service costs. For the years ended December 31, 1997, 1996 and 1995, contributions amounted to $1,828, $1,356 and $1,538, respectively.

Additionally, the Company has a defined contribution profit sharing retirement plan, which covers certain other employees. The plan includes the provisions of a Section 401(k) plan and allows employees to contribute up to 14% of their eligible compensation. Company contributions are determined by the Board of Directors; however the Company must match 50% of the participating employees' contributions up to a maximum of 3% of their eligible compensation. For the years ended December 31, 1997, 1996 and 1995, the Company's contributions amounted to $1,446, $1,125 and $950, respectively.

The Company does not provide any other material retirement, postretirement or postemployment benefits to its employees.

11. RELATED PARTY TRANSACTIONS

In 1996, the Company sold a building to an affiliated entity for $2,200. The excess of the sales price over the carrying value of the building was $562 and was recorded as a capital contribution. During 1996, prior to the sale of this building, the Company received approximately $235 in lease payments and recognized related depreciation and interest expense totaling approximately $108. In 1995, the Company recognized lease revenue of $278 and depreciation and interest expense of $207 and $194, respectively.

The Company provided management services to a related company in the amount of $300 annually and also paid the salary of a certain key employee of the related company, amounting to $76, $180 and $182 in 1997, 1996 and 1995, respectively. Beginning on September 1, 1997, the salary payments were paid by the related company.

12. FAIR VALUE OF 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 payables are considered to be representative of fair value because of the short maturity of these instruments. In management's opinion, the estimated fair value of the Company's long-term debt approximates book value, as under the terms of the borrowing arrangements, a significant portion of the obligations are subject to fluctuating market rates of interest.

Derivative financial instruments as of December 31, 1997, and 1996, held for purposes other than trading, include two swap agreements which mature during 1999. The notional amounts and fair values of the swap agreements are as follows at December 31:

                                                             1997     1996
                                                            -------  -------
Notional Amount............................................ $45,000  $45,000
Fair Value.................................................    (157)    (257)

STONERIDGE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

13. UNAUDITED PRO FORMA INFORMATION

The unaudited pro forma net income for the years ended December 31, 1997, 1996 and 1995, assumes that the Company was subject to income taxes as a C corporation.

Unaudited pro forma net income per share has been calculated by dividing pro forma net income by the weighted average number of Common Shares outstanding, the number of Common Shares issued in connection with the Offering discussed in Note 3 (6,727,500), the number of Common Shares issued in connection with the exercise of share options (438,119), and the number of Common Shares to be issued in connection with the Management Reinvestment discussed in Note 3 (510,181).

14. 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 or the financial position of the Company.

                                                        QUARTER ENDED
                                                 ---------------------------
                                                  DEC.   SEP.   JUNE   MAR.
                                                   31     30     30     31
                                                 ------ ------ ------ ------
                                                  (IN MILLIONS, EXCEPT PER
                                                         SHARE DATA)
1997
Net sales....................................... $126.8 $103.9 $110.8 $108.0
Gross profit....................................   29.0   26.0   27.3   25.9
Operating income................................   12.1   12.3   14.3   13.7
Net income...................................... $  8.4 $ 11.1 $ 13.1 $ 14.4
                                                 ====== ====== ====== ======
Basic and diluted earnings per share............ $ 0.52 $ 0.69 $ 0.82 $ 0.89
                                                 ====== ====== ====== ======
1996
Net sales....................................... $ 96.1 $ 89.8 $ 94.4 $ 83.5
Gross profit profit.............................   20.2   18.1   18.8   18.6
Operating income................................    9.3    6.3    6.7    6.6
Net income...................................... $  7.8 $  5.1 $  5.8 $  5.4
                                                 ====== ====== ====== ======
Basic and diluted earnings per share............ $ 0.55 $ 0.37 $ 0.42 $ 0.39
                                                 ====== ====== ====== ======

See Note 3 regarding the Company's Offering of Common Shares in October 1997.

Results reflect the partial acquisition of Berifors AB in April 1996 and full consolidation of Berifors AB in October 1997.