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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2023
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-13337
999.jpg
STONERIDGE, INC
(Exact name of registrant as specified in its charter)
Ohio34-1598949
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
39675 MacKenzie Drive, Suite 400, Novi, Michigan
48377
(Address of principal executive offices)(Zip Code)
(248) 489-9300
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Shares, without par value
SRI
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
xYes oNo
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
xYes oNo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer x
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period     for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). oYes xNo
The number of Common Shares, without par value, outstanding as of October 27, 2023 was 27,547,977.

STONERIDGE, INC. AND SUBSIDIARIES
INDEXPage
2
Forward-Looking Statements
Portions of this report on Form 10-Q contain “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this report and may include statements regarding the intent, belief or current expectations of the Company, with respect to, among other things, our (i) future product and facility expansion, (ii) acquisition strategy, (iii) investments and new product development, (iv) growth opportunities related to awarded business and (v) operational expectations. Forward-looking statements may be identified by the words “will,” “may,” “should,” “designed to,” “believes,” “plans,” “projects,” “intends,” “expects,” “estimates,” “anticipates,” “continue,” and similar words and expressions. The forward-looking statements are subject to risks and uncertainties that could cause actual events or results to differ materially from those expressed in or implied by the statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, among other factors:
•the ability of our suppliers to supply us with parts and components at competitive prices on a timely basis, including the impact of potential tariffs and trade considerations on their operations and output;
•fluctuations in the cost and availability of key materials (including semiconductors, printed circuit boards, resin, aluminum, steel and copper) and components and our ability to offset cost increases through negotiated price increases with our customers or other cost reduction actions, as necessary;
•global economic trends, competition and geopolitical risks, including impacts from the ongoing global conflicts and the related sanctions and other measures, or an escalation of sanctions, tariffs or other trade tensions between the U.S. and China or other countries;
•our ability to achieve cost reductions that offset or exceed customer-mandated selling price reductions;
•the reduced purchases, loss or bankruptcy of a major customer or supplier;
•the costs and timing of business realignment, facility closures or similar actions;
•a significant change in automotive, commercial, off-highway or agricultural vehicle production;
•competitive market conditions and resulting effects on sales and pricing;
•foreign currency fluctuations and our ability to manage those impacts;
•customer acceptance of new products;
•our ability to successfully launch/produce products for awarded business;
•adverse changes in laws, government regulations or market conditions, including tariffs, affecting our products or our customers’ products;
•our ability to protect our intellectual property and successfully defend against assertions made against us;
•liabilities arising from warranty claims, product recall or field actions, product liability and legal proceedings to which we are or may become a party, or the impact of product recall or field actions on our customers;
•labor disruptions at our facilities, or at any of our significant customers (including the UAW strike which impacted certain customers), or suppliers;
•business disruptions due to natural disasters or other disasters outside of our control;
•the ability to refinance our existing revolving Credit Facility on a timely basis prior to its June 5, 2024 maturity;
•the amount of our indebtedness and the restrictive covenants contained in the agreements governing our indebtedness, including our revolving Credit Facility;
•capital availability or costs, including changes in interest rates or market perceptions;
•the failure to achieve the successful integration of any acquired company or business;
•risks related to a failure of our information technology systems and networks, and risks associated with current and emerging technology threats and damage from computer viruses, unauthorized access, cyber-attack and other similar disruptions; and
•the items described in Part I, Item IA (“Risk Factors”) in the Company’s 2022 Form 10-K.
The forward-looking statements contained herein represent our estimates only as of the date of this filing and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, whether to reflect actual results, changes in assumptions, changes in other factors affecting such forward-looking statements or otherwise.
3
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
STONERIDGE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)September 30,
2023		December 31,
2022
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents$36,758 $54,798 
Accounts receivable, less reserves of $956 and $962, respectively
177,202 158,155 
Inventories, net183,177 152,580 
Prepaid expenses and other current assets39,281 44,018 
Total current assets436,418 409,551 
Long-term assets:
Property, plant and equipment, net106,788 104,643 
Intangible assets, net45,180 45,508 
Goodwill33,789 34,225 
Operating lease right-of-use asset11,136 13,762 
Investments and other long-term assets, net45,463 44,416 
Total long-term assets242,356 242,554 
Total assets$678,774 $652,105 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit facility$183,918 $— 
Current portion of debt2,055 1,450 
Accounts payable131,094 110,202 
Accrued expenses and other current liabilities64,847 66,040 
Total current liabilities381,914 177,692 
Long-term liabilities:
Revolving credit facility— 167,802 
Deferred income taxes7,407 8,498 
Operating lease long-term liability8,054 10,594 
Other long-term liabilities8,057 6,577 
Total long-term liabilities23,518 193,471 
Shareholders' equity:
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 27,548 and 27,341 shares outstanding at September 30, 2023 and December 31, 2022, respectively, with no stated value
— — 
Additional paid-in capital226,382 232,758 
Common Shares held in treasury, 1,418 and 1,625 shares at September 30, 2023 and December 31, 2022, respectively, at cost
(43,408)(50,366)
Retained earnings193,485 201,692 
Accumulated other comprehensive loss(103,117)(103,142)
Total shareholders' equity273,342 280,942 
Total liabilities and shareholders' equity$678,774 $652,105 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
STONERIDGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
September 30,		Nine months ended
September 30,
(in thousands, except per share data)2023202220232022
Net sales$238,164 $226,757 $746,303 $668,751 
Costs and expenses:
Cost of goods sold185,689 177,317 590,538 539,304 
Selling, general and administrative28,111 27,444 91,465 83,781 
Design and development17,852 16,133 57,486 48,715 
Operating income (loss)6,512 5,863 6,814 (3,049)
Interest expense, net3,313 1,845 9,179 4,848 
Equity in loss (earnings) of investee141 (34)641 424 
Other (income) expense, net(1,383)2,332 2,152 3,067 
Income (loss) before income taxes4,441 1,720 (5,158)(11,388)
Provision for income taxes2,270 989 3,049 2,895 
Net income (loss)$2,171 $731 $(8,207)$(14,283)
Income (loss) per share:
Basic$0.08 $0.03 $(0.30)$(0.52)
Diluted$0.08 $0.03 $(0.30)$(0.52)
Weighted-average shares outstanding:
Basic27,48427,28127,42827,250
Diluted27,73427,52427,42827,250
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
STONERIDGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
Three months ended
September 30,		Nine months ended
September 30,
(in thousands)2023202220232022
Net income (loss)$2,171 $731 $(8,207)$(14,283)
Other comprehensive (loss) income, net of tax:
Foreign currency translation (1)
(6,969)(10,348)95 (21,899)
Unrealized (loss) gain on derivatives (2)
(126)(276)(70)719 
Other comprehensive (loss) income, net of tax (7,095)(10,624)25 (21,180)
Comprehensive loss $(4,924)$(9,893)$(8,182)$(35,463)
(1)
 Net of tax benefit of $0 and $267 for the three and nine months ended September 30, 2022, respectively.
(2)
Net of tax benefit of $34 and $73 for the three months ended September 30, 2023 and 2022, respectively. Net of tax (benefit) expense of $(19) and $191 for the nine months ended September 30, 2023 and 2022, respectively.
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
STONERIDGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30, (in thousands)20232022
OPERATING ACTIVITIES:
Net loss$(8,207)$(14,283)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation19,800 20,183 
Amortization, including accretion and write-off of deferred financing costs6,077 6,187 
Deferred income taxes(2,732)(2,834)
Loss of equity method investee641 424 
Gain on sale of fixed assets(861)(95)
Share-based compensation expense2,272 4,421 
Excess tax deficiency related to share-based compensation expense74 266 
Gain on settlement of net investment hedge— (3,716)
Changes in operating assets and liabilities:
Accounts receivable, net(21,335)(28,333)
Inventories, net(33,651)(24,333)
Prepaid expenses and other assets7,473 (15,510)
Accounts payable23,322 18,366 
Accrued expenses and other liabilities1,459 15,119 
Net cash used for operating activities(5,668)(24,138)
INVESTING ACTIVITIES:
Capital expenditures, including intangibles(28,584)(22,877)
Proceeds from sale of fixed assets1,841 95 
Proceeds from settlement of net investment hedge— 3,820 
Investment in venture capital fund, net(200)(700)
Net cash used for investing activities(26,943)(19,662)
FINANCING ACTIVITIES:
Revolving credit facility borrowings81,365 21,817 
Revolving credit facility payments(64,568)(18,000)
Proceeds from issuance of debt27,579 30,513 
Repayments of debt(27,145)(32,789)
Earn-out consideration cash payment— (6,276)
Repurchase of Common Shares to satisfy employee tax withholding(1,697)(760)
Net cash provided by (used for) financing activities15,534 (5,495)
Effect of exchange rate changes on cash and cash equivalents(963)(3,915)
Net change in cash and cash equivalents(18,040)(53,210)
Cash and cash equivalents at beginning of period54,798 85,547 
Cash and cash equivalents at end of period$36,758 $32,337 
Supplemental disclosure of cash flow information:
Cash paid for interest, net$9,248 $4,992 
Cash paid for income taxes, net$8,453 $5,808 
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
STONERIDGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
(in thousands)Number of
Common
Shares
outstanding		Number of
 treasury
shares		Additional
paid-in
capital		Common
Shares held
in treasury		Retained
earnings		Accumulated
other
comprehensive
loss		Total
shareholders'
equity
BALANCE DECEMBER 31, 202127,1911,775$232,490 $(55,264)$215,748 $(97,024)$295,950 
Net loss——— — (7,675)— (7,675)
Unrealized gain on derivatives, net——— — — 1,048 1,048 
Currency translation adjustments——— — — 4,161 4,161 
Issuance of Common Shares161(161)— — — — — 
Repurchased Common Shares for treasury, net(36)36— 4,093 — — 4,093 
Share-based compensation, net——(3,653)— — — (3,653)
BALANCE MARCH 31, 202227,3161,650$228,837 $(51,171)$208,073 $(91,815)$293,924 
Net loss——— — (7,339)— (7,339)
Unrealized loss on derivatives, net——— — — (53)(53)
Currency translation adjustments——— — — (15,712)(15,712)
Issuance of Common Shares4(4)— — — — — 
Repurchased Common Shares for treasury, net(2)2— 90 — — 90 
Share-based compensation, net——1,618 — — — 1,618 
BALANCE JUNE 30, 202227,3181,648$230,455 $(51,081)$200,734 $(107,580)$272,528 
Net income——— — 731 — 731 
Unrealized loss on derivatives, net——— — — (276)(276)
Currency translation adjustments——— — — (10,348)(10,348)
Issuance of Common Shares13(13)— — — — — 
Repurchased Common Shares for treasury, net(4)4— 309 — — 309 
Share-based compensation, net——1,220 — — — 1,220 
BALANCE SEPTEMBER 30, 202227,3271,639$231,675 $(50,772)$201,465 $(118,204)$264,164 
BALANCE DECEMBER 31, 202227,3411,625$232,758 $(50,366)$201,692 $(103,142)$280,942 
Net loss——— — (7,386)— (7,386)
Unrealized loss on derivatives, net——— — — (232)(232)
Currency translation adjustments——— — — 4,072 4,072 
Issuance of Common Shares234(234)— — — — — 
Repurchased Common Shares for treasury, net(62)62— 5,649 — — 5,649 
Share-based compensation, net——(6,802)— — — (6,802)
BALANCE MARCH 31, 202327,5131,453$225,956 $(44,717)$194,306 $(99,302)$276,243 
Net loss——— — (2,992)— (2,992)
Unrealized gain on derivatives, net——— — — 288 288 
Currency translation adjustments——— — — 2,992 2,992 
Issuance of Common Shares15(15)— — — — — 
Repurchased Common Shares for treasury, net(6)6— 350 — — 350 
Share-based compensation, net——757 — — — 757 
BALANCE JUNE 30, 202327,5221,444$226,713 $(44,367)$191,314 $(96,022)$277,638 
Net income——— — 2,171 — 2,171 
Unrealized loss on derivatives, net——— — — (126)(126)
Currency translation adjustments——— — — (6,969)(6,969)
Issuance of Common Shares45(45)— — — — — 
Repurchased Common Shares for treasury, net(19)19— 959 — — 959 
Share-based compensation, net——(331)— — — (331)
BALANCE SEPTEMBER 30, 202327,5481,418$226,382 $(43,408)$193,485 $(103,117)$273,342 
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
(1) Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared by Stoneridge, Inc. (the “Company”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The information furnished in the condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of such financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to the SEC’s rules and regulations. The results of operations for the three months ended September 30, 2023 are not necessarily indicative of the results to be expected for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s 2022 Form 10-K.
Reclassifications
Certain prior period amounts have been reclassified to conform to their 2023 presentation in the condensed consolidated financial statements.
(2) Recently Issued Accounting Standards
Accounting Standards Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The guidance in ASU 2020-04 provides temporary optional expedient and exceptions to the guidance in U.S. GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”) (also known as the “reference rate reform”). The guidance allows companies to elect not to apply certain modification accounting requirements to contracts affected by the reference rate reform, if certain criteria are met. The guidance will also allow companies to elect various optional expedients, which would allow them to continue to apply hedge accounting for hedging relationships affected by the reference rate reform, if certain criteria are met. The new standard was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2023.
In February 2022, we amended our credit facility to incorporate hardwired mechanics to permit a future replacement of LIBOR as the interest reference rate without lender consent. The Company is applying the guidance to impacted transactions during the transition period. The adoption of this standard does not have a material impact on the Company’s condensed consolidated financial statements.
(3) Revenue
Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs with the transfer of control of our products and services, which is usually when the parts are shipped or delivered to the customer’s premises. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. The transaction price will include estimates of variable consideration to the extent it is probable that a significant reversal of revenue recognized will not occur. Incidental items that are not significant in the context of the contract are recognized as expense. The expected costs associated with our base warranties continue to be recognized as expense when the products are sold. 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.
The Company does not have any financing components or significant payment terms as payment occurs shortly after the point of sale. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction that are collected by the Company from a customer are excluded from revenue. Amounts billed to customers related to shipping and handling costs are included in net sales in the condensed consolidated statements of operations. Shipping and handling costs associated with outbound freight after control over a product is transferred to the customer are accounted for as a fulfillment cost and are included in cost of sales.
9
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
Revenue by Reportable Segment
Control Devices. Our Control Devices segment designs and manufactures products that monitor, measure or activate specific functions within a vehicle. This segment includes product lines such as actuators, sensors, switches and connectors. We sell these products principally to the automotive market in the North American and Asia Pacific regions. To a lesser extent, we also sell these products to the commercial vehicle and agricultural markets in the North American and Asia Pacific regions. Our customers included in these markets primarily consist of original equipment manufacturers (“OEM”) and companies supplying components directly to the OEMs (“Tier 1 supplier”).
Electronics. Our Electronics segment designs and manufactures driver information systems, vision and safety 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, North American and Asia Pacific regions. The vision and safety systems 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 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, driver information systems 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.
The following tables disaggregate our revenue by reportable segment and geographical location(1) for the three months ended September 30, 2023 and 2022:
Control DevicesElectronicsStoneridge BrazilConsolidated
Three months ended September 30,20232022202320222023202220232022
Net Sales:
North America$75,565 $76,055 $50,934 $40,955 $— $— $126,499 $117,010 
South America— — — — 14,168 13,790 14,168 13,790 
Europe— — 82,737 81,007 — — 82,737 81,007 
Asia Pacific13,779 12,846 981 2,104 — — 14,760 14,950 
Total net sales$89,344 $88,901 $134,652 $124,066 $14,168 $13,790 $238,164 $226,757 
The following tables disaggregate our revenue by reportable segment and geographical location(1) for the nine months ended September 30, 2023 and 2022:
Control DevicesElectronicsStoneridge BrazilConsolidated
Nine months ended September 30,20232022202320222023202220232022
Net Sales:
North America$229,990 $219,453 $155,823 $111,027 $— $— $385,813 $330,480 
South America— — — — 43,332 39,184 43,332 39,184 
Europe— — 269,154 256,370 — — 269,154 256,370 
Asia Pacific37,416 38,074 10,588 4,643 — — 48,004 42,717 
Total net sales$267,406 $257,527 $435,565 $372,040 $43,332 $39,184 $746,303 $668,751 
___________________________
(1)Company sales based on geographic location are where the sale originates not where the customer is located.
10
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
Performance Obligations
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 supplier customers are customized to the specific customer, with the exception of camera monitoring systems (“CMS”) sold through our aftermarket channel that are common across all customers. The transaction price is equal to the contracted price per part and there is no expectation of material variable consideration in the transaction price. For most customer contracts, the Company does not have an enforceable right to payment at any time prior to when the parts are shipped or delivered to the customer; therefore, the Company recognizes revenue at the point in time it satisfies a performance obligation by transferring control of a part to the customer. 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.
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. Aftermarket products have one type of performance obligation which is the delivery of aftermarket parts and spare parts. For aftermarket customers, the Company typically has standard terms and conditions for all customers. In addition, aftermarket products have alternative use as they can be sold to multiple customers. Revenue for aftermarket part production contracts is recognized at a point in time when the control of the parts transfers to the customer which is based on the shipping terms. 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. These monitoring service contracts are generally not capable of being distinct and are accounted for as a single performance obligation. We recognize revenue for our monitoring products and services contracts over the life of the contract. There is no variable consideration associated with these contracts. The Company has the right to consideration from a customer in the amount that corresponds directly with the value to the customer of the Company’s performance to date. Therefore, the Company recognizes revenue over time using the practical expedient ASC 606-10-55-18 in the amount the Company has a “right to invoice” rather than selecting an output or input method.
Contract Balances
The Company had no material contract assets, contract liabilities or capitalized contract acquisition costs as of September 30, 2023 and December 31, 2022.
(4) Inventories
Inventories are valued at the lower of cost (using either the first-in, first-out (“FIFO”) or average cost methods) or net realizable value. The Company evaluates and adjusts as necessary its excess and obsolescence reserve on a quarterly basis. Excess inventories are quantities of items that exceed anticipated sales or usage for a reasonable period. The Company has guidelines for calculating provisions for excess inventories based on the number of months of inventories on hand compared to anticipated sales or usage. Management uses its judgment to forecast sales or usage and to determine what constitutes a reasonable period. Inventory cost includes material, labor and overhead. Inventories consist of the following:
September 30,
2023		December 31,
2022
Raw materials$138,374 $121,983 
Work-in-progress11,645 7,812 
Finished goods33,158 22,785 
Total inventories, net$183,177 $152,580 
Inventory valued using the FIFO method was $170,252 and $139,996 at September 30, 2023 and December 31, 2022, respectively. Inventory valued using the average cost method was $12,925 and $12,584 at September 30, 2023 and December 31, 2022, respectively.
11
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
(5) Financial Instruments and Fair Value Measurements
Financial Instruments
A financial instrument is cash or a contract that imposes an obligation to deliver or conveys a right to receive cash or another financial instrument. The carrying values of cash and cash equivalents, accounts receivable and accounts payable are considered to be representative of fair value because of the short maturity of these instruments. The fair value of debt approximates the carrying value of debt, due to the variable interest rate on our Credit Facility and the maturity of the remaining outstanding debt.
Derivative Instruments and Hedging Activities
On September 30, 2023, the Company had open Mexican peso-denominated foreign currency forward contracts. The Company used foreign currency forward contracts solely for hedging and not for speculative purposes during 2023 and 2022. Management believes that its use of these instruments to reduce risk is in the Company’s best interest. The counterparties to these financial instruments are financial institutions with investment grade credit ratings.
Foreign Currency Exchange Rate Risk
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 condensed consolidated statements of operations within Other (income) expense, net. These foreign currency transaction (gains) losses, including the impact of hedging activities, were $(1,359) and $2,259 for the the three months ended September 30, 2023 and 2022, respectively and $2,099 and $6,500 for the nine months ended September 30, 2023 and 2022, respectively.
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 and used 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 that were scheduled to mature in August 2026 and August 2028. These swaps hedged a portion of the net investment in a certain euro-denominated subsidiary. As a result of favorable market conditions, on May 5, 2022, the Company unwound the two net investment hedges and recognized a net gain of $3,716, which was recorded on the Company’s condensed consolidated statement of operations as a component of other expense, net for the second quarter ended June 30, 2022. The cash received from the settlement of these swaps of $3,820 was classified in investing activities in the condensed consolidated statement of cash flows. In the fourth quarter ended December 31, 2022, the Company determined it had incorrectly recognized the net gain in the condensed consolidated statement of operations and reclassified the net gain of $3,716 to other comprehensive loss, net of tax and accumulated other comprehensive loss. This item would have increased the loss for the three months ended June 30, 2022, six months ended June 30, 2022 and nine months ended September 30, 2022 by $0.10 per share. The Company recorded the item in the three-months ended December 31, 2022 which resulted in decreased income per share by $0.10. The Company assessed the materiality of this matter from a qualitative and quantitative perspective and concluded that the impact of the error was not material to the current or previous quarterly results.
The Company elected to assess hedge effectiveness of the net investment hedges under the spot method. Accordingly, periodic changes in the fair value of the derivative instruments attributable to factors other than spot exchange rate variability were excluded from the measurement of hedge ineffectiveness and reported directly in earnings each reporting period. The change in fair value of these derivative instruments was recorded in cumulative translation adjustment, which is a component of accumulated other comprehensive loss in the condensed consolidated balance sheets. The Company had no outstanding net investment hedges at September 30, 2023 or December 31, 2022.
12
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
Cash Flow Hedges
The Company entered into foreign currency forward contracts to hedge the Mexican peso currency in 2023 and 2022. These forward contracts were executed to hedge forecasted transactions and have been accounted for as cash flow hedges. As such, gains and losses on derivatives qualifying as cash flow hedges are recorded in accumulated other comprehensive loss, to the extent that hedges are effective, until the underlying transactions are recognized in earnings. Unrealized amounts in accumulated other comprehensive loss fluctuate based on changes in the fair value of hedge derivative contracts at each reporting period. The cash flow hedges were highly effective. The effectiveness of the transactions was measured 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 condensed consolidated statements of operations as a component of other (income) expense, net. During 2023 and 2022, 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:
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 September 30, 2023 of $22,973 which expire ratably on a monthly basis from October 2023 to August 2024. The notional amount at December 31, 2022 related to Mexican peso-denominated foreign currency forward contracts was $0.
The Company evaluated the effectiveness of the Mexican peso and U.S. dollar-denominated forward contracts held as of September 30, 2023 and concluded that the hedges were highly effective.
Interest Rate Risk
Interest Rate Risk – Cash Flow Hedge
On February 18, 2020, the Company entered into a floating-to-fixed interest rate swap agreement (the “Interest Rate Swap”) with a notional amount of $50,000 to hedge its exposure to interest payment fluctuations on a portion of its Credit Facility borrowings. The Interest Rate Swap matured on March 10, 2023. The Interest Rate Swap was designated as a cash flow hedge of the variable interest rate obligation under the Company's Credit Facility. Accordingly, the change in fair value of the Interest Rate Swap was recognized in accumulated other comprehensive loss. The Interest Rate Swap agreement required monthly settlements on the same days that the Credit Facility interest payments were due and had a maturity date of March 10, 2023, which was prior to the Credit Facility maturity date of June 5, 2024. Under the Interest Rate Swap terms, the Company paid a fixed interest rate and received a floating interest rate based on the one-month LIBOR, with a floor. The critical terms of the Interest Rate Swap were aligned with the terms of the Credit Facility, resulting in no hedge ineffectiveness. The difference between amounts to be received and paid under the Interest Rate Swap were recognized as a component of interest expense, net on the condensed consolidated statements of operations. The Interest Rate Swap settlements reduced interest expense, net by $100 for the three months ended September 30, 2022. The Interest Rate Swap settlements reduced interest expense, net by $290 and increased interest expense, net by $133 for the nine months ended September 30, 2023 and 2022, respectively.
13
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
The notional amounts and fair values of derivative instruments in the condensed consolidated balance sheets were as follows:
Notional amounts (A)
Prepaid expenses
 and other current assets
September 30,
2023		December 31,
2022		September 30,
2023		December 31,
2022
Derivatives designated as hedging instruments:
Cash flow hedges:
Forward currency contracts$22,973 $— $205 $— 
Interest rate swap$— $50,000 $— $294 
_____________________________
(A)Notional amounts represent the gross contract of the derivatives outstanding in U.S. dollars.
Gross amounts recorded for the cash flow and net investment hedges in other comprehensive loss and in net income for the three months ended September 30 were as follows:
Gain recorded in other
comprehensive loss
Gain reclassified from
other comprehensive
loss into net income (A)
2023202220232022
Derivatives designated as cash flow hedges:
Forward currency contracts$67 $97 $227 $496 
Interest rate swap$— $150 $— $100 
Derivatives designated as net investment hedges:
Cross-currency swaps$— $— $— $— 
_____________________________
(A)
Gains reclassified from other comprehensive loss into net income recognized in selling, general and administrative expenses (“SG&A”) in the Company’s condensed consolidated statements of operations were $54 and $115 for the three months ended September 30, 2023 and 2022, respectively. Gains reclassified from other comprehensive loss into net income recognized in cost of goods sold (“COGS”) in the Company’s condensed consolidated statements of operations were $173 and $381 for the three months ended September 30, 2023 and 2022, respectively. Gains reclassified from other comprehensive loss into net income recognized in interest expense, net in the Company’s condensed consolidated statements of operations were $0 and $100 for the three months ended September 30, 2023 and 2022, respectively.
14
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
Gross amounts recorded for the cash flow and net investment hedges in other comprehensive income (loss) and in net loss for the nine months ended September 30 were as follows:
Gain (loss) recorded in other
comprehensive income (loss)
Gain (loss) reclassified from
other comprehensive income
 (loss) into net loss (A)
2023202220232022
Derivatives designated as cash flow hedges:
Forward currency contracts$483$1,084$278$1,253
Interest rate swap$(4)$946 $290$(133)
Derivatives designated as net investment hedges:
Cross-currency swaps$—$2,328$—$3,598
(A)
Gains reclassified from other comprehensive income (loss) into net loss recognized in selling, general and administrative expenses (“SG&A”) in the Company’s condensed consolidated statements of operations were $66 and $266 for the nine months ended September 30, 2023 and 2022, respectively. Gains reclassified from other comprehensive income (loss) into net loss recognized in cost of goods sold (“COGS”) in the Company’s condensed consolidated statements of operations were $212 and $987 for the nine months ended September 30, 2023 and 2022, respectively. Gains (losses) reclassified from other comprehensive income (loss) into net loss recognized in interest expense, net in the Company’s condensed consolidated statements of operations were $290 and $(133) for the nine months ended September 30, 2023 and 2022, respectively. Gains reclassified from other comprehensive (loss) income into net (loss) income recognized in other expense (income), net in the Company's condensed consolidated statements of operations were $3,598 for the nine months ended September 30, 2022.
Cash flows from derivatives used to manage foreign currency exchange and interest rate risks are classified as operating activities within the condensed consolidated statements of cash flows.
Fair Value Measurements
Certain assets and liabilities held by the Company are measured at fair value on a recurring basis and are categorized using the three levels of the fair value hierarchy based on the reliability of the inputs used. Fair values estimated using Level 1 inputs consist of quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. 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 and cross-currency contracts, inputs include forward foreign currency exchange rates. For the interest rate swap, inputs included LIBOR. Fair values estimated using Level 3 inputs consist of significant unobservable inputs.
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.
September 30,
2023		December 31,
2022
Fair values estimated using
Fair
value		Level 1
inputs		Level 2
inputs		Level 3
inputs		Fair
value
Financial assets carried at fair value:
Forward currency contracts$205 $— $205 $— $— 
Interest rate swap— — — — 294 
Total financial assets carried at fair value$205 $— $205 $— $294 
15
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
The following table sets forth a summary of the change in fair value of the Company’s Level 3 financial liabilities related to earn-out consideration that are measured at fair value on a recurring basis.
Stoneridge Brazil
2022
Balance at January 1$7,351 
Foreign currency adjustments921 
Earn-out consideration cash payment(8,272)
Balance at September 30$— 
The Company was 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 was based on earnings before interest, taxes, depreciation and amortization in 2021. The Stoneridge Brazil earn-out consideration obligation was recorded within accrued expenses and other current liabilities in the condensed consolidated balance sheets as of December 31, 2021. The earn-out consideration obligation of $8,272 was paid in April 2022 and recorded in the condensed consolidated statement of cash flows within operating and financing activities in the amounts of $1,996 and $6,276, respectively.
The foreign currency impact related to the Stoneridge Brazil earn-out consideration was included in other expense (income), net in the condensed consolidated statements of operations.
There were no transfers in or out of Level 3 from other levels in the fair value hierarchy for the nine months ended September 30, 2023.
(6) Share-Based Compensation
Compensation expense for share-based compensation arrangements, which is recognized in the condensed consolidated statements of operations as a component of SG&A expenses, was $1,001 and $1,587 for the three months ended September 30, 2023 and 2022, respectively. Compensation expense for share-based compensation arrangements was $2,272 and $4,421 for the nine months ended September 30, 2023 and 2022, respectively. The nine months ended September 30, 2023 included income from the forfeiture of certain grants associated with employee resignations.
(7) Debt
Debt consisted of the following at September 30, 2023 and December 31, 2022:
September 30,
2023		December 31,
2022		Interest rates at September 30, 2023Maturity
Debt
Revolving Credit Facility$183,918 $167,802 7.15 %June 2024
Suzhou short-term credit line2,055 1,450 3.25 %August 2024
Total debt185,973 169,252 
Less: current portion(185,973)(1,450)
Total long-term debt, net$— $167,802 
16
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
Revolving Credit Facility
On June 5, 2019, the Company entered into the Fourth Amended and Restated Credit Agreement (the “Credit Facility”). The Credit Facility provided for a $400,000 senior secured revolving credit facility (which, as described below in the discussion of Amendment No. 3 to the Credit Facility was amended to be a $300,000 credit commitment) and it replaced and superseded the Third Amended and Restated Credit Agreement that provided for a $300,000 revolving credit facility. The Credit Facility had an accordion feature that allowed the Company to increase the availability by up to $150,000 upon the satisfaction of certain conditions and includes a letter of credit subfacility, swing line subfacility and multicurrency subfacility. The Credit Facility has a termination date of June 5, 2024. Borrowings under the Credit Facility bear interest at either the Base Rate or the SOFR rate plus the fallback spread, at the Company’s option, plus the applicable margin as set forth in the Credit Facility. The Credit Facility contains certain financial covenants that require the Company to maintain less than a maximum leverage ratio and more than a minimum interest coverage ratio.
Our Revolving Credit Facility matures on June 5, 2024. The Company is in the advanced stage of refinancing its Revolving Credit Facility. While there can be no assurance that the Company will refinance the current Revolving Credit Facility the Company anticipates that the refinancing will occur in the near future and, in any event, prior to the issuance of the financial statements for the year ending December 31, 2023. The Company’s ability to continue as a going concern is contingent upon its ability to refinance its Revolving Credit Facility.
The Credit Facility contains customary affirmative covenants and representations. The Credit Facility also contains customary negative covenants, which, among other things, are subject to certain exceptions, including restrictions on (i) indebtedness, (ii) liens, (iii) liquidations, mergers, consolidations and acquisitions, (iv) disposition of assets or subsidiaries, (v) affiliate transactions, (vi) creation or ownership of certain subsidiaries, partnerships and joint ventures, (vii) continuation of or change in business, (viii) restricted payments, (ix) prepayment of subordinated and junior lien indebtedness, (x) restrictions in agreements on dividends, intercompany loans and granting liens on the collateral, (xi) loans and investments, (xii) sale and leaseback transactions, (xiii) changes in organizational documents and fiscal year and (xiv) transactions with respect to bonding subsidiaries. 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.
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. 3”). Amendment No. 3 reduced 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 provided 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 delivered 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 was changed to 4.00 to 1.00 for the year ended December 31, 2021, suspended for the quarters ending March 31, 2022 through September 30, 2022 and could not 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 was 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 was added that restricted borrowings if the Company’s total of 100% of domestic and 65% of foreign cash and cash equivalents exceeded $70.0 million;
•there were certain additional restrictions on Restricted Payments (as defined); and
•a Permitted Acquisition (as defined) could not be consummated unless the net leverage ratio is below 3.50 to 1.00 during the Specified Period.
Amendment No. 3 changed the leverage based LIBOR pricing grid through the maturity date and also retained a LIBOR floor of 50 basis points on outstanding borrowings excluding any Specified Hedge Borrowings (as defined) which remained subject to a LIBOR floor of 0 basis points.
Amendment No. 3 also incorporated hardwired mechanics to permit a future replacement of LIBOR as the interest reference rate without lender consent.
17
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
The Company capitalized $484 of deferred financing costs as a result of entering into Amendment No. 3. In connection with Amendment No. 3, the Company wrote off a portion of the previously recorded deferred financing costs of $365 in interest expense, net during the nine months ended September 30, 2022.
Due to continued supply chain disruptions and macroeconomic challenges on the Company’s end-markets and the resulting financial impacts on the Company, on March 1, 2023, the Company entered into Amendment No. 4 to the Fourth Amended and Restated Credit Agreement (“Amendment No. 4”). Amendment No. 4 provides for certain financial covenant relief and additional covenant restrictions during the “Amendment No. 4 Specified Period” (the period from March 1, 2023 until the date that the Company delivers a compliance certificate for the quarter ending September 30, 2023 in form and substance satisfactory to the administrative agent). During the Amendment No. 4 Specified Period:
•the maximum net leverage ratio was changed to 4.75 to 1.00 for the quarter ended March 31, 2023 and 4.25 to 1.00 for the quarter ended June 30, 2023;
•the minimum interest coverage ratio of 3.50 was reduced to 3.00 for the quarters ended March 31, 2023 and June 30, 2023;
•drawing on the Credit Facility continues to be restricted if the Company’s total of 100% of domestic and 65% of foreign cash and cash equivalents exceeds $70.0 million;
•there continue to be certain additional restrictions on Restricted Payments (as defined); and
•consistent with Amendment No. 3, a Permitted Acquisition (as defined) may not be consummated unless the net leverage ratio is below 3.50 to 1.00 during the Amendment No. 4 Specified Period.
The Company capitalized $332 of deferred financing costs as a result of entering into Amendment No. 4 during the nine months ended September 30, 2023.
Borrowings outstanding on the Credit Facility were $183,918 and $167,802 at September 30, 2023 and December 31, 2022, respectively.
As a result of the amendments, the Company was in compliance with all Credit Facility covenants at September 30, 2023 and December 31, 2022.
The Company also has outstanding letters of credit of $1,586 at both September 30, 2023 and December 31, 2022.
Debt
The Company’s wholly owned subsidiary located in Stockholm, Sweden, has an overdraft credit line that allows overdrafts on the subsidiary’s bank account up to a daily maximum level of 20,000 Swedish krona, or $1,832 and $1,922, at September 30, 2023 and December 31, 2022, respectively. At September 30, 2023 and December 31, 2022, there were no borrowings outstanding on this overdraft credit line. During the nine months ended September 30, 2023, the subsidiary borrowed and repaid 270,626 Swedish krona, or $24,783.
The Company’s wholly owned subsidiary located in Suzhou, China (the “Suzhou subsidiary”), has lines of credit (the “Suzhou credit line”) that allow up to a maximum borrowing level of 20,000 Chinese yuan, or $2,739 and $2,900 at September 30, 2023 and December 31, 2022, respectively. At September 30, 2023 and December 31, 2022 there was $2,055 and $1,450, respectively, in borrowings outstanding on the Suzhou credit line with a weighted-average interest rate of 3.25% and 3.70%, respectively. The Suzhou credit line was included on the condensed consolidated balance sheet within current portion of debt. In addition, the Suzhou subsidiary has a bank acceptance draft line of credit which facilitates the extension of trade payable payment terms by 180 days. The bank acceptance draft line of credit allows up to a maximum borrowing level of 60,000 Chinese yuan, or $8,218 and $8,699 at September 30, 2023 and December 31, 2022, respectively. There was $3,686 and $1,998 utilized on the Suzhou bank acceptance draft line of credit at September 30, 2023 and December 31, 2022, respectively. The Suzhou bank acceptance draft line of credit is included on the condensed consolidated balance sheet within accounts payable.
18
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
(8) 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 loss per share was calculated by dividing net income by the weighted-average of all potentially dilutive Common Shares that were outstanding during the periods presented. However, for all periods in which the Company recognized a net loss, the Company did not recognize the effect of the potential dilutive securities as their inclusion would be anti-dilutive. Potential dilutive shares of 238,342 and 217,711 for the nine months ended September 30, 2023 and 2022, respectively, were excluded from diluted loss per share because the effect would be anti-dilutive.
Weighted-average Common Shares outstanding used in calculating basic and diluted earnings per share were as follows:
Three months ended
September 30,		Nine months ended
September 30,
2023202220232022
Basic weighted-average Common Shares outstanding27,483,70927,280,88327,428,24927,249,500
Effect of dilutive shares250,400243,557——
Diluted weighted-average Common Shares outstanding27,734,10927,524,44027,428,24927,249,500
There were 425,612 and 770,939 performance-based right to receive Common Shares outstanding at September 30, 2023 and 2022, respectively. The right to receive Common Shares are included in the computation of diluted earnings per share based on the number of Common Shares that would be issuable if the end of the quarter were the end of the contingency period.
(9) Accumulated Other Comprehensive (Loss) Income
Changes in accumulated other comprehensive loss for the three months ended September 30, 2023 and 2022 were as follows:
Foreign
currency
translation		Unrealized
gain (loss)
on derivatives		Total
Balance at July 1, 2023$(96,310)$288 $(96,022)
Other comprehensive (loss) income before reclassifications(6,969)53 (6,916)
Amounts reclassified from accumulated other comprehensive loss— (179)(179)
Net other comprehensive loss, net of tax(6,969)(126)(7,095)
Balance at September 30, 2023$(103,279)$162 $(103,117)
Balance at July 1, 2022$(108,754)$1,174 $(107,580)
Other comprehensive (loss) income before reclassifications(10,348)195 (10,153)
Amounts reclassified from accumulated other comprehensive loss— (471)(471)
Net other comprehensive loss, net of tax(10,348)(276)(10,624)
Balance at September 30, 2022$(119,102)$898 $(118,204)
19
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
Changes in accumulated other comprehensive loss for the nine months ended September 30, 2023 and 2022 were as follows:
Foreign
currency
translation		Unrealized
gain (loss)
on derivatives		Total
Balance at January 1, 2023$(103,374)$232 $(103,142)
Other comprehensive income before reclassifications95 379 474 
Amounts reclassified from accumulated other comprehensive loss— (449)(449)
Net other comprehensive income (loss), net of tax95 (70)25 
Balance at September 30, 2023$(103,279)$162 $(103,117)
Balance at January 1, 2022$(97,203)$179 $(97,024)
Other comprehensive (loss) income before reclassifications(19,057)1,604 (17,453)
Amounts reclassified from accumulated other comprehensive loss(2,842)(885)(3,727)
Net other comprehensive (loss) income, net of tax(21,899)719 (21,180)
Balance at September 30, 2022$(119,102)$898 $(118,204)
(10) Commitments and Contingencies
From time to time, we are subject to various legal actions and claims incidental to our business, including those arising out of breach of contracts, product warranties, product liability, patent infringement, regulatory matters and employment-related matters. The Company establishes accruals for matters which it believes that losses are probable and can be reasonably estimated. Although it is not possible to predict with certainty the outcome of these matters, the Company is of the opinion that the ultimate resolution of these matters will not have a material adverse effect on its consolidated results of operations or financial position.
As a result of environmental studies performed at the Company’s former facility located in Sarasota, Florida, the Company became aware of soil and groundwater contamination at the site. The Company engaged an environmental engineering consultant to assess the level of contamination and to develop a remediation and monitoring plan for the site. Soil remediation at the site was completed during the year ended December 31, 2010. A remedial action plan was approved by the Florida Department of Environmental Protection and groundwater remediation began in the fourth quarter of 2015. During the three months ended September 30, 2023 and 2022, the Company did not recognize any expense related to groundwater remediation. During the nine months ended September 30, 2023 and 2022, the Company recognized expense of $125 and $0, respectively, related to groundwater remediation. At September 30, 2023 and December 31, 2022, the Company accrued $145 and $246, respectively, related to expected future remediation costs. At September 30, 2023 and December 31, 2022, $138 and $132, respectively, were recorded as a component of accrued expenses and other current liabilities in the condensed consolidated balance sheets while the remaining amounts as of September 30, 2023 and December 31, 2022 were 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 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.
The Company’s Stoneridge Brazil subsidiary has civil, labor and other tax contingencies (excluding income tax) for which the likelihood of loss is deemed to be reasonably possible, but not probable, by the Company’s legal advisors in Brazil. As a result, no provision has been recorded with respect to these contingencies, which amounted to R$40,381 ($8,064) and R$47,820 ($9,165) at September 30, 2023 and December 31, 2022, respectively. An unfavorable outcome on these contingencies could result in significant cost to the Company and adversely affect its results of operations.
On August 12, 2020, the Brazilian Administrative Counsel for Economic Defense (“CADE”) issued a ruling against Stoneridge Brazil for abuse of dominance and market foreclosure through its prior use of exclusivity provisions in agreements with its distributors. The CADE tribunal imposed a R$7,995 ($1,597) fine which is included in the reasonably possible contingencies noted above. The Company is challenging this ruling in Brazilian federal court to reverse this decision by the CADE tribunal.
20
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
Long Term Supply Commitment
In 2022, the Company entered into a long term supply agreement with a supplier for the purchase of certain electronic semiconductor components through December 31, 2026. Pursuant to the agreement, the Company paid capacity deposits of $1,000 in December 2022 and June 2023, respectively. The capacity deposits are recognized in prepaid and other current assets on our condensed consolidated balance sheet. This long term supply agreement requires the Company to purchase minimum annual volumes while requiring the supplier to sell these components at a fixed price. The Company purchased $1,252 and $327 of these components during the three months ended September 30, 2023 and 2022, respectively, and $4,579 and $515 during the nine months ended September 30, 2023 and 2022, respectively. The Company is required to purchase $5,871, $7,828, $10,764 and $10,764 of these components in each of the years 2023 through 2026, respectively.
Product Warranty and Recall
Amounts accrued for product warranty and recall claims are established based on the Company’s best estimate of the amounts necessary to settle existing and future claims on products sold as of the balance sheet dates. These accruals are based on several factors including past experience, production changes, industry developments and various other considerations. Our estimate is based on historical trends of units sold and claim payment amounts, combined with our current understanding of the status of existing claims, forecasts of the resolution of existing claims, expected future claims on products sold and commercial discussions with our customers. The key factors in our estimate are the warranty period and the customer source. The Company can provide no assurances that it will not experience material claims or that it will not incur significant costs to defend or settle such claims beyond the amounts accrued. The current portion of the product warranty and recall reserve is included as a component of accrued expenses and other current liabilities on the condensed consolidated balance sheets. Product warranty and recall reserve included $6,018 and $4,437 of a long-term liability at September 30, 2023 and December 31, 2022, respectively, which is included as a component of other long-term liabilities on the condensed consolidated balance sheets.
During the second quarter of 2023, the Company received a notification of arbitration for warranty claims related to past sales of PM sensor products, a product line we exited in 2019. The arbitration notification submitted by one of our customers asserts potential warranty related claims. Based on our review of the technical merits and specific claims submitted in the notification as well as prior discussions with the customer, we believe these claims are significantly overstated and while no assurances can be made as to the ultimate outcome of this matter or any other future claims, we do not currently believe a material loss is probable.
The following provides a reconciliation of changes in product warranty and recall reserve liability:
Nine months ended September 30,20232022
Product warranty and recall reserve at beginning of period$13,477 $9,846 
Accruals for warranties established during period10,521 7,395 
Aggregate changes in pre-existing liabilities due to claim developments579 1,158 
Settlements made during the period(5,519)(5,762)
Foreign currency translation(386)(934)
Product warranty and recall reserve at end of period$18,672 $11,703 
(11) Business Realignment and 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”). 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. We do not expect to incur additional costs related to the Canton Restructuring.
21
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
The settlement of liabilities associated with for the Canton Restructuring that relate to the Control Devices reportable segment include the following:
Accrual as of
January 1, 2022		2022 Charge
to Expense		UtilizationAccrual as of
September 30, 2022
CashNon-Cash
Employee termination benefits$93 $— $(93)$—&