Derivative Financial Instruments And Fair Value |
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| Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Financial Instruments and Fair Value | NOTE 4 - DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE The Company is exposed to market risks such as fluctuations in foreign currency exchange rates, interest rates, and aluminum and other commodity prices. Derivative financial instruments may be used to offset some of the effects of these market risks on the expected future cash flows and on certain existing assets and liabilities. In certain cases, the Company may or may not designate certain derivative instruments as hedges for accounting purposes. The Company 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. Market Risks Foreign Currency Exchange Rate Risk The Company has manufacturing locations primarily in Mexico and Poland and sells its products globally. As a result, the Company’s financial results could be significantly affected by foreign currency exchange rates. To help mitigate gross margin and cash flow fluctuations due to changes in foreign currency exchange rates, certain subsidiaries in Mexico and Poland, whose functional currency is the U.S. dollar or the Euro, may hedge a portion of their forecasted foreign currency exposure denominated in the Mexican Peso and Polish Zloty using foreign currency forward contracts up to 48 months. The Company has designated some of its foreign currency contracts as cash flow hedging instruments. Interest Rate Risk The borrowings under the Company’s Senior Secured Credit Facilities (as subsequently defined) are at variable rates of interest and expose it to interest rate risk. If interest rates increase, debt service obligations on the variable rate indebtedness will increase even though the amount borrowed remains the same. The Company hedges a portion of its interest rate risk through interest rate swaps that exchange floating for fixed-rate interest payments and has designated these contracts as cash flow hedging instruments. Commodity Price Risk The principal raw material used in manufacturing aluminum wheels is aluminum alloys. While wheel prices under OEM customer contracts are adjusted for fluctuations in the cost of this material, the prices of its aftermarket wheels are generally fixed months in advance of the spring and winter sales seasons. Accordingly, the Company hedges a portion of its aftermarket aluminum purchases to offset the effect of fluctuating aluminum cost on its margins. In addition, the manufacture of aluminum wheels is energy-intensive so, the Company also fixes a portion of its natural gas and electricity purchases with derivatives or contractual arrangements with energy suppliers. Assets and Fair Values Measured at Fair Value on a Recurring Basis Asset and Liability Instruments 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 During the second quarter of 2025, the Company terminated its outstanding foreign exchange, commodity, and interest rate derivative instruments. The derivative instruments have been derecognized and amounts in accumulated other comprehensive income (loss) remain there until the forecasted transactions affect earnings unless the forecasted transaction becomes probable of not occurring. The fair value of the Company’s derivative instruments is estimated using the income valuation approach, which projects future cash flows and discounts 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 (Level 2). The discount rate used is the relevant benchmark rate (e.g., the secured overnight financing rate, “SOFR”) plus an adjustment for counterparty risk.
The fair value of the Company’s embedded derivatives is estimated using either a market based approach or an income based approach, which uses Company-specific inputs and assumptions (Level 3), such as discount rates.
The following tables display the fair value of derivatives by financial statement line item as of September 30, 2025 and December 31, 2024:
The following table summarizes the notional amount of the Company’s derivative financial instruments as of September 30, 2025 and December 31, 2024:
(1) Notional units are in thousands of British thermal units (Btu) (2) Notional units are in thousands of Metric Tons (MT) 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 the 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. The following table summarizes the gain or loss recognized in other comprehensive income (loss) (“OCI (OCL)”), the amounts reclassified from accumulated OCI or OCL into earnings, and the amounts recognized directly into earnings for the three and nine months ended September 30, 2025 and 2024:
The Company estimates approximately $22.5 million included in OCI or OCL at September 30, 2025 will be reclassified into net income (loss) within the following twelve months.
The Company has derivative liabilities associated with embedded features within its redeemable preferred stock (refer to Note 10 “Redeemable Shares”) and its term loan facility (refer to Note 8 “Debt and Other Financing Arrangements”).
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis In addition to items measured at fair value on a recurring basis, assets may be measured at fair value on a nonrecurring basis. These assets include long-lived assets and intangible assets which may be written down to fair value as a result of impairment.
Long-Lived Assets The Company evaluates its long-lived assets for impairment whenever events or circumstances indicate the value of these long-lived asset groups are not recoverable. As a result of the customer actions described in Note 2 “Basis of Presentation”, the Company concluded certain impairment triggers had occurred for its North America asset group during the second quarter of 2025. After failing the undiscounted cash flow recoverability test, the Company estimated the fair values of the long-lived assets within the North America asset group at June 30, 2025 and compared it to the net carrying value. The fair value measurements related to this long-lived asset group relies primarily on Company-specific inputs and the Company’s assumptions about the use of the assets, as observable inputs are not available (level 3). To determine the fair value of the long-lived asset group, the Company utilized an income-based and market-based approach. The Company believes the assumptions and estimates used to determine the estimated fair values of the long-lived asset group are reasonable; however, the estimates and assumptions are subject to a high degree of uncertainty. Due to the many variables inherent in estimating fair value differences in assumptions could have a material effect on the results of the analyses.
As the fair value of the North America long-lived asset group exceeded its net carrying value, the Company recorded a non-cash impairment charge of $66.9 million to property, plant, and equipment, during the second quarter of 2025.
Financial Instruments Not Carried at Fair Value Debt Instruments The carrying values of the Company’s debt instruments vary from their fair values. The fair values are determined by reference to quoted prices for similar instruments (Level 2). The estimated fair value, as well as the carrying value, of the Company’s debt instruments are shown below:
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