SUPERIOR INDUSTRIES INTERNATIONAL, INC. Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf. We have included or incorporated by reference in this Quarterly Report on Form 10-Q (including in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations") and from time to time our management may make statements that may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Exchange Act of 1933 and Section 21E of the Securities Act of 1934. These forward-looking statements are based upon management's current expectations, estimates, assumptions and beliefs concerning future events and conditions and may discuss, among other things, the impact of COVID-19 on our future business, results, operation and prospects, anticipated future performance (including sales and earnings), expected growth, future business plans and costs and potential liability for environmental-related matters. Any statement that is not historical in nature is a forward-looking statement and may be identified using words and phrases such as "expects", "anticipates", "believes", "will", "will likely result", "will continue", "plans to" and similar expressions. These statements include our belief regarding general automotive industry and market conditions and growth rates, as well as general domestic and international economic conditions.
Readers are cautioned not to place undue reliance on forward-looking statements.
Forward-looking statements are necessarily subject to risks, uncertainties and
other factors, many of which are outside the control of the Company, which could
cause actual results to differ materially from such statements and from the
Company's historical results and experience. These risks, uncertainties and
other factors include, but are not limited to, those described in Part I-Item
1A-"Risk Factors" and Part II-Item 7-"Management's Discussion and Analysis of
Financial Condition and Results of Operations" of our Annual Report on Form 10-K
for the year ended
Readers are cautioned that it is not possible to predict or identify all the risks, uncertainties and other factors that may affect future results and that the risks described herein should not be considered to be a complete list. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the accompanying unaudited
condensed consolidated financial statements and notes thereto and with the
audited consolidated financial statements and notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in our Annual Report on Form 10-K for the year ended
Executive Overview
Overview of Superior
Demand for our products is primarily driven by the production of light vehicles
in
26
--------------------------------------------------------------------------------
GM ,VW Group and Ford were our only customers individually accounting for 10 percent or more of our consolidated sales for the three and six months endedJune 30, 2021 and 2020. Our sales to these customers in 2021 and 2020 were as follows: Three months ended June 30, 2021 June 30, 2020 Percent of Percent of (Dollars in millions) Sales Dollars Sales Dollars GM 27%$ 93.4 18%$ 27.4 VW Group 16%$ 53.8 19%$ 28.6 Ford 10%$ 30.9 10%$ 12.9 Six months ended June 30, 2021 June 30, 2020 Percent of Percent of (Dollars in millions) Sales Dollars Sales Dollars GM 27%$ 187.5 22%$ 100.1 VW Group 15%$ 108.0 16%$ 72.5 Ford 11%$ 80.0 12%$ 52.3 Effect of COVID-19 Pandemic
In 2020, the COVID-19 pandemic introduced significant volatility in the financial markets and had a widespread adverse effect on the automotive industry.
While navigating through this period of volatility and uncertainty, Superior's top priorities were:
• Ensuring the health and safety of our employees • Maintaining the financial health of the Company, and • Serving our customers.
In order to ensure the health and safety of our employees globally and respond
to the then current industry production environment, we closed production at our
European facilities in late
Based on recent IHS production forecasts, full-year 2021 industry volumes are
expected to be up 10.6 percent in our key regions (12.3 percent in
Sustainability
All Superior manufacturing plants have implemented Environmental Management
Systems that are ISO14001 certified and are subject to annual audits by an
independent third party. In 2019, we assessed the product
27
--------------------------------------------------------------------------------
Overview of the Second Quarter of 2021
The following charts show the operational performance in the quarter ended
[[Image Removed]]
SALES AND PROFITABILITY FOR THE 3RD QUARTER OF 2019 AND 2018 ($ in millions)
Sales for 3rd Quarter 2019 & 2018
28
--------------------------------------------------------------------------------
Results of Operations
Three Months Ended
June 30, June 30, Net
2021 2020 Change
(Dollars in thousands, except per share data)
Net sales
North America $ 176,990 $ 58,916 $ 118,074
Europe 170,474 85,919 84,555
Net sales 347,464 144,835 202,629
Cost of sales 314,844 167,676 (147,168 )
Gross profit (loss) 32,620 (22,841 ) 55,461
Percentage of net sales 9.4 % (15.8 )% 25.2 %
Selling, general and administrative 17,100 11,276 (5,824 )
Income (loss) from operations 15,520 (34,117 ) 49,637
Percentage of net sales 4.5 % (23.6 )% 28.1 %
Interest expense, net (10,486 ) (12,184 ) 1,698
Other expense, net (2,420 ) (670 ) (1,750 )
Income tax (provision) benefit (919 ) 3,753 (4,672 )
Net income (loss) $ 1,695 $ (43,218 ) $ 44,913
Percentage of net sales 0.5 % (29.8 )% 30.3 %
Diluted loss per share $ (0.26 ) $ (2.00 ) $ 1.74
Value added sales (1) $ 195,474 $ 84,284 $ 111,190
Adjusted EBITDA (2) $ 44,645 $ (3,696 ) $ 48,341
Percentage of net sales 12.8 % (2.6 )% 15.4 %
Percentage of value added sales 22.8 % (4.4 )% 27.2 %
Unit shipments in thousands 4,178 2,068 2,110
(1) Value added sales is a key measure that is not calculated according to U.S.
GAAP. Refer to "Non-U.S. GAAP Financial Measures" for a definition of value
added sales and a reconciliation of value added sales to net sales, the
most comparable U.S. GAAP measure.
(2) Adjusted EBITDA is a key measure that is not calculated according to U.S.
GAAP. Refer to "Non-U.S. GAAP Financial Measures" for a definition of
adjusted EBITDA and a reconciliation of our adjusted EBITDA to net income,
the most comparable U.S. GAAP measure.
Shipments
Wheel unit shipments were 4.2 million for the second quarter of 2021 compared to unit shipments of 2.1 million in the prior year period, an increase of 102.0 percent. The increase was driven by higher volumes in both regions due to the 2020 shutdowns at our key OEM customers in response to the COVID-19 pandemic.
Net sales for the second quarter of 2021 were
Cost of Sales
Cost of sales were
29
--------------------------------------------------------------------------------
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses for the second quarter of
2021 were
Net Interest Expense
Net interest expense for the second quarter of 2021 was
Other Income (Expense)
Other expense was
Income Tax (Provision) Benefit
The income tax provision for the second quarter of 2021 was
Net Income (Loss)
Net income for the second quarter of 2021 was
Segment Sales and Income from Operations
Three Months Ended
June 30, June 30,
2021 2020 Change
(Dollars in thousands)
Selected data
Net sales
North America $ 176,990 $ 58,916 $ 118,074
Europe 170,474 85,919 84,555
Total net sales $ 347,464 $ 144,835 $ 202,629
Income (loss) from operations
North America $ 7,542 $ (19,792 ) $ 27,334
Europe 7,978 (14,325 ) 22,303
Total income (loss) from operations
North America
Net sales for our North American segment for the second quarter of 2021
increased 200.4 percent, compared to the same period in 2020 predominantly due
to a 150.3 percent increase in unit volumes along with stronger product mix and
higher aluminum prices. For the second quarter of 2021, North American sales
were almost exclusively from
30
--------------------------------------------------------------------------------
Net sales for our European segment for the second quarter of 2021 increased 98.4
percent, compared to the same period in 2020 predominantly due to a 68.9 percent
increase in unit volumes along with stronger product mix and favorable foreign
exchange. European segment sales in
Overview of the First Half of 2021
The following chart shows the operational performance in the six months ended
31
--------------------------------------------------------------------------------
Results of Operations
Six Months Ended
June 30, June 30, Net
2021 2020 Change
(Dollars in thousands, except per share
data)
Net sales
North America $ 368,961 $ 214,467 $ 154,494
Europe 336,699 231,480 105,219
Net sales 705,660 445,947 259,713
Cost of sales 630,000 445,627 184,373
Gross profit 75,660 320 75,340
Percentage of net sales 10.7 % 0.1 % 10.6 %
Selling, general and administrative 34,421 23,811 (10,610 )
Impairment of goodwill and indefinite-lived
intangibles - 193,641 193,641
Income (loss) from operations 41,239 (217,132 ) 258,371
Percentage of net sales 5.8 % (48.7 )% 54.5 %
Interest expense, net (20,759 ) (24,034 ) 3,275
Other (expense) income, net (3,934 ) 653 (4,587 )
Income tax (provision) benefit (1,729 ) 7,213 (8,942 )
Net income (loss) $ 14,817 $ (233,300 ) $ 248,117
Percentage of net sales 2.1 % (52.3 )% 54.4 %
Diluted loss per share $ (0.07 ) $ (9.81 ) $ 9.74
Value added sales (1) $ 402,733 $ 254,375 $ 148,358
Adjusted EBITDA (2) $ 99,568 $ 35,834 $ 63,734
Percentage of net sales 14.1 % 8.0 % 6.1 %
Percentage of value added sales 24.7 % 14.1 % 10.6 %
Unit shipments in thousands 8,693 6,375 2,318
(1) Value added sales is a key measure that is not calculated according to U.S.
GAAP. Refer to "Non-U.S. GAAP Financial Measures" for a definition of value
added sales and a reconciliation of value added sales to net sales, the
most comparable U.S. GAAP measure.
(2) Adjusted EBITDA is a key measure that is not calculated according to U.S.
GAAP. Refer to "Non-U.S. GAAP Financial Measures" for a definition of
adjusted EBITDA and a reconciliation of our adjusted EBITDA to net income,
the most comparable U.S. GAAP measure.
Shipments
Wheel unit shipments were 8.7 million for the first half of 2021 compared to
unit shipments of 6.4 million in the prior year period, an increase of 36.4
percent. The increase was attributable to higher volumes in
Net Sales
Net sales for the first half of 2021 were
Cost of Sales
Cost of sales were
32
--------------------------------------------------------------------------------
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses for the first half of 2021
were
Impairment of
During the first half of 2020, we recognized a goodwill and indefinite-lived
intangible asset impairment charge totaling
Net Interest Expense
Net interest expense for the first half of 2021 was
Other Income (Expense)
Other expense was
Income Tax (Provision) Benefit
The income tax provision for the six months ended
Net Income (Loss)
Net income for the first half of 2021 was
Segment Sales and Income from Operations
Six Months Ended
June 30, June 30,
2021 2020 Change
(Dollars in thousands)
Selected data
Net Sales
North America $ 368,961 $ 214,467 $ 154,494
Europe 336,699 231,480 105,219
Total net sales $ 705,660 $ 445,947 $ 259,713
Income (loss) from operations
North America $ 25,383 $ (13,683 ) $ 39,066
Europe 15,856 (203,449 ) 219,305
Total income (loss) from operations
33
--------------------------------------------------------------------------------
North America
Net sales for our North American segment for the first half of 2021 increased
72.0 percent, compared to the same period in 2020, due to a 48.9 percent
increase in volumes related to our prior period Q2 production shutdowns,
stronger product mix comprised of larger diameter wheels and premium wheel
finishes and higher aluminum prices. For the first half of 2021, North American
sales were almost exclusively shipped from
Europe
Net sales for our European segment for the first half of 2021 increased 45.5
percent, compared to the same period in 2020, due to a 24.8 percent increase in
volumes related to our production shutdowns in the latter part of the first
quarter and the second quarter of 2020, stronger product mix comprised of larger
diameter wheels and premium wheel finishes, higher aluminum prices and favorable
foreign exchange. European segment sales for
Financial Condition, Liquidity and Capital Resources
As of
Our working capital requirements, investing activities and cash dividend payments have historically been funded from internally generated funds, debt facilities, cash and cash equivalents, and we believe these sources will continue to meet our future requirements. Capital expenditures relate to improving production quality and efficiency and extending the useful lives of existing property, plant and equipment ("maintenance"), as well as capital related to new product offerings and expanded capacity for existing products ("new business"). Over time, capital expenditures have consisted of roughly equal components of maintenance and new business.
In connection with the acquisition of our European operations, we entered into
several debt and equity financing arrangements during 2017. On
As part of our ongoing efforts to improve our cash flow and related liquidity,
we negotiate with suppliers to optimize our terms and conditions, including
extended payment terms. Beginning in 2021, the Company receives extended payment
terms for a portion of our purchases with one of our principal aluminum
suppliers in exchange for a nominal adjustment to the product pricing. The
payment terms provided to us are consistent with aluminum industry norms, as
well as those offered to the supplier's other customers. The supplier intends to
finance these extended terms by factoring receivables due from us with a
financial institution. We are not a party to the supplier's factoring agreement
with the financial institution. We remit payments directly to our supplier,
except with respect to product purchased under extended terms which have been
factored by the supplier. These payments are remitted directly to the financial
institution in accordance with the payment terms originally negotiated with our
supplier. As of
34
--------------------------------------------------------------------------------
owed
Balances outstanding under the Term Loan Facility, Notes and equipment loans as
of
On
The following table summarizes the cash flows from operating, investing and
financing activities as reflected in the condensed consolidated statements of
cash flows.
Six Months Ended
June 30 , June 30,
2021 2020(Dollars in thousands) Net cash provided by (used in) operating activities 31,933 (7,135 ) Net cash used in investing activities
(20,551 ) (22,761 )
Net cash (used in) provided by financing activities (13,501 ) 82,205 Effect of exchange rate changes on cash
(1,133 ) 496
Net (decrease) increase in cash and cash equivalents
Operating Activities
Net cash provided by operating activities was
Investing Activities
Net cash used in investing activities was
Financing Activities
Net cash used in financing activities was
Off-Balance Sheet Arrangements
As of
Non-GAAP Financial Measures
In this quarterly report, we discuss two important measures that are not
calculated according to
35
--------------------------------------------------------------------------------
Value added sales is a key measure that is not calculated according to
Adjusted EBITDA is a key measure that is not calculated according to
The following table reconciles our net sales, the most directly comparable
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2021 2020 2021 2020
(Dollars in thousands)
Net sales $ 347,464 $ 144,835 $ 705,660 $ 445,947
Less: aluminum value and outside
service provider costs (151,990 ) (60,551 ) (302,927 ) (191,572 )
Value added sales $ 195,474 $ 84,284 $ 402,733 $ 254,375 The following table reconciles our net income, the most directly comparable
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2021 2020 2021 2020
(Dollars in thousands)
Net income (loss) $ 1,695 $ (43,218 ) $ 14,817 $ (233,300 )
Interest expense, net 10,486 12,184 20,759 24,034
Income tax provision (benefit) 919 (3,753 ) 1,729 (7,213 )
Depreciation 18,905 17,798 37,555 36,052
Amortization 6,704 6,127 13,415 12,264
Impairment of goodwill and
indefinite-lived intangibles - - - 193,641
Integration, restructuring, factoring
fees and other (1)(2)(3)(4) 3,791 7,166 7,833 10,356
Change in fair value or redeemable
preferred stock embedded derivative
liability (5) 2,145 - 3,460 -
Adjusted EBITDA $ 44,645 $ (3,696 ) $ 99,568 $ 35,834
Adjusted EBITDA as a percentage of net
sales 12.8 % -2.6 % 14.1 % 8.0 %
Adjusted EBITDA as a percentage of 22.8 % -4.4 % 24.7 % 14.1 %
value added sales
(1) In the second quarter of 2021, we incurred approximately $2.4 million of
restructuring costs comprised of on-going fixed costs associated with our
Fayetteville, Arkansas facility, relocation and installation costs of
repurposed machinery and costs of site preparation activities which must be
completed prior to the sale of the facility. Additionally, we incurred $0.6
million of certain hiring and separation costs, $0.5 million of accounts
receivable factoring fees and $0.3 million of other costs.
(2) In the first half of 2021, we incurred approximately $3.3 million of
restructuring costs comprised of on-going fixed costs associated with our
Fayetteville, Arkansas facility, relocation and installation costs of
repurposed machinery and $1.0 million relating to site preparation
activities which must be completed prior to the sale of the facility.
Additionally, we incurred $2.9 million of certain hiring and separation
costs, $1.0 million of accounts receivable factoring fees, and $0.6 million
of other costs.
36
--------------------------------------------------------------------------------
(3) In the second quarter of 2020, we incurred approximately$3.1 million of restructuring costs comprised of on-going fixed costs associated with ourFayetteville, Arkansas facility, relocation and installation costs on repurposed machinery and severance costs, as well as$0.2 million of accounts receivables factoring fees. Additionally, in second quarter of 2020, we incurred$3.4 million in restructuring costs related to discontinuing the manufacturing and sale of high-performance wheels for our automotive racing market segment,$0.2 million for certain asset impairments and$0.3 million of other costs. (4) In the first half of 2020, we incurred approximately$9.5 million of restructuring costs comprised of on-going fixed costs associated with ourFayetteville, Arkansas facility, relocation and installation costs on repurposed machinery, salaried severance costs and second quarter 2020 costs incurred exiting the automotive racing market segment, as well as$0.4 million of accounts receivables factoring fees,$0.2 million for certain asset impairments and$0.3 million of other costs. (5) The change in the fair value is mainly driven by the change in our stock price during the respective periods.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with
© Edgar Online, source
