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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 |
☐ |
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 ☐ No
Number of shares of common stock outstanding as of November 1, 2024:
TABLE OF CONTENTS
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Page |
PART I |
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Item 1 |
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1 |
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1 |
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Condensed Consolidated Statements of Comprehensive Income (Loss) |
2 |
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3 |
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4 |
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Condensed Consolidated Statements of Shareholders’ Equity (Deficit) |
5 |
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7 |
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Item 2 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
21 |
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Item 3 |
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34 |
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Item 4 |
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34 |
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PART II |
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Item 1 |
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36 |
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Item 1A |
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36 |
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Item 2 |
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36 |
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Item 3 |
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36 |
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Item 4 |
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36 |
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Item 5 |
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36 |
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Item 6 |
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37 |
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38 |
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PART I
FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Dollars in thousands, except per share amounts)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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September 30, |
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September 30, |
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NET SALES |
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$ |
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$ |
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$ |
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$ |
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Cost of sales |
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GROSS PROFIT |
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Selling, general and administrative expenses |
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Loss on deconsolidation of subsidiary |
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— |
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— |
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INCOME (LOSS) FROM OPERATIONS |
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Interest expense, net |
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( |
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( |
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Loss on extinguishment of debt |
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— |
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( |
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— |
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Other income (expense), net |
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INCOME (LOSS) BEFORE INCOME TAXES |
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Income tax (provision) benefit |
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( |
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( |
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NET INCOME (LOSS) |
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$ |
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$ |
( |
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$ |
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$ |
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EARNINGS (LOSS) PER SHARE – BASIC |
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$ |
( |
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$ |
( |
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$ |
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$ |
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EARNINGS (LOSS) PER SHARE – DILUTED |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
1
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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September 30, |
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September 30, |
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Net income (loss) |
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$ |
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$ |
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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 (loss) |
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Change in unrecognized gains (losses) on derivative instruments: |
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Change in fair value of derivatives |
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Tax (provision) benefit |
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Change in unrecognized gains (losses) 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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— |
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Tax (provision) benefit |
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— |
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— |
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— |
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Pension changes, net of tax |
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— |
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— |
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Other comprehensive income (loss), net of tax |
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( |
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( |
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( |
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Comprehensive income (loss) |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
2
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
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September 30, |
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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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Current 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 15) |
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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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Noncontrolling redeemable equity |
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Shareholders’ equity (deficit): |
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Common stock, $ |
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Authorized – |
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Issued and outstanding – |
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Accumulated other comprehensive income (loss) |
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( |
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( |
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Retained earnings (deficit) |
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( |
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( |
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Total shareholders’ equity (deficit) |
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( |
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( |
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Total liabilities, mezzanine equity and shareholders’ equity (deficit) |
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$ |
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$ |
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The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
3
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
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Nine Months Ended |
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September 30, |
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September 30, |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income (loss) |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net income (loss) to net cash provided (used) 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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Loss on deconsolidation of subsidiary |
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— |
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Loss on extinguishment of debt |
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— |
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Other noncash items |
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( |
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( |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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( |
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( |
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Inventories |
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( |
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( |
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Other assets and liabilities |
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Accounts payable |
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( |
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Income taxes |
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( |
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( |
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NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES |
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( |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Additions to property, plant, and equipment |
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( |
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( |
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Deconsolidation of subsidiary cash |
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— |
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( |
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NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES |
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( |
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( |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from issuance of long-term debt |
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— |
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Repayments of debt |
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( |
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( |
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Proceeds from borrowings on revolving credit facility |
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— |
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Repayments of borrowings on revolving credit facility |
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( |
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— |
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Cash dividends paid |
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( |
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( |
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Financing costs paid and other |
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( |
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( |
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Redemption premium paid on term loan repayment |
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( |
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— |
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Payments related to tax withholdings for stock-based compensation |
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( |
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( |
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Finance lease payments |
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( |
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( |
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NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES |
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( |
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( |
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Effect of exchange rate changes on cash |
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( |
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Net changes in cash and cash equivalents |
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( |
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( |
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Cash and cash equivalents at the beginning of the period |
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Cash and cash equivalents at the end of the period |
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$ |
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$ |
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Supplemental Cash Flow Information |
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Cash paid during the period for interest |
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$ |
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$ |
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Cash paid during the period for income taxes, net of refunds |
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$ |
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$ |
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Non-cash Investing Activities |
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Period end balance of accounts payable for property, plant, and equipment |
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$ |
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$ |
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Non-cash Financing Activities |
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Debt modification |
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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)
(Unaudited)
For the three months ended September 30, 2024 |
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Common Stock |
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Accumulated Other Comprehensive Income (Loss) |
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Number of |
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Amount |
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Cumulative |
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Hedging Instruments |
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Pension |
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Retained |
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Total |
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BALANCE AT JULY 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 income (loss) |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Change in accumulated other comprehensive |
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— |
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— |
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( |
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( |
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— |
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( |
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Common stock issued, net of shares |
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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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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Redeemable preferred |
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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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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 SEPTEMBER 30, 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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For the nine months ended September 30, 2024 |
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Common Stock |
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Accumulated Other Comprehensive Income (Loss) |
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Number of |
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Amount |
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Cumulative |
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Hedging Instruments |
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Pension |
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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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$ |
( |
) |
||||
Net income (loss) |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Change in accumulated other comprehensive |
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— |
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— |
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( |
) |
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( |
) |
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— |
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( |
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Common stock issued, net of shares |
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|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Redeemable preferred |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Noncontrolling redeemable equity |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
BALANCE AT SEPTEMBER 30, 2024 |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
||||
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
5
For the three months ended September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Common Stock |
|
|
Accumulated Other Comprehensive Income (Loss) |
|
|
|
|
|
|
|
||||||||||||||||
|
|
Number of |
|
|
Amount |
|
|
Cumulative |
|
|
Hedging Instruments |
|
|
Pension |
|
|
Retained |
|
|
Total |
|
|||||||
BALANCE AT JULY 1, 2023 |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Change in accumulated other comprehensive |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Common stock issued, net of shares |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Redeemable preferred |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Noncontrolling redeemable equity |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
BALANCE AT SEPTEMBER 30, 2023 |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
For the nine months ended September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
Common Stock |
|
|
Accumulated Other Comprehensive Income (Loss) |
|
|
|
|
|
|
|
||||||||||||||||
|
|
Number of |
|
|
Amount |
|
|
Cumulative |
|
|
Hedging Instruments |
|
|
Pension |
|
|
Retained |
|
|
Total |
|
|||||||
BALANCE AT JANUARY 1, 2023 |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
||||
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Change in accumulated other comprehensive |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Common stock issued, net of shares |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Redeemable preferred |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Noncontrolling redeemable equity |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
BALANCE AT SEPTEMBER 30, 2023 |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
||||
The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
6
Superior Industries International, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2024
(in thousands, except share or per share amounts, or as otherwise noted)
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” or “Superior”) 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. The Company’s aluminum wheels are primarily sold to OEMs for factory installation on new light vehicles. Aluminum wheels sold in the European aftermarket are under the brands ATS, RIAL, ALUTEC and ANZIO. North America and Europe represent the primary markets for the Company’s products, but it has a diversified global customer base consisting of North American, European, and Asian OEMs.
Presentation of Condensed Consolidated Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“U.S. 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 include all adjustments, of a normal and recurring nature, which management believes are necessary for fair presentation of the financial statements. This Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the Securities and Exchange Commission on March 7, 2024 (the “2023 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 the use of 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 future results. Additionally, operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.
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 effects 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 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 effects of adopting this guidance.
7
NOTE 2 – REVENUE
The Company disaggregates revenue from contracts with customers by its reportable segments, North America and Europe. Revenues by segment for the three and nine months ended September 30, 2024 and 2023 are summarized in Note 5, “Business Segments.”
The opening and closing balances of customer receivables and current and long-term contract liabilities balances are as follows:
|
|
September 30, |
|
|
December 31, |
|
|
Change |
|
|||
Customer receivables |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Contract liabilities—current |
|
|
|
|
|
|
|
|
|
|||
Contract liabilities—noncurrent |
|
|
|
|
|
|
|
|
( |
) |
||
NOTE 3 - DERIVATIVE FINANCIAL INSTRUMENTS
Market Risks
Foreign Currency Exchange Rate Risk
The Company has manufacturing locations primarily in Mexico and Poland, and sells its products globally. As a result, the Company’s financial results could be significantly affected by foreign currency exchange rates. To help mitigate gross margin and cash flow fluctuations due to changes in foreign currency exchange rates, certain subsidiaries in Mexico and Poland, 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. The Company may hedge portions of its forecasted foreign currency exposure up to
Interest Rate Risk
The Company has borrowings under its Senior Secured Credit Facilities that are at variable rates of interest and expose it to interest rate risk. If interest rates increase, debt service obligations on the variable rate indebtedness will increase even though the amount borrowed remains the same. The Company has entered into interest rate swaps exchanging floating for fixed-rate interest payments in order to reduce its interest rate volatility.
Commodity Price Risk
The principal raw material used in manufacturing aluminum wheels is aluminum alloys. While wheel prices under OEM customer contracts are adjusted for fluctuations in the cost of this material, the prices of its aftermarket wheels are generally fixed months in advance of the spring and winter sales seasons. Accordingly, the Company hedges a portion of its aftermarket aluminum purchases to offset the effect of fluctuating aluminum cost on its margins. In addition, the manufacture of aluminum wheels is energy-intensive, so the Company fixes a portion of its natural gas and electricity purchases with derivatives or contractual arrangements with energy suppliers.
Derivative Financial Instruments
The Company has derivatives designated as cash flow hedges that hedge the exposure to variability in expected future cash flows. These derivatives are accounted for as either assets or liabilities and adjusted to fair value each period with the resulting gain or loss recognized in other comprehensive income or loss (“OCI” or “OCL”) until the underlying hedged transaction is recognized in earnings. Once the hedged transaction is recognized in earnings for foreign exchange and commodity derivatives, the gain or loss initially recorded in accumulated OCI or OCL is recognized in cost of sales, while gains or losses on interest rate swaps are recognized in interest expense, net. Derivatives that have not been designated as hedges are adjusted to fair value each period and any gain or loss is recognized in other income (expense), net.
The Company has also recorded a derivative liability related to an embedded feature within the redeemable preferred stock (refer to Note 10 “Redeemable Shares”) and the term loan facility (refer to Note 8 “Debt”).
8
The following tables display the fair value of derivatives by financial statement line item as of September 30, 2024 and December 31, 2023:
|
|
September 30, 2024 |
|
|||||||||||||
|
|
Current Derivative Financial Instruments |
|
|
Derivative Financial Instruments |
|
|
Accrued |
|
|
Other |
|
||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign exchange contracts |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Commodity contracts |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate contracts |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign exchange contracts |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Embedded derivative contracts |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Total derivative financial instruments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
December 31, 2023 |
|
|||||||||||||
|
|
Current Derivative Financial Instruments |
|
|
Derivative Financial Instruments |
|
|
Accrued |
|
|
Other |
|
||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign exchange contracts |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Commodity contracts |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate contracts |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign exchange contracts |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Total derivative financial instruments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following table summarizes the notional amount of the Company’s derivative financial instruments as of September 30, 2024 and December 31, 2023:
|
|
Notional Amount |
|
|||||
|
|
September 30, |
|
|
December 31, |
|
||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
||
Foreign exchange contracts |
|
$ |
|
|
$ |
|
||
Commodity contracts |
|
|
|
|
|
|
||
Interest rate contracts |
|
|
|
|
|
|
||
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
||
Foreign exchange contracts |
|
|
|
|
|
|
||
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 the 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.
9
The following table summarizes the gain or loss recognized in OCI or OCL, the amounts reclassified from accumulated OCI or OCL into earnings, and the amounts recognized directly into earnings for the three and nine months ended September 30, 2024 and 2023:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amount of gain or (loss) recognized in OCI on derivatives, net of tax |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Amount of pre-tax gain or (loss) reclassified from accumulated OCI into: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amount of pre-tax gain or (loss) recognized in other income (expense), net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
NOTE 4 – FAIR VALUE MEASUREMENTS
Assets and Fair Values Measured at Fair Value on a Recurring Basis
Asset and Liability Instruments
The carrying values 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
The Company has over-the-counter customized derivative instruments and are not exchange-traded. The fair value of these instruments is estimated using the income valuation approach, which projects future cash flows and discounts 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.
The fair value measurements of certain derivative liabilities rely primarily on Company-specific inputs, as observable inputs are not available.
The following tables categorize items measured at fair value as of September 30, 2024 and December 31, 2023:
|
|
Fair Value Hierarchy |
|
September 30, |
|
|
December 31, |
|
||
|
Level 2 |
|
$ |
|
|
$ |
|
|||
|
Level 2 |
|
$ |
|
|
$ |
|
|||
|
Level 3 |
|
$ |
|
|
$ |
— |
|
||
Financial Instruments Not Carried at Fair Value
Debt Instruments
The carrying values of the Company’s debt instruments differ from their fair values. The fair values are determined by reference to transacted prices and quotes for these instruments (Level 2).
|
|
September 30, |
|
|
December 31, |
|
||
Estimated fair value |
|
$ |
|
|
$ |
|
||
Carrying value |
|
|
|
|
|
|
||
10
NOTE 5 - BUSINESS SEGMENTS
North America and Europe comprise the Company’s reportable segments. Segment results for the three and nine months ended September 30, 2024 and 2023 were as follows:
|
|
Net Sales |
|
|
Depreciation and Amortization |
|
|
Income (Loss) from Operations |
|
|||||||||||||||
Three Months Ended |
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
||||||
North America |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Net Sales |
|
|
Depreciation and Amortization |
|
|
Income (Loss) from Operations |
|
|||||||||||||||
Nine Months Ended |
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
||||||
North America |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Total Assets |
|
|||||
|
|
September 30, |
|
|
December 31, |
|
||
North America |
|
$ |
|
|
$ |
|
||
Europe |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
NOTE 6 - INVENTORIES
Inventory by major classification as of September 30, 2024 and December 31, 2023 was as follows:
|
|
September 30, |
|
|
December 31, |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in process |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Inventories, net |
|
$ |
|
|
$ |
|
||
Service wheel and supplies inventory are included in other noncurrent assets and were $
NOTE 7 – INTANGIBLE ASSETS
Amortization for the three and nine months ended September 30, 2024 and 2023 were as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
||||
Amortization expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Annual Anticipated Future Amortization |
|
Amount |
|
|
Three Remaining Months of 2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Total anticipated future amortization |
|
$ |
|
|
|
|
|
|
|
11
NOTE 8 – DEBT
A summary of the Company’s long-term obligations as of September 30, 2024 and December 31, 2023 are as follows:
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||||||||||
|
|
Principal |
|
|
Carrying Value |
|
|
Principal |
|
|
Carrying Value |
|
||||
Senior Secured Credit Facilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revolving Credit Facility |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Term Loan Facility |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Senior Notes: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|||
Other debt: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
European CapEx loans |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Finance leases |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Less: Current portion of long-term debt |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Long-term debt |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Debt maturities as of September 30, 2024, which are due in the next five years are as follows:
Debt Maturities |
|
Amount |
|
|
Three remaining months of 2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Total debt liabilities |
|
$ |
|
|
Senior Secured Credit Facilities
On December 15, 2022, the Company entered into a $
On August 14, 2024, the Company amended and restated the 2022 Term Loan Credit Agreement in the form of an amended and restated credit agreement, by and among Oaktree Fund Administration L.L.C., in its capacity as the administrative agent, JPMorgan Chase Bank, N.A., in its capacity as a collateral agent, and the lenders party thereto (the “Amended and Restated Term Loan Credit Agreement” and, together with the Revolving Credit Agreement, the “Credit Agreements”), pursuant to which the Company incurred a new $
During the three and nine months ended September 30, 2024, the Company recognized a $
Simultaneously with the execution of the Amended and Restated Term Loan Credit Agreement, the Company amended the Revolving Credit Facility pursuant to the First Amendment to Credit Agreement to, among other things (i) amend the financial covenants contained in the Revolving Credit Agreement, (ii) amend the maturity date applicable to the revolving commitments to remove the springing maturity applicable, thereto and (iii) require that the borrowings under the Revolving Credit Agreement be repaid in the event the Company holds cash in excess of a certain threshold. The revolving commitments will mature on
Prepayments
Amounts borrowed under the Term Loan Facility may be voluntarily prepaid subject to a prepayment premium of
12
The Credit Agreements include certain mandatory prepayment provisions, including, among others, a requirement (i) to prepay amounts outstanding under the Revolving Credit Facility, if any, with any cash on hand in excess of $
The Amended and Restated Term Loan Credit Agreement contains a mandatory prepayment provision upon the event of default, which the Company has accounted for separately as a derivative liability. As of September 30, 2024, the Company has recorded a derivative liability of $
Interest Rates
Borrowings under the Amended and Restated 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
As of September 30, 2024, the interest rate in effect on borrowings under the Amended and Restated Term Loan Credit Facility was
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
The Company’s obligations under the Credit Agreements are unconditionally guaranteed by all material 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 the Company’s 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 Credit Agreements are secured by liens on a pari passu basis, but the obligations under the Revolving Credit Agreement have payment priority over the obligations under the Term Loan Credit Agreement.
Covenants
The Credit Agreements contain a number of restrictive covenants that, among other things, restrict, subject to certain exceptions, the Company’s 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 its capital stock. The Credit Agreements also restrict the Company’s ability to prepay, redeem or repurchase any subordinated indebtedness or preferred stock, enter into agreements that limit its ability to incur liens on its assets or that restrict the ability of restricted subsidiaries to pay dividends or make other restricted payments, and enter into certain transactions with its affiliates.
13
The Amended and Restated Term Loan Credit Agreement requires the Company to maintain:
The Revolving Credit Agreement requires the Company to maintain:
Additionally, if the Company pays the preferred stock dividends in cash to the preferred shareholders, the Credit Agreements require it to maintain a Fixed Charge Coverage Ratio (as defined in the Credit Agreements) to be less than
The Credit Agreements contain customary default provisions that include among other things: non-payment 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 September 30, 2024, the Company was in compliance with all covenants under the Credit Agreements.
Available Unused Commitments under the Revolving Credit Facility
As of September 30, 2024, the Company had
Senior Notes
On June 15, 2017, the Company issued €
European Debt
In connection with the acquisition of UNIWHEELS AG in 2017, the Company assumed $
14
NOTE 9 - SUPPLIER FINANCE PROGRAM
NOTE 10 - REDEEMABLE SHARES
Preferred Stock
During the three and nine months ended September 30, 2024, preferred stock dividends of $
The preferred shares will continue to accrue dividends at
The redeemable preferred stock may be redeemed at the holder’s election on or after
As of September 30, 2024, there have been no changes in the preferred shareholder rights, including conversion and redemption rights from those described in the Company’s 2023 Form 10-K.
Noncontrolling Redeemable Equity
The Company has a noncontrolling interest that is currently redeemable. It is presented in the temporary equity section of the condensed consolidated balance sheets and is adjusted to its redemption value at the end of each reporting period.
NOTE 11 – 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 10, “Redeemable Shares” (convertible into
15
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
||||
(Dollars in thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) attributable to common shareholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Redeemable preferred stock dividends and accretion |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Noncontrolling redeemable equity dividend |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Basic numerator |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares outstanding – Basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of common share equivalents |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Weighted average shares outstanding – Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic earnings (loss) per share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Diluted earnings (loss) per share |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
NOTE 12 - INCOME TAXES
For interim periods, we generally utilize the estimated annual effective tax rate method under which 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.
For the three and nine months ended September 30, 2024, we used the discrete period computation method. Use of the estimated annual effective tax rate method would not have provided a reliable estimate as small changes in the forecasted ordinary annual income resulted in significant changes in the estimated annual effective tax rate.
The income tax provision for the three and nine months ended September 30, 2024 was $
The income taxes for the three and nine months ended September 30, 2023 was a $
The Company continuously evaluates the realizability of its net deferred tax assets. As of September 30, 2024, certain U.S. and substantially all its German deferred tax assets, net of deferred tax liabilities, were subject to valuation allowances.
The Organization for Economic Co-operation and Development issued Pillar Two model rules introducing a new global minimum tax of
16
NOTE 13 - 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 the 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 the condensed consolidated balance sheets.
Right-of-use (“ROU”) assets represent the right to use an underlying asset for the lease term and lease liabilities represent the 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 the Company generally does not have access to the interest rate implicit in the lease, it uses its 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, vehicles, and certain equipment. The remaining terms of the Company’s leases range from less than
Lease expense and cash flow for the three and nine months ended September 30, 2024 and 2023 are as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
||||
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 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating and finance lease assets and liabilities, average lease term, and average discount rate as of September 30, 2024 and December 31, 2023 are as follows:
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
||
Balance Sheet Information |
|
|
|
|
|
|
|
|
|
|
||
Operating leases: |
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
||
Finance leases: |
|
|
|
|
|
|
|
|
|
|
||
Property, plant and equipment gross |
|
|
|
|
|
$ |
|
|
$ |
|
||
Accumulated depreciation |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
||
17
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 |
|
|
|
|
|
|
% |
|
|
% |
||
Future minimum payments under our leases as of September 30, 2024 are as follows:
|
|
|
|
|
|
Amount |
|
|||||
Lease Maturities |
|
|
|
|
|
Finance Leases |
|
|
Operating Leases |
|
||
Three remaining months of 2024 |
|
|
|
|
|
$ |
|
|
$ |
|
||
2025 |
|
|
|
|
|
|
|
|
|
|
||
2026 |
|
|
|
|
|
|
|
|
|
|
||
2027 |
|
|
|
|
|
|
|
|
|
|
||
2028 |
|
|
|
|
|
|
|
|
|
- |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
||
Less: Imputed interest |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
Total lease liabilities, net of interest |
|
|
|
|
|
$ |
|
|
$ |
|
||
NOTE 14 - STOCK-BASED COMPENSATION
The Company’s 2018 Equity Incentive Plan (the “Plan”), as amended, authorizes it 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
Stock-based compensation expense is recognized in selling, general and administrative expenses in the condensed consolidated statement of income (loss). Total compensation expense for the three and nine months ended September 30, 2024 and 2023 is as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
||||
Stock compensation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
RSU and PSU activity for the nine months ended September 30, 2024 is summarized in the following table:
|
|
Equity Incentive Awards |
|
|||||||||||||
|
|
Restricted |
|
|
Weighted |
|
|
Performance |
|
|
Weighted |
|
||||
Balance at January 1, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Settled |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Balance at September 30, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Awards estimated to vest in the future |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
18
NOTE 15 – COMMITMENTS AND CONTINGENCIES
Purchase Commitments
When market conditions warrant, the Company may enter into purchase commitments to secure the supply of certain commodities used in the manufacturing process of its products, such as aluminum, electricity, natural gas, and other raw materials. Prices under the Company’s 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 purchase agreements include volume commitments; however, any excess commitments are generally negotiated with suppliers, and those that have occurred in the past have been carried over to future periods.
Contingencies
The Company is party to various legal and environmental proceedings incidental to its business. Certain claims, suits and complaints arising in the ordinary course of business have been filed or are pending against the Company. Based on facts now known, except as provided below, it believes all such matters are adequately provided for, covered by insurance, are without merit and/or involve such amounts that would not materially adversely affect the 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, it could be subject to a fine or civil proceedings. At this point, the Company is unable to predict the duration or the outcome of the investigation.
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 that 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 asserted 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 developments at an appellate hearing, the Company has concluded that an adverse judgment is now probable. Accordingly, the Company has recognized a provision of $
NOTE 16 – RECEIVABLES FACTORING
The Company sells certain customer trade receivables on a non-recourse basis as a “true sale” under factoring arrangements with designated financial institutions and cash proceeds are included in cash provided by operating activities. The Company’s ongoing involvement under the factoring arrangements is limited to processing of customer payments on the factored receivables. Factoring arrangements incorporate customary representations and warranties, including representations as to validity of amounts due, completeness of performance obligations and absence of commercial disputes.
During the three months ended September 30, 2024 and 2023, the Company sold trade receivables totaling $
As of September 30, 2024 and December 31, 2023, receivables of $
19
NOTE 17 – RESTRUCTURING
The Company initiates restructuring activities to execute management’s strategy, such as gaining operational efficiencies and achieving net cost reductions. Restructuring charges primarily consist of employee severance costs. During the three and nine months ended September 30, 2024, the Company recognized net restructuring charges of $
During 2023, the Company initiated a program to reduce its global workforce to better align the cost structure with lower automotive industry production levels and recognized net restructuring charges of $
The changes in the restructuring reserve balance for the three and nine months ended September 30, 2024 and 2023 were as follows:
|
|
2024 |
|
|
2023 |
|
||
Balance at beginning of period |
|
$ |
|
|
$ |
— |
|
|
Revision to previous estimates |
|
|
( |
) |
|
|
|
|
Cash payment |
|
|
( |
) |
|
|
— |
|
Foreign exchange |
|
|
( |
) |
|
|
— |
|
Balance at March 31 |
|
|
|
|
|
|
||
Provision |
|
|
|
|
|
|
||
Cash payment |
|
|
( |
) |
|
|
— |
|
Foreign exchange |
|
|
( |
) |
|
|
— |
|
Balance at June 30 |
|
|
|
|
|
|
||
Provision |
|
|
|
|
|
|
||
Cash payment |
|
|
( |
) |
|
|
( |
) |
SPG deconsolidation |
|
|
— |
|
|
|
( |
) |
Foreign exchange |
|
|
|
|
|
( |
) |
|
Balance at end of period |
|
$ |
|
|
$ |
|
||
On October 23, 2024, the Board of Directors of the Company approved a restructuring plan designed to align its cost structure with the forecasted light vehicle industry volumes. Pursuant to the plan, the Company will reduce its headcount globally. The Company began implementing headcount reductions on October 28, 2024 and expects these actions to continue through early February 2025. The Company expects to record a charge in the range of $
NOTE 18 – RECEIVABLE FROM SPG BANKRUPTCY ESTATE
On August 31, 2023, the Company’s then-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). Effective August 31, 2023, the Company no longer controls SPG and deconsolidated the subsidiary, therefore, it is no longer included in the Company’s condensed consolidated financial statements.
On October 1, 2024, the Company and the insolvency administrator entered into a final settlement agreement to settle certain losses incurred by SPG as a result of continuing production to ensure the Company’s supply to its customers.
As of September 30, 2024 and December 31, 2023, the Company’s receivable due from the SPG bankruptcy estate was $
20
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 increase in cost of raw materials, labor and energy, supply chain disruptions, material shortages, higher interest rates, the effect of geopolitical conflicts, such as the Russian military invasion of Ukraine (the “Ukraine Conflict”), 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 (the “2023 Form 10-K”) 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 2023 Form 10-K.
Executive Overview
Overview of Superior
The principal business of Superior Industries International, Inc. (referred herein as the “Company,” “Superior,” or “we”, “us”, 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. Our aluminum wheels are primarily sold to OEMs for factory installation on new light vehicles. We also sell aluminum wheels to the European aftermarket under the brands ATS, RIAL, ALUTEC and ANZIO. North America and Europe represent the primary 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.
On August 31, 2023, our then-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). Effective August 31, 2023, we no longer control SPG and deconsolidated the subsidiary, therefore, it is no longer included in our consolidated financial statements. Refer to Note 22 – “Loss on Deconsolidation of Subsidiary” in Part II, Item 8. “Financial Statements and Supplementary Data” of our 2023 Form 10-K for additional information. With the deconsolidation of SPG, we relocated our wheel production from Germany to Poland (the “European Transformation”).
21
GM, Ford, Toyota and VW Group each individually accounted for 10% or more of our consolidated net sales for the three and nine months ended September 30, 2024 and 2023. Net sales to VW Group for the three and nine months ended September 30, 2024 reflect the effect of the deconsolidation of the financial results of our manufacturing facility in Germany. Our sales to these customers were as follows:
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
||||
Percent of Sales |
|
2024 |
|
2023 |
|
2024 |
|
2023 |
GM |
|
26% |
|
20% |
|
25% |
|
20% |
Ford |
|
17% |
|
17% |
|
16% |
|
15% |
Toyota |
|
12% |
|
11% |
|
12% |
|
11% |
VW Group |
|
12% |
|
13% |
|
11% |
|
16% |
Industry Overview, Supply Chain Disruption, and the Ukraine Conflict
There is a broad range of factors which affect 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, energy 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 affected by supply chain disruptions and cost inflation that emerged following the COVID-19 global pandemic, which led to operating challenges for the automotive supplier base. The supply chain disruptions included shortages of semiconductors. Cost inflation has moderated somewhat but remains higher than pre-pandemic levels and has resulted in an increase in the cost of raw materials, labor, and energy. In addition, higher interest rates have adversely affected, and will likely continue to affect, our earnings and cash flow from operations.
In early 2022, the Ukraine Conflict contributed to order volatility and intensified inflationary cost pressures, specifically the cost of energy. While the cost of energy moderated in 2023, it remains higher in Europe than prices prevailing prior to the pandemic and the Ukraine Conflict.
The prices under our OEM contracts are adjusted for changes in the cost of aluminum and certain other costs; however, 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 affecting our results of operations and cash flow from operations.
Automotive industry production volumes in the North American and Western and Central European regions in the three and nine months ended September 30, 2024 (as published in October 2024 by IHS for Light Vehicles, an automotive industry analyst), as compared to the corresponding period of 2023, are shown below:
Three Months Ended |
|
September 30, |
|
|
2024 vs 2023 |
||||
(Units in thousands) |
|
2024 |
|
2023 |
|
|
% Change |
||
North America |
|
|
3,756 |
|
|
3,943 |
|
|
(4.7%) |
Western and Central Europe |
|
|
3,066 |
|
|
3,278 |
|
|
(6.5%) |
Total |
|
|
6,822 |
|
|
7,221 |
|
|
(5.5%) |
Nine Months Ended |
|
|
|
|
|
|
|
||
(Units in thousands) |
|
|
|
|
|
|
|
||
North America |
|
|
11,825 |
|
|
11,920 |
|
|
(0.8%) |
Western and Central Europe |
|
|
10,825 |
|
|
11,404 |
|
|
(5.1%) |
Total |
|
|
22,650 |
|
|
23,324 |
|
|
(2.9%) |
Automotive industry production volumes in our primary markets declined 5.5% in the three months ended September 30, 2024 (declining 6.5% in Western and Central Europe and 4.7% in North America) and were 13.6% lower than 2019 pre-pandemic levels. Production volumes of our key customers decreased 1.6% (a decline of 2.1% in North America and a decline of 0.3% in Western and Central Europe).
Automotive industry production volumes in our primary markets declined 2.9% in the nine months ended September 30, 2024 (a decline of 5.1% in Western and Central Europe and a decline 0.8% in North America) and were 12.9% lower than 2019 pre-pandemic
22
levels. Production volumes of our key customers decreased 0.6% (declining 5.1% in Western and Central Europe, partially offset by an increase of 1.9% in North America).
The IHS October 2024 forecast projects that production volumes in our primary markets are expected to decline 4.0% in 2024 (a decline of 6.6% in Western and Central Europe and a decline of 1.4% in North America) and are expected to be 12.7% below pre-pandemic levels. IHS forecasts production volumes of our key customers to decrease 0.9% (a decline of 6.0% in Western and Central Europe, partially offset by an increase of 1.9% in North America).
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.
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 Third Quarter of 2024
The following charts show the operational performance in the quarter ended September 30, 2024 in comparison to the quarter ended September 30, 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).
23
Results of Operations
|
|
Three Months Ended |
|
|
|
|
||||||
|
|
September 30, |
|
|
September 30, |
|
|
Net |
|
|||
(Dollars in thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|||
Net sales |
|
$ |
321,757 |
|
|
$ |
323,077 |
|
|
|
(1,320 |
) |
Cost of sales |
|
|
293,123 |
|
|
|
297,788 |
|
|
|
4,665 |
|
Gross profit |
|
|
28,634 |
|
|
|
25,289 |
|
|
|
3,345 |
|
Gross profit percentage |
|
|
8.9 |
% |
|
|
7.8 |
% |
|
|
1.1 |
% |
Selling, general and administrative expenses |
|
|
23,900 |
|
|
|
16,857 |
|
|
|
(7,043 |
) |
Loss on deconsolidation of subsidiary |
|
|
— |
|
|
|
79,629 |
|
|
|
79,629 |
|
Income (loss) from operations |
|
|
4,734 |
|
|
|
(71,197 |
) |
|
|
75,931 |
|
Interest expense, net |
|
|
(17,857 |
) |
|
|
(15,678 |
) |
|
|
(2,179 |
) |
Loss on extinguishment of debt |
|
|
(13,052 |
) |
|
|
— |
|
|
|
(13,052 |
) |
Other income (expense), net |
|
|
2,297 |
|
|
|
179 |
|
|
|
2,118 |
|
Income tax (provision) benefit |
|
|
(875 |
) |
|
|
379 |
|
|
|
(1,254 |
) |
Net income (loss) |
|
$ |
(24,753 |
) |
|
$ |
(86,317 |
) |
|
$ |
61,564 |
|
Diluted earnings (loss) per share |
|
$ |
(1.24 |
) |
|
$ |
(3.42 |
) |
|
$ |
2.18 |
|
|
|
|
|
|
|
|
|
|
|
|||
Value added sales (1) |
|
$ |
171,020 |
|
|
$ |
176,009 |
|
|
$ |
(4,989 |
) |
Value added sales adjusted for foreign exchange (1) |
|
$ |
170,058 |
|
|
$ |
176,009 |
|
|
$ |
(5,951 |
) |
Adjusted EBITDA (2) |
|
$ |
40,799 |
|
|
$ |
38,584 |
|
|
$ |
2,215 |
|
Percentage of net sales |
|
|
12.7 |
% |
|
|
11.9 |
% |
|
|
0.8 |
% |
Percentage of value added sales |
|
|
23.9 |
% |
|
|
21.9 |
% |
|
|
2.0 |
% |
Net Sales
Net sales for the third quarter of 2024 were $321.8 million, compared to net sales of $323.1 million for the same period in 2023, a decrease of 0.4%. The decrease in net sales was primarily due to lower volumes of $3.6 million and a lower pricing and product mix of $1.9 million, which was partially offset by higher aluminum pass throughs to our OEM customers of $3.6 million. The volume decline is primarily attributable to the decline in the Western and Central Europe markets and to a lesser extent the deconsolidation of the financial results of the manufacturing facility in Germany, which was partially offset by an increase in North America volumes despite a decrease in industry production volumes.
Value Added Sales Adjusted for Foreign Exchange
Value added sales adjusted for foreign exchange was $170.1 million for the third quarter of 2024 compared to value added sales of $176.0 million for the same period in 2023, a decrease of 3.4%.
Cost of Sales
Cost of sales was $293.1 million for the third quarter of 2024 compared to cost of sales of $297.8 million for the same period in 2023, a decrease of 1.6%. The decrease in cost of sales was primarily due to lower conversion costs of $5.6 million and lower volumes of $1.8 million, which was partially offset by a higher product mix of $2.7 million.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses of $23.9 million for the third quarter of 2024 increased $7.0 million compared to the same period in 2023 primarily due to the debt refinancing, and restructuring and restructuring-related costs associated with the European Transformation.
Loss on Deconsolidation of Subsidiary
On August 31, 2023 (the “Filing Date”), our then-owned subsidiary Superior Industries Production Germany GmbH (“SPG”) filed voluntary petitions for preliminary insolvency proceedings, seeking relief under the German Insolvency Code. Effective as of the
24
Filing Date, we deconsolidated SPG from our condensed consolidated financial statements, recognizing a charge to operations of $79.6 million during the three months ended September 30, 2023.
Interest Expense, Net
Net interest expense was $17.9 million for the third quarter of 2024 compared to net interest expense of $15.7 million for the same period in 2023, an increase of 13.9%. The increase in net interest expense was primarily due to the upsizing of the borrowings under the amended and restated term loan and an increase in interest expense on borrowings under the Revolving Credit Facility, which was partially offset by a decrease in interest related to the senior notes, which were redeemed during the three months ended September 30, 2024.
Loss on Extinguishment of Debt
Loss on extinguishment of debt for the third quarter of 2024 was $13.1 million related to the prepayment of our term loan facility in connection with the debt refinancing and redemption of the senior notes; refer to “Financial Condition, Liquidity and Capital Resources” within this Management’s Discussion and Analysis for additional information.
Other Income (Expense), Net
Other income was $2.3 million for the third quarter of 2024 compared to other income of $0.2 million for the same period in 2023. This was primarily due to foreign exchange gains of $3.5 million in the third quarter of 2024, as compared to foreign exchange gains of $0.6 million, which was partially offset by an increase in factoring fees of $1.1 million.
Income Tax (Provision) Benefit
The income tax provision for the third quarter of 2024 was $0.9 million on a pre-tax loss of $23.9 million, representing an effective income tax rate of (3.7%). This differs from the statutory rate primarily due to valuation allowances and the mix of earnings among tax jurisdictions. The income tax benefit for the third quarter of 2023 was $0.4 million on pre-tax loss of $86.7 million, representing an effective income tax rate of 0.4%. This differs from the statutory rate primarily due to valuation allowances and the mix of earnings among tax jurisdictions.
Net Income (Loss)
Net loss for the third quarter of 2024 was $24.8 million, or a $1.24 loss per diluted share, compared to a net loss of $86.3 million, or a $3.42 loss per diluted share, for the same period in 2023. The decrease in the net loss is attributable to the aforementioned items.
Segment Sales and Income from Operations
|
|
Three Months Ended |
|
|
|
|
||||||
|
|
September 30, |
|
|
September 30, |
|
|
Change |
|
|||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|||
Selected data |
|
|
|
|
|
|
|
|
|
|||
Net sales |
|
|
|
|
|
|
|
|
|
|||
North America |
|
$ |
206,233 |
|
|
$ |
194,873 |
|
|
$ |
11,360 |
|
Europe |
|
|
115,524 |
|
|
|
128,204 |
|
|
|
(12,680 |
) |
Total net sales |
|
$ |
321,757 |
|
|
$ |
323,077 |
|
|
$ |
(1,320 |
) |
Income (loss) from operations |
|
|
|
|
|
|
|
|
|
|||
North America |
|
$ |
13,893 |
|
|
$ |
14,286 |
|
|
$ |
(393 |
) |
Europe |
|
|
(9,159 |
) |
|
|
(85,483 |
) |
|
|
76,324 |
|
Total income (loss) from operations |
|
$ |
4,734 |
|
|
$ |
(71,197 |
) |
|
$ |
75,931 |
|
North America
Net sales for our North America segment for the third quarter of 2024 increased 5.8% compared to the same period in 2023. The $11.4 million increase in net sales was primarily due to higher aluminum cost pass throughs to our OEM customers of $6.8 million, higher volumes of $2.8 million, and a higher pricing and product mix of $2.0 million.
North America segment income from operations for the third quarter of 2024 decreased by $0.4 million, as compared to the same period in 2023, primarily due to higher SG&A expenses of $3.9 million primarily related to the debt refinancing, which was partially offset by lower conversion costs of $2.1 million, higher volumes of $0.8 million, and a higher pricing and product mix of $0.6 million.
25
Europe
Net sales for our European segment for the third quarter of 2024 decreased 9.9% compared to the same period in 2023. The $12.7 million decrease in net sales was primarily due to lower volumes of $6.4 million, a lower pricing and product mix of $3.9 million, and lower aluminum cost pass throughs to our OEM customers of $3.2 million. The decrease in volume was primarily attributable to the decline in the Western and Central European market and to a lesser extent the deconsolidation of the financial results of the manufacturing facility in Germany.
The European segment loss from operations for the third quarter of 2024 was $9.2 million as compared to the loss from operations of $85.5 million in the same period in 2023. This decrease was primarily due to the $79.6 million loss on deconsolidation of SPG, lower conversion costs of $7.7 million, which was partially offset by a lower pricing and product mix of $5.3 million, higher SG&A expenses of $3.2 million related to the European Transformation, and lower volumes of $2.5 million.
Overview of the First Nine Months of 2024
The following chart shows the operational performance in the nine months ended September 30, 2024 in comparison to the nine months ended September 30, 2023 ($ in millions):
26
Results of Operations
|
|
Nine Months Ended |
|
|
|
|
||||||
|
|
September 30, |
|
|
September 30, |
|
|
Net |
|
|||
(Dollars in thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|||
Net sales |
|
$ |
957,000 |
|
|
$ |
1,076,646 |
|
|
|
(119,646 |
) |
Cost of sales |
|
|
875,600 |
|
|
|
975,746 |
|
|
|
100,146 |
|
Gross profit |
|
|
81,400 |
|
|
|
100,900 |
|
|
|
(19,500 |
) |
Gross profit percentage |
|
|
8.5 |
% |
|
|
9.4 |
% |
|
|
(0.9 |
)% |
Selling, general and administrative expenses |
|
|
66,108 |
|
|
|
53,315 |
|
|
|
(12,793 |
) |
Loss on deconsolidation of subsidiary |
|
|
— |
|
|
|
79,629 |
|
|
|
79,629 |
|
Income (loss) from operations |
|
|
15,292 |
|
|
|
(32,044 |
) |
|
|
47,336 |
|
Interest expense, net |
|
|
(49,558 |
) |
|
|
(47,066 |
) |
|
|
(2,492 |
) |
Loss on extinguishment of debt |
|
|
(13,052 |
) |
|
|
— |
|
|
|
(13,052 |
) |
Other income (expense), net |
|
|
2,635 |
|
|
|
(2,608 |
) |
|
|
5,243 |
|
Income tax (provision) benefit |
|
|
(23,943 |
) |
|
|
(8,713 |
) |
|
|
(15,230 |
) |
Net income (loss) |
|
$ |
(68,626 |
) |
|
$ |
(90,431 |
) |
|
$ |
21,805 |
|
Diluted earnings (loss) per share |
|
$ |
(3.50 |
) |
|
$ |
(4.29 |
) |
|
$ |
0.79 |
|
|
|
|
|
|
|
|
|
|
|
|||
Value added sales (1) |
|
$ |
523,518 |
|
|
$ |
578,913 |
|
|
$ |
(55,395 |
) |
Value added sales adjusted for foreign exchange (1) |
|
$ |
522,497 |
|
|
$ |
578,913 |
|
|
$ |
(56,416 |
) |
Adjusted EBITDA (2) |
|
$ |
111,626 |
|
|
$ |
136,090 |
|
|
$ |
(24,464 |
) |
Percentage of net sales |
|
|
11.7 |
% |
|
|
12.6 |
% |
|
|
(0.9 |
)% |
Percentage of value added sales |
|
|
21.3 |
% |
|
|
23.5 |
% |
|
|
(2.2 |
)% |
Net Sales
Net sales for the first nine months of 2024 were $957.0 million, compared to net sales of $1,076.6 million for the same period in 2023, a decrease of 11.1%. The decrease in net sales was primarily due to lower aluminum pass throughs to our OEM customers of $64.3 million, lower volumes of $39.3 million, and a lower pricing and product mix of $16.8 million. The volume decline is primarily attributable to the deconsolidation of the financial results of the manufacturing facility in Germany, the decline in our primary markets, and the exit from an unprofitable contract with one of our customers during 2023.
Value Added Sales Adjusted for Foreign Exchange
Value added sales adjusted for foreign exchange was $522.5 million for the first nine months of 2024 compared to value added sales adjusted for foreign exchange of $578.9 million for the same period in 2023, a decrease of 9.7%.
Cost of Sales
Cost of sales was $875.6 million for the first nine months of 2024 compared to cost of sales of $975.7 million for the same period in 2023, a decrease of 10.3%. The decrease in cost of sales was due to lower conversion costs of $81.1 million and lower volumes of $23.2 million, which was partially offset by a higher product mix of $4.2 million.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses were $66.1 million for the first nine months of 2024 as compared to $53.3 million for the same period in 2023, an increase of $12.8 million. This increase was primarily due to restructuring and restructuring-related costs associated with the European Transformation and the debt refinancing.
27
Loss on Deconsolidation of Subsidiary
On August 31, 2023 (the “Filing Date”), our then-owned subsidiary Superior Industries Production Germany GmbH (“SPG”) filed voluntary petitions for preliminary insolvency proceedings, seeking relief under the German Insolvency Code. Effective as of the Filing Date, we deconsolidated SPG from our condensed consolidated financial statements, recognizing a charge to operations of $79.6 million during the nine months ended September 30, 2023.
Interest Expense, Net
Net interest expense was $49.6 million for the first nine months of 2024 compared to net interest expense of $47.1 million for the same period in 2023, an increase of 5.3%. The increase in net interest expense was primarily due to the upsizing of the borrowings under the amended and restated term loan and an increase in interest expense on borrowings under the Revolving Credit Facility, which was partially offset by a decrease in interest related to the senior notes, which were redeemed during the nine months ended September 30, 2024.
Loss on Extinguishment of Debt
Loss on extinguishment of debt for the first nine months of 2024 was $13.1 million related to the prepayment of our term loan facility in connection with the debt refinancing and redemption of the senior notes; refer to “Financial Condition, Liquidity and Capital Resources” within this Management’s Discussion and Analysis for additional information.
Other Income (Expense), Net
Other income was $2.6 million in the first nine months of 2024 compared to other expense of $2.6 million for the same period in 2023. This was primarily due to higher foreign exchange gains of $4.0 million in the first nine months of 2024 and an unfavorable adjustment to a casualty loss recovery of $1.4 million in the same period in 2023.
Income Tax (Provision) Benefit
The income tax provision for the first nine months of 2024 was $23.9 million on a pre-tax loss of $44.7 million, representing an effective income tax rate of (53.6%). The effective income tax rate for the first nine months of 2024 differs from the statutory rate primarily due to valuation allowances, the reversal of an uncertain tax position, the mix of earnings among tax jurisdictions, and a tax charge affecting deferred tax assets related to tax restructuring of $17.8 million. The income tax provision for the first nine months of 2023 was $8.7 million on a pre-tax loss of $81.7 million, representing an effective income tax rate of (10.7%). 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 nine months of 2024 was $68.6 million, or a $3.50 loss per diluted share, compared to a net loss of $90.4 million, or $4.29 loss per diluted share, for the same period in 2023. The decrease in net loss was attributable to the aforementioned items.
Segment Sales and Income from Operations
|
|
Nine Months Ended |
|
|
|
|
||||||
|
|
September 30, |
|
|
September 30, |
|
|
Change |
|
|||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|||
Selected data |
|
|
|
|
|
|
|
|
|
|||
Net sales |
|
|
|
|
|
|
|
|
|
|||
North America |
|
$ |
602,944 |
|
|
$ |
614,696 |
|
|
$ |
(11,752 |
) |
Europe |
|
|
354,056 |
|
|
|
461,950 |
|
|
|
(107,894 |
) |
Total net sales |
|
$ |
957,000 |
|
|
$ |
1,076,646 |
|
|
$ |
(119,646 |
) |
Income (loss) from operations |
|
|
|
|
|
|
|
|
|
|||
North America |
|
$ |
35,170 |
|
|
$ |
57,505 |
|
|
$ |
(22,335 |
) |
Europe |
|
|
(19,878 |
) |
|
|
(89,549 |
) |
|
|
69,671 |
|
Total income (loss) from operations |
|
$ |
15,292 |
|
|
$ |
(32,044 |
) |
|
$ |
47,336 |
|
North America
Net sales for our North American segment for the first nine months of 2024 decreased 1.9% compared to the same period in 2023. The $11.8 million decrease in net sales was primarily due to lower aluminum cost pass throughs to our OEM customers of $14.9 million and a lower pricing and product mix of $6.2 million, which was partially offset by higher volumes of $9.0 million.
North American segment income from operations for the first nine months of 2024 decreased by $22.3 million, as compared to the same period in 2023, primarily due to a lower pricing and product mix of $11.4 million, higher conversion costs of $7.6 million,
28
higher SG&A expenses of $6.6 million primarily due to the debt refinancing, which was partially offset by higher volumes of $3.3 million.
Europe
Net sales for our European segment for the first nine months of 2024 decreased 23.4% compared to the same period in 2023. The $107.9 million decrease in net sales was due to lower aluminum cost pass throughs to our OEM customers of $49.4 million, lower volumes of $48.3 million, and a lower pricing and product mix of $10.6 million. The decline in volume was primarily attributable to the deconsolidation of the financial results of the manufacturing facility in Germany, the decline in the Western and Central European market, and the exit from an unprofitable contract with one of our customers during 2023.
The European segment loss from operations for the first nine months of 2024 was $69.7 million lower than the same period in 2023. The decrease in the loss from operations was primarily due to the $79.6 million loss on deconsolidation of SPG, lower conversion costs of $25.0 million, which was partially offset by lower volumes of $19.3 million, a lower pricing and product mix of $9.5 million, and higher SG&A expenses of $6.2 million related to the European Transformation.
Financial Condition, Liquidity and Capital Resources
Our working capital requirements, investing activities and preferred stock cash dividend payments have historically been funded by cash flow from operations.
Capital expenditures relate to improving production quality and efficiency and extending the useful lives of our existing equipment, and expenditures for new product offerings, as well as expanded capacity for existing products. During 2024, we expect that capital expenditures will be approximately between $30.0 million and $40.0 million.
As of September 30, 2024 our primary sources of liquidity include the following:
Total Available Liquidity at September 30, 2024 (in millions): |
|
Available Liquidity |
|
|
Cash and cash equivalents |
|
$ |
24.3 |
|
Unused commitments on the revolving credit facility (1) |
|
|
52.5 |
|
Minimum contractual liquidity per the Credit Agreement |
|
|
(37.5 |
) |
|
|
$ |
39.3 |
|
Senior Secured Credit Facilities
A summary of our senior secured credit facilities at September 30, 2024 are as follows (amounts in thousands):
|
|
|
|
|
|
September 30, 2024 |
|
|||||
|
|
|
|
|
|
Principal |
|
|
Carrying Value |
|
||
Senior Secured Credit Facilities: |
|
|
|
|
|
|
|
|
|
|
||
Revolving Credit Facility |
|
|
|
|
|
$ |
- |
|
|
$ |
- |
|
Term Loan Facility |
|
|
|
|
|
$ |
520,000 |
|
|
$ |
488,061 |
|
On December 15, 2022, we entered into a $400.0 million term loan facility (the “2022 Term Loan Facility”) pursuant to a credit agreement (the “2022 Term Loan Credit Agreement”) 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. Concurrent with the execution of the 2022 Term Loan Facility, we entered into a $60.0 million revolving credit facility (the “Revolving Credit Facility”) pursuant to a credit agreement (the “Revolving Credit Agreement”) with JPMorgan Chase Bank, N.A., in its capacity as administrative agent, collateral agent and issuing bank, and other lenders and issuing banks thereunder.
On August 14, 2024, we amended and restated the 2022 Term Loan Credit Agreement in the form of an amended and restated credit agreement, by and among Oaktree Fund Administration L.L.C., in its capacity as the administrative agent, JPMorgan Chase Bank, N.A., in its capacity as a collateral agent, and the lenders party thereto (the “Amended and Restated Term Loan Credit Agreement” and, together with the Revolving Credit Agreement, the “Credit Agreements”), pursuant to which we incurred a new $520.0 million term loan facility (the “Term Loan Facility” and, together with the Revolving Credit Facility, the “Senior Secured Credit Facilities” or “SSCF”). The proceeds of the Term Loan Facility were used to (i) refinance the 2022 Term Loan Facility, (ii) discharge our 6.000% Senior Notes due 2025, (iii) pay fees and expenses in connection with the foregoing, and (iv) for general corporate purposes. The Term Loan Facility matures on December 15, 2028 (with no springing maturity).
During the three and nine months ended September 30, 2024, we recognized a $12.2 million loss on extinguishment of debt related to the prepayment of the 2022 Term Loan Credit Agreement in connection with the debt refinancing.
29
Simultaneously with the execution of the Amended and Restated Term Loan Credit Agreement, we amended the Revolving Credit Facility pursuant to the First Amendment to Credit Agreement to, among other things (i) amend the financial covenants contained in the Revolving Credit Agreement, (ii) amend the maturity date applicable to the revolving commitments to remove the springing maturity applicable, thereto and (iii) require that the borrowings under the Revolving Credit Agreement be repaid in the event we hold cash in excess of a certain threshold. The revolving commitments will mature on December 15, 2027.
Prepayments
Amounts borrowed under the Term Loan Facility may be voluntarily prepaid subject to a prepayment premium of 2.00% of the loan principal plus the net present value of any lost interest in the first year, and 2.00% and 1.00% of the loan principal during second and third years. After the third anniversary of the date of the amendment and restatement date, there is no prepayment premium.
The Credit Agreements include certain mandatory prepayment provisions, including, among others, a requirement (i) to prepay amounts outstanding under the Revolving Credit Facility, if any, with any cash on hand in excess of $50 million at the end of each calendar month, (ii) to prepay amounts under the Term Loan Facility with any amount of Liquidity (defined as the sum of unrestricted cash and cash equivalent balances and amounts available to be drawn under the Revolving Credit Facility), after giving effect to any prepayment required under clause (i) above, in excess of $80 million at the end of each calendar month, and (iii) to prepay the Term Loan Facility with 75% of Excess Cash Flow (as defined in the Amended and Restated Term Loan Credit Agreement) generated by us, subject to customary deductions.
The Amended and Restated Term Loan Credit Agreement contains a mandatory prepayment provision upon the event of default, which we have accounted for separately as a derivative liability. As of September 30, 2024, we have recorded a derivative liability of $2.1 million in the condensed consolidated balance sheet.
Interest Rates
Borrowings under the Amended and Restated Term Loan Credit Facility bear interest at a rate equal to, at our option, either (i) the secured overnight financing rate (“SOFR”), with a floor of 2.50% per annum, or (ii) a base rate (“Term Base Rate”), with a floor of 2.50% per annum, equal to the highest of (1) the rate of interest in effect as publicly announced by the administrative agent as its prime rate, (2) the New York Federal Reserve Bank (the “NYFRB”) rate plus 0.50%, and (3) SOFR for an interest period of one month plus 1.00%, in each case, plus the applicable rate of 7.50% per annum for SOFR loans and 6.50% per annum for Term Base Rate loans. In the event of a payment default under the Term Loan Credit Agreement, past due amounts shall be subject to an additional default interest rate of 2.00%.
As of September 30, 2024, the interest rate in effect on borrowings under the Amended and Restated Term Loan Credit Facility was 12.6%.
Borrowings under the Revolving Credit Facility bear interest at a rate equal to, at our option, either (i) SOFR plus 0.10% (or, with respect to any borrowings denominated in euros, the adjusted Euro Interbank Offered Rate, “EURIBOR”), with a floor of 0.00% per annum or (ii) a base rate (“Revolving Loan Base Rate”), with a floor of 1.00% per annum, equal to the highest of (1) the rate of interest in effect as publicly announced by the administrative agent as its prime rate, (2) the NYFRB rate plus 0.50% and (3) SOFR for an interest period of one month plus 1.00%, in each case, plus the applicable rate. The applicable rate is determined by reference to our Secured Net Leverage Ratio (as defined in the Revolving Credit Agreement) and ranges between 3.50% and 4.50% per annum for SOFR (4.5% per annum for the current fiscal quarter) and EURIBOR loans, and between 2.50% and 3.50% per annum for Revolving Base Rate loans (3.5% per annum for the current fiscal quarter). The commitment fee for the unused commitment under the Revolving Credit Facility varies between 0.50% and 0.625% per annum depending on our Secured Net Leverage Ratio (0.625% per annum for the current fiscal quarter). Commitment fees are included in interest expense. In the event of a payment default under the Revolving Credit Agreement, past due amounts shall be subject to an additional default interest rate of 2.00%.
Guarantees and Collateral Security
Our obligations under the Credit Agreements are unconditionally guaranteed by all of our material subsidiaries (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 ours and the SSCF Subsidiary Guarantors (subject to certain exceptions and exclusions). Our obligations under the Credit Agreements are secured by liens on a pari passu basis, but the obligations under the Revolving Credit Agreement have payment priority over the obligations under the Term Loan Credit Agreement.
30
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 its capital stock. The Credit Agreements also restrict our ability to prepay, redeem or repurchase any subordinated indebtedness or preferred stock, 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, and enter into certain transactions with its affiliates.
The Amended and Restated Term Loan Credit Agreement requires us to maintain:
The Revolving Credit Agreement requires us to maintain:
Additionally, if we pay the preferred stock dividends in cash to the preferred shareholders, the Credit Agreements require us to maintain a Fixed Charge Coverage Ratio (as defined in the Credit Agreements) to be less than 1.10:1.00 at the end of the period such payment is made.
The Credit Agreements contain customary default provisions that include among other things: non-payment 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 $20.0 million, insolvency, failure to pay judgments in excess of $20.0 million within 60 days of the judicial award, failure to pay any material plan withdrawal obligations under ERISA, invalidity of the loan agreement, invalidity of any security interest in the loan collateral, change of control and failure to maintain the financial covenants. In the event a default occurs, all commitments under the Senior Secured Credit Facilities would be terminated and the lenders would be entitled to declare the principal, premium, if any, and accrued and unpaid interest on all borrowings outstanding to be due and payable.
In addition, the Credit Agreements contain customary representations and warranties and other covenants.
As of September 30, 2024, we are in compliance with all covenants under the Credit Agreements.
Available Unused Commitments under the Revolving Credit Facility
As of September 30, 2024, we had no outstanding borrowings under the Revolving Credit Facility and unused commitments of $52.5 million, which have been reduced for outstanding letters of credit of $7.5 million.
Senior Notes
On June 15, 2017, we issued €250 million aggregate principal amount of 6.000% Senior Notes due June 15, 2025 (the “Notes”). In connection with the closing of the Amended and Restated Term Loan Credit Agreement, we redeemed all of the Notes remaining outstanding at a redemption price of 100.000% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, August 26, 2024 (the “Redemption Date”), in accordance with the Indenture, dated June 15, 2017 (the “Indenture”), between us, certain subsidiary guarantors party thereto, The Bank of New York Mellon SA/NV, Luxembourg Branch, as registrar and transfer agent and The Bank of New York Mellon acting through its London Branch, as trustee. As of the Redemption Date, the Notes were no longer deemed outstanding and interest on the Notes ceased to accrue. During the three and nine months ended September 30, 2024, we recognized a $0.9 million loss on extinguishment of debt in connection with the redemption of the Notes.
31
European Debt
In connection with the acquisition of UNIWHEELS AG in 2017, we assumed $70.7 million of outstanding debt. As of December 31, 2023, $0.8 million of the assumed debt remained outstanding. The outstanding debt was repaid in full during the nine months ended September 30, 2024.
Redeemable Preferred Stock
During the three and nine months ended September 30, 2024, preferred stock dividends of $3.4 million and $6.8 million were paid-in-kind, which increased the stated value of the preferred stock. As of September 30, 2024 and December 31, 2023, the stated values of the preferred stock were $156.8 million and $150.0 million, and the corresponding carrying values were $276.5 million and $248.2 million.
The preferred shares will continue to accrue dividends at 9.0% on the stated value. The associated redemption premium on the increase in the stated value will be accreted from July 1, 2024 through September 14, 2025 using the interest method. The redemption value of the preferred stock will be the greater of (i) two times the stated value ($156.8 million) plus any accrued unpaid dividends, currently $313.5 million as of September 30, 2024, or (ii) the product of the number of common shares into which the redeemable preferred stock could be converted (5.6 million shares currently) and the then current market price of the common stock.
The redeemable preferred stock may be redeemed at the holder’s election on or after September 14, 2025 or upon the occurrence of a redemption event, provided we have cash legally available to pay such redemption. If we are unable to redeem the shares of preferred stock in full, any shares of preferred stock not redeemed would continue to receive an annual dividend of 9.0% on the stated value which would be payable quarterly. The Board of Directors would have to evaluate periodically our ability to make any redemption payments until the full redemption amount has been paid.
As of September 30, 2024, there have been no changes in the preferred shareholder rights, including conversion and redemption rights, from those described in “Note 12 - Redeemable Preferred Stock” in the Notes to Consolidated Financial Statements in Item 8 of our 2023 Form 10-K.
Factoring Arrangements
As of September 30, 2024, we had no significant off-balance sheet arrangements other than factoring of $97.5 million of our trade receivables. The collective limit under our factoring arrangements was $142.5 million as of September 30, 2024.
Cash Flows
The following table summarizes the cash flows from operating, investing and financing activities as reflected in the condensed consolidated statements of cash flows.
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|
September 30, |
|
||
(Dollars in thousands) |
|
|
|
|
|
|
||
Net cash provided (used) by operating activities |
|
|
(7,857 |
) |
|
|
20,093 |
|
Net cash provided (used) by investing activities |
|
|
(20,985 |
) |
|
|
(33,930 |
) |
Net cash provided (used) by financing activities |
|
|
(146,834 |
) |
|
|
(24,758 |
) |
Effect of exchange rate changes on cash |
|
|
(1,650 |
) |
|
|
2,050 |
|
Net changes in cash and cash equivalents |
|
$ |
(177,326 |
) |
|
$ |
(36,545 |
) |
Operating Activities
Net cash used in operating activities was $7.9 million for the first nine months of 2024 compared to net cash provided by operating activities of $20.1 million for the same period in 2023. The increase in net cash used by operating activities was primarily due to lower earnings after taking into account the effect of the loss on deconsolidation of subsidiary in 2023, partially offset by changes in working capital.
Investing Activities
Net cash used in investing activities of $21.0 million for the first nine months of 2024 was $12.9 million lower than the same period in 2023 due to lower capital expenditures and the deconsolidation of subsidiary cash in the first nine months of 2023.
Financing Activities
Net cash used in financing activities of $146.8 million for the first nine months of 2024 was $122.1 million higher than the same period in 2023. This increase was primarily due to an increase in debt repayments of $452.3 million, an increase in financing costs paid of $9.0 million, a redemption premium paid on term loan repayment of $3.7 million, which was partially offset by proceeds from
32
issuance of long-term debt of $337.3 million and a decrease in cash dividends paid as preferred stock dividends of $6.8 million were paid-in-kind during the first nine months of 2024.
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.
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 |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales |
|
$ |
321,757 |
|
|
$ |
323,077 |
|
|
$ |
957,000 |
|
|
$ |
1,076,646 |
|
Less: aluminum, other costs, and outside service provider costs |
|
|
(150,737 |
) |
|
|
(147,068 |
) |
|
|
(433,482 |
) |
|
|
(497,733 |
) |
Value added sales |
|
$ |
171,020 |
|
|
$ |
176,009 |
|
|
$ |
523,518 |
|
|
$ |
578,913 |
|
Currency impact on current period value added sales |
|
|
(962 |
) |
|
|
— |
|
|
|
(1,021 |
) |
|
|
— |
|
Value added sales adjusted for foreign exchange |
|
$ |
170,058 |
|
|
$ |
176,009 |
|
|
$ |
522,497 |
|
|
$ |
578,913 |
|
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 and losses 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.
33
The following table reconciles our net income (loss), the most directly comparable U.S. GAAP financial measure, to our adjusted EBITDA:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
||||
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) |
|
$ |
(24,753 |
) |
|
$ |
(86,317 |
) |
|
$ |
(68,626 |
) |
|
$ |
(90,431 |
) |
Interest expense, net |
|
|
17,857 |
|
|
|
15,678 |
|
|
|
49,558 |
|
|
|
47,066 |
|
Income tax provision (benefit) |
|
|
875 |
|
|
|
(379 |
) |
|
|
23,942 |
|
|
|
8,713 |
|
Depreciation |
|
|
16,756 |
|
|
|
18,734 |
|
|
|
50,865 |
|
|
|
55,318 |
|
Amortization |
|
|
4,943 |
|
|
|
4,892 |
|
|
|
14,669 |
|
|
|
14,616 |
|
Factoring fees |
|
|
1,853 |
|
|
|
777 |
|
|
|
4,166 |
|
|
|
2,756 |
|
Loss on extinguishment of debt and other refinancing costs (1) |
|
|
17,331 |
|
|
|
— |
|
|
|
18,832 |
|
|
|
— |
|
Loss on deconsolidation of subsidiary |
|
|
— |
|
|
|
79,629 |
|
|
|
— |
|
|
|
79,629 |
|
Restructuring and restructuring related costs (2) (3) (4) (5) |
|
|
6,218 |
|
|
|
5,570 |
|
|
|
18,501 |
|
|
|
18,423 |
|
Change in fair value of embedded debt derivative liability (6) |
|
|
(281 |
) |
|
|
— |
|
|
|
(281 |
) |
|
|
— |
|
Adjusted EBITDA |
|
$ |
40,799 |
|
|
$ |
38,584 |
|
|
$ |
111,626 |
|
|
$ |
136,090 |
|
Adjusted EBITDA as a percentage of net sales |
|
|
12.7 |
% |
|
|
11.9 |
% |
|
|
11.7 |
% |
|
|
12.6 |
% |
Adjusted EBITDA as a percentage of value added sales |
|
|
23.9 |
% |
|
|
21.9 |
% |
|
|
21.3 |
% |
|
|
23.5 |
% |
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 2023 Form 10-K.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a smaller reporting company, as defined in Rule 10(f)(1) of Regulation S-K under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), the Company is not required to provide the information required by this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2024. Our disclosure controls and procedures are designed to ensure that information required to be
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disclosed in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 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 September 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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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, are 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 then-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. On October 1, 2024, the Company and the insolvency administrator entered into a final settlement agreement to settle certain losses incurred by SPG as a result of continuing production to ensure the Company’s supply to its customers.
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
(c) Rule 10b5-1 Trading Plans.
On
No other officers or directors
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Item 6. Exhibits
10.1
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10.2
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10.3 |
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10.4 |
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31.1 |
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31.2 |
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32.1 |
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101.INS |
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Inline XBRL Instance Document. **** |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema With Embedded Linkbases Document. **** |
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104 |
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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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
(Registrant)
Date: November 7, 2024 |
/s/ Majdi B. Abulaban |
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Majdi B. Abulaban President and Chief Executive Officer |
Date: November 7, 2024 |
/s/ Daniel D. Lee |
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Daniel D. Lee Senior Vice President and Chief Financial Officer |
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