What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-28 compared with 2021-02-24 · 352 added, 389 removed, 992 unchanged (43% of the section changed)

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Consolidated Financial Statements:

Report of Independent Registered Public Accounting Firm

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets as of December 31, 2021 and 2020

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Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Product warranty and recall reserves

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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.

Description of the Matter

Valuation of earn-out consideration

As discussed in Notes 4 and 10 of the consolidated financial statements, in 2017 the Company acquired the remaining 26% noncontrolling interest in Stoneridge Brazil for $1.5 million 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.

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.

In particular, the fair value estimate was sensitive to significant assumptions such as forecasted sales, expected operating income, and the discount rate.

How we addressed the matter in our audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process for measuring the Stoneridge Brazil earn-out consideration.

This included testing management review controls over projected financial information over the Stoneridge Brazil business and other key inputs to the calculation.

To test the estimated fair value of the Company’s earn-out consideration, we performed audit procedures that included, among others, testing the significant assumptions discussed above and the underlying data used by the Company in its calculation.

We compared the significant assumptions used by management to current industry and economic trends, changes to the company’s customer base or product mix and other relevant factors.

We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the calculated earn-out consideration that would result from changes in the assumptions.

We also involved a valuation specialist to assist in our evaluation of the significant assumptions in the Company’s calculation, including the discount rate used in the fair value estimate.

/s/ Ernst & Young LLP

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Revolving credit facility

Long-term debt, net

Deferred income taxes

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Preferred Shares, without par value, 5,000 shares authorized, none issued

Common Shares, without par value, 60,000 shares authorized, 28,966 and 28,966 shares issued and 27,006 and 27,408 shares outstanding at December 31, 2020 and 2019, respectively, with no stated value

Common Shares, without par value, 60,000 shares authorized, 28,966 and 28,966 shares issued and 27,191 and 27,006 shares outstanding at June 30, 2021 and December 31, 2020, respectively, with no stated value

Additional paid-in capital

Common Shares held in treasury, 1,960 and 1,558 shares at December 31, 2020 and 2019, respectively, at cost

Common Shares held in treasury, 1,775 and 1,960 shares at June 30, 2021 and December 31, 2020, respectively, at cost

Retained earnings

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Selling, general and administrative

Gain on disposal of Non-core Products, net

Gain on sale of Canton Facility, net

Gain on disposal of Non-core Product, net

Design and development

Operating (loss) income

Operating income (loss)

Interest expense, net

Equity in earnings of investee

Other (income) expense, net

(Loss) income before income taxes

(Benefit) provision for income taxes

Net (loss) income

(Loss) earnings per share:

Other expense (income), net

Income (loss) before income taxes

Provision (benefit) for income taxes

Net income (loss)

Earnings (loss) per share:

Weighted-average shares outstanding:

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Year ended December 31, (in thousands)

Net (loss) income

Other comprehensive income (loss), net of tax:

Net income (loss)

Other comprehensive (loss) income, net of tax:

Foreign currency translation (1)

Unrealized (loss) gain on derivatives (1)

Other comprehensive income (loss), net of tax

Unrealized gain (loss) on derivatives (2)

Other comprehensive (loss) income, 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.

(1) Net of tax expense of $ 267 for the year ended December 31, 2021.

(2) Net of tax expense (benefit) of $ 271 , $( 223 ) and $( 78 ) for the years ended December 31, 2021, 2020 and 2019, respectively.

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

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OPERATING ACTIVITIES:

Net (loss) income

Net income (loss)

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

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Earnings of equity method investee

Loss (gain) on sale of fixed assets

(Gain) loss on sale of fixed assets

Share-based compensation expense

Excess tax benefit related to share-based compensation expense

Gain on sale of Canton Facility, net

Gain on disposal of business and joint venture, net

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

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Accrued expenses and other liabilities

Net cash provided by operating activities

Net cash (used for) provided by operating activities

INVESTING ACTIVITIES:

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Proceeds from sale of fixed assets

Insurance proceeds for fixed assets

Proceeds from disposal of Non-core Products

Investment in venture capital fund

Net cash used for investing activities

Proceeds from disposal of business, net

Proceeds from disposal of joint venture, net

Proceeds from sale of Canton Facility, net

Investment in venture capital fund, net

Net cash provided by (used for) investing activities

FINANCING ACTIVITIES:

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Earn-out consideration cash payment

Other financing costs

Common Share repurchase program

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Cash paid for interest

Cash (received) paid for income taxes, net

Supplemental disclosure of non-cash activity:

Cash paid for income taxes, net

Supplemental disclosure of non-cash activities:

Adoption of ASU 2019-12 (Note 2)

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BALANCE , DECEMBER 31, 2018

Unrealized gain on derivatives, net

Unrealized loss on derivatives, net

Currency translation adjustments

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Repurchased Common Shares for treasury, net

Common Share repurchase program

Share-based compensation, net

Cumulative effect of an accounting change

BALANCE DECEMBER 31, 2019

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Share-based compensation, net

Adoption of ASU 2019-12 (Note 2)

BALANCE DECEMBER 31, 2020

Unrealized loss on derivatives, net

Unrealized gain on derivatives, net

Currency translation adjustments

1 unchanged sentence

Repurchased Common Shares for treasury, net

Common Share repurchase program

Share-based compensation, net

Adoption of ASU 2019-12 (Note 2)

BALANCE DECEMBER 31, 2021

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Stoneridge, Inc.

and its subsidiaries are global designers and manufacturers of highly engineered electrical and electronic components, modules and systems for the automotive, commercial, off-highway, motorcycle and agricultural vehicle markets.

Summary of Significant Accounting Policies

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The Company’s investment in Minda Stoneridge Instruments Ltd.

(“MSIL”) for the years ended December 31, 2020, 2019 and 2018 has been determined to be an unconsolidated entity, and therefore is accounted for under the equity method of accounting based on the Company’s 49 % ownership in MSIL.

(“MSIL”) for the years ended December 31, 2020 and 2019 has been determined to be an unconsolidated entity, and therefore was accounted for under the equity method of accounting based on the Company’s 49 % ownership in MSIL.

The Company sold its equity interest in MSIL on December 30, 2021.

Accounting Estimates

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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:

Year ended December 31

Ford Motor Company

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

The Company’s largest customers are Volvo and VW Group, primarily related to the Electronics reportable segment and accounted for the following percentages of consolidated net sales:

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

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Costs for molds, dies and other tools used to make products sold on long-term supply arrangements for which the Company has a contractual guarantee to a lump sum reimbursement from the customer are capitalized either as a component of prepaid expenses and other current assets or an investment and other long-term assets, net within the consolidated balance sheets.

Capitalized pre-production costs were $ 14,259 and $ 7,666 at December 31, 2020 and 2019, respectively.

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)

Capitalized pre-production costs were $ 16,292 and $ 14,259 at December 31, 2021 and 2020, respectively, and were recorded as a component of prepaid expenses and other current assets on the consolidated balance sheets.

Disposal of Non-Core Products

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(“SCD”), and Standard Motor Products, Inc.

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 the same day pursuant to the Asset Purchase Agreement, 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 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.

The products related to the Non-core Products were manufactured in Juarez, Mexico and Canton, Massachusetts,

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 (“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.

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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.

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 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.

The acquisition of Orlaco enhanced the Stoneridge’s Electronics segment global technical capabilities in vision systems and facilitated entry into new markets.

The aggregate consideration for the Orlaco acquisition was € 74,939 ($ 79,675 ), which included customary estimated adjustments to the purchase price.

The Company paid € 67,439 ($ 71,701 ) in cash.

The purchase price was subject to certain customary adjustments set forth in the purchase agreement.

The Company was required to pay an additional amount up to € 7,500 as contingent consideration (“earn-out consideration”) if certain performance targets are achieved during the first two years.

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

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.

There were no Non-core Product net sales for the years ended December 31, 2021 or 2020.

Disposal of Particulate Matter Sensor Business

On March 8, 2021 , the Company entered into an Asset Purchase Agreement (the “APA”) by and among the Company, the Company’s wholly owned subsidiary, Stoneridge Electronics AS, as the Sellers, and Standard Motor Products, Inc.

(“SMP”) and SMP Poland SP Z O.O., as the Buyers.

Pursuant to the APA the Company agreed to sell to the Buyers the Company’s assets located in Lexington, Ohio and Tallinn, Estonia related to the manufacturing of particulate matter sensor products and related service part operations (together, the “PM sensor business”).

In the past, the Company has sometimes referred to the PM sensor assets as the Company’s soot sensing business.

The Buyers did not acquire any of the Company’s locations or employees.

The purchase price for the sale of the PM sensor assets was $ 4,000 (subject to a post-closing inventory adjustment which was a payment to SMP of $ 1,133 ) plus the assumption of certain liabilities.

The purchase price was allocated among PM sensor product lines, Gen 1 and Gen 2 as defined under the APA.

The purchase price allocated to Gen 1 fixed assets and inventory and Gen 2 fixed assets was $ 3,214 and $ 786 , respectively.

The sale of the Gen 2 assets occurred during November 2021, upon completion of the Company’s supply commitments to certain customers.

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

On March 8, 2021 the Company’s Control Devices segment recognized net sales and cost of goods sold of $ 971 and $ 898 , respectively, for the one-time sale of Gen 1 inventory and a gain on disposal of $ 740 for the sale of Gen 1 fixed assets less transaction costs of $ 60 within SG&A during the three months ended March 31, 2021.

Pursuant to the contract manufacturing agreement, the Company produced and sold PM sensor Gen 1 finished goods inventory to SMP for net sales of $ 8,042 in the year ended December 31, 2021.

In addition, the Company received $ 783 for services provided pursuant to the transition services agreement which were recognized as a reduction in SG&A for the year ended December 31, 2021.

PM sensor Gen 1 net sales, including sales of $ 8,042 to SMP pursuant to the contract manufacturing agreement and the sale of Gen 1 inventory components of $ 2,283 and operating income were $ 12,592 and $ 1,415 , respectively, for the year ended December 31, 2021.

PM sensor Gen 1 net sales and operating income were $ 8,814 and $ 1,090 , respectively, for the year ended December 31, 2020.

PM sensor Gen 1 net sales and operating loss were $ 10,951 and $ 438 , respectively, for the year ended December 31, 2019.

The Company completed the PM sensor Gen 2 product supply commitments and ended production on September 23, 2021.

In November 2021, the Company’s Control Devices segment recognized proceeds of $ 786 and a gain on disposal of $ 408 for the sale of the Gen 2 fixed assets within SG&A, for the year ended December 31, 2021.

STONERIDGE, INC.

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

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 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.

Sale of Canton Facility

On May 7, 2021, the Company entered into a Real Estate Purchase and Sale Agreement (the “Agreement”) with Sun Life Assurance Company of Canada, a Canadian corporation (the “Buyer”), to sell the Canton Facility for $ 38,200 (subject to adjustment pursuant to the Agreement).

On June 17, 2021, pursuant to the Agreement, as amended after May 7, 2021, the Company closed the sale of the Canton Facility to the Buyer for an adjusted purchase price of $ 37,900 .

The Company recognized in the Control Devices segment, net proceeds of $ 35,167 and a gain, net of direct selling costs, of $ 30,718 .

On November 2, 2021, the Company entered into a Share Purchase Agreement (the “SPA”) with Minda Corporation Limited (“Minda”), as the buyer, and MSIL.

Pursuant to the SPA the Company agreed to sell to Minda the Company’s minority interest in MSIL for approximately $ 21,500 equivalent Indian Rupee which was payable in U.S.

dollars at closing.

On December 30, 2021, pursuant to the SPA, the Company closed the sale of MSIL to Minda for $ 21,587 .

The Company recognized net proceeds of $ 20,999 and a gain, net of transaction costs, of $ 1,794 .

Property, Plant and Equipment

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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.

The Company identified that there were 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.

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Balance at December 31

Balance at January 1, 2019

Currency translation

Balance at December 31, 2019

The Company’s cumulative goodwill impairment loss since inception was $ 300,083 at December 31, 2021 and 2020, which includes Stoneridge Brazil’s goodwill impairment in 2014 and goodwill impairment recorded by the Company’s Control Devices segment in 2008 and 2004.

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Capitalized software development

Other intangible assets, net at December 31, 2021 for customer lists, tradenames, technology and capitalized software development include $ 19,480 , $ 4,084 , $ 1,590 and $ 8,635 , respectively, related to the Electronics segment.

Customer lists, tradenames and technology of $ 5,280 , $ 5,277 and $ 2,258 , respectively, related to the Stoneridge Brazil segment at December 31, 2021.

Capitalized software development and technology of $ 3,174 and $ 85 , respectively, related to the Control Devices segment at December 31, 2021.

STONERIDGE, INC.

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(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.

Customer lists, tradenames and technology of $ 6,804 , $ 6,234 and $ 2,863 , respectively, related to the Stoneridge Brazil segment at December 31, 2020.

Capitalized software development and technology of $ 2,623 and $ 98 respectively, related to the Control Devices segment at December 31, 2020.

The Company designs and develops software that will be embedded into certain products and sold to customers.

Software development costs are capitalized after the software product development reaches technological feasibility and until the software product becomes available for general release to customers.

These intangible assets will be amortized using the straight-line method over estimated useful lives generally ranging from three to seven years .

These intangible assets are amortized using the straight-line method over estimated useful lives generally ranging from three to seven years .

The Company recognized $ 5,387 , $ 5,399 and $ 5,955 of amortization expense related to intangible assets in 2021, 2020 and 2019, respectively.

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 $ 5,200 for the years 2021 and 2022 and approximately $4,300 for the year 2023 through 2025 .

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

Annual amortization expense for intangible assets is estimated to be approximately $ 7,000 for the year 2022 and approximately $ 6,200 for the years 2023 through 2026 .

The weighted-average remaining amortization period is approximately 8 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 discussed in Note 13.

There were no intangible impairment charges for the years ended December 31, 2021, 2020 or 2019.

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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

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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 (income) expense, net.

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.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

These foreign currency transaction losses (gains), including the impact of hedging activities, were $ 2,037 , $( 997 ) and $ 372 for the years ended December 31, 2021, 2020 and 2019, respectively.

Revenue Recognition and Sales Commitments

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Total compensation expense recognized as a component of SG&A expense on the consolidated statements of operations for share-based compensation arrangements was $ 5,960 , $ 5,888 and $ 6,191 for the years ended December 31, 2021, 2020 and 2019, 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 2021, 2020 or 2019.

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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, interest rate swap agreement and foreign currency forward contracts.

Financial instruments, including derivative financial instruments, held by the Company include cash and cash equivalents, accounts receivable, accounts payable, long-term debt, net investment hedge, interest rate swap agreement 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.

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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.

(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.

Earnings (Loss) Per Share

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

Diluted earnings per share was calculated by dividing net income (loss) 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

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Diluted weighted-average Common Shares outstanding

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

There were 580,116 , 752,784 and 566,337 performance-based right to receive Common Shares outstanding at December 31, 2021, 2020 and 2019.

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Deferred financing costs are amortized over the life of the related financial instrument using the straight-line method, which approximates the effective interest method.

Deferred finance cost amortization and debt discount accretion, for the years ended December 31, 2020, 2019 and 2018 was $ 506 , $ 624 and $ 326 , respectively, and is included as a component of interest expense, net in the consolidated statements of operations.

Deferred financing cost amortization and debt discount accretion, for the years ended December 31, 2021, 2020 and 2019 was $ 643 , $ 506 and $ 624 , respectively, and is included as a component of interest expense, net in the consolidated statements of operations.

In 2019, the Company capitalized $ 1,366 of deferred financing costs as a result of entering into the 2019 Credit Facility.

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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.

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 within long-term assets in the Company’s consolidated balance sheets.

Deferred financing costs, net, were $ 1,563 and $ 2,187 , as of December 31, 2021 and 2020, respectively.

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(the “Bank”) to purchase Company Common Shares for a payment of $ 50,000 (the “Prepayment Amount”).

Under the terms of the ASR Agreement, on May 7, 2019, the Company paid the Prepayment Amount to the Bank and received on May 8, 2019 an initial delivery of 1,349,528 Company Common Shares, which is approximately 80 % of the total number of Company Common Shares expected to be repurchased under the ASR Agreement based on the closing price of the Company’s Common Shares on May 7, 2019.

Under the terms of the ASR Agreement, on May 7, 2019, the Company paid the Prepayment Amount to the Bank and received on May 8, 2019 an initial delivery of 1,349,528 Company Common Shares, which was approximately 80 % of the total number of Company Common Shares expected to be repurchased under the ASR Agreement based on the closing price of the Company’s Common Shares on May 7, 2019.

These Common Shares became treasury shares and were recorded as a $ 40,000 reduction to shareholder’s equity.

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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.

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

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

STONERIDGE, INC.

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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.

The 2020 repurchase program authorization expired during the third quarter of 2021 and no additional shares will be repurchased under this program.

Accumulated Other Comprehensive Loss

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Balance at January 1, 2021

Other comprehensive income (loss) before reclassifications

Other comprehensive (loss) income before reclassifications

Amounts reclassified from accumulated other comprehensive loss

Net other comprehensive income (loss), net of tax

Net other comprehensive (loss) income, net of tax

Balance at December 31, 2021

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

Reclassifications

Certain prior period amounts have been reclassified to conform to their 2021 presentation in the consolidated financial statements.

Recently Adopted Accounting Standards

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

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.” The amendments in this update remove certain exceptions of Topic 740 including:

5 unchanged sentences

franchise and other taxes partially based on income and the interim recognition of enactment of tax laws and rate changes.

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

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

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

5 unchanged sentences

(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):

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.

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.

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 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.

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, 2021

12 unchanged sentences

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.

10 unchanged sentences

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 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.

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

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

Stoneridge Brazil.

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.

Our Stoneridge Brazil segment (“SRB”) 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, directly to OEMs and through mass merchandisers.

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

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The following tables disaggregate our revenue by reportable segment and geographical location (1) for the periods ended December 31, 2021, 2020 and 2019:

7 unchanged sentences

Performance Obligations

For OEM and Tier 1 supplier customers, the Company typically enters into contracts with its customers to provide serial production parts that consist of a set of documents including, but not limited to, an award letter, master purchase agreement and master terms and conditions.

For OEM and Tier 1 supplier customers, the Company typically enters into contracts to provide serial production parts that consist of a set of documents including, but not limited to, an award letter, master purchase agreement and master terms and conditions.

For each production product, the Company enters into separate purchase orders that contain the product specifications and an agreed-upon price.

The performance obligation does not exist until a customer release is received for a specific number of parts.

The majority of the parts sold to OEM and Tier 1 suppliers are specifically customized to the specific customer, with the exception of off-highway products that are common across all customers.

The majority of the parts sold to OEM and Tier 1 supplier customers are customized to the specific customer, with the exception of camera-based vision systems (“CMS”) that are common across all customers (CMS for OEMs are customized but sales are not yet material).

The transaction price is equal to the contracted price per part and there is no expectation of material variable consideration in the transaction price.

2 unchanged sentences

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.

3 unchanged sentences

Revenue for aftermarket part production contracts is recognized at a point in time when the control of the parts transfer to the customer which is based on the shipping terms.

Aftermarket contracts may include variable consideration related to discounts and rebates and is included in the transaction price upon recognizing the product revenue.

Aftermarket contracts may include variable consideration related to discounts and rebates which is included in the transaction price upon recognizing the product revenue.

A small portion of the Company’s sales are comprised of monitoring services that include both monitoring devices and fees to individual, corporate, fleet and cargo customers in our Stoneridge Brazil segment.

6 unchanged sentences

The Company had no material contract assets, contract liabilities or capitalized contract acquisition costs as of December 31, 2021 or 2020.

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 % 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.

The Company’s investment in MSIL, recorded as a component of investments and other long-term assets, net on the consolidated balance sheets, was $ 13,547 and $ 12,701 as of December 31, 2020 and 2019, respectively.

The Company had 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.

As discussed in Note 2, the Company sold its equity interest in MSIL on December 30, 2021.

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

The Company’s investment in MSIL, recorded as a component of investments and other long-term assets, net on the consolidated balance sheets, was $ 13,547 as of December 31, 2020.

Equity in earnings of MSIL included in the consolidated statements of operations were $ 1,776 , $ 1,477 and $ 1,578 for the years ended December 31, 2021, 2020 and 2019, respectively.

2 unchanged sentences

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.

As part of the acquisition agreement, the Company will be required to pay additional earn-out consideration based on Stoneridge Brazil’s financial performance in 2021.

The final earn-out consideration of $ 7,351 will be paid in the second quarter of 2022.

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

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.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Other Investments

1 unchanged sentence

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 contributed $ 3,450 to and received $ 251 in distributions from the Autotech Fund II during the year ended December 31, 2021.

The Company contributed $ 1,550 to the Autotech Fund II during the year ended December 31, 2020.

The Company has a 6.3 % 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 Company recognized earnings of $ 1,882 and $ 59 during the years ended December 31, 2021 and 2020, respectively.

The Autotech Fund II investment recorded in investments and other long-term assets, net in the consolidated balance sheet was $ 8,517 and $ 3,436 as of December 31, 2021 and 2020, respectively.

Interest rates at

Year ended December 31

December 31, 2021

2 unchanged sentences

Stoneridge Brazil short-term obligations

5.64 % - 8.80 %

June 2021 - November 2021

Stoneridge Brazil long-term notes

Sweden short-term credit line

1 unchanged sentence

4.00 % - 4.30 %

September 2021

May 2022 - October 2022

current portion

Total long-term debt, net

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Revolving Credit Facility

3 unchanged sentences

The Credit Facility has a termination date of June 5, 2024 .

In 2019, the Company capitalized $ 1,366 of deferred financing costs as a result of entering into the 2019 Credit Facility.

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.

Borrowings under the Credit Facility bear interest at either the Base Rate or the LIBOR rate, at the Company’s option, plus the applicable margin as set forth in the Credit Facility.

3 unchanged sentences

The 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.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 unchanged sentence

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).

1 provided 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).

The Covenant Relief Period ended on August 14, 2021.

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.

the maximum net leverage ratio was suspended;

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

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

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

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

a Permitted Acquisition (as defined) could not be 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.

1 changed the leverage based LIBOR pricing grid through the maturity date of the Credit Facility 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, 2021, Specified Hedge Borrowings were $ 50,000 .

The Company capitalized an additional $ 1,086 of deferred financing costs as a result of entering into Amendment No.

On December 17, 2021, the Company entered into Amendment No.

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

Amendment No.

2 implemented non-LIBOR interest reference rates for borrowings in euros and British pounds.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Due to the ongoing impacts of the COVID-19 pandemic and supply chain disruptions on the Company’s end-markets and the resulting financial impacts on the Company, on February 28, 2022, the Company entered into Amendment No.

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

Amendment No.

3 reduces the total revolving credit commitments from $ 400.0 million to $ 300.0 million and the maximum permitted amount of swing loans from $ 40.0 million to $ 30.0 million.

Amendment No.

3 provides for certain financial covenant relief and additional covenant restrictions during the “Specified Period” (the period from February 28, 2022 until the date that the Company delivers a compliance certificate for the quarter ending March 31, 2023 in form and substance satisfactory to the administrative agent).

During the Specified Period:

● the maximum net leverage ratio is changed to 4.0 x for the year ended December 31, 2021, suspended for the quarters ending March 31, 2022 through September 30, 2022 and cannot exceed 4.75 to 1.00 for the quarter ended December 31, 2022 or 3.50 to 1.00 for the quarter ended March 31, 2023;

● the minimum interest coverage ratio of 3.50 is reduced to 2.50 for the quarter ended March 31, 2022, 2.25 for the quarter ended June 30, 2022 and 3.00 for the quarters ended September 30, 2022 and December 31, 2022;

● an additional condition to drawing on the Credit Facility has been added that restricts borrowings if the Company’s total of 100 % of domestic and 65 % of foreign cash and cash equivalents exceeds $ 70.0 million;

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

● a Permitted Acquisition (as defined) may not be consummated unless the net leverage ratio is below 3.50 x during the Specified Period.

Amendment No.

3 changes the leverage based LIBOR pricing grid through the maturity date and also retains 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.

Amendment No.

3 also incorporates hardwired mechanics to permit a future replacement of LIBOR as the interest reference rate without lender consent.

Borrowings outstanding on the Credit Facility, were $ 163,957 and $ 136,000 at December 31, 2021 and 2020, respectively.

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

The Company was in compliance with all credit facility covenants at December 31, 2021, as a result of Amendment No.

3, and at December 31, 2020.

The Company also had outstanding letters of credit of $ 1,698 and $ 1,720 at December 31, 2021 and 2020, 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 $ 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.

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.

Stoneridge Brazil maintained short-term notes used for working capital purposes during 2021 and 2020 which had fixed or variable interest rates.

There were no borrowings outstanding on these notes at December 31, 2021.

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 $ 2,213 and $ 2,435 at December 31, 2021 and 2020, respectively.

At December 31, 2021 there was 18,973 Swedish krona, or $ 2,099 , outstanding on this overdraft credit line.

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

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

During the year ended December 31, 2021, the subsidiary borrowed 352,368 Swedish krona, or $ 38,982 , and repaid 346,467 Swedish krona, or $ 38,329 .

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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.

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 $ 7,871 and $ 7,663 at December 31, 2021 and 2020, respectively.

At December 31, 2021 and 2020 there was $ 3,149 and $ 4,521 , respectively, in borrowings outstanding on the Suzhou credit line with weighted-average interest rates of 4.15 % and 4.32 %, respectively.

3 unchanged sentences

There was $ 2,182 and $ 414 utilized on the Suzhou bank acceptance draft line of credit at December 31, 2021 and 2020, respectively.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

At December 31, 2021, the future maturities of the Credit Facility and debt were as follows:

Year ended December 31,

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:

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

The components of income (loss) 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

Income before income taxes:

Total income before income taxes

Provision for income taxes:

2 unchanged sentences

State and foreign

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)

Total deferred benefit

Total income tax expense

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.

1 unchanged sentence

Statutory U.S.

federal income tax (benefit) provision

federal income tax provision (benefit)

State income taxes, net of federal tax benefit

4 unchanged sentences

tax on foreign earnings

Tax impact of unconsolidated subsidiaries

Unremitted earnings on foreign subsidiaries

Compensation and benefits

(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.

Provision (benefit) for income taxes

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:

13 unchanged sentences

Intangible assets

Outside basis difference in foreign subsidiary

Right-of-use-assets

Gross deferred tax liabilities

Net deferred tax assets (liabilities)

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

Net deferred tax assets

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

Year ended December 31,

1 unchanged sentence

Long-term deferred tax liabilities

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)

Net deferred tax assets

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.

1 unchanged sentence

Based on the Company’s review of both positive and negative evidence regarding the realizability of deferred tax assets at December 31, 2021, 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 $ 76,986 and $ 53,761 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 2030 - 2041 or have indefinite lives and the foreign net operating losses expire from 2022 - 2026 or have indefinite lives.

2 unchanged sentences

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:

5 unchanged sentences

At December 31, 2021, the Company has classified $ 2,891 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 at December 31, 2020 and 2019.

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 $ 2,891 and $ 3,449 at December 31, 2021 and 2020, respectively.

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.

6 unchanged sentences

United Kingdom

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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.

6 unchanged sentences

For these short-term leases, the Company recognizes the lease payments in profit or loss on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

For the leases identified, right of use (“ROU”) assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

4 unchanged sentences

Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Lease expenses are recognized within COGS, SG&A and design and development (“D&D”) costs in the consolidated statements of operations.

Lease expenses are recognized within COGS, SG&A and D&D costs in the consolidated statements of operations.

The Company has made the policy election to account for lease and non-lease components as a single lease component for all of its leases.

As a result of the Company’s election to apply the modified retrospective transition method at the effective date of the standard, information prior to January 1, 2019 has not been restated and continues to be reported under the accounting standards in effect for the period (ASC Topic 840).

The components of lease expense are as follows:

10 unchanged sentences

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:

7 unchanged sentences

Weighted-average discount rate

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Other information:

5 unchanged sentences

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.

The Company, as lessor, 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 12, 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)

As discussed in Note 2, the Company sold the Canton facility and assigned the lease to the buyer on June 17, 2021.

The Company recognized lease income on a straight-line basis over the lease term until the time of the sale.

The Company recognized, in its Control Devices segment, operating and variable lease income from leases in our consolidated statements of operations of $ 602 and $ 199 , respectively, for the year ended December 31, 2021 and $ 674 and $ 199 , respectively for the year ended December 31, 2020.

Share-Based Compensation Plans

17 unchanged sentences

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

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Share Units and Performance Shares

4 unchanged sentences

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.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

A summary of the status of the Company’s non-vested share units and performance shares as of December 31, 2021 and the changes during the year then ended, are presented below:

21 unchanged sentences

For the years ended December 31, 2021, 2020 and 2019, the total fair value of awards vested was $ 9,637 , $ 5,288 and $ 12,376 , respectively.

As of December 31, 2020, total unrecognized compensation cost related to non-vested performance shares granted was $ 628 for shares probable to vest.

That cost is expected to be recognized over a weighted-average period of 1.45 years dependent upon the achievement of performance conditions.

As of December 31, 2021, there was no unrecognized compensation cost related to non-vested performance shares granted that are probable to vest.

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).

1 unchanged sentence

Employee Benefit Plans

The Company has certain defined contribution profit sharing and 401(k) plans covering substantially all of its employees in the United States and Europe.

The Company provides matching contributions to the Company’s 401(k) plan.

Company contributions are generally discretionary.

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.

2 unchanged sentences

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

The Company has certain defined contribution profit sharing and 401(k) plans covering substantially all of its employees in the United States and Europe.

The Company provides matching contributions to the Company’s 401(k) plan.

Company contributions are generally discretionary.

For the years ended December 31, 2021, 2020 and 2019, expenses related to these plans amounted to $ 5,082 , $ 3,812 and $ 4,260 , respectively.

Financial Instruments and Fair Value Measurements

4 unchanged sentences

Derivative Instruments and Hedging Activities

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

On December 31, 2021, the Company had open Mexican peso-denominated foreign currency forward contracts and net investment hedges of our euro-denominated subsidiary.

The Company used foreign currency forward contracts solely for hedging and not for speculative purposes during 2021 and 2020.

3 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 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.

The Company uses derivative financial instruments as cash flow hedges and net investment 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.

Net Investment Hedges

During 2021 the Company entered into two cross-currency swaps, designated as net investment hedges, with notional values of $ 25,000 each and maturities in August 2026 and August 2028 .

These swaps hedge a portion of the net investment in a certain euro-denominated subsidiary.

The Company has elected to assess hedge effectiveness under the spot method.

Accordingly, periodic changes in the fair value of the derivative instruments attributable to factors other than spot exchange rate variability are excluded from the measurement of hedge ineffectiveness and reported directly in earnings each reporting period.

The change in fair value of these derivative instruments is recorded in cumulative translation adjustment, which is a component of accumulated other comprehensive loss in the consolidated balance sheets.

When the related currency translation adjustment is required to be reclassified, usually upon the sale or liquidation of the investment, the gain or loss included in accumulated other comprehensive loss is recorded in earnings and reflected in other expense (income), net in the consolidated statements of operations.

Upon settlement, cash flows attributable to derivatives designated as net investment hedges will be classified as investing activities in the consolidated statements of cash flows.

Cash Flow Hedges

The Company entered into foreign currency forward contracts to hedge the euro and Mexican peso currencies during 2020 and the Mexican peso currency during 2021.

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

3 unchanged sentences

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 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.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

At December 31, 2021, 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.

There were no contracts entered into as of December 31, 2020, 2019 or 2018 as these contracts were settled in December 2018.

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

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

1 unchanged sentence

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.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

There were no such contracts at December 31, 2021 or 2020.

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 holds Mexican peso-denominated foreign currency forward contracts with a notional amount at December 31, 2021 of $ 23,923 which expire ratably on a monthly basis from January 2022 to December 2022.

The notional amount at December 31, 2020 related to Mexican peso-denominated foreign currency forward contracts was $ 1,242 .

The Company evaluated the effectiveness of the Mexican peso-denominated foreign currency forward contracts held as of December 31, 2021 and the year then ended, and concluded that the hedges were effective.

3 unchanged sentences

The Swap was designated as a cash flow hedge of the variable interest rate obligation under the Company's Credit Facility that has a current balance of $ 163,957 at December 31, 2021.

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

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

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

2 unchanged sentences

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 swap settlements increased interest expense by $ 651 and $ 433 for the years ended December 31, 2021 and 2020, respectively.

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

4 unchanged sentences

other current liabilities

As of December 31,

Derivatives designated as hedging instruments:

2 unchanged sentences

Interest rate swap

Net investment hedges:

Cross-currency swaps

(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:

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Gain (loss) reclassified from

2 unchanged sentences

comprehensive income (loss)

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

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

Derivatives designated as cash flow hedges:

1 unchanged sentence

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.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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.

Derivatives designated as net investment hedges:

Cross-currency swaps

(A) Gains (losses) reclassified from comprehensive loss into net income (loss) recognized in COGS in the Company’s consolidated statements of operations for the years ended December 31, 2021, 2020 and 2019 were $ 341 , $( 1,146 ) and $ 695 , respectively.

Gains (losses) reclassified from other comprehensive loss into net income (loss) recognized in D&D in the Company’s consolidated statements of operations were $ 0 , $( 29 ) and $ 125 for the years ended December 31, 2021, 2020 and 2019, respectively.

Gains (losses) reclassified from other comprehensive loss into net income (loss) recognized in SG&A in the Company’s consolidated statements of operations were $ 107 , $( 324 ) and $ 0 for the years ended December 31, 2021, 2020 and 2019, respectively.

Losses reclassified from other comprehensive loss into net income (loss) recognized in interest expense, net in the Company’s consolidated statements of operations were $( 651 ) and $( 433 ) for the years ended December 31, 2021, and 2020, respectively.

For the year ended December 31, 2021, the total net gains on the foreign currency contract cash flow hedges of $ 730 are 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, $ 468 of losses are expected to be included in interest expense, net within the next 12 months and $ 35 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.

4 unchanged sentences

Fair values estimated using Level 2 inputs, other than quoted prices, are observable for the asset or liability, either directly or indirectly and include among other things, quoted prices for similar assets or liabilities in markets that are active or inactive as well as inputs other than quoted prices that are observable.

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

For forward currency and cross-currency contracts, inputs include forward foreign currency exchange rates.

For the interest rate swap, inputs include LIBOR.

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

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The following table presents our assets and liabilities that 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 inputs used.

2 unchanged sentences

Forward currency contract

Cross-currency swaps

Total financial assets carried at fair value

5 unchanged sentences

Stoneridge Brazil

Balance at December 31, 2019

Change in fair value

Foreign currency adjustments

Balance at December 31, 2020

Stoneridge Brazil

Balance at December 31, 2018

Balance at January 1

Change in fair value

Foreign currency adjustments

Earn-out consideration cash payment

Balance at December 31

The Company will be required to pay the Stoneridge Brazil earn-out consideration based on Stoneridge Brazil’s financial performance in 2021.

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

The earn-out consideration obligation related to Stoneridge Brazil is recorded within accrued expenses and other current liabilities in the consolidated balance sheets as of December 31, 2021 and other long-term liabilities in the consolidated balance sheets as of December 31, 2020.

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 expense (income), net in the consolidated statements of operations.

In March 2019, the Company paid earn-out consideration of $ 8,474 related to the January 2017 acquisition of Orlaco.

The payment was 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 expense was recognized in the years ended December 31, 2017 and 2018.

There were no transfers in or out of Level 3 from other levels in the fair value hierarchy for the year ended December 31, 2021.

No non-recurring fair value adjustments were required for nonfinancial assets for the years ended December 31, 2021 and 2020.

STONERIDGE, INC.

2 unchanged sentences

(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 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 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 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.

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

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.

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

1 unchanged sentence

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.

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.

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."

6 unchanged sentences

Soil remediation at the site was completed during the year ended December 31, 2010.

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 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.

A remedial action plan was approved by the Florida Department of Environmental Protection and ground water remediation began in the fourth quarter of 2015.

During the years ended December 31, 2021 and 2020 environmental remediation costs incurred were $ 391 and $ 128 , respectively, and were immaterial for the year ended December 31, 2019.

At December 31, 2021 and 2020, the Company had accrued an undiscounted liability of $ 216 and $ 180 respectively, related to future remediation costs which were recorded as a component of accrued expenses and other current liabilities on the consolidated balance sheets while the remaining amount as of December 31, 2021 was recorded as a component of other long-term liabilities.

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.

The recorded liability is based on assumptions in the remedial action plan as well as estimates for future remediation activities.

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.

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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.

4 unchanged sentences

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 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.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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

In March 2017, the Supreme Court of Brazil issued a decision concluding that a certain state value added tax should not be included in the calculation of federal gross receipts taxes.

The decision reduced Stoneridge Brazil’s gross receipts tax prospectively and, potentially, retrospectively.

In April 2019, the Company received judicial notification that the Superior Judicial Court of Brazil rendered a favorable decision on Stoneridge Brazil’s case granting the Company the right to recover, through offset of federal tax liabilities, amounts collected by the government from June 2010 to February 2017.

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.

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

In 2019, the Company received judicial notification that the Superior Judicial Court of Brazil rendered a favorable decision on Stoneridge Brazil’s case granting the Company the right to recover, through offset of federal tax liabilities, amounts collected by the government from June 2010 to February 2017.

As a result, the Company recorded a pre-tax benefit of $ 6,473 in the year ended December 31, 2019.

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.

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.

Headquarter Relocation and Consolidation

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 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 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.

The leading case was decided on May 13, 2021.

The Company does not expect any impact to amounts previously recognized as a result of the Supreme Court decision.

Restructuring and Business Realignment

1 unchanged sentence

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.

In conjunction with the strategic exit of the PM sensor product line, the Company entered into an asset purchase agreement related to the sale of the PM sensor product line during the first quarter of 2021.

Refer to Note 2 of the consolidated financial statements for additional details regarding this sale.

As a result of the PM sensor restructuring actions, the Company recognized expense of $ 2,360 and $ 3,428 for the years ended December 31, 2021 and 2020, respectively, for non-cash fixed asset charges, including impairment and accelerated depreciation of PM sensor related fixed assets, employee severance and termination costs and other related costs including supplier settlements.

For the year ended December 31, 2021 restructuring related costs of $ 1,510 , $ 642 and $ 208 were recognized in COGS, SG&A and D&D, respectively.

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.

The only remaining costs relate to potential commercial settlements and legal fees which we continue to negotiate.

The estimated additional costs related to these settlements and fees is up to $ 4,200 .

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, 2021

December 31, 2021

Fixed asset impairment and

accelerated depreciation

Employee termination benefits

Other related costs

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

5 unchanged sentences

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”).

On January 10, 2019, the Company committed to a restructuring plan that resulted in the closure of the Canton, Massachusetts facility (“Canton Facility”) on 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.

As a result of the Canton Restructuring actions, the Company recognized expense of $ 13 , $ 2,978 and $ 12,530 for the years ended December 31, 2021, 2020 and 2019, respectively, for employee severance and termination costs and other restructuring related costs.

For the year ended December 31, 2021 other restructuring related costs of $ 13 were recognized in D&D in the consolidated statement of operations.

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.

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 this restructuring plan, that will impact the Control Devices segment, is immaterial.

We do not expect to incur additional costs related to the Canton Restructuring.

Refer to Note 7 and Note 2 to the consolidated financial statements for additional details regarding the third-party lease and sale, respectively, of the Canton Facility.

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

11 unchanged sentences

Other related costs

Accrual as of

January 1, 2019

December 31, 2019

Employee termination benefits

Other related costs

STONERIDGE, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

1 unchanged sentence

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.

As a result of these actions, the Company recognized expense of $ 290 , $ 2,400 and $ 603 respectively, for the years ended December 31, 2021, 2020 and 2019 for employee severance and termination costs, non-cash fixed asset charges for accelerated depreciation of fixed assets, contract termination costs 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, 2021 were $ 37 , $ 210 and $ 43 , respectively.

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 $ 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)

We do not expect to incur additional costs related to these Electronics segment restructuring actions.

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

5 unchanged sentences

Employee termination benefits

Contract termination costs

Other related costs

5 unchanged sentences

Employee termination benefits

Accelerated depreciation

Contract termination costs

6 unchanged sentences

Employee termination benefits

Excess and obsolete inventory

Intangible impairment

Fixed asset impairment

Accelerated depreciation

Contract termination costs

10 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 .

(A) Severance costs for the year ended December 31, 2021 related to SG&A were $ 192 .

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 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)

(B) Severance costs (benefit) for the year ended December 31, 2021 related to COGS, SG&A and D&D were $ 1 , $( 7 ) and $ 9 , respectively.

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, 2020 related to COGS and SG&A were $ 124 and $ 110 , respectively.

(D) Severance costs for the years ended December 31, 2021, 2020 and 2019 related to SG&A were $ 1,138 , $ 361 and $ 1,048 , respectively.

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

22 unchanged sentences

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

Year ended December 31

Control Devices

7 unchanged sentences

Total net sales

Operating (Loss) Income:

Operating Income (Loss):

Control Devices

1 unchanged sentence

Unallocated Corporate (A)

Total operating (loss) income

Total operating income (loss)

Depreciation and Amortization:

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Total depreciation and amortization (B)

Interest Expense, net:

Interest Expense (Income), net:

Control Devices

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Total capital expenditures

As of December 31

Total Assets:

7 unchanged sentences

The following table presents net sales and long-term assets for the geographic areas in which the Company operates:

Year ended December 31

North America

2 unchanged sentences

Total net sales

As of December 31

Long-term Assets:

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(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

The following is a summary of quarterly results of operations:

Quarter ended

Operating income (loss)

Income tax expense (benefit)

Net income (loss)

Earnings (loss) per share:

Quarter ended

Operating income

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.

(B) The Company recognized a gain on disposal of Non-core Products in our Control Devices segment, net of $ 33,599 in the quarter ended June 30, 2019.

See Note 2 to the Company’s consolidated financial statements for further information .

Subsequent Events

Credit Facility Amendment

On February 28, 2022, the Company entered into Amendment No.

3 to the Credit Facility.

Refer to Note 5 of the consolidated financial statements for details regarding this amendment.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

The following schedule provides the activity for accounts receivable reserves and valuation allowance for deferred tax assets for the years ended December 31, 2021, 2020 and 2019 (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