The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
June 30, 2020
(Unaudited)
NOTE 1 – NATURE OF OPERATIONS AND PRESENTATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nature of Operations
Superior Industries International, Inc.’s (referred herein as the “Company,” “Superior,” or “we” and “our”) principal business is the design and manufacture of aluminum wheels for sale to original equipment manufacturers (OEMs) in North America and Europe and aftermarket distributors in Europe. We employ approximately 7,600 employees, operating in eight manufacturing facilities in North America and Europe with a combined annual manufacturing capacity of approximately 20 million wheels. We are one of the largest suppliers to global OEMs and we believe we are the #1 European aluminum wheel aftermarket manufacturer and supplier. Our OEM aluminum wheels accounted for approximately 92 percent of our sales in the first half of 2020 and are primarily sold for factory installation on vehicle models manufactured by BMW (including Mini), Daimler AG Company (Mercedes-Benz, AMG, Smart), FCA, Ford, GM, Honda, Jaguar-Land Rover, Mazda, Mitsubishi, Nissan, PSA, Renault, Subaru, Suzuki, Toyota, VW Group (Volkswagen, Audi, SEAT, Skoda, Porsche, Bentley) and Volvo. We also sell aluminum wheels to the European aftermarket under the brands ATS, RIAL, ALUTEC and ANZIO. North America and Europe represent the principal markets for our products, but we have a global presence and diversified customer base consisting of North American, European and Asian OEMs. We have determined that our North American and European operations should be treated as separate reportable segments as further described in Note 5, “Business Segments.”
Presentation of Condensed Consolidated Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the SEC’s requirements for quarterly reports on Form 10-Q and U.S. Generally Accepted Accounting Principles (“GAAP”) and, in our opinion, contain all adjustments, of a normal and recurring nature, which are necessary for fair presentation of (i) the condensed consolidated statements of income (loss) for the three and six-month periods ended June 30, 2020 and June 30, 2019, (ii) the condensed consolidated statements of comprehensive income (loss) for the three and six-month periods ended June 30, 2020 and June 30, 2019, (iii) the condensed consolidated balance sheets at June 30, 2020 and December 31, 2019, (iv) the condensed consolidated statements of cash flows for the six-month periods ended June 30, 2020 and June 30, 2019, and (v) the condensed consolidated statements of shareholders’ equity (deficit) for the three and six-month periods ended June 30, 2020 and June 30, 2019. This Quarterly Report on Form 10-Q should be read in conjunction with our consolidated financial statements and notes thereto filed with the Securities and Exchange Commission (“SEC”) in our 2019 Annual Report on Form 10-K.
Interim financial reporting standards require us to make estimates that are based on assumptions regarding the outcome of future events and circumstances not known at that time, including the use of estimated effective tax rates. Inevitably, some assumptions will not materialize, unanticipated events or circumstances may occur which vary from those estimates and such variations may significantly affect our future results. Additionally, interim results may not be indicative of our results for future interim periods or our annual results.
Certain prior year amounts have been reclassified to conform with the current year presentation.
Cash Paid for Interest and Taxes and Non-Cash Investing Activities
Cash paid for interest was $21.5 million and $21.6 million for the six months ended June 30, 2020 and June 30, 2019, respectively. Net cash income taxes paid was $5.4 million and $2.9 million for the six months ended June 30, 2020 and June 30, 2019, respectively. As of June 30, 2020 and June 30, 2019, $2.9 million and $18.1 million, respectively, of equipment had been purchased but not yet paid and was included in accounts payable in our condensed consolidated balance sheets.
New Accounting Standards
Accounting Standards Update (“ASU”) 2018-13, “Fair Value Measurement.” Effective January 1, 2020, the Company adopted ASU 2018-13 which allows companies to remove, modify and add certain disclosures related to fair value measurements. The adoption of this standard did not have a significant impact on the Company’s condensed consolidated financial statement disclosures.
7
Accounting Standards Issued but Not Yet Adopted
ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, "Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" (ASU 2016-13), which requires entities to use a new impairment model based on current expected credit losses (“CECL”) rather than incurred losses. Under CECL, estimated credit losses would incorporate relevant information about past events, current conditions and reasonable and supportable forecasts and any expected credit losses would be recognized at the time of sale. As a smaller reporting company (as defined under SEC regulations), the Company is not required to adopt the new standard until fiscal years beginning after December 31, 2022. We are evaluating the impact this new standard will have on our financial statements and disclosures.
ASU 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans.” In August 2018, the FASB issued an ASU entitled “Compensation - Retirement Benefits - Defined Benefit Plans - General Subtopic 715-20 - Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans” (ASU 2018-14), which is designed to improve the effectiveness of disclosures by removing and adding disclosures related to defined benefit plans. ASU 2018-14 is effective for fiscal years ending after December 15, 2020. We are evaluating the impact this new standard will have on our financial statement disclosures.
ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” In March 2020, the FASB issued ASU 2020-04 entitled “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides temporary optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The relief provided by this guidance is elective and applies to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform initiatives being undertaken in an effort to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The optional amendments of this guidance are effective for all entities upon adoption. We are currently assessing the impact of this new standard on our financial statements and disclosures.
NOTE 2 – REVENUE
In accordance with ASC 606, “Revenue from Contracts with Customers,” the Company disaggregates revenue from contracts with customers into our operating segments, North America and Europe. Revenues by segment for the three and six-month periods ended June 30, 2020 and 2019 are summarized in Note 5, “Business Segments.”
The Company’s customer receivables and current and long-term contract liabilities balances as of June 30, 2020 and December 31, 2019 are as follows (in thousands):
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
Change
|
|
Customer receivables
|
|
$
|
56,417
|
|
|
$
|
68,283
|
|
|
$
|
(11,866
|
)
|
Contract liabilities—current
|
|
|
8,574
|
|
|
|
5,880
|
|
|
|
2,694
|
|
Contract liabilities—noncurrent
|
|
|
14,405
|
|
|
|
13,577
|
|
|
|
828
|
|
NOTE 3 – FAIR VALUE MEASUREMENTS
The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis, while other assets and liabilities are measured at fair value on a nonrecurring basis, such as an asset impairment. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
8
The carrying amounts for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair values due to the short period of time until maturity.
Cash and Cash Equivalents
Cash and cash equivalents generally consist of cash, certificates of deposit and fixed deposits and money market funds with original maturities of three months or less.
Derivative Financial Instruments
Our derivatives are over-the-counter customized derivative transactions and are not exchange traded. We estimate the fair value of these instruments using industry-standard valuation models such as discounted cash flow. These models project future cash flows and discount the future amounts to a present value using market-based expectations for interest rates, foreign exchange rates, commodity prices and the contractual terms of the derivative instruments. The discount rate used is the relevant interbank deposit rate (e.g., LIBOR) plus an adjustment for non-performance risk. In certain cases, market data may not be available and we may use broker quotes and models to determine fair value. This includes situations where there is lack of liquidity for a particular currency or commodity or when the instrument is longer dated.
The following tables categorize items measured at fair value at June 30, 2020 and December 31, 2019:
|
|
|
|
|
|
Fair Value Measurement at Reporting Date Using
|
|
June 30, 2020
|
|
|
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
|
Significant
Other
Observable
Inputs (Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts
|
|
$
|
6,711
|
|
|
$
|
—
|
|
|
$
|
6,711
|
|
|
$
|
—
|
|
Total
|
|
$
|
6,711
|
|
|
$
|
—
|
|
|
$
|
6,711
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
.
|
|
|
|
|
|
Derivative contracts
|
|
$
|
35,155
|
|
|
$
|
—
|
|
|
$
|
35,155
|
|
|
$
|
—
|
|
Total
|
|
$
|
35,155
|
|
|
$
|
—
|
|
|
$
|
35,155
|
|
|
$
|
—
|
|
|
|
|
|
|
|
Fair Value Measurement at Reporting Date Using
|
|
December 31, 2019
|
|
|
|
|
|
Quoted Prices in
Active Markets
for Identical Assets (Level 1)
|
|
|
Significant
Other
Observable
Inputs (Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts
|
|
$
|
21,973
|
|
|
$
|
—
|
|
|
$
|
21,973
|
|
|
$
|
—
|
|
Total
|
|
$
|
21,973
|
|
|
$
|
—
|
|
|
$
|
21,973
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts
|
|
$
|
8,709
|
|
|
$
|
—
|
|
|
$
|
8,709
|
|
|
$
|
—
|
|
Total
|
|
$
|
8,709
|
|
|
$
|
—
|
|
|
$
|
8,709
|
|
|
$
|
—
|
|
9
Debt Instruments
The carrying values of the Company’s debt instruments vary from their fair values. The fair values were determined by reference to transacted prices of these securities (Level 2 input based on the U.S. GAAP fair value hierarchy). The estimated fair value, as well as the carrying value, of the Company’s debt instruments are shown below:
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Estimated aggregate fair value
|
|
$
|
648,959
|
|
|
$
|
606,093
|
|
Aggregate carrying value (1)
|
|
|
727,163
|
|
|
|
630,635
|
|
(1)
|
Long-term debt excluding the impact of unamortized debt issuance costs.
|
NOTE 4 - DERIVATIVE FINANCIAL INSTRUMENTS
Derivative Instruments and Hedging Activities
We use derivatives to partially offset our exposure to foreign currency, interest rate, aluminum and other commodity price risk. We may enter into forward contracts, option contracts, swaps, collars or other derivative instruments to offset some of the risk on expected future cash flows and on certain existing assets and liabilities. However, we may choose not to hedge certain exposures for a variety of reasons including, but not limited to, accounting considerations and the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign currency exchange rates, interest rates, and aluminum or other commodity prices.
To help protect gross margins from fluctuations in foreign currency exchange rates, certain of our subsidiaries, whose functional currency is the U.S. dollar or the Euro, hedge a portion of their forecasted foreign currency costs denominated in the Mexican Peso and Polish Zloty, respectively. We may hedge portions of our forecasted foreign currency exposure up to 48 months.
We record all derivatives in the condensed consolidated balance sheets at fair value. Our accounting treatment for these instruments is based on the hedge designation. Gains or losses on derivatives that are designated as hedging instruments are recorded in accumulated other comprehensive income (loss) (“AOCI”) until the hedged item is recognized in earnings, at which point accumulated gains or losses will be recognized in earnings and classified with the underlying hedged transaction. Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in the financial statement line item to which the derivative relates. The Company has derivatives that are designated as hedging instruments as well as derivatives that do not qualify for designation as hedging instruments.
The following tables display the fair value of derivatives by balance sheet line item at June 30, 2020 and December 31, 2019:
|
|
June 30, 2020
|
|
|
|
Other
Current
Assets
|
|
|
Other
Non-current
Assets
|
|
|
Accrued
Liabilities
|
|
|
Other
Non-current
Liabilities
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts designated as
hedging instruments
|
|
$
|
1,179
|
|
|
$
|
1,968
|
|
|
$
|
7,730
|
|
|
$
|
15,043
|
|
Foreign exchange forward contracts not
designated as hedging instruments
|
|
|
3,111
|
|
|
|
—
|
|
|
|
115
|
|
|
|
—
|
|
Aluminum forward contracts designated as
hedging instruments
|
|
|
—
|
|
|
|
—
|
|
|
|
396
|
|
|
|
—
|
|
Natural gas forward contracts designated as
hedging instruments
|
|
|
327
|
|
|
|
126
|
|
|
|
231
|
|
|
|
453
|
|
Interest rate swap contracts designated as hedging
instruments
|
|
|
—
|
|
|
|
—
|
|
|
|
4,973
|
|
|
|
6,214
|
|
Total derivative financial instruments
|
|
$
|
4,617
|
|
|
$
|
2,094
|
|
|
$
|
13,445
|
|
|
$
|
21,710
|
|
10
|
|
December 31, 2019
|
|
|
|
Other
Current
Assets
|
|
|
Other
Non-current
Assets
|
|
|
Accrued
Liabilities
|
|
|
Other
Non-current
Liabilities
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts designated as
hedging instruments
|
|
$
|
7,808
|
|
|
$
|
12,821
|
|
|
$
|
60
|
|
|
$
|
100
|
|
Foreign exchange forward contracts not
designated as hedging instruments
|
|
|
1,196
|
|
|
|
—
|
|
|
|
554
|
|
|
|
—
|
|
Aluminum forward contracts designated as
hedging instruments
|
|
|
60
|
|
|
|
—
|
|
|
|
127
|
|
|
|
—
|
|
Natural gas forward contracts designated as
hedging instruments
|
|
|
81
|
|
|
|
7
|
|
|
|
1,312
|
|
|
|
727
|
|
Interest rate swap contracts designated as hedging
instruments
|
|
|
—
|
|
|
|
—
|
|
|
|
2,304
|
|
|
|
3,525
|
|
Total derivative financial instruments
|
|
$
|
9,145
|
|
|
$
|
12,828
|
|
|
$
|
4,357
|
|
|
$
|
4,352
|
|
The following table summarizes the notional amount and estimated fair value of our derivative financial instruments:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
|
Notional
U.S. Dollar
Amount
|
|
|
Fair
Value
|
|
|
Notional
U.S. Dollar
Amount
|
|
|
Fair
Value
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts designated as
hedging instruments
|
|
$
|
420,799
|
|
|
$
|
(19,626
|
)
|
|
$
|
449,181
|
|
|
$
|
20,469
|
|
Foreign exchange forward contracts not designated
as hedging instruments
|
|
|
58,455
|
|
|
|
2,996
|
|
|
|
73,491
|
|
|
|
642
|
|
Aluminum forward contracts designated as
hedging instruments
|
|
|
6,150
|
|
|
|
(396
|
)
|
|
|
9,405
|
|
|
|
(67
|
)
|
Natural gas forward contracts designated as hedging
instruments
|
|
|
6,058
|
|
|
|
(231
|
)
|
|
|
5,816
|
|
|
|
(1,951
|
)
|
Interest rate swap contracts designated as hedging
instruments
|
|
|
235,000
|
|
|
|
(11,187
|
)
|
|
|
260,000
|
|
|
|
(5,829
|
)
|
Total derivative financial instruments
|
|
$
|
726,462
|
|
|
$
|
(28,444
|
)
|
|
$
|
797,893
|
|
|
$
|
13,264
|
|
Notional amounts are presented on a net basis. The notional amounts of the derivative financial instruments do not represent amounts exchanged by the parties and, therefore, are not a direct measure of our exposure to the financial risks. The amounts exchanged are calculated by reference to the notional amounts and by other terms of the derivatives, such as interest rates, foreign currency exchange rates or commodity prices.
11
The following tables summarize the gain or loss recognized in AOCI as of June 30, 2020 and 2019, the amounts reclassified from AOCI into earnings and the amounts recognized directly into earnings for the three and six months ended June 30, 2020 and 2019:
Three Months Ended June 30, 2020
|
|
Amount of Gain or
(Loss) Recognized in
AOCI on Derivatives
|
|
|
Amount of Pre-tax
Gain or (Loss) Reclassified
from AOCI into Income
|
|
|
Amount of Pre-tax
Gain or (Loss)
Recognized in Income
on Derivatives
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Contracts
|
|
$
|
15,298
|
|
|
$
|
(3,980
|
)
|
|
$
|
1,692
|
|
Total
|
|
$
|
15,298
|
|
|
$
|
(3,980
|
)
|
|
$
|
1,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
Amount of Gain or
(Loss) Recognized in
AOCI on Derivatives
|
|
|
Amount of Pre-tax
Gain or (Loss) Reclassified
from AOCI into Income
|
|
|
Amount of Pre-tax
Gain or (Loss)
Recognized in Income
on Derivatives
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Contracts
|
|
$
|
(29,999
|
)
|
|
$
|
(5,094
|
)
|
|
$
|
(3,747
|
)
|
Total
|
|
$
|
(29,999
|
)
|
|
$
|
(5,094
|
)
|
|
$
|
(3,747
|
)
|
Three Months Ended June 30, 2019
|
|
Amount of Gain or
(Loss) Recognized in
AOCI on Derivatives
|
|
|
Amount of Pre-tax
Gain or (Loss) Reclassified
from AOCI into Income
|
|
|
Amount of Pre-tax
Gain or (Loss)
Recognized in Income
on Derivatives
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Contracts
|
|
$
|
1,856
|
|
|
$
|
878
|
|
|
$
|
56
|
|
Total
|
|
$
|
1,856
|
|
|
$
|
878
|
|
|
$
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
Amount of Gain or
(Loss) Recognized in
AOCI on Derivatives
|
|
|
Amount of Pre-tax
Gain or (Loss) Reclassified
from AOCI into Income
|
|
|
Amount of Pre-tax
Gain or (Loss)
Recognized in Income
on Derivatives
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Contracts
|
|
$
|
6,782
|
|
|
$
|
1,714
|
|
|
$
|
1,740
|
|
Total
|
|
$
|
6,782
|
|
|
$
|
1,714
|
|
|
$
|
1,740
|
|
NOTE 5 - BUSINESS SEGMENTS
The North American and European businesses represent separate operating segments in view of significantly different markets, customers and products in each of these regions. Within each of these regions, markets, customers, products and production processes are similar and production can be transferred between production facilities. Moreover, our business within each region leverages common systems, processes and infrastructure. Accordingly, North America and Europe comprise the Company’s reportable segments.
(Dollars in thousands)
|
|
Net Sales
|
|
|
Income from Operations
|
|
Three Months Ended
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
North America
|
|
$
|
58,916
|
|
|
$
|
180,402
|
|
|
$
|
(19,792
|
)
|
|
$
|
11,827
|
|
Europe
|
|
|
85,919
|
|
|
|
172,097
|
|
|
|
(14,325
|
)
|
|
|
12,204
|
|
|
|
$
|
144,835
|
|
|
$
|
352,499
|
|
|
$
|
(34,117
|
)
|
|
$
|
24,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Depreciation and Amortization
|
|
|
Capital Expenditures
|
|
Three Months Ended
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
North America
|
|
$
|
8,420
|
|
|
$
|
7,950
|
|
|
$
|
5,876
|
|
|
$
|
4,435
|
|
Europe
|
|
|
15,504
|
|
|
|
15,392
|
|
|
|
3,020
|
|
|
|
10,838
|
|
|
|
$
|
23,924
|
|
|
$
|
23,342
|
|
|
$
|
8,896
|
|
|
$
|
15,273
|
|
12
(Dollars in thousands)
|
|
Net Sales
|
|
|
Income from Operations
|
|
Six Months Ended
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
North America
|
|
$
|
214,467
|
|
|
$
|
365,518
|
|
|
$
|
(13,683
|
)
|
|
$
|
18,026
|
|
Europe
|
|
|
231,480
|
|
|
|
344,674
|
|
|
|
(203,449
|
)
|
|
|
24,644
|
|
|
|
$
|
445,947
|
|
|
$
|
710,192
|
|
|
$
|
(217,132
|
)
|
|
$
|
42,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Depreciation and Amortization
|
|
|
Capital Expenditures
|
|
Six Months Ended
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
North America
|
|
$
|
17,225
|
|
|
$
|
15,816
|
|
|
$
|
12,436
|
|
|
$
|
10,563
|
|
Europe
|
|
|
31,091
|
|
|
|
30,857
|
|
|
|
10,325
|
|
|
|
18,102
|
|
|
|
$
|
48,316
|
|
|
$
|
46,673
|
|
|
$
|
22,761
|
|
|
$
|
28,665
|
|
(Dollars in thousands)
|
|
Property, Plant and Equipment, net
|
|
|
Goodwill and Intangible Assets
|
|
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
North America
|
|
$
|
215,110
|
|
|
$
|
237,372
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Europe
|
|
|
287,283
|
|
|
|
291,910
|
|
|
|
113,795
|
|
|
|
321,910
|
|
|
|
$
|
502,393
|
|
|
$
|
529,282
|
|
|
$
|
113,795
|
|
|
$
|
321,910
|
|
(Dollars in thousands)
|
|
Total Assets
|
|
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
North America
|
|
$
|
434,774
|
|
|
$
|
484,689
|
|
Europe
|
|
|
651,183
|
|
|
|
827,178
|
|
|
|
$
|
1,085,957
|
|
|
$
|
1,311,867
|
|
Geographic information
Net sales by geographic location are as follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
3,619
|
|
|
$
|
26,466
|
|
|
$
|
19,796
|
|
|
$
|
54,722
|
|
|
Mexico
|
|
|
55,297
|
|
|
|
153,936
|
|
|
|
194,671
|
|
|
|
310,796
|
|
|
Germany
|
|
|
33,726
|
|
|
|
57,189
|
|
|
|
83,764
|
|
|
|
121,237
|
|
|
Poland
|
|
|
52,193
|
|
|
|
114,908
|
|
|
|
147,716
|
|
|
|
223,437
|
|
|
Consolidated net sales
|
|
$
|
144,835
|
|
|
$
|
352,499
|
|
|
$
|
445,947
|
|
|
$
|
710,192
|
|
|
NOTE 6 - INVENTORIES
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
34,406
|
|
|
$
|
44,245
|
|
Work in process
|
|
|
36,917
|
|
|
|
40,344
|
|
Finished goods
|
|
|
78,127
|
|
|
|
83,881
|
|
Inventories, net
|
|
$
|
149,450
|
|
|
$
|
168,470
|
|
Service wheel and supplies inventory included in other non-current assets in the condensed consolidated balance sheets totaled $9.7 million and $10.6 million at June 30, 2020 and December 31, 2019, respectively.
13
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Land and buildings
|
|
$
|
161,539
|
|
|
$
|
158,907
|
|
Machinery and equipment
|
|
|
807,319
|
|
|
|
856,961
|
|
Leasehold improvements and others
|
|
|
11,195
|
|
|
|
12,173
|
|
Construction in progress
|
|
|
42,279
|
|
|
|
30,179
|
|
|
|
|
1,022,332
|
|
|
|
1,058,220
|
|
Accumulated depreciation
|
|
|
(519,939
|
)
|
|
|
(528,938
|
)
|
Property, plant and equipment, net
|
|
$
|
502,393
|
|
|
$
|
529,282
|
|
Depreciation expense for the three and six months ended June 30, 2020 was $17.8 million and $36.1 million, respectively. Depreciation expense for the three and six months ended June 30, 2019 was $16.6 million and $33.2 million, respectively.
NOTE 8 - GOODWILL AND OTHER INTANGIBLE ASSETS
At March 31, 2020, the impact of COVID-19 and uncertainty with respect to the economic effects of the pandemic had introduced significant volatility in the financial markets and was having, and continues to have, a widespread adverse effect on the automotive industry, including reductions in both consumer demand and OEM automotive production. In response to the COVID-19 pandemic, our key customers temporarily closed nearly all their production facilities in Europe and North America (our primary markets) during the quarter ended March 31, 2020. As a result, we concluded that an interim test of our goodwill was required as of March 31, 2020. More specifically, the Company concluded that the following events and circumstances, in the aggregate, indicated that it was more likely than not that the carrying value of our European reporting unit exceeded its fair value: (1) our European reporting unit’s carrying value was effectively set to fair value at December 31, 2019, due to the $102.2 million impairment charges to goodwill and indefinite-lived intangibles, (2) lower forecasted 2020 industry production volumes for Western and Central Europe, including those for our primary European customers, due to OEM shutdowns to mitigate COVID-19 spread and subsequent reduced production levels over the remainder of the year, as compared to our prior production forecasts (including estimates used in our 2019 assessment) and (3) the volatility in financial markets that has both increased European interest rates due to rising credit spreads and risk premiums and lowered median European automotive market multiples. Based on the results of our quantitative analysis, we recognized a non-cash goodwill impairment charge equal to the remaining goodwill balance of $182.6 million since the carrying value exceeded the fair value of the European reporting unit by more than the amount of the goodwill balance at March 31, 2020. Additionally, we recognized a non-cash impairment charge of $11.0 million related to our aftermarket trade name indefinite-lived intangible asset which was primarily attributable to a further decline in forecasted aftermarket revenues and a decline in associated profitability. Total impairment charges of $193.6 million were recognized as a separate charge at March 31, 2020 and included in income (loss) from operations.
We utilized both an income and a market approach, weighted 75 percent and 25 percent respectively, to determine the fair value of the European reporting unit as part of our goodwill impairment assessment. The income approach is based on projected debt-free cash flow, which is discounted to the present value using discount factors that consider the timing and risk of cash flows. The discount rate used is the weighted average of an estimated cost of equity and of debt (“weighted average cost of capital”). The weighted average cost of capital is adjusted as necessary to reflect risk associated with the business of the European reporting unit. Financial projections are based on estimated production volumes, product prices and expenses, including raw material cost, wages, energy and other expenses. Other significant assumptions include terminal value cash flow and growth rates, future capital expenditures and changes in future working capital requirements. The market approach is based on the observed ratios of enterprise value to earnings before interest, taxes, depreciation and amortization (EBITDA) of comparable, publicly traded companies. The market approach fair value is determined by multiplying historical and anticipated financial metrics of the European reporting unit by the EBITDA pricing multiples derived from comparable, publicly traded companies.
At March 31, 2020, we determined that the carrying value of the European reporting unit exceeded its fair value by an amount greater than the remaining goodwill balance. The decline in fair value was primarily due to significantly lower market multiples and increased discount rates, as well as further declines in forecasted industry production volumes in Western and Central Europe as a result of the COVID-19 pandemic and consequent economic instability. Forecasted revenues, EBITDA and cash flow for the European reporting unit also declined as compared to the prior year long-range plan due to lower forecasted industry production volumes which adversely impacted fair value under both the income and market approaches. In determining the fair value, the Company weighted the income and market approaches, 75 percent and 25 percent, respectively. Significant assumptions used under the income approach included a
14
weighted average cost of capital (WACC) of 12.0 percent and a long-term growth rate of 1.5 percent, as compared to 10.0 percent and 2.0 percent, respectively, used in the 2019 assessment. In determining the WACC, management considered the level of risk inherent in the cash flow projections and current market conditions, including the significant increase in credit spreads and systemic market and Company specific risk premiums. The decline in the fair value under the market approach is attributable to the decline in the average EBITDA market multiple (4.9X EBITDA in 2020, 5.7X EBITDA in 2019) and lower forecasted EBITDA, as compared to the 2019 assessment. The use of these unobservable inputs results in classification of the fair value estimate as a Level 3 measurement in the fair value hierarchy. A considerable amount of management judgment and assumptions are required in performing the quantitative impairment test, principally related to determining the fair value of the reporting unit. While the Company believes its judgments and assumptions are reasonable, different assumptions could change the estimated fair value.
Following is a summary of the Company’s finite-lived and indefinite-lived intangible assets and goodwill as of June 30, 2020 and December 31, 2019.
As of June 30, 2020
|
|
Gross
Carrying
Amount
|
|
|
Impairment
|
|
|
Accumulated
Amortization
|
|
|
Currency
Translation
|
|
|
Net Carrying Amount
|
|
|
Remaining
Weighted
Average
Amortization
Period
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brand name
|
|
$
|
9,000
|
|
|
$
|
—
|
|
|
$
|
(5,662
|
)
|
|
$
|
111
|
|
|
$
|
3,449
|
|
|
2-3
|
Technology
|
|
|
15,000
|
|
|
|
—
|
|
|
|
(9,437
|
)
|
|
|
181
|
|
|
|
5,744
|
|
|
1-3
|
Customer relationships
|
|
|
167,000
|
|
|
|
—
|
|
|
|
(63,621
|
)
|
|
|
1,223
|
|
|
|
104,602
|
|
|
3-8
|
Total finite
|
|
|
191,000
|
|
|
|
—
|
|
|
|
(78,720
|
)
|
|
|
1,515
|
|
|
|
113,795
|
|
|
|
Trade names
|
|
|
14,000
|
|
|
|
(13,772
|
)
|
|
|
—
|
|
|
|
(228
|
)
|
|
|
—
|
|
|
Indefinite
|
Total intangibles
|
|
$
|
205,000
|
|
|
$
|
(13,772
|
)
|
|
$
|
(78,720
|
)
|
|
$
|
1,287
|
|
|
$
|
113,795
|
|
|
|
Six Months Ended June 30, 2020
|
|
Beginning Balance
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
|
|
Gross
|
|
|
Accumulated Impairment
|
|
|
Net Balance
|
|
|
Impairment
|
|
|
Currency
Translation
|
|
|
Gross
|
|
|
Accumulated Impairment
|
|
|
Net Balance
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
284,337
|
|
|
$
|
(99,505
|
)
|
|
$
|
184,832
|
|
|
$
|
(182,528
|
)
|
|
$
|
(2,304
|
)
|
|
$
|
282,033
|
|
|
$
|
(282,033
|
)
|
|
$
|
—
|
|
As of December 31, 2019
|
|
Gross
Carrying
Amount
|
|
|
Impairment
|
|
|
Accumulated
Amortization
|
|
|
Currency
Translation
|
|
|
Net Carrying Amount
|
|
|
Remaining
Weighted
Average
Amortization
Period
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brand name
|
|
$
|
9,000
|
|
|
$
|
—
|
|
|
$
|
(4,778
|
)
|
|
$
|
110
|
|
|
$
|
4,332
|
|
|
3-4
|
Technology
|
|
|
15,000
|
|
|
|
—
|
|
|
|
(7,963
|
)
|
|
|
183
|
|
|
|
7,220
|
|
|
2-4
|
Customer relationships
|
|
|
167,000
|
|
|
|
—
|
|
|
|
(53,681
|
)
|
|
|
954
|
|
|
|
114,273
|
|
|
4-9
|
Total finite
|
|
|
191,000
|
|
|
|
—
|
|
|
|
(66,422
|
)
|
|
|
1,247
|
|
|
|
125,825
|
|
|
|
Trade names
|
|
|
14,000
|
|
|
|
(2,733
|
)
|
|
|
—
|
|
|
|
(14
|
)
|
|
|
11,253
|
|
|
Indefinite
|
Total intangibles
|
|
$
|
205,000
|
|
|
$
|
(2,733
|
)
|
|
$
|
(66,422
|
)
|
|
$
|
1,233
|
|
|
$
|
137,078
|
|
|
|
Year Ended December 31, 2019
|
|
Beginning Balance
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
|
|
Gross
|
|
|
Accumulated Impairment
|
|
|
Net Balance
|
|
|
Impairment
|
|
|
Currency
Translation
|
|
|
Gross
|
|
|
Accumulated Impairment
|
|
|
Net Balance
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
291,434
|
|
|
$
|
—
|
|
|
$
|
291,434
|
|
|
$
|
(99,505
|
)
|
|
$
|
(7,097
|
)
|
|
$
|
284,337
|
|
|
$
|
(99,505
|
)
|
|
$
|
184,832
|
|
Amortization expense for these intangible assets was $6.1 million and $6.7 million for the three months ended June 30, 2020 and 2019, respectively. Amortization expense for the six months ending June 30, 2020 and 2019 was $12.2 million and $13.5 million, respectively. The anticipated annual amortization expense for these intangible assets is $24.5 million for 2020 to 2021, $21.7 million for 2022 and $19.8 million for 2023 and 2024.
15
NOTE 9 – DEBT
A summary of long-term debt and the related weighted average interest rates is shown below:
|
|
June 30, 2020
(Dollars in Thousands)
|
|
Debt Instrument
|
|
Total
Debt
|
|
|
Debt
Issuance
Costs (1)
|
|
|
Total
Debt, Net
|
|
|
Weighted
Average
Interest
Rate
|
|
Term Loan Facility
|
|
$
|
349,200
|
|
|
$
|
(8,424
|
)
|
|
$
|
340,776
|
|
|
|
4.2
|
%
|
6.00% Senior Notes due 2025
|
|
|
244,008
|
|
|
|
(4,916
|
)
|
|
|
239,092
|
|
|
|
6.0
|
%
|
Corporate Revolving Credit Facility
|
|
|
55,000
|
|
|
|
—
|
|
|
|
55,000
|
|
|
|
3.4
|
%
|
European CapEx Loans
|
|
|
23,168
|
|
|
|
—
|
|
|
|
23,168
|
|
|
|
2.5
|
%
|
European Revolving Credit Facility
|
|
|
52,837
|
|
|
|
—
|
|
|
|
52,837
|
|
|
|
1.6
|
%
|
Finance Leases
|
|
|
2,950
|
|
|
|
—
|
|
|
|
2,950
|
|
|
|
3.0
|
%
|
|
|
$
|
727,163
|
|
|
$
|
(13,340
|
)
|
|
|
713,823
|
|
|
|
|
|
Less: Current portion
|
|
|
|
|
|
|
|
|
|
|
(58,297
|
)
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
$
|
655,526
|
|
|
|
|
|
|
|
December 31, 2019
(Dollars in Thousands)
|
|
Debt Instrument
|
|
Total
Debt
|
|
|
Debt
Issuance
Costs (1)
|
|
|
Total
Debt, Net
|
|
|
Weighted
Average
Interest
Rate
|
|
Term Loan Facility
|
|
$
|
371,800
|
|
|
$
|
(10,192
|
)
|
|
$
|
361,608
|
|
|
|
5.7
|
%
|
6.00% Senior Notes due 2025
|
|
|
243,074
|
|
|
|
(5,408
|
)
|
|
|
237,666
|
|
|
|
6.0
|
%
|
European CapEx Loan
|
|
|
12,693
|
|
|
|
—
|
|
|
|
12,693
|
|
|
|
2.2
|
%
|
Finance Leases
|
|
|
3,068
|
|
|
|
—
|
|
|
|
3,068
|
|
|
|
2.9
|
%
|
|
|
$
|
630,635
|
|
|
$
|
(15,600
|
)
|
|
|
615,035
|
|
|
|
|
|
Less: Current portion
|
|
|
|
|
|
|
|
|
|
|
(4,010
|
)
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
$
|
611,025
|
|
|
|
|
|
Senior Notes
On June 15, 2017, the Company issued €250.0 million aggregate principal amount of 6.00% Senior Notes (“Notes”) due June 15, 2025. Interest on the Notes is payable semiannually, on June 15 and December 15. The Company may redeem the Notes, in whole or in part, on or after June 15, 2020 at redemption prices of 103.000% and 101.500% of the principal amount thereof, if the redemption occurs during the 12-month period beginning June 15, 2020 or June 15, 2021, respectively, and a redemption price of 100% of the principal amount thereof on or after June 15, 2022, in each case plus accrued and unpaid interest to, but not including, the applicable redemption date. If we experience a change of control or sell certain assets, the Company may be required to offer to purchase the Notes from the holders. The Notes are senior unsecured obligations ranking equally in right of payment with all of its existing and future senior indebtedness and senior in right of payment to any subordinated indebtedness. The Notes are effectively subordinated in right of payment to the existing and future secured indebtedness of the Company, including the Senior Secured Credit Facilities (as defined below), to the extent of the assets securing such indebtedness.
During the second quarter of 2019, the Company opportunistically purchased Notes on the open market with a face value totaling
$22.4 million (20.0 million Euro) for $19.4 million (17.4 million Euro). The associated carrying value of the Notes, net of allocable
16
debt issuance cost, was $21.8 million, resulting in a net gain of $2.4 million, which was included in other income. During the third and fourth quarter of 2019, the Company purchased additional Notes on the open market with a face value of $14.4 million (13.0 million Euro) for $12.9 million. The associated carrying value of the Notes, net of allocable debt issuance cost, was $14.1 million, resulting in an additional net gain of $1.3 million.
Guarantee
The Notes are unconditionally guaranteed by all material wholly-owned direct and indirect domestic restricted subsidiaries of the Company (the “Subsidiary Guarantors”), with customary exceptions including, among other things, where providing such guarantees is not permitted by law, regulation or contract, or would result in adverse tax consequences.
Covenants
Subject to certain exceptions, the indenture governing the Notes contains restrictive covenants that, among other things, limit the ability of the Company and the Subsidiary Guarantors to: (i) incur additional indebtedness or issue certain preferred stock; (ii) pay dividends on, or make distributions in respect of, their capital stock; (iii) make certain investments or other restricted payments; (iv) sell certain assets or issue capital stock of restricted subsidiaries; (v) create liens; (vi) merge, consolidate, transfer or dispose of substantially all of their assets; and (vii) engage in certain transactions with affiliates. These covenants are subject to several important limitations and exceptions that are described in the indenture.
The indenture provides for customary events of default that include, among other things (subject in certain cases to customary grace and cure periods): (i) nonpayment of principal, premium, if any, and interest, when due; (ii) breach of covenants in the indenture; (iii) a failure to pay certain judgments; and (iv) certain events of bankruptcy and insolvency. If an event of default occurs and is continuing, the Bank of New York Mellon, London Branch (“the Trustee”) or holders of at least 30% in principal amount of the then outstanding Notes may declare the principal, premium, if any, and accrued and unpaid interest on all the Notes to be due and payable. These events of default are subject to several important qualifications, limitations and exceptions that are described in the indenture. As of June 30, 2020, the Company was in compliance with all covenants under the indenture governing the Notes.
Senior Secured Credit Facilities
On March 22, 2017, the Company entered into a senior secured credit agreement (“Credit Agreement”) with Citibank, N.A, as Administrative Agent, Collateral Agent and Issuing Bank, JP Morgan Chase N.A., Royal Bank of Canada and Deutsche Bank A.G. New York Branch as Joint Lead Arrangers and Joint Book Runners, and the other lenders party thereto (collectively, the “Lenders”). The Credit Agreement consisted of a $400.0 million senior secured term loan facility (“Term Loan Facility”), which matures on May 23, 2024, and a $160.0 million revolving credit facility maturing on May 23, 2022 (“Revolving Credit Facility” and, together with the Term Loan Facility, the USD Senior Secured Credit Facilities (“USD SSCF”)).
Borrowings under the Term Loan Facility will bear interest at a rate equal to, at the Company’s option, either (a) LIBOR for the relevant interest period, adjusted for statutory requirements, subject to a floor of 0.00 percent per annum, plus an applicable rate of 4.00 percent or (b) a base rate, subject to a floor of 2.00 percent per annum, equal to the highest of (1) the rate of interest in effect as publicly announced by the administrative agent as its prime rate, (2) the federal funds rate plus 0.50 percent and (3) LIBOR for an interest period of one month plus 1.00 percent, in each case, plus an applicable rate of 3.00 percent.
17
Borrowings under the Revolving Credit Facility bear interest at a rate equal to, at the Company’s option, either (a) LIBOR for the relevant interest period, with a floor of 0.00 percent per annum, plus the applicable rate or (b) a base rate, with a floor of 0.00 percent, equal to the highest of (1) the rate of interest in effect as publicly announced by the administrative agent as its prime rate, (2) the federal funds effective rate plus 0.50 percent and (3) LIBOR for an interest period of one month plus 1.00 percent, in each case, plus the applicable rate. The applicable rates for borrowings under the Revolving Credit Facility and commitment fees for unused commitments under the Revolving Credit Facility are based upon the First Lien Net Leverage Ratio effective for the preceding quarter, with LIBOR applicable rates ranging between 3.50 percent and 3.00 percent, currently 3.25 percent, base rate applicable rates between 2.50 percent and 2.00 percent, currently 2.25 percent and commitment fees between 0.50 percent and 0.25 percent, currently 0.375 percent. Commitment fees are included in interest expense.
As of June 30, 2020, the Company had repaid $50.8 million under the Term Loan Facility resulting in a balance of $349.2 million. In addition, the Company had borrowings outstanding of $55.0 million under the Revolving Credit Facility, outstanding letters of credit of $4.8 million and available unused commitments under this facility of $100.2 million as of June 30, 2020. In July 2020, the Company paid the outstanding balance down to $30.0 million and, as a result, has available and unused commitments under the Revolving Credit Facility of $125.2 million at July 31, 2020.
Guarantees and Collateral Security
Our obligations under the Credit Agreement are unconditionally guaranteed by the Subsidiary Guarantors, with customary exceptions including, among other things, where providing such guarantees is not permitted by law, regulation or contract or would result in adverse tax consequences. The guarantees of such obligations, will be secured, subject to permitted liens and other exceptions, by substantially all of our assets and the Subsidiary Guarantors’ assets, including but not limited to: (i) a perfected pledge of all of the capital stock issued by each of the Subsidiary Guarantors or any guarantor (subject to certain exceptions) and up to 65 percent of the capital stock issued by each direct wholly-owned foreign restricted subsidiary of the Company or any guarantor (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 guarantors (subject to certain exceptions and exclusions).
Covenants
The Credit Agreement contains a number of restrictive covenants that, among other things, restrict, subject to certain exceptions, our ability to incur additional indebtedness and guarantee indebtedness, create or incur liens, engage in mergers or consolidations, sell, transfer or otherwise dispose of assets, make investments, acquisitions, loans or advances, pay dividends, distributions or other restricted payments, or repurchase our capital stock, prepay, redeem, or repurchase any subordinated indebtedness, enter into agreements which limit our ability to incur liens on our assets or that restrict the ability of restricted subsidiaries to pay dividends or make other restricted payments to us, and enter into certain transactions with our affiliates, and, solely with respect to the Revolving Credit Facility, requires a Total Net Leverage Ratio (calculated as defined in the Credit Agreement) of not more than 4.5 to 1.0 as of each fiscal quarter-end when outstanding borrowings, together with undrawn letters of credit exceeding $20 million, under the Revolving Credit Facility exceed 35% of the $160 million commitment amount.
In addition, the Credit Agreement contains customary default provisions, representations and warranties and other covenants. The Credit Agreement also contains a provision permitting the Lenders to accelerate the repayment of all loans outstanding under the Senior Secured Credit Facilities during an event of default. As of June 30, 2020, the Company was in compliance with all covenants under the Credit Agreement.
European Debt
In connection with the acquisition of Uniwheels, AG, the Company assumed $70.7 million of outstanding debt. At June 30, 2020, $11.3 million of the assumed debt remained outstanding and bears interest at 2.2 percent.
During the second quarter of 2019, the Company amended its European Revolving Credit Facility (“EUR SSCF”), increasing the available borrowing limit from €30.0 million to €45.0 million and extending the term to May 22, 2022. On January 31, 2020, the available borrowing limit of the EUR SSCF was increased from €45.0 million to €60.0 million. All other terms of the EUR SSCF remained unchanged. At June 30, 2020, the Company had borrowings outstanding of $52.8 million (€47 million), outstanding letters of credit of $0.4 million (€0.4 million) and available unused commitments under this facility of $14.2 million (€12.6 million). In early August 2020, the Company repaid $43.6 million (€37 million), resulting in an outstanding balance of $11.8 million and available and unused commitments of $58.9 million. The EUR SSCF bears interest at Euribor (with a floor of zero) plus a margin (ranging from 1.55 percent to 3.0 percent based on the net debt leverage ratio of Superior Industries Europe AG and its wholly owned subsidiaries, collectively “Superior Europe AG”), currently 1.55 percent. The annual commitment fee for unused commitments (ranging from 0.50 percent to 1.05 percent based on the net debt leverage ratio of Superior Europe AG), is currently 0.50 percent per annum. In addition, a management fee is assessed equal to 0.07 percent of borrowings outstanding at each month end. The commitment and management
18
fees are both included in interest expense. Superior Europe AG has pledged substantially all of its assets, including land and buildings, receivables, inventory, and other moveable assets (other than collateral associated with equipment loans) as collateral under the EUR SSCF.
The EUR SSCF is subject to a number of restrictive covenants that, among other things, restrict, subject to certain exceptions, the ability of Superior Europe AG to incur additional indebtedness and guarantee indebtedness, create or incur liens, engage in mergers or consolidations, sell, transfer or otherwise dispose of assets, make investments, acquisitions, loans or advances, pay dividends or distributions, or repurchase our capital stock, prepay, redeem, or repurchase any subordinated indebtedness, and enter into agreements which limit our ability to incur liens on our assets. At June 30, 2020, Superior Europe AG was in compliance with all covenants under the EUR SSCF.
During the fourth quarter of 2019, the Company entered into new equipment loan agreements totaling $13.4 million (€12.0 million) which bear interest at 2.74 percent and mature on September 30, 2027. Interest and principal repayments are due quarterly. The funds are used to finance costs incurred to acquire certain property, plant and equipment at the Company’s Werdohl, Germany plant. The loans are secured with liens on the financed equipment and are subject to covenants that, among other things, include a material adverse change default provision pursuant to which the lender could accelerate the loan maturity, as well as a provision that restricts the ability of Superior Europe AG to reduce its ownership interest in Superior Industries Production Germany GmbH, its wholly-owned subsidiary and the borrower under the loan. During the first quarter 2020, the Company had drawn down on the equipment loans and the balance outstanding at June 30, 2020 was $11.9 million (€10.6 million). Quarterly installment payments of $480.8 thousand (€427.7 thousand) under the loan agreements will begin in December of 2020. At June 30, 2020, the Company was in compliance with all covenants under the loans.
NOTE 10 - REDEEMABLE PREFERRED STOCK
During 2017, we issued 150,000 shares of Series A (140,202 shares) and Series B (9,798 shares) Perpetual Convertible Preferred Stock, par value $0.01 per share to TPG Growth III Sidewall, L.P. (“TPG”) for an aggregate purchase price of $150.0 million. On August 30, 2017, the Series B shares were converted into Series A redeemable preferred stock, the “redeemable preferred stock,” after approval by our shareholders. The redeemable preferred stock has an initial stated value of $1,000 per share, par value of $0.01 per share and liquidation preference over common stock.
The redeemable preferred stock is convertible into shares of our common stock equal to the number of shares determined by dividing the sum of the stated value and any accrued and unpaid dividends by the conversion price of $28.162. The redeemable preferred stock accrues dividends at a rate of 9 percent per annum, payable at our election either in-kind or in cash and is also entitled to participate in dividends on common stock in an amount equal to that which would have been due had the shares been converted into common stock.
We may mandate conversion of the redeemable preferred stock if the price of the common stock exceeds $84.49. TPG may redeem the shares upon the occurrence of any of the following events (referred to as a “redemption event”): a change in control, recapitalization, merger, sale of substantially all of the Company’s assets, liquidation or delisting of the Company’s common stock. In addition, as originally issued, TPG has the right, at its option, to unconditionally redeem the shares at any time after May 23, 2024, subsequently extended to September 14, 2025 (the “redemption date”). We may, at our option, redeem in whole at any time all of the shares of redeemable preferred stock outstanding. At redemption by either party, the redemption value will be the greater of two times the initial face value ($150.0 million) and any accrued unpaid dividends or dividends paid-in-kind, currently $300.0 million, or the product of the number of common shares into which the redeemable preferred stock could be converted (approximately 5.3 million shares currently) and the then current market price of the common stock. We have determined that the conversion option and the redemption option exercisable upon occurrence of a “redemption event” which are embedded in the redeemable preferred stock must be accounted for separately from the redeemable preferred stock as a derivative liability.
Since the redeemable preferred stock may be redeemed at the option of the holder, but is not mandatorily redeemable, the redeemable preferred stock has been classified as mezzanine equity and initially recognized at fair value of $150.0 million (the proceeds on the date of issuance) less issuance costs of $3.7 million, resulting in an initial value of $146.3 million. This amount was further reduced by $10.9 million assigned to the embedded derivative liability at date of issuance, resulting in an adjusted initial value of $135.5 million. The difference between the adjusted initial value of $135.5 million and the redemption value of $300 million was being accreted over the seven-year period from the date of issuance through May 23, 2024 (the original date at which the holder had the unconditional right to redeem the shares, deemed to be the earliest likely redemption date) using the effective interest method. The accretion to the carrying value of the redeemable preferred stock is treated as a deemed dividend, recorded as a charge to retained earnings and deducted in computing earnings per share (analogous to the treatment for stated and participating dividends paid on the redeemable preferred stock).
19
On November 7, 2018, the Company filed a Certificate of Correction to the Certificate of Designations for the preferred stock, which became effective upon filing and corrected the redemption date to September 14, 2025. This resulted in a modification of the redeemable preferred stock. As a result of the modification, the carrying value of the redeemable preferred stock decreased $17.2 million (which was credited to retained earnings, treated as a deemed dividend and is added back to compute earnings per share) and the period for accretion of the carrying value to the redemption value has been extended to September 14, 2025. The accretion has been adjusted to amortize the excess of the redemption value over the carrying value over the period through September 14, 2025. The accumulated accretion net of the modification adjustment as of June 30, 2020 is $34.4 million resulting in an adjusted redeemable preferred stock balance of $169.9 million.
NOTE 11 – EUROPEAN NON-CONTROLLING REDEEMABLE EQUITY
On May 30, 2017, the Company acquired 92.3 percent of the outstanding shares of Uniwheels, Inc. Subsequently, the Company commenced a delisting and associated tender offer for the remaining shares. On January 17, 2018, the Company entered into a Domination and Profit and Loss Transfer agreement (“DPLTA”) retroactively effective as of January 1, 2018 pursuant to which we offered to purchase the remaining outstanding shares at €62.18. This price may be subject to change based on appraisal proceedings initiated by the minority shareholders which have not yet been concluded. The Company must also pay an annual dividend of €3.23 as long as the DPLTA is in effect. For any shares tendered prior to the annual dividend payment, we must pay interest at a statutory rate, currently 4.12 percent, in place of the dividend. As a result, non-controlling interests with a carrying value of $51.9 million were reclassified from stockholders’ equity to mezzanine equity as of January 1, 2018 because non-controlling interests with redemption rights (not within the Company’s control) are considered redeemable and must be classified outside shareholders’ equity. As a result of purchases pursuant to the tender offer and the DPLTA, the Company has increased its ownership to 99.9 percent as of June 30, 2020. In addition, the carrying value of the non-controlling interests must be adjusted to redemption value since they are currently redeemable. The following table summarizes the European non-controlling redeemable equity activity through the period ended June 30, 2020 (in thousands):
Balance at December 31, 2018
|
|
$
|
13,849
|
|
Dividends accrued
|
|
|
566
|
|
Dividends paid
|
|
|
(848
|
)
|
Translation adjustment
|
|
|
(361
|
)
|
Purchase of shares
|
|
|
(6,681
|
)
|
Balance at December 31, 2019
|
|
|
6,525
|
|
Dividends accrued
|
|
|
46
|
|
Dividends paid
|
|
|
(43
|
)
|
Translation adjustment
|
|
|
(72
|
)
|
Purchase of shares
|
|
|
(4,938
|
)
|
Balance at June 30, 2020
|
|
$
|
1,518
|
|
20
NOTE 12 – EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income (loss), after deducting preferred dividends and accretion and European non-controlling redeemable equity dividends, by the weighted average number of common shares outstanding. For purposes of calculating diluted earnings per share, the weighted average shares outstanding includes the dilutive effect of outstanding stock options and time and performance based restricted stock units under the treasury stock method. The redeemable preferred shares discussed in Note 10, “Redeemable Preferred Stock” are not included in the diluted earnings per share because the conversion would be anti-dilutive for the three- and six-month periods ended June 30, 2020 and 2019.
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
(Dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(43,218
|
)
|
|
$
|
7,270
|
|
|
$
|
(233,300
|
)
|
|
$
|
9,220
|
|
Less: Redeemable preferred stock dividends and accretion
|
|
|
(7,905
|
)
|
|
|
(7,917
|
)
|
|
|
(15,755
|
)
|
|
|
(15,688
|
)
|
Less: European non-controlling redeemable equity dividend
|
|
|
(26
|
)
|
|
|
(262
|
)
|
|
|
(46
|
)
|
|
|
(383
|
)
|
Basic numerator
|
|
$
|
(51,149
|
)
|
|
$
|
(909
|
)
|
|
$
|
(249,101
|
)
|
|
$
|
(6,851
|
)
|
Basic loss per share
|
|
$
|
(2.00
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(9.81
|
)
|
|
$
|
(0.27
|
)
|
Weighted average shares outstanding – Basic
|
|
|
25,562
|
|
|
|
25,106
|
|
|
|
25,403
|
|
|
|
25,070
|
|
Diluted Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(43,218
|
)
|
|
$
|
7,270
|
|
|
$
|
(233,300
|
)
|
|
$
|
9,220
|
|
Less: Redeemable preferred stock dividends and accretion
|
|
|
(7,905
|
)
|
|
|
(7,917
|
)
|
|
|
(15,755
|
)
|
|
|
(15,688
|
)
|
Less: European non-controlling redeemable equity dividend
|
|
|
(26
|
)
|
|
|
(262
|
)
|
|
|
(46
|
)
|
|
|
(383
|
)
|
Diluted numerator
|
|
$
|
(51,149
|
)
|
|
$
|
(909
|
)
|
|
$
|
(249,101
|
)
|
|
$
|
(6,851
|
)
|
Diluted loss per share
|
|
$
|
(2.00
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(9.81
|
)
|
|
$
|
(0.27
|
)
|
Weighted average shares outstanding – Basic
|
|
|
25,562
|
|
|
|
25,106
|
|
|
|
25,403
|
|
|
|
25,070
|
|
Dilutive effect of common share equivalents
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Weighted average shares outstanding – Diluted
|
|
|
25,562
|
|
|
|
25,106
|
|
|
|
25,403
|
|
|
|
25,070
|
|
NOTE 13 - INCOME TAXES
The estimated annual effective tax rate is forecasted quarterly using actual historical information and forward-looking estimates and applied to year-to-date ordinary income. The tax effects of unusual or infrequently occurring items, including changes in judgment about valuation allowances, settlements with taxing authorities and effects of changes in tax laws or rates, are reported in the interim period in which they occur.
The income tax benefit for the three and six months ended June 30, 2020, was $3.8 and $7.2 million, respectively, resulting in an effective income tax rate of 8 percent and 3 percent, respectively. The effective tax rate was lower than the statutory rate primarily due to the mix of earnings among tax jurisdictions and the impairment of goodwill for which there is no corresponding tax benefit, partially offset by the recognition of a valuation allowance on non-deductible interest.
The income tax provision for the three and six months ended June 30, 2019 was $7.5 and 12.5 million, resulting in an effective income tax rate of 50.9 percent and 57.5 percent, respectively. The effective tax rate was higher than the statutory rate primarily due to the United States taxation of foreign earnings under the Global Intangible Low-Tax Income (“GILTI”) provisions, and the recognition of a valuation allowance on non-deductible interest, partially offset by a benefit due to the mix of earnings among tax jurisdictions.
21
NOTE 14 - LEASES
The Company determines whether an arrangement is or contains a lease at the inception of the arrangement. Operating leases are included in other non-current assets, accrued expenses and other non-current liabilities in our condensed consolidated balance sheets. Finance leases are included in property, plant and equipment, net, short-term debt and long-term debt (less current portion) in our condensed consolidated balance sheets.
Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of the lease payments over the lease term. Since we generally do not have access to the interest rate implicit in the lease, the Company uses our incremental borrowing rate (for fully collateralized debt) at the inception of the lease in determining the present value of the lease payments. The implicit rate is, however, used where readily available. Lease expense under operating leases is recognized on a straight-line basis over the term of the lease. Certain of our leases contain both lease and non-lease components, which are accounted for separately.
The Company has operating and finance leases for office facilities, a data center and certain equipment. The remaining terms of our leases range from over one year to just under nine years. Certain leases include options to extend the lease term for up to ten years, as well as options to terminate which have been excluded from the term of the lease since exercise of these options is not reasonably certain.
22
Lease expense and cash flow for the three and six months ended June 30, 2020 and 2019 and operating and finance lease assets and liabilities, average lease term and average discount rate as of June 30, 2020 and December 31, 2019 are as follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
|
Lease Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
290
|
|
|
$
|
487
|
|
|
$
|
644
|
|
|
$
|
1,003
|
|
|
Interest on lease liabilities
|
|
|
20
|
|
|
|
17
|
|
|
|
42
|
|
|
|
31
|
|
|
Operating lease expense
|
|
|
835
|
|
|
|
861
|
|
|
|
1,680
|
|
|
|
1,714
|
|
|
Total lease expense
|
|
$
|
1,145
|
|
|
$
|
1,365
|
|
|
$
|
2,366
|
|
|
$
|
2,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Components
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash outflows from finance leases
|
|
$
|
20
|
|
|
$
|
17
|
|
|
$
|
42
|
|
|
$
|
31
|
|
|
Operating cash outflows from operating leases
|
|
|
873
|
|
|
|
835
|
|
|
|
1,764
|
|
|
|
1,663
|
|
|
Financing cash outflows from finance leases
|
|
|
255
|
|
|
|
329
|
|
|
|
547
|
|
|
|
654
|
|
|
Right-of-use assets obtained in exchange for finance lease liabilities, net of terminations and disposals
|
|
|
72
|
|
|
|
(45
|
)
|
|
|
220
|
|
|
|
511
|
|
|
Right-of-use assets obtained in exchange for operating lease liabilities, net of terminations and disposals
|
|
|
215
|
|
|
|
56
|
|
|
|
280
|
|
|
|
18,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-current assets
|
|
$
|
13,574
|
|
|
$
|
15,201
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
(2,859
|
)
|
|
$
|
(2,949
|
)
|
|
|
|
|
|
|
|
|
|
Other non-current liabilities
|
|
|
(11,731
|
)
|
|
|
(13,282
|
)
|
|
|
|
|
|
|
|
|
|
Total operating lease liabilities
|
|
$
|
(14,590
|
)
|
|
$
|
(16,231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment gross
|
|
$
|
5,023
|
|
|
$
|
4,821
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation
|
|
|
(2,762
|
)
|
|
|
(2,118
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
2,261
|
|
|
$
|
2,703
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
(1,020
|
)
|
|
$
|
(1,023
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
(1,930
|
)
|
|
|
(2,045
|
)
|
|
|
|
|
|
|
|
|
|
Total finance lease liabilities
|
|
$
|
(2,950
|
)
|
|
$
|
(3,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Term and Discount Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term - finance leases (years)
|
|
|
3.9
|
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term - operating leases (years)
|
|
|
6.1
|
|
|
|
6.4
|
|
|
|
|
|
|
|
|
|
|
Weighted-average discount rate - finance leases
|
|
|
3.0
|
%
|
|
|
2.9
|
%
|
|
|
|
|
|
|
|
|
|
Weighted-average discount rate - operating leases
|
|
|
3.8
|
%
|
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
|
23
Summarized future minimum payments under our leases as of June 30, 2020 are as follows:
|
|
June 30, 2020
|
|
|
|
Finance Leases
|
|
|
Operating Leases
|
|
Lease Maturities (in thousands)
|
|
|
|
|
|
|
|
|
Six remaining months of 2020
|
|
$
|
906
|
|
|
$
|
1,640
|
|
2021
|
|
|
1,000
|
|
|
|
3,105
|
|
2022
|
|
|
564
|
|
|
|
2,576
|
|
2023
|
|
|
135
|
|
|
|
2,231
|
|
2024
|
|
|
122
|
|
|
|
2,071
|
|
Thereafter
|
|
|
435
|
|
|
|
4,958
|
|
Total
|
|
|
3,162
|
|
|
|
16,581
|
|
Less: Imputed interest
|
|
|
(212
|
)
|
|
|
(1,991
|
)
|
Total lease liabilities, net of interest
|
|
$
|
2,950
|
|
|
$
|
14,590
|
|
NOTE 15 – RETIREMENT PLANS
We have an unfunded salary continuation plan covering certain directors, officers and other key members of management. Subject to certain vesting requirements, the plan provides for a benefit based on final average compensation, which becomes payable on the employee’s death or upon attaining age 65, if retired. The plan was closed to new participants effective February 3, 2011.
For the six months ended June 30, 2020, payments to retirees or their beneficiaries totaled approximately $0.7 million. We presently anticipate benefit payments in 2020 to total approximately $1.3 million. The following table summarizes the components of net periodic pension cost for the three and six months ended June 30, 2020 and 2019.
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
|
June 30,
2020
|
|
|
June 30,
2019
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
$
|
251
|
|
|
$
|
286
|
|
|
$
|
502
|
|
|
$
|
572
|
|
Net amortization
|
|
|
72
|
|
|
|
52
|
|
|
|
144
|
|
|
|
104
|
|
Net periodic pension cost
|
|
$
|
323
|
|
|
$
|
338
|
|
|
$
|
646
|
|
|
$
|
676
|
|
NOTE 16 - STOCK-BASED COMPENSATION
Equity Incentive Plan
Our 2018 Equity Incentive Plan (the “Plan”) was approved by stockholders in May 2018. The Plan authorizes us to issue up to 4.35 million shares of common stock, along with non-qualified stock options, stock appreciation rights, restricted stock and performance units to our officers, key employees, non-employee directors and consultants. At June 30, 2020, there were 73 thousand shares available for future grants under this Plan. No more than 1.2 million shares may be used under the Plan as “full value” awards, which include restricted stock and performance units. It is our policy to issue shares from authorized but not issued shares upon the exercise of stock options.
Under the terms of the Plan, each year eligible participants are granted time value restricted stock units (“RSUs”), vesting ratably over a three-year period, and performance restricted stock units (“PSUs”), with three-year cliff vesting. Upon vesting, each restricted stock award is exchangeable for one share of the Company’s common stock, with accrued dividends.
Other Awards
On May 16, 2019 the Company granted the following equity awards to our then new President and Chief Executive Officer in connection with the 2019 Inducement Grant Plan (the “Inducement Plan”): (i) an initial award consisting of (a) 666,667 PSUs at target, vesting in three approximately equal installments, to the extent the performance metrics are satisfied, during each of three performance periods and (b) 333,333 RSUs, vesting in approximately equal installments on February 28, 2020, 2021 and 2022; (ii) a 2019-2021 PSU grant, with the target number of 316,832 PSUs, which will vest to the extent the performance metrics are satisfied; and (iii) a 2019 RSU grant of 158,416 RSUs, vesting in approximately equal installments on February 28, 2020, 2021 and 2022. The PSU awards may be earned at up to 200% of target depending on the level of achievement of the performance metrics.
24
Restricted stock unit and restricted performance stock unit activity for the six months ended June 30, 2020 is summarized in the following table:
|
|
Equity Incentive Awards
|
|
|
|
Restricted
Stock Units
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Performance
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
Balance at December 31, 2019
|
|
|
1,047,256
|
|
|
$
|
5.39
|
|
|
|
1,548,793
|
|
|
$
|
7.17
|
|
|
|
50,250
|
|
|
$
|
18.86
|
|
Granted
|
|
|
634,317
|
|
|
|
2.87
|
|
|
|
948,636
|
|
|
|
3.25
|
|
|
|
—
|
|
|
|
—
|
|
Settled
|
|
|
(401,723
|
)
|
|
|
6.14
|
|
|
|
(245,713
|
)
|
|
|
5.05
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited or expired
|
|
|
(7,776
|
)
|
|
|
4.78
|
|
|
|
(44,827
|
)
|
|
|
20.95
|
|
|
|
(23,250
|
)
|
|
|
16.81
|
|
Balance at June 30, 2020
|
|
|
1,272,074
|
|
|
$
|
3.90
|
|
|
|
2,206,889
|
|
|
$
|
5.33
|
|
|
|
27,000
|
|
|
$
|
20.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at June 30, 2020
|
|
|
1,122,573
|
|
|
$
|
3.88
|
|
|
|
361,278
|
|
|
$
|
7.74
|
|
|
|
27,000
|
|
|
$
|
20.63
|
|
Stock-based compensation expense was $0.9 million and $1.4 million for the three-month periods ended June 30, 2020 and 2019, respectively. Stock-based compensation expense was $0.7 million and $1.9 million for the six-month periods ended June 30, 2020 and 2019, respectively. The year-over-year reduction in expense is due to the reduction of our estimates regarding the achievement of the performance metric, to zero, in light of the global pandemic. This change in estimate resulted in a reversal of $1.2 million of previously accrued expense in the first quarter of 2020. Unrecognized stock-based compensation expense related to non-vested awards of $5.1 million is expected to be recognized over a weighted average period of approximately 1.8 years as of June 30, 2020.
NOTE 17 – COMMITMENTS AND CONTINGENCIES
Purchase Commitments
When market conditions warrant, we may enter into purchase commitments to secure the supply of certain commodities used in the manufacture of our products, such as aluminum, natural gas and other raw materials. Prices under our aluminum contracts are based on a market index, the London Mercantile Exchange, and regional premiums for processing, transportation and alloy components which are adjusted quarterly for purchases in the ensuing quarter. Changes in aluminum prices are generally passed through to our OEM customers and adjusted on a quarterly basis. Certain of our purchase agreements include volume commitments; however, any excess commitments are generally negotiated with suppliers and those which have occurred in the past have been carried over to future periods.
Contingencies
We are party to various legal and environmental proceedings incidental to our business. Certain claims, suits and complaints arising in the ordinary course of business have been filed or are pending against us. Based on facts now known, we believe all such matters are adequately provided for, covered by insurance, are without merit and/or involve such amounts that would not materially adversely affect our consolidated results of operations, cash flows or financial position.
NOTE 18 – RECEIVABLES FACTORING
The Company sells certain customer trade receivables on a non-recourse basis under factoring arrangements with designated financial institutions. These transactions are accounted for as sales and cash proceeds are included in cash provided by operating activities. Factoring arrangements incorporate customary representations and warranties, including representations as to validity of amounts due, completeness of performance obligations and absence of commercial disputes. During the three months ended June 30, 2020 and 2019, the Company sold trade receivables totaling $67.7 million and $80.1 million, respectively, and incurred factoring fees of $0.2 million and $0.2 million, respectively. During the six months ended June 30, 2020 and 2019, the Company sold trade receivables totaling $137.6 million and $191.8 million, respectively, and incurred factoring fees of $0.4 million and $0.6 million, respectively. As of June 30, 2020 and December 31, 2019, $59.3 million and $49.6 million, respectively, of receivables had been factored under the arrangements. The collective limit under our factoring arrangements as of June 30, 2020 was $100.0 million, while the collective limit under our factoring arrangements as of December 31, 2019 was $117.3 million.
25
NOTE 19 – RESTRUCTURING
During the third quarter of 2019, the Company initiated a plan to significantly reduce production and manufacturing operations at its Fayetteville, Arkansas location. As a result, the Company recognized a non-cash charge of $13.0 million in cost of sales, comprised of (1) $7.6 million of accelerated depreciation for excess equipment, (2) $3.2 million relating to the write-down of certain supplies inventory to net salvage value, (3) $1.6 million of employee severance and (4) $0.6 million of accelerated amortization of right of use assets under operating leases. In addition, relocation costs for redeployment of machinery and equipment of $1.8 million were recognized in the fourth quarter of 2019. During the three and six months ended June 30, 2020, we recognized additional relocation costs for redeployment of machinery and equipment of $0.9 million and $1.6 million, respectively. Additional relocation costs are expected to be incurred over the next six months. As of June 30, 2020, $0.4 million of the restructuring severance accrual remains.
During the quarter ended June 30, 2020, the Company discontinued the manufacture and sale of high performance aftermarket wheels for the automotive racing market segment. The Company incurred a total non-cash charge of $3.4 million, including $2.8 million recorded in cost of sales, comprised of $1.3 million relating to write-downs of certain after-market inventory to salvage value, $1.0 million of employee severance costs, $0.5 million in contract terminations and other costs, as well as a $0.6 million non-cash charge recorded in SG&A related to non-production employee severance costs.
26