| Summary of Significant Accounting Policies | NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Headquartered in Southfield, Michigan, the principal business of
Superior Industries International, Inc. (referred to herein as
“Superior”, the “Company” or
“we,” “us” and “our”) is the
design and manufacture of aluminum wheels for sale to original
equipment manufacturers (“OEMs”). We are one of the
largest suppliers of cast aluminum wheels to the world’s
leading automobile and light truck manufacturers, with
manufacturing operations in the United States, Mexico, Germany and
Poland. Customers in North America and Europe represent the
principal markets for our products. On May 30, 2017, we
acquired Uniwheels, a large European supplier of OEM aluminum
wheels, as well as a supplier of European aftermarket wheels, which
we believe is viewed as one of the technological leaders in the
market for alloy wheels. As a result of the Uniwheels acquisition,
we have determined that our North American and European businesses
should be treated as separate reportable segments in view of
differences in economic circumstances, markets and customers as
further described in Note 6, “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.
We have made a number of estimates and assumptions related to the
reporting of assets, liabilities, revenues and expenses to prepare
these financial statements in conformity with U.S. GAAP as
delineated by the FASB in its ASC. Generally, assets and
liabilities that are subject to estimation and judgment include the
allowance for doubtful accounts, inventory valuation, amortization
of preproduction costs, impairment of and the estimated useful
lives of our long-lived assets, intangible assets and goodwill,
self-insurance portions of employee benefits, workers’
compensation and general liability programs, fair value of
stock-based compensation, income tax liabilities and deferred
income taxes. While actual results could differ, we believe such
estimates to be reasonable.
The fiscal year for 2017 consisted of the 53-week 52-week
Cash and Cash Equivalents
Cash and cash equivalents generally consist of cash, certificates
of deposit and fixed deposits and money market funds with original
maturities of three months or less. Our cash and cash equivalents
are not subject to significant interest rate risk due to the short
maturities of these investments. Certificates of deposit and fixed
deposits whose original maturity is greater than three months and
is one year or less are classified as short-term investments and
certificates of deposit and fixed deposits whose maturity is
greater than one year at the balance sheet date are classified as
non-current non-current year-end,
Restricted Deposits
We purchase certificates of deposit that mature within twelve
months and are used to secure or collateralize letters of credit
securing our workers’ compensation obligations. At
December 31, 2017 and 2016, certificates of deposit totaling
$0.8 million were restricted in use and were classified as
short-term investments on our consolidated balance sheet.
Derivative Financial Instruments and Hedging Activities
In order to hedge exposure related to fluctuations in foreign
currency rates and the cost of certain commodities used in the
manufacture of our products, we periodically may purchase
derivative financial instruments such as forward contracts, options
or collars to offset or mitigate the impact of such fluctuations.
Programs to hedge currency rate exposure may address ongoing
transactions including, foreign-currency-denominated receivables
and payables, as well as specific transactions related to purchase
obligations. Programs to hedge exposure to commodity cost
fluctuations would be based on underlying physical consumption of
such commodity.
We account for our derivative instruments as either assets or
liabilities and carry them at fair value. For derivative
instruments that hedge the exposure to variability in expected
future cash flows that are designated as cash flow hedges, the
effective portion of the gain or loss on the derivative instrument
is reported as a component of accumulated other comprehensive
income or loss in shareholders’ equity and reclassified into
income in the same period or periods during which the hedged
transaction affects earnings. The ineffective portion of the gain
or loss on the derivative instrument, if any, is recognized in
current income. To receive hedge accounting treatment, cash flow
hedges must be highly effective in offsetting changes to expected
future cash flows on hedged transactions. For forward exchange
contracts designated as cash flow hedges, changes in the time value
are included in the definition of hedge effectiveness. Accordingly,
any gains or losses related to this component are reported as a
component of accumulated other comprehensive income or loss in
shareholders’ equity and reclassified into income in the same
period or periods during which the hedged transaction affects
earnings. Derivatives that do not qualify as hedges are adjusted to
fair value through current income. See Note 5, “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, upon entering into
these contracts, we expect to fulfill our purchase commitments and
take full delivery of the contracted quantities of these
commodities during the normal course of business. Accordingly,
under U.S. GAAP, these purchase contracts are not accounted for as
derivatives because they qualify for the normal purchase normal
sale exception under U.S. GAAP, unless there is a change in the
facts or circumstances that causes management to believe that these
commitments would not be used in the normal course of business. See
Note 20, “Risk Management” for additional information
pertaining to these purchase commitments.
Cash Paid for Interest and Taxes and Non-Cash
Cash paid for interest was $24.3 million, $0.3 million
and $0.3 million for the years ended December 31, 2017,
2016 and 2015. Cash paid for income taxes was $11.1 million,
$21.9 million and $12.6 million for the years ended
December 31, 2017, 2016 and 2015.
As of December 31, 2017, 2016 and 2015, $15.1 million,
$4.0 million and $1.1 million, respectively, of equipment
had been purchased but not yet paid for and are included in
accounts payable and accrued expenses in our consolidated balance
sheets.
Accounts Receivable
We maintain an allowance for doubtful accounts receivable based
upon the expected collectability of all trade receivables. The
allowance is reviewed continually and adjusted for amounts deemed
uncollectible by management.
Inventories
Inventories, which are categorized as raw materials, work-in-process first-in, first-out
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 Expected Useful Life
Computer equipment 3 to 5 years
Production machinery and technical equipment 3 to 20 years
Buildings
15 to 50 years
Other equipment, operating and office equipment 3 to 20 years
When property, plant and equipment is replaced, retired or disposed
of, the cost and related accumulated depreciation are removed from
the accounts. Property, plant and equipment no longer used in
operations, which are generally insignificant in amount, are stated
at the lower of cost or estimated net realizable value. Gains and
losses, if any, are recorded as a component of operating income if
the disposition relates to an operating asset. If a non-operating
Preproduction Costs and Revenue Recognition Related to Long-Term
Supply Arrangements
We incur preproduction engineering and tooling costs related to the
products produced for our customers under long-term supply
agreements. We expense all preproduction engineering costs for
which reimbursement is not contractually guaranteed by the customer
or which are in excess of the contractually guaranteed
reimbursement amount. We amortize the cost of the customer-owned
tooling over the expected life of the wheel program on a
straight-line basis. Also, we defer any reimbursements made to us
by our customer and recognize the tooling reimbursement revenue
over the same period in which the tooling is in use. Changes in the
facts and circumstances of individual wheel programs may accelerate
the amortization of both the cost of customer-owned tooling and the
deferred tooling reimbursement revenues. Recognized tooling
reimbursement revenues, which totaled $11.9 million,
$8.0 million and $5.8 million in 2017, 2016 and 2015,
respectively, are included in net sales in the consolidated income
statements. The following tables summarize the unamortized
customer-owned tooling costs included in our other non-current non-current
December 31, 2017 2016
(Dollars in Thousands)
Customer-Owned Tooling Costs
Preproduction costs $ 84,198 $ 78,299
Accumulated amortization (71,409 ) (65,100 )
Net preproduction costs $ 12,789 $ 13,199
Deferred Tooling Revenue
Accrued expenses $ 4,654 $ 5,419
Other non-current 1,974 2,593
Total deferred tooling revenue $ 6,628 $ 8,012
Impairment of Goodwill
Goodwill must be tested on at least an annual basis, and as of an
interim period if an event or circumstance indicates that an
impairment is more likely than not to have occurred. In conducting
our annual impairment testing, we may first perform a qualitative
assessment of whether it is more likely than not that a reporting
unit’s fair value is less than its carrying amount. If not,
no further goodwill impairment testing is performed. If it is more
likely than not that a reporting unit’s fair value is less
than its carrying amount, or if we elect not to perform a
qualitative assessment of a reporting unit, we compare the fair
value of the reporting unit to the related net book value. 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 of each year.
Impairment of Long-Lived Assets and Investments
In accordance with ASC 360 entitled “Property, Plant and
Equipment”, management evaluates the recoverability and
estimated remaining lives of long-lived assets. The company reviews
long-lived assets for impairment whenever facts and circumstances
suggest that the carrying value of the assets may not be
recoverable or the useful life has changed.
When facts and circumstances indicate that there may have been a
loss in value, management will also evaluate its cost method
investments to determine whether there was an other-than-temporary
impairment. If a loss in the value of the investment is determined
to be other than temporary, then the decline in value is recognized
as a loss.
Foreign Currency Transactions and Translation
We have wholly-owned foreign subsidiaries with operations in Mexico
and Europe whose functional currency is the peso and Euro,
respectively. In addition, we have operations with U.S. dollar
functional currency with transactions denominated in pesos and
other currencies and operations in Europe with Euro functional
currency with transactions denominated in Polish Zlotys and other
currencies. These operations had monetary assets and liabilities
that were denominated in currencies that were different than their
functional currency and were translated into the functional
currency of the entity using the exchange rate in effect at the end
of each accounting period. Any gains and losses recorded as a
result of the remeasurement of monetary assets and liabilities into
the functional currency are reflected as transaction gains and
losses and included in other expense, net in the consolidated
income statements. We had foreign currency transaction gains of
$12.9 million in 2017 and losses of $0.4 million and
$1.2 million in 2016 and 2015, respectively, which are
included in other income (expense), net in the consolidated income
statements. In addition, we had a minority investment in India that
had a functional currency of the Indian rupee which was divested in
September 2017.
When our foreign subsidiaries translate their financial statements
from the functional currency to the reporting currency, the balance
sheet accounts are translated using the exchange rates in effect at
the end of the accounting period and retained earnings is
translated using historical rates. The income statement accounts
are generally translated at the weighted average of exchange rates
during the period and the cumulative effect of translation is
recorded as a separate component of accumulated other comprehensive
income or loss in shareholders’ equity, as reflected in the
consolidated statements of shareholders’ equity. The value of
the Mexican peso and Euro increased 5.1 percent and
7.2 percent, respectively, in relation to the U.S. dollar,
while the Zloty remained essentially flat in relation to the Euro
in 2017.
Revenue Recognition
Sales of products and any related costs are recognized when title
and risk of loss transfers to the purchaser, 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, as
discussed above.
Research and Development
Research and development costs (primarily engineering and related
costs) are expensed as incurred and are included in cost of sales
in the consolidated income statements. Amounts expensed during
2017, 2016 and 2015 were $7.7 million, $3.8 million and
$2.6 million, respectively.
Value-Added Taxes
Value-added taxes that are collected from customers and remitted to
taxing authorities are excluded from sales and cost of sales.
Stock-Based Compensation
We account for stock-based compensation using the estimated fair
value recognition method in accordance with U.S. GAAP. We recognize
these compensation costs net of the applicable forfeiture rate and
recognize the compensation costs for only those shares expected to
vest on a straight-line basis over the requisite service period of
the award, which is generally the vesting term of three to four
years. We estimate the forfeiture rate based on our historical
experience. See Note 18, “Stock-Based Compensation” for
additional information concerning our share-based compensation
awards.
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. In assessing the realizability of deferred tax assets, we
consider whether it is more likely than not that some portion of
the deferred tax assets will not be realized. 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 determination of the need for
a valuation allowance is based on an on-going
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. Consistent with our
policy, the valuation allowance against our net deferred income tax
assets will not be reversed until such time as we
have generated three years of cumulative pre-tax pre-tax
We account for uncertain tax positions utilizing a two-step more-likely-than-not more-likely-than-not
Presently, we have not recorded a deferred tax liability for
temporary differences related to investments in foreign
subsidiaries that are essentially permanent in duration. These
temporary differences may become taxable upon a repatriation of
earnings from the subsidiaries or a sale or liquidation of the
subsidiaries. At this time the company does not have any plans to
repatriate income from its foreign subsidiaries.
Earnings (Loss) Per Share
As summarized below, basic earnings (loss) per share is computed by
dividing net income (loss) attributable to Superior, less preferred
dividends, by the weighted average number of common shares
outstanding for the period. For purposes of calculating diluted
earnings per share, net income is divided by the total of the
weighted average shares outstanding plus the dilutive effect
outstanding stock options and restricted stock under the treasury
stock method, which includes consideration of stock-based
compensation required by U.S. GAAP. The redeemable convertible
preferred stock has been excluded from the weighted average shares
since inclusion would be antidilutive. Accordingly, preferred stock
dividends (including accretion of the preferred stock redemption
premium which has been treated as deemed dividends) have been
deducted from net income.
Year Ended December 31, 2017 2016 2015
(Dollars in thousands, except per share
amounts)
Basic Earnings (Loss) Per Share
Net income (loss) attributable to Superior $ (6,203 ) $ 41,381 $ 23,944
Less: Redeemable preferred stock dividends and accretion (18,912 )
—
—
Basic Numerator (25,115 ) 41,381 23,944
Weighted average shares outstanding - basic 24,929 25,439 26,599
Basic (loss) earnings per share $ (1.01 ) $ 1.63 $ 0.90
Diluted Earnings Per Share
Net income (loss) attribute to Superior $ (6,203 ) $ 41,381 $ 23,944
Less: Redeemable preferred stock dividends and accretion (18,912 )
—
—
Diluted Numerator (25,115 ) 41,381 23,944
Weighted average shares outstanding - basic 24,929 25,439 26,599
Weighted average dilutive stock options and restricted stock
— 100 34
Weighted average shares outstanding - diluted 24,929 25,539 26,633
Diluted (loss) earnings per share $ (1.01 ) $ 1.62 $ 0.90
For the year ended December 31, 2017, no options or restricted
stock were included in the diluted earnings per share calculation
because to do so would have been anti-dilutive. All stock options
and restricted stock have been included in the diluted earnings per
share calculations for the year ended December 31, 2016, but
for the year ended December 31, 2015, we have excluded options
to purchase 147,150 shares at prices ranging from $21.84 to $22.57
because exercise prices exceeded average market price and as a
consequence they were antidilutive. In addition, the performance
shares discussed in Note 18, “Stock-Based Compensation”
are not included in the diluted income per share because the
performance metrics had not been met as of December 31,
2017.
New Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09,
In February of 2016, the FASB issued ASU 2016-02, 2016-02”). 2016-02 right-of-use 2016-02 2016-02
In August 2016, the FASB issued an ASU entitled “Statement of
Cash Flows (Topic 740): Classification of Certain Cash Receipts and
Cash Payments.” The objective of the ASU is to address the
diversity in practice in the presentation of certain cash receipts
and cash payments in the statement of cash flows. This ASU is
effective for fiscal years beginning after December 15, 2017,
including interim periods within those fiscal years. We are
evaluating the impact this guidance will have on our statement of
cash flows.
In January 2017, the FASB issued an ASU entitled “Intangibles
- Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment.” The objective of the ASU is to simplify how an
entity is required to test goodwill for impairment by eliminating
Step 2 from the goodwill impairment test. Step 2 measures a
goodwill impairment loss by comparing the implied fair value of a
reporting unit’s goodwill with the carrying amount of that
goodwill. This ASU is effective for fiscal years beginning after
December 15, 2019, including interim periods within those
fiscal years. Early adoption is permitted. We are evaluating the
impact this guidance will have on our financial position and
results of operations.
In January 2017, the FASB issued an ASU entitled “Business
Combinations (Topic 805): Clarifying the Definition of a
Business.” The objective of the ASU is to add guidance to
assist entities with evaluating whether transactions should be
accounted for as acquisitions (or disposals) of assets or
businesses. This ASU is effective for fiscal years beginning after
December 15, 2017, including interim periods within those
fiscal years. We will apply this guidance in the future as
applicable.
In March 2017, the FASB issued an ASU entitled
“Compensation-Retirement Benefits (Topic 715): Improving the
Presentation of Net Periodic Pension Cost and Net Periodic
Postretirement Benefit Cost.” The objective of the ASU is to
improve the reporting of net benefit cost in the financial
statements. This ASU is effective for fiscal years beginning after
December 15, 2017, including interim periods within those
fiscal years. We are evaluating the impact this guidance will have
on our financial position and results of operations.
In July 2017, the FASB issued an ASU entitled “(Part I)
Accounting for Certain Financial Instruments with Down Round
Features, (Part II) Replacement of the Indefinite Deferral for
Mandatorily Redeemable Financial instruments of Certain Nonpublic
Entities and Certain Mandatorily Redeemable Noncontrolling
Interests with a Scope Exception”. The objective of this ASU
is to reduce the complexity in accounting for certain financial
instruments with down round features. When determining whether
certain financial instruments should be classified as debt or
equity instruments, a down round feature would no longer preclude
equity classification when assessing whether the instrument is
indexed to an entity’s own stock. As a result, a freestanding
equity-linked financial instrument (or embedded conversion option)
no longer would be accounted for as a derivative liability at fair
value as a result of the existence of a down round feature. We are
evaluating the impact this guidance will have on our financial
position and results of operations.
In August 2017, the FASB issued an ASU entitled “Derivatives
and Hedging (Topic 815).” The objective of this standard is
to better align financial reporting with risk management
activities, provide a more faithful representation of hedging
activities and reduce complexity and costs associated with hedging.
This ASU removes the requirement to recognize hedge ineffectiveness
in income prior to settlement, allows documentation of hedge
effectiveness at inception to be completed by quarter-end, non-financial
On December 22, 2017, The Securities and Exchange Commission
issued Staff Accounting Bulletin No. 118 (SAB 118) to provide
guidance regarding accounting and disclosure for tax effects
arising from changes in tax regulations under the Tax Cuts and Jobs
Act (the “Act”) enacted December 22, 2017. The Act
contains significant changes to corporate taxation, including
reduction in the corporate tax rate from 35 percent to
21 percent, a one-time |
