Commitments and Contingencies

6 Months Ended

Jun. 30, 2023

Commitments and Contingencies Disclosure [Abstract]

From time to time, we are subject to various legal actions and claims incidental to our business, including those arising out of breach of contracts, product warranties, product liability, patent infringement, regulatory matters and employment-related matters. The Company establishes accruals for matters which it believes that losses are probable and can be reasonably 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.

As a result of environmental studies performed at the Company’s former facility located in Sarasota, Florida, the Company became aware of soil and groundwater contamination at the site. The Company engaged an environmental engineering consultant to assess the level of contamination and to develop a remediation and monitoring plan for the site. Soil remediation at the site was completed during the year ended December 31, 2010. A remedial action plan was approved by the Florida Department of Environmental Protection and groundwater remediation began in the fourth quarter of 2015.

During the three months ended June 30, 2023 and 2022, the Company did not recognize any expense related to groundwater remediation. During the six months ended June 30, 2023 and 2022, the Company recognized expense of $125 and $0, respectively, related to groundwater remediation. At June 30, 2023 and December 31, 2022, the Company accrued $278 and $246, respectively, related to expected future remediation costs. At June 30, 2023 and December 31, 2022, $271 and $132, respectively, were recorded as a component of accrued expenses and other current liabilities in the condensed consolidated balance sheets while the remaining amounts as of June 30, 2023 and December 31, 2022 were recorded as a component of other long-term liabilities. Costs associated with the recorded liability will be incurred to complete the groundwater remediation and monitoring. The recorded liability is based on assumptions in the remedial action 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 Company is currently required to maintain a $1,489 letter of credit for the benefit of the buyer.

The Company’s Stoneridge Brazil subsidiary 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$48,497 ($10,063) and R$47,820 ($9,165) at June 30, 2023 and December 31, 2022, respectively. An unfavorable outcome on these contingencies could result in significant cost to 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 ($1,659) 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.

Long Term Supply Commitment

In 2022, the Company entered into a long term supply agreement with a supplier for the purchase of certain electronic semiconductor components through December 31, 2026. Pursuant to the agreement, the Company paid capacity deposits of $1,000 in December 2022 and June 2023, respectively. The capacity deposits are recognized in prepaid and other current assets on our condensed consolidated balance sheet. This long term supply agreement requires the Company to purchase minimum annual volumes while requiring the supplier to sell these components at a fixed price. The Company purchased $2,662 and $119 of these components during the three months ended June 30, 2023 and 2022, respectively, and $3,327 and $188 during the six months ended June 30, 2023 and 2022, respectively. The Company is required to purchase $5,871, $7,828, $10,764 and $10,764 of components in each of the years 2023 through 2026, respectively.

Product Warranty and Recall

Amounts accrued for product warranty and recall claims are established based on the Company’s best estimate of the amounts necessary to settle existing and future claims on products sold as of the balance sheet dates. These accruals are based on several factors including past experience, production changes, industry developments and various other considerations. 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, forecasts of the resolution of existing claims, expected future claims on products sold and commercial discussions with our customers. The key factors in our estimate are the warranty period and the customer source. 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. The current portion of the product warranty and recall reserve is included as a component of accrued expenses and other current liabilities on the condensed consolidated balance sheets. Product warranty and recall reserve included $5,589 and $4,437 of a long-term liability at June 30, 2023 and December 31, 2022, respectively, which is included as a component of other long-term liabilities on the condensed consolidated balance sheets.

During the second quarter of 2023, the Company received a notification of arbitration for warranty claims related to past sales of PM sensor products, a product line we exited in 2019. The arbitration notification submitted by one of our customers asserts potential warranty related claims. Based on our review of the technical merits and specific claims submitted in the notification as well as prior discussions with the customer, we believe these claims are significantly overstated and while no assurances can be made as to the ultimate outcome of this matter or any other future claims, we do not currently believe a material loss is probable.

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


Six months ended June 30,	2023		2022
Product warranty and recall reserve at beginning of period	$	13,477	$	9,846
Accruals for warranties established during period	7,636		5,951
Aggregate changes in pre-existing liabilities due to claim developments	327		—
Settlements made during the period	(3,784)		(4,503)
Foreign currency translation	(196)		(479)
Product warranty and recall reserve at end of period	$	17,460	$	10,815