What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-02-24 compared with 2020-02-27 · 440 added, 376 removed, 941 unchanged (46% of the section changed)

44 unchanged sentences

For example, we tested management review controls over the appropriateness of assumptions management used in the calculation and the completeness of warranty claims.

To evaluate the reserve for product warranty and recall, we performed audit procedures that included, among others, testing the completeness and accuracy of the underlying claims data and costs used in the computation of management’s estimate, performing inquiries of the Company’s quality control team, and obtaining legal confirmation letters to evaluate the status and assessment of certain reserves.

To evaluate the reserve for product warranty and recall, we performed audit procedures that included, among others, testing the completeness and accuracy of the underlying claims data and costs used in the computation of management’s estimate, performing inquiries of the Company’s quality control team, and obtaining a legal confirmation letter to evaluate the status and assessment of certain reserves.

We assessed the historical accuracy of management’s product warranty and recall reserves and performed sensitivity analyses of significant assumptions to evaluate the impact to the reserve that would result from changes in the assumptions.

3 unchanged sentences

The Company will be required to pay additional earn-out consideration, which is not capped, based on Stoneridge Brazil’s financial performance in either 2020 or 2021.

The fair value of the Stoneridge Brazil earn-out consideration, which approximated $12.0 million as of December 31, 2019, is based on discounted cash flows utilizing forecasted earnings before taxes, interest, depreciation, and amortization.

The estimated fair value of the Stoneridge Brazil earn-out consideration, which approximated $5.8 million as of December 31, 2020, is based on discounted cash flows utilizing forecasted earnings before taxes, interest, depreciation, and amortization.

Auditing management’s estimate of the fair value of the earn-out consideration was complex and highly judgmental due to the significant estimation required.

58 unchanged sentences

Design and development

Operating income

Operating (loss) income

Interest expense, net

Equity in earnings of investee

Other expense (income), net

Income before income taxes

Provision for income taxes

Net loss attributable to noncontrolling interest

Net income attributable to Stoneridge, Inc.

Earnings per share attributable to Stoneridge, Inc.:

Other (income) expense, net

(Loss) income before income taxes

(Benefit) provision for income taxes

Net (loss) income

(Loss) earnings per share:

Weighted-average shares outstanding:

4 unchanged sentences

Year ended December 31, (in thousands)

Net loss attributable to noncontrolling interest

Net income attributable to Stoneridge, Inc.

Other comprehensive income (loss), net of tax attributable to Stoneridge, Inc.:

Net (loss) income

Other comprehensive income (loss), net of tax:

Foreign currency translation

Unrealized (loss) gain on derivatives (1)

Other comprehensive loss, net of tax attributable to Stoneridge, Inc.

Comprehensive income attributable to Stoneridge, Inc.

Other comprehensive income (loss), net of tax

Comprehensive (loss) income

(1) Net of tax (benefit) expense of $( 223 ) , $( 78 ) and $ 156 for the years ended December 31, 2020, 2019 and 2018, respectively.

5 unchanged sentences

OPERATING ACTIVITIES:

Net (loss) income

Adjustments to reconcile net income to net cash provided by (used for) operating activities:

2 unchanged sentences

Earnings of equity method investee

(Gain) loss on sale of fixed assets

Loss (gain) on sale of fixed assets

Share-based compensation expense

1 unchanged sentence

Gain on disposal of Non-core Products, net

Property, plant and equipment impairment charge

Intangible impairment charge

Change in fair value of earn-out contingent consideration

Changes in operating assets and liabilities, net of effect of business combination:

Changes in operating assets and liabilities:

Accounts receivable, net

9 unchanged sentences

Proceeds from disposal of Non-core Products

Business acquisitions, net of cash acquired

Investment in venture capital fund

1 unchanged sentence

FINANCING ACTIVITIES:

Acquisition of noncontrolling interest, including transaction costs

Revolving credit facility borrowings

6 unchanged sentences

Repurchase of Common Shares to satisfy employee tax withholding

Net cash (used for) provided by financing activities

Net cash provided by (used for) financing activities

Effect of exchange rate changes on cash and cash equivalents

4 unchanged sentences

Cash paid for interest

Cash paid for income taxes, net

Cash (received) paid for income taxes, net

Supplemental disclosure of non-cash activity:

Adoption of ASU 2019-12 (Note 2)

The accompanying notes are an integral part of these consolidated financial statements .

3 unchanged sentences

comprehensive

Noncontrolling

shareholders'

1 unchanged sentence

BALANCE DECEMBER 31, 2017

Net income (loss)

Unrealized gain on derivatives, net

Currency translation adjustments

Acquisition of noncontrolling interest, net

Issuance of Common Shares

Repurchased Common Shares for treasury, net

Share-based compensation

Adoption of ASU 2016-09 (Note 2)

Share-based compensation, net

Cumulative effect of an accounting change

BALANCE DECEMBER 31, 2018

3 unchanged sentences

Repurchased Common Shares for treasury, net

Share-based compensation

Cumulative effect of an accounting change

Common Share repurchase program

Share-based compensation, net

BALANCE DECEMBER 31, 2019

Unrealized gain on derivatives, net

Unrealized loss on derivatives, net

Currency translation adjustments

2 unchanged sentences

Common Share repurchase program

Share-based compensation

Share-based compensation, net

Adoption of ASU 2019-12 (Note 2)

BALANCE DECEMBER 31, 2020

10 unchanged sentences

The accompanying consolidated financial statements include the accounts of Stoneridge, Inc.

and its wholly-owned and majority-owned subsidiaries (collectively, the “Company”).

and its wholly-owned subsidiaries (collectively, the “Company”).

Intercompany transactions and balances have been eliminated in consolidation.

The Company analyzes its ownership interests in accordance with Accounting Standards Codification (“ASC”) “Consolidations (Topic 810)” to determine whether they are a variable interest entity and, if so, whether the Company is the primary beneficiary.

On January 31, 2017, the Company acquired Exploitatiemaatschappij Berghaaf B.V.

(“Orlaco”), an electronics business which designs, manufactures and sells camera-based vision systems, monitors and related products.

The acquisition was accounted for as a business combination, and accordingly, the Company’s consolidated financial statements herein include the results of Orlaco from the date of acquisition.

See Acquisitions in Note 2 below to the consolidated financial statements for additional details regarding the Orlaco acquisition.

The Company had a 74 % controlling interest in PST Eletrônica Ltda.

(“Stoneridge Brazil”) from December 31, 2011 through May 15, 2017.

On May 16, 2017, the Company acquired the remaining 26 % noncontrolling interest in Stoneridge Brazil, which was accounted for as an equity transaction.

As such, Stoneridge Brazil is now a wholly owned subsidiary.

See Note 4 to the consolidated financial statements for additional details regarding the acquisition of Stoneridge Brazil’s noncontrolling interest.

The Company’s investment in Minda Stoneridge Instruments Ltd.

8 unchanged sentences

Cash and cash equivalents are stated at cost, which approximates fair value, due to the highly liquid nature and short-term duration of the underlying securities with original maturities of 90 days or less.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Accounts Receivable and Concentration of Credit Risk

Revenues are principally generated from the automotive, commercial, off-highway, motorcycle and agricultural vehicle markets.

The Company’s largest customers are Ford Motor Company and Volvo, primarily related to the Control Devices and Electronics reportable segments and accounted for the following percentages of consolidated net sales for the years ended December 31, 2019, 2018 and 2017:

Year ended December 31

Ford Motor Company

Accounts receivable are recorded at the invoice price, net of an estimate of allowance for doubtful accounts and other reserves.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Allowance for Doubtful Accounts

4 unchanged sentences

The Company does not have collateral requirements with its customers.

Sales of Accounts Receivable

In prior years, the Company’s Stoneridge Brazil segment sold selected accounts receivable on a full recourse basis to an unrelated financial institution in Brazil.

Stoneridge Brazil accounts for these transactions as sales of accounts receivable.

As such, in accordance with ASC 860, “Transfers and Servicing”, the sales of accounts receivable are reflected as a reduction of accounts receivable in the consolidated balance sheets and the loss on sale is recorded within interest expense, net in the consolidated statements of operations while the proceeds received from the sale are included in the cash flows from operating activities in the consolidated statements of cash flows.

During 2017, Stoneridge Brazil sold $ 2,520 ( 7,983 Brazilian real (“R$”)) of accounts receivable at a loss of $ 86 (R $ 273 ), which represents the implicit interest on the transaction, and received proceeds of $ 2,434 (R $ 7,710 ).

Stoneridge Brazil did not have any remaining credit exposure at December 31, 2017 related to the receivables sold.

During 2019 and 2018, Stoneridge Brazil did not sell any of its accounts receivable.

Inventories are valued at the lower of cost (using either the first-in, first-out (“FIFO”) or average cost methods) or net realizable value.

11 unchanged sentences

Inventory valued using the average cost method was $ 8,240 and $ 10,539 at December 31, 2020 and 2019, respectively.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Pre-production Costs Related to Long-term Supply Arrangements

4 unchanged sentences

At December 31, 2020 and 2019, $ 14,259 and $ 7,544 , respectively, were recorded as a component of prepaid expenses and other current assets on the consolidated balance sheets while the remaining amounts were recorded as a component of investments and other long-term assets, net.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Disposal of Non-Core Products

2 unchanged sentences

On the same day pursuant to the APA, in exchange for $ 40,000 (subject to a post-closing inventory adjustment which was a payment to SMP of $ 1,573 ) and the assumption of certain liabilities, the Company and SCD sold to SMP, product lines and assets related to certain non-core switches and connectors (the “Non-core Products”).

On April 1, 2019, the Company and SMP also entered into certain ancillary agreements, including a transition services agreement, a contract manufacturing agreement and a supply agreement, pursuant to which the Company will provide and be compensated for certain manufacturing, transitional, and administrative and support services to SMP on a short-term basis.

On April 1, 2019, the Company and SMP also entered into certain ancillary agreements, including a transition services agreement, a contract manufacturing agreement and a supply agreement, pursuant to which the Company provided and was compensated for certain manufacturing, transitional, and administrative and support services to SMP on a short-term basis.

The products related to the Non-core Products were manufactured in Juarez, Mexico and Canton, Massachusetts, and include ball switches, ignition switches, rotary switches, courtesy lamps, toggle switches, headlamp switches and other related components.

On April 1, 2019, the Company’s Control Devices segment recognized net sales and costs of goods sold of $ 4,160 and $ 2,775 , respectively, for the one-time sale of Non-core Product finished goods inventory and a gain on disposal of $ 33,921 ,net for the sale of fixed assets, intellectual property and customer lists associated with the Non-core Products less transaction costs.

During the three months ended March 31, 2019, the Company recognized transaction costs associated with the disposal of Control Devices’ Non-core Products of $ 322 within SG&A.

The Company received $ 1,824 for services provided pursuant to the transition services agreement which were recognized as a reduction in SG&A for the year ended December 31, 2019.

On April 1, 2019, the Company’s Control Devices segment recognized net sales and costs of goods sold (“COGS”) of $ 4,160 and $ 2,775 , respectively, for the one-time sale of Non-core Product finished goods inventory and a gain on disposal of $ 33,921 ,net for the sale of fixed assets, intellectual property and customer lists associated with the Non-core Products less transaction costs.

The Company recognized transaction costs associated with the disposal of Control Devices’ Non-core Products of $ 322 within selling, general and administrative (“SG&A”) expenses for the year ended December 31, 2019.

The Company received $ 21 and $ 1,824 for services provided pursuant to the transition services agreement which were recognized as a reduction in SG&A for the years ended December 31, 2020 and 2019, respectively.

Pursuant to the contract manufacturing agreement, the Company recognized sales and operating income for the production of Non-core Products of $ 26,304 and $ 1,458 for the year ended December 31, 2019, respectively.

The Company also received $ 745 for reimbursement of retention and facility costs from SMP pursuant to the contract manufacturing agreement which was recognized as a reduction to SG&A for the year ended December 31, 2019.

Non-core Products net sales and operating income, including sales to SMP pursuant to the contract manufacturing agreement, were $ 41,560 and $ 4,831 for the year ended December 31, 2019, respectively, $ 44,537 and $ 9,086 for the year ended December 31, 2018, respectively, and $ 43,339 and $ 7,991 for the year ended December 31, 2017, respectively.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

On January 31, 2017, Stoneridge B.V., an indirect wholly-owned subsidiary of Stoneridge, Inc., acquired Orlaco.

There were no Non-core Product net sales for the year ended December 31, 2020.

Non-core Products net sales and operating income, including sales to SMP pursuant to the contract manufacturing agreement, were $ 41,560 and $ 4,831 for the year ended December 31, 2019, respectively, and $ 44,537 and $ 9,086 for the year ended December 31, 2018, respectively.

On June 17, 2020, the Company and SMP terminated the transition services agreement and the contract manufacturing agreement.

On January 31, 2017, Stoneridge B.V., an indirect wholly-owned subsidiary of Stoneridge, Inc., acquired Exploitatiemaatschappij Berghaaf B.V.

Orlaco designs, manufactures and sells camera-based vision systems, monitors and related products primarily to the heavy off-road machinery, commercial vehicle, lifting crane and warehousing and logistics industries.

Stoneridge and Orlaco jointly developed the MirrorEye camera monitor system, which is a vision-based system solution to improve the safety and fuel economy for commercial vehicles.

Stoneridge and Orlaco jointly developed the MirrorEye camera monitor system, which is a vision-based system solution to improve the safety and fuel economy of commercial vehicles.

The MirrorEye camera monitor system integrates Orlaco’s vision processing technology and Stoneridge’s driver information capabilities as well as the combined software capabilities of both businesses.

5 unchanged sentences

See Note 10 for additional details on the Orlaco contingent consideration.

The Company recognized $ 1,259 of acquisition related costs in the consolidated statement of operations as a component of selling, general and administrative (“SG&A”) expense for the year ended December 31, 2017.

There were no acquisition related costs for the years ended December 31, 2019 or 2018.

The Company’s statement of operations included $ 1,636 of expense in cost of goods sold (“COGS”) for the year ended December 31, 2017 associated with the step-up of the Orlaco inventory to fair value.

The Company’s statement of operations included $ 369 and $ 4,853 of expense for the fair value adjustment for earn-out consideration in SG&A expenses for the years ended December 31, 2018 and 2017, respectively.

The earn-out consideration obligation related to Orlaco of $ 8,474 was paid in March 2019 and recorded in the consolidated statement of cash flows within operating and financing activities in the amounts of $ 5,080 and $ 3,394 , respectively, for the year ended December 31, 2019.

The Orlaco earn-out consideration reached the capped amount of € 7,500 as of the quarter ended March 31, 2018 due to actual performance exceeding forecasted performance and remained at the capped amount until it was paid in March 2019.

The following unaudited pro forma information reflects the Company’s consolidated results of operations as if the acquisition had taken place on January 1, 2017.

The unaudited pro forma information is not necessarily indicative of the results of operations that the Company would have reported had the transaction actually occurred at the beginning of these periods, nor is it necessarily indicative of future results.

Year ended December 31,

Net income attributable to Stoneridge, Inc.

and subsidiaries

Property, Plant and Equipment

The Company’s statement of operations included $ 369 of expense for the fair value adjustment for earn-out consideration in SG&A expenses for the years ended December 31, 2018.

STONERIDGE, INC.

2 unchanged sentences

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

Property, Plant and Equipment

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

22 unchanged sentences

When assets are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss on the disposition is recorded in the consolidated statements of operations as a component of SG&A expenses.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Impairment of Long-Lived or Finite-Lived Assets

8 unchanged sentences

The occurrence of certain events, including changes in economic and competitive conditions, could impact cash flows eventually realized and management’s ability to accurately assess whether an asset is impaired.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

On May 19, 2020, the Company committed to the strategic exit of its Control Devices particulate matter (“PM”) sensor product line.

As a result of the strategic exit of the PM sensor product line the Company determined an impairment indicator existed and performed a recoverability test of the related long-lived assets.

The Company identified that there are two asset groups comprised of PM sensor fixed assets at the Company’s Lexington, Ohio and Tallinn, Estonia facilities.

As a result of the recoverability test performed, the Company determined that the undiscounted cash flows did not exceed the carrying value of the PM sensor fixed assets at the Company’s Tallinn, Estonia facility.

As such, an impairment loss of $ 2,326 was recorded based on the difference between the fair value and the carrying value of the assets.

The Company used the income approach to determine the fair value of the PM sensor fixed assets at the Tallinn, Estonia facility.

During the year ended December 31, 2020, the impairment loss of $ 2,326 was recorded on the Company’s consolidated statement of operations within SG&A expense.

Goodwill and Other Intangible Assets

6 unchanged sentences

If the net book value of a reporting unit exceeds its fair value, an impairment loss is measured and recognized.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Company utilizes an income statement approach to estimate the fair value of a reporting unit and a market valuation approach to further support this analysis.

17 unchanged sentences

The Company’s cumulative goodwill impairment loss since inception was $ 300,083 at December 31, 2020 and 2019, which includes Stoneridge Brazil’s goodwill impairment in 2014 and goodwill impairment recorded by the Company’s Control Devices segment in 2008 and 2004.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Other Intangible Assets

5 unchanged sentences

Customer lists

Capitalized software development

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Other intangible assets, net at December 31, 2020 for customer lists, tradenames, technology and capitalized software development include $ 23,004 , $ 4,678 , $ 2,759 and $ 6,330 , respectively, related to the Electronics segment.

6 unchanged sentences

Amortization expense is included as a component of SG&A on the consolidated statements of operations.

Annual amortization expense for intangible assets is estimated to be approximately $ 5,722 for the years 2020 through 2024 .

Annual amortization expense for intangible assets is estimated to be approximately $ 5,200 for the years 2021 and 2022 and approximately $4,300 for the year 2023 through 2025 .

The weighted-average remaining amortization period is approximately 10 years .

For the year ended December 31, 2018 the Company recognized $ 202 of intangible impairment charge related to the Electronics segment customer lists as a result of the European Aftermarket restructuring as noted in Note 13.

For the year ended December 31, 2018, the Company recognized $ 202 of intangible impairment charge related to the Electronics segment customer lists as a result of the European Aftermarket restructuring as discussed in Note 13.

There were no intangible impairment charges for the years ended December 31, 2020 or 2019.

3 unchanged sentences

Compensation related liabilities

Contingent consideration (A)

Product warranty and recall obligations

Total accrued expenses and other current liabilities

(A) Accrued contingent consideration includes the Orlaco earn-out consideration, as referenced in Note 2 and Note 10, and is included in accrued expenses and other current liabilities for the year ended December 31, 2018.

Orlaco earn-out consideration of $ 8,474 was paid in March 2019.

(B) “Other” is comprised of miscellaneous accruals, none of which individually contributed a significant portion of the total.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(A) “Other” is comprised of miscellaneous accruals, none of which individually contributed a significant portion of the total.

The Company accounts for income taxes using the liability method.

7 unchanged sentences

To the extent the Company prevails in matters for which a liability for an unrecognized tax benefit is established or is required to pay amounts in excess of the liability, the Company’s effective tax rate in a given financial statement period may be affected.

The Tax Cuts and Jobs Act (“Tax Legislation”) created a provision known as Global Intangible Low-Taxed Income (“GILTI”) that imposes a tax on certain earnings of foreign subsidiaries.

The Tax Cuts and Jobs Act of 2017 (“Tax Legislation”) created a provision known as Global Intangible Low-Taxed Income (“GILTI”) that imposes a tax on certain earnings of foreign subsidiaries.

The Company has made an accounting policy election to reflect GILTI taxes, if any, as a current period tax expense when incurred.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Currency Translation

2 unchanged sentences

Adjustments resulting from translation of financial statements are reflected as a component of accumulated other comprehensive loss in the Company’s consolidated balance sheets.

Foreign currency transactions are remeasured into the functional currency using translation rates in effect at the time of the transaction with the resulting adjustments included on the consolidated statements of operations within other expense (income), net.

These foreign currency transaction losses (gains), including the impact of hedging activities, were $ 372 , $( 487 ) and $ 500 for the years ended December 31, 2019, 2018 and 2017, respectively.

These foreign currency transaction (gains) losses, including the impact of hedging activities, were $( 997 ), $ 372 and $( 487 ) for the years ended December 31, 2020, 2019 and 2018, respectively.

Revenue Recognition and Sales Commitments

14 unchanged sentences

Shipping and handling costs are included in COGS on the consolidated statements of operations.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Product Warranty and Recall Reserves

14 unchanged sentences

Product warranty and recall at end of period

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Design and Development Costs

8 unchanged sentences

See Note 8 for additional details on share-based compensation plans.

Total compensation expense recognized as a component of SG&A expense on the consolidated statements of operations for share-based compensation arrangements was $ 6,191 , which included accelerated expense associated with the retirement of eligible employees, $ 5,632 , which included the forfeiture of certain grants associated with employee resignations, and $ 7,265 , related to higher attainment of performance-based awards and accelerated expense associated with the retirement of eligible employees, for the years ended December 31, 2019, 2018 and 2017, respectively.

Total compensation expense recognized as a component of SG&A expense on the consolidated statements of operations for share-based compensation arrangements was $ 5,888 , $ 6,191 and $ 5,632 for the years ended December 31, 2020, 2019 and 2018, respectively.

The 2020 and 2019 amounts included accelerated expense associated with the retirement of eligible employees and the 2018 amount included the forfeiture of certain grants associated with employee resignations.

There was no share-based compensation expense capitalized in inventory during 2020, 2019 or 2018.

Share-based compensation expense is calculated using estimated volatility and forfeitures based on historical data, future expectations and the expected term of the share-based compensation awards.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Financial Instruments and Derivative Financial Instruments

Financial instruments, including derivative financial instruments, held by the Company include cash and cash equivalents, accounts receivable, accounts payable, long-term debt and foreign currency forward contracts.

The carrying value of cash and cash equivalents, accounts receivable and accounts payable is considered to be representative of fair value because of the short maturity of these instruments.

2 unchanged sentences

The Company accounts for Common Shares held in treasury under the cost method (applied on a FIFO basis) and includes such shares as a reduction of total shareholders’ equity.

Earnings Per Share

Basic earnings per share was computed by dividing net income attributable to Stoneridge Inc.

by the weighted-average number of Common Shares outstanding for each respective period.

Diluted earnings per share was calculated by dividing net income attributable to Stoneridge, Inc.

by the weighted-average of all potentially dilutive Common Shares that were outstanding during the periods presented.

(Loss) Earnings Per Share

Basic (loss) earnings per share was computed by dividing net (loss) income by the weighted-average number of Common Shares outstanding for each respective period.

Diluted earnings per share was calculated by dividing net (loss) income by the weighted-average of all potentially dilutive Common Shares that were outstanding during the periods presented.

However, for all periods in which the Company recognized a net loss, the Company did not recognize the effect of the potential dilutive securities as their inclusion would be anti-dilutive.

Potential dilutive shares of 372,937 for the year ended December 31, 2020 were excluded from diluted loss per share because the effect would have been anti-dilutive.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Actual weighted-average Common Shares outstanding used in calculating basic and diluted net income per share were as follows:

Year ended December 31,

Basic weighted-average Common Shares outstanding

8 unchanged sentences

In connection with the 2019 Credit Facility, the Company wrote off a portion of the previously recorded deferred financing costs of $ 275 in interest expense, net during the year ended December 31, 2019.

See Note 5 to the consolidated financial statements for additional details regarding the 2019 Credit Facility and related deferred financing costs.

The Company has elected to continue to present deferred financing costs related to the Credit Facility within long-term assets in the Company’s consolidated balance sheets.

In 2020, the Company capitalized an additional $ 1,079 of deferred financing costs as a result of entering into Amendment No.

1 to the 2019 Credit Facility.

See Note 5 to the consolidated financial statements for additional details regarding the 2019 Credit Facility and related deferred financing costs.The Company has elected to continue to present deferred financing costs related to the Credit Facility within long-term assets in the Company’s consolidated balance sheets.

Deferred financing costs, net, were $ 2,187 and $ 1,625 , as of December 31, 2020 and 2019, respectively.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Equity and Changes in Accumulated Other Comprehensive Loss by Component

7 unchanged sentences

The Company excluded the potential share impact of the remaining shares from the computation of diluted earnings per share as these Common Shares are anti-dilutive for year ended December 31, 2019.

At final settlement, the Bank may be required to deliver additional Common Shares to the Company, or, under certain circumstances, the Company may be required to deliver Common Shares or may elect to make a cash payment to the Bank, based generally on the average of the daily volume-weighted average prices of the Company’s Common Shares during a term set forth in the ASR Agreement.

The ASR Agreement contains provisions customary for agreements of this type, including provisions for adjustments to the transaction terms, the circumstances generally under which the ASR Agreement may be accelerated, extended or terminated early by the Bank and various acknowledgments, representations and warranties made by the parties to one another.

The ASR Agreement expires on May 8, 2020.

See Note 16 for subsequent event related to the ASR Agreement.

On February 25, 2020, the Bank notified the Company that it terminated early its commitment pursuant the ASR Agreement and would deliver 364,604 Common Shares on February 27, 2020 based on the volume weighted average price of our Common Shares during the term set forth in the ASR Agreement.

The Bank’s notice of early termination and the subsequent delivery of Common Shares represents the final settlement of the Company’s share repurchase program pursuant to the accelerated share repurchase agreement.

These Common Shares became treasury shares and were recorded as a $ 10,000 reduction to shareholders’ equity as Common Shares held in treasury with the offset of $ 10,000 to additional paid-in capital.

On February 24, 2020, the Company’s Board of Directors authorized a new repurchase program of $ 50,000 for the repurchase of the Company’s outstanding Common Shares over the next 18 months .

The repurchases may be made from time to time in either open market transactions or in privately negotiated transactions.

Repurchases may also be made under Rule 10b-18 plans, which permit Common Shares to be repurchased through pre-determined criteria.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

On March 3, 2020, under the new repurchase program the Company entered into a 10b-18 Agreement Letter (the “10b-18 Agreement”), with the Bank to purchase Company Common Shares, under purchasing conditions of Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended (“Rule 10b-18”), for up to $ 5,000 .

Under the terms of the 10b-18 Agreement, commencing March 3, 2020 and ending March 6, 2020, the Company received delivery of a total of 242,634 Company Common Shares for the amount of $ 4,995 .

These Common Shares became treasury shares and were recorded as a $ 4,995 reduction to shareholders’ equity as Common Shares held in treasury.

In April 2020, the Company announced that it was temporarily suspending the share repurchase program in response to uncertainty surrounding the duration and magnitude of the impact of COVID-19.

Accumulated Other Comprehensive Loss

2 unchanged sentences

Balance at January 1, 2020

Other comprehensive (loss) income before reclassifications

Other comprehensive income (loss) before reclassifications

Amounts reclassified from accumulated other comprehensive loss

Net other comprehensive loss, net of tax

Net other comprehensive income (loss), net of tax

Balance at December 31, 2020

2 unchanged sentences

Amounts reclassified from accumulated other comprehensive loss

Net other comprehensive (loss) income, net of tax

Net other comprehensive loss, net of tax

Balance at December 31, 2019

Reclassifications

Certain prior period amounts have been reclassified to conform to their 2019 presentation in the consolidated financial statements.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Recently Adopted Accounting Standards

In January 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This guidance gives entities the option to reclassify to retained earnings the tax effects resulting from the enactment of the Tax Cuts and Jobs Act related to items in accumulated other comprehensive income (“AOCI”) that the FASB refers to as having been stranded in AOCI.

The new guidance was effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years.

The Company adopted this standard on January 1, 2019, which did not have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”, which requires that a lessee recognize assets and liabilities on the balance sheet for all leases with a lease term of more than twelve months, with the result being the recognition of a right of use asset and a lease liability.

The new standard was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

The Company adopted this standard as of January 1, 2019 using the modified retrospective approach and elected the transition option to use the effective date January 1, 2019, as the date of initial application.

The Company did not adjust its comparative period financial statements for effects of the ASU 2016-02, or make the new required lease disclosures for periods before the effective date.

The Company recognized its transition adjustment as of the effective date.

In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard.

The impact of the adoption resulted in the recognition of right-of-use (“ROU”) assets and lease liabilities on the consolidated balance sheet of $ 20,618 and $ 20,856 , respectively, as of January 1, 2019.

This standard did not have a material impact on the Company’s consolidated results of operations and cash flows upon adoption.

Recently Issued Accounting Standards Not Yet Adopted as of December 31, 2019

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740):

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The provisions of this ASU are effective for years beginning after December 15, 2020, with early adoption permitted.

The Company is currently evaluating the impact of this ASU on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The guidance in ASU 2018-15 clarifies the accounting for implementation costs in cloud computing arrangements.

ASU 2018-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, and earlier adoption is permitted including adoption in any interim period.

The Company is currently evaluating the impact of its pending adoption of ASU 2018-15.

The Company will adopt this standard as of January 1, 2020 and it is not expected to have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” The guidance in ASU 2018-13 changes disclosure requirements related to fair value measurements as part of the disclosure framework project.

The disclosure framework project aims to improve the effectiveness of disclosures in the notes to the financial statements by focusing on requirements that clearly communicate the most important information to users of the financial statements.

This guidance is effective for fiscal years beginning after December 15, 2019, with early adoption permitted.

The Company is currently evaluating the impact of its pending adoption of ASU 2018-13.

The Company will adopt this standard as of January 1, 2020 and determined the impact is not material to its consolidated financial statements.

The Company adopted this standard prospectively as of January 1, 2020 using the modified retrospective basis.

The impact of the adoption was a reduction to deferred tax liabilities and an increase to retained earnings of $ 13,750 on the consolidated balance sheet as of December 31, 2020.

The adoption of this standard did not have an impact on the Company’s consolidated results of operations and cash flows.

STONERIDGE, INC.

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

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):

ASU 2018-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019.

The Company adopted this standard prospectively as of January 1, 2020 and it did not have a material impact on the Company’s consolidated financial statements.

This guidance is effective for fiscal years beginning after December 15, 2019, with early adoption permitted.

The Company adopted this standard as of January 1, 2020 and it did not have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments”, which requires measurement and recognition of expected credit losses for financial assets held and requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses.

ASU 2016-13 is effective for public business entities for annual periods beginning after December 15, 2019, and early adoption is permitted for annual periods beginning after December 15, 2018.

The Company will adopt this standard as of January 1, 2020 and determined the impact is not material to its consolidated financial statements.

The Company adopted ASC 606 using the modified retrospective method as applied to customer contracts that were not completed as of January 1, 2018.

As a result, financial information for reporting periods beginning after January 1, 2018 are presented under ASC 606, while comparative financial information has not been adjusted and continues to be reported in accordance with the Company’s historical accounting policy for revenue recognition prior to the adoption of ASC 606.

The Company did not record a cumulative adjustment related to the adoption of ASC 606, and the effects of the adoption were not significant.

ASU 2016-13 is effective for public business entities for annual periods beginning after December 15, 2019.

The guidance allows for various methods for measuring expected credit losses.

The Company has elected to apply a historical loss rate based on historical write-offs by region, adjusted for current economic conditions and forecasts about future economic conditions that are reasonable and supportable.

The Company adopted this standard as of January 1, 2020 and it did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Standards Not Yet Adopted as of December 31, 2020

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The guidance in ASU 2020-04 provides temporary optional expedient and exceptions to the guidance in U.S.

GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”) (also known as the “reference rate reform”).

The guidance allows companies to elect not to apply certain modification accounting requirements to contracts affected by the reference rate reform, if certain criteria are met.

The guidance will also allow companies to elect various optional expedients which would allow them to continue to apply hedge accounting for hedging relationships affected by the reference rate reform, if certain criteria are met.

The new standard was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022.

As of December 31, 2020, the Company has not yet had contracts modified due to rate reform.

Revenue is recognized when obligations under the terms of a contract with our customer are satisfied;

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Customer returns only occur if products do not meet the specifications of the contract and are not connected to any repurchase obligations of the Company.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Company does not have any financing components or significant payment terms as payment occurs shortly after the point of sale.

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We sell these products principally to the automotive market in the North American, European, and Asia Pacific regions.

To a lesser extent, we also sell these products to the commercial vehicle and agricultural markets in our North America, European and Asia Pacific regions.

To a lesser extent, we also sell these products to the commercial vehicle and agricultural markets in the North American, European and Asia Pacific regions.

Our customers included in these markets primarily consist of original equipment manufacturers (“OEM”) and companies supplying components directly to the OEMs (“Tier 1 supplier”).

Our Electronics segment designs and manufactures driver information systems, camera-based vision systems, connectivity and compliance products and electronic control units.

These products are sold principally to the commercial vehicle market primarily through our OEM and aftermarket channels in the North American and European regions, and to a lesser extent, the Asia Pacific region.

The camera-based vision systems and related products are sold principally to the off-highway vehicle market in the North American and European regions.

These products are sold principally to the commercial vehicle market primarily through our OEM and aftermarket channels in the European and North American regions, and to a lesser extent, the Asia Pacific region.

The camera-based vision systems and related products are sold principally to the off-highway vehicle market in the European and North American regions.

Stoneridge Brazil.

Our Stoneridge Brazil segment primarily serves the South American region and specializes in the design, manufacture and sale of vehicle tracking devices and monitoring services, vehicle security alarms and convenience accessories, in-vehicle audio and infotainment devices and telematics solutions.

Stoneridge Brazil sells its products through the aftermarket distribution channel, to factory authorized dealer installers, also referred to as original equipment services, direct to OEMs and through mass merchandisers.

In addition, monitoring services and tracking devices are sold directly to corporate and individual consumers.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Our Stoneridge Brazil segment (also referred to as “PST” in prior filings) primarily serves the South American region and specializes in the design, manufacture and sale of vehicle tracking devices and monitoring services, vehicle security alarms and convenience accessories, in-vehicle audio and infotainment devices and telematics solutions.

In addition, monitoring services and tracking devices are sold directly to corporate customers and individual consumers.

The following tables disaggregate our revenue by reportable segment and geographical location (1) for the periods ended December 31, 2020, 2019 and 2018:

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Certain customer contracts contain an enforceable right to payment if the customer terminates the contract for convenience and therefore are recognized over time using the cost to complete input method.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Our aftermarket products are focused on meeting the demand for repair and replacement parts, compliance parts and accessories and are sold primarily to aftermarket distributors and mass retailers in our South American, European and North American markets.

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The Company had no material contract assets, contract liabilities or capitalized contract acquisition costs as of December 31, 2020 or 2019.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Minda Stoneridge Instruments Ltd.

The Company has a 49 % interest in MSIL, a company based in India that manufactures electronics, instrumentation equipment and sensors for the motorcycle, commercial vehicle and automotive markets.

The Company has a 49 % equity interest in MSIL, a company based in India that manufactures electronics, instrumentation equipment and sensors primarily for the motorcycle, commercial vehicle and automotive markets.

The investment is accounted for under the equity method of accounting.

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The Company had a 74 % controlling interest in Stoneridge Brazil from December 31, 2011 through May 15, 2017.

On May 16, 2017, the Company acquired the remaining 26 % noncontrolling interest in Stoneridge Brazil for $ 1,500 in cash along with earn-out consideration.

The Company will be required to pay additional earn-out consideration, which is not capped, based on Stoneridge Brazil’s financial performance in either 2020 or 2021.

On May 16, 2017, the Company acquired the remaining 26 % noncontrolling interest in Stoneridge Brazil.

As part of the acquisition agreement, the Company will be required to pay additional earn-out consideration, which is not capped, based on Stoneridge Brazil’s financial performance in either 2020 or 2021.

See Note 10 for the fair value and foreign currency adjustments of the earn-out consideration for the current and prior periods.

The transaction was accounted for as an equity transaction, and therefore no gain or loss was recognized in the statement of operations or comprehensive income.

The noncontrolling interest balance on the May 16, 2017 acquisition date was $ 14,458 , of which $ 31,453 and ($ 16,995 ) was related to the carrying value of the investment and foreign currency translation, respectively, and accordingly these amounts were reclassified to additional paid-in capital and accumulated other comprehensive loss, respectively.

The following table sets forth a summary of the changes in noncontrolling interest:

Year ended December 31

Noncontrolling interest at beginning of period

Foreign currency translation

Comprehensive income

Acquisition of noncontrolling interest

Noncontrolling interest at end of period

Stoneridge Brazil has dividends payable to former noncontrolling interest holders of Brazilian real (“R$”) 24,154 ($ 6,010 ) and R $ 23,204 ( $ 5,980 ) as of December 31, 2019 and 2018, respectively.

T he dividends payable balance includes monetary correction of R $ 3,703 ($ 921 ) and R $ 2,752 ($ 709 ) as of December 31, 2019 and 2018, respectively, based on the Brazilian National Extended Consumer Price inflation index (“IPCA”).

The dividend payable related to Stoneridge Brazil was recorded within other current liabilities on the consolidated balance sheet as of December 31, 2019 and 2018.

Stoneridge Brazil had dividends payable to former noncontrolling interest holders of Brazilian real (“R$”) 24,154 ($ 6,010 ) as of December 31, 2019.

The dividends payable balance included monetary correction of R$ 3,703 ($ 921 ) as of December 31, 2019, based on the Brazilian National Extended Consumer Price inflation index (“IPCA”).

The dividend payable related to Stoneridge Brazil was recorded within other current liabilities on the consolidated balance sheet as of December 31, 2019.

These dividends were paid in January 2020.

Other Investments

In December 2018, the Company entered into an agreement to make a $ 10,000 investment in a fund managed by Autotech Ventures (“Autotech”), a venture capital firm focused on ground transportation technology which is accounted for in accordance with ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-19).” This investment does not have a readily determinable fair value and is measured at cost, less impairments, adjusted for observable price changes in orderly transactions for identical or similar investments of the same issuer.

The Company’s $ 10,000 investment in the Autotech fund will be contributed over the expected ten year life of the fund.

The Company contributed $ 1,600 and $ 437 to the Autotech Ventures fund during the years ended December 31, 2019 and 2018, respectively.

The Autotech investment recorded in investments and other long-term assets in the consolidated balance sheet was $ 1,827 and $ 437 as of December 31, 2019 and 2018, respectively.

STONERIDGE, INC.

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

Other Investments

In December 2018, the Company entered into an agreement to make a $ 10,000 investment in a fund (“Autotech Fund II”) managed by Autotech Ventures (“Autotech”), a venture capital firm focused on ground transportation technology which is accounted for under the equity method of accounting.

The Company’s $ 10,000 investment in the Autotech Fund II will be contributed over the expected ten year life of the fund.

The Company contributed $ 1,550 and $ 1,600 to the Autotech Ventures fund during the years ended December 31, 2020 and 2019, respectively.

The Company has a 6.7 % interest in Autotech Fund II.

The Company recognized earnings (loss) of $ 59 and $( 211 ) during the years ended December 31, 2020 and 2019, respectively.

The Autotech Fund II investment recorded in investments and other long-term assets, net in the consolidated balance sheet was $ 3,436 and $ 1,827 as of December 31, 2020 and 2019, respectively.

Interest rates at

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Credit Facility

2.77 - 2.81 %

Stoneridge Brazil short-term obligations

5.64 % - 8.80 %

June 2021 - November 2021

Stoneridge Brazil long-term notes

November 2021

Sweden short-term credit line

Suzhou short-term credit line

3.85 % - 5.00 %

September 2021

current portion

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Revolving Credit Facility

On September 12, 2014, the Company entered into a Third Amended and Restated Credit Agreement (the “Amended Agreement”).

The Amended Agreement provides for a $ 300,000 revolving credit facility, which replaced the Company’s existing $ 100,000 asset-based credit facility and includes a letter of credit subfacility, swing line subfacility and multicurrency subfacility.

On June 5, 2019, the Company entered into the Fourth Amended and Restated Credit Agreement (the “2019 Credit Facility”).

The 2019 Credit Facility provides for a $ 400,000 senior secured revolving credit facility and it replaced and superseded the Amended Agreement.

The 2019 Credit Facility provides for a $ 400,000 senior secured revolving credit facility and it replaced and superseded the Third Amended and Restated Credit Agreement that provided for a $300,000 revolving credit facility.

The 2019 Credit Facility has an accordion feature which allows the Company to increase the availability by up to $ 150,000 upon the satisfaction of certain conditions and includes a letter of credit subfacility, swing line subfacility and multicurrency subfacility.

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The 2019 Credit Facility contains customary events of default, subject to customary thresholds and exceptions, including, among other things, (i) non-payment of principal and non-payment of interest and fees, (ii) a material inaccuracy of a representation or warranty at the time made, (iii) a failure to comply with any covenant, subject to customary grace periods in the case of certain affirmative covenants, (iv) cross default of other debt, final judgments and other adverse orders in excess of $ 30,000 , (v) any loan document shall cease to be a legal, valid and binding agreement, (vi) certain uninsured losses or proceedings against assets with a value in excess of $ 30,000 , (vii) ERISA events, (viii) a change of control, or (ix) bankruptcy or insolvency proceedings.

Borrowings outstanding on the 2019 Credit Facility and the Amended Agreement as applicable, were $ 126,000 and $ 96,000 , respectively at December 31, 2019 and 2018, respectively.

The Company was in compliance with all credit facility covenants at December 31, 2019 and 2018, respectively.

The Company has outstanding letters of credit of $ 1,768 and $ 1,815 at December 31, 2019 and 2018, respectively.

STONERIDGE, INC.

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

Stoneridge Brazil maintains long-term notes used for working capital purposes which have fixed or variable interest rates.

The weighted-average interest rate of long-term debt of Stoneridge Brazil at December 31, 2019 was 7.00 % .

Due to the expected impact of the COVID-19 pandemic on the Company’s end-markets and the resulting expected financial impacts to the Company, on June 26, 2020, the Company entered into a Waiver and Amendment No.

1 to the Fourth Amended and Restated Credit Agreement (“Amendment No.

Amendment No.

1 provides for certain covenant relief and restrictions during the “Covenant Relief Period” (the period ending on the date that the Company delivers a compliance certificate for the quarter ending June 30, 2021 in form and substance satisfactory to the administrative agent).

During the Covenant Relief Period:

the maximum net leverage ratio is suspended;

the calculation of the minimum interest coverage ratio will exclude second quarter 2020 financial results effective for the quarters ended September 30, 2020 through March 31, 2021;

the minimum interest coverage ratio of 3.50 is reduced to 2.75 and 3.25 for the quarters ended December 31, 2020 and March 31, 2021, respectively;

the Company’s liquidity may not be less than $ 150,000 ;

the Company’s aggregate amount of cash and cash equivalents cannot exceed $ 130,000 ;

there are certain restrictions on Restricted Payments (as defined);

a Permitted Acquisition (as defined) may be not consummated unless otherwise approved in writing by the required lenders.

Amendment No.

1 changes the leverage based LIBOR pricing grid through the maturity date and also provides for a LIBOR floor of 50 basis points on outstanding borrowings excluding any Specified Hedge Borrowings (as defined) which remain subject to a LIBOR floor of 0 basis points.

As of December 31, 2020, Specified Hedge Borrowings were $ 50,000 .

The Company capitalized an additional $ 1,079 of deferred financing costs as a result of entering into Amendment No.

Borrowings outstanding on the 2019 Credit Facility, were $ 136,000 and $ 126,000 at December 31, 2020 and 2019, respectively.

The Company was in compliance with all credit facility covenants at December 31, 2020 and 2019.

The Company also had outstanding letters of credit of $ 1,720 and $ 1,768 at December 31, 2020 and 2019, respectively.

Stoneridge Brazil maintains short-term notes used for working capital purposes which have fixed or variable interest rates.

The weighted-average interest rate of Stoneridge Brazil short-term debt at December 31, 2020 was 6.79 %.

Depending on the specific note, interest is payable either monthly or annually.

Principal repayments of Stoneridge Brazil debt at December 31, 2019 are as follows:

$ 518 in 2020 and $ 454 in 2021.

In December 2019, the Company’s wholly-owned subsidiary located in Campinas, Brazil, Stoneridge Brazil, established an overdraft credit line which allows overdrafts on Stoneridge Brazil’s bank account up to a maximum level of R $ 5,000 , or $ 1,244 , at December 31, 2019.

Principal repayments of $ 1,561 on Stoneridge Brazil debt at December 31, 2020 are due in 2021.

In December 2019, Stoneridge Brazil established an overdraft credit line which allowed overdrafts on Stoneridge Brazil’s bank account up to a maximum level of R$ 5,000 , or $ 1,244 , at December 31, 2019.

There was no balance outstanding on the overdraft credit line as of December 31, 2019.

The Company’s wholly-owned subsidiary located in Stockholm, Sweden, has an overdraft credit line which allows overdrafts on the subsidiary’s bank account up to a maximum level of 20,000 Swedish krona, or $ 2,136 and $ 2,259 at December 31, 2019 and 2018, respectively.

At December 31, 2019 and 2018, there was no balance outstanding on this overdraft credit line.

The Company’s wholly-owned subsidiary located in Suzhou, China, has two credit lines (the “Suzhou credit line”) which allow up to a maximum borrowing level of 60,000 Chinese yuan, or $ 8,618 at December 31, 2019.

At December 31, 2019 there was $ 2,154 in borrowing outstanding on the Suzhou credit line with a weighted-average interest rate of 4.80 % .

The Suzhou credit line is included on the consolidated balance sheet within current portion of debt.

At December 31, 2018, there was no balance outstanding on these credit lines.

The Company was in compliance with all Credit Facility and debt covenants at December 31, 2019 and 2018.

At December 31, 2019, the future maturities of the Credit Facility and debt were as follows:

Year ended December 31,

During the year ended December 31, 2020, the subsidiary borrowed and repaid R$ 7,150 , or $ 1,306 , prior to terminating the overdraft credit line.

The Company’s wholly-owned subsidiary located in Sweden, has an overdraft credit line which allows overdrafts on the subsidiary’s bank account up to a daily maximum level of 20,000 Swedish krona, or $ 2,435 and $ 2,136 at December 31, 2020 and 2019, respectively.

At December 31, 2020 there was 13,072 Swedish krona, or $ 1,591 , outstanding on this overdraft credit line.

At December 31, 2019, there was no balance outstanding on this overdraft credit line.

During the year ended December 31, 2020, the subsidiary borrowed 312,921 Swedish krona, or $ 38,092 , and repaid 299,849 Swedish krona, or $ 36,501 .

STONERIDGE, INC.

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

The income tax expense included in the accompanying consolidated statement of operations represents federal, state and foreign income taxes.

The components of income before income taxes and the provision for income taxes consist of the following:

The Company’s wholly-owned subsidiary located in Suzhou, China, has two credit lines (the “Suzhou credit line”) which allow up to a maximum borrowing level of 50,000 Chinese yuan, or $ 7,663 at December 31, 2020, and 40,000 Chinese yuan, or $ 5,746 at December 31, 2019.

At December 31, 2020 and 2019 there was $ 4,521 and $ 2,154 , respectively, in borrowings outstanding on the Suzhou credit line with weighted-average interest rates of 4.32 % and 4.80 %, respectively.

The Suzhou credit line is included on the consolidated balance sheet within current portion of debt.

In addition, the Suzhou subsidiary has a bank acceptance draft line of credit which facilitates the extension of trade payable payment terms by 180 days.

This bank acceptance draft line of credit allows up to a maximum borrowing level of 15,000 Chinese yuan, or $ 2,299 and $ 2,154 , at December 31, 2020 and 2019, respectively.

There was $ 414 and $ 150 utilized on the Suzhou bank acceptance draft line of credit at December 31, 2020 and 2019, respectively.

At December 31, 2020, the future maturities of the Credit Facility and debt were as follows:

Year ended December 31

Income before income taxes:

Total income before income taxes

The income tax (benefit) expense included in the accompanying consolidated statement of operations represents federal, state and foreign income taxes.

The components of (loss) income before income taxes and the (benefit) provision for income taxes consist of the following:

Year ended December 31

(Loss) income before income taxes:

Total (loss) income before income taxes

Provision for income taxes:

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State and foreign

Total deferred benefit

Total income tax expense

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

Total deferred (benefit) provision

Total income tax (benefit) provision

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

A summary of the differences between the statutory federal income tax rate of 21.0% and the consolidated provision for income taxes is shown below.

Year ended December 31

Statutory U.S.

federal income tax rate

federal income tax (benefit) provision

State income taxes, net of federal tax benefit

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Compensation and benefits

Effective income tax rate

(Benefit) provision for income taxes

(A) The amount for 2018 includes the impact of reducing tax attributes due to legal entity consolidation which is completely offset with change in valuation allowance.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Significant components of the Company’s deferred tax assets and liabilities were as follows:

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Tax credit carryforwards

Right-of-use assets

Lease liability

Gross deferred tax assets

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Outside basis difference in foreign subsidiary

Lease liability

Right-of-use-assets

Gross deferred tax liabilities

Net deferred tax liabilities

The balance sheet classification of our net deferred tax asset is shown below:

Net deferred tax assets (liabilities)

The balance sheet classification of our net deferred tax asset (liability) is shown below:

Year ended December 31

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Long-term deferred tax liabilities

Net deferred tax liabilities

The Company has recognized deferred taxes related to the expected foreign currency impact upon repatriation from foreign subsidiaries not considered indefinitely reinvested.

Any foreign tax on repatriation of earnings not considered to be indefinitely reinvested is expected to be immaterial.

Net deferred tax assets (liabilities)

The Company adopted ASU 2019-12,Income Taxes:

Simplifying the Accounting for Income Taxes.

As a result, the Company reversed a deferred tax liability of $ 13,750 related to its Stoneridge Brazil subsidiary that was previously a foreign equity method investment.

The impact of adoption was recognized in retained earnings.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Company has recognized deferred taxes related to foreign withholding taxes and the expected foreign currency impact upon repatriation from foreign subsidiaries not considered indefinitely reinvested.

At December 31, 2020, the aggregate undistributed earnings of our foreign subsidiaries amounted to $ 52,715 .

Based on the Company’s review of both positive and negative evidence regarding the realizability of deferred tax assets at December 31, 2019, a valuation allowance continues to be recorded against certain deferred tax assets based upon the conclusion that it was more likely than not they would not be realized.

The future provision for income taxes may be significantly impacted by changes to valuation allowances in certain countries.

Based on the Company’s review of both positive and negative evidence regarding the realizability of deferred tax assets at December 31, 2020, a valuation allowance is recorded against certain deferred tax assets based upon the conclusion that it was more likely than not they would not be realized.

The Company generated federal net operating loss of $ 15,801 in 2020.

The Company has net operating loss carry forwards of $ 74,474 and $ 30,991 for state and foreign tax jurisdictions, respectively.

Federal net operating loss carryover is indefinite and be carried back for 5 years.

The state net operating losses expire from 2024 - 2040 or have indefinite lives and the foreign net operating losses expire from 2021 - 2025 or have indefinite lives.

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federal general business credits, if unused, begin to expire in 2025 , and the state and foreign tax credits expire at various times.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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Balance as of December 31

At December 31, 2019, the Company has classified $ 0 as a noncurrent liability and $ 3,449 as a reduction to non-current deferred income tax assets.

If the Company’s tax positions are sustained by the taxing authorities in favor of the Company, the amount that would affect the Company’s effective tax rate is approximately $ 3,449 and $ 3,481 at December 31, 2019 and 2018, respectively.

At December 31, 2020, the Company has classified $ 3,449 as a reduction to non-current deferred income tax assets.

The Company classifies interest expense and, if applicable, penalties which could be assessed related to unrecognized tax benefits as a component of income tax expense.

For the years ended December 31, 2020, 2019 and 2018, the Company recognized approximately $ 0 , $( 5 ) and $( 13 ) of gross interest and penalties, respectively.

The Company has accrued approximately $ 0 and $ 19 for the payment of interest and penalties at December 31, 2019 and 2018, respectively.

The Company conducts business globally and, as a result, files income tax returns in the U.S.

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United Kingdom

The Company has various cancelable and noncancelable leased assets within all segments, which include certain properties, vehicles and equipment of which are all classified as operating leases.

Payments for these leases are generally fixed;

however, several of our leases are composed of variable lease payments including index-based payments or inflation-based payments based on a Consumer Price Index (“CPI”) or other escalators.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

STONERIDGE, INC.

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

The Company has various cancelable and noncancelable leased assets within all segments, which include certain properties, vehicles and equipment of which are all classified as operating leases.

Payments for these leases are generally fixed;

however, several of our leases are composed of variable lease payments including index-based payments or inflation-based payments based on a Consumer Price Index (“CPI”) or other escalators.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Under Leases (Topic 842), the Company determines an arrangement is a lease when we have the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration.

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Total leased liabilities

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Maturities of operating lease liabilities are as follows:

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Total lease liabilities

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Weighted-average remaining lease term and discount rate for operating leases is as follows:

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Non-cash activity:

Right-of-use assets obtained in exchange for operating lease obligations

Right-of-use assets obtained in exchange for

operating lease obligations

The Company, as lessor, has entered into a lease with a third-party lessee effective July 1, 2020, of its Canton, Massachusetts facility.

In conjunction with the Canton restructuring plan outlined in Note 13, the Company ceased operations at this facility in March 2020.

The Company recognizes lease income on a straight-line basis over the lease term, and the leased asset is included in property, plant and equipment, net in the consolidated balance sheet and depreciated to its estimated residual value over the remaining useful life of the assets.

The carrying value of the leased facility is comprised of land of $ 1,225 and building and building improvements of $ 9,635 , with accumulated depreciation of $ 7,637 as of December 31, 2020.

The lease includes two optional extension terms of five years each.

The Company recognized, in its Control Devices segment, operating and variable lease income from leases in our consolidated statements of operations of $ 674 and $ 199 , respectively for the year ended December 31, 2020.

Maturities of future minimum lease payments to be received are as follows:

As of December 31

Total future minimum lease payments to be received

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Share-Based Compensation Plans

In May 2016, the Company’s shareholders approved the 2016 Long-Term Incentive Plan (the “2016 Plan”) and reserved 1,800,000 Common Shares (of which the maximum number of Common Shares which may be issued).

In May 2020, the Company’s shareholders approved an amendment to the 2016 Plan to increase by 1,100,000 the number of Common Shares authorized for issuance.

The amendment to the 2016 Plan brought the total Common Shares available for issuance to 2,900,000 .

Under the 2016 Plan, as of December 31, 2020, the Company has granted 1,868,930 share units, of which 735,361 were time-based with cliff vesting using the straight-line method and 1,133,569 were performance-based.

11 unchanged sentences

Under the 2018 Director Share Plan, the Company has cumulatively issued 718,467 restricted Common Shares.

As such, there are 179,203 restricted Common Shares available to be issued at December 31, 2019.

As such, there are 131,533 restricted Common Shares available to be issued on December 31, 2020.

Shares issued annually under the 2018 Director Share Plan are no longer subject to forfeiture one year after the date of grant.

2 unchanged sentences

The weighted-average grant-date fair value of time-based share units granted during the years ended December 31, 2020, 2019 and 2018 was $ 17.78 , $ 30.01 and $ 24.69 , respectively.

The fair value of the non-vested performance-based performance share awards with a performance condition requiring the Company to obtain certain earnings per share and return on invested capital targets were estimated using the market value of the shares on the date of grant.

The fair value of non-vested performance-based performance share awards with a market condition requiring the Company to obtain a total shareholder return target relative to a group of peer companies was estimated using a Monte Carlo valuation model taking into consideration the probability of achievement using multiple simulations.

The awards that use earnings per share and return on invested capital as the performance target are expensed beginning when it is probable that the Company will meet the underlying performance condition.

STONERIDGE, INC.

2 unchanged sentences

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

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

A summary of the status of the Company’s non-vested share units and performance shares as of December 31, 2020 and the changes during the year then ended, are presented below:

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As noted above, the Company has issued and outstanding performance-based share units that use different performance targets (total shareholder return, earnings per share and return on invested capital).

The excess tax benefit realized from the vesting of share units and performance shares of the share-based payment arrangements was $ 1,289 , $ 1,584 and $ 858 for the years ended December 31, 2019, 2018 and 2017 .

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The excess tax benefit realized from the vesting of share units and performance shares of the share-based payment arrangements was $ 46 , $ 1,289 and $ 1,584 for the years ended December 31, 2020, 2019 and 2018, respectively.

Employee Benefit Plans

3 unchanged sentences

For the years ended December 31, 2020, 2019 and 2018, expenses related to these plans amounted to $ 3,812 , $ 4,260 and $ 3,520 , respectively.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Financial Instruments and Fair Value Measurements

2 unchanged sentences

The carrying values of cash and cash equivalents, accounts receivable and accounts payable are considered to be representative of fair value because of the short maturity of these instruments.

The fair value of debt approximates the carrying value of debt.

The fair value of debt approximates the carrying value of debt, due to the variable interest rate on the 2019 Credit Facility and the maturity of the remaining outstanding debt.

Derivative Instruments and Hedging Activities

On December 31, 2019, the Company had no open foreign currency forward contracts.

During 2019, the Company used foreign currency forward contracts solely for hedging and not for speculative purposes.

On December 31, 2020, the Company had open Mexican peso-denominated foreign currency forward contracts.

The Company used foreign currency forward contracts solely for hedging and not for speculative purposes during 2020 and 2019.

Management believes that its use of these instruments to reduce risk is in the Company’s best interest.

2 unchanged sentences

The Company conducts business internationally and, therefore, is exposed to foreign currency exchange rate risk.

The Company uses derivative financial instruments as cash flow and fair value hedges to manage its exposure to fluctuations in foreign currency exchange rates by reducing the effect of such fluctuations on foreign currency denominated intercompany transactions, inventory purchases and other foreign currency exposures.

The Company hedged the Mexican peso currency during 2019 and, during 2018 and 2017, the Company hedged the euro and Mexican peso.

The Company uses derivative financial instruments as cash flow hedges to manage its exposure to fluctuations in foreign currency exchange rates by reducing the effect of such fluctuations on foreign currency denominated intercompany transactions, inventory purchases and other foreign currency exposures.

The Company hedged the euro and Mexican peso currencies during 2020 and 2018 and, during 2019, the Company hedged only the Mexican peso.

In addition, the Company hedged the U.S.

dollar against the Swedish krona and euro on behalf of its European subsidiaries in 2018.

These forward contracts were executed to hedge forecasted transactions and were accounted for as cash flow hedges.

As such, the effective portion of the unrealized gain or loss was deferred and reported in the Company’s consolidated balance sheets as a component of accumulated other comprehensive loss.

These forward contracts were executed to hedge forecasted transactions and have been accounted for as cash flow hedges.

As such, gains and losses on derivatives qualifying as cash flow hedges are recorded in accumulated other comprehensive income, to the extent that hedges are effective, until the underlying transactions are recognized in earnings.

Unrealized amounts in accumulated other comprehensive income will fluctuate based on changes in the fair value of hedge derivative contracts at each reporting period.

The cash flow hedges were highly effective.

The effectiveness of the transactions has been and will be measured on an ongoing basis using regression analysis and forecasted future purchases of the currency.

In certain instances, the foreign currency forward contracts do not qualify for hedge accounting or are not designated as hedges, and therefore are marked to market with gains and losses recognized in the Company’s consolidated statements of operations as a component of other expense (income), net.

The Company’s foreign currency forward contracts are designed to offset some of the gains and losses realized on the underlying foreign currency denominated transactions as follows:

Euro-denominated Foreign Currency Forward Contracts

In certain instances, the foreign currency forward contracts may not qualify for hedge accounting or are not designated as hedges and, therefore, are marked-to-market with gains and losses recognized in the Company’s consolidated statements of operations as a component of other (income) expense, net.

At December 31, 2020, all of the Company’s foreign currency forward contracts were designated as cash flow hedges.

The Company’s foreign currency forward contracts offset a portion of the gains and losses on the underlying foreign currency denominated transactions as follows:

Euro-denominated Foreign Currency Forward Contracts – Cash Flow Hedges

At December 31, 2017, the Company held foreign currency forward contracts with an underlying notional amount of $ 1,486 to reduce the exposure related to the Company’s euro-denominated intercompany loans.

1 unchanged sentence

This euro-denominated foreign currency forward contract was not designated as a hedging instrument.

For the years ended December 31, 2018 and 2017, the Company recognized a gain of $ 73 and a loss of $ 174 , respectively, in the consolidated statements of operations as a component of other expense (income), net related to the euro-denominated contract.

For the year ended December 31, 2018, the Company recognized a gain of $ 73 in the consolidated statements of operations as a component of other (income) expense, net related to the euro-denominated contract.

dollar-denominated Foreign Currency Forward Contracts – Cash Flow Hedges

The Company entered into U.S.

dollar-denominated currency contracts on behalf of one of its European Electronics subsidiaries, whose functional currency is the euro, and expired ratably on a monthly basis during 2020.

There were no such contracts at December 31, 2019.

STONERIDGE, INC.

2 unchanged sentences

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

dollar-denominated Foreign Currency Forward Contracts – Cash Flow Hedge

The Company entered into on behalf of one of its European Electronics subsidiaries whose functional currency is the Swedish krona, U.S.

dollar-denominated currency contracts which expired ratably on a monthly basis from February 2018 through December 2018.

There were no contracts outstanding as of December 31, 2019 or 2018.

The Company entered into on behalf of one of its European Electronics subsidiaries whose functional currency is the euro, U.S.

dollar-denominated currency contracts which expired ratably on a monthly basis from February 2018 through December 2018.

There were no contracts outstanding as of December 31, 2019 or 2018.

Mexican peso-denominated Foreign Currency Forward Contracts – Cash Flow Hedge

The Company held Mexican peso-denominated foreign currency contracts during 2019 which expired ratably on a monthly basis from January 2019 through December 2019.

The notional amounts at December 31, 2019 and 2018 were $ 0 and $ 9,017 , respectively.

The Company evaluated the effectiveness of the Mexican peso-denominated foreign currency forward contracts held as of December 31, 2019 and 2018, and the years then ended, and concluded that the hedges were effective.

Mexican peso-denominated Foreign Currency Forward Contracts – Cash Flow Hedges

The Company holds Mexican peso-denominated foreign currency forward contracts with a notional amount at December 31, 2020 of $ 1,242 which expire ratably on a monthly basis from January 2021 to March 2021.

There were no open Mexican peso-denominated foreign currency forward contracts at December 31, 2019.

The Company evaluated the effectiveness of the Mexican peso-denominated foreign currency forward contracts held as of December 31, 2020 and the year then ended, and concluded that the hedges were effective.

Interest Rate Risk

Interest Rate Risk – Cash Flow Hedge

On February 18, 2020, the Company entered into a floating-to-fixed interest rate swap agreement (the “Swap”) with a notional amount of $ 50,000 to hedge its exposure to interest payment fluctuations on a portion of its 2019 Credit Facility borrowings.

The Swap was designated as a cash flow hedge of the variable interest rate obligation under the Company's 2019 Credit Facility that has a current balance of $ 136,000 at December 31, 2020.

Accordingly, the change in fair value of the Swap is recognized in accumulated other comprehensive income (loss).

The Swap agreement requires monthly settlements on the same days that the 2019 Credit Facility interest payments are due and has a maturity date of March 10, 2023, which is prior to the 2019 Credit Facility maturity date of June 4, 2024.

Under the Swap terms, the Company pays a fixed interest rate and receives a floating interest rate based on the one-month LIBOR, with a floor.

The critical terms of the Swap are aligned with the terms of the 2019 Credit Facility, resulting in no hedge ineffectiveness.

The difference between amounts to be received and paid under the Swap is recognized as a component of interest expense, net on the consolidated statements of operations.

The swap settlements increased interest expense by $ 433 for the year ended December 31, 2020.

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

Prepaid expenses

Accrued expenses and

Notional amounts (A)

and other current assets

other current liabilities

Derivatives designated as hedging instruments:

1 unchanged sentence

Forward currency contracts

(A) Notional amounts represent the gross contract / notional amount of the derivatives outstanding.

Gross amounts recorded for the cash flow hedges in other comprehensive loss in shareholders’ equity and in net income for the years ended December 31 were as follows:

Gains reclassified from

Gain recorded in other

Interest rate swap

(A) Notional amounts represent the gross contract of the derivatives outstanding in U.S.

Gross amounts recorded for the cash flow hedges in other comprehensive income (loss) and in net (loss) income for the years ended December 31 were as follows:

Gain (loss) reclassified from

Gain (loss) recorded in other

other comprehensive income

comprehensive income (loss)

(loss) into net income (A)

(loss) into net (loss) income (A)

Derivatives designated as cash flow hedges:

Forward currency contracts

(A) Gains reclassified from comprehensive income (loss) into net income recognized in COGS in the Company’s consolidated statements of operations for the years ended December 31, 2019, 2018 and 2017 were $ 695 , $ 1,259 and $ 622 , respectively.

Gains reclassified from other comprehensive income (loss) into net income recognized in D&D in the Company’s consolidated statements of operations were $ 125 , $ 117 and $ 8 for the years ended December 31, 2019, 2018 and 2017, respectively.

Gains reclassified from other comprehensive income (loss) into net income recognized in SG&A in the Company’s consolidated statements of operations were $ 0 , $ 0 and $ 4 for the years ended December 31, 2019, 2018 and 2017, respectively.

The Company has measured the ineffectiveness of the forward currency contracts and any amounts recognized in the consolidated financial statements were immaterial for the years ended December 31, 2019, 2018 and 2017.

Interest rate swap

(A) Gains (losses) reclassified from comprehensive income (loss) into net (loss) income recognized in COGS in the Company’s consolidated statements of operations for the years ended December 31, 2020, 2019 and 2018 were $( 1,146 ), $ 695 and $ 1,259 , respectively.

Gains (losses) reclassified from other comprehensive income (loss) into net (loss) income recognized in D&D in the Company’s consolidated statements of operations were $( 29 ), $ 125 and $ 117 for the years ended December 31, 2020, 2019 and 2018, respectively.

Gains (losses) reclassified from other comprehensive income (loss) into net (loss) income recognized in SG&A in the Company’s consolidated statements of operations were $( 324 ) , $ 0 and $ 0 for the years ended December 31, 2020, 2019 and 2018, respectively.

STONERIDGE, INC.

2 unchanged sentences

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

For the year ended December 31, 2020, the total net gain on the foreign currency contract cash flow hedges of $ 255 is expected to be included in COGS, SG&A and D&D within the next 12 months.

Of the total net loss on the interest rate swap cash flow hedge, $ 591 of loss is expected to be included in interest expense, net within the next 12 months and $ 727 of losses are expected to be included in interest expense, net in subsequent periods.

Cash flows from derivatives used to manage foreign exchange and interest rate risks are classified as operating activities within the consolidated statements of cash flows.

Fair Value Measurements

The Company’s assets and liabilities are measured at fair value on a recurring basis and are categorized using the three levels of the fair value hierarchy based on the reliability of the inputs used.

Certain assets and liabilities held by the Company are measured at fair value on a recurring basis and are categorized using the three levels of the fair value hierarchy based on the reliability of the inputs used.

Fair values estimated using Level 1 inputs consist of quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

1 unchanged sentence

For forward currency contracts, inputs include foreign currency exchange rates.

For the interest rate swap, inputs include LIBOR.

Fair values estimated using Level 3 inputs consist of significant unobservable inputs.

2 unchanged sentences

Financial assets carried at fair value:

Forward currency contracts

Forward currency contract

Total financial assets carried at fair value

Financial liabilities carried at fair value:

Interest rate swap

Earn-out consideration

Total financial liabilities carried at fair value

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The following table sets forth a summary of the change in fair value of the Company’s Level 3 financial liabilities related to earn-out consideration that are measured at fair value on a recurring basis.

3 unchanged sentences

Foreign currency adjustments

Earn-out consideration cash payment

Balance at December 31, 2020

3 unchanged sentences

Foreign currency adjustments

Earn-out consideration cash payment

Balance at December 31, 2019

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Company will be required to pay the Stoneridge Brazil earn-out consideration, which is not capped, based on Stoneridge Brazil’s financial performance in either 2020 or 2021.

The fair value of the Stoneridge Brazil earn-out consideration is based on discounted cash flows utilizing forecasted earnings before interest, depreciation and amortization (“EBITDA”) in 2020 and 2021 using the key inputs of forecasted sales and expected operating income reduced by the market required rate of return.

The fair value of the Stoneridge Brazil earn-out consideration is based on discounted cash flows utilizing forecasted earnings before interest, depreciation and amortization (“EBITDA”) in 2020 or 2021 using the key inputs of forecasted sales and expected operating income reduced by the market required rate of return.

The former Stoneridge Brazil owners may choose either the 2020 or 2021 financial performance period to be used to determine the earn-out consideration payment.

The former Stoneridge Brazil owners must choose the 2020 financial performance period by March 31, 2021 otherwise the 2021 financial performance period will automatically be used.

The Company has assigned a zero probability that the former owners will choose the 2020 performance period given Stoneridge Brazil’s financial performance has been negatively impacted by COVID-19.

As such, the earn-out fair value assumes 2021 financial performance will be the basis for the earn-out consideration obligation.

The earn-out consideration obligation related to Stoneridge Brazil is recorded within other long-term liabilities in the consolidated balance sheets as of December 31, 2020 and 2019.

The change in fair value of the earn-out consideration for Stoneridge Brazil was due to updated financial performance projections and favorable foreign currency translation offset by the reduced time from the current period end to the payment date.

The change in fair value of the Stoneridge Brazil earn-out consideration was recorded in SG&A expense and the foreign currency impact was included in other (income) expense, net in the consolidated statements of operations.

The fair value of the Orlaco earn-out consideration was based on a Monte Carlo simulation utilizing forecasted EBITDA for the 2017 and 2018 earn-out period as well as a growth rate reduced by the market required rate of return.

The earn-out consideration obligation related to Orlaco was recorded within other current liabilities in the consolidated balance sheet as of December 31, 2018.

The change in fair value of the earn-out considerations are recorded within selling, general and administrative (“SG&A”) expense in the consolidated statements of operations for the years ended December 31, 2019 and 2018.

The change in fair value of the earn-out consideration for Stoneridge Brazil was due to the reduced time from the current period end to the payment date, offset by adverse foreign currency translation.

The foreign currency impact for the Stoneridge Brazil earn-out considerations is included in other expense (income), net in the consolidated statements of operations.

The payment of the Orlaco earn-out consideration of $ 8,474 was paid in March 2019 and recorded in the consolidated statement of cash flows within operating and financing activities in the amounts of $ 5,080 and $ 3,394 , respectively, for the year ended December 31, 2019.

There were no transfers in or out of Level 3 from other levels in the fair value hierarchy for the year ended December 31, 2020.

Except for the fair value of assets acquired and liabilities assumed related to the Orlaco acquisition discussed in Note 2, no non-recurring fair value adjustments were required for nonfinancial assets for the years ended December 31, 2019 and 2018.

No non-recurring fair value adjustments were required for nonfinancial assets for the years ended December 31, 2020 and 2019.

Impairment of Long-Lived Assets or Finite-Lived Assets

The Company reviews the carrying value of its long-lived assets and finite-lived intangible assets for impairment when events or circumstances indicate that their carrying value may not be recoverable.

Factors the Company considers important that could trigger testing of the related asset groups for an impairment include current period operating or cash flow losses combined with a history of operating or cash flow losses, a projection or forecast that demonstrates continuing losses, significant adverse changes in the business climate within a particular business or current expectations that a long-lived asset will be sold or otherwise disposed of significantly before the end of its estimated useful life.

To test for impairment, the estimated undiscounted cash flows expected to be generated from the use and disposal of the asset or asset group is compared to its carrying value.

An asset group is established by identifying the lowest level of cash flows generated by the group of assets that are largely independent of cash flows of other assets.

If cash flows cannot be separately and independently identified for a single asset, we will determine whether an impairment has occurred for the group of assets for which we can identify projected cash flows.

If these undiscounted cash flows are less than their respective carrying values, an impairment charge would be recognized to the extent that the carrying values exceed estimated fair values.

The estimation of undiscounted cash flows and fair value requires us to make assumptions regarding future operating results over the life of the asset or the life of the primary asset in the asset group.

The results of the impairment testing are dependent on these estimates which require judgment.

STONERIDGE, INC.

2 unchanged sentences

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

On May 19, 2020, the Company committed to the strategic exit of its Control Devices particulate matter (“PM”) sensor product line.

As a result of the strategic exit of the PM sensor product line the Company determined an impairment indicator existed and performed a recoverability test of the related long-lived assets.

The Company identified that there are two asset groups comprised of PM sensor fixed assets at the Company’s Lexington, Ohio and Tallinn, Estonia facilities.

As such, an impairment loss of $ 2,326 was recorded based on the difference between the fair value and the carrying value of the assets.

The Company used the income approach to determine the fair value of the PM sensor fixed assets at the Tallinn, Estonia facility.

During the year ended December 31, 2020, the impairment loss of $ 2,326 was recorded on the Company’s condensed consolidated statement of operations within SG&A expense.

The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value Measurement."

Commitments and Contingencies

6 unchanged sentences

Upon approval of the remedial action plan by the Florida Department of Environmental Protection, ground water remediation began in the fourth quarter of 2015.

During the years ended December 31, 2019, 2018 and 2017, environmental remediation costs incurred were immaterial.

During the year ended December 31, 2020 environmental remediation costs incurred were $ 128 and were immaterial for the years ended December 31, 2019 and 2018.

At December 31, 2020 and 2019, the Company had accrued an undiscounted liability of $ 180 and $ 82 , respectively, related to future remediation costs which were recorded as a component of accrued expenses and other current liabilities on the consolidated balance sheets.

Costs associated with the recorded liability will be incurred to complete the groundwater remediation, with the balance relating to monitoring costs to be incurred over multiple years.

Costs associated with the recorded liability will be incurred to complete the groundwater remediation and monitoring.

The recorded liability is based on assumptions in the remedial action plan.

Although the Company sold the Sarasota facility in December 2011, the liability to remediate the site contamination remains the responsibility of the Company.

Although the Company sold the Sarasota facility and related property in December 2011, the liability to remediate the site contamination remains the responsibility of the Company.

Due to the ongoing site remediation, the Company is currently required to maintain a $ 1,489 letter of credit for the benefit of the buyer.

The Company’s Stoneridge Brazil subsidiary has civil, labor and other non-income tax contingencies for which the likelihood of loss is deemed to be reasonably possible, but not probable, by the Company’s legal advisors in Brazil.

The Company’s Stoneridge Brazil subsidiary has civil, labor and other tax contingencies (excluding income tax) for which the likelihood of loss is deemed to be reasonably possible, but not probable, by the Company’s legal advisors in Brazil.

As a result, no provision has been recorded with respect to these contingencies, which amounted to R$ 43,736 ($ 8,416 ) and R$ 29,700 ($ 7,300 ) at December 31, 2020 and 2019, respectively.

An unfavorable outcome on these contingencies could result in significant cost to the Company and adversely affect its results of operations.

On August 12, 2020, the Brazilian Administrative Counsel for Economic Defense (“CADE”) issued a ruling against Stoneridge Brazil for abuse of dominance and market foreclosure through its prior use of exclusivity provisions in agreements with its distributors.

The CADE tribunal imposed a R $ 7,995 ( $ 1,538 ) fine which is included in the reasonably possible contingencies noted above.

The Company is challenging this ruling in Brazilian federal court to reverse this decision by the CADE tribunal.

Insurance Recoveries

The Company incurred losses and incremental costs related to the damage to assets caused by a storm at its Mexican production facility in the fourth quarter of 2016 and is pursuing recovery of such costs under applicable insurance policies.

Anticipated proceeds from insurance recoveries related to losses and incremental costs that have been incurred (“loss recoveries”) are recognized when receipt is probable.

Anticipated proceeds from insurance recoveries in excess of the net book value of damaged property, plant and equipment (“insurance gain contingencies”) are recognized when all contingencies related to the claim have been resolved.

Loss recoveries related to the damage of inventory and incremental costs included in COGS were not significant for the years ended December 31, 2019 and 2018, respectively, and there were no loss recoveries and insurance gain contingencies related to the damage of property, plant and equipment included within SG&A expense.

In 2017, loss recoveries related to the damage of inventory and incremental costs included in COGS were $ 189 and loss recoveries and insurance gain contingencies related to the damage of property, plant and equipment included within SG&A expense were $ 1,923 .

As of December 31, 2017, the Company had confirmation of the open insurance claim and recorded a receivable of $ 1,644 .

The cash payment was subsequently received in January 2018.

Cash proceeds related to the damage of inventory and incremental costs were $ 241 and $ 500 for the years ended December 31, 2018 and 2017, respectively, and are included in cash flows from operating activities.

Cash proceeds related to the damage of property, plant and equipment of $ 1,403 and $ 711 for the years ended December 31, 2018 and 2017, respectively, are included in cash flows from investing activities.

Cash proceeds received during the year ended December 21, 2019 were immaterial.

The Company incurred losses and incremental costs related to the damage to assets caused by a storm at its Mexican production facility in the fourth quarter of 2016 and pursued recovery of such costs under applicable insurance policies.

As of December 31, 2020, the claims have been resolved and the case has been closed with our insurance providers.

STONERIDGE, INC.

2 unchanged sentences

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

Loss recoveries related to the damage of inventory and incremental costs included in COGS were not significant for the years ended December 31, 2020, 2019 and 2018, and there were no loss recoveries and insurance gain contingencies related to the damage of property, plant and equipment included within SG&A expense.

As of December 31, 2017, the Company had confirmation of the open insurance claim and recorded a receivable of $ 1,644 .

The cash payment was subsequently received in January 2018.

Cash proceeds related to the damage of inventory and incremental costs were $ 241 for the year ended December 31, 2018 and were included in cash flows from operating activities.

Cash proceeds related to the damage of property, plant and equipment of $ 1,403 for the year ended December 31, 2018 were included in cash flows from investing activities.

Cash proceeds received during the year ended December 21, 2019 were immaterial and there were no cash proceeds received during the year ended December 31, 2020.

Brazilian Indirect Tax

3 unchanged sentences

Based on the Company’s determination that these tax credits will be used prior to expiration, we recorded a pre-tax benefit of $ 6,473 as a reduction to SG&A expense which is inclusive of related interest income of $ 2,392 , net of applicable professional fees of $ 990 in the year ended December 31, 2019.

The Company received administrative approval in January 2020 and is now able to offset eligible federal tax with these tax credits.

The Brazilian tax authorities have sought clarification before the Supreme Court of Brazil (in a leading case involving another taxpayer) of certain matters that could affect the rights of Brazilian taxpayers regarding these credits, and a hearing is scheduled for April 2020.

In January 2020, the Company received administrative approval and is now offsetting eligible federal tax with these tax credits.

The timing for a decision is uncertain due to the COVID-19 pandemic.

If the Brazilian tax authorities challenge our rights to these credits, we may become subject to new litigation that could impact the amount ultimately realized by Stoneridge Brazil.

1 unchanged sentence

During the fourth quarter of 2016, the Company relocated its corporate headquarters from Warren, Ohio to Novi, Michigan and consolidated its other corporate functions into one location.

As a result, the Company incurred headquarter relocation costs recorded within SG&A expense, which included employee retention, relocation, severance, recruiting, duplicate wages and professional fees, of $ 269 and $ 493 for the years ended December 31, 2018 and 2017, respectively.

There were no headquarter relocation costs incurred in 2019.

As a result, the Company incurred headquarter relocation costs recorded within SG&A expense, which included employee retention and relocation expense of $ 269 for the year ended December 31, 2018.

There were no headquarter relocation costs incurred in 2020 or 2019.

In connection with the headquarter relocation, the Company was approved for a Michigan Business Development Program grant of up to $ 1,400 based upon the number of new jobs created in Michigan through 2022.

As a result of the attainment of the first, second and third milestones, grant income of $ 429 , $ 312 and $ 338 was recognized during the years ended December 31, 2019, 2018 and 2017, respectively, within SG&A expense in the consolidated statements of operations.

As a result of the attainment of certain milestones, grant income of $ 429 and $ 312 was recognized during the years ended December 31, 2019 and 2018, respectively, within SG&A expense in the consolidated statements of operations.

There was no grant income recognized during the year ended December 31, 2020.

Restructuring and Business Realignment

On January 10, 2019, the Company committed to a restructuring plan that will result in the closure of the Canton, Massachusetts facility (“Canton Facility”) which is expected by March 31, 2020 and the consolidation of manufacturing operations at that site into other Company locations (“Canton Restructuring”).

Company management informed employees at the Canton Facility of this restructuring decision on January 11, 2019.

The estimated costs for the Canton Restructuring include employee severance and termination costs, contract terminations costs, professional fees and other related costs such as moving and set-up costs for equipment and costs to restore the engineering function previously located at the Canton Facility.

The Company recognized expense of $ 12,530 for the year ended December 31, 2019 as a result of these actions for employee termination benefits and other restructuring related costs.

For the year ended December 31, 2019 severance and other related restructuring costs of $ 7,625 , $ 1,526 and $ 3,379 were recognized in COGS, SG&A and D&D, respectively, in the consolidated statement of operations.

The estimated additional cost of the Canton Facility restructuring plan, that will impact the Control Devices segment, is between $ 1,500 and $ 1,900 and will be incurred through 2020.

On May 19, 2020, the Company committed to the strategic exit of its Control Devices particulate matter (“PM”) sensor product line.

The decision to exit the PM sensor product line was made after 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 Company expects the exit from the PM sensor product line to be completed in the fourth quarter of 2021.

As a result of the PM sensor restructuring actions, the Company recognized expense of $ 3,428 for the year ended December 31, 2020 for non-cash fixed asset charges, including impairment and accelerated depreciation of PM sensor related fixed assets and other related costs.

For the year ended December 31, 2020 restructuring related costs of $ 817 and $ 2,611 were recognized in COGS and SG&A, respectively.

The estimated range of additional cost of the plan to exit the PM sensor product line, that will impact the Control Devices segment, is approximately $ 2,800 and $ 6,330 and is related to employee severance and termination costs, contract terminations costs, other related costs such as potential commercial and supplier settlements and accelerated depreciation.

We anticipate that these costs will be incurred through the fourth quarter of 2021.

STONERIDGE, INC.

2 unchanged sentences

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

The expenses for the exit of the PM sensor line that relate to the Control Devices reportable segment include the following:

Accrual as of

January 1, 2020

December 31, 2020

Fixed asset impairment and

accelerated depreciation

Other related costs

On January 10, 2019, the Company committed to a restructuring plan that resulted in the closure of the Canton, Massachusetts facility (“Canton Facility”) on by March 31, 2020 and the consolidation of manufacturing operations at that site into other Company locations (“Canton Restructuring”).

Company management informed employees at the Canton Facility of this restructuring decision on January 11, 2019.

The costs for the Canton Restructuring included employee severance and termination costs, contract terminations costs, professional fees and other related costs such as moving and set-up costs for equipment and costs to restore the engineering function previously located at the Canton Facility.

As a result of the Canton Restructuring actions, the Company recognized expense of $ 2,978 and $ 12,530 for the years ended December 31, 2020 and 2019, respectively, for employee termination benefits and other restructuring related costs.

For the year ended December 31, 2020 severance and other restructuring related costs of $ 1,659 , $ 551 and $ 768 were recognized in COGS, SG&A and D&D, respectively, in the consolidated statement of operations.

The estimated additional cost of this restructuring plan, that will impact the Control Devices segment, is immaterial.

The expenses for the Canton Restructuring that relate to the Control Devices reportable segment include the following:

5 unchanged sentences

Other related costs

In the fourth quarter of 2018, we undertook restructuring actions for our Electronics segment affecting our European Aftermarket business and China operations.

The Company recognized expense of $ 603 and $ 3,539 , respectively, for the years ended December 31, 2019 and 2018 as a result of these actions for severance, contract termination costs, accelerated depreciation of fixed assets and other related costs.

Accrual as of

January 1, 2019

December 31, 2019

Employee termination benefits

Other related costs

In the fourth quarter of 2018, the Company undertook restructuring actions for the Electronics segment affecting the European Aftermarket business and China operations.

In the second quarter of 2020, the Company finalized plans to move its European Aftermarket sales activities in Dundee, Scotland to a new location which resulted in incurring contract termination costs as well as employee severance and termination costs.

In addition, the Company announced a restructuring program to transfer the European production of its controls product line to China.

As a result of these actions, the Company recognized expense of $ 2,400 , $ 603 and $ 3,539 respectively, for the years ended December 31, 2020, 2019 and 2018 for employee severance and termination costs, contract termination costs, non-cash fixed asset charges for accelerated depreciation of fixed assets and other related costs.

Electronics segment restructuring costs recognized in COGS, SG&A and D&D in the consolidated statement of operations for the year ended December 31, 2020 were $ 147 , $ 1,774 and $ 479 , respectively.

Electronics segment restructuring costs were recorded in SG&A in the consolidated statements of operations for the year ended December 31, 2019.

Excess and obsolete inventory write-offs of $ 823 were recognized in COGS for the year ended December 31, 2018 and all other restructuring costs were recognized in SG&A in the consolidated statement of operations.

The Company expects to incur approximately $ 400 of additional restructuring costs related to the actions through 2020.

The Company expects to incur approximately $ 200 of additional restructuring costs related to the actions through the second quarter of 2021.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The expenses for the restructuring activities that relate to the Electronics reportable segment include the following:

3 unchanged sentences

January 1, 2020

Expense (Income)

December 31, 2020

Employee termination benefits

Contract termination costs

Other related costs

Accrual as of

2019 Charge to

Accrual as of

January 1, 2019

December 31, 2019

Employee termination benefits

Accelerated depreciation

1 unchanged sentence

Other related costs

The expenses for the 2018 restructuring activities that relate to the Electronics reportable segment include the following:

Accrual as of

19 unchanged sentences

Total business realignment charges

(A) Severance costs for the year ended December 31, 2020 related to COGS, D&D and SG&A were $ 724 , $ 283 and $ 745 , respectively.

Severance costs for the year ended December 31, 2019 related to SG&A were $ 682 .

Severance costs for the year ended December 31, 2018 related to D&D and SG&A were $ 128 and $ 41 , respectively.

(B) Severance costs for the year ended December 31, 2020 related to COGS, D&D and SG&A were $ 383 , $ 402 and $ 905 , respectively.

Severance costs for the year ended December 31, 2019 related to SG&A were $ 99 .

Severance costs for the year ended December 31, 2018 related to SG&A were $ 63 .

Severance costs for the year ended December 31, 2018 related to COGS, SG&A and D&D were $ 63 , $ 387 and $ 28 , respectively.

(D) Severance costs for the years ended December 31, 2020 and 2019 related to SG&A were $ 361 and $ 1,048 , respectively.

STONERIDGE, INC.

2 unchanged sentences

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

(A) Business realignment severance costs for the year ended December 31, 2019 related to SG&A were $ 682 .

Business realignment severance costs for the year ended December 31, 2018 related to D&D and SG&A were $ 128 and $ 41 , respectively.

(B) Business realignment severance costs for the year ended December 31, 2019 related to SG&A were $ 99 .

Business realignment severance costs for the year ended December 31, 2018 related to SG&A were $ 63 .

Business realignment severance costs for the year ended December 31, 2017 related to COGS and SG&A were $ 56 and $ 1,167 , respectively.

(C) B usiness realignment severance costs for the year ended December 31, 2018 related to COGS, SG&A and D&D were $ 63 , $ 387 and $ 28 , respectively.

Business realignment severance costs for the year ended December 31, 2017 related to COGS, SG&A and D&D were $ 370 , $ 218 and $ 1 , respectively.

(D) Business realignment severance costs for the year ended December 31, 2019 related to SG&A were $ 1,048 .

Business realignment charges classified by statement of operations line item were as follows:

32 unchanged sentences

Total net sales

Operating Income (Loss):

Operating (Loss) Income:

Control Devices

1 unchanged sentence

Unallocated Corporate (A)

Total operating income

Total operating (loss) income

Depreciation and Amortization:

36 unchanged sentences

(B) These amounts represent depreciation and amortization on property, plant and equipment and certain intangible assets.

(C) Assets located at Corporate consist primarily of cash, intercompany loan receivables, fixed and leased assets for the headquarter building, information technology assets, equity investments and investments in subsidiaries .

Subsequent Events

Interest Rate Swap

On February 18, 2020, the Company entered into a float-to-fixed interest rate swap, with a notional amount of $ 50,000 to reduce the variability of London Inter-bank Offered Rate (“ LIBOR”) based interest payments on a portion of variable rate debt outstanding on the Company’s 2019 Credit Facility, as disclosed in Note 5 to the consolidated financial statements, by swapping variable rate payments into fixed rate payments.

Currently, borrowings under the 2019 Credit Facility bear interest based on a variable interest rate at either the Base Rate or LIBOR Rate (as defined in the Fourth Amended and Restated Credit Agreement).

The interest rate swap will be settled monthly and will expire in March 2023 .

Authorization For Common Share Repurchase

On February 24, 2020, the Board of Directors of Stoneridge, Inc.

authorized the repurchase of $ 50.0 million of the Company’s outstanding Common Shares over the next 18 months .

The repurchases may be made from time to time in either open market transactions or in privately negotiated transactions.

Repurchases may also be made under Rule 10b5-1 plans, which permit Common Shares to be repurchased through pre-determined criteria.

The timing, volume and nature of common share repurchases will be at the discretion of management, dependent on market conditions, other priorities of cash investment, applicable securities laws and other factors.

This Common Share repurchase program authorization does not obligate the Company to acquire any particular amount of its Common Shares, and it may be suspended or discontinued at any time.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Accelerated Share Repurchase Program Early Termination

On February 25, 2020, Citibank N.A.

notified the Company that it terminated early its commitment pursuant the accelerated share repurchase agreement and would deliver to the Company 364,604 Common Shares on February 27, 2020 based on the volume weighted-average price of our Common Shares during the term set forth in the accelerated share repurchase agreement.

Citibank N.A.’s notice of early termination and the subsequent delivery Common Shares represents the final settlement of the Company’s share repurchase program pursuant to accelerated share repurchase agreement.

(C) Assets located at Corporate consist primarily of cash, intercompany receivables, fixed and leased assets for the headquarter building, information technology assets, equity investments and investments in subsidiaries .

Unaudited Quarterly Financial Data

1 unchanged sentence

Quarter ended

Operating income

Operating income (loss)

Income tax expense (benefit)

Earnings per share attributable to Stoneridge, Inc.:

Net income (loss)

Earnings (loss) per share:

Quarter ended

Operating income

Income tax expense

Earnings per share attributable to Stoneridge, Inc.:

Income tax (benefit) expense

Earnings per share:

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

3 unchanged sentences

The following schedule provides the activity for accounts receivable reserves and valuation allowance for deferred tax assets for the years ended December 31, 2020, 2019 and 2018 (in thousands):

expenses (income)

end of period

13 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data