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Commitments and Contingencies
9 Months Ended
Sep. 30, 2022
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

NOTE 16 – COMMITMENTS AND CONTINGENCIES

Purchase Commitments

When market conditions warrant, we may enter into purchase commitments to secure the supply of certain commodities used in the manufacture of our products, such as aluminum, natural gas and other raw materials. Prices under our aluminum contracts are based on a market index and regional premiums for processing, transportation and alloy components which are adjusted quarterly for purchases in the ensuing quarter. Certain of our purchase agreements include volume commitments; however, any excess commitments are generally negotiated with suppliers and those which have occurred in the past have been carried over to future periods.

Contingencies

We are party to various legal and environmental proceedings incidental to our business. Certain claims, suits and complaints arising in the ordinary course of business have been filed or are pending against us. Based on facts now known, except as provided below, we believe all such matters are adequately provided for, covered by insurance, are without merit and/or involve such amounts that would not materially adversely affect our consolidated results of operations, cash flows or financial position.

 

In March 2022, the German Federal Cartel Office initiated an investigation related to European light alloy wheel manufacturers, including Superior Industries Europe AG (a wholly owned subsidiary of the Company), on suspicion of conduct restricting competition. The Company is cooperating fully with the German Federal Cartel Office. In the event Superior Industries Europe AG is deemed to have violated the applicable statutes, the Company could be subject to a fine or civil proceedings. At this point, we are unable to predict the duration or outcome of the investigation.

 

The Company purchases electricity and natural gas requirements for its manufacturing operations in Poland from a single energy distributor. On May 31, 2022, the energy distributor filed a motion to commence reorganization proceedings. The motion was approved by the reorganization court on June 21, 2022. The court appointed administrator filed a motion on behalf of the energy distributor to rescind its supply agreements with the Company, which the reorganization court approved on August 16, 2022. On August 23, 2022, the Company filed an appeal to contest the rescission of the supply agreements. The Company expects that a decision in the appeal may be rendered in November 2022. If the supply agreements are ultimately rescinded, the Company will have to pay market rates for its electricity and natural gas since price commitments under the existing supply agreements would no longer be in effect. If the appellate court affirms the rescission of the supply agreements, the Company believes that market rates would apply prospectively (after the date of the appellate decision), but no assurances can be given. In the alternative, the possible impact on the Company’s energy purchases through September 30, 2022 could be approximately $20.0 million. The Company would contest retroactive application of the rescission and believes that the court would not render its decision on this issue until late 2023. Furthermore, the Company believes retroactive application of the rescission is not probable and, therefore, we have not recognized any provision for this contingent loss in our condensed consolidated financial statements as of September 30, 2022.

 

Superior and its energy distributor, as well as the parent company of the energy distributor, have filed various claims against one another. These claims generally request the court to determine whether Superior's energy contracts with the energy distributor were valid during the period December 2021 through May 2022. In December 2021, the Company’s energy distributor informed the

Company it would no longer supply energy, notwithstanding its contractual obligation to continue supply. Following a request from the Company, the court enjoined the energy distributor from terminating supply to the Company. In February 2022, the Company filed a claim requesting the court affirm the validity of the energy supply agreements, which contained favorable hedged purchase contracts. The energy distributor contested the Company’s validity claims. A hearing on the validity of the contracts will occur in November 2022. If the court concludes that the energy contracts were not valid during this period, Superior could be required to pay up to an additional $12.0 million for its energy purchases. Any such adverse judgment would be appealed by the Company. A final conclusion in this matter is anticipated to take 18-24 months. We have concluded that a ruling in favor of the claim is not probable and, therefore, we have not recognized any provision for this contingent loss in our condensed consolidated financial statements as of September 30, 2022.

 

Casualty Loss

 

On July 21, 2021, the city of Werdohl, Germany and surrounding area experienced torrential rains which resulted in extensive flooding. The flooding caused damage to our Werdohl manufacturing facility and production was temporarily halted on July 14, 2021. On July 16, 2021, operations at the facility resumed with the exception of the paint line and certain machining operations, which were brought on-line later in the third quarter of 2021. During the quarter ended September 30, 2021, the Company recognized a net casualty loss of $1.5 million which was included in other expense. There was only nominal disruption to our ability to fulfill orders and deliver product to our customers due to the expeditious resumption of operations at the facility.