SEC Form 10-Q filed by Superior Industries International Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission file number:
(Exact Name of Registrant as Specified in Its Charter)
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
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(Address of Principal Executive Offices) |
(Zip Code) |
Registrant’s Telephone Number, Including Area Code: (
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class |
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Trading Symbol |
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Name of Each Exchange on Which Registered |
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer |
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Non-Accelerated Filer |
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Smaller Reporting Company |
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Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Number of shares of common stock outstanding as of April 26, 2024:
TABLE OF CONTENTS
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PART I |
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Item 1 |
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1 |
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Condensed Consolidated Statements of Comprehensive Income (Loss) |
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Condensed Consolidated Statements of Shareholders’ Equity (Deficit) |
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Item 2 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3 |
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31 |
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Item 4 |
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PART II |
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Item 1 |
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32 |
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Item 1A |
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32 |
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Item 2 |
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32 |
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Item 3 |
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32 |
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Item 4 |
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Item 5 |
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32 |
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Item 6 |
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33 |
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34 |
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Dollars in thousands, except per share amounts)
(Unaudited)
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Three Months Ended |
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March 31, |
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March 31, |
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NET SALES |
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$ |
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$ |
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Cost of sales |
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GROSS PROFIT |
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Selling, general and administrative expenses |
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INCOME FROM OPERATIONS |
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Interest expense, net |
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Other expense, net |
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LOSS BEFORE INCOME TAXES |
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Income tax provision |
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NET LOSS |
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$ |
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$ |
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LOSS PER SHARE – BASIC |
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$ |
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$ |
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LOSS PER SHARE – DILUTED |
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$ |
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$ |
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The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
1
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands)
(Unaudited)
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Three Months Ended |
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March 31, |
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March 31, |
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Net loss |
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$ |
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$ |
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Other comprehensive income (loss), net of tax: |
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Foreign currency translation gain |
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Change in unrecognized gains on derivative instruments: |
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Change in fair value of derivatives |
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Tax provision |
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Change in unrecognized gains on derivative instruments, net of tax |
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Defined benefit pension plan: |
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Amortization of actuarial losses on pension obligation |
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— |
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Tax benefit |
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— |
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Pension changes, net of tax |
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— |
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Other comprehensive income, net of tax |
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Comprehensive (loss) income |
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$ |
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$ |
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The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
2
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
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March 31, |
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December 31, |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Inventories, net |
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Income taxes receivable |
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Derivative financial instruments |
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Other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Deferred income tax assets, net |
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Intangibles, net |
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Derivative financial instruments |
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Other noncurrent assets |
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Total assets |
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$ |
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$ |
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LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY (DEFICIT) |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Short-term debt |
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Accrued expenses |
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Income taxes payable |
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Total current liabilities |
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Long-term debt (less current portion) |
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Noncurrent income tax liabilities |
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Deferred income tax liabilities, net |
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Other noncurrent liabilities |
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(Note 17) |
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— |
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Mezzanine equity: |
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Preferred stock, $ |
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Authorized – |
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Issued and outstanding – |
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European noncontrolling redeemable equity |
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Shareholders’ deficit: |
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Common stock, $ |
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Authorized – |
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Issued and outstanding – |
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Accumulated other comprehensive loss |
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Retained earnings |
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Total shareholders’ deficit |
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Total liabilities, mezzanine equity and shareholders’ deficit |
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$ |
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$ |
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The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
3
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
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Three Months Ended |
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March 31, 2024 |
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March 31, 2023 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
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$ |
( |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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Income tax, noncash changes |
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Stock-based compensation |
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Amortization of debt issuance costs |
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Other noncash items |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventories |
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Other assets and liabilities |
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Accounts payable |
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Income taxes |
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NET CASH PROVIDED BY OPERATING ACTIVITIES |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Additions to property, plant, and equipment |
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NET CASH USED IN INVESTING ACTIVITIES |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Repayments of debt |
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Cash dividends paid |
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Financing costs paid and other |
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Payments related to tax withholdings for stock-based compensation |
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Finance lease payments |
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NET CASH USED IN FINANCING ACTIVITIES |
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Effect of exchange rate changes on cash |
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Net changes in cash and cash equivalents |
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Cash and cash equivalents at the beginning of the period |
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Cash and cash equivalents at the end of the period |
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$ |
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$ |
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The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
4
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
(Dollars in thousands, except share amounts)
(Unaudited)
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Common Stock |
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Accumulated Other Comprehensive (Loss) |
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Number of |
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Amount |
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Unrecognized |
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Pension |
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Cumulative |
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Retained |
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Total |
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BALANCE AT JANUARY 1, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
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Change in unrecognized gains on |
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— |
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— |
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— |
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— |
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— |
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Change in defined benefit plans, net of taxes |
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— |
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— |
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— |
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— |
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— |
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Net foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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— |
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Common stock issued, net of shares |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Redeemable preferred |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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European noncontrolling redeemable equity |
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— |
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— |
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— |
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— |
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— |
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( |
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BALANCE AT MARCH 31, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Common Stock |
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Accumulated Other Comprehensive (Loss) |
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Number of |
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Amount |
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Unrecognized |
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Pension |
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Cumulative |
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Retained |
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Total |
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BALANCE AT JANUARY 1, 2023 |
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$ |
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$ |
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$ |
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$ |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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Change in unrecognized gains (losses) on |
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— |
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— |
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— |
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— |
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Change in defined benefit plans, net of taxes |
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— |
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— |
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— |
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— |
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— |
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— |
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Net foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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Common stock issued, net of shares |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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( |
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Redeemable preferred |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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European noncontrolling redeemable equity |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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BALANCE AT MARCH 31, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
5
Superior Industries International, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 2024
(Unaudited)
NOTE 1 – NATURE OF OPERATIONS AND PRESENTATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nature of Operations
The principal business of Superior Industries International, Inc. (referred herein as the “Company,” “Superior,” or “we” and “our”) is the design and manufacture of aluminum wheels for sale to original equipment manufacturers (“OEMs”) in North America and Europe and to the aftermarket in Europe. We employ approximately
Presentation of Condensed Consolidated Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “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 the financial statements. 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 2023 Annual Report on Form 10-K.
These unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions are eliminated in consolidation.
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.
Cash Paid for Interest and Taxes and Noncash Investing Activities
Cash paid for interest was $
Accounting Standards Issued But Not Yet Adopted
Accounting Standards Update (ASU) 2023-07, “Segment Reporting.” In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, allowing financial statement users to better understand the components of a segment's profit or loss to assess potential future cash flows for each reportable segment and the entity as a whole. The amendments expand a public entity's segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), clarifying when an entity may report one or more additional measures to assess segment performance, requiring enhanced interim disclosures, providing new disclosure requirements for entities with a single reportable segment, and requiring other new disclosures. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance.
Accounting Standards Update (ASU) 2023-09, “Income Taxes (Topic 740).” In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which is intended to enhance the transparency, decision
6
usefulness and effectiveness of income tax disclosures. The amendments in this ASU require a public entity to disclose a tabular tax rate reconciliation, using both percentages and currency, with specific categories. A public entity is also required to provide a qualitative description of the states and local jurisdictions that make up the majority of the effect of the state and local income tax category and the net amount of income taxes paid, disaggregated by federal, state and foreign taxes and also disaggregated by individual jurisdictions. The amendments are effective prospectively for annual periods beginning after December 15, 2024, and early adoption and retrospective application are permitted. The Company is currently evaluating the impact of adopting this guidance.
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-month periods ended March 31, 2024 and March 31, 2023, 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:
|
|
March 31, |
|
|
December 31, |
|
|
Change |
|
|||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|||
Customer receivables |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Contract liabilities—current |
|
|
|
|
|
|
|
|
( |
) |
||
Contract liabilities—noncurrent |
|
|
|
|
|
|
|
|
|
|||
NOTE 3 – FAIR VALUE MEASUREMENTS
The Company applies fair value accounting for all financial assets and liabilities and nonfinancial 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 instruments and are not exchange traded. We estimate the fair value of these instruments using the income valuation approach. Under this approach, we 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 benchmark rate (e.g., the secured overnight financing rate, “SOFR”) plus an adjustment for counterparty risk.
7
The following tables categorize items measured at fair value as of March 31, 2024 and December 31, 2023:
|
|
|
|
|
Fair Value Measurement at Reporting Date Using |
|
||||||||||
March 31, 2024 |
|
|
|
|
Quoted Prices in |
|
|
Significant |
|
|
Significant |
|
||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|||
Total |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
Liabilities |
|
|
|
|
|
|
|
. |
|
|
|
|
||||
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|||
Total |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
|
|
|
|
|
Fair Value Measurement at Reporting Date Using |
|
||||||||||
December 31, 2023 |
|
|
|
|
Quoted Prices in |
|
|
Significant |
|
|
Significant |
|
||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|||
Total |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
Liabilities |
|
|
|
|
|
|
|
. |
|
|
|
|
||||
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|||
Total |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
Debt Instruments
The carrying values of the Company’s debt instruments vary from their fair values. The fair values were determined by reference to transacted prices and quotes for these instruments (Level 2).
|
|
March 31, |
|
|
December 31, |
|
||
(Dollars in thousands) |
|
|
|
|
|
|
||
Estimated aggregate fair value |
|
$ |
|
|
$ |
|
||
Aggregate carrying value (1) |
|
|
|
|
|
|
||
NOTE 4 - DERIVATIVE FINANCIAL INSTRUMENTS
To help mitigate gross margin and cash flow fluctuations due to changes in foreign currency exchange rates, certain of our subsidiaries, whose functional currency is the U.S. dollar or the Euro, hedge a portion of their forecasted foreign currency costs denominated in the Mexican Peso and Polish Zloty, respectively. We may hedge portions of our forecasted foreign currency exposure up to
We account for our derivative instruments as either assets or liabilities and adjust them to fair value each period. For derivative instruments that hedge the exposure to variability in expected future cash flows and are designated as cash flow hedges, the gain or loss on the derivative instrument is recorded in accumulated other comprehensive income (“AOCI”) or loss in shareholders’ equity or deficit until the hedged item is recognized in earnings, at which point accumulated gains or losses are recognized in earnings and classified with the underlying hedged transactions. Derivatives that do not qualify or have not been designated as hedges are adjusted to fair value through earnings in the financial statement line item to which the derivative relates.
8
The following tables display the fair value of derivatives by balance sheet line item at March 31, 2024 and December 31, 2023:
|
|
March 31, 2024 |
|
|||||||||||||
|
|
Derivative Financial Instruments (Current Asset) |
|
|
Derivative Financial Instruments (Noncurrent Asset) |
|
|
Accrued |
|
|
Other |
|
||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign exchange forward contracts designated as |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Foreign exchange forward contracts not |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Aluminum forward contracts designated as |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Natural gas forward contracts designated as |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swap contracts designated as hedging |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Total derivative financial instruments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
December 31, 2023 |
|
|||||||||||||
|
|
Derivative Financial Instruments (Current Asset) |
|
|
Derivative Financial Instruments (Noncurrent Asset) |
|
|
Accrued |
|
|
Other |
|
||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign exchange forward contracts designated as |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Foreign exchange forward contracts not |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Aluminum forward contracts designated as |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Natural gas forward contracts designated as |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swap contracts designated as hedging |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Total derivative financial instruments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
9
The following table summarizes the notional amount and estimated fair value of our derivative financial instruments:
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||||||||||
|
|
Notional |
|
|
Fair |
|
|
Notional |
|
|
Fair |
|
||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign exchange forward contracts designated as |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Foreign exchange forward contracts not designated |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Aluminum forward contracts designated as |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Natural gas forward contracts designated as hedging |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Interest rate swap contracts designated as hedging |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total derivative financial instruments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
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 described above. 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 months ended March 31, 2024 and March 31, 2023:
Three Months Ended March 31, 2024 |
|
Amount of Gain or |
|
|
Amount of Pre-tax |
|
|
Amount of Pre-tax |
|
|||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|||
Derivative contracts |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Three Months Ended March 31, 2023 |
|
Amount of Gain or |
|
|
Amount of Pre-tax |
|
|
Amount of Pre-tax |
|
|||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|||
Derivative contracts |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Hedge accounting gains reclassified from AOCI into earnings in the first quarter of 2024 included $
NOTE 5 - BUSINESS SEGMENTS
The North American and European businesses represent separate operating segments in view of the 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 from Operations |
|
||||||||||
Three Months Ended |
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
||||
North America |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Europe |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
10
(Dollars in thousands) |
|
Depreciation and Amortization |
|
|
Capital Expenditures |
|
||||||||||
Three Months Ended |
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
||||
North America |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
(Dollars in thousands) |
|
Property, Plant and Equipment, net |
|
|
Intangible Assets |
|
||||||||||
|
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
|
December 31, |
|
||||
North America |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
(Dollars in thousands) |
|
Total Assets |
|
|||||
|
|
March 31, |
|
|
December 31, |
|
||
North America |
|
$ |
|
|
$ |
|
||
Europe |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Geographic information
Net sales and property, plant and equipment by location are as follows:
|
|
|
|
|
|
|
||
(Dollars in thousands) |
|
Net Sales |
|
|||||
Three Months Ended |
|
March 31, |
|
|
March 31, |
|
||
U.S. |
|
$ |
|
|
$ |
|
||
Mexico |
|
|
|
|
|
|
||
Germany |
|
|
|
|
|
|
||
Poland |
|
|
|
|
|
|
||
Consolidated net sales |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
(Dollars in thousands) |
|
Property, Plant and Equipment, net |
|
|||||
|
|
March 31, |
|
|
December 31, |
|
||
U.S. |
|
$ |
|
|
$ |
|
||
Mexico |
|
|
|
|
|
|
||
Germany |
|
|
|
|
|
|
||
Poland |
|
|
|
|
|
|
||
Property, plant and equipment, net |
|
$ |
|
|
$ |
|
||
NOTE 6 - INVENTORIES
|
|
March 31, |
|
|
December 31, |
|
||
(Dollars in thousands) |
|
|
|
|
|
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in process |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Inventories, net |
|
$ |
|
|
$ |
|
||
Service wheel and supplies inventory included in other noncurrent assets in the condensed consolidated balance sheets totaled $
11
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT
|
|
March 31, |
|
|
December 31, |
|
||
(Dollars in thousands) |
|
|
|
|
|
|
||
Land and buildings |
|
$ |
|
|
$ |
|
||
Machinery and equipment |
|
|
|
|
|
|
||
Leasehold improvements and others |
|
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Property, plant and equipment, net |
|
$ |
|
|
$ |
|
||
Depreciation expense for the three months ended March 31, 2024 and 2023 was $
NOTE 8 – INTANGIBLE ASSETS
The Company’s finite-lived intangible assets as of March 31, 2024 and December 31, 2023 are summarized in the following table.
As of March 31, 2024 |
|
Gross |
|
|
Accumulated |
|
|
Currency |
|
|
Net Carrying Amount |
|
|
Remaining |
|
||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Customer relationships |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
|||
Year Ended December 31, 2023 |
|
Gross |
|
|
Accumulated |
|
|
Currency |
|
|
Net Carrying Amount |
|
|
Remaining |
|
||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Customer relationships |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
|
||||
Amortization expense for these intangible assets was $
NOTE 9 – DEBT
A summary of long-term debt and the related weighted average interest rates is shown below:
|
|
March 31, 2024 |
|
|||||||||||||
Debt Instrument |
|
Total |
|
|
Debt Discount and |
|
|
Total |
|
|
Weighted Average |
|
||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Term Loan Facility |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
% |
|||
|
|
|
|
|
( |
) |
|
|
|
|
|
% |
||||
European CapEx loans |
|
|
|
|
|
— |
|
|
|
|
|
|
% |
|||
Finance leases |
|
|
|
|
|
— |
|
|
|
|
|
|
% |
|||
|
|
$ |
|
|
$ |
( |
) |
|
|
|
|
|
|
|||
Less: Current portion |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Long-term debt |
|
|
|
|
|
|
|
$ |
|
|
|
|
||||
12
|
|
December 31, 2023 |
|
|||||||||||||
Debt Instrument |
|
Total |
|
|
Debt Discount and |
|
|
Total |
|
|
Weighted Average |
|
||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Term Loan Facility |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
% |
|||
|
|
|
|
|
( |
) |
|
|
|
|
|
% |
||||
European CapEx loans |
|
|
|
|
|
— |
|
|
|
|
|
|
% |
|||
Finance leases |
|
|
|
|
|
— |
|
|
|
|
|
|
% |
|||
|
|
$ |
|
|
$ |
( |
) |
|
|
|
|
|
|
|||
Less: Current portion |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Long-term debt |
|
|
|
|
|
|
|
$ |
|
|
|
|
||||
Senior Notes
On June 15, 2017, the Company issued €
Guarantee
The Notes are unconditionally guaranteed by all material wholly owned direct and indirect domestic restricted subsidiaries of the Company (the “Notes 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 Notes 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
Senior Secured Credit Facilities
On December 15, 2022, the Company entered into a $
13
capacity as administrative agent, collateral agent and issuing bank, and other lenders and issuing banks thereunder. The previously outstanding $
The Revolving Credit Facility and the Term Loan Facility are scheduled to mature on
Debt issuance costs associated with the Term Loan Facility of $
The Company may at any time request one or more increases in the amount of (i) commitments under the Term Loan Facility, up to an unlimited additional amount if, on a pro forma basis after the incurrence of such amount, the First Lien Net Leverage Ratio (as defined in the Term Loan Credit Agreement) does not exceed
Borrowings under the Term Loan Credit Facility bear interest at a rate equal to, at the Company’s option, either (i) the secured overnight financing rate (“SOFR”), with a floor of
Borrowings under the Revolving Credit Facility bear interest at a rate equal to, at the Company’s option, either (i) SOFR plus
Guarantees and Collateral Security
Our obligations under the Credit Agreements are unconditionally guaranteed by the Notes Subsidiary Guarantors and certain other domestic and foreign subsidiaries of the Company (collectively, the “SSCF 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, are secured, subject to permitted liens and other exceptions, by substantially all of our assets and the SSCF Subsidiary Guarantors’ assets, including but not limited to: (i) a perfected pledge of all of the capital stock issued by each of the SSCF Subsidiary Guarantors’ (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 SSCF Subsidiary Guarantors (subject to certain exceptions and exclusions). The Company’s obligations under the Revolving Credit Facility are secured by liens on a super-priority basis ranking ahead of the liens securing the Term Loan Facility.
14
Covenants
The Credit Agreements contain 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 Agreements also restrict 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.
The Term Loan Credit Agreement requires the Company to maintain (i) a quarterly Secured Net Leverage Ratio (as defined in the Term Loan Credit Agreement) of no more than
The Credit Agreements contain customary default provisions that include among other things: nonpayment of principal or interest when due, failure to comply with obligations, covenants or other provisions in the Credit Agreements, any failure of representations and warranties, cross-default under other debt agreements for obligations in excess of $
In addition, the Credit Agreements contain customary representations and warranties and other covenants. As of March 31, 2024, the Company was in compliance with all covenants under the Credit Agreements.
Available Unused Commitments under the Revolving Credit Facility
As of March 31, 2024, the Company had
Debt maturities as of March 31, 2024, which are due in the next
Debt Maturities |
|
Amount |
|
|
(Dollars in thousands) |
|
|
|
|
Nine remaining months of 2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Total debt liabilities |
|
$ |
|
|
15
NOTE 10 - SUPPLIER FINANCE PROGRAM
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|
March 31, |
|
||
(Dollars in thousands) |
|
|
|
|
|
|
||
Outstanding at the beginning of the period |
|
|
|
|
|
|
||
Added during the period |
|
|
|
|
|
|
||
Settled during the period |
|
|
( |
) |
|
|
( |
) |
Outstanding at the end of the period |
|
|
|
|
|
|
||
NOTE 11 - REDEEMABLE PREFERRED STOCK
During 2017, we issued
The redeemable preferred stock is convertible into shares of our common stock equal to the number of shares determined by dividing the sum of the stated value and any accrued and unpaid dividends by the conversion price of $
We may mandate conversion of the redeemable preferred stock if the price of the common stock exceeds $
We have determined that the conversion option and the redemption option exercisable upon the 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 was classified as mezzanine equity and initially recognized at fair value of $
The difference between the redemption value of the redeemable preferred stock and the carrying value (the “premium”) is being accreted over the period from the date of issuance through September 14, 2025 using the effective interest method. The accretion is treated as a deemed dividend, recorded as a charge to retained earnings and deducted in computing earnings per share (analogous to the treatment for stated and participating dividends paid on the redeemable preferred shares). The cumulative premium accretion as of March 31, 2024 and December 31, 2023 was $
16
NOTE 12 – EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income (loss), after deducting preferred dividends and accretion and European noncontrolling 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 11, “Redeemable Preferred Stock” (convertible into
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|
March 31, |
|
||
(Dollars in thousands, except per share amounts) |
|
|
|
|
|
|
||
Basic (Loss) Earnings Per Share: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Less: Redeemable preferred stock dividends and accretion |
|
|
( |
) |
|
|
( |
) |
Less: European non-controlling redeemable equity dividend |
|
|
( |
) |
|
|
( |
) |
Basic numerator |
|
$ |
( |
) |
|
$ |
( |
) |
Basic (loss) earnings per share |
|
$ |
( |
) |
|
$ |
( |
) |
Weighted average shares outstanding – Basic |
|
|
|
|
|
|
||
Diluted (Loss) Earnings Per Share: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Less: Redeemable preferred stock dividends and accretion |
|
|
( |
) |
|
|
( |
) |
Less: European non-controlling redeemable equity dividend |
|
|
( |
) |
|
|
( |
) |
Diluted numerator |
|
$ |
( |
) |
|
$ |
( |
) |
Diluted (loss) earnings per share |
|
$ |
( |
) |
|
$ |
( |
) |
Weighted average shares outstanding – Basic |
|
|
|
|
|
|
||
Dilutive effect of common share equivalents |
|
|
— |
|
|
|
— |
|
Weighted average shares outstanding – Diluted |
|
|
|
|
|
|
||
NOTE 13 - INCOME TAXES
The estimated annual effective tax rate is forecasted quarterly using actual historical information and forward-looking estimates and applied to year-to-date ordinary income. The tax effects of unusual or infrequently occurring items, including changes in judgment about valuation allowances, settlements with taxing authorities and effects of changes in tax laws or rates, and changes due to tax restructuring are reported in the interim period in which they occur.
Income taxes for the three months ended March 31, 2024 were a $
The income tax provision for the three months ended March 31, 2023 was $
The Company continuously evaluates the realizability of our net deferred tax assets. As of March 31, 2024, certain U.S. and substantially all our German deferred tax assets, net of deferred tax liabilities, were subject to valuation allowances.
17
The Organization for Economic Co-operation and Development has issued Pillar Two model rules introducing a new global minimum tax of
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 noncurrent assets, accrued expenses and other noncurrent 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 nonlease 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
18
Lease expense and cash flow for the three months ended March 31, 2024 and March 31, 2023 and operating and finance lease assets and liabilities, average lease term and average discount rate as of March 31, 2024 and December 31, 2023 are as follows:
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|
March 31, |
|
||
(Dollars in thousands) |
|
|
|
|
|
|
||
Lease Expense |
|
|
|
|
|
|
||
Finance lease expense: |
|
|
|
|
|
|
||
Amortization of right-of-use assets |
|
$ |
|
|
$ |
|
||
Interest on lease liabilities |
|
|
|
|
|
|
||
Operating lease expense |
|
|
|
|
|
|
||
Total lease expense |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Cash Flow Components |
|
|
|
|
|
|
||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
||
Operating cash outflows from finance leases |
|
$ |
|
|
$ |
|
||
Operating cash outflows from operating leases |
|
|
|
|
|
|
||
Financing cash outflows from finance leases |
|
|
|
|
|
|
||
Right-of-use assets obtained in exchange for finance lease liabilities, |
|
|
|
|
|
|
||
Right-of-use assets obtained in exchange for operating lease liabilities, |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
|
March 31, |
|
|
December 31, |
|
||
(Dollars in thousands, except lease term and discount rate) |
|
|
|
|
|
|
||
Balance Sheet Information |
|
|
|
|
|
|
||
Operating leases: |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
( |
) |
|
|
( |
) |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
||
Finance leases: |
|
|
|
|
|
|
||
Property, plant and equipment gross |
|
$ |
|
|
$ |
|
||
Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
( |
) |
|
|
( |
) |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
||
Lease Term and Discount Rates |
|
|
|
|
|
|
||
Weighted-average remaining lease term - finance leases (years) |
|
|
|
|
|
|
||
Weighted-average remaining lease term - operating leases (years) |
|
|
|
|
|
|
||
Weighted-average discount rate - finance leases |
|
|
% |
|
|
% |
||
Weighted-average discount rate - operating leases |
|
|
% |
|
|
% |
||
19
Future minimum payments under our leases as of March 31, 2024 are as follows:
|
|
Amount |
|
|||||
(Dollars in thousands) |
|
|
|
|
|
|
||
Lease Maturities |
|
Finance Leases |
|
|
Operating Leases |
|
||
Nine remaining months of 2024 |
|
$ |
|
|
$ |
|
||
2025 |
|
|
|
|
|
|
||
2026 |
|
|
|
|
|
|
||
2027 |
|
|
|
|
|
|
||
2028 |
|
|
|
|
|
- |
|
|
Total |
|
|
|
|
|
|
||
Less: Imputed interest |
|
|
( |
) |
|
|
( |
) |
Total lease liabilities, net of interest |
|
$ |
|
|
$ |
|
||
NOTE 15 – RETIREMENT PLANS
We have an unfunded salary continuation plan covering certain directors, officers and other key members of management. Subject to certain vesting requirements, the plan provides for a benefit based on final average compensation, which becomes payable on the employee’s death or upon attaining age
For the three months ended March 31, 2024 payments to retirees or their beneficiaries totaled approximately $
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|
March 31, |
|
||
(Dollars in thousands) |
|
|
|
|
|
|
||
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
— |
|
||
Net periodic pension cost |
|
$ |
|
|
$ |
|
||
NOTE 16 - STOCK-BASED COMPENSATION
Equity Incentive Plan
Our 2018 Equity Incentive Plan (the “Plan”) was approved by stockholders in May 2018, authorizing us to issue up to
Under the terms of the Plan, each year eligible participants are granted time value restricted stock units (“RSUs”), vesting ratably over a
RSU, PSU and option activity for the three months ended March 31, 2024 and March 31, 2023 is summarized in the following table:
|
|
Equity Incentive Awards |
|
|||||||||||||
|
|
Restricted |
|
|
Weighted |
|
|
Performance |
|
|
Weighted |
|
||||
Balance at January 1, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Settled |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Forfeited or expired |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance at March 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Awards estimated to vest in the future |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
20
|
|
Equity Incentive Awards |
|
|||||||||||||
|
|
Restricted |
|
|
Weighted |
|
|
Performance |
|
|
Weighted |
|
||||
Balance at January 1, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Settled |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Forfeited or expired |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Balance at March 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Awards estimated to vest in the future |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Stock-based compensation expense for the three months ended March 31, 2024 and 2023 was $
NOTE 17 – COMMITMENTS AND CONTINGENCIES
Purchase Commitments
When market conditions warrant, we may enter into purchase commitments to secure the supply of certain commodities used in the manufacture of our products, such as aluminum, electricity, natural gas and other raw materials. Prices under our aluminum contracts are based on a market index and regional premiums for processing, transportation and alloy components which are adjusted quarterly for purchases in the ensuing quarter. Certain of our purchase agreements include volume commitments, however any excess commitments are generally negotiated with suppliers and those which have occurred in the past have been carried over to future periods.
Contingencies
We are party to various legal and environmental proceedings incidental to our business. Certain claims, suits and complaints arising in the ordinary course of business have been filed or are pending against us. Based on facts now known, except as provided below, we believe all such matters are adequately provided for, covered by insurance, are without merit and/or involve such amounts that would not materially adversely affect our consolidated results of operations, cash flows or financial position.
In March 2022, the German Federal Cartel Office initiated an investigation related to European light alloy wheel manufacturers, including Superior Industries Europe AG (a wholly owned subsidiary of the Company), on suspicion of conduct restricting competition. The Company is cooperating fully with the German Federal Cartel Office. In the event Superior Industries Europe AG is deemed to have violated the applicable statutes, the Company could be subject to a fine or civil proceedings. At this point, we are unable to predict the duration or the outcome of the investigation.
21
The Company purchases electricity and natural gas requirements for its manufacturing operations in Poland from a single energy distributor. Superior and its energy distributor, as well as the parent company of the energy distributor, have filed various claims against one another. These claims generally request the court to determine whether Superior’s energy contracts with the energy distributor were valid during the period December 2021 through May 2022.
In December 2021, the Company’s energy distributor informed the Company it would no longer supply energy, notwithstanding its contractual obligation to continue supply. Following a request from the Company, the court issued an injunction ordering the energy distributor to continue supplying energy and gas to the Company. In 2022, the Company obtained a final and binding judgment confirming that the original contracts with the energy distributor had not been effectively dissolved, and thus remained binding.
In September of 2022, the energy distributor’s parent company filed a suit against the Company asserting that the Company’s energy contracts were no longer valid and asserting that the Company owed additional amounts for its purchases between December 2021 and May 2022 equal to the excess of market prices over prices set forth in the original energy contracts. In June 2023, the Company obtained a judgment dismissing the claim in its entirety. In August 2023, the energy distributor's parent company filed an appeal. Based on recent developments at an appellate hearing, the Company has concluded that an adverse judgment is now probable of occurring. Accordingly, the Company has recognized a provision of $
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 March 31, 2024 and 2023, the Company sold trade receivables totaling $
NOTE 19 – RESTRUCTURING
During the first quarter of 2023, the Company initiated a reduction in its global workforce to better align our cost structure with lower automotive industry production levels. As a result, the Company recognized a restructuring charge of $
NOTE 20 – RECEIVABLE FROM SPG BANKRUPTCY ESTATE
On August 31, 2023 (the “Filing Date”), the Company’s wholly owned subsidiary Superior Industries Production Germany GmbH (“SPG”) filed voluntary petitions for preliminary insolvency proceedings (i.e., equivalent to Chapter 11 under the U.S. Bankruptcy Code) in the Neustadt an der Weinstrasse, Germany Insolvency Court (the “Insolvency Court”) seeking relief under the German Insolvency Code (the “Insolvency Code”). SPG filed motions with the Insolvency Court seeking authorization to continue to operate its business as a “debtor-in-possession” under the jurisdiction of the Insolvency Court and in accordance with the applicable provisions of the Insolvency Code and orders of the Insolvency Court. Effective as of the Filing Date, the Company no longer controlled SPG and, therefore, no longer included SPG in its consolidated financial statements. Prior to the Filing Date, SPG was included in the Company’s consolidated financial statements.
On November 21, 2023, upon the request of the managing directors of SPG, the Insolvency Court ordered the withdrawal from the preliminary self-administrative insolvency proceedings and the continuation in preliminary ordinary proceedings (equivalent to Chapter 7 under the U.S. Bankruptcy Code). On December 1, 2023, the Insolvency Court passed a resolution to terminate the preliminary phase and to open ordinary insolvency proceedings with respect to SPG. These actions had no impact on the Company’s consolidated financial statements due to the previously mentioned deconsolidation effective August 31, 2023.
As of March 31, 2024 and December 31, 2023, the Company's receivable due from the SPG bankruptcy estate was $
22
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 sections entitled “Risk Factors” and “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 Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are based upon management’s current expectations, estimates, assumptions and beliefs concerning future events and conditions and may discuss, among other things, the impact of COVID-19 and the resulting supply chain disruptions, energy costs and semiconductor chip shortages, rising interest rates, the Russian military invasion of Ukraine (the “Ukraine Conflict”) and the United Auto Workers ("UAW") strike, on our future growth and earnings. 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,” “could,” “continue,” “estimates,” 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, 2023 and Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A “Risk Factors” 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, 2023.
Executive Overview
Overview of Superior
The principal business of Superior Industries International, Inc. (referred to herein as the “Company,” “Superior,” or “we” and “our”) 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 6,800 full-time employees, operating in seven manufacturing facilities in North America and Europe. We are one of the largest aluminum wheel suppliers to global OEMs and one of the leading European aluminum wheel aftermarket manufacturers and suppliers. Our OEM aluminum wheels accounted for approximately 92 percent of our sales in the first three months of 2024 and are primarily sold for factory installation on vehicle models manufactured by BMW (including Mini), Ford, GM, Honda, Jaguar-Land Rover, Lucid Motors, Mazda, Mitsubishi, Nissan, Peugeot, Renault, Stellantis, Subaru, Suzuki, Toyota, VW Group (Volkswagen, Audi, SEAT, Skoda, Porsche, Bentley) and Volvo. We sell aluminum wheels to the European aftermarket under the brands ATS, RIAL, ALUTEC and ANZIO. North America and Europe represent the principal markets for our products, but we have a diversified global customer base consisting of North American, European and Asian OEMs.
Demand for our products is mainly driven by light vehicle production levels 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 before actual production is expected to begin. Our purchase orders with OEMs are typically specific to a particular vehicle model.
23
GM, Ford, VW Group, and Toyota each individually accounted for 10 percent or more of our consolidated sales for the three months ended March 31, 2024 and March 31, 2023. As described in Note 20, "Receivable from SPG Bankruptcy Estate" in the Notes to Condensed Consolidated financial Statements in Item 1, "Financial Statements," sales to the VW Group for the three months ended March 31, 2024 reflect the impact of the deconsolidation of the financial results of the manufacturing facility in Germany, SPG. Our sales to these customers were as follows:
Three Months Ended |
|
March 31, 2024 |
|
|
March 31, 2023 |
|
||||||
(Dollars in millions) |
|
Percent of |
|
Dollars |
|
|
Percent of |
|
Dollars |
|
||
GM |
|
23% |
|
$ |
73.7 |
|
|
22% |
|
$ |
83.0 |
|
Ford |
|
16% |
|
$ |
50.2 |
|
|
12% |
|
$ |
46.4 |
|
VW Group |
|
12% |
|
$ |
37.6 |
|
|
17% |
|
$ |
66.4 |
|
Toyota |
|
10% |
|
$ |
32.4 |
|
|
11% |
|
$ |
43.5 |
|
Industry Overview, Supply Chain Disruption and Ukraine Conflict
There is a broad range of factors which impact automotive industry sales and production volumes, including consumer demand and preferences, dealer inventory levels, labor relations issues, trade agreements, cost and availability of raw materials and components, fuel prices, regulatory requirements, government initiatives, availability and cost of credit, changing consumer attitudes toward vehicle ownership and other factors. Our sales are driven generally by overall automotive industry production volumes and, more specifically, by the volumes of the vehicles for which we supply wheels. In addition, larger diameter wheels and premium finishes command higher unit prices. Larger cars and light trucks, as well as premium vehicle platforms, such as luxury, sport utility and crossover vehicles, typically employ larger diameter wheels and premium finishes.
The automotive industry was impacted by supply chain disruption which emerged as OEM vehicle production resumed and began to scale following the shutdown during the COVID-19 pandemic. In 2021 and 2022, the supply chain disruption included shortages of semiconductor chips, electric vehicle batteries, shipping containers, steel, resin and foam. The semiconductor chip shortage continued to constrain OEM vehicle production throughout 2022 and 2023, although there was some improvement in 2023. Cost inflation experienced in 2021, 2022 and 2023 has moderated somewhat but remains higher than pre-pandemic levels. In addition, the Ukraine Conflict which resulted in temporary shutdowns at certain OEM production facilities in early 2022, began to affect our production volume in March 2022 and contributed to order volatility and inflationary cost pressures. After significantly increasing in 2021 and 2022, the cost of energy moderated in 2023, although energy costs remain higher in Europe than prices prevailing prior to the pandemic and the Ukraine Conflict. While the prices under our OEM contracts are adjusted for changes in the cost of aluminum and certain other costs, our aftermarket contracts do not provide such pass through of aluminum or other costs. Future increases in raw material costs and OEM production volatility may cause our inventory levels to increase, negatively impacting our cash flows. In addition, higher interest rates have adversely affected, and will likely continue to affect our earnings and cash flow from operations due to the interest rates applicable under our $400 million Term Loan Facility.
Automotive industry production volumes in the North American and Western and Central European regions in the first three months of 2024 (as published by IHS, an automotive industry analyst), as compared to the corresponding periods of 2023 and 2022, are shown below:
Automotive Industry Production (North America and Western and Central Europe) |
|
|
||||||||||||||||
Three Months Ended |
|
March 31, |
|
|
2024 vs 2023 |
|
2023 vs 2022 |
|
|
|||||||||
|
|
2024 |
|
2023 |
|
2022 |
|
|
% Change |
|
% Change |
|
|
|||||
(Units in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
North America |
|
|
3,945 |
|
|
3,891 |
|
|
3,550 |
|
|
|
1.4 |
% |
|
9.6 |
% |
|
Western and Central Europe |
|
|
3,871 |
|
|
4,088 |
|
|
3,260 |
|
|
|
(5.3 |
%) |
|
25.4 |
% |
|
Total |
|
|
7,816 |
|
|
7,979 |
|
|
6,810 |
|
|
|
(2.0 |
%) |
|
17.2 |
% |
|
Automotive industry production volumes in our principal markets declined 2.0 percent in the first quarter of 2024 (declining 5.3 percent in Western and Central Europe, partially offset by an increase of 1.4 percent in North America) and were 14.0 percent lower than 2019 pre-pandemic levels. Production volumes of our key customers decreased 0.9 percent (declining 9.4 percent in Western and Central Europe, partially offset by an increase of 6.0 percent in North America).
In the first quarter of 2024, the Company’s unit shipments declined 0.3 million units, or 6.1 percent, on a year-over-year basis comprised of a 17.4 percent decline in Europe, partially offset by a 2.5 percent increase in North America. The European year-over-year decrease in unit shipments was primarily attributable to the exit from an unprofitable contract with one of our customers during
24
2023 resulting in a decrease of 0.2 million units and the deconsolidation of SPG resulting in a decrease of 0.3 million units. This was partially offset by a 0.1 million unit increase in our aftermarket business due to improving market demand.
The IHS forecast projects that production volumes in our principal markets are expected to decline 0.5 percent in 2024 (a decline of 3.0 percent in Western and Central Europe, partially offset by a 2.1 percent increase in North America). Production volumes of our key customers are forecast to increase 0.8 percent (an increase of 4.1 percent in North America, partially offset by a decline of 3.9 percent in Western and Central Europe), according to IHS.
Sustainability
We published our 2023 Sustainability Report in December 2023. That report reflected the results of the materiality assessment we conducted in 2021 to identify the sustainability interests of our stakeholders and develop our sustainability strategy. Based on that input, we remain committed to reducing natural gas, electricity and water consumption and solid waste and air emissions at our facilities. All Superior manufacturing facilities have implemented Environmental Management Systems that are ISO14001 certified and are subject to annual audits by an independent third party.
The 2023 Sustainability Report confirmed our goal to be carbon neutral by 2039 and reported the carbon footprint of our global operations. We reduced our carbon footprint by approximately 12% and our emissions per pound of aluminum shipped by 21% as compared to 2020 levels. We continue to explore opportunities to:
Furthermore, our research and development team continues to develop light weighting solutions, such as our patented Alulite™ technology, and aerodynamic solutions that will assist in reducing our customers’ carbon footprint. We also collaborate with our customers and suppliers regarding sustainability practices throughout their supply chains.
Overview of the First Quarter of 2024
The following charts show the operational performance in the quarter ended March 31, 2024 in comparison to the quarter ended March 31, 2023 (dollars 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).
25
Results of Operations
|
|
Three Months Ended |
|
|
|
|
||||||
|
|
March 31, |
|
|
March 31, |
|
|
Net |
|
|||
(Dollars in thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|||
Net sales |
|
|
|
|
|
|
|
|
|
|||
North America |
|
$ |
193,508 |
|
|
$ |
211,618 |
|
|
$ |
(18,110 |
) |
Europe |
|
|
122,768 |
|
|
|
169,348 |
|
|
|
(46,580 |
) |
Net sales |
|
|
316,276 |
|
|
|
380,966 |
|
|
|
(64,690 |
) |
Cost of sales |
|
|
295,130 |
|
|
|
346,388 |
|
|
|
51,258 |
|
Gross profit |
|
|
21,146 |
|
|
|
34,578 |
|
|
|
(13,432 |
) |
Percentage of net sales |
|
|
6.7 |
% |
|
|
9.1 |
% |
|
|
(2.4 |
)% |
Selling, general and administrative expenses |
|
|
20,832 |
|
|
|
19,442 |
|
|
|
(1,390 |
) |
Income from operations |
|
|
314 |
|
|
|
15,136 |
|
|
|
(14,822 |
) |
Percentage of net sales |
|
|
0.1 |
% |
|
|
4.0 |
% |
|
|
(3.9 |
)% |
Interest expense, net |
|
|
(15,878 |
) |
|
|
(15,698 |
) |
|
|
(180 |
) |
Other expense, net |
|
|
(537 |
) |
|
|
(187 |
) |
|
|
(350 |
) |
Income tax provision |
|
|
(16,648 |
) |
|
|
(3,298 |
) |
|
|
(13,350 |
) |
Net loss |
|
$ |
(32,749 |
) |
|
$ |
(4,047 |
) |
|
$ |
(28,702 |
) |
Percentage of net sales |
|
|
(10.4 |
)% |
|
|
(1.1 |
)% |
|
|
(9.3 |
)% |
Diluted (loss) earnings per share |
|
$ |
(1.52 |
) |
|
$ |
(0.49 |
) |
|
$ |
(1.03 |
) |
Value added sales (1) |
|
$ |
172,198 |
|
|
$ |
202,662 |
|
|
$ |
(30,464 |
) |
Value added sales adjusted for foreign exchange (1) |
|
$ |
171,330 |
|
|
$ |
202,662 |
|
|
$ |
(31,332 |
) |
Adjusted EBITDA (2) |
|
$ |
30,849 |
|
|
$ |
45,489 |
|
|
$ |
(14,640 |
) |
Percentage of net sales |
|
|
9.8 |
% |
|
|
11.9 |
% |
|
|
(2.1 |
)% |
Percentage of value added sales |
|
|
17.9 |
% |
|
|
22.4 |
% |
|
|
(4.5 |
)% |
Unit shipments in thousands |
|
|
3,623 |
|
|
|
3,858 |
|
|
|
(235 |
) |
Shipments
Wheel unit shipments were 3.6 million for the first quarter of 2024 compared to unit shipments of 3.9 million for the same period in 2023, a decrease of 6.1 percent. The majority of the decrease was due to the decline in our European unit shipments attributable to the exit from an unprofitable contract with one of our customers during 2023 which we have not yet replaced with new business, resulting in a 0.2 million reduction in unit shipments. In addition, the deconsolidation of the financial results of the manufacturing facility in Germany, SPG, resulted in a reduction of 0.3 million unit shipments. These declines were partially offset by a substantial improvement in our aftermarket business with unit shipments increasing 0.1 million, or 72.6 percent due to improved market demand.
Net Sales
Net sales for the first quarter of 2024 were $316.3 million, compared to net sales of $381.0 million for the same period in 2023, a decrease of 17.0 percent. The decrease in net sales was primarily due to lower aluminum pass throughs to our OEM customers of $34.1 million, unfavorable pricing and product mix of $16.1 million and $15.4 million due to lower unit shipments of 0.2 million units.
Value Added Sales Adjusted for Foreign Exchange
Value added sales adjusted for foreign exchange was $171.3 million for the first quarter of 2024 compared to value added sales of $202.7 million for the same period in 2023, a decrease of 15.5 percent. The decrease was primarily due to unfavorable pricing and product mix and lower shipment volume.
26
Cost of Sales
Cost of sales was $295.1 million for the first quarter of 2024 compared to cost of sales of $346.4 million for the same period in 2023. The decrease in cost of sales was due to $34.6 million of lower aluminum costs, favorable conversion costs of $11.0 million and lower shipment volumes of $9.2 million.
Selling, General and Administrative Expense
Selling, general and administrative (“SG&A”) expense of $20.8 million for the first quarter of 2024 increased $1.4 million compared to the same period in 2023 primarily due to advisor fees and other restructuring related costs associated with the transformation of our European business.
Net Interest Expense
Net interest expense for the first quarter of 2024 of $15.9 million was flat compared to net interest expense of $15.7 million for the same period in 2023 since the SOFR interest rate on the Term Loan Facility remained substantially unchanged.
Other Income (Expense)
Other expense was $0.5 million for the first quarter of 2024 compared to other expense of $0.2 million for the same period in 2023.
Income Tax (Provision) Benefit
The income tax provision for the first quarter of 2024 was $16.6 million on pre-tax loss of $16.1 million, representing an effective income tax rate of (103.4) percent. This differs from the statutory rate primarily due to valuation allowances, the reversal of uncertain tax position, the mix of earnings among tax jurisdictions, and a tax charge impacting deferred tax assets related to tax restructuring of $17.8 million. The income tax provision for the first quarter of 2023 was $3.3 million on a pre-tax loss of $0.7 million, representing an effective income tax rate of (440.3) percent. This differs from the statutory rate primarily due to valuation allowances, the reversal of an uncertain tax position and the mix of earnings among tax jurisdictions.
Net Income (Loss)
Net loss for the first quarter of 2024 was $32.7 million, or a $1.52 loss per diluted share, compared to a loss of $4.0 million, or a $0.49 loss per diluted share, for the same period in 2023.
Segment Sales and Income from Operations
|
|
Three Months Ended |
|
|
|
|
||||||
|
|
March 31, |
|
|
March 31, |
|
|
Change |
|
|||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|||
Selected data |
|
|
|
|
|
|
|
|
|
|||
Net sales |
|
|
|
|
|
|
|
|
|
|||
North America |
|
$ |
193,508 |
|
|
$ |
211,618 |
|
|
$ |
(18,110 |
) |
Europe |
|
|
122,768 |
|
|
|
169,348 |
|
|
|
(46,580 |
) |
Total net sales |
|
$ |
316,276 |
|
|
$ |
380,966 |
|
|
$ |
(64,690 |
) |
Income from operations |
|
|
|
|
|
|
|
|
|
|||
North America |
|
$ |
8,082 |
|
|
$ |
21,715 |
|
|
$ |
(13,633 |
) |
Europe |
|
|
(7,768 |
) |
|
|
(6,579 |
) |
|
|
(1,189 |
) |
Total income from operations |
|
$ |
314 |
|
|
$ |
15,136 |
|
|
$ |
(14,822 |
) |
North America
Net sales for our North American segment for the first quarter of 2024 decreased 8.6 percent while unit shipments increased 2.5 percent, compared to the same period in 2023. The $18.1 million decrease in net sales was primarily due to lower aluminum cost pass throughs to our OEM customers of $13.0 million and unfavorable pricing and product mix of $7.1 million, partially offset by $1.6 million due to higher unit shipments. North American segment income from operations for the first quarter of 2024 decreased by $13.6 million, as compared to the same period in 2023, primarily due to unfavorable product pricing and mix of $8.1 million and unfavorable conversion costs of $2.4 million largely because of higher labor costs.
27
Europe
Net sales for our European segment for the first quarter of 2024 decreased 27.5 percent while unit shipments decreased 17.4 percent compared to the same period in 2023. The $46.6 million decrease in net sales was primarily due to lower aluminum pass throughs of $21.1 million, lower unit shipments of $17.0 million and unfavorable pricing and product mix of $9.0 million. Net sales and unit shipments reflect the deconsolidation of the financial results of the manufacturing facility in Germany, SPG, and the exit of an unprofitable contract with one of our customers which has not yet been replaced with new business. The European segment loss from operations for the first quarter of 2024 was $1.2 million more than the same period in 2023. The increase in the loss from operations was primarily due to unfavorable pricing and product mix of $8.3 million and lower unit shipments of $6.8 million, largely offset by lower conversion costs of $13.4 million due to the ongoing transition of production to lower cost manufacturing facilities in Poland.
Financial Condition, Liquidity and Capital Resources
As of March 31, 2024, our cash and cash equivalents totaled $191.1 million compared to $228.6 million and $201.6 million at March 31, 2023 and December 31, 2023, respectively. Our sources of liquidity primarily include cash and cash equivalents, cash provided by operating activities, borrowings under available debt facilities, and factoring arrangements for trade receivables. Working capital (current assets minus current liabilities) and our current ratio (current assets divided by current liabilities) were $261.3 million and 2.2:1.0, respectively, at March 31, 2024, as compared to $261.0 million and 2.3:1.0 at December 31, 2023.
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 for the next 12 months. Capital expenditures relate to improving production quality and efficiency and extending the useful lives of existing property and expenditures for new product offerings, as well as expanded capacity for existing products. During 2024, we expect that capital expenditures will be approximately $50.0 million.
In connection with the acquisition of our European operations, we entered into a $400.0 million term loan facility (the “Acquisition Term Loan Facility”) and a $160.0 million revolving credit facility (the “US Revolving Credit Facility”), and we issued 150,000 shares of redeemable preferred stock for $150.0 million and €250.0 million aggregate principal amount of the 6.00% Notes. In addition, we also assumed $70.7 million of outstanding debt, including a €30.0 million European revolving credit facility (the “European Revolving Credit Facility”). The acquired European business subsequently entered into equipment loan agreements totaling $13.4 million (€12.0 million).
On December 15, 2022, the Company entered into a $400.0 million term loan facility (the “Term Loan Facility”) with Oaktree Fund Administration L.L.C., in its capacity as the administrative agent, JPMorgan Chase Bank, N.A., in its capacity as collateral agent, and other lenders party thereto. The Term Loan Facility requires quarterly principal payments of $1.0 million. Additional principal payments may be due with respect to asset sales, debt issuances and as a percentage of cash flow in excess of a specified threshold. Concurrent with the issuance of the Term Loan Facility, the Company entered into a $60.0 million revolving credit facility (the “Revolving Credit Facility”) and terminated the previously outstanding $107.5 million U.S. Revolving Credit Facility and €60.0 million European Revolving Credit Facility. The $388.0 million proceeds of the borrowings under the Term Loan Facility (consisting of the $400.0 million aggregate principal less the original issuance discount of $12.0 million) were used to repay the $349.2 million balance outstanding under the Acquisition Term Loan Facility and to pay debt issuance costs and expenses incurred in connection with the Term Loan Facility and Revolving Credit Facility.
Balances outstanding under the Term Loan Facility and Notes as of March 31, 2024 were $395.0 million, $234.2 million, respectively. The balance of the redeemable preferred stock was $255.0 million as of March 31, 2024. The Revolving Credit Facility and the Term Loan Facility mature on December 15, 2027 and December 15, 2028, respectively. However, in the event the Company has not repaid, refinanced or otherwise extended the maturity of the Notes beyond the maturity date of the Term Loan Facility by the date 91 days prior to June 15, 2025, the Term Loan Facility and Revolving Credit Facility will mature 91 days prior to June 15, 2025. Similarly, in the event the Company has not redeemed, refinanced or otherwise extended the redemption date of the redeemable preferred stock beyond the maturity date of the Term Loan Facility by the date 91 days prior to September 14, 2025, the Term Loan Facility and Revolving Credit Facility will mature 91 days prior to September 14, 2025.
The redeemable preferred stock may be redeemed at the holder’s election on or after September 14, 2025 at the redemption amount, $300 million, provided the Company has cash legally available to pay such redemption. The shares of preferred stock not redeemed would continue to receive an annual dividend of 9.0 percent on the original stated value, plus any accrued and unpaid dividends, which would be paid quarterly. The Board of Directors would have to evaluate periodically the ability of the Company to make any further redemption payments until the full redemption amount has been paid.
The Company intends to repay, refinance or otherwise extend the Notes prior to their maturity and to redeem, refinance or otherwise extend the redemption date of the redeemable preferred stock. If we are unable to repay, refinance or otherwise extend the Notes or redeem, refinance or otherwise extend the redeemable preferred stock prior to their respective maturity and redemption dates, the maturity of our Term Loan Facility and Revolving Credit Facility would accelerate to a date 91 days prior to the maturity date of the
28
Notes or redemption date of the redeemable preferred stock (refer to Note 9 “Debt” in the Notes to Condensed Consolidated Financial Statements in Item 1, “Financial Information”).
As of March 31, 2024, the Company had no outstanding borrowings under the Revolving Credit Facility, outstanding letters of credit of $8.4 million and available unused commitments under the Revolving Credit Facility of $51.6 million. As a result, our liquidity totaled $205.2 million at March 31, 2024, consisting of cash and cash equivalents of $153.6 million ($191.1 million less the $37.5 million contractual liquidity required pursuant to the Term Loan Facility and Revolving Credit Facility) and available and unused commitments under the Revolving Credit Facility of $51.6 million.
As of March 31, 2024, we had no significant off-balance sheet arrangements other than factoring of $98.9 million of our trade receivables.
The following table summarizes the cash flows from operating, investing and financing activities as reflected in the condensed consolidated statements of cash flows.
|
|
Three Months Ended |
|
|||||
Fiscal Year Ended December 31, |
|
March 31, |
|
|
March 31, |
|
||
(Dollars in thousands) |
|
|
|
|
|
|
||
Net cash provided by operating activities |
|
|
3,470 |
|
|
|
38,738 |
|
Net cash used in investing activities |
|
|
(6,618 |
) |
|
|
(15,589 |
) |
Net cash used in financing activities |
|
|
(6,548 |
) |
|
|
(9,172 |
) |
Effect of exchange rate changes on cash |
|
|
(839 |
) |
|
|
1,639 |
|
Net changes in cash and cash equivalents |
|
$ |
(10,535 |
) |
|
$ |
15,616 |
|
Operating Activities
Net cash provided by operating activities was $3.5 million for the first three months of 2024 compared to net cash provided by operating activities of $38.7 million for the same period in 2023. The decrease in cash flow provided by operating activities was primarily driven by a $28.7 million higher net loss, which includes higher non-cash taxes of $14.0 million, and lower source of cash provided by trade payables of $15.9 million and other assets and liabilities of $7.2 million.
Investing Activities
Net cash used in investing activities of $6.6 million for the first three months of 2024 was lower than the $15.6 million for the same period in 2023 due to lower capital expenditures. The decrease in capital expenditures was primarily due to the completion of two capital projects related to refinishing capabilities.
Financing Activities
Net cash used in financing activities was $6.5 million for the first three months of 2024 compared to net cash used in financing activities of $9.2 million for the same period in 2023. This decrease was primarily due to a $2.2 million decrease in tax withholdings for stock-based compensation.
Non-GAAP Financial Measures
In this Quarterly Report, we discuss three important measures that are not calculated according to U.S. GAAP, value added sales, value added sales adjusted for foreign exchange and adjusted EBITDA.
Value added sales represents net sales less the value of aluminum and other costs, as well as outsourced service provider (“OSP”) costs that are included in net sales. Contractual arrangements with our customers allow us to pass on changes in aluminum and certain other costs. Value added sales adjusted for foreign exchange represents value added sales on a constant currency basis. For entities reporting in currencies other than the U.S. dollar, the current period amounts are translated using the prior year comparative period exchange rates, rather than the actual exchange rates in effect during the current period. Value added sales adjusted for foreign exchange allows users of the financial statements to consider our net sales information both with and without the aluminum, other costs and OSP costs and fluctuations in foreign exchange rates. Management utilizes value added sales adjusted for foreign exchange as a key metric in measuring and evaluating the growth of the Company because it eliminates the volatility of the cost of aluminum and changes in foreign exchange rates. Management utilizes value added sales in calculating adjusted EBITDA margin to eliminate volatility of the cost of aluminum in evaluating year-over-year margin growth.
29
The following table reconciles our net sales, the most directly comparable U.S. GAAP financial measure, to our value added sales and value added sales adjusted for foreign exchange:
|
|
Three Months Ended |
|
|||||
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
||
(Dollars in thousands) |
|
|
|
|
|
|
||
Net sales |
|
$ |
316,276 |
|
|
$ |
380,966 |
|
Less: aluminum, other costs, and outside service provider costs |
|
|
(144,078 |
) |
|
|
(178,304 |
) |
Value added sales |
|
$ |
172,198 |
|
|
$ |
202,662 |
|
Currency impact on current period value added sales |
|
|
(868 |
) |
|
|
— |
|
Value added sales adjusted for foreign exchange |
|
$ |
171,330 |
|
|
$ |
202,662 |
|
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 the redeemable preferred stock embedded derivative, acquisition and integration, 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 loss, the most directly comparable U.S. GAAP financial measure, to our adjusted EBITDA:
|
|
Three Months Ended |
|
|||||
|
|
March 31, 2024 |
|
|
March 31, 2023 |
|
||
(Dollars in thousands) |
|
|
|
|
|
|
||
Net loss |
|
$ |
(32,749 |
) |
|
$ |
(4,047 |
) |
Interest expense, net |
|
|
15,878 |
|
|
|
15,698 |
|
Income tax provision |
|
|
16,648 |
|
|
|
3,298 |
|
Depreciation |
|
|
17,062 |
|
|
|
18,016 |
|
Amortization |
|
|
4,884 |
|
|
|
4,825 |
|
Restructuring, factoring fees and other (1) (2) |
|
|
9,126 |
|
|
|
7,699 |
|
Adjusted EBITDA |
|
$ |
30,849 |
|
|
$ |
45,489 |
|
Adjusted EBITDA as a percentage of net sales |
|
|
9.8 |
% |
|
|
11.9 |
% |
Adjusted EBITDA as a percentage of value added sales |
|
|
17.9 |
% |
|
|
22.4 |
% |
30
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 2023 Form 10-K (refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023).
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 March 31, 2024. 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 March 31, 2024 our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the three months ended March 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
31
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
We are party to various legal and environmental proceedings incidental to our business. Certain claims, suits and complaints arising in the ordinary course of business have been filed or are pending against us. Based on facts now known, except as provided below, we believe all such matters are adequately provided for, covered by insurance, are without merit, and/or involve such amounts that would not materially adversely affect our consolidated results of operations, cash flows or financial position.
In March 2022, the German Federal Cartel Office initiated an investigation related to European light alloy wheel manufacturers, including Superior Industries Europe AG (a wholly owned subsidiary of the Company), on suspicion of conduct restricting competition. The Company is cooperating fully with the German Federal Cartel Office. In the event Superior Industries Europe AG is deemed to have violated the applicable statutes, the Company could be subject to a fine or civil proceedings. At this point, we are unable to predict the duration or the outcome of the investigation.
On August 31, 2023 (the “Filing Date”), the Company’s wholly owned subsidiary Superior Industries Production Germany GmbH (“SPG”) filed voluntary petitions for preliminary insolvency proceedings (equivalent to Chapter 11 under the U.S. Bankruptcy Code) in the Neustadt an der Weinstrasse, Germany Insolvency Court (the “Insolvency Court”) seeking relief under the German Insolvency Code (the “Insolvency Code”). SPG filed motions with the Insolvency Court seeking authorization to continue to operate its business as a “debtor-in-possession” under the jurisdiction of the Insolvency Court and in accordance with the applicable provisions of the Insolvency Code and orders of the Insolvency Court. On November 21, 2023, upon the request of the managing directors of SPG, the Insolvency Court ordered the withdrawal from the preliminary self-administrative insolvency proceedings and the continuation in preliminary ordinary proceedings (equivalent to Chapter 7 under the U.S. Bankruptcy Code). On December 1, 2023, the Insolvency Court passed a resolution to terminate the preliminary phase and to open ordinary insolvency proceedings with respect to SPG.
Refer also to Item 1A, “Risk Factors” “We are from time to time subject to litigation, which could adversely affect our results of operations, financial condition or cash flows” in Part I of our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 1A. Risk Factors
See Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
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31.1 |
|
|
|
|
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31.2 |
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|
|
|
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32.1 |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document. **** |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema With Embedded Linkbases Document. **** |
|
|
|
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL Document). **** |
** Filed herewith.
**** Submitted electronically with the report.
† These certifications are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.
33
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: May 2, 2024 |
/s/ Majdi B. Abulaban |
|
Majdi B. Abulaban President and Chief Executive Officer |
Date: May 2, 2024 |
/s/ C. Timothy Trenary |
|
C. Timothy Trenary Executive Vice President, Chief Financial Officer and Interim Principal Accounting Officer |
34