STONERIDGE INC Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

We are a global designer and manufacturer of highly engineered electrical and electronic systems, components and modules primarily for the automotive, utility, off-road and agricultural markets.

The following discussion and analysis should be read in conjunction with the
condensed consolidated financial statements and notes related thereto and other
financial information included elsewhere herein.

Global market conditions

The ongoing supply chain disruptions, primarily related to semiconductor
shortages, and the continued impacts of the coronavirus pandemic ("COVID-19"),
have had a negative impact on the global economy since the first quarter of
2020. In addition, the global economy more recently has been negatively affected
by geopolitical conflicts, primarily related to the Russia-Ukraine war,
beginning in the first quarter of 2022. These situations have disrupted, and
likely will continue to disrupt, the global vehicle industry and customer sales,
production volumes and purchases of automotive, commercial, off-highway and
agricultural vehicles by end-consumers.

The adverse effects of the supply chain disruptions, geopolitical conflicts and
COVID-19 have resulted in higher material cost inflation, delays in procuring
raw materials and component parts, especially electronic components, production
volume uncertainty and volatile currency markets. We are working closely with
our suppliers and customers to minimize any potential adverse impacts, and we
continue to closely monitor the availability of semiconductor microchips and
other component parts and raw materials, customer vehicle production schedules
and any other supply chain inefficiencies that may arise, due to these or any
other issues. During the third quarter of 2022, the Company recognized $12.8
million of cost recoveries related to spot buys of materials purchased from
electronic component brokers for our customers and $7.4 million of negotiated
price increases to offset material cost inflation.

In the third quarter of 2022, vehicle volumes began to increase in our key
served markets as supply chain disruptions moderated. These volumes are expected
to continue to improve in the fourth quarter of 2022 due to a combination of
higher consumer demand and historically low OEM inventory levels. Although
ongoing supply chain disruptions including semiconductor shortages have
moderated, we expect that these factors will continue to negatively affect
vehicle production volumes. The magnitude of the adverse impact on our financial
condition, results of operations and cash flows depends on the evolution of the
semiconductor supply shortage, vehicle production schedules, supply chain
impacts, material cost inflation and adverse fluctuations in foreign currencies.

segments

We are organized by products manufactured and markets served. According to this structure, our operations have been presented using the following segments:

Control devices. This segment includes the results of manufacturing activities of actuators, sensors, switches and connectors.

Electronic. This segment includes operating results from the production of driver information systems, camera vision systems, connectivity and compliance products and electronic control units.

Stoneridge Brazil ("SRB"). This segment includes results of operations that
design and manufacture vehicle tracking devices and monitoring services, vehicle
security alarms and convenience accessories, in-vehicle audio and infotainment
devices and telematics solutions.

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Third Quarter Overview
During the third quarter of 2022, we benefited from both increased volumes in
our European and North American commercial, European off-highway and North
American automotive markets due to improvements in material availability,
customer production schedules and end market demand. We continue to benefit from
the negotiated pricing actions previously agreed to with the majority of our
customers which offset a portion of the incremental material and supply chain
related costs we have continued to incur. The Company continues to work with our
customers to preserve gross margin through price increases aligned with current
market conditions and is executing on initiatives to reduce supply chain related
costs and improve working capital. In the third quarter of 2022, we experienced
some moderation of commercial and operational challenges including material
availability, rising material costs, adverse fluctuations in foreign exchange
and volatility in customer production schedules. While these challenges
continue, we are focusing on our long-term growth initiatives that we expect
will drive profitable growth in 2023 and beyond. We continue to address the
variables that we are able to control and focus on mitigating the impact of
externalities to our business.

The company made a net profit of $0.7 millionWhere $0.03 per diluted share, for the three months ended September 30, 2022.

Net income for the quarter ended September 30, 2022 increased by $11.1 million,
or $0.41 per diluted share, from net loss of $10.4 million, or $(0.38) per
diluted share, for the three months ended September 30, 2021. Net income
increased primarily due to additional contribution from higher net sales. Net
sales increased by $45.1 million, or 24.8%, primarily from higher volumes as
well as favorable customer pricing for recoveries of electronic component spot
buy purchases in our Electronics segment and negotiated price increases in both
our Electronics and Control Devices segments. During the third quarter, the
overall transportation industry continued to be challenged by on-going supply
chain disruptions including electronic component shortages even though these
conditions have improved relative to prior quarters.

Our Control Devices segment net sales increased by 1.5% compared to the third
quarter of 2021 primarily as a result of negotiated price increases and higher
North American automotive volumes including production ramp-up of new products
offset by the decrease in our European markets due to our exit of the PM sensor
business as well as lower North American commercial vehicle volumes. Segment
gross margin increased due to negotiated price increases and lower overhead
including the favorable impact from the PM sensor business exit. Segment
operating income increased due to higher gross margin.

Our Electronics segment net sales increased by 59.9% compared to the third
quarter of 2021 primarily due to increased sales volumes in our European
commercial, North American commercial and European off-highway vehicle markets,
favorable customer recoveries of semiconductor spot buy purchases, negotiated
price increases and launch of new products. Segment gross margin as a percent of
sales decreased slightly primarily due to increased material costs associated
with supply chain disruptions including unreimbursed spot purchases of
electronic components, adverse foreign exchange fluctuations and inflation
offsetting higher contribution from increased sales levels and the favorable
impact of negotiated price increases. Operating income for the segment increased
compared to the third quarter of 2021 primarily due to higher contribution from
increased sales.

Our Stoneridge Brazil segment net sales decreased by 16.3% compared to the third
quarter of 2021 primarily due to lower sales demand in most of our product lines
offset by slightly higher sales of tracking devices and monitoring services.
Segment gross margin increased slightly from the favorable mix of higher
monitoring services. Operating income remained consistent with 2021.

In the third quarter of 2022, SG&A expenses decreased by $1.0 million compared
to the third quarter of 2021 primarily due to lower business realignment costs
of $0.8 million and favorable indirect taxes offset by higher incentive
compensation.

In the third quarter of 2022, D&D costs remained consistent with the prior year
third quarter as higher spending in our Control Devices and Electronics segments
was offset by higher customer reimbursements of $2.2 million in our Electronics
segment.

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At September 30, 2022 and December 31, 2021, we had cash and cash equivalents
balances of $32.3 million and $85.5 million, respectively, and we had $165.7
million and $164.0 million, respectively, in borrowings outstanding on the
Credit Facility. The 2022 decrease in cash and cash equivalents was to support
higher working capital levels, specifically inventory as a result of supply
chain disruptions and expectations for increased production and accounts
receivable from higher sales levels, capital expenditures to support product
launches and the payment of the Stoneridge Brazil earn-out.

Outlook

The Company believes that focusing on products that address industry megatrends
will have a positive effect on both our top-line growth and underlying margins.
For example, Stoneridge is aligned with platforms likely to perform well against
overall market dynamics including our content on electrified vehicle platforms.

Beginning in the first quarter of 2020, COVID-19 caused worldwide adverse
economic conditions and uncertainty in our served markets. Since the first
quarter of 2021, we have been experiencing supply chain related disruptions, due
to a worldwide semiconductor shortage, as well as other material availability
constraints which continue and have resulted in longer lead-times, higher costs
and delays in procuring other component parts and raw materials. Although
material cost challenges are moderating, the Company expects to experience
ongoing impacts from supply chain disruptions, material cost inflation and
COVID-19, which will continue to put pressure on margins. In order to recover
these higher costs, we have negotiated and expect to continue to negotiate price
increases and cost recoveries with our customers and implement supply chain
strategies to help mitigate future costs. During the third quarter of 2022, we
began to see the impacts of improving material availability on net sales which
drove improved gross margin.

Based on IHS Markit production forecast, the North American automotive market is
expected to increase to 14.5 million units in 2022 from 13.0 million units in
2021 as the market continues to recover from supply chain disruptions and
COVID-19. The Company expects sales volumes in our Control Devices segment to
increase from 2021 based on fourth quarter production forecasts and market
conditions as well as the ramp-up of actuation program launches. However, global
supply chain disruptions, including the global semiconductor supply shortage,
material cost inflation and COVID-19 could adversely impact our sales volumes
and gross margin for the remainder of 2022.

For 2022, we expect an increase in our Electronics' segment sales compared to
2021 primarily due to the increase in production volume forecasts in our
European and North American commercial markets, strong demand for our products
in our off-highway and commercial vehicle end-markets as well as the ramp up of
new program launches in 2022. In addition, we expect increased sales from the
launch of our first MirrorEye camera-based vision system for OEM applications as
well as the continued roll out of MirrorEye in the retrofit markets. MirrorEye
system take-rates continue to exceed prior expectations and customer production
forecasts suggest these take-rates could continue to rise significantly as
material becomes more readily available and customer truck production continues
to shift to new models. Customer recoveries related to spot buys of materials
purchased for our customers increased net sales by $12.8 million in the third
quarter of 2022. Spot buy material purchasing activity, which is recognized as
revenue and material costs, was mostly passed through to the customer and was
driven by electronic component shortages. The Company expects continued spot buy
activity for the remainder of 2022 but cannot predict the duration or magnitude
of continued spot buy activity due to volatile supply chains and component
availability. We expect to continue to offset a significant majority of spot buy
related costs going forward and expect continued reduction in overall spot buy
costs in the fourth quarter of 2022. In addition, customer negotiated price
increases also increased sales during the third quarter, which will continue to
favorably impact sales for the remainder of the year.

In 2021 and continuing throughout 2022, our D&D spend increased to support near
term launches of awarded business in both our Control Devices and Electronics
segments. We expect that our D&D spending will stabilize as we continue to align
our global engineering capabilities in order to develop advanced technologies
and systems within our portfolio of products and recognize increased levels of
customer reimbursement to support specific programs and products.

Our 2022 Stoneridge Brazil segment revenues decreased compared to the prior year
due to lower sales of most of our product lines offset by favorable foreign
currency translation and slightly higher sales of tracking devices and
monitoring services. In October 2022, the International Monetary Fund forecasted
the Brazil gross domestic product to grow 2.8% in 2022 and 1.0% in 2023. We
expect our served market channels to remain stable based on current market
conditions. Our financial performance in our Stoneridge Brazil segment is also
subject to uncertainty from movements in the Brazilian Real and Argentina Peso
foreign currencies.

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Beginning in 2021, global transportation vehicle production was impacted by
supply chain disruptions, including semiconductor shortages, primarily affecting
our commercial vehicle and automotive end-markets. Based on the current market
conditions, we expect continued impacts on production in 2022. We expect
incremental costs related to supply chain disruptions and production schedule
volatility to continue to adversely affect our gross margin in 2022.

We continued to effectively offset a significant portion of incremental material
and supply chain related costs through pricing and supply chain actions
resulting in cost pass-throughs and the recovery of both current and historical
costs in the quarter. While incremental material costs have started to moderate,
we expect material cost inflation to persist for the remainder of the year and
into 2023. We will continue to evaluate macroeconomic conditions and expect
ongoing discussions with our customers regarding price increases and other cost
recovery actions to help continue to improve our margin performance.

Due to these supply chain disruptions and volatile production schedules, our working capital balances, particularly inventory, have increased significantly from historical levels. We continue to support initiatives to reduce inventory on hand by refining our procurement process which we hope will improve liquidity.

Throughout 2022, we expect our effective tax rate to remain elevated primarily due to the impact of tax losses for which no benefit is recognized due to valuation allowances in certain jurisdictions.

Other topics

A significant portion of our sales are outside of the United States. These sales
are generated by our non-U.S. based operations, and therefore, movements in
foreign currency exchange rates can have a significant effect on our results of
operations, which are presented in U.S. dollars. A significant portion of our
raw materials purchased by our Electronics and Stoneridge Brazil segments are
denominated in U.S. dollars, and therefore movements in foreign currency
exchange rates can also have a significant effect on our results of operations.
The U.S. Dollar strengthened against the euro, Swedish krona and Argentine peso
in 2022 and the euro, Swedish krona, Brazilian real, Argentine peso and Mexican
peso in 2021, unfavorably impacting our material costs and reported results.

On November 2, 2021, the Company entered into a Share Purchase Agreement (the
"SPA") with Minda Corporation Limited ("Minda"), as the buyer, and MSIL.
Pursuant to the SPA the Company agreed to sell to Minda the Company's minority
interest in MSIL for approximately $21.5 million equivalent Indian Rupee which
was payable in U.S. dollars at closing. On December 30, 2021, pursuant to the
SPA, the Company closed the sale of MSIL to Minda for $21.6 million. The Company
recognized net proceeds of $21.0 million and a gain, net of direct selling
costs, of $1.8 million.

On March 8, 2021, the Company entered into an Asset Purchase Agreement (the
"APA") by and among the Company, the Company's wholly owned subsidiary,
Stoneridge Electronics AS, as the Sellers, and Standard Motor Products, Inc.
("SMP") and SMP Poland SP Z O.O., as the Buyers. Pursuant to the APA the Company
agreed to sell to the Buyers the Company's assets located in Lexington, Ohio and
Tallinn, Estonia related to the manufacturing of particulate matter sensor
products and related service part operations (together, the "PM sensor
business"). In the past, the Company has sometimes referred to the PM sensor
assets as the Company's soot sensing business. The Buyers did not acquire any of
the Company's locations or employees. The purchase price for the sale of the PM
sensor assets was $4.0 million (subject to a post-closing inventory adjustment
which was a payment to SMP of $1.1 million) plus the assumption of certain
liabilities. The purchase price was allocated among PM sensor product lines, Gen
1 and Gen 2 as defined under the APA. The purchase price allocated to Gen 1
fixed assets and inventory and Gen 2 fixed assets was $3.2 million and $0.8
million, respectively. The sale of the Gen 2 assets occurred during November
2021, upon completion of the Company's supply commitments to certain customers.
The Company and SMP also entered into certain ancillary agreements, including a
contract manufacturing agreement, a transitional services agreement, and a
supply agreement, pursuant to which the Company will provide and be compensated
for certain manufacturing, transitional, administrative and support services to
SMP on a short-term basis.

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On May 19, 2020, the Company committed to the strategic exit of its Control
Devices particulate matter sensor product line ("PM Sensor Exit"). The decision
to exit the PM sensor product line was made after the consideration of the
decline in the market outlook for diesel passenger vehicles, the current and
expected profitability of the product line and the Company's strategic focus on
aligning resources with the greatest opportunities. The costs for the PM Sensor
Exit included employee severance and termination costs, contract termination
costs, professional fees and other related costs such as potential commercial
and supplier settlements. Non-cash charges included impairment of fixed assets
and accelerated depreciation associated with PM sensor production. We did not
recognize any expense as a result of these actions during the three months ended
September 30, 2022 and we recognized $0.7 million of expense as a result of this
initiative during the three months ended September 30, 2021. The only remaining
costs relate to potential commercial settlements and legal fees which we
continue to negotiate. The estimated additional cost related to these
settlements and fees is up to $4.2 million.

We regularly evaluate the performance of our businesses and their cost
structures, including personnel, and make necessary changes thereto in order to
optimize our results. We also evaluate the required skill sets of our personnel
and periodically make strategic changes. As a consequence of these actions, we
incur severance related costs which we refer to as business realignment charges.
Business realignment costs of $0.3 million and $1.1 million were incurred in the
three months ended September 30, 2022 and 2021, respectively. Business
realignment costs of $0.3 million and $1.4 million were incurred in the nine
months ended September 30, 2022 and 2021, respectively.

We are being adversely affected by increased material costs associated with both
supply chain disruptions, including spot purchases of electronic components, and
overall inflation. In response to these material cost increases we have and
continue to negotiate price increases with our customers and lowering certain
controllable costs where feasible. However, if we are unable to effectively
offset material price increases in the future, our results of operations will be
further adversely affected.

Three months completed September 30, 2022 Compared to the three months ended September 30, 2021

The condensed consolidated statements of earnings as a percentage of net sales are presented in the following table (in thousands):

                                                                                         Dollar
                                                                                     increase /
Three months ended
September 30,                                      2022                    2021      (decrease)
Net sales                        $ 226,757        100.0 %  $  181,680     100.0 %  $     45,077
Costs and expenses:
Cost of goods sold                 177,317         78.2       145,680      80.2          31,637
Selling, general and                27,444         12.1        28,481      15.7         (1,037)
administrative
Design and development              16,133          7.1        16,447       9.1           (314)
Operating income (loss)              5,863          2.6       (8,928)     (5.0)          14,791
Interest expense, net                1,845          0.8         1,447       0.8             398
Equity in earnings of                 (34)            -         (584)     (0.2)             550
investee
Other expense, net                   2,332          1.0            41         -           2,291
Income (loss) before income          1,720          0.8       (9,832)     (5.6)          11,552
taxes
Provision for income taxes             989          0.4           526       0.3             463
Net income (loss)                $     731          0.4 %  $ (10,358)     (5.9) %  $     11,089

Net sales. Net sales of our reportable segments, excluding inter-segment sales, are summarized in the following table (in thousands):

Dollar percentage

                                                                                    increase      increase
Three months ended September 30,                  2022                  2021      (decrease)    (decrease)
Control Devices                    $  88,901      39.2 %  $  87,618     48.2 %  $      1,283           1.5 %
Electronics                          124,066      54.7       77,585     42.7          46,481          59.9 %
Stoneridge Brazil                     13,790       6.1       16,477      9.1         (2,687)        (16.3) %
Total net sales                    $ 226,757     100.0 %  $ 181,680    100.0 %  $     45,077          24.8 %


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Our Control Devices segment net sales increased $1.3 million due to an increase
in our North American automotive market of $4.3 million offset by a decrease in
our European automotive, European commercial and China commercial vehicle
markets of $1.7 million, $1.3 million and $1.2 million, respectively. The
decrease in our European markets was due to our exit of the PM sensor business.
In addition, third quarter of 2022 net sales were favorably impacted by
negotiated price increases of $2.1 million.

Our Electronics segment net sales increased due to higher sales volumes in our
European commercial, North American commercial and European off-highway vehicle
markets of $19.8 million, $10.7 million and $4.7 million, respectively. In
addition, third quarter of 2022 net sales were favorably impacted by both
customer recoveries of electronics component spot buys and for negotiated price
increases of $12.8 million and $5.3 million, respectively. These increases were
offset by $8.2 million due to unfavorable euro and Swedish krona foreign
currency translation compared to the prior year quarter.

Net sales in our Stoneridge Brazil segment decreased due to lower sales across most of our product lines, offset by a slight increase in sales of tracking devices and monitoring services.

Net sales by geographic location are summarized in the following table (in
thousands):

                                                                                        Dollar       Percent
                                                                                      increase      increase
Three months ended September 30,                    2022                  2021      (decrease)    (decrease)
North America                        $ 117,010      51.6 %  $  95,395     52.5 %  $     21,615          22.7 %
South America                           13,790       6.1       16,477      9.1         (2,687)        (16.3) %
Europe and Other                        95,957      42.3       69,808     38.4          26,149          37.5 %
Total net sales                      $ 226,757     100.0 %  $ 181,680    100.0 %  $     45,077          24.8 %


The increase in North American net sales was mostly attributable to an increase
in sales volume in our Electronics segment commercial vehicle market of $10.7
million and our Control Devices segment automotive market of $4.3 million offset
by sales volume decreases in our Control Devices segment commercial vehicle
market of $0.6 million. The decrease in net sales in South America was primarily
due to lower sales in most of our product lines offset by higher sales of
tracking devices and monitoring services. The increase in net sales in Europe
and Other was due to customer recoveries of electronic component spot buy
purchases and negotiated price increases of $10.6 million and $3.4 million,
respectively, and increases in our European commercial vehicle and European
off-highway markets of $19.8 million and $4.7 million, respectively. This
increase for Europe and Other was offset by a decrease in our European
automotive market of $1.7 million. In addition, Europe and Other net sales
decreased $8.9 million due to unfavorable foreign currency translation.

Cost of Goods Sold and Gross Margin. Cost of goods sold increased compared to
the third quarter of 2021 and our gross margin increased from 19.8% in the third
quarter of 2021 to 21.8% in the third quarter of 2022. Our material cost as a
percentage of net sales increased from 56.8% in the third quarter of 2021 to
59.8% in the third quarter of 2022 from higher material costs resulting from
adverse foreign exchange fluctuations and material inflation. In 2022, cost of
goods sold also increased by $12.8 million, or 5.6% of net sales, from the
impact of electronic component spot buy purchases, which were offset by customer
recoveries. The impact of these spot buy purchases reduced gross margin percent
by 1.3%. Overhead as a percentage of net sales decreased to 13.8% for the third
quarter of 2022 compared to 18.1% for the third quarter of 2021 due to leverage
of fixed costs from higher sales levels.

Our Control Devices segment gross margin increased primarily due to negotiated
price increases and lower overhead including the favorable impact from the PM
sensor business exit.

Our Electronics segment gross margin increased primarily due to the higher contribution from higher sales levels and the impact of negotiated price increases offset by higher material costs due to supply chain disruptions. supply, adverse fluctuations in exchange rates and inflation.

Our Stoneridge Brazil segment gross margin as a percentage of sales was in line with the prior period.

Selling, General and Administrative. SG&A expenses decreased by $1.0 million
primarily due to lower business realignment costs of $0.8 million and favorable
indirect taxes offset by higher incentive compensation.

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Design and Development. D&D costs decreased $0.3 million due to higher customer
reimbursements for Electronics of $2.2 million offset by increased spend for
product launches in our Electronics and Control Devices segments.

Operating profit (loss). Operating income (loss) by segment is summarized in the following table (in thousands):

                                                                     Dollar 

Percent

                                                                 increase /    increase /
Three months ended September 30,          2022         2021      (decrease)
   (decrease)
Control Devices                      $   7,522    $   2,899    $      4,623         159.5 %
Electronics                              5,416      (5,113)          10,529         205.9
Stoneridge Brazil                          908          909             (1)         (0.1)
Unallocated corporate                  (7,983)      (7,623)           (360)         (4.7)
Operating income (loss)              $   5,863    $ (8,928)    $     14,791         165.7 %

Operating profit from our Control Devices segment increased due to higher gross margin.

Operating profit from our Electronics segment increased primarily due to the higher contribution from higher sales and the impact of negotiated price increases offset by higher material costs associated with supply chain disruptions. procurement, including cash purchases of electronic components net of recoveries, adverse fluctuations in exchange rates and inflation.

Operating profit from our Stoneridge Brazil segment was in line with the prior period.

Our retained operating loss increased primarily due to higher incentive compensation costs offset by lower business realignment costs. $0.9 million.

Operating income (loss) by geographic location is summarized in the following
table (in thousands):

                                                                   Dollar       Percent
                                                               increase /    increase /
Three months ended September 30,        2022         2021      (decrease)  
 (decrease)
North America                        $  (43)    $ (6,788)    $      6,745          99.4 %
South America                            908          909             (1)         (0.1)
Europe and Other                       4,998      (3,049)           8,047         263.9
Operating income (loss)              $ 5,863    $ (8,928)    $     14,791         165.7 %

Our North American operating loss decreased due to higher contribution from
higher sales in our commercial vehicle and automotive markets offset by higher
material costs as a result of supply chain disruptions, including spot purchases
of electronic components net of recoveries and inflation. Operating income in
South America was consistent with the prior period. Our operating results in
Europe and Other increased primarily due to higher contribution from higher
sales and the impact of negotiated price increases offset by higher material
costs from supply chain disruptions, including spot purchases of electronic
components net of recoveries, adverse foreign exchange fluctuations and
inflation.

Interest Expense, net. Interest expense, net was $1.8 million and $1.4 million
for the three months ended September 30, 2022 and 2021, respectively. The
increase for the quarter ended September 30, 2022, was the result of higher
Credit Facility interest due to increasing benchmark rates on floating Credit
Facility interest rates.

Equity in Earnings of Investee. Equity earnings for MSIL was $0.4 million for
the three months ended September 30, 2021. As discussed in Note 15 to the
condensed consolidated financial statements, the Company sold its equity
interest in MSIL on December 30, 2021. Equity earnings for Autotech were less
than $0.1 million and $0.2 million for the three months ended September 30, 2022
and 2021, respectively.

Other expenses, net. We recognize certain foreign exchange losses (gains) as a component of other (income) expense, net in the condensed consolidated statement of income. Other expenses, net of $2.3 million
increased by $2.3 million compared to the third quarter of 2021 due to losses on foreign exchange transactions in the Electronics, Control Devices and Stoneridge Brazil segments due to the strengthening of the WE dollar.

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Provision for Income Taxes. For the three months ended September 30, 2022,
income tax expense of $1.0 million was attributable to the mix of earnings among
tax jurisdictions as well as tax losses for which no benefit is recognized due
to valuation allowances in certain jurisdictions offset by tax credits and
incentives. The effective tax rate of 57.5% varies from the statutory tax rate
primarily due to the impact of tax losses for which no benefit is recognized due
to valuation allowances in certain jurisdictions, U.S. taxes on foreign earnings
and non-deductible expenses offset by tax credits and incentives.

For the three months ended September 30, 2021, income tax expense of $0.5
million was attributable to an update to the estimated tax impact on the gain on
the sale of the Canton facility, the mix of earnings among tax jurisdictions as
well as tax losses for which no benefit is recognized due to valuation
allowances in certain jurisdictions. The effective tax rate of (5.4)% was less
than the statutory tax rate primarily due to the impact of tax losses for which
no benefit was recognized due to valuation allowances in certain jurisdictions
as well as an update to the gain on the sale of the Canton facility.

Nine month period ended September 30, 2022 Compared to the nine months ended September 30, 2021

The condensed consolidated statements of earnings as a percentage of net sales are presented in the following table (in thousands):

                                                                                            Dollar
                                                                                        increase /
Nine months ended September 30,                       2022                 
   2021     (decrease)
Net sales                          $  668,751        100.0 %  $  566,809      100.0 %  $   101,942
Costs and expenses:
Cost of goods sold                    539,304         80.6       441,882       78.0         97,422
Selling, general and                   83,781         12.5        89,237       15.7        (5,456)
administrative
Gain on sale of Canton                      -            -      (30,718)      (5.4)         30,718
Facility, net
Design and development                 48,715          7.3        46,593        8.2          2,122
Operating (loss) income               (3,049)        (0.4)        19,815        3.5       (22,864)
Interest expense, net                   4,848          0.7         5,073        0.9          (225)
Equity in loss (earnings) of              424          0.1       (1,694)      (0.3)          2,118
investee
Other expense, net                      3,067          0.6           127        0.1          2,940
(Loss) income before income          (11,388)        (1.8)        16,309        2.8       (27,697)
taxes
Provision for income taxes              2,895          0.4         6,739        1.2        (3,844)
Net (loss) income                  $ (14,283)        (2.2) %  $    9,570        1.6 %  $  (23,853)

Net sales. Net sales of our reportable segments, excluding inter-segment sales, are summarized in the following table (in thousands):

Dollar percentage

                                                                                   increase      increase
Nine months ended September 30,                   2022                  2021     (decrease)    (decrease)
Control Devices                    $ 257,527      38.5 %  $ 273,581     48.3 %  $  (16,054)         (5.9) %
Electronics                          372,040      55.6      250,440     44.2        121,600          48.6 %
Stoneridge Brazil                     39,184       5.9       42,788      7.5        (3,604)         (8.4) %
Total net sales                    $ 668,751     100.0 %  $ 566,809    100.0 %  $   101,942          18.0 %


Our Control Devices segment net sales decreased $16.1 million due to a decrease
in our European automotive, North American commercial and European commercial
vehicle markets of $10.3 million, $6.0 million and $2.4 million, respectively,
as well as decreases in our China commercial vehicle and automotive markets of
$5.9 million and $0.6 million, respectively. The decrease in our European
markets was due to our exit of the PM sensor business. Net sales for the nine
months ended September 30, 2022 were favorably impacted by an increase in our
North American automotive markets and negotiated price increases of $4.1 million
and $5.7 million, respectively compared to the prior year.

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Our Electronics segment net sales increased due to higher sales volumes in our
European commercial, North American commercial and European off-highway vehicle
markets of $36.2 million, $27.8 million and $9.8 million, respectively. In
addition, 2022 net sales were favorably impacted by both customer pricing for
recoveries of electronic component spot buy purchases and for negotiated price
increases of $52.4 million and $15.2 million, respectively. These increases were
offset by unfavorable euro and Swedish krona foreign currency translation
compared to the prior year of $20.9 million.

Our Stoneridge Brazil segment net sales decreased primarily due to lower sales
in most Stoneridge Brazil product lines offset by favorable foreign currency
translation of $1.8 million and slightly higher sales of tracking devices and
monitoring services.

Net sales by geographic location are summarized in the following table (in
thousands):

                                                                                      Dollar       Percent
                                                                                    increase      increase
Nine months ended September 30,                   2022                  2021      (decrease)    (decrease)
North America                      $ 330,480      49.4 %  $ 288,629     50.9 %  $     41,851          14.5 %
South America                         39,184       5.9       42,788      7.5         (3,604)         (8.4) %
Europe and Other                     299,087      44.7      235,392     41.6          63,695          27.1 %
Total net sales                    $ 668,751     100.0 %  $ 566,809    100.0 %  $    101,942          18.0 %


The increase in North American net sales was mostly attributable to increases in
sales volume in our Electronics segment commercial vehicle market of $27.8
million and our Control Devices segment automotive market of $4.1 million offset
by sales volume decreases in our Control Devices segment commercial vehicle
market of $6.0 million. The decrease in net sales in South America was primarily
due to lower sales in most Stoneridge Brazil product lines offset by favorable
foreign currency translation and slightly higher sales of tracking devices and
monitoring services. The increase in net sales in Europe and Other was due to
customer recoveries of semiconductor spot buy purchases and contractual price
increases of $49.3 million and $11.0 million, respectively and increases in our
European commercial vehicle and European off-highway markets of $33.8 million
and $9.8 million, respectively. This increase for Europe and Other was offset by
decreases in our European automotive market of $10.3 million and China
commercial vehicle and automotive markets of $5.7 million and $0.6 million,
respectively. In addition, Europe and Other net sales decreased $21.6 million
due to unfavorable foreign currency translation.

Cost of Goods Sold and Gross Margin. Cost of goods sold increased compared to
the first nine months of 2021 and our gross margin decreased from 22.0% in the
first nine months of 2021 to 19.4% in the first nine months of 2022. Our
material cost as a percentage of net sales increased from 55.8% in the first
nine months of 2021 to 61.8% in the first nine months of 2022. In 2022, cost of
goods sold increased by $52.4 million, or 7.8% of net sales, due to electronic
component spot buy purchases which were offset by customer recoveries. The
impact of these spot purchases reduced gross margin percent by 1.6%. Also
contributing to the increase in material cost as a percentage of sales were
adverse foreign currency fluctuations and inflation. Overhead as a percentage of
net sales decreased to 14.2% for the first nine months of 2022 compared to 16.6%
for the first nine months of 2021 due to leverage of fixed costs from higher
sales levels.

Gross margin in our Control Devices segment increased primarily due to lower overheads, including the favorable impact of exiting the PM sensor business.

Our Electronics segment gross margin as a percentage of sales decreased
primarily due to increased material costs associated with supply chain
disruptions including spot purchases of electronic components, adverse foreign
exchange fluctuations and inflation offsetting favorable negotiated pricing and
higher contribution from higher sales levels.

Our Stoneridge Brazil segment gross margin as a percentage of sales was in line with the prior year, as unfavorable fixed cost leverage was offset by favorable foreign currency translation.

Selling, General and Administrative. SG&A expenses decreased by $5.5 million
compared to the first nine months of 2021 due to favorable 2022 non-recurring
commercial and legal settlements, an unfavorable adjustment to the fair value of
the SRB earn-out consideration in 2021, lower business realignment costs, the
favorable net adjustments for Brazilian indirect tax credits and 2021 Sarasota
environmental remediation costs in our Control Devices segment. Offsetting these
favorable items were increases in incentive compensation and the 2021 gain on
disposal of the PM Sensor business of $0.7 million.

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Design and development. D&D costs increased by $2.1 million due to increased spending on product launches in our Electronics and Testing Devices segments, offset by higher customer reimbursements for Electronics $6.0 million.

Operating income (loss). Operating income (loss) by segment is summarized in the following table (in thousands):

                                                                    Dollar  

Percent

                                                                increase /    increase /
Nine months ended September 30,          2022          2021     (decrease) 
  (decrease)
Control Devices                    $   18,416    $   50,129    $  (31,713)        (63.3) %
Electronics                               180       (7,793)          7,973         102.3 %
Stoneridge Brazil                       2,370           112          2,258       2,016.1 %
Unallocated corporate                (24,015)      (22,633)        (1,382)         (6.1) %
Operating (loss) income            $  (3,049)    $   19,815    $  (22,864)       (115.4) %

Our Test Equipment segment operating profit decreased due to the gain on the sale of the Canton plant of $30.7 million in 2021.

Operating profit from our Electronics segment improved due to a higher contribution from increased sales levels and lower SG&A expenses.

Our Stoneridge Brazil segment operating income increased primarily due to the
unfavorable adjustment to the fair value of the SRB earn-out consideration in
2021 and favorable net adjustments for Brazilian indirect tax credits.

Our retained operating loss increased primarily due to higher incentive compensation and benefits costs, offset by lower business realignment costs. $0.9 million.

Operating (loss) income by geographic location is summarized in the following
table (in thousands):

                                                                 Dollar       Percent
                                                               increase      increase
Nine months ended September 30,         2022        2021     (decrease)    (decrease)
North America                      $ (3,640)    $ 16,522    $  (20,162)       (122.0) %
South America                          2,370         112          2,258       2,016.1 %
Europe and Other                     (1,779)       3,181        (4,960)       (155.9) %
Operating (loss) income            $ (3,049)    $ 19,815    $  (22,864)       (115.4) %


Our North American operating income decreased due to the gain on the sale of the
Canton Facility in 2021 and higher material costs associated with supply chain
disruptions and inflation. The increase in operating income in South America was
primarily due to an unfavorable adjustment in the fair value of earn-out
consideration in 2021 and favorable net adjustments for Brazilian indirect tax
credits. Our operating results in Europe and Other decreased primarily due to
higher material costs from supply chain disruptions including spot purchases of
electronic components net of recoveries, adverse foreign exchange fluctuations
and inflation offsetting higher contribution from increased sales levels and the
favorable impact of negotiated pricing.

Interest Expense, net. Interest expense, net was $4.8 million and $5.1 million
for the nine months ended September 30, 2022 and 2021. Interest expense, net
decreased due to higher interest income at Stoneridge Brazil offset by higher
Credit Facility interest expense and $0.4 million related to the write-off of
deferred financing fees as a result of Amendment No. 3 to the Credit Facility.

Equity in Loss (Earnings) of Investee. Equity earnings for MSIL were $1.3
million for the nine months ended September 30, 2021. As discussed in Note 15 to
the condensed consolidated financial statements, the Company sold its equity
interest in MSIL on December 30, 2021. Equity loss (earnings) for Autotech were
$0.4 million and $(0.4) million for the nine months ended September 30, 2022 and
2021, respectively.

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Other expenses, net. We recognize certain foreign exchange losses (gains) as a component of other (income) expense, net in the condensed consolidated statement of income. Other expenses, net of $3.1 million
increased by $2.9 million compared to the first nine months of 2021 due to foreign currency transaction losses in our Electronics and Control Devices segments due to strengthening WE dollar offsetting the 2022 gain on the net investment hedge settlement of $3.7 million.

Provision for Income Taxes. For the nine months ended September 30, 2022, income
tax expense of $2.9 million was attributable to the mix of earnings among tax
jurisdictions as well as tax losses for which no benefit is recognized due to
valuation allowances in certain jurisdictions. The effective tax rate of (25.4)%
varies from the statutory tax rate primarily due to the impact of tax losses for
which no benefit is recognized due to valuation allowances in certain
jurisdictions.

For the nine months ended September 30, 2021, income tax expense of $6.7 million
was attributable to the gain on the sale of the Canton facility, the mix of
earnings among tax jurisdictions as well as tax losses for which no benefit was
recognized due to valuation allowances in certain jurisdictions. The effective
tax rate of 41.3% was greater than the statutory tax rate primarily due to the
impact of tax losses for which no benefit was recognized due to valuation
allowances in certain jurisdictions as well as U.S. taxes on foreign earnings,
partially offset by tax incentives.

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