UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number: 1-6615

SUPERIOR INDUSTRIES INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	95-2594729
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
26600 Telegraph Road, Suite 400
Southfield, Michigan	48033
(Address of Principal Executive Offices)	(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	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value	SUP	New York Stock Exchange

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, if any, 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	☐	Accelerated Filer	☒
Non-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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Number of shares of common stock outstanding as of October 30, 2019: 25,128,158

TABLE OF CONTENTS

					Page
PART I	-	FINANCIAL INFORMATION
		Item 1	-	Financial Statements (Unaudited)
				Condensed Consolidated Income Statements	1
				Condensed Consolidated Statements of Comprehensive Income	2
				Condensed Consolidated Balance Sheets	3
				Condensed Consolidated Statements of Cash Flows	4
				Condensed Consolidated Statements of Shareholders’ Equity	5
				Notes to Condensed Consolidated Financial Statements	7
		Item 2	-	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
		Item 3	-	Quantitative and Qualitative Disclosures About Market Risk	40
		Item 4	-	Controls and Procedures	40
PART II	-	OTHER INFORMATION
		Item 1	-	Legal Proceedings	41
		Item 1A	-	Risk Factors	41
		Item 2	-	Unregistered Sales of Equity Securities and Use of Proceeds	41
		Item 5	-	Other Information	41
		Item 6	-	Exhibits	42
		Signatures			43

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

SUPERIOR INDUSTRIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED INCOME STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
NET SALES	$	352,014		$	347,612		$	1,062,206		$	1,123,004
Cost of sales		335,967			323,939			973,042			995,781
GROSS PROFIT		16,047			23,673			89,164			127,223
Selling, general and administrative expenses		16,290			15,985			46,737			60,631
INCOME (LOSS) FROM OPERATIONS		(243	)		7,688			42,427			66,592
Interest expense, net		(11,807	)		(12,378	)		(35,532	)		(37,417	)
Other income (expense), net		1,676			(3,238	)		3,716			(6,796	)
Change in fair value of redeemable preferred stock embedded derivative		(1,042	)		214			(323	)		(3,476	)
INCOME (LOSS) BEFORE INCOME TAXES		(11,416	)		(7,714	)		10,288			18,903
Income tax (provision) benefit		4,785			7,051			(7,699	)		(1,114	)
NET INCOME (LOSS)	$	(6,631	)	$	(663	)	$	2,589		$	17,789
LOSS PER SHARE – BASIC	$	(0.57	)	$	(0.37	)	$	(0.84	)	$	(0.32	)
LOSS PER SHARE – DILUTED	$	(0.57	)	$	(0.37	)	$	(0.84	)	$	(0.32	)

The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.

1

SUPERIOR INDUSTRIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Net income (loss)	$	(6,631	)	$	(663)		$	2,589		$	17,789
Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss), net of tax		(22,143	)		4,313			(21,459	)		(10,016	)
Change in unrecognized gains (losses) on derivative instruments:
Change in fair value of derivatives		(10,406	)		22,018			(1,862	)		17,124
Tax (provision) benefit		2,104			(4,495	)		342			(3,680	)
Change in unrecognized gains (losses) on    derivative instruments, net of tax		(8,302	)		17,523			(1,520	)		13,444
Defined benefit pension plan:
Amortization of actuarial loss		50			147			155			324
Tax provision		(11	)		(23	)		(33	)		(69	)
Pension changes, net of tax		39			124			122			255
Other comprehensive income (loss), net of tax		(30,406	)		21,960			(22,857	)		3,683
Comprehensive income (loss)	$	(37,037	)	$	21,297		$	(20,268	)	$	21,472

The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.

2

SUPERIOR INDUSTRIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

	September 30, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	49,308		$	47,464
Short-term investments		—			750
Accounts receivable, net		131,790			104,649
Inventories, net		162,079			175,578
Income taxes receivable		2,151			6,791
Other current assets		20,832			35,189
Total current assets		366,160			370,421
Property, plant and equipment, net		516,892			532,767
Deferred income tax assets, net		42,329			42,105
Goodwill		278,543			291,434
Intangibles, net		142,689			168,369
Other non-current assets		56,749			46,520
Total assets	$	1,403,362		$	1,451,616
LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	124,402		$	107,274
Short-term debt		3,300			3,052
Accrued expenses		71,230			65,662
Income taxes payable		1,441			2,475
Total current liabilities		200,373			178,463
Long-term debt (less current portion)		614,682			661,426
Embedded derivative liability		3,457			3,134
Non-current income tax liabilities		9,583			9,046
Deferred income tax liabilities, net		15,465			18,664
Other non-current liabilities		65,768			49,306
Commitments and contingent liabilities (Note 18)		—			—
Mezzanine equity:
Preferred stock, $0.01 par value
Authorized - 1,000,000 shares
Issued and outstanding – 150,000 shares outstanding at    September 30, 2019 and December 31, 2018		156,682			144,463
European non-controlling redeemable equity		9,136			13,849
Shareholders’ equity:
Common stock, $0.01 par value
Authorized - 100,000,000 shares
Issued and outstanding – 25,128,158 and 25,019,237 shares at    September 30, 2019 and December 31, 2018		91,310			87,723
Accumulated other comprehensive loss		(128,352	)		(105,495	)
Retained earnings		365,258			391,037
Total shareholders’ equity		328,216			373,265
Total liabilities, mezzanine equity and shareholders’ equity	$	1,403,362		$	1,451,616

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

SUPERIOR INDUSTRIES INTERNATIONAL, INC.

Nine Months Ended September 30,	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,589		$	17,789
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		77,500			71,932
Income tax, non-cash changes		(3,472	)		4,422
Stock-based compensation		3,695			2,960
Amortization of debt issuance costs		3,681			2,899
Other non-cash items		444			2,835
Changes in operating assets and liabilities:
Accounts receivable		(30,464	)		2,755
Inventories		9,028			(21,997	)
Other assets and liabilities		20,313			(11,462	)
Accounts payable		11,176			(8,575	)
Income taxes		7,861			782
NET CASH PROVIDED BY OPERATING ACTIVITIES		102,351			64,340
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment		(47,584	)		(55,466	)
Other investing activities		9,631			-
NET CASH USED IN INVESTING ACTIVITIES		(37,953	)		(55,466	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt repayment		(35,015	)		(5,390	)
Cash dividends paid		(19,171	)		(21,680	)
Purchase of non-controlling redeemable shares		(3,888	)		(33,421	)
Payments related to tax withholdings for stock-based compensation		(108	)		(606	)
Proceeds from the exercise of stock options		-			68
Proceeds from borrowings on revolving credit facility		69,600			234,700
Repayments of borrowings on revolving credit facility		(69,600	)		(216,100	)
Other financing activities		(1,035	)		-
NET CASH USED IN FINANCING ACTIVITIES		(59,217	)		(42,429	)
Effect of exchange rate changes on cash		(3,337	)		(1,321	)
Net increase (decrease) in cash and cash equivalents		1,844			(34,876	)
Cash and cash equivalents at the beginning of the period		47,464			46,360
Cash and cash equivalents at the end of the period	$	49,308		$	11,484

The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.

4

SUPERIOR INDUSTRIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Dollars in thousands)

For the nine months ended September 30, 2018

(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			Non-controlling Interest			Total
BALANCE AT DECEMBER 31, 2017		24,917,025	$	89,755		$	(8,498	)	$	(5,257	)	$	(75,366	)	$	393,146		$	51,943		$	445,723
Net income		—		—			—			—			—			17,789			—			17,789
Change in unrecognized gains (losses) on derivative    instruments, net of tax		—		—			13,444			—			—			—			—			13,444
Change in employee benefit plans, net of taxes		—		—			—			255			—			—			—			255
Net foreign currency translation adjustment		—		—			—			—			(10,016	)		—			—			(10,016	)
Stock options exercised		4,500		68			—			—			—			—			—			68
Common stock issued, net of shares withheld for    employee taxes		97,712		—			—			—			—			—			—			—
Stock-based compensation		—		2,355			—			—			—			—			—			2,355
Cash dividends declared ($0.09 per common share)		—		—			—			—			—			(7,101	)		—			(7,101	)
Redeemable preferred dividend (9% per    preferred share and $0.09 per common    share equivalent) and accretion		—		—			—			—			—			(24,499	)		—			(24,499	)
Reclassification to European non-controlling    redeemable equity		—		—			—			—			—			—			(51,943	)		(51,943	)
Adjust European non-controlling redeemable equity    to redemption value		—		(3,625	)		—			—			—			—			—			(3,625	)
European non-controlling redeemable equity dividend		—		—			—			—			—			(1,342	)		—			(1,342	)
BALANCE AT SEPTEMBER 30, 2018		25,019,237	$	88,553		$	4,946		$	(5,002	)	$	(85,382	)	$	377,993		$	—		$	381,108

For the three months ended September 30, 2018

(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			Non-controlling Interest		Total
BALANCE AT JUNE 30, 2018		25,011,730	$	87,305	$	(12,577	)	$	(5,126	)	$	(89,695	)	$	389,465		$	—	$	369,372
Net income		—		—		—			—			—			(663	)		—		(663	)
Change in unrecognized gains (losses) on derivative    instruments, net of tax		—		—		17,523			—			—			—			—		17,523
Change in employee benefit plans, net of taxes		—		—		—			124			—			—			—		124
Net foreign currency translation adjustment		—		—		—			—			4,313			—			—		4,313
Stock options exercised		—		—		—			—			—			—			—		—
Common stock issued, net of shares withheld for    employee taxes		7,507		—		—			—			—			—			—		—
Stock-based compensation		—		1,248		—			—			—			—			—		1,248
Cash dividends declared ($0.09 per common share)		—		—		—			—			—			(2,256	)		—		(2,256	)
Redeemable preferred dividend (9% per    preferred share and $0.09 per common    share equivalent) and accretion		—		—		—			—			—			(8,295	)		—		(8,295	)
European non-controlling redeemable equity dividend		—		—		—			—			—			(258	)		—		(258	)
BALANCE AT SEPTEMBER 30, 2018		25,019,237	$	88,553	$	4,946		$	(5,002	)	$	(85,382	)	$	377,993		$	—	$	381,108

5

SUPERIOR INDUSTRIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Dollars in thousands)

For the nine months ended September 30, 2019

(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, 2018		25,019,237	$	87,723	$	(3,205	)	$	(3,000	)	$	(99,290	)	$	391,037		$	373,265
Net income		—		—		—			—			—			2,589			2,589
Change in unrecognized gains (losses) on derivative    instruments, net of tax		—		—		(1,520	)		—			—			—			(1,520	)
Change in employee benefit plans, net of taxes		—		—		—			122			—			—			122
Net foreign currency translation adjustment		—		—		—			—			(21,459	)		—			(21,459	)
Common stock issued, net of shares withheld for    employee taxes		108,921		—		—			—			—			—			—
Stock-based compensation		—		3,587		—			—			—			—			3,587
Cash dividends declared ($0.09 per common share)		—		—		—			—			—			(4,597	)		(4,597	)
Redeemable preferred dividend (9% per    preferred share and $0.09 per common    share equivalent) and accretion