UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended ~~September 30, 2017~~March 31, 2018

Commission file number: 001-13337

STONERIDGE, INC.

(Exact name of registrant as specified in its charter)

	Ohio			34-1598949
	(State or other jurisdiction of			(I.R.S. Employer
	incorporation or organization)			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

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¨No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

xYes¨No

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 ¨	Accelerated filer x	Non-accelerated filer ¨
Smaller reporting company¨	Emerging growth company¨	(Do not check if a smaller reporting company)

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.¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).¨YesxNo

The number of Common Shares, without par value, outstanding as of ~~October~~April 27, ~~2017~~2018 was ~~28,171,209.~~28,475,633.

STONERIDGE, INC. AND SUBSIDIARIES

INDEX			Page
PART I–FINANCIAL INFORMATION

Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2018 (Unaudited) and December 31, ~~2016~~2017	3
	Condensed Consolidated Statements of Operations (Unaudited) for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~	4
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3835
Item 4.	Controls and Procedures	3835

PART II–OTHER INFORMATION

Item 1.	Legal Proceedings	3935
Item 1A.	Risk Factors	3935
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3935
Item 3.	Defaults Upon Senior Securities	3936
Item 4.	Mine Safety Disclosures	3936
Item 5.	Other Information	4036
Item 6.	Exhibits	4036

Signatures		4137

Forward-Looking Statements

Portions of this quarterly report 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 include statements regarding the intent, belief or current expectations of the Company, our directors or officers with respect to, among other things, our (i) future product and facility expansion, (ii) acquisition or divestiture strategy, (iii) investments and new product development, (iv) growth opportunities related to awarded business, and (v) expectations related to current and future market conditions. 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 in this report 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 reduced purchases, loss or bankruptcy of a major ~~customer;~~customer or supplier;

the costs and timing of ~~facility closures,~~ business realignment, ~~activities,~~facility closures or similar actions;

a significant change in automotive, commercial, off-highway, motorcycle or agricultural vehicle production;

competitive market conditions and resulting effects on sales and pricing;

the impact on changes in foreign currency exchange rates on sales, costs and results, particularly the Argentinian peso, Brazilian real, Chinese renminbi, euro, ~~Argentinian peso, Swedish krona,~~ Mexican peso and ~~Chinese Renminbi;~~Swedish krona;

our ability to achieve cost reductions that offset or exceed ~~certain~~ customer-mandated selling price reductions;

~~a significant change~~customer acceptance of new products;

our ability to successfully launch/produce products for awarded business;

adverse changes in ~~general economic~~laws, government regulations or market conditions ~~in any of the various countries in~~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 ~~operate;~~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 or suppliers;

the ability of our suppliers to supply us with ~~quality~~ parts and components at competitive prices on a timely basis;

the amount of our indebtedness and the restrictive covenants contained in the agreements governing our indebtedness, including our revolving credit facility;

~~customer acceptance of new products;~~

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

those items described in Part I, Item IA (“Risk Factors”) of the ~~Company's 2016~~Company’s 2017 Form 10-K.

In addition, 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.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,		��	December 31,			March 31,			December 31,
(in thousands)	2017			2016			2018			2017
	(Unaudited)						(Unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	50,791		$	50,389		$	57,404		$	66,003
Accounts receivable, less reserves of $1,173 and $1,630, respectively		144,475			113,225
Accounts receivable, less reserves of $913 and $1,109, respectively								156,513			142,438
Inventories, net		78,643			60,117			78,628			73,471
Prepaid expenses and other current assets		23,264			17,162			26,148			21,457
Total current assets		297,173			240,893			318,693			303,369

Long-term assets:
Property, plant and equipment, net		108,919			91,500			114,940			110,402
Intangible assets, net		78,011			39,260			74,699			75,243
Goodwill		38,224			931			39,439			38,419
Investments and other long-term assets, net		17,942			21,945			32,431			31,604
Total long-term assets		243,096			153,636			261,509			255,668
Total assets	$	540,269		$	394,529		$	580,202		$	559,037

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Current portion of debt	$	4,421		$	8,626		$	4,160		$	4,192
Accounts payable		80,069			62,594			87,095			79,386
Accrued expenses and other current liabilities		48,258			41,489			54,223			52,546
Total current liabilities		132,748			112,709			145,478			136,124

Long-term liabilities:
Revolving credit facility		126,000			67,000			116,000			121,000
Long-term debt, net		5,102			8,060			2,706			3,852
Deferred income taxes		20,337			9,760			19,605			18,874
Other long-term liabilities		31,553			4,923			36,796			35,115
Total long-term liabilities		182,992			89,743			175,107			178,841

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 28,171 and 27,850 shares outstanding at
September 30, 2017 and December 31, 2016, respectively, with no stated value		-			-
28,966 and 28,966 shares issued and 28,490 and 28,180 shares outstanding at
March 31, 2018 and December 31, 2017, respectively, with no stated value								-			-
Additional paid-in capital		227,143			206,504			227,561			228,486
Common Shares held in treasury, 795 and 1,116 shares at September 30, 2017
and December 31, 2016, respectively, at cost		(7,056	)		(5,632	)
Common Shares held in treasury, 476 and 786 shares at March 31, 2018
and December 31 2017, respectively, at cost								(8,505	)		(7,118	)
Retained earnings		73,356			45,356			105,432			92,264
Accumulated other comprehensive loss		(68,914	)		(67,913	)		(64,871	)		(69,560	)
Total Stoneridge, Inc. shareholders' equity		224,529			178,315
Noncontrolling interest		-			13,762
Total shareholders' equity		224,529			192,077			259,617			244,072
Total liabilities and shareholders' equity	$	540,269		$	394,529		$	580,202		$	559,037

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

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three months ended						Nine months ended
	September 30,						September 30,
(in thousands, except per share data)	2017			2016			2017			2016
Three months ended March 31, (in thousands, except per share data)													2018			2017

Net sales	$	203,582		$	173,846		$	617,004		$	523,365		$	225,930		$	204,311

Costs and expenses:
Cost of goods sold		141,033			124,098			429,890			375,705			157,961			143,160
Selling, general and administrative		37,277			27,817			107,247			82,836			37,261			34,266
Design and development		11,976			10,151			35,731			30,912			13,861			11,721

Operating income		13,296			11,780			44,136			33,912			16,847			15,164

Interest expense, net		1,508			1,684			4,436			5,038			1,354			1,410
Equity in earnings of investee		(465	)		(307	)		(1,200	)		(603	)		(521	)		(180	)
Other expense (income), net		395			(497	)		1,190			(722	)
Other (income) expense, net														(599	)		190

Income before income taxes		11,858			10,900			39,710			30,199			16,613			13,744

Provision for income taxes		3,809			919			13,569			3,114			3,233			4,571

Net income		8,049			9,981			26,141			27,085			13,380			9,173

Net loss attributable to noncontrolling interest		-			(303	)		(130	)		(2,009	)		-			(30	)

Net income attributable to Stoneridge, Inc.	$	8,049		$	10,284		$	26,271		$	29,094		$	13,380		$	9,203

Earnings per share attributable to Stoneridge, Inc.:
Basic	$	0.29		$	0.37		$	0.94		$	1.05		$	0.47		$	0.33
Diluted	$	0.28		$	0.36		$	0.92		$	1.03		$	0.46		$	0.32

Weighted-average shares outstanding:
Basic		28,136			27,792			28,062			27,753			28,249			27,917
Diluted		28,652			28,359			28,613			28,266			28,936			28,580

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

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Three months ended Nine months ended
September 30, September 30,
(in thousands) 2017 2016 2017 2016

Net income $ 8,049 $ 9,981 $ 26,141 $ 27,085
Less: Net loss attributable to noncontrolling interest - (303 ) (130 ) (2,009 )
Net income attributable to Stoneridge, Inc. 8,049 10,284 26,271 29,094

Other comprehensive income (loss), net of tax attributable to
Stoneridge, Inc.:
Foreign currency translation 6,483 (638 ) 15,822 5,923
Benefit plan adjustment - (84 ) - (84 )
Unrealized gain (loss) on derivatives⁽¹⁾ (138 ) (64 ) 172 (473 )
Other comprehensive income (loss), net of tax attributable to Stoneridge, Inc. 6,345 (786 ) 15,994 5,366

Comprehensive income attributable to Stoneridge, Inc. $ 14,394 $ 9,498 $ 42,265 $ 34,460
Three months ended March 31, (in thousands) 2018 2017

Net income $ 13,380 $ 9,173
Less: Net loss attributable to noncontrolling interest - (30 )
Net income attributable to Stoneridge, Inc. 13,380 9,203

Other comprehensive income, net of tax attributable to Stoneridge, Inc.:
Foreign currency translation 3,894 3,063
Unrealized gain on derivatives⁽¹⁾ 795 317

Other comprehensive income, net of tax attributable to Stoneridge, Inc. 4,689 3,380

Comprehensive income attributable to Stoneridge, Inc. $ 18,069 $ 12,583

(1) Net of tax ~~benefit~~expense of ~~$(74)~~$212 and $0$170 for the three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016, respectively. Net of tax expense of $93 and $0 for the nine months ended September 30, 2017 and 2016,~~ respectively.

The accompanying notes are an integral part of these condensed consolidated financial statements.
5

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Nine months ended September 30, (in thousands) 2017 2016
Three months ended March 31, (in thousands) 2018 2017

OPERATING ACTIVITIES:
Net income $ 26,141 $ 27,085 $ 13,380 $ 9,173
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 15,922 14,717 6,061 5,063
Amortization, including accretion of deferred financing costs 4,993 2,677 1,807 1,472
Deferred income taxes 6,233 714 (243 ) 2,082
Earnings of equity method investee (1,200 ) (603 ) (521 ) (180 )
Loss (gain) on sale of fixed assets 6 (409 )
Share-based compensation expense 5,713 4,587 1,404 2,339
Tax benefit related to share-based compensation expense (759 ) - (830 ) (681 )
Change in fair value of earn-out contingent consideration 4,645 - 904 -
Changes in operating assets and liabilities, net of effect of business combination:
Accounts receivable, net (18,232 ) (25,486 ) (14,821 ) (18,648 )
Inventories, net (6,564 ) 281 (4,694 ) (2,445 )
Prepaid expenses and other assets 1,530 (5,879 ) (3,647 ) (4,760 )
Accounts payable 11,611 13,991 7,841 15,734
Accrued expenses and other liabilities 1,079 5,342 3,030 661
Net cash provided by operating activities 51,118 37,017 9,671 9,810

INVESTING ACTIVITIES:
Capital expenditures (24,892 ) (18,484 ) (10,505 ) (7,265 )
Proceeds from sale of fixed assets 66 652 9 -
Insurance proceeds for fixed assets 1,403 -
Business acquisition, net of cash acquired (77,258 ) - - (77,538 )
Net cash used for investing activities (102,084 ) (17,832 ) (9,093 ) (84,803 )

FINANCING ACTIVITIES:
Acquisition of noncontrolling interest, including transaction costs (1,848 ) -
Revolving credit facility borrowings 91,000 - 5,000 81,000
Revolving credit facility payments (32,000 ) (13,000 ) (10,000 ) (7,000 )
Proceeds from issuance of debt 2,557 13,317 155 886
Repayments of debt (10,307 ) (21,312 ) (1,378 ) (4,135 )
Other financing costs (61 ) (339 ) - (47 )
Repurchase of Common Shares to satisfy employee tax withholding (2,222 ) (1,384 ) (3,713 ) (1,820 )
Net cash provided by (used for) financing activities 47,119 (22,718 )

Net cash (used for) provided by financing activities (9,936 ) 68,884
Effect of exchange rate changes on cash and cash equivalents 4,249 (268 ) 759 629
Net change in cash and cash equivalents 402 (3,801 ) (8,599 ) (5,480 )
Cash and cash equivalents at beginning of period 50,389 54,361 66,003 50,389

Cash and cash equivalents at end of period $ 50,791 $ 50,560 $ 57,404 $ 44,909

Supplemental disclosure of cash flow information:
Cash paid for interest $ 4,286 $ 4,573 $ 1,438 $ 1,450
Cash paid for income taxes, net $ 5,745 $ 2,019 $ 5,056 $ 1,252

Supplemental disclosure of non-cash operating and financing activities:
Bank payment of vendor payables under short-term debt obligations $ - $ 3,764

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

6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise indicated)
(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 ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 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 ~~2016~~2017 Form 10-K.

On January 31, 2017, the Company acquired Exploitatiemaatschappij Berghaaf B.V. (“Orlaco”), an electronics business which designs, manufactures and sells camera-based vision systems, monitors and related products. The acquisition was accounted for as a business combination, and accordingly, the Company’s condensed consolidated financial statements herein include the results of Orlaco from the acquisition date to ~~September 30, 2017.~~March 31, 2018. See Note 34 to the condensed consolidated financial statements for additional details regarding the Orlaco acquisition.

The Company had a 74% controlling interest in PST Electronica Ltda. (“PST”) from December 31, 2011 through May 15, 2017. On May 16, 2017, the Company acquired the remaining 26% noncontrolling interest in PST, which was accounted for as an equity transaction. As such, PST is now a wholly owned subsidiary. See Note 15 to the condensed consolidated financial statements for additional details regarding the acquisition of PST’s noncontrolling interest.

Also, see Note 2 for the impact of the adoption of various accounting standards on the condensed consolidated financial statements herein.

(2) Recently Issued Accounting Standards

Recently Adopted Accounting Standards

In ~~August~~January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities”, which amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements. As early adoption is permitted, the Company adopted this standard in the third quarter of 2017, which did not have a material impact on its condensed consolidated financial statements.
In May 2017, FASB issued ASU 2017-09, “Compensation-Stock Compensation (Topic 718)”, which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions or the classification of the award changes as a result of the change in terms or conditions. If an award is not probable of vesting at the time a change is made, the new guidance clarifies that no new measurement date will be required if there is no change to the fair value, vesting conditions, and classification. As early adoption is permitted, the Company adopted this standard in the second quarter of 2017, which did not have a material impact on its condensed consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment (Topic 350)”. It eliminates Step 2 from the goodwill impairment test. As a result, an entity should recognize an impairment charge for the amount by which the carrying amount of goodwill exceeds the reporting unit's fair value, not to exceed the carrying amount of goodwill. The Company adopted this standard on January 1, 2017, which did not have a material impact on its condensed consolidated financial statements.
7
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data, unless otherwise indicated)~~
~~(Unaudited)~~
In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718)”, which is intended to simplify several aspects of the accounting for share-based payment award transactions including how excess tax benefits should be classified in the Company’s condensed consolidated financial statements. The new standard simplifies the treatment of share based payment transactions by recognizing the impact of excess tax benefits or deficiencies related to exercised or vested awards in income tax expense in the period of exercise or vesting. The new standard also modifies the diluted earnings per share calculation using the treasury stock method by eliminating the excess tax benefits or deficiencies from the calculation. These changes have been recognized prospectively. The presentation of excess tax benefits in the condensed statement of consolidated cash flows was also modified to be included with other income tax cash flows as an operating activity.  The Company adopted this standard as of January 1, 2017 utilizing the prospective transition method for excess tax benefits in the condensed consolidated statement of cash flows. The Company had unrecognized tax benefits related to share-based payment awards of $1,729 as of December 31, 2016, which upon adoption was recorded in other long-term assets with a corresponding increase to retained earnings associated with the cumulative effect of the accounting change.
In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory”, which requires that inventory be measured at the lower of cost or net realizable value. Prior to the issuance of the new guidance, inventory was measured at the lower of cost or market. Replacing the concept of market with the single measurement of net realizable value is intended to reduce cost and complexity. The Company adopted this standard as of January 1, 2017, which did not have a material impact on the its condensed consolidated financial statements or disclosures.
~~Accounting Standards Not Yet Adopted~~
~~In January 2017, the FASB issued ASU~~ 2017-01, “Clarifying the Definition of a Business”. It revises the definition of a business and provides a framework to evaluate when an input and a substantive process are present in an acquisition to be considered a business. This guidance iswas effective for annual periods beginning after December 15, 2017. The Company ~~expects to adopt~~adopted this standard ~~as of~~on January 1, 2018 which isdid not ~~expected to~~have a material impact on its condensed consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16, “Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory (Topic 740)”. This guidance requires that the tax effects of all intra-entity sales of assets other than inventory be recognized in the period in which the transaction occurs. The Company adopted this standard on January 1, 2018, which did not have a material impact on its condensed consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments (Topic 230)”, which provides guidance on the presentation and classification of certain cash receipts and cash payments in the statement of cash flows in order to reduce diversity in practice. This ASU iswas effective for interim and annual periods beginning after December 15, ~~2017 with early adoption permitted.~~2017. The Company adopted this standard as of January 1, 2018, which did not have a material impact on its condensed consolidated financial statements.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise indicated)
(Unaudited)
In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers” and related amendments, which is ~~currently evaluating~~the new comprehensive revenue recognition standard (collectively known as Accounting Standard Codification (“ASC”) 606) that has superseded existing revenue recognition guidance under U.S. GAAP. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. To achieve this principle, an entity identifies the contract with a customer, identifies the separate performance obligations in the contract, determines the transaction price, allocates the transaction price to the separate performance obligations and recognizes revenue when each separate performance obligation is satisfied. The new standard became effective for annual and interim periods beginning after December 15, 2017. The Company adopted this standard on January 1, 2018 using the modified retrospective transition method. Under the modified retrospective method, the Company would recognize the cumulative effect of initially applying the standard as an adjustment to opening retained earnings at the date of initial application; however, the Company did not have any material adjustments as of the date of the adoption. The Company does not expect the adoption of ASC 606 to have a material impact on its results of operations on an ongoing basis; however, the Company has expanded its disclosures consistent with the requirements of the new standard and the Company will continue to evaluate new contracts to apply the framework of ASC 606. In particular, the Company will evaluate new contracts with customers analyzing the impact, if any, on revenue from the sale of production parts, particularly in regards to material rights, variable consideration and the impact of ~~adopting~~termination clauses on the timing of revenue recognition. The majority of our revenue continues to be recognized when products are shipped from our manufacturing facilities. The Company has not changed how it accounts for reimbursable pre-production costs, currently accounted for as a reduction of costs incurred. Refer to Note 3 for the expanded revenue disclosures.
Accounting Standards Not Yet Adopted
In January 2018, the FASB issued ASU 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This guidance gives entities the option to reclassify to retained earnings the tax effects resulting from the enactment of Tax Cuts and Jobs Act related to items in accumulated other comprehensive income (“AOCI”) that the FASB refers to as having been stranded in AOCI. The new guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted for periods for which financial statements have not yet been issued or made available for issuance, including the period the Tax Legislation was enacted. The Company will adopt this standard as of January 1, 2019, which is not expected to have a material impact on its condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”, which will require that a lessee recognize assets and liabilities on the balance sheet for all leases with a lease term of more than twelve months, with the result being the recognition of a right of use asset and a lease liability. The amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company expects to adopt this standard as of January 1, 2019. The Company is currently evaluating the impact of adopting this standard on its condensed consolidated financial statements, which will require right of use assets and lease liabilities be recorded in the condensed consolidated balance sheet for operating leases.

8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise indicated)
(Unaudited)
(3) Revenue

~~In May 2014,~~The Company adopted ASC 606 using the ~~FASB issued ASU 2014-09 “Revenue from Contracts~~modified retrospective method as applied to customer contracts that were not completed as of January 1, 2018. As a result, financial information for reporting periods beginning after January 1, 2018 are presented under ASC 606, while comparative financial information has not been adjusted and continues to be reported in accordance with ~~Customers”, which is~~ the ~~new comprehensive~~Company’s historical accounting policy for revenue recognition ~~standard that will supersede existing revenue recognition guidance~~prior to the adoption of ASC 606. The Company did not record a cumulative adjustment related to the adoption of ASC 606, and the effects of the adoption were not significant.
Revenue is recognized when obligations under ~~U.S. GAAP. The standard's core principle~~the terms of a contract with our customer are satisfied; generally this occurs with the transfer of control of our products and services. Revenue is ~~that a company will recognize revenue when it transfers promised goods or services~~measured as the amount of consideration we expect to ~~a customer in an amount that reflects the consideration to which a company expects to be entitled~~receive in exchange for ~~those~~transferring goods or providing services. ~~To achieve this principle, an entity identifies~~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 ~~a customer, identifies~~our base warranties continue to be recognized as expense when the ~~separate performance obligations in~~products are sold. Customer returns only occur if products do not meet the specifications of the contract ~~determines~~and are not connected to any repurchase obligations of the transaction price, allocates the transaction price to the separate performance obligations and recognizes revenue when each separate performance obligation is satisfied. This ASU allows for both retrospective and prospective methods of adoption. Company.
The ~~new standard will become effective for annual and interim periods beginning after December 15, 2017. Currently, the~~ Company does not ~~expect~~have any financing components or significant payment terms as payment occurs shortly after the ~~adoption~~point of ~~this standard to have~~sale.Taxes assessed by a ~~material impact~~governmental authority that are both imposed on ~~its results of operations or financial position; however,~~and concurrent with a specific revenue-producing transaction that are collected by the Company ~~expects expanded disclosures consistent~~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 ~~requirements of the new standard. In particular, the Company does not expect any changes to how it accounts for reimbursable pre-production costs, currently~~customer are accounted for as a ~~reduction~~fulfillment cost and are included in cost of ~~costs incurred. However,~~sales.
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 sensors, actuators, valves and switches. We sell these products principally to the automotive market in the North American, European, and Asia Pacific markets. To a lesser extent, we also sell these products to the commercial vehicle and agricultural markets in our North America and European markets. Our customers included in these markets primarily consist of original equipment manufacturers (“OEM”) and companies supplying components directly to the OEMs (“tier one supplier”).
Electronics.Our Electronics segment designs and manufactures electronic instrument clusters, electronic control units and other driver information systems and includes the acquired Orlaco business, which designs and manufactures camera-based vision systems, monitors and related products. These products are sold principally to the commercial vehicle market primarily through our OEM and aftermarket channels in the North American and European markets, and to a lesser extent, the Asia Pacific market. The camera-based vision systems and related products are sold principally to the off-highway vehicle market in the North American and European markets.
PST.Our PST segment primarily serves the South American market and specializes in the design, manufacture and sale of in-vehicle audio and video devices, electronic vehicle security alarms, convenience accessories, vehicle tracking devices and monitoring services primarily for the automotive and motorcycle markets. PST sells its products through the aftermarket distribution channel, to factory authorized dealer installers, also referred to as original equipment services, direct to OEMs and through mass merchandisers.
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise indicated)
(Unaudited)
The following tables disaggregate our revenue by reportable segment and geographical location⁽¹⁾ for the period ended March 31, 2018 and 2017:
Three months ended March 31, 2018 Control Devices Electronics PST Consolidated
Net Sales:
North America $ 104,443 $ 19,986 $ - $ 124,429
South America - - 20,545 20,545
Europe 2,891 68,544 - 71,435
Asia Pacific 8,023 1,498 - 9,521
Total net sales $ 115,357 $ 90,028 $ 20,545 $ 225,930
Three months ended March 31, 2017 Control Devices Electronics PST Consolidated
Net Sales:
North America $ 110,521 $ 12,865 $ - $ 123,386
South America - - 21,633 21,633
Europe 1,709 50,074 - 51,783
Asia Pacific 6,643 866 - 7,509
Total net sales $ 118,873 $ 63,805 $ 21,633 $ 204,311
⁽¹⁾ Company sales based on geographic location are where the sale originates not where the customer is located.
Performance Obligations
For OEM and tier one supplier customers, the Company ~~continues to evaluate its~~enters into contracts with its customers ~~analyzing the impact, if any, on revenue from the sale of~~to provide serial production parts ~~particularly in regards~~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 one suppliers are specifically customized to the specific customer, with the exception of off-highway products that are common across all customers. The transaction price is equal to the contracted price per part and there is no expectation of material ~~rights,~~ variable consideration in the transaction price. In addition, the majority of the contracts do not include an enforceable right to payment if the customer terminates the contract for convenience and therefore the ~~impact of termination clauses~~revenue is recognized at a point in time based on the ~~timing~~shipping terms. Certain customer contracts contain an enforceable right to payment if the customer terminate 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, 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 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.
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise indicated)
(Unaudited)
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 PST segment. These monitoring service contracts are generally not capable of being distinct and are accounted for a single performance obligation. We recognize revenue ~~recognition.~~for our monitoring products and services contracts over the life of the contract. There is no variable consideration associated with these contracts. The Company ~~will adopt this standard January 1, 2018 and expects~~has the right to ~~use~~consideration from a customer in the ~~modified retrospective transition method. Under~~amount that corresponds directly with the ~~modified retrospective method,~~value to the customer of the entity’s performance to date. Therefore the Company ~~would recognize~~recognizes revenue over time using the ~~cumulative effect of initially applying~~practical expedient ASC 606-10-55-18 in the ~~standard as~~amount the Company has a “right to invoice” rather than selecting an ~~adjustment to opening retained earnings at the date of initial application.~~output or input method.
Contract Balances

~~(3)~~The Company had no material contract assets, contract liabilities or capitalized contract acquisition costs as of March 31, 2018.
(4) Acquisition of Orlaco

On January 31, 2017, Stoneridge B.V., an indirect wholly-owned subsidiary of Stoneridge, Inc., entered into and closed an agreement to acquire Orlaco. Orlaco designs, manufactures and sells camera-based vision systems, monitors and related electronic products primarily to the heavy off-road machinery, commercial vehicle, lifting crane and warehousing and logistics industries. Stoneridge and Orlaco jointly developed the MirrorEye mirror replacement system, which is a system solution to improve the safety and fuel economy of commercial vehicles. The MirrorEye 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 enhances ~~the~~ Stoneridge’s Electronics segment global technical capabilities in vision systems and facilitates entry into new markets.

The aggregate consideration for the Orlaco acquisition on January 31, 2017 was €74,939 ($79,675), which included customary estimated adjustments to the purchase price. The Company paid €67,439 ($71,701) in cash, and €7,500 ($7,974) is held in an escrow account for a period of eighteen months to secure the payment obligations of the seller under the terms of the purchase agreement. The purchase price is subject to certain customary adjustments set forth in the purchase agreement. The escrow amount will be transferred promptly following the completion of the escrow period. The Company may also be 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.

The acquisition date fair value of the total consideration transferred consisted of the following:

Cash $ 79,675
Fair value of earn-out consideration and other adjustments 4,208
Total purchase price $ 83,883

911
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise indicated)
(Unaudited)

The following table summarizes the ~~estimated~~ fair value of the assets acquired and liabilities assumed at the acquisition date (including measurement period adjustments). The purchase price and associated allocation is preliminary pending completion of the valuation of acquired inventory, property, plant and equipment, intangible assets and deferred income taxes and may be subsequently adjusted to reflect final valuation results and purchase price adjustments. Based upon information obtained, certain of the fair value amounts previously estimated were adjusted during the measurement period.  These measurement period adjustments related to updated valuation reports and appraisals received from our external valuation specialists, as well as revisions to internal estimates. ~~The~~At March 31, 2018, the purchase price and associated allocation reflects the final valuation results and purchase price adjustments. There were no changes in estimates recorded at September 30, 2017 include an increase in inventory of $265; an increase in intangible assets of $113; a decrease in other long-term assets of $684; an increase in other current liabilities of $29; a decrease in accounts receivable of $201 and a decrease in earn-out consideration of $1,007. The measurement period and working capital adjustments resulted in a decrease to goodwill of $727.during the quarter ended March 31, 2018.

At January 31, 2017
Cash $ 2,165 $ 2,165
Accounts receivable 7,929 7,929
Inventory 9,409 9,409
Prepaid and other current assets 298 298
Property, plant and equipment 6,668 6,668
Identifiable intangible assets 38,739 38,739
Other long-term assets 6 6
Total identifiable assets acquired 65,214 65,214

Accounts payable 3,020 3,020
Other current liabilities 834 834
Deferred tax liabilities 9,994 10,206
Warranty liability 1,462 899
Total liabilities assumed 15,310 14,959
Net identifiable assets acquired 49,904 50,255
Goodwill 33,979 33,628
Net assets acquired $ 83,883 $ 83,883

Assets acquired and liabilities assumed were recorded at estimated fair values based on management's estimates, available information, and reasonable and supportable assumptions. Also, the Company utilized a third-party to assist with certain estimates of fair values, including:

· Fair value estimate for inventory was based on a comparative sales method

· Fair value estimate for property, plant and equipment was based on appraised values utilizing cost and market approaches

· Fair values for intangible assets were based on a combination of market and income approaches, including the relief from royalty method

· Fair value for the earn-out consideration was based on a Monte Carlo simulation utilizing forecasted earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the 2017 and 2018 ~~measurement~~earn-out period as well as a growth rate reduced by the market required rate of return

These fair value measurements are classified within Level 3 of the fair value hierarchy. See Note 6 for details on fair value hierarchy.
10
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data, unless otherwise indicated)~~
~~(Unaudited)~~

Goodwill is calculated as the excess of the fair value of consideration transferred over the fair market value of the identifiable assets and liabilities and represents the future economic benefits arising from other assets acquired that could not be separately recognized. The goodwill is not deductible for income tax purposes.

12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise indicated)
(Unaudited)
Of the $38,739 of acquired identifiable intangible assets, $27,518 was ~~provisionally~~ assigned to customer lists with a 15-year useful life; $5,142 was provisionally assigned to trademarks with a 20-year useful life; and $6,079 was provisionally assigned to technology with a 7-year weighted-average useful life.

The Company recognized ~~$1,259~~$1,218 of acquisition related costs in the condensed consolidated statement of operations as a component of selling, general and administrative (“SG&A”) expense for the ~~nine~~three months ended ~~September 30,~~March 31, 2017. There were no acquisition related costs for the three months ended March 31, 2018.

Included in the Company's statement of operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 are post-acquisition sales ~~of $18,502 and $46,956,~~ and net income of ~~$1,254~~$11,100 and ~~$1,299,~~$600, respectively, related to Orlaco which are included in results of the Electronics segment. The Company’s statement of operations ~~also~~for the three months ended March 31, 2017 included ~~$0 and $1,636~~$979 of expense in cost of goods sold (“COGS”) ~~for the three and nine months ended September 30, 2017, respectively,~~ associated with the step-up of the Orlaco inventory to fair ~~value and~~value. The Company’s statement of operations for the ~~$1,823 and $3,926~~three months ended March 31, 2018 included $369 of expense for the fair value adjustment for earn-out consideration in SG&A ~~expenses for the three and nine months ended September 30, 2017, respectively.~~expenses.

The following unaudited pro forma information reflects the Company’s condensed consolidated results of operations as if the acquisition had taken place on January 1, ~~2016.~~2017. The unaudited pro forma information is not necessarily indicative of the results of operations that the Company would have reported had the transaction actually occurred at the beginning of these periods, nor is it necessarily indicative of future results.

Three months ended Nine months ended
September 30, September 30,
2017 2016 2017 2016

Three months ended March 31, 2017
Net sales $ 203,582 $ 187,626 $ 622,034 $ 566,518 $ 209,341
Net income attributable to Stoneridge, Inc. and subsidiaries $ 8,049 $ 11,406 $ 26,375 $ 33,195 $ 9,307

1113
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise indicated)
(Unaudited)

~~(4)~~(5) 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 consisted of the following:

September 30, December 31, March 31, December 31,
2017 2016 2018 2017
Raw materials $ 47,840 $ 35,665 $ 48,311 $ 47,588
Work-in-progress 8,249 7,483 8,095 5,806
Finished goods 22,554 16,969 22,222 20,077
Total inventories, net $ 78,643 $ 60,117 $ 78,628 $ 73,471

Inventory valued using the FIFO method was ~~$56,861~~$59,021 and ~~$37,765~~$54,837 at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively. Inventory valued using the average cost method was ~~$21,782~~$19,607 and ~~$22,352~~$18,634 at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively.
~~(5) Goodwill and Intangibles~~
~~Goodwill~~
Goodwill was $38,224 and $931 at September 30, 2017 and December 31, 2016, respectively, all of which relates to the Electronics segment. The increase in goodwill is related to the Orlaco acquisition as further discussed in Note 3. Goodwill is not amortized, but instead is tested for impairment at least annually, or earlier when events and circumstances indicate that it is more likely than not that such assets have been impaired.
~~Intangibles~~
Acquisition Accumulated
As of September 30, 2017 cost amortization Net
Customer lists $ 58,470 $ (12,196 ) $ 46,274
Tradenames 24,305 (5,592 ) �� 18,713
Technology 17,849 (4,825 ) 13,024
Other 42 (42 ) -
Total $ 100,666 $ (22,655 ) $ 78,011
Acquisition Accumulated
As of December 31, 2016 cost amortization Net
Customer lists $ 27,476 $ (9,138 ) $ 18,338
Tradenames 18,116 (4,558 ) 13,558
Technology 10,862 (3,498 ) 7,364
Other 41 (41 ) -
Total $ 56,495 $ (17,235 ) $ 39,260
12
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data, unless otherwise indicated)~~
~~(Unaudited)~~
The Company recorded amortization expense of $1,711 and $869 related to finite-lived intangible assets for the three month period ended September 30, 2017 and 2016, respectively, and $4,750 and $2,402 for the nine month period ended September 30, 2017 and 2016, respectively. The Company currently estimates annual amortization expense to be $6,500 for 2017 and $6,800 for 2018, 2019, 2020 and 2021.

(6) 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.

Derivative Instruments and Hedging Activities

On ~~September 30, 2017,~~March 31, 2018, the Company had open foreign currency forward contracts which are used solely for hedging and not for speculative purposes. 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

The Company conducts business internationally and therefore is exposed to foreign currency exchange rate risk. The Company uses derivative financial instruments as cash flow and fair value hedges to manage its exposure to fluctuations in foreign currency exchange rates by reducing the effect of such fluctuations on foreign currency denominated intercompany transactions, inventory purchases and other foreign currency exposures. The currencies hedged by the Company during ~~2017~~2018 and ~~2016~~2017 included the euro and Mexican peso. In addition, the Company hedged the U.S. dollar against the Swedish krona and euro on behalf of its European subsidiaries in ~~2016.~~2018.

These forward contracts were executed to hedge forecasted transactions and certain transactions have been accounted for as cash flow hedges. As such, the effective portion of the unrealized gain or loss was deferred and reported in the Company’s condensed consolidated balance sheets as a component of accumulated other comprehensive loss. The cash flow hedges were highly effective. The effectiveness of the transactions has been and will be measured on an ongoing basis using regression analysis and forecasted future purchases of the currency.
14
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise indicated)
(Unaudited)

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

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 Contract

At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the Company held foreign currency forward contracts with underlying notional ~~amounts~~amount of ~~$1,187 and $1,601, respectively,~~$1,486, to reduce the exposure related to the Company's euro-denominated intercompany loans. The current contract expires in June 2018. The euro-denominated foreign currency forward contract was not designated as a hedging instrument. The Company recognized a loss of ~~$36~~$20 and ~~a gain of $1~~$19 for the three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively, in the condensed consolidated statements of operations as a component of other expense, ~~(income),~~ net related to the euro-denominated contract. ~~For~~
U.S. dollar-denominated Foreign Currency Forward Contracts – Cash Flow Hedges
The Company entered into on behalf of one of its European Electronics subsidiaries whose functional currency is the ~~nine months ended September 30, 2017 and 2016, the Company recognized~~Swedish krona, U.S. dollar-denominated currency contracts with a ~~loss~~notional amount at March 31, 2018 of ~~$164 and $38 respectively, related to this contract.~~$5,800 which expire ratably on a monthly basis from April 2018 through December 2018. There were no such contracts at December 31, 2017.

13
The Company entered into on behalf of one of its European Electronics subsidiaries whose functional currency is the euro, U.S. dollar-denominated currency contracts with a notional amount at March 31, 2018 of $1,600 which expire ratably on a monthly basis from April 2018 through December 2018. There were no such contracts at December 31, 2017.
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data, unless otherwise indicated)~~The Company evaluated the effectiveness of the U.S. dollar-denominated foreign currency forward contracts held as of March 31, 2018 and concluded that the hedges were highly effective.
~~(Unaudited)~~
Mexican Peso-denominated Foreign Currency Forward Contracts – Cash Flow Hedge

The Company holds Mexican peso-denominated foreign currency forward contracts with notional amounts at ~~September 30, 2017~~March 31, 2018 of ~~$1,399~~$6,043 which expire ratably on a monthly basis from ~~October 2017~~April 2018 through December ~~2017,~~2018, compared to a notional amount of ~~$5,699~~$9,143 at December 31, ~~2016.~~ 2017.

The Company evaluated the effectiveness of the Mexican peso-denominated foreign currency forward contracts held as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 and concluded that the hedges were highly effective.

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

Prepaid expenses Accrued expenses and Prepaid expenses Accrued expenses and
Notional amounts^(A) and other current assets other current liabilities Notional amounts^(A) and other current assets other current liabilities
September 30, December 31, September 30, December 31, September 30, December 31, March 31, December 31, March 31, December 31, March 31, December 31,
2017 2016 2017 2016 2017 2016 2018 2017 2018 2017 2018 2017
Derivatives designated as hedging instruments:
Cash flow hedges:
Forward currency contracts $ 1,399 $ 5,699 $ 237 $ - $ - $ 28 $ 13,443 $ 9,143 $ 786 $                 - $                - $ 221
Derivatives not designated as hedging instruments:
Forward currency contracts $ 1,187 $ 1,601 $ - $ - $ 37 $ 3 $ 1,486 $ 1,486 $ - $ - $ 68 $ 48

(A) Notional amounts represent the gross contract of the derivatives outstanding in U.S. dollars.
15
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise indicated)
(Unaudited)

Gross amounts recorded for the cash flow hedges in other comprehensive income (loss) and in net income for the three months ended ~~September 30~~March 31 are as follows:

Gain (loss) reclassified from
Gain (loss) recorded in other other comprehensive income
comprehensive income (loss) (loss) into net income^(A)
2017 2016 2017 2016
Derivatives designated as cash flow hedges:
Forward currency contracts $ 56 $ (129 ) $ 268 $ (65 )
~~Gross amounts recorded for the cash flow hedges in other comprehensive income (loss) and in net income for the nine months ended September 30 are as follows:~~
Gain (loss) reclassified from Gain (loss) reclassified from
Gain (loss) recorded in other other comprehensive income Gain (loss) recorded in other other comprehensive income
comprehensive income (loss) (loss) into net income^(A) comprehensive income (loss) (loss) into net income^(A)
2017 2016 2017 2016 2018 2017 2018 2017
Derivatives designated as cash flow hedges:
Forward currency contracts $ 717 $ (656 ) $ 452 $ (183 ) $ 1,159 $ 516 $ (152 ) $ 29

(A) Gains and losses reclassified from other comprehensive income (loss) into net income were recognized in cost of goods sold in the Company's condensed consolidated statements of operations.

The net deferred gain of ~~$237~~$786 on the cash flow hedge derivatives will be reclassified from other comprehensive income (loss) to the condensed consolidated statements of operations through December ~~2017.~~  2018.
14
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data, unless otherwise indicated)~~
~~(Unaudited)~~

Fair Value Measurements

The Company’s assets and liabilities are measured at fair value on a recurring basis and are categorized using the three levels of the fair value hierarchy based on the reliability of the inputs used. 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 contracts, inputs include foreign currency exchange rates. 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,
2017 December 31,
2016
Fair values estimated using
Level 1 Level 2 Level 3
Fair value inputs inputs inputs Fair value
Financial assets carried at fair value:
Forward currency contracts $ 237 $ - $ 237 $ - $ -
Total financial assets carried at fair value $ 237 $ - $ 237 $ - $ -

Financial liabilities carried at fair value:
Forward currency contracts $ 37 $ - $ 37 $ - $ 31
Earn-out consideration 18,295 - - 18,295 -
Total financial liabilities carried at fair value $ 18,332 $ - $ 37 $ 18,295 $ 31
March 31,
2018 December 31,
2017
Fair values estimated using
Level 1 Level 2 Level 3
Fair value inputs inputs inputs Fair value
Financial assets carried at fair value:
Forward currency contracts $ 786 $     - $ 786 $    - $      -
Total financial assets carried at fair value $ 786 $ - $ 786 $ - $ -

Financial liabilities carried at fair value:
Forward currency contracts $ 68 $ - $ 68 $ - $ 269
Earn-out consideration 21,905 - - 21,905 20,746
Total financial liabilities carried at fair value $ 21,973 $ - $ 68 $ 21,905 $ 21,015
16
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise indicated)
(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.

Orlaco PST Total
Balance at December 31, 2016 $ - $ - $ -
Fair value on acquisition date 3,243 10,180 13,423
Change in fair value 3,926 719 4,645
Foreign currency adjustments 408 (181 ) 227
Balance at September 30, 2017 $ 7,577 $ 10,718 $ 18,295
Orlaco PST Total
Balance at December 31, 2017 $ 8,637 $ 12,109 $ 20,746
Change in fair value 369 535 904
Foreign currency adjustments 235 20 255
Balance at March 31, 2018 $ 9,241 $ 12,664 $ 21,905

The earn-out ~~considerations~~consideration obligations related to Orlaco and PST are recorded within other long-term liabilities on the condensed consolidated balance sheet.

The increase in fair value of earn-out consideration related to the Orlaco acquisition is primarily due to actual performance exceeding forecasted performance as well as the reduced time from the current period end to the payment date and foreign currency. The Orlaco earn-out consideration has reached the capped amount of €7,500 as of the quarter ended March 31, 2018. The increase in fair value of earn-out consideration for PST was due to the reduced time from the current period end to the payment date ~~which was partially offset by~~as well as foreign currency translation. The fair value of the Orlaco and PST earn-out consideration is based on forecasted EBITDA during the performance periods.

15
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data, unless otherwise indicated)~~
~~(Unaudited)~~
There were no transfers in or out of Level 3 from other levels in the fair value hierarchy for the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2018.

Except for the fair value of assets acquired and liabilities assumed related to the Orlaco acquisition discussed in Note 3, there were no non-recurring fair value measurements for the periods presented.

(7) 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 ~~$1,648~~$1,404 and ~~$1,699~~$2,339 for the three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively. ~~For the nine~~The three months ended ~~September 30, 2017 total share-based compensation~~March 31, 2018 included expenses related to higher attainment of performance based awards which was ~~$5,713 compared to $4,587 for~~offset by the ~~nine~~forfeiture of certain grants associated with employee resignations. The three months ended ~~September 30, 2016. The nine months ended September 30,~~March 31, 2017 included expenses related to higher attainment of performance based awards and accelerated expense associated with the retirement of eligible employees. ~~The nine months ended September 30, 2016 included expenses related to modification of the retirement notice provisions of certain awards.~~
17
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise indicated)
(Unaudited)

(8) Debt

Debt consisted of the following at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:

September 30, December 31, Interest rates at March 31, December 31, Interest rates at
2017 2016 September 30, 2017 Maturity 2018 2017 March 31, 2018 Maturity
Revolving Credit Facility
Credit Facility $ 126,000 $ 67,000 2.49 % September 2021 $ 116,000 $ 121,000 2.92% - 5.00 % September 2021

Debt
PST short-term obligations - 5,097 1,647 - 11.46 % March 2019
PST long-term notes 9,475 11,452 10.0% - 13.4 % 2019-2021 5,204 8,016 9.0% - 11.84 % 2019-2021
Other 48 137 15 28
Total debt 9,523 16,686 6,866 8,044
Less: current portion (4,421 ) (8,626 ) (4,160 ) (4,192 )
Total long-term debt, net $ 5,102 $ 8,060 $ 2,706 $ 3,852

Revolving Credit Facility

On November 2, 2007, the Company entered into an asset-based credit facility, which permits borrowing up to a maximum level of $100,000. The Company entered into an Amended and Restated Credit and Security Agreement and a Second Amended and Restated Credit and Security Agreement on September 20, 2010 and December 1, 2011, respectively.

On September 12, 2014, the Company entered into a Third Amended and Restated Credit Agreement (the “Amended Agreement” or “Credit Facility”). The Amended Agreement provides for a $300,000 revolving credit facility, which replaced the Company’s existing $100,000 asset-based credit facility and includes a letter of credit subfacility, swing line subfacility and multicurrency subfacility. The Amended Agreement also has an accordion feature which allows the Company to increase the availability by up to $80,000 upon the satisfaction of certain conditions. The Amended Agreement extended the termination date to September 12, 2019 from December 1, 2016. On March 26, 2015, the Company entered into Amendment No. 1 to the Amended Agreement which modified the definition of Consolidated EBITDA to allow for the add back of cash premiums and other non-cash charges related to the amendment and restatement of the Amended Agreement and the early extinguishment of the Company’s 9.5% Senior Secured Notes. Consolidated EBITDA is used in computing the Company’s leverage ratio and interest coverage ratio which are covenants within the Amended Agreement. On February 23, 2016, the Company entered into Amendment No. 2 to the Amended Agreement which amended and waived any default or potential defaults with respect to the pledging as collateral additional shares issued by a wholly owned subsidiary and newly issued shares associated with the formation of a new subsidiary. On August 12, 2016, the Company entered into Amendment No. 3 to the Amended Agreement which extended of the expiration date of the Agreement by two years to September 12, 2021, increased the borrowing sub-limit for the Company’s foreign subsidiaries by $30,000 to $80,000, increased the basket of permitted loans and investments in foreign subsidiaries by $5,000 to $30,000, and provided additional flexibility to the Company for certain permitted corporate transactions involving its foreign subsidiaries as defined in the Agreement. As a result of Amendment No. 3, the Company capitalized deferred financing costs of $339, which will be amortized over the remaining term of the Credit Facility. On January 30, 2017, the Company entered into Consent and Amendment No. 4 to the Amended Agreement which amended certain definitions, schedules and exhibits of the Credit Facility, consented to a Dutch Reorganization, and consented to the Orlaco acquisition. As a result of Amendment No. 4, the Company capitalized deferred financing costs of $61, which will be amortized over the remaining term of the Credit Facility.

1618
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise indicated)
(Unaudited)

Borrowings under the Amended Agreement bear interest at either the Base Rate, as defined, or the LIBOR Rate, at the Company’s option, plus the applicable margin as set forth in the Amended Agreement. The Company is also subject to a commitment fee ranging from 0.20% to 0.35% based on the Company’s leverage ratio. The Amended Agreement requires the Company to maintain a maximum leverage ratio of 3.00 to 1.00, and a minimum interest coverage ratio of 3.50 to 1.00 and places a maximum annual limit on capital expenditures. The Amended Agreement also contains other affirmative and negative covenants and events of default that are customary for credit arrangements of this type including covenants which place restrictions and/or limitations on the Company’s ability to borrow money, make capital expenditures and pay dividends.

Borrowings outstanding on the Credit Facility were ~~$126,000~~$116,000 and ~~$67,000~~$121,000 at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively. Borrowings ~~increased~~decreased under the Credit Facility due to ~~fund the Orlaco acquisition described in Note 3 during the first quarter of 2017 which were partially offset by subsequent~~ voluntary principal repayments.

The Company was in compliance with all Credit Facility covenants at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017.

The Company also has outstanding letters of credit of ~~$3,367 and $3,399~~$2,008 at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016, respectively.~~2017.

Debt

PST maintains several short-term obligations and long-term notes used for working capital purposes which have fixed or variable interest rates. ~~As of September 30, 2017 PST did not have any short-term obligations.~~ The weighted-average interest rates of short term and long-term debt of PST at ~~September 30, 2017~~March 31, 2018 was ~~11.7%~~11.5% and 10.3%. Depending on the specific note, interest is payable either monthly or annually. Principal repayments on PST debt at ~~September 30, 2017~~March 31, 2018 are as follows: ~~$4,373~~$4,145 from ~~October 2017 through September 2018, $1,211 from October~~April 2018 through March 2019, $1,552 from April 2019 through December ~~2018, $2,685 in~~ 2019, ~~$629~~$602 in 2020 and ~~$577~~$552 in 2021. PST was in compliance with all debt covenants at ~~September 30, 2017~~March 31, 2018 and December 31, 2016.

The Company's wholly-owned subsidiary located in Stockholm, Sweden, has an overdraft credit line which allows overdrafts on the subsidiary's bank account up to a maximum level of 20,000 Swedish krona, or ~~$2,455~~$2,398 and ~~$2,196,~~$2,439, at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively. At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, there was no balance outstanding on this overdraft credit line.

(9) Earnings Per Share

Basic earnings per share was computed by dividing net income by the weighted-average number of Common Shares outstanding for each respective period. Diluted earnings 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. As the Company adopted ASU 2016-09 on January 1, 2017 utilizing the prospective transition method, the weighted-average dilutive Common Shares calculation excludes the excess tax benefit from the treasury stock method for the three ~~and nine~~ months ended ~~September 30, 2017, while the calculation includes the excess tax benefits using the treasury stock method for the three~~March 31, 2018 and ~~nine months ended September 30, 2016.~~2017.
17
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data, unless otherwise indicated)~~
~~(Unaudited)~~

Weighted-average Common Shares outstanding used in calculating basic and diluted earnings per share were as follows:

Three months ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
Three months ended March 31 2018 2017
Basic weighted-average Common Shares outstanding 28,135,705 27,792,469 28,062,438 27,753,015 28,249,420 27,916,652
Effect of dilutive shares 516,637 566,808 550,188 513,074 686,610 663,545
Diluted weighted-average Common Shares outstanding 28,652,342 28,359,277 28,612,626 28,266,089 28,936,030 28,580,197

There were no performance-based restricted Common Shares outstanding at ~~September 30, 2017~~March 31, 2018 or ~~2016.~~2017. There were ~~781,977~~622,960 and ~~843,140~~750,720 performance-based right to receive Common Shares outstanding at ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively. ~~These~~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.

1819
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise indicated)
(Unaudited)

(10) Changes in Accumulated Other Comprehensive Loss by Component

Changes in accumulated other comprehensive loss for the three months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ were as follows:

Foreign Unrealized Benefit
currency gain (loss) plan
translation on derivatives adjustment Total
Balance at July 1, 2017 $ (75,551 ) $ 292 $ - $ (75,259 )

   Other comprehensive income before reclassifications 6,483 36 - 6,519
Amounts reclassified from accumulated other
comprehensive loss - (174 ) - (174 )
Net other comprehensive income (loss), net of tax 6,483 (138 ) - 6,345
Balance at September 30, 2017 $ (69,068 ) $ 154 $ - $ (68,914 )

Balance at July 1, 2016 $ (63,735 ) $ (19 ) $ 84 $ (63,670 )

   Other comprehensive loss before reclassifications (638 ) (129 ) - (767 )
Amounts reclassified from accumulated other
comprehensive loss - 65 (84 ) (19 )
Net other comprehensive loss, net of tax (638 ) (64 ) (84 ) (786 )
Balance at September 30, 2016 $ (64,373 ) $ (83 ) $ - $ (64,456 )
~~Changes in accumulated other comprehensive loss for the nine months ended September 30, 2017 and 2016 were as follows:~~
Foreign Unrealized Benefit
currency gain (loss) plan
translation on derivatives adjustment Total
Balance at January 1, 2017 $ (67,895 ) $ (18 ) $ - $ (67,913 )

Other comprehensive income before reclassifications 15,822 466 - 16,288
Amounts reclassified from accumulated other
comprehensive loss - (294 ) - (294 )
Net other comprehensive income, net of tax 15,822 172 - 15,994
Reclassification of foreign currency translation associated
with noncontrolling interest acquired (16,995 ) - - -
Balance at September 30, 2017 $ (69,068 ) $ 154 $ - $ (68,914 )

Balance at January 1, 2016 $ (70,296 ) $ 390 $ 84 $ (69,822 )

Other comprehensive income (loss) before reclassifications 5,923 (656 ) - 5,267
Amounts reclassified from accumulated other
comprehensive loss - 183 (84 ) 99
Net other comprehensive income (loss), net of tax 5,923 (473 ) (84 ) 5,366
Balance at September 30, 2016 $ (64,373 ) $ (83 ) $ - $ (64,456 )
19
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data, unless otherwise indicated)~~
~~(Unaudited)~~
Foreign Unrealized
currency gain (loss)
translation on derivatives Total
Balance at January 1, 2018 $ (69,417 ) $ (143 ) $ (69,560 )

Other comprehensive income before reclassifications 3,894 915 4,809
Amounts reclassified from accumulated other comprehensive loss - (120 ) (120 )
Net other comprehensive income, net of tax 3,894 795 4,689
Balance at March 31, 2018 $ (65,523 ) $ 652 $ (64,871 )

Balance at January 1, 2017 $ (67,895 ) $ (18 ) $ (67,913 )

Other comprehensive income before reclassifications 3,063 336 3,399
Amounts reclassified from accumulated other comprehensive loss - (19 ) (19 )
Net other comprehensive income, net of tax 3,063 317 3,380
Balance at March 31, 2017 $ (64,832 ) $ 299 $ (64,533 )

(11) Commitments and Contingencies

In the ordinary course of business, the Company is subject to a broad range of claims and legal proceedings that relate to contractual allegations, product liability, tax audits, patent infringement, employment-related matters and environmental matters. The Company establishes accruals for matters which it believes that losses are probable and can be reasonably estimable. 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 condensed 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. ~~As the~~A remedial action plan ~~has been~~was approved by the Florida Department of Environmental Protection and groundwater remediation began in the fourth quarter of 2015. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ environmental remediation costs incurred were immaterial. At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the Company accrued a remaining undiscounted liability of ~~$267~~$132 and ~~$446,~~$265, respectively, related to future remediation costs. At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016, $218~~2017, $132 and ~~$370,~~$253, respectively, were recorded as a component of accrued expenses and other current liabilities in the condensed consolidated balance sheets while the remaining amount was recorded as a component of other long-term liabilities. Costs associated with the recorded liability will be incurred to complete the groundwater remediation, with the balance relating to monitoring costs to be incurred over multiple years. The recorded liability is based on assumptions in the remedial action plan. 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 ~~closing terms of the sale agreement included a requirement for the~~ Company is currently required to maintain a ~~$2,000~~$1,489 letter of credit for the benefit of the buyer.

20
~~During the third quarter of 2017, the Company resolved a legal proceeding,~~~~Verde v. Stoneridge, Inc. et al~~~~., that was pending~~
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in the United States District Court for the Eastern District of Texas, Cause No. 6:14-cv-00225- KNM. The Plaintiff filed this putative class action against the Company and others on March 26, 2014. The Plaintiff had alleged that the Company was involved in the vertical chain of manufacture, distribution, and sale of a control device (“CD”) that was incorporated into a Dodge Ram truck purchased by Plaintiff in 2006. Plaintiff had alleged that the Company breached express warranties and indemnification provisions by supplying a defective CD that was not capable of performing its intended function. In May 2017, the District Court denied Plaintiff’s motion for class certification. On October 2, 2017, the Company and Plaintiff agreed to settle this matter, and the Plaintiff filed a motion with the Court requesting dismissal of the matter with prejudice. The settlement amount was $3.thousands, except per share data, unless otherwise indicated)
(Unaudited)
Royal v. Stoneridge, Inc. et al. iswas a legal proceeding ~~currently pending~~ in the United States District Court for the Western District of Oklahoma, Case No. 5:14-cv-01410-F. Plaintiffs filed this putative class action against the Company, Stoneridge Control Devices, Inc., and others on December 19, 2014. Plaintiffs ~~allege~~alleged that the Company was involved in the vertical chain of manufacture, distribution, and sale of a CD that was incorporated into Dodge Ram trucks purchased by Plaintiffs between 1999 and 2006. Plaintiffs ~~allege~~alleged that the Company and Stoneridge Control Devices, Inc. breached various express and implied warranties, including the implied warranty of merchantability. ~~Plaintiffs also seek indemnity from the Company and Stoneridge Control Devices, Inc.~~ The putative class ~~consists~~consisted of all owners of vehicles equipped with the subject CD, which includes various Dodge Ram trucks and other manual transmission vehicles manufactured from 1997–2007, which Plaintiffs ~~allege~~alleged is more than one million vehicles. Plaintiffs seek recovery of economic loss damages associated with inspecting and replacing the allegedly defective CD, diminished value of the subject CDs and the trucks in which they were installed, and attorneys’ fees and costs. On September 28, 2017, the Company reached an agreement with Plaintiffs to settle the matter. Under the terms of the settlement, which ~~remains subject to approval~~was approved by the Court on January 30, 2018, the Company will provide a replacement CD to each member of the settlement class who files a claim form with evidence of eligibility to participate. The terms of the ~~proposed~~ settlement do not require the Company to provide members of the settlement class with any cash payments or to reimburse any installation costs associated with replacement of the CDs. Counsel for Plaintiffs and the settlement class ~~will file a motion with the Court requesting an award of~~were awarded attorneys’ fees and costs in an amount ~~not to exceed $375, and the Company has agreed not to object to any request that does not exceed $375 and to pay the amount~~ of ~~any award that does not exceed~~ $375. Counsel for Plaintiffs and the settlement class ~~will~~were also ~~file a motion requesting~~awarded incentive payments to each of the three named Plaintiffs in an amount ~~not~~of $5 each. The Company previously accrued $525 as of December 31, 2017 related to ~~exceed $5 each,~~this matter. In February 2018, the Company paid the attorneys’ fees and costs and the ~~Company has agreed not to object to any request that does not exceed $15 total and to pay~~awarded incentive payments in the amount of ~~any award that does not exceed~~$375 and $15, ~~total.~~respectively. The total cost of the settlement remains uncertain because it is difficult to predict how many members of the proposed settlement class will request a replacement CD. The Company believes the likelihood of loss is probable and ~~reasonably estimable (although not certain), and~~ therefore ~~a liability~~the remaining amount accrued of ~~$525 for these claims has been recorded~~$93 as ~~a component~~ of March 31, 2018 within accrued expenses and other current liabilities ~~at September 30, 2017.~~is an estimate of exposure for potential settlement class members that may request a replacement CD.
20
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data, unless otherwise indicated)~~
~~(Unaudited)~~

On May 24, 2013, the State Revenue Services of São Paulo issued a tax deficiency notice against PST claiming that the vehicle tracking and monitoring services it provides should be classified as communication services, and therefore subject to the State Value Added Tax – ICMS. The State Revenue Services assessment imposed the 25.0% ICMS tax on all revenues of PST related to the vehicle tracking and monitoring services rendered during the period from January 2009 through December 2010. The Brazilian real (“R$”) and U.S. dollar equivalent (“$”) of the aggregate tax assessment is approximately R$99,100 ($31,300) which is comprised of Value Added Tax – ICMS of R$13,200 ($4,200) interest of R$74,500 ($23,500) and penalties of R$11,400 ($3,600).
~~The~~ Company believes that the vehicle tracking and monitoring services are non-communication services, as defined under Brazilian tax law, subject to the municipal ISS tax, not communication services subject to state ICMS tax as claimed by the State Revenue Services of São Paulo. ~~PST has, and will continue to collect~~The Brazil Administrative Court issued a final ruling on February 27, 2018 in PST’s favor for the ~~municipal ISS tax on the vehicle tracking and monitoring services in compliance with Brazilian tax law and will defend its tax position. PST has received a legal opinion~~period from January 2009 through December 2010, therefore there is no possibility that the ~~merits~~State of ~~the case are favorable to PST, determining among other things that the imposition on the subsidiary of the State ICMS by the State Revenue Services of São~~Sao Paulo ~~is not in accordance with the Brazilian tax code. The Company believes, based on the legal opinion of the Company’s Brazilian legal counsel~~can appeal this judgement and ~~the results of the Brazil Administrative Court's ruling in favor of another vehicle tracking and monitoring company related to the tax deficiency notice it received,~~ the likelihood of loss is ~~reasonably possible, but~~ not ~~probable, although it may take years to resolve.~~probable. As a result of the above, as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, no accrual has been recorded with respect to the tax assessment. An unfavorable judgment on this issue for the years assessed and for subsequent years could result in significant costs to PST and adversely affect its results of operations. There have been no significant changes to the facts and circumstances related to this notice for the three months ended September 30, 2017.

~~In addition,~~ PST has civil, labor and other tax contingencies for which the likelihood of loss is deemed to be reasonably possible, but not probable, by the Company’s legal advisors in Brazil. As a result, no provision has been recorded with respect to these contingencies, which amounted to R$~~34,900~~38,100 ($~~11,000)~~11,500) and R$~~31,800~~33,800 ($~~9,800)~~10,200) at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively. An unfavorable outcome on these contingencies could result in significant cost to PST and adversely affect its results of operations.
Insurance Recoveries
The Company incurred losses and incremental costs related to the damage to assets caused by a storm at its Mexican production facility in the fourth quarter of 2016 and is pursuing recovery of such costs under applicable insurance policies. Anticipated proceeds from insurance recoveries related to losses and incremental costs that have been incurred (“loss recoveries”) are recognized when receipt is probable. Anticipated proceeds from insurance recoveries in excess of the net book value of damaged property, plant and equipment (“insurance gain contingencies”) are recognized when all contingencies related to the claim have been resolved.
21
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise indicated)
(Unaudited)
Loss recoveries related to the damage of inventory and incremental costs included in costs of sales were not significant for the three months ended March 31, 2018 and 2017, respectively. There were no loss recoveries and insurance gain contingencies recognized in the three months ended March 31, 2018 and 2017 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 collected in January 2018. Cash proceeds related to the damage of inventory and incremental costs were $241 and $500 for the three months ended March 31, 2018 and 2017, respectively, and are included in cash flows from operating activities. Cash proceeds related to the damage of property, plant and equipment of $1,403 are included in cash flows from investing activities for the three months ended March 31, 2018.

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 including insurance coverage. 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 or beyond what the Company may recover from its suppliers. The current portion of product warranty and recall is included as a component of accrued expenses and other current liabilities in the condensed consolidated balance sheets. Product warranty and recall included ~~$3,481~~$3,347 and ~~$2,617~~$3,112 of a long-term liability at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively, which is included as a component of other long-term liabilities in the condensed consolidated balance sheets.

21
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data, unless otherwise indicated)~~
~~(Unaudited)~~
The following provides a reconciliation of changes in product warranty and recall liability:

Nine months ended September 30 2017 2016
Three months ended March 31 2018 2017
Product warranty and recall at beginning of period $ 9,344 $ 6,419 $ 9,978 $ 9,344
Accruals for products shipped during period 6,408 3,010 2,274 1,503
Assumed warranty liability related to Orlaco 1,462 - - 1,462
Aggregate changes in pre-existing liabilities due to claim developments 1,616 (272 ) 387 1,572
Settlements made during the period (9,062 ) (1,332 ) (1,772 ) (2,314 )
Foreign currency translation (19 ) 97
Product warranty and recall at end of period $ 9,768 $ 7,825 $ 10,848 $ 11,664

(12) Business Realignment ~~and Corporate Headquarter Relocation~~
~~Business Realignment~~

The Company regularly evaluates the performance of its businesses and cost structures, including personnel, and makes necessary changes thereto in order to optimize its results.  The Company also evaluates the required skill sets of its personnel and periodically makes strategic changes. As a consequence of these actions, the Company incurs severance related costs which are referred to as business realignment charges.

Business realignment charges by reportable segment were as follows:

Three months ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
Electronics^(A) $ 16 $ - $ 72 $ 1,180
PST^(B) 37 211 475 1,242
Total business realignment charges $ 53 $ 211 $ 547 $ 2,422
Three months ended March 31 2018 2017
PST^(A) $ 222 $ 171
Total business realignment charges $ 222 $ 171

(A) Severance costs for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 related to SG&A were $16. Severance costs for the nine months ended September 30, 2017 related to COGS were $56. Severance costs for the nine months ended September 30, 2016 related to SG&A and design and development (“D&D”) were $196 and $984, respectively.
~~(B)~~ $222. Severance costs for the three months ended ~~September 30,~~March 31, 2017 ~~related to COGS, SG&A and D&D were $17, $19 and $1, respectively. Severance costs for the three months ended September 30, 2016~~ related to COGS and SG&A were ~~$20~~$90 and $191, respectively. Severance costs for the nine months ended September 30, 2017 related to COGS, SG&A and D&D were $355, $119 and $1, respectively. Severance costs for the nine months ended September 30, 2016 related to COGS, SG&A and D&D were $307, $819 and $116,$81, respectively.

~~Business realignment charges classified by statement of operations line item were as follows:~~
Three months ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
Cost of goods sold $ 17 $ 20 $ 411 $ 307
Selling, general and administrative 35 191 135 1,015
Design and development 1 - 1 1,100
Total business realignment charges $ 53 $ 211 $ 547 $ 2,422
22
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise indicated)
(Unaudited)
~~Corporate Headquarter Relocation~~
~~In March 2016, the Company announced the relocation~~Business realignment charges classified by statement of ~~its corporate headquarters from Warren, Ohio to Novi, Michigan. As a result, the Company incurred relocation costs of $726 and $998 for the three and nine months ended September 30, 2016 which~~operations line item were ~~recorded within SG&A expenses in the condensed consolidated statements of operations.~~as follows:

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 2021. As a result of the attainment of the first milestone, grant income of $338 was recognized for the nine months ended September 30, 2017 within SG&A expense in the condensed consolidated statements of operations.
Three months ended March 31 2018 2017
Cost of goods sold $ - $ 90
Selling, general and administrative 222 81
Total business realignment charges $ 222 $ 171

(13) Income Taxes

The Company computes its consolidated income tax provision each quarter based on ~~a projected~~an estimated annual effective tax rate (“EAETR”), as required. The Company is required to reduce deferred tax assets by a valuation allowance if, based on all available evidence, it is considered more likely than not that some portion or all of the benefit of the deferred tax assets will not be realized in future periods. The Company also records the income tax impact of certain discrete, unusual or infrequently occurring items including changes in judgment about valuation allowances and effects of changes in tax laws or rates, in the interim period in which they occur.

When a company maintains a valuation allowance in a particular jurisdiction, no net income tax expense (benefit) will typically be provided on income (loss) for that jurisdiction on an annual basis. Jurisdictions with projected income that maintain a valuation allowance typically will form part of ~~the projected annual effective tax rate~~EAETR calculation discussed above. However, jurisdictions with a projected loss for the year that maintain a valuation allowance are excluded from the projected annual effective income tax rate calculation. Instead, the income tax expense ~~(benefit)~~ for these jurisdictions is computed separately.

The actual year to date income tax expense ~~(benefit)~~ is the product of the most current projected annual effective income tax rate and the actual year to date pre-tax income ~~(loss)~~ adjusted for any discrete tax items. The income tax expense ~~(benefit)~~ for a particular quarter, except for the first quarter, is the difference between the year to date calculation of income tax expense ~~(benefit)~~ and the year to date calculation for the prior quarter.

Therefore, the actual effective income tax rate during a particular quarter can vary significantly based upon the jurisdictional mix and timing of actual earnings compared to projected annual earnings, permanent items, earnings for those jurisdictions that maintain a valuation allowance, tax associated with jurisdictions excluded from the projected annual effective income tax rate calculation and discrete items.

The Company recognized income tax expense of ~~$3,809~~$3,233 and ~~$919~~$4,571 for U.S. federal, state and foreign income taxes for the three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively. The ~~increase~~decrease in income tax expense for the three months ended ~~September 30, 2017~~March 31, 2018 compared to the same period for ~~2016~~2017 was primarily related to the ~~release~~impact of the ~~U.S. federal, certain state~~Tax Cuts and ~~foreign valuation allowances~~Jobs Act (“Tax Legislation”) enacted in the ~~fourth quarter of 2016 that were previously recorded against certain deferred tax assets.~~United States on December 22, 2017. The effective tax rate ~~increased~~decreased to ~~32.1%~~19.5% in the ~~third~~first quarter of 2018 from 33.3% in the first quarter of 2017 ~~from 8.4% in the third quarter of 2016~~ primarily due the ~~continued strong performance~~impact of the U.S. operations, which due to a full valuation allowance positively impacted the effective tax rate in 2016, as well as the impact in the third quarter of 2017 of the non-deductible fair value adjustment to earn-out considerations related to the Orlaco and PST acquisitions.
The Company recognized income tax expense of $13,569 and $3,114 from continuing operations for U.S. federal, state and foreign income taxes for the nine months ended September 30, 2017 and 2016, respectively. The increase in tax expense for the nine months ended September 30, 2017Tax Legislation compared to the same period ~~for 2016 was primarily due to~~in 2017.
The Company has recognized the ~~release~~estimated impact of the ~~U.S. federal,~~Tax Legislation to its 2018 tax position in its EAETR calculation. The Company continues to examine the potential impact of certain state and foreign valuation allowances in the fourth quarter of 2016 that were previously recorded against certain deferred tax assets. The effective tax rate increased to 34.2% in the first nine months of 2017 from 10.3% in the first nine months of 2016 primarily due to the continued strong performanceprovisions of the ~~U.S. operations, which due to a full valuation allowance, favorably impacted~~Tax Legislation that could affect its 2018 EAETR, including the ~~effective tax rate in 2016, as well as the impact in 2017 of the non-deductible fair value adjustment to earn-out considerations~~provisions related to global intangible low-taxed income (“GILTI”), foreign derived intangible income (“FDII”) and the ~~Orlaco~~base erosion and ~~PST acquisitions.~~anti-abuse tax (“BEAT”). Accordingly, the Company's 2018 EAETR may change in subsequent interim periods as additional analysis is completed.

23
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise indicated)
(Unaudited)
The Tax Legislation significantly revises the U.S. corporate income tax by, among other things, lowering corporate income tax rates imposing a one-time transition tax on deemed repatriated earnings of foreign subsidiaries, imposing a base erosion and anti-abuse tax, and imposing a tax on global intangible low taxed income. Pursuant to the guidance within SEC Staff Accounting Bulletin No. 118 (“SAB 118”), as of December 31, 2017, the Company continues to analyze certain aspects of the Tax Legislation and refine its assessment, the ultimate impact of the Tax Legislation may differ from these estimates due to continued analysis or further regulatory guidance that may be issued as a result of the Tax Legislation.

(14) Segment Reporting

Operating segments are defined as components of an enterprise that are evaluated regularly by the Company's chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company's chief operating decision maker is the Chief Executive Officer.

The Company has three reportable segments, Control Devices, Electronics, and PST, which also represent its operating segments. The Control Devices reportable segment produces sensors, switches, valves and actuators. The Electronics reportable segment produces electronic instrument clusters, electronic control units and other driver information systems and includes the ~~recently acquired~~ Orlaco business which designs and manufactures camera-based vision systems, monitors and related products using its vision processing technology. The PST reportable segment designs and manufactures electronic vehicle security alarms, convenience accessories, vehicle tracking devices and monitoring services and in-vehicle audio and video devices.

The accounting policies of the Company's reportable segments are the same as those described in Note 2, “Summary of Significant Accounting Policies” of the Company's ~~2016~~2017 Form 10-K. The Company's management evaluates the performance of its reportable segments based primarily on revenues from external customers and operating income. Inter-segment sales are accounted for on terms similar to those to third parties and are eliminated upon consolidation.

The financial information presented below is for our three reportable operating segments and includes adjustments for unallocated corporate costs and intercompany eliminations, where applicable. Such costs and eliminations do not meet the requirements for being classified as an operating segment. Corporate costs include various support functions, such as information technology, corporate finance, legal, executive administration and human resources.

24
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise indicated)
(Unaudited)

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

Three months ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
Three months ended March 31, 2018 2017
Net Sales:
Control Devices $ 106,842 $ 103,700 $ 339,716 $ 304,957 $ 115,357 $ 118,873
Inter-segment sales 1,118 430 3,269 1,448 2,181 783
Control Devices net sales 107,960 104,130 342,985 306,405 117,538 119,656

Electronics 71,354 47,804 206,769 158,201
Electronics^(D) 90,028 63,805
Inter-segment sales 8,959 9,495 30,538 24,706 10,472 11,356
Electronics net sales 80,313 57,299 237,307 182,907 100,500 75,161

PST 25,386 22,342 70,519 60,207 20,545 21,633
Inter-segment sales 145 - 145 - 2 -
PST net sales 25,531 22,342 70,664 60,207 20,547 21,633

Eliminations (10,222 ) (9,925 ) (33,952 ) (26,154 ) (12,655 ) (12,139 )
Total net sales $ 203,582 $ 173,846 $ 617,004 $ 523,365 $ 225,930 $ 204,311
Operating Income (Loss):
Control Devices $ 16,249 $ 15,319 $ 55,257 $ 47,133 $ 17,879 $ 19,084
Electronics 4,896 3,735 13,267 12,050
Electronics^(D) 7,880 5,557
PST 1,018 29 2,720 (4,179 ) 150 579
Unallocated Corporate^(A) (8,867 ) (7,303 ) (27,108 ) (21,092 ) (9,062 ) (10,056 )
Total operating income $ 13,296 $ 11,780 $ 44,136 $ 33,912 $ 16,847 $ 15,164
Depreciation and Amortization:
Control Devices $ 2,664 $ 2,561 $ 8,050 $ 7,345 $ 2,795 $ 2,699
Electronics 2,136 996 5,947 3,076
Electronics^(D) 2,291 1,572
PST 2,115 2,307 6,299 6,388 2,505 2,088
Unallocated Corporate 181 115 376 309 197 99
Total depreciation and amortization^(B) $ 7,096 $ 5,979 $ 20,672 $ 17,118 $ 7,788 $ 6,458
Interest Expense, net:
Control Devices $ 19 $ 56 $ 84 $ 172 $ 19 $ 54
Electronics 24 33 68 196 34 38
PST 378 934 1,482 2,686 338 572
Unallocated Corporate 1,087 661 2,802 1,984 963 746
Total interest expense, net $ 1,508 $ 1,684 $ 4,436 $ 5,038 $ 1,354 $ 1,410
Capital Expenditures:
Control Devices $ 5,523 $ 3,229 $ 13,318 $ 9,260 $ 5,746 $ 3,447
Electronics 2,417 1,244 6,451 5,229
Electronics^(D) 2,773 2,351
PST 974 640 2,899 2,516 1,259 884
Unallocated Corporate^(C) 811 1,365 2,224 1,479 727 583
Total capital expenditures $ 9,725 $ 6,478 $ 24,892 $ 18,484 $ 10,505 $ 7,265

25
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise indicated)
(Unaudited)
March 31, December 31,
2018 2017
Total Assets:
Control Devices $ 174,608 $ 164,632
Electronics 276,252 252,324
PST 99,102 100,382
Corporate^(C) 366,349 377,657
Eliminations (336,109 ) (335,958 )
Total assets $ 580,202 $ 559,037

September 30, December 31,
2017 2016
Total Assets:
Control Devices $ 166,641 $ 150,623
Electronics 245,568 99,964
PST 108,162 107,405
Corporate^(C) 356,396 287,031
Eliminations (336,498 ) (250,494 )
Total assets $ 540,269 $ 394,529
(A)Unallocated Corporate expenses include, among other items, finance, legal, human resources and information technology costs and share-based compensation.
~~(A)~~ ~~Unallocated Corporate expenses include, among other items, finance, legal, human resources and information technology costs and share-based compensation.~~
~~(B)~~ ~~These amounts represent depreciation and amortization on property, plant and equipment and certain intangible assets.~~
~~(C)~~ ~~Assets located at Corporate consist primarily of cash, intercompany loan receivables, fixed assets for the corporate headquarter building, equity investments and investments in subsidiaries.~~
(B)These amounts represent depreciation and amortization on property, plant and equipment and certain intangible assets.
(C)Assets located at Corporate consist primarily of cash, intercompany loan receivables, fixed assets for the corporate headquarter building, equity investments and investments in subsidiaries.

The following tables present net sales and long-term assets for each of the geographic areas in which the Company operates:

Three months ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
Three months ended March 31 2018 2017
Net Sales:
North America $ 113,402 $ 108,605 $ 358,275 $ 321,973 $ 124,429 $ 123,386
South America 25,386 22,342 70,519 60,207 20,545 21,633
Europe and Other^(D) 64,794 42,899 188,210 141,185 80,956 59,292
Total net sales $ 203,582 $ 173,846 $ 617,004 $ 523,365 $ 225,930 $ 204,311

September 30, December 31,
2017 2016 March 31, December 31,
2018 2017
Long-term Assets:
North America $ 76,539 $ 73,835 $ 93,615 $ 89,997
South America 62,500 63,497 57,430 58,989
Europe and Other^(D) 104,057 16,304
Europe and Other 110,464 106,682
Total long-term assets $ 243,096 $ 153,636 $ 261,509 $ 255,668

~~(D)~~ ~~The amounts for 2017 include net sales and long-term assets related to Orlaco which is disclosed in Note 3.~~
(D) The amount for 2017 includes two months of net sales from the acquisition date of January 31, 2017 related to Orlaco which is disclosed in Note 4.

26
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise indicated)
(Unaudited)

(15) Investments

Minda Stoneridge Instruments Ltd.

The Company has a 49% interest in Minda Stoneridge Instruments Ltd. (“Minda”), a company based in India that manufactures electronics, instrumentation equipment and sensors primarily for the motorcycle and commercial vehicle markets. The investment is accounted for under the equity method of accounting. The Company's investment in Minda, recorded as a component of investments and other long-term assets, net on the condensed consolidated balance sheets, was ~~$9,475~~$10,452 and ~~$7,952~~$10,131 at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively. Equity in earnings of Minda included in the condensed consolidated statements of operations was ~~$465~~$521 and ~~$307,~~$180, for the three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively. ~~Equity in earnings of Minda included in the condensed consolidated statements of operations was $1,200 and $603, for the nine months ended September 30, 2017 and 2016, respectively.~~

PST Eletrônica Ltda.

The Company had a 74% controlling interest in PST from December 31, 2011 through May 15, 2017. On May 16, 2017, the Company acquired the 26% noncontrolling interest in PST for $1,500 in cash along with earn-out consideration. The Company will be required to pay additional earn-out consideration, which is not capped, based on PST’s financial performance in either 2020 or 2021. The preliminary estimated fair value of the earn-out consideration as of the acquisition date was ~~$10,400, which was subsequently adjusted to~~ $10,180 and was based on discounted cash flows utilizing forecasted EBITDA in 2020 and 2021. This fair value measurement is classified within Level 3 of the fair value hierarchy. The transaction was accounted for as an equity transaction, and therefore no gain or loss was recognized in the statement of operations or comprehensive income. The noncontrolling interest balance on the May 16, 2017 acquisition date was $14,458, of which $31,453 and ($16,995) was related to the carrying value of the investment and foreign currency translation, respectively, and accordingly these amounts were reclassified to additional paid-in capital and accumulated other comprehensive loss, respectively. As a result of the acquisition, there was no noncontrolling interest for the period of December 31, 2017 to March 31, 2018.

The following table sets forth a summary of the change in noncontrolling ~~interest:~~interest in 2017:

Three months ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
Three months ended March 31, 2017
Noncontrolling interest at beginning of period $ - $ 14,171 $ 13,762 $ 13,310 $ 13,762
Net loss - (303 ) (130 ) (2,009 ) (30 )
Foreign currency translation - (164 ) 826 2,403 757
Comprehensive income (loss) - (467 ) 696 394 727
Acquisition of noncontrolling interest - - (14,458 ) - -
Noncontrolling interest at end of period $ - $ 13,704 $ - $ 13,704 $ 14,489

PST has dividends payable to former noncontrolling interest holders of ~~$22,143~~$22,579 Brazilian real ($~~7,004) at September 30, 2017, which includes the dividend declared on May 16, 2017 of $9,610~~6,833) and $22,330 Brazilian real ($~~3,092)~~6,742) as of March 31, 2018 and ~~$1,691~~December 31, 2017, respectively. The dividends payable balance as March 31, 2018 includes $249 Brazilian real ($~~535)~~75) in monetary ~~correction.~~correction for the quarter to date March 31, 2018 period. The dividend is payable on or before January 1, 2020, and is subject to monetary correction based on the Brazilian consumer price inflation index. The dividend payable related to PST is recorded within other long-term liabilities on the condensed consolidated balance sheet.

27

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

On January 31, 2017, the Company acquired Exploitatiemaatschappij Berghaaf B.V. (“Orlaco”). As such, the Company’s condensed consolidated financial statements herein include the results of Orlaco from the acquisition date to ~~September 30, 2017.~~March 31, 2018. On May 16, 2017, the Company also acquired the remaining 26% noncontrolling interest in PST.

Segments

We are organized by products produced and markets served. Under this structure, our continuing operations have been reported utilizing the following segments:

Control Devices.This segment includes results of operations that manufacture sensors, switches, valves and actuators.

Electronics.This segment produces electronic instrument clusters, electronic control units and other driver information systems and includes the ~~newly acquired~~ Orlaco business, which designs and manufactures camera-based vision systems, monitors and related products using its vision processing technology.

PST.This segment includes results of operations that design and manufacture electronic vehicle alarms, convenience accessories, vehicle tracking devices and monitoring services and in-vehicle audio and video devices.

~~Third~~First Quarter Overview

Net income attributable to Stoneridge, Inc. of ~~$8.0~~$13.4 million, or ~~$0.28~~$0.46 per diluted share, for the three months ended ~~September 30, 2017, decreased~~March 31, 2018, increased by ~~$2.3~~$4.2 million, or ~~$0.08~~$0.14 per diluted share, from ~~$10.3~~$9.2 million, or ~~$0.36~~$0.32 per diluted share, for the three months ended September 30, 2016, primarily due to a $2.9 million higher income tax expense as a result of the valuation allowance release in the fourth quarter of 2016. Gross profit increased by $12.8 million due toMarch 31, 2017. Electronics segment’s higher sales resulted in ~~all~~increased gross profit of ~~our segments, the inclusion of the acquired Orlaco business, lower material and overhead costs as a percentage of sales and operating improvements.~~$6.8 million.  The higher gross profit was partially offset by an increase in selling, general and administrative and design and development costs of ~~$9.5~~$3.0 million and ~~$1.8~~$2.1 million, respectively, primarily attributable to the full quarter impact of the acquired Orlaco business within our Electronics segment. In addition, income tax expense decreased by $1.3 million as a result of the impact of the enactment of the Tax Cuts and Jobs Act (“Tax Legislation”) in the fourth quarter of 2017.

Net sales increased by ~~$29.7~~$21.6 million, or ~~17.1%~~10.6%, compared to the ~~third~~first quarter of ~~2016~~2017 due to higher sales in ~~each of~~ our Electronics segment slightly offset by decrease in sales in our Control Devices and PST segments. The increase in sales in our Electronics segment was due to increased off-highway vehicle products substantially due to the acquisition of the Orlaco business and an increase in sales volume in our European and North American commercial vehicle products. The decrease in sales in our Control Devices segment was primarily due to ~~increased~~planned program volume reductions in the ~~China~~North American automotive ~~market while the increase in sales in our Electronics segment relates substantially to the Orlaco business acquired on January 31, 2017.~~market. Also, PST sales ~~mostly increased~~decreased slightly due to lower product sales in the mass retailer channel partially offset by higher monitoring product and service revenues.

At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, we had cash and cash equivalents balances of ~~$50.8~~$57.4 million and ~~$50.4~~$66.0 million, respectively. The ~~increase~~decrease during the first ~~nine~~three months of ~~2017~~2018 was primarily due to the repayment of outstanding debt and capital expenditures being partially offset by cash flows from ~~operations and net debt financing offset by capital expenditures and cash paid for business acquisition.~~operations. At ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 we had ~~$126.0~~$116.0 million and ~~$67.0~~$121.0 million, respectively, in borrowings outstanding on our $300.0 million Credit Facility. The ~~increase~~decrease in the Credit Facility balance during the first ~~nine~~three months of ~~2017~~2018 was the result of ~~borrowing to fund the Orlaco acquisition with a partial offset in~~ voluntary principal ~~payments.~~repayments.

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Outlook

In the ~~third~~first quarter of ~~2017,~~2018, the Company continued to drive financial performance through top-line growth that exceeded our underlying markets and continued operating efficiency improvement which contributed to higher, sustainable long-term margins. Sales of our emission sensor products and front-axle disconnect actuators were strong and continued to contribute to the Company’s ~~growth, particularly in the China market.~~growth. Also, the ~~acquired~~ Orlaco business performed well contributing to the growth in our Electronics segment.  The Company ~~continues to benefit from its focus on a product portfolio with embedded intelligence. The Company~~ believes that focusing on ~~intelligence~~ products that address industry megatrends will have a positive impact on both our top-line growth and underlying margins.

~~We expect sales growth in our~~The North American automotive ~~vehicle~~ market ~~in 2017 related~~is expected to ~~recent product launches by our Control Devices segment despite an expected decrease of 0.6~~increase 0.2 million production units ~~in the North American automotive vehicle market~~ to 17.2 million units in ~~2017.~~2018, which should favorably impact our Control Devices segment. We also expect continued sales growth in our China automotive market in ~~2017~~2018 related to our sensor products.

The North American commercial vehicle market ~~declined~~increased in ~~2016, however in~~ 2017 and we expect it to ~~remain at approximately the same level as 2016.~~increase again in 2018. We also expect the European commercial vehicle market in ~~2017~~2018 to remain at approximately the same level as ~~2016.~~2017.

Our PST segment revenues and operating performance ~~have begun to improve~~ in the ~~second half~~first quarter of 2018 was consistent with the first quarter of 2017, due to the stabilization of the Brazilian economy and the automotive and consumer markets we serve. In ~~October 2017,~~April 2018, the International Monetary Fund (“IMF”) forecasted the Brazil gross domestic product to grow ~~0.7%~~2.3% in ~~2017~~2018 and ~~1.5%~~2.5% in ~~2018.~~2019. As the Brazilian economy ~~improves,~~continues to improve, we expect favorable movements in our served market channels that ~~would~~should result in improved financial performance for PST.

Other Matters

As a result of the ~~Company no longer has a valuation allowance against its U.S. federal, certain state and foreign deferred tax assets, its~~impact of the enactment of the Tax Legislation in the fourth quarter of 2017, our effective tax rate will be ~~higher~~lower in ~~2017~~2018 as compared to ~~2016. Actual cash taxes paid as a percentage of income in 2017 is expected to be consistent with historical amounts.~~2017.

A significant portion of our sales are outside of the United States. These sales are generated by our non-U.S. based operations, and therefore, movements in foreign currency exchange rates can have a significant effect on our results of operations, which are presented in U.S. dollars. A significant portion of our raw materials purchased by our Electronics and PST segments are denominated in U.S. dollars, and therefore movements in foreign currency exchange rates can also have a significant effect on our results of operations. The U.S. dollar weakened ~~significantly~~ against the Swedish krona, euro and Brazilian real in ~~2016~~2017 favorably impacting our material costs and our reported results. The U.S. dollar continued to weaken against ~~these currencies~~the euro in the first ~~nine~~three months of ~~2017~~2018, favorably impacting our material costs and reported results while the U.S. Dollar strengthened against the Swedish krona, unfavorably impacting our material costs and reported results. The foreign currency impact of the Brazilian real remained consistent throughout the first quarter of 2018.

We regularly evaluate the performance of our businesses and their cost structures, including personnel, and make necessary changes thereto in order to optimize our results.  We also evaluate the required skill sets of our personnel and periodically make strategic changes. As a consequence of these actions, we incur severance related costs which we refer to as business realignment charges.

Because of the competitive nature of the markets we serve, we face pricing pressures from our customers in the ordinary course of business. In response to these pricing pressures we have been able to effectively manage our production costs by the combination of lowering certain costs and limiting the increase of others, the net impact of which to date has not been material. However, if we are unable to effectively manage production costs in the future to mitigate future pricing pressures, our results of operations would be adversely affected.

29

Three Months Ended ~~September 30, 2017~~March 31, 2018 Compared to Three Months Ended ~~September 30, 2016~~March 31, 2017

Condensed consolidated statements of operations as a percentage of net sales are presented in the following table (in thousands):
Dollar Dollar
increase / increase /
Three months ended September 30 2017 2016 (decrease)
Three months ended March 31 2018 2017 (decrease)
Net sales $ 203,582 100.0 % $ 173,846 100.0 % $ 29,736 $ 225,930 100.0 % $ 204,311 100.0 % $ 21,619
Costs and expenses:
Cost of goods sold 141,033 69.3 124,098 71.4 16,935 157,961 69.9 143,160 70.1 14,801
Selling, general and administrative 37,277 18.3 27,817 16.0 9,460 37,261 16.5 34,266 16.8 2,995
Design and development 11,976 5.9 10,151 5.8 1,825 13,861 6.1 11,721 5.7 2,140

Operating income 13,296 6.5 11,780 6.8 1,516 16,847 7.5 15,164 7.4 1,683
Interest expense, net 1,508 0.7 1,684 1.0 (176 ) 1,354 0.6 1,410 0.7 (56 )
Equity in earnings of investee (465 ) (0.2 ) (307 ) (0.2 ) (158 ) (521 ) (0.2 ) (180 ) (0.1 ) (341 )
Other expense (income), net 395 0.2 (497 ) (0.3 ) 892
Other (income) expense, net (599 ) (0.3 ) 190 0.1 (789 )
Income before income taxes 11,858 5.8 10,900 6.3 958 16,613 7.4 13,744 6.7 2,869

Provision for income taxes 3,809 1.8 919 0.5 2,890 3,233 1.4 4,571 2.2 (1,338 )

Net income 8,049 4.0 9,981 5.8 (1,932 ) 13,380 5.9 9,173 4.5 4,207
Net loss attributable to
noncontrolling interest - - (303 ) (0.1 ) 303
Net loss attributable to noncontrolling interest - - (30 ) - 30
Net income attributable to Stoneridge, Inc. $ 8,049 4.0 % $ 10,284 5.9 % $ (2,235 ) $ 13,380 5.9 % $ 9,203 4.5 % $ 4,177

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

Dollar Percent Dollar Percent
Three months ended September 30 2017 2016 increase increase
Three months ended March 31 2018 2017
increase /
(decrease)

increase /
(decrease)

Control Devices $ 106,842 52.5 % $ 103,700 59.7 % $ 3,142 3.0 % $ 115,357 51.1 % $ 118,873 58.2 % $ (3,516 ) (3.0 )%
Electronics 71,354 35.0 47,804 27.4 23,550 49.3 90,028 39.8 63,805 31.2 26,223 41.1
PST 25,386 12.5 22,342 12.9 3,044 13.6 20,545 9.1 21,633 10.6 (1,088 ) (5.0 )
Total net sales $ 203,582 100.0 % $ 173,846 100.0 % $ 29,736 17.1 % $ 225,930 100.0 % $ 204,311 100.0 % $ 21,619 10.6 %

Our Control Devices segment net sales ~~increased~~decreased primarily as a result of increased sales volume in the China automotive, commercial vehicle, agricultural and various other markets of $3.5 million, $1.0 million, $0.1 million and $0.7 million, respectively, during the third quarter of 2017. This was partially offset by a decrease indecreased sales volume in the North American automotive ~~market~~ of ~~$2.1 million.~~$8.3 million as a result of planned program volume reductions partially offset by an increase in sales volume in commercial vehicle, China automotive and favorable foreign currency translation of $3.3 million, $1.0 million and $0.7 million respectively.

Our Electronics segment net sales increased primarily due to increased sales of European and North American off-highway vehicle products of ~~$15.3~~$6.3 million and ~~$3.6~~$4.0 million, respectively, substantially related to the ~~acquired~~ Orlaco business as well as an increase in sales volume in our European and North American commercial vehicle products of ~~$2.9~~$5.2 million and $4.9 million, respectively, and a favorable foreign currency translation of ~~$1.5~~$6.1 million.

Our PST segment net sales ~~increased~~decreased primarily due to a lower volumes in our mass retailer channel as well as an unfavorable foreign currency translation that decreased sales by $0.7 million, or 3.3%. This reduction was partially offset by a slight increase in monitoring product and service ~~revenues and higher products sales volume as well as a favorable foreign currency translation that increased sales by $0.6 million, or 2.7%.~~revenues.

30

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

Dollar Percent Dollar Percent
Three months ended September 30 2017 2016 increase increase
Three months ended March 31 2018 2017 increase /
(decrease) increase /
(decrease)
North America $ 113,402 55.7 % $ 108,605 62.5 % $ 4,797 4.4 % $ 124,429 55.1 % $ 123,386 60.4 % $ 1,043 0.8 %
South America 25,386 12.5 22,342 12.9 3,044 13.6 20,545 9.1 21,633 10.6 (1,088 ) (5.0 )
Europe and Other 64,794 31.8 42,899 24.6 21,895 51.0 80,956 35.8 59,292 29.0 21,664 36.5
Total net sales $ 203,582 100.0 % $ 173,846 100.0 % $ 29,736 17.1 % $ 225,930 100.0 % $ 204,311 100.0 % $ 21,619 10.6 %

The increase in North American net sales was primarily attributable to increased sales volume in our North American ~~off-highway,~~ commercial vehicle and ~~various other~~off-highway markets of ~~$3.6 million, $2.5~~$6.9 million and ~~$0.6~~$4.0 million, respectively, which were offset by a decrease in sales volume in our North American automotive ~~market~~ of ~~$2.1 million.~~$8.3 million resulting from planned program volume reductions. The ~~increase~~decrease in net sales in South America was primarily due to a decrease in product sales volume as well as an unfavorable foreign currency translation that decreased sales by $0.7 million, or 3.3%, partially offset by a slight increase in monitoring product and service ~~revenues, product sales volume as well as a favorable foreign currency translation that increased sales by $0.6 million.~~revenues. The increase in net sales in Europe and Other was primarily due to the increase in our European commercial vehicle and European off-highway ~~vehicle product sales~~markets of ~~$15.3~~$7.0 million ~~substantially related to Orlaco~~and $6.3 million, respectively as well as an increase in sales volume in our China automotive market of $1.0 million. Additionally, Europe and ~~European commercial vehicle markets of $3.5 million and $2.0 million, respectively. Additionally,~~Other sales were favorably impacted by foreign currency translation of ~~$1.5~~$6.6 million offset by unfavorable pricing of ~~$0.6 million.~~$0.8 million on products nearing the end of product life.

Cost of Goods Sold and Gross Margin. Cost of goods sold increased by ~~13.6%~~10.3% primarily related to an increase in net sales. Our gross margin improved by ~~2.1%~~0.2% to ~~30.7%~~30.1% for the ~~third~~first quarter of ~~2017~~2018 compared to ~~28.6%~~29.9% for the ~~third~~first quarter of ~~2016.~~2017. Our material cost as a percentage of net sales decreased by ~~0.6%~~0.5% to ~~50.1%~~51.2% for the ~~third~~first quarter of ~~2017~~2018 compared to 50.7% for the ~~third~~first quarter of ~~2016.~~2017. The lower direct material costs in our Electronics and PST ~~segments~~segment resulted from favorable ~~foreign currency movements associated with U.S. dollar denominated purchases while~~product mix. The higher direct material costs ~~as a percent of sales~~ in our Control Devices segment ~~decreased due to the benefit of a favorable~~resulted from unfavorable product mix. ~~Also, our Electronics segment was benefited by lower direct material costs and overhead as a percent of sales associated with the acquired Orlaco business. Our Electronics segment overhead~~Overhead as a percentage of net sales decreased by ~~1.8%~~0.8% to ~~12.0%~~13.6% for the ~~third~~first quarter of ~~2017~~2018 compared to ~~13.8%~~14.4% for the ~~third~~first quarter of ~~2016.~~2017.

Our Control Devices segment gross margin improved slightly due to ~~an increase in sales and~~ a decrease in overhead as a percentage of net sales offset by a decrease in sales.

Our Electronics segment gross margin ~~improved~~decreased primarily due to ~~lower~~higher overhead costs as a percentage of sales, ~~resulting from the Orlaco acquisition as well as lower material costs resulting from favorable movement in foreign currency exchange rates~~offset by higher sales and a favorable mix related to Orlaco product sales.

Our PST segment gross margin improved due to ~~lower overhead and direct labor costs associated with 2016 business realignment actions as well as lower direct material costs related to a favorable movement in foreign currency exchange rates and~~ a favorable sales mix related to higher monitoring service ~~increases.~~fees and lower audio products which resulted in lower direct material costs as a percentage of sales.

Selling, General and Administrative (“SG&A”). SG&A expenses increased by ~~$9.5~~$3.0 million compared to the ~~third~~first quarter of ~~2016~~2017 primarily due to higher costs in our Electronics segment ~~substantially related~~due to ~~the acquisition of Orlaco of $5.6 million which includes~~higher wages, professional services and an increase in expense ~~of $2.2 million~~ for the ~~increase in~~ fair value of the Orlaco earn-out ~~consideration.~~consideration of $0.4 million. Our ~~unallocated corporate,~~ Control Devices and PST segment’s SG&A costs also ~~increased. Unallocated~~increased and were mostly offset by a decrease in unallocated corporate SG&A ~~costs increased due to higher wages, incentive compensation and professional fees which were offset by lower headquarter relocation costs of $0.7 million.~~costs. Control Devices SG&A costs increased due to higher ~~wages~~direct support charges for procurement and ~~incentive compensation.~~manufacturing support. PST SG&A costs increased during the current period due to expense for the fair value of earn-out consideration of $0.5 ~~million, an unfavorable change in foreign currency exchange rates~~million. Unallocated corporate SG&A costs decreased primarily due to higher allocation of direct support costs to operating segments for procurement and ~~higher~~manufacturing support due to the centralization of these activities as well as lower incentive compensation costs which were partially offset by ~~lower business realignment costs of $0.2 million.~~higher base compensation costs.

Design and Development (“D&D”).D&D costs increased by ~~$1.8~~$2.1 million ~~substantially~~primarily due to higher D&D costs in our Electronics segment related to ~~the acquired Orlaco business.~~lower customer reimbursements and for higher vision product related D&D spending of $1.0 and $0.8 million, respectively.

31

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

Dollar Percent
increase / increase /
Three months ended September 30 2017 2016 (decrease) (decrease)
Control Devices $ 16,249 $ 15,319 $ 930 6.1 %
Electronics 4,896 3,735 1,161 31.1
PST 1,018 29 989 NM
Unallocated corporate (8,867 ) (7,303 ) (1,564 ) (21.4 )
Operating income $ 13,296 $ 11,780 $ 1,516 12.9 %
~~NM – not meaningful~~
Dollar Percent
increase / increase /
Three months ended March 31 2018 2017 (decrease) (decrease)
Control Devices $ 17,879 $ 19,084 $ (1,205 ) (6.3 )%
Electronics 7,880 5,557 2,323 41.8
PST 150 579 (429 ) (74.1 )
Unallocated corporate (9,062 ) (10,056 ) 994 9.9
Operating income $ 16,847 $ 15,164 $ 1,683 11.1 %

Our Control Devices segment operating income ~~increased~~decreased slightly primarily due to ~~an increase in~~lower sales ~~which were partially offset by~~and higher SG&A ~~costs.~~and D&D costs partially related to program launches.

Our Electronics segment operating income increased ~~slightly~~ primarily due to the ~~increase in~~higher sales ~~resulting from favorable movement in foreign currency exchange rates which were~~ offset by higher overhead costs, higher SG&A, partially due to $0.4 million of expense for the fair value of earn-out consideration this quarter as well as higher D&D related to product launch and ~~material and labor costs, excluding the impact of the acquired Orlaco business.~~investment in development activities.

Our PST segment operating income ~~increased~~decreased primarily due to ~~higher~~a decrease in sales and higher ~~gross profit from a favorable sales mix of higher monitoring services. PST’s improved operating performance is expected~~SG&A costs due to ~~be sustained~~the expense for the ~~remainder~~fair value of ~~2017.~~earn-out consideration of $0.5 million this quarter.

Our unallocated corporate operating loss ~~increased~~decreased primarily due to higher ~~wages,~~allocations of direct support costs to operating segments for procurement and manufacturing activities due to the centralization of these activities as well as lower incentive compensation ~~and professional fees,~~costs which were ~~partially~~ offset by ~~lower headquarter relocation~~higher base compensation costs.

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

Dollar Percent Dollar Percent
increase / increase / increase / increase /
Three months ended September 30 2017 2016 (decrease) (decrease)
Three months ended March 31 2018 2017 (decrease) (decrease)
North America $ 7,110 $ 8,852 $ (1,742 ) (19.7 )% $ 8,294 $ 9,450 $ (1,156 ) (12.2 )%
South America 1,018 29 989 NM 150 579 (429 ) (74.1 )
Europe and Other 5,168 2,899 2,269 78.3 8,403 5,135 3,268 63.6
Operating income $ 13,296 $ 11,780 $ 1,516 12.9 % $ 16,847 $ 15,164 $ 1,683 11.1 %

Our North American operating results decreased primarily due to ~~decreases in~~lower sales volume in the North American automotive market as well as higher SG&A costs, which were partially offset by increased sales volume in the off-highway and commercial vehicle ~~markets and slightly lower D&D costs~~markets. The decrease in ~~our Control Devices segment. The improved performance~~operating income in South America was primarily due toa decrease in product sales and higher SG&A costs offset by slightly higher sales and gross profit from a favorable sales mix of higher monitoring ~~services which were partially offset by higher SG&A costs.~~services. Our operating results in Europe and Other increased due to higher sales in our ~~China automotive~~European off-highway and ~~European~~ commercial vehicle markets which were partially offset by higher D&D and material and labor ~~costs, excluding the impact of the Orlaco business.~~costs.

Interest Expense, net. Interest expense, net decreased by ~~$0.2~~$0.1 million compared to the prior year ~~third~~first quarter primarily due to lower PST interest expense which was ~~partially~~substantially offset by higher interest expense on our Credit ~~Facility resulting from the additional borrowings to fund the Orlaco acquisition.~~Facility.
32

Equity in Earnings of Investee. Equity earnings for Minda were $0.5 million and ~~$0.3~~$0.2 million for the three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively. The increase compared to the prior period was due to higher sales ~~and~~which was ~~benefited~~offset by ~~a favorable~~an unfavorable change in foreign currency exchange rates.

32
Other (Income) Expense, ~~(Income),~~ net. We record certain foreign currency transaction and forward currency hedge contract (gains) losses as a component of other expense (income), net on the condensed consolidated statement of operations. Other expense ~~(income),~~ net ~~increased~~decreased by ~~$0.9~~$0.8 million to other income of $0.6 million in ~~third~~first quarter of 2018 compared to other expense of $0.2 million the first quarter of 2017 ~~compared to the third quarter of 2016~~ primarily due to ~~an unfavorable~~a favorable change in foreign currency exchange rates in our Electronics ~~segment partially offset by favorable foreign currency movements in our PST~~ segment.

Provision for Income Taxes. We recognized income tax expense of ~~$3.8~~$3.3 million and $0.9 million for federal, state and foreign income taxes for the third quarter of 2017 and 2016, respectively. The increase in income tax expense for the three months ended September 30, 2017 compared to the same period for 2016 was primarily due to the release of the U.S. federal, certain state and foreign valuation allowances in the fourth quarter of 2016 that were previously recorded against certain deferred tax assets. The effective tax rate increased to 32.1% in the third quarter of 2017 from 8.4% in the third quarter of 2016 primarily due to the continued strong performance of the U.S. operations, which due to a full valuation allowance, favorably impacted the effective tax rate in 2016, as well as the impact in the third quarter of 2017 of the non-deductible fair value adjustments to earn-out considerations related to the Orlaco and PST acquisitions.
~~Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016~~
~~Condensed consolidated statements of operations as a percentage of net sales are presented in the following table (in thousands):~~
Dollar
increase /
Nine months ended September 30 2017 2016 (decrease)
Net sales $ 617,004 100.0 % $ 523,365 100.0 % $ 93,639
Costs and expenses:
Cost of goods sold 429,890 69.7 375,705 71.8 54,185
Selling, general and administrative 107,247 17.4 82,836 15.8 24,411
Design and development 35,731 5.8 30,912 5.9 4,819

Operating income 44,136 7.1 33,912 6.5 10,224
Interest expense, net 4,436 0.7 5,038 0.9 (602 )
Equity in earnings of investee (1,200 ) (0.2 ) (603 ) (0.1 ) (597 )
Other expense (income), net 1,190 0.2 (722 ) (0.1 ) 1,912
Income before income taxes 39,710 6.4 30,199 5.8 9,511
Provision for income taxes 13,569 2.2 3,114 0.6 10,455
Net income 26,141 4.2 27,085 5.2 (944 )

Net loss attributable to
noncontrolling interest (130 ) - (2,009 ) (0.4 ) 1,879
Net income attributable to Stoneridge, Inc. $ 26,271 4.2 % $ 29,094 5.6 % $ (2,823 )
33
~~Net Sales.~~ ~~Net sales for our reportable segments, excluding inter-segment sales, are summarized in the following table (in thousands):~~
Dollar Percent
Nine months ended September 30 2017 2016 increase increase
Control Devices $ 339,716 55.1 % $ 304,957 58.3 % $ 34,759 11.4 %
Electronics 206,769 33.5 158,201 30.2 48,568 30.7 %
PST 70,519 11.4 60,207 11.5 10,312 17.1 %
Total net sales $ 617,004 100.0 % $ 523,365 100.0 % $ 93,639 17.9 %
Our Control Devices segment net sales increased primarily as a result of new product sales and increased sales volume in the North American automotive market of $22.9 million and increased sales volume in the China automotive, commercial vehicle, agricultural and various other markets of $6.4 million, $2.9 million, $1.1 million and $1.8 million, respectively, which were offset by an unfavorable foreign currency translation of $0.5 million.
Our Electronics segment net sales increased primarily due to an increase in European and North American off-highway vehicle product sales of $39.4 million and $8.7 million, respectively, substantially related to the acquired Orlaco business as well as an increase in sales volume in our European and North American commercial vehicle products of $2.5 million and $2.8 million, respectively. These increases were partially offset by an unfavorable foreign currency translation of $4.6 ~~million and unfavorable pricing of $1.9 million.~~
Our PST segment net sales increased primarily due to an increase in monitoring product and service revenues as well as a favorable foreign currency translation that increased sales by $5.9 million, or 9.9%, which were partially offset by lower product sales volume.
~~Net sales by geographic location are summarized in the following table (in thousands):~~
Dollar Percent
Nine months ended September 30 2017 2016 increase increase
North America $ 358,275 58.1 % $ 321,973 61.5 % $ 36,302 11.3 %
South America 70,519 11.4 60,207 11.5 10,312 17.1 %
Europe and Other 188,210 30.5 141,185 27.0 47,025 33.3 %
Total net sales $ 617,004 100.0 % $ 523,365 100.0 % $ 93,639 17.9 %
The increase in North American net sales was primarily attributable to new product sales and increased sales volumes in our North American automotive market of $22.9 million and an increase in sales volumes in North American off-highway, agricultural, commercial vehicle, and various other markets of $8.7 million, $1.0 million, $1.9 million and $1.8 million, respectively. The increase in net sales in South America was primarily due to an increase in monitoring product and service revenues as well as favorable foreign currency translation that increased sales by $5.9 million. The increase in net sales in Europe and Other was primarily due to the increase in European off-highway vehicle products of $39.4 million substantially related to Orlaco as well as an increase in sales volume in our European commercial vehicle products and China automotive market of $7.8 million and $6.4 million, respectively. These increases were partially offset by an unfavorable foreign currency translation of $5.1 million and unfavorable pricing of $1.8 million.
~~Cost of Goods Sold and Gross Margin.~~ Cost of goods sold increased by 14.4% primarily related to an increase in net sales. Our gross margin improved by 2.1% to 30.3% for the first nine months of 2017 compared to 28.2% for the first nine months of 2016. Our material cost as a percentage of net sales decreased by 1.0% to 50.5% for the first nine months of 2017 compared to 51.5% for the first nine months of 2016. The lower direct material costs in our Electronics and PST segments resulted from favorable foreign currency movements associated with U.S. dollar denominated purchases, which were partially offset by higher direct material costs as a percentage of sales in our Control Devices segment related to a change in product mix and the step up of the Orlaco inventory to fair value of $1.6 million in our Electronics segment. Also, our Electronics segment was benefited by lower direct material and overhead costs as a percentage of sales associated with the acquired Orlaco business. Our Electronics segment overhead as a percentage of net sales decreased by 0.9% to 12.3% for the first nine months of 2017 compared to 13.2% for the first nine months of 2016.
34
~~Our Control Devices segment gross margin increased slightly due to an increase in sales offset by higher material costs and higher warranty costs.~~
Our Electronics segment gross margin improved primarily due to lower material and overhead costs resulting from favorable movement in foreign currency exchange rates and a favorable mix related to Orlaco product sales.
Our PST segment gross margin improved due to lower direct material costs related to a favorable movement in foreign currency exchange rates and a favorable sales mix related to higher monitoring service revenues as well as lower overhead costs resulting from 2016 business realignment actions. This increase was partially offset by lower product sales volume.
~~Selling, General and Administrative.~~ SG&A expenses increased by $24.4 million compared to the first nine months of 2016 primarily due to higher costs in our Electronics segment substantially related to the acquisition of Orlaco of $14.4 million which includes expense of $3.9 million for the increase in fair value of earn-out consideration. Our unallocated corporate, Control Devices and PST segments’ SG&A costs also increased, which were partially offset by a $0.9 million reduction in business realignment charges. Unallocated corporate SG&A costs increased due to higher wages, incentive compensation and professional fees as well as Orlaco transaction costs of $1.3 million. Additionally, unallocated corporate SG&A included grant income of $0.3 million (see Note 12 to our condensed consolidated financial statements) for the nine months ended September 30, 2017 compared to headquarter relocation expense of $1.0 million for the first nine months of 2016. Control Devices SG&A costs increased due to higher wages and benefits. PST SG&A costs increased during the current period due to expense for the fair value of earn-out consideration of $0.7 million, a change in foreign currency exchange rates and higher incentive compensation, which were partially offset by lower business realignment charges of $0.7 million.
~~Design and Development.~~D&D costs increased by $4.8 million primarily due to higher D&D costs in our Electronics segment related to the acquired Orlaco business and new product design and development in our Control Devices segment, which were partially offset by a $1.1 million decrease in business realignment charges primarily related to our Electronics segment.
~~Operating Income.~~ ~~Operating income (loss) is summarized in the following table by reportable segment (in thousands):~~
Dollar Percent
increase / increase /
Nine months ended September 30 2017 2016 (decrease) (decrease)
Control Devices $ 55,257 $ 47,133 $ 8,124 17.2 %
Electronics 13,267 12,050 1,217 10.1 %
PST 2,720 (4,179 ) 6,899 NM
Unallocated corporate (27,108 ) (21,092 ) (6,016 ) (28.5 )%
Operating income $ 44,136 $ 33,912 $ 10,224 30.1 %
~~Our Control Devices segment operating income increased primarily due to an increase in sales, which was partially offset by higher material, warranty, SG&A and D&D costs.~~
Our Electronics segment operating income increased slightly primarily due to lower material costs and a decrease in business realignment costs of $1.1 million which were partially offset by higher D&D costs, excluding the impact of the acquired Orlaco business.
35
Our PST segment operating performance improved primarily due to higher sales, higher gross profit resulting from a favorable sales mix of higher monitoring service revenues and a $0.8 million decrease in business realignment costs. PST’s improved operating performance is expected to be sustained for the remainder of 2017.
~~Our unallocated corporate operating loss increased primarily due to higher wages and incentive compensation as well as Orlaco transaction costs.~~
~~Operating income (loss) by geographic location is summarized in the following table (in thousands):~~
Dollar Percent
Nine months ended September 30 2017 2016 increase increase
North America $ 28,007 $ 27,303 $ 704 2.6 %
South America 2,720 (4,179 ) 6,899 NM
Europe and Other 13,409 10,788 2,621 24.3 %
Operating income $ 44,136 $ 33,912 $ 10,224 30.1 %
Our North American operating results improved due to increased sales in the North American automotive market, which were partially offset by higher wages, incentive compensation, warranty and Orlaco transaction costs. The improved performance in South America was primarily due to higher sales, higher gross profit resulting from a favorable sales mix of higher monitoring service revenues and a decrease in business realignment costs. Our operating results in Europe and Other improved primarily due to higher sales of European off-highway, China automotive and European commercial vehicle products and lower material and overhead costs resulting from a favorable movement in foreign currency exchange rates.
~~Interest Expense, net.~~ Interest expense, net decreased by $0.6 million compared to the first nine months of the prior year primarily due to lower PST interest expense which was partially offset by higher interest related to our Credit Facility resulting from the additional borrowings to fund the Orlaco acquisition.
~~Equity in Earnings of Investee.~~ Equity earnings for Minda were $1.2 million and $0.6 million for the nine months ended September 30, 2017 and 2016, respectively. The increase compared to the prior period was due to higher sales and benefited by a favorable change in foreign currency exchange rates.
~~Other Expense (Income), net~~. We record certain foreign currency transaction and forward currency hedge contract (gains) losses as a component of other expense (income), net on the condensed consolidated statement of operations. Other expense (income), net increased by $1.9 million in first nine months of 2017 compared to the first nine months of 2016 primarily due to an unfavorable change in foreign currency exchange rates in our Electronics segment partially offset by favorable foreign currency movements in our PST segment.
~~Provision for Income Taxes.~~ ~~We recognized income tax expense of $13.6 million and $3.1~~ million for federal, state and foreign income taxes for the first ~~nine months~~quarter of ~~2017~~2018 and ~~2016,~~2017, respectively. The ~~increase~~decrease in income tax expense for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 compared to the same period for ~~2016~~2017 was primarily due to ~~the release~~enactment of the ~~U.S. federal, certain state and foreign valuation allowances~~Tax Legislation in the fourth quarter of ~~2016 that were previously recorded against certain deferred tax assets.~~2017. The effective tax rate ~~increased~~decreased to ~~34.2%~~19.5% in the first ~~nine months~~quarter of ~~2017~~2018 from ~~10.3%~~33.3% in the first ~~nine months~~quarter of ~~2016~~2017 primarily due to the ~~continued strong performance~~impact of the ~~U.S. operations, which due to a full valuation allowance, favorably impacted the effective tax rate in 2016, as well as the impact in the first half of 2017~~enactment of the ~~non-deductible fair value adjustment to earn-out considerations related to the Orlaco and PST acquisitions.~~Tax Legislation.
36
Liquidity and Capital Resources

Summary of Cash Flows:

Nine months ended September 30, (in thousands) 2017 2016
Dollar
increase /
Three months ended March 31, (in thousands) 2018 2017 (decrease)
Net cash provided by (used for):
Operating activities $ 51,118 $ 37,017 $ 9,671 $ 9,810 $ (139 )
Investing activities (102,084 ) (17,832 ) (9,093 ) (84,803 ) 75,710
Financing activities 47,119 (22,718 ) (9,936 ) 68,884 (78,820 )
Effect of exchange rate changes on cash and cash equivalents 4,249 (268 ) 759 629 130
Net change in cash and cash equivalents $ 402 $ (3,801 ) $ (8,599 ) $ (5,480 ) $ (3,119 )

Cash provided by operating activities ~~increased~~decreased slightly compared to the first quarter of 2017 primarily due to an increase in ~~non-cash items including deferred~~net income ~~taxes, change in fair value~~being offset by a higher use of ~~the PST and Orlaco earn-out considerations and amortization of Orlaco intangible assets.~~cash to fund working capital levels. Our receivable terms and collections rates have remained consistent between periods presented.

Net cash used for investing activities ~~increased~~decreased primarily due to ~~payments made for~~ the business acquisition of Orlaco in the ~~Orlaco business as well as~~first quarter of 2017 partially offset by higher capital ~~expenditures.~~expenditures and cash provided for insurance proceeds for fixed assets in 2018.

Net cash provided by financing activities ~~increased~~decreased primarily due ~~to increased borrowings~~the significant decrease in borrowing activity on ~~the~~our Credit Facility as we borrowed $77.3 million to fund the acquisition of the Orlaco business in the first quarter of 2017, which was partially offset by ~~unscheduled partial~~an increase in voluntary principal repayments of our Credit ~~Facility and the payment for the remaining noncontrolling interest in PST.~~Facility.

As outlined in Note 8 to our condensed consolidated financial statements, our Credit Facility permits borrowing up to a maximum level of $300.0 million which includes an accordion feature which allows the Company to increase the availability by up to $80.0 million upon the satisfaction of certain conditions. This variable rate facility provides the flexibility to refinance other outstanding debt or finance acquisitions through September 2021. 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. The Credit Facility also contains affirmative and negative covenants and events of default that are customary for credit arrangements of this type including covenants which place restrictions and/or limitations on the Company’s ability to borrow money, make capital expenditures and pay dividends. The Credit Facility had an outstanding balance of ~~$126.0~~$116.0 million at ~~September 30, 2017.~~March 31, 2018. The Company was in compliance with all covenants at ~~September 30, 2017.~~March 31, 2018. The covenants included in our Credit Facility to date have not and are not expected to limit our financing flexibility. The Company expects to make additional repayments on the Credit Facility when cash exceeds the amount needed for operations.

33
PST maintains several long-term loans used for working capital purposes. At ~~September 30, 2017,~~March 31, 2018, there was ~~$9.5~~$6.9 million of PST debt outstanding. Scheduled principal repayments on PST debt at ~~September 30, 2017~~March 31, 2018 were as follows: ~~$4.4~~$4.1 million from ~~October 2017~~April 2018 to ~~September 2018, $1.2~~March 2019, $1.6 million from ~~October 2018~~April 2019 to December ~~2018, $2.7~~2019, $0.6 million in ~~2019~~2020 and $0.6 million in both ~~2020 and~~ 2021.

The Company's wholly owned subsidiary located in Stockholm, Sweden, has an overdraft credit line which allows overdrafts on the subsidiary's bank account up to a maximum level of 20.0 million Swedish krona, or ~~$2.5~~$2.4 million, at ~~September 30, 2017.~~March 31, 2018. At ~~September 30, 2017,~~March 31, 2018, there was no balance outstanding on this credit line.

Although the Company's notes and credit facilities contain various covenants, the Company has not experienced a violation which would limit or preclude their use or accelerate the maturity and does not expect these covenants to restrict our financing flexibility. The Company has been and expects to continue to remain in compliance with these covenants during the term of the notes and credit facilities.

Our future results could also be adversely affected by unfavorable changes in foreign currency exchange rates. We have significant foreign denominated transaction exposure in certain locations, especially in Brazil, Argentina, Mexico, Sweden, Estonia, the Netherlands, United Kingdom and China. We have entered into foreign currency forward contracts to reduce our exposure related to certain foreign currency fluctuations. See Note 6 to the condensed consolidated financial statements for additional details. Our future results could also be unfavorably affected by increased commodity prices as commodity fluctuations impact the cost of our raw material purchases.
37

At ~~September 30, 2017,~~March 31, 2018, we had a cash and cash equivalents balance of approximately ~~$50.8~~$57.4 million, all of which was held in foreign locations. The ~~increase~~decrease in cash from ~~$50.4~~$66.0 million at December 31, ~~2016~~2017 was primarily due to ~~cash provided from operating activities~~the voluntary principal repayments of outstanding debt and ~~net debt financing, which were~~capital expenditures partially offset by ~~capital expenditures and~~ cash ~~paid for business acquisition during the first nine months of 2017.~~flows from operations.

Commitments and Contingencies

See Note 11 to the condensed consolidated financial statements for disclosures of the Company’s commitments and contingencies.

Seasonality

Our Control Devices and Electronics segments are not typically affected by seasonality, however the demand for our PST segment consumer products is typically higher in the second half of the year, the fourth quarter in particular.

Critical Accounting Policies and Estimates

The Company's critical accounting policies, which include management's best estimates and judgments, are included in Part II, Item 7, to the consolidated financial statements of the Company's ~~2016~~2017 Form 10-K. These accounting policies are considered critical as disclosed in the Critical Accounting Policies and Estimates section of Management's Discussion and Analysis of the Company's ~~2016~~2017 Form 10-K because of the potential for a significant impact on the financial statements due to the inherent uncertainty in such estimates.There have been no significant changes in our significant accounting policies or critical accounting estimates during the first quarter of 2018, with the exception of revenue recognition. See Note 3, "Revenue," to the condensed consolidated financial statements in this Form 10-Q.

Information regarding other significant accounting policies is included in Note 2 to our consolidated financial statements in Item 8 of Part II of the Company’s ~~2016~~2017 Form 10-K.

Inflation and International Presence

Given the current economic conditions of countries and recent fluctuations in certain foreign currency exchange rates and commodity prices, we believe that a negative change in such items could significantly affect our profitability.
34

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in market risk presented within Part II, Item 7A of the Company's ~~2016~~2017 Form 10-K.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of ~~September 30, 2017,~~March 31, 2018, an evaluation was performed under the supervision and with the participation of the Company's management, including the principal executive officer (“PEO”) and principal financial officer (“PFO”), of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the PEO and PFO, concluded that the Company's disclosure controls and procedures were effective as of ~~September 30, 2017.~~March 31, 2018.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company's internal control over financial reporting during the three months ended ~~September 30, 2017~~March 31, 2018 that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial ~~reporting except that on January 31, 2017 the Company acquired Orlaco. As a result, the Company is currently integrating Orlaco's operations into its overall internal control over financial~~ reporting. Under the guidelines established by the Securities and Exchange Commission, companies are permitted to exclude acquisitions from their assessment of internal control over financial reporting during the first year of an acquisition. Accordingly, we are excluding Orlaco from the assessment of internal control over financial reporting for 2017. However, we are extending our oversight and monitoring processes that support our internal control over financial reporting to include Orlaco’s operations.

38
PART II–OTHER INFORMATION

Item 1. Legal Proceedings

We are involved in certain legal actions and claims primarily arising in the ordinary course of business. Although it is not possible to predict with certainty the outcome of these matters, we do not believe that any of the litigation in which we are currently engaged, either individually or in the aggregate, will have a material adverse effect on our business, consolidated financial position or results of operations. We are subject to alitigation regarding civil, labor, and other tax ~~assessment~~contingencies in ~~Brazil related to value added taxes on vehicle tracking and monitoring services~~our PST segment for which we believe the likelihood of loss is reasonably possible, but not ~~probable,~~probably, although ~~it may~~these claims might take years to resolve. In addition, we are subject to litigation regarding patent infringement. We are also subject to the risk of exposure to product liability claims in the event that the failure of any of our products causes personal injury or death to users of our products as well as product warranty and recall claims. There can be no assurance that we will not experience any material losses related to product liability, warranty or recall claims. In addition, if any of our products prove to be defective, we may be required to participate in a government-imposed or customer OEM-instituted recall involving such products. See additional details of these matters in Note 11 to the condensed consolidated financial statements.

Item 1A. Risk Factors

There have been no material changes with respect to risk factors previously disclosed in the Company's ~~2016~~2017 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents information with respect to repurchases of Common Shares made by us during the three months ended ~~September 30, 2017.~~March 31, 2018. These shares were delivered to us by employees as payment for withholding taxes due upon vesting of restricted share awards.

35
Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced plans or programs Maximum number of shares that may yet be purchased under the plans or programs
7/1/17-7/31/17 978 $ 15.30 N/A N/A
8/1/17-8/31/17 - - N/A N/A
9/1/17-9/30/17 - - N/A N/A
Total 978
Period Total number
of shares
purchased Average price
paid per share Total number of
shares purchased
as part of publicly
announced plans
or programs Maximum
number of
shares that may
yet be purchased
under the plans
or programs
1/1/18-1/31/18 163 $ 24.12 N/A N/A
2/1/18-2/28/18 - - N/A N/A
3/1/18-3/31/18 135,324 27.41 N/A N/A
Total 135,487

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.
39

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit
Number Exhibit

31.1 Chief Executive Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

31.2 Chief Financial Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

32.1 Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

32.2 Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

101 XBRL Exhibits:
101.INS XBRL Instance Document
101.SCH XBRL Schema Document
101.CAL XBRL Calculation Linkbase Document
101.DEF XBRL Definition Linkbase Document
101.LAB XBRL Labels Linkbase Document
101.PRE XBRL Presentation Linkbase Document

4036

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

STONERIDGE, INC.

Date:  ~~November 1, 2017~~May 2, 2018 /s/ Jonathan B. DeGaynor

Jonathan B. DeGaynor
President and Chief Executive Officer
(Principal Executive Officer)

Date:  ~~November 1, 2017~~May 2, 2018 /s/ Robert R. Krakowiak
Robert R. Krakowiak
Chief Financial Officer and Treasurer
(Principal Financial Officer)

4137

Nine months ended September 30, (in thousands)	2017			2016
Three months ended March 31, (in thousands)							2018			2017

OPERATING ACTIVITIES:
Net income	$	26,141		$	27,085		$	13,380		$	9,173
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		15,922			14,717			6,061			5,063
Amortization, including accretion of deferred financing costs		4,993			2,677			1,807			1,472
Deferred income taxes		6,233			714			(243	)		2,082
Earnings of equity method investee		(1,200	)		(603	)		(521	)		(180	)
Loss (gain) on sale of fixed assets		6			(409	)
Share-based compensation expense		5,713			4,587			1,404			2,339
Tax benefit related to share-based compensation expense		(759	)		-			(830	)		(681	)
Change in fair value of earn-out contingent consideration		4,645			-			904			-
Changes in operating assets and liabilities, net of effect of business combination:
Accounts receivable, net		(18,232	)		(25,486	)		(14,821	)		(18,648	)
Inventories, net		(6,564	)		281			(4,694	)		(2,445	)
Prepaid expenses and other assets		1,530			(5,879	)		(3,647	)		(4,760	)
Accounts payable		11,611			13,991			7,841			15,734
Accrued expenses and other liabilities		1,079			5,342			3,030			661
Net cash provided by operating activities		51,118			37,017			9,671			9,810

INVESTING ACTIVITIES:
Capital expenditures		(24,892	)		(18,484	)		(10,505	)		(7,265	)
Proceeds from sale of fixed assets		66			652			9			-
Insurance proceeds for fixed assets								1,403			-
Business acquisition, net of cash acquired		(77,258	)		-			-			(77,538	)
Net cash used for investing activities		(102,084	)		(17,832	)		(9,093	)		(84,803	)

FINANCING ACTIVITIES:
Acquisition of noncontrolling interest, including transaction costs		(1,848	)		-
Revolving credit facility borrowings		91,000			-			5,000			81,000
Revolving credit facility payments		(32,000	)		(13,000	)		(10,000	)		(7,000	)
Proceeds from issuance of debt		2,557			13,317			155			886
Repayments of debt		(10,307	)		(21,312	)		(1,378	)		(4,135	)
Other financing costs		(61	)		(339	)		-			(47	)
Repurchase of Common Shares to satisfy employee tax withholding		(2,222	)		(1,384	)		(3,713	)		(1,820	)
Net cash provided by (used for) financing activities		47,119			(22,718	)

Net cash (used for) provided by financing activities								(9,936	)		68,884
Effect of exchange rate changes on cash and cash equivalents		4,249			(268	)		759			629
Net change in cash and cash equivalents		402			(3,801	)		(8,599	)		(5,480	)
Cash and cash equivalents at beginning of period		50,389			54,361			66,003			50,389

Cash and cash equivalents at end of period	$	50,791		$	50,560		$	57,404		$	44,909

Supplemental disclosure of cash flow information:
Cash paid for interest	$	4,286		$	4,573		$	1,438		$	1,450
Cash paid for income taxes, net	$	5,745		$	2,019		$	5,056		$	1,252

Supplemental disclosure of non-cash operating and financing activities:
Bank payment of vendor payables under short-term debt obligations	$	-		$	3,764

Three months ended March 31, 2018	Control Devices		Electronics		PST		Consolidated
Net Sales:
North America	$	104,443	$	19,986	$	-	$	124,429
South America		-		-		20,545		20,545
Europe		2,891		68,544		-		71,435
Asia Pacific		8,023		1,498		-		9,521
Total net sales	$	115,357	$	90,028	$	20,545	$	225,930

Three months ended March 31, 2017	Control Devices		Electronics		PST		Consolidated
Net Sales:
North America	$	110,521	$	12,865	$	-	$	123,386
South America		-		-		21,633		21,633
Europe		1,709		50,074		-		51,783
Asia Pacific		6,643		866		-		7,509
Total net sales	$	118,873	$	63,805	$	21,633	$	204,311

Cash	$	79,675
Fair value of earn-out consideration and other adjustments		4,208
Total purchase price	$	83,883

At January 31, 2017
Cash	$	2,165	$	2,165
Accounts receivable		7,929		7,929
Inventory		9,409		9,409
Prepaid and other current assets		298		298
Property, plant and equipment		6,668		6,668
Identifiable intangible assets		38,739		38,739
Other long-term assets		6		6
Total identifiable assets acquired		65,214		65,214

Accounts payable		3,020		3,020
Other current liabilities		834		834
Deferred tax liabilities		9,994		10,206
Warranty liability		1,462		899
Total liabilities assumed		15,310		14,959
Net identifiable assets acquired		49,904		50,255
Goodwill		33,979		33,628
Net assets acquired	$	83,883	$	83,883

	Acquisition		Accumulated
As of September 30, 2017	cost		amortization			Net
Customer lists	$	58,470	$	(12,196	)	$	46,274
Tradenames		24,305		(5,592	)	��	18,713
Technology		17,849		(4,825	)		13,024
Other		42		(42	)		-
Total	$	100,666	$	(22,655	)	$	78,011

	Acquisition		Accumulated
As of December 31, 2016	cost		amortization			Net
Customer lists	$	27,476	$	(9,138	)	$	18,338
Tradenames		18,116		(4,558	)		13,558
Technology		10,862		(3,498	)		7,364
Other		41		(41	)		-
Total	$	56,495	$	(17,235	)	$	39,260

					Prepaid expenses				Accrued expenses and								Prepaid expenses				Accrued expenses and
	Notional amounts^(A)				and other current assets				other current liabilities				Notional amounts^(A)				and other current assets				other current liabilities
	September 30,		December 31,		September 30,		December 31,		September 30,		December 31,		March 31,		December 31,		March 31,		December 31,		March 31,		December 31,
	2017		2016		2017		2016		2017		2016		2018		2017		2018		2017		2018		2017
Derivatives designated as hedging instruments:
Cash flow hedges:
Forward currency contracts	$	1,399	$	5,699	$	237	$	-	$	-	$	28	$	13,443	$	9,143	$	786	$	-	$	-	$	221
Derivatives not designated as hedging instruments:
Forward currency contracts	$	1,187	$	1,601	$	-	$	-	$	37	$	3	$	1,486	$	1,486	$	-	$	-	$	68	$	48

						Gain (loss) reclassified from
	Gain (loss) recorded in other					other comprehensive income
	comprehensive income (loss)					(loss) into net income^(A)
	2017		2016			2017		2016
Derivatives designated as cash flow hedges:
Forward currency contracts	$	56	$	(129	)	$	268	$	(65	)

							September 30, 2017		December 31, 2016
			Fair values estimated using
			Level 1		Level 2		Level 3
	Fair value		inputs		inputs		inputs		Fair value
Financial assets carried at fair value:
Forward currency contracts	$	237	$	-	$	237	$	-	$	-
Total financial assets carried at fair value	$	237	$	-	$	237	$	-	$	-

Financial liabilities carried at fair value:
Forward currency contracts	$	37	$	-	$	37	$	-	$	31
Earn-out consideration		18,295		-		-		18,295		-
Total financial liabilities carried at fair value	$	18,332	$	-	$	37	$	18,295	$	31

			March 31, 2018						December 31, 2017
			Fair values estimated using
			Level 1		Level 2		Level 3
	Fair value		inputs		inputs		inputs		Fair value
Financial assets carried at fair value:
Forward currency contracts	$	786	$	-	$	786	$	-	$	-
Total financial assets carried at fair value	$	786	$	-	$	786	$	-	$	-

Financial liabilities carried at fair value:
Forward currency contracts	$	68	$	-	$	68	$	-	$	269
Earn-out consideration		21,905		-		-		21,905		20,746
Total financial liabilities carried at fair value	$	21,973	$	-	$	68	$	21,905	$	21,015

	Orlaco		PST			Total
Balance at December 31, 2016	$	-	$	-		$	-
Fair value on acquisition date		3,243		10,180			13,423
Change in fair value		3,926		719			4,645
Foreign currency adjustments		408		(181	)		227
Balance at September 30, 2017	$	7,577	$	10,718		$	18,295

	Orlaco		PST		Total
Balance at December 31, 2017	$	8,637	$	12,109	$	20,746
Change in fair value		369		535		904
Foreign currency adjustments		235		20		255
Balance at March 31, 2018	$	9,241	$	12,664	$	21,905

	September 30,			December 31,			Interest rates at				March 31,			December 31,			Interest rates at
	2017			2016			September 30, 2017			Maturity	2018			2017			March 31, 2018			Maturity
Revolving Credit Facility
Credit Facility	$	126,000		$	67,000			2.49	%	September 2021	$	116,000		$	121,000			2.92% - 5.00	%	September 2021

Debt
PST short-term obligations		-			5,097							1,647			-			11.46	%	March 2019
PST long-term notes		9,475			11,452			10.0% - 13.4	%	2019-2021		5,204			8,016			9.0% - 11.84	%	2019-2021
Other		48			137							15			28
Total debt		9,523			16,686							6,866			8,044
Less: current portion		(4,421	)		(8,626	)						(4,160	)		(4,192	)
Total long-term debt, net	$	5,102		$	8,060						$	2,706		$	3,852

	Foreign			Unrealized			Benefit
	currency			gain (loss)			plan
	translation			on derivatives			adjustment			Total
Balance at July 1, 2017	$	(75,551	)	$	292		$	-		$	(75,259	)

Other comprehensive income before reclassifications		6,483			36			-			6,519
Amounts reclassified from accumulated other
comprehensive loss		-			(174	)		-			(174	)
Net other comprehensive income (loss), net of tax		6,483			(138	)		-			6,345
Balance at September 30, 2017	$	(69,068	)	$	154		$	-		$	(68,914	)

Balance at July 1, 2016	$	(63,735	)	$	(19	)	$	84		$	(63,670	)

Other comprehensive loss before reclassifications		(638	)		(129	)		-			(767	)
Amounts reclassified from accumulated other
comprehensive loss		-			65			(84	)		(19	)
Net other comprehensive loss, net of tax		(638	)		(64	)		(84	)		(786	)
Balance at September 30, 2016	$	(64,373	)	$	(83	)	$	-		$	(64,456	)

Nine months ended September 30	2017			2016
Three months ended March 31							2018			2017
Product warranty and recall at beginning of period	$	9,344		$	6,419		$	9,978		$	9,344
Accruals for products shipped during period		6,408			3,010			2,274			1,503
Assumed warranty liability related to Orlaco		1,462			-			-			1,462
Aggregate changes in pre-existing liabilities due to claim developments		1,616			(272	)		387			1,572
Settlements made during the period		(9,062	)		(1,332	)		(1,772	)		(2,314	)
Foreign currency translation								(19	)		97
Product warranty and recall at end of period	$	9,768		$	7,825		$	10,848		$	11,664

													Dollar													Dollar
													increase /													increase /
Three months ended September 30				2017						2016			(decrease)
Three months ended March 31																2018					2017					(decrease)
Net sales	$	203,582			100.0	%	$	173,846			100.0	%	$	29,736		$	225,930		100.0	%	$	204,311		100.0	%	$	21,619
Costs and expenses:
Cost of goods sold		141,033			69.3			124,098			71.4			16,935			157,961		69.9			143,160		70.1			14,801
Selling, general and administrative		37,277			18.3			27,817			16.0			9,460			37,261		16.5			34,266		16.8			2,995
Design and development		11,976			5.9			10,151			5.8			1,825			13,861		6.1			11,721		5.7			2,140

Operating income		13,296			6.5			11,780			6.8			1,516			16,847		7.5			15,164		7.4			1,683
Interest expense, net		1,508			0.7			1,684			1.0			(176	)		1,354		0.6			1,410		0.7			(56	)
Equity in earnings of investee		(465	)		(0.2	)		(307	)		(0.2	)		(158	)		(521	)	(0.2	)		(180	)	(0.1	)		(341	)
Other expense (income), net		395			0.2			(497	)		(0.3	)		892
Other (income) expense, net																	(599	)	(0.3	)		190		0.1			(789	)
Income before income taxes		11,858			5.8			10,900			6.3			958			16,613		7.4			13,744		6.7			2,869

Provision for income taxes		3,809			1.8			919			0.5			2,890			3,233		1.4			4,571		2.2			(1,338	)

Net income		8,049			4.0			9,981			5.8			(1,932	)		13,380		5.9			9,173		4.5			4,207
Net loss attributable to
noncontrolling interest		-			-			(303	)		(0.1	)		303
Net loss attributable to noncontrolling interest																	-		-			(30	)	-			30
Net income attributable to Stoneridge, Inc.	$	8,049			4.0	%	$	10,284			5.9	%	$	(2,235	)	$	13,380		5.9	%	$	9,203		4.5	%	$	4,177

											Dollar		Percent											Dollar			Percent
Three months ended September 30			2017					2016			increase		increase
Three months ended March 31																2018				2017				increase / (decrease)			increase / (decrease)
Control Devices	$	106,842		52.5	%	$	103,700		59.7	%	$	3,142		3.0	%	$	115,357	51.1	%	$	118,873	58.2	%	$	(3,516	)		(3.0	)%
Electronics		71,354		35.0			47,804		27.4			23,550		49.3			90,028	39.8			63,805	31.2			26,223			41.1
PST		25,386		12.5			22,342		12.9			3,044		13.6			20,545	9.1			21,633	10.6			(1,088	)		(5.0	)
Total net sales	$	203,582		100.0	%	$	173,846		100.0	%	$	29,736		17.1	%	$	225,930	100.0	%	$	204,311	100.0	%	$	21,619			10.6	%

Exhibit
Number		Exhibit

31.1		Chief Executive Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

31.2		Chief Financial Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

32.1		Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

32.2		Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

	101	XBRL Exhibits:
	101.INS	XBRL Instance Document
	101.SCH	XBRL Schema Document
	101.CAL	XBRL Calculation Linkbase Document
	101.DEF	XBRL Definition Linkbase Document
	101.LAB	XBRL Labels Linkbase Document
	101.PRE	XBRL Presentation Linkbase Document

	STONERIDGE, INC.

Date: ~~November 1, 2017~~May 2, 2018	/s/ Jonathan B. DeGaynor
	Jonathan B. DeGaynor President and Chief Executive Officer
	(Principal Executive Officer)

Date: ~~November 1, 2017~~May 2, 2018	/s/ Robert R. Krakowiak
	Robert R. Krakowiak
	Chief Financial Officer and Treasurer
	(Principal Financial Officer)