2020 ANNUAL REPORT
WINNING ACROSS OUR PORTFOLIO
SUPERIOR AT A GLANCE
Delivering innovative solutions to enhance the value of our customers’
products and create value for all stakeholders
2020 SALES BY CUSTOMER
($ in millions, Units in thousands)
Units
Net Sales
2019
19,246
2020
15,194
$1,372.5
$1,100.8
Value-Added Sales(1)
$ 755.3
$ 648.3
Gross Profit
Net Income(3)
Adj. EBITDA(1)
$ 116.1
$ 65.6
$ (96.5)
$ (243.6)
$ 168.8
$ 129.4
Adj. EBITDA % of VAS(1)
22%
20%
Net Debt(1)
$ 552.7
$ 490.8
2020 HIGHLIGHTS
• Net sales of $1.1 billion; grew Value-
Added Sales(1) 7% above market(2)
• Improved safety; recordable incident rate
improved by 22%
• Operating Cash Flow of $150 million;
increased full year Free Cash Flow to
$87 million
• Enhanced portfolio; 19 inch or greater
wheels accounted for 40% of shipment
volume by year end
• Grew Content per Wheel(1) by 9%
• Funded debt of $643 million; reduced
Net Debt(1) to $491 million, lowest level
since European acquisition
• Expanded portfolio of EVs; launched
Mach-E, Mercedes AMG EQA, Volvo
XC40 Electric and Audi e-tron
• Launched patent-pending DecoTechTM
finishing technology
Other 40%
GM 24%
VW Group 16%
Aftermarket 9%
Ford 11%
CONTENT PER WHEEL(1)
(Dollars)
FREE CASH FLOW (1)
(Dollars in millions)
$39.25
$42.06
$86.8
$78.7
2019
2020
2019
2020
(1) Value-Added Sales, Value-Added Sales Adjusted for Foreign Exchange, Adjusted
EBITDA, Net Debt, Content per Wheel, and Free Cash Flow are non-GAAP financial
Measures. See reconciliations to the most comparable GAAP measures in the tables
of this annual report.
(2) Based on Value-Added Sales excluding Foreign Exchange compared to North
America and Western and Central Europe industry production as reported by IHS on
February 16, 2021.
(3) Net income includes impact of impairments of goodwill and indefinite-lived intangibles
in 2019 and 2020 of $102 million and $194 million, respectively.
$39.25$42.06$78.7$86.82019202020192020
DEAR FELLOW SHAREHOLDERS,
As we emerge from a particularly challenging year, I am enthusiastic about our company’s future.
We have a business built for profitable growth as the automotive industry continues to recover.
Throughout 2020, we maintained focus on our growth strategy while responding to the COVID-19
pandemic with safety, cost, and cash flow discipline.
2020 marked Superior’s third consecutive year of growth above market (1), underscoring our position as
a premium mobility solutions provider. The secular shift toward CO2 reduction and premium products
combined with our product portfolio delivered revenue growth over market(1) of 7% and ongoing
Content Per Wheel(2) growth.
Our role in CO2 reduction is manifest in vehicle electrification, and our lightweighting and aerodynamic
product advancements. Throughout 2020, we continued to demonstrate our strength in the electric
vehicle market, launching multiple products on high-profile platforms such as Ford’s Mach E and
various European vehicle platforms. We remain at the forefront of the development and adoption of
technologies to reduce weight and improve fuel efficiency. These innovations span from our patented
manufacturing processes such as AluliteTM to the adoption of lightweighting value-added processes
and aerodynamic technologies.
In addition to carbon reduction, the shift to premium content and styling differentiation is driving our
growth. In 2020, our premium wheel portfolio benefitted from several launches of leading platforms
such as GM full-size SUVs, Ford Bronco Sport, BMW X7 and Mercedes S Class. We also launched
new finishing technologies such as DecoTechTM, a patent-pending process with a broad range
of styling applications and received an award for the launch of our PVD product. Wheel selection is
a key aspect of the consumer’s vehicle purchasing experience. Our portfolio provides consumers
customization options previously unavailable and serves as a key growth pillar.
Finally, with respect to our 2020 results, our global team responded to the reality of COVID-19 by
ensuring the health and safety of our employees, aligning our costs to industry production and closely
managing cash flow. These actions contributed to a 22% improvement in our recordable safety incident
rate, 10% growth in Free Cash Flow to $87 million(2), and significant margin expansion in the second
half of 2020 compared to the prior year period.
As we look forward, I thank our committed employees, customers, and stakeholders who have and
continue to support our company in delivering these results. I also thank each of you, our shareholders,
who entrust us every day as stewards of your capital.
Sincerely,
Majdi Abulaban
President and Chief Executive Officer
(1) Based on Value-Added Sales excluding Foreign Exchange compared to North America and Western and Central Europe industry production as reported by
IHS on February 16, 2021.
(2) Content per Wheel and Free Cash Flow are non-GAAP financial measures. See reconciliation in this annual report to the most comparable GAAP measure.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Adjusted EBITDA
(Millions of dollars)
Net Income (Loss) Attributable to Superior
Interest Expense, net
Income Tax Provision
Depreciation
Amortization
Acquisition, Integration, Hiring/Separation/Restructuring Costs, and Other
Factoring Fees
Impairment of Goodwill and Indefinite-Lived Intangibles
Adjusted EBITDA
FY 2020
$ (243.6)
FY 2019
$ (96.5)
45.4
14.9
72.8
25.4
19.5
1.4
193.6
372.9
129.4
47.0
3.4
75.8
24.9
10.9
1.0
102.2
$ 265.2
$ 168.8
$
$
Value-Added Sales, Value-Added Sales excluding Foreign Exchange, and Content per Wheel
(Millions of dollars)
Net Sales
Less: Aluminum Value and Outside Service Provider Costs
Value-Added Sales
Less: Impact of FX on Value-Added Sales
Value-Added Sales excluding Foreign Exchange
Wheels Shipped
Content per Wheel
Free Cash Flow
(Millions of dollars)
Cash Flow Provided By Operating Activities
Cash Flow Used In Investing Activities
Less: Cash Payments for Non-debt Financing Activities
Free Cash Flow
Net Debt
(Millions of dollars)
Long Term Debt (less current portion)
Short Term Debt
Total Debt
Less: Cash and Cash Equivalents
Net Debt
FY 2020
$ 1,100.8
(452.5)
$ 648.3
(9.2)
$ 639.1
FY 2019
$ 1,372.5
(617.2)
$ 755.3
—
$ 755.3
15,194
$ 42.06
19,246
$ 39.25
FY 2020
$ 150.1
(44.2)
(19.1)
$ 86.8
FY 2019
$ 162.8
(54.7)
(29.4)
$ 78.7
FY 2020
$ 637.1
6.1
643.2
(152.4)
$ 490.8
FY 2019
$ 626.6
4.0
630.6
(77.9)
$ 552.7
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2020
Commission file number: 1-6615
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
26600 Telegraph Road, Suite 400
Southfield, Michigan
(Address of Principal Executive Offices)
95-2594729
(I.R.S. Employer
Identification No.)
48033
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (248) 352-7300
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, $0.01 par value
SUP
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☒
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☒
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm
that prepared or issued its audit report. Yes ☒ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the registrant’s $0.01 par value common equity held by non-affiliates as of the last business day of the
registrant’s most recently completed second quarter was $43,506,281, based on a closing price of $1.70. On February 26, 2021, there were
25,591,930 shares of common stock issued and outstanding.
Portions of the registrant’s 2021 Proxy Statement, to be filed with the Securities and Exchange Commission within 120 days after the close of
the registrant’s fiscal year, are incorporated by reference into Part III of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Item 4A
PART II
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
PART IV
Item 15
Schedule II
Item 16
SIGNATURES
Business. .............................................................................................................................................................
Risk Factors. .......................................................................................................................................................
Unresolved Staff Comments...............................................................................................................................
Properties. ...........................................................................................................................................................
Legal Proceedings...............................................................................................................................................
Mine Safety Disclosures. ....................................................................................................................................
Information About Executive Officers. ..............................................................................................................
PAGE
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities........................................................................................................................................................
Selected Financial Data. .....................................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations.............................
Quantitative and Qualitative Disclosures About Market Risk. ..........................................................................
Financial Statements and Supplementary Data. .................................................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. ...........................
Controls and Procedures. ....................................................................................................................................
Other Information. ..............................................................................................................................................
Directors, Executive Officers and Corporate Governance. ................................................................................
Executive Compensation. ...................................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. .........
Certain Relationships and Related Transactions, and Director Independence. ..................................................
Principal Accountant Fees and Services.............................................................................................................
Exhibits, Financial Statement Schedules............................................................................................................
Valuation and Qualifying Accounts. ..................................................................................................................
Form 10-K Summary..........................................................................................................................................
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3
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15
15
15
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18
18
19
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30
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64
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
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 Annual Report on Form 10-K (including in the sections entitled “Risk
Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”) and from time to time our
management may make statements that may constitute “forward-looking statements” within the meaning of Section 27A of the
Securities 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, anticipated future performance (including sales and earnings), expected growth, future business plans and costs,
potential liability for environmental-related matters, and the impact of COVID-19 on our future business, results, operations and
prospects. Any statement that is not historical in nature is a forward-looking statement and may be identified by the use of words and
phrases such as “expects,” “anticipates,” “believes,” “will,” “will likely result,” “will continue,” “plans to,” “could,” “continue,”
“approximately,” “forecast,” “estimates,” “pursue” 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 this Annual Report on Form 10-K and elsewhere in the
Annual Report and those described from time to time in our other reports filed with the Securities and Exchange Commission.
Readers are cautioned that it is not possible to predict or identify all of 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.
ITEM 1 - BUSINESS
Description of Business and Industry
Superior Industries International, Inc.’s (referred to herein as the “Company,” “Superior,” or “we” and “our”) principal business is the
design and manufacture of aluminum wheels for sale to original equipment manufacturers (OEMs) in North America and Europe and
to the aftermarket in Europe. We employ approximately 7,600 full-time 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 aluminum wheel suppliers to global OEMs and we believe we are the #1 European aluminum wheel aftermarket manufacturer
and supplier. Our OEM aluminum wheels accounted for approximately 91 percent of our sales in 2020 and are primarily sold for
factory installation on vehicle models manufactured by BMW (including Mini), Daimler Group (Mercedes-Benz, AMG, Smart), FCA,
Ford, GM, Honda, Jaguar-Land Rover, Mazda, 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 continue to deliver on our strategic plan to
be one of the leading light vehicle aluminum wheel suppliers globally, delivering innovative wheel solutions to our customers.
Demand for our products is mainly driven by light-vehicle production levels in North America and Europe, as well as production
levels at our key customers and take rates on vehicle wheel programs we serve. North American light-vehicle production in 2020 was
13.0 million vehicles, as compared to 16.3 million vehicles in 2019. In Europe, light vehicle production in 2020 was 13.6 million
vehicles, as compared to 17.8 million vehicles in 2019. Industry production volumes in 2020 were adversely impacted by the COVID-
19 pandemic. The majority of our customers’ wheel programs are awarded two to four years before actual production is scheduled to
begin. Our purchase orders with OEMs are typically specific to a particular vehicle model. Each year, the automotive manufacturers
introduce new models, update existing models and discontinue certain models. In this process, we may be selected as the supplier on a
new model, we may continue as the supplier on an updated model or we may lose the supply contract for a new or updated model to a
competitor.
Customer Dependence
We have proven our ability to be a consistent producer of high-quality aluminum wheels with the capability to meet our customers’
requirements regarding delivery, overall customer service, price, quality, and technology. We continually strive to enhance our
relationships with our customers through continuous improvement programs, not only through our manufacturing operations but in the
engineering, design, development and quality areas as well.
GM, VW Group and Ford were our only customers individually accounting for 10 percent or more of our consolidated sales in 2020.
Our sales to these customers in 2020 and 2019 were as follows:
(Dollars in millions)
GM
VW Group
Ford
2020
2019
Percent of
Sales
24%
16%
11%
Dollars
274.2
175.8
125.0
$
$
$
Percent of
Sales
22%
13%
15%
Dollars
295.0
180.1
208.1
$
$
$
The loss of all or a substantial portion of our sales to these customers would have a significant adverse effect on our financial results.
Refer to Item 1A, “Risk Factors,” of this Annual Report.
Raw Materials
The raw materials used in manufacturing our products are readily available and are obtained through numerous suppliers with whom
we have established trade relationships. Aluminum accounted for the vast majority of our total raw material requirements during 2020.
Our aluminum requirements are met through purchase orders with major global producers. During 2020, we successfully secured
aluminum commitments from our primary suppliers sufficient to meet our production requirements, and we anticipate being able to
source aluminum requirements to meet our expected level of production in 2021.
When market conditions warrant, we may also enter into purchase commitments to secure the supply of certain other commodities
used in the manufacture of our products, such as natural gas, electricity and other raw materials.
We establish price adjustment clauses with our OEM customers to minimize the aluminum price risk. In the aftermarket business, we
use derivatives to hedge price variability on our aluminum purchases.
1
Foreign Operations
We manufacture the majority of our North American products in Mexico for sale in the United States, Canada and Mexico. Net sales
of wheels of our Mexico operations in 2020 totaled $522.2 million and represented 94.9 percent of our total net sales in North
America as compared to $599.8 million and 85.2 percent in 2019. Net property, plant and equipment used in our operations in Mexico
totaled $212.8 million at December 31, 2020 and $223.2 million at December 31, 2019. The overall cost for us to manufacture wheels
in Mexico is currently lower than in the United States, due to lower labor costs as a result of lower prevailing wage rates.
Similarly, we manufacture the majority of our products for the European market in Poland, for sale throughout Europe. For the year
ended December 31, 2020, net sales of wheels manufactured in Poland were $338.0 million and 61.4 percent of total net European
sales, as compared to $422.4 million and 63.2 percent in 2019. Net property, plant and equipment used in our operations in Poland
totaled $219.8 million at December 31, 2020 and $217.9 million at December 31, 2019. Similar to our Mexican operations, the overall
cost to manufacture wheels in Poland is substantially lower than in both the United States and Germany at the present time due
principally to lower labor costs.
We may enter into forward contracts, option contracts, swaps, collars or other derivative instruments to hedge the effect of foreign
currency fluctuations on expected future cash flows and on certain existing assets and liabilities. In such cases, subsidiaries, whose
functional currency is the U.S. dollar or the Euro, may hedge a portion of their forecasted foreign currency costs denominated in the
Mexican Peso and Polish Zloty, respectively, in order to reduce the effect of fluctuating foreign currency exchange rates on our
margins.
Competition
Competition in the market for aluminum wheels is based primarily on delivery, overall customer service, price, quality and
technology. We currently supply 16.5 percent and 13.0 percent of the aluminum wheels installed on passenger cars and light-duty
trucks in North America and Europe, respectively.
Competition is global in nature with a significant volume of exports from Asia into Europe and North America. There are several
competitors with facilities in North America but we estimate that we have more than twice the North American production capacity of
any competitor. Some of the key competitors in North America include Central Motor Wheel of America, CITIC Dicastal Co., Ltd.,
Prime Wheel Corporation, Enkei, Hands Corporation, and Ronal. Key European competitors include Ronal, Borbet, Maxion and
CMS. We are the leading manufacturer of alloy wheels in the European aftermarket, where the competition is highly fragmented. Key
competitors include Alcar, Brock, Borbet, ATU and Mak. Refer to Item 1A, “Risk Factors,” of this Annual Report.
Steel and other types of wheels also compete with our products. According to Wards Automotive Group, the aluminum wheel
penetration rate on passenger cars and light-duty trucks in North America was 89.6 percent for 2020 and 88.0 percent for the 2019
model year. Although similar industry data is not available for Europe, we estimate aluminum wheel penetration continues to
marginally increase year-over-year with further opportunity to increase. Several factors can affect this rate including price, fuel
economy requirements and styling preferences. Although aluminum wheels currently cost more than steel, aluminum is a lighter
material than steel, which is desirable for both fuel and carbon dioxide efficiency and generally viewed as aesthetically superior to
steel and, thus, more desirable to the OEMs and their customers.
Research and Development
Our policy is to continuously review, improve and develop our engineering capabilities to satisfy our customer requirements in the
most efficient and cost-effective manner available. We strive to achieve this objective by attracting and retaining top engineering
talent and by maintaining the latest state-of-the-art computer technology to support engineering development. Our engineering center
located in Fayetteville, Arkansas, supports our research and development in North America. We also have a technical sales function at
our corporate headquarters in Southfield, Michigan that maintains a complement of engineering staff located near some of our largest
customers’ headquarters and engineering and purchasing offices. Research and development of our OEM and aftermarket wheels is
performed in Germany
Government Regulation
Safety standards in the manufacture of vehicles and automotive equipment have been established under the National Traffic and Motor
Vehicle Safety Act of 1966, as amended. We believe that we are in compliance with all federal standards currently applicable to OEM
suppliers and to automotive manufacturers.
2
Environmental Compliance
Our manufacturing facilities, like most other manufacturing companies, are subject to solid waste, water and air pollution control
standards mandated by federal, state and local laws. Violators of these laws are subject to fines and, in extreme cases, plant closure.
We believe our facilities are in material compliance with all presently applicable standards. The cost of environmental compliance was
approximately $1.3 million in 2020 and $0.7 million in 2019. We expect that future environmental compliance expenditures will
approximate these levels and will not have a material effect on our consolidated financial position or results of operations. However,
climate change legislation or regulations restricting emission of “greenhouse gases” could result in increased operating costs and
reduced demand for the vehicles that use our products. Refer to Item 1A, “Risk Factors - We are subject to various environmental
laws” of this Annual Report.
Employees
As of December 31, 2020, we employed approximately 7,600 full-time employees and 1,400 contract employees, with 4,200
employees in North America and 3,400 employees in Europe.
Segment Information
We have aligned our executive management structure, organization and operations to focus on our performance in our North
American and European regions. Financial information about our reporting segments is contained in Note 5, “Business Segments” in
the Notes to Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary Data” of this Annual Report.
History
We were initially incorporated in Delaware in 1969. Our entry into the OEM aluminum wheel business in 1973 resulted from our
successful development of manufacturing technology, quality control and quality assurance techniques that enabled us to satisfy the
quality and volume requirements of the OEM market for aluminum wheels. The first aluminum wheel for a domestic OEM customer
was a Mustang wheel for Ford. On May 30, 2017, we acquired a majority interest in UNIWHEELS, AG, which was a European
supplier of OEM and aftermarket aluminum wheels. UNIWHEELS, AG was renamed in 2018 to Superior Industries Europe AG. Our
stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “SUP.”
Available Information
Our Annual Report on Form 10-K, quarterly reports on Form 10-Q and any amendments thereto are available, without charge, on or
through our website, www.supind.com, under “Investor Relations,” as soon as reasonably practicable after they are filed electronically
with the Securities and Exchange Commission (“SEC”). Also included on our website, www.supind.com, under “Investor Relations,”
is our Code of Conduct, which, among others, applies to our Chief Executive Officer, Chief Financial Officer and Chief Accounting
Officer. Copies of all SEC filings and our Code of Conduct are also available, without charge, upon request from Superior Industries
International, Inc., Shareholder Relations, 26600 Telegraph Road, Suite 400, Southfield, Michigan 48033.
The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements and other information related to
issuers that file electronically with the SEC. The content on any website referred to in this Annual Report on Form 10-K is not
incorporated by reference in this Annual Report on Form 10-K.
ITEM 1A. Risk Factors
The following discussion of risk factors contains “forward-looking” statements, which may be important to understanding any
statement in this Annual Report or elsewhere. The following information should be read in conjunction with Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)” and Item 8, “Financial Statements and
Supplementary Data” of this Annual Report.
Our business routinely encounters and addresses risks and uncertainties. Our business, results of operations, financial condition and
cash flows could be materially adversely affected by the factors described below. Discussion about the important operational risks that
our business encounters can also be found in the MD&A section and in the business description in Item 1, “Business” of this Annual
Report. Below, we have described our present view of the most significant risks and uncertainties we face. Additional risks and
uncertainties not presently known to us, or that we currently do not consider significant, could also potentially impair our business,
results of operations, financial condition and cash flows. Our reactions to these risks and uncertainties as well as our competitors’ and
customers’ reactions will affect our future operating results.
3
Industry and Economic Risks
The COVID-19 pandemic has disrupted, and may continue to disrupt our business, which we expect will have a material adverse
impact on our business, results of operations, financial condition and cash flows.
To date, the COVID-19 pandemic has caused a widespread health crisis, resulting in an economic downturn and government imposed
measures to reduce the spread of COVID-19. In Europe and North America (our primary markets), federal, state and local
governments have either recommended or mandated actions to slow the transmission of COVID-19. Most U.S. states and most
countries have been implementing shelter-in-place orders, quarantines, significant restrictions on travel, as well as work restrictions
that prohibit non-essential employees from going to work. The impact of COVID-19 and uncertainty with respect to the economic
effects of the pandemic has introduced significant volatility in the financial markets and is having a widespread adverse effect on the
automotive industry. Specific risks to our Company associated with the COVID-19 pandemic include the following:
•
reductions in both consumer demand for vehicles and OEM automotive production, due to lower consumer confidence, may
decrease demand for our products;
• OEMs may shift production to lower trim-levels or delay new product launches that result in the manufacture of less
expensive light-vehicle products, which generally would decrease demand for our larger and/or premium wheel finishes that
have higher average profit margins;
• OEMs may adjust their supply chains to eliminate reliance on certain suppliers, including Superior, based on credit rating
agencies’ assessments of suppliers;
•
•
•
•
•
•
further deterioration of worldwide credit and financial markets could limit our ability to factor customer receivables, or end-
consumers’ ability to obtain financing to purchase new vehicles;
the uncertainties associated with COVID-19 impacts on the automotive sector coupled with our negative equity position and
a NYSE de-listing notification (as described below), may result in a decrease in (or elimination of) credit insurance available
to our European and North American suppliers causing adverse payment term changes with our suppliers;
disruptions to our supply chain in connection with the sourcing of materials and equipment from efforts to contain the spread
of COVID-19;
negative impacts to our operations, including reductions in production volumes and production efficiency levels and
increased costs resulting from our efforts and the efforts of federal, state and local governments to mitigate the impact of
COVID-19 and to protect our employees’ health and well-being;
the occurrence of COVID-19 incidents at our customers’ facilities or in our facilities may interrupt our customers’ and our
operations for an indeterminate period of time;
the temporary or permanent closure of our customers’ facilities or our facilities.
The ultimate impact that COVID-19 will have on our business, results of operations, financial condition and cash flows will depend on
a number of evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; the
impact of recent resurgences of COVID-19 cases in North America and Europe, the efficacy and distribution of COVID-19 vaccines,
governmental, OEMs’, suppliers’, customers’ and individuals’ actions that have been and continue to be taken in response to the
pandemic and the impact of the pandemic on economic activity and actions taken in response to such impact by the OEMs’ suppliers
and customers.
The automotive industry is cyclical and volatility in the automotive industry could adversely affect our financial performance.
Predominantly, our sales are made to the European and U.S. automotive markets. Therefore, our financial performance depends
largely on conditions in the European and U.S. automotive industry, which in turn can be affected significantly by broad economic
and financial market conditions. Consumer demand for automobiles is subject to considerable volatility as a result of consumer
confidence in general economic conditions, levels of employment, prevailing wages, fuel prices and the availability and cost of
consumer credit, as well as changing consumer preferences. Demand for aluminum wheels can be further affected by other factors,
including pricing and performance comparisons to competitive materials such as steel. Finally, the demand for our products is
influenced by shifts of market share between vehicle manufacturers and the market penetration of the specific vehicle models being
sold by our customers. Decreases in demand for automobiles in Europe and the United States could adversely affect the valuation of
our productive assets, results of operations, financial condition and cash flows.
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We operate in a highly competitive industry and efforts by our competitors to gain market share could adversely affect our financial
performance.
The global automotive component supply industry is highly competitive. Competition is based on a number of factors, including
delivery, overall customer service, price, quality, technology and available capacity to meet customer demands. Some of our
competitors are companies, or divisions or subsidiaries of companies, which are larger and have greater financial and other resources
than we do. We cannot ensure that our products will be able to compete successfully with the products of these competitors. In
particular, our ability to maintain or increase manufacturing capacity typically requires significant investments in facilities, equipment
and personnel. Additionally, as a result of evolving customer requirements, we may incur labor costs at premium rates, experience
increased maintenance expenses or have to replace our machinery and equipment on an accelerated basis. Furthermore, the nature of
the markets in which we compete has attracted new entrants, particularly from low-cost countries. As a result, our sales levels and
margins continue to be adversely affected by pricing pressures reflective of significant competition from producers located in low-cost
foreign markets, such as China. Such competition with lower cost structures poses a significant threat to our ability to compete
internationally and domestically. These factors have led to our customers awarding business to foreign competitors in the past, and
they may continue to do so in the future. In addition, any of our competitors may foresee the course of market development more
accurately, develop products that are superior to our products, have the ability to produce similar products at a lower cost or adapt
more quickly to new technologies or evolving customer requirements. Consequently, our products may not be able to compete
successfully with competitors’ products.
Risks Relating to our Business, Strategy and Operations
A limited number of customers represent a large percentage of our sales. The loss of a significant customer or decrease in demand
could adversely affect our operating results.
GM, VW Group, Ford, Daimler Group, Volvo, BMW and Toyota, together, represented 82 percent in 2020 and 79 percent of our sales
in 2019. Increasingly global procurement practices, the pace of new vehicle introduction and demand for price reductions may make it
more difficult to maintain long-term supply arrangements with our customers, and there are no guarantees that we will be able to
negotiate supply arrangements with our customers on terms acceptable to us in the future. The contracts we have entered into with
most of our customers provide that we will manufacture wheels for a particular vehicle model, rather than manufacture a specific
quantity of products. Such contracts range from one year to the life of the model (usually three to five years), typically are non-
exclusive and do not require the purchase by the customer of any minimum number of wheels from us. Therefore, a significant
decrease in consumer demand for certain key models or group of related models sold by any of our major customers, or a decision by
a manufacturer not to purchase from us, or to discontinue purchasing from us, for a particular model or group of models, could
adversely affect our results of operations, financial condition and cash flows.
We may be unable to successfully launch new products and/or achieve technological advances which could adversely affect our ability
to compete resulting in an adverse impact on our financial condition, operating results and cash flows.
In order to compete effectively in the global automotive component supply industry, we must be able to launch new products and
adopt technology to meet our customers’ demands in a timely manner. However, we cannot ensure that we will be able to install and
certify the equipment needed for new product programs in time for the start of production, or that the transitioning of our
manufacturing facilities and resources under new product programs will not impact production rates or other operational efficiency
measures at our facilities. In addition, we cannot ensure that our customers will execute the launch of their new product programs on
schedule. We are also subject to the risks generally associated with new product introductions and applications, including lack of
market acceptance, delays in product development and failure of products to operate properly. The global automotive industry is
experiencing a period of significant technological change. As a result, the success of our business requires us to develop and/or
incorporate leading technologies. Such technologies are subject to rapid obsolescence. Our inability to maintain access to these
technologies (either through development or licensing) may adversely affect our ability to compete. If we are unable to differentiate
our products, maintain a low-cost footprint or compete effectively with technology-focused new market entrants, we may lose market
share or be forced to reduce prices, thereby lowering our margins. Any such occurrences could adversely affect our financial
condition, operating results and cash flows.
Increases in the costs and restrictions on availability of raw materials could adversely affect our operating margins and cash flow.
Generally, we obtain our raw materials, supplies and energy requirements from various sources. Although we currently maintain
alternative sources, our business is subject to the risk of price increases and periodic delays in delivery. Fluctuations in the prices of
raw materials may be driven by the supply and demand for that commodity or governmental regulation, including trade laws and
tariffs. In addition, if any of our suppliers seek bankruptcy relief or otherwise cannot continue their business as anticipated, the
availability or price of raw materials could be adversely affected.
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Although we are able to periodically pass certain aluminum cost increases on to our customers, we may not be able to pass along all
changes in aluminum costs (e.g. for aftermarket), or there may be a delay in passing the aluminum costs onto our customers. Our
customers are not obligated to accept energy or other supply cost increases that we may attempt to pass along to them. This inability to
pass on these cost increases to our customers could adversely affect our operating margins and cash flows.
Aluminum and alloy pricing, and the timing of our receipt of payment from customers for aluminum price fluctuations, may have a
material effect on our operating margins and cash flows.
The cost of aluminum is a significant component in the overall cost of our wheels and in our selling prices to customers. Customer
prices are adjusted for fluctuations in aluminum prices based on changes in certain published market indices, but the timing of price
adjustments is based on specific customer agreements and can vary from monthly to quarterly. As a result, the timing of aluminum
price adjustments with customers flowing through sales rarely will match the timing of such changes in cost and can result in
fluctuations to our gross profit. This is especially true during periods of frequent increases or decreases in the market price of
aluminum.
The aluminum we use to manufacture wheels also contains additional alloy materials, including silicon. The cost of alloying materials
is also a component of the overall cost of a wheel. The price of the alloys we purchase is also based on certain published market
indices; however, most of our customer agreements do not provide price adjustments for changes in market prices of alloying
materials. Increases or decreases in the market prices of these alloying materials could have a material effect on our operating margins
and cash flows.
We experience continual pressure to reduce costs and if we are unable to generate sufficient cost reductions our revenues, operating
margins and cash flows could be adversely affected.
The global vehicle market is highly competitive at the OEM level, which drives continual cost-cutting initiatives by our customers.
Customer concentration, relative supplier fragmentation and product commoditization have translated into continual pressure from
OEMs to reduce the price of our products. It is possible that pricing pressures beyond our expectations could intensify as OEMs
pursue restructuring and cost-cutting initiatives. If we are unable to generate sufficient production cost savings in the future to offset
such price reductions, our operating margins and cash flows could be adversely affected. In addition, changes in OEMs’ purchasing
policies or payment practices could have an adverse effect on our business. Our OEM customers typically attempt to qualify more
than one supplier for the vehicle programs we participate on and for programs we may bid on in the future. As such, our OEM
customers are able to negotiate favorable pricing or may decrease wheel orders from us. Such actions may result in decreased sales
volumes and unit price reductions for the Company, resulting in lower revenues, operating margins and cash flows.
We may be unable to successfully implement cost-saving measures or achieve expected benefits under our plans to improve operations
which could negatively impact our financial position, results of operations and cash flow.
As part of our ongoing focus to provide high quality products, we continually analyze our business to further improve our operations
and identify cost-cutting measures. We may be unable to successfully identify or implement plans targeting these initiatives or fail to
realize the benefits of the plans we have already implemented, as a result of operational difficulties, a weakening of the economy or
other factors. Cost reductions may not fully offset decreases in the prices of our products due to the time required to develop and
implement cost reduction initiatives. Additional factors such as inconsistent customer ordering patterns, increasing product complexity
and heightened quality standards are making it increasingly more difficult to reduce our costs. It is possible that the costs we incur to
implement improvement strategies may negatively impact our financial position, results of operations and cash flow.
We may be unable to attract and retain key personnel, including our senior management team, which may adversely affect our ability
to conduct our business.
Our success depends, in part, on our ability to attract, hire, train and retain qualified managerial, operational, engineering, sales and
marketing personnel. We face significant competition for these types of employees in our industry. We may be unsuccessful in
attracting and retaining the personnel we require to conduct our operations successfully. In addition, key personnel may leave us and
compete against us. Our success also depends, to a significant extent, on the continued service of our senior management team. During
the last several years we have experienced significant turnover in our senior management members, additional losses of members of
our senior management team or other experienced senior employees could impair our ability to execute our business plans and
strategic initiatives, cause us to lose customers and experience lower revenues, or lead to employee morale problems and/or the loss of
other key employees.
Purchase of additional shares of Superior Industries Europe AG (formerly UNIWHEELS, AG) may require a higher purchase price.
Superior executed a Domination and Profit Loss Transfer Agreement, “DPLTA”, which became effective in January 2018.
According to the terms of the DPLTA, we offered to purchase any outstanding shares of UNIWHEELS, AG for cash consideration of
€62.18 per share. The cash consideration paid to shareholders for shares tendered under the DPTLA may be subject to change based
on appraisal proceedings that the minority shareholders of UNIWHEELS, AG have initiated.
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Legal, Compliance and Regulatory Risks
We are from time to time subject to litigation, which could adversely affect our results of operations, financial condition or cash flows.
The nature of our business exposes us to litigation in the ordinary course of our business. We are exposed to potential product liability
and warranty risks that are inherent in the design, manufacture and sale of automotive products, the failure of which could result in
property damage, personal injury or death. Accordingly, individual or class action suits alleging product liability or warranty claims
could result. Although we currently maintain what we believe to be suitable and adequate product liability insurance in excess of our
self-insured amounts, we cannot guarantee that we will be able to maintain such insurance on acceptable terms or that such insurance
will provide adequate protection against future liabilities. In addition, if any of our products prove to be defective, we may be required
to participate in a recall. A successful claim brought against us in excess of available insurance coverage, if any, or a requirement to
participate in any product recall, could have a material adverse effect on our results of operations, financial condition or cash flows.
Our business requires extensive product development activities to launch new products. Accordingly, there is a risk that wheels under
development may not be ready by the start of production or may fail to meet the customer’s specifications. In any such case, warranty
or compensation claims might be raised, or litigation might be commenced, against the Company.
Moreover, there are risks related to civil liability under our customer supply contracts (civil liability clauses in contracts with
customers, contractual risks related to civil liability for causing delay in production launch, etc.). If we fail to ensure production launch
as and when required by the customer, thus jeopardizing production processes at the customer’s facilities, this could lead to increased
costs, giving rise to recourse claims against, or causing loss of orders by the Company. This could also have an adverse effect on our
results of operations, financial condition or cash flows.
International trade agreements and our international operations make us vulnerable to risks associated with doing business in foreign
countries that can affect our business, financial condition, results of operations and cash flows.
We predominantly manufacture our products in Mexico, Germany and Poland and we sell our products internationally. Accordingly,
unfavorable changes in foreign cost structures, trade protection laws, tariffs on aluminum or wheels, regulations and policies affecting
trade and investments and social, political, labor or economic conditions in a specific country or region, among other factors, could
have a negative effect on our business and results of operations. Legal and regulatory requirements differ among jurisdictions
worldwide. Violations of these laws and regulations could result in fines, criminal sanctions, prohibitions on the conduct of our
business and damage to our reputation. Although we have policies, controls and procedures designed to ensure compliance with these
laws, our employees, contractors, or agents may violate our policies.
It remains unclear what the U.S. administration or foreign governments, including China, will or will not do with respect to tariffs or
other international trade agreements and policies. The free trade agreement between the United States of America, the United Mexican
States and Canada (the “USMCA”) was approved, ratified and became effective July 1, 2020. The USMCA includes several
provisions relating to automobile manufacturing. One provision requires that automobiles must have 75 percent of their components
manufactured in Mexico, the United States, or Canada by 2023 to qualify for zero tariffs (up from 62.5 percent under NAFTA).
Another provision requires vehicle producers to certify that 40 percent to 45 percent of automobile parts are made by workers who
earn $16 per hour by 2023. Although this requirement applies to vehicle producers, our workers in Mexico currently earn less than
$16 per hour. As a result, we will be unable to assist the vehicle producers with meeting this requirement. Mexico has also agreed to
pass new labor laws that are intended to make it easier for Mexican workers to unionize. As a result, the USMCA may increase our
cost of manufacturing in Mexico which could have an adverse effect on our business, financial condition, results of operations and
cash flows. The USMCA must be reviewed by the member countries every six years and sunsets in sixteen years.
A trade war, other governmental action related to tariffs or international trade agreements, changes in United States social, political,
regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in
the territories and countries where we currently manufacture and sell products, and any resulting negative sentiments towards the
United States, these territories and countries as a result of such changes, likely would have an adverse effect on our business, financial
condition, results of operations and cash flows.
The cost of manufacturing our products in Mexico, Germany and Poland may be affected by tariffs imposed by any of these countries
or the United States, trade protection laws, policies and other regulations affecting trade and investments, social, political, labor, or
general economic conditions. Other factors that can affect the business and financial results of our Mexican, German and Polish
operations include, but are not limited to, changes in cost structures, currency effects of the Mexican Peso, Euro and Polish Zloty,
availability and competency of personnel and developments in tax regulations.
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There is a risk of discontinuation of the European Union (E.U.) anti-dumping duty from China which may increase the competitive
pressure from Chinese producers, including in the aftermarket.
In 2010, the European Commission imposed provisional anti-dumping duties of 22.3 percent on imports of aluminum road wheels
from China after a complaint of unfair competition from European manufacturers. The European Commission argued that the EU
manufacturers had suffered a significant decrease in production and sales, and a loss of market share, as well as price depression due
to cheaper imports from China. On January 23, 2017, the European Commission decided to maintain the anti-dumping duties
(Commission Implementing Regulation (EU) 2017/109) for another five-year period. The anti-dumping duties protect the EU
producers until January 24, 2022. After this date, the competitive pressures from Chinese producers, which have cost advantages, may
adversely affect the Company’s financial condition, results of operations and cash flows.
We are subject to various environmental laws.
We incur costs to comply with applicable environmental, health and safety laws and regulations in the ordinary course of our business.
We cannot ensure that we have been or will be at all times in complete compliance with such laws and regulations. Failure to comply
with such laws and regulations could result in material fines or sanctions. Additionally, changes to such laws or regulations may have
a significant impact on our cash flows, financial condition and results of operations.
We are subject to various foreign, federal, state and local environmental laws, ordinances and regulations, including those governing
discharges into the air and water, the storage, handling and disposal of solid and hazardous wastes, the remediation of soil and
groundwater contaminated by hazardous substances or wastes and the health and safety of our employees. The nature of our current
and former operations and the history of industrial uses at some of our facilities expose us to the risk of liabilities or claims with
respect to environmental and worker health and safety matters which could have a material adverse effect on our financial condition.
Further, changes in legislation or regulation imposing reporting obligations on, or limiting emissions of greenhouse gases from, or
otherwise impacting or limiting our equipment, operations, or the vehicles that use our products could adversely affect demand for
those vehicles or require us to incur costs to become compliant with such regulations.
Capital Structure Risks
We do not expect to generate sufficient cash to repay all of our indebtedness (including the Term Loan Facility and Notes) by their
respective maturity dates and we may be forced to take other actions to satisfy these obligations, which may not be successful. In
addition, we may be unable to repay the redeemable preferred stock in the event the holder exercises its redemption rights.
The Company’s capital structure is heavily leveraged as a result of debt incurred in connection with the 2017 acquisition of our
European business. At December 31, 2020, our capital structure consisted of:
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$400.0 million Senior Secured Term Loan Facility (“Term Loan Facility” or “Term Loan B”) due May 23, 2024 with an
outstanding balance of $349.2 million (together with the Revolving Credit Facility referred to as the USD Senior Secured
Credit Facility, “USD SSCF”);
€250.0 million original principal amount of 6.0% Senior Notes due June 15, 2025 (the “Notes”) with an outstanding balance
of €217 million or $266.9 million;
redeemable preferred stock of $179.4 million (unconditionally redeemable with a $300 million redemption value beginning
in September 2025);
equipment loans and finance leases of $27.1 million; and
shareholders’ deficit of $ 21.5 million.
The Company also had available unused commitments under its Revolving Credit Facility and European Senior Secured Credit
Facility (“EUR SSCF”) of $228.5 million at December 31, 2020.
Our ability to make scheduled payments or to refinance our debt obligations depends on our financial and operating performance,
which is subject to prevailing economic, industry and competitive conditions and to certain other factors beyond our control. At the
present time, we do not expect to generate sufficient cash to repay all principal due under our indebtedness, in full by the respective
maturity dates, which will likely require us to refinance a portion or all of our outstanding debt. Our ability to restructure or refinance
our debt will depend on the condition of the capital and credit markets and our financial condition at such time. We might not be able
to refinance the debt on satisfactory terms. Any refinancing of our debt could be at higher interest rates and associated transactions
costs and may require us to comply with more onerous covenants, which could further restrict our business operations and limit our
financial flexibility. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely
basis would likely result in a reduction of our credit ratings, which could harm our ability to incur additional indebtedness or issue
equity, or to refinance all or portions of these obligations.
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In the absence of sufficient cash flows, refinancing or adequate funds available under credit facilities, we could face substantial
liquidity constraints and might be required to reduce or delay capital expenditures, seek additional capital, sell material assets or
operations to attempt to meet our debt service and other obligations. The credit agreements governing the USD SSCF and EUR SSCF,
taken together the Global Senior Secured Credit Facilities (“GSSCF”), and the Indenture for the Notes restrict our ability to conduct
asset sales and/or use the proceeds from asset sales. We may not be able to consummate these asset sales to raise capital or sell assets
at prices and on terms that we believe are fair, and any proceeds that we do receive may not be adequate to meet any debt service
obligations then due. If we cannot meet our debt service obligations, the holders of our debt may accelerate our debt and, to the extent
such debt is secured, foreclose on our assets. In such an event, we may not have sufficient assets to repay all of our debt.
Under the USD SSCF and EUR SSCF, we had available unused commitments of $155.2 million and $73.3 million (€59.6 million),
respectively, as of December 31, 2020, which are critical to the Company’s ability to pay its operating obligations in a timely manner.
The credit lines under the USD SSCF and EUR SSFC will mature on May 23, 2022 and May 22, 2022, respectively, which is prior to
the maturities of our other outstanding debt. We might not be able to extend these credit lines beyond the current due dates or may
only be able to extend them for smaller amounts. This in turn might reduce our ability to refinance our other outstanding debt or other
obligations in future years. It might also cause the rating agencies to downgrade our credit ratings. Additionally, it might require us to
hold more cash in our bank accounts to ensure our ability to pay our obligations in a timely manner, which in turn could reduce our
ability to pay down debt or other obligations.
Under the Certificate of Designations for our redeemable preferred stock, the holders have redemption rights that allow them to force
us to redeem the preferred stock either as a result of the occurrence of an early 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 from the NYSE) or
unconditionally on or after September 14, 2025. The redemption obligation of our redeemable preferred stock consists of a
redemption price equal to the greater of 2.0 times the then current Stated Value (defined in the Certificate of Designations as $150.0
million, plus any accrued and unpaid dividends or dividends paid-in-kind), currently $300.0 million, or the product of the number of
common shares into which the redeemable preferred stock could be converted (5.3 million shares currently) and the then current
market price of our common stock. Under Delaware law, any redemption payment would be limited to the “surplus” that our Board
determines is available to fund a full or partial redemption without rendering us insolvent. The shares of preferred stock that have not
been redeemed would continue to receive a dividend of 9 percent per annum on the then current Stated Value, as defined in the
Certificate of Designations, until such shares of preferred stock are redeemed. The Board would have to evaluate on an ongoing basis
the ability of the Company to make further payments until the full redemption amount has been paid. A redemption payment, if
required, for some or all of our outstanding shares of preferred stock would negatively impact our liquidity and could adversely affect
our business, results of operations and financial condition.
Our substantial indebtedness and the corresponding interest expense could adversely affect our financial condition
We have a significant amount of indebtedness. As of December 31, 2020, our total debt was $643.2 million ($631.6 million net of
unamortized debt issuance costs of $11.6 million). Additionally, we had availability of $155.2 million under the USD SSCF, as well
as $73.3 million (€59.6 million) under the EUR SSCF at December 31, 2020.
A significant portion of our cash flow from operations will be used to pay our interest expense and will not be available for other
business purposes. We cannot be certain that our business will generate sufficient cash flow or that we will be able to enter into future
financings that will provide sufficient proceeds to meet or pay the interest on our debt.
Subject to the limits contained in the credit agreements governing our GSSCF and the indenture governing the Notes (with
outstanding principal balance of $266.9 million (€217.0 million) at December 31 2020) and our other debt instruments, we may be
able to incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions,
or for other purposes. If we do so, the risks related to our high level of debt could intensify.
In addition, the indenture covering the Notes (the “Indenture”) and the credit agreements governing the GSSCF and our other debt
instruments contain restrictive covenants that among other things, could limit our ability to incur liens, engage in mergers and
acquisitions, sell, transfer or otherwise dispose of assets, make investments or acquisitions, redeem our capital stock or pay dividends.
Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the
acceleration of the maturity of all of our debt.
A downgrade of our credit rating or a decrease of the prices of the Companys common stock, the USD SSCF or the Notes could
adversely impact our financial performance.
The Company, its USD SSCF, and the Notes, are rated by Standard and Poor’s and Moody’s. These ratings are widely followed by
investors, customers, and suppliers, and a downgrade by one or both of these rating agencies might cause: suppliers to cancel our
contracts, demand price increases, or decrease payment terms; customers to reduce their business activities with us; or investors to
reconsider investments in financial instruments issued by Superior, all of which might cause a decrease of the price of our common
stock, our Notes, or the price of the bilaterally traded Term Loan B which is a part of the USD SSCF.
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A decrease in our common stock, Notes and/or Term Loan B prices, in turn, might accelerate such negative trends. A reduction in the
price of the Notes and Term Loan B implies an increase of the yield debt investors demand to provide us with financing, which, in
turn, would make it more difficult for us to refinance our existing debt, redeemable preferred stock obligations and/or future debt or
redeemable preferred stock obligations.
The terms of the credit agreement governing the GSSCF, the Indenture, and other debt instruments, as well as the documents
governing other debt that we may incur in the future, may restrict our current and future operations, particularly our ability to
respond to changes or to take certain actions.
The Indenture, the credit agreements governing the GSSCF and our other debt instruments, and the documents governing other debt
that we may incur in the future, may contain a number of covenants that impose significant operating and financial restrictions on us
and may limit our ability to engage in acts that may be in our long-term best interests, including restrictions on our ability to:
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incur additional indebtedness and guarantee indebtedness;
create or incur liens;
engage in mergers or consolidations or sell all or substantially all of our assets;
sell, transfer or otherwise dispose of assets;
make investments, acquisitions, loans or advances or other restricted payments;
pay dividends or distributions, repurchase our capital stock or make certain other restricted payments;
prepay, redeem, or repurchase any subordinated indebtedness;
designate our subsidiaries as unrestricted subsidiaries;
enter into agreements which limit the ability of our non-guarantor subsidiaries to pay dividends or make other payments to
us;
and enter into certain transactions with our affiliates.
In addition, the restrictive covenants in the credit agreement governing the GSSCF and other debt instruments require us to maintain
specified financial ratios and satisfy other financial condition tests to the extent subject to certain financial covenant conditions. Our
ability to meet those financial ratios and tests can be affected by events beyond our control. We may not meet those ratios and tests.
A breach of the covenants or restrictions under the Indenture governing the Notes, under the credit agreement governing the GSSCF,
or under other debt instruments could result in an event of default under the applicable indebtedness. Such a default may allow the
creditors under such facility to accelerate the related debt, which may result in the acceleration of any other debt to which a cross-
acceleration or cross-default provision applies. In addition, an event of default under the credit agreement governing our GSSCF
would permit the lenders under our revolving credit facilities to terminate all commitments to extend further credit under these
facilities. Furthermore, if we were unable to repay the amounts due and payable under the GSSCF or under other secured debt
instruments, those lenders could proceed against the collateral granted to them to secure that indebtedness. We have pledged
substantially all of our assets as collateral under the GSSCF. In the event our lenders or holders of the Notes accelerate the repayment
of our borrowings, we may not have sufficient assets to repay that indebtedness or be able to borrow sufficient funds to refinance it.
Even if we are able to obtain new financing, it may not be on commercially reasonable terms or on terms acceptable to us. As a result
of these restrictions, we may be:
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limited in how we conduct our business;
unable to raise additional debt or equity financing to operate during general economic or business downturns; or
unable to compete effectively or to take advantage of new business opportunities. These restrictions, along with
restrictions that may be contained in agreements evidencing or governing other future indebtedness, may affect our ability
to grow or pursue other important initiatives in accordance with our growth strategy.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase
significantly.
Borrowings under our GSSCF are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt
service obligations on the variable rate indebtedness will increase even though the amount borrowed remains the same, and our net
income and cash flows, including cash available for servicing our indebtedness, would correspondingly decrease. As of December 31,
2020, approximately $349.2 million of our debt was variable rate debt. Our anticipated annual interest expense on $349.2 million
variable rate debt at the current rate of 4.1 percent would be $14.3 million. We have entered into interest rate swaps exchanging
floating for fixed rate interest payments in order to reduce interest rate volatility. As of December 31, 2020, we have executed interest
rate swaps for $200.0 million, maturing $50 million September 30, 2022, and $150 million December 31, 2022. In the future, we may
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again enter into interest rate swaps to reduce interest rate volatility. However, we may not maintain interest rate swaps with respect to
all of our variable rate indebtedness, and any swaps we enter into may not fully mitigate our interest rate risk.
We may be adversely affected by changes in LIBOR reporting practices, the method in which LIBOR is determined or the use of
alternative reference rates.
The interest rates under our USD SSCF are calculated using LIBOR. On July 27, 2017, the Financial Conduct Authority (the authority
that regulates LIBOR) announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021 and
it is unclear whether new methods of calculating LIBOR will be established. ICE Benchmark Administration Limited (IBA), the
administrator of LIBOR rates, had requested feedback by January 25, 2021 from the U.S. dollar LIBOR panel banks concerning the
possibility of maintaining U.S. dollar LIBOR rates for certain tenors (one, three, six and twelve-month terms) through June 30, 2023.
IBA is currently evaluating the feedback received and, at this time, no agreement has yet been reached regarding the extension of U.S.
dollar LIBOR beyond December 31, 2021. If LIBOR ceases to exist, a comparable or successor reference rate as approved by the
Administrative Agent under the USD SSCF will apply or such other reference rate as may be agreed by the Company and the lenders
under the credit agreement governing the USD SSCF. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates
Committee, is planning to replace U.S. dollar LIBOR with the secure overnight financing rate (SOFR), a newly created index,
calculated based on repurchase agreements backed by treasury securities. It is not possible to predict the effect of these changes, other
reforms or the establishment of alternative reference rates in the United Kingdom, the United States or elsewhere. To the extent these
interest rates increase, our interest expense will increase, which could adversely affect our financial condition, operating results and
cash flows.
A delisting of our common stock from the NYSE could reduce the liquidity and market price of our common stock; reduce the number
of investors and analysts that cover our common stock; limit our ability to issue additional shares, and damage our reputation which
could have a material adverse impact on our business, results of operations and financial condition. In addition, a delisting of our
common stock from the NYSE could cause a redemption of some or all of our outstanding redeemable preferred stock which would
negatively impact our liquidity.
We are required under the NYSE continued listing standards to maintain a market capitalization of at least $50 million, over a
consecutive 30 trading-day period, or maintain stockholders’ equity of at least $50 million. As of March 31, 2020, our market
capitalization was less than $50 million over a consecutive 30-day trading period and our stockholders’ equity was less than the
minimum threshold. As a result, on June 5, 2020, the NYSE sent us a formal notification that we were not in compliance with the
NYSE continued listing standards. In response, on July 20, 2020, we submitted a remediation plan to the NYSE and on September 8,
2020 we publicly announced that our remediation plan had been accepted by the NYSE. The cure period effectively began on July 1,
2020 and will end on January 1, 2022, unless the Company earlier surpasses the $50 million market capitalization threshold for a
period of six consecutive months at which point the Company would be in full compliance. In the event we are unable to cure the
deficiency during the 18-month period, our stock may be delisted from the NYSE.
A delisting of our common stock could have a material adverse impact on our business, results of operations and financial condition
by, among other things:
•
•
•
•
•
reducing the liquidity and market price of our common stock;
reducing the number of investors, including institutional investors, willing to hold or acquire our common stock, which could
negatively impact our ability to raise equity;
decreasing the amount of news and analyst coverage relating to us;
limiting our ability to issue additional securities, obtain additional financing or pursue strategic restructuring, refinancing or
other transactions; and
impacting our reputation and, as a consequence, our ability to attract new business.
In addition, the holder of our redeemable preferred stock has the right to redeem all of the outstanding shares of redeemable preferred
stock if our common stock is delisted from the NYSE. If we are delisted from the NYSE and the holder exercises its right to redeem
all of the outstanding shares of redeemable preferred stock, we would be required to: (1) increase the then carrying value of the
redeemable preferred stock to the $300 million redemption value through a corresponding charge (decrease) to our retained earnings,
and (2) make a redemption payment in any amount up to $300 million if our Board determined, under Delaware law, that there was a
“surplus” to fund a full or partial redemption and such payment would not render us insolvent. The shares of preferred stock that have
not been redeemed would continue to receive a dividend of 9 percent per annum on the Stated Value (defined in the Certificate of
Designations as $150.0 million, plus any accrued and unpaid dividends or dividends paid-in-kind), currently $150.0 million, until such
shares of preferred stock are redeemed. A redemption payment, if required, for some or all of our outstanding shares of preferred stock
would negatively impact our liquidity and could adversely affect our business, results of operations and financial condition.
11
Taxation Risks
We are subject to taxation related risks in multiple jurisdictions.
We are a U.S.-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. Significant judgment is
required in determining our global provision for income taxes, deferred tax assets or liabilities and in evaluating our tax positions on a
worldwide basis. While we believe our tax positions are consistent with the tax laws in the jurisdictions in which we conduct our
business, it is possible that these positions may be overturned by jurisdictional tax authorities, which may have a significant impact on
our global provision for income taxes. Tax laws are dynamic and subject to change as new laws are passed and new interpretations of
the law are issued or applied. We are also subject to ongoing tax audits. These audits can involve complex issues, which may require
an extended period of time to resolve and can be highly subjective. Tax authorities may disagree with certain tax reporting positions
taken by us and, as a result, assess additional taxes against us. We regularly assess the likely outcomes of these audits in order to
determine the appropriateness of our tax provision.
In addition, governmental tax authorities are increasingly scrutinizing the tax positions of companies. Many countries in the European
Union, as well as a number of other countries and organizations such as the Organization for Economic Cooperation and
Development, are actively considering changes to existing tax laws that, if enacted, could increase our tax obligations in countries
where we do business. The impact of tax law changes could result in an overall tax rate increase to our business.
We may fail to comply with conditions of the state tax incentive programs in Poland.
The Company carries out its business activity in Poland in the area of Tarnobrzeg Special Economic Zone “Euro-Park Wislosan,” sub-
zone of Stalowa Wola, Poland which provides various state income tax incentives under certain conditions. The Company conducts its
business activity pursuant to permits that stipulate production, trade, and service activities relating to products and services
manufactured/provided in the zone. These activities include processing of metals and applying coating on metals, tools, other finished
metal products, machines for metallurgy, other parts and accessories for motor vehicles, excluding motorcycles, as well as services
relating to recovery of segregated materials and recycled materials. The permits require certain conditions to be met, which include
increasing the number of employees, keeping the number of employees at such level and incurring certain levels of capital
expenditures. In addition, particular permits indicate deadlines for completion of respective stages of investments.
As of December 31, 2020, the Company had 5 permits that are effective until 2026, and we believe all conditions of the permits have
been met. As of December 31, 2020, the Company utilized Polish Zloty 139.3 million of the zone-related credit and the total amount
of the remaining eligible credit available to the Company amounted to Polish Zloty 50.0 million. In the event of failure to satisfy the
permit conditions, the Company must reimburse the utilized public aid received together with interest which may have a material
negative impact on our assets, financial condition, results of operations or cash flows.
Tax settlements and other areas of activity subject to specific regulations (e.g. customs or FX issues) may be inspected by
administrative bodies which are entitled to impose penalties and sanctions. Tax regulations in Poland are dynamic and subject to
varying interpretations, both inside state authorities and between state authorities and enterprises, which can result in a lack of clarity
and consistent application. As a result, tax risks in Poland are higher than in countries with a more developed tax system. Tax
settlements may be subject to inspections for five years from the end of the year in which the tax has been paid. Consequently, the
Company may be subject to additional material tax liabilities, based on the result of these tax audits.
We are currently unable to fully deduct interest charges on German and US indebtedness.
The interest deduction barriers under German tax law (Zinsschranke) and US tax law limit the tax deductibility of interest expenses. If
no exception to these limits apply, the net interest expense (interest expense less interest income) is deductible up to 30 percent of the
EBITDA taxable in Germany and the US, respectively, in a given financial year. Non-deductible interest expenses can be carried
forward. Interest carry-forwards are subject to the same tax cancellation rules as tax loss carry-forwards. Whenever interest expenses
are not deductible or if an interest carry-forward is lost, the tax burden in future assessment periods could rise, which might have
alone, or in combination, a material adverse effect on our assets, financial condition, results of operation or cash flows.
We may be exposed to risks related to existing and future profit and loss transfer agreements executed with German subsidiaries of
our European operations.
Profit and loss transfer agreements are one of the prerequisites of the taxation of Superior and its German subsidiaries as a German tax
group. For tax purposes, a profit and loss transfer agreement must have a contract term for a minimum of five years. In addition, such
agreement must be fully executed. If a profit and loss transfer agreement or its actual execution does not meet the prerequisites for
taxation as a German tax group, Superior Industries International Germany GmbH (“SII Germany”), formerly known as Superior
Industries International AG, and each subsidiary are taxed on their own income (and under certain circumstances even with
retrospective effect). Additionally, 5 percent of dividends from the subsidiary to SII Germany, or other Superior European controlling
entities within the European Union would be regarded as non-deductible expenses at the SII Germany level, or level of other Superior
European controlling entities. Furthermore, the compensation of a loss of a subsidiary would be regarded as a contribution by SII
12
Germany into the subsidiary and thus, would not directly reduce SII Germany’s profits. As a consequence, if the profit and loss
transfer agreements do not meet the prerequisites of a German tax group, this could have a future material adverse effect on our assets,
financial condition, results of operations or cash flows.
General Risk Factors
Fluctuations in foreign currencies and commodity and energy prices may adversely impact our financial results.
Due to our operations outside of the United States, we experience exposure to foreign currency gains and losses in the ordinary course
of our business. We settle transactions between currencies (i.e. U.S. dollar to Mexican Peso, Euro to U.S. dollar, U.S. dollar to Euro
and Euro to Polish Zloty.) To the extent possible, we attempt to match the timing and magnitude of transaction settlements between
currencies to create a “natural hedge.” Based on our current business model and levels of production and sales activity, the net
imbalance between currencies depends on specific circumstances. While changes in the terms of the contracts with our customers will
create an imbalance between currencies that we hedge with foreign currency forward or option contracts, there can be no assurances
that our hedging program will effectively offset the impact of the imbalance between currencies or that the net transaction balance will
not change significantly in the future.
Additionally, we are exposed to commodity and energy price risks due to significant aluminum raw material requirements and the
energy intensive nature of our operations. Natural gas and electricity prices are subject a to large number of variables that are outside
of our control. We use financial derivatives and fixed-price agreements with suppliers to reduce the effect of any volatility on our
financial results.
The foreign currency forward or option contracts, the natural gas forward contracts, and the fixed-price agreements we enter into with
financial institutions and suppliers are designed to protect against foreign exchange risks and price risks associated with certain
existing assets and liabilities, certain firmly committed transactions and forecasted future cash flows. We have a program to hedge a
significant portion of our foreign exchange or commodity and energy price exposures, typically for up to 48 months. However, we
may choose not to hedge certain foreign exchange or commodity or energy price exposures for a variety of reasons including, but not
limited to, accounting considerations, the prohibitive economic cost of hedging particular exposures, or our inability to identify willing
counterparties. There is no guarantee that our hedge program will effectively mitigate our exposures to foreign exchange and
commodity and energy price changes which could have material adverse effects on our cash flows and results of operations.
Fluctuations in foreign currency exchange rates may also affect the USD value of assets and liabilities of our foreign operations, as
well as assets and liabilities denominated in non-functional currencies such as the Euro, and may adversely affect reported earnings
and, accordingly, the comparability of period-to-period results of operations. Changes in currency exchange rates or commodity and
energy prices may affect the relative prices at which we and our foreign competitors sell products in the same market. In addition,
changes in the value of the relevant currencies or commodities and energy prices may affect the cost of certain items required in our
operations. We cannot ensure that fluctuations in exchange rates or commodities and energy prices will not otherwise have a material
adverse effect on our financial condition or results of operations or cause significant fluctuations in quarterly and annual results of
operations.
A disruption in our information technology systems, including a disruption related to cybersecurity, could adversely affect our
financial condition and financial performance.
We rely on the accuracy, capacity and security of our information technology systems. Despite the security measures that we have
implemented, including those measures related to cybersecurity, our systems, as well as those of our customers, suppliers and other
service providers could be breached or damaged by computer viruses, malware, phishing attacks, denial-of-service attacks, natural or
man-made incidents or disasters or unauthorized physical or electronic access. These types of incidents have become more prevalent
and pervasive across industries, including in our industry, and are expected to continue in the future. A breach could result in business
disruption, theft of our intellectual property, trade secrets or customer information and unauthorized access to personnel information.
Although cybersecurity and the continued development and enhancement of our controls, processes, practices and training designed to
protect our information technology systems from attack, damage or unauthorized access are a high priority for us, our activities and
investment may not be deployed quickly enough or successfully protect our systems against all vulnerabilities, including technologies
developed to bypass our security measures. In addition, outside parties may attempt to fraudulently induce employees or customers to
disclose access credentials or other sensitive information in order to gain access to our secure systems and networks. There are no
assurances that our actions and investments to improve the maturity of our systems, processes and risk management framework or
remediate vulnerabilities will be sufficient or completed quickly enough to prevent or limit the impact of any cyber intrusion.
Moreover, because the techniques used to gain access to or sabotage systems often are not recognized until launched against a target,
we may be unable to anticipate the methods necessary to defend against these types of attacks and we cannot predict the extent,
frequency or impact these problems may have on us. To the extent that our business is interrupted or data is lost, destroyed or
inappropriately used or disclosed, such disruptions could adversely affect our competitive position, relationships with our customers,
13
financial condition, operating results and cash flows. In addition, we may be required to incur significant costs to protect against the
damage caused by these disruptions or security breaches in the future.
We are also dependent on security measures that some of our third-party customers, suppliers and other service providers take to
protect their own systems and infrastructures. Some of these third parties store or have access to certain of our sensitive data, as well
as confidential information about their own operations, and as such are subject to their own cybersecurity threats. Any security breach
of any of these third-parties’ systems could result in unauthorized access to our information technology systems, cause us to be non-
compliant with applicable laws or regulations, subject us to legal claims or proceedings, disrupt our operations, damage our reputation,
and cause a loss of confidence in our products and services, any of which could adversely affect our financial performance.
Competitors could copy our products or technologies and we could violate protected intellectual property rights or trade secrets of
our competitors or other third parties.
We register business-related intellectual property rights, such as industrial designs and trademarks, hold licenses and other agreements
covering the use of intellectual property rights, and have taken steps to ensure that our trade secrets and technological know-how
remain confidential. Nevertheless, there is a risk that third parties would attempt to copy, in full or in part, our products, technologies
or industrial designs, or to obtain unauthorized access and use of Company secrets, technological know-how or other protected
intellectual property rights. Also, other companies could successfully develop technologies, products or industrial designs similar to
ours, and thus potentially compete with us.
Further, there can be no assurance that we will not unknowingly infringe intellectual property rights of our competitors, such as
patents and industrial designs, especially due to the fact that the interpretations of what constitutes protected intellectual property may
differ. Similarly, there is a risk that we will illegitimately use intellectual property developed by our employees, which is subject in
each case to relevant regulations governing employee-created innovations. If a dispute concerning intellectual property rights arises, in
which the relevant court issues an opinion on the disputed intellectual property rights contrary to us, identifying a breach of
intellectual property rights, we may be required to pay substantial damages or to stop the use of such intellectual property. In addition,
we are exposed to the risk of injunctions being imposed to prevent further infringement, leading to a decrease in the number of
customer orders.
All these events could have a material adverse effect on our assets, financial condition, results of operations or cash flows.
14
ITEM 1B - UNRESOLVED STAFF COMMENTS
None.
ITEM 2 - PROPERTIES
Our worldwide headquarters is located in Southfield, Michigan. In our North American operations, we maintain and operate four
facilities that manufacture aluminum wheels for the automotive industry including our facility for finishing wheels with physical
vapor deposition. These facilities are located in Chihuahua, Mexico. These manufacturing facilities currently encompass
approximately two million square feet of manufacturing space. We own all of our manufacturing facilities in North America, and we
lease our worldwide headquarters located in Southfield, Michigan. During the third quarter of 2019, the Company initiated a plan to
significantly reduce production and manufacturing operations at its Fayetteville, Arkansas, location. As of December 31, 2020, we are
continuing to use the Arkansas facility for research and development activities and service wheel storage.
Our European operations include five locations. The European headquarters is situated in Bad Dürkheim, Germany which includes our
European management, sales and distribution functions, as well as the logistics center and warehouse for the aftermarket business. The
largest of European production facilities is in Stalowa Wola, Poland, which consists of 3 plants. The newest plant in Poland was put
into operation in the beginning of June 2016. Another production facility is situated in Werdohl, Germany, where most development
work is performed. Our Fußgönheim location, Germany, near the Bad Dürkheim offices, had historically been used to manufacture
motor sport and forged wheels. We discontinued manufacturing of motor sport and forged wheels in Fußgönheim at the end of the
third quarter of 2020. The European locations also include a location in Lüdenscheid, Germany. Our European production facilities
encompass approximately 1.5 million square feet. We own all of our manufacturing facilities in Europe, and we lease our European
headquarters located in Bad Dürkheim, Germany.
In general, our manufacturing facilities, which have been constructed at various times, are in good operating condition and are
adequate to meet our current production capacity requirements. There are active maintenance programs to keep these facilities in good
condition, and we have an active capital spending program to replace equipment as needed to maintain factory reliability and remain
technologically competitive on a worldwide basis.
Additionally, reference is made to Note 1, “Summary of Significant Accounting Policies,” Note 8, “Property, Plant and Equipment”
and Note 15 “Leases,” in the Notes to the Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary
Data” of this Annual Report.
ITEM 3 - LEGAL PROCEEDINGS
We are party to various legal and environmental proceedings incidental to our business. Certain claims, suits and complaints arising in
the ordinary course of business have been filed or are pending against us. Based on facts now known, 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. Refer to under Item 1A, “Risk Factors - We are from
time to time subject to litigation, which could adversely affect our results of operations, financial condition or cash flows” of this
Annual Report.
ITEM 4 - MINE SAFETY DISCLOSURES
Not applicable.
15
ITEM 4A -INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Information regarding executive officers who are also Directors is contained in our 2021 Proxy Statement under the caption “Election
of Directors.” Such information is incorporated into Part III, Item 10, “Directors, Executive Officers and Corporate Governance.” All
executive officers are appointed annually by the Board of Directors and serve at the will of the Board of Directors. The following table
sets forth the names, ages and positions of our executive officers.
Name
Majdi B. Abulaban
Kevin Burke
Michael Dorah
Joanne M. Finnorn
Michael J. Hatzfeld Jr.
Parveen Kakar
Andreas Meyer
C. Timothy Trenary
Age
57
53
55
56
48
54
55
64
Position
President and Chief Executive Officer
Senior Vice President and Chief Human Resources Officer
Senior Vice President and North American President
Senior Vice President, General Counsel and Corporate Secretary
Vice President of Finance and Corporate Controller
Senior Vice President of Sales, Marketing and Product Development
Senior Vice President, President, Europe
Executive Vice President and Chief Financial Officer
Set forth below is a description of the business experience of each of our executive officers.
Majdi B. Abulaban
Kevin Burke
Michael Dorah
Mr. Abulaban is the Company’s President and Chief Executive Officer, a position he has held since May
2019. Mr. Abulaban was previously employed by Aptiv PLC (formerly Delphi Automotive) (NYSE: APTV)
(“Aptiv”), a technology company that develops safer, greener and more connected solutions for a diverse
array of global customers, from 1985 to April 2019, most recently as Senior Vice President and Group
President, Global Signal and Power Solutions Segment from January 2017 to April 2019. From February
2012 to January 2017, Mr. Abulaban served as the Senior Vice President and Group President, Global
Electrical and Electronic Architecture Segment and President of Aptiv Asia Pacific. Prior to that, Mr.
Abulaban held various business unit leadership positions with Delphi in China, Singapore and the United
States. Mr. Abulaban is currently a member of the Board of Directors of SPX FLOW, Inc. (NYSE: FLOW), a
global supplier of highly specialized, engineered solutions. Mr. Abulaban holds a bachelor’s degree in
mechanical engineering from the University of Pittsburgh and a Master of Business Administration from the
Weatherhead School of Management at Case Western Reserve University.
Mr. Burke is the Company’s Senior Vice President and Chief Human Resources Officer, a position he has
held since October 2019. He joined Superior from Valeo North America, a Tier One auto supplier and
technology company, where he was Head of Human Resources – North America since March 2018, with
responsibility for all human resources across the United States, Mexico and Canada. From 2015 to 2017, he
was at Lear Corporation, a Tier One auto supplier, as Vice President of Human Resources – Asia Pacific
based in Shanghai, China. From 2013 to 2015, Mr. Burke was the Chief Human Resources Officer for ITC
Holdings, an independent electric transmission company. Prior to that, he held various HR leadership
positions with General Mills, Pulte Homes and Dow Corning Corporation. Mr. Burke earned a Bachelor of
Arts in Communication and a Master of Labor & Industrial Relations from Michigan State University, as well
as a Master of Business Administration from Northwestern University’s Kellogg School.
Mr. Dorah is the Company’s Senior Vice President and North American President, a position he has held
since January 11, 2021. Mr. Dorah was previously the Senior Vice President, Manufacturing Systems of
Delphi Technologies, Plc. (NYSE;DLPH), a global commercial vehicle parts supplier, from 2019 to 2020.
Prior to that, he served as Vice President of Operations of Chassix, Inc, a global supplier of precision casting
and machining solutions for the automotive industry from 2016-2019. Mr. Dorah also served as Chassix’s
General Manager, Chassix, Brazil from 2012 to 2016. Prior to that, Mr. Dorah was the Vice President and
General Manager, Brazil for Acument Global Technologies, Inc., a global manufacturer of screws, bolts, nuts
and cold formed components for the automotive, industrial and aerospace industries from 2008 to 2010. He
also served from 2008 to 2010 as Acument’s Vice President – Operations. Prior to that, Mr. Dorah held
various positions with American Axle & Manufacturing, Inc. (NYSE;AXL), a global Tier 1 supplier to the
automotive industry, from 1996 to 2008 culminating in his position of Director, Purchasing and Global
Supply Based Management from 2004 to 2008. Mr. Dorah holds a Bachelor of Science degree in Materials
Engineering from Stevens Institute of Technology and a Master of Business Administration degree and
Master of Science degree in Materials Engineering from the Massachusetts Institute of Technology.
16
Joanne M. Finnorn
Ms. Finnorn is the Company’s Senior Vice President, General Counsel and Corporate Secretary, a position
she has held since September 2017. Previously, Ms. Finnorn served as the Vice President, General Counsel
and Chief Compliance Officer of Amerisure Mutual Insurance Company from February 2016 to August 2017.
From 2013 to January 2016, Ms. Finnorn served as General Counsel of HouseSetter LLC, a home monitoring
company. Ms. Finnorn began her career as an attorney with General Motors in Detroit before taking the role
of General Counsel for GMAC’s European Operations in Zurich, Switzerland. Ms. Finnorn also served as
Vice President & General Counsel and Vice President, Subscriber Services for OnStar LLC. Ms. Finnorn
obtained a Bachelor degree from Alma College and a Juris Doctor from Stanford Law School.
Michael J. Hatzfeld Jr. Mr. Hatzfeld Jr. is the Company’s Vice President of Finance and Corporate Controller, a position he has held
Parveen Kakar
Andreas Meyer
C. Timothy Trenary
since December 2018. Prior to joining the Company, Mr. Hatzfeld Jr. held various positions with General
Motors Company since 2011, most recently as Controller, US Sales and Marketing Unit in 2018, Controller,
Global Revenue Recognition Project from 2016 to 2017, Controller, Customer Care and Aftersales Units
from 2014 to 2016 and Assistant Director, Corporate Reporting and Analysis from 2013 to 2014. Mr.
Hatzfeld Jr. began his career in public accounting at Ernst & Young LLP. Mr. Hatzfeld Jr. holds a Bachelor
of Science degree from Duquesne University. Mr. Hatzfeld Jr. is also a Certified Public Accountant.
Mr. Kakar is the Company’s Senior Vice President of Sales, Marketing and Product Development, a position
that he has held since September 2014. Mr. Kakar joined the Company in 1989 as the Director of Engineering
Services and has held various positions at the Company since then. From July 2008 to September 2014, Mr.
Kakar served as the Company’s Senior Vice President of Corporate Engineering and Product Development
and from 2003 to 2008 as the Vice President of Program Development. Mr. Kakar holds a Bachelor of
Science in Mechanical Engineering from Punjab Engineering College in India.
Mr. Meyer is the Company’s Senior Vice President, President, Europe, a position he has held since
November 2019. He was previously the Senior Vice President of Snop / Tower Automotive Holding GmbH,
a first tier automotive supplier, from January 2017 to October 2019. Prior to that, he served as Tower’s Vice
President of Operations from July 2015 to January 2017. From July 2013 to June 2015, Mr. Meyer was the
Managing Director of Hörmann Automotive GmbH (“Hörmann”), a first tier automotive supplier. Mr. Meyer
also served as Managing Director of Hörmann Automotive Components from October 2007 to June 2015.
Mr. Meyer graduated from Helmut Schmidt University Hamburg with a degree in business management.
Mr. Trenary is the Company’s Executive Vice President and Chief Financial Officer, a position he has held
since September 2020. Prior to joining Superior, Mr. Trenary was Executive Vice President and Chief
Financial Officer at Commercial Vehicle Group, Inc. (“CVG”) from 2013 to 2020. Previously, Mr. Trenary
had served in several Chief Financial Officer roles, including ProBuild Holdings, LLC, EMCON
Technologies Holdings Limited, and DURA Automotive Systems, Inc. In addition, he has previously served
in various executive positions with both public and private companies. Mr. Trenary began his career in public
accounting at Arthur Young & Co., now part of Ernst & Young, and holds a Bachelor of Arts degree from
Michigan State University and a Master of Business Administration degree from the University of Detroit
Mercy.
17
PART II
ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Superior Common Stock is traded on the NYSE under the symbol “SUP”. As of February 26, 2021, there were approximately 354
holders of record of our common stock.
ITEM 6 - SELECTED FINANCIAL DATA
As a smaller reporting company, as defined in Rule 10(f)(1) of Regulation S-K under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), the Company is not required to provide the information required by this item.
18
ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with our Consolidated
Financial Statements and the Notes to the Consolidated Financial Statements included in Item 8, “Financial Statements and
Supplementary Data” in this Annual Report. This discussion contains forward-looking statements, which involve risks and
uncertainties. Please refer to the section entitled “Forward Looking Statements” at the beginning of this Annual Report immediately
prior to Item 1. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain
factors, including but not limited to those discussed in Item 1A, “Risk Factors” and elsewhere in this Annual Report.
Executive Overview
Our principal business is the design and manufacture of aluminum wheels for sale to OEMs in North America and Europe and to the
aftermarket in Europe. We employ approximately 7,600 full-time 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
aluminum wheel suppliers to global OEMs and we believe we are the #1 European aluminum wheel aftermarket manufacturer and
supplier. Our OEM aluminum wheels accounted for approximately 91 percent of our sales in 2020 and are primarily sold for factory
installation on vehicle models manufactured by BMW (including Mini), Daimler Group (Mercedes-Benz, AMG, Smart), FCA, Ford,
GM, Honda, Jaguar-Land Rover, Mazda, 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.
Globally, we shipped 15.2 million units in 2020, down from 19.2 million in 2019, a 21.1 percent decrease, which was slightly better
than overall industry volume trends. Demand for our products is mainly driven by light-vehicle production levels in North America
and Europe, as well as production levels at our key customers and take rates on vehicle wheel programs we serve. North American
light-vehicle production in 2020 was 13.0 million vehicles, as compared to 16.3 million vehicles in 2019. In Europe, the light vehicle
production in 2020 was 13.6 million vehicles, as compared to 17.8 million vehicles in 2019. Industry production volumes in 2020
were adversely impacted by the COVID-19 pandemic.
COVID-19 Pandemic
The impact of the COVID-19 pandemic and uncertainty with respect to the economic effects of the pandemic introduced significant
volatility in the financial markets during the year ended December 31, 2020 and continues to have an adverse effect on the automotive
industry, including reductions in consumer demand and OEM automotive production.
While navigating through this period of volatility and uncertainty, Superior’s top priorities have been:
•
Ensuring the health and safety of our employees
• Maintaining the financial health of the Company, and
•
Serving our customers.
To ensure the health and safety of our employees globally and respond to the current industry production environment, we closed
production at our North American facilities in early April 2020 and our European facilities in late March 2020. The Company
reopened all of its facilities by June 1, 2020, in line with production demand, finished goods levels, and in accordance with local
government requirements.
Additionally, we developed and executed a Safe Work Playbook across our footprint. We also instituted a Global Employee Health &
Safety (“EH&S”) Steering Team, led by our Director of EH&S, and comprised of our global and regional leaders from Operations and
Human Resources. The EH&S Steering Team is responsible for ensuring the Safe Work Playbook leverages global best practices and
coordinating the consistent and complete implementation of the policies across our global footprint, including all policies and
protocols in compliance with local rules and regulations. We have invested in facility updates to ensure social distancing, including
changes in cafeteria layout and practices, transportation services and marked spacing throughout our manufacturing facilities. We have
established Personal Protective Equipment levels for each location, based on local requirements, and purchasing controls are in place
to ensure adequate supplies. Extended preventative actions were introduced which include no travel without written approval, wearing
face masks at all times at our plants, quick testing implementation at our plants, with increased and standard criteria for testing and
contact tracing, as well as working from home wherever possible. In the event of a COVID-19 incident, the local COVID-19 response
team immediately executes the defined protocols, including isolation of any employee showing symptoms, and conducts traceability
19
activities to identify and quarantine all potentially exposed individuals. Our management is actively monitoring COVID-19
developments in Europe and North America and met daily throughout much of 2020 to discuss the status of COVID-19 cases and any
necessary actions.
Our global unit shipments declined approximately 21.1 percent in 2020, as compared to 2019 primarily due to the COVID-19
pandemic. The decline began in the second quarter of 2020, with unit shipments 92.2 percent and 67.6 percent lower in April and
May, respectively, as compared to the same months of 2019. Volumes began to improve in June of 2020, with unit shipments only
12.5 percent lower on a year-over-year basis, as industry production volumes started to recover. The recovery continued in the third
quarter with units shipped only 10.1 percent lower, as compared to the third quarter of 2019, and only 2.1 percent lower for the month
of September of 2020. In the fourth quarter of 2020, our global unit shipments were essentially flat with the fourth quarter of 2019 as
our units shipped in Europe were down 4.2 percent, offset by a 4.0 percent increase in units shipped in North America. As such, our
North American volume recovery has been strong, while the European recovery has been slower (refer to the discussion under Results
of Operations for further details on year-over-year comparisons and the impact of COVID-19 on our results).
While Superior experienced stronger demand from its customers during each of the third and fourth quarters of 2020 as compared to
the second quarter, the Company extended certain cost reduction initiatives through the end of 2020. During the year ended December
31, 2020, Superior executed temporary and permanent cost savings including furloughs, compensation and benefit reductions,
temporary facility closures, deferral of merit increases, reduced travel, and personnel restructurings. The Company also used
government subsidies where available. While some of the temporary measures such as the wage reductions were discontinued in the
third quarter, other temporary initiatives remained in place through the end of the year and are expected to be in place into 2021. In
total, the cost initiatives implemented in response to the COVID-19 pandemic benefited 2020 by more than $40 million.
The ultimate impact that COVID-19 will have on our business, results of operations and financial condition will depend on a number
of evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; the impact of
recent resurgences of COVID-19 cases in North America and Europe, the efficacy and distribution of COVID-19 vaccines,
governmental, OEMs’, suppliers’, customers’ and individuals’ actions that have been and continue to be taken in response to the
pandemic; and the impact of the pandemic on economic activity and actions that continue to be taken in response to such impact by
the OEMs’ suppliers and customers.
The following chart shows the comparison of our operational performance in 2020 and 2019 (in thousands):
In 2020 sales were lower due to reduced volumes in both North America and Europe attributable to the COVID-19 pandemic. Our
2020 Adjusted EBITDA was lower than 2019 primarily due to lower volumes attributable to the on-going COVID-19 pandemic,
including production shutdowns in the second quarter, partially offset by improved product mix, cost saving initiatives implemented
during the year, and favorable foreign exchange rates.
20
The following table is a summary of the Company’s operating results for 2020 and 2019:
Results of Operations
Fiscal Year Ended December 31,
(Dollars in thousands, except per share amounts)
Net Sales
North America
Europe
Net sales
Cost of sales
Gross profit
Percentage of net sales
Selling, general and administrative expenses
Impairment of goodwill and indefinite-lived intangibles
Loss from operations
Percentage of net sales
Interest expense, net
Other (expense) income, net
Income tax provision
Net loss
Percentage of net sales
Diluted loss per share
Value added sales (1)
Adjusted EBITDA (2)
Percentage of net sales
Percentage of value added sales
Unit shipments in thousands
$
$
$
$
2020
2019
550,079
550,681
1,100,760
(1,035,134)
65,626
$
704,320
668,167
1,372,487
(1,256,425)
116,062
6.0%
52,420
193,641
(180,435)
(16.4)%
(45,418)
(2,827)
(14,881)
(243,561)
(22.1)%
(10.81)
648,308
129,373
$
$
$
11.8%
20.0%
15,194
8.5%
63,883
102,238
(50,059)
(3.6)%
(47,011)
4,033
(3,423)
(96,460)
(7.0)%
(5.10)
755,325
168,795
12.3%
22.3%
19,246
(1) Value added sales is a key measure that is not calculated according to U.S. GAAP. Refer to Item 7, “Management’s Discussion and
Analysis, Non-GAAP Financial Measures” section of this Annual Report 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 Item 7, “Management’s Discussion
and Analysis, Non-GAAP Financial Measures” section of this Annual Report for a definition of Adjusted EBITDA and a
reconciliation of our Adjusted EBITDA to net loss, the most comparable U.S. GAAP measure.
2020 versus 2019
Shipments
Wheel unit shipments were 15.2 million for 2020, compared to wheel unit shipments of 19.2 million in the prior year, a decrease of
21.1 percent. The decrease occurred in both our European and North American operations and was driven by lower volumes at our
key OEM customers due to the on-going COVID-19 pandemic, including production shut-downs in the second quarter of the calendar
year.
Net Sales
Net sales for 2020 were $1,100.8 million, compared to net sales of $1,372.5 million for the same period in 2019, a decrease of 19.8
percent. The reduction in net sales was principally driven by lower production volumes and lower aluminum prices in North America
and Europe related to the on-going COVID-19 pandemic, partially offset by improved product mix comprised of larger diameter
wheels and premium finishes in both regions and favorable Euro foreign exchange.
21
Cost of Sales
Cost of sales were $1,035.1 million in 2020, compared to $1,256.4 million in the prior year period. The decrease in cost of sales was
principally due to lower production volumes and lower aluminum prices in North America and Europe related to the on-going
COVID-19 pandemic, as well as lower utility expenses, reduced headcount and operating expenses, the use of European government
subsidies and the rationalization of the Company’s North American manufacturing footprint in the prior year.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for 2020 were $52.4 million, or 4.8 percent of net sales, compared to $63.9 million, or
4.7 percent of net sales for the same period in 2019. The decrease is primarily due to reduced employee compensation related to both
temporary and permanent cost savings initiatives, as well as reduced discretionary spending and travel expenses.
Impairment of Goodwill and Indefinite-lived Intangibles
In the fourth quarter of 2019, we recognized a goodwill and indefinite-lived intangible asset impairment charge of $102.2 million
relating to our European reporting unit. In the first quarter of 2020, we recognized an additional goodwill and indefinite-lived
intangible asset impairment charge of $193.6 million relating to our European reporting unit (refer to Note 9, “Goodwill and Other
Intangible Assets” in the Notes to Consolidated Financial Statements in Item 8 “Financial Statements and Supplementary Data” of this
Annual Report.)
Net Interest Expense
Net interest expense for 2020 was $45.4 million, compared to interest expense of $47.0 million in 2019. The reduction in interest
expense was primarily due to both early extinguishment and principal repayments during 2019 and 2020, as well as lower Term Loan
Facility interest rates in 2020. This was partially offset by incremental interest expenses due to the Company’s drawings on its
European and North American revolvers in 2020.
Other Income (Expense)
Other expense was $2.8 million in 2020, compared to other income of $4.0 million in 2019. The decline in other income in 2020 was
primarily driven by a $3.7 million gain on early extinguishment of a portion of the Notes recognized in 2019, $1.6 million of expense
related to an increase in the fair value of the preferred stock embedded derivative liabilities recognized in 2020 and higher foreign
exchange losses in 2020 as compared to 2019.
Income Tax Provision
The income tax provision for 2020 was $14.9 million on a pre-tax loss of $228.7 million, representing an effective tax rate of (6.5)
percent. The effective tax rate was lower than the statutory rate primarily due to the effects of the goodwill impairment in Germany
and the recognition of a valuation allowance on deferred tax assets, offset by a favorable split of jurisdictional pre-tax income. The
income tax provision for 2019 was $3.4 million on a pre-tax loss of $93.0 million, representing an effective income tax rate of (3.7)
percent.
Net Loss
Net loss in 2020 was $243.6 million, or a loss per diluted share of $10.81, compared to net loss of $96.5 million, or a loss per diluted
share of $5.10 in 2019.
22
Segment Sales and Income from Operations
Year Ended
December 31,
2020
2019
Change
(Dollars in thousands)
Selected data
Net Sales
North America
Europe
Total net sales
Income (loss) from Operations
North America
Europe
Total income from operations
$ 550,079 $ 704,320 $(154,241)
(117,486)
$1,100,760 $1,372,487 $(271,727)
668,167
550,681
$
8,872 $
(7,841)
(122,535)
$ (180,435) $ (50,059) $(130,376)
16,713 $
(66,772)
(189,307)
North America
In 2020, net sales of our North America segment decreased 21.9 percent, compared to 2019, primarily due to a 21.2 percent decrease
in volumes, which was principally attributable to the on-going COVID-19 pandemic, including a production shut-down during the
second quarter of the year and lower aluminum prices, partially offset by improved product mix comprised of larger diameter wheels
and premium wheel finishes. U.S. and Mexico sales as a percentage of North American total sales were approximately 5.1 percent
and 94.9 percent, respectively, during 2020, which compares to 14.8 percent and 85.2 percent for 2019. The change in North
American sales by country is due to discontinuing manufacturing activities at our Fayetteville, Arkansas location in the fourth quarter
of 2019. North American segment income from operations for the year ended 2020 was lower than the prior year period, due to
reduced volumes at our key North American OEM customers, partially offset by favorable product mix, utilities savings associated
with plant investments made in 2019 to use electricity from a competitively priced market and temporary and permanent cost
reductions including furloughs, hourly and salary wage and benefit reductions, idling of our manufacturing facilities in April and May,
reduced travel and personnel restructuring, as well as the rationalization of the North American manufacturing footprint in the prior
year.
Europe
In 2020, net sales of our European segment decreased 17.6 percent, compared to 2019, primarily due to a 20.9 percent decrease in
volume, which was principally attributable to the on-going COVID-19 pandemic, including a production shut-down during the second
quarter of the calendar year and lower aluminum prices, partially offset by improved product mix comprised of higher diameter
wheels and premium wheel finishes and favorable Euro foreign exchange. Sales in Germany and Poland as a percentage of total
European segment sales were approximately 38.6 percent and 61.4 percent, respectively, during 2020, which compares to 36.8 percent
and 63.2 percent for 2019. European segment income from operations for the year ended 2020 was lower than the prior year period
primarily due to a goodwill and indefinite-lived intangible asset impairment charge of $193.6 million in 2020 and lower volumes
related to key European OEM customers, partially offset by favorable mix and temporary and permanent cost reductions, including
second quarter facility closures, usage of government subsidies in both Poland and Germany, deferral of merit increases, reduced
travel and personnel restructurings.
Financial Condition, Liquidity and Capital Resources
As of December 31, 2020, our cash and cash equivalents totaled $152.4 million, as compared to $77.9 million at December 31, 2019.
Our sources of liquidity primarily include cash and cash equivalents, cash provided by operating activities, borrowings under available
debt facilities, factoring arrangements for trade receivables and, from time to time, other external sources of funds. Working capital
(current assets minus current liabilities) and our current ratio (current assets divided by current liabilities) were $152.5 million and
1.7:1, respectively, at December 31, 2020, versus $163.1 million and 1.9:1 at December 31, 2019.
Our working capital requirements, investing activities and cash dividend payments have historically been funded from internally
generated funds, debt facilities and cash and cash equivalents, and we believe these sources will continue to meet our long-term
requirements, as well as our currently anticipated short-term needs. Capital expenditures consist of expenditures related to improving
production quality and efficiency and extending the useful lives of existing property, plant and equipment (“existing” business), as
well as expenditures related to new product offerings and expanded capacity for existing products (“new” business). Over time, capital
23
expenditures have consisted of roughly equal components of new and existing business, the most significant of which in recent years
has been our investment in physical vapor deposition (PVD) technology which went into production in 2019.
In connection with the acquisition of our European operations, we entered into several debt and equity financing arrangements during
2017. On March 22, 2017, we entered into a USD Senior Secured Credit facility (“USD SSCF”) consisting of a $400.0 million Senior
Secured Term Loan Facility (“Term Loan Facility”) and a $160.0 million Revolving Credit Facility (“Revolving Credit Facility”). On
May 22, 2017, we issued 150,000 shares of redeemable preferred stock for $150.0 million. On June 15, 2017, we issued
€250.0 million original principal amount of 6% Senior Notes due June 15, 2025 (“Notes”). As a part of the acquisition, we also
assumed $70.7 million of outstanding debt, including a €30.0 million European Revolving Credit Facility (“EUR SSCF”)
(subsequently increased to €45.0 million during the second quarter of 2019). 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. In the fourth
quarter of 2019, the European operations entered into equipment loan agreements totaling $13.4 million (€12.0 million). During the
first quarter of 2020, the Company drew down on these equipment loans and the outstanding balance was $13.0 million as of
December 31, 2020.
With the onset of the COVID-19 pandemic and the ensuing economic uncertainty, the Company drew down on its USD SSCF and
EUR SSCF revolving credit facilities to provide sufficient liquidity during the production shutdown and resumption of operations until
we were able to scale production volumes and restore profitability and positive free cash flow. As of March 31, 2020, the Company
had borrowings outstanding under these facilities of $207.9 million. Beginning in March 2020, the Company took swift action to
reduce costs, including temporary facility closures, salary reductions, layoffs, furloughs, personnel restructurings, deferral of merit
increases and reduced selected employee benefits across our global workforce in accordance with local laws and regulations. In the
third quarter of 2020, our sales volume returned to levels comparable to 2019, with quarterly sales 9.9 percent lower than 2019 and
only 2.0 percent lower for the month of September. In addition, we restored profitability with net income of $11.1 million, generated
cash flow from operating activities of $99.6 million and fully repaid the borrowings under the USD SSCF and EUR SSCF revolving
credit facilities during the third quarter of 2020. In the fourth quarter of 2020, the recovery continued with sales of $337.7 million,
increasing $27.4 million or 8.8 percent over the same period of 2019, cash flow from operating activities of $57.6 million, and income
from operations of $17.5 million, an increase of $7.7 million over the same period of 2019 (excluding the $102.2 million goodwill and
indefinite-lived intangible asset impairment charge recorded in the fourth quarter of 2019).
Both of our revolving credit facilities mature in May 2022. The Company has no other significant funded debt obligations until May
2024. Superior expects, at this time, to remain compliant with the terms of all of its debt facilities.
Balances outstanding under the Term Loan Facility, Notes, and equipment loans as of December 31, 2020 were $349.2 million,
$266.9 million, and $23.7 million, respectively. The balance of the redeemable preferred stock was $179.4 million as of December 31,
2020. Our liquidity totaled $380.9 million at December 31, 2020, including cash on hand of $152.4 million and available
unused commitments under credit facilities of $228.5 million.
The following table summarizes the cash flows from operating, investing, and financing activities as reflected in the consolidated
statements of cash flows.
Fiscal Year Ended December 31,
(Dollars in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash
Net increase in cash and cash equivalents
2020
2019
150,121
(44,179)
(37,060)
5,614
74,496
$
162,842
(54,663)
(76,599)
(1,117)
30,463
$
2020 versus 2019
Operating Activities
Net cash provided by operating activities was $150.1 million in 2020, as compared to $162.8 million in 2019. The decrease in cash
flow provided by operating activities was primarily driven by second quarter losses attributable to production shutdowns at our key
North American and European OEM customers. This was partially offset by higher year-over-year reductions in net working capital.
Inventory decreases were primarily due to lower production volumes in 2020 from COVID-19 related shutdowns as well as improved
inventory management, and the increases in accounts payable were primarily due to improved payment terms negotiated with certain
of our critical suppliers.
24
Investing Activities
Net cash used in investing activities was $44.2 million in 2020, as compared to $54.7 million in 2019. The decrease in investing
activities was driven by the 2020 reduction in capital expenditures to align with industry production volumes, partially offset by the
sale of certain assets in the second quarter of 2019.
Financing Activities
Net cash used in financing activities in 2020 was $37.1 million, as compared to $76.6 million in 2019. This decrease was primarily
due to lower 2020 debt repayments, proceeds from capital equipment loans in the first quarter 2020 and the elimination of the
common stock dividend in the third quarter of 2019.
Off-Balance Sheet Arrangements
As of December 31, 2020, we had no significant off-balance sheet arrangements other than factoring of $96.6 million of our trade
receivables.
NON-GAAP FINANCIAL MEASURES
In this Annual Report, we discuss two important measures that are not calculated according to U.S. GAAP, value added sales and
Adjusted EBITDA.
Value added sales is a key measure that is not calculated according to U.S. GAAP. In the discussion of operating results, we provide
information regarding value added sales. Value added sales represents net sales less the value of aluminum and services provided by
outsourced service providers (“OSPs”) that are included in net sales. As discussed further below, arrangements with our customers
allow us to pass on changes in aluminum prices; therefore, fluctuations in underlying aluminum prices generally do not directly impact
our profitability over time. However, value added sales is worthy of being highlighted for the benefit of users of our financial
statements as it allows users of the financial statements to consider our net sales information both with and without the aluminum and
OSP cost components thereof. Management utilizes value added sales as a key metric to determine growth of the Company because it
eliminates the volatility of aluminum prices.
Fiscal Year Ended December 31,
(Dollars in thousands)
Net sales
Less: aluminum value and outside service provider costs
Value added sales
2020
2019
$
$
1,100,760
(452,452)
648,308
$
$
1,372,487
(617,162)
755,325
Adjusted EBITDA is a key measure that is not calculated according to U.S. GAAP. Adjusted EBITDA is defined as earnings before
interest income and expense, income taxes, depreciation, amortization, restructuring charges and other closure costs and impairments
of long-lived assets and investments, changes in the fair value of the redeemable preferred stock embedded derivative liability,
acquisition and integration and certain hiring and separation related costs, proxy contest fees, gains associated with early debt
extinguishment, and accounts receivable factoring fees. We use Adjusted EBITDA as an important indicator of the operating
performance of our business. Adjusted EBITDA is used in our internal forecasts and models when establishing internal operating
budgets, supplementing the financial results and forecasts reported to our Board of Directors and evaluating short-term and long-term
trends in our operations. We believe the Adjusted EBITDA financial measure assists in providing a more complete understanding of
our underlying operational measures to manage our business, to evaluate our performance compared to prior periods and the
marketplace and to establish operational goals. Adjusted EBITDA is a non-GAAP financial measure and should not be considered in
isolation or as a substitute for financial information provided in accordance with U.S. GAAP. This non-GAAP financial measure may
not be computed in the same manner as similarly titled measures used by other companies.
25
The following table reconciles our net income, the most directly comparable U.S. GAAP financial measure, to our Adjusted EBITDA:
Fiscal Year Ended December 31,
(Dollars in thousands)
Net loss
Interest expense, net
Income tax provision
Depreciation
Amortization
Impairment of goodwill and indefinite-lived intangibles
Integration, restructuring, factoring fees and other (1) (2)
Change in fair value or redeemable preferred stock embedded derivative liability (3)
Adjusted EBITDA
Adjusted EBITDA as a percentage of net sales
Adjusted EBITDA as a percentage of value added sales
2020
2019
$
$
$
$
(243,561)
45,418
14,881
72,777
25,401
193,641
19,247
1,569
129,373
11.8%
20.0%
(96,460)
47,011
3,423
75,773
24,944
102,238
11,084
782
168,795
12.3%
22.3%
(1) In 2020, we incurred charges of approximately $11.6 million of restructuring costs primarily comprised of on-going fixed
costs associated with our Fayetteville, Arkansas facility and relocation and installation costs of repurposed machinery.
Additionally, we incurred $4.1 million of restructuring costs in connection with exiting the automotive racing market
segment, as well as $1.5 million of certain hiring and separation costs, $1.4 million of accounts receivable factoring fees, and
$0.6 million of other costs.
(2) In 2019, we incurred approximately $5.4 million of Fayetteville restructuring costs (excluding $7.6 million of accelerated
depreciation), $4.8 million of certain hiring and separation costs, $3.7 million of gains on extinguishment of debt, and $1.8
million of machinery and equipment relocation costs from Fayetteville to other Superior sites, $1.7 million of acquisition and
integration costs, and $1.0 million of accounts receivable factoring fees.
(3) 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
Accounting estimates are an integral part of the consolidated financial statements. These estimates require the use of judgments and
assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses in the periods presented. We believe the accounting estimates
employed are appropriate and the resulting balances are reasonable; however, due to the inherent uncertainties in developing estimates
actual results could differ from the original estimates, requiring adjustments to these balances in future periods (refer to Note 1,
“Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements in Item 8, “Financial Statements and
Supplementary Data” in this Annual Report for our significant accounting policies related to our critical accounting estimates).
Revenue Recognition - Sales of our products and related costs are recognized when control transfers to the customer, generally upon
shipment. Tooling reimbursement revenues, related to initial tooling reimbursed by our customers, are deferred and recognized over
the expected life of the wheel program on a straight-line basis. A portion of our selling prices to OEM customers is attributable to the
aluminum content of our wheels. Our selling prices are adjusted for changes in the current aluminum market based upon specified
aluminum price indices during specific pricing periods, as agreed with our customers. Our selling prices also incorporate a wheel
weight price component which is based on customer product specifications. Weights are monitored, and prices are adjusted as
variations arise. Customer contract prices are generally adjusted quarterly to incorporate these price adjustments. Price adjustments
due to production efficiencies are generally recognized as and when negotiated with customers.
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 when we have 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.
26
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.
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.
Impairment of Goodwill – Goodwill is not amortized but is instead evaluated for impairment annually at the end of the fiscal year, or
more frequently if events and circumstances indicate that impairment may be more likely than not. As of December 31, 2020, there
was no goodwill associated with our acquired European operations due to the impairment charges taken in 2019 and the first quarter
of 2020.
At March 31, 2020, the impact of the COVID-19 developments 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, our key customers
temporarily closed nearly all 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. 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 at March 31, 2020: (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 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. This impairment was recognized at
March 31, 2020 as a separate charge (together with the indefinite-lived intangible asset trade name) included in loss from operations.
We utilized both an income and a market approach, weighted 75 percent and 25 percent respectively, to determine the fair value of the
European reporting unit as part of our goodwill impairment assessment. The income approach is based on projected debt-free cash
flow, which is discounted to the present value using discount factors that consider the timing and risk of cash flows. The discount rate
used is the weighted average of an estimated cost of equity and of debt (“weighted average cost of capital”). The weighted average
cost of capital is adjusted as necessary to reflect risk associated with the business of the European reporting unit. Financial projections
are based on estimated production volumes, product prices and expenses, including raw material cost, wages, energy and other
expenses. Other significant assumptions include terminal value cash flow and growth rates, future capital expenditures and changes in
future working capital requirements. The market approach is based on the observed ratios of enterprise value to earnings before
interest, taxes, depreciation and amortization (EBITDA) of comparable, publicly traded companies. The market approach fair value is
determined by multiplying historical and anticipated financial metrics of the European reporting unit by the EBITDA pricing multiples
derived from comparable, publicly traded companies.
At March 31, 2020, we determined that the carrying value of the European reporting unit exceeded its fair value by an amount greater
than the remaining goodwill balance. The decline in fair value was primarily due to significantly lower market multiples and increased
discount rates, as well as further declines in forecasted industry production volumes in Western and Central Europe as a result of the
COVID-19 pandemic and consequent economic instability. Forecasted revenues, EBITDA and cash flow for the European reporting
unit also declined as compared to the prior year long-range plan due to lower forecasted industry production volumes which adversely
impacted fair value under both the income and market approaches. Significant assumptions used under the income approach included
a weighted average cost of capital (WACC) of 12.0 percent and a long-term growth rate of 1.5 percent, as compared to 10.0 percent
and 2.0 percent, respectively, used in the 2019 assessment. In determining the WACC, management considered the level of risk
inherent in the cash flow projections and current market conditions, including the significant increase in credit spreads and systemic
market and Company specific risk premiums. The decline in the fair value under the market approach is attributable to the decline in
the average EBITDA market multiple (4.9X EBITDA in 2020, 5.7X EBITDA in 2019) and lower forecasted EBITDA, as compared to
the 2019 assessment. The use of these unobservable inputs results in classification of the fair value estimate as a Level 3 measurement
in the fair value hierarchy. A considerable amount of management judgment and assumptions are required in performing the
27
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 (refer to Note 9, “Goodwill
and Other Intangible Assets,” in the Notes to Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary
Data” in this Annual Report for further discussion of asset impairments).
Impairment of Intangible Assets – Intangible assets include both finite and indefinite-lived intangible assets. Finite-lived intangible
assets consist of brand names, technology and customer relationships. Finite-lived intangible assets are amortized on a straight-line
basis over their estimated useful lives (since the pattern in which the asset will be consumed cannot be reliably determined).
Indefinite-lived intangible assets are not amortized but are instead evaluated for impairment annually at the end of the fiscal year, or
more frequently if events and circumstances indicate that impairment may be more likely than not. Indefinite-lived intangible assets,
excluding goodwill, consist of trade names associated with our aftermarket business. In the first quarter of 2020, 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. As a result, there
were no indefinite-lived intangible assets associated with our European operations as of December 31, 2020 (refer to Note 9,
“Goodwill and Other Intangible Assets,” in the Notes to Consolidated Financial Statements in Item 8, “Financial Statements and
Supplementary Data” in this Annual Report for further discussion of asset impairments).
Impairment of Long-Lived Assets - Management evaluates the recoverability and estimated remaining lives of long-lived assets
whenever facts and circumstances suggest that the carrying value of the assets may not be recoverable or the useful life has changed.
An impairment loss occurs when the carrying value of the long-lived assets exceeds the undiscounted cash flows expected to be
realized from the use and eventual disposition of those assets. Fair value is determined primarily by discounting the estimated
expected cash flows. If the carrying amount of a long-lived asset group is considered impaired, a loss is recorded based on the amount
by which the carrying amount exceeds fair value. The North American and European reporting units are separately tested for
impairment on an asset group basis.
Retirement Plans - Subject to certain vesting requirements, our unfunded retirement plan generally 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 net periodic
pension cost and related benefit obligations are based on, among other things, assumptions of the discount rate and the mortality of the
participants. The net periodic pension costs and related obligations are measured using actuarial techniques and assumptions (refer to
Note 16, “Retirement Plans” in the Notes to Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary
Data” in this Annual Report for a description of these assumptions).
The following information illustrates the sensitivity to a change in certain assumptions of our unfunded retirement plans as of
December 31, 2020. They also may not be additive, so the impact of changing multiple factors simultaneously cannot be calculated by
combining the individual sensitivities shown.
The effect of the indicated increase (decrease) in selected factors is shown below (in thousands):
Increase (Decrease) in:
Assumption
Discount rate
Rate of compensation increase
Percentage
Change
Projected Benefit
Obligation at
December 31,
2020
+1.0% $
+1.0% $
(3,680) $
312 $
2021 Net
Periodic
Pension Cost
16
23
Valuation of Deferred Tax Assets - The ability to realize deferred tax assets depends on the ability to generate sufficient taxable
income in the future. A valuation allowance is provided for deferred income tax assets when, in our judgment, based upon currently
available information and other factors, it is more likely than not that all or a portion of such deferred income tax assets will not be
realized. The assessment regarding whether a valuation allowance is required or should be adjusted is based on an evaluation of
possible sources of taxable income and considers all available positive and negative evidence factors. Our accounting for the valuation
of deferred tax assets represents our best estimate of future events. Changes in our current estimates, due to unanticipated market
conditions, governmental legislative actions or events, could have a material effect on our ability to utilize deferred tax assets. At
December 31, 2020 total deferred tax assets were $90.7 million and valuation allowances against those deferred tax assets were $46.5
million (refer to Note 14, “Income Taxes” in the Notes to Consolidated Financial Statements in Item 8, “Financial Statements and
Supplementary Data” in this Annual Report for additional information).
28
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, as defined in Rule 10(f)(1) of Regulation S-K under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), the Company is not required to provide the information required by this item.
29
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to the Consolidated Financial Statements of Superior Industries International, Inc.
Reports of Independent Registered Public Accounting Firm ...................................................................................................
Financial Statements
Consolidated Statements of Income (Loss)....................................................................................................................
Consolidated Statements of Comprehensive Income (Loss)...........................................................................................
Consolidated Balance Sheets ..........................................................................................................................................
Consolidated Statements of Shareholders’ Equity (Deficit) ...........................................................................................
Consolidated Statements of Cash Flows .........................................................................................................................
Notes to Consolidated Financial Statements...................................................................................................................
PAGE
31
34
35
36
37
39
40
30
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Superior Industries International, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Superior Industries International, Inc. and subsidiaries (the
"Company") as of December 31, 2020 and 2019, the related consolidated statements of income (loss), comprehensive income (loss),
shareholders' equity (deficit), and cash flows, for each of the two years in the period ended December 31, 2020, and the related notes
and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the
results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with
accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal
Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated March 5, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material
to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or
disclosures to which it relates.
Goodwill European Reporting Unit - Refer to Notes 1 and 9 to the financial statements
Critical Audit Matter Description
The Company’s evaluation of their European reporting unit (“Europe”) goodwill for impairment involves the comparison of the fair
value of the reporting unit to its carrying value. Fair value of the reporting unit is estimated based on a combination of discounted cash
flows and the use of pricing multiples. The determination of fair value using the discounted cash flow model requires management to
make significant estimates and assumptions related to forecasts of future revenues, operating margins, earnings before interest, taxes,
depreciation, and amortization (EBITDA), capital expenditures and the discount rate. The determination of fair value using pricing
multiples requires management to make significant assumptions derived from analysis of the EBITDA pricing multiples of
comparable, publicly traded companies.
As a result of the Company’s interim goodwill impairment test in the first quarter of 2020, management determined that the carrying
value of Europe exceeded its fair value by an amount greater than the remaining goodwill balance. As such, the Company recorded a
non-cash goodwill impairment charge of $182.6 million in 2020 associated with Europe. Changes in these assumptions could have a
significant impact on either the fair value, the amount of any goodwill impairment charge, or both. The Company’s goodwill balance
was $0 as of December 31, 2020 after the impairment.
31
We identified goodwill for Europe as a critical audit matter because of the significant estimates and assumptions made by
management to estimate the fair value of Europe and the difference between its fair value and carrying value. This required a high
degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing
audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to forecasts of future revenues,
operating margins, EBITDA and the selection of the discount rate.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to forecasts of future revenues, operating margins, and EBITDA (collectively, the “forecasts”) and the
selection of the discount rate included the following, among others:
We tested the effectiveness of controls over management’s goodwill impairment evaluation and determination of related
assumptions, including those over management’s forecasts and the selection of the discount rate.
We evaluated management’s ability to accurately forecast future cash flows by comparing actual results to management’s
historical forecasts.
We evaluated the reasonableness of management’s forecasts by comparing the forecasts to (1) historical results, (2) internal
communications to management and the Board of Directors and (3) forecasted information included in the Company’s press
releases as well as in analyst and industry reports for the Company and certain of its peer group companies. With the
assistance of our fair value specialists, we tested the underlying source information and the mathematical accuracy of the
forecasted cash flows within the fair value estimate.
With the assistance of our fair value specialists, we evaluated the (1) valuation methodology and (2) discount rate, including
testing the source information underlying the determination of the discount rate, testing the mathematical accuracy of the
calculation, and developing a range of independent estimates and comparing those to the discount rate selected by
management.
/s/ Deloitte & Touche LLP
Detroit, Michigan
March 5, 2021
We have served as the Company's auditor since 2009.
32
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Superior Industries International, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Superior Industries International, Inc. and subsidiaries (the
“Company”) as of December 31, 2020, based on criteria established in Internal Control Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal
Control Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2020, of
the Company and our report dated March 5, 2021, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control
Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based
on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Detroit, Michigan
March 5, 2021
33
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Dollars in thousands, except per share data)
Fiscal Year Ended December 31,
NET SALES
Cost of sales
GROSS PROFIT
Selling, general and administrative expenses
Impairment of goodwill and indefinite-lived intangibles
LOSS FROM OPERATIONS
Interest expense, net
Other (expense) income, net
LOSS BEFORE INCOME TAXES
Income tax provision
NET LOSS
LOSS PER SHARE – BASIC
LOSS PER SHARE – DILUTED
The accompanying notes are an integral part of these consolidated financial statements.
2020
2019
$
$
$
$
1,100,760
1,035,134
65,626
52,420
193,641
(180,435)
(45,418)
(2,827)
(228,680)
(14,881)
(243,561)
(10.81)
(10.81)
$
$
$
$
1,372,487
1,256,425
116,062
63,883
102,238
(50,059)
(47,011)
4,033
(93,037)
(3,423)
(96,460)
(5.10)
(5.10)
34
2020
2019
$
(243,561)
$
(96,460)
14,197
(13,453)
1,764
(11,689)
(1,876)
—
(1,876)
632
(242,929)
$
(5,168)
17,515
(4,359)
13,156
(4,086)
1,515
(2,571)
5,417
(91,043)
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands)
Fiscal Year Ended December 31,
Net loss
Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss)
Change in unrecognized gains (losses) on derivative instruments:
Change in fair value of derivatives
Tax benefit (provision)
Change in unrecognized gains (losses) on derivative instruments, net of tax
Defined benefit pension plan:
Actuarial losses on pension obligation, net of amortization
Tax benefit
Pension changes, net of tax
Other comprehensive income, net of tax
Comprehensive loss
$
The accompanying notes are an integral part of these consolidated financial statements.
35
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
Fiscal Year Ended December 31,
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Income taxes receivable
Other current assets
Total current assets
Property, plant and equipment, net
Deferred income tax assets, net
Goodwill
Intangibles, net
Other non-current assets
Total assets
LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY
(DEFICIT)
Current liabilities:
Accounts payable
Short-term debt
Accrued expenses
Income taxes payable
Total current liabilities
Long-term debt (less current portion)
Non-current income tax liabilities
Deferred income tax liabilities, net
Other non-current liabilities
Commitments and contingent liabilities (Note 19)
Mezzanine equity:
Preferred stock, $0.01 par value
Authorized - 1,000,000 shares
Issued and outstanding – 150,000 shares outstanding at
December 31, 2020 and December 31, 2019
European non-controlling redeemable equity
Shareholders’ equity (deficit):
Common stock, $0.01 par value
Authorized - 100,000,000 shares
Issued and outstanding – 25,591,930 and 25,128,158 shares at
December 31, 2020 and December 31, 2019
Accumulated other comprehensive loss
Retained earnings
Total shareholders’ equity (deficit)
Total liabilities, mezzanine equity and shareholders’ equity (deficit)
$
The accompanying notes are an integral part of these consolidated financial statements.
36
$
$
$
2020
2019
$
$
$
152,423
48,995
154,980
4,957
22,301
383,656
522,124
30,860
—
110,796
61,889
1,109,325
151,839
6,112
71,079
2,107
231,137
625,492
7,635
9,104
76,426
—
77,927
76,786
168,470
4,630
26,375
354,188
529,282
38,607
184,832
137,078
67,880
1,311,867
123,112
4,010
60,845
3,148
191,115
611,025
6,523
12,369
71,640
—
179,387
1,666
160,980
6,525
95,247
(99,446)
(17,323)
(21,522)
1,109,325
$
93,331
(100,078)
258,437
251,690
1,311,867
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(Dollars in thousands, except per share data)
Common Stock
Accumulated Other Comprehensive (Loss)
Income
Number of
Shares
Amount
Unrecognized
Gains (Losses)
on Derivative
Instruments
Pension
Obligations
Cumulative
Translation
Adjustment
Retained
Earnings
Total
BALANCE AT DECEMBER 31, 2018
25,019,237 $ 87,723 $
(3,205) $
(3,000) $ (99,290) $391,037 $373,265
Net loss
Change in unrecognized gains/losses on
derivative instruments, net of tax
Change in defined benefit plans, net of taxes
Net foreign currency translation adjustment
Common stock issued, net of shares withheld
for employee taxes
Stock-based compensation
Cash dividend declared ($0.18 per common
share)
Redeemable preferred 9% dividend,
participating dividend and accretion
European non-controlling redeemable equity
dividend
BALANCE AT DECEMBER 31, 2019
—
—
—
—
108,921
—
—
—
—
—
—
—
—
—
5,608
—
—
—
—
13,156
—
—
—
—
—
—
—
—
—
(2,571)
—
—
—
—
—
—
— (96,460)
(96,460)
—
—
— 13,156
— (2,571)
(5,168)
— (5,168)
—
—
—
—
—
5,608
— (4,597)
(4,597)
— (30,977)
(30,977)
—
(566)
(566)
25,128,158 $ 93,331 $
9,951
$
(5,571) $(104,458) $258,437 $251,690
The accompanying notes are an integral part of these consolidated financial statements.
37
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(Dollars in thousands, except per share data)
(Unaudited)
Common Stock
Accumulated Other Comprehensive (Loss)
Income
Number of
Shares
Amount
Unrecognized
Gains (Losses)
on Derivative
Instruments
Pension
Obligations
Cumulative
Translation
Adjustment
Retained
Earnings
Total
BALANCE AT DECEMBER 31, 2019
25,128,158 $ 93,331 $
9,951
$
(5,571) $(104,458) $ 258,437 $ 251,690
Net loss
Change in unrecognized gains/losses on
derivative instruments, net of tax
Change in defined benefit plans, net of taxes
Net foreign currency translation adjustment
Common stock issued, net of shares withheld
for employee taxes
Stock-based compensation
Redeemable preferred 9% dividend
and accretion
European non-controlling redeemable equity
dividend
BALANCE AT DECEMBER 31, 2020
—
—
—
—
463,772
—
—
—
—
—
— 1,916
—
—
—
—
—
(11,689)
—
—
—
—
—
—
—
—
(1,876)
—
—
—
—
—
— (243,561)
(243,561)
—
—
14,197
—
—
— (11,689)
—
—
—
—
(1,876)
14,197
—
1,916
— (31,994)
(31,994)
—
(205)
(205)
25,591,930 $ 95,247 $
(1,738) $
(7,447) $ (90,261) $ (17,323) $ (21,522)
The accompanying notes are an integral part of these consolidated financial statements.
38
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Fiscal Year Ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash provided by operating activities:
2020
2019
$
(243,561)
$
(96,460)
Depreciation and amortization
Income tax, non-cash changes
Impairment of goodwill and indefinite-lived intangibles
Stock-based compensation
Amortization of debt issuance costs
Other non-cash items
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Other assets and liabilities
Accounts payable
Income taxes
NET CASH PROVIDED BY OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment
Proceeds from sale of fixed assets
Other investing activities
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt
Repayments of debt
Proceeds from borrowings on revolving credit facility
Repayments of borrowings on revolving credit facility
Cash dividends paid
Purchase of non-controlling redeemable shares
Payments related to tax withholdings for stock-based compensation
Finance lease payments
NET CASH USED IN FINANCING ACTIVITIES
Effect of exchange rate changes on cash
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
The accompanying notes are an integral part of these consolidated financial statements.
98,178
7,489
193,641
2,374
4,020
5,776
28,052
20,921
11,257
24,523
(2,549)
150,121
(45,038)
859
—
(44,179)
11,690
(25,672)
313,825
(316,910)
(13,555)
(5,020)
(458)
(960)
(37,060)
5,614
74,496
77,927
152,423
$
100,722
(3,504)
102,238
5,716
4,843
(714)
26,737
5,262
7,424
7,479
3,099
162,842
(64,294)
—
9,631
(54,663)
—
(46,024)
114,040
(114,040)
(22,556)
(6,681)
(108)
(1,230)
(76,599)
(1,117)
30,463
47,464
77,927
$
39
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Superior Industries International, Inc. (referred to herein as the “Company,” “Superior,” or “we,” “us” and “our”) designs and
manufactures aluminum wheels for sale to original equipment manufacturers (“OEMs”) and aftermarket customers. We are one of the
largest suppliers of aluminum wheels to the world’s leading automobile and light truck manufacturers, with manufacturing operations
in Mexico, Germany and Poland. Our OEM aluminum wheels are sold primarily for factory installation, as either standard equipment
or optional equipment, on vehicle models manufactured by BMW (including Mini), Daimler Group (Mercedes-Benz, AMG, Smart),
FCA, Ford, GM, Honda, Jaguar-Land Rover, Mazda, 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 Consolidated Financial Statements
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany
transactions are eliminated in consolidation.
Accounting estimates are an integral part of the consolidated financial statements. These estimates require the use of judgments and
assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses in the periods presented. We believe that the accounting
estimates employed are appropriate and the resulting balances are reasonable; however, due to the inherent uncertainties in making
estimates, actual results could differ from the original estimates, requiring adjustments to these balances in future periods.
Certain prior year amounts have been reclassified to conform with the current year presentation.
Cash and Cash Equivalents
Cash and cash equivalents generally consist of cash, certificates of deposit, fixed deposits and money market funds with original
maturities of three months or less.
Derivative Financial Instruments and Hedging Activities
Our derivatives are over-the counter customized derivative instruments and are not exchange traded. We account for our derivative
instruments as either assets or liabilities and adjust them to fair value each period. For derivative instruments that hedge the exposure
to variability in expected future cash flows that are designated as cash flow hedges, the gain or loss on the derivative instrument is
recorded in accumulated other comprehensive income or loss in shareholders’ equity or deficit until the hedged item is recognized in
earnings, at which point accumulated gains or losses are recognized in earnings and classified with the underlying hedged transaction.
Derivatives that do not qualify or have not been designated as hedges are adjusted to fair value through earnings in the financial
statement line item to which the derivative relates. Refer to Note 4, “Derivative Financial Instruments” for additional information
pertaining to our derivative instruments. We enter into contracts to purchase certain commodities used in the manufacture of our
products, such as aluminum, natural gas and other raw materials. These contracts are considered to be derivative instruments under
U.S. GAAP; however, these purchase contracts are not accounted for as derivatives because they qualify for the normal purchase
normal sale exemption.
Accounts Receivable
Accounts receivable primarily consists of amounts that are due and payable from our customers for the sale of aluminum wheels. We
evaluate the collectability of receivables each reporting period and record an allowance for doubtful accounts representing our
estimate of probable losses. Additions to the allowance are charged to bad debt expense reported in selling, general and administrative
expense.
40
Inventory
Inventories, which are categorized as raw materials, work-in-process or finished goods, are stated at the lower of cost or net realizable
value. The cost of inventories is measured using the FIFO (first-in, first-out) method or the average cost method. Inventories are
reviewed to determine if inventory quantities are in excess of forecasted usage or if they have become obsolete. Aluminum is the
primary material component in our inventories. In 2020 and 2019, the Company had three and four aluminum suppliers, respectively,
which individually exceeded 10 percent of total aluminum purchases and, in the aggregate, represented 55.0 percent and 62.9 percent
of our total aluminum purchases, respectively.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, less accumulated depreciation. The cost of additions, improvements and interest
during construction, if any, are capitalized. Our maintenance and repair costs are charged to expense when incurred. Depreciation is
calculated generally on the straight-line method based on the estimated useful lives of the assets.
Classification
Buildings
Machinery and equipment
Leasehold Improvements
Expected Useful Life
15 to 50 years
3 to 20 years
Lease term
When property, plant and equipment is replaced, retired or otherwise disposed, the cost and related accumulated depreciation are
removed and any resulting gain or loss on the disposition of an operating asset is included in income or loss from operations. Any gain
or loss on the disposition of a non-operating asset is included in other income or expense.
Impairment of Long-Lived Assets
The carrying amount of long-lived assets to be held and used in the business is evaluated for impairment when events and
circumstances warrant. An impairment loss occurs when the carrying value of the long-lived assets exceeds the undiscounted cash
flows expected to be realized from the use and eventual disposition of those assets. If the carrying amount of a long-lived asset group
is considered impaired, a loss is recorded based on the amount by which the carrying amount exceeds fair value. Fair value is
determined primarily by discounting the estimated expected cash flows.
Goodwill
Goodwill is not amortized but is tested for impairment on at least an annual basis. Impairment testing is required more often than
annually if an event or circumstance indicates that an impairment is more likely than not to have occurred. If the net book value of a
reporting unit exceeds its fair value, an impairment loss is measured and recognized. We conduct our annual impairment testing as of
December 31. Impairment charges, if any, related to goodwill are recorded as a separate charge included in income or loss from
operations. In the first quarter of 2020 and fourth quarter of 2019, we recognized goodwill impairment charges of $182.6 million and
$99.5 million, respectively, relating to our European reporting unit. As a result of these charges, there was no remaining goodwill as of
December 31, 2020 (refer to Note 9, “Goodwill and Other Intangible Assets”).
Intangible Assets
Intangible assets include both finite and indefinite-lived intangible assets. Finite-lived intangible assets consist of brand names,
technology and customer relationships. Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful
lives (since the pattern in which the asset will be consumed cannot be reliably determined). Indefinite-lived intangible assets,
excluding goodwill, consist of trade names associated with our aftermarket business. Impairment charges, if any, related to intangible
assets are recorded as a separate charge included in income or loss from operations. In the first quarter of 2020 and fourth quarter of
2019, we recognized indefinite-lived intangible impairment charges of $11.0 million and $2.7 million, respectively, relating to trade
names used in our European aftermarket business. As a result of these charges, there was no remaining indefinite-lived intangible
asset as of December 31, 2020 (refer to Note 9, “Goodwill and Other Intangible Assets”).
41
Foreign Currency Transactions and Translation
The assets and liabilities of foreign subsidiaries that use local currency as their functional currency are translated to U.S. dollars based
on the current exchange rate prevailing at each balance sheet date and any resulting translation adjustments are included in
accumulated other comprehensive income or loss. The assets and liabilities of foreign subsidiaries whose local currency is not their
functional currency are remeasured from their local currency to their functional currency and then translated to U.S. dollars. Revenues
and expenses are translated into U.S. dollars using the average exchange rates prevailing for each period presented.
Gains and losses arising from foreign currency transactions and the effects of remeasurement discussed in the preceding paragraph are
recorded in other income or expense. We recognized foreign currency transaction gains (losses) of $(2.4) million and $0.5 million in
2020 and 2019, respectively.
Revenue Recognition
Revenue is recognized when performance obligations under our contracts are satisfied. Generally, this occurs upon shipment when
control of products transfers to our customers. At this point, revenue is recognized in an amount reflecting the consideration we expect
to be entitled to under the terms of our contract.
The Company maintains long term business relationships with our OEM customers and aftermarket distributors; however, there are no
definitive long-term volume commitments under these arrangements. Volume commitments are limited to near-term customer
requirements authorized under purchase orders or production releases generally with delivery periods of approximately one month.
Sales do not involve any significant financing component since customer payment is generally due 40-60 days after shipment.
Contract assets and liabilities consist of customer receivables and deferred revenues related to tooling.
At contract inception, the Company assesses goods and services promised in its contracts with customers and identifies a performance
obligation for each promise to deliver a good or service (or bundle of goods or services) that is distinct. Principal performance
obligations under our customer contracts consist of the manufacture and delivery of aluminum wheels, including production wheels,
service wheels and replacement wheels. As a part of the manufacture of the wheels, we develop tooling necessary to produce the
wheels. Accordingly, tooling costs, which are explicitly recoverable from our customers, are capitalized as preproduction costs and
amortized to cost of sales over the average life of the vehicle wheel program. Similarly, customer reimbursement for tooling costs is
deferred and amortized to net sales over the average life of the vehicle wheel program.
In the normal course of business, the Company’s warranties are limited to product specifications and the Company does not accept
product returns unless the item is defective as manufactured. Accordingly, warranty costs are treated as a cost of fulfillment subject to
accrual, rather than a performance obligation. The Company establishes provisions for both estimated returns and warranties when
revenue is recognized. In addition, the Company does not typically provide customers with the right to a refund but provides for
product replacement.
Prices allocated to production, service and replacement wheels are based on prices established in our customer purchase orders which
represent the standalone selling price. Prices for service and replacement wheels are commensurate with production wheels with
adjustment for any special packaging. In addition, prices are subject to adjustment for changes in commodity prices for certain raw
materials, aluminum and silicon, as well as production efficiencies and wheel weight variations from specifications used in pricing.
These price adjustments are treated as variable consideration. Customer tooling reimbursement is generally based on quoted prices or
cost not to exceed quoted prices.
We estimate variable consideration by using the “most likely” amount estimation approach. For commodity prices, initial estimates
are based on the commodity index at contract inception. Changes in commodity prices are monitored and revenue is adjusted as
changes in the commodity index occur. Prices incorporate the wheel weight price component based on product specifications. Weights
are monitored, and prices are adjusted as variations arise. Price adjustments due to production efficiencies are generally recognized as
and when negotiated with customers. Customer contract prices are generally adjusted quarterly to incorporate price adjustments.
Under the Company’s policies, shipping costs are treated as a cost of fulfillment. In addition, the Company does not disclose
remaining performance obligations under its contracts since contract terms are substantially less than a year (generally less than one
month). Our revenue recognition practices and related transactions and balances are further described in Note 2, “Revenue.”
Stock-Based Compensation
We account for stock-based compensation using the estimated fair value recognition method. We recognize these compensation costs
net of the applicable forfeiture rate on a straight-line basis for only those shares expected to vest over the requisite service period of
the award, which is generally the vesting term of three years. We estimate the forfeiture rate based on our historical experience. Refer
to Note 18, “Stock-Based Compensation” for additional information concerning our stock-based compensation awards.
42
Income Taxes
We account for income taxes using the asset and liability method. The asset and liability method requires the recognition of deferred
tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between the tax basis and
financial reporting basis of our assets and liabilities. We calculate current and deferred tax provisions based on estimates and
assumptions that could differ from actual results reflected on the income tax returns filed during the following years. Adjustments
based on filed returns are recorded when identified in the subsequent years.
The effect on deferred taxes for a change in tax rates is recognized in income in the period that the tax rate change is enacted. The
ability to realize deferred tax assets depends on the ability to generate sufficient taxable income in the future. A valuation allowance
is provided for deferred income tax assets when, in our judgment, based upon currently available information and other factors, it is
more likely than not that all or a portion of such deferred income tax assets will not be realized. The assessment regarding whether a
valuation allowance is required or should be adjusted is based on an evaluation of possible sources of taxable income and considers all
available positive and negative evidence factors. Our accounting for the valuation of deferred tax assets represents our best estimate
of future events. We believe that the determination to record a valuation allowance to reduce a deferred income tax asset is a
significant accounting estimate because it is based, among other things, on an estimate of taxable income, which is susceptible to
change and may or may not occur, and because the impact of adjusting a valuation allowance may be material. In determining when to
release the valuation allowance established against our net deferred income tax assets, we consider all available evidence, both
positive and negative.
We account for uncertain tax positions utilizing a two-step approach to evaluate tax positions. Step one, recognition, requires
evaluation of the tax position to determine if based solely on technical merits it is more likely than not to be sustained upon
examination. Step two, measurement, is addressed only if a position is more likely than not to be sustained. In step two, the tax benefit
is measured as the largest amount of benefit, determined on a cumulative probability basis, which is more likely than not to be realized
upon ultimate settlement with tax authorities. If a position does not meet the more likely than not threshold for recognition in step one,
no benefit is recorded until the first subsequent period in which the more likely than not standard is met, the issue is resolved with the
taxing authority, or the statute of limitations expires. Positions previously recognized are derecognized when we subsequently
determine the position no longer is more likely than not to be sustained. Evaluation of tax positions, their technical merits, and
measurements using cumulative probability are highly subjective management estimates. Actual results could differ materially from
these estimates.
In 2020, we have provided deferred income taxes for the estimated U.S. federal and state income tax, foreign income tax and
applicable withholding taxes on unremitted earnings of subsidiaries.
Cash Paid for Interest and Taxes and Non-Cash Investing Activities
Cash paid for interest was $39.6 million and $42.3 million, respectively, for the years ended December 31, 2020 and 2019. Cash paid
for income taxes was $7.3 million and $9.0 million for the years ended December 31, 2020 and 2019, respectively.
As of December 31, 2020 and 2019, we had purchased but not yet paid for equipment of $0.9 million and $15.6 million, respectively,
which are included in accounts payable and accrued expenses in our 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 effect on the Company’s consolidated financial statement disclosures.
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.
ASU 2020-04 provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other
transactions affected by reference rate reform, where certain criteria are met. These optional expedients and exceptions allow
companies to elect not to apply certain accounting requirements under U.S. GAAP to contracts modified during the transition period
(March 12, 2020 through December 31, 2022) due to reference rate reform. Companies exercising this election would account for a
modified contract as a continuation of an existing contract. Companies are also permitted to continue to apply hedge accounting where
the critical terms in a hedging relationship are modified due to reference rate reform, without de-designating and redesignating such
hedges. In addition, companies may continue to assume that cash flows for hedged transactions and associated hedges affected by
reference rate reform remain probable (as required for application of hedge accounting), despite the planned discontinuance of such
reference rates. The Company uses LIBOR as the benchmark interest rate in its $400.0 million senior secured term loan facility
(“Term Loan Facility”), $160.0 million revolving credit facility (“Revolving Credit Facility”), $65.0 million North American
receivables factoring arrangement and interest rate swaps with a notional value of $200.0 million as of December 31, 2020 used to
hedge interest rate fluctuations on our variable rate borrowings under the Term Loan Facility (refer to Note 4, “Derivative Financial
43
Instruments,” Note 10, “Debt,” and Note 20, “Receivables Factoring”). In 2020, the Company has adopted ASU 2020-04 and will
apply optional expedients and exceptions prospectively as we modify affected contracts during the transition period. The adoption of
this guidance has not had, and is not expected to have, any significant effect on the Company’s consolidated financial statements.
ASU 2018-14,Compensation - Retirement Benefits - Defined Benefit Plans. The Company has adopted ASU 2018-14, which is
designed to improve the effectiveness of disclosures by removing and adding disclosures related to defined benefit plans for the fiscal
year ended December 31, 2020. We have incorporated disclosures required under this ASU relating to the nature and reason for any
significant actuarial gains and losses (refer to Note 16, “Retirement Plans”). The adoption of this standard did not have any significant
effect on the Company’s consolidated financial statement disclosures.
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 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 standard until fiscal years beginning after December 31, 2022. We are evaluating the impact this
standard will have on our financial statements and disclosures.
NOTE 2 - REVENUE
The Company disaggregates revenue from contracts with customers into our reportable segments, North America and Europe.
Revenues by segment for the years ended December 31, 2020 and 2019 are summarized in Note 5, “Business Segments”.
The opening and closing balances of the Company’s receivables and current and long-term contract liabilities are as follows:
(Dollars in thousands)
Customer receivables
Contract liabilities—current
Contract liabilities—noncurrent
December 31,
2020
December 31,
2019
Change
$
$
40,785
8,249
13,106
$
68,283
5,880
13,577
(27,498)
2,369
(471)
The changes in the contract liability balances primarily result from timing differences between our performance and customer
payment while the decline in customer receivables is primarily due to the increase in receivables factoring (refer to Note 20,
“Receivables Factoring”), as well as a decline in sales. During the years ended December 31, 2020 and 2019, the Company recognized
tooling reimbursement revenue of $13.1 million and $10.7 million, respectively, which had been deferred in prior periods and was
previously included in contract liability (deferred revenue), as well as revenue on tooling invoiced, deferred and partially recognized
in 2020. During the year ended December 31, 2020 and 2019, the Company recognized revenue of $0.7 million and $1.7 million,
respectively, from obligations satisfied in prior periods as a result of adjustments to pricing estimates for production efficiencies and
other revenue adjustments.
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
required to be 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 when we have 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.
44
The carrying amounts for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their
fair values due to the short period of time until maturity.
Derivative Financial Instruments
Our derivatives are over-the-counter customized derivative instruments and are not exchange traded. We estimate the fair value of
these instruments using industry-standard valuation models such as a discounted cash flow. These models project future cash flows
and discount the future amounts to a present value using market-based expectations for interest rates, foreign exchange rates,
commodity prices and the contractual terms of the derivative instruments. The discount rate used is the relevant interbank deposit rate
(e.g., LIBOR) plus an adjustment for non-performance risk.
The following tables categorize items measured at fair value at December 31, 2020 and 2019:
December 31, 2020
(Dollars in thousands)
Assets
Derivative contracts
Total
Liabilities
Derivative contracts
Total
December 31, 2019
(Dollars in thousands)
Assets
Derivative contracts
Total
Liabilities
Derivative contracts
Total
Debt Instruments
Fair Value Measurement at Reporting Date Using
Significant
Significant
Unobservable
Other
Inputs
Observable
(Level 3)
Inputs (Level 2)
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
$
$
$
$
$
$
$
$
10,218
10,218
15,259
15,259
$
$
$
$
— $
— $
— $
— $
10,218
10,218
.
15,259
15,259
$
$
$
$
—
—
—
—
Fair Value Measurement at Reporting Date Using
Significant
Significant
Unobservable
Other
Inputs
Observable
(Level 3)
Inputs (Level 2)
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
21,973
21,973
8,709
8,709
$
$
$
$
— $
— $
— $
— $
21,973
21,973
8,709
8,709
$
$
$
$
—
—
—
—
The carrying values of the Company’s debt instruments vary from their fair values. The fair values were determined by reference to
transacted prices and quotes for these securities (Level 2). The estimated fair value, as well as the carrying value, of the Company’s
debt instruments are shown below (in thousands):
(Dollars in thousands)
Estimated aggregate fair value
Aggregate carrying value (1)
December 31,
2020
December 31,
2019
$
624,207 $
643,184
606,093
630,635
(1) Total debt excluding the impact of unamortized debt issuance costs.
45
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 risks. We may
enter into forward contracts, option contracts, swaps, collars or other derivative instruments to offset some of the risk on expected
future cash flows and on certain existing assets and liabilities. However, we may choose not to hedge certain exposures for a variety of
reasons including, but not limited to, accounting considerations and the prohibitive economic cost of hedging particular exposures.
There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign
currency exchange rates, interest rates, and aluminum and natural gas 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.
The following tables display the fair value of derivatives by balance sheet line item at December 31, 2020 and December 31, 2019:
(Dollars in thousands)
Foreign exchange forward contracts designated as
hedging instruments
Foreign exchange forward contracts not
designated as hedging instruments
Aluminum forward contracts designated as
hedging instruments
Natural gas forward contracts designated as
hedging instruments
Interest rate swap contracts designated as hedging
instruments
Total derivative financial instruments
(Dollars in thousands)
Foreign exchange forward contracts designated as
hedging instruments
Foreign exchange forward contracts not
designated as hedging instruments
Aluminum forward contracts designated as
hedging instruments
Natural gas forward contracts designated as
hedging instruments
Interest rate swap contracts designated as hedging
instruments
Total derivative financial instruments
December 31, 2020
Other
Current
Assets
Other
Non-current
Assets
Accrued
Liabilities
Other
Non-current
Liabilities
$
1,218
$
6,531
$
3,435
$
2,645
1,167
262
816
—
—
224
122
—
22
—
—
70
—
3,463
$
—
6,755
$
4,771
8,350
$
4,194
6,909
$
December 31, 2019
Other
Current
Assets
Other
Non-current
Assets
Accrued
Liabilities
Other
Non-current
Liabilities
$
7,808
$
12,821
$
60
$
100
1,196
60
81
—
—
7
—
9,145
$
—
12,828
$
$
554
127
1,312
2,304
4,357
—
—
727
3,525
4,352
$
46
The following table summarizes the notional amount and estimated fair value of our derivative financial instruments:
(Dollars in thousands)
Foreign exchange forward contracts designated as
hedging instruments
Foreign exchange forward contracts not designated
as hedging instruments
Aluminum forward contracts designated as
hedging instruments
Natural gas forward contracts designated as hedging
instruments
Interest rate swap contracts designated as hedging
instruments
Total derivative financial instruments
December 31, 2020
December 31, 2019
Notional
U.S. Dollar
Amount
Fair
Value
Notional
U.S. Dollar
Amount
Fair
Value
$
421,253
$
1,669
$
449,181
$
20,469
71,217
1,045
73,491
4,068
5,523
262
948
9,405
5,816
642
(67)
(1,951)
200,000
702,061
$
$
(8,965)
(5,041) $
260,000
797,893
$
(5,829)
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 described above. The amounts
exchanged are calculated by reference to the notional amounts and by other terms of the derivatives, such as interest rates, foreign
currency exchange rates or commodity prices.
The following tables summarize the gain or loss recognized in accumulated other comprehensive income or loss (“AOCI”) for the
years ended December 31, 2020 and 2019, the amounts reclassified from AOCI into earnings and the amounts recognized directly into
earnings for the years ended December 31, 2020 and 2019:
Year Ended December 31, 2020
(Dollars in thousands)
Derivative Contracts
Total
Year Ended December 31, 2019
(Dollars in thousands)
Derivative Contracts
Total
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
$
$
(11,689) $
(11,689) $
(8,365) $
(8,365) $
2,098
2,098
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
$
$
13,156 $
13,156 $
3,746 $
3,746 $
4,320
4,320
NOTE 5 - BUSINESS SEGMENTS
Our North American and European operations represent separate operating segments in view of significantly different markets,
customers, and products between these regions. Within each of these regions, markets, customers, products, and production processes
are similar and production can be readily 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.
Year Ended December 31,
(Dollars in thousands)
North America
Europe
Net Sales
Income (Loss) from Operations
2020
2019
2020
2019
$
$
550,079
550,681
1,100,760
$
$
704,320
668,167
1,372,487
$
$
$
8,872
(189,307)
(180,435) $
16,713
(66,772)
(50,059)
47
Year Ended December 31,
(Dollars in thousands)
North America
Europe
Year Ended December 31,
(Dollars in thousands)
North America
Europe
Depreciation and Amortization
Capital Expenditures
2020
2019
2020
2019
$
$
34,935
63,243
98,178
$
$
38,845
61,877
100,722
$
$
24,929
20,109
45,038
$
$
22,464
41,830
64,294
Property, Plant and Equipment, net
2020
2019
Goodwill and Intangible
Assets
2020
2019
$
$
220,145
301,979
522,124
$
$
—
237,372 $
291,910
321,910
110,796
529,282 $ 110,796 $ 321,910
— $
Year Ended December 31,
(Dollars in thousands)
North America
Europe
Total Assets
2020
2019
$
$
479,873
629,452
1,109,325
$
$
484,689
827,178
1,311,867
Geographic information
See table below for our net sales and long-lived assets by location:
Year Ended December 31,
(Dollars in thousands)
U.S.
Mexico
Germany
Poland
NOTE 6 - ACCOUNTS RECEIVABLE
Year Ended December 31,
(Dollars in thousands)
Trade receivables
Other receivables
Allowance for doubtful accounts
Accounts receivable, net
Net Sales
Property, Plant and Equipment,
net
2020
2019
2020
2019
$
$
27,919
522,160
212,689
337,992
1,100,760
$
$
104,476
599,844
245,805
422,362
1,372,487
$
$
7,324
212,821
82,162
219,817
522,124
$
$
14,146
223,226
74,030
217,880
529,282
2020
2019
$
$
41,647 $
8,211
49,858
(863)
48,995 $
71,150
8,503
79,653
(2,867)
76,786
The accounts receivable from GM, VW Group and Ford represented approximately 11 percent, 5 percent and 3 percent of the total
accounts receivable, respectively, at December 31, 2020 and 32 percent, 9 percent and 8 percent of the total accounts receivable,
respectively, at December 31, 2019.
48
The related percentage of our total sales to each of these three customers is shown below:
GM
VW Group
Ford
NOTE 7 - INVENTORIES
2020
Percent of
Sales
2019
Percent of
Sales
24%
16%
11%
22%
13%
15%
Year Ended December 31,
(Dollars in thousands)
Raw materials
Work in process
Finished goods
Inventories, net
2020
2019
$
$
46,712 $
45,394
62,874
154,980 $
44,245
40,344
83,881
168,470
Service wheel and supplies inventory included in other non-current assets in the consolidated balance sheets totaled $12.1 million and
$10.6 million at December 31, 2020 and 2019, respectively.
NOTE 8 - PROPERTY, PLANT AND EQUIPMENT
Year Ended December 31,
(Dollars in thousands)
Land and buildings
Machinery and equipment
Leasehold improvements and others
Construction in progress
Accumulated depreciation
Property, plant and equipment, net
2020
2019
$
$
149,295
899,764
14,912
46,718
1,110,689
(588,565)
522,124
$
$
158,907
856,961
12,173
30,179
1,058,220
(528,938)
529,282
Depreciation expense was $72.8 million and $75.8 million for the years ended December 31, 2020 and 2019, respectively.
Depreciation expense for the year ended December 31, 2019 included accelerated depreciation of $7.6 million related to excess
equipment arising from the plan to reduce production at our Fayetteville, Arkansas manufacturing facility (refer to Note 21,
“Restructuring”).
NOTE 9 - 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 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
49
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 loss from operations.
We utilized both an income and a market approach, weighted 75 percent and 25 percent, respectively, to determine the fair value of
the European reporting unit as part of our goodwill impairment assessment. The income approach is based on projected debt-free cash
flow, which is discounted to the present value using discount factors that consider the timing and risk of cash flows. The discount rate
used is the weighted average of an estimated cost of equity and of debt (“weighted average cost of capital”). The weighted average
cost of capital is adjusted as necessary to reflect risk associated with the business of the European reporting unit. Financial projections
are based on estimated production volumes, product prices and expenses, including raw material cost, wages, energy and other
expenses. Other significant assumptions include terminal value cash flow and growth rates, future capital expenditures and changes in
future working capital requirements. The market approach is based on the observed ratios of enterprise value to earnings before
interest, taxes, depreciation and amortization (EBITDA) of comparable, publicly traded companies. The market approach fair value is
determined by multiplying historical and anticipated financial metrics of the European reporting unit by the EBITDA pricing multiples
derived from comparable, publicly traded companies.
At March 31, 2020, we determined that the carrying value of the European reporting unit exceeded its fair value by an amount greater
than the remaining goodwill balance. The decline in fair value was primarily due to significantly lower market multiples and increased
discount rates, as well as further declines in forecasted industry production volumes in Western and Central Europe as a result of the
COVID-19 pandemic and consequent economic instability. Forecasted revenues, EBITDA and cash flow for the European reporting
unit also declined as compared to the prior year long-range plan due to lower forecasted industry production volumes which adversely
impacted fair value under both the income and market approaches. Significant assumptions used under the income approach included
a weighted average cost of capital (WACC) of 12.0 percent and a long-term growth rate of 1.5 percent, as compared to 10.0 percent
and 2.0 percent, respectively, used in the 2019 assessment. In determining the WACC, management considered the level of risk
inherent in the cash flow projections and current market conditions, including the significant increase in credit spreads and systemic
market and Company specific risk premiums. The decline in the fair value under the market approach is attributable to the decline in
the average EBITDA market multiple (4.9X EBITDA in 2020, 5.7X EBITDA in 2019) and lower forecasted EBITDA, as compared to
the 2019 assessment. The use of these unobservable inputs results in classification of the fair value estimate as a Level 3 measurement
in the fair value hierarchy. A considerable amount of management judgment and assumptions are required in performing the
quantitative impairment test, principally related to determining the fair value of the reporting unit. While the Company believes its
judgments and assumptions are reasonable, different assumptions could change the estimated fair value.
The Company’s finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives. Following is a
summary of the Company’s finite-lived and indefinite-lived intangible assets and goodwill as of December 31, 2020 and 2019.
Year Ended December 31, 2020
(Dollars in thousands)
Brand name
Technology
Customer relationships
Total finite
Trade names
Total intangibles
Gross
Carrying
Amount
Impairment
Accumulated
Amortization
Currency
Translation
Net Carrying
Amount
Remaining
Weighted
Average
Amortization
Period
$
9,000
15,000
167,000
191,000
14,000
$ 205,000
$
$
— $
—
—
—
(13,772)
(13,772) $
(6,615) $
(11,024)
(74,322)
(91,961)
—
(91,961) $
399
666
10,692
11,757
(228)
11,529
$
2,784
4,642
103,370
110,796
2-3
1-3
3-8
— Indefinite
$ 110,796
Year Ended December 31, 2020
Beginning Balance
Accumulated
Impairment
Net
Balance
Gross
Impairment
Currency
Translation
Gross
Ending Balance
Accumulated
Impairment
Net
Balance
(Dollars in thousands)
Goodwill
$284,337 $ (99,505) $184,832 $(182,602) $ (2,230) $282,107 $ (282,107) $ —
50
Year Ended December 31, 2019
(Dollars in thousands)
Brand name
Technology
Customer relationships
Total finite
Trade names
Total intangibles
Gross
Carrying
Amount
Impairment
Accumulated
Amortization
Currency
Translation
Net Carrying
Amount
$
9,000
15,000
167,000
191,000
14,000
$ 205,000
$
$
— $
—
—
—
(2,733)
(2,733) $
(4,778) $
(7,963)
(53,681)
(66,422)
—
(66,422) $
110
183
954
1,247
(14)
1,233
$
4,332
7,220
114,273
125,825
11,253
$ 137,078
Remaining
Weighted
Average
Amortization
Period
3-4
2-4
4-9
Indefinite
Year Ended December 31, 2019
Beginning Balance
Accumulated
Impairment
Net
Balance
Gross
Impairment
Currency
Translation
Gross
Ending Balance
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 $25.4 million and $25.0 million for the years ended December 31, 2020 and
2019, respectively. The anticipated annual amortization expense for these intangible assets is $27.4 million for 2021, $24.3 million for
2022, $22.1 million for 2023 and 2024 and $10.9 million for 2025.
NOTE 10 - DEBT
A summary of long-term debt and the related weighted average interest rates is shown below:
Debt Instrument
Term Loan Facility
6.00% Senior Notes
European CapEx Loans
Finance Leases
Less: Current portion
Long-term debt
Debt Instrument
Term Loan Facility
6.00% Senior Notes
European CapEx Loan
Finance Leases
Less: Current portion
Long-term debt
(1) Unamortized portion
Total
Debt
349,200
266,928
23,668
3,388
643,184
Total
Debt
371,800
243,074
12,693
3,068
630,635
$
$
$
$
December 31, 2020
(Dollars in Thousands)
Debt
Issuance
Costs (1)
(7,155) $
(4,425)
—
—
(11,580)
$
Total
Debt, Net
342,045
262,503
23,668
3,388
631,604
(6,112)
625,492
December 31, 2019
(Dollars in Thousands)
Debt
Issuance
Costs (1)
(10,192) $
(5,408)
—
—
(15,600)
$
Total
Debt, Net
361,608
237,666
12,693
3,068
615,035
(4,010)
611,025
$
$
$
$
Weighted
Average
Interest
Rate
4.1%
6.0%
2.3%
3.0%
Weighted
Average
Interest
Rate
5.7%
6.0%
2.2%
2.9%
51
Senior Notes
On June 15, 2017, Superior issued €250.0 million original principal amount of 6.00% Senior Notes due June 15, 2025 (the “Notes”).
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 percent and 101.500 percent of the principal amount thereof if the
redemption occurs during the 12-month period beginning June 15, 2020 or 2021, respectively, and a redemption price of 100 percent
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 year ended December 31, 2019 the Company opportunistically purchased Notes on the open market with face value of
$36.8 million (€33.0 million) for $32.3 million. The associated carrying value of the Notes, net of allocable debt issuance costs, was
$35.9 million, resulting in a net gain of $3.7 million, which was included in other (expense) income, net.
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 Superior and the Subsidiary Guarantors to: (i) incur additional indebtedness or issue certain preferred stock; (ii) pay
dividends on, or make distributions in respect of, their capital stock; (iii) make certain investments or other restricted payments;
(iv) sell certain assets or issue capital stock of restricted subsidiaries; (v) create liens; (vi) merge, consolidate, transfer or dispose of
substantially all of their assets; and (vii) engage in certain transactions with affiliates. These covenants are subject to several important
limitations and exceptions that are described in the indenture.
The indenture provides for customary events of default that include, among other things (subject in certain cases to customary grace
and cure periods): (i) nonpayment of principal, premium, if any, and interest, when due; (ii) failure for 60 days to comply with any
obligations, covenants or agreements in the indenture after receipt of written notice from the Bank of New York Mellon, London
Branch (“the Trustee”) or holders of at least 30 percent in principal amount of the then outstanding Notes of such failure (other than
defaults referred to in the foregoing clause (i)); (iii) default under any mortgage, indenture or instrument for money borrowed by the
Company or certain of its subsidiaries; (iv) a failure to pay certain judgments; and (v) certain events of bankruptcy and insolvency. If
an event of default occurs and is continuing, the Trustee or holders of at least 30 percent in principal amount of the then outstanding
Notes may declare the principal, premium, if any, and accrued and unpaid interest on all the Notes to be due and payable. These
events of default are subject to several important qualifications, limitations and exceptions that are described in the indenture. At
December 31, 2020, the Company was in compliance with all covenants under the indenture governing the Notes.
Senior Secured Credit Facilities
On March 22, 2017, Superior entered into a senior secured credit agreement (the “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 (the “Term Loan Facility”), which matures on
May 23, 2024, and a $160.0 million revolving credit facility (the “Revolving Credit Facility”) maturing on May 23, 2022, 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.
52
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 3.50 percent, base rate applicable rates
between 2.50 percent and 2.00 percent, currently 2.50 percent, and commitment fees between 0.50 percent and 0.25 percent, currently
0.50 percent. Commitment fees are included in interest expense, net.
As of December 31, 2020, the Company had repaid $50.8 million under the Term Loan Facility resulting in a balance of
$349.2 million. As of December 31, 2020, the Company had no outstanding borrowings under the Revolving Credit Facility, had
outstanding letters of credit of $4.8 million and had available unused commitments under the Revolving Credit Facility of
$155.2 million.
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 Superior’s assets and the Subsidiary Guarantors’ assets, including but not limited to: (i) a perfected pledge of all of
the capital stock issued by each of the Subsidiary Guarantors’ (subject to certain exceptions) and up to 65 percent of the capital stock
issued by each direct wholly-owned foreign restricted subsidiary of the Company 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 Subsidiary Guarantors (subject to certain exceptions and exclusions).
Covenants
The Credit Agreement contains a number of restrictive covenants that, among other things, restrict, subject to certain exceptions, our
ability to incur additional indebtedness and guarantee indebtedness, create or incur liens, engage in mergers or consolidations, sell,
transfer or otherwise dispose of assets, make investments, acquisitions, loans or advances, pay dividends, distributions or other
restricted payments, or repurchase our capital stock, 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, 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 percent 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 USD
SSCF during an event of default. At December 31, 2020, the Company was in compliance with all covenants under the Credit
Agreement.
European Debt
In connection with the acquisition of UNIWHEELS, AG in 2017, the Company assumed $70.7 million of outstanding debt, including
a €30.0 million European Revolving Credit Facility (“EUR SSCF”). At December 31, 2020, a $10.7 million equipment loan remains
outstanding which matures March 31, 2024, is collateralized by the financed equipment and guaranteed by Superior, and bears interest
at a rate of 2.2 percent. Covenants under the loan agreement include a default provision for non-payment, as well as a material adverse
change default provision pursuant to which the lender could accelerate the loan maturity. At December 31, 2020, the Company was in
compliance with all covenants under the loan agreement.
53
During the second quarter of 2019, the Company amended its 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 December 31, 2020, the
Company had no borrowings outstanding, outstanding letters of credit of $0.5 million (€0.4 million) and available unused
commitments under this facility of $73.3 million (€59.6 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 fees are both included in interest expense, net. 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 Superior Europe AG’s capital stock, prepay, redeem, or repurchase any subordinated indebtedness, and
enter into agreements which limit Superior Europe AG’s ability to incur liens on our assets. In addition, the EUR SSCF includes an
annual pay down provision requiring outstanding balances to be repaid but not reborrowed for a period of three business days and a
material adverse change default provision pursuant to which the lender could accelerate the loan maturity. At December 31, 2020,
Superior Europe AG was in compliance with all covenants under the EUR SSCF.
During the fourth quarter of 2019, the Company entered into equipment loan agreements totaling $13.4 million (€12.0 million) which
bear interest at 2.3 percent and mature on September 30, 2027. Interest and principal repayments are due quarterly. 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 of 2020, the Company had drawn down on the equipment loans and the
balance outstanding at December 31, 2020 was $13.0 million (€10.6 million). Quarterly installment payments of $0.6 million (€0.5
million) under the loan agreements will begin in June 2021. At December 31, 2020, the Company was in compliance with all
covenants under the loans.
Debt maturities due in the next five years and thereafter are as follows:
Year Ended December 31,
(Dollars in thousands)
Debt Maturities
2021
2022
2023
2024
2025
Thereafter
Total debt liabilities
Amount
6,112
6,575
6,083
352,422
269,326
2,666
643,184
$
$
NOTE 11 - REDEEMABLE PREFERRED STOCK
During 2017, we issued 150,000 shares of Series A (140,202 shares) and Series B (9,798 shares) Perpetual Convertible Preferred
Stock, par value $0.01 per share for $150.0 million. On August 30, 2017, the Series B shares were converted into Series A redeemable
preferred stock, the “redeemable preferred stock” after approval by our shareholders. The redeemable preferred stock has an initial
stated value of $1,000 per share, par value of $0.01 per share and liquidation preference over common stock.
The redeemable preferred stock is convertible into shares of our common stock equal to the number of shares determined by dividing
the sum of the stated value and any accrued and unpaid dividends by the conversion price of $28.162. The redeemable preferred stock
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.
54
We may mandate conversion of the redeemable preferred stock if the price of the common stock exceeds $84.49. The holder may
redeem the shares upon the occurrence of any of the following events (referred to as a “redemption event”): a change in control,
recapitalization, merger, sale of substantially all of the Company’s assets, liquidation or delisting of the Company’s common stock. In
addition, the holder has the right, at its option, to unconditionally redeem the shares at any time after September 14, 2025 (the
“redemption date”, which was originally May 23, 2024, but was corrected to September 14, 2025 in 2018 through modification of the
Certificate of Designations governing the terms and conditions of the preferred stock). We may, at our option, redeem in whole at any
time all of the shares of redeemable preferred stock outstanding. At redemption by either party, the redemption value will be the
greater of two times the initial face value ($150.0 million) and any accrued unpaid dividends or dividends paid-in-kind, currently
$300.0 million, or the product of the number of common shares into which the redeemable preferred stock could be converted
(5.3 million shares currently) and the then current market price of the common stock. We have determined that the conversion option
and the redemption option exercisable upon the occurrence of a “redemption event” which are embedded in the redeemable preferred
stock must be accounted for separately from the redeemable preferred stock as a derivative liability. Since the redeemable preferred
stock may be redeemed at the option of the holder, but is not mandatorily redeemable, the redeemable preferred stock was classified as
mezzanine equity and initially recognized at fair value of $150.0 million (the proceeds on the date of issuance), less issuance costs of
$3.7 million and $10.9 million assigned to the embedded derivative liability at date of issuance, resulting in an adjusted initial value of
$135.5 million.
The difference between the redemption value of the redeemable preferred stock and the carrying value (the “premium”) is being
accreted over the period from the date of issuance through September 14, 2025 using the effective interest method. The accretion is
treated as a deemed dividend, recorded as a charge to retained earnings and deducted in computing earnings per share (analogous to
the treatment for stated and participating dividends paid on the redeemable preferred shares). The cumulative premium accretion as of
December 31, 2020 and 2019 was $43.9 million and $25.5 million, respectively, resulting in adjusted redeemable preferred stock
balances of $179.4 million and $161.0 million, respectively.
NOTE 12 - EUROPEAN NON-CONTROLLING REDEEMABLE EQUITY
On May 30, 2017, the Company acquired 92.3 percent of the outstanding shares of UNIWHEELS, AG. Subsequently, the Company
commenced a delisting and associated tender offer for the remaining shares. On January 17, 2018, the Company entered into a
Domination and Profit and Loss Transfer agreement (“DPLTA”) retroactively effective as of January 1, 2018 pursuant to which we
offered to purchase the remaining outstanding shares at €62.18 per share. This price may be subject to change based on appraisal
proceedings initiated by the minority shareholders which have not yet been concluded. The Company must also pay an annual
dividend of €3.23 as long as the DPLTA is in effect. For any shares tendered prior to the annual dividend payment, we must pay
interest at a statutory rate, currently 4.12 percent, in place of the dividend. As a result of purchases pursuant to the tender offer and the
DPLTA, the Company has increased its ownership to 99.9 percent as of December 31, 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 for the two year period ended December 31, 2020:
(Dollars in thousands)
Balance at December 31, 2018
Dividends accrued
Dividends paid
Translation adjustment
Purchase of shares
Balance at December 31, 2019
Dividends accrued
Dividends paid
Translation adjustment
Purchase of shares
Balance at December 31, 2020
$
$
13,849
566
(848)
(361)
(6,681)
6,525
205
(46)
2
(5,020)
1,666
55
NOTE 13 - EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income (loss), after deducting redeemable preferred stock 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 11, “Redeemable Preferred Stock” have not been included in the calculation of diluted earnings per
share because inclusion of such shares on an as converted basis would be anti-dilutive.
Year Ended December 31,
(Dollars in thousands, except per share amounts)
Basic Earnings Per Share:
Net loss
Less: Redeemable preferred stock dividends and accretion
Less: European non-controlling redeemable equity dividend
Basic numerator
Basic loss per share
Weighted average shares outstanding – Basic
Diluted Earnings Per Share:
Net loss
Less: Redeemable preferred stock dividends and accretion
Less: European non-controlling redeemable equity dividend
Diluted numerator
Diluted loss per share
Weighted average shares outstanding – Basic
Dilutive effect of common share equivalents
Weighted average shares outstanding – Diluted
$
$
$
$
$
$
2020
2019
(243,561) $
(31,994)
(205)
(275,760) $
(10.81) $
25,498
(243,561) $
(31,994)
(205)
(275,760) $
(10.81) $
25,498
—
25,498
(96,460)
(30,977)
(566)
(128,003)
(5.10)
25,099
(96,460)
(30,977)
(566)
(128,003)
(5.10)
25,099
—
25,099
NOTE 14 - INCOME TAXES
Income/(loss) before income taxes from domestic and international jurisdictions is comprised of the following:
Year Ended December 31,
(Dollars in thousands)
Income (loss) before income taxes:
Domestic
Foreign
The benefit/(provision) for income taxes is comprised of the following:
Year Ended December 31,
(Dollars in thousands)
Current taxes
Federal
State
Foreign
Total current taxes
Deferred taxes
Federal
State
Foreign
Total deferred taxes
Income tax benefit (provision)
2020
2019
(74,151) $
(154,529)
(228,680) $
(60,170)
(32,867)
(93,037)
2020
2019
$
1,970
(29)
(9,333)
(7,392)
(4,756)
(3,622)
889
(7,489)
(14,881) $
3,834
(146)
(10,615)
(6,927)
(3,174)
1,014
5,664
3,504
(3,423)
$
$
$
$
56
The following is a reconciliation of the U.S. federal tax rate to our effective income tax rate:
Year Ended December 31,
Statutory rate
State tax provisions, net of federal income tax benefit
Tax credits
Foreign income taxes at rates other than the statutory rate
Valuation allowance
Changes in tax liabilities, net
Share based compensation
Unremitted non-U.S. Earnings
US Tax on non-US income
Non taxable income
Impairment of Goodwill
Other
Effective income tax rate
2020
2019
21.0%
0.6
(0.1)
10.9
(10.4)
(0.2)
(0.2)
(1.7)
0.8
—
(25.3)
(1.9)
(6.5)%
21.0%
2.7
6.6
17.7
(6.9)
(0.3)
(1.8)
—
(6.7)
2.4
(34.0)
(4.4)
(3.7)%
Tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities are as
follows:
Year Ended December 31,
(Dollars in thousands)
Deferred income tax assets:
Accrued liabilities
Hedging and foreign currency gains (losses)
Deferred compensation
Inventory reserves
Net loss carryforwards and credits
Interest carryforwards
Competent authority deferred tax assets and
other foreign timing differences
Other
Total before valuation allowance
Valuation allowance
Net deferred income tax assets
Deferred income tax liabilities:
Intangibles, property, plant and equipment and other
Unremitted earnings
Deferred income tax liabilities
Net deferred income tax assets
The classification of our net deferred tax asset is shown below:
Year Ended December 31,
(Dollars in thousands)
Long-term deferred income tax assets
Long-term deferred income tax liabilities
Net deferred tax asset
2020
2019
3,688 $
3,323
8,473
5,114
48,924
14,972
4,465
1,714
90,673
(46,490)
44,183
(17,959)
(4,468)
(22,427)
21,756 $
4,695
2,386
8,018
4,609
38,342
19,632
3,954
782
82,418
(22,879)
59,539
(33,301)
—
(33,301)
26,238
2020
2019
30,860 $
(9,104)
21,756 $
38,607
(12,369)
26,238
$
$
$
$
The increase in the valuation allowance of $23.6 million to reduce the U.S. federal and state deferred tax assets is due to the
assessment that the Company is not more likely than not to realize these deferred tax assets.
57
As of December 31, 2020, we have cumulative tax effected U.S. federal and Germany NOL carryforwards of $22.3 million that
carryforward indefinitely and U.S. state NOL carryforwards of $11.5 million that expire in the years 2021 to 2041. Also, we have
$17.7 million of tax credit carryforwards, primarily in Poland, which expire in the years 2021 to 2027.
The transition tax substantially eliminated the basis difference on foreign subsidiaries that existed previously for purposes of
Accounting Standards Codification topic 740 (“ASC 740”). However, there are limited other taxes that could continue to apply such
as foreign withholding and certain state taxes. Provisions are made for income tax liabilities on the undistributed earnings of non-U.S.
subsidiaries.
We account for our uncertain tax positions in accordance with U.S. GAAP. A reconciliation of the beginning and ending amounts of
these tax benefits is as follows:
Year Ended December 31,
(Dollars in thousands)
Beginning balance
Increases (decreases) due to foreign currency translations
Increases (decreases) as a result of positions
taken during:
Prior periods
Current period
Expiration of applicable statutes of limitation
Ending balance (1)
2020
2019
30,368
2,265
$
31,036
(632)
(1,147)
372
—
31,858
$
(36)
—
—
30,368
$
$
$
Our policy regarding interest and penalties related to uncertain tax positions is to record interest and penalties as an element of
income tax expense. At the end of 2020 and 2019, the Company had liabilities of $4.7 million and $3.9 million of potential interest
and penalties associated with uncertain tax positions. Included in the unrecognized tax benefits is $4.5 million that, if recognized,
would favorably affect our annual effective tax rate. Within the next twelve-month period we expect no decrease in unrecognized tax
benefits.
Income tax returns are filed in multiple jurisdictions and are subject to examination by tax authorities in various jurisdictions where
the Company operates. The Company has open tax years from 2014 to 2019 with various significant tax jurisdictions, including
ongoing tax audits in the U.S. for 2015 to 2018 and Germany for 2017 and 2018.
NOTE 15 - LEASES
The Company determines whether an arrangement is or contains a lease at the inception of the arrangement. Operating leases are
accounted for in other non-current assets, accrued expenses and other non-current liabilities in our 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
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 nine years. Certain leases include options to extend the lease term for up to ten years, as well as
options to terminate both of which have been excluded from the term of the lease since exercise of these options is not reasonably
certain.
58
Lease expense, cash flow, operating and finance lease assets and liabilities, average lease term and average discount rate are as
follows:
$
$
$
$
$
$
$
$
$
$
2020
2019
$
$
$
1,219
85
3,388
4,692
85
3,621
960
879
657
1,691
83
3,509
5,283
83
3,463
1,230
2,573
18,961
2020
2019
13,598
(2,868)
(11,513)
(14,381)
5,735
(3,319)
2,416
(1,113)
(2,275)
(3,388)
$
$
$
$
$
$
$
3.9
6.1
3.0%
3.8%
15,201
(2,949)
(13,282)
(16,231)
4,821
(2,118)
2,703
(1,023)
(2,045)
(3,068)
4.1
6.4
2.9%
3.9%
Year Ended December 31,
(Dollars in thousands)
Lease Expense
Finance lease expense:
Amortization of right-of-use assets
Interest on lease liabilities
Operating lease expense
Total lease expense
Cash Flow Components
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from finance leases
Operating cash outflows from operating leases
Financing cash outflows from finance leases
Right-of-use assets obtained in exchange for finance lease liabilities,
net of terminations and disposals
Right-of-use assets obtained in exchange for operating lease liabilities,
net of terminations and disposals
Year Ended December 31,
(Dollars in thousands, except lease term and discount rate)
Balance Sheet Information
Operating leases:
Other non-current assets
Accrued liabilities
Other non-current liabilities
Total operating lease liabilities
Finance leases:
Property, plant and equipment gross
Accumulated depreciation
Property, plant and equipment, net
Current portion of long-term debt
Long-term debt (less current portion)
Total finance lease liabilities
Lease Term and Discount Rates
Weighted-average remaining lease term - finance leases (years)
Weighted-average remaining lease term - operating leases (years)
Weighted-average discount rate - finance leases
Weighted-average discount rate - operating leases
59
Summarized future minimum payments under our leases are as follows:
Year Ended December 31,
(Dollars in thousands)
Lease Maturities
2021
2022
2023
2024
2025
Thereafter
Total
Less: Imputed interest
Total lease liabilities, net of interest
NOTE 16 - RETIREMENT PLANS
Amount
Finance Leases
1,186
1,080
568
160
152
425
3,571
(183)
3,388
$
$
Operating Leases
2,879
$
2,870
2,499
2,279
2,229
3,163
15,919
(1,538)
14,381
$
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.
The following table summarizes the changes in plan assets and plan benefit obligations.
Year Ended December 31,
(Dollars in thousands)
Change in benefit obligation
Beginning benefit obligation
Interest cost
Actuarial loss
Benefit payments
Ending benefit obligation
2020
2019
$
$
31,001
1,005
2,164
(1,530)
32,640
$
$
26,953
1,144
4,295
(1,391)
31,001
The actuarial losses in 2020 and 2019 were primarily due to the decrease in discount rate.
Year Ended December 31,
(Dollars in thousands)
Change in plan assets
Fair value of plan assets at beginning of year
Employer contribution
Benefit payments
Fair value of plan assets at end of year
Funded status
Amounts recognized in the consolidated
balance sheets consist of:
Accrued expenses
Other non-current liabilities
Net amount recognized
Amounts recognized in accumulated other
comprehensive loss consist of:
Net actuarial loss
Prior service cost
Net amount recognized, before tax effect
Weighted average assumptions used to
determine benefit obligations:
Discount rate
Rate of compensation increase
60
2020
2019
$
$
$
$
$
$
$
— $
1,475
(1,475)
— $
(32,640) $
—
1,391
(1,391)
—
(31,001)
(1,447) $
(31,193)
(32,640) $
(1,478)
(29,523)
(31,001)
10,760
(1)
10,759
$
$
8,940
(1)
8,939
2.6%
3.0%
3.3%
3.0%
Components of net periodic pension cost are described in the following table:
Year Ended December 31,
(Dollars in thousands)
Components of net periodic pension cost:
Interest cost
Amortization of actuarial loss
Net periodic pension cost
Weighted average assumptions used to determine net
periodic pension cost:
Discount rate
Rate of compensation increase
2020
2019
$
$
1,005
288
1,293
$
$
1,144
209
1,353
3.3%
3.0%
4.4%
3.0%
Benefit payments during the next ten years, which reflect applicable future service, are as follows:
Year Ended December 31,
(Dollars in thousands)
2021
2022
2023
2024
2025
Years 2026 to 2030
The following is an estimate of the components of net periodic pension cost in 2021:
Estimated Year Ended December 31,
(Dollars in thousands)
Interest cost
Amortization of actuarial loss
Estimated 2021 net periodic pension cost
Amount
1,465
1,510
1,492
1,533
1,739
8,815
2021
823
387
1,210
$
$
$
Other Retirement Plans
We also contribute to employee retirement savings plans in the U.S. and Mexico that cover substantially all of our employees in those
countries. The employer contribution totaled $1.3 million and $1.5 million for the years ended December 31, 2020 and 2019,
respectively.
NOTE 17 - ACCRUED EXPENSES
Year Ended December 31,
(Dollars in thousands)
Payroll and related benefits
Taxes, other than income taxes
Current portion of derivative liability
Deferred tooling revenue
Short-term operating lease liability
Dividends and interest
Current portion of executive retirement liabilities
Professional fees
Other
Accrued liabilities
2020
2019
26,930 $
14,502
8,350
8,249
2,868
1,453
1,447
1,102
6,178
71,079 $
25,048
12,096
4,357
5,880
2,949
1,247
1,478
2,216
5,574
60,845
$
$
61
NOTE 18 - STOCK-BASED COMPENSATION
Equity Incentive Plan
Our 2018 Equity Incentive Plan (the “Plan”) was approved by stockholders in May 2018 and amended and restated the 2008 Equity
Incentive Plan. 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 December 31, 2020, there were 0.2 million 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 stock 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 time period, and performance restricted stock units (“PSUs”), with a 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 Award
On May 16, 2019 the Company granted the following equity awards to Majdi B. Abulaban, our President and Chief Executive Officer,
in connection with his entering into employment with the Company and 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 percent of target depending on the
level of achievement of the performance metrics.
Restricted stock unit and restricted performance stock unit activity for the year ended December 31, 2020 is summarized in the
following table:
Balance at December 31, 2019
Granted
Settled
Forfeited or expired
Balance at December 31, 2020
Weighted
Average
Grant Date
Fair Value
5.39
$
2.64
6.14
4.27
3.59
$
Restricted
Stock Units
1,047,256
763,674
(401,723)
(195,540)
1,213,667
Equity Incentive Awards
Weighted
Average
Grant Date
Fair Value
7.17
$
2.95
5.05
7.44
4.88
Performance
Shares
1,548,793
1,207,351
(245,713)
(334,141)
2,176,290
$
Options
50,250
—
—
(26,250)
24,000
Vested or expected to vest at December 31, 2020
1,118,978
$
3.59
430,624
$
6.99
24,000
Weighted
Average
Exercise
Price
$
$
$
18.86
—
—
17.46
20.39
20.39
Stock-based compensation expense was $2.4 million and $5.7 million for the years ended December 31, 2020 and 2019, respectively.
Unrecognized stock-based compensation expense related to non-vested awards of $3.3 million is expected to be recognized over a
weighted average period of approximately 1.5 years.
NOTE 19 - 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 (LME), and regional premiums for processing, transportation and alloy
components which are generally 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.
62
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 20 - 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.
These 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 years ended December 31,
2020 and 2019, the Company sold trade receivables totaling $522.5 million and $334.1 million, respectively, and incurred factoring
fees of $1.4 million and $1.0 million, respectively, which are included in other (expense) income, net. Receivables factored under
these arrangements as of December 31, 2020 and 2019 were $96.6 million and $49.6 million, respectively. The collective limit under
our factoring arrangements was $132.0 million as of December 31, 2020. This limit has decreased to $122.0 million as of January 1,
2021 as $10.0 million of the increase in the factoring limit for North America was temporary. The collective limit under our factoring
arrangements was $117.3 million as of December 31, 2019.
NOTE 21- RESTRUCTURING
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 selling, general and administrative expense related to non-production employee severance costs. During the six-month
period ended December 31, 2020, we recognized an additional $0.7 million of severance costs, including charges to cost of sales of
$0.4 million and selling, general and administrative expenses of $0.3 million. As of December 31, 2020, $1.1 million of the
restructuring severance accrual remains.
During the third quarter of 2019, the Company initiated a plan to significantly reduce production and manufacturing operations at its
Fayetteville, Arkansas location. As a result, the Company recognized a non-cash charge of $13.0 million in cost of sales, 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 2020, we recognized additional relocation costs for redeployment of machinery and
equipment of $2.9 million and additional other costs of $0.4 million, both as charges to cost of sales. As of December 31, 2020, $0.3
million of the restructuring severance accrual remains.
63
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls
The Company’s management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act) as of December 31, 2020. Our disclosure controls and procedures are designed to ensure that information required to be disclosed
in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in SEC rules and forms and that such information is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2020 our
disclosure controls and procedures were effective.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Rule
13a-15(f) under the Exchange Act, internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets
that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changing conditions, or that the degree of compliance with policies or procedures may deteriorate.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or
detected on a timely basis.
Management performed an assessment of the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2020 based upon criteria established in the 2013 Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment, management determined that our internal
control over financial reporting was effective as of December 31, 2020 based on the criteria in the 2013 Internal Control - Integrated
Framework issued by COSO.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2020 has been audited by Deloitte
and Touche LLP, an independent registered public accounting firm, as stated in their report, which is included in this Annual Report.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the most recent fiscal quarter ended December 31,
2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B - OTHER INFORMATION
None.
64
PART III
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Except as set forth herein, the information required by this Item is incorporated herein by reference to our 2021 Proxy Statement.
Executive Officers - The names of corporate executive officers as of fiscal year end who are not also Directors are listed at the end of
Part I of this Annual Report. Information regarding executive officers who are Directors is contained in our 2021 Proxy Statement
under the caption “Proposal No. 1 - Election of Directors.” Such information is incorporated herein by reference. All executive
officers are appointed annually by the Board of Directors and serve at the will of the Board of Directors. For a description of the Chief
Executive Officer’s employment agreement, see “Executive Compensation and Related Information - Narrative Disclosure Regarding
Compensation” in our 2021 Proxy Statement, which is incorporated herein by reference.
Code of Ethics - Included on our website, www.supind.com, under “Investor Relations,” is our Code of Conduct, which, among
others, applies to our CEO, Chief Financial Officer and Chief Accounting Officer. Copies of our Code of Conduct are available,
without charge, from Superior Industries International, Inc., Shareholder Relations, 26600 Telegraph Road, Suite 400, Southfield,
Michigan 48033.
ITEM 11 - EXECUTIVE COMPENSATION
Information relating to Executive Compensation is set forth under the captions “Compensation of Directors” and “Executive
Compensation and Related Information - Narrative Disclosure Regarding Compensation” in our 2021 Proxy Statement, which is
incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information related to Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters is set
forth under the caption “Voting Securities and Principal Ownership” in our 2021 Proxy Statement. Also see Note 18, “Stock-Based
Compensation” in the Notes to the Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary Data” of
this Annual Report.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information related to Certain Relationships and Related Transactions is set forth under the caption, “Certain Relationships and
Related Transactions,” in our 2021 Proxy Statement.
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information related to Principal Accountant Fees and Services is set forth under the caption “Proposal No. 5 - Ratification of
Independent Registered Public Accounting Firm - Principal Accountant Fees and Services” in our 2021 Proxy Statement and is
incorporated herein by reference.
65
ITEM 15 – EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
The following documents are filed as a part of this report:
PART IV
1.
2.
Financial Statements: See the “Index to the Consolidated Financial Statements and Financial Statement Schedule” in Item
8 of this Annual Report.
Financial Statement Schedule
Schedule II – Valuation and Qualifying Accounts for the Years Ended December 31, 2020 and 2019
3.
Exhibits
2.1
2.2
3.1
3.2
3.3
3.4
4.1
4.2
4.3
10.1
10.2
10.3
10.4
10.5
10.6
Undertaking Agreement, dated as of March 23, 2017, between Superior Industries International, Inc. and Uniwheels
Holding (Malta) Ltd. (Incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed
March 24, 2017).
Combination Agreement, dated March 23, 2017, between Superior Industries International, Inc. and UNIWHEELS, AG
(Incorporated by reference to Exhibit 2.2 of the Registrant’s Current Report on Form 8-K filed March 24, 2017).
Certificate of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on
Form 8-K filed May 21, 2015).
Amended and Restated By-Laws of the Registrant effective as of October 25, 2017 (Incorporated by reference to
Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed October 30, 2017).
Certificate of Designations, Preferences and Rights of Series A Perpetual Convertible Preferred Stock and Series B
Perpetual Preferred Stock of Superior Industries International, Inc. (Incorporated by reference to Exhibit 3.1 to the
Registrant’s Current Report on Form 8-K filed May 26, 2017).
Certificate of Correction, filed in the State of Delaware on November 7, 2018 (Incorporated by reference to Exhibit 3.1
to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018).
Form of Superior Industries International, Inc.’s Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to
the Registrant’s Current Report on Form 8-K filed May 21, 2015).
Indenture, dated as of June 15, 2017, among Superior Industries International, Inc., the subsidiaries of Superior identified
therein, The Bank of New York Mellon SA/NV, Luxembourg Branch, as registrar and transfer agent and The Bank of
New York Mellon acting through its London Branch, as trustee (Incorporated by reference to Exhibit 4.1 to the
Registrant’s Current Report on Form 8-K filed June 20, 2017).
Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
(Incorporated by reference to Exhibit 4.3 to Registrant’s Annual Report on Form 10-K for the year ended December 31,
2019).
Registrant’s Salary Continuation Plan Amended and Restated as of August 19, 2011 **
2008 Equity Incentive Plan of the Registrant (Incorporated by reference to Exhibit A to Registrant’s Definitive Proxy
Statement on Schedule 14A filed on April 28, 2008).*
2008 Equity Incentive Plan Notice of Stock Option Grant and Agreement (Incorporated by reference to Exhibit 10.2 to
Registrant’s Form S-8 filed November 10, 2008. Registration No. 333-155258).*
Form of Notice of Grant and Restricted Stock Agreement pursuant to Registrant’s 2008 Equity Incentive Plan
(Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed May 20, 2010).*
Superior Industries International, Inc. Executive Change in Control Severance Plan, as Amended and Restated as of
March 30, 2012 (Incorporated by reference to Exhibit 10.5 to Registrant’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2020).*
Amended and Restated 2008 Equity Incentive Plan of the Registrant (Incorporated by reference to Exhibit 10.1 to
Registrant’s Current Report on Form 8-K filed May 23, 2013).*
66
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
Form of Restricted Stock Unit Agreement under the Superior Industries International, Inc. Amended and Restated 2008
Equity Incentive Plan (Incorporated by reference to Exhibit 10.24 to Registrant’s Annual Report on Form 10-K for the
year ended December 31, 2015).*
Form of Performance Based Restricted Stock Unit Agreement under the Superior Industries International, Inc. Amended
and Restated 2008 Equity Incentive Plan (Incorporated by reference to Exhibit 10.25 to Registrant’s Annual Report on
Form 10-K for the year ended December 31, 2015).*
Form of Non-Employee Director Restricted Stock Unit Agreement under the Superior Industries International, Inc.
Amended and Restated 2008 Equity Incentive Plan (Incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly
Report on Form 10-Q for the quarter ended June 26, 2016).*
Superior Industries International, Inc. Annual Incentive Performance Plan (Incorporated by reference to Annex A to
Registrant’s Definitive Proxy Statement on Schedule 14-A filed on March 25, 2016).*
2018 Equity Incentive Plan of the Registrant (Incorporated by reference to the Registrant’s Quarterly Report on Form
10-Q for the quarter ended June 30, 2018).*
Form of Restricted Stock Unit Agreement under the Superior Industries International, Inc. 2018 Equity Incentive Plan
(Incorporated by reference to Exhibit 10.12 to the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2018).*
Form of Performance Based Restricted Stock Unit Agreement under the Superior Industries International, Inc. 2018
Equity Incentive Plan (Incorporated by reference to Exhibit 10.13 to the Registrant’s Annual Report on Form 10-K for
the year ended December 31, 2018).*
Superior Industries International, Inc. 2019 Inducement Grant Plan (Incorporated by reference to Exhibit 4.3 to the
Registrant’s Registration Statement on Form S-8 filed on August 8, 2019).*
Indemnification Agreement, dated March 23, 2017, between Superior Industries International, Inc. and Uniwheels
Holding (Malta) Ltd. (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed
March 24, 2017).
Investment Agreement, dated March 22, 2017, between Superior Industries International, Inc., and TPG Growth III
Sidewall, L.P. (Incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed
March 24, 2017).
Investor Rights Agreement, dated as of May 22, 2017, by and between Superior Industries International, Inc. and TPG
Growth III Sidewall, L.P. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
filed May 26, 2017).
Nomination Withdrawal Agreement, dated May 5, 2020, by and between Superior Industries International, Inc. and D.C.
Capital Partners, L.P. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed
May 7, 2020).
English Translation of the Domination and Profit Transfer Agreement between Superior Industries International
Germany AG and UNIWHEELS, AG, dated December 5, 2017 (Incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed December 11, 2017).
Credit Agreement, dated March 22, 2017, among Superior Industries International, Inc., Citibank, N.A., as
Administrative Agent, and the Lenders party thereto. (Incorporated by reference to Exhibit 10.3 of the Registrant’s
Current Report on Form 8-K filed March 24, 2017).***
First Amendment to Credit Agreement, dated May 23, 2017, among Superior Industries International, Inc., the
subsidiaries of Superior identified therein, Citibank, N.A., as Administrative Agent, and the Lenders party thereto.
(Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed June 20, 2017).
Second Amendment to Credit Agreement, dated May 31, 2017, among Superior Industries International, Inc., the
subsidiaries of Superior identified therein, Citibank, N.A., as Administrative Agent, and the Lenders party thereto.
(Incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed June 20, 2017).
Third Amendment to Credit Agreement, dated June 15, 2017, among Superior Industries International, Inc., the
subsidiaries of Superior identified therein, Citibank, N.A., as Administrative Agent, and the Lenders party thereto.
(Incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed June 20, 2017).
67
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
21
23
31.1
31.2
32.1
Fourth Amendment to Credit Agreement, dated June 29, 2018, among Superior Industries International, Inc., the
subsidiaries of Superior identified therein, Citibank, N.A., as Administrative Agent, and the Lenders party thereto.
(Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed June 29, 2018).
Executive Employment Agreement, dated March 28, 2019, between Superior Industries International, Inc. and Majdi B.
Abulaban, including forms of award agreements to be granted under the Inducement Plan (Incorporated by reference to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed April 1, 2019).*
Amendment Agreement, dated April 6, 2020, to Executive Employment Agreement, dated March 28, 2019, between
Superior Industries International, Inc. and Majdi B. Abulaban, including forms of award agreements to be granted under
the Inducement Plan (Incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2020).*
Retention Letter Agreement, dated August 25, 2020, between Superior Industries International, Inc. and Majdi B.
Abulaban (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed August 27,
2020).*, ****
Offer Letter of Employment, dated July 28, 2017 between Superior Industries International, Inc. and Joanne Finnorn
(Incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2017).*
Retention Award Letter, dated August 8, 2019, between Joanne Finnorn and Superior Industries International, Inc.
(Incorporated by reference to Exhibit 10.31 to Registrant’s Annual Report on Form 10-K for the year ended December
31, 2019).*
Offer Letter of Employment, dated September 17, 2019, between Superior Industries International, Inc. and Kevin Burke
(Incorporated by reference to Exhibit 10.34 to Registrant’s Annual Report on Form 10-K for the year ended December
31, 2019).*
Retention Letter Agreement, dated August 25, 2020, between Superior Industries International, Inc. and Kevin Burke
(Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed August 27, 2020).*
Management Board Member Service Contract, dated September 26, 2019, between Superior Industries Europe AG and
Andreas Meyer (Incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2019).*
Amendment Agreement, dated October 30, 2019, to the Management Board Member Service Contract, dated September
26, 2019, between Superior Industries Europe AG and Andreas Meyer (Incorporated by reference to Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019).*
Retention Letter Agreement, dated September 10, 2020, between Superior Industries International, Inc. and Andreas
Meyer*,**
Retention Award Letter, dated December 13, 2019, between Parveen Kakar and Superior Industries International, Inc.
(Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed December 16, 2019).*
Offer Letter of Employment, dated August 17, 2020 between Superior Industries International, Inc. and Timothy Trenary
(Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed August 27, 2020).*
Offer Letter of Employment, dated December 15, 2020 between Superior Industries International, Inc. and Michael
Dorah (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed December 18,
2020).*
List of Subsidiaries of the Company.**
Consent of Deloitte and Touche LLP, our Independent Registered Public Accounting Firm.**
Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302(a) of the
Sarbanes-Oxley Act of 2002.**
Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302(a) of the
Sarbanes-Oxley Act of 2002.**
Certification of Majdi B. Abulaban, President and Chief Executive Officer, and C. Timothy Trenary, Executive Vice
President and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (furnished herewith).
101.INS
XBRL Instance Document.*****
68
101.SCH
XBRL Taxonomy Extension Schema Document.*****
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.*****
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.*****
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.*****
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.*****
* Indicates management contract or compensatory plan or arrangement.
** Filed herewith.
*** Certain schedules and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy
of any omitted schedule or exhibit will be furnished supplementally to the Securities and Exchange Commission upon request.
**** Certain portions of this exhibit have been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K. The omitted information
is (i) not material and (ii) would likely cause competitive harm to the Company if publicly disclosed. The Company agrees to
furnish supplementally an unredacted copy of the exhibit to the Securities and Exchange Commission upon its request.
***** Submitted electronically with the report.
69
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
ANNUAL REPORT ON FORM 10-K
Schedule II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(Dollars in thousands)
Balance at
Beginning of
Year
Charge to
Costs and
Expenses
Additions
Other
Deductions
From
Reserves
Balance at
End of Year
2020
Allowance for doubtful accounts receivable
Valuation allowances for deferred tax assets
2019
Allowance for doubtful accounts receivable
Valuation allowances for deferred tax assets
$
$
$
$
2,867
22,879
4,298
16,576
$
$
$
$
253
22,146
919
6,822
$
$
$
$
— $
$
1,465
(2,257) $
— $
863
46,490
56
$
— $
(2,406) $
(519) $
2,867
22,879
70
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
ANNUAL REPORT ON FORM 10-K
ITEM 16- FORM 10-K SUMMARY
None.
71
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
ANNUAL REPORT ON FORM 10-K
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
(Registrant)
By /s/ Majdi B. Abulaban
Majdi B. Abulaban
President and Chief Executive Officer
March 5, 2021
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Majdi B.
Abulaban and C. Timothy Trenary as his or her true and lawful attorneys-in-fact (with full power to each of them to act alone), with
full power of substitution and re-substitution, for him or her and in his or her name, place and stead, in any and all capacities to sign
any and all amendments (including post-effective amendments) to this Annual Report on Form 10-K, and to file the same, with the
exhibits thereto, and other documents in connection herewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agent, full power and authority to do and perform each and every act and thing required and necessary to be done
in and about the foregoing as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agent or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacity and on the dates indicated.
/s/ Majdi B. Abulaban
Majdi B. Abulaban
/s/ C. Timothy Trenary
C. Timothy Trenary
/s/ Michael J. Hatzfeld Jr.
Michael J. Hatzfeld Jr.
/s/ Raynard D. Benvenuti
Raynard D. Benvenuti
/s/ Michael R. Bruynesteyn
Michael R. Bruynesteyn
/s/ Richard J. Giromini
Richard J. Giromini
/s/ Paul J. Humphries
Paul J. Humphries
/s/ Ransom A. Langford
Ransom A. Langford
/s/ James S. McElya
James S. McElya
/s/ Timothy C. McQuay
Timothy C. McQuay
/s/ Ellen B. Richstone
Ellen B. Richstone
/s/ Francisco S. Uranga
Francisco S. Uranga
March 5, 2021
March 5, 2021
March 5, 2021
March 5, 2021
March 5, 2021
March 5, 2021
March 5, 2021
March 5, 2021
March 5, 2021
March 5, 2021
March 5, 2021
March 5, 2021
President and Chief Executive Officer
(Principal Executive Officer)
Executive Vice President and Chief Financial
Officer (Principal Financial Officer)
Vice President of Finance and Corporate
Controller (Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
72
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Corporate Information
DIRECTORS
EXECUTIVES
Majdi Abulaban
President and
Chief Executive Officer
C. Timothy Trenary
Executive Vice President—
Chief Financial Officer
Kevin Burke
Senior Vice President—
Chief Human Resources Officer
Michael Dorah
Senior Vice President—
President North America
Joanne Finnorn
Senior Vice President—
General Counsel and
Corporate Secretary
Parveen Kakar
Senior Vice President—
Sales, Marketing and
Product Development
Andreas Meyer
Senior Vice President—
President Europe
Timothy C. McQuay
Chairman
Majdi Abulaban
Raynard D. Benvenuti
Nominating and Corporate
Governance Committee
Michael R. Bruynesteyn
Audit Committee
Nominating and Corporate
Governance Committee
Richard J. Giromini
Audit Committee
Compensation and Benefits Committee
Paul J. Humphries
Compensation and Benefits Committee*
Audit Committee
Ransom A. Langford
James S. McElya
Nominating and Corporate
Governance Committee*
Compensation and Benefits Committee
Ellen B. Richstone
Audit Committee*
Nominating and Corporate
Governance Committee
Francisco S. Uranga
Compensation and Benefits Committee
Nominating and Corporate
Governance Committee
* Committee Chair
REGISTRAR AND
TRANSFER COMPANY
Shareholder correspondence
should be mailed to:
Computershare
P.O. Box 505000
Louisville, KY 40233
Overnight correspondence
should be sent to:
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
Shareholder website:
www.computershare.com/investor
Shareholder online inquiries:
https://wwwus.computershare.
com/investor/Contact
Toll fee in the US + 1 (800) 368-5948
Outside the US + (781) 575-4223
Fax (866) 519-2854
ANNUAL MEETING
The annual meeting will be held on
May 25, 2021 at 10:00 a.m. Eastern Time
via live audio webcast at
www.virtualshareholdermeeting.com/
SUP2021.
CORPORATE OFFICES
INVESTOR RELATIONS
STOCK EXCHANGE
Superior Industries International, Inc.
26600 Telegraph Rd.
Suite 400
Southfield, MI 48033
Phone: 248.352.7300
Fax: 248.352.6989
www.supind.com
Superior Industries
Clemens Denks
248.234.7104
Investor.Relations@supind.com
Superior common stock is listed
for trading on the New York
Stock Exchange under the ticker
symbol SUP.
Clermont Partners
Victoria Sivrais
312.690.6004
vsivrais@clermontpartners.com
AUDITORS
Deloitte & Touche LLP
$39.25
$42.06
$86.8
$78.7
2019
2020
2019
2020
®
TM
26600 Telegraph Rd.
Suite 400
Southfield, MI 48033
248.352.7300
NYSE: SUP
www.supind.com