UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~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~~2021

Commission file number: 001-13337

STONERIDGE ~~INC.~~INC

(Exact name of registrant as specified in its charter)

	~~Ohio~~		~~34-1598949~~
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 ~~48377~~
	(Address of principal executive offices)		(Zip Code)

	~~(248) 489-9300~~
	~~Registrant's~~ (248) 489-9300
	Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Common Shares, without par valueSRINew York Stock Exchange

Title of each class Trading symbol(s) Name of each exchange on which registered

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.

x☒Yes¨☐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).

x☒Yes¨☐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).¨☐Yesx☒No

The number of Common Shares, without par value, outstanding as of October ~~27, 2017~~22, 2021 was ~~28,171,209.~~27,178,466.

Table of Contents

STONERIDGE, INC. AND SUBSIDIARIES

~~INDEX~~		~~Page~~
INDEX		Page
PART I–FINANCIAL INFORMATION

Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, ~~2017~~2021 (Unaudited) and December 31, ~~2016~~2020	3 4
	Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, ~~2017~~2021 and ~~2016~~2020	4 5
	Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited) for the Three and Nine Months Ended September 30, ~~2017~~2021 and ~~2016~~2020	5 6
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, ~~2017~~2021 and ~~2016~~2020	6 7
	Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) for the Three and Nine Months Ended September 30, 2021 and 2020	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7 9
Item 2.	~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations	28 33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38 46
Item 4.	Controls and Procedures	38 46

PART II–OTHER INFORMATION

Item 1.	Legal Proceedings	39 47
Item 1A.	Risk Factors	39 47
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39 47
Item 3.	Defaults Upon Senior Securities	39 47
Item 4.	Mine Safety Disclosures	39 47
Item 5.	Other Information	40 47
Item 6.	Exhibits	40 48

Signatures		41 49

Table of Contents

Forward-Looking Statements

Portions of this ~~quarterly~~ report on Form 10-Q contain “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this report and may include statements regarding the intent, belief or current expectations of the Company, ~~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.~~operational expectations. Forward-looking statements may be identified by the words “will,” “may,” “should,” “designed to,” “believes,” “plans,” “projects,” “intends,” “expects,” “estimates,” “anticipates,” “continue,” and similar words and expressions. The forward-looking statements ~~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 impact of COVID-19, or other future pandemics, on the global economy, and on our customers, suppliers, employees, business and cash flows;

●

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~~our ability to manage foreign currency ~~exchange rates on sales, costs and results, particularly the Brazilian real, euro, Argentinian peso, Swedish krona, Mexican peso and Chinese Renminbi;~~fluctuations;

·●

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~~including tariffs, affecting our products or our customers’ products;

●

our ability to protect our intellectual property and successfully defend against assertions made against us;

●

liabilities arising from warranty claims, product recall or field actions, product liability and legal proceedings to which we ~~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;

·●

business disruptions due to natural disasters or other disasters outside our control;

●

the ability of our suppliers to supply us with ~~quality~~ parts and components at competitive prices on a timely ~~basis;~~basis, including the impact of potential tariffs and trade considerations on their operations and output;

·●

fluctuations in the cost and availability of key materials (including semiconductors, printed circuit boards, resin, aluminum, steel and copper) and components and our ability to offset cost increases;

●

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

·●

~~those~~risks related to a failure of our information technology systems and networks, and risks associated with current and emerging technology threats and damage from computer viruses, unauthorized access, cyber-attack and other similar disruptions; and

●

the items described in Part I, Item IA (“Risk Factors”) ofin the ~~Company's 2016~~ Company’s 2020 Form ~~10-K.~~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.

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

STONERIDGE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30,		December 31,
(in thousands)	2021		2020
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	50,001	$	73,919
Accounts receivable, less reserves of $1,528 and $817, respectively		137,129		136,745
Inventories, net		124,741		90,548
Prepaid expenses and other current assets		45,254		33,452
Total current assets		357,125		334,664
Long-term assets:
Property, plant and equipment, net		109,696		119,324
Intangible assets, net		52,692		55,394
Goodwill		37,075		39,104
Operating lease right-of-use asset		17,088		18,944
Investments and other long-term assets, net		53,002		53,978
Total long-term assets		269,553		286,744
Total assets	$	626,678	$	621,408

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of debt	$	1,650	$	7,673
Accounts payable		102,584		86,103
Accrued expenses and other current liabilities		62,383		52,272
Total current liabilities		166,617		146,048
Long-term liabilities:
Revolving credit facility		130,000		136,000
Deferred income taxes		11,033		12,935
Operating lease long-term liability		14,097		15,434
Other long-term liabilities		7,280		14,357
Total long-term liabilities		162,410		178,726
Shareholders' equity:
Preferred Shares, without par value, 5,000 shares authorized, NaN issued		-		-
Common Shares, without par value, 60,000 shares authorized, 28,966 and 28,966 shares issued and 27,179 and 27,006 shares outstanding at September 30, 2021 and December 31, 2020, respectively, with 0 stated value		-		-
Additional paid-in capital		231,567		234,409
Common Shares held in treasury, 1,787 and 1,960 shares at September 30, 2021 and December 31, 2020, respectively, at cost		(55,611)		(60,482)
Retained earnings		221,912		212,342
Accumulated other comprehensive loss		(100,217)		(89,635)
Total shareholders' equity		297,651		296,634
Total liabilities and shareholders' equity	$	626,678	$	621,408

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

Current assets:
Cash and cash equivalents $ 50,791 $ 50,389
Accounts receivable, less reserves of $1,173 and $1,630, respectively 144,475 113,225
Inventories, net 78,643 60,117
Prepaid expenses and other current assets 23,264 17,162
Total current assets 297,173 240,893

Long-term assets:
Property, plant and equipment, net 108,919 91,500
Intangible assets, net 78,011 39,260
Goodwill 38,224 931
Investments and other long-term assets, net 17,942 21,945
Total long-term assets 243,096 153,636
Total assets $ 540,269 $ 394,529

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Current portion of debt $ 4,421 $ 8,626
Accounts payable 80,069 62,594
Accrued expenses and other current liabilities 48,258 41,489
Total current liabilities 132,748 112,709

Long-term liabilities:
Revolving credit facility 126,000 67,000
Long-term debt, net 5,102 8,060
Deferred income taxes 20,337 9,760
Other long-term liabilities 31,553 4,923
Total long-term liabilities 182,992 89,743

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 - -
Additional paid-in capital 227,143 206,504
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 )
Retained earnings 73,356 45,356
Accumulated other comprehensive loss (68,914 ) (67,913 )
Total Stoneridge, Inc. shareholders' equity 224,529 178,315
Noncontrolling interest - 13,762
Total shareholders' equity 224,529 192,077
Total liabilities and shareholders' equity $ 540,269 $ 394,529

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

Table of Contents

STONERIDGE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three months ended				Nine months ended
	September 30,				September 30,
(in thousands, except per share data)	2021		2020		2021		2020

Net sales	$	181,680	$	175,764	$	566,809	$	458,275
Costs and expenses:
Cost of goods sold		145,680		129,769		441,882		353,629
Selling, general and administrative		28,481		24,414		89,237		81,610
Gain on sale of Canton Facility, net		-		-		(30,718)		-
Design and development		16,447		11,754		46,593		36,373
Operating (loss) income		(8,928)		9,827		19,815		(13,337)
Interest expense, net		1,447		1,882		5,073		4,322
Equity in earnings of investee		(584)		(330)		(1,694)		(556)
Other expense (income), net		41		(253)		127		(1,879)
(Loss) income before income taxes		(9,832)		8,528		16,309		(15,224)
Provision (benefit) for income taxes		526		1,814		6,739		(3,694)
Net (loss) income	$	(10,358)	$	6,714	$	9,570	$	(11,530)

(Loss) earnings per share:
Basic	$	(0.38)	$	0.25	$	0.35	$	(0.43)
Diluted	$	(0.38)	$	0.25	$	0.35	$	(0.43)
Weighted-average shares outstanding:
Basic		27,147		26,956		27,100		27,047
Diluted		27,147		27,223		27,432		27,047

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

Net sales $ 203,582 $ 173,846 $ 617,004 $ 523,365

Costs and expenses:
Cost of goods sold 141,033 124,098 429,890 375,705
Selling, general and administrative 37,277 27,817 107,247 82,836
Design and development 11,976 10,151 35,731 30,912

Operating income 13,296 11,780 44,136 33,912

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

Income before income taxes 11,858 10,900 39,710 30,199

Provision for income taxes 3,809 919 13,569 3,114

Net income 8,049 9,981 26,141 27,085

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

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

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

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

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

Table of Contents

STONERIDGE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)


		Three months ended				Nine months ended
		September 30,				September 30,
(in thousands)		2021	2020		2021		2020

Net (loss) income	$	(10,358)	$	6,714	$	9,570	$	(11,530)

Other comprehensive (loss) income, net of tax:
Foreign currency translation ⁽¹⁾		(7,100)		5,975		(10,706)		(9,323)
Unrealized (loss) gain on derivatives ⁽²⁾		(133)		1,022		124		(1,423)
Other comprehensive (loss) income, net of tax		(7,233)		6,997		(10,582)		(10,746)

Comprehensive (loss) income	$	(17,591)	$	13,711	$	(1,012)	$	(22,276)

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

(1)

Net of tax ~~benefit~~expense of ~~$(74)~~$120 for the three and $0nine months ended September 30, 2021.

(2)	Net of tax (benefit) expense of $(36) and $272 for the three months ended September 30, ~~2017~~2021 and ~~2016,~~2020, respectively. Net of tax expense (benefit) of ~~$93~~$32 and $0$(378) for the nine months ended September 30, ~~2017~~2021 and ~~2016,~~2020, respectively.

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

Table of Contents

STONERIDGE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


Nine months ended September 30 (in thousands)	2021		2020

OPERATING ACTIVITIES:
Net income (loss)	$	9,570	$	(11,530)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation		20,831		20,030
Amortization, including accretion and write-off of deferred financing costs		4,767		4,153
Deferred income taxes		916		(5,862)
Earnings of equity method investee		(1,694)		(724)
(Gain) loss on sale of fixed assets		(190)		158
Share-based compensation expense		4,685		3,535
Excess tax (benefit) deficiency related to share-based compensation expense		(295)		50
Gain on sale of Canton Facility, net		(30,718)		-
Gain on disposal of business, net		(740)		-
Property, plant and equipment impairment charge		-		2,326
Change in fair value of earn-out contingent consideration		1,453		(3,045)
Changes in operating assets and liabilities:
Accounts receivable, net		(2,746)		7,107
Inventories, net		(36,580)		3,683
Prepaid expenses and other assets		(11,144)		(2,599)
Accounts payable		20,657		(2,303)
Accrued expenses and other liabilities		1,539		(6,024)
Net cash (used for) provided by operating activities		(19,689)		8,955

INVESTING ACTIVITIES:
Capital expenditures, including intangibles		(21,576)		(24,331)
Proceeds from sale of fixed assets		656		43
Proceeds from disposal of business, net		1,050		-
Proceeds from sale of Canton Facility, net		35,167		-
Investment in venture capital fund, net		(2,349)		(750)
Net cash provided by (used for) investing activities		12,948		(25,038)

FINANCING ACTIVITIES:
Revolving credit facility borrowings		34,000		71,500
Revolving credit facility payments		(40,000)		(53,500)
Proceeds from issuance of debt		30,292		29,608
Repayments of debt		(36,286)		(26,006)
Common Share repurchase program		-		(4,995)
Repurchase of Common Shares to satisfy employee tax withholding		(2,658)		(1,773)
Net cash (used for) provided by financing activities		(14,652)		14,834

Effect of exchange rate changes on cash and cash equivalents		(2,525)		134
Net change in cash and cash equivalents		(23,918)		(1,115)
Cash and cash equivalents at beginning of period		73,919		69,403

Cash and cash equivalents at end of period	$	50,001	$	68,288

Supplemental disclosure of cash flow information:
Cash paid for interest	$	4,962	$	4,134
Cash paid for income taxes, net	$	7,296	$	137

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

Table of Contents

STONERIDGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~SHAREHOLDERS’ EQUITY
(Unaudited)

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

OPERATING ACTIVITIES:
Net income $ 26,141 $ 27,085
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 15,922 14,717
Amortization, including accretion of deferred financing costs 4,993 2,677
Deferred income taxes 6,233 714
Earnings of equity method investee (1,200 ) (603 )
Loss (gain) on sale of fixed assets 6 (409 )
Share-based compensation expense 5,713 4,587
Tax benefit related to share-based compensation expense (759 ) -
Change in fair value of earn-out contingent consideration 4,645 -
Changes in operating assets and liabilities, net of effect of business combination:
Accounts receivable, net (18,232 ) (25,486 )
Inventories, net (6,564 ) 281
Prepaid expenses and other assets 1,530 (5,879 )
Accounts payable 11,611 13,991
Accrued expenses and other liabilities 1,079 5,342
   Net cash provided by operating activities 51,118 37,017

INVESTING ACTIVITIES:
Capital expenditures (24,892 ) (18,484 )
Proceeds from sale of fixed assets 66 652
Business acquisition, net of cash acquired (77,258 ) -
   Net cash used for investing activities (102,084 ) (17,832 )

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

Effect of exchange rate changes on cash and cash equivalents 4,249 (268 )
Net change in cash and cash equivalents 402 (3,801 )
Cash and cash equivalents at beginning of period 50,389 54,361

Cash and cash equivalents at end of period $ 50,791 $ 50,560

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

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

Number of

Accumulated

Common

Number of

Additional

Common

other

Total

Shares

treasury

paid-in

Shares held

Retained

comprehensive

shareholders'
(in thousands)

outstanding

shares

capital

in treasury

earnings

loss

equity

BALANCE DECEMBER 31, 2019

27,408

1,558

$
225,607

$
(50,773)

$
206,542

$
(91,472)

$
289,904
Net income

—

—

—

—

3,490

—

3,490
Unrealized loss on derivatives, net

—

—

—

—

—

(3,655)

(3,655)
Currency translation adjustments

—

—

—

—

—

(17,119)

(17,119)
Issuance of Common Shares

267

(267)

—

—

—

—

—
Repurchased Common Shares for treasury, net

(75)

75

—

4,769

—

—

4,769
Common Share repurchase program

(607)

607

10,000

(14,995)

—

—

(4,995)
Share-based compensation, net

—

—

(5,101)

—

—

—

(5,101)
BALANCE MARCH 31, 2020

26,993

1,973

$
230,506

$
(60,999)

$
210,032

$
(112,246)

$
267,293

Net loss

—

—

—

—

(21,734)

—

(21,734)
Unrealized gain on derivatives, net

—

—

—

—

—

1,210

1,210
Currency translation adjustments

—

—

—

—

—

1,821

1,821
Issuance of Common Shares

12

(12)

—

—

—

—

—
Repurchased Common Shares for treasury, net

(4)

4

—

360

—

—

360
Share-based compensation, net

—

—

312

—

—

—

312
BALANCE JUNE 30, 2020

27,001

1,965

$
230,818

$
(60,639)

$
188,298

$
(109,215)

$
249,262

Net income

—

—

—

—

6,714

—

6,714
Unrealized gain on derivatives, net

—

—

—

—

—

1,022

1,022
Currency translation adjustments

—

—

—

—

—

5,975

5,975
Issuance of Common Shares

6

(6)

—

—

—

—

—
Repurchased Common Shares for treasury, net

(1)

1

—

157

—

—

157
Share-based compensation, net

—

—

1,242

—

—

—

1,242
BALANCE SEPTEMBER 30, 2020

27,006

1,960

$
232,060

$
(60,482)

$
195,012

$
(102,218)

$
264,372

BALANCE DECEMBER 31, 2020

27,006

1,960

$
234,409

$
(60,482)

$
212,342

$
(89,635)

$
296,634
Net income

—

—

—

—

130

—

130
Unrealized loss on derivatives, net

—

—

—

—

—

(129)

(129)
Currency translation adjustments

—

—

—

—

—

(10,778)

(10,778)
Issuance of Common Shares

224

(224)

—

—

—

—

—
Repurchased Common Shares for treasury, net

(68)

68

—

4,392

—

—

4,392
Share-based compensation, net

—

—

(5,577)

—

—

—

(5,577)
BALANCE MARCH 31, 2021

27,162

1,804

$
228,832

$
(56,090)

$
212,472

$
(100,542)

$
284,672

Net income

—

—

—

—

19,798

—

19,798
Unrealized gain on derivatives, net

—

—

—

—

—

386

386
Currency translation adjustments

—

—

—

—

—

7,172

7,172
Issuance of Common Shares

2

(2)

—

—

—

—

—
Repurchased Common Shares for treasury, net

—

—

—

4

—

—

4
Share-based compensation, net

—

—

1,598

—

—

—

1,598
BALANCE JUNE 30, 2021

27,164

1,802

$
230,430

$
(56,086)

$
232,270

$
(92,984)

$
313,630

Net loss

—

—

—

—

(10,358)

—

(10,358)
Unrealized loss on derivatives, net

—

—

—

—

—

(133)

(133)
Currency translation adjustments

—

—

—

—

—

(7,100)

(7,100)
Issuance of Common Shares

27

(27)

—

—

—

—

—
Repurchased Common Shares for treasury, net

(12)

12

—

475

—

—

475
Share-based compensation, net

—

—

1,137

—

—

—

1,137
BALANCE SEPTEMBER 30, 2021

27,179

1,787

$
231,567

$
(55,611)

$
221,912

$
(100,217)

$
297,651

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

6

8

Table of Contents

STONERIDGE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

(1) Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared by Stoneridge, Inc. (the “Company”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The information furnished in the condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of such financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to the ~~SEC's~~SEC’s rules and regulations. The results of operations for the three and nine months ended September 30, ~~2017~~2021 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~~ Company’s 2020 Form ~~10-K.~~ 10-K.
~~On January 31, 2017,~~The Company’s investment in Minda Stoneridge Instruments Ltd. (“MSIL”) for the ~~Company acquired Exploitatiemaatschappij Berghaaf B.V. (“Orlaco”),~~three and nine months ended September 30, 2021 and 2020 has been determined to be an ~~electronics business which designs, manufactures~~unconsolidated entity, and ~~sells camera-based vision systems, monitors and related products. The acquisition was~~therefore is accounted for ~~as a business combination, and accordingly,~~under the equity method of accounting based on the Company’s condensed consolidated financial statements herein include the results of Orlaco from the acquisition date to September 30, 2017. See Note 3 to the condensed consolidated financial statements for additional details regarding the Orlaco acquisition.49% ownership in MSIL.
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 2017,~~December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2017-12, “Derivatives and Hedging~~2019-12, “Income Taxes (Topic ~~815)~~740): ~~Targeted Improvements to~~Simplifying the Accounting for ~~Hedging Activities”, which amends~~Income Taxes.” The amendments in this update remove certain exceptions of Topic 740 including: exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and ~~simplifies existing~~income or gain from other items; exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. There are also additional areas of guidance in ~~order to allow companies to more accurately present~~regards to: franchise and other taxes partially based on income and the ~~economic effects~~interim recognition of ~~risk management activities in the financial statements. As early adoption is permitted, the Company adopted~~enactment of tax laws and rate changes. The provisions of 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 is~~ effective for ~~annual periods~~years beginning after December 15, ~~2017. The Company expects to adopt this standard as of January 1, 2018, which is not expected to 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 is effective for interim and annual periods beginning after December 15, 20172020, with early adoption permitted. The Company ~~is currently evaluating~~adopted this standard prospectively as of January 1, 2020 using the modified retrospective basis. The impact of ~~adopting~~the adoption was a reduction to deferred tax liabilities and an increase to retained earnings of $13,750 on the condensed consolidated balance sheet as of December 31, 2020. The adoption of this standard did not have an impact on ~~its~~the Company’s condensed consolidated ~~financial statements.~~results of operations and cash flows.

In ~~February 2016,~~August 2018, the FASB issued ASU ~~2016-02, “Leases (Topic 842)”, which will require that~~2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a ~~lessee recognize assets and liabilities on~~Cloud Computing Arrangement That Is a Service Contract.” The guidance in ASU 2018-15 clarifies the ~~balance sheet~~accounting 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~~implementation costs in cloud computing arrangements. ASU 2018-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. The Company adopted this standard prospectively as of January 1, 2020 and it did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” The guidance in ASU 2018-13 changes disclosure requirements related to fair value measurements as part of the disclosure framework project. The disclosure framework project aims to improve the effectiveness of disclosures in the notes to the financial statements by focusing on requirements that clearly communicate the most important information to users of the financial statements. This guidance is effective for fiscal years beginning after December 15, ~~2018.~~2019, with early adoption permitted. The Company ~~expects to adopt~~adopted this standard as of January 1, 2020 and it did not have a material impact on the Company’s condensed consolidated financial statements.

Table of Contents

STONERIDGE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data, unless otherwise stated)

(Unaudited)

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments”, which requires measurement and recognition of expected credit losses for financial assets held and requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses. ASU 2016-13 is effective for public business entities for annual periods beginning after December 15, 2019. The guidance allows for various methods for measuring expected credit losses. The Company has elected to apply a historical loss rate based on historical write-offs by region, adjusted for current economic conditions and forecasts about future economic conditions that are reasonable and supportable. The Company adopted this standard as of January 1, 2020 and it did not have a material impact on the Company’s condensed consolidated financial statements.
Accounting Standards Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The guidance in ASU 2020-04 provides temporary optional expedient and exceptions to the guidance in U.S. GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”) (also known as the “reference rate reform”). The guidance allows companies to elect not to apply certain modification accounting requirements to contracts affected by the reference rate reform, if certain criteria are met. The guidance will also allow companies to elect various optional expedients which would allow them to continue to apply hedge accounting for hedging relationships affected by the reference rate reform, if certain criteria are met. The Company is currently evaluating the impact of ~~adopting~~ this ~~standard~~ASU on ~~its condensed~~the Company’s consolidated financial ~~statements,~~statements. As of September 30, 2021, the Company has not yet had contracts modified due to rate reform.

(3) Revenue
Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs with the transfer of control of our products and services, which is usually when the parts are shipped or delivered to the customer’s premises. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. The transaction price will ~~require right~~include estimates of ~~use assets~~variable consideration to the extent it is probable that a significant reversal of revenue recognized will not occur. Incidental items that are not significant in the context of the contract are recognized as expense. The expected costs associated with our base warranties continue to be recognized as expense when the products are sold. Customer returns only occur if products do not meet the specifications of the contract and ~~lease liabilities be recorded~~are not connected to any repurchase obligations of the Company.
The Company does not have any financing components or significant payment terms as payment occurs shortly after the point of sale. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction that are collected by the Company from a customer are excluded from revenue. Amounts billed to customers related to shipping and handling costs are included in net sales in the condensed consolidated ~~balance sheet~~statements of operations. Shipping and handling costs associated with outbound freight after control over a product is transferred to the customer are accounted for ~~operating leases.~~as a fulfillment cost and are included in cost of sales.
Revenue by Reportable Segment
8
Control Devices. Our Control Devices segment designs and manufactures products that monitor, measure or activate specific functions within a vehicle. This segment includes product lines such as actuators, sensors, switches and connectors. We sell these products principally to the automotive market in the North American, European, and Asia Pacific regions. To a lesser extent, we also sell these products to the commercial vehicle and agricultural markets in the North American, European and Asia Pacific regions. Our customers included in these markets primarily consist of original equipment manufacturers (“OEM”) and companies supplying components directly to the OEMs (“Tier 1 supplier”).
10

Table of Contents

STONERIDGE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

~~In May 2014,~~Electronics. Our Electronics segment designs and manufactures driver information systems, camera-based vision systems, connectivity and compliance products and electronic control units. These products are sold principally to the ~~FASB issued ASU 2014-09 “Revenue from Contracts with Customers”, which is~~commercial vehicle market primarily through our OEM and aftermarket channels in the new comprehensive revenue recognition standard that will supersede 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 servicesEuropean and North American regions, and to a ~~customer~~lesser extent, the Asia Pacific region. The camera-based vision systems and related products are sold principally to the off-highway vehicle and commercial vehicle markets in the European and North American regions.
Stoneridge Brazil. Our Stoneridge Brazil segment primarily serves the South American region and specializes in the design, manufacture and sale of vehicle tracking devices and monitoring services, vehicle security alarms and convenience accessories, in-vehicle audio and infotainment devices and telematics solutions. Stoneridge Brazil sells its products through the aftermarket distribution channel, to factory authorized dealer installers, also referred to as original equipment services, directly to OEMs and through mass merchandisers. In addition, monitoring services and tracking devices are sold directly to corporate customers and individual consumers.

The following tables disaggregate our revenue by reportable segment and geographical location⁽¹⁾for the three months ended September 30, 2021 and 2020:

Control Devices

Electronics

Stoneridge Brazil

Consolidated

Three months ended September 30

2021

2020


2021

2020


2021

2020


2021

2020

Net Sales:

















North America

$
70,334

$
79,106

$
25,061

$
18,470

$
-

$
-

$
95,395

$
97,576

South America

-

-

-

-

16,477

12,827

16,477

12,827

Europe

3,048

8,833

51,003

43,195

-

-

54,051

52,028

Asia Pacific

14,236

12,003

1,521

1,330

-

-

15,757

13,333

Total net sales

$
87,618

$
99,942

$
77,585

$
62,995

$
16,477

$
12,827

$
181,680

$
175,764

The following tables disaggregate our revenue by reportable segment and geographical location⁽¹⁾for the nine months ended September 30, 2021 and 2020:

Control Devices

Electronics

Stoneridge Brazil

Consolidated
Nine months ended September 30

2021

2020


2021

2020


2021

2020


2021

2020
Net Sales:
















North America

$
215,820

$
190,889

$
72,809

$
49,660

$
-

$
-

$
288,629

$
240,549
South America

-

-

-

-

42,788

34,407

42,788

34,407
Europe

12,681

20,655

173,335

127,086

-

-

186,016

147,741
Asia Pacific

45,080

32,253

4,296

3,325

-

-

49,376

35,578
Total net sales

$
273,581

$
243,797

$
250,440

$
180,071

$
42,788

$
34,407

$
566,809

$
458,275
(1) Company sales based on geographic location are where the sale originates not where the customer is located.
Performance Obligations
For OEM and Tier 1 supplier customers, the Company typically enters into contracts to provide serial production parts that consist of a set of documents including, but not limited to, an ~~amount~~award letter, master purchase agreement and master terms and conditions. For each production product, the Company enters into separate purchase orders that ~~reflects~~contain the ~~consideration to which a company expects to be entitled in exchange for those goods or services. To achieve this principle,~~product specifications and an ~~entity identifies the contract with~~agreed-upon price. The performance obligation does not exist until a customer ~~identifies~~release is received for a specific number of parts.  The majority of the ~~separate performance obligations~~parts sold to OEM and Tier 1 supplier customers are customized to the specific customer, with the exception of camera-based vision systems (“CMS”) that are common across all customers (CMS for OEMs are customized but sales are not yet material). The transaction price is equal to the contracted price per part and there is no expectation of material variable consideration in the ~~contract, determines 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. The new standard will become effective for annual and interim periods beginning after December 15, 2017. Currently,price. For most customer contracts, the Company does not ~~expect~~have an enforceable right to payment at any time prior to when the ~~adoption of this standard~~parts are shipped or delivered to ~~have a material impact on its results of operations or financial position; however,~~the customer; therefore, the Company expects expanded disclosures consistent with 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 accounted for as a reduction of costs incurred. However, the Company continues to evaluate its contracts with customers analyzing the impact, if any, onrecognizes revenue from the sale of production parts, particularly in regards to material rights, variable consideration and the impact of termination clauses on the timing of revenue recognition. The Company will adopt this standard January 1, 2018 and expects to use 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~~point in time it satisfies a performance obligation by transferring control of ~~initial application.~~
~~(3) 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 primarilya part 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 economycustomer.

Table 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.Contents

STONERIDGE, INC.

The aggregate consideration for the Orlaco acquisition was €74,939 ($79,675), which included customary estimated adjustments to the purchase price. The Company paid €67,439 ($71,701) in cash, 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
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise ~~indicated)~~stated)
(Unaudited)
~~The following table summarizes~~Our aftermarket products are focused on meeting the ~~estimated fair value~~demand for repair and replacement parts, compliance parts and accessories and are sold primarily to aftermarket distributors and mass retailers in our South American, European and North American markets. Aftermarket products have one type of performance obligation which is the delivery of aftermarket parts and spare parts.  For aftermarket customers, the Company typically has standard terms and conditions for all customers.  In addition, aftermarket products have alternative use as they can be sold to multiple customers. Revenue for aftermarket part production contracts is recognized at a point in time when the control of the ~~assets acquired and liabilities assumed at~~parts transfer to the ~~acquisition date (including measurement period adjustments). The purchase price and associated allocation~~customer which is ~~preliminary pending completion of~~based on the ~~valuation of acquired inventory, property, plant and equipment, intangible assets and deferred income taxes and~~shipping terms.  Aftermarket contracts 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 adjustmentsinclude variable consideration related to ~~updated valuation reports~~discounts and ~~appraisals received from our external valuation specialists, as well as revisions to internal estimates. The changes~~rebates which is included 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.
At January 31, 2017
Cash $ 2,165
Accounts receivable 7,929
Inventory 9,409
Prepaid and other current assets 298
Property, plant and equipment 6,668
Identifiable intangible assets 38,739
Other long-term assets 6
Total identifiable assets acquired 65,214

Accounts payable 3,020
Other current liabilities 834
Deferred tax liabilities 9,994
Warranty liability 1,462
Total liabilities assumed 15,310
Net identifiable assets acquired 49,904
Goodwill 33,979
Net assets acquired $ 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 period
~~These fair value measurements are classified within Level 3 of~~transaction price upon recognizing the ~~fair value hierarchy. See Note 6 for details on fair value hierarchy.~~product revenue.

10
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data, unless otherwise indicated)~~
~~(Unaudited)~~
~~Goodwill is calculated as the excess~~A small portion of the ~~fair value~~Company’s sales are comprised of ~~consideration transferred~~monitoring services that include both monitoring devices and fees to individual, corporate, fleet and cargo customers in our Stoneridge Brazil segment. These monitoring service contracts are generally not capable of being distinct and are accounted for as a single performance obligation.  We recognize revenue for our monitoring products and services contracts over the ~~fair market value~~life of the ~~identifiable assets and liabilities and represents~~contract. There is no variable consideration associated with these contracts. The Company has the ~~future economic benefits arising~~right to consideration from ~~other assets acquired~~a customer in the amount that ~~could not be separately recognized. The goodwill is not deductible for income tax purposes.~~corresponds directly with the value to the customer of the Company’s performance to date.  Therefore, the Company recognizes revenue over time using the practical expedient ASC 606-10-55-18 in the amount the Company has a “right to invoice” rather than selecting an output or input method.
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.
Contract Balances
The Company ~~recognized $1,259~~had 0 material contract assets, contract liabilities or capitalized contract acquisition costs as 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 months ended~~ September 30, ~~2017.~~
~~Included in the Company's statement of operations for the three~~2021 and nine months ended September 30, 2017 are post-acquisition sales of $18,502 and $46,956, and net income of $1,254 and $1,299, respectively, related to Orlaco which are included in results of the Electronics segment. The Company’s statement of operations also included $0 and $1,636 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 the $1,823 and $3,926 fair value adjustment for earn-out consideration in SG&A expenses for the three and nine months ended September 30, 2017, respectively.December 31, 2020.
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. 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

Net sales $ 203,582 $ 187,626 $ 622,034 $ 566,518
Net income attributable to Stoneridge, Inc. and subsidiaries $ 8,049 $ 11,406 $ 26,375 $ 33,195
11
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data, unless otherwise indicated)~~
~~(Unaudited)~~
(4) Inventories
Inventories are valued at the lower of cost (using either the first-in, first-out (“FIFO”) or average cost methods) or net realizable value. The Company evaluates and adjusts as necessary its excess and obsolescence reserve on a quarterly basis. Excess inventories are quantities of items that exceed anticipated sales or usage for a reasonable period. The Company has guidelines for calculating provisions for excess inventories based on the number of months of inventories on-hand compared to anticipated sales or usage. Management uses its judgment to forecast sales or usage and to determine what constitutes a reasonable period. Inventory cost includes material, labor and overhead. Inventories consisted of the following:

September 30,

December 31,


2021

2020
Raw materials

$
97,332

$
67,775
Work-in-progress

8,579

7,005
Finished goods

18,830

15,768
Total inventories, net

$
124,741

$
90,548
September 30, December 31,
2017 2016
Raw materials $ 47,840 $ 35,665
Work-in-progress 8,249 7,483
Finished goods 22,554 16,969
Total inventories, net $ 78,643 $ 60,117

Inventory valued using the FIFO method was ~~$56,861~~$112,605 and ~~$37,765~~$82,308 at September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, respectively. Inventory valued using the average cost method was ~~$21,782~~$12,136 and ~~$22,352~~$8,240 at September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, 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
12
Table of Contents
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise ~~indicated)~~stated)
(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)~~(5) Financial Instruments and Fair Value Measurements
Financial Instruments
A financial instrument is cash or a contract that imposes an obligation to deliver or conveys a right to receive cash or another financial instrument. The carrying values of cash and cash equivalents, accounts receivable and accounts payable are considered to be representative of fair value because of the short maturity of these instruments. The fair value of debt approximates the carrying value of debt.
Derivative Instruments and Hedging Activities
On September 30, ~~2017,~~2021, the Company had open Mexican peso-denominated foreign currency forward contracts ~~which are~~and a net investment hedge of our euro-denominated subsidiary. The Company used foreign currency forward contracts solely for hedging and not for speculative ~~purposes.~~purposes during 2021 and 2020. Management believes that its use of these instruments to reduce risk is in the ~~Company's~~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 hedges and ~~fair value~~net investment hedges to manage its exposure to fluctuations in foreign currency exchange rates by reducing the effect of such fluctuations on foreign currency denominated intercompany transactions, inventory purchases and other foreign currency exposures. ~~The currencies hedged by~~
Net Investment Hedges
During the third quarter of 2021, the Company ~~during 2017~~entered into 2 cross-currency swaps, designated as net investment hedges, with notional values of $25,000 each and ~~2016~~maturities in August 2026 and August 2028. These swaps hedge a portion of the net investment in a certain euro-denominated subsidiary.
The Company has elected to assess hedge effectiveness under the spot method. Accordingly, periodic changes in the fair value of the derivative instruments attributable to factors other than spot exchange rate variability are excluded from the measurement of hedge ineffectiveness and reported directly in earnings each reporting period. The change in fair value of these derivative instruments is recorded in cumulative translation adjustment, which is a component of accumulated other comprehensive loss in the condensed consolidated balance sheets. When the related currency translation adjustment is required to be reclassified, usually upon the sale or liquidation of the investment, the gain or loss included in accumulated other comprehensive loss is recorded in earnings and reflected in other expense (income), net in the condensed consolidated statements of operations. Upon settlement, cash flows attributable to derivatives designated as net investment hedges will be classified as investing activities in the condensed consolidated statements of cash flows.
Cash Flow Hedges
The Company entered into foreign currency forward contracts to hedge the euro and Mexican ~~peso. In addition,~~peso currencies during 2020 and the ~~Company hedged the U.S. dollar against the Swedish krona and euro on behalf of its European subsidiaries~~Mexican peso currency in ~~2016.~~
2021. 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~~gains and ~~reported~~losses on derivatives qualifying as cash flow hedges are recorded in ~~the Company’s condensed consolidated balance sheets as a component of~~ accumulated other comprehensive ~~loss.~~loss, to the extent that hedges are effective, until the underlying transactions are recognized in earnings. Unrealized amounts in accumulated other comprehensive loss will fluctuate based on changes in the fair value of hedge derivative contracts at each reporting period. The cash flow hedges were highly effective. The effectiveness of the transactions has been and will be measured on an ongoing basis using regression analysis and forecasted future purchases of the currency.
13
Table of Contents
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
In certain instances, the foreign currency forward contracts domay 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~~Company’s condensed consolidated statement of operations as a component of other expense (income), net.
At September 30, 2021, all of the Company’s foreign currency forward contracts were designated as cash flow hedges.
The ~~Company's~~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 and December 31, 2016, the Company held foreign currency forward contracts with underlying notional amounts of $1,187 and $1,601, respectively, 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 and a gain of $1 for the three months ended September 30, 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 the nine months ended September 30, 2017 and 2016, the Company recognized a loss of $164 and $38 respectively, related to this contract.
13
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data, unless otherwise indicated)~~
~~(Unaudited)~~
~~Mexican Peso-denominated~~U.S. dollar-denominated Foreign Currency Forward Contracts – Cash Flow ~~Hedge~~Hedges
The Company entered into U.S. dollar-denominated currency contracts on behalf of one of its European Electronics subsidiaries, whose functional currency is the euro, with a notional amount at September 30, 2020 of $800 which expired ratably on a monthly basis from October 2020 through December 2020. There were 0 such contracts at September 30, 2021 or December 31, 2020.
Mexican peso-denominated Foreign Currency Forward Contracts – Cash Flow Hedges
The Company holds Mexican peso-denominated foreign currency forward contracts with a notional ~~amounts~~amount at September 30, ~~2017~~2021 of ~~$1,399~~$12,653 which expire ratably on a monthly basis from October ~~2017 through December 2017, compared~~2021 to aJune 2022. The notional amount ~~of $5,699~~ at December 31, ~~2016.~~
2020 related to Mexican peso-denominated foreign currency forward contracts was $1,242.
The Company evaluated the effectiveness of the Mexican ~~peso-denominated foreign currency~~peso and U.S. dollar-denominated forward contracts held as of September 30, ~~2017 and December 31, 2016~~2021 and concluded that the hedges were ~~highly~~ effective.
Interest Rate Risk
Interest Rate Risk – Cash Flow Hedge
On February 18, 2020, the Company entered into a floating-to-fixed interest rate swap agreement (the “Interest Rate Swap”) with a notional amount of $50,000 to hedge its exposure to interest payment fluctuations on a portion of its Credit Facility. The Interest Rate Swap was designated as a cash flow hedge of the variable interest rate obligation under the Company's Credit Facility that has a current balance of $130,000 at September 30, 2021. Accordingly, the change in fair value of the Interest Rate Swap is recognized in accumulated other comprehensive loss. The Interest Rate Swap agreement requires monthly settlements on the same days that the Credit Facility interest payments are due and has a maturity date of March 10, 2023, which is prior to the Credit Facility maturity date of June 4, 2024. Under the Interest Rate Swap terms, the Company pays a fixed interest rate and receives a floating interest rate based on the one-month LIBOR, with a floor. The critical terms of the Interest Rate Swap are aligned with the terms of the Credit Facility, resulting in no hedge ineffectiveness. The difference between amounts to be received and paid under the Interest Rate Swap is recognized as a component of interest expense, net on the condensed consolidated statements of operations. The Interest Rate Swap settlements increased interest expense by $165 and $156 for the three months ended September 30, 2021 and 2020, respectively. The Interest Rate Swap settlements increased interest expense by $486 and $274 for the nine months ended September 30, 2021 and 2020, respectively.

14
Table of Contents
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
The notional amounts and fair values of derivative instruments in the condensed consolidated balance sheets were as follows:
Prepaid expenses Accrued expenses and
Notional amounts^(A) and other current assets other current liabilities
September 30, December 31, September 30, December 31, September 30, December 31,
2017 2016 2017 2016 2017 2016
Derivatives designated as hedging instruments:
Cash flow hedges:
Forward currency contracts $ 1,399 $ 5,699 $ 237 $ - $ - $ 28
Derivatives not designated as hedging instruments:
Forward currency contracts $ 1,187 $ 1,601 $ - $ - $ 37 $ 3

Prepaid expenses

Accrued expenses and

Notional amounts ^(A)

and other current assets

other current liabilities

September 30,

December 31,

September 30,

December 31,

September 30,

December 31,


2021

2020

2021

2020

2021

2020
Derivatives designated as hedging instruments:

Cash flow hedges:

Forward currency contracts

$
12,653

$
1,242

$
-

$
255

$
48

$
-
Interest rate swap

$
50,000

$
50,000

$
-

$
-

$
859

$
1,318
Net investment hedges:

Cross-currency swaps

$
50,000

$
-

$
607

$
-

$
-

$
-
(A) Notional amounts represent the gross contract of the derivatives outstanding in U.S. dollars.
Gross amounts recorded for the cash flow and net investment hedges in other comprehensive (loss) income and in net income (loss) for the three months ended September 30 were as follows:

Gain (loss) reclassified from

Gain (loss) recorded in other

other comprehensive income

comprehensive income (loss)

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


2021

2020

2021

2020
Derivatives designated as cash flow hedges:

Forward currency contracts

$
(150)

$
642

$
155

$
(499)
Interest rate swap

$
(29)

$
(3)

$
(165)

$
(156)
Derivatives designated as net investment hedges:

Cross-currency swaps

$
573

$
-

$
-

$
-
(A) Gains (losses) reclassified from other comprehensive loss into net income (loss) recognized in selling, general and administrative expenses (“SG&A”) in the Company’s condensed consolidated statements of operations were $31 and $(112) for the three months ended September 30, 2021 and 2020, respectively. Gains (losses) reclassified from other comprehensive loss into net income (loss) recognized in cost of goods sold (“COGS”) in the Company’s condensed consolidated statements of operations were $124 and $(387) for the three months ended September 30, 2021 and 2020, respectively. Losses reclassified from other comprehensive loss into net income (loss) recognized in interest expense, net in the Company’s condensed consolidated statements of operations were $(165) and $(156) for the three months ended September 30, 2021 and 2020, respectively.

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

Gain (loss) reclassified from

Gain (loss) recorded in other

other comprehensive income

comprehensive income (loss)

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


2021

2020

2021

2020
Derivatives designated as cash flow hedges:

Forward currency contracts

$
154

$
(1,962)

$
457

$
(1,602)
Interest rate swap

$
(27)

$
(1,715)

$
(486)

$
(274)
Derivatives designated as net investment hedges:

Cross-currency swaps

$
573

$
-

$
-

$
-

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 $ 717 $ (656 ) $ 452 $ (183 )
~~(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 on the cash flow hedge derivatives will be reclassified from other comprehensive income (loss) to the condensed consolidated statements of operations through December 2017.
14
15
Table of Contents
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise ~~indicated)~~
~~(Unaudited)~~
stated)
(Unaudited)
(A) Gains (losses) reclassified from other comprehensive loss into net income (loss) recognized in SG&A in the Company’s condensed consolidated statements of operations were $120 and $(347) for the nine months ended September 30, 2021 and 2020, respectively. Gains (losses) reclassified from other comprehensive loss into net income (loss) recognized in COGS in the Company’s condensed consolidated statements of operations were $337 and $(1,226) for the nine months ended September 30, 2021 and 2020, respectively. Gains (losses) reclassified from other comprehensive loss into net income (loss) recognized in design and development (“D&D”) in the Company’s condensed consolidated statements of operations were $0 and $(29) for the nine months ended September 30, 2021 and 2020, respectively. Losses reclassified from other comprehensive loss into net income (loss) recognized in interest expense, net in the Company’s condensed consolidated statements of operations were $(486) and $(274) for the nine months ended September 30, 2021 and 2020, respectively.

For the nine months ended September 30, 2021, the total net losses on the foreign currency contract cash flow hedges of $48 are expected to be included in COGS, SG&A and D&D within the next 12 months. Of the total net losses on the Interest Rate Swap cash flow hedge, $637 of losses are expected to be included in interest expense, net within the next 12 months and $222 of losses are expected to be included in interest expense, net in subsequent periods.

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

Fair Value Measurements
~~The Company’s~~Certain assets and liabilities held by the Company are measured at fair value on a recurring basis and are categorized using the three levels of the fair value hierarchy based on the reliability of the inputs used. Fair values estimated using Level 1 inputs consist of quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Fair values estimated using Level 2 inputs, other than quoted prices, are observable for the asset or liability, either directly or indirectly and include among other things, quoted prices for similar assets or liabilities in markets that are active or inactive as well as inputs other than quoted prices that are observable. For forward currency and cross-currency contracts, inputs include forward foreign currency exchange rates. For the interest rate swap, inputs include LIBOR. Fair values estimated using Level 3 inputs consist of significant unobservable inputs.
The following table presents our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the three levels of the fair value hierarchy based on the reliability of inputs used.

September 30,

December 31,

2021

2020

Fair values estimated using

Fair

Level 1

Level 2

Level 3

Fair


value

inputs

inputs

inputs

value
Financial assets carried at fair value:

Forward currency contract

$
-

$
-

$
-

$
-

$
255
Cross-currency swaps

607

-

607

-

-
Total financial assets carried at fair value

$
607

$
-

$
607

$
-

$
255

Financial liabilities carried at fair value:

Forward currency contracts

$
48

$
-

$
48

$
-

$
-
Interest rate swap

859

-

859

-

1,318
Earn-out consideration

6,914

-

-

6,914

5,813
Total financial liabilities carried at fair value

$
7,821

$
-

$
907

$
6,914

$
7,131
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

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

Stoneridge Brazil


2021

2020
Balance at January 1

$
5,813

$
12,011
Change in fair value

1,453

(3,045)
Foreign currency adjustments

(352)

(3,472)
Balance at September 30

$
6,914

$
5,494
16
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
Table of Contents
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)

The Company will be required to pay the Stoneridge Brazil earn-out ~~considerations~~consideration, which is not capped, based on Stoneridge Brazil’s financial performance in 2021. The fair value of the Stoneridge Brazil earn-out consideration is based on discounted cash flows utilizing forecasted earnings before interest, depreciation and amortization (“EBITDA”) in 2021 using the key inputs of forecasted sales and expected operating income reduced by the market required rate of return. The earn-out consideration obligation related to ~~Orlaco and PST are~~Stoneridge Brazil is recorded within accrued expenses and other ~~long-term~~current liabilities onin the condensed consolidated balance ~~sheet.~~sheets as of September 30, 2021 and other long-term liabilities in the consolidated balance sheets as of December 31, 2020.
The ~~increase~~change in fair value of the earn-out consideration ~~related to the Orlaco acquisition is primarily~~for Stoneridge Brazil was due to ~~actual~~updated financial performance ~~exceeding forecasted performance as well as~~projections and favorable foreign currency translation offset by the reduced time from the current period end to the payment ~~date and foreign currency.~~date. The ~~increase~~change in fair value of the Stoneridge Brazil earn-out consideration ~~for PST~~ was ~~due to~~recorded in SG&A expense and the ~~reduced time from the current period end to the payment date, which was partially offset by~~ foreign currency ~~translation. The fair value~~impact was included in other expense (income), net in the condensed consolidated statements 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)~~
operations.
There were no0 transfers in or out of Level 3 from other levels in the fair value hierarchy for the nine months ended September 30, ~~2017.~~2021.

~~Except~~Impairment of Long-Lived Assets or Finite-Lived Assets

The Company reviews the carrying value of its long-lived assets and finite-lived intangible assets for impairment when events or circumstances indicate that their carrying value may not be recoverable. Factors the Company considers important that could trigger testing of the related asset groups for an impairment include current period operating or cash flow losses combined with a history of operating or cash flow losses, a projection or forecast that demonstrates continuing losses, significant adverse changes in the business climate within a particular business or current expectations that a long-lived asset will be sold or otherwise disposed of significantly before the end of its estimated useful life. To test for impairment, the estimated undiscounted cash flows expected to be generated from the use and disposal of the asset or asset group is compared to its carrying value. An asset group is established by identifying the lowest level of cash flows generated by the group of assets that are largely independent of cash flows of other assets. If cash flows cannot be separately and independently identified for a single asset, we will determine whether an impairment has occurred for the group of assets for which we can identify projected cash flows. If these undiscounted cash flows are less than their respective carrying values, an impairment charge would be recognized to the extent that the carrying values exceed estimated fair values. The estimation of undiscounted cash flows and fair value requires us to make assumptions regarding future operating results over the life of the asset or the life of the primary asset in the asset group. The results of the impairment testing are dependent on these estimates which require judgment. The occurrence of certain events, including changes in economic and competitive conditions, could impact cash flows eventually realized and management’s ability to accurately assess whether an asset is impaired.

On May 19, 2020, the Company committed to the strategic exit of its Control Devices particulate matter (“PM”) sensor product line. As a result of the strategic exit of the PM sensor product line the Company determined an impairment indicator existed and performed a recoverability test of the related long-lived assets. The Company identified that there were two asset groups comprised of PM sensor fixed assets at the Company’s Lexington, Ohio and Tallinn, Estonia facilities. As a result of the recoverability test performed, the Company determined that the undiscounted cash flows did not exceed the carrying value of the PM sensor fixed assets at the Company’s Tallinn, Estonia facility. As such, an impairment loss of $2,326 was recorded based on the difference between the fair value and the carrying value of the assets. The Company used the income approach to determine the fair value of the PM sensor fixed assets ~~acquired~~at the Tallinn, Estonia facility. During the nine months ended September 30, 2020, the impairment loss of $2,326 was recorded on the Company’s condensed consolidated statement of operations within selling, general and ~~liabilities assumed related to~~administrative expense. The inputs utilized in the ~~Orlaco acquisition discussed in Note~~analyses are classified as Level 3 ~~there were no non-recurring~~inputs within the fair value ~~measurements for the periods presented.~~hierarchy as defined in ASC 820, "Fair Value Measurement."

17
Table of Contents
~~(7)~~STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
(6) Share-Based Compensation
Compensation expense for share-based compensation arrangements, which is recognized in the condensed consolidated statements of operations as a component of SG&A expenses, was ~~$1,648~~$1,924 and ~~$1,699~~$1,430 for the three months ended September 30, ~~2017~~2021 and ~~2016,~~2020, respectively. ~~For~~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 $4,685 and $3,535 for the nine months ended September 30, 2021 and 2020, respectively. The expenses related to share-based compensation awards for the three and nine months ended September 30, ~~2017 total share-based compensation was $5,713 compared to $4,587 for~~2021 were higher than the three and nine months ended September 30, ~~2016. The nine months ended September 30, 2017 included expenses related~~2020 due to ~~higher~~the recognition of reduced attainment of ~~performance based~~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.during 2020.
~~(8)~~(7) Debt
Debt consisted of the following at September 30, ~~2017~~2021 and December 31, ~~2016:~~2020:

September 30,

December 31,

Interest rates at


2021

2020

September 30, 2021

Maturity
Revolving Credit Facility

Credit Facility

$
130,000

$
136,000

1.95%

June 2024

Debt

Stoneridge Brazil short-term obligations

99

1,561

8.80%

November 2021
Sweden short-term credit line

-

1,591

Suzhou short-term credit line

1,551

4,521

4.30%

May 2022
Total debt

1,650

7,673

Less: current portion

(1,650)

(7,673)

Total long-term debt, net

$
-

$
-

September 30, December 31, Interest rates at
2017 2016 September 30, 2017 Maturity
Revolving Credit Facility
Credit Facility $ 126,000 $ 67,000 2.49 % September 2021

Debt
PST short-term obligations - 5,097
PST long-term notes 9,475 11,452 10.0% - 13.4 % 2019-2021
Other 48 137
Total debt 9,523 16,686
Less: current portion (4,421 ) (8,626 )
Total long-term debt, net $ 5,102 $ 8,060
Revolving Credit Facility
On ~~November 2, 2007,~~June 5, 2019, 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~~the Fourth Amended and Restated Credit Agreement (the “Credit Facility”). The Credit Facility provides for a $400,000 senior secured revolving credit facility and ~~Security Agreement~~it replaced and ~~a Second Amended and Restated Credit and Security Agreement on September 20, 2010 and December 1, 2011, respectively.~~
~~On September 12, 2014,~~superseded the ~~Company entered into a~~ Third Amended and Restated Credit Agreement ~~(the “Amended Agreement” or “Credit Facility”). The Amended Agreement provides~~that provided 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.~~facility. The ~~Amended Agreement also~~Credit Facility has an accordion feature which allows the Company to increase the availability by up to ~~$80,000~~$150,000 upon the satisfaction of certain ~~conditions.~~conditions and includes a letter of credit subfacility, swing line subfacility and multicurrency subfacility. The ~~Amended Agreement extended the~~Credit Facility has a 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.
16
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data, unless otherwise indicated)~~
~~(Unaudited)~~
June 5, 2024. Borrowings under the ~~Amended Agreement~~Credit Facility bear interest at either the Base Rate ~~as defined,~~ or the LIBOR ~~Rate,~~rate, at the Company’s option, plus the applicable margin as set forth in the ~~Amended Agreement.~~Credit Facility. 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~~Credit Facility contains certain financial covenants that require the Company to maintain less than a maximum leverage ratio ~~of 3.00 to 1.00,~~ and more than a minimum interest coverage ~~ratio~~ratio.

18
Table of ~~3.50 to 1.00~~Contents
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
The Credit Facility contains customary affirmative covenants and ~~places a maximum annual limit on capital expenditures.~~representations. The ~~Amended Agreement~~Credit Facility also contains ~~other affirmative and~~customary negative covenants, which, among other things, are subject to certain exceptions, including restrictions on (i) indebtedness, (ii) liens, (iii) liquidations, mergers, consolidations and acquisitions, (iv) disposition of assets or subsidiaries, (v) affiliate transactions, (vi) creation or ownership of certain subsidiaries, partnerships and joint ventures, (vii) continuation of or change in business, (viii) restricted payments, (ix) prepayment of subordinated and junior lien indebtedness, (x) restrictions in agreements on dividends, intercompany loans and granting liens on the collateral, (xi) loans and investments, (xii) sale and leaseback transactions, (xiii) changes in organizational documents and fiscal year and (xiv) transactions with respect to bonding subsidiaries. The Credit Facility contains customary events of default, ~~that are~~subject to customary ~~for credit arrangements~~thresholds and exceptions, including, among other things, (i) non-payment of ~~this type including~~principal and non-payment of interest and fees, (ii) a material inaccuracy of a representation or warranty at the time made, (iii) a failure to comply with any covenant, subject to customary grace periods in the case of certain affirmative covenants, ~~which place restrictions and/~~(iv) cross default of other debt, final judgments and other adverse orders in excess of $30,000, (v) any loan document shall cease to be a legal, valid and binding agreement, (vi) certain uninsured losses or ~~limitations~~proceedings against assets with a value in excess of $30,000, (vii) ERISA events, (viii) a change of control, or (ix) bankruptcy or insolvency proceedings.

Due to the expected impact of the COVID-19 pandemic on the Company’s ~~ability~~end-markets and the resulting expected financial impacts to ~~borrow money, make capital expenditures~~the Company, on June 26, 2020, the Company entered into a Waiver and ~~pay dividends.~~Amendment No. 1 to the Fourth Amended and Restated Credit Agreement (“Amendment No. 1”). Amendment No. 1 provided for certain covenant relief and restrictions during the “Covenant Relief Period” (the period ending on the date that the Company delivers a compliance certificate for the quarter ending June 30, 2021 in form and substance satisfactory to the administrative agent). The Covenant Relief Period ended on August 14, 2021. During the Covenant Relief Period:

● the maximum net leverage ratio was suspended;
● the calculation of the minimum interest coverage ratio excluded second quarter 2020 financial results effective for the quarters ended September 30, 2020 through March 31, 2021;
● the minimum interest coverage ratio of 3.50 was reduced to 2.75 and 3.25 for the quarters ended December 31, 2020 and March 31, 2021, respectively;
● the Company’s liquidity could not be less than $150,000;
● the Company’s aggregate amount of cash and cash equivalents could not exceed $130,000;
● there were certain restrictions on Restricted Payments (as defined); and
● a Permitted Acquisition (as defined) could not be consummated unless otherwise approved in writing by the required lenders.

Amendment No. 1 changed the leverage based LIBOR pricing grid through the maturity date of the Credit Facility and also provides for a LIBOR floor of 50 basis points on outstanding borrowings excluding any Specified Hedge Borrowings (as defined) which remain subject to a LIBOR floor of 0 basis points. As of September 30, 2021, Specified Hedge Borrowings were $50,000.

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

Borrowings outstanding on the Credit Facility were ~~$126,000~~$130,000 and ~~$67,000~~$136,000 at September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, respectively. Borrowings increased under the Credit Facility 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~~credit facility covenants at September 30, ~~2017~~2021 and December 31, ~~2016.~~2020.

The Company also has outstanding letters of credit of ~~$3,367~~$1,703 and ~~$3,399~~$1,720 at September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, respectively.

Debt
~~PST~~Stoneridge Brazil maintains ~~several long-term~~short-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~~rate of ~~long-term~~short-term debt of ~~PST~~Stoneridge Brazil at September 30, ~~2017~~2021 was ~~11.7%~~8.8%. Depending on the specific note, interest is payable either monthly or annually. Principal repayments of $99 on ~~PST~~Stoneridge Brazil debt at September 30, ~~2017~~2021 are ~~as follows: $4,373 from October 2017 through September 2018, $1,211 from October 2018 through December 2018, $2,685 in 2019, $629 in 2020, and $577~~due in 2021. ~~PST was~~
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STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in ~~compliance with all debt covenants at September 30, 2017 and December 31, 2016.~~thousands, except per share data, unless otherwise stated)
(Unaudited)
The ~~Company's~~Company’s wholly-owned subsidiary located in ~~Stockholm,~~ Sweden, has an overdraft credit line which allows overdrafts on the ~~subsidiary's~~subsidiary’s bank account up to a daily maximum level of 20,000 Swedish krona, or ~~$2,455~~$2,283 and ~~$2,196,~~$2,435, at September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, respectively. At September 30, ~~2017 and December 31, 2016,~~2021 there ~~was no balance~~were 0 borrowings outstanding on this overdraft credit line. At December 31, 2020 there was 13,072 Swedish krona, or $1,591, outstanding on this overdraft credit line. During the nine months ended September 30, 2021, the subsidiary borrowed 243,347 Swedish krona, or $27,784, and repaid 256,418 Swedish krona, or $29,277.
The Company’s wholly-owned subsidiary located in Suzhou, China (the “Suzhou subsidiary”), has two credit lines (the “Suzhou credit line”) which allow up to a maximum borrowing level of 50,000 Chinese yuan, or $7,758 and $7,663 at September 30, 2021, and December 31, 2020. At September 30, 2021 and December 31, 2020 there was $1,551 and $4,521, respectively, in borrowings outstanding on the Suzhou credit line with weighted-average interest rates of 4.30% and 4.32%, respectively. The Suzhou credit line is included on the condensed consolidated balance sheet within current portion of debt. In addition, the Suzhou subsidiary has a bank acceptance draft line of credit which facilitates the extension of trade payable payment terms by 180 days. This bank acceptance draft line of credit allows up to a maximum borrowing level of 15,000 Chinese yuan, or $2,327 and $2,299, at September 30, 2021 and December 31, 2020, respectively. There was $0 and $414 utilized on the Suzhou bank acceptance draft line of credit at September 30, 2021 and December 31, 2020, respectively.

(8) Leases
The Company, as lessor, entered into a lease with a third-party lessee effective July 1, 2020, for our Canton, Massachusetts facility. In conjunction with the Canton restructuring plan outlined in Note 12, the Company ceased operations at this facility in March 2020. As discussed in Note 16, the Company sold the Canton facility and assigned the lease to the buyer on June 17, 2021. The Company recognized lease income on a straight-line basis over the lease term until the time of the sale. The Company recognized operating and variable lease income from the lease in our condensed consolidated statements of operations of $602 and $199, respectively, for the nine months ended September 30, 2021. The Company recognized operating and variable lease income from leases in our condensed consolidated statements of operations of $354 and $99, respectively, for both the three and nine months ended September 30, 2020.

(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. AsHowever, for all periods in which the Company ~~adopted ASU 2016-09 on January 1, 2017 utilizing~~recognized a net loss, the ~~prospective transition method,~~Company did not recognize the ~~weighted-average~~effect of the potential dilutive ~~Common Shares calculation excludes the excess tax benefit from the treasury stock method~~securities as their inclusion would be anti-dilutive. Potential dilutive shares of 239,254 for the three ~~and~~months ended September 30, 2021 were excluded from diluted loss per share because the effect would be anti-dilutive. Potential dilutive shares of 265,335 for the nine months ended September 30, ~~2017, while the calculation includes the excess tax benefits using the treasury stock method for the three and nine months ended September 30, 2016.~~
17
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except~~2020 were excluded from diluted loss per share ~~data, unless otherwise indicated)~~
~~(Unaudited)~~
because the effect would be anti-dilutive.
Weighted-average Common Shares outstanding used in calculating basic and diluted earnings per share were as follows:

Three months ended

Nine months ended

September 30,

September 30,


2021

2020

2021

2020

Basic weighted-average Common Shares outstanding

27,147,150

26,956,286

27,100,484

27,046,899

Effect of dilutive shares

-

266,596

331,034

-

Diluted weighted-average Common Shares outstanding

27,147,150

27,222,882

27,431,518

27,046,899

Three months ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
Basic weighted-average Common Shares outstanding 28,135,705 27,792,469 28,062,438 27,753,015
Effect of dilutive shares 516,637 566,808 550,188 513,074
Diluted weighted-average Common Shares outstanding 28,652,342 28,359,277 28,612,626 28,266,089

There were ~~no performance-based restricted Common Shares outstanding at September 30, 2017 or 2016. There were 781,977~~591,256 and ~~843,140~~755,654 performance-based right to receive Common Shares outstanding at September 30, ~~2017~~2021 and ~~2016,~~2020, 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.
18
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STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise ~~indicated)~~stated)
(Unaudited)
(10) ~~Changes in~~Equity and Accumulated Other Comprehensive Loss ~~by Component~~
Common Share Repurchase

On October 26, 2018, the Company’s Board of Directors authorized the Company to repurchase up to $50,000 of Common Shares. Thereafter, on May 7, 2019, the Company entered into a Master Confirmation (the “Master Confirmation”) and a Supplemental Confirmation, together with the Master Confirmation, the Accelerated Share Repurchase Agreement (“ASR Agreement”), with Citibank N.A. (the “Bank”) to purchase Company Common Shares for a payment of $50,000 (the “Prepayment Amount”). Under the terms of the ASR Agreement, on May 7, 2019, the Company paid the Prepayment Amount to the Bank and received on May 8, 2019 an initial delivery of 1,349,528 Company Common Shares, which approximated 80% of the total number of Company Common Shares expected to be repurchased under the ASR Agreement based on the closing price of the Company’s Common Shares on May 7, 2019. These Common Shares became treasury shares and were recorded as a $40,000 reduction to shareholder’s equity. The remaining $10,000 of the Prepayment Amount was recorded as a reduction to shareholders’ equity as an unsettled forward contract indexed to our Common Shares.

On February 25, 2020, the Bank notified the Company that it terminated early its commitment pursuant the ASR Agreement and would deliver 364,604 Common Shares on February 27, 2020 based on the volume weighted average price of our Common Shares during the term set forth in the ASR Agreement. The Bank’s notice of early termination and the subsequent delivery of Common Shares represents the final settlement of the Company’s share repurchase program pursuant to the accelerated share repurchase agreement. These Common Shares became treasury shares and were recorded as a $10,000 reduction to shareholders’ equity as Common Shares held in treasury with the offset of $10,000 to additional paid-in capital.

On February 24, 2020, the Company’s Board of Directors authorized a new repurchase program of $50,000 for the repurchase of the Company’s outstanding Common Shares over the next 18 months. The repurchases could be made from time to time in either open market transactions or in privately negotiated transactions. Repurchases could also be made under Rule 10b-18 plans, which permit Common Shares to be repurchased through pre-determined criteria.

On March 3, 2020, under the new repurchase program the Company entered into a 10b-18 Agreement Letter (the “10b-18 Agreement”), with the Bank to purchase Company Common Shares, under purchasing conditions of Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended (“Rule 10b-18”), for up to $5,000. Under the terms of the 10b-18 Agreement, commencing March 3, 2020 and ending March 6, 2020, the Company received delivery of a total of 242,634 Company Common Shares for the amount of $4,995. These Common Shares became treasury shares and were recorded as a $4,995 reduction to shareholders’ equity as Common Shares held in treasury. In April 2020, the Company announced that it was temporarily suspending the previously announced share repurchase program in response to uncertainty surrounding the duration and magnitude of the impact of COVID-19. The 2020 repurchase program authorization expired during the third quarter of 2021 and no additional shares will be repurchased under this program.

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STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive loss for the three months ended September 30, ~~2017~~2021 and ~~2016~~2020 were as follows:

Foreign

Unrealized

currency

gain (loss)



translation


on derivatives

Total
Balance at July 1, 2021

$
(92,401)

$
(583)

$
(92,984)
Other comprehensive loss before reclassifications

(7,100)

(141)

(7,241)
Amounts reclassified from accumulated other comprehensive loss

-

8

8
Net other comprehensive loss, net of tax

(7,100)

(133)

(7,233)
Balance at September 30, 2021

$
(99,501)

$
(716)

$
(100,217)

Balance at July 1, 2020

$
(106,770)

$
(2,445)

$
(109,215)
Other comprehensive income before reclassifications

5,975

505

6,480
Amounts reclassified from accumulated other comprehensive loss

-

517

517
Net other comprehensive income, net of tax

5,975

1,022

6,997
Balance at September 30, 2020

$
(100,795)

$
(1,423)

$
(102,218)

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~~2021 and ~~2016~~2020 were as follows:

Foreign

Unrealized

currency

gain (loss)



translation


on derivatives

Total
Balance at January 1, 2021

$
(88,795)

$
(840)

$
(89,635)
Other comprehensive (loss) income before reclassifications

(10,706)

100

(10,606)
Amounts reclassified from accumulated other comprehensive loss

-

24

24
Net other comprehensive (loss) income, net of tax

(10,706)

124

(10,582)
Balance at September 30, 2021

$
(99,501)

$
(716)

$
(100,217)

Balance at January 1, 2020

$
(91,472)

$
0

$
(91,472)
Other comprehensive loss before reclassifications

(9,323)

(2,905)

(12,228)
Amounts reclassified from accumulated other comprehensive loss

-

1,482

1,482
Net other comprehensive loss, net of tax

(9,323)

(1,423)

(10,746)
Balance at September 30, 2020

$
(100,795)

$
(1,423)

$
(102,218)
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 )

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Click or tap here to enter text.
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data, unless otherwise indicated)~~
~~(Unaudited)~~
(11) Commitments and Contingencies
~~In the ordinary course of business, the Company is~~From time to time we are subject to ~~a broad range~~various legal actions and claims incidental to our business, including those arising out of ~~claims and legal proceedings that relate to contractual allegations,~~breach of contracts, product warranties, product liability, ~~tax audits,~~ patent infringement, ~~employment-related~~regulatory matters and ~~environmental~~employment-related matters. The Company establishes accruals for matters which it believes that losses are probable and can be reasonably ~~estimable.~~estimated. Although it is not possible to predict with certainty the outcome of these matters, the Company is of the opinion that the ultimate resolution of these matters will not have a material adverse effect on its consolidated results of operations or financial position.
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STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
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~~site and 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 months ended September 30, 2021 and 2020, the Company recognized expense of $0 and $3, respectively, related to groundwater remediation. During the nine months ended September 30, ~~2017~~2021 and ~~2016, environmental remediation costs incurred were immaterial.~~2020, the Company recognized expense of $407 and $108, respectively, related to groundwater remediation. At September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, the Company accrued ~~a remaining undiscounted liability of $267~~$434 and ~~$446,~~$180, respectively, related to expected future remediation costs. At September 30, ~~2017~~2021 and December 31, ~~2016, $218~~2020, $258 and ~~$370,~~$180, respectively, were recorded as a component of accrued expenses and other current liabilities in the condensed consolidated balance sheets while the remaining amount as of September 30, 2021 was recorded as a component of other long-term liabilities. Costs associated with the recorded liability will be incurred to complete the groundwater remediation ~~with the balance relating to monitoring costs to be incurred over multiple years.~~and monitoring. The recorded liability is based on assumptions in the remedial action ~~plan.~~plan as well as estimates for future remediation activities. Although the Company sold the Sarasota facility and related property in December 2011, the liability to remediate the site contamination remains the responsibility of the Company. Due to the ongoing site remediation, the ~~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.
~~During the third quarter of 2017, the Company resolved a legal proceeding,~~~~Verde v.~~The Company’s Stoneridge ~~Inc. et al~~., that was pending 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.
~~Royal v. Stoneridge, Inc. et al.~~ is 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 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 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 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 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 by the Court, 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 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 also file a motion requesting incentive payments to each of the three named Plaintiffs in an amount not to exceed $5 each, and the Company has agreed not to object to any request that does not exceed $15 total and to pay the amount of any award that does not exceed $15 total. 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 of $525 for these claims has been recorded as a component of accrued expenses and other current liabilities at September 30, 2017.
20
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data, unless otherwise indicated)~~
~~(Unaudited)~~
On May 24, 2013, the State Revenue Services of São Paulo issued a tax deficiency notice against PST claiming that the vehicle tracking and monitoring services it provides should be classified as communication services, and therefore subject to the State Value Added Tax – ICMS. The State Revenue Services assessment imposed the 25.0% ICMS tax on all revenues of PST related to the vehicle tracking and monitoring services rendered during the period from January 2009 through December 2010. The Brazilian real (“R$”) 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 ($3,600).
The Company believes that the vehicle tracking and monitoring services are non-communication services, as defined under Brazilian tax law, subject to the municipal ISS tax, not communication services subject to state ICMS tax as claimed by the State Revenue Services of São Paulo. PST has, and will continue to collect the municipal ISS tax on the vehicle tracking and monitoring services in compliance with Brazilian tax law and will defend its tax position. PST has received a legal opinion that the merits of the case are favorable to PST, determining among other things that the imposition on theBrazil subsidiary of the State ICMS by the State Revenue Services of São Paulo is not in accordance with the Brazilian tax code. The Company believes, based on the legal opinion of the Company’s Brazilian legal counsel and the results of the Brazil Administrative Court's ruling in favor of another vehicle tracking and monitoring company related to the tax deficiency notice it received, the likelihood of loss is reasonably possible, but not probable, although it may take years to resolve. As a result of the above, as of September 30, 2017 and December 31, 2016, no accrual has been recorded with respect to the tax assessment. An unfavorable judgment on this issue for the years assessed and for subsequent years could result in significant costs to PST and adversely affect its results of operations. There have been no significant changes to the facts and circumstances related to this notice for the three months ended September 30, 2017.
~~In addition, PST~~ has civil, labor and other tax contingencies (excluding income tax) for which the likelihood of loss is deemed to be reasonably possible, but not probable, by the Company’s legal advisors in Brazil. As a result, no provision has been recorded with respect to these contingencies, which amounted to R$~~34,900~~45,127 ($~~11,000)~~8,296) and R$~~31,800~~43,736 ($~~9,800)~~8,416) at September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, respectively. An unfavorable outcome on these contingencies could result in significant cost to ~~PST~~the Company and adversely affect its results of operations.
On August 12, 2020, the Brazilian Administrative Counsel for Economic Defense (“CADE”) issued a ruling against Stoneridge Brazil for abuse of dominance and market foreclosure through its prior use of exclusivity provisions in agreements with its distributors. The CADE tribunal imposed a R$7,995 ($1,598) fine which is included in the reasonably possible contingencies noted above. The Company is challenging this ruling in Brazilian federal court to reverse this decision by the CADE tribunal.

Product Warranty and Recall
Amounts accrued for product warranty and recall claims are established based on the ~~Company's~~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.~~considerations. Our estimate is based on historical trends of units sold and claim payment amounts, combined with our current understanding of the status of existing claims and discussions with our customers. The key factors in our estimate are the stated or implied warranty period, the customer source, customer policy decisions regarding warranties and customers seeking to hold the Company responsible for their product warranties. 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.~~accrued. 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~~$3,255 and ~~$2,617~~$3,647 of a long-term liability at September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, respectively, which is included as a component of other long-term liabilities in the condensed consolidated balance sheets.

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

Nine months ended September 30

2021

2020
Product warranty and recall at beginning of period

$
12,691

$
10,796
Accruals for warranties established during period

5,125

4,817
Aggregate changes in pre-existing liabilities due to claim developments

49

1,137
Settlements made during the period

(7,990)

(4,630)
Foreign currency translation

(317)

42
Product warranty and recall at end of period

$
9,558

$
12,162

Brazilian Indirect Tax

In 2019, the Company received judicial notification that the Superior Judicial Court of Brazil rendered a favorable decision on Stoneridge Brazil’s case granting the Company the right to recover, through offset of federal tax liabilities, amounts collected by the government from June 2010 to February 2017. As a result, the Company recorded a pre-tax benefit of $6,473 in the year ended December 31, 2019.

The ~~following provides~~Brazilian tax authorities have sought clarification before the Supreme Court of Brazil (in a ~~reconciliation~~leading case involving another taxpayer) of ~~changes in product warranty and recall liability:~~ certain matters that could affect the rights of Brazilian taxpayers regarding these credits. The leading case was decided on May 13, 2021. The Company does not expect any impact to amounts previously recognized as a result of the Supreme Court decision.

Nine months ended September 30 2017 2016
Product warranty and recall at beginning of period $ 9,344 $ 6,419
Accruals for products shipped during period 6,408 3,010
Assumed warranty liability related to Orlaco 1,462 -
Aggregate changes in pre-existing liabilities due to claim developments 1,616 (272 )
Settlements made during the period (9,062 ) (1,332 )
Product warranty and recall at end of period $ 9,768 $ 7,825
(12) Business Realignment and ~~Corporate Headquarter Relocation~~Restructuring
On May 19, 2020, the Company committed to the strategic exit of its Control Devices particulate matter (“PM”) sensor product line. The decision to exit the PM sensor product line was made after consideration of the decline in the market outlook for diesel passenger vehicles, the current and expected profitability of the product line and the Company’s strategic focus on aligning resources with the greatest opportunities. In conjunction with the strategic exit of the PM sensor product line, the Company entered into an asset purchase agreement related to the sale of the PM sensor product line during the first quarter of 2021. Refer to Note 16 of the condensed consolidated financial statements for additional details regarding the sale.
~~Business Realignment~~As a result of the PM sensor restructuring actions, the Company recognized expense of $675 and $342 for the three months ended September 30, 2021 and 2020, respectively, for non-cash fixed asset charges, including accelerated depreciation of PM sensor related fixed assets, employee severance and termination costs and other related costs. For the three months ended September 30, 2021 restructuring related costs of $605, $(31) and $101 were recognized in COGS, SG&A and D&D, respectively. For the three months ended September 30, 2020 restructuring related costs of $340 and $2 were recognized in COGS and SG&A, respectively. The Company recognized expense of $2,329 and $2,894 for the nine months ended September 30, 2021 and 2020, respectively, for non-cash fixed asset charges, including impairment and accelerated depreciation of PM sensor related fixed assets, employee severance and termination costs and other related costs. For the nine months ended September 30, 2021 restructuring related costs of $1,505, $642 and $182 were recognized in COGS, SG&A and D&D, respectively. For the nine months ended September 30, 2020 restructuring related costs of $503 and $2,391 were recognized in COGS and SG&A, respectively. The only remaining costs relate to potential commercial settlements and legal fees which we continue to negotiate. The estimated range of additional cost related to these settlements and fees is approximately $1,400 to $4,200.

24
Table of Contents
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
The expenses for the exit of the PM sensor line that relate to the Control Devices reportable segment include the following:

Accrual as of

2021 Charge

Utilization

Accrual as of

January 1, 2021

to Expense

Cash

Non-Cash

September 30, 2021
Fixed asset impairment and
accelerated depreciation

$
-

$
188

$
-

$
(188)

$
-
Employee termination benefits

-

139

(139)

-

-
Other related costs

-

2,002

(2,002)

-

-
Total

$
-

$
2,329

$
(2,141)

$
(188)

$
-

Accrual as of

2020 Charge

Utilization

Accrual as of

January 1, 2020

to Expense

Cash

Non-Cash

September 30, 2020
Fixed asset impairment and
accelerated depreciation

$
0

$
2,824

$
-

$
(2,824)

$
0
Other related costs

0

70

(70)

-

0
Total

$
0

$
2,894

$
(70)

$
(2,824)

$
0
��

On January 10, 2019, the Company committed to a restructuring plan that resulted in the closure of the Canton, Massachusetts facility (“Canton Facility”) on March 31, 2020 and the consolidation of manufacturing operations at that site into other Company locations (“Canton Restructuring”).  Company management informed employees at the Canton Facility of this restructuring decision on January 11, 2019. The costs for the Canton Restructuring included employee severance and termination costs, contract terminations costs, professional fees and other related costs such as moving and set-up costs for equipment and costs to restore the engineering function previously located at the Canton facility.
As a result of the Canton Restructuring actions, the Company recognized expense of $0 and $197 respectively, for the three months ended September 30, 2021 and 2020 for employee severance and termination costs and other restructuring related costs. For the three months ended September 30, 2020 employee severance and termination costs and other related restructuring costs of $88 and $109 were recognized in COGS and D&D, respectively, in the condensed consolidated statement of operations. The Company recognized expense of $13 and $2,881 respectively, for the nine months ended September 30, 2021 and 2020 for employee severance and termination costs and other restructuring related costs. For the nine months ended September 30, 2021 other restructuring related costs of $13 were recognized in D&D in the condensed consolidated statement of operations. For the nine months ended September 30, 2020 employee severance and termination costs and other related restructuring costs of $1,659, $549 and $673 were recognized in COGS, SG&A and D&D, respectively, in the condensed consolidated statement of operations. We do not expect to incur additional costs related to the Canton Restructuring. Refer to Note 8 and Note 16 to the condensed consolidated financial statements for additional details regarding the third-party lease and sale, respectively, of the Canton facility.
The expenses for the Canton Restructuring that relate to the Control Devices reportable segment include the following:

Accrual as of

2021 Charge

Utilization

Accrual as of

January 1, 2021

to Expense

Cash

Non-Cash

September 30, 2021
Employee termination benefits

$
165

$
-

$
(25)

$
-

$
140
Other related costs

-

13

(13)

-

-
Total

$
165

$
13

$
(38)

$
-

$
140

Accrual as of

2020 Charge

Utilization

Accrual as of

January 1, 2020

to Expense

Cash

Non-Cash

September 30, 2020
Employee termination benefits

$
2,636

$
1,119

$
(3,546)

$
-

$
209
Other related costs

-

1,762

(1,762)

-

-
Total

$
2,636

$
2,881

$
(5,308)

$
-

$
209

25
Table of Contents
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
In the fourth quarter of 2018, the Company undertook restructuring actions for the Electronics segment affecting the European Aftermarket business and China operations. In the second quarter of 2020, the Company finalized plans to move its European Aftermarket sales activities in Dundee, Scotland which resulted in incurring contract termination costs as well as employee severance and termination costs. In addition, the Company announced an additional restructuring program to transfer the European production of its controls product line to China. As a result of these actions, the Company recognized expense of $36 and $567, respectively, for the three months ended September 30, 2021 and 2020 for employee severance and termination costs and other related costs and non-cash fixed asset charges for accelerated depreciation of fixed assets and other related costs. Electronics segment restructuring costs (benefit) recognized in COGS and SG&A in the condensed consolidated statement of operations for the three months ended September 30, 2021 were $34 and $2, respectively. Electronics segment restructuring costs recognized in COGS, SG&A and D&D in the condensed consolidated statement of operations were $132, $383, and $52 for the three months ended September 30, 2020, respectively. The Company recognized expense of $256 and $2,195, respectively, for the nine months ended September 30, 2021 and 2020 for employee severance and termination costs, contract termination costs, other related costs and non-cash fixed asset charges for accelerated depreciation of fixed assets and other related costs. Electronics segment restructuring costs recognized in COGS, SG&A, and D&D in the condensed consolidated statement of operations for the three months ended September 30, 2021 were $37, $176 and $43, respectively. Electronics segment restructuring costs recognized in COGS, SG&A and D&D in the condensed consolidated statement of operations were $132, $1,634 and $429 for the nine months ended September 30, 2020, respectively. The Company expects to incur an immaterial amount of restructuring costs related to these actions through the fourth quarter of 2021.
The expenses for the restructuring activities that relate to the Electronics reportable segment include the following:

Accrual as of

2021 Charge to

Utilization

Accrual as of

January 1, 2021

Expense

Cash

Non-Cash

September 30, 2021
Employee termination benefits

$
227

$
50

$
(212)

$
-

$
65
Other related costs

-

206

(206)

-

-
Total

$
227

$
256

$
(418)

$
-

$
65

Accrual as of

2020 Charge to

Utilization

Accrual as of

January 1, 2020

Expense

Cash

Non-Cash

September 30, 2020
Employee termination benefits

$
52

$
961

$
(743)

$
-

$
270
Contract termination costs

0

452

(452)

0

0
Other related costs

-

782

(782)

-

-
Total

$
52

$
2,195

$
(1,977)

$
-

$
270

In addition to the specific restructuring activities, 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,


2021

2020

2021

2020
Control Devices ^(A)

$
-

$
283

$
192

$
1,702
Electronics ^(B)

(16)

105

(3)

1,410
Stoneridge Brazil ^(C)

-

12

59

165
Unallocated Corporate ^(D)

1,096

1

1,138

311
Total business realignment charges

$
1,080

$
401

$
1,386

$
3,588
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

(A) Severance costs for the three ~~and nine~~ months ended September 30, ~~2017~~2020 related to COGS, D&D, SG&A were ~~$16.~~$70, $35 and $178, respectively. Severance costs for the nine months ended September 30, ~~2017~~2021 related to ~~COGS~~SG&A were ~~$56.~~$192. Severance costs for the nine months ended September 30, ~~2016~~2020 related to COGS, D&D and SG&A were $673, $284 and ~~design and development (“D&D”) were $196 and $984,~~$745, respectively.
26
Table of Contents
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
(B) Severance (benefit) costs for the three months ended September 30, ~~2017~~2021 related to COGS, SG&A and D&D were ~~$17, $19~~$1, $9 and $(26), respectively. Severance costs for the nine months ended September 30, 2021 related to COGS, SG&A and D&D were $1, $(13) and $9, respectively. Severance costs for the three months ended September 30, ~~2016~~2020 related to COGS and SG&A were ~~$20~~$33 and ~~$191,~~$72, respectively. Severance costs for the nine months ended September 30, ~~2017~~2020 related to COGS, D&D and SG&A were $356, $228 and ~~D&D~~$826, respectively.
(C) Severance costs for the nine months ended September 30, 2021 related to COGS and SG&A were ~~$355, $119~~$7 and $52, respectively. Severance costs for the three months ended September 30, 2020 related to SG&A were $12. Severance costs for the nine months ended September 30, 2020 related to COGS and SG&A were $86 and $79 respectively.
(D) Severance costs for the three months ended September 30, 2021 and 2020 related to SG&A were $1,096 and $1, respectively. Severance costs for the nine months ended September 30, ~~2016~~2021 and 2020 related to ~~COGS,~~ SG&A were $1,138 and ~~D&D were $307, $819 and $116,~~$311, respectively.
Business realignment charges classified by statement of operations line item were as follows:

Three months ended

Nine months ended

September 30,

September 30,


2021

2020

2021

2020
Cost of goods sold

$
1

$
103

$
8

$
1,115
Selling, general and administrative

1,105

263

1,369

1,961
Design and development

(26)

35

9

512
Total business realignment charges

$
1,080

$
401

$
1,386

$
3,588
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
(13) Income Taxes
For interim tax reporting we estimate our annual effective tax rate and apply it to our year to date ordinary income. Tax jurisdictions with a projected or year to date loss for which a benefit cannot be realized are excluded.
For the three months ended September 30, 2021, income tax expense of $526 was attributable to an update to the estimated tax impact on the gain on the sale of the Canton facility, the mix of earnings among tax jurisdictions as well as tax losses for which no benefit is recognized due to valuation allowances in certain jurisdictions. The effective tax rate of (5.4)% is less than the statutory rate primarily due to the impact of tax losses for which no benefit is recognized due to valuation allowances in certain jurisdictions as well as an update to the gain on the sale of the Canton facility.
For the nine months ended September 30, 2021, income tax expense of $6,739 was attributable to the gain on the sale of the Canton facility, mix of earnings among tax jurisdictions as well as tax losses for which no benefit is recognized due to valuation allowances in certain jurisdictions. The effective tax rate of 41.3% is greater than the statutory rate primarily due to the impact of tax losses for which no benefit is recognized due to valuation allowances in certain jurisdictions as well as U.S. taxes on foreign earnings, partially offset by tax incentives.
For the three months ended September 30, 2020, income tax expense of $1,814 was primarily related to the mix of earnings among tax jurisdictions as well as tax losses for which no benefit is recognized due to valuation allowances in certain jurisdictions. The effective tax rate of 21.3% is greater than the statutory rate primarily due to the impact of certain incentives offset by non-deductible expenses and tax losses for which no benefit is recognized due to valuation allowances in certain jurisdictions.
For the nine months ended September 30, 2020, income tax benefit of $(3,694) was primarily related to the mix of earnings among tax jurisdictions as well as tax losses for which no benefit is recognized due to valuation allowances in certain jurisdictions. The effective tax rate of 24.3% is greater than the statutory rate primarily due to the impact of certain incentives offset by non-deductible expenses and tax losses for which no benefit is recognized due to valuation allowances in certain jurisdictions.
27
Table of Contents
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise ~~indicated)~~stated)
(Unaudited)
~~Corporate Headquarter Relocation~~
In March 2016, the Company announced the relocation 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 were recorded within SG&A expenses in the condensed consolidated statements of operations.
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.
~~(13) Income Taxes~~
The Company computes its consolidated income tax provision each quarter based on a projected annual effective tax rate, 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 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 and $919 for U.S. federal, state and foreign income taxes for the three months ended September 30, 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 related 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 the continued strong performance 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, 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 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 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 2017 of the non-deductible fair value adjustment to earn-out considerations related to the Orlaco and PST acquisitions.
23
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except per share data, unless otherwise indicated)~~
~~(Unaudited)~~
(14) Segment Reporting
Operating segments are defined as components of an enterprise that are evaluated regularly by the ~~Company's~~Company’s chief operating decision maker in deciding how to allocate resources and in assessing performance. The ~~Company's~~Company’s chief operating decision maker is the Chief Executive Officer.
The Company has ~~three~~3 reportable segments, Control Devices, Electronics and ~~PST,~~Stoneridge Brazil, which also represent its operating segments. The Control Devices reportable segment produces actuators, sensors, switches ~~valves~~ and ~~actuators.~~connectors. The Electronics reportable segment produces ~~electronic instrument clusters, electronic control units and~~ driver information systems, ~~and includes the recently acquired Orlaco business which designs and manufactures~~ camera-based vision systems, ~~monitors~~connectivity and ~~related~~compliance products ~~using its vision processing technology.~~and electronic control units. The ~~PST~~Stoneridge Brazil reportable segment designs and manufactures electronic vehicle ~~security alarms, convenience accessories, vehicle~~ tracking devices and monitoring services, vehicle security alarms and convenience accessories, in-vehicle audio and ~~video devices.~~
infotainment devices and telematics solutions.
The accounting policies of the ~~Company's~~Company’s reportable segments are the same as those described in Note 2, “Summary of Significant Accounting Policies” of the ~~Company's 2016~~ Company’s 2020 Form ~~10-K.~~10-K. The ~~Company's~~Company’s management evaluates the performance of its reportable segments based primarily on revenues from external customers, capital expenditures 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~~3 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 corporate accounting/finance, executive administration, human resources, information technology ~~corporate finance, legal, executive administration~~ and ~~human resources.~~legal.
24
28
Table of Contents
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise ~~indicated)~~stated)
(Unaudited)
A summary of financial information by reportable segment is as follows:

Three months ended

Nine months ended

September 30,

September 30,


2021

2020

2021

2020

Net Sales:

Control Devices

$
87,618

$
99,942

$
273,581

$
243,797

Inter-segment sales

414

971

2,768

3,877

Control Devices net sales

88,032

100,913

276,349

247,674

Electronics

77,585

62,995

250,440

180,071

Inter-segment sales

6,319

7,362

19,527

17,672

Electronics net sales

83,904

70,357

269,967

197,743

Stoneridge Brazil

16,477

12,827

42,788

34,407

Inter-segment sales

-

-

-

-

Stoneridge Brazil net sales

16,477

12,827

42,788

34,407

Eliminations

(6,733)

(8,333)

(22,295)

(21,549)

Total net sales

$
181,680

$
175,764

$
566,809

$
458,275

Operating (Loss) Income:

Control Devices

$
2,899

$
12,450

$
50,129

$
10,116

Electronics

(5,113)

647

(7,793)

(7,523)

Stoneridge Brazil

909

3,439

112

3,419

Unallocated Corporate ^(A)

(7,623)

(6,709)

(22,633)

(19,349)

Total operating (loss) income

$
(8,928)

$
9,827

$
19,815

$
(13,337)

Depreciation and Amortization:

Control Devices

$
3,840

$
4,028

$
11,777

$
11,197

Electronics

3,102

2,549

8,970

7,423

Stoneridge Brazil

737

973

2,783

3,696

Unallocated Corporate

532

500

1,587

1,522

Total depreciation and amortization^(B)

$
8,211

$
8,050

$
25,117

$
23,838

Interest Expense (Income), net:

Control Devices

$
122

$
99

$
362

$
269

Electronics

228

103

523

503

Stoneridge Brazil

(101)

14

(198)

17

Unallocated Corporate

1,198

1,666

4,386

3,533

Total interest expense, net

$
1,447

$
1,882

$
5,073

$
4,322

Capital Expenditures:

Control Devices

$
2,305

$
2,833

$
7,046

$
8,496

Electronics

3,353

1,618

7,264

9,678

Stoneridge Brazil

744

805

2,163

2,219

Unallocated Corporate^(C)

249

524

947

1,201

Total capital expenditures

$
6,651

$
5,780

$
17,420

$
21,594

Three months ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
Net Sales:
Control Devices $ 106,842 $ 103,700 $ 339,716 $ 304,957
Inter-segment sales 1,118 430 3,269 1,448
Control Devices net sales 107,960 104,130 342,985 306,405

Electronics 71,354 47,804 206,769 158,201
Inter-segment sales 8,959 9,495 30,538 24,706
Electronics net sales 80,313 57,299 237,307 182,907

PST 25,386 22,342 70,519 60,207
Inter-segment sales 145 - 145 -
PST net sales 25,531 22,342 70,664 60,207

Eliminations (10,222 ) (9,925 ) (33,952 ) (26,154 )
Total net sales $ 203,582 $ 173,846 $ 617,004 $ 523,365
Operating Income (Loss):
Control Devices $ 16,249 $ 15,319 $ 55,257 $ 47,133
Electronics 4,896 3,735 13,267 12,050
PST 1,018 29 2,720 (4,179 )
Unallocated Corporate^(A) (8,867 ) (7,303 ) (27,108 ) (21,092 )
Total operating income $ 13,296 $ 11,780 $ 44,136 $ 33,912
Depreciation and Amortization:
Control Devices $ 2,664 $ 2,561 $ 8,050 $ 7,345
Electronics 2,136 996 5,947 3,076
PST 2,115 2,307 6,299 6,388
Unallocated Corporate 181 115 376 309
Total depreciation and amortization^(B) $ 7,096 $ 5,979 $ 20,672 $ 17,118
Interest Expense, net:
Control Devices $ 19 $ 56 $ 84 $ 172
Electronics 24 33 68 196
PST 378 934 1,482 2,686
Unallocated Corporate 1,087 661 2,802 1,984
Total interest expense, net $ 1,508 $ 1,684 $ 4,436 $ 5,038
Capital Expenditures:
Control Devices $ 5,523 $ 3,229 $ 13,318 $ 9,260
Electronics 2,417 1,244 6,451 5,229
PST 974 640 2,899 2,516
Unallocated Corporate^(C) 811 1,365 2,224 1,479
Total capital expenditures $ 9,725 $ 6,478 $ 24,892 $ 18,484

25

September 30,

December 31,


2021

2020

Total Assets:

Control Devices

$
189,426

$
194,433

Electronics

313,569

303,914

Stoneridge Brazil

62,262

61,350

Corporate ^(C)

395,178

390,851

Eliminations

(333,757)

(329,140)

Total assets

$
626,678

$
621,408

29
Table of Contents
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise ~~indicated)~~stated)
(Unaudited)
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.~~
~~(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,


2021

2020

2021

2020

Net Sales:

North America

$
95,395

$
97,576

$
288,629

$
240,549

South America

16,477

12,827

42,788

34,407

Europe and Other

69,808

65,361

235,392

183,319

Total net sales

$
181,680

$
175,764

$
566,809

$
458,275

Three months ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
Net Sales:
North America $ 113,402 $ 108,605 $ 358,275 $ 321,973
South America 25,386 22,342 70,519 60,207
Europe and Other^(D) 64,794 42,899 188,210 141,185
Total net sales $ 203,582 $ 173,846 $ 617,004 $ 523,365
September 30, December 31,
2017 2016

Long-term Assets:
North America $ 76,539 $ 73,835
South America 62,500 63,497
Europe and Other^(D) 104,057 16,304
Total long-term assets $ 243,096 $ 153,636

September 30,

December 31,


2021

2020

Long-term Assets:

North America

$
100,821

$
110,330

South America

31,411

33,785

Europe and Other

137,321

142,629

Total long-term assets

$
269,553

$
286,744

(A) ~~(D)~~ ~~The amounts for 2017~~Unallocated Corporate expenses include, ~~net sales~~among other items, accounting/finance, human resources, information technology and ~~long-term assets related to Orlaco which is disclosed in Note 3.~~legal costs as well as share-based compensation.
(B) 26 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, leased assets, information technology assets, equity investments and investments in subsidiaries.
~~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% equity interest in Minda Stoneridge Instruments Ltd. (“~~Minda”~~MSIL”), a company based in India that manufactures electronics, instrumentation equipment and sensors primarily for the motorcycle, ~~and~~ commercial vehicle and automotive markets. The investment is accounted for under the equity method of accounting. The ~~Company's~~Company’s investment in ~~Minda,~~MSIL, recorded as a component of investments and other long-term assets, net on the condensed consolidated balance sheets, was ~~$9,475~~$14,859 and ~~$7,952~~$13,547 at September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, respectively. Equity in earnings of ~~Minda~~MSIL included in the condensed consolidated statements of operations was ~~$465~~$408 and ~~$307,~~$330, for the three months ended September 30, ~~2017~~2021 and ~~2016,~~2020, respectively. Equity in earnings of ~~Minda~~MSIL included in the condensed consolidated statements of operations was ~~$1,200~~$1,320 and ~~$603,~~$556, for the nine months ended September 30, ~~2017~~2021 and ~~2016,~~2020, respectively.
PST Eletrônica Ltda.
The Company had a 74% controlling interest in ~~PST~~Stoneridge Brazil from December 31, 2011 through May 15, 2017. On May 16, 2017, the Company acquired the remaining 26% noncontrolling interest in ~~PST for $1,500 in cash along with earn-out consideration. The~~Stoneridge Brazil. As part of the acquisition agreement, the Company will be required to pay additional earn-out consideration, which is not capped, based on ~~PST’s~~Stoneridge Brazil’s financial performance in ~~either 2020 or~~ 2021. ~~The preliminary estimated~~See Note 5 for the fair value and foreign currency adjustments of the earn-out consideration asfor the current and prior periods.
30
Table of ~~the acquisition date was $10,400, which was subsequently adjusted to $10,180, and was based on discounted cash flows utilizing forecasted EBITDA~~ Contents
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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.thousands, except per share data, unless otherwise stated)
(Unaudited)
~~The following table sets forth a summary of the change in noncontrolling interest:~~
Three months ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
Noncontrolling interest at beginning of period $ - $ 14,171 $ 13,762 $ 13,310
Net loss - (303 ) (130 ) (2,009 )
Foreign currency translation - (164 ) 826 2,403
Comprehensive income (loss) - (467 ) 696 394
Acquisition of noncontrolling interest - - (14,458 ) -
Noncontrolling interest at end of period $ - $ 13,704 $ - $ 13,704
~~PST has~~Stoneridge Brazil had dividends payable to former noncontrolling interest holders of ~~$22,143 Brazilian real~~R$24,154 ($~~7,004) at September 30, 2017, which includes the dividend declared on May 16, 2017~~6,010) as of $9,610 Brazilian real ($3,092) and $1,691 Brazilian real ($535) in monetary correction. The dividend is payable on or before January 1, 2020, and is subject to monetary correction based on the Brazilian consumer price inflation index.December 31, 2019. The dividend payable related to ~~PST is~~Stoneridge Brazil was recorded within other ~~long-term~~current liabilities on the consolidated balance sheet as of December 31, 2019. These dividends were paid in January 2020.
Other Investments
In December 2018, the Company entered into an agreement to make a $10,000 investment in a fund (“Autotech Fund II”) managed by Autotech Ventures (“Autotech”), a venture capital firm focused on ground transportation technology which is accounted for under the equity method of accounting. The Company’s $10,000 investment in the Autotech Fund II will be contributed over the expected ten-year life of the fund. The Company contributed $2,600 to and received $251 in distributions from the Autotech Fund II during the nine months ended September 30, 2021. The Company contributed $750 to the Autotech Fund II during the nine months ended September 30, 2020. The Company has a 6.6% interest in Autotech Fund II. The Company recognized earnings of $176 and $307 during the three months ended September 30, 2021 and 2020, respectively. The Company recognized earnings of $374 and $168 during the nine months ended September 30, 2021 and 2020, respectively. The Autotech Fund II investment recorded in investments and other long-term assets in the condensed consolidated balance ~~sheet.~~sheets was $6,159 and $3,436 as of September 30, 2021 and December 31, 2020, respectively.
(16) Disposals
Disposal of Particulate Matter Sensor Business
27
On March 8, 2021, the Company entered into an Asset Purchase Agreement (the “APA”) by and among the Company, the Company’s wholly owned subsidiary, Stoneridge Electronics AS, as the Sellers, and Standard Motor Products, Inc. (“SMP”) and SMP Poland SP Z O.O., as the Buyers. Pursuant to the APA the Company agreed to sell to the Buyers the Company’s assets located in Lexington, Ohio and Tallinn, Estonia related to the manufacturing of particulate matter sensor products and related service part operations (together, the “PM sensor business”). In the past, the Company has sometimes referred to the PM sensor assets as the Company’s soot sensing business. The Buyers are not acquiring any of the Company’s locations or employees. The purchase price for the sale of the PM sensor assets was $4,000 (subject to a post-closing inventory adjustment which was a payment to SMP of $1,133) plus the assumption of certain liabilities. The purchase price was allocated among PM sensor product lines, Gen 1 and Gen 2 as defined under the APA. The purchase price allocated to Gen 1 fixed assets and inventory and Gen 2 fixed assets was $3,214 and $786, respectively. The sale of the Gen 2 assets will occur upon completion of the Company’s supply commitments to certain customers which are expected to be completed by December 31, 2021. The Company and SMP also entered into certain ancillary agreements, including a contract manufacturing agreement, a transitional services agreement, and a supply agreement, pursuant to which the Company will provide and be compensated for certain manufacturing, transitional, administrative and support services to SMP on a short-term basis.

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

Pursuant to the contract manufacturing agreement, the Company produced and sold PM sensor Gen 1 finished goods inventory to SMP for net sales of $3,228 in the three months ended September 30, 2021. In addition, the Company received $228 for services provided pursuant to the transition services agreement which were recognized as a reduction in SG&A for the three months ended September 30, 2021. Pursuant to the contract manufacturing agreement, the Company produced and sold PM sensor Gen 1 finished goods inventory to SMP for net sales of $6,298 in the nine months ended September 30, 2021. In addition, the Company received $564 for services provided pursuant to the transition services agreement which were recognized as a reduction in SG&A for the nine months ended September 30, 2021.

31
Table of Contents
STONERIDGE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data, unless otherwise stated)
(Unaudited)
PM sensor Gen 1 net sales to SMP pursuant to the contract manufacturing agreement were $3,228 and operating income was $302 for the three months ended September 30, 2021. PM sensor Gen 1 net sales and operating income were $2,587 and $542, respectively, for the three months ended September 30, 2020. PM sensor Gen 1 net sales, including sales of $6,298 to SMP pursuant to the contract manufacturing agreement and the one time sale of Gen 1 finished goods inventory of $971, and operating income were $9,536 and $1,168, respectively, for the nine months ended September 30, 2021. PM sensor Gen 1 net sales and operating income were $6,350 and $612, respectively, for the nine months ended September 30, 2020.

The Company completed the PM sensor Gen 2 supply commitments and ended production on September 23, 2021. As of September 30, 2021, the Company has recognized the net book value of the Gen 2 fixed assets of $287 as assets held for sale within prepaid expenses and other current assets in the condensed consolidated balance sheets.

Sale of Canton Facility

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

On June 17, 2021, pursuant to the Agreement, as amended after May 7, 2021, the Company closed the sale of the Canton Facility to the Buyer for an adjusted purchase price of $37,900. The Company recognized in the Control Devices segment, net proceeds of $35,167 and a gain, net of direct selling costs, of $30,718.

32
Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
We are a leading global designer and manufacturer of highly engineered electrical and electronic systems, components ~~modules~~ and ~~systems~~modules, primarily for the automotive, commercial off-highway, motorcycle and agricultural vehicle markets.
~~On January 31, 2017,~~The following discussion and analysis should be read in conjunction with the ~~Company acquired Exploitatiemaatschappij Berghaaf B.V. (“Orlaco”). As such, the Company’s~~ condensed consolidated financial statements ~~herein include~~and notes related thereto and other financial information included elsewhere herein.
COVID-19 Impact and Supply Chain Uncertainties

The coronavirus pandemic (“COVID-19”) had a negative impact on the global economy in 2020 and lingering impacts remain in 2021, disrupting financial markets and increasing volatility, and have impeded global supply chains and restricted manufacturing operations. It has disrupted, and likely will continue to disrupt, the global vehicle industry and customer sales, production volumes and purchases of automotive, commercial, off-highway, motorcycle and agricultural vehicles by end-consumers. COVID-19 began to impact our operations in the first quarter of 2020, with the most significant impact in the second quarter of 2020. The adverse conditions caused by COVID-19 reduced demand for our products and increased operating costs, which resulted in lower overall margins in the first half of 2020. Although our end-markets have mostly recovered from the shutdowns and reduced demand related to COVID-19, the ongoing impact of the supply chain uncertainties continue to adversely impact our ability to meet demand for our products and our financial condition and results of ~~Orlaco from~~operations in the ~~acquisition date~~near term.

The adverse impacts of the COVID-19 pandemic led to ~~September 30, 2017. On May 16, 2017,~~a significant vehicle production slowdown in the ~~Company also acquired~~first half of 2020, which was followed by increased consumer demand and vehicle production schedules. This surge in demand led to a worldwide semiconductor supply shortage at the ~~remaining 26% noncontrolling interest~~end of 2020, and other supply chain related constraints which have continued through the third quarter of 2021. We have experienced longer lead-times, higher costs, delays in ~~PST.~~procuring other component parts and raw materials and more recently, significant production volume reductions as a result of these shortages. In the third quarter of 2021, these supply chain disruptions became incrementally more challenging and as a result we are experiencing higher related costs. We are working closely with our suppliers and customers to minimize any potential adverse impacts, and we continue to closely monitor the availability of semiconductor microchips and other component parts and raw materials, customer vehicle production schedules and any other supply chain inefficiencies that may arise, due to this or any other issue. The magnitude of the adverse impact on our financial condition, results of operations and cash flows will depend on the evolution of the semiconductor supply shortage, vehicle production schedules and supply chain impacts.

Segments
We are organized by products produced and markets served. Under this structure, our ~~continuing~~ operations have been reported ~~utilizing~~using the following segments:
Control Devices.This segment includes results of operations that manufacture actuators, sensors, switches ~~valves~~ and ~~actuators.~~
connectors.
Electronics.This segment ~~produces electronic instrument clusters, electronic control units and~~includes results of operations from the production of driver information systems, ~~and includes the newly acquired Orlaco business, which designs and manufactures~~ camera-based vision systems, ~~monitors~~connectivity and ~~related~~compliance products ~~using its vision processing technology.~~
and electronic control units.
~~PST.~~Stoneridge Brazil (“SRB”).This segment includes results of operations that design and manufacture ~~electronic vehicle alarms, convenience accessories,~~ vehicle tracking devices and monitoring services, vehicle security alarms and convenience accessories, in-vehicle audio and ~~video devices.~~infotainment devices and telematics solutions.
33
Table of Contents
Third Quarter Overview
~~Net income attributable to Stoneridge, Inc.~~The Company had a net loss of ~~$8.0~~$10.4 million, or ~~$0.28~~$(0.38) per diluted share, for the three months ended September 30, ~~2017,~~2021.
Net income for the quarter ended September 30, 2021 decreased by ~~$2.3~~$17.1 million, or ~~$0.08~~$(0.63) per diluted share, from ~~$10.3~~net income of $6.7 million, or ~~$0.36~~$0.25 per diluted share, for the three months ended September 30, ~~2016,~~2020. Net income decreased primarily due to ~~a $2.9 million~~lower gross margin primarily driven by the adverse impacts of supply chain disruptions and 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 to higher sales in all of our segments, the inclusion of the acquired Orlaco business, lower material and overhead costs as a percentage of sales and operating improvements.  The higher gross profit was partially offset by an increase in selling general and administrative (“SG&A”) and design and development ~~costs of $9.5 million and $1.8 million, respectively, primarily attributable to the acquired Orlaco business within our Electronics segment.~~
(“D&D”) costs. Net sales increased by ~~$29.7~~$5.9 million, or ~~17.1%~~3.4%, from higher volumes in our Electronics and Stoneridge Brazil segments due to continued recovery in 2021 from adverse 2020 COVID-19 impacts, offset by lower volumes in our Control Devices segment. During the third quarter, the overall transportation industry continued to be challenged by the global pandemic and its aftermath. Recent production shutdowns and altered production forecasts at our automotive and commercial vehicle OEM customers, often on short notice, had a negative impact on our financial results for the third quarter. In addition, we continued to experience the unfavorable impacts of component shortages due to global supply chain disruptions, causing incremental material and logistics costs and labor volatility which adversely affected gross margin and operating income. As a result, our operating loss increased by $18.8 million primarily due to costs associated with supply chain disruptions, higher D&D costs for new product launches and higher SG&A including a net $3.1 million unfavorable adjustment to the fair value of SRB earn-out consideration due to forecasted improvement in SRB financial performance recognized in 2020 and higher business realignment costs of $0.8 million. Interest expense, net was lower in the third quarter of 2021 due to a decrease in average outstanding borrowings and lower interest rates on our Credit Facility borrowings.
Our Control Devices segment net sales decreased by 12.3% compared to the third quarter of ~~2016~~2020 primarily as a result of decreased volumes from adverse impacts of supply chain disruptions in our North American automotive and North American and China commercial vehicle markets. In addition, our European automotive volumes decreased due to our exit of the PM sensor business. Segment gross margin decreased due to lower sales volumes, increased costs associated with supply chain disruptions and unfavorable fixed cost leverage. Segment operating income decreased due to decreased sales volumes and lower gross margin.
Our Electronics segment net sales increased by 23.2% compared to the third quarter of 2020 primarily due to increased sales volumes in our European, North American and China commercial vehicle markets as well as our European and North American off-highway vehicle markets from the recovery of adverse 2020 COVID-19 impacts. Segment gross margin decreased primarily due to increased costs associated with supply chain disruptions. Operating loss for the segment increased compared to the third quarter of 2020 due to lower segment gross margin and higher D&D expenses for awarded business programs and development of advanced technologies and systems.
Our Stoneridge Brazil segment net sales increased by 28.5% compared to the third quarter of 2020 primarily due to higher volumes for our OEM and OES product lines. Segment gross margin increased due to higher sales volumes. Operating income decreased compared to 2020 due to an unfavorable change in ~~each~~fair value of ~~our segments. The~~earn-out consideration adjustments.
In the third quarter of 2021, SG&A expenses increased by $4.1 million compared to the third quarter of 2020 due to a $3.1 million increase in ~~sales~~net adjustments to the fair value of the SRB earn-out consideration due to forecasted improvement in ~~our Control Devices segment was primarily~~SRB financial performance recognized in 2020, higher business realignment costs of $0.8 million, higher professional services and selling costs offset by lower incentive compensation expense.
In the third quarter of 2021, D&D costs increased by $4.7 million due to increased ~~volume in the China automotive market while the increase in sales~~spend in our Electronics segment ~~relates substantially to the Orlaco~~comprised of higher consultants and prototype costs as well as lower customer reimbursements for ongoing development activities for awarded business ~~acquired on January 31, 2017. Also, PST sales mostly increased due to higher monitoring product~~programs and ~~service revenues.~~
development of advanced technologies and systems.
At September 30, ~~2017~~2021 and December 31, ~~2016,~~2020, we had cash and cash equivalents balances of ~~$50.8~~$50.0 million and ~~$50.4~~$73.9 million, ~~respectively. The increase during the first nine months of 2017 was primarily due to cash flows from operations~~respectively and ~~net debt financing offset by capital expenditures and cash paid for business acquisition. At September 30, 2017 and December 31, 2016~~ we had ~~$126.0~~$130.0 million and ~~$67.0~~$136.0 million, respectively, in borrowings outstanding on ~~our $300.0 million~~the Credit Facility. The ~~increase~~2021 decrease in cash and cash equivalents was to support higher working capital levels, capital expenditures and the repayment of Credit Facility ~~balance during~~borrowings offset by proceeds from the ~~first nine months~~sale of ~~2017 was~~ the ~~result of borrowing to fund the Orlaco acquisition with a partial offset in voluntary principal payments.~~Canton Facility.
28
34
~~Outlook~~
~~In the third quarter~~Table of 2017, 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 were strong and continued to contribute to the Company’s growth, particularly in the China market. 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. Contents
Outlook
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~~Beginning in the first quarter of 2020 and continuing through the third quarter of 2021, COVID-19 caused worldwide adverse economic conditions and uncertainty in our served markets. In the first quarter of 2021, we began experiencing supply chain related disruptions because of a worldwide semiconductor shortage, which has resulted in longer lead-times, higher costs and delays in procuring other component parts and raw materials.
The North American automotive ~~vehicle~~ market is expected to remain flat with 13.0 million units in ~~2017 related to recent product launches~~2020 and 2021 as the market recovers from adverse economic conditions caused by COVID-19 and supply chain disruptions. The Company expects sales volumes in our Control Devices segment ~~despite~~to increase from 2020 based on current 2021 production forecasts and market conditions and the ramp-up of certain program launches, however, global supply chain shortages, such as the global semiconductor supply shortage, have had an ~~expected decrease~~adverse impact on our sales volumes in 2021, and could potentially have an impact for the remainder of ~~0.6 million production units in~~ the ~~North American automotive vehicle market to 17.2 million units in 2017. We also~~year.
For 2021, we expect ~~sales growth~~an increase in our ~~China automotive market~~Electronics’ segment sales compared to 2020 primarily due to the increase in ~~2017 related to~~production volume forecasts in our ~~sensor products.~~
~~The~~European and North American commercial ~~vehicle market declined~~markets, strong demand in ~~2016, however~~our off-highway markets and new program launches in ~~2017~~2021. For the fourth quarter of 2021 and 2022, we expect itincreased sales from the launch of our first two MirrorEye camera-based vision systems for OEM applications as well as the continued roll out of MirrorEye in the retrofit markets. We expect an incremental increase in D&D spend to ~~remain at approximately~~support the ~~same level~~launch of these programs in the remainder of 2021 and 2022.
In 2021, our D&D spend increased to support near term launches of awarded business primarily in our Electronics segment. We expect that our incremental D&D spending will continue to moderately increase from current levels as ~~2016. We also expect the European commercial vehicle market~~we rotate and align our global engineering capabilities in ~~2017~~order to ~~remain at approximately the same level as 2016.~~
develop advanced technologies and systems within our portfolio of products.
Our ~~PST~~year-to-date 2021 Stoneridge Brazil segment revenues ~~and operating performance have begun~~increased compared to ~~improve in~~ the ~~second half of 2017~~prior year due to the ~~stabilization~~recovery of the ~~Brazilian economy and the automotive and consumer markets we serve.~~adverse economic conditions caused by COVID-19 in 2020 offset by unfavorable foreign currency translation. In October ~~2017,~~2021, the International Monetary Fund (“IMF”) forecasted the Brazil gross domestic product to grow ~~0.7%~~5.2% in ~~2017~~2021 and 1.5% in ~~2018. As the Brazilian economy improves, we~~2022. We expect ~~favorable movements in~~ our served market channels ~~that would result in improved~~to remain stable based on current market conditions. Our financial performance in our Stoneridge Brazil segment is also subject to uncertainty from movements in the Brazilian Real and Argentina Peso foreign currencies.

Global transportation vehicle production has been impacted by supply chain disruptions in 2021, primarily in our automotive and commercial vehicle end-markets. Based on the current market conditions, we expect continued impact on production for ~~PST.~~the remainder of the year. We expect incremental costs related to supply chain disruptions and production schedule volatility to continue to adversely impact our gross margin in the 2021.
~~Other Matters~~
~~As the Company no longer has a valuation allowance against its U.S. federal, certain state and foreign deferred tax assets, its~~In 2021, our effective tax rate ~~will be higher in 2017 as compared~~increased due to ~~2016. Actual cash taxes paid~~atypical jurisdictional earnings mix as a ~~percentage~~result of ~~income~~increased supply chain costs and incremental engineering expenses to support future program launches. We expect our effective tax rate to remain higher than normal in ~~2017 is expected~~the remainder of 2021 and return to ~~be consistent with historical amounts.~~previous rates in 2022.
Other Matters
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~~Stoneridge Brazil segments are denominated in U.S. dollars, and therefore movements in foreign currency exchange rates can also have a significant effect on our results of operations. The U.S. ~~dollar weakened significantly~~Dollar strengthened against the euro, Swedish krona, ~~euro and~~ Brazilian real, Argentine peso and Mexican peso in ~~2016 favorably impacting our material costs~~2021 and ~~our reported results. The U.S. dollar continued to weaken against these currencies~~the Brazilian real, Argentine peso and Mexican peso in ~~the first nine months of 2017 favorably~~2020, unfavorably impacting our material costs and reported results.
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Table of Contents
On March 8, 2021, the Company entered into an Asset Purchase Agreement (the “APA”) by and among the Company, the Company’s wholly owned subsidiary, Stoneridge Electronics AS, as the Sellers, and Standard Motor Products, Inc. (“SMP”) and SMP Poland SP Z O.O., as the Buyers. Pursuant to the APA the Company agreed to sell to the Buyers the Company’s assets located in Lexington, Ohio and Tallinn, Estonia related to the manufacturing of particulate matter sensor products and related service part operations (together, the “PM sensor business”). In the past, the Company has sometimes referred to the PM sensor assets as the Company’s soot sensing business. The Buyers did not acquire any of the Company’s locations or employees. The purchase price for the sale of the PM sensor business was $4.0 million (subject to a post-closing inventory adjustment which was a payment to SMP of $1.1 million) plus the assumption of certain liabilities. The purchase price was allocated among PM sensor product lines, Gen 1 and Gen 2 as defined under the APA. The purchase price allocated to Gen 1 fixed assets and inventory and Gen 2 fixed assets was $3.2 million and $0.8 million, respectively. The sale of the Gen 2 assets will occur by December 31, 2021 as the Company’s supply commitments to certain customers were completed in September 2021. As of September 30, 2021, the Gen 2 assets are considered assets held for sale and are included in prepaid and other current assets in the condensed consolidated balance sheet. The Company and SMP also entered into certain ancillary agreements, including a contract manufacturing agreement, a transitional services agreement, and a supply agreement, pursuant to which the Company will provide and be compensated for certain manufacturing, transitional, administrative and support services to SMP on a short-term basis.

On May 19, 2020, the Company committed to the strategic exit of its Control Devices particulate matter sensor product line (“PM Sensor Exit”). The decision to exit the PM sensor product line was made after the consideration of the decline in the market outlook for diesel passenger vehicles, the current and expected profitability of the product line and the Company’s strategic focus on aligning resources with the greatest opportunities. The estimated costs for the PM Sensor Exit include employee severance and termination costs, contract termination costs, professional fees and other related costs such as potential commercial and supplier settlements. Non-cash charges include impairment of fixed assets and accelerated depreciation associated with PM sensor production. We recognized $0.7 million and $0.3 million of expense as a result of this initiative during the three months ended September 30, 2021 and September 30, 2020, respectively. The only remaining costs relate to potential commercial settlements and legal fees which we continue to negotiate. The estimated range of additional cost related to these settlements and fees is approximately $1.4 million to $4.2 million.

In January 2019, we committed to a restructuring plan that resulted in the closure of our Canton, Massachusetts facility (“Canton Facility”) as of March 31, 2020 and the consolidation of manufacturing operations at that site into other Company locations (“Canton Restructuring”). The cost for the Canton Restructuring included employee severance and termination costs, contract termination costs, professional fees and other related costs such as moving and set-up costs for equipment and costs to restore the engineering function previously located at the Canton Facility.  We did not recognize any expense as a result of these actions during the three months ended September 30, 2021 and $0.2 million of expense as a result of these actions during the three months ended September 30, 2020. We do not expect to incur additional costs related to the Canton Restructuring. During the third quarter of 2020, we leased the Canton Facility to a third party. On June 17, 2021, we sold the Canton Facility for net proceeds of $35.2 million and a net gain of $30.7 million.

In the fourth quarter of 2018, the Company undertook restructuring actions for the Electronics segment affecting the European Aftermarket business and China operations. In the second quarter of 2020, the Company finalized plans to move its European Aftermarket sales activities in Dundee, Scotland to a new location which resulted in incurring contract termination costs as well as employee severance and termination costs. In addition, the Company announced an additional restructuring program to transfer the European production of its Controls product line to China. For the three months ended September 30, 2021 and 2020, we recognized expense of less than $0.1 million and $0.6 million, respectively, as a result of these actions for related costs. The Company expects to incur an immaterial amount of restructuring costs through the fourth quarter of 2021.
On October 26, 2018 the Company announced a Board of Directors approved share repurchase program authorizing Stoneridge to repurchase up to $50.0 million of our Common Shares. Thereafter, on May 7, 2019, we announced that the Company had entered into an accelerated share repurchase agreement with Citibank N.A. to repurchase an aggregate of $50.0 million of our Common Shares. Pursuant to the accelerated share repurchase agreement in the second quarter of 2019 we made an upfront payment of $50.0 million and received an initial delivery of 1,349,528 Common Shares which became treasury shares. On February 25, 2020, Citibank N.A. terminated early its commitment pursuant to the accelerated share repurchase agreement and delivered to the Company, 364,604 Common Shares representing the final settlement of the Company’s repurchase program which became treasury shares.
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Table of Contents
On February 24, 2020, the Board of Directors authorized a new repurchase program of $50.0 million for the repurchase of outstanding Common Shares over an 18 month period. The Common Share repurchase program authorization did not obligate the Company to acquire any particular amount of its Common Shares, and could have been suspended or discontinued at any time. For the quarter ended March 31, 2020, under the 2020 repurchase program, the Company repurchased 242,634 Common Shares for $5.0 million, which became Treasury Shares, in accordance with this repurchase program authorization. In April 2020, the Company announced that it was temporarily suspending the previously announced share repurchase program in response to uncertainty surrounding the duration and magnitude of the impact of COVID-19. The 2020 repurchase program authorization expired during the third quarter of 2021 and no additional shares will be repurchased under this program.
We regularly evaluate the performance of our businesses and their cost structures, including personnel, and make necessary changes thereto in order to optimize our results. We also evaluate the required skill sets of our personnel and periodically make strategic changes. As a consequence of these actions, we incur severance related costs which we refer to as business realignment charges. Business realignment costs of $1.1 million and $0.4 million were incurred in the three months ended September 30, 2021 and 2020, respectively. Business realignment costs of $1.4 million and $3.6 million were incurred in the and nine months ended September 30, 2021 and 2020, respectively.
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, in certain cases we have ~~been able~~taken actions to ~~effectively manage~~increase price where we do not have long-term contractual pricing with customers. In the majority of cases, we remain in negotiations with our ~~production~~primary OE customers related to recovery of historical costs, ~~by the combination of lowering certain~~offsetting current costs and ~~limiting~~putting a process in place to mitigate future costs. We are continuing negotiations around continued pricing actions both in the ~~increase~~short-term and over the course of ~~others,~~existing and future programs. We expect continued benefit as a result of these negotiations, however we also expect that these benefits may be recognized both in the ~~net impact~~short and long-term in the forms of ~~which to date has not been material.~~incremental price and the elimination or reduction of future contractual price-downs. 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~~2021 Compared to Three Months Ended September 30, ~~2016~~
2020
Condensed consolidated statements of operations as a percentage of net sales are presented in the following table (in thousands):

Dollar

increase /
Three months ended September 30,

2021

2020

(decrease)
Net sales

$
181,680


100.0
%
$
175,764

100.0
%
$
5,916
Costs and expenses:

Cost of goods sold

145,680

80.2

129,769

73.8

15,911
Selling, general and administrative

28,481

15.7

24,414

13.9

4,067
Design and development

16,447

9.1

11,754

6.7

4,693
Operating (loss) income

(8,928)

(5.0)

9,827

5.6

(18,755)
Interest expense, net

1,447

0.8

1,882

1.1

(435)
Equity in earnings of investee

(584)

(0.2)

(330)

(0.2)

(254)
Other expense (income), net

41

-

(253)

(0.1)

294
(Loss) income before income taxes

(9,832)

(5.6)

8,528

4.7

(18,360)
Provision for income taxes

526

0.3

1,814

1.0

(1,288)
Net (loss) income

$
(10,358)

(5.9)
%
$
6,714

3.7
%
$
(17,072)

Dollar
increase /
Three months ended September 30 2017 2016 (decrease)
Net sales $ 203,582 100.0 % $ 173,846 100.0 % $ 29,736
Costs and expenses:
Cost of goods sold 141,033 69.3 124,098 71.4 16,935
Selling, general and administrative 37,277 18.3 27,817 16.0 9,460
Design and development 11,976 5.9 10,151 5.8 1,825

Operating income 13,296 6.5 11,780 6.8 1,516
Interest expense, net 1,508 0.7 1,684 1.0 (176 )
Equity in earnings of investee (465 ) (0.2 ) (307 ) (0.2 ) (158 )
Other expense (income), net 395 0.2 (497 ) (0.3 ) 892
Income before income taxes 11,858 5.8 10,900 6.3 958

Provision for income taxes 3,809 1.8 919 0.5 2,890

Net income 8,049 4.0 9,981 5.8 (1,932 )
Net loss attributable to
noncontrolling interest - - (303 ) (0.1 ) 303
Net income attributable to Stoneridge, Inc. $ 8,049 4.0 % $ 10,284 5.9 % $ (2,235 )

37
Table of Contents
Net Sales.Net sales for our reportable segments, excluding inter-segment sales, are summarized in the following table (in ~~thousands)~~thousands):

Dollar

Percent

increase

increase

Three months ended September 30,

2021

2020

(decrease)

(decrease)

Control Devices

$
87,618


48.2
%
$
99,942

56.9
%
$
(12,324)

(12.3)
%
Electronics

77,585

42.7

62,995

35.8

14,590

23.2
%
Stoneridge Brazil

16,477

9.1

12,827

7.3

3,650

28.5
%
Total net sales

$
181,680

100.0
%
$
175,764

100.0
%
$
5,916

3.4
%
Dollar Percent
Three months ended September 30 2017 2016 increase increase
Control Devices $ 106,842 52.5 % $ 103,700 59.7 % $ 3,142 3.0 %
Electronics 71,354 35.0 47,804 27.4 23,550 49.3
PST 25,386 12.5 22,342 12.9 3,044 13.6
Total net sales $ 203,582 100.0 % $ 173,846 100.0 % $ 29,736 17.1 %

Our Control Devices segment net sales ~~increased primarily as a result of increased sales volume in the China automotive, commercial vehicle, agricultural and various other markets of $3.5~~decreased $12.3 million ~~$1.0 million, $0.1 million and $0.7 million, respectively, during the third quarter of 2017. This was partially offset by~~due to a decrease in ~~sales volume in the~~our North American automotive market from adverse impacts of ~~$2.1 million.~~
supply chain disruptions and our European automotive markets due to the exit of the PM sensor business of $7.7 million and $6.5 million, respectively. This decrease was offset by increased volumes in our China automotive and agricultural markets of $1.0 million and $0.8 million, respectively.
Our Electronics segment net sales increased ~~primarily~~due higher sales volumes in our North American and European commercial vehicle markets of $5.2 million and $2.3 million, respectively. In addition, segment net sales increased due to ~~increased~~higher sales ofvolumes in our European and North American off-highway vehicle products of ~~$15.3~~$3.7 million and ~~$3.6~~$1.7 million, ~~respectively, substantially related~~respectively. Net sales increased $0.8 million due to ~~the acquired Orlaco business as well as an increase in sales volume in our North American commercial vehicle products of $2.9 million~~favorable euro and ~~a favorable~~Swedish krona foreign currency translation ~~of $1.5 million.~~
compared to the prior year quarter.
Our ~~PST~~Stoneridge Brazil segment net sales increased primarily due to ~~an increase in monitoring~~higher sales volumes for our OEM and OES 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%.~~
30
lines.
Net sales by geographic location are summarized in the following table (in thousands):

Dollar

Percent

increase

increase

Three months ended September 30,

2021

2020


(decrease)

(decrease)

North America

$
95,395


52.5
%
$
97,576

55.5
%
$
(2,181)

(2.2)
%
South America

16,477

9.1

12,827

7.3

3,650

28.5
%
Europe and Other

69,808

38.4

65,361

37.2

4,447

6.8
%
Total net sales

$
181,680

100.0
%
$
175,764

100.0
%
$
5,916

3.4
%

Dollar Percent
Three months ended September 30 2017 2016 increase increase
North America $ 113,402 55.7 % $ 108,605 62.5 % $ 4,797 4.4 %
South America 25,386 12.5 22,342 12.9 3,044 13.6
Europe and Other 64,794 31.8 42,899 24.6 21,895 51.0
Total net sales $ 203,582 100.0 % $ 173,846 100.0 % $ 29,736 17.1 %
The ~~increase~~decrease in North American net sales was ~~primarily~~ attributable to ~~increased~~ sales volume decreases in our North American ~~off-highway, commercial vehicle and various other markets~~automotive market of ~~$3.6~~$7.9 million ~~$2.5 million and $0.6 million, respectively, which were~~from adverse impacts of supply chain disruptions, offset by ~~a decrease~~an increase in sales volume in our North American ~~automotive market~~commercial vehicle and Electronics segment off-highway markets of ~~$2.1 million.~~$3.9 million and $1.7 million, respectively. The increase in net sales in South America was primarily due to ~~an increase in monitoring~~higher sales volumes for our OEM and OES product ~~and service revenues, product sales volume as well as a favorable foreign currency translation that increased sales by $0.6 million.~~lines. The increase in net sales in Europe and Other was primarily due to ~~the increase in European off-highway vehicle product sales of $15.3 million substantially related to Orlaco as well as an increase in sales volume~~increases in our ~~China automotive~~European off-highway and European commercial vehicle markets of ~~$3.5~~$3.7 million and ~~$2.0~~$2.9 million, ~~respectively. Additionally,~~respectively, and an increase in our China automotive market of $1.0 million. In addition, Europe and Other net sales increased $1.6 million due to favorable foreign currency translation. The increases in Europe and Other sales were ~~favorably impacted by foreign currency translation of $1.5 million~~ offset by ~~unfavorable pricing~~a decrease in European automotive sales of ~~$0.6 million.~~$6.5 million due to the exit of PM sensor business.
Cost of Goods Sold and Gross Margin. Cost of goods sold increased ~~by 13.6% primarily related~~compared to ~~an increase in net sales. Our gross margin improved by 2.1% to 30.7% for~~ the third quarter of ~~2017 compared to 28.6% for~~2020 and our gross margin decreased from 26.2% in the third quarter of ~~2016.~~2020 to 19.8% in the third quarter of 2021. Our material cost as a percentage of net sales ~~decreased by 0.6% to 50.1% for~~increased from 52.6% in the third quarter of ~~2017 compared~~2020 to ~~50.7% for~~56.8% in the third quarter of ~~2016. The lower direct material~~2021 from costs ~~in our Electronics and PST segments resulted from favorable foreign currency movements~~ associated with ~~U.S. dollar denominated purchases while direct~~supply chain disruptions and material costs as a percent of sales in our Control Devices segment decreased due to the benefit of a favorable 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 overheadprice increases. Overhead as a percentage of net sales ~~decreased by 1.8%~~increased to ~~12.0%~~18.1% for the third quarter of ~~2017~~2021 compared to ~~13.8%~~16.2% for the third quarter of ~~2016.~~2020 due to higher material costs and other costs associated with supply chain disruptions.
Our Control Devices segment gross margin ~~improved slightly~~decreased primarily due to ~~an increase~~the decrease in sales volume, higher costs associated with supply chain disruptions and ~~a decrease in overhead as a percentage~~adverse leverage of ~~net sales.~~fixed costs.
Our Electronics segment gross margin ~~improved~~decreased primarily due to ~~lower overhead~~increased costs associated with supply chain disruptions and material prices offset by favorable leverage of fixed costs.
38
Table of Contents
Our Stoneridge Brazil segment gross margin 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 and a favorable mix related to Orlaco product sales.~~
~~Our PST segment gross margin improved~~decreased due to ~~lower overhead~~adverse sales mix and ~~direct labor~~increased 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 monitoring service increases.
supply chain disruptions.
Selling, General and ~~Administrative (“SG&A”).~~Administrative. SG&A expenses increased by ~~$9.5~~$4.1 million compared to the third quarter of ~~2016 primarily~~2020 due to ~~higher costs in our Electronics segment substantially related to the acquisition of Orlaco of $5.6~~a $3.1 million ~~which includes expense of $2.2 million for the~~ increase in ~~fair value of earn-out consideration. Our unallocated corporate, Control Devices and PST segment’s SG&A costs also increased. Unallocated corporate SG&A costs increased due~~net adjustments to higher wages, incentive compensation and professional fees which were offset by lower headquarter relocation costs of $0.7 million. Control Devices SG&A costs increased due to higher wages and incentive compensation. PST SG&A costs increased during the current period due to expense for the fair value of the SRB earn-out consideration ~~of $0.5 million, an unfavorable change~~due to forecasted improvement in ~~foreign currency exchange rates and~~SRB financial performance recognized in 2020, higher ~~incentive compensation, which were partially offset by lower~~ business realignment costs of ~~$0.2~~$0.8 million, higher professional services and selling costs offset by lower incentive compensation expense of $2.6 million.
Design and ~~Development (“D&D”).~~Development. D&D costs increased by ~~$1.8~~$4.7 million ~~substantially~~ due to ~~higher D&D costs~~increased spend in our Electronics segment ~~related to the acquired Orlaco business.~~comprised of higher consulting and prototype costs as well as lower customer reimbursements for ongoing development activities for awarded business programs and development of advanced technologies and systems.
31
Operating ~~Income.~~ ~~Operating~~(loss) income ~~(loss)~~by segment is summarized in the following table ~~by reportable segment~~ (in thousands):
Operating Income (Loss). Operating income (loss) is summarized in the following table by reportable segment (in thousands):






Dollar

Percent

Three months ended September 30,

2021

2020

decrease

decrease

Control Devices

$
2,899

$
12,450

$
(9,551)

(76.7)
%
Electronics

(5,113)

647

(5,760)

(890.3)
%
Stoneridge Brazil

909

3,439

(2,530)

(73.6)
%
Unallocated corporate

(7,623)

(6,709)

(914)

(13.6)
%
Operating (loss) income

$
(8,928)

$
9,827

$
(18,755)

(190.9)
%
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~~
Our Control Devices segment operating income ~~increased slightly primarily~~decreased due to ~~an increase in sales which were partially~~the impact of lower gross margin from higher costs associated with supply chain disruptions, higher material prices and adverse leverage of fixed costs offset by ~~higher SG&A~~favorable leverage of fixed costs.
Our Electronics segment operating income increased slightly primarily due to the increase in sales resulting from favorable movement in foreign currency exchange rates which were offset by higher D&D and material and labor costs, excluding the impact of the acquired Orlaco business.
~~Our PST segment operating income~~loss increased primarily due to lower segment gross margin from higher ~~sales~~material prices, costs associated with supply chain disruptions and higher ~~gross profit from~~D&D spending offset by favorable leverage of fixed costs.
Our Stoneridge Brazil segment operating income decreased primarily due to a ~~favorable sales mix~~$3.1 million increase in net adjustments to the fair value of ~~higher monitoring services. PST’s improved operating performance is expected to be sustained for~~ the ~~remainder of 2017.~~
SRB earn-out consideration.
Our unallocated corporate operating loss increased primarily ~~due to~~from higher ~~wages, incentive compensation~~business realignment costs of $1.1 million and professional ~~fees, which were partially~~services costs offset by lower ~~headquarter relocation costs.~~
incentive compensation expense.
Operating (loss) income by geographic location is summarized in the following table (in thousands):






Dollar

Percent

Three months ended September 30,

2021

2020

decrease

decrease

North America

$
(6,788)

$
3,326

$
(10,114)

(304.1)
%
South America

909

3,439

(2,530)

(73.6)
%
Europe and Other

(3,049)

3,062

(6,111)

(199.6)
%
Operating (loss) income

$
(8,928)

$
9,827

$
(18,755)

(190.9)
%

Dollar Percent
increase / increase /
Three months ended September 30 2017 2016 (decrease) (decrease)
North America $ 7,110 $ 8,852 $ (1,742 ) (19.7 )%
South America 1,018 29 989 NM
Europe and Other 5,168 2,899 2,269 78.3
Operating income $ 13,296 $ 11,780 $ 1,516 12.9 %

Our North American operating ~~results decreased primarily~~loss increased due to ~~decreases~~decreased sales in ~~sales volume in the North American~~our automotive market as well as ~~higher SG&A~~increased costs ~~which were partially offset by increased sales volume~~associated with supply chain disruptions. The decrease in ~~the off-highway and commercial vehicle markets and slightly lower D&D costs in our Control Devices segment. The improved performance~~operating income in South America was primarily due the increase in net adjustments to ~~higher sales and gross profit from a favorable sales mix~~the fair value of ~~higher monitoring services which were partially offset by higher SG&A costs.~~the SRB earn-out consideration. Our operating results in Europe and Other ~~increased~~decreased primarily due to ~~higher sales in our China automotive~~lower gross margin and ~~European commercial vehicle markets which were partially offset by~~ higher D&D ~~and material and labor costs, excluding the impact~~spending.
39
Table of ~~the Orlaco business.~~Contents
Interest Expense, net. Interest expense, net decreased by ~~$0.2~~$0.4 million ~~compared to~~for the ~~prior year third quarter primarily~~three months ended September 30, 2021 due to a reduction in average outstanding borrowings and lower ~~PST~~ interest ~~expense which was partially offset by higher interest~~rates on our Credit Facility ~~resulting from the additional borrowings to fund the Orlaco acquisition.~~
32
borrowings.
Equity in Earnings of Investee. Equity earnings for ~~Minda~~MSIL were ~~$0.5~~$0.4 million and $0.3 million for the three months ended September 30, ~~2017~~2021 and ~~2016,~~2020, respectively. ~~The increase compared to the prior period was due to higher sales and was 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~~losses (gains) ~~losses~~ as a component of other expense (income), net on the condensed consolidated statement of operations. Other expense, ~~(income),~~ net of less than $0.1 million, increased by ~~$0.9~~$0.3 million ~~in third quarter of 2017~~ compared to the third quarter of ~~2016 primarily~~2020 due to ~~an unfavorable change in~~2020 foreign currency ~~exchange rates~~transaction gains in our ~~Electronics segment partially offset by favorable foreign currency movements in our PST segment.~~
Control Devices and Stoneridge Brazil segments.
Provision for Income Taxes. We recognized income tax expense of $3.8 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 forIn the three months ended September 30, ~~2017 compared~~2021, income tax expense of $0.5 million was attributable to an update to the ~~same period~~estimated tax impact of the gain on the sale of the Canton facility, the mix of earnings among tax jurisdictions as well as tax losses for ~~2016 was~~which no benefit is recognized due to valuation allowances in certain jurisdictions. The effective tax rate of (5.4)% is less than the statutory tax rate primarily due to the ~~release~~impact of ~~the U.S. federal, certain state and foreign~~tax losses for which no benefit is recognized due to valuation allowances in certain jurisdictions as well as an update to the ~~fourth quarter~~gain on the sale of ~~2016 that were previously recorded against certain deferred~~the Canton facility.

In the three months ended September 30, 2020, income tax ~~assets.~~expense of $1.5 million was attributable to the mix of earnings among tax jurisdictions. The effective tax rate ~~increased to 32.1% in~~of 17.9% was lower than the ~~third quarter of 2017 from 8.4% in the third quarter of 2016~~statutory tax rate primarily due to the ~~continued strong performance~~impact of ~~the U.S. operations,~~certain tax incentives offset by non-deductible expenses and tax losses for which no benefit is recognized due to ~~a full~~ valuation ~~allowance, favorably impacted the effective tax rate~~allowances 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.~~certain jurisdictions.

Nine Months Ended September 30, ~~2017~~2021 Compared to Nine Months Ended September 30, ~~2016~~
2020
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,

2021

2020

(decrease)
Net sales

$
566,809


100.0
%
$
458,275

100.0
%
$
108,534
Costs and expenses:

Cost of goods sold

441,882

78.0

353,629

77.2

88,253
Selling, general and administrative

89,237

15.7

81,610

17.8

7,627
Gain on sale of canton facility, net

(30,718)

(5.4)

-

-

(30,718)
Design and development

46,593

8.2

36,373

7.9

10,220
Operating income (loss)

19,815

3.5

(13,337)

(2.9)

33,152
Interest expense, net

5,073

0.9

4,322

0.9

751
Equity in earnings of investee

(1,694)

(0.3)

(556)

(0.1)

(1,138)
Other expense (income), net

127

0.1

(1,879)

(0.4)

2,006
Income (loss) before income taxes

16,309

2.8

(15,224)

(3.3)

31,533
Provision (benefit) for income taxes

6,739

1.2

(3,694)

(0.8)

10,433
Net income (loss)

$
9,570

1.6
%
$
(11,530)

(2.5)
%
$
21,100
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)~~thousands):

Dollar

Percent

Nine months ended September 30,

2021

2020

increase

increase

Control Devices

$
273,581


48.3
%
$
243,797

53.2
%
$
29,784

12.2
%
Electronics

250,440

44.2

180,071

39.3

70,369

39.1
%
Stoneridge Brazil

42,788

7.5

34,407

7.5

8,381

24.4
%
Total net sales

$
566,809

100.0
%
$
458,275

100.0
%
$
108,534

23.7
%

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 %

40
Table of Contents
Our Control Devices segment net sales increased ~~primarily as a result of new product sales and increased sales volume~~$29.8 million due to recovery from 2020 COVID-19 impacts in ~~the~~our North American automotive, ~~market~~agricultural and commercial vehicle markets of $22.9 million, $2.1 million and ~~increased sales volume~~$0.8 million, respectively, and an increase in ~~the~~our China automotive and commercial vehicle ~~agricultural and various other~~ markets of ~~$6.4 million, $2.9 million, $1.1~~$4.8 million and ~~$1.8~~$3.9 million, respectively, ~~which were offset by an unfavorable~~as well as a favorable foreign currency translation of ~~$0.5~~$2.6 million.
These increases were partially offset by a decrease in volumes in our European automotive market of $8.4 million due to the exit of PM sensor production.
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 volumerecovery from 2020 COVID-19 impacts in our European and North American commercial vehicle ~~products~~and European and North American off-highway vehicle markets of ~~$2.5~~$25.8 million, $19.0 million, $7.6 million and ~~$2.8~~$5.2 million, ~~respectively. These increases were partially~~respectively, as well as favorable euro and Swedish krona foreign currency translation of $11.2 million compared to the prior year period.
Our Stoneridge Brazil segment net sales increased due to higher volumes for all of our product lines and for our Argentina market channel offset by an unfavorable foreign currency translation of ~~$4.6 million and unfavorable pricing of $1.9~~$2.5 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,

2021

2020

increase

increase

North America

$
288,629


50.9
%
$
240,549

52.4
%
$
48,080

20.0
%
South America

42,788

7.5

34,407

7.6

8,381

24.4
%
Europe and Other

235,392

41.6

183,319

40.0

52,073

28.4
%
Total net sales

$
566,809

100.0
%
$
458,275

100.0
%
$
108,534

23.7
%
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~~volume increases 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~~Electronics off-highway markets of ~~$8.7~~$22.1 million, ~~$1.0 million, $1.9~~$19.8 million and ~~$1.8~~$5.2 million, respectively. The increase in net sales in South America was ~~primarily~~ due to ~~an increase in monitoring~~higher volumes for all of our SRB product lines and ~~service revenues as well as favorable~~for our Argentina market channel offset by unfavorable Brazilian real foreign currency translation ~~that increased sales by $5.9~~of $2.5 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~~increases in our European commercial vehicle ~~products~~ and off-highway markets of $26.2 million and $7.6 million, respectively, and increases in our China automotive ~~market~~and commercial vehicle markets of ~~$7.8~~$4.8 million and ~~$6.4~~$4.6 million, respectively. Europe and Other net sales also increased due to favorable foreign currency translation of $13.8 million. These increases were partially offset by ~~an unfavorable foreign currency translation~~a decrease in volumes in our European automotive market of ~~$5.1~~$8.4 million ~~and unfavorable pricing~~due to the exit of ~~$1.8 million.~~
PM sensor production
Cost of Goods Sold and Gross Margin. Cost of goods sold increased ~~by 14.4% primarily related~~compared to ~~an increase in net sales. Our~~the third quarter of 2020 and our gross margin ~~improved by 2.1% to 30.3% for~~decreased from 22.8% in the first nine months of ~~2017 compared~~2020 to ~~28.2% for~~22.0% in the first nine months of ~~2016.~~2021. Our material cost as a percentage of net sales ~~decreased by 1.0% to 50.5% for~~increased from 52.9% in the first nine months of ~~2017 compared~~2020 to ~~51.5% for~~55.8% in the first nine months of ~~2016. The lower direct material~~2021 from 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~~supply chain disruptions and 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 overheadprice increases. Overhead as a percentage of net sales decreased ~~by 0.9%~~ to ~~12.3%~~16.6% for the first nine months of ~~2017~~2021 compared to ~~13.2%~~18.9% for the first nine months of ~~2016.~~
34
2020 due to leverage of fixed costs from higher sales levels offset by higher incremental freight costs.
Our Control Devices segment gross margin increased ~~slightly~~ due to ~~an increase in~~lower restructuring costs of $2.3 million and favorable leverage of fixed costs from higher sales levels offset by ~~higher material~~ costs ~~and higher warranty costs.~~
associated with supply chain disruptions.
Our Electronics segment gross margin ~~improved~~decreased primarily due to ~~lower material and overhead~~higher costs ~~resulting~~associated with supply chain disruptions offsetting favorable leverage of fixed costs from ~~favorable movement in foreign currency exchange rates and a favorable mix related to Orlaco product sales.~~higher sales levels.
Our ~~PST~~Stoneridge Brazil segment gross margin ~~improved~~decreased due to ~~lower direct material costs related to a favorable movement in foreign currency exchange rates and a favorable~~adverse sales mix ~~related~~from higher product sales compared to monitoring fees and higher ~~monitoring service revenues as well as lower overhead~~ costs ~~resulting from 2016 business realignment actions. This increase was partially~~associated with supply chain disruptions offset by ~~lower product sales volume.~~
favorable leverage of fixed costs.
Selling, General and Administrative.SG&A expenses increased by ~~$24.4~~$7.6 million compared to the first nine months of ~~2016 primarily~~2020 due to ~~higher costs in our Electronics segment substantially related to the acquisition of Orlaco of $14.4~~a $4.5 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 duenet adjustments 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 the SRB earn-out consideration, the impairment of ~~$0.7~~Brazilian indirect tax credits of $0.6 million ~~a change in foreign currency exchange rates~~ and higher ~~incentive compensation,~~professional service costs which were ~~partially~~ offset by ~~lower~~the 2021 gain on disposal of the PM sensor business ~~realignment charges~~ of $0.7 million.
Design and Development.D&D costs increased by ~~$4.8~~$10.2 million primarily due to ~~higher D&D costs~~increased spend in our Electronics segment ~~related to the acquired Orlaco~~of $9.0 million comprised of higher consulting and prototype costs as well as lower customer reimbursements offset by higher capitalized software development costs for ongoing development activities for awarded business ~~and new product design~~programs 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.~~of advanced technologies and systems.
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Operating ~~Income.~~Income (Loss). Operating income (loss) is summarized in the following table by reportable segment (in thousands):

Dollar

Percent

increase /

increase /

Nine months ended September 30,

2021

2020

(decrease)

(decrease)

Control Devices

$
50,129

$
10,116

$
40,013

395.5
%
Electronics

(7,793)

(7,523)

(270)

(3.6)
%
Stoneridge Brazil

112

3,419

(3,307)

(96.7)
%
Unallocated corporate

(22,633)

(19,349)

(3,284)

(17.0)
%
Operating income (loss)

$
19,815

$
(13,337)

$
33,152

248.6
%

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~~the impact of higher ~~material, warranty, SG&A and D&D costs.~~
~~Our Electronics segment operating income increased slightly primarily due to lower material costs~~gross margin, the gain on sale of the Canton Facility of $30.7 million, the gain on disposal of the PM sensor business of $0.7 million and a decrease in ~~business realignment costs~~restructuring expense of ~~$1.1~~$3.6 million ~~which were partially~~ offset by higher ~~D&D~~ costs ~~excluding the impact of the acquired Orlaco business.~~
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from supply chain disruptions and higher Sarasota environmental costs.
Our ~~PST~~Electronics 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~~costs from supply chain disruptions and ~~incentive compensation as well as Orlaco transaction~~higher D&D costs offset by higher sales and gross margin.
Our Stoneridge Brazil segment operating income decreased primarily due to a $4.5 million increase in net adjustments to the fair value of the SRB earn-out consideration and the impairment of Brazilian indirect tax credits of $0.7 million offset by higher sales and gross margin.
Our unallocated corporate operating loss was higher due to higher business realignment costs of $1.1 million and higher professional service costs.
Operating income (loss) by geographic location is summarized in the following table (in thousands):

Dollar

Percent

increase

increase

Nine months ended September 30,

2021

2020

(decrease)

(decrease)

North America

$
16,522

$
(17,030)

$
33,552

197.0
%
South America

112

3,419

(3,307)

(96.7)
%
Europe and Other

3,181

274

2,907

1,060.9
%
Operating income (loss)

$
19,815

$
(13,337)

$
33,152

248.6
%
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~~income increased due to ~~increased~~the gain on sale of the Canton Facility and higher sales in ~~the North American~~our automotive ~~market, which were partially offset by~~and commercial vehicle markets and lower restructuring costs offsetting higher ~~wages, incentive compensation, warranty and Orlaco transaction costs.~~costs from supply chain disruptions. The ~~improved performance~~increase in operating loss in South America was primarily due to an unfavorable change in fair value of earn-out consideration adjustments of $4.5 million offsetting higher sales ~~higher~~and gross ~~profit resulting from a favorable sales mix of higher monitoring service revenues and a decrease in business realignment costs.~~margin. Our operating results in Europe and Other ~~improved~~increased primarily due to higher sales ~~of European off-highway, China automotive and European~~in our commercial vehicle ~~products~~ and ~~lower material and overhead costs resulting from~~off-highway markets as well as a favorable ~~movement in~~ foreign currency ~~exchange rates.~~
translation impact offset by higher costs from supply chain disruptions and higher D&D costs.
Interest Expense, net. Interest expense, net ~~decreased~~increased by ~~$0.6~~$0.8 million ~~compared to~~for the ~~first~~ nine months ~~of the prior year primarily~~ended September 30, 2021 due to ~~lower PST interest expense which was partially offset by~~ higher interest ~~related to~~rates on our Credit Facility ~~resulting from~~borrowings and the ~~additional borrowings to fund the Orlaco acquisition.~~
adverse impact of our interest rate swap offsetting a reduction in average outstanding borrowings.
Equity in Earnings of Investee. Equity earnings for ~~Minda~~MSIL were ~~$1.2~~$1.3 million and $0.6 million for the nine months ended September 30, ~~2017~~2021 and ~~2016,~~2020, 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~~losses (gains) ~~losses~~ as a component of other ~~expense (income),~~income, net on the condensed consolidated statement of operations. Other expense (income), net ~~increased~~of $0.1 million, decreased by ~~$1.9~~$2.0 million in the first nine months of ~~2017~~2021 compared to other income, net of $1.9 million for the first nine months of 2020 due to 2020 foreign currency transaction gains in our Stoneridge Brazil and Electronics segments.

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

In the nine months ended September 30, 2020, income tax benefit of $(3.7) million was attributable to the mix of earnings among tax jurisdictions as wells as tax losses for which no benefit is recognized due to valuation allowances in certain jurisdictions. The effective tax rate of 24.3% was slightly greater than the statutory tax rate primarily due to the impact of certain incentives offset by non-deductible expenses and tax losses for which no benefit is recognized due to valuation allowances in certain jurisdictions.

Liquidity and Capital Resources
Summary of Cash Flows:

Nine months ended September 30,

2021

2020

Net cash provided by (used for):

Operating activities

$
(19,689)

$
8,955

Investing activities

12,948

(25,038)

Financing activities

(14,652)

14,834

Effect of exchange rate changes on cash and cash equivalents

(2,525)

134

Net change in cash and cash equivalents

$
(23,918)

$
(1,115)

Cash used for operating activities increased 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 of 2017 and 2016, respectively. The increase in income tax expense for the nine 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 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 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 first half of 2017 of the non-deductible fair value adjustment to earn-out considerations related to the Orlaco and PST acquisitions.
36
~~Liquidity and Capital Resources~~
~~Summary of Cash Flows:~~
Nine months ended September 30, (in thousands) 2017 2016
Net cash provided by (used for):
Operating activities $ 51,118 $ 37,017
Investing activities (102,084 ) (17,832 )
Financing activities 47,119 (22,718 )
Effect of exchange rate changes on cash and cash equivalents 4,249 (268 )
Net change in cash and cash equivalents $ 402 $ (3,801 )
~~Cash provided by operating activities increased~~2020 primarily due to an increase in ~~non-cash items including deferred~~cash used to fund working capital levels primarily for inventory, which was impacted by supply chain disruptions and production volatilities, offset by higher net income, ~~taxes, change in fair value~~net of the ~~PST and Orlaco earn-out considerations and amortization~~reconciling adjustment for the gain on the sale of ~~Orlaco intangible assets.~~the Canton Facility. Our receivable terms and collections rates have remained consistent between periods presented.

Net cash provided by investing activities increased compared to 2020 due to proceeds from the sale of the Canton Facility, the disposal of the PM sensor business, and lower capital expenditures and capitalized software costs which were offset by higher investments in the Autotech Fund II.

Net cash used for ~~investing~~financing activities increased compared to the prior year primarily due to ~~payments made for the acquisition of the Orlaco business as well as higher capital expenditures.~~
~~Net cash provided by financing activities increased primarily due to increased borrowings on the~~2021 net Credit Facility ~~to fund the acquisition of the Orlaco business, which was partially offset by unscheduled partial~~payments and repayments of ~~our Credit Facility and the payment for the remaining noncontrolling interest in PST.~~debt of $12.0 million.

As outlined in Note 87 to our condensed consolidated financial statements, ~~our~~the 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.~~$400.0 million. This variable rate facility provides the flexibility to refinance other outstanding debt or finance acquisitions through ~~September 2021.~~June 2024. 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~~$130.0 million at September 30, ~~2017.~~ 2021.

Due to the impact of the COVID-19 pandemic on the Company’s end-markets and the resulting expected financial impacts on the Company, on June 26, 2020, the Company entered into a Waiver and Amendment No. 1 to the Fourth Amended and Restated Credit Agreement (“Amendment No. 1”). Amendment No. 1 provides for certain covenant relief and restrictions during the “Covenant Relief Period” (the period ending on the date that the Company delivers a compliance certificate for the quarter ending June 30, 2021). The Covenant Relief Period ended on August 14, 2021. During the Covenant Relief Period:

● the maximum net leverage ratio was suspended;
● the calculation of the minimum interest coverage ratio excluded second quarter 2020 financial results effective for the quarters ended September 30, 2020 through March 31, 2021;
● the minimum interest coverage ratio of 3.50 was reduced to 2.75 and 3.25 for the quarters ended December 31, 2020 and March 31, 2021, respectively;
● the Company’s liquidity could not be less than $150,000;
● the Company’s aggregate amount of cash and cash equivalents could not exceed $130,000;
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Table of Contents
● there were certain restrictions on Restricted Payments (as defined); and
● a Permitted Acquisition (as defined) could not be consummated unless otherwise approved in writing by the required lenders.

Amendment No. 1 increased the leverage based LIBOR pricing grid through the maturity date of the Credit Facility and also provides for a LIBOR floor of 50 basis points on outstanding borrowings excluding any Specified Hedge Borrowings (as defined) which remain subject to a LIBOR floor of 0 basis points.

The Company was in compliance with all covenants at September 30, ~~2017.~~2021. The ~~covenants included in our~~Company has not experienced a violation which would limit the Company’s ability to borrow under the Credit Facility. However, it is possible that future borrowing flexibility under the Credit Facility may be limited as a result of lower than expected financial performance due to ~~date have not~~any further adverse impact of supply chain disruptions on the Company’s markets and ~~are not expected to limit our financing flexibility.~~ general global demand.The Company expects to make additional repayments on the Credit Facility when cash exceeds the amount needed for ~~operations.~~operations and to remain in compliance with all covenants.

~~PST~~Stoneridge Brazil maintains ~~several long-term~~short-term loans used for working capital purposes. At September 30, ~~2017,~~2021, there was ~~$9.5~~$0.1 million of ~~PST~~Stoneridge Brazil debt outstanding. Scheduled principal repayments ~~on PST debt at September 30, 2017 were as follows: $4.4~~of $0.1 million ~~from October 2017 to September 2018, $1.2 million from October 2018 to December 2018, $2.7 million~~are due in ~~2019 and $0.6 million in both 2020 and~~ 2021.
The ~~Company's~~Company’s wholly owned subsidiary located in Stockholm, Sweden, has an overdraft credit line which allows overdrafts on the ~~subsidiary's~~subsidiary’s bank account up to a daily maximum level of 20.0 million Swedish krona, or ~~$2.5~~$2.3 million and $2.4 million, at September 30, ~~2017.~~2021 and December 31, 2020, respectively. At September 30, ~~2017,~~2021, there ~~was~~were no ~~balance~~borrowings outstanding on this overdraft credit line. At December 31, 2020, there was 13.1 million Swedish krona, or $1.6 million, outstanding on this overdraft credit line. During the nine months ended September 30, 2021, the subsidiary borrowed 243.3 million Swedish krona, or $27.8 million, and repaid 256.4 million Swedish krona, or $29.3 million.
The Company’s wholly-owned subsidiary located in Suzhou, China, has two credit lines which allow up to a maximum borrowing level of 50.0 million Chinese yuan, or $7.8 million and $7.7 million at September 30, 2021 and December 31, 2020, respectively. At September 30, 2021 and December 31, 2020 there was $1.6 million and $4.5 million, respectively, in borrowings outstanding recorded within current portion of debt. In addition, the Suzhou subsidiary has a bank acceptance draft line of credit which allows up to a maximum borrowing level of 15.0 million Chinese yuan, or $2.3 million at both September 30, 2021 and December 31, 2020. There was $0.0 million and $0.4 million utilized on the Suzhou bank acceptance draft line of credit at September 30, 2021 and December 31, 2020, respectively.
~~Although the Company's notes and credit facilities contain various covenants,~~On May 19, 2020, the Company ~~has~~committed to the PM Sensor Exit. The decision to exit the PM sensor product line was made after the consideration of the decline in the market outlook for diesel passenger vehicles, the current and expected profitability of the product line and the Company’s strategic focus on aligning resources with the greatest opportunities. The estimated costs for the PM Sensor Exit include employee severance and termination costs, contract termination costs, professional fees and other related costs such as potential commercial and supplier settlements. Non-cash charges include impairment of fixed assets and accelerated depreciation associated with PM sensor production. We recognized $0.7 million and $0.3 million of expense as a result of this initiative during the three months ended September 30, 2021 and September 30, 2020, respectively. The only remaining costs relate to potential commercial settlements and legal fees which we continue to negotiate. The estimated range of additional cost related to these settlements and fees is approximately $1.4 million to $4.2 million.
In January 2019, we committed to a restructuring plan that resulted in the closure of our Canton Facility as of March 31, 2020 and the Canton Restructuring. The cost for the Canton Restructuring included employee severance and termination costs, contract termination costs, professional fees and other related costs such as moving and set-up costs for equipment and costs to restore the engineering function previously located at the Canton Facility.  We did not ~~experienced~~recognize any expense as a ~~violation which would limit or preclude their use or accelerate~~result of these actions during the ~~maturity~~three months ended September 30, 2021 and ~~does~~recognized $0.2 million of expense as a result of these actions during the three months ended September 30, 2020. We do not expect to incur additional costs related to the Canton Restructuring. During the third quarter of 2020, we leased the Canton facility to a third party. On June 17, 2021, we sold the Canton Facility for net proceeds of $35.2 million and a net gain of $30.7 million.
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Table of Contents
In the fourth quarter of 2018, the Company undertook restructuring actions for the Electronics segment affecting the European Aftermarket business and China operations. In the second quarter of 2020, the Company finalized plans to move its European Aftermarket sales activities in Dundee, Scotland to a new location which resulted in incurring contract termination costs as well as employee severance and termination costs. In addition, the Company announced an additional restructuring program to transfer the European production of its Controls product line to China. For the three months ended September 30, 2021 and 2020, we recognized expense of less than $0.1 million and $0.6 million, respectively, as a result of these ~~covenants to restrict our financing flexibility.~~actions for related costs. The Company ~~has been and~~ expects to ~~continue~~incur an immaterial amount of restructuring costs through the fourth quarter of 2021.
On October 26, 2018 the Company announced a Board of Directors approved repurchase program authorizing Stoneridge to ~~remain~~repurchase up to $50.0 million of our Common Shares. Thereafter, on May 7, 2019, we announced that the Company had entered into an accelerated share repurchase agreement with Citibank N.A. to repurchase an aggregate of $50.0 million of our Common Shares. Pursuant to the accelerated share repurchase agreement in ~~compliance~~the second quarter of 2019 we made an upfront payment of $50.0 million and received an initial delivery of 1,349,528 Common Shares which became treasury shares. On February 25, 2020, Citibank N.A. terminated early its commitment pursuant to the accelerated share repurchase agreement and delivered to the Company, 364,604 Common Shares representing the final settlement of the Company’s repurchase program which became treasury shares.
On February 24, 2020, the Board of Directors authorized a new repurchase program of $50.0 million for the repurchase of outstanding Common Shares over an 18 month period. The Common Share repurchase program authorization did not obligate the Company to acquire any particular amount of its Common Shares, and could have been suspended or discontinued at any time. For the quarter ended March 31, 2020, under the 2020 repurchase program, the Company repurchased 242,634 Common Shares for $5.0 million, which became Treasury Shares, in accordance with ~~these covenants~~this repurchase program authorization. In April 2020, the Company announced that it was temporarily suspending the previously announced share repurchase program in response to uncertainty surrounding the duration and magnitude of the impact of COVID-19. The 2020 repurchase program authorization expired during the ~~term~~third quarter of 2021 and no additional shares will be repurchased under this program.

In December 2018, the Company entered into an agreement to make a $10.0 million investment in Autotech Fund II managed by Autotech, a venture capital firm focused on ground transportation technology. The Company’s $10.0 million investment in the Autotech Fund II will be contributed over the expected ten-year life of the ~~notes~~fund. As of September 30, 2021, the Company’s cumulative investment in the Autotech Fund II was $6.2 million. The Company contributed $2.3 million, net and ~~credit facilities.~~
$0.8 million, net to the Autotech Fund II during the nine months ended September 30, 2021 and 2020, respectively.
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 65 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,~~2021, we had a cash and cash equivalents balance of approximately ~~$50.8~~$50.0 million, ~~all~~ of which 87.5% was held in foreign locations. The ~~increase from $50.4~~Company has approximately $268.3 million ~~at December 31, 2016 was primarily due to cash provided from operating activities and net debt financing,~~of undrawn commitments under the Credit Facility as of September 30, 2021, which ~~were offset by capital expenditures~~results in total undrawn commitments and cash ~~paid for business acquisition during~~balances of more than $318.3 million. However, despite the ~~first nine months~~June 26, 2020 Credit Facility amendment, it is possible that future borrowing flexibility under our Credit Facility may be limited as a result of ~~2017.~~our financial performance.
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~~Stoneridge Brazil segment consumer products is typically higher in the second half of the year, the fourth quarter in particular.
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Table of Contents
Critical Accounting Policies and Estimates
The ~~Company's~~Company’s critical accounting policies, which include ~~management's~~management’s best estimates and judgments, are included in Part II, Item 7, to the consolidated financial statements of the ~~Company's 2016~~ Company’s 2020 Form ~~10-K.~~10-K. These accounting policies are considered critical as disclosed in the Critical Accounting Policies and Estimates section of ~~Management's~~Management’s Discussion and Analysis of the ~~Company's 2016~~ Company’s 2020 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 material changes in our significant accounting policies or critical accounting estimates during the third quarter of 2021.

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~~ 2020 Form ~~10-K.~~10-K.
Inflation and International Presence
~~Given the current economic conditions of countries and recent fluctuations in certain~~By operating internationally, we are affected by foreign currency exchange rates and the economic conditions of certain countries. Furthermore, given the current economic climate and fluctuations in certain commodity prices, we believe that ~~a negative change~~an increase in such items could significantly affect our profitability. See Note 5 to the condensed consolidated financial statements for additional details on the Company’s foreign currency exchange rate and interest rate risks.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes into the quantitative and qualitative information about the Company’s market risk from those previously presented within Part II, Item 7A of the ~~Company's 2016~~ Company’s 2020 Form ~~10-K.~~10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of September 30, ~~2017,~~2021, an evaluation was performed under the supervision and with the participation of the ~~Company's~~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~~Company’s disclosure controls and procedures. Based on that evaluation, the ~~Company's~~Company’s management, including the PEO and PFO, concluded that the ~~Company's~~Company’s disclosure controls and procedures were effective as of September 30, ~~2017.~~2021.
Changes in Internal Control Over Financial Reporting
There were no changes in the ~~Company's~~Company’s internal control over financial reporting during the three months ended September 30, ~~2017~~2021 that materially affected, or are reasonably likely to materially affect, the ~~Company's~~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~~

46
Table 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.Contents
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. We establish accruals for matters which we believe that losses are probable and can be reasonably estimated. 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, regulatory and other tax ~~assessment~~contingencies in our Stoneridge Brazil ~~related to value added taxes on vehicle tracking and monitoring services~~segment for which we believe the likelihood of loss is reasonably possible, but not probable, 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~~and 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. There can be no assurance that we will not experience any material losses related to product liability, warranty or recall claims. 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~~ Company’s 2020 Form ~~10-K.~~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. These shares~~2021. There were 11,530 Common Shares delivered to us by employees as payment for withholding taxes due upon vesting of ~~restricted~~performance share ~~awards.~~awards and share unit awards during the three months ended September 30, 2021.

Total number of

Maximum number

shares purchased as

of shares that may

part of publicly

yet be purchased

Total number of

Average price

announced plans

under the plans
Period

shares purchased

paid per share

or programs

or programs
7/1/21-7/31/21

-

$
-

N/A

N/A
8/1/21-8/31/21

11,530

26.81

N/A

N/A
9/1/21-9/30/21

-

-

N/A

N/A
Total

11,530

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
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
39
Item 5. Other Information
None
~~None.~~
47
Table of Contents
Item 6. Exhibits
Exhibit
Number
Exhibit
~~Number~~

~~Exhibit~~

10.1

Separation Agreement and Release by and between Stoneridge, Inc. and Robert R. Krakowiak, August 31, 2021 (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on September 1, 2021).
~~31.1~~

10.2

Separation Agreement and Release by and between Stoneridge, Inc. and Thomas M. Dono, Jr., August 6, 2021 (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on August 11, 2021).

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.~~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.~~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.~~herewith.

~~101~~

101
XBRL Exhibits:

~~101.INS~~

101.INS
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

~~101.SCH~~

101.SCH
XBRL Taxonomy Extension Schema Document

~~101.CAL~~

101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document

~~101.DEF~~

101.DEF
XBRL Taxonomy Extension Definition Linkbase Document

~~101.LAB~~

101.LAB
XBRL ~~Labels~~Taxonomy Extension Label Linkbase Document

~~101.PRE~~

~~XBRL Presentation Linkbase Document~~
104
The cover page from our Quarterly Report on Form 10-Q for the period ended September 30, 2021, filed with the Securities and Exchange Commission on August 4, 2021, is formatted in Inline Extensible Business Reporting Language (“iXBRL”)

40

48
Table of Contents
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.~~
STONERIDGE, INC.

Date:  ~~November 1, 2017~~October 27, 2021
/s/ Jonathan B. DeGaynor
Jonathan B. DeGaynor

President, ~~and~~ Chief Executive Officer and Director
(Principal Executive Officer)

Date:  ~~November 1, 2017~~October 27, 2021
/s/ ~~Robert~~Matthew R. ~~Krakowiak~~Horvath
~~Robert~~
Matthew R. ~~Krakowiak~~Horvath
Chief Financial Officer and Treasurer
(Principal Financial Officer)

41
49

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

Current assets:
Cash and cash equivalents	$	50,791		$	50,389
Accounts receivable, less reserves of $1,173 and $1,630, respectively		144,475			113,225
Inventories, net		78,643			60,117
Prepaid expenses and other current assets		23,264			17,162
Total current assets		297,173			240,893

Long-term assets:
Property, plant and equipment, net		108,919			91,500
Intangible assets, net		78,011			39,260
Goodwill		38,224			931
Investments and other long-term assets, net		17,942			21,945
Total long-term assets		243,096			153,636
Total assets	$	540,269		$	394,529

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Current portion of debt	$	4,421		$	8,626
Accounts payable		80,069			62,594
Accrued expenses and other current liabilities		48,258			41,489
Total current liabilities		132,748			112,709

Long-term liabilities:
Revolving credit facility		126,000			67,000
Long-term debt, net		5,102			8,060
Deferred income taxes		20,337			9,760
Other long-term liabilities		31,553			4,923
Total long-term liabilities		182,992			89,743

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		-			-
Additional paid-in capital		227,143			206,504
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	)
Retained earnings		73,356			45,356
Accumulated other comprehensive loss		(68,914	)		(67,913	)
Total Stoneridge, Inc. shareholders' equity		224,529			178,315
Noncontrolling interest		-			13,762
Total shareholders' equity		224,529			192,077
Total liabilities and shareholders' equity	$	540,269		$	394,529

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

Net sales	$	203,582		$	173,846		$	617,004		$	523,365

Costs and expenses:
Cost of goods sold		141,033			124,098			429,890			375,705
Selling, general and administrative		37,277			27,817			107,247			82,836
Design and development		11,976			10,151			35,731			30,912

Operating income		13,296			11,780			44,136			33,912

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

Income before income taxes		11,858			10,900			39,710			30,199

Provision for income taxes		3,809			919			13,569			3,114

Net income		8,049			9,981			26,141			27,085

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

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

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

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

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

OPERATING ACTIVITIES:
Net income	$	26,141		$	27,085
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		15,922			14,717
Amortization, including accretion of deferred financing costs		4,993			2,677
Deferred income taxes		6,233			714
Earnings of equity method investee		(1,200	)		(603	)
Loss (gain) on sale of fixed assets		6			(409	)
Share-based compensation expense		5,713			4,587
Tax benefit related to share-based compensation expense		(759	)		-
Change in fair value of earn-out contingent consideration		4,645			-
Changes in operating assets and liabilities, net of effect of business combination:
Accounts receivable, net		(18,232	)		(25,486	)
Inventories, net		(6,564	)		281
Prepaid expenses and other assets		1,530			(5,879	)
Accounts payable		11,611			13,991
Accrued expenses and other liabilities		1,079			5,342
Net cash provided by operating activities		51,118			37,017

INVESTING ACTIVITIES:
Capital expenditures		(24,892	)		(18,484	)
Proceeds from sale of fixed assets		66			652
Business acquisition, net of cash acquired		(77,258	)		-
Net cash used for investing activities		(102,084	)		(17,832	)

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

Effect of exchange rate changes on cash and cash equivalents		4,249			(268	)
Net change in cash and cash equivalents		402			(3,801	)
Cash and cash equivalents at beginning of period		50,389			54,361

Cash and cash equivalents at end of period	$	50,791		$	50,560

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

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


	Number of								Accumulated
	Common	Number of	Additional		Common				other		Total
	Shares	treasury	paid-in		Shares held		Retained		comprehensive		shareholders'
(in thousands)	outstanding	shares	capital		in treasury		earnings		loss		equity

BALANCE DECEMBER 31, 2019	27,408	1,558	$	225,607	$	(50,773)	$	206,542	$	(91,472)	$	289,904
Net income	—	—		—		—		3,490		—		3,490
Unrealized loss on derivatives, net	—	—		—		—		—		(3,655)		(3,655)
Currency translation adjustments	—	—		—		—		—		(17,119)		(17,119)
Issuance of Common Shares	267	(267)		—		—		—		—		—
Repurchased Common Shares for treasury, net	(75)	75		—		4,769		—		—		4,769
Common Share repurchase program	(607)	607		10,000		(14,995)		—		—		(4,995)
Share-based compensation, net	—	—		(5,101)		—		—		—		(5,101)
BALANCE MARCH 31, 2020	26,993	1,973	$	230,506	$	(60,999)	$	210,032	$	(112,246)	$	267,293

Net loss	—	—		—		—		(21,734)		—		(21,734)
Unrealized gain on derivatives, net	—	—		—		—		—		1,210		1,210
Currency translation adjustments	—	—		—		—		—		1,821		1,821
Issuance of Common Shares	12	(12)		—		—		—		—		—
Repurchased Common Shares for treasury, net	(4)	4		—		360		—		—		360
Share-based compensation, net	—	—		312		—		—		—		312
BALANCE JUNE 30, 2020	27,001	1,965	$	230,818	$	(60,639)	$	188,298	$	(109,215)	$	249,262

Net income	—	—		—		—		6,714		—		6,714
Unrealized gain on derivatives, net	—	—		—		—		—		1,022		1,022
Currency translation adjustments	—	—		—		—		—		5,975		5,975
Issuance of Common Shares	6	(6)		—		—		—		—		—
Repurchased Common Shares for treasury, net	(1)	1		—		157		—		—		157
Share-based compensation, net	—	—		1,242		—		—		—		1,242
BALANCE SEPTEMBER 30, 2020	27,006	1,960	$	232,060	$	(60,482)	$	195,012	$	(102,218)	$	264,372

BALANCE DECEMBER 31, 2020	27,006	1,960	$	234,409	$	(60,482)	$	212,342	$	(89,635)	$	296,634
Net income	—	—		—		—		130		—		130
Unrealized loss on derivatives, net	—	—		—		—		—		(129)		(129)
Currency translation adjustments	—	—		—		—		—		(10,778)		(10,778)
Issuance of Common Shares	224	(224)		—		—		—		—		—
Repurchased Common Shares for treasury, net	(68)	68		—		4,392		—		—		4,392
Share-based compensation, net	—	—		(5,577)		—		—		—		(5,577)
BALANCE MARCH 31, 2021	27,162	1,804	$	228,832	$	(56,090)	$	212,472	$	(100,542)	$	284,672

Net income	—	—		—		—		19,798		—		19,798
Unrealized gain on derivatives, net	—	—		—		—		—		386		386
Currency translation adjustments	—	—		—		—		—		7,172		7,172
Issuance of Common Shares	2	(2)		—		—		—		—		—
Repurchased Common Shares for treasury, net	—	—		—		4		—		—		4
Share-based compensation, net	—	—		1,598		—		—		—		1,598
BALANCE JUNE 30, 2021	27,164	1,802	$	230,430	$	(56,086)	$	232,270	$	(92,984)	$	313,630

Net loss	—	—		—		—		(10,358)		—		(10,358)
Unrealized loss on derivatives, net	—	—		—		—		—		(133)		(133)
Currency translation adjustments	—	—		—		—		—		(7,100)		(7,100)
Issuance of Common Shares	27	(27)		—		—		—		—		—
Repurchased Common Shares for treasury, net	(12)	12		—		475		—		—		475
Share-based compensation, net	—	—		1,137		—		—		—		1,137
BALANCE SEPTEMBER 30, 2021	27,179	1,787	$	231,567	$	(55,611)	$	221,912	$	(100,217)	$	297,651


	Control Devices				Electronics				Stoneridge Brazil				Consolidated
Three months ended September 30	2021		2020		2021		2020		2021		2020		2021		2020
Net Sales:
North America	$	70,334	$	79,106	$	25,061	$	18,470	$	-	$	-	$	95,395	$	97,576
South America		-		-		-		-		16,477		12,827		16,477		12,827
Europe		3,048		8,833		51,003		43,195		-		-		54,051		52,028
Asia Pacific		14,236		12,003		1,521		1,330		-		-		15,757		13,333
Total net sales	$	87,618	$	99,942	$	77,585	$	62,995	$	16,477	$	12,827	$	181,680	$	175,764

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

Accounts payable		3,020
Other current liabilities		834
Deferred tax liabilities		9,994
Warranty liability		1,462
Total liabilities assumed		15,310
Net identifiable assets acquired		49,904
Goodwill		33,979
Net assets acquired	$	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
	Notional amounts^(A)				and other current assets				other current liabilities
	September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
	2017		2016		2017		2016		2017		2016
Derivatives designated as hedging instruments:
Cash flow hedges:
Forward currency contracts	$	1,399	$	5,699	$	237	$	-	$	-	$	28
Derivatives not designated as hedging instruments:
Forward currency contracts	$	1,187	$	1,601	$	-	$	-	$	37	$	3


					Prepaid expenses				Accrued expenses and
	Notional amounts ^(A)				and other current assets				other current liabilities
	September 30,		December 31,		September 30,		December 31,		September 30,		December 31,
	2021		2020		2021		2020		2021		2020
Derivatives designated as hedging instruments:
Cash flow hedges:
Forward currency contracts	$	12,653	$	1,242	$	-	$	255	$	48	$	-
Interest rate swap	$	50,000	$	50,000	$	-	$	-	$	859	$	1,318
Net investment hedges:
Cross-currency swaps	$	50,000	$	-	$	607	$	-	$	-	$	-


					Gain (loss) reclassified from
	Gain (loss) recorded in other				other comprehensive income
	comprehensive income (loss)				(loss) into net income (loss) ^(A)
	2021		2020		2021		2020
Derivatives designated as cash flow hedges:
Forward currency contracts	$	(150)	$	642	$	155	$	(499)
Interest rate swap	$	(29)	$	(3)	$	(165)	$	(156)
Derivatives designated as net investment hedges:
Cross-currency swaps	$	573	$	-	$	-	$	-

						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

	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


	September 30,		December 31,		Interest rates at
	2021		2020		September 30, 2021	Maturity
Revolving Credit Facility
Credit Facility	$	130,000	$	136,000	1.95%	June 2024

Debt
Stoneridge Brazil short-term obligations		99		1,561	8.80%	November 2021
Sweden short-term credit line		-		1,591
Suzhou short-term credit line		1,551		4,521	4.30%	May 2022
Total debt		1,650		7,673
Less: current portion		(1,650)		(7,673)
Total long-term debt, net	$	-	$	-

	September 30,			December 31,			Interest rates at
	2017			2016			September 30, 2017			Maturity
Revolving Credit Facility
Credit Facility	$	126,000		$	67,000			2.49	%	September 2021

Debt
PST short-term obligations		-			5,097
PST long-term notes		9,475			11,452			10.0% - 13.4	%	2019-2021
Other		48			137
Total debt		9,523			16,686
Less: current portion		(4,421	)		(8,626	)
Total long-term debt, net	$	5,102		$	8,060


		Foreign		Unrealized
		currency		gain (loss)
		translation		on derivatives	Total
Balance at July 1, 2021	$	(92,401)	$	(583)	$	(92,984)
Other comprehensive loss before reclassifications		(7,100)		(141)		(7,241)
Amounts reclassified from accumulated other comprehensive loss		-		8		8
Net other comprehensive loss, net of tax		(7,100)		(133)		(7,233)
Balance at September 30, 2021	$	(99,501)	$	(716)	$	(100,217)

Balance at July 1, 2020	$	(106,770)	$	(2,445)	$	(109,215)
Other comprehensive income before reclassifications		5,975		505		6,480
Amounts reclassified from accumulated other comprehensive loss		-		517		517
Net other comprehensive income, net of tax		5,975		1,022		6,997
Balance at September 30, 2020	$	(100,795)	$	(1,423)	$	(102,218)

	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	)

The following provides a reconciliation of changes in product warranty and recall liability:
Nine months ended September 30	2021		2020
Product warranty and recall at beginning of period	$	12,691	$	10,796
Accruals for warranties established during period		5,125		4,817
Aggregate changes in pre-existing liabilities due to claim developments		49		1,137
Settlements made during the period		(7,990)		(4,630)
Foreign currency translation		(317)		42
Product warranty and recall at end of period	$	9,558	$	12,162

Nine months ended September 30	2017			2016
Product warranty and recall at beginning of period	$	9,344		$	6,419
Accruals for products shipped during period		6,408			3,010
Assumed warranty liability related to Orlaco		1,462			-
Aggregate changes in pre-existing liabilities due to claim developments		1,616			(272	)
Settlements made during the period		(9,062	)		(1,332	)
Product warranty and recall at end of period	$	9,768		$	7,825


	Accrual as of		2020 Charge			Utilization			Accrual as of
	January 1, 2020		to Expense		Cash		Non-Cash		September 30, 2020
Fixed asset impairment and accelerated depreciation	$	0	$	2,824	$	-	$	(2,824)	$	0
Other related costs		0		70		(70)		-		0
Total	$	0	$	2,894	$	(70)	$	(2,824)	$	0
��


	Accrual as of		2021 Charge			Utilization			Accrual as of
	January 1, 2021		to Expense		Cash		Non-Cash		September 30, 2021
Employee termination benefits	$	165	$	-	$	(25)	$	-	$	140
Other related costs		-		13		(13)		-		-
Total	$	165	$	13	$	(38)	$	-	$	140


	Accrual as of		2021 Charge to			Utilization			Accrual as of
	January 1, 2021		Expense		Cash		Non-Cash		September 30, 2021
Employee termination benefits	$	227	$	50	$	(212)	$	-	$	65
Other related costs		-		206		(206)		-		-
Total	$	227	$	256	$	(418)	$	-	$	65


	Accrual as of		2020 Charge to			Utilization			Accrual as of
	January 1, 2020		Expense		Cash		Non-Cash		September 30, 2020
Employee termination benefits	$	52	$	961	$	(743)	$	-	$	270
Contract termination costs		0		452		(452)		0		0
Other related costs		-		782		(782)		-		-
Total	$	52	$	2,195	$	(1,977)	$	-	$	270


									Dollar
									increase /
Three months ended September 30,	2021				2020				(decrease)
Net sales	$	181,680	100.0	%	$	175,764	100.0	%	$	5,916
Costs and expenses:
Cost of goods sold		145,680	80.2			129,769	73.8			15,911
Selling, general and administrative		28,481	15.7			24,414	13.9			4,067
Design and development		16,447	9.1			11,754	6.7			4,693
Operating (loss) income		(8,928)	(5.0)			9,827	5.6			(18,755)
Interest expense, net		1,447	0.8			1,882	1.1			(435)
Equity in earnings of investee		(584)	(0.2)			(330)	(0.2)			(254)
Other expense (income), net		41	-			(253)	(0.1)			294
(Loss) income before income taxes		(9,832)	(5.6)			8,528	4.7			(18,360)
Provision for income taxes		526	0.3			1,814	1.0			(1,288)
Net (loss) income	$	(10,358)	(5.9)	%	$	6,714	3.7	%	$	(17,072)

													Dollar
													increase /
Three months ended September 30				2017						2016			(decrease)
Net sales	$	203,582			100.0	%	$	173,846			100.0	%	$	29,736
Costs and expenses:
Cost of goods sold		141,033			69.3			124,098			71.4			16,935
Selling, general and administrative		37,277			18.3			27,817			16.0			9,460
Design and development		11,976			5.9			10,151			5.8			1,825

Operating income		13,296			6.5			11,780			6.8			1,516
Interest expense, net		1,508			0.7			1,684			1.0			(176	)
Equity in earnings of investee		(465	)		(0.2	)		(307	)		(0.2	)		(158	)
Other expense (income), net		395			0.2			(497	)		(0.3	)		892
Income before income taxes		11,858			5.8			10,900			6.3			958

Provision for income taxes		3,809			1.8			919			0.5			2,890

Net income		8,049			4.0			9,981			5.8			(1,932	)
Net loss attributable to
noncontrolling interest		-			-			(303	)		(0.1	)		303
Net income attributable to Stoneridge, Inc.	$	8,049			4.0	%	$	10,284			5.9	%	$	(2,235	)


									Dollar		Percent
									increase		increase
Three months ended September 30,	2021				2020				(decrease)		(decrease)
Control Devices	$	87,618	48.2	%	$	99,942	56.9	%	$	(12,324)	(12.3)	%
Electronics		77,585	42.7			62,995	35.8			14,590	23.2	%
Stoneridge Brazil		16,477	9.1			12,827	7.3			3,650	28.5	%
Total net sales	$	181,680	100.0	%	$	175,764	100.0	%	$	5,916	3.4	%

											Dollar		Percent
Three months ended September 30			2017					2016			increase		increase
Control Devices	$	106,842		52.5	%	$	103,700		59.7	%	$	3,142		3.0	%
Electronics		71,354		35.0			47,804		27.4			23,550		49.3
PST		25,386		12.5			22,342		12.9			3,044		13.6
Total net sales	$	203,582		100.0	%	$	173,846		100.0	%	$	29,736		17.1	%

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

					Dollar		Percent
Three months ended September 30,	2021		2020		decrease		decrease
Control Devices	$	2,899	$	12,450	$	(9,551)	(76.7)	%
Electronics		(5,113)		647		(5,760)	(890.3)	%
Stoneridge Brazil		909		3,439		(2,530)	(73.6)	%
Unallocated corporate		(7,623)		(6,709)		(914)	(13.6)	%
Operating (loss) income	$	(8,928)	$	9,827	$	(18,755)	(190.9)	%