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SUP Superior Industries International

Filed: 4 Aug 21, 4:01pm

 

 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

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: 1-6615

 

SUPERIOR INDUSTRIES INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

95-2594729

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

 

 

26600 Telegraph Road, Suite 400

 

Southfield, Michigan

48033

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s Telephone Number, Including Area Code: (248) 352-7300

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

 

Title of Each Class

 

Trading Symbol

 

Name of Each Exchange on Which Registered

Common Stock, $0.01 par value

 

SUP

 

New York Stock Exchange

 

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.    Yes      No  

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).    Yes      No  

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

Accelerated Filer

 

Non-Accelerated Filer

Smaller Reporting Company

 

 

Emerging Growth Company

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      No  

Number of shares of common stock outstanding as of July 30, 2021: 26,107,462

 

 


 

 

TABLE OF CONTENTS

 

 

 

 

 

 

Page

PART I

-

FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

 

Item 1

 

Financial Statements (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income (Loss)

1

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss)

2

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets

3

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

4

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Shareholders’ Equity (Deficit)

5

 

 

 

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

 

 

 

 

 

Item 2

-

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

 

 

 

 

 

 

 

 

Item 3

-

Quantitative and Qualitative Disclosures About Market Risk

37

 

 

 

 

 

 

 

 

Item 4

-

Controls and Procedures

37

 

 

 

 

PART II

-

OTHER INFORMATION

38

 

 

 

 

 

 

 

 

Item 1

-

Legal Proceedings

38

 

 

 

 

 

 

 

 

Item 1A

-

Risk Factors

38

 

 

 

 

 

 

 

 

Item 2

-

Unregistered Sales of Equity Securities and Use of Proceeds

38

 

 

 

 

 

 

 

 

Item 5

-

Other Information

38

 

 

 

 

 

 

 

 

Item 6

-

Exhibits

39

 

 

 

 

 

 

Signatures

40

 

 


 

 

 

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)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

2021

 

 

June 30,

2020

 

 

June 30,

2021

 

 

June 30,

2020

 

NET SALES

 

$

347,464

 

 

$

144,835

 

 

$

705,660

 

 

$

445,947

 

Cost of sales

 

 

314,844

 

 

 

167,676

 

 

 

630,000

 

 

 

445,627

 

GROSS PROFIT (LOSS)

 

 

32,620

 

 

 

(22,841

)

 

 

75,660

 

 

 

320

 

Selling, general and administrative expenses

 

 

17,100

 

 

 

11,276

 

 

 

34,421

 

 

 

23,811

 

Impairment of goodwill and indefinite-lived intangibles

 

 

 

 

 

 

 

 

 

 

 

193,641

 

INCOME (LOSS) FROM OPERATIONS

 

 

15,520

 

 

 

(34,117

)

 

 

41,239

 

 

 

(217,132

)

Interest expense, net

 

 

(10,486

)

 

 

(12,184

)

 

 

(20,759

)

 

 

(24,034

)

Other (expense) income, net

 

 

(2,420

)

 

 

(670

)

 

 

(3,934

)

 

 

653

 

INCOME (LOSS) BEFORE INCOME TAXES

 

 

2,614

 

 

 

(46,971

)

 

 

16,546

 

 

 

(240,513

)

Income tax (provision) benefit

 

 

(919

)

 

 

3,753

 

 

 

(1,729

)

 

 

7,213

 

NET INCOME (LOSS)

 

$

1,695

 

 

$

(43,218

)

 

$

14,817

 

 

$

(233,300

)

LOSS PER SHARE – BASIC

 

$

(0.26

)

 

$

(2.00

)

 

$

(0.07

)

 

$

(9.81

)

LOSS PER SHARE – DILUTED

 

$

(0.26

)

 

$

(2.00

)

 

$

(0.07

)

 

$

(9.81

)

 

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)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

2021

 

 

June 30,

2020

 

 

June 30,

2021

 

 

June 30,

2020

 

Net income (loss)

 

$

1,695

 

 

$

(43,218

)

 

$

14,817

 

 

$

(233,300

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss)

 

 

8,410

 

 

 

9,443

 

 

 

(7,268

)

 

 

(26,090

)

Change in unrecognized gains (losses) on derivative instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of derivatives

 

 

17,165

 

 

 

19,673

 

 

 

8,025

 

 

 

(38,752

)

Tax (provision) benefit

 

 

(1,718

)

 

 

(4,375

)

 

 

(1,040

)

 

 

8,753

 

Change in unrecognized gains (losses) on derivative instruments, net of tax

 

 

15,447

 

 

 

15,298

 

 

 

6,985

 

 

 

(29,999

)

Defined benefit pension plan:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial gains on pension obligation, net of amortization

 

 

97

 

 

 

72

 

 

 

194

 

 

 

144

 

Tax benefit (provision)

 

 

21

 

 

 

(13

)

 

 

 

 

 

(30

)

Pension changes, net of tax

 

 

118

 

 

 

59

 

 

 

194

 

 

 

114

 

Other comprehensive income (loss), net of tax

 

 

23,975

 

 

 

24,800

 

 

 

(89

)

 

 

(55,975

)

Comprehensive income (loss)

 

$

25,670

 

 

$

(18,418

)

 

$

14,728

 

 

$

(289,275

)

 

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)

 

 

 

June 30,

2021

 

 

December 31,

2020

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

149,171

 

 

$

152,423

 

Accounts receivable, net

 

 

85,065

 

 

 

48,995

 

Inventories, net

 

 

197,990

 

 

 

154,980

 

Income taxes receivable

 

 

5,334

 

 

 

4,957

 

Other current assets

 

 

24,586

 

 

 

22,301

 

Total current assets

 

 

462,146

 

 

 

383,656

 

Property, plant and equipment, net

 

 

503,086

 

 

 

522,124

 

Deferred income tax assets, net

 

 

27,940

 

 

 

30,860

 

Goodwill

 

 

 

 

 

 

Intangibles, net

 

 

93,942

 

 

 

110,796

 

Other non-current assets

 

 

61,241

 

 

 

61,889

 

Total assets

 

$

1,148,355

 

 

$

1,109,325

 

LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

190,386

 

 

$

151,839

 

Short-term debt

 

 

6,545

 

 

 

6,112

 

Accrued expenses

 

 

75,567

 

 

 

71,079

 

Income taxes payable

 

 

1,408

 

 

 

2,107

 

Total current liabilities

 

 

273,906

 

 

 

231,137

 

Long-term debt (less current portion)

 

 

617,212

 

 

 

625,492

 

Non-current income tax liabilities

 

 

7,682

 

 

 

7,635

 

Deferred income tax liabilities, net

 

 

4,680

 

 

 

9,104

 

Other non-current liabilities

 

 

74,476

 

 

 

76,426

 

Commitments and contingent liabilities (Note 17)

 

 

 

 

 

 

 

 

Mezzanine equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value

 

 

 

 

 

 

 

 

Authorized - 1,000,000 shares

 

 

 

 

 

 

 

 

Issued and outstanding – 150,000 shares outstanding at

   June 30, 2021 and December 31, 2020

 

 

189,364

 

 

 

179,387

 

European non-controlling redeemable equity

 

 

1,590

 

 

 

1,666

 

Shareholders’ equity (deficit):

 

 

 

 

 

 

 

 

Common stock, $0.01 par value

 

 

 

 

 

 

 

 

Authorized - 100,000,000 shares

 

 

 

 

 

 

 

 

Issued and outstanding – 26,107,462 and 25,591,930 shares at

   June 30, 2021 and December 31, 2020

 

 

98,236

 

 

 

95,247

 

Accumulated other comprehensive loss

 

 

(99,535

)

 

 

(99,446

)

Retained earnings

 

 

(19,256

)

 

 

(17,323

)

Total shareholders’ equity (deficit)

 

 

(20,555

)

 

 

(21,522

)

Total liabilities, mezzanine equity and shareholders’ equity (deficit)

 

$

1,148,355

 

 

$

1,109,325

 

 

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)

 

 

Six Months Ended

 

 

 

June 30,

2021

 

 

June 30,

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

14,817

 

 

$

(233,300

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

50,970

 

 

 

48,316

 

Income tax, non-cash changes

 

 

(2,927

)

 

 

(13,975

)

Impairment of goodwill and indefinite-lived intangibles

 

 

 

 

 

193,641

 

Stock-based compensation

 

 

4,331

 

 

 

210

 

Amortization of debt issuance costs

 

 

2,731

 

 

 

2,261

 

Other non-cash items

 

 

(3,928

)

 

 

(2,456

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(37,231

)

 

 

9,839

 

Inventories

 

 

(46,139

)

 

 

17,053

 

Other assets and liabilities

 

 

15,894

 

 

 

1,186

 

Accounts payable

 

 

34,402

 

 

 

(31,276

)

Income taxes

 

 

(987

)

 

 

1,366

 

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

 

 

31,933

 

 

 

(7,135

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Additions to property, plant, and equipment

 

 

(20,551

)

 

 

(22,761

)

NET CASH USED IN INVESTING ACTIVITIES

 

 

(20,551

)

 

 

(22,761

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from issuance of long-term debt

 

 

1,658

 

 

 

11,690

 

Repayments of debt

 

 

(2,129

)

 

 

(24,066

)

Proceeds from borrowings on revolving credit facility

 

 

 

 

 

213,825

 

Repayments of borrowings on revolving credit facility

 

 

 

 

 

(106,992

)

Cash dividends paid

 

 

(6,736

)

 

 

(6,767

)

Financing costs paid and other

 

 

(4,307

)

 

 

(4,938

)

Payments related to tax withholdings for stock-based compensation

 

 

(1,342

)

 

 

 

Finance lease payments

 

 

(645

)

 

 

(547

)

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

 

 

(13,501

)

 

 

82,205

 

Effect of exchange rate changes on cash

 

 

(1,133

)

 

 

496

 

Net (decrease) increase in cash and cash equivalents

 

 

(3,252

)

 

 

52,805

 

Cash and cash equivalents at the beginning of the period

 

 

152,423

 

 

 

77,927

 

Cash and cash equivalents at the end of the period

 

$

149,171

 

 

$

130,732

 

 

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 six months ended June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 2019

 

 

25,128,158

 

 

$

93,331

 

 

$

9,951

 

 

$

(5,571

)

 

$

(104,458

)

 

$

258,437

 

 

$

251,690

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(233,300

)

 

 

(233,300

)

 

Change in unrecognized gains/losses on

   derivative instruments, net of tax

 

 

 

 

 

 

 

 

(29,999

)

 

 

 

 

 

 

 

 

 

 

 

(29,999

)

 

Change in defined benefit plans, net of taxes

 

 

 

 

 

 

 

 

 

 

 

114

 

 

 

 

 

 

 

 

 

114

 

 

Net foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,090

)

 

 

 

 

 

(26,090

)

 

Common stock issued, net of shares withheld

   for employee taxes

 

 

463,772

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

210

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

210

 

 

Redeemable preferred 9% dividend

    and accretion

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,755

)

 

 

(15,755

)

 

European non-controlling redeemable

    equity dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(46

)

 

 

(46

)

 

BALANCE AT JUNE 30, 2020

 

 

25,591,930

 

 

$

93,541

 

 

$

(20,048

)

 

$

(5,457

)

 

$

(130,548

)

 

$

9,336

 

 

$

(53,176

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 MARCH 31, 2020

 

 

25,474,477

 

 

$

92,678

 

 

$

(35,346

)

 

$

(5,516

)

 

$

(139,991

)

 

$

60,485

 

 

$

(27,690

)

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(43,218

)

 

 

(43,218

)

 

Change in unrecognized gains/losses on

   derivative instruments, net of tax

 

 

 

 

 

 

 

 

15,298

 

 

 

 

 

 

 

 

 

 

 

 

15,298

 

 

Change in defined benefit plans, net of taxes

 

 

 

 

 

 

 

 

 

 

 

59

 

 

 

 

 

 

 

 

 

59

 

 

Net foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,443

 

 

 

 

 

 

9,443

 

 

Common stock issued, net of shares withheld

   for employee taxes

 

 

117,453

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

863

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

863

 

 

Redeemable preferred 9% dividend

    and accretion

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,905

)

 

 

(7,905

)

 

European non-controlling redeemable equity

   dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26

)

 

 

(26

)

 

BALANCE AT JUNE 30, 2020

 

 

25,591,930

 

 

$

93,541

 

 

$

(20,048

)

 

$

(5,457

)

 

$

(130,548

)

 

$

9,336

 

 

$

(53,176

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5


 

 

For the six months ended June 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

 

 

25,591,930

 

 

$

95,247

 

 

$

(1,738

)

 

$

(7,447

)

 

$

(90,261

)

 

$

(17,323

)

 

$

(21,522

)

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,817

 

 

 

14,817

 

 

Change in unrecognized gains/losses on

   derivative instruments, net of tax

 

 

 

 

 

 

 

 

6,985

 

 

 

 

 

 

 

 

 

 

 

 

6,985

 

 

Change in defined benefit plans, net of taxes

 

 

 

 

 

 

 

 

 

 

 

194

 

 

 

 

 

 

 

 

 

194

 

 

Net foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,268

)

 

 

 

 

 

(7,268

)

 

Common stock issued, net of shares withheld

   for employee taxes

 

 

515,532

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

2,989

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,989

 

 

Redeemable preferred 9% dividend

    and accretion

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,712

)

 

 

(16,712

)

 

European non-controlling redeemable

    equity dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(38

)

 

 

(38

)

 

BALANCE AT JUNE 30, 2021

 

 

26,107,462

 

 

$

98,236

 

 

$

5,247

 

 

$

(7,253

)

 

$

(97,529

)

 

$

(19,256

)

 

$

(20,555

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended June 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 MARCH 31, 2021

 

 

25,947,462

 

 

$

95,752

 

 

$

(10,200

)

 

$

(7,371

)

 

$

(105,939

)

 

$

(12,504

)

 

$

(40,262

)

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,695

 

 

 

1,695

 

 

Change in unrecognized gains/losses on

   derivative instruments, net of tax

 

 

 

 

 

 

 

 

15,447

 

 

 

 

 

 

 

 

 

 

 

 

15,447

 

 

Change in defined benefit plans, net of taxes

 

 

 

 

 

 

 

 

 

 

 

118

 

 

 

 

 

 

 

 

 

118

 

 

Net foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,410

 

 

 

 

 

 

8,410

 

 

Common stock issued, net of shares withheld

   for employee taxes

 

 

160,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

2,484

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,484

 

 

Redeemable preferred 9% dividend

    and accretion

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,422

)

 

 

(8,422

)

 

European non-controlling redeemable equity

   dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25

)

 

 

(25

)

 

BALANCE AT JUNE 30, 2021

 

 

26,107,462

 

 

$

98,236

 

 

$

5,247

 

 

$

(7,253

)

 

$

(97,529

)

 

$

(19,256

)

 

$

(20,555

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

June 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 7,700 full-time employees, operating in 8 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 six 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, Subaru, Stellantis, Suzuki, Toyota, VW Group (Volkswagen, Audi, SEAT, Skoda, Porsche, Bentley) and Volvo. We also 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. We have determined that our North American and European operations should be treated as separate reportable segments as further described in Note 5, “Business Segments.”

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 six-month periods ended June 30, 2021 and June 30, 2020, (ii) the condensed consolidated statements of comprehensive income (loss) for the three and six-month periods ended June 30, 2021 and June 30, 2020, (iii) the condensed consolidated balance sheets at June 30, 2021 and December 31, 2020, (iv) the condensed consolidated statements of cash flows for the six-month periods ended June 30, 2021 and June 30, 2020, and (v) the condensed consolidated statements of shareholders’ equity (deficit) for the three and six-month periods ended June 30, 2021 and June 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.

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 $18.3 million and $21.5 million for the six months ended June 30, 2021 and June 30, 2020, respectively. Net cash paid for income taxes was $5.9 million and $5.4 million for the six months ended June 30, 2021 and June 30, 2020, respectively. As of June 30, 2021 and June 30, 2020, $7.8 million and $2.9 million, respectively, of equipment had been purchased but not yet paid and was included in accounts payable in our condensed consolidated balance sheets.

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 (“FASB”) 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 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.

7


 

 

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 six-month periods ended June 30, 2021 and June 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)

 

June 30,

2021

 

 

December 31,

2020

 

 

Change

 

Customer receivables

 

$

77,001

 

 

$

40,785

 

 

$

36,216

 

Contract liabilities—current

 

 

7,376

 

 

 

8,249

 

 

 

(873

)

Contract liabilities—noncurrent

 

 

11,264

 

 

 

13,106

 

 

 

(1,842

)

 

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.

The following tables categorize items measured at fair value as of June 30, 2021 and December 31, 2020:

 

 

 

 

 

 

 

Fair Value Measurement at Reporting Date Using

 

June 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

 

$

12,770

 

 

$

 

 

$

12,770

 

 

$

 

Total

 

$

12,770

 

 

$

 

 

$

12,770

 

 

$

 

Liabilities

 

 

 

 

 

 

 

 

 

.

 

 

 

 

 

Derivative contracts

 

$

10,502

 

 

$

 

 

$

10,502

 

 

$

 

Total

 

$

10,502

 

 

$

 

 

$

10,502

 

 

$

 

8


 

 

 

 

 

 

 

 

 

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

 

$

10,218

 

 

$

 

 

$

10,218

 

 

$

 

Total

 

$

10,218

 

 

$

 

 

$

10,218

 

 

$

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative contracts

 

$

15,259

 

 

$

 

 

$

15,259

 

 

$

 

Total

 

$

15,259

 

 

$

 

 

$

15,259

 

 

$

 

 

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). The estimated fair value, as well as the carrying value, of the Company’s debt instruments are shown below:

 

 

 

June 30,

2021

 

 

December 31,

2020

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

Estimated aggregate fair value

 

$

632,197

 

 

$

624,207

 

Aggregate carrying value (1)

 

 

632,941

 

 

 

643,184

 

 

(1)

Total debt excluding the impact of unamortized debt issuance costs.

 

NOTE 4 - DERIVATIVE FINANCIAL INSTRUMENTS

We use derivatives to partially offset our exposure to foreign currency, interest rate, aluminum and other commodity price risks. We may enter into forward contracts, option contracts, swaps, collars or other derivative instruments to offset some of the risk on expected future cash flows and on certain existing assets and liabilities. However, we may choose not to hedge certain exposures for a variety of reasons including, but not limited to, accounting considerations and the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset the full financial impact resulting from movements in foreign currency exchange rates, interest rates, and aluminum or other commodity prices.

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 48 months.

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. Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in the financial statement line item to which the derivative relates. The Company has derivatives that are designated as hedging instruments, as well as derivatives that do not qualify for designation as hedging instruments.

9


 

The following tables display the fair value of derivatives by balance sheet line item at June 30, 2021 and December 31, 2020:

 

 

 

June 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

 

$

2,642

 

 

$

6,404

 

 

$

456

 

 

$

2,147

 

Foreign exchange forward contracts not

   designated as hedging instruments

 

 

277

 

 

 

 

 

 

1,237

 

 

 

 

Aluminum forward contracts designated as

   hedging instruments

 

 

1,609

 

 

 

 

 

 

 

 

 

 

Natural gas forward contracts designated as

   hedging instruments

 

 

1,509

 

 

 

329

 

 

 

4

 

 

 

 

Interest rate swap contracts designated as hedging

   instruments

 

 

 

 

 

 

 

 

4,754

 

 

 

1,904

 

Total derivative financial instruments

 

$

6,037

 

 

$

6,733

 

 

$

6,451

 

 

$

4,051

 

 

 

 

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

 

$

1,218

 

 

$

6,531

 

 

$

3,435

 

 

$

2,645

 

Foreign exchange forward contracts not

   designated as hedging instruments

 

 

1,167

 

 

 

 

 

 

122

 

 

 

 

Aluminum forward contracts designated as

   hedging instruments

 

 

262

 

 

 

 

 

 

 

 

 

 

Natural gas forward contracts designated as

   hedging instruments

 

 

816

 

 

 

224

 

 

 

22

 

 

 

70

 

Interest rate swap contracts designated as hedging

   instruments

 

 

 

 

 

 

 

 

4,771

 

 

 

4,194

 

Total derivative financial instruments

 

$

3,463

 

 

$

6,755

 

 

$

8,350

 

 

$

6,909

 

 

The following table summarizes the notional amount and estimated fair value of our derivative financial instruments:

 

 

 

June 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

 

$

472,229

 

 

$

6,443

 

 

$

421,253

 

 

$

1,669

 

Foreign exchange forward contracts not designated

   as hedging instruments

 

 

22,243

 

 

 

(960

)

 

 

71,217

 

 

 

1,045

 

Aluminum forward contracts designated as

   hedging instruments

 

 

12,446

 

 

 

1,609

 

 

 

4,068

 

 

 

262

 

Natural gas forward contracts designated as hedging

   instruments

 

 

5,447

 

 

 

1,834

 

 

 

5,523

 

 

 

948

 

Interest rate swap contracts designated as hedging

   instruments

 

 

200,000

 

 

 

(6,658

)

 

 

200,000

 

 

 

(8,965

)

Total derivative financial instruments

 

$

712,365

 

 

$

2,268

 

 

$

702,061

 

 

$

(5,041

)

 

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 six months ended June 30, 2021 and 2020:

 

Three Months Ended June 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

 

$

15,447

 

 

$

758

 

 

$

1,638

 

Total

 

$

15,447

 

 

$

758

 

 

$

1,638

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 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

 

$

6,985

 

 

$

319

 

 

$

(1,266

)

Total

 

$

6,985

 

 

$

319

 

 

$

(1,266

)

 

 

Three Months Ended June 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

 

$

15,298

 

 

$

(3,980

)

 

$

1,692

 

Total

 

$

15,298

 

 

$

(3,980

)

 

$

1,692

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 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

 

$

(29,999

)

 

$

(5,094

)

 

$

(3,747

)

Total

 

$

(29,999

)

 

$

(5,094

)

 

$

(3,747

)

 

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

 

June 30,

2021

 

 

June 30,

2020

 

 

June 30,

2021

 

 

June 30,

2020

 

North America

 

$

176,990

 

 

$

58,916

 

 

$

7,542

 

 

$

(19,792

)

Europe

 

 

170,474

 

 

 

85,919

 

 

 

7,978

 

 

 

(14,325

)

 

 

$

347,464

 

 

$

144,835

 

 

$

15,520

 

 

$

(34,117

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Depreciation and Amortization

 

 

Capital Expenditures

 

Three Months Ended

 

June 30,

2021

 

 

June 30,

2020

 

 

June 30,

2021

 

 

June 30,

2020

 

North America

 

$

9,499

 

 

$

8,420

 

 

$

3,447

 

 

$

5,876

 

Europe

 

 

16,110

 

 

 

15,504

 

 

 

6,625

 

 

 

3,020

 

 

 

$

25,609

 

 

$

23,924

 

 

$

10,072

 

 

$

8,896

 

 

(Dollars in thousands)

 

Net Sales

 

 

Income (loss) from Operations

 

Six Months Ended

 

June 30,

2021

 

 

June 30,

2020

 

 

June 30,

2021

 

 

June 30,

2020

 

North America

 

$

368,961

 

 

$

214,467

 

 

$

25,383

 

 

$

(13,683

)

Europe

 

 

336,699

 

 

 

231,480

 

 

 

15,856

 

 

 

(203,449

)

 

 

$

705,660

 

 

$

445,947

 

 

$

41,239

 

 

$

(217,132

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Depreciation and Amortization

 

 

Capital Expenditures

 

Six Months Ended

 

June 30,

2021

 

 

June 30,

2020

 

 

June 30,

2021

 

 

June 30,

2020

 

North America

 

$

18,720

 

 

$

17,225

 

 

$

8,107

 

 

$

12,436

 

Europe

 

 

32,250

 

 

 

31,091

 

 

 

12,444

 

 

 

10,325

 

 

 

$

50,970

 

 

$

48,316

 

 

$

20,551

 

 

$

22,761

 

 

(Dollars in thousands)

 

Property, Plant and Equipment, net

 

 

Intangible Assets

 

 

 

June 30,

2021

 

 

December 31,

2020

 

 

June 30,

2021

 

 

December 31,

2020

 

North America

 

$

209,016

 

 

$

220,145

 

 

$

 

 

$

 

Europe

 

 

294,070

 

 

 

301,979

 

 

 

93,942

 

 

 

110,796

 

 

 

$

503,086

 

 

$

522,124

 

 

$

93,942

 

 

$

110,796

 

 

(Dollars in thousands)

 

Total Assets

 

 

 

June 30,

2021

 

 

December 31,

2020

 

North America

 

$

494,285

 

 

$

479,873

 

Europe

 

 

654,070

 

 

 

629,452

 

 

 

$

1,148,355

 

 

$

1,109,325

 

 

12


 

 

Geographic information

Net sales and long-lived assets by location are as follows:

 

(Dollars in thousands)

 

Three Months Ended

 

 

Six Months Ended

 

 

 

 

June 30,

2021

 

 

June 30,

2020

 

 

June 30,

2021

 

 

June 30,

2020

 

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

1,549

 

 

$

3,619

 

 

$

2,819

 

 

$

19,796

 

 

Mexico

 

 

175,441

 

 

 

55,297

 

 

 

366,142

 

 

 

194,671

 

 

Germany

 

 

62,511

 

 

 

33,726

 

 

 

123,398

 

 

 

83,764

 

 

Poland

 

 

107,963

 

 

 

52,193

 

 

 

213,301

 

 

 

147,716

 

 

Consolidated net sales

 

$

347,464

 

 

$

144,835

 

 

$

705,660

 

 

$

445,947

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Property, Plant and Equipment, net

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

2021

 

 

December 31,

2020

 

 

U.S.

 

 

 

 

 

 

 

 

 

$

4,343

 

 

$

7,324

 

 

Mexico

 

 

 

 

 

 

 

 

 

 

204,673

 

 

 

212,821

 

 

Germany

 

 

 

 

 

 

 

 

 

 

82,527

 

 

 

82,162

 

 

Poland

 

 

 

 

 

 

 

 

 

 

211,543

 

 

 

219,817

 

 

Property, plant and equipment, net

 

 

 

 

 

 

 

 

 

$

503,086

 

 

$

522,124

 

 

 

NOTE 6 - INVENTORIES

 

 

 

June 30,

2021

 

 

December 31,

2020

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

Raw materials

 

$

48,401

 

 

$

46,712

 

Work in process

 

 

64,054

 

 

 

45,394

 

Finished goods

 

 

85,535

 

 

 

62,874

 

Inventories, net

 

$

197,990

 

 

$

154,980

 

 

Service wheel and supplies inventory included in other non-current assets in the condensed consolidated balance sheets totaled $10.3 million and $12.1 million at June 30, 2021 and December 31, 2020, respectively.

NOTE 7 - PROPERTY, PLANT AND EQUIPMENT

 

 

 

June 30,

2021

 

 

December 31,

2020

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

Land and buildings

 

$

148,579

 

 

$

149,295

 

Machinery and equipment

 

 

873,928

 

 

 

899,764

 

Leasehold improvements and others

 

 

14,296

 

 

 

14,912

 

Construction in progress

 

 

44,983

 

 

 

46,718

 

 

 

 

1,081,786

 

 

 

1,110,689

 

Accumulated depreciation

 

 

(578,700

)

 

 

(588,565

)

Property, plant and equipment, net

 

$

503,086

 

 

$

522,124

 

 

Depreciation expense for the three and six months ended June 30, 2021 was $18.9 million and $37.6 million, respectively.

Depreciation expense for the three and six months ended June 30, 2020 was $17.8 million and $36.1 million, respectively.

 

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 $102.2 million impairment charges to goodwill and indefinite-lived intangibles, (2) lower forecasted 2020 industry production volumes for Western and Central Europe, including those for our primary European customers, due to OEM shutdowns to mitigate COVID-19 spread and subsequent reduced production levels over the remainder of the year, as compared to our prior production forecasts (including estimates used in our 2019 assessment) and (3) the volatility in financial markets that had both increased European interest rates due to rising credit spreads and risk premiums and lowered median European automotive market multiples. Based on the results of our quantitative analysis, we recognized a non-cash goodwill impairment charge equal to the remaining goodwill balance of $182.6 million since the carrying value exceeded the fair value of the European reporting unit by more than the amount of the goodwill balance at March 31, 2020. Additionally, we recognized a non-cash impairment charge of $11.0 million related to our aftermarket trade name indefinite-lived intangible asset which was primarily attributable to a further decline in forecasted aftermarket revenues and a decline in associated profitability. Total impairment charges of $193.6 million were recognized as a separate charge at March 31, 2020 and included in income (loss) from operations.

We utilized both an income and a market approach, weighted 75 percent and 25 percent respectively, to determine the fair value of the European reporting unit as part of our goodwill impairment assessment. The income approach is based on projected debt-free cash flow, which is discounted to the present value using discount factors that consider the timing and risk of cash flows. The discount rate used is the weighted average of an estimated cost of equity and of debt (“weighted average cost of capital”). The weighted average cost of capital is adjusted as necessary to reflect risk associated with the business of the European reporting unit. Financial projections are based on estimated production volumes, product prices and expenses, including raw material cost, wages, energy and other expenses. Other significant assumptions include terminal value cash flow and growth rates, future capital expenditures and changes in future working capital requirements. The market approach is based on the observed ratios of enterprise value to earnings before interest, taxes, depreciation and amortization (EBITDA) of comparable, publicly traded companies. The market approach fair value is determined by multiplying historical and anticipated financial metrics of the European reporting unit by the EBITDA pricing multiples derived from comparable, publicly traded companies. 

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 12.0 percent and a long-term growth rate of 1.5 percent, as compared to 10.0 percent and 2.0 percent, respectively, used in the 2019 assessment. In determining the WACC, management considered the level of risk inherent in the cash flow projections and current market conditions, including the significant increase in credit spreads and systemic market and Company specific risk premiums. The decline in the fair value under the market approach is attributable to the decline in the average EBITDA market multiple (4.9X EBITDA in 2020, 5.7X EBITDA in 2019) and lower forecasted EBITDA, as compared to the 2019 assessment. The use of these unobservable inputs results in classification of the fair value estimate as a Level 3 measurement in the fair value hierarchy. A considerable amount of management judgment and assumptions are required in performing the quantitative impairment test, principally related to determining the fair value of the reporting unit. While the Company believes its judgments and assumptions are reasonable, different assumptions could change the estimated fair value.

14


 

Following is a summary of the Company’s finite-lived and indefinite-lived intangible assets and goodwill as of June 30, 2021 and December 31, 2020.

 

As of June 30, 2021

 

Gross

Carrying

Amount

 

 

Accumulated Impairment

 

 

Accumulated

Amortization

 

 

Currency

Translation

 

 

Net Carrying Amount

 

 

Remaining

Weighted

Average

Amortization

Period

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Brand name

 

$

9,000

 

 

$

 

 

$

(7,577

)

 

$

322

 

 

$

1,745

 

 

1-2

Technology

 

 

15,000

 

 

 

 

 

 

(12,628

)

 

 

537

 

 

 

2,909

 

 

2

Customer relationships

 

 

167,000

 

 

 

 

 

 

(85,132

)

 

 

7,420

 

 

 

89,288

 

 

2-7

Total finite

 

 

191,000

 

 

 

 

 

 

(105,337

)

 

 

8,279

 

 

 

93,942

 

 

 

Trade names

 

 

14,000

 

 

 

(13,772

)

 

 

 

 

 

(228

)

 

 

 

 

Indefinite

Total intangibles

 

$

205,000

 

 

$

(13,772

)

 

$

(105,337

)

 

$

8,051

 

 

$

93,942

 

 

 

 

 

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

 

$

9,000

 

 

$

 

 

$

(6,615

)

 

$

399

 

 

$

2,784

 

 

2-3

Technology

 

 

15,000

 

 

 

 

 

 

(11,024

)

 

 

666

 

 

 

4,642

 

 

1-3

Customer relationships

 

 

167,000

 

 

 

 

 

 

(74,322

)

 

 

10,692

 

 

 

103,370

 

 

3-8

Total finite

 

 

191,000

 

 

 

 

 

 

(91,961

)

 

 

11,757

 

 

 

110,796

 

 

 

Trade names

 

 

14,000

 

 

 

(13,772

)

 

 

 

 

 

(228

)

 

 

 

 

Indefinite

Total intangibles

 

$

205,000

 

 

$

(13,772

)

 

$

(91,961

)

 

$

11,529

 

 

$

110,796

 

 

 

 

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

 

$

284,337

 

 

$

(99,505

)

 

$

184,832

 

 

$

(182,602

)

 

$

(2,230

)

 

$

282,107

 

 

$

(282,107

)

 

$

 

 

Amortization expense for these intangible assets was $6.7 million and $6.1 million for the three months ended June 30, 2021 and 2020, respectively. Amortization expense for the six months ended June 30, 2021 and 2020 was $13.4 million and $12.2 million, respectively. The anticipated annual amortization expense for these intangible assets is $26.5 million for 2021, $23.5 million for 2022 and $21.4 million for 2023 and 2024 and $10.5 million for 2025.

 

NOTE 9 – DEBT

A summary of long-term debt and the related weighted average interest rates is shown below:

 

 

 

June 30, 2021

(Dollars in Thousands)

 

Debt Instrument

 

Total

Debt

 

 

Debt

Issuance

Costs (1)

 

 

Total

Debt, Net

 

 

Weighted

Average

Interest

Rate

 

Term Loan Facility

 

$

349,200

 

 

$

(5,251

)

 

$

343,949

 

 

 

4.1

%

6.00% Senior Notes

 

 

258,224

 

 

 

(3,933

)

 

 

254,291

 

 

 

6.0

%

European CapEx Loans

 

 

22,212

 

 

 

 

 

 

22,212

 

 

 

2.3

%

Finance Leases

 

 

3,305

 

 

 

 

 

 

3,305

 

 

 

2.8

%

 

 

$

632,941

 

 

$

(9,184

)

 

 

623,757

 

 

 

 

 

Less: Current portion

 

 

 

 

 

 

 

 

 

 

(6,545

)

 

 

 

 

Long-term debt

 

 

 

 

 

 

 

 

 

$

617,212

 

 

 

 

 

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

 

$

349,200

 

 

$

(7,155

)

 

$

342,045

 

 

 

4.1

%

6.00% Senior Notes

 

 

266,928

 

 

 

(4,425

)

 

 

262,503

 

 

 

6.0

%

European CapEx Loans

 

 

23,668

 

 

 

 

 

 

23,668

 

 

 

2.3

%

Finance Leases

 

 

3,388

 

 

 

 

 

 

3,388

 

 

 

3.0

%

 

 

$

643,184

 

 

$

(11,580

)

 

 

631,604

 

 

 

 

 

Less: Current portion

 

 

 

 

 

 

 

 

 

 

(6,112

)

 

 

 

 

Long-term debt

 

 

 

 

 

 

 

 

 

$

625,492

 

 

 

 

 

 

 

(1)

Unamortized portion

Senior Notes

On June 15, 2017, the Company issued €250.0 million aggregate principal amount of 6.00 percent Senior Notes (“Notes”) due June 15, 2025. Interest on the Notes is payable semiannually, on June 15 and December 15. The Company may redeem the Notes, in whole or in part, on or after June 15, 2021 at a redemption price of 101.5 percent and on or after June 15, 2022 at a redemption price of 100 percent, in each case plus any accrued and unpaid interest as of the applicable redemption date. If we experience a change of control or sell certain assets, the Company may be required to offer to purchase the Notes from the holders. The Notes are senior unsecured obligations ranking equally in right of payment with all of its existing and future senior indebtedness and senior in right of payment to any subordinated indebtedness. The Notes are effectively subordinated in right of payment to the existing and future secured indebtedness of the Company, including the Senior Secured Credit Facilities (as defined below), to the extent of the assets securing such indebtedness.

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 60 days to comply with  any  obligations, covenants or agreements in the indenture after receipt of written notice from the Bank of New York Mellon, London Branch (“the Trustee”) or holders of at least 30 percent in principal amount of the then outstanding Notes of such failure (other than defaults referred to in the foregoing clause (i)); (iii) default under any mortgage, indenture or instrument for money borrowed by the Company or certain of its subsidiaries, (iv) a failure to pay certain judgments; and (iv) certain events of bankruptcy and insolvency. If an event of default occurs and is continuing, the Trustee or holders of at least 30 percent in principal amount of the then outstanding Notes may declare the principal, premium, if any, and accrued and unpaid interest on all the Notes to be due and payable. These events of default are subject to several important qualifications, limitations and exceptions that are described in the indenture. As of June 30, 2021, the Company was in compliance with all covenants under the indenture governing the Notes.

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 $400.0 million senior secured term loan facility (“Term Loan Facility”), which matures on May 23, 2024, and a $160.0 million revolving credit facility originally maturing on May 23, 2022 (the “Revolving Credit Facility”), together with the Term Loan Facility, the USD Senior Secured Credit Facilities (“USD SSCF”). On May 3, 2021, the Company extended the term of the Revolving Credit Facility under its USD SSCF and reduced the commitment under the facility 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. The extension was treated as a modification of the revolving credit facility and the related debt issuance costs have been recognized as a deferred charge in other non-current assets and are being amortized ratably over the remaining term of the extended facility.

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 0.00 percent per annum, plus an applicable rate of 4.00 percent or (b) a base rate, subject to a floor of 2.00 percent per annum, 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 rate plus 0.50 percent and (3) LIBOR for an interest period of one month plus 1.00 percent, in each case, plus an applicable rate of 3.00  percent.

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 3.50 percent and 3.00 percent, currently 3.25 percent, and base rate applicable rates ranging between 2.50 percent and 2.00 percent, currently 2.25 percent. Commitment fees for the unused commitment under the Revolving Credit Facility are also based upon the First Lien Net Leverage Ratio, effective for the preceding quarter, and range between 0.50 percent and 0.25 percent for the commitment maturing May 23, 2022, currently 0.375 percent, and between 0.625 percent and 0.375 percent for the remaining commitment maturing October 31, 2023, currently 0.50 percent. Commitment fees are included in interest expense.

As of June 30, 2021, the Company had repaid $50.8 million under the Term Loan Facility resulting in a balance of $349.2 million. In addition, the Company had 0 borrowings outstanding under the Revolving Credit Facility, outstanding letters of credit of $4.8 million and available unused commitments under this facility of $127.7 million as of June 30, 2021.

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 65 percent of the capital stock issued by each direct wholly-owned foreign restricted subsidiary of the Company (subject to certain exceptions) and (ii) perfected security interests in and mortgages on substantially all tangible and intangible personal property and material fee-owned real property of the Company and the Subsidiary Guarantors (subject to certain exceptions and exclusions).

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 4.5 to 1.0 as of each fiscal quarter-end.   

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 June 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 $70.7 million of outstanding debt. At June 30, 2021, $8.7 million of the assumed debt remained outstanding. This debt matures March 31, 2024 and is collateralized by financed equipment, guaranteed by Superior and bears interest at 2.2 percent. Covenants under the loan agreement include a default provision for non-payment, as well as a material adverse change default provision pursuant to which the lender could accelerate the loan maturity. As of June 30, 2021, the Company was in compliance with all covenants under the loan agreement.

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 margin and commitment fees, while maintaining the €60.0 million commitment. All other terms of the EUR SSCF remained unchanged. At June 30, 2021, the Company had 0 borrowings outstanding, outstanding letters of credit of $0.5 million (€0.4million) and available unused commitments under this facility of $70.9 million (€59.6 million). The EUR SSCF bears interest at Euribor (with a floor of 0.00 percent) plus a margin (ranging from 2.05 percent to 3.50 percent based on the net debt leverage ratio of Superior Industries Europe AG and its wholly owned subsidiaries, collectively “Superior Europe AG”), currently 2.05 percent. The annual commitment fee for unused commitments (ranging from 0.625 percent to 1.225 percent based on the net debt leverage ratio of Superior Europe AG) is currently 0.625 percent per annum. In addition, a management fee is assessed equal to 0.07 percent of borrowings outstanding at each month end. The commitment fee is included in interest expense. Superior Europe AG has pledged substantially all of its assets, including land and buildings, receivables, inventory, and other moveable assets (other than collateral associated with equipment loans) as collateral under the EUR SSCF.

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 June 30, 2021, Superior Europe AG was in compliance with all covenants under the EUR SSCF.             

 

The balance of certain post-acquisition equipment loans was $13.5 million as of June 30, 2021. The loans bear interest at 2.3 percent, mature September 30, 2027 and require quarterly principal and interest payments. The loans are secured with liens on the financed equipment and are subject to covenants that, among other things, include a material adverse change default provision pursuant to which the lender could accelerate the loan maturity, as well as a provision that restricts the ability of Superior Europe AG to reduce its ownership interest in Superior Industries Production Germany GmbH, its wholly-owned subsidiary and the borrower under the loan. 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. Quarterly installment payments of $0.5 million (€0.4 million) under the loan agreements began in June of 2021. At June 30, 2021, the Company was in compliance with all covenants under the loans.

Debt maturities as of June 30, 2021, which are due in the next five years and thereafter, are as follows:

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

Debt Maturities

 

Amount

 

Six remaining months of 2021

 

$

3,374

 

2022

 

 

6,450

 

2023

 

 

6,031

 

2024

 

 

352,418

 

2025

 

 

260,563

 

Thereafter

 

 

4,105

 

Total debt liabilities

 

$

632,941

 

 

 

NOTE 10 - REDEEMABLE PREFERRED STOCK

 

During 2017, we issued 150,000 shares of Series A (140,202 shares) and Series B (9,798 shares) Perpetual Convertible Preferred Stock, par value $0.01 per share for $150.0 million. On August 30, 2017, the Series B shares were converted into Series A redeemable preferred stock, the “redeemable preferred stock,” after approval by our shareholders. The redeemable preferred stock has an initial stated value of $1,000 per share, par value of $0.01 per share and liquidation preference over common stock.

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 $28.162. The redeemable preferred stock

18


 

accrues dividends at a rate of 9.0 percent per annum, payable at our election either in-kind or in cash and is also entitled to participate in dividends on common stock in an amount equal to that which would have been due had the shares been converted into common stock.

We may mandate conversion of the redeemable preferred stock if the price of the common stock exceeds $84.49. The holder may redeem the shares upon the occurrence of any of the following events (referred to as a “redemption event”): a change in control, recapitalization, merger, sale of substantially all of the Company’s assets, liquidation or delisting of the Company’s common stock. In addition, the holder has the right, at its option, to unconditionally redeem the shares at any time after September 14, 2025. We may, at our option, redeem in whole at any time all of the shares of redeemable preferred stock outstanding. At redemption by either party, the redemption value will be the greater of two times the initial face value ($150.0 million) and any accrued unpaid dividends or dividends paid-in-kind, currently $300.0 million, or the product of the number of common shares into which the redeemable preferred stock could be converted (5.3 million shares currently) and the then current market price of the common stock. We have determined that the conversion option and the redemption option exercisable upon occurrence of a “redemption event” which are embedded in the redeemable preferred stock must be accounted for separately from the redeemable preferred stock as a derivative liability.

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 $150.0 million (the proceeds on the date of issuance) less issuance costs of $3.7 million and $10.9 million assigned to the embedded derivative liability at date of issuance, resulting in an initial value of $135.5 million.

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 June 30, 2021 and December 31, 2020 was $53.9 million and $43.9 million, respectively, resulting in adjusted redeemable preferred stock balances of $189.4 million and $179.4 million, respectively.

NOTE 11 – EUROPEAN NON-CONTROLLING REDEEMABLE EQUITY

On May 30, 2017, the Company acquired 92.3 percent of the outstanding shares of UNIWHEELS AG. Subsequently, the Company commenced a delisting and associated tender offer for the remaining shares. On January 17, 2018, the Company entered into a Domination and Profit and Loss Transfer agreement (“DPLTA”) retroactively effective as of January 1, 2018 pursuant to which we offered to purchase the remaining outstanding shares at €62.18. This price may be subject to change based on appraisal proceedings initiated by the minority shareholders which have not yet been concluded. The Company must also pay an annual dividend of €3.23 as long as the DPLTA is in effect. For any shares tendered prior to the annual dividend payment, we must pay interest at a statutory rate, currently 4.12 percent, in place of the dividend. As a result of purchases pursuant to the tender offer and the DPLTA, the Company has increased its ownership to 99.9 percent as of June 30, 2021. The following table summarizes the European non-controlling redeemable equity activity through the period ended June 30, 2021:

 

(Dollars in thousands)

 

 

 

 

Balance at December 31, 2019

 

$

6,525

 

Dividends accrued

 

 

205

 

Dividends paid

 

 

(46

)

Translation adjustment

 

 

2

 

Purchase of shares

 

 

(5,020

)

Balance at December 31, 2020

 

 

1,666

 

Dividends accrued

 

 

38

 

Dividends paid

 

 

(3

)

Translation adjustment

 

 

(53

)

Purchase of shares

 

 

(58

)

Balance at June 30, 2021

 

$

1,590

 

 

 

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 six months ended June 30, 2021 and 2020.

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

2021

 

 

June 30,

2020

 

 

June 30,

2021

 

 

June 30,

2020

 

(Dollars in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

1,695

 

 

$

(43,218

)

 

$

14,817

 

 

$

(233,300

)

Less: Redeemable preferred stock dividends and accretion

 

 

(8,422

)

 

 

(7,905

)

 

 

(16,712

)

 

 

(15,755

)

Less: European non-controlling redeemable equity dividend

 

 

(25

)

 

 

(26

)

 

 

(38

)

 

 

(46

)

Basic numerator

 

$

(6,752

)

 

$

(51,149

)

 

$

(1,933

)

 

$

(249,101

)

Basic loss per share

 

$

(0.26

)

 

$

(2.00

)

 

$

(0.07

)

 

$

(9.81

)

Weighted average shares outstanding – Basic

 

 

25,974

 

 

 

25,562

 

 

 

25,841

 

 

 

25,403

 

Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

1,695

 

 

$

(43,218

)

 

$

14,817

 

 

$

(233,300

)

Less: Redeemable preferred stock dividends and accretion

 

 

(8,422

)

 

 

(7,905

)

 

 

(16,712

)

 

 

(15,755

)

Less: European non-controlling redeemable equity dividend

 

 

(25

)

 

 

(26

)

 

 

(38

)

 

 

(46

)

Diluted numerator

 

$

(6,752

)

 

$

(51,149

)

 

$

(1,933

)

 

$

(249,101

)

Diluted loss per share

 

$

(0.26

)

 

$

(2.00

)

 

$

(0.07

)

 

$

(9.81

)

Weighted average shares outstanding – Basic

 

 

25,974

 

 

 

25,562

 

 

 

25,841

 

 

 

25,403

 

Dilutive effect of common share equivalents

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – Diluted

 

 

25,974

 

 

 

25,562

 

 

 

25,841

 

 

 

25,403

 

 

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 six months ended June 30, 2021 was $0.9 million and $1.7 million, respectively, on pre-tax income of $2.6 million and $16.5 million, resulting in effective income tax rates of 35.2 percent and 10.4 percent, respectively. The effective income tax rate for the three months ended June 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. The effective income tax rate for the six months ended June 30, 2021 differs from the statutory rate primarily due to a favorable adjustment to a tax credit and the reversal of an uncertain tax position, partially offset by the mix of earnings among tax jurisdictions and U.S. valuation allowances.   

 

The income tax benefit for the three and six months ended June 30, 2020 was $3.8 million and $7.2 million, respectively, on pre-tax losses of $47.0 million and $240.5 million, resulting in effective income tax rates of 8.0 percent and 3.0 percent, respectively. The effective income tax rate for the three months ended June 30, 2020 differed from the statutory rate primarily due to the mix of earnings among tax jurisdictions partially offset by the recognition of a valuation allowance on non-deductible interest. The effective income tax rate for the six months ended June 30, 2020 was lower than the statutory rate primarily due to the mix of earnings among tax jurisdictions and the impairment of goodwill for which there is no corresponding tax benefit, partially offset by the recognition of a valuation allowance on non-deductible interest.

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 one year to eight years. Certain leases include options to extend the lease term for up to ten years, as well as options to terminate which have been excluded from the term of the lease since exercise of these options is not reasonably certain.

21


 

Lease expense and cash flow for the three and six months ended June 30, 2021 and 2020 and operating and finance lease assets and liabilities, average lease term and average discount rate as of June 30, 2021 and December 31, 2020 are as follows:

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

2021

 

 

June 30,

2020

 

 

June 30,

2021

 

 

June 30,

2020

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance lease expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Amortization of right-of-use assets

 

$

350

 

 

$

290

 

 

$

671

 

 

$

644

 

     Interest on lease liabilities

 

 

23

 

 

 

20

 

 

 

45

 

 

 

42

 

Operating lease expense

 

 

791

 

 

 

835

 

 

 

1,648

 

 

 

1,680

 

     Total lease expense

 

$

1,164

 

 

$

1,145

 

 

$

2,364

 

 

$

2,366

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flow Components

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for amounts included in the measurement of lease

     liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Operating cash outflows from finance leases

 

$

23

 

 

$

20

 

 

$

45

 

 

$

42

 

     Operating cash outflows from operating leases

 

 

871

 

 

 

873

 

 

 

1,803

 

 

 

1,764

 

     Financing cash outflows from finance leases

 

 

357

 

 

 

255

 

 

 

645

 

 

 

547

 

Right-of-use assets obtained in exchange for finance lease

     liabilities, net of terminations and disposals

 

 

79

 

 

 

72

 

 

 

835

 

 

 

220

 

Right-of-use assets obtained in exchange for operating lease

     liabilities, net of terminations and disposals

 

 

56

 

 

 

215

 

 

 

208

 

 

 

280

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

2021

 

 

December 31,

2020

 

(Dollars in thousands, except lease term and discount rate)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Other non-current assets

 

 

 

 

 

 

 

 

 

$

12,245

 

 

$

13,598

 

     Accrued liabilities

 

 

 

 

 

 

 

 

 

$

(2,613

)

 

$

(2,868

)

     Other non-current liabilities

 

 

 

 

 

 

 

 

 

 

(10,257

)

 

 

(11,513

)

          Total operating lease liabilities

 

 

 

 

 

 

 

 

 

$

(12,870

)

 

$

(14,381

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finance leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Property, plant and equipment gross

 

 

 

 

 

 

 

 

 

$

6,938

 

 

$

5,735

 

     Accumulated depreciation

 

 

 

 

 

 

 

 

 

 

(3,990

)

 

 

(3,319

)

     Property, plant and equipment, net

 

 

 

 

 

 

 

 

 

$

2,948

 

 

$

2,416

 

     Current portion of long-term debt

 

 

 

 

 

 

 

 

 

$

(1,188

)

 

$

(1,113

)

     Long-term debt (less current portion)

 

 

 

 

 

 

 

 

 

 

(2,117

)

 

 

(2,275

)

          Total finance lease liabilities

 

 

 

 

 

 

 

 

 

$

(3,305

)

 

$

(3,388

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease Term and Discount Rates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average remaining lease term - finance leases (years)

 

 

 

 

 

 

 

 

 

 

3.5

 

 

 

3.9

 

Weighted-average remaining lease term - operating leases (years)

 

 

 

 

 

 

 

 

 

 

5.4

 

 

 

6.1

 

Weighted-average discount rate - finance leases

 

 

 

 

 

 

 

 

 

 

2.8

%

 

 

3.0

%

Weighted-average discount rate - operating leases

 

 

 

 

 

 

 

 

 

 

3.7

%

 

 

3.8

%

22


 

 

Summarized future minimum payments under our leases as of June 30, 2021 are as follows:

 

 

 

 

 

 

Amount

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Lease Maturities

 

 

 

 

 

Finance Leases

 

 

Operating Leases

 

Six remaining months of 2021

 

 

 

 

 

$

696

 

 

$

1,589

 

2022

 

 

 

 

 

 

1,093

 

 

 

2,838

 

2023

 

 

 

 

 

 

675

 

 

 

2,472

 

2024

 

 

 

 

 

 

241

 

 

 

2,228

 

2025

 

 

 

 

 

 

155

 

 

 

2,171

 

Thereafter

 

 

 

 

 

 

605

 

 

 

2,834

 

Total

 

 

 

 

 

 

3,465

 

 

 

14,132

 

Less: Imputed interest

 

 

 

 

 

 

(160

)

 

 

(1,262

)

Total lease liabilities, net of interest

 

 

 

 

 

$

3,305

 

 

$

12,870

 

 

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 65, if retired. The plan was closed to new participants effective February 3, 2011.

For the six months ended June 30, 2021, payments to retirees or their beneficiaries totaled approximately $0.7 million. We presently anticipate benefit payments in 2021 to total approximately $1.4 million. The following table summarizes the components of net periodic pension cost for the three and six months ended June 30, 2021 and 2020.

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

2021

 

 

June 30,

2020

 

 

June 30,

2021

 

 

June 30,

2020

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest cost

 

$

206

 

 

$

251

 

 

$

412

 

 

$

502

 

Net amortization

 

 

97

 

 

 

72

 

 

 

194

 

 

 

144

 

Net periodic pension cost

 

$

303

 

 

$

323

 

 

$

606

 

 

$

646

 

 

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 4.35 million shares of common stock, along with non-qualified stock options, stock appreciation rights, restricted stock and performance units to our officers, key employees, non-employee directors and consultants. In May 2021, the stockholders approved an amendment to the Plan that, among other things, increased the authorized shares by 2 million. At June 30, 2021, there were 1.3 million shares available for future grants under this Plan. It is our policy to issue shares from authorized but not issued shares upon the exercise of stock options.

Under the terms of the Plan, each year eligible participants are granted time value restricted stock units (“RSUs”), vesting ratably over a three-year period, and performance restricted stock units (“PSUs”), with three-year cliff vesting. Upon vesting, each restricted stock award is exchangeable for one share of the Company’s common stock, with accrued dividends.

Restricted stock unit and restricted performance stock unit activity for the six months ended June 30, 2021 is summarized in the following table:

23


 

 

 

 

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

 

 

1,213,667

 

 

$

3.59

 

 

 

2,176,290

 

 

$

4.88

 

 

 

24,000

 

 

$

20.39

 

Granted

 

 

411,291

 

 

 

5.94

 

 

 

653,438

 

 

 

8.41

 

 

 

 

 

 

 

Settled

 

 

(548,504

)

 

 

3.37

 

 

 

(193,778

)

 

 

5.45

 

 

 

 

 

 

 

Forfeited or expired

 

 

(32,525

)

 

 

8.13

 

 

 

(151,369

)

 

 

12.61

 

 

 

(15,000

)

 

 

22.57

 

Balance at June 30, 2021

 

 

1,043,929

 

 

$

4.49

 

 

 

2,484,581

 

 

$

6.67

 

 

 

9,000

 

 

$

16.76

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Awards estimated to vest in the future

 

 

987,615

 

 

$

4.55

 

 

 

2,200,512

 

 

$

6.78

 

 

 

9,000

 

 

$

16.76

 

 

 

Stock-based compensation expense for the three months ended June 30, 2021 and 2020 was $2.5 million and $0.9 million, respectively. Stock-based compensation for the six months ended June 30, 2021 and 2020 was $4.3 million and $0.7 million, respectively. The higher expense for the three and six months ended June 30, 2021 was primarily attributable to the modification of the 2019 and 2020 PSU awards, substituting budgeted amounts for actual performance for the second quarter of 2020 (one of twelve quarters in the respective performance periods), to offset the impact of COVID-19. This increased stock-based compensation for the three and six months ended June 30, 2021 by $1.2 million and $2.3 million, respectively. In addition, 2020 stock-based compensation was lower due to the first quarter 2020 reversal of $1.2 million of previously accrued expense as a result of lower expected performance achievement, in light of the global pandemic. Unrecognized stock-based compensation expense related to non-vested awards of $15.2 million is expected to be recognized over a weighted average period of approximately 1.9 years as of June 30, 2021.

 

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.

 

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 June 30, 2021 and 2020, the Company sold trade receivables totaling $197.3 million and $67.7 million, respectively, and incurred factoring fees of $0.5 million and $0.2 million, respectively. During the six months ended June 30, 2021 and 2020, the Company sold trade receivables totaling $384.0 million and $137.6 million, respectively, and incurred factoring fees of $1.0 million and $0.4 million, respectively. As of June 30, 2021 and December 31, 2020, receivables of $100.1 million and $96.6 million, respectively, had been factored and had not yet been paid by customers to the respective financial institutions. The collective limit under our factoring arrangements as of June 30, 2021 was $129.0 million. The collective limit under our factoring arrangements as of December 31, 2020 was $132.0 million. 

 

24


 

 

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 $3.4 million, including $2.8 million recorded in cost of sales, comprised of $1.3 million relating to write-downs of certain after-market inventory to salvage value, $1.0 million of employee severance costs and $0.5 million in contract terminations and other costs, as well as a $0.6 million non-cash charge recorded in selling, general and administrative expense related to non-production employee severance costs. In addition, during the six-month period ended December 31, 2020, we recognized an additional $0.7 million of severance costs, including charges to costs of sales of $0.4 million and selling, general and administrative expense of $0.3 million. As of June 30, 2021, $0.1 million of the restructuring severance accrual remains.

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 $13.0 million in cost of sales, principally comprised of accelerated depreciation for excess equipment and the write-down of certain supplies inventory to net salvage value. In addition, relocation costs for redeployment of machinery and equipment of $1.8 million were recognized in the fourth quarter of 2019. During 2020, we recognized additional charges to cost of sales of $3.3 million, principally related to relocation costs for redeployment of machinery and equipment. During the three and six months ended June 30, 2021, we recognized additional relocation costs in cost of sales for redeployment of machinery and equipment of $0.7 million and $1.5 million, respectively. As of June 30, 2021, $0.2 million of the restructuring severance accrual remains. On July 15, 2021, the Company consummated the sale of the Fayetteville facility for a net sale price of $7.6 million, including $0.5 million which was deposited to escrow pending satisfactory completion of certain site repairs and remediation. The net sale price will be more than sufficient to recover the carrying value of the facility and the resulting gain will be recognized upon closing and classified as a part of selling, general and administrative expenses.  

NOTE 20 – SUBSEQUENT EVENT

Production at our Werdohl Germany manufacturing site was temporarily halted due to flooding at the plant on July 14, 2021. On July 16th, operations at this facility were restarted, with the exception of a painting line and certain machining cells. We have property and business interruption insurance coverage, each with a deductible of $2.5 million. We are in the process of determining the ultimate cost associated with this event.

 

 

 

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 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 Securities and Exchange Commission.

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 7,700 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 six 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 also 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 six months ended June 30, 2021 and 2020. Our sales to these customers in 2021 and 2020 were as follows:

Three months ended

 

June 30, 2021

 

 

June 30, 2020

 

(Dollars in millions)

 

Percent of

Sales

 

 

Dollars

 

 

Percent of

Sales

 

 

Dollars

 

GM

 

27%

 

 

$

93.4

 

 

18%

 

 

$

27.4

 

VW Group

 

16%

 

 

$

53.8

 

 

19%

 

 

$

28.6

 

Ford

 

10%

 

 

$

30.9

 

 

10%

 

 

$

12.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended

 

June 30, 2021

 

 

June 30, 2020

 

(Dollars in millions)

 

Percent of

Sales

 

 

Dollars

 

 

Percent of

Sales

 

 

Dollars

 

GM

 

27%

 

 

$

187.5

 

 

22%

 

 

$

100.1

 

VW Group

 

15%

 

 

$

108.0

 

 

16%

 

 

$

72.5

 

Ford

 

11%

 

 

$

80.0

 

 

12%

 

 

$

52.3

 

 

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.

 

Based on recent IHS production forecasts, full-year 2021 industry volumes are expected to be up 10.6 percent in our key regions (12.3 percent in North America and 8.9 percent in Western and Central Europe) as compared to 2020, but 13.8 percent lower than 2019 (down 10.4 percent in North America and 16.9 percent in Europe). We are continuing to monitor the recent resurgence of the virus, including the emergence of new virus strains, in certain U.S. states and countries in which we operate, the progress of the vaccination deployment and supply chain shortages affecting the automotive industry (including semiconductors, electric vehicle batteries, shipping containers, steel, resin and foam), as well as the impact of these developments on OEM production plans for the year.

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. In this regard, our research and development team is focused on developing automotive light weighting solutions such as our patented Alulite™ technology which will assist in reducing our customers’ carbon footprint. Superior is committed to reducing natural gas, electricity and water consumption and solid waste and air emissions at all of our facilities globally. We are also collaborating with our suppliers regarding sustainability practices throughout their supply chains.

27


 

Overview of the Second Quarter of 2021

The following charts show the operational performance in the quarter ended June 30, 2021 in comparison to the quarter ended June 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).

 

28


 

 

Results of Operations

 

 

 

Three Months Ended

 

 

 

 

 

 

 

June 30,

2021

 

 

June 30,

2020

 

 

Net

Change

 

(Dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

176,990

 

 

$

58,916

 

 

$

118,074

 

Europe

 

 

170,474

 

 

 

85,919

 

 

 

84,555

 

Net sales

 

 

347,464

 

 

 

144,835

 

 

 

202,629

 

Cost of sales

 

 

314,844

 

 

 

167,676

 

 

 

(147,168

)

Gross profit (loss)

 

 

32,620

 

 

 

(22,841

)

 

 

55,461

 

Percentage of net sales

 

 

9.4

%

 

 

(15.8

)%

 

 

25.2

%

Selling, general and administrative

 

 

17,100

 

 

 

11,276

 

 

 

(5,824

)

Income (loss) from operations

 

 

15,520

 

 

 

(34,117

)

 

 

49,637

 

Percentage of net sales

 

 

4.5

%

 

 

(23.6

)%

 

 

28.1

%

Interest expense, net

 

 

(10,486

)

 

 

(12,184

)

 

 

1,698

 

Other expense, net

 

 

(2,420

)

 

 

(670

)

 

 

(1,750

)

Income tax (provision) benefit

 

 

(919

)

 

 

3,753

 

 

 

(4,672

)

Net income (loss)

 

$

1,695

 

 

$

(43,218

)

 

$

44,913

 

Percentage of net sales

 

 

0.5

%

 

 

(29.8

)%

 

 

30.3

%

Diluted loss per share

 

$

(0.26

)

 

$

(2.00

)

 

$

1.74

 

Value added sales (1)

 

$

195,474

 

 

$

84,284

 

 

$

111,190

 

Adjusted EBITDA (2)

 

$

44,645

 

 

$

(3,696

)

 

$

48,341

 

Percentage of net sales

 

 

12.8

%

 

 

(2.6

)%

 

 

15.4

%

Percentage of value added sales

 

 

22.8

%

 

 

(4.4

)%

 

 

27.2

%

Unit shipments in thousands

 

 

4,178

 

 

 

2,068

 

 

 

2,110

 

 

 

(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 4.2 million for the second quarter of 2021 compared to unit shipments of 2.1 million in the prior year period, an increase of 102.0 percent. The increase was driven by higher volumes in both regions due to the 2020 shutdowns at our key OEM customers in response to the COVID-19 pandemic.  

Net Sales

Net sales for the second quarter of 2021 were $347.5 million, compared to net sales of $144.8 million for the same period in 2020. The increase in the quarter was driven by higher volumes in both regions due to 2020 shutdowns at key OEM customers in response to the COVID-19 pandemic, stronger product mix in both North America and Europe, as well as favorable EURO foreign exchange.

Cost of Sales

Cost of sales were $314.8 million for the second quarter of 2021 compared to cost of sales of $167.7 million for the same period in 2020. The increase was principally driven by higher volumes in both regions due to reduced prior period North American and European manufacturing costs resulting from OEM customer and Superior production shutdowns in response to the COVID-19 pandemic.

29


 

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses for the second quarter of 2021 were $17.1 million compared to SG&A expense of $11.3 million for same period in 2020.  The increase in SG&A expenses is principally 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.

Net Interest Expense  

Net interest expense for the second quarter of 2021 was $10.5 million compared to net interest expense of $12.2 million for same period in 2020. The decrease was primarily due to lower interest rates on the Term Loan Facility in 2021 and elevated borrowings under our revolving lines of credit during the second quarter of 2020.

Other Income (Expense)

Other expense was $2.4 million for the second quarter of 2021 compared to $0.7 million for the same period in 2020. The current year expense is primarily attributable to an increase in the preferred stock embedded derivative liability due to the increase in the Company’s stock price.

Income Tax (Provision) Benefit

The income tax provision for the second quarter of 2021 was $0.9 million on a pre-tax income of $2.6 million, representing an effective income tax rate of 35.2 percent. This 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. The income tax benefit for the second quarter of 2020 was $3.8 million on a pre-tax loss of $47.0 million, representing an effective income tax rate of 8.0 percent. This was lower than the statutory rate primarily due to the mix of earnings among tax jurisdictions, partially offset by the recognition of a valuation allowance on non-deductible interest.

Net Income (Loss)

Net income for the second quarter of 2021 was $1.7 million, or a loss of $0.26 per diluted share, compared to a net loss of $43.2 million, or a loss of $2.00 per diluted share, for the same period in 2020.

 

Segment Sales and Income from Operations

 

 

 

Three Months Ended

 

 

 

 

 

 

 

June 30,

2021

 

 

June 30,

2020

 

 

Change

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Selected data

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

176,990

 

 

$

58,916

 

 

$

118,074

 

Europe

 

 

170,474

 

 

 

85,919

 

 

 

84,555

 

Total net sales

 

$

347,464

 

 

$

144,835

 

 

$

202,629

 

Income (loss) from operations

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

7,542

 

 

$

(19,792

)

 

$

27,334

 

Europe

 

 

7,978

 

 

 

(14,325

)

 

 

22,303

 

Total income (loss) from operations

 

$

15,520

 

 

$

(34,117

)

 

$

49,637

 

 

North America

Net sales for our North American segment for the second quarter of 2021 increased 200.4 percent, compared to the same period in 2020 predominantly due to a 150.3 percent increase in unit volumes along with stronger product mix and higher aluminum prices. For the second quarter of 2021, North American sales were almost exclusively from Mexico, which compares to U.S. sales of 6.1 percent and Mexico sales of 93.9 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 second quarter of 2021 was higher than the same period of the prior year, principally due to higher volumes and improved manufacturing performance, as well as stronger product mix, partially offset by increased compensation expense.                                       

30


 

Europe

Net sales for our European segment for the second quarter of 2021 increased 98.4 percent, compared to the same period in 2020 predominantly due to a 68.9 percent increase in unit volumes along with stronger product mix and favorable foreign exchange.  European segment sales in Germany and Poland were 36.7 percent and 63.3 percent, respectively, for the second quarter of 2021, which compares to 39.3 percent and 60.7 percent for the same period of the prior year. European segment income from operations for the second quarter of 2021 was higher than the same period of the prior year, principally due to higher volumes and improved manufacturing performance, as well as stronger product mix and favorable foreign exchange, partially offset by increased compensation expense.                                        

 

 

Overview of the First Half of 2021

The following chart shows the operational performance in the six months ended June 30, 2021 in comparison to the six months ended June 30, 2020 ($ in millions):

31


 

 

Results of Operations

 

 

Six Months Ended

 

 

 

 

 

 

 

June 30,

2021

 

 

June 30,

2020

 

 

Net

Change

 

(Dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

368,961

 

 

$

214,467

 

 

$

154,494

 

Europe

 

 

336,699

 

 

 

231,480

 

 

 

105,219

 

Net sales

 

 

705,660

 

 

 

445,947

 

 

 

259,713

 

Cost of sales

 

 

630,000

 

 

 

445,627

 

 

 

184,373

 

Gross profit

 

 

75,660

 

 

 

320

 

 

 

75,340

 

Percentage of net sales

 

 

10.7

%

 

 

0.1

%

 

 

10.6

%

Selling, general and administrative

 

 

34,421

 

 

 

23,811

 

 

 

(10,610

)

Impairment of goodwill and indefinite-lived intangibles

 

 

 

 

 

193,641

 

 

 

193,641

 

Income (loss) from operations

 

 

41,239

 

 

 

(217,132

)

 

 

258,371

 

Percentage of net sales

 

 

5.8

%

 

 

(48.7

)%

 

 

54.5

%

Interest expense, net

 

 

(20,759

)

 

 

(24,034

)

 

 

3,275

 

Other (expense) income, net

 

 

(3,934

)

 

 

653

 

 

 

(4,587

)

Income tax (provision) benefit

 

 

(1,729

)

 

 

7,213

 

 

 

(8,942

)

Net income (loss)

 

$

14,817

 

 

$

(233,300

)

 

$

248,117

 

Percentage of net sales

 

 

2.1

%

 

 

(52.3

)%

 

 

54.4

%

Diluted loss per share

 

$

(0.07

)

 

$

(9.81

)

 

$

9.74

 

Value added sales (1)

 

$

402,733

 

 

$

254,375

 

 

$

148,358

 

Adjusted EBITDA (2)

 

$

99,568

 

 

$

35,834

 

 

$

63,734

 

Percentage of net sales

 

 

14.1

%

 

 

8.0

%

 

 

6.1

%

Percentage of value added sales

 

 

24.7

%

 

 

14.1

%

 

 

10.6

%

Unit shipments in thousands

 

 

8,693

 

 

 

6,375

 

 

 

2,318

 

 

 

(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 8.7 million for the first half of 2021 compared to unit shipments of 6.4 million in the prior year period, an increase of 36.4 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 half of 2021 were $705.7 million, compared to net sales of $445.9 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, as well as favorable product mix, higher aluminum prices and favorable Euro foreign exchange.

 

Cost of Sales

 

Cost of sales were $630.0 million for the first half of 2021 compared to cost of sales of $445.6 million for the same period in 2020. The increase in cost of sales was primarily due to significantly 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, favorable mix, higher aluminum prices and reduced prior period manufacturing costs resulting from our production shutdowns in response to the onset of the pandemic in the latter part of first quarter and the second quarter of 2020.

 

32


 

 

Selling, General and Administrative Expenses

 

Selling, general and administrative (“SG&A”) expenses for the first half of 2021 were $34.4 million, compared to SG&A expense of $23.8 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 increased compensation expense in the current period related to the return to a steady production environment with improved operating performance.

 

Impairment of Goodwill and Indefinite-lived Intangibles

 

During the first half 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 half of 2021 was $20.8 million compared to net interest expense of $24.0 million for same period in 2020. The decrease was primarily due to lower interest rates on the Term Loan Facility in 2021 and elevated borrowings under our revolving lines of credit during the first half of 2020.

 

Other Income (Expense)

 

Other expense was $3.9 million for the first half of 2021 compared to other income of $0.7 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 while the prior period income was primarily driven by foreign exchange gains.

 

Income Tax (Provision) Benefit

 

The income tax provision for the six months ended June 30, 2021 was $1.7 million on a pre-tax income of $16.5 million, representing an effective rate of 10.4 percent. The effective income tax rate for the six months ended June 30, 2021 differs from the statutory rate primarily due to a favorable adjustment to a tax credit and the reversal of an uncertain tax position, partially offset by the mix of earnings among tax jurisdictions and U.S. valuation allowances. The income tax benefit for the six months ended June 30, 2020 was $7.2 million on a pre-tax loss of $240.5 million, representing an effective rate of 3.0 percent. This was lower than the statutory rate due to the mix of earnings among tax jurisdictions and the impairment of goodwill for which there is no corresponding tax benefit, partially offset by the recognition of a valuation allowance on non-deductible interest.

 

Net Income (Loss)

 

Net income for the first half of 2021 was $14.8 million, or loss of $0.07 per diluted share, compared to a net loss of $233.3 million, or a loss of $9.81 per diluted share, for the same period in 2020.

Segment Sales and Income from Operations

 

 

Six Months Ended

 

 

 

 

 

 

 

June 30,

2021

 

 

June 30,

2020

 

 

Change

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Selected data

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

368,961

 

 

$

214,467

 

 

$

154,494

 

Europe

 

 

336,699

 

 

 

231,480

 

 

 

105,219

 

Total net sales

 

$

705,660

 

 

$

445,947

 

 

$

259,713

 

Income (loss) from operations

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

25,383

 

 

$

(13,683

)

 

$

39,066

 

Europe

 

 

15,856

 

 

 

(203,449

)

 

 

219,305

 

Total income (loss) from operations

 

$

41,239

 

 

$

(217,132

)

 

$

258,371

 

 

33


 

 

North America

 

Net sales for our North American segment for the first half of 2021 increased 72.0 percent, compared to the same period in 2020, due to a 48.9 percent increase in volumes related to our prior period Q2 production shutdowns, stronger product mix comprised of larger diameter wheels and premium wheel finishes and higher aluminum prices. For the first half of 2021, North American sales were almost exclusively shipped from Mexico, which compares to U.S. sales of 9.2 percent and Mexico sales of 90.8 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 half of 2020 was higher than the prior year period, principally due to higher volumes and improved manufacturing performance, as well as stronger product mix, partially offset by increased compensation expense.

 

Europe

 

Net sales for our European segment for the first half of 2021 increased 45.5 percent, compared to the same period in 2020, due to a 24.8 percent increase in volumes related to our production shutdowns in the latter part of the first quarter and the second quarter of 2020, stronger product mix comprised of larger diameter wheels and premium wheel finishes, higher aluminum prices and favorable foreign exchange. European segment sales for Germany and Poland were approximately 36.6 percent and 63.4 percent, respectively, during the first half of 2021, which compares to 36.2 percent and 63.8 percent for the first half of 2020. European segment income from operations for the first half of 2021 was higher than the prior year period principally due to improved manufacturing performance associated with higher production volumes, favorable product mix and favorable foreign exchange.

 

Financial Condition, Liquidity and Capital Resources

As of June 30, 2021, our cash and cash equivalents totaled $149.2 million compared to $130.7 million and $152.4 million at June 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 $188.2 million and 1.7:1.0, respectively, at June 30, 2021, versus $152.5 million and 1.7:1.0, respectively, 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 the increase in production volumes, but also the volatility in customer orders arising from customer supply chain constraints, and to ensure our delivery capability in the second half of 2021. 

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, plant and equipment (“maintenance”), as well as capital related to new product offerings and expanded capacity for existing products (“new business”). Over time, capital expenditures have consisted of roughly equal components of maintenance and new business.

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 June 30, 2021, the Company

34


 

owed $16.3 million to the financial institution which is included in accounts payable in the Company’s condensed consolidated balance sheet. The Company made $21.0 million in payments to the financial institution pursuant to the supplier’s factoring arrangement for the six months ended June 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 June 30, 2021 were $349.2 million, $258.2 million and $22.2 million, respectively. The redeemable preferred stock amounted to $189.4 million as of June 30, 2021. Our liquidity totaled $347.8 million at June 30, 2021, including cash on hand of $149.2 million and available unused commitments under credit facilities of $198.6 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.

 

 

 

Six Months Ended

 

 

 

 

June 30,

2021

 

 

June 30,

2020

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

 

31,933

 

 

 

(7,135

)

 

Net cash used in investing activities

 

 

(20,551

)

 

 

(22,761

)

 

Net cash (used in) provided by financing activities

 

 

(13,501

)

 

 

82,205

 

 

Effect of exchange rate changes on cash

 

 

(1,133

)

 

 

496

 

 

Net (decrease) increase in cash and cash equivalents

 

$

(3,252

)

 

$

52,805

 

 

 

Operating Activities

Net cash provided by operating activities was $31.9 million for the first six months of 2021 compared to cash used by operating activities of $7.1 million for the same period in 2020. The increase in cash flow provided by operating activities was primarily driven by increased profitability, partially offset by an increase in working capital to support increased sales and production volumes, as compared to the prior year period.

Investing Activities

Net cash used in investing activities was $20.6 million for the first six months of 2021 compared to $22.8 million for the same period in 2020. The decrease in investing activities is driven by timing of pending capital projects to support increased production requirements in both regions.

Financing Activities

Net cash used in financing activities was $13.5 million for the first six months of 2021 compared to net cash provided by financing activities of $82.2 million for the same period in 2020. This change was primarily due to the draw down and partial repayment on borrowings under our revolving credit facilities, as well as prepayments on the Term Loan, in the first half of 2020.

 

Off-Balance Sheet Arrangements

As of June 30, 2021, we had no significant off-balance sheet arrangements other than factoring of $100.1 million of our trade receivables.

 

Non-GAAP Financial Measures

In this quarterly report, we discuss two important measures that are not calculated according to U.S. GAAP, value added sales and adjusted EBITDA.

35


 

Value added sales is a key measure that is not calculated according to U.S. GAAP. 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 a key measure that is not calculated according to U.S. GAAP. 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

 

 

Six Months Ended

 

 

 

June 30,

2021

 

 

June 30,

2020

 

 

June 30,

2021

 

 

June 30,

2020

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

347,464

 

 

$

144,835

 

 

$

705,660

 

 

$

445,947

 

Less: aluminum value and outside service provider costs

 

 

(151,990

)

 

 

(60,551

)

 

 

(302,927

)

 

 

(191,572

)

Value added sales

 

$

195,474

 

 

$

84,284

 

 

$

402,733

 

 

$

254,375

 

 

The following table reconciles our net income, the most directly comparable U.S. GAAP financial measure, to our adjusted EBITDA:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

2021

 

 

June 30,

2020

 

 

June 30,

2021

 

 

June 30,

2020

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

1,695

 

 

$

(43,218

)

 

$

14,817

 

 

$

(233,300

)

Interest expense, net

 

 

10,486

 

 

 

12,184

 

 

 

20,759

 

 

 

24,034

 

Income tax provision (benefit)

 

 

919

 

 

 

(3,753

)

 

 

1,729

 

 

 

(7,213

)

Depreciation

 

 

18,905

 

 

 

17,798

 

 

 

37,555

 

 

 

36,052

 

Amortization

 

 

6,704

 

 

 

6,127

 

 

 

13,415

 

 

 

12,264

 

Impairment of goodwill and indefinite-lived intangibles

 

 

 

 

 

 

 

 

 

 

 

193,641

 

Integration, restructuring, factoring fees and other (1)(2)(3)(4)

 

 

3,791

 

 

 

7,166

 

 

 

7,833

 

 

 

10,356

 

Change in fair value or redeemable preferred stock embedded derivative liability (5)

 

 

2,145

 

 

 

 

 

 

3,460

 

 

 

 

Adjusted EBITDA

 

$

44,645

 

 

$

(3,696

)

 

$

99,568

 

 

$

35,834

 

Adjusted EBITDA as a percentage of net sales

 

 

12.8

%

 

 

-2.6

%

 

 

14.1

%

 

 

8.0

%

Adjusted EBITDA as a percentage of value added sales

 

 

22.8

%

 

 

-4.4

%

 

 

24.7

%

 

 

14.1

%

 

 

(1)

In the second quarter of 2021, we incurred approximately $2.4 million of restructuring costs comprised of on-going fixed costs associated with our Fayetteville, Arkansas facility, relocation and installation costs of repurposed machinery and costs of site preparation activities which must be completed prior to the sale of the facility. Additionally, we incurred $0.6 million of certain hiring and separation costs, $0.5 million of accounts receivable factoring fees and $0.3 million of other costs.

 

(2)

In the first half of 2021, we incurred approximately $3.3 million of restructuring costs comprised of on-going fixed costs associated with our Fayetteville, Arkansas facility, relocation and installation costs of repurposed machinery and $1.0 million relating to site preparation activities which must be completed prior to the sale of the facility. Additionally, we incurred $2.9 million of certain hiring and separation costs, $1.0 million of accounts receivable factoring fees, and $0.6 million of other costs.

36


 

 

(3)

In the second quarter of 2020, we incurred approximately $3.1 million of restructuring costs comprised of on-going fixed costs associated with our Fayetteville, Arkansas facility, relocation and installation costs on repurposed machinery and severance costs, as well as $0.2 million of accounts receivables factoring fees. Additionally, in second quarter of 2020, we incurred $3.4 million in restructuring costs related to discontinuing the manufacturing and sale of high-performance wheels for our automotive racing market segment, $0.2 million for certain asset impairments and $0.3 million of other costs.

 

(4)

In the first half of 2020, we incurred approximately $9.5 million of restructuring costs comprised of on-going fixed costs associated with our Fayetteville, Arkansas facility, relocation and installation costs on repurposed machinery, salaried severance costs and second quarter 2020 costs incurred exiting the automotive racing market segment, as well as $0.4 million of accounts receivables factoring fees, $0.2 million for 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 June 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 June 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 six months ended June 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

37


 

PART II

OTHER INFORMATION

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, financial condition and operating results. 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 in the following sentence. 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 past six months, we are again in 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.

 

 

38


 

 

Item 6. Exhibits

 

  10.1

 

Fifth Amendment to Credit Agreement, dated May 3, 2021, among Superior Industries International, Inc, the subsidiaries of Superior identified therein, CITIBANK, N.A., as Administrative Agent, JPMorgan Chase Bank N.A., as Sub-Agent, and the Lenders and Issuing Banks party thereto (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021).

 

  10.2

  

2018 Equity Incentive Plan, As Amended (Incorporated by reference to Appendix B of the Registrant’s Definitive Proxy Statement on Schedule 14A filed on April 15, 2021).

 

 

 

  31.1

 

Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.**

 

 

 

  31.2

 

Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.**

 

 

 

  32.1

 

Certification of Majdi B. Abulaban, President and Chief Executive Officer, and C. Timothy Trenary, Executive Vice President and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

 

 

 

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.

 

39


 

 

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: August 4, 2021

/s/ Majdi B. Abulaban

 

Majdi B. Abulaban

President and Chief Executive Officer

 

Date: August 4, 2021

/s/ C. Timothy Trenary

 

C. Timothy Trenary

Executive Vice President and Chief Financial Officer

 

40