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Financial Instruments and Fair Value Measurements | 12 Months Ended
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Dec. 31, 2022
Fair Value Disclosures [Abstract] |
Financial Instruments and Fair Value Measurements | Financial Instruments and Fair Value Measurements Financial Instruments A financial instrument is cash or a contract that imposes an obligation to deliver or conveys a right to receive cash or another financial instrument. The carrying values of cash and cash equivalents, accounts receivable and accounts payable are considered to be representative of fair value because of the short maturity of these instruments. The fair value of debt approximates the carrying value of debt, due to the variable interest rate on the Credit Facility and the maturity of the remaining outstanding debt. Derivative Instruments and Hedging Activities On December 31, 2022, the Company had no open foreign currency forward contracts. The Company used foreign currency forward contracts solely for hedging and not for speculative purposes during 2022 and 2021. Management believes that its use of these instruments to reduce risk is in the Company’s best interest. The counterparties to these financial instruments have been 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 net investment hedges to manage its exposure to fluctuations in foreign currency exchange rates by reducing the effect of such fluctuations on foreign currency denominated intercompany transactions, inventory purchases and other foreign currency exposures. Net Investment Hedges During 2021, the Company entered into two cross-currency swaps, designated as net investment hedges, with notional values of $25,000 each that were scheduled to mature in August 2026 and August 2028. These swaps hedged a portion of the net investment in a euro-denominated subsidiary. As a result of favorable market conditions, on May 5, 2022, the Company unwound the two net investment hedges and recognized a net gain of $3,716, which was recorded on the Company’s consolidated statement of operations as a component of other expense, net for the second quarter ended June 30, 2022. The cash received from the settlement of these swaps of $3,820 was classified in investing activities in the consolidated statement of cash flows. In the fourth quarter ended December 31, 2022, the Company determined it had incorrectly recognized the net gain in the consolidated statement of operations and reclassified the net gain of $3,716 to other comprehensive (loss) income, net of tax and accumulated other comprehensive loss. This item would have increased the loss for the three-months ended June 30, 2022, six-months ended June 30, 2022 and nine-months ended September 30, 2022 by $0.10 per share and recording the item in the three-months ended December 31, 2022 decreased the income per share by $0.10. The Company assessed the materiality of this matter from a qualitative and quantitative perspective and concluded that the impact of the error is not material to the current or previous quarterly results. The Company elected to assess hedge effectiveness of the net investment hedges under the spot method. Accordingly, periodic changes in the fair value of the derivative instruments attributable to factors other than spot exchange rate variability were excluded from the measurement of hedge ineffectiveness and reported directly in earnings each reporting period. The change in fair value of these derivative instruments was recorded in cumulative translation adjustment, which is a component of accumulated other comprehensive loss in the consolidated balance sheets. The Company had no outstanding net investment hedges as of December 31, 2022. Cash Flow Hedges The Company entered into foreign currency forward contracts to hedge the Mexican peso currency in 2022 and 2021. These forward contracts were executed to hedge forecasted transactions and have been accounted for as cash flow hedges. As such, gains and losses on derivatives qualifying as cash flow hedges are recorded in accumulated other comprehensive loss, to the extent that hedges are effective, until the underlying transactions are recognized in earnings. Unrealized amounts in accumulated other comprehensive loss 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. In certain instances, the foreign currency forward contracts may not qualify for hedge accounting or are not designated as hedges and, therefore, are marked-to-market with gains and losses recognized in the Company’s consolidated statements of operations as a component of other expense, net. During 2022, all of the Company’s foreign currency forward contracts were designated as cash flow hedges. The Company’s foreign currency forward contracts offset a portion of the gains and losses on the underlying foreign currency denominated transactions as follows: U.S. dollar-denominated Foreign Currency Forward Contracts – Cash Flow 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, and expired ratably on a monthly basis during 2020. There were no such contracts at December 31, 2022 or 2021. Mexican peso-denominated Foreign Currency Forward Contracts – Cash Flow Hedges The Company held Mexican peso-denominated foreign currency forward contracts which expired ratably on a monthly basis from January 2022 to December 2022. The notional amounts at December 31, 2022 and 2021 related to Mexican peso-denominated foreign currency forward contracts were $0 and $23,923, respectively. The Company evaluated the effectiveness of the Mexican peso-denominated foreign currency forward contracts held as of December 31, 2021 and the year then ended, and concluded that the hedges were 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 “Swap”) with a notional amount of $50,000 to hedge its exposure to interest payment fluctuations on a portion of its Credit Facility borrowings. The 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 $167,802 at December 31, 2022. Accordingly, the change in fair value of the Swap is recognized in accumulated other comprehensive loss. The Swap agreement requires monthly settlements on the same days that the Credit Facility interest payments are due and has a maturity date of March 10, 2023, which is prior to the Credit Facility maturity date of June 4, 2024. Under the 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 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 Swap is recognized as a component of interest expense, net on the consolidated statements of operations. The swap settlements (reduced) increased interest expense, net by $(156), $651 and $433 for the years ended December 31, 2022, 2021 and 2020, respectively. The notional amounts and fair values of derivative instruments in the consolidated balance sheets were as follows:
|  | Notional amounts (A) |  | Prepaid expenses and other current assets |  | Accrued expenses and other current liabilities
As of December 31, |  | 2022 |  | 2021 |  | 2022 |  | 2021 |  | 2022 |  | 2021
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |
Forward currency contracts |  | $ | — |  |  | $ | 23,923 |  |  | $ | — |  |  | $ | 730 |  |  | $ | — |  |  | $ | — |
Interest rate swap |  | $ | 50,000 |  |  | $ | 50,000 |  |  | $ | 294 |  |  | $ | — |  |  | $ | — |  |  | $ | 503 |
Net investment hedges: |  |  |  |  |  |  |  |  |  |  |  |
Cross-currency swaps |  | $ | — |  |  | $ | 50,000 |  |  | $ | — |  |  | $ | 1,450 |  |  | $ | — |  |  | $ | — |
_____________________________ (A)Notional amounts represent the gross contract of the derivatives outstanding in U.S. dollars. Gross amounts recorded for the cash flow hedges in other comprehensive (loss) income and in net (loss) income for the years ended December 31 were as follows:
|  | Gain (loss) recorded in other comprehensive (loss) income |  | Gain (loss) reclassified from other comprehensive (loss) income into net (loss) income (A)
|  | 2022 |  | 2021 |  | 2020 |  | 2022 |  | 2021 |  | 2020
Derivatives designated as cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |
Forward currency contracts |  | $ | 1,346 |  |  | $ | 923 |  |  | $ | (1,244) |  |  | $ | 2,076 |  |  | $ | 448 |  |  | $ | (1,499) |
Interest rate swap |  | $ | 953 |  |  | $ | 164 |  |  | $ | (1,751) |  |  | $ | 156 |  |  | $ | (651) |  |  | $ | (433) |
Derivatives designated as net investment hedges: |  |  |  |  |  |  |  |  |  |  |  |
Cross-currency swaps |  | $ | 2,446 |  |  | $ | 1,270 |  |  | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
_____________________________ (A)Gains (losses) reclassified from comprehensive loss into net (loss) income recognized in COGS in the Company’s consolidated statements of operations for the years ended December 31, 2022, 2021 and 2020 were $1,572, $341 and $(1,146), respectively. Gains (losses) reclassified from other comprehensive loss into net (loss) income recognized in D&D in the Company’s consolidated statements of operations were $0, $0 and $(29) for the years ended December 31, 2022, 2021 and 2020, respectively. Gains (losses) reclassified from other comprehensive loss into net (loss) income recognized in SG&A in the Company’s consolidated statements of operations were $504, $107 and $(324) for the years ended December 31, 2022, 2021 and 2020, respectively. Gains (losses) reclassified from other comprehensive loss into net (loss) income recognized in interest expense, net in the Company’s consolidated statements of operations were $156, $(651) and $(433) for the years ended December 31, 2022, 2021 and 2020, respectively. For the year ended December 31, 2022, the total net gains on the interest rate swap cash flow hedge of $294 are expected to be included in interest expense, net within the next 12 months. Cash flows from derivatives used to manage foreign exchange and interest rate risks are classified as operating activities within the consolidated statements of cash flows. The Company has measured the ineffectiveness of the forward currency contracts and any amounts recognized in the consolidated financial statements were immaterial for the years ended December 31, 2022, 2021 and 2020. Fair Value Measurements Certain assets and liabilities held by the Company are measured at fair value on a recurring basis and are categorized using the three levels of the fair value hierarchy based on the reliability of the inputs used. Fair values estimated using Level 1 inputs consist of quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Fair values estimated using Level 2 inputs, other than quoted prices, are observable for the asset or liability, either directly or indirectly and include among other things, quoted prices for similar assets or liabilities in markets that are active or inactive as well as inputs other than quoted prices that are observable. For forward currency and cross-currency contracts, inputs include forward foreign currency exchange rates. For the interest rate swap, inputs 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.
December 31, |  |  | 2022 |  | 2021
|  |  | Fair values estimated using |  |
| Fair value |  | Level 1 inputs |  | Level 2 inputs |  | Level 3 inputs |  | Fair value
Financial assets carried at fair value: |  |  |  |  |  |  |  |  |
Forward currency contract | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 730 |
Cross-currency swaps | — |  |  | — |  |  | — |  |  | — |  |  | 1,450 |
Interest rate swap | 294 |  |  | — |  |  | 294 |  |  | — |  |  | — |
Total financial assets carried at fair value | $ | 294 |  |  | $ | — |  |  | $ | 294 |  |  | $ | — |  |  | $ | 2,180 |
Financial liabilities carried at fair value: |  |  |  |  |  |  |  |  |
Interest rate swap | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 503 |
Earn-out consideration | — |  |  | — |  |  | — |  |  | — |  |  | 7,351 |
Total financial liabilities carried at fair value | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 7,854 |
The following table sets forth a summary of the change in fair value of the Company’s Level 3 financial liabilities related to earn-out consideration that are measured at fair value on a recurring basis.
| Stoneridge Brazil
| 2022 |  | 2021
Balance at January 1 | $ | 7,351 |  |  | $ | 5,813 |
Change in fair value | — |  |  | 2,065 |
Foreign currency adjustments | 921 |  |  | (527) |
Earn-out consideration cash payment | (8,272) |  |  | — |
Balance at December 31 | $ | — |  |  | $ | 7,351 |
The Company was required to pay the Stoneridge Brazil earn-out consideration based on Stoneridge Brazil’s financial performance in 2021. The fair value of the Stoneridge Brazil earn-out consideration was based on 2021 earnings before interest, taxes, depreciation and amortization (“EBITDA”). The Stoneridge Brazil earn-out consideration obligation was recorded within accrued expenses and other current liabilities in the consolidated balance sheet as of December 31, 2021. The earn-out consideration obligation of $8,272 was paid in April 2022 and recorded in the consolidated statement of cash flows within operating and financing activities in the amounts of $1,996 and $6,276, respectively, for the year ended December 31, 2022. The 2021 change in fair value of the earn-out consideration for Stoneridge Brazil was due to updated financial performance projections during 2021 and foreign currency translation fluctuations through settlement. The change in fair value of the Stoneridge Brazil earn-out consideration was recorded in SG&A expense and the foreign currency impact was included in other expense, net in the consolidated statements of operations. There were no transfers in or out of Level 3 from other levels in the fair value hierarchy for the year ended December 31, 2022. No non-recurring fair value adjustments were required for nonfinancial assets for the years ended December 31, 2022 and 2021. 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 at the Tallinn, Estonia facility. During the year ended December 31, 2020, the impairment loss of $2,326 was recorded on the Company’s consolidated statement of operations within SG&A expense. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value Measurement."

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI https://asc.fasb.org/extlink&oid=126976982&loc=d3e19207-110258 + Details
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