2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements include the accounts of Stoneridge, Inc. and its wholly-owned and majority-owned subsidiaries (collectively, the “Company”). Intercompany transactions and balances have been eliminated in consolidation. The Company analyzes its ownership interests in accordance with Accounting Standards Codification (“ASC”) “Consolidations (Topic 810)” to determine whether they are a variable interest entity and, if so, whether the Company is the primary beneficiary.

On January 31, 2017, the Company acquired Exploitatiemaatschappij Berghaaf B.V. (“Orlaco”), an electronics business which designs, manufactures and sells camera-based vision systems, monitors and related products. The acquisition was accounted for as a business combination, and accordingly, the Company’s consolidated financial statements herein include the results of Orlaco from the acquisition date to December 31, 2017. See Acquisitions in Note 2 below to the consolidated financial statements for additional details regarding the Orlaco acquisition.

The Company had a 74% controlling interest in PST Eletrônica Ltda. (“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 3 to the consolidated financial statements for additional details regarding the acquisition of PST’s noncontrolling interest.

The Company’s investment in Minda Stoneridge Instruments Ltd. (“Minda”) for the years ended December 31, 2017, 2016 and 2015 has been determined to be an unconsolidated entity, and therefore is accounted for under the equity method of accounting based on 49% ownership.

Accounting Estimates

The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including certain self-insured risks and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Because actual results could differ from those estimates, the Company revises its estimates and assumptions as new information becomes available.

Cash and Cash Equivalents

The Company’s cash and cash equivalents include actively traded money market funds with short-term investments in marketable securities, primarily U.S. government securities. Cash and cash equivalents are stated at cost, which approximates fair value, due to the highly liquid nature and short-term duration of the underlying securities with original maturities of 90 days or less.

Accounts Receivable and Concentration of Credit Risk

Revenues are principally generated from the automotive, commercial, off-highway, motorcycle and agricultural vehicle markets. The Company’s largest customers are Ford Motor Company and General Motors Company, primarily related to the Control Devices and Electronics reportable segments and accounted for the following percentages of consolidated net sales for the years ended December 31, 2017, 2016 and 2015:


	2017		2016		2015
Ford Motor Company	14	%	17	%	14	%
General Motors Company	7	%	7	%	5	%

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

Allowance for Doubtful Accounts

The Company evaluates the collectability of accounts receivable based on a combination of factors. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations, a specific allowance for doubtful accounts is recorded against amounts due to reduce the net recognized receivable to the amount the Company reasonably believes will be collected. Additionally, the Company reviews historical trends for collectability in determining an estimate for its allowance for doubtful accounts. If economic circumstances change substantially, estimates of the recoverability of amounts due to the Company could be reduced by a material amount. The Company does not have collateral requirements with its customers.

Sales of Accounts Receivable

The Company’s PST segment sold selected accounts receivable on a full recourse basis to an unrelated financial institution in Brazil. PST accounts for these transactions as sales of accounts receivable. As such, in accordance with ASC 860, “Transfers and Servicing”, the sales of accounts receivable are reflected as a reduction of accounts receivable in the consolidated balance sheets and the loss on sale is recorded within interest expense, net in the consolidated statements of operations while the proceeds received from the sale are included in the cash flows from operating activities in the consolidated statements of cash flows.

During 2017, PST sold $2,520 (7,983 Brazilian real (“R$”)) of accounts receivable at a loss of $86 (R$273), which represents the implicit interest on the transaction, and received proceeds of $2,434 (R$7,710). PST did not have any remaining credit exposure at December 31, 2017 related to the receivables sold.

During 2016, PST sold $15,297 (R$53,886) of accounts receivable at a loss of $459 (R$1,615), which represents the implicit interest on the transaction, and received proceeds of $14,838 (R$52,271). PST had a remaining credit exposure of $1,067 (R$3,476) at December 31, 2016 related to the receivables sold for which payment from the customer was not yet due.

Inventories

Inventories are valued at the lower of cost (using either the first-in, first-out (“FIFO”) or average cost methods) or net realizable value. The Company evaluates and adjusts as necessary its excess and obsolescence reserve on a quarterly basis. Excess inventories are quantities of items that exceed anticipated sales or usage for a reasonable period. The Company has guidelines for calculating provisions for excess inventories based on the number of months of inventories on hand compared to anticipated sales or usage. Management uses its judgment to forecast sales or usage and to determine what constitutes a reasonable period. Inventory cost includes material, labor and overhead. Inventories consist of the following:


		December 31,		December 31,
		2017		2016
Raw materials	$	47,588	$	35,665
Work-in-progress		5,806		7,483
Finished goods		20,077		16,969
Total inventories, net	$	73,471	$	60,117

Inventory valued using the FIFO method was $54,837 and $37,765 at December 31, 2017 and 2016, respectively. Inventory valued using the average cost method was $18,634 and $22,352 at December 31, 2017 and 2016, respectively.

Pre-production Costs Related to Long-term Supply Arrangements

Engineering, research and development and other design and development costs for products sold on long-term supply arrangements are expensed as incurred unless the Company has a contractual guarantee for reimbursement from the customer which are capitalized as pre-production costs. Costs for molds, dies and other tools used to make products sold on long-term supply arrangements for which the Company either has title to the assets or has the noncancelable right to use the assets during the term of the supply arrangement are capitalized in property, plant and equipment and amortized to cost of sales over the shorter of the term of the arrangement or over the estimated useful lives of the assets, typically three to five years. Costs for molds, dies and other tools used to make products sold on long-term supply arrangements for which the Company has a contractual guarantee to a lump sum reimbursement from the customer are capitalized either as a component of prepaid expenses and other current assets or an investment and other long term assets, net within the consolidated balance sheets. Capitalized pre-production costs were $9,260 and $6,859 at December 31, 2017 and 2016, respectively. At December 31, 2017 and 2016, $8,894 and $6,446 were recorded as a component of prepaid expenses and other current assets on the consolidated balance sheets while the remaining amounts were recorded as a component of investments and other long term assets, net.

Discontinued Operations

Wiring Business

On May 26, 2014, the Company entered into an asset purchase agreement to sell substantially all of the assets and liabilities of the former Wiring segment to Motherson Sumi Systems Ltd., an India-based manufacturer of diversified products for the global automotive industry and a limited company incorporated under the laws of the Republic of India, and MSSL (GB) LIMITED, a limited company incorporated under the laws of the United Kingdom (collectively, “Motherson”), for $65,700 in cash and the assumption of certain related liabilities of the Wiring business.

On August 1, 2014, the Company completed the sale of substantially all of the assets and liabilities of its Wiring business to Motherson for $71,386 in cash that consisted of the stated purchase price and estimated working capital on the closing date. The final purchase price was subject to post-closing working capital and other adjustments. Upon the final resolution of the working capital and other adjustments in the second quarter of 2015, the Company returned $1,230 in cash to Motherson.

The following tables display summarized activity in our consolidated statements of operations for discontinued operations during the year ended December 31, 2015 related to the Wiring business. There was no impact from discontinued operations for the years ended December 31, 2017 or 2016.




Years ended December 31		2015
Loss on disposal	$	(241)
Income tax benefit on loss on disposal		31
Loss on disposal, net of tax		(210)

Loss from discontinued operations	$	(210)

Acquisitions

Orlaco

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

The aggregate consideration for the Orlaco acquisition 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

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the acquisition date (including measurement period adjustments). The purchase price and associated allocation is preliminary pending the filing of certain pre-acquisition tax returns. Based upon information obtained, certain of the fair value amounts previously estimated were adjusted during the measurement period. These measurement period adjustments related to updated valuation reports and appraisals received from our external valuation specialists, as well as revisions to internal estimates. The changes in estimates recorded at December 31, 2017 include an increase in inventory of $265; an increase in intangible assets of $113; an increase in deferred tax liabilities of $212; a decrease in other long-term assets of $684; an increase in other current liabilities of $29; a decrease in accounts receivable of $201; a decrease in other long-term liabilities of $563 and a decrease in earn-out consideration of $1,007. The measurement period and working capital adjustments resulted in a decrease to goodwill of $1,078.


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		10,206
Warranty liability		899
Total liabilities assumed		14,959
Net identifiable assets acquired		50,255
Goodwill		33,628
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 analysis utilizing forecasted earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the 2017 and 2018 earn-out period as well as a growth rate reduced by the market required rate of return

These fair value measurements are classified within Level 3 of the fair value hierarchy. See Note 9 for details on fair value hierarchy.

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

Of the $38,739 of acquired identifiable intangible assets, $27,518 was assigned to customer lists with a 15-year useful life; $5,142 was assigned to trademarks with a 20-year useful life; and $6,079 was assigned to technology with a 7-year weighted-average useful life.

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

Included in the Company's statement of operations for the year ended December 31, 2017 are post-acquisition sales of $65,045, and net income of $3,317 related to Orlaco which are included in results of the Electronics segment. The Company’s statement of operations also included $1,636 of expense in cost of goods sold (“COGS”) for the year ended December 31, 2017 associated with the step-up of the Orlaco inventory to fair value and the $4,853 fair value adjustment for earn-out consideration in SG&A expenses for the year ended December 31, 2017.

The following unaudited pro forma information reflects the Company’s 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.




Year ended December 31		2017		2016

Net sales	$	829,474	$	752,864
Net income attributable to Stoneridge, Inc. and subsidiaries	$	45,283	$	82,178

Property, Plant and Equipment

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


-		2017		2016
Land and land improvements	$	4,863	$	3,376
Buildings and improvements		37,581		32,271
Machinery and equipment		192,107		180,944
Office furniture and fixtures		10,070		6,813
Tooling		75,038		67,261
Information technology		27,466		23,632
Vehicles		881		398
Leasehold improvements		2,841		2,583
Construction in progress		24,312		16,854
Total property, plant, and equipment		375,159		334,132
Less: accumulated depreciation		(264,757)		(242,632)
Property, plant and equipment, net	$	110,402	$	91,500

Depreciation is provided using the straight-line method over the estimated useful lives of the assets. Depreciation expense for the years ended December 31, 2017, 2016 and 2015 was $21,490, $19,998 and $18,964, respectively. Depreciable lives within each property classification are as follows:


Buildings and improvements		10-40 years
Machinery and equipment		3-10 years
Office furniture and fixtures		3-10 years
Tooling		2-5 years
Information technology		3-7 years
Vehicles		3-5 years
Leasehold improvements	shorter of lease term or 3-10 years

Maintenance and repair expenditures that are not considered improvements and do not extend the useful life of the property, plant and equipment are charged to expense as incurred. Expenditures for improvements and major renewals are capitalized. When assets are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss on the disposition is recorded in the consolidated statements of operations as a component of SG&A expenses.

Impairment of Long-Lived 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.

Goodwill and Other Intangible Assets

Goodwill

The total purchase price associated with acquisitions is allocated to the acquisition date fair values of identifiable assets acquired and liabilities assumed with the excess purchase price assigned to goodwill.

Goodwill was $38,419 and $931 at December 31, 2017 and 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 2. 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, by applying a fair value-based test.

Goodwill and changes in the carrying amount of goodwill by segment for the years ended December 31, 2017 and 2016 were as follows:


		Electronics
Balance at January 1, 2017	$	931
Acquisition of business		33,628
Currency translation		3,860
Balance at December 31, 2017	$	38,419



		Electronics
Balance at January 1, 2016	$	981
Currency translation		(50)
Balance at December 31, 2016	$	931

The Company’s cumulative goodwill impairment loss since inception was $300,083 at December 31, 2017 and 2016 which includes PST’s goodwill impairment in 2014 and goodwill impairment recorded by the Company’s Control Devices segment in 2008 and 2004.

Other Intangible Assets

Other intangible assets, net at December 31, 2017 and 2016 consisted of the following:


		Acquisition		Accumulated
As of December 31, 2017		cost		amortization		Net
Customer lists	$	57,672	$	(12,695)	$	44,977
Tradenames		23,546		(5,646)		17,900
Technology		17,443		(5,077)		12,366
Other		41		(41)		-
Total	$	98,702	$	(23,459)	$	75,243


		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

Other intangible assets, net at December 31, 2017 include customer lists, tradenames and technology of $16,014, $12,448 and $6,558, respectively, related to the PST segment and $28,963, $5,452 and $5,808, respectively, related to the Electronics segment.

The Company recognized $6,440, $3,259 and $3,445 of amortization expense related to intangible assets in 2017, 2016 and 2015, respectively. Amortization expense is included as a component of SG&A on the consolidated statements of operations. Annual amortization expense for intangible assets is estimated to be approximately $6,800 for the years 2018 through 2022. The weighted-average remaining amortization period is approximately 13 years.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:


As of December 31		2017		2016
Compensation related liabilities	$	22,429	$	16,329
Product warranty and recall obligations		6,867		6,727
Accrued income taxes		6,897		1,930
Other (A)		16,353		16,503
Total accrued expenses and other current liabilities	$	52,546	$	41,489

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

Income Taxes

The Company accounts for income taxes using the liability method. Deferred income taxes reflect the tax consequences on future years of differences between the tax basis of assets and liabilities and their financial reporting amounts. Future tax benefits are recognized to the extent that realization of such benefits is more likely than not to occur. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period that includes the enactment date.

Deferred tax assets are recognized to the extent that these assets are more likely than not to be realized (See Note 5). In making such a determination, the Company considers all available positive and negative evidence, including future release of existing taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. Release of some or all of a valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded.

The Company's policy is to provide for uncertain tax positions and the related interest and penalties based upon management's assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. To the extent the Company prevails in matters for which a liability for an unrecognized tax benefit is established or is required to pay amounts in excess of the liability, the Company's effective tax rate in a given financial statement period may be affected.

Currency Translation

The financial statements of foreign subsidiaries, where the local currency is the functional currency, are translated into U.S. dollars using exchange rates in effect at the period end for assets and liabilities and average exchange rates during each reporting period for the results of operations. Adjustments resulting from translation of financial statements are reflected as a component of accumulated other comprehensive loss in the Company’s consolidated balance sheets.

Foreign currency transactions are remeasured into the functional currency using translation rates in effect at the time of the transaction with the resulting adjustments included on the consolidated statements of operations within other expense, net. These foreign currency transaction losses (gains), including the impact of hedging activities, were $500, $(268) and $1,693 for the years ended December 31, 2017, 2016 and 2015, respectively.

Revenue Recognition and Sales Commitments

The Company recognizes revenues from the sale of products, net of actual and estimated returns, at the point of passage of title, which is either at the time of shipment or upon customer receipt based upon the terms of the sale. The Company recognizes monitoring service revenues as the services are provided to customers. The Company collects certain taxes and fees on behalf of government agencies and remits such collections on a periodic basis. The taxes are collected from customers but are not included in net sales. Estimated returns are based on historical authorized returns. The Company often enters into agreements with its customers at the beginning of a given vehicle’s expected production life. Once such agreements are entered into, it is the Company’s obligation to fulfill the customers’ purchasing requirements for the entire production life of the vehicle. These agreements are subject to potential renegotiation from time to time, which may affect product pricing.

Shipping and Handling Costs

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

Product Warranty and Recall Reserves

Amounts accrued for product warranty and recall claims are established based on the Company's best estimate of the amounts necessary to settle existing and future claims on products sold as of the balance sheet dates. These accruals are based on several factors including past experience, production changes, industry developments and various other considerations including insurance coverage. The Company can provide no assurances that it will not experience material claims or that it will not incur significant costs to defend or settle such claims beyond the amounts accrued or beyond what the Company may recover from its suppliers. The current portion of the product warranty and recall reserve is included as a component of accrued expenses and other current liabilities on the consolidated balance sheets. Product warranty and recall includes $3,112 and $2,617 of a long-term liability at December 31, 2017 and 2016, respectively, which is included as a component of other long-term liabilities on the consolidated balance sheets.

The following provides a reconciliation of changes in the product warranty and recall reserve:


Years ended December 31		2017		2016
Product warranty and recall at beginning of period	$	9,344	$	6,419
Accruals for products shipped during period		4,933		4,978
Assumed warranty liability related to Orlaco		899		-
Aggregate changes in pre-existing liabilities due to claim developments		4,899		(116)
Settlements made during the period		(10,407)		(1,967)
Foreign currency translation		311		30
Product warranty and recall at end of period	$	9,979	$	9,344

Design and Development Costs

Expenses associated with the development of new products, and changes to existing products are charged to expense as incurred, and are included in the Company’s consolidated statements of operations as a separate component of costs and expenses. These product development costs amounted to $48,877, $40,212 and $38,792 for the years ended December 31, 2017, 2016 and 2015, respectively, or 5.9%, 5.8% and 6.0% of net sales for these respective periods.

Research and Development Activities

The Company’s Electronics and Control Devices segments enter into research and development contracts with certain customers, which generally provide for reimbursement of costs. The Company incurred and was reimbursed for contracted research and development costs of $14,946, $12,764 and $9,659 for the years ended December 31, 2017, 2016 and 2015, respectively.

Share-Based Compensation

At December 31, 2017, the Company had two types of share-based compensation plans: (1) Long-Term Incentive Plan for employees and (2) the Amended Directors’ Restricted Shares Plan, for non-employee directors. The Long-Term Incentive Plan is made up of the Long-Term Incentive Plan which expired on June 30, 2007, the Amended and Restated Long-Term Incentive Plan, as amended, which expired on April 24, 2016 and the 2016 Long-Term Incentive Plan that was approved by shareholders on May 10, 2016, and expires on May 10, 2026.

Total compensation expense recognized as a component of SG&A expense on the consolidated statements of operations for share-based compensation arrangements was $7,265, related to higher attainment of performance-based awards and accelerated expense associated with the retirement of eligible employees, $6,134, including $545 related to the modification of the retirement notice provisions of certain awards, and $7,224, including $2,225 from the accelerated vesting in connection with the retirement of the Company’s former President and Chief Executive Officer, for the years ended December 31, 2017, 2016 and 2015, respectively. Of these amounts, $11, $(117) and $828 for the years ended December 31, 2017, 2016 and 2015, respectively, were related to the Long-Term Cash Incentive Plan “Phantom Shares” discussed in Note 8. There was no share-based compensation expense capitalized in inventory during 2017, 2016 or 2015.

Financial Instruments and Derivative Financial Instruments

Financial instruments, including derivative financial instruments, held by the Company include cash and cash equivalents, accounts receivable, accounts payable, long-term debt and foreign currency forward contracts. The carrying value of cash and cash equivalents, accounts receivable and accounts payable is considered to be representative of fair value because of the short maturity of these instruments. See Note 9 for fair value disclosures of the Company’s financial instruments.

Common Shares Held in Treasury

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

Earnings Per Share

Basic earnings per share was computed by dividing net income attributable to Stoneridge Inc. by the weighted-average number of Common Shares outstanding for each respective period. Diluted earnings per share was calculated by dividing net income attributable to Stoneridge, Inc. by the weighted-average of all potentially dilutive Common Shares that were outstanding during the periods presented.

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



Years ended December 31	2017	2016	2015
Basic weighted-average Common Shares outstanding	28,082,114	27,763,990	27,337,954
Effect of dilutive shares	689,531	544,932	621,208
Diluted weighted-average Common Shares outstanding	28,771,645	28,308,922	27,959,162

There were 134,250 performance-based restricted Common Shares outstanding at December 31, 2015. There were no performance-based restricted Common Shares outstanding at December 31, 2017 or 2016. There were also 766,538, 843,140 and 573,885 performance-based right to receive Common Shares outstanding at December 31, 2017, 2016 and 2015. These performance-based restricted and 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 year were the end of the contingency period.

Deferred Financing Costs, net

Deferred financing costs are amortized over the life of the related financial instrument using the straight-line method, which approximates the effective interest method. Deferred finance cost amortization and debt discount accretion for the years ended December 31, 2017, 2016 and 2015 was $324, $355 and $388, respectively, and is included as a component of interest expense, net in the consolidated statements of operations. As permitted by ASU 2015-03, the Company has elected to continue to present deferred financing costs related to the Credit Facility within long-term assets in the Company’s consolidated balance sheets. Deferred financing costs, net, were $1,208 and $1,471, as of December 31, 2017 and 2016, respectively.

Changes in Accumulated Other Comprehensive Loss by Component

Changes in accumulated other comprehensive loss for the years ended December 31, 2017 and 2016 were as follows:



		Foreign		Unrealized		Benefit
		currency		gain (loss)		plan
		translation		on derivatives		adjustment		Total
Balance at January 1, 2017	$	(67,895)	$	(18)	$	-	$	(67,913)

Other comprehensive income before reclassifications		15,473		509		-		15,982
Amounts reclassified from accumulated other
comprehensive loss		-		(634)		-		(634)
Net other comprehensive income (loss), net of tax		15,473		(125)		-		15,348
Reclassification of foreign currency translation associated with noncontrolling interest acquired		(16,995)		-		-		(16,995)
Balance at December 31, 2017	$	(69,417)	$	(143)	$	-	$	(69,560)

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

Other comprehensive income (loss) before reclassifications		2,401		(572)		-		1,829
Amounts reclassified from accumulated other
comprehensive loss		-		164		(84)		80
Net other comprehensive income (loss), net of tax		2,401		(408)		(84)		1,909

Balance at December 31, 2016	$	(67,895)	$	(18)	$	-	$	(67,913)

Reclassifications

Certain prior period amounts have been reclassified to conform to their 2017 presentation in the consolidated financial statements.

Recently Adopted Accounting Standards

In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-12, “Derivatives and Hedging (Topic 815)”: Targeted Improvements to Accounting for Hedging Activities” which amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements. As early adoption is permitted, the Company adopted this standard in the third quarter of 2017, which did not have a material impact on its consolidated financial statements.

In May 2017, the 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 consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment (Topic 350)”, which 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 consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update 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 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 will be recognized prospectively. The new standard also permits companies to recognize forfeitures as they occur as an alternative to utilizing estimated forfeitures rates which has been the required practice. The presentation of excess tax benefits in the statement of consolidated cash flows is also modified to be included with other income tax cash flows as an operating activity. The change can be adopted using a prospective or retrospective transition method. The new standard clarifies that cash paid by an employer when directly withholding shares for tax withholding purposes should be presented as a financing activity in the statement of consolidated cash flows and should be applied retrospectively. This new accounting standard was effective for fiscal years beginning after December 15, 2016, including interim periods within that year. The Company adopted this standard as of January 1, 2017 and had unrecognized tax benefits related to share-based payment awards of $1,729 as of January 1, 2017. This amount was recorded to investments and other long-term assets, net 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 (Topic 330)”, 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 its consolidated financial statements or disclosures.

Recently Issued Accounting Standards Not Yet Adopted as of December 31, 2017

In January 2017, the FASB issued ASU 2017-01, “Clarifying the Definition of a Business (Topic 805)” which 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 ASU is effective for annual periods beginning after December 15, 2017. The Company will adopt this standard as of January 1, 2018, which is not expected to have a material impact on its consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, “Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory (Topic 740)”. This guidance requires that the tax effects of all intra-entity sales of assets other than inventory be recognized in the period in which the transaction occurs. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption as of the beginning of an annual reporting period is permitted. The guidance is to be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The Company will adopt this standard as of January 1, 2018, which is not expected to have a material impact on its 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, 2017 with early adoption permitted. The Company will adopt this standard as of January 1, 2018, which is not expected to have a material impact on its consolidated financial statements.

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

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which is 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 services to a customer in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. To achieve this principle, an entity identifies the contract with a customer, identifies the separate performance obligations in the contract, determines the transaction price, allocates the transaction price to the separate performance obligations and recognizes revenue when each separate performance obligation is satisfied. This ASU allows for both retrospective and prospective methods of adoption. The new standard became effective for annual and interim periods beginning after December 15, 2017. The Company will adopt this standard January 1, 2018 using the modified retrospective transition method and will not have a material impact on its results of operations or financial position; however, the Company will have expanded disclosures consistent with the requirements of the new standard. The Company will continue to evaluate its contracts with customers analyzing the impact, if any, on revenue from the sale of production parts, particularly in regards to material rights, variable consideration and the impact of termination clauses on the timing of revenue recognition.