UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission file number:
(Exact Name of Registrant as Specified in Its Charter)
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(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
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(Address of Principal Executive Offices) |
(Zip Code) |
Registrant’s Telephone Number, Including Area Code: (
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class |
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Trading Symbol |
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Name of Each Exchange on Which Registered |
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer |
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Non-Accelerated Filer |
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Smaller Reporting Company |
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Emerging Growth Company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Number of shares of common stock outstanding as of October 28, 2021:
TABLE OF CONTENTS
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PART I |
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Item 1 |
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1 |
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Condensed Consolidated Statements of Comprehensive Income (Loss) |
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Condensed Consolidated Statements of Shareholders’ Equity (Deficit) |
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7 |
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Item 2 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3 |
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38 |
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Item 4 |
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38 |
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PART II |
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Item 1 |
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39 |
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Item 1A |
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39 |
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Item 2 |
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39 |
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Item 5 |
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39 |
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Item 6 |
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40 |
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41 |
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Dollars in thousands, except per share amounts)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, 2021 |
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September 30, 2020 |
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September 30, 2021 |
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September 30, 2020 |
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NET SALES |
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$ |
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$ |
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$ |
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$ |
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Cost of sales |
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GROSS PROFIT |
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Selling, general and administrative expenses |
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Impairment of goodwill and indefinite-lived intangibles |
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— |
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— |
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— |
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INCOME (LOSS) FROM OPERATIONS |
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( |
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Interest expense, net |
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( |
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Other expense, net |
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( |
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(LOSS) INCOME BEFORE INCOME TAXES |
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( |
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( |
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Income tax (provision) benefit |
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( |
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( |
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NET (LOSS) INCOME |
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$ |
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$ |
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$ |
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$ |
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(LOSS) EARNINGS PER SHARE – BASIC |
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$ |
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$ |
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$ |
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$ |
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(LOSS) EARNINGS PER SHARE – DILUTED |
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$ |
( |
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$ |
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$ |
( |
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$ |
( |
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The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
1
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, 2021 |
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September 30, 2020 |
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September 30, 2021 |
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September 30, 2020 |
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Net (loss) income |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive (loss) income, net of tax: |
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Foreign currency translation (loss) gain |
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( |
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( |
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Change in unrecognized (losses) gains on derivative instruments: |
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Change in fair value of derivatives |
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Tax benefit (provision) |
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( |
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Change in unrecognized (losses) gains on derivative instruments, net of tax |
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Defined benefit pension plan: |
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Amortization of actuarial losses on pension obligations |
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Tax provision |
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— |
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( |
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— |
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Pension changes, net of tax |
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Other comprehensive (loss) income, net of tax |
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( |
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( |
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( |
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Comprehensive (loss) income |
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$ |
( |
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$ |
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$ |
( |
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$ |
( |
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The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
2
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
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September 30, 2021 |
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December 31, 2020 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Inventories, net |
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Income taxes receivable |
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Other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Deferred income tax assets, net |
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Goodwill |
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— |
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— |
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Intangibles, net |
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Other non-current assets |
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Total assets |
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$ |
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$ |
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LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY (DEFICIT) |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Short-term debt |
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Accrued expenses |
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Income taxes payable |
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Total current liabilities |
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Long-term debt (less current portion) |
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Non-current income tax liabilities |
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Deferred income tax liabilities, net |
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Other non-current liabilities |
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Commitments and contingent liabilities (Note 17) |
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Mezzanine equity: |
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Preferred stock, $ |
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Authorized - |
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Issued and outstanding – September 30, 2021 and December 31, 2020 |
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European non-controlling redeemable equity |
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Shareholders’ equity (deficit): |
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Common stock, $ |
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Authorized - |
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Issued and outstanding – September 30, 2021 and December 31, 2020 |
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Accumulated other comprehensive loss |
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( |
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( |
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Retained earnings |
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( |
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( |
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Total shareholders’ equity (deficit) |
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( |
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( |
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Total liabilities, mezzanine equity and shareholders’ equity (deficit) |
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$ |
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$ |
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The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
3
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
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Nine Months Ended |
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September 30, 2021 |
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September 30, 2020 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income (loss) |
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$ |
( |
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Adjustments to reconcile net loss to net cash provided by operating activities: |
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Depreciation and amortization |
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Income tax, non-cash changes |
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( |
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( |
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Impairment of goodwill and indefinite-lived intangibles |
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- |
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Stock-based compensation |
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Amortization of debt issuance costs |
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Other non-cash items |
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( |
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( |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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( |
) |
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( |
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Inventories |
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( |
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Other assets and liabilities |
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Accounts payable |
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Income taxes |
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( |
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NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES |
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( |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Additions to property, plant, and equipment |
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( |
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( |
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Proceeds from sale of fixed assets |
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NET CASH USED IN INVESTING ACTIVITIES |
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( |
) |
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( |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from issuance of long-term debt |
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Repayments of debt |
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( |
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( |
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Proceeds from borrowings on revolving credit facility |
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- |
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Repayments of borrowings on revolving credit facility |
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- |
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( |
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Cash dividends paid |
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( |
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( |
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Financing costs paid and other |
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( |
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( |
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Payments related to tax withholdings for stock-based compensation |
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( |
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— |
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Finance lease payments |
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( |
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( |
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NET CASH USED IN FINANCING ACTIVITIES |
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( |
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( |
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Effect of exchange rate changes on cash |
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( |
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Net (decrease) increase in cash and cash equivalents |
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( |
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Cash and cash equivalents at the beginning of the period |
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Cash and cash equivalents at the end of the period |
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$ |
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The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
4
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(Dollars in thousands)
(Unaudited)
For the nine months ended September 30, 2020 |
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Common Stock |
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Accumulated Other Comprehensive (Loss) Income |
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Number of Shares |
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Amount |
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Unrecognized Gains (Losses) on Derivative Instruments |
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Pension Obligations |
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Cumulative Translation Adjustment |
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Retained Earnings |
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Total |
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BALANCE AT DECEMBER 31, 2019 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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$ |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Change in unrecognized gains/losses on derivative instruments, net of tax |
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— |
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— |
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( |
) |
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— |
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— |
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— |
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( |
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Change in defined benefit plans, net of taxes |
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— |
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— |
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— |
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— |
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— |
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Net foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Common stock issued, net of shares withheld for employee taxes |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Redeemable preferred and accretion |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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European non-controlling redeemable equity dividend |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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BALANCE AT SEPTEMBER 30, 2020 |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
( |
) |
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$ |
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$ |
( |
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For the three months ended September 30, 2020 |
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Common Stock |
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Accumulated Other Comprehensive (Loss) Income |
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Number of Shares |
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Amount |
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Unrecognized Gains (Losses) on Derivative Instruments |
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Pension Obligations |
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Cumulative Translation Adjustment |
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Retained Earnings |
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Total |
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|||||||
BALANCE AT JUNE 30, 2020 |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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Net income |
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— |
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— |
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— |
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— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Change in unrecognized gains/losses on derivative instruments, net of tax |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Change in defined benefit plans, net of taxes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Net foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Common stock issued, net of shares withheld for employee taxes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Redeemable preferred and accretion |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
European non-controlling redeemable equity dividend |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
BALANCE AT SEPTEMBER 30, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
For the nine months ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Accumulated Other Comprehensive (Loss) Income |
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
Number of Shares |
|
|
Amount |
|
|
Unrecognized Gains (Losses) on Derivative Instruments |
|
|
Pension Obligations |
|
|
Cumulative Translation Adjustment |
|
|
Retained Earnings |
|
|
Total |
|
|
|||||||
BALANCE AT DECEMBER 31, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Change in unrecognized gains/losses on derivative instruments, net of tax |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Change in defined benefit plans, net of taxes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Net foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Common stock issued, net of shares withheld for employee taxes |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Redeemable preferred and accretion |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
European non-controlling redeemable equity dividend |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
BALANCE AT SEPTEMBER 30, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Accumulated Other Comprehensive (Loss) Income |
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
Number of Shares |
|
|
Amount |
|
|
Unrecognized Gains (Losses) on Derivative Instruments |
|
|
Pension Obligations |
|
|
Cumulative Translation Adjustment |
|
|
Retained Earnings |
|
|
Total |
|
|
|||||||
BALANCE AT JUNE 30, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Change in unrecognized gains/losses on derivative instruments, net of tax |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Change in defined benefit plans, net of taxes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Net foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Common stock issued, net of shares withheld for employee taxes |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Redeemable preferred and accretion |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
European non-controlling redeemable equity dividend |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
BALANCE AT SEPTEMBER 30, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
6
Superior Industries International, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2021
(Unaudited)
NOTE 1 – NATURE OF OPERATIONS AND PRESENTATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nature of Operations
Superior Industries International, Inc.’s (referred herein as the “Company,” “Superior,” or “we” and “our”) principal business is the design and manufacture of aluminum wheels for sale to original equipment manufacturers (“OEMs”) in North America and Europe and to the aftermarket in Europe. We employ approximately
Presentation of Condensed Consolidated Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all the information and notes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements, in our opinion, include all adjustments, of a normal and recurring nature, which are necessary for fair presentation of (i) the condensed consolidated statements of income (loss) for the three and nine-month periods ended September 30, 2021 and September 30, 2020, (ii) the condensed consolidated statements of comprehensive income (loss) for the three and nine-month periods ended September 30, 2021 and September 30, 2020, (iii) the condensed consolidated balance sheets at September 30, 2021 and December 31, 2020, (iv) the condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2021 and September 30, 2020, and (v) the condensed consolidated statements of shareholders’ equity (deficit) for the three and nine-month periods ended September 30, 2021 and September 30, 2020. This Quarterly Report on Form 10-Q should be read in conjunction with our consolidated financial statements and notes thereto filed with the SEC in our 2020 Annual Report on Form 10-K.
Interim financial reporting standards require us to make estimates that are based on assumptions regarding the outcome of future events and circumstances not known at that time. Inevitably, some assumptions will not materialize, unanticipated events or circumstances may occur which vary from those estimates and such variations may significantly affect our future results. Additionally, interim results may not be indicative of our results for future interim periods or our annual results.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current year presentation.
Cash Paid for Interest and Taxes and Non-Cash Investing Activities
Cash paid for interest was $
Accounting Standards Issued but Not Yet Adopted
Accounting Standards Update (ASU) 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” In June 2016, the Financial Accounting Standards Board issued ASU 2016-13, "Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which requires entities to use a new impairment
7
model based on current expected credit losses (“CECL”) rather than incurred losses. Under CECL, estimated credit losses would incorporate relevant information about past events, current conditions and reasonable and supportable forecasts and any expected credit losses would be recognized at the time of sale. The Company is not required to adopt the standard until January 1, 2023. We are evaluating the impact this standard will have on our financial statements and disclosures.
NOTE 2 – REVENUE
The Company disaggregates revenue from contracts with customers into our reportable segments, North America and Europe. Revenues by segment for the three and nine-month periods ended September 30, 2021 and September 30, 2020, respectively, are summarized in Note 5, “Business Segments.”
The opening and closing balances of the Company’s customer receivables and current and long-term contract liabilities balances are as follows:
(Dollars in thousands) |
|
September 30, 2021 |
|
|
December 31, 2020 |
|
|
Change |
|
|||
Customer receivables |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Contract liabilities—current |
|
|
|
|
|
|
|
|
|
|
( |
) |
Contract liabilities—noncurrent |
|
|
|
|
|
|
|
|
|
|
( |
) |
NOTE 3 – FAIR VALUE MEASUREMENTS
The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis, while other assets and liabilities are measured at fair value on a nonrecurring basis, such as an asset impairment. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
The carrying amounts for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair values due to the short period of time until maturity.
Derivative Financial Instruments
Our derivatives are over-the-counter customized derivative transactions and are not exchange traded. We estimate the fair value of these instruments using industry-standard valuation models such as discounted cash flow. These models project future cash flows and discount the future amounts to a present value using market-based expectations for interest rates, foreign exchange rates, commodity prices and the contractual terms of the derivative instruments. The discount rate used is the relevant interbank deposit rate (e.g., LIBOR) plus an adjustment for non-performance risk.
8
The following tables categorize items measured at fair value as of September 30, 2021 and December 31, 2020:
|
|
|
|
|
|
Fair Value Measurement at Reporting Date Using |
|
|||||||||
September 30, 2021 |
|
|
|
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
|||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
Total |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
Liabilities |
|
|
|
|
|
|
|
|
|
. |
|
|
|
|
|
|
Derivative contracts |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
Total |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
|
|
|
|
|
Fair Value Measurement at Reporting Date Using |
|
|||||||||
December 31, 2020 |
|
|
|
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
|||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
Total |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
Total |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
Debt Instruments
The carrying values of the Company’s debt instruments vary from their fair values. The fair values were determined by reference to transacted prices and quotes for these instruments (Level 2).
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
Estimated aggregate fair value |
|
$ |
|
|
|
$ |
|
|
Aggregate carrying value (1) |
|
|
|
|
|
|
|
|
(1) |
Total debt excluding the impact of unamortized debt issuance costs. |
NOTE 4 - DERIVATIVE FINANCIAL INSTRUMENTS
To help mitigate gross margin fluctuations due to changes in foreign currency exchange rates, certain of our subsidiaries, whose functional currency is the U.S. dollar or the Euro, hedge a portion of their forecasted foreign currency costs denominated in the Mexican Peso and Polish Zloty, respectively. We may hedge portions of our forecasted foreign currency exposure up to
We record all derivatives in the condensed consolidated balance sheets at fair value. Our accounting treatment for these instruments is based on the hedge designation. Gains or losses on derivatives that are designated as hedging instruments are recorded in accumulated other comprehensive income (loss) (“AOCI”) until the hedged item is recognized in earnings, at which point accumulated gains or losses will be recognized in earnings and classified with the underlying hedged transaction.
9
The following tables display the fair value of derivatives by balance sheet line item at September 30, 2021 and December 31, 2020:
|
|
September 30, 2021 |
|
|||||||||||||
|
|
Other Current Assets |
|
|
Other Non-current Assets |
|
|
Accrued Liabilities |
|
|
Other Non-current Liabilities |
|
||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts designated as hedging instruments |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Foreign exchange forward contracts not designated as hedging instruments |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Aluminum forward contracts designated as hedging instruments |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Natural gas forward contracts designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contracts designated as hedging instruments |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Total derivative financial instruments |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
December 31, 2020 |
|
|||||||||||||
|
|
Other Current Assets |
|
|
Other Non-current Assets |
|
|
Accrued Liabilities |
|
|
Other Non-current Liabilities |
|
||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts designated as hedging instruments |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Foreign exchange forward contracts not designated as hedging instruments |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Aluminum forward contracts designated as hedging instruments |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Natural gas forward contracts designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contracts designated as hedging instruments |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Total derivative financial instruments |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The following table summarizes the notional amount and estimated fair value of our derivative financial instruments:
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||||||||||
|
|
Notional U.S. Dollar Amount |
|
|
Fair Value |
|
|
Notional U.S. Dollar Amount |
|
|
Fair Value |
|
||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts designated as hedging instruments |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
Foreign exchange forward contracts not designated as hedging instruments |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
Aluminum forward contracts designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas forward contracts designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap contracts designated as hedging instruments |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Total derivative financial instruments |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
10
Notional amounts are presented on a net basis. The notional amounts of the derivative financial instruments do not represent amounts exchanged by the parties and, therefore, are not a direct measure of our exposure to the financial risks. The amounts exchanged are calculated by reference to the notional amounts and by other terms of the derivatives, such as interest rates, foreign currency exchange rates or commodity prices.
The following tables summarize the gain or loss recognized in AOCI, the amounts reclassified from AOCI into earnings and the amounts recognized directly into earnings for the three and nine months ended September 30, 2021 and 2020:
Three Months Ended September 30, 2021 |
|
Amount of Gain or (Loss) Recognized in AOCI on Derivatives |
|
|
Amount of Pre-tax Gain or (Loss) Reclassified from AOCI into Income |
|
|
Amount of Pre-tax Gain or (Loss) Recognized in Income on Derivatives |
|
|||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Contracts |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
Total |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2021 |
|
Amount of Gain or (Loss) Recognized in AOCI on Derivatives |
|
|
Amount of Pre-tax Gain or (Loss) Reclassified from AOCI into Income |
|
|
Amount of Pre-tax Gain or (Loss) Recognized in Income on Derivatives |
|
|||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Contracts |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
Three Months Ended September 30, 2020 |
|
Amount of Gain or (Loss) Recognized in AOCI on Derivatives |
|
|
Amount of Pre-tax Gain or (Loss) Reclassified from AOCI into Income |
|
|
Amount of Pre-tax Gain or (Loss) Recognized in Income on Derivatives |
|
|||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Contracts |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Total |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020 |
|
Amount of Gain or (Loss) Recognized in AOCI on Derivatives |
|
|
Amount of Pre-tax Gain or (Loss) Reclassified from AOCI into Income |
|
|
Amount of Pre-tax Gain or (Loss) Recognized in Income on Derivatives |
|
|||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Contracts |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Total |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
11
NOTE 5 - BUSINESS SEGMENTS
The North American and European businesses represent separate operating segments in view of significantly different markets, customers and products in each of these regions. Within each of these regions, markets, customers, products and production processes are similar. Moreover, our business within each region generally leverages common systems, processes and infrastructure. Accordingly, North America and Europe comprise the Company’s reportable segments.
(Dollars in thousands) |
|
Net Sales |
|
|
Income (loss) from Operations |
|
||||||||||
Three Months Ended |
|
September 30, 2021 |
|
|
September 30, 2020 |
|
|
September 30, 2021 |
|
|
September 30, 2020 |
|
||||
North America |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Depreciation and Amortization |
|
|
Capital Expenditures |
|
||||||||||
Three Months Ended |
|
September 30, 2021 |
|
|
September 30, 2020 |
|
|
September 30, 2021 |
|
|
September 30, 2020 |
|
||||
North America |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
(Dollars in thousands) |
|
Net Sales |
|
|
Income (loss) from Operations |
|
||||||||||
Nine Months Ended |
|
September 30, 2021 |
|
|
September 30, 2020 |
|
|
September 30, 2021 |
|
|
September 30, 2020 |
|
||||
North America |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Depreciation and Amortization |
|
|
Capital Expenditures |
|
||||||||||
Nine Months Ended |
|
September 30, 2021 |
|
|
September 30, 2020 |
|
|
September 30, 2021 |
|
|
September 30, 2020 |
|
||||
North America |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
(Dollars in thousands) |
|
Property, Plant and Equipment, net |
|
|
Intangible Assets |
|
||||||||||
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||||
North America |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
(Dollars in thousands) |
|
Total Assets |
|
|||||
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
North America |
|
$ |
|
|
|
$ |
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
12
Geographic information
Net sales and long-lived assets by location are as follows:
(Dollars in thousands) |
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
||||||||||
|
|
September 30, 2021 |
|
|
September 30, 2020 |
|
|
September 30, 2021 |
|
|
September 30, 2020 |
|
|
||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Mexico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Poland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment, net |
|
|
|||||
|
|
|
|
|
|
|
|
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
|
||
U.S. |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
Mexico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Poland |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
NOTE 6 - INVENTORIES
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
Raw materials |
|
$ |
|
|
|
$ |
|
|
Work in process |
|
|
|
|
|
|
|
|
Finished goods |
|
|
|
|
|
|
|
|
Inventories, net |
|
$ |
|
|
|
$ |
|
|
Service wheel and supplies inventory included in other non-current assets in the condensed consolidated balance sheets totaled $
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
Land and buildings |
|
$ |
|
|
|
$ |
|
|
Machinery and equipment |
|
|
|
|
|
|
|
|
Leasehold improvements and others |
|
|
|
|
|
|
|
|
Construction in progress |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Property, plant and equipment, net |
|
$ |
|
|
|
$ |
|
|
Depreciation expense for the three and nine months ended September 30, 2021 was $
Depreciation expense for the three and nine months ended September 30, 2020 was $
13
NOTE 8 – GOODWILL AND OTHER INTANGIBLE ASSETS
At March 31, 2020, the impact of COVID-19 and uncertainty with respect to the economic effects of the pandemic had introduced significant volatility in the financial markets and was having a widespread adverse effect on the automotive industry. In response to the COVID-19 pandemic, our key customers temporarily closed nearly all their production facilities in Europe and North America (our primary markets) during the quarter ended March 31, 2020. As a result, we concluded that an interim test of our goodwill was required as of March 31, 2020. More specifically, the Company concluded that the following events and circumstances, in the aggregate, indicated that it was more likely than not that the carrying value of our European reporting unit exceeded its fair value: (1) our European reporting unit’s carrying value was effectively set to fair value at December 31, 2019, due to the $
We utilized both an income and a market approach, weighted
At March 31, 2020, we determined that the carrying value of the European reporting unit exceeded its fair value by an amount greater than the remaining goodwill balance. The decline in fair value was primarily due to significantly lower market multiples and increased discount rates, as well as further declines in forecasted industry production volumes in Western and Central Europe as a result of the COVID-19 pandemic and consequent economic instability. Forecasted revenues, EBITDA and cash flow for the European reporting unit also declined as compared to the prior year long-range plan due to lower forecasted industry production volumes which adversely impacted fair value under both the income and market approaches. Significant assumptions used under the income approach included a weighted average cost of capital (WACC) of
14
As of September 30, 2021 |
|
Gross Carrying Amount |
|
|
Accumulated Impairment |
|
|
Accumulated Amortization |
|
|
Currency Translation |
|
|
Net Carrying Amount |
|
|
Remaining Weighted Average Amortization Period |
|||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brand name |
|
$ |
|
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
|
Technology |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
2 |
Customer relationships |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
Total finite |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
Trade names |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Indefinite |
Total intangibles |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
|
As of December 31, 2020 |
|
Gross Carrying Amount |
|
|
Accumulated Impairment |
|
|
Accumulated Amortization |
|
|
Currency Translation |
|
|
Net Carrying Amount |
|
|
Remaining Weighted Average Amortization Period |
|||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brand name |
|
$ |
|
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
|
Technology |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
Total finite |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
Trade names |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Indefinite |
Total intangibles |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
|
Year Ended December 31, 2020 |
|
Beginning Balance |
|
|
|
|
|
|
|
|
|
|
Ending Balance |
|
||||||||||||||||||
|
|
Gross |
|
|
Accumulated Impairment |
|
|
Net Balance |
|
|
Impairment |
|
|
Currency Translation |
|
|
Gross |
|
|
Accumulated Impairment |
|
|
Net Balance |
|
||||||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
— |
|
Amortization expense for these intangible assets was $
NOTE 9 – DEBT
A summary of long-term debt and the related weighted average interest rates is shown below:
|
|
September 30, 2021 (Dollars in Thousands) |
|
|||||||||||||
Debt Instrument |
|
Total Debt |
|
|
Debt Issuance Costs (1) |
|
|
Total Debt, Net |
|
|
Weighted Average Interest Rate |
|
||||
Term Loan Facility |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
% |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
% |
European CapEx Loans |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
% |
Finance Leases |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
% |
|
|
$ |
|
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
Less: Current portion |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Long-term debt |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
15
|
|
December 31, 2020 (Dollars in Thousands) |
|
|||||||||||||
Debt Instrument |
|
Total Debt |
|
|
Debt Issuance Costs (1) |
|
|
Total Debt, Net |
|
|
Weighted Average Interest Rate |
|
||||
Term Loan Facility |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
% |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
% |
European CapEx Loans |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
% |
Finance Leases |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
% |
|
|
$ |
|
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
Less: Current portion |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Long-term debt |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
(1) |
Unamortized portion |
Senior Notes
On June 15, 2017, the Company issued €
Guarantee
The Notes are unconditionally guaranteed by all material wholly-owned direct and indirect domestic restricted subsidiaries of the Company (the “Subsidiary Guarantors”), with customary exceptions including, among other things, where providing such guarantees is not permitted by law, regulation or contract, or would result in adverse tax consequences.
Covenants
Subject to certain exceptions, the indenture governing the Notes contains restrictive covenants that, among other things, limit the ability of the Company and the Subsidiary Guarantors to: (i) incur additional indebtedness or issue certain preferred stock; (ii) pay dividends on, or make distributions in respect of, their capital stock; (iii) make certain investments or other restricted payments; (iv) sell certain assets or issue capital stock of restricted subsidiaries; (v) create liens; (vi) merge, consolidate, transfer or dispose of substantially all of their assets; and (vii) engage in certain transactions with affiliates. These covenants are subject to several important limitations and exceptions that are described in the indenture.
The indenture provides for customary events of default that include, among other things (subject in certain cases to customary grace and cure periods): (i) nonpayment of principal, premium, if any, and interest, when due; (ii) failure for
16
Senior Secured Credit Facilities
On March 22, 2017, the Company entered into a senior secured credit agreement (“Credit Agreement”) with certain banks and other lenders. The Credit Agreement consisted of a $
Borrowings under the Term Loan Facility will bear interest at a rate equal to, at the Company’s option, either (a) LIBOR for the relevant interest period, adjusted for statutory requirements, subject to a floor of
Borrowings under the Revolving Credit Facility bear interest at a rate equal to, at the Company’s option, either (a) LIBOR for the relevant interest period, with a floor of 0.00 percent per annum, plus the applicable rate or (b) a base rate, with a floor of 0.00 percent, equal to the highest of (1) the rate of interest in effect as publicly announced by the administrative agent as its prime rate, (2) the federal funds effective rate plus 0.50 percent and (3) LIBOR for an interest period of one month plus 1.00 percent, in each case, plus the applicable rate. The applicable rates for borrowings under the Revolving Credit Facility are based upon the First Lien Net Leverage Ratio effective for the preceding quarter, with LIBOR applicable rates ranging between
As of September 30, 2021, the Company had repaid $
Guarantees and Collateral Security
Our obligations under the Credit Agreement are unconditionally guaranteed by the Subsidiary Guarantors, with customary exceptions including, among other things, where providing such guarantees is not permitted by law, regulation or contract or would result in adverse tax consequences. The guarantees of such obligations, will be secured, subject to permitted liens and other exceptions, by substantially all of our assets and the Subsidiary Guarantors’ assets, including but not limited to: (i) a perfected pledge of all of the capital stock issued by each of the Subsidiary Guarantors (subject to certain exceptions) and up to
Covenants
The Credit Agreement contains a number of restrictive covenants that, among other things, restrict, subject to certain exceptions, our ability to incur additional indebtedness and guarantee indebtedness, create or incur liens, engage in mergers or consolidations, sell, transfer or otherwise dispose of assets, make investments, acquisitions, loans or advances, pay dividends, distributions or other restricted payments, or repurchase our capital stock. The Credit Agreement also restricts our ability to prepay, redeem, or repurchase any subordinated indebtedness, enter into agreements which limit our ability to incur liens on our assets or that restrict the ability of restricted subsidiaries to pay dividends or make other restricted payments to us, and enter into certain transactions with our affiliates. Solely with respect to the Revolving Credit Facility, the Credit Agreement also requires a Total Net Leverage Ratio (calculated as defined in the Credit Agreement) of not more than
In addition, the Credit Agreement contains customary default provisions, representations and warranties and other covenants. The Credit Agreement also contains a provision permitting the Lenders to accelerate the repayment of all loans outstanding under the USD SSCF during an event of default. As of September 30, 2021, the Company was in compliance with all covenants under the Credit Agreement.
17
European Debt
In connection with the acquisition of UNIWHEELS AG, the Company assumed $
During the second quarter of 2021, the Company amended its European Revolving Credit Facility (“EUR SSCF”), extending the term to
The EUR SSCF is subject to a number of restrictive covenants that, among other things, restrict, subject to certain exceptions, the ability of Superior Europe AG to incur additional indebtedness and guarantee indebtedness, create or incur liens, engage in mergers or consolidations, sell, transfer or otherwise dispose of assets, make investments, acquisitions, loans or advances, pay dividends or distributions, or repurchase our capital stock, prepay, redeem, or repurchase any subordinated indebtedness, and enter into agreements which limit our ability to incur liens on our assets. In addition, the EUR SSCF includes an annual pay down provision requiring outstanding balances to be repaid but not reborrowed for a period of three business days and a material adverse change default provision pursuant to which the lender could accelerate the loan maturity. At September 30, 2021, Superior Europe AG was in compliance with all covenants under the EUR SSCF.
The balance of certain post-acquisition equipment loans was $
Debt maturities as of September 30, 2021, which are due in the next
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Debt Maturities |
|
Amount |
|
|
Three remaining months of 2021 |
|
$ |
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
Thereafter |
|
|
|
|
Total debt liabilities |
|
$ |
|
|
NOTE 10 - REDEEMABLE PREFERRED STOCK
During 2017, we issued
The redeemable preferred stock is convertible into shares of our common stock equal to the number of shares determined by dividing the sum of the stated value and any accrued and unpaid dividends by the conversion price of $
18
accrues dividends at a rate of
We may mandate conversion of the redeemable preferred stock if the price of the common stock exceeds $
Since the redeemable preferred stock may be redeemed at the option of the holder, but is not mandatorily redeemable, the redeemable preferred stock has been classified as mezzanine equity and initially recognized at fair value of $
The difference between the redemption value of the redeemable preferred stock and the carrying value (the “premium”) is being accreted over the period from the date of issuance through September 14, 2025 using the effective interest method. The accretion is treated as a deemed dividend, recorded as a charge to retained earnings and deducted in computing earnings per share (analogous to the treatment for stated and participating dividends paid on the redeemable preferred stock). The cumulative premium accretion as of September 30, 2021 and December 31, 2020 was $
NOTE 11 – EUROPEAN NON-CONTROLLING REDEEMABLE EQUITY
On May 30, 2017, the Company acquired
(Dollars in thousands) |
|
|
|
|
Balance at December 31, 2019 |
|
$ |
|
|
Dividends accrued |
|
|
|
|
Dividends paid |
|
|
( |
) |
Translation adjustment |
|
|
|
|
Purchase of shares |
|
|
( |
) |
Balance at December 31, 2020 |
|
|
|
|
Dividends accrued |
|
|
|
|
Dividends paid |
|
|
( |
) |
Translation adjustment |
|
|
( |
) |
Purchase of shares |
|
|
( |
) |
Balance at September 30, 2021 |
|
$ |
|
|
19
NOTE 12 – EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income (loss), after deducting preferred dividends and accretion and European non-controlling redeemable equity dividends, by the weighted average number of common shares outstanding. For purposes of calculating diluted earnings per share, the weighted average shares outstanding includes the dilutive effect of outstanding stock options and time and performance based restricted stock units under the treasury stock method. The redeemable preferred shares discussed in Note 10, “Redeemable Preferred Stock” have not been included in the diluted earnings per share because the inclusion of such shares on an as converted basis would be anti-dilutive for the three and nine months ended September 30, 2021 and 2020.
|
|
|
|
|
|
|
||||||||||
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, 2021 |
|
|
September 30, 2020 |
|
|
September 30, 2021 |
|
|
September 30, 2020 |
|
||||
(Dollars in thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
Less: Redeemable preferred stock dividends and accretion |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Less: European non-controlling redeemable equity dividend |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Basic numerator |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
Basic (loss) earnings per share |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
Weighted average shares outstanding – Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
Less: Redeemable preferred stock dividends and accretion |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Less: European non-controlling redeemable equity dividend |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Diluted numerator |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
Diluted (loss) earnings per share |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
Weighted average shares outstanding – Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of common share equivalents |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
Weighted average shares outstanding – Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 13 - INCOME TAXES
The estimated annual effective tax rate is forecasted quarterly using actual historical information and forward-looking estimates and applied to year-to-date ordinary income. The tax effects of unusual or infrequently occurring items, including changes in judgment about valuation allowances, settlements with taxing authorities and effects of changes in tax laws or rates, are reported in the interim period in which they occur.
The income tax provision for the three and nine months ended September 30, 2021 was $
The income tax benefit for the three and nine months ended September 30, 2020 was $
20
NOTE 14 - LEASES
The Company determines whether an arrangement is or contains a lease at the inception of the arrangement. Operating leases are included in other non-current assets, accrued expenses and other non-current liabilities in our condensed consolidated balance sheets. Finance leases are included in property, plant and equipment, net, short-term debt and long-term debt (less current portion) in our condensed consolidated balance sheets.
Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Finance and operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of the lease payments over the lease term. Since we generally do not have access to the interest rate implicit in the lease, the Company uses our incremental borrowing rate (for fully collateralized debt) at the inception of the lease in determining the present value of the lease payments. The implicit rate is, however, used where readily available. Lease expense under operating leases is recognized on a straight-line basis over the term of the lease. Certain of our leases contain both lease and non-lease components, which are accounted for separately.
The Company has operating and finance leases for office facilities, a data center and certain equipment. The remaining terms of our leases range from over
21
Lease expense and cash flow for the three and nine months ended September 30, 2021 and 2020 and operating and finance lease assets and liabilities, average lease term and average discount rate as of September 30, 2021 and December 31, 2020 are as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, 2021 |
|
|
September 30, 2020 |
|
|
September 30, 2021 |
|
|
September 30, 2020 |
|
||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Interest on lease liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total lease expense |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Components |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash outflows from finance leases |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Operating cash outflows from operating leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing cash outflows from finance leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for finance lease liabilities, net of terminations and disposals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for operating lease liabilities, net of terminations and disposals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
(Dollars in thousands, except lease term and discount rate) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-current assets |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Accrued liabilities |
|
|
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
Other non-current liabilities |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
Total operating lease liabilities |
|
|
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment gross |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Accumulated depreciation |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
Property, plant and equipment, net |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Current portion of long-term debt |
|
|
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
Long-term debt (less current portion) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
Total finance lease liabilities |
|
|
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Term and Discount Rates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term - finance leases (years) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term - operating leases (years) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average discount rate - finance leases |
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
% |
Weighted-average discount rate - operating leases |
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
% |
22
Summarized future minimum payments under our leases as of September 30, 2021 are as follows:
|
|
|
|
|
|
Amount |
|
|||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Lease Maturities |
|
|
|
|
|
Finance Leases |
|
|
Operating Leases |
|
||
Three remaining months of 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
|
|
|
|
|
|
|
|
|
|
|
2024 |
|
|
|
|
|
|
|
|
|
|
|
|
2025 |
|
|
|
|
|
|
|
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
Less: Imputed interest |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
Total lease liabilities, net of interest |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
NOTE 15 – RETIREMENT PLANS
We have an unfunded salary continuation plan covering certain directors, officers and other key members of management. Subject to certain vesting requirements, the plan provides for a benefit based on final average compensation, which becomes payable on the employee’s death or upon attaining age
For the nine months ended September 30, 2021, payments to retirees or their beneficiaries totaled $
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, 2021 |
|
|
September 30, 2020 |
|
|
September 30, 2021 |
|
|
September 30, 2020 |
|
||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
NOTE 16 - STOCK-BASED COMPENSATION
Equity Incentive Plan
Our 2018 Equity Incentive Plan (the “Plan”) was approved by stockholders in May 2018, authorizing us to issue up to
Under the terms of the Plan, each year eligible participants are granted time value restricted stock units (“RSUs”), vesting ratably over a
period, and performance restricted stock units (“PSUs”), with cliff vesting. Upon vesting, each restricted stock award is exchangeable for one share of the Company’s common stock, with accrued dividends.23
Restricted stock unit, restricted performance stock unit and option activity for the nine months ended September 30, 2021 is summarized in the following table:
|
|
Equity Incentive Awards |
|
|||||||||||||||||||||
|
|
Restricted Stock Units |
|
|
Weighted Average Grant Date Fair Value |
|
|
Performance Shares |
|
|
Weighted Average Grant Date Fair Value |
|
|
Options |
|
|
Weighted Average Exercise Price |
|
||||||
Balance at December 31, 2020 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
Settled |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
— |
|
Forfeited or expired |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
Balance at September 30, 2021 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards estimated to vest in the future |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Stock-based compensation expense for the three months ended September 30, 2021 and 2020 was $
NOTE 17 – 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, the London Mercantile Exchange, 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, 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.
Casualty Loss
On July 12, 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. The Company recognized an estimated casualty loss of $
24
NOTE 18 – RECEIVABLES FACTORING
The Company sells certain customer trade receivables on a non-recourse basis under factoring arrangements with designated financial institutions. These transactions are accounted for as sales and cash proceeds are included in cash provided by operating activities. Factoring arrangements incorporate customary representations and warranties, including representations as to validity of amounts due, completeness of performance obligations and absence of commercial disputes. During the three months ended September 30, 2021 and 2020, the Company sold trade receivables totaling $
NOTE 19 – RESTRUCTURING
During the quarter ended June 30, 2020, the Company decided to discontinue the manufacture and sale of high performance aftermarket wheels for the automotive racing market segment. The Company incurred a total non-cash charge of $
During the third quarter of 2019, the Company initiated a plan to significantly reduce production and manufacturing operations at its Fayetteville, Arkansas location. As a result, the Company recognized a non-cash charge of $
25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf. We have included or incorporated by reference in this Quarterly Report on Form 10-Q (including in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”) and from time to time our management may make statements that may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Exchange Act of 1933 and Section 21E of the Securities Act of 1934. These forward-looking statements are based upon management’s current expectations, estimates, assumptions and beliefs concerning future events and conditions and may discuss, among other things, the impact of COVID-19 and supply chain disruption on our future business, results, operation and prospects, anticipated future performance (including sales and earnings), expected growth, future business plans and costs and potential liability for environmental-related matters. Any statement that is not historical in nature is a forward-looking statement and may be identified using words and phrases such as “expects”, “anticipates”, “believes”, “will”, “will likely result”, “will continue”, “plans to” and similar expressions. These statements include our belief regarding general automotive industry and market conditions and growth rates, as well as general domestic and international economic conditions.
Readers are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements are necessarily subject to risks, uncertainties and other factors, many of which are outside the control of the Company, which could cause actual results to differ materially from such statements and from the Company’s historical results and experience. These risks, uncertainties and other factors include, but are not limited to, those described in Part I—Item 1A—“Risk Factors” and Part II—Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2020 and Part I—Item 2—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report and those described from time to time in our other reports filed with the SEC.
Readers are cautioned that it is not possible to predict or identify all the risks, uncertainties and other factors that may affect future results and that the risks described herein should not be considered to be a complete list. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and notes thereto and with the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2020.
Executive Overview
Overview of Superior
Superior Industries International, Inc.’s (referred herein as the “Company”, “Superior”, or “we” and “our”) principal business is the design and manufacture of aluminum wheels for sale to original equipment manufacturers (“OEMs”) in North America and Europe and to the aftermarket in Europe. We employ approximately 8,000 full-time employees, operating in eight manufacturing facilities in North America and Europe. We are one of the largest aluminum wheel suppliers to global OEMs and we believe we are the #1 European aluminum wheel aftermarket manufacturer and supplier. Our OEM aluminum wheels accounted for approximately 92 percent of our sales in the first nine months of 2021 and are primarily sold for factory installation on vehicle models manufactured by BMW (including Mini), Daimler AG Company (Mercedes-Benz, AMG, Smart), Ford, GM, Honda, Jaguar-Land Rover, Lucid Motors, Mazda, Nissan, PSA, Renault, Stellantis, Subaru, Suzuki, Toyota, VW Group (Volkswagen, Audi, SEAT, Skoda, Porsche, Bentley) and Volvo. We sell aluminum wheels to the European aftermarket under the brands ATS, RIAL, ALUTEC and ANZIO. North America and Europe represent the principal markets for our products, but we have a diversified global customer base consisting of North American, European and Asian OEMs.
Demand for our products is primarily driven by the production of light vehicles in North America and Europe and customer take rates on specific vehicle platforms that we serve and wheel SKUs that we produce. The majority of our customers’ wheel programs are awarded two to four years in advance. Our purchase orders with OEMs are typically specific to a particular vehicle model.
26
GM, VW Group and Ford were our only customers individually accounting for 10 percent or more of our consolidated sales for the three and nine months ended September 30, 2021 and 2020. Our sales to these customers in 2021 and 2020 were as follows:
Three months ended |
|
September 30, 2021 |
|
|
September 30, 2020 |
|
||||||||||
(Dollars in millions) |
|
Percent of Sales |
|
|
Dollars |
|
|
Percent of Sales |
|
|
Dollars |
|
||||
GM |
|
26% |
|
|
$ |
80.6 |
|
|
27% |
|
|
$ |
85.6 |
|
||
VW Group |
|
11% |
|
|
$ |
34.9 |
|
|
14% |
|
|
$ |
46.0 |
|
||
Ford |
|
16% |
|
|
$ |
49.3 |
|
|
13% |
|
|
$ |
38.0 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
September 30, 2021 |
|
|
September 30, 2020 |
|
||||||||||
(Dollars in millions) |
|
Percent of Sales |
|
|
Dollars |
|
|
Percent of Sales |
|
|
Dollars |
|
||||
GM |
|
27% |
|
|
$ |
268.1 |
|
|
24% |
|
|
$ |
185.6 |
|
||
VW Group |
|
14% |
|
|
$ |
142.8 |
|
|
15% |
|
|
$ |
118.5 |
|
||
Ford |
|
13% |
|
|
$ |
129.4 |
|
|
12% |
|
|
$ |
90.3 |
|
Effect of COVID-19 Pandemic
In 2020, the COVID-19 pandemic introduced significant volatility in the financial markets and had a widespread adverse effect on the automotive industry.
While navigating through this period of volatility and uncertainty, Superior’s top priorities were:
|
• |
Ensuring the health and safety of our employees |
|
• |
Maintaining the financial health of the Company, and |
|
• |
Serving our customers. |
In order to ensure the health and safety of our employees globally and respond to the then current industry production environment, we closed production at our European facilities in late March 2020. In North America, our manufacturing operations ceased production in early April 2020. The Company reopened all of its facilities by June 1, 2020, in line with industry demand and finished goods levels, and in accordance with local government requirements. As a result, COVID-19 had a significant adverse effect on our business, results of operations and financial condition in 2020, but this effect had largely subsided by the end of the year. We are continuing to monitor the resurgence of the virus, including the emergence of new virus strains and the progress of the vaccination efforts.
Industry Overview and Supply Chain Disruption
There is a broad range of factors which impact automotive industry sales and production volumes, including consumer demand and preferences, dealer inventory levels, labor relations issues, trade agreements, cost and availability of raw materials and components, fuel prices, regulatory requirements, government initiatives, availability and cost of credit, changing consumer attitudes toward vehicle ownership and other factors. Our sales are driven generally by overall automotive industry production volumes and, more specifically, by the volumes of the vehicles for which we supply wheels. In addition, favorable product mix drives higher sales since larger diameter wheels and premium finishes command higher unit prices. Larger cars and light trucks, as well as premium vehicle platforms, such as luxury, sport utility and crossover vehicles, typically employ larger diameter wheels and premium finishes.
The automotive industry has been, and will likely continue to be, impacted by the supply chain disruption which emerged as OEM vehicle production resumed and began to scale following the shutdown as a result of the COVID-19 pandemic. The supply chain disruption includes shortages of semiconductor chips, electric vehicle batteries, shipping containers, steel, resin and foam. The semiconductor chip shortage, which began to affect global automotive industry production in the first two quarters of 2021, drove significantly lower OEM vehicle production and high OEM production volatility in the third quarter of 2021. Although automotive industry production volumes in the first half of 2021 were higher than the corresponding period of the prior year, production volumes in the second half are expected to be lower. Lower production volumes coupled with OEM customer order volatility have resulted in manufacturing inefficiencies, including elevated labor, scrap and equipment change over costs. In addition, our critical commodity costs significantly increased in 2021, particularly aluminum raw materials and energy costs. While the prices under our OEM contracts are adjusted for changes in aluminum prices, our aftermarket contracts do not provide for pass through pricing on rising
27
commodity costs. Additionally, rising raw material costs and OEM production volatility have caused our inventory levels to increase, negatively impacting our cash flows.
Automotive industry production volumes in the North American and Western and Central European regions in the first nine months of 2021, as compared to the corresponding periods of 2020 and 2019, are shown below:
|
|
|
September 30, |
|
|
2021 vs 2020 |
|
2021 vs 2019 |
|
|
|||||||||
|
(Units in millions) |
|
2021 |
|
2020 |
|
2019 |
|
|
% Change |
|
% Change |
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
9.8 |
|
|
9.2 |
|
|
12.4 |
|
|
|
6.5 |
% |
|
(21.0 |
%) |
|
|
Western and Central Europe |
|
|
9.7 |
|
|
9.3 |
|
|
13.6 |
|
|
|
4.3 |
% |
|
(28.7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
19.5 |
|
|
18.5 |
|
|
26.0 |
|
|
|
5.4 |
% |
|
(25.0 |
%) |
|
Despite the modest 2021 year-to-date improvement over 2020, production volumes for the third quarter of 2021 declined 28.8 percent on a year-over-year basis (25.2 percent in North America and 32.9 percent in Western and Central Europe). As a result, there has been a significant reduction in forecast industry production volume for the 2021 full year. In January 2021, the IHS forecast projected that full year 2021 automotive passenger and light truck vehicle production in North America and Western and Central Europe would increase 20.5 percent (25.1 percent in North America and 16.2 percent in Western and Central Europe) over 2020 and would lag 2019 by only 5.9 percent. The October 2021 IHS forecast now projects that the 2021 production will be 2.5 percent lower than 2020 (declining 0.2 percent in North America and 4.7 percent in Western and Central Europe) and 24.1 percent lower than 2019. While semiconductor manufacturers have announced plans to expand capacity over the next several years, it is unclear when automotive industry chip shortages will begin to subside.
Sustainability
All Superior manufacturing plants have implemented Environmental Management Systems that are ISO14001 certified and are subject to annual audits by an independent third party. In 2019, we assessed the product carbon footprint of our European operations for the first time based on the Greenhouse Gas Protocol, and we assessed the carbon footprint for our operations globally in connection with our UN Global Compact Sustainability Report published in June 2021. These assessments can help us identify potential opportunities to reduce fuel consumption and greenhouse gas emissions. Superior is committed to reducing natural gas, electricity and water consumption and solid waste and air emissions at all of our facilities globally. Furthermore, our research and development team is developing automotive light weighting solutions, such as our patented Alulite™ technology, and aerodynamic solutions which will assist in reducing our customers’ carbon footprint. We are also collaborating with our suppliers regarding sustainability practices throughout their supply chains.
28
Overview of the Third Quarter of 2021
The following charts show the operational performance in the quarter ended September 30, 2021 in comparison to the quarter ended September 30, 2020 ($ in millions):
SALES AND PROFITABILITY FOR THE 3RD QUARTER OF 2019 AND 2018 ($ in millions) Sales for 3rd Quarter 2019 & 2018 $352.0 $347.6 2019 2019 Income from Operations 3rd Quarter 2019 & 2018$(0.2) $7.7 2019 218 Net Income & Adjusted EBITDA* for 3rd Quarter 2019 & 2018 Net Income Adjusted EBITDA $38.9 $30.6 $(6.6) 2019 2018 * See the Non-GAAP Financial Measures section of this quarterly report for a reconciliation of our Adjusted EBITDA to Net Income (Loss).
29
Results of Operations
|
|
Three Months Ended |
|
|
|
|
|
|||||
|
|
September 30, 2021 |
|
|
September 30, 2020 |
|
|
Net Change |
|
|||
(Dollars in thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
180,496 |
|
|
$ |
166,662 |
|
|
$ |
13,834 |
|
Europe |
|
|
130,284 |
|
|
|
150,441 |
|
|
|
(20,157 |
) |
Net sales |
|
|
310,780 |
|
|
|
317,103 |
|
|
|
(6,323 |
) |
Cost of sales |
|
|
292,637 |
|
|
|
285,135 |
|
|
|
(7,502 |
) |
Gross profit |
|
|
18,143 |
|
|
|
31,968 |
|
|
|
(13,825 |
) |
Percentage of net sales |
|
|
5.8 |
% |
|
|
10.1 |
% |
|
|
(4.3 |
)% |
Selling, general and administrative |
|
|
10,769 |
|
|
|
12,730 |
|
|
|
1,961 |
|
Income from operations |
|
|
7,374 |
|
|
|
19,238 |
|
|
|
(11,864 |
) |
Percentage of net sales |
|
|
2.4 |
% |
|
|
6.1 |
% |
|
|
(3.7 |
)% |
Interest expense, net |
|
|
(10,619 |
) |
|
|
(10,414 |
) |
|
|
(205 |
) |
Other expense, net |
|
|
(2,094 |
) |
|
|
(1,576 |
) |
|
|
(518 |
) |
Income tax (provision) benefit |
|
|
(1,841 |
) |
|
|
3,898 |
|
|
|
(5,739 |
) |
Net (loss) income |
|
$ |
(7,180 |
) |
|
$ |
11,146 |
|
|
$ |
(18,326 |
) |
Percentage of net sales |
|
|
(2.3 |
)% |
|
|
3.5 |
% |
|
|
(5.8 |
)% |
Diluted (loss) earnings per share |
|
$ |
(0.61 |
) |
|
$ |
0.12 |
|
|
$ |
(0.73 |
) |
Value added sales (1) |
|
$ |
162,198 |
|
|
$ |
192,469 |
|
|
$ |
(30,271 |
) |
Adjusted EBITDA (2) |
|
$ |
29,777 |
|
|
$ |
46,723 |
|
|
$ |
(16,946 |
) |
Percentage of net sales |
|
|
9.6 |
% |
|
|
14.7 |
% |
|
|
(5.1 |
)% |
Percentage of value added sales |
|
|
18.4 |
% |
|
|
24.3 |
% |
|
|
(5.9 |
)% |
Unit shipments in thousands |
|
|
3,500 |
|
|
|
4,362 |
|
|
|
(862 |
) |
|
(1) |
Value added sales is a key measure that is not calculated according to U.S. GAAP. Refer to “Non-U.S. GAAP Financial Measures” for a definition of value added sales and a reconciliation of value added sales to net sales, the most comparable U.S. GAAP measure. |
|
(2) |
Adjusted EBITDA is a key measure that is not calculated according to U.S. GAAP. Refer to “Non-U.S. GAAP Financial Measures” for a definition of adjusted EBITDA and a reconciliation of our adjusted EBITDA to net income, the most comparable U.S. GAAP measure. |
Shipments
Wheel unit shipments were 3.5 million for the third quarter of 2021 compared to unit shipments of 4.4 million in the prior year period, a decrease of 19.8 percent. The decrease was driven by lower volumes in both regions due to reduced 2021 production schedules at our key OEM customers in response to the global semiconductor supply shortage.
Net Sales
Net sales for the third quarter of 2021 were $310.8 million, compared to net sales of $317.1 million for the same period in 2020. The decrease in the quarter was driven by lower volumes in both regions due to the global semiconductor supply shortage, which was offset in large part by higher aluminum prices and stronger product mix in both our North American and European regions.
Cost of Sales
Cost of sales were $292.6 million for the third quarter of 2021 compared to cost of sales of $285.1 million for the same period in 2020. The increase, despite lower volumes in both regions, was principally driven by higher aluminum prices. Manufacturing cost performance was adversely impacted by significantly lower vehicle production and certain production inefficiencies caused by OEM production volatility.
30
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses for the third quarter of 2021 were $10.8 million compared to SG&A expense of $12.7 million for same period in 2020. The decrease in SG&A expense is principally due to a $4.4 million gain recognized for the sale of our Fayetteville, Arkansas facility in 2021, partially offset by increased compensation and benefit expenses due to temporary cost savings actions taken in 2020 in response to COVID-19 OEM and Superior production shutdowns.
Net Interest Expense
Net interest expense for the third quarter of 2021 was $10.6 million compared to net interest expense of $10.4 million for same period in 2020. The increase was primarily due to increased amortization of debt issuance costs related to our revolving lines of credit during the current period.
Other Income (Expense)
Other expense was $2.1 million for the third quarter of 2021 compared to $1.6 million for the same period in 2020. The current year expense is primarily attributable to cost associated with a flood at our Werdohl, Germany facility in July, 2021.
Income Tax (Provision) Benefit
The income tax provision for the third quarter of 2021 was $1.8 million on a pre-tax loss of $5.3 million, representing an effective income tax rate of (34.5) percent. This differs from the statutory rate primarily due to U.S. valuation allowances and the mix of earnings among tax jurisdictions. The income tax benefit for the third quarter of 2020 was $3.9 million on a pre-tax income of $7.2 million, representing an effective income tax rate of (53.8) percent. This differs from the statutory rate due to the mix of earnings among tax jurisdictions and recognition of a valuation allowance on non-deductible interest.
Net Income (Loss)
Net loss for the third quarter of 2021 was $7.2 million, or a loss of $0.61 per diluted share, compared to net income of $11.1 million, or $0.12 per diluted share, for the same period in 2020.
Segment Sales and Income from Operations
|
|
Three Months Ended |
|
|
|
|
|
|||||
|
|
September 30, 2021 |
|
|
September 30, 2020 |
|
|
Change |
|
|||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Selected data |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
180,496 |
|
|
$ |
166,662 |
|
|
$ |
13,834 |
|
Europe |
|
|
130,284 |
|
|
|
150,441 |
|
|
|
(20,157 |
) |
Total net sales |
|
$ |
310,780 |
|
|
$ |
317,103 |
|
|
$ |
(6,323 |
) |
Income (loss) from operations |
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
12,581 |
|
|
$ |
16,113 |
|
|
$ |
(3,532 |
) |
Europe |
|
|
(5,207 |
) |
|
|
3,125 |
|
|
|
(8,332 |
) |
Total income (loss) from operations |
|
$ |
7,374 |
|
|
$ |
19,238 |
|
|
$ |
(11,864 |
) |
North America
Net sales for our North American segment for the third quarter of 2021 increased 8.3 percent, compared to the same period in 2020 predominantly due to higher aluminum prices and stronger product mix, which was partially offset by a 17.6 percent decrease in unit volumes. For the third quarter of 2021, North American sales were almost exclusively from Mexico, which compares to U.S. sales of 3.1 percent and Mexico sales of 96.9 percent for the same period of the prior year. The change in North American sales by country is due to discontinuation of manufacturing activities at our Fayetteville, Arkansas location. North American segment income (loss) from operations for the third quarter of 2021 was lower than the same period of the prior year, principally due to lower volumes resulting from the global semiconductor shortage and certain production inefficiencies caused by OEM production volatility, partially offset by favorable product mix.
Europe
Net sales for our European segment for the third quarter of 2021 decreased 13.4 percent, compared to the same period in 2020 predominantly due to a 22.3 percent decrease in unit volumes, partially offset by higher aluminum pricing and stronger product mix.
31
European segment sales in Germany and Poland were 33.1 percent and 66.9 percent, respectively, for the third quarter of 2021, which compares to 38.8 percent and 61.2 percent for the same period of the prior year. European segment income from operations for the third quarter of 2021 was lower than the same period of the prior year, principally due to lower volumes resulting from the global semiconductor shortage and certain production inefficiencies caused by OEM production volatility.
Overview of the First Nine Months of 2021
The following chart shows the operational performance in the nine months ended September 30, 2021 in comparison to the nine months ended September 30, 2020 ($ in millions):
32
Results of Operations
|
|
Nine Months Ended |
|
|
|
|
|
|||||
|
|
September 30, 2021 |
|
|
September 30, 2020 |
|
|
Net Change |
|
|||
(Dollars in thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
549,457 |
|
|
$ |
381,129 |
|
|
$ |
168,328 |
|
Europe |
|
|
466,983 |
|
|
|
381,921 |
|
|
|
85,062 |
|
Net sales |
|
|
1,016,440 |
|
|
|
763,050 |
|
|
|
253,390 |
|
Cost of sales |
|
|
922,637 |
|
|
|
730,762 |
|
|
|
191,875 |
|
Gross profit |
|
|
93,803 |
|
|
|
32,288 |
|
|
|
61,515 |
|
Percentage of net sales |
|
|
9.2 |
% |
|
|
4.2 |
% |
|
|
5.0 |
% |
Selling, general and administrative |
|
|
45,190 |
|
|
|
36,541 |
|
|
|
(8,649 |
) |
Impairment of goodwill and indefinite-lived intangibles |
|
|
— |
|
|
|
193,641 |
|
|
|
193,641 |
|
Income (loss) from operations |
|
|
48,613 |
|
|
|
(197,894 |
) |
|
|
246,507 |
|
Percentage of net sales |
|
|
4.8 |
% |
|
|
(25.9 |
)% |
|
|
30.7 |
% |
Interest expense, net |
|
|
(31,378 |
) |
|
|
(34,448 |
) |
|
|
3,070 |
|
Other expense, net |
|
|
(6,028 |
) |
|
|
(923 |
) |
|
|
(5,105 |
) |
Income tax (provision) benefit |
|
|
(3,570 |
) |
|
|
11,111 |
|
|
|
(14,681 |
) |
Net income (loss) |
|
$ |
7,637 |
|
|
$ |
(222,154 |
) |
|
$ |
229,791 |
|
Percentage of net sales |
|
|
0.8 |
% |
|
|
(29.1 |
)% |
|
|
29.9 |
% |
Diluted loss per share |
|
$ |
(0.69 |
) |
|
$ |
(9.66 |
) |
|
$ |
8.97 |
|
Value added sales (1) |
|
$ |
564,931 |
|
|
$ |
446,844 |
|
|
$ |
118,087 |
|
Adjusted EBITDA (2) |
|
$ |
129,345 |
|
|
$ |
82,557 |
|
|
$ |
46,788 |
|
Percentage of net sales |
|
|
12.7 |
% |
|
|
10.8 |
% |
|
|
1.9 |
% |
Percentage of value added sales |
|
|
22.9 |
% |
|
|
18.5 |
% |
|
|
4.4 |
% |
Unit shipments in thousands |
|
|
12,193 |
|
|
|
10,737 |
|
|
|
1,456 |
|
|
(1) |
Value added sales is a key measure that is not calculated according to U.S. GAAP. Refer to “Non-U.S. GAAP Financial Measures” for a definition of value added sales and a reconciliation of value added sales to net sales, the most comparable U.S. GAAP measure. |
|
(2) |
Adjusted EBITDA is a key measure that is not calculated according to U.S. GAAP. Refer to “Non-U.S. GAAP Financial Measures” for a definition of adjusted EBITDA and a reconciliation of our adjusted EBITDA to net income, the most comparable U.S. GAAP measure. |
Shipments
Wheel unit shipments were 12.2 million for the first nine months of 2021 compared to unit shipments of 10.7 million in the prior year period, an increase of 13.6 percent. The increase was attributable to higher volumes in North America and Europe primarily driven by the 2020 production shutdowns at our key OEM customers in response to the COVID-19 pandemic.
Net Sales
Net sales for the first nine months of 2021 were $1,016.4 million, compared to net sales of $763.1 million for the same period in 2020. The increase in net sales was primarily driven by higher production volumes in North America and Europe due to the 2020 production shutdowns at our key OEM customers in response to the COVID-19 pandemic, as well as favorable product mix, higher aluminum prices and favorable Euro foreign exchange.
Cost of Sales
Cost of sales were $922.6 million for the first nine months of 2021 compared to cost of sales of $730.8 million for the same period in 2020. The increase in cost of sales was primarily due to higher production volumes in North America and Europe driven by the 2020 production shutdowns at our key OEM customers in response to the COVID-19 pandemic, favorable mix, higher aluminum prices and reduced prior period manufacturing costs resulting from our production shutdowns in response to the onset of the pandemic.
33
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses for the first nine months of 2021 were $45.2 million, compared to SG&A expense of $36.5 million for same period in 2020. The increase in SG&A expenses is due to lower prior period compensation and benefit expense resulting from cost savings actions taken in response to the COVID-19 OEM and Superior production shutdowns and 2021 compensation expense returning to more normalized levels, partially offset by a $4.4 million gain recognized on the sale of our Fayetteville, Arkansas facility in 2021.
Impairment of Goodwill and Indefinite-lived Intangibles
During the first nine months of 2020, we recognized a goodwill and indefinite-lived intangible asset impairment charge totaling $193.6 million relating to our European reporting unit (refer to Note 8, “Goodwill and Other Intangible Assets” in the notes to the condensed consolidated financial statements).
Net Interest Expense
Net interest expense for the first nine months of 2021 was $31.4 million compared to net interest expense of $34.4 million for same period in 2020. The decrease was primarily due to borrowings under our revolving lines of credit during 2020 and lower 2021 interest rates on the Term Loan Facility.
Other Income (Expense)
Other expense was $6.0 million for the first nine months of 2021 compared to $0.9 million for same period in 2020. The 2021 expense was primarily attributable to the increase in the preferred stock embedded derivative liability due to the increase in the Company’s stock price and costs associated with a flood at our Werdohl, Germany facility while the prior period expense was primarily driven by foreign exchange losses.
Income Tax (Provision) Benefit
The income tax provision for the nine months ended September 30, 2021 was $3.6 million on a pre-tax income of $11.2 million, representing an effective rate of 31.9 percent. The effective income tax rate for the nine months ended September 30, 2021 differs from the statutory rate primarily due to U.S. valuation allowances and the mix of earnings among tax jurisdictions, partially offset by a favorable adjustment to a tax credit and the reversal of an uncertain tax position. The income tax benefit for the nine months ended September 30, 2020 was $11.1 million on a pre-tax loss of $233.3 million, representing an effective rate of 4.8 percent. This differed from the statutory rate due to the impairment of goodwill for which there is no corresponding tax benefit, the mix of earnings among tax jurisdictions, and recognition of a valuation allowance on non-deductible interest.
Net Income (Loss)
Net income for the first nine months of 2021 was $7.6 million, or a loss of $0.69 per diluted share, compared to a net loss of $222.2 million, or a loss of $9.66 per diluted share, for the same period in 2020.
Segment Sales and Income from Operations
|
|
Nine Months Ended |
|
|
|
|
|
|||||
|
|
September 30, 2021 |
|
|
September 30, 2020 |
|
|
Change |
|
|||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Selected data |
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
549,457 |
|
|
$ |
381,129 |
|
|
$ |
168,328 |
|
Europe |
|
|
466,983 |
|
|
|
381,921 |
|
|
|
85,062 |
|
Total net sales |
|
$ |
1,016,440 |
|
|
$ |
763,050 |
|
|
$ |
253,390 |
|
Income (loss) from operations |
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
37,964 |
|
|
$ |
2,430 |
|
|
$ |
35,534 |
|
Europe |
|
|
10,649 |
|
|
|
(200,324 |
) |
|
|
210,973 |
|
Total income (loss) from operations |
|
$ |
48,613 |
|
|
$ |
(197,894 |
) |
|
$ |
246,507 |
|
34
North America
Net sales for our North American segment for the first nine months of 2021 increased 44.2 percent, compared to the same period in 2020, due to a 19.7 percent increase in volumes related to the 2020 production shutdowns at our key customers, favorable product mix and higher aluminum prices. For the first nine months of 2021, North American sales were almost exclusively shipped from Mexico, which compares to U.S. sales of 6.5 percent and Mexico sales of 93.5 percent for the prior year period. The change in North American sales by country is due to discontinuing manufacturing activities at our Fayetteville, Arkansas location in the fourth quarter of 2019. North American segment income from operations for the first nine months of 2021 was higher than the prior year period, principally due to higher volumes, favorable product mix and improved manufacturing performance, partially offset by increased compensation expense.
Europe
Net sales for our European segment for the first nine months of 2021 increased 22.3 percent, compared to the same period in 2020, due to a 7.2 percent increase in volumes related to the 2020 production shutdowns at our key customers, favorable product mix, higher aluminum prices and favorable foreign exchange. European segment sales for Germany and Poland were 35.7 percent and 64.3 percent, respectively, during the first nine months of 2021, which compares to 37.2 percent and 62.8 percent for the first nine months of 2020. European segment income from operations for the first nine months of 2021 was higher than the prior year period principally due to the 2020 goodwill and indefinite-lived intangible asset impairment charge, as well as improved manufacturing performance associated with higher production volumes, favorable product mix and favorable foreign exchange.
Financial Condition, Liquidity and Capital Resources
As of September 30, 2021, our cash and cash equivalents totaled $76.1 million compared to $111.1 million and $152.4 million at September 30, 2020 and December 31, 2020, respectively. Our sources of liquidity primarily include cash and cash equivalents, cash provided by operating activities, borrowings under available debt facilities, factoring arrangements for trade receivables and, from time to time, other external sources of funds. Working capital (current assets minus current liabilities) and our current ratio (current assets divided by current liabilities) were $175.3 million and 1.7:1.0, respectively, at September 30, 2021, versus $152.5 million and 1.7:1.0 at December 31, 2020. While the Company continues to tightly manage all elements of working capital, inventories have increased in 2021 not only due to rising raw material prices, but also the volatility in customer orders arising from customer supply chain constraints.
Our working capital requirements, investing activities and cash dividend payments have historically been funded from internally generated funds, debt facilities, cash and cash equivalents, and we believe these sources will continue to meet our future requirements. Capital expenditures relate to improving production quality and efficiency and extending the useful lives of existing property and expenditures for new product offerings, as well as expanded capacity for existing products.
In connection with the acquisition of our European operations, we entered into several debt and equity financing arrangements during 2017. On March 22, 2017, we entered into a USD Senior Secured Credit facility (“USD SSCF”) consisting of a $400.0 million Senior Secured Term Loan Facility (“Term Loan Facility”) and a $160.0 million Revolving Credit Facility (“Revolving Credit Facility”). On May 22, 2017, we issued 150,000 shares of redeemable preferred stock for an aggregate purchase price of $150.0 million. On June 15, 2017, we issued €250.0 million aggregate principal amount of 6.00 percent Senior Notes due June 15, 2025 (“the Notes”). Finally, as part of the European business acquisition, we also assumed $70.7 million of outstanding debt, including a €30.0 million European Revolving Credit Facility (“EUR SSCF”) (subsequently increased to €60.0 million on January 31, 2020). In addition, the European business entered into equipment loan agreements totaling $13.4 million (€12.0 million) in the fourth quarter of 2019. The Company drew down €10.6 million on these equipment loans in the first quarter of 2020 and drew the remaining €1.4 million in the first quarter of 2021. With the onset of the COVID-19 pandemic and the ensuing economic uncertainty, the Company drew down on its USD SSCF and EUR SSCF revolving credit facilities to provide additional liquidity. As of March 31, 2020, the Company had borrowings outstanding under these facilities of $207.9 million. The Company resumed all its operations by June of 2020 and repaid the borrowings under the revolving credit facilities by September 30, 2020.
As part of our ongoing efforts to improve our cash flow and related liquidity, we negotiate with suppliers to optimize our terms and conditions, including extended payment terms. Beginning in 2021, the Company receives extended payment terms for a portion of our purchases with one of our principal aluminum suppliers in exchange for a nominal adjustment to the product pricing. The payment terms provided to us are consistent with aluminum industry norms, as well as those offered to the supplier’s other customers. The supplier intends to finance these extended terms by factoring receivables due from us with a financial institution. We are not a party to the supplier’s factoring agreement with the financial institution. We remit payments directly to our supplier, except with respect to product purchased under extended terms which have been factored by the supplier. These payments are remitted directly to the financial institution in accordance with the payment terms originally negotiated with our supplier. As of September 30, 2021, the
35
Company owed $20.8 million to the financial institution which is included in accounts payable in the Company’s condensed consolidated balance sheets. The Company made $47.8 million in payments to the financial institution pursuant to the supplier’s factoring arrangement for the nine months ended September 30, 2021. These payments are included in cash flows from operations within the condensed consolidated statements of cash flows.
Balances outstanding under the Term Loan Facility, Notes and equipment loans as of September 30, 2021 were $349.2 million, $251.7 million and $20.3 million, respectively. The redeemable preferred stock amounted to $194.6 million as of September 30, 2021. Our liquidity totaled $272.9 million at September 30, 2021, including cash on hand of $76.1 million and available unused commitments under credit facilities of $196.8 million.
On May 3, 2021, the Company extended the term of the Revolving Credit Facility under its USD SSCF. The commitment under the facility was reduced from $160.0 million to $132.5 million, with $25.0 million of the commitment maturing May 23, 2022 and the remaining $107.5 million maturing October 31, 2023. During the second quarter of 2021, the Company amended its European Revolving Credit Facility (“EUR SSCF”), extending the term to May 22, 2023 and increasing the applicable margins and commitment fees, while maintaining the €60.0 million commitment.
The following table summarizes the cash flows from operating, investing and financing activities as reflected in the condensed consolidated statements of cash flows.
|
|
Nine Months Ended |
|
|
|||||
|
|
September 30, 2021 |
|
|
September 30, 2020 |
|
|
||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
|
(14,578 |
) |
|
|
92,511 |
|
|
Net cash used in investing activities |
|
|
(40,982 |
) |
|
|
(32,733 |
) |
|
Net cash used in financing activities |
|
|
(18,875 |
) |
|
|
(32,111 |
) |
|
Effect of exchange rate changes on cash |
|
|
(1,871 |
) |
|
|
5,537 |
|
|
Net (decrease) increase in cash and cash equivalents |
|
$ |
(76,306 |
) |
|
$ |
33,204 |
|
|
Operating Activities
Net cash used in operating activities was $14.6 million for the first nine months of 2021 compared to net cash provided by operating activities of $92.5 million for the same period in 2020. The decrease in cash flow provided by operating activities was primarily driven by increased receivables and inventory of $45.2 million and $60.0 million, respectively, partially offset by increased profitability. The increase in receivables and inventories was due to higher production levels, increases in aluminum prices and higher inventory levels due to customer order volatility resulting from the global semiconductor supply shortage.
Investing Activities
Net cash used in investing activities was $41.0 million for the first nine months of 2021 compared to $32.7 million for the same period in 2020. The increase in cash used in investing activities is driven by resumption of certain capital projects that were suspended in 2020 due to COVID-19 production shutdowns and ongoing investments to support increased production capabilities in both regions, partially offset by proceeds from the sale of our Fayetteville, Arkansas facility.
Financing Activities
Net cash used in financing activities was $18.9 million for the first nine months of 2021 compared to net cash used in financing activities of $32.1 million for the same period in 2020. This change was primarily due to prepayments on the Term Loan in the first nine months of 2020 that did not occur in 2021.
Off-Balance Sheet Arrangements
As of September 30, 2021, we had no significant off-balance sheet arrangements other than factoring of $95.1 million of our trade receivables.
36
Non-GAAP Financial Measures
In this quarterly report, we discuss two financial measures that are not calculated according to U.S. GAAP, value added sales and adjusted EBITDA.
In the discussion of operating results, we provide information regarding value added sales. Value added sales represents net sales less the value of aluminum and services provided by outsourced service providers (“OSP”) that are included in net sales. Our presentation of value added sales is intended to allow users of the financial statements to consider our net sales information both with and without the aluminum and OSP cost components. Management utilizes value added sales as a key metric to determine growth of the Company because it eliminates the volatility of aluminum prices.
Adjusted EBITDA is defined as earnings before interest income and expense, income taxes, depreciation, amortization, restructuring charges and other closure costs and impairments of long-lived assets and investments, changes in fair value of redeemable preferred stock embedded derivative, acquisition and integration and other related costs, certain hiring and separation related costs, proxy contest fees, gains associated with early debt extinguishment and accounts receivable factoring fees. We use adjusted EBITDA as an important indicator of the operating performance of our business. Adjusted EBITDA is used in our internal forecasts and models when establishing internal operating budgets, supplementing the financial results and forecasts reported to our Board of Directors and evaluating short-term and long-term operating trends in our operations. We believe the adjusted EBITDA financial measure assists in providing a more complete understanding of our underlying operational measures to manage our business, to evaluate our performance compared to prior periods and the marketplace and to establish operational goals. Adjusted EBITDA is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with U.S. GAAP. This non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other companies.
The following table reconciles our net sales, the most directly comparable U.S. GAAP financial measure, to our value added sales:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, 2021 |
|
|
September 30, 2020 |
|
|
September 30, 2021 |
|
|
September 30, 2020 |
|
||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
310,780 |
|
|
$ |
317,103 |
|
|
$ |
1,016,440 |
|
|
$ |
763,050 |
|
Less: aluminum value and outside service provider costs |
|
|
(148,582 |
) |
|
|
(124,634 |
) |
|
|
(451,509 |
) |
|
|
(316,206 |
) |
Value added sales |
|
$ |
162,198 |
|
|
$ |
192,469 |
|
|
$ |
564,931 |
|
|
$ |
446,844 |
|
The following table reconciles our net income, the most directly comparable U.S. GAAP financial measure, to our adjusted EBITDA:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, 2021 |
|
|
September 30, 2020 |
|
|
September 30, 2021 |
|
|
September 30, 2020 |
|
||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(7,180 |
) |
|
$ |
11,146 |
|
|
$ |
7,637 |
|
|
$ |
(222,154 |
) |
Interest expense, net |
|
|
10,619 |
|
|
|
10,414 |
|
|
|
31,378 |
|
|
|
34,448 |
|
Income tax provision (benefit) |
|
|
1,841 |
|
|
|
(3,898 |
) |
|
|
3,570 |
|
|
|
(11,111 |
) |
Depreciation |
|
|
17,965 |
|
|
|
18,315 |
|
|
|
55,520 |
|
|
|
54,367 |
|
Amortization |
|
|
6,511 |
|
|
|
6,503 |
|
|
|
19,926 |
|
|
|
18,767 |
|
Impairment of goodwill and indefinite-lived intangibles |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
193,641 |
|
Integration, restructuring, factoring fees and other (1)(2)(3)(4) |
|
|
21 |
|
|
|
4,243 |
|
|
|
7,854 |
|
|
|
14,599 |
|
Change in fair value of redeemable preferred stock embedded derivative liability (5) |
|
|
— |
|
|
|
— |
|
|
|
3,460 |
|
|
|
— |
|
Adjusted EBITDA |
|
$ |
29,777 |
|
|
$ |
46,723 |
|
|
$ |
129,345 |
|
|
$ |
82,557 |
|
Adjusted EBITDA as a percentage of net sales |
|
|
9.6 |
% |
|
|
14.7 |
% |
|
|
12.7 |
% |
|
|
10.8 |
% |
Adjusted EBITDA as a percentage of value added sales |
|
|
18.4 |
% |
|
|
24.3 |
% |
|
|
22.9 |
% |
|
|
18.5 |
% |
|
(1) |
In the third quarter of 2021, we incurred $1.6 million of restructuring costs comprised of ongoing fixed costs associated with our Fayetteville, Arkansas facility, relocation and installation costs of repurposed machinery and costs of site preparation activities which occurred as part of the sale of the facility. Additionally, in the third quarter we recognized a gain on sale of $4.4 million related to the sale of the Fayetteville, Arkansas facility. We also incurred $1.5 million of costs from a flood at our Werdohl, Germany facility, $0.7 million of certain hiring and separation costs, $0.5 million of accounts receivable factoring fees and $0.1 million of other costs. |
37
|
(2) |
In the first nine months of 2021, we incurred $4.7 million of restructuring costs comprised of ongoing fixed costs associated with our Fayetteville, Arkansas facility, relocation and installation costs of repurposed machinery and costs of site preparation activities which occurred as part of the sale of the facility. Additionally, we recognized a gain on sale of $4.4 million related to the sale of the Fayetteville, Arkansas facility. We also incurred $1.5 million of costs from a flood at our Werdohl, Germany facility, $3.8 million of certain hiring and separation costs, $1.5 million of accounts receivable factoring fees, and $0.8 million of other costs. |
|
(3) |
In the third quarter of 2020, we incurred $2.7 million of restructuring costs primarily comprised of ongoing fixed costs associated with our Fayetteville, Arkansas facility, relocation and installation costs of repurposed machinery and severance costs. Additionally, in the third quarter of 2020, we incurred $0.4 million of restructuring costs related to discontinuing the manufacturing and sale of high-performance wheels for the automotive racing market segment, $0.4 million of accounts receivables factoring fees, $0.3 million of certain hiring costs and $0.4 million of other costs. |
|
(4) |
In the first nine months of 2020, we incurred $8.4 million of restructuring costs primarily comprised of ongoing fixed costs associated with our Fayetteville, Arkansas facility and relocation and installation costs of repurposed machinery. Additionally, we incurred $3.9 million of restructuring costs in connection with exiting the automotive racing market segment, as well as $1.0 million of certain hiring and separation costs, $0.8 million of accounts receivable factoring fees, $0.2 million of certain asset impairments, and $0.3 million of other costs. |
|
(5) |
The change in the fair value is mainly driven by the change in our stock price during the respective periods. |
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to apply significant judgment in making estimates and assumptions that affect amounts reported therein, as well as financial information included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. These estimates and assumptions, which are based upon historical experience, industry trends, terms of various past and present agreements and contracts, and information available from other sources that are believed to be reasonable under the circumstances, form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent through other sources. We believe the accounting estimates employed are appropriate and the resulting balances are reasonable; however, due to the inherent uncertainties in developing estimates, actual results could differ from the original estimates, requiring adjustments to these balances in future periods. Critical accounting estimates that affect the condensed consolidated financial statements and the judgments and assumptions used are consistent with those described in the management’s discussion and analysis in our 2020 Form 10-K (refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of our Annual Report on Form 10-K for the year ended December 31, 2020).
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, as defined in Rule 10(f)(1) of Regulation S-K under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), the Company is not required to provide the information required by this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2021. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2021 our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the three months ended September 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
38
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
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, 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. See also under Item 1A, “Risk Factors - We are from time to time subject to litigation, which could adversely impact our financial condition or results of operations” of our Annual Report on Form 10-K for the year ended December 31, 2020.
Item 1A. Risk Factors
We are exposed to certain risks and uncertainties that could have a material adverse impact on our business, results of operations, cash flows or financial condition. There have been no material changes to the Risk Factors described in Part I, Item 1A-Risk Factors in our annual report on Form 10-K for the year ended December 31, 2020, except as otherwise indicated herein. During May 2021, the NYSE notified the Company that, in view of our improved market capitalization which has been well in excess of the required threshold for the preceding six months, we regained compliance with its continued listing standards.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 5. Other Information
Not applicable.
39
Item 6. Exhibits
|
|
|
10.1 |
|
|
|
|
|
31.1 |
|
|
|
|
|
31.2 |
|
|
|
|
|
32.1 |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document **** |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document **** |
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document **** |
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document **** |
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document **** |
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document **** |
|
|
|
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in exhibit 101) **** |
** |
Filed herewith. |
**** |
Submitted electronically with the report. |
40
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
(Registrant)
Date: November 3, 2021 |
/s/ Majdi B. Abulaban |
|
Majdi B. Abulaban President and Chief Executive Officer |
Date: November 3, 2021 |
/s/ C. Timothy Trenary |
|
C. Timothy Trenary Executive Vice President and Chief Financial Officer |
41