Superior Industries(US:SUP)2024-03-07 21:00Part I Business Superior Industries manufactures aluminum wheels for OEMs in North America and Europe, with 94% of 2023 sales to key automotive customers - The company is a leading supplier of aluminum wheels, with 94% of its 2023 sales directed to OEMs like BMW, Ford, GM, and Toyota. It operates seven manufacturing facilities in North America (Mexico) and Europe (Poland)1523 Light-Vehicle Production (Units in thousands) | Region | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | North America | 15,700 | 14,300 | 13,000 | | Western and Central Europe | 15,300 | 13,500 | 12,800 | Major Customer Sales as a Percentage of Consolidated Sales | Customer | 2023 % of Sales | 2023 Sales ($M) | 2022 % of Sales | 2022 Sales ($M) | | :--- | :--- | :--- | :--- | :--- | | GM | 21% | $288.6 | 26% | $431.3 | | Ford | 15% | $207.2 | 16% | $253.9 | | VW Group | 15% | $203.0 | 14% | $223.4 | | Toyota | 11% | $151.1 | 9% | $156.2 | - The company has set a goal to be carbon neutral by 2039 and reported a 12% reduction in its carbon footprint and a 21% reduction in emissions per pound of aluminum shipped versus 2020 levels31 Risk Factors The company faces significant risks from automotive industry cyclicality, customer concentration, high leverage, and potential NYSE delisting - The automotive industry's cyclicality and volatility, driven by consumer confidence and economic conditions, directly affect the company's financial performance39 - A limited number of customers (GM, Ford, VW Group, Toyota, Volvo, BMW) accounted for 76% of sales in 2023, creating significant customer concentration risk43 - The company has a highly leveraged capital structure and does not expect to generate sufficient cash to repay all its indebtedness by their maturity dates, necessitating refinancing. Key debt includes a $396.0 million Term Loan Facility and €217.1 million in Senior Notes due 2025686971 - The company is required to maintain a market capitalization of at least $50 million over 30 consecutive trading days to comply with NYSE listing standards, with failure potentially triggering preferred stockholder redemption rights9091 Unresolved Staff Comments The company reports no unresolved staff comments - None113 Cybersecurity The company's cybersecurity strategy focuses on cyber-resilience, utilizing the NIST framework to manage risks, with Board oversight and CIO management - The cybersecurity strategy is based on the NIST framework and focuses on resilience against threats, with a primary concern being Business Email Compromise (BEC)114115116 - Governance is managed by the Board of Directors and the Audit Committee, with the Chief Information Officer (CIO) responsible for assessing and managing cybersecurity risk and providing regular updates119121 Properties The company operates manufacturing facilities in Mexico and Poland, with headquarters in Michigan and Germany, owning manufacturing sites and leasing offices - Manufacturing facilities are located in Chihuahua, Mexico (four facilities) and Stalowa Wola, Poland (three facilities)125126 - The company owns its manufacturing facilities and leases its worldwide headquarters in Michigan and European headquarters in Germany125126 Legal Proceedings The company faces a German anti-competitive conduct investigation and its German subsidiary, SPG, filed for insolvency proceedings in 2023 - A German subsidiary, Superior Industries Europe AG, is under investigation by the German Federal Cartel Office for suspected anti-competitive conduct, with an unpredictable outcome130 - The company's wholly owned German subsidiary, Superior Industries Production Germany GmbH (SPG), filed for insolvency proceedings on August 31, 2023, which have since moved to ordinary proceedings (equivalent to Chapter 7 bankruptcy)131 Mine Safety Disclosures Not applicable - Not applicable132 Information about Our Executive Officers This section provides biographical information for the company's executive officers, who are appointed annually by the Board of Directors Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Superior's common stock is traded on the New York Stock Exchange (NYSE) under the symbol 'SUP', with approximately 296 holders of record as of March 1, 2024 - The company's common stock trades on the NYSE under the symbol 'SUP'139 [Reserved]](index=30&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, net sales decreased to $1.39 billion, resulting in a $92.9 million net loss due to lower aluminum pass-throughs, unit declines, and a significant deconsolidation charge for its German subsidiary, SPG Results of Operations Net sales decreased by 15.5% to $1.385 billion in 2023, leading to a $92.9 million net loss, primarily due to lower aluminum pass-throughs, reduced unit shipments, and a $79.6 million loss from the SPG deconsolidation Fiscal Year Operating Results (in thousands, except per share) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net sales | $1,385,283 | $1,639,902 | | Gross profit | $115,748 | $166,387 | | (Loss) income from operations | $(51,448) | $98,040 | | Net (loss) income | $(92,852) | $37,034 | | Diluted (loss) earnings per share | $(4.73) | $0.02 | | Adjusted EBITDA | $159,150 | $194,154 | | Unit shipments (thousands) | 14,562 | 15,592 | - Net sales decreased by $254.6 million (15.5%) primarily due to lower aluminum pass-throughs to customers ($231.9 million) and lower unit shipments ($55.4 million)155 - A loss of $79.6 million was recognized on the deconsolidation of the German subsidiary, SPG, following its insolvency filing161 - SG&A expenses increased by $19.3 million, mainly due to a $14.8 million provision for claims receivable from the SPG bankruptcy, $10.5 million in advisor fees for European business transformation, and $2.8 million in restructuring charges160 Segment Sales and (Loss) Income from Operations North America sales decreased by 15.8% with reduced operating income, while Europe recorded a $103.2 million operating loss due to the SPG deconsolidation and lower volumes Segment Performance (in thousands) | Segment | Net Sales 2023 | Net Sales 2022 | (Loss) Income from Operations 2023 | Income from Operations 2022 | | :--- | :--- | :--- | :--- | :--- | | North America | $794,386 | $943,713 | $51,791 | $71,772 | | Europe | $590,897 | $696,189 | $(103,239) | $26,268 | | Total | $1,385,283 | $1,639,902 | $(51,448) | $98,040 | - The Europe segment's operating loss of $129.5 million year-over-year was primarily driven by the $79.6 million loss on deconsolidation of SPG, lower unit shipments, and advisor fees168 Financial Condition, Liquidity and Capital Resources The company had $219.2 million in liquidity at year-end 2023, but faces significant refinancing risk due to debt maturities in 2025, including a $396.0 million Term Loan and $239.6 million in Senior Notes Cash Flow Summary (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $64,431 | $152,570 | | Net cash used in investing activities | $(45,607) | $(57,007) | | Net cash (used in) provided by financing activities | $(34,230) | $4,505 | - Total liquidity was $219.2 million at year-end 2023, consisting of $164.1 million in available cash and $55.1 million in unused revolving credit commitments177 - The Term Loan Facility and Revolving Credit Facility maturities will accelerate to 91 days prior to June 15, 2025, if the Senior Notes are not refinanced, or 91 days prior to September 14, 2025, if the redeemable preferred stock is not redeemed or refinanced174176 NON-GAAP FINANCIAL MEASURES Value Added Sales decreased by 3.9% on a constant currency basis to $740.3 million, and Adjusted EBITDA fell to $159.2 million in 2023, with the margin on Value Added Sales decreasing to 21.3% Reconciliation of Net Sales to Value Added Sales (in thousands) | Description | 2023 | 2022 | | :--- | :--- | :--- | | Net sales | $1,385,283 | $1,639,902 | | Less: aluminum, other costs, and OSP costs | (637,653) | (869,253) | | Value added sales | $747,630 | $770,649 | Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Description | 2023 | 2022 | | :--- | :--- | :--- | | Net (loss) income | $(92,852) | $37,034 | | Adjustments (Interest, Taxes, D&A, etc.) | 252,002 | 157,120 | | Adjusted EBITDA | $159,150 | $194,154 | Critical Accounting Estimates Key accounting estimates include revenue recognition, asset impairment, retirement plans, and income taxes, with a notable 2023 release of a $24.8 million valuation allowance on U.S. deferred tax assets - Key accounting estimates include revenue recognition (variable consideration), impairment of long-lived assets, retirement plan assumptions, and income taxes190 - A significant judgment in 2023 was the release of $24.8 million of the valuation allowance against U.S. net deferred tax assets, as sufficient positive evidence of future profitability became available197327 Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Superior Industries is not required to provide the information for this item - The Company is not required to provide this information as it qualifies as a smaller reporting company199 Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements for 2023 and 2022, including the auditor's report, core financial statements, and detailed notes Report of Independent Registered Public Accounting Firm Deloitte & Touche LLP issued an unqualified opinion on the financial statements and internal controls, identifying the U.S. deferred tax asset valuation allowance release as a critical audit matter - The auditor issued an unqualified opinion, stating the financial statements are presented fairly and internal controls were effective203215 - The critical audit matter identified was the release of the U.S. deferred tax asset valuation allowance, which required significant auditor judgment to evaluate management's assumptions about future taxable income208209 Consolidated Financial Statements The consolidated financial statements show a $92.9 million net loss and $25.9 million comprehensive loss for 2023, with total assets of $1.03 billion and a shareholders' deficit of $85.9 million Key Financial Statement Balances (2023, in thousands) | Statement | Line Item | Amount | | :--- | :--- | :--- | | Income Statement | Net Loss | $(92,852) | | Balance Sheet | Total Assets | $1,030,571 | | Balance Sheet | Total Liabilities | $867,396 | | Balance Sheet | Total Shareholders' Deficit | $(85,940) | | Cash Flow | Net Cash from Operating Activities | $64,431 | Notes to Consolidated Financial Statements Detailed notes cover the $79.6 million loss from SPG deconsolidation, terms of €217.1 million Senior Notes and $396.0 million Term Loan, $300 million redeemable preferred stock, and the $24.8 million deferred tax asset valuation allowance release - Note 22: The company deconsolidated its German subsidiary SPG on August 31, 2023, recognizing a loss of $79.6 million, which included a $50.0 million property, plant and equipment impairment charge357358 - Note 10: Details the company's major debt instruments, including €217.1 million of 6.00% Senior Notes due June 2025 and a $396.0 million Term Loan Facility. The maturity of the Term Loan Facility is subject to acceleration if the Notes and preferred stock are not refinanced294295300 - Note 12: The redeemable preferred stock has a redemption value of $300 million and can be redeemed by the holder on or after September 14, 2025, classified as mezzanine equity316318 - Note 14: The company released $24.8 million of its valuation allowance against U.S. deferred tax assets due to improved financial results and projections327 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None362 Controls and Procedures Management concluded that both disclosure controls and internal control over financial reporting were effective as of December 31, 2023 - Management concluded that both disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2023364368 Other Information None - None371 Disclosure Regarding Foreign Jurisdictions That Prevent Inspections Not applicable - Not applicable372 Part III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement - Information is incorporated by reference from the 2024 Proxy Statement374 Executive Compensation Information related to director and executive compensation is incorporated by reference from the 2024 Proxy Statement - Information is incorporated by reference from the 2024 Proxy Statement377 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of beneficial owners and management is incorporated by reference from the 2024 Proxy Statement - Information is incorporated by reference from the 2024 Proxy Statement378 Certain Relationships and Related Transactions, and Director Independence Information concerning related party transactions and director independence is incorporated by reference from the 2024 Proxy Statement - Information is incorporated by reference from the 2024 Proxy Statement379 Principal Accountant Fees and Services Information regarding fees paid to the principal accountant and services rendered is incorporated by reference from the 2024 Proxy Statement - Information is incorporated by reference from the 2024 Proxy Statement380 Part IV Exhibits, Financial Statement Schedules This section lists all documents filed as part of the Form 10-K report, including financial statements, schedules, and a comprehensive list of exhibits - This section provides an index of all financial statements, schedules, and exhibits filed with the report382 Schedule II - Valuation and Qualifying Accounts (2023, in thousands) | Description | Beginning Balance | Additions (Charged to Costs) | Deductions | Ending Balance | | :--- | :--- | :--- | :--- | :--- | | Allowance for doubtful accounts receivable | $661 | $70 | $(13) | $718 | | Allowance on long term receivable | $0 | $14,779 | $0 | $14,779 | | Valuation allowances for deferred tax assets | $67,626 | $(6,880) | $(359) | $60,387 | Form 10-K Summary None - None396