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Financial Instruments and Fair Value Measurements
 3 Months Ended
Mar. 31, 2023
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 March 31, 2023, 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. 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 used net investment hedges to manage its exposure to fluctuations in foreign currency exchange rates by reducing the effect of such fluctuations on foreign currency denominated intercompany transactions, inventory purchases and other foreign currency exposures.
Net Investment Hedges
During 2021, the Company entered into two cross-currency swaps, designated as net investment hedges, with notional values of $25,000 each that were scheduled to mature in August 2026 and August 2028. These swaps hedged a portion of the net investment in a certain euro-denominated subsidiary.
The Company elected to assess hedge effectiveness of the net investment hedges under the spot method. Accordingly, periodic changes in the fair value of the derivative instruments attributable to factors other than spot exchange rate variability were excluded from the measurement of hedge ineffectiveness and reported directly in earnings each reporting period. The change in fair value of these derivative instruments was recorded in cumulative translation adjustment, which is a component of accumulated other comprehensive loss in the condensed consolidated balance sheets. The Company had no outstanding net investment hedges at March 31, 2023 or December 31, 2022.
Cash Flow Hedges
The Company entered into foreign currency forward contracts to hedge the Mexican peso currency in 2022. These forward contracts were executed to hedge forecasted transactions and have been accounted for as cash flow hedges. As such, gains and losses on derivatives qualifying as cash flow hedges are recorded in accumulated other comprehensive loss, to the extent that hedges are effective, until the underlying transactions are recognized in earnings. Unrealized amounts in accumulated other comprehensive loss fluctuate based on changes in the fair value of hedge derivative contracts at each reporting period. The cash flow hedges were highly effective. The effectiveness of the transactions was measured using regression analysis and forecasted future purchases of the currency.
In certain instances, the foreign currency forward contracts may not qualify for hedge accounting or are not designated as hedges and, therefore, are marked-to-market with gains and losses recognized in the Company’s condensed consolidated statements of operations as a component of other 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:
Mexican peso-denominated Foreign Currency Forward Contracts – Cash Flow Hedges
The Company held Mexican peso-denominated foreign currency forward contracts that expired ratably on a monthly basis from January 2022 to December 2022. The notional amount at December 31, 2022 related to Mexican peso-denominated foreign currency forward contracts was $0.
Interest Rate Risk
Interest Rate Risk – Cash Flow Hedge
On February 18, 2020, the Company entered into a floating-to-fixed interest rate swap agreement (the “Interest Rate Swap”) with a notional amount of $50,000 to hedge its exposure to interest payment fluctuations on a portion of its Credit Facility borrowings. The Interest Rate Swap matured on March 10, 2023. The Interest Rate Swap was designated as a cash flow hedge of the variable interest rate obligation under the Company's Credit Facility that has a current balance of $167,393 at March 31, 2023. Accordingly, the change in fair value of the Interest Rate Swap was recognized in accumulated other comprehensive loss. The Interest Rate Swap agreement required monthly settlements on the same days that the Credit Facility interest payments are due and had a maturity date of March 10, 2023, which was prior to the Credit Facility maturity date of June 4, 2024. Under the Interest Rate Swap terms, the Company paid a fixed interest rate and received a floating interest rate based on the one-month LIBOR, with a floor. The critical terms of the Interest Rate Swap were aligned with the terms of the Credit Facility, resulting in no hedge ineffectiveness. The difference between amounts to be received and paid under the Interest Rate Swap were recognized as a component of interest expense, net on the condensed consolidated statements of operations. The Interest Rate Swap settlements reduced interest expense, net by $290 and increased interest expense, net by $153 for the three months ended March 31, 2023 and 2022, respectively.
The notional amounts and fair values of derivative instruments in the condensed consolidated balance sheets were as follows:
Notional amounts (A)
Prepaid expenses
 and other current assets
March 31,
2023		December 31,
2022		March 31,
2023		December 31,
2022
Derivatives designated as hedging instruments:
Cash flow hedges:
Forward currency contracts$— $— $— $— 
Interest rate swap$— $50,000 $— $294 
Net investment hedges:
Cross-currency swaps$— $— $— $— 
_____________________________
(A)Notional amounts represent the gross contract of the derivatives outstanding in U.S. dollars.
Gross amounts recorded for the cash flow and net investment hedges in other comprehensive income and in net loss for the three months ended March 31 were as follows:
Gain (loss) recorded in other
comprehensive income
Gain (loss) reclassified from
other comprehensive
income into net loss (A)
2023202220232022
Derivatives designated as cash flow hedges:
Forward currency contracts$— $915 $— $251 
Interest rate swap$(4)$510 $290 $(153)
Derivatives designated as net investment hedges:
Cross-currency swaps$— $687 $— $— 
_____________________________
(A)
Gains reclassified from other comprehensive income into net loss recognized in selling, general and administrative expenses (“SG&A”) in the Company’s condensed consolidated statements of operations were $0 and $51 for the three months ended March 31, 2023 and 2022, respectively. Gains reclassified from other comprehensive income into net loss recognized in cost of goods sold (“COGS”) in the Company’s condensed consolidated statements of operations were $0 and $199 for the three months ended March 31, 2023 and 2022, respectively. Gains (losses) reclassified from other comprehensive income into net loss recognized in interest expense, net in the Company’s condensed consolidated statements of operations were $290 and $(153) for the three months ended March 31, 2023 and 2022, respectively.
Cash flows from derivatives used to manage foreign currency exchange and interest rate risks are classified as operating activities within the condensed consolidated statements of cash flows.
Fair Value Measurements
Certain assets and liabilities held by the Company are measured at fair value on a recurring basis and are categorized using the three levels of the fair value hierarchy based on the reliability of the inputs used. Fair values estimated using Level 1 inputs consist of quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Fair values estimated using Level 2 inputs, other than quoted prices, are observable for the asset or liability, either directly or indirectly and include among other things, quoted prices for similar assets or liabilities in markets that are active or inactive as well as inputs other than quoted prices that are observable. For forward currency and cross-currency contracts, inputs include forward foreign currency exchange rates. For the interest rate swap, inputs include LIBOR. Fair values estimated using Level 3 inputs consist of significant unobservable inputs.
The following table presents our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the three levels of the fair value hierarchy based on the reliability of inputs used.
March 31,
2023		December 31,
2022
Fair values estimated using
Fair
value		Level 1
inputs		Level 2
inputs		Level 3
inputs		Fair
value
Financial assets carried at fair value:
Interest rate swap— — — — 294 
Total financial assets carried at fair value$— $— $— $— $294 
The following table sets forth a summary of the change in fair value of the Company’s Level 3 financial liabilities related to earn-out consideration that are measured at fair value on a recurring basis.
Stoneridge Brazil
2022
Balance at January 1$7,351 
Foreign currency adjustments1,308 
Balance at March 31$8,659 
The Company was required to pay the Stoneridge Brazil earn-out consideration based on Stoneridge Brazil’s financial performance in 2021. The fair value of the Stoneridge Brazil earn-out consideration was based on earnings before interest, taxes, depreciation and amortization (“EBITDA”) in 2021. The Stoneridge Brazil earn-out consideration obligation was recorded within accrued expenses and other current liabilities in the condensed consolidated balance sheets as of December 31, 2021. The earn-out consideration obligation of $8,272 was paid in April 2022 and recorded in the condensed consolidated statement of cash flows within operating and financing activities in the amounts of $1,996 and $6,276, respectively.
The foreign currency impact related to the Stoneridge Brazil earn-out consideration was included in other expense, net in the condensed consolidated statements of operations.
There were no transfers in or out of Level 3 from other levels in the fair value hierarchy for the three months ended March 31, 2023.