2012
ANNUAL
REPORT
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
7800 Woodley Avenue
Van Nuys, California 91406
TEL 818.781.4973
FAX 818.780.3500
www.supind.com
SUPERIOR INDUSTRIES INTERNaTIONal, INC.
is one of the world’s largest OEM suppliers of aluminum
road wheels for the global automotive industry.
Headquartered in Van Nuys, California, Superior
operates five manufacturing
facilities employing
approximately 4,000 people in the United States and
Mexico.
SUP
Listed
THE NEW YORK STOCK EXCHANGES
NYSE
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
ANNUAL REPORT 2012
Dear Fellow Shareholders:
1
We began 2013 and ended 2012 on a trajectory that we believe has positive long-
term implications for Superior Industries.
While 2012 financial results continued to be impacted by a number of operating
challenges, most notably our sustained high capacity utilization, the automotive
sector continues its recovery and is presenting solid growth opportunities.
The combination of challenges and opportunities has provided clarity on our
future direction, and in early March 2013, we announced a well-thought-out
decision to expand our manufacturing footprint by constructing a new facility
in Mexico—a location where we currently have operations and where several
vehicle assembly expansions have been announced and already are underway by
leading automotive manufacturers.
This major, positive step reflects both our confidence in the future and our
commitment to solidifying Superior’s position as being the largest aluminum
wheel manufacturer in North America. As well, it will allow us access to what
we believe will be continued market growth.
Financial Review
For 2012, unit shipments increased 7% over the prior year to 12.5 million from
11.7 million in 2011. Net sales for 2012 declined slightly to $821.5 million from
$822.2 million in 2011, in part, due to lower average selling prices resulting from
a decline in aluminum prices, which we pass on to customers.
Gross profit for 2012 amounted to $60.6 million, or 7 percent of net sales,
which included $3.5 million of a non-cash benefit from resolution of a foreign
consumption tax issue. Gross profit for 2011 was $67.1 million, or 8 percent of
net sales. The 2012 decline was attributable to the impact of higher manufacturing
costs, principally labor and maintenance, due to higher sales volume, as well as
equipment reliability and other challenges that reduced operating efficiencies,
especially in the older U.S. facilities.
Net income for 2012 was $30.9 million, or $1.13 per diluted share, which included
a tax expense of $3.6 million. For 2011, net income was $67.2 million, or $2.46
per diluted share, including a tax benefit of $25.2 million. The 10.4 percent
2012 effective income tax rate was impacted favorably by an $8.1 million net
benefit from the release of liabilities due to the settlement of a Mexico tax audit.
The 2011 income tax benefit resulted from a $42.3 million release of valuation
allowances carried against our U.S. and Mexico deferred tax assets, partially
offset by tax expense for U.S. and foreign income and other tax adjustments
recognized during the year.
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
ANNUAL REPORT 2012
2
Investing in the Future
We currently estimate that $125 million to $135 million will be required to
construct and equip our new facility, which we expect will initially produce
between 2.0 and 2.5 million wheels annually. Architectural plans currently are
underway, with completion of the design, construction and start-up expected to
span roughly two years and groundbreaking anticipated for this summer. Existing
liquidity is adequate to fund the project, but we are evaluating credit options.
While a specific site has yet to be selected, locating in Mexico allows us to
efficiently serve customers in that country, as well as in the U.S. Our current
operations in Mexico run smoothly and reliably under our strong leadership team
there, and we fully expect to continue to build upon our valuable experience and
proven capabilities.
With the excitement mounting, we remain focused on running our existing
business with excellence. We have been operating at capacity limits for almost
three years and we expect similar operating levels for the next two years. To help
shore up productivity and efficiency at our existing facilities, capital spending in
2012 was increased to $23 million, more than one-third higher than the prior year.
We expect such investments will increase again in 2013.
Our balance sheet remains extremely strong. Our working capital was $338.3
million at the end of 2012, including cash, cash equivalents and short-term
investments of $207.3 million, compared with working capital of $335.7 million,
including cash, cash equivalents and short-term investments of $192.9 million at
the end of 2011. Superior has no bank or other interest bearing debt.
A Long History of Dividends
As 2012 drew to a close, uncertainties existed in the U.S. relative to future
dividend tax rates. To mitigate potential increases in tax burden for many of our
shareholders, while ensuring we maintain our strong balance sheet, our Board of
Directors voted to accelerate payment of 2013 dividends into 2012.
Accordingly, shareholders of record as of December 21, 2012, received $0.64
per share in dividends on December 28, 2012. Such payments were in lieu of
quarterly dividends that would have been paid in calendar year 2013.
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
ANNUAL REPORT 2012
3
Leadership in our Industry
All of us at Superior are excited about the future and the steps we are taking
to solidify our position as the premier aluminum wheel supplier to the North
American automotive industry. We believe there are great opportunities to improve
the Company’s operating performance and which we are confident will translate to
enhanced shareholder value.
On behalf of our Board of Directors and management team, I thank our employees
for their tireless dedication and hard work, keeping Superior the very best in our
industry. I also express deep appreciation to our customers and to our shareholders
for their loyalty and support.
Sincerely,
Steven J. Borick,
Chairman, Chief Executive Officer and President
April 8, 2013
FINANCIAL HIGHLIGHTS
Fiscal Year Ended December 31,
2012
2011
2010
2009
2008
821,454
60,607
—
32,880
34,489
(3,598)
—
30,891
404,908
66,578
338,330
599,601
—
822,172
67,060
1,337
39,835
41,926
25,243
—
67,169
404,283
68,550
335,733
593,231
—
719,500
89,237
1,153
59,799
57,483
(2,993)
(2,847)
51,643
381,612
70,538
311,074
572,442
—
418,846
(10,169)
11,804
(44,618)
(43,255)
(26,047)
(24,840)
(94,142)
308,132
66,776
241,356
541,853
—
754,894
6,577
18,501
(37,668)
(28,573)
1,778
742
(26,053)
319,289
62,201
257,088
628,539
—
466,905
460,515
413,482
373,272
471,593
6.1:1
—%
6.7%
5.9:1
—%
15.4%
5.4:1
—%
13.1%
4.6:1
— %
(22.3)%
5.1:1
— %
(5.1)%
Statement of Operations ($ - 000s)
Net sales
Gross profit (loss)
Impairments of long-lived assets and other
charges
Income (loss) from operations
Income (loss) before income taxes
and equity earnings
Income tax (provision) benefit
Equity earnings (loss)
Net income (loss)
Balance Sheet ($ - 000s)
Current assets
Current liabilities
Working capital
Total assets
Long-term debt
Shareholders' equity
Financial Ratios
Current ratio
Long-term debt/total capitalization
Return on average shareholders' equity
Share Data
Net income (loss)
- Basic
- Diluted
Shareholders' equity at year-end
Dividends declared
$
$
$
$
1.13
1.13
17.11
1.12
$
$
$
$
$
$
$
$
2.48
2.46
16.96
0.64
$
$
$
$
1.93
1.93
15.40
0.64
$
$
$
$
(3.53)
(3.53)
14.00
0.64
$
$
$
$
(0.98)
(0.98)
17.68
0.64
2012
2011
High
Low
High
Low
20.22
20.27
18.42
19.79
$
$
$
$
16.26
15.50
15.75
16.51
$
$
$
$
25.67
26.34
22.71
20.01
$
$
$
$
18.42
19.59
14.17
14.54
QUARTERLY COMMON STOCK PRICE INFORMATION
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 30, 2012
OR
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)
California
(State or Other Jurisdiction of Incorporation or Organization)
95-2594729
(I.R.S. Employer Identification No.)
7800 Woodley Avenue
Van Nuys, California
(Address of Principal Executive Offices)
91406
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (818) 781-4973
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, no par value
Name of Each Exchange on Which Registered
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 [X]
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 [X]
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 [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted 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 and post such files). Yes [X] No [ ]
Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and
will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer [ ]
Accelerated filer [X]
Non-accelerated filer [ ]
Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of the registrant’s no par value common equity held by non-affiliates as of the last business day of the registrant’s
most recently completed second quarter was $444,026,000, based on a closing price of $16.31. On March 1, 2013, there were 27,312,613 shares
of common stock issued and outstanding.
Portions of the registrant’s 2013 Annual 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
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
Business.
Risk Factors.
Unresolved Staff Comments.
Properties.
Legal Proceedings.
Mine Safety Disclosures.
Executive Officers of the Registrant.
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.
PART IV
Item 15
Schedule II
SIGNATURES
Exhibits and Financial Statement Schedules.
Valuation and Qualifying Accounts.
PAGE
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58
S-1
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 may from time to time make written or oral statements in Management's Discussion and Analysis of Financial Condition
and Results of Operations, Letter to Shareholders and elsewhere in this report which constitute “forward-looking statements”
within the meaning of Section 27A of the Securities 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 and potential liability for environmental-related matters. 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” and similar expressions.
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 Item 1A - Risk Factors of this Annual Report on Form 10-K
and elsewhere in the Annual Report and those described from time to time in our future 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.
PART I
ITEM 1 - BUSINESS
General Development and Description of Business
Headquartered in Van Nuys, California, the principal business of Superior Industries International, Inc. (referred to herein as the
“company” or in the first person notation “we,” “us” and “our”) is the design and manufacture of aluminum road 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 wheel manufacturing operations in the United States and Mexico. Products made
in our North American facilities are delivered primarily to automotive assembly operations in North America, both for domestic
and internationally branded customers. Our OEM aluminum road wheels primarily are sold for factory installation, as either
optional or standard equipment, on many vehicle models manufactured by Ford, General Motors ("GM"), Chrysler Group LLC
("Chrysler"), BMW, Mitsubishi, Nissan, Subaru, Toyota and Volkswagen.
Production levels of the U.S. automotive industry for 2012 were 15.4 million vehicles, an 18 percent, or 2.3 million unit, increase
over 2011. We track annual production rates based on information from Ward's Automotive Group. The North American annual
production levels of automobiles and light-duty trucks (including SUV's and crossover vehicles) have recovered substantially
following the steep decline in production in 2009 caused by severe economic conditions and other factors. Current economic
conditions and low consumer interest rates have been generally supportive of market growth and, in addition, the relatively high
average age of vehicles on the road appears to be contributing to higher rates of vehicle replacement. It was reported in 2012 that
the average age of an automobile in the U.S. reached 11 years, a new record according to Polk Automotive Research.
In 2011, production of automobiles and light-duty trucks in North America reached 13.1 million units, an increase of 10 percent
over 2010. Production in 2010 reached 11.9 million units, an increase of 3.3 million, or 39 percent, from 8.6 million vehicles in
2009. An improved U.S. economy, low consumer interest rates and pent-up demand for vehicles following the recession all
contributed to market demand recovery.
The 2012 rate of vehicle production increase was strong in both automobiles and light-duty trucks. The international brands gained
market share in 2012, as their market share in 2011 was negatively impacted by lost production at Toyota and Honda due largely
to effects of the March 2011 earthquake and tsunami that occurred in Japan. In contrast to the overall market, the company's unit
sales to domestic brands grew more rapidly than to international brands.
Raw Materials
The raw materials used in producing our products are readily available and are obtained through numerous suppliers with whom
we have established trade relations. We purchase aluminum for the manufacture of our aluminum road wheels, which accounted
for the vast majority of our total raw material requirements during 2012. The majority of our aluminum requirements are met
through purchase orders with certain major domestic and foreign producers. Generally, the orders are fixed as to minimum and
maximum quantities of aluminum, which the producers must supply during the term of the orders. During 2012, we were able to
successfully secure aluminum commitments from our primary suppliers to meet production requirements and we anticipate being
able to source aluminum requirements to meet our expected level of production in 2013. We procure other raw materials through
numerous suppliers with whom we have established trade relationships.
When market conditions warrant, we may also 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. We currently have several purchase
commitments, placed in January 2013, for the delivery of natural gas through 2013. These natural gas contracts are considered
to be derivatives under U.S. GAAP, and when entering into these contracts, it was expected that we would take full delivery of
the contracted quantities of natural gas over the normal course of business. Accordingly, at inception, these contracts qualified
for the normal purchase, normal sale ("NPNS") exemption provided for under U.S. GAAP. As such, we do not account for these
purchase commitments as derivatives unless there is a change in facts or circumstances in regard to the company's intent or ability
to use the contracted quantities of natural gas over the normal course of business. See Note 11 - Commitments and Contingent
Liabilities in Notes to Consolidated Financial Statements in Item 8 - Financial Statements and Supplementary Data of this Annual
Report for further discussion of natural gas contracts.
1
Customer Dependence
We have proven our ability to be a consistent producer of quality aluminum wheels with the capability to meet our customers'
price, quality, delivery and service requirements. We strive to continually enhance our relationships with our customers through
continuous improvement programs, not only through our manufacturing operations but in the engineering, wheel development
and quality areas as well. These key business relationships have resulted in multiple vehicle supply contract awards with our key
customers over the past year.
Ford, GM and Chrysler were our only customers accounting for more than 10 percent of our consolidated net sales in 2012. Net
sales to these customers in 2012, 2011 and 2010 were as follows (dollars in millions):
Ford
GM
Chrysler
2012
2011
2010
Percent of
Net Sales
Dollars
Percent of
Net Sales
Dollars
Percent of
Net Sales
Dollars
38%
27%
12%
$313.3
$217.5
$95.4
35%
30%
11%
$286.5
$245.7
$90.3
33%
33%
14%
$239.6
$236.9
$97.7
The loss of all or a substantial portion of our sales to Ford, GM or Chrysler would have a significant adverse effect on our financial
results. See also Item 1A - Risk Factors - Customer Concentration of this Annual Report.
Foreign Operations
We manufacture a significant portion of our products in Mexico that are sold both in the United States and Mexico. Net sales of
wheels manufactured in our Mexico operations in 2012 totaled $505.2 million and represented 62 percent of our total net sales.
Net property, plant and equipment used in our operations in Mexico totaled $95.1 million at December 31, 2012. The overall cost
for us to manufacture wheels in Mexico currently is lower than in the U.S., in particular because of reduced labor cost due to lower
prevailing wage rates. Current advantages to manufacturing our product in Mexico can be affected by changes in cost structures,
trade protection laws, policies and other regulations affecting trade and investments, social, political, labor, or general economic
conditions in Mexico. Other factors that can affect the business and financial results of our Mexican operations include, but are
not limited to, valuation of the peso, availability and competency of personnel and tax regulations in Mexico. See also Item 1A-
Risk Factors - International Operations and Item 1A - Risk Factors - Foreign Currency Fluctuations.
Net Sales Backlog
We receive OEM purchase orders to produce aluminum road wheels typically for multiple model years. These purchase orders
are for vehicle wheel programs that usually last three to five years. However, competitive price clauses in such purchase orders
can affect our profit margins or the share of volume we are awarded under those purchase orders. We manufacture and ship based
on customer release schedules, normally provided on a weekly basis, which can vary in part due to changes in demand, industry
and/or customer maintenance cycles, new program introductions or dealer inventory levels. Accordingly, even though customer
purchase orders cover multiple model years, our management does not believe that our firm backlog is a meaningful indicator of
future operating results.
Competition
Competition in the market for aluminum road wheels is based primarily on price, technology, quality, delivery and overall customer
service. We are one of the leading suppliers of aluminum road wheels for OEM installations in the world, and currently are the
largest producer in North America. We currently supply approximately 26 percent of the aluminum wheels installed on passenger
cars and light trucks in North America. Competition is global in nature with growing exports from Asia into North America. There
are several competitors with facilities in North America, none of which represent greater than 12 percent individually of the total
North American production capacity based on our current estimation. See also Item 1A - Risk Factors - Competition of this Annual
Report. Other types of road wheels, such as those made of steel, also compete with our products. According to Ward's Automotive
Group, the aluminum wheel penetration rate on passenger cars and light trucks in the U.S. was 70 percent for the 2012 model year
compared to 65 percent for the 2011 model year and 65 percent for the 2010 model year. The penetration rate for aluminum wheels
has increased significantly since the mid-1980s, when this rate was only 10 percent. We expect the more recent trend of a stable
penetration rate for aluminum wheels to continue. However, several factors can affect this rate including price, fuel economy
2
requirements and styling preference. Although aluminum wheels currently are more costly than steel, aluminum is a lighter
material than steel and generally viewed as “more stylish" and thus more desirable to the OEMs and 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. A fully staffed
engineering center, located in Fayetteville, Arkansas, supports our research and development manufacturing needs. We also have
a technical center in Detroit, Michigan, that maintains a complement of engineering staff centrally located near our largest customers'
headquarters, engineering and purchasing offices.
Research and development costs (primarily engineering and related costs), which are expensed as incurred, are included in cost
of sales in our consolidated income statements. Amounts expended on research and development costs during each of the last
three years were $5.8 million in 2012; $5.3 million in 2011; and $4.9 million in 2010.
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. We believe that we are in compliance with all federal standards currently applicable to OEM
suppliers and to automotive manufacturers.
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 standards presently applicable. However, costs related to environmental
protection may grow due to increasingly stringent laws and regulations. The cost of environmental compliance was approximately
$0.3 million in 2012; $0.5 million in 2011; and $0.4 million in 2010. We expect that future environmental compliance expenditures
will approximate these levels and will not have a material effect on our consolidated financial position. Furthermore, 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. See also Item 1A - Risk Factors - Environmental Matters of this Annual Report.
Employees
As of December 31, 2012, we had approximately 3,900 full-time employees compared to approximately 3,800 employees at
December 31, 2011. None of our employees are covered by a collective bargaining agreement.
Fiscal Year End
Our fiscal year is the 52- or 53-week period ending generally on the last Sunday of the calendar year. The 2012 fiscal year
comprised the 53-week period ended December 30, 2012. The fiscal years 2011 and 2010 comprised the 52-week periods ended
on December 25, 2011, and December 26, 2010, respectively. For convenience of presentation, all fiscal years are referred to as
beginning as of January 1, and ending as of December 31, but actually reflect our financial position and results of operations for
the periods described above.
Segment Information
We operate as a single integrated business and, as such, have only one operating segment - automotive wheels. Financial information
about this segment and geographic areas is contained in Note 2 - Business Segments in Notes to Consolidated Financial Statements
in Item 8 - Financial Statements and Supplementary Data of this Annual Report.
Seasonal Variations
The automotive industry is cyclical and varies based on the timing of consumer purchases of vehicles, which in turn vary based
on a variety of factors such as general economic conditions, availability of consumer credit, interest rates and fuel costs. While
there have been no significant seasonal variations in the past few years, production schedules in our industry can vary significantly
from quarter to quarter to meet the scheduling demands of our customers.
3
Available Information
Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other information statements,
and any amendments thereto are available, without charge, on or through our website, www.supind.com, under “Investor,” as soon
as reasonably practicable after they are filed electronically with the Securities and Exchange Commission (SEC). The public may
read and copy any materials filed with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549.
Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC
also maintains a website, www.sec.gov, which contains these reports, proxy and information statements and other information
regarding the company. Also included on our website, www.supind.com under "Investor," is our Code of Conduct, which, among
others, applies to our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, and our SEC filings. Copies
of all SEC filings and our Code of Conduct are also available, without charge, upon request from Superior Industries International,
Inc., Shareholder Relations, 7800 Woodley Avenue, Van Nuys, CA 91406.
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 and financial condition
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 and financial condition. Our reactions to these risks and uncertainties as well as our competitors' reactions
will affect our future operating results.
Risks Relating To Our Company
Automotive Industry Trends - The majority of our sales are made in domestic U.S. markets and almost exclusively within North
America. Therefore, our financial performance depends largely on conditions in the 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. Despite the improvement in the U.S. automotive industry since the
global recession that began in 2008, vehicle production levels still remain below historical highs. There can be no guarantee that
the improvements in recent years will be sustained or that reductions from current production levels will not occur in future periods.
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 specific market penetration of individual vehicle platforms being sold by our customers. Although we have
witnessed significant recovery in demand for vehicles and our products since 2010, the events related to the global recession
beginning in 2008, such as the significant number of restructuring actions announced by our customers, including bankruptcy
reorganizations and planned assembly plant closures, demonstrate the degree to which industry volatility can occur and be beyond
the control of industry participants. There can be no assurances that industry recovery occurring since 2010 will be sustained.
Customer Concentration - Ford, GM and Chrysler, together represented approximately 77 percent of our total wheel sales in 2012.
Our OEM customers are not required to purchase any minimum amount of products from us. 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 on
terms acceptable to us in the future. The contracts we have entered into with most of our customers provide that we will provide
wheels for a particular vehicle model, rather than for manufacturing 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 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 and financial
condition.
4
Difficulties Associated with Fixed Capacity Levels - As a result of increased consumer demand for automobiles, as well as actions
previously taken by us to rationalize the costs associated with our business, we operated our business at near full capacity levels
for most of 2012. Our ability to increase manufacturing capacity may require significant investments in facilities, equipment and
personnel. To the extent that we make investments to increase manufacturing capacity and demand for our products is not sustained,
our results of operations and financial condition may be adversely affected. Conversely, if we choose not to make investments to
increase manufacturing capacity, our ability to meet customer demand for our products and increase revenues may be adversely
affected and any favorable impact may be delayed due to the length of time required before additional manufacturing capacity
becomes available. Additionally, operating our facilities at near full capacity levels may cause us to incur labor cost at premium
rates in order to meet customer requirements, experience increased maintenance expenses or require us to replace our machinery
and equipment on an accelerated basis, each of which could cause our results of operations and financial condition to be adversely
affected.
Future Expansion - In order to meet anticipated growth in demand for aluminum wheels in the North American market, we recently
announced plans to invest between $125 million and $135 million to build a new manufacturing facility in Mexico. The construction
of a new manufacturing facility entails a number of risks, including the ability to begin production within the cost and timeframe
estimated and to attract a sufficient number of skilled workers to meet the needs of the new facility. Additionally, our assessment
of the projected benefits associated with the construction of a new manufacturing facility is subject to a number of estimates and
assumptions, which in turn are subject to significant economic, competitive and other uncertainties that are beyond our control.
If we experience delays or increased costs, our estimates and assumptions are incorrect, or other unforeseen events occur, our
business, financial condition and results of operations could be adversely impacted.
Although our existing liquidity is currently adequate to fund the project, dedication of our financial resources to this project will
reduce our liquidity and working capital, which in turn may limit our flexibility to pursue other initiatives to grow our business
or to return capital to our shareholders. After making such an investment, a significant change in our business, the economy or
an unexpected decrease in our cash flow for any reason could result in the need for outside financing.
Customer Leverage Over Suppliers - Our OEM customers typically attempt to qualify more than one wheel supplier for the
programs we participate on and for programs we may bid on in the future. To the extent that supplier capacity and other factors
permit, our customers exerting leverage may result in decreased sales volumes and unit price reductions, resulting in lower revenues,
gross profit, operating income and cash flows.
Additionally, the vehicle market is highly competitive at the OEM level, which drives continual cost-cutting initiatives by our
customers. Our OEM customers historically have reacted by exerting significant leverage over their outside suppliers. Customer
concentration, relative supplier fragmentation and product commoditization have translated into continual pressure from OEMs
to reduce the price of our products. If we are unable to generate sufficient production cost savings in the future to offset price
reductions, our gross margin, rate of profitability and cash flows would be adversely affected. In addition, changes in OEMs'
purchasing policies or payment practices could have an adverse effect on our business.
Competition - The automotive component supply industry is highly competitive, both domestically and internationally. Competition
is based primarily on price, technology, quality, delivery and overall customer service. 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. 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 pose a significant threat to our ability to
compete internationally and domestically. These factors have led to sourcing of future business by our customers 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 than we are able to, develop products that are superior to our products, have the ability
to produce similar products at a lower cost than we do, or adapt more quickly than we do to new technologies or evolving customer
requirements. Consequently, our products may not be able to compete successfully with their products.
Dependence on Third-Party Suppliers and Manufacturers - 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/demand
relationship for that commodity or governmental regulation. 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.
Although we are able to periodically pass aluminum cost increases onto our customers, we may not be able to pass along all
changes in aluminum costs and our customers are not obligated to accept energy or other supply cost increases that we may attempt
5
to pass along to them. In addition, fixed price natural gas contracts that expire in the future may expose us to higher costs that
cannot be immediately recouped in selling prices. This inability to pass on these cost increases to our customers could adversely
affect our operating margins and cash flow, possibly resulting in lower operating income and profitability.
Unexpected Production Interruptions - An interruption in production capabilities at any of our facilities as a result of equipment
failure, interruption of raw material or other supplies, labor disputes or other reasons could result in our inability to produce our
products, which would reduce our sales and operating results for the affected period and harm our customer relationships. We
have, from time to time, undertaken significant re-tooling and modernization initiatives at our facilities which in the past have
caused, and in the future may cause, unexpected delays and plant underutilization, and such adverse consequences may continue
to occur as we continue to modernize our production facilities. In addition, we generally deliver our products only after receiving
the order from the customer and thus typically do not hold large inventories. In the event of a stoppage in production at any of
our manufacturing facilities, even if only temporary, or if we experience delays as a result of events that are beyond our control,
delivery times could be severely affected. Any significant delay in deliveries to our customers could lead to premium freight costs
and other performance penalties, as well as contract cancellations, and cause us to lose future sales and expose us to other claims
for damages. Our manufacturing facilities are also subject to the risk of catastrophic loss due to unanticipated events such as fires,
earthquakes, explosions or violent weather conditions. We have in the past and may in the future experience plant shutdowns or
periods of reduced production which could have a material adverse effect on our results of operations or financial condition.
It also is possible that our customers may experience production delays for a variety of reasons, which in-part could include supply-
chain disruption for parts other than wheels that negatively affect assembly rates of vehicles using our parts, equipment breakdowns
or other events affecting assembly rates that impact us, work stoppages or slow-downs at factories where our products are consumed,
or even catastrophic events such as fires, disruptive weather conditions or natural disasters.
Impact of Aluminum Pricing - The cost of aluminum is a significant component in the overall cost of a wheel and a portion of our
selling prices to OEM customers is attributable to the cost of aluminum. The price for aluminum we purchase is adjusted monthly
based primarily on changes in certain published market indices. Our selling prices are adjusted periodically based upon aluminum
market price changes, but the timing of such adjustments are based on specific customer agreements and can vary from monthly
to quarterly to semi-annually. In addition, the timing of aluminum price adjustments flowing through sales rarely will match the
timing of such changes in cost. This is especially true during periods of frequent increases or decreases in the market price of
aluminum and when a portion of our aluminum purchases is via long-term fixed purchase agreements. Accordingly, our gross
profit is subject to fluctuations, since the change in the product selling prices related to the cost of aluminum does not necessarily
match the change in the aluminum raw material purchase prices during the period being reported, which may have an adverse
effect on our operating results for the period being reported.
Legal Proceedings - The nature of our business subjects 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 assure you that we will be able to maintain such
insurance on acceptable terms or that such insurance will provide adequate protection against potential liabilities. In addition, if
any of our products prove to be defective, we may be required to participate in a recall involving such products. 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 or financial condition. We cannot give assurance that any current
or future claims will not adversely affect our cash flows, financial condition or results of operations.
Implementation of Operational Improvements - As part of our ongoing focus on being a low-cost provider of high quality products,
we continually analyze our business to further improve our operations and identify cost-cutting measures. Our continued analysis
may include identifying and implementing opportunities for: (i) further rationalization of manufacturing capacity; (ii) streamlining
of marketing and general and administrative overhead; (iii) implementation of lean manufacturing and Six Sigma initiatives; or
(iv) efficient investment in new equipment and technologies and the upgrading of existing equipment. 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 also are making it increasingly more difficult to reduce our costs. It is also possible that as we incur
costs to implement improvement strategies, the initial impact on our financial position, results of operations and cash flow may
be negative. The impact of these factors on our future financial position and results of operations may be negative, to an extent
that cannot be predicted, and we may not be able to implement sufficient cost saving strategies to mitigate any future impact.
6
New Product Introduction - In order to effectively compete in the automotive supply industry, we must be able to launch new
products to meet our customers' demand in a timely manner. However, we cannot ensure that we will be able to install and certify
the equipment needed to produce products for new product programs in time for the start of production, or that the transitioning
of our manufacturing facilities and resources to full production 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 on schedule
the launch of their new product programs, for which we might supply products. Our failure to successfully launch new products,
or a failure by our customers to successfully launch new programs, could adversely affect our results.
Technological and Regulatory Changes - Changes in legislative, regulatory or industry requirements or in competitive technologies
may render certain of our products obsolete or less attractive. Our ability to anticipate changes in technology and regulatory
standards and to successfully develop and introduce new and enhanced products on a timely basis will be a significant factor in
our ability to remain competitive. We cannot ensure that we will be able to achieve the technological advances that may be
necessary for us to remain competitive or that certain of our products will not become obsolete. 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.
International Operations - We manufacture a substantial portion of our products in Mexico and have a minor investment in a
wheel manufacturing company in India. Accordingly, we sell our products internationally. Unfavorable changes in foreign cost
structures, trade protection laws, policies and other regulations affecting trade and investments, social, political, labor, or economic
conditions in a specific country or region, including foreign exchange rates, difficulties in staffing and managing foreign operations
and foreign tax consequences, among other factors, could have a negative effect on our business and results of operations.
Foreign Currency Fluctuations - Due to the growth of our operations outside of the United States, we have experienced increased
exposure to foreign currency gains and losses in the ordinary course of our business. As a result, fluctuations in the exchange rate
between the U.S. dollar, the Mexican peso and any currencies of other countries in which we conduct our business may have a
material impact on our financial condition as cash flows generated in foreign currencies may be used, in part, to service our U.S.
dollar-denominated liabilities, or vice versa.
In addition, fluctuations in foreign currency exchange rates may affect the value of our foreign assets as reported in U.S. dollars,
and may adversely affect reported earnings and, accordingly, the comparability of period-to-period results of operations. Changes
in currency exchange rates 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 may affect the cost of certain items required in our operations. We
cannot ensure that fluctuations in exchange rates 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.
Environmental Matters - 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.
Under certain of these laws, ordinances or regulations, a current or previous owner or operator of property may be liable for the
costs of removal or remediation of certain hazardous substances on, under, or in its property, without regard to whether the owner
or operator knew of, or caused, the presence of the contaminants, and regardless of whether the practices that resulted in the
contamination were legal at the time they occurred. The presence of, or failure to remediate properly, such substances may
adversely affect the ability to sell or rent such property or to borrow using such property as collateral. Persons who generate,
arrange for the disposal or treatment of, or dispose of hazardous substances may be liable for the costs of investigation, remediation
or removal of these hazardous substances at or from the disposal or treatment facility, regardless of whether the facility is owned
or operated by that person. Additionally, the owner of a site may be subject to common law claims by third parties based on
damages and costs resulting from environmental contamination emanating from a site. Future developments could lead to material
costs of environmental compliance for us. 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 health. We are also required to obtain permits from governmental
authorities for certain operations. We cannot ensure that we have been or will be at all times in complete compliance with such
permits. If we violate or fail to comply with these permits, we could be fined or otherwise sanctioned by regulators. In some
instances, such a fine or sanction could be material. In addition, some of our properties are subject to indemnification and/or
cleanup obligations of third parties with respect to environmental matters. However, in the event of the insolvency or bankruptcy
of such third parties, we could be required to bear the liabilities that would otherwise be the responsibility of such third parties.
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 product. On December 15, 2009, the U.S. Environmental Protection Agency (EPA)
7
published its findings that emissions of carbon dioxide, methane and other “greenhouse gases” present an endangerment to public
health and the environment because emissions of such gases are, according to the EPA, contributing to warming of the earth's
atmosphere and other climatic changes. These findings allow the EPA to adopt and implement regulations that would restrict
emissions of greenhouse gases under existing provisions of the federal Clean Air Act. Accordingly, the EPA has proposed regulations
that would require a reduction in emissions of greenhouse gases from motor vehicles and could trigger permit review for greenhouse
gas emissions from certain stationary sources. In addition, on October 30, 2009, the EPA published a final rule requiring the
reporting of greenhouse gas emissions from specified large greenhouse gas emission sources in the United States, including
facilities that emit more than 25,000 tons of greenhouse gases on an annual basis, beginning in 2011 for emissions occurring in
2010. At the state level, more than one-third of the states, either individually or through multi-state regional initiatives, already
have begun implementing legal measures to reduce emissions of greenhouse gases. The adoption and implementation of any
regulations imposing reporting obligations on, or limiting emissions of greenhouse gases from, our equipment and operations or
from the vehicles that use our product could adversely affect demand for those vehicles or require us to incur costs to reduce
emissions of greenhouse gases associated with our operations.
We incur significant costs to comply with applicable environmental, health and safety laws and regulations in the ordinary course
of our business. Given the nature of our operations and the extensive environmental, public health and safety regulatory framework,
the clear course of action is to place more restrictions and limitations on activities that may be perceived to affect the environment.
Management expects environmental laws and regulations to impose increasingly stringent requirements upon the company and
the industry in the future. Such regulation changes may have a significant impact on our cash flows, financial condition and results
of operations.
Dependence on Key Personnel - Our success depends in part on our ability to attract, hire, train, and retain qualified managerial,
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. We may be unsuccessful in replacing key managers who either resign or retire. The loss of any member
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 reduced net sales, or lead to employee morale problems and/or the
loss of other key employees. In any such event, our financial condition, results of operations, internal control over financial
reporting, or cash flows could be adversely affected.
Effective Internal Control Over Financial Reporting - Management is responsible for establishing and maintaining adequate
internal control over financial reporting. Many of our key controls rely on maintaining a sufficient complement of personnel with
an appropriate level of accounting knowledge, experience and training in the application of accounting principles generally accepted
in the United States of America in order to operate effectively. Material weaknesses or deficiencies may cause our financial
statements to contain material misstatements, unintentional errors, or omissions and late filings with regulatory agencies may
occur.
Implementation of New Systems - We implemented a new enterprise resource planning system as of the beginning of the second
quarter of 2010. We encountered technical and operating difficulties during and following the implementation process, as our
employees learned and operated the new system which is critical to the management of and reporting of results for our operations.
Any similar disruption while implementing other new systems could have an adverse impact on our financial condition, cash flows
or results of operations and could prevent us from effectively reporting our financial results in a timely manner. In addition, the
costs incurred in correcting any errors or problems with the new system could be substantial.
Cybersecurity - A cyber-attack that bypasses our information technology ("IT") security systems causing an IT security breach,
may lead to a material disruption of our IT business systems and/or the loss of business information resulting in adverse consequences
to our business, including: an adverse impact on our operations due to the theft, destruction, loss, misappropriation or release of
confidential data or intellectual property, operational or business delays resulting from the disruption of IT systems and subsequent
clean-up and mitigation activities, inability to timely prepare and file our financial reports with the Securities Exchange Commission
and negative publicity resulting in reputation or brand damage with our customers, partners or industry peers.
ITEM 1B - UNRESOLVED STAFF COMMENTS
None.
ITEM 2 - PROPERTIES
8
Our worldwide headquarters is located in leased office space in Van Nuys, California. We currently maintain and operate a total
of five facilities that produce aluminum wheels for the automotive industry, located in Arkansas and Chihuahua, Mexico. These
five facilities encompass 2,466,000 square feet of manufacturing space and 30,000 square feet of office space. We own all of
these facilities with the exception of one warehouse in Rogers, Arkansas, and our worldwide headquarters located in Van Nuys,
California that are leased.
In general, these facilities, which have been constructed at various times over the past several years, are in good operating condition
and are adequate to meet our current productive 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 keep technologically
competitive on a worldwide basis.
Additionally, reference is made to Note 1 - Summary of Significant Accounting Policies, Note 5 - Property, Plant and Equipment
and Note 8 - Leases and Related Parties, in 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. See also under Item 1A - Risk
Factors - Legal Proceedings of this Annual Report.
ITEM 4 - MINE SAFETY DISCLOSURES
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding executive officers who are also Directors is contained in our 2013 Annual Proxy Statement under the caption
“Election of Directors.” Such information is incorporated into Part III, Item 10 – Directors, Executive Officers and Corporate
Governance. With the exception of the Chief Executive Officer ("CEO"), 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 CEO’s employment agreement, see
“Employment Agreements” in our 2013 Annual Proxy Statement, which is incorporated herein by reference.
Listed below are the name, age, position and business experience of each of our officers who are not directors:
9
Name
Michael Bakaric
Robert D. Bracy
Emory Brown
Robert A. Earnest
Stephen H. Gamble
Parveen Kakar
Age
45
65
52
51
58
46
Position
Vice President, Midwest Operations
President - Harrison Division of Pace Industries, a die
castings manufacturer
Vice President - Auburn Division of Pace Industries
Senior Vice President, Facilities
Vice President, Project Management
Director of Technology, Wieland Copper Products, a
copper tube manufacturer
Owner, Principal in Charge & Record, Spartan
Engineering, an engineering services firm
Director of Project Engineering & Environmental
Services, Pace Industries
Vice President, General Counsel and
Corporate Secretary
Director, Tax and Legal and Corporate Secretary
Vice President, Treasurer
Senior Vice President, Corporate Engineering and
Product Development
Vice President, Program Development
Mike Nelson
58
Vice President and Corporate Controller
Michael J. O’Rourke
Razmik Perian
Kerry A. Shiba
Gabriel Soto
Cameron Toyne
52
55
58
64
53
Chief Accounting and Financial Officer, Youbet.com,
an internet company offering horse race betting
Executive Vice President, Sales, Marketing and
Operations
Senior Vice President, Sales and Administration
Chief Information Officer
Executive Vice President and Chief Financial Officer
Director - Ramsey Industries, LLC., a manufacturer of
winches, truck mounted cranes and industrial drives
Senior Vice President and Chief Financial Officer -
Remy International, a manufacturer of electrical
automotive components
Vice President, Mexico Operations
Vice President, Supply Chain Management
Vice President, Purchasing
Director of Purchasing
Felicia Williams
53
Vice President, Human Resources
Vice President & Chief Human Resource Officer,
Endicott Interconnect Technologies, a supplier of
advanced electronic packaging solutions
Assumed
Position
2011
2009
2008
2005
2012
2010
2009
2003
2007
2006
2006
2008
2003
2011
2007
2009
2003
2006
2010
2010
2006
2004
2008
2007
2004
2012
2008
10
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the New York Stock Exchange (symbol: SUP). We had approximately 500 shareholders of record
and 27.3 million shares issued and outstanding as of March 1, 2013.
2007
2008
2009
2010
2011
2012
Dividends
Superior
Industries
International, Inc.
100.00
$
$
$
$
$
$
60.79
92.48
133.14
106.33
140.56
$
$
$
$
$
$
Dow Jones
US Total
Market Index
Dow Jones
US Auto
Parts Index
100.00
62.84
80.93
94.40
95.67
111.29
$
$
$
$
$
$
100.00
49.82
74.32
117.55
103.69
116.04
Cash dividends declared totaled $1.12 and $0.64 during 2012 and 2011, respectively. During 2012 and 2011, the company declared
and paid a regular dividend each quarter of $0.16 per share. In addition, dividends declared and paid in 2012 included an accelerated
11
payment of the 2013 regular cash dividend of $0.64 that was paid in December 2012. The company's Board of Directors approved
an accelerated payment of the 2013 regular cash dividends into 2012. The accelerated dividend payment is intended to be in lieu
of regular quarterly dividends that the company would have paid in calendar year 2013. Continuation of dividends is contingent
upon various factors, including economic and market conditions, none of which can be accurately predicted, and the approval of
our Board of Directors.
Quarterly Common Stock Price Information
The following table sets forth the high and low sales price per share of our common stock during the periods indicated.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2012
2011
High
Low
High
Low
$
$
$
$
20.22
20.27
18.42
19.79
$
$
$
$
16.26
15.50
15.75
16.51
$
$
$
$
25.67
26.34
22.71
20.01
$
$
$
$
18.42
19.59
14.17
14.54
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On March 17, 2000, the Board of Directors authorized the repurchase of 4.0 million shares of our common stock as part of the
2000 Stock Repurchase Plan ("Repurchase Plan"). During the last two fiscal years, there were no repurchases of common stock.
As of December 31, 2012, approximately 3.2 million shares remained available for repurchase under the Repurchase Plan.
Recent Sales of Unregistered Securities
During the fiscal year 2012, there were no sales of unregistered securities.
ITEM 6 - SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction with Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations and Item 8 - Financial Statements and Supplementary Data of this
Annual Report.
Our fiscal year is the 52- or 53-week period ending generally on the last Sunday of the calendar year. The 2012 fiscal year
comprised the 53-week period ended December 30, 2012. The fiscal years 2011 and 2010 comprised the 52-week periods ended
on December 25, 2011, and December 26, 2010, respectively. For convenience of presentation, all fiscal years are referred to as
beginning as of January 1, and ending as of December 31, but actually reflect our financial position and results of operations for
the periods described above.
12
Fiscal Year Ended December 31,
2012
2011
2010
2009
2008
Statement of Operations (000s)
Net sales
$
821,454
$
822,172
$
719,500
$ 418,846
$ 754,894
Gross profit (loss)
Impairments of long-lived assets and other
charges
Income (loss) from operations
Income (loss) before income taxes
and equity earnings
Income tax (provision) benefit (1)
Equity earnings (loss) (2)
Net income (loss)
Balance Sheet (000s)
Current assets
Current liabilities
Working capital
Total assets
Long-term debt
Shareholders' equity
Financial Ratios
Current ratio (3)
Long-term debt/total capitalization (4)
Return on average shareholders' equity (5)
Share Data
Net income (loss)
- Basic
- Diluted
Shareholders' equity at year-end
Dividends declared
$
$
$
$
$
$
$
$
$
$
$
60,607
—
32,880
34,489
(3,598)
—
30,891
404,908
66,578
338,330
599,601
67,060
1,337
39,835
41,926
25,243
—
67,169
404,283
68,550
335,733
593,231
$
$
$
$
$
$
$
$
$
$
89,237
(10,169)
6,577
1,153
59,799
57,483
(2,993)
(2,847)
51,643
11,804
(44,618)
(43,255)
(26,047)
(24,840)
18,501
(37,668)
(28,573)
1,778
742
$ (94,142)
$ (26,053)
381,612
$ 308,132
$ 319,289
70,538
$
66,776
$
62,201
311,074
$ 241,356
$ 257,088
572,442
$ 541,853
$ 628,539
— $
— $
— $
— $
—
466,905
$
460,515
$
413,482
$ 373,272
$ 471,593
6.1:1
—%
6.7%
5.9:1
—%
15.4%
5.4:1
—%
13.1%
4.6:1
— %
(22.3)%
5.1:1
— %
(5.1)%
1.13
1.13
17.11
1.12
$
$
$
$
2.48
2.46
16.96
0.64
$
$
$
$
1.93
1.93
15.40
0.64
$
$
$
$
(3.53)
(3.53)
14.00
0.64
$
$
$
$
(0.98)
(0.98)
17.68
0.64
(1) See Note 7 - Income Taxes in Notes to Consolidated Financial Statements in Item 8 - Financial Statements and Supplementary Data in this
Annual Report for a discussion of material items impacting the 2012, 2011 and 2010 income tax provisions.
(2) See Note 6 - Investments in Unconsolidated Affiliates in Notes to Consolidated Financial Statements in Item 8 - Financial Statements and
Supplementary Data in this Annual Report for a discussion of material items impacting our 2010 unconsolidated affiliate losses.
(3) The current ratio is current assets divided by current liabilities.
(4) Long-term debt/total capitalization represents long-term debt divided by the sum of total shareholders' equity plus long-term debt.
(5) Return on average shareholders' equity is net income (loss) divided by average shareholders' equity. Average shareholders' equity is the
beginning of the year shareholders' equity plus the end of year shareholders' equity divided by two.
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. 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.
13
Executive Overview
Overall North American production of passenger cars and light trucks in 2012 was reported by industry publications as being up
by approximately 18 percent versus 2011, with production of passenger cars increasing 23 percent and production of light trucks
and SUVs increasing 13 percent. While current production levels of the U.S. automotive industry are better than 2011 levels, they
are still below historical highs. Results for 2012, 2011 and 2010 reflect the substantial recovery in the market for our products
following the steep decline in production in 2009 caused by severe economic conditions and other factors affecting the U.S.
automobile industry. Current economic conditions and low consumer interest rates have been generally supportive of market
growth and, in addition, the continuing increase in the average age of vehicles on the road appears to be contributing to higher
rates of vehicle replacement.
Net sales in 2012 decreased $0.7 million to $821.5 million from $822.2 million in 2011. Wheel sales in 2012 decreased $0.6
million to $812.4 million from $813.0 million in 2011, while our wheel unit shipments increased 0.8 million to 12.5 million in
2012. Gross profit in 2012 was $60.6 million, or 7 percent of net sales, compared to $67.1 million, or 8 percent of net sales, in
2011. Net income for 2012 was $30.9 million, or $1.13 per diluted share, including income tax expense of $3.6 million, compared
to net income in 2011 of $67.2 million, or $2.46 per diluted share, which included an income tax benefit of $25.2 million. The
2011 tax benefit primarily resulted from the release of deferred tax asset valuation allowances established in prior years.
The comparisons below of 2012 and 2011 operating results reflect lower margins due to higher costs incurred in 2012. Higher
costs in 2012 resulted from equipment reliability problems and manufacturing process issues with certain wheel programs which
continued to increase our costs during sustained periods of high manufacturing capacity utilization. The comparisons below of
2011 and 2010 operating results reflect competitive pricing pressures and difficulties commercializing new product programs, as
well as operating issues occurring during sustained high-volume production which led to higher costs and lower margins overall
in 2011.
We are continuing to identify and implement action plans to improve our operational performance and mitigate the impact of
continuing negative pricing pressure on our operating results and financial condition. We continue to focus on programs to reduce
costs overall through improved operational and procurement practices, and increased capital reinvestment and factory maintenance
to improve equipment reliability. However, it is possible that global pricing pressures may continue at a rate faster than our ability
to achieve cost reductions which reflect the inherently time-consuming nature of developing and implementing these cost reduction
programs. Furthermore, our capital investment projects have increased significantly since the relatively low capital spending
levels experienced during the last few years as a result of the downturn in the automotive industry. Our capital investment projects
have typically consisted of equipment upgrades and other capital projects that are focused on improving equipment reliability and
efficiencies on newer, more complex wheel programs, in order to control labor and other costs. It is possible that capital expenditure
levels will continue at these higher levels as we continue to seek to improve operational efficiencies and manufacturing process
capability. In addition, although we have a portion of our natural gas requirements covered by fixed-price contracts expiring
through 2013, costs may increase to a level that cannot be immediately recouped in selling prices or offset by cost-saving strategies.
In order to meet anticipated growth in demand for aluminum wheels in the North American market, we recently announced plans
to invest between $125 million and $135 million to build a new manufacturing facility in Mexico, which we currently project will
open in late 2015.
Listed in the table below are several key indicators we use to monitor our financial condition and operating performance.
14
Results of Operations
Fiscal Year Ended December 31,
(Thousands of dollars, except per share amounts)
Net sales
Gross profit
Percentage of net sales
Income from operations
Percentage of net sales
Net income
Percentage of net sales
Diluted earnings per share
Net Sales
2012 versus 2011
2012
2011
2010
$
$
$
$
$
821,454
60,607
7.4%
32,880
4.0%
30,891
3.8%
1.13
$
$
$
$
$
822,172
67,060
8.2%
39,835
4.8%
67,169
8.2%
2.46
$
$
$
$
$
719,500
89,237
12.4%
59,799
8.3%
51,643
7.2%
1.93
Net sales in 2012 decreased $0.7 million to $821.5 million from $822.2 million in 2011. Wheel sales in 2012 decreased $0.6
million to $812.4 million from $813.0 million in 2011. Wheel shipments increased by 7 percent compared to 2011 with the
increased volume contributing approximately $53.6 million in additional revenue. However, the favorable volume impact was
substantially offset by a decline in the value of the aluminum component of sales which we generally pass through to our customers.
The decline in aluminum value resulted in $49.7 million lower revenues, and also was the primary cause of a 6 percent reduction
in the average selling price of our wheels. Additional factors leading to the overall change in sales such as the mix of wheel sizes
and finishes sold were not individually material. Increases in unit shipments to Ford, Toyota, Chrysler and BMW were partially
offset by declines in unit shipments to GM, Nissan, Subaru and Mitsubishi. Wheel program development revenues totaled $9.1
million in 2012 and $9.2 million in 2011.
U.S. Operations
Net sales of our U.S. wheel plants in 2012 increased $14.3 million, or 5 percent, to $308.0 million from $293.7 million a year ago,
reflecting an increase in unit shipments partially offset by decreases in the average selling prices of our wheels. Unit shipments
increased 13 percent in 2012, with the higher volume contributing approximately $38.4 million to the sales increase. The volume
impact was partially offset by a 7 percent decrease in the average selling price of our wheels, primarily due to the decrease in the
pass-through price of aluminum. The decline in aluminum value reduced revenues by approximately $19.9 million in 2012 when
compared to 2011. Additional factors leading to the overall change in U.S. operations sales such as the mix of wheel sizes and
finishes sold were not individually material.
Mexico Operations
Net sales of our Mexico wheel plants in 2012 decreased $15.0 million, or 3 percent, to $504.3 million from $519.3 million in
2011, reflecting a decrease in average selling prices of our wheels somewhat offset by an increase in unit shipments. Unit shipments
increased 3 percent in 2012, with the higher volume contributing approximately $15.2 million in revenues. However, impact of
the volume increase was offset by a 5 percent decrease in the average selling price of our wheels in 2012 primarily resulting from
a lower pass-through price of aluminum. The decline in aluminum value reduced revenues approximately $29.8 million when
compared to 2011. Additional factors leading to the overall change in Mexico operations sales such as the mix of wheel sizes and
finishes sold were not individually material.
2011 versus 2010
Net sales in 2011 increased $102.7 million, or 14 percent, to $822.2 million from $719.5 million in 2010. Wheel sales in 2011
increased $103.5 million, or 15 percent, to $813.0 million from $709.5 million in 2010. Wheel shipments increased by 6 percent
compared to 2010, with the increased volume contributing approximately $47.2 million to the sales increase. Changes in aluminum
price, which we generally pass through to our customers, contributed approximately $55.4 million to the sales increase and was
the primary driver of the 7 percent increase in the average selling price of our wheels. Additional factors leading to the overall
change in sales such as the mix of wheel sizes and finishes sold were not individually material. Increases in unit shipments to
Ford, BMW and Nissan were partially offset by declines in unit shipments to Chrysler. Wheel program development revenues
totaled $9.2 million in 2011 and $10.0 million in 2010.
15
U.S. Operations
Net sales of our U.S. wheel plants in 2011 increased $50.5 million, or 21 percent, to $293.7 million from $243.2 million a year
ago, reflecting both an increase in unit shipments and average selling prices of our wheels. Unit shipments increased 9 percent
in 2011, with the higher volume contributing approximately $21.8 million to the sales increase. The increase in sales also reflects
a 12 percent increase in the average selling price of our wheels, primarily due to the increase in the pass-through price of aluminum.
The increase in aluminum value accounted for approximately $18.9 million of the sales increase in 2011 when compared to 2010.
Additional factors leading to the overall change in U.S. operations sales such as the mix of wheel sizes and finishes sold were not
individually material.
Mexico Operations
Net sales of our Mexico wheel plants in 2011 increased $54.4 million, or 12 percent, to $519.3 million from $464.9 million in
2010, reflecting both an increase in unit shipments and average selling prices of our wheels. Unit shipments increased 5 percent
in 2011, with the higher volume contributing approximately $25.3 million to the sales increase. The increase in sales also reflects
a 6 percent increase in the average selling price primarily resulting from higher pass-through price of aluminum. The increase in
aluminum value accounted for approximately $36.5 million of the sales increase in 2011 as compared to 2010. Additional factors
leading to the overall change in Mexico operations sales such as the mix of wheel sizes and finishes sold were not individually
material.
When looking at our major customer mix, OEM unit shipment percentages were as follows:
Fiscal Year Ended December 31,
Ford
GM
Chrysler
International customers
Total
2012
37%
27%
12%
24%
2011
34%
30%
11%
25%
2010
32%
32%
14%
22%
100%
100%
100%
According to Ward's Auto Info Bank, overall North American production of passenger cars and light trucks in 2012 increased
approximately 18 percent, while production of the specific passenger car and light truck programs using our wheels increased 11
percent. In contrast to the market, our total shipments increased 7 percent as lack of available manufacturing capacity was a key
factor constraining our ability to participate fully in the market growth. As a result, our share of the North American aluminum
wheel market decreased by 4 percentage points on a year-over-year basis, with the share decline lower when measured against
wheel programs where we currently are qualified to participate. The decline in market share was only 1 percentage point in light
trucks and SUV's, with the majority of the overall decline related to our participation in passenger car programs.
According to Ward's Automotive Group, aluminum wheel installation rates on passenger cars and light trucks in the U.S. have
increased in the 2012 model year after remaining flat for the model years 2011 and 2010 -- 70 percent for the 2012 model year
compared to 65 percent for the 2011 and 2010 model years. Aluminum wheel installation rates have increased to the current level
since the mid-1980s, when this rate was only 10 percent. We expect the more recent trend of slow growth or no growth in the
aluminum penetration rate to continue. In addition, our ability to increase net sales and sales volume in the future may be negatively
impacted by continued customer pricing pressures, limits in our production capacity and overall economic conditions that impact
the sales of passenger cars and light trucks.
At the customer level, shipments in 2012 to Ford increased 18 percent compared to last year, as light truck and SUV wheel
shipments increased 27 percent and shipments of passenger car wheels decreased 5 percent. At the program level, the major unit
shipment increases were for the Escape, the F-Series trucks, Taurus, Flex and Explorer with shipment decreases for the Fusion
and the out-of-production Lincoln Town Car.
Shipments to GM in 2012 decreased 6 percent compared to 2011, as unit volume of passenger car wheels decreased 27 percent
and light truck and SUV wheel shipments increased slightly. The major unit shipment decreases to GM were for Chevrolet’s
Malibu and Traverse, which were partially offset by major unit shipment increases for GMT 900 platform vehicles and the Chevrolet
Impala.
Shipments to Chrysler in 2012 increased 17 percent compared to last year, as unit volume of passenger car wheels increased 22
percent and light truck and SUV wheel shipments increased 17 percent. The major unit shipment increases to Chrysler were for
16
the Jeep Compass and Grand Cherokee, Chrysler's Town & Country and the Dodge Journey, which were partially offset by major
unit shipment decreases for the discontinued Dodge Nitro.
Shipments to international customers in 2012 increased 2 percent compared to 2011, as shipments of light truck and SUV wheels
increased 12 percent and shipments of passenger car wheels decreased 4 percent. This increase was led by higher unit shipments
to Toyota and BMW, with 2012 shipments to each of these customers up 26 percent over the prior year, while 2012 shipments to
Nissan decreased 11 percent, when compared to last year. The 2012 increase in our shipments to Toyota partially reflects their
recovery from the effects of the March 2011 natural disasters in Japan. At the program level, major unit shipment increases to
international customers were for Nissan's Maxima, Toyota's Highlander and Camry and BMW's X3, offset by major unit shipment
decreases for the Nissan Sentra and Altima and Subaru's Outback.
Cost of Sales
2012 versus 2011
Aluminum, natural gas and other direct material costs are a significant component of our costs to manufacture wheels. These
costs are substantially the same for all of our plants since many common suppliers service both our U.S. and Mexico operations.
Consolidated cost of sales includes costs for both our U.S. and international operations, which are principally our wheel
manufacturing operations in Mexico, and certain costs that are not allocated to a specific operation. These unallocated expenses
include corporate services that are primarily incurred in the U.S. but are not charged directly to our world-wide operations, such
as engineering services for wheel program development and manufacturing support, environmental and other governmental
compliance services.
Consolidated cost of goods sold increased $5.7 million to $760.8 million in 2012, or 93 percent of net sales, compared to $755.1
million, or 92% of net sales, in 2011. Cost of sales in 2012 primarily reflects an increase in costs due to a 7 percent increase in
unit shipments and increases in labor and other costs, when compared to a year ago, somewhat offset by a decrease in aluminum
prices, which we generally pass through to our customers. Direct material costs decreased approximately $15.8 million to $399.3
million from $415.1 million in 2011. The decrease in direct material costs includes approximately $51.1 million of aluminum
price decreases which we generally pass through to our customers. Plant labor and benefit costs increased $13.4 million to $132.8
million in 2012, from $119.4 million in 2011, repair and maintenance costs increased $5.6 million to $32.2 million in 2012,
compared to $26.6 million in 2011, and supply costs increased $7.4 million to $29.2 million in 2012, from $21.8 million in 2011.
Cost of goods sold for our U.S. operations increased $34.6 million while cost of goods sold for our Mexico operations decreased
$25.8 million, when comparing 2012 to 2011. The cost of goods sold for our Mexico operations includes a reduction of $3.5
million from the release of a reserve, established in a prior year, for an uncertainty related to a foreign consumption tax that was
resolved in 2012. Cost of sales associated with corporate services such as engineering support for wheel program development
and manufacturing support decreased $3.1 million in 2012 when compared to 2011.
The higher levels of manufacturing costs reflect a variety of factors which primarily include higher unit volumes, labor costs,
supplies and increased maintenance spending. Despite inefficiencies incurred as a result of equipment reliability problems and
other manufacturing process issues while in the midst of continuing high volume demands, productivity measured in terms of
wheels produced per labor hour was unchanged in 2012 when compared with 2011. A 2 percent increase in manufacturing labor
cost per wheel was lower than the average rate of hourly wage increase in manufacturing operations. Included below are the major
items that impacted cost of sales for our U.S. and Mexico operations during 2012.
U.S. Operations
Cost of sales for our U.S. operations increased by $34.6 million, or 12 percent, in 2012, as compared to 2011. Cost of sales for
our U.S. wheel plants in 2012 primarily reflects an increase in costs due to a 13 percent increase in unit shipments and increases
in labor and other costs, when compared to a year ago, somewhat offset by an approximate $18.3 million decrease in aluminum
prices, which we generally pass through to our customers. During 2012, plant labor and benefit costs including overtime premiums
increased approximately $12.1 million, or 17 percent, primarily as a result of higher headcount and increases in contract labor,
when compared to last year. During 2012, labor cost per wheel increased 5 percent while the wheels produced per labor hour
incurred decreased 12 percent, as compared to 2011 due primarily to equipment reliability and other manufacturing process issues.
Other increases in 2012 included a $7.1 million increase in supply and small tool costs and a $4.1 million increase in plant repair
and maintenance costs. These cost increases largely were the result of operating inefficiencies and cost incurred directly in response
to equipment reliability issues. Higher costs also reflect an increasingly difficult mix of products being produced.
Mexico Operations
Cost of sales for our Mexico operations decreased by $25.8 million, or 6 percent, in 2012, when compared to 2011. The decline
in cost of sales for our Mexico operations in 2012 primarily reflects a decrease in aluminum prices, which we generally pass
17
through to our customers, of approximately $32.8 million. The aluminum cost decline was offset partially by an increase in costs
due primarily to a 3 percent increase in unit shipments. During 2012, plant labor and benefit costs increased approximately $1.3
million, or 3 percent, when compared to last year. However, operating efficiencies in 2012 improved as reflected in a 5 percent
decrease in labor cost per wheel and a 10 percent improvement in the number of wheels produced per labor hour as compared to
2011. Additionally, cost of sales in 2012 included approximately $1.5 million higher plant repair and maintenance expenses and
$0.3 million higher supply and small tool costs, as well as the $3.5 million reduction from releasing the foreign consumption tax
reserve described above.
2011 versus 2010
Consolidated cost of goods sold increased $124.8 million to $755.1 million in 2011, or 92 percent of net sales, compared to $630.3
million, or 88% of net sales, in 2010. Unit shipments in 2011 increased 6 percent compared to last year. Direct material costs
increased approximately $83.9 million to $415.1 million from $331.2 million in 2010. The increase in direct material costs includes
approximately $57.8 million of aluminum price increases that we generally pass through to our customers. Plant labor and benefit
costs increased $15.1 million to $119.4 million in 2011, from $104.3 million in 2010, repair and maintenance costs increased $5.6
million to $26.6 million in 2011, compared to $21.0 million in 2010, and supply costs increased $3.4 million to $21.8 million in
2011, from $18.4 million in 2010. Cost of goods sold for our U.S. operations increased $66.1 million while cost of goods sold
for our Mexico operations increased $60.2 million, when comparing 2011 to 2010. Cost of sales associated with corporate services
such as engineering support for wheel program development and manufacturing support decreased $1.5 million in 2011 when
compared to 2010.
While continuing to operate at full capacity to meet customer demand, we incurred inefficiencies while commercializing certain
new product programs, equipment reliability problems and other manufacturing process issues while in the midst of continuing
high volume demands, all of which contributed to increased manufacturing cost per wheel. For 2011, productivity measured in
terms of wheels produced per labor hour declined 4 percent when compared with 2010 and manufacturing labor cost per wheel
increased 12 percent. Plant labor costs overall have increased at a higher rate than sales. Included below are the major items that
impacted cost of sales for our U.S. and Mexico operations during 2011.
U.S. Operations
Cost of sales for our U.S. operations increased by $66.1 million, or 30 percent, in 2011, as compared to 2010. Our U.S. operations
during both periods consisted of two wheel plants located in Arkansas. Cost of sales for our U.S. wheel plants in 2011 reflects a
9 percent increase in unit shipments, an approximate $20.7 million increase in aluminum prices, which we generally pass through
to our customers, and increases in labor and other costs in 2011 when compared to the previous year. During 2011, plant labor
and benefit costs, including overtime premiums incurred, increased approximately $11.6 million, or 20 percent, when compared
to last year due to a variety of reasons including new product launch inefficiencies, weather related disruptions in the first quarter,
and equipment reliability issues during a time of consistently high capacity utilization. Other increases in 2011 included a $3.6
million increase in plant repair and maintenance costs, a $1.9 million increase in supply and small tool costs and a $2.1 million
increase in self-insured medical costs when compared to the prior year. The company is self-insured for individual medical claim
costs up to specified stop-loss limits in our insurance contracts.
Mexico Operations
Cost of sales for our Mexico operations increased by $60.2 million, or 16 percent, in 2011, when compared to 2010. Mexico
operations during 2011 and 2010 consisted of three wheel plants. Cost of sales for our Mexico operations in 2011 reflects an
increase in unit shipments of 5 percent, an approximate $37.1 million increase in aluminum prices, which we generally pass
through to our customers, and increases labor and other costs in 2011 when compared to 2010. During 2011, plant labor and
benefit costs increased approximately $4.1 million, or 9 percent, when compared to the prior year, due to training inefficiencies
resulting from increasing headcount to better balance manpower with production levels, new product launch difficulties, as well
as certain equipment and process reliability issues encountered in several facilities. Additionally, cost of sales in 2011 included
approximately $2.1 million higher plant repair and maintenance expenses and $1.6 million higher supply and small tool costs.
Gross Profit
Consolidated gross profit decreased $6.5 million in 2012 to $60.6 million, or 7 percent of net sales, compared to $67.1 million,
or 8 percent of net sales, in 2011. The 2012 gross profit includes a $3.5 million benefit from the release of a reserve, established
in a prior year, for an uncertainty related to a foreign consumption tax. Excluding the benefit from releasing the reserve our 2012
gross profit was $57.1 million, or 7 percent of net sales. Unit shipments in 2012 increased 7 percent compared to last year.
However, the gross profit and margin percentage decline were largely the result of operating inefficiencies and cost incurred
directly in response to equipment reliability issues, as well as an increasingly difficult mix of products being produced, as described
in the discussion of cost of sales above.
18
The cost of aluminum is a significant component in the overall cost of a wheel and a portion of our selling prices to OEM customers
is attributable to the cost of aluminum. The price for aluminum we purchase is adjusted monthly based primarily on changes in
certain published market indices. Our selling prices are adjusted periodically based upon aluminum market price changes, but
the timing of such adjustments is based on specific customer agreements and can vary from monthly to quarterly to semi-annually.
Even if aluminum selling price adjustments were to perfectly match changes in aluminum purchase prices, an increasing aluminum
price will result in a declining gross margin percentage - i.e., same gross profit dollars divided by increased sales dollars equals
lower gross profit percentage. The opposite would then be true in periods during which the price of aluminum decreases. In
addition, the timing of aluminum price adjustments flowing through sales rarely will match exactly the timing of such changes in
cost. As estimated by the company, the impact on gross profit in 2012 related to such differences in timing of aluminum adjustments
was not material when compared to the same period in 2011.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $27.7 million, or 3 percent of net sales, in 2012 compared to $25.9 million, or
3 percent of net sales, in 2011 and $28.3 million, or 4 percent of net sales, in 2010. Compared to 2011, the $1.8 million increase
in 2012 expenses primarily reflects $1.0 million higher legal fees in 2012 and a $1.5 million benefit in 2011 for a reduction in our
deferred compensation liability. Compared to 2011, the $1.3 million of higher expense in 2010 reflects implementation costs
related to our new enterprise resource planning system, $0.9 million higher legal fees, and the $1.5 million reduction in our deferred
compensation liability in 2011, offset partially by $0.7 million higher 2011 medical self-insurance costs.
Impairment of Long-Lived Assets and Other Charges
Impairment of long-lived assets and other charges totaled $1.3 million in 2011 and $1.2 million in 2010. The $1.3 million charge
in 2011 and the $1.2 million charge in 2010 primarily reflect adjustments to the carrying value of certain assets held for sale, for
which the estimated fair value had declined during the year. For further discussion of impairments and other charges, see Note
14 - Impairment of Long-Lived Assets and Other Charges in Notes to Consolidated Financial Statements in Item 8 - Financial
Statements and Supplementary Data of this Annual Report.
Income from Operations
2012 versus 2011
As described in the discussion of cost of sales above, aluminum, natural gas and other direct material costs are substantially the
same for all our plants since many common suppliers service both our U.S. and Mexico operations. In addition, our operations
in the U.S. and Mexico sell to the same customers, utilize the same marketing and engineering resources, have interchangeable
manufacturing processes and provide the same basic end product. However, profitability between our U.S. and Mexico operations
can vary as a result of differing labor and benefit costs, the specific mix of wheels manufactured and sold by each plant, as well
as differing plant utilization levels resulting from our internal allocation of wheel programs to our plants.
Consolidated income from operations includes results for both our U.S. and international operations, which are principally our
wheel manufacturing operations in Mexico, and certain costs that are not allocated to a specific operation. These unallocated
expenses include corporate services that are primarily incurred in the U.S. but are not charged directly to our world-wide operations,
such as selling, general and administrative expenses, engineering services for wheel program development and manufacturing
support, environmental and other governmental compliance services.
Consolidated income from operations decreased $6.9 million in 2012 to $32.9 million, or 4 percent of net sales, from $39.8 million,
or 5 percent of net sales, in 2011. Income from our U.S. operations decreased $20.4 million, while income from our Mexico
operations increased $11.1 million when comparing 2012 to 2011. Corporate costs were $2.4 million lower during 2012 when
compared to 2011. Included below are the major items that impacted income from operations for our U.S. and Mexico operations
during 2012.
U.S. Operations
Operating income from our U.S. operations for 2012 decreased by $20.4 million compared to the previous year. Although income
from our U.S. operations in 2012 reflects a 13 percent increase in unit shipments, this improvement was more than offset by higher
operating costs which caused gross profit to decrease by $20.3 million, and as a percentage of net sales our margin declined 7
percentage points when comparing 2012 with 2011. The decline reflects increases in labor, repair, maintenance, and supply and
small tool costs as more fully explained in the cost of sales discussion above. The lower gross profit was largely the result of
19
operating inefficiencies and cost incurred directly in response to equipment reliability issues, as well as an increasingly difficult
mix of products being produced.
Mexico Operations
Operating income from our Mexico operations increased by $11.1 million in 2012 compared to 2011. Income from our Mexico
operations in 2012 included an increase in unit shipments of 3 percent and, excluding the benefit from release of the consumption
tax reserve discussed above, gross profit increased $7.5 million, and as a percentage of net sales our margins increased 2 percentage
points in 2012, as compared to 2011.
U.S. versus Mexico Production
During 2012 and 2011, wheels produced by our Mexico and U.S. operations accounted for 63 percent and 37 percent, respectively,
of our total production. We anticipate that, absent any significant change in the market or overall demand, the percentage of
production in Mexico will remain between 60 percent and 65 percent of our total production for 2013.
2011 versus 2010
Consolidated income from operations decreased $20.0 million in 2011 to $39.8 million, or 5 percent of net sales, from $59.8
million, or 8 percent of net sales, in 2010. Income from our U.S. operations decreased $15.1 million, while income from our
Mexico operations decreased $5.6 million when comparing 2011 to 2010. Corporate costs were $0.7 million lower during 2011
when compared to 2010. Included below are the major items that impacted income from operations for our U.S. and Mexico
operations during 2011.
U.S. Operations
Operating income from our U.S. operations for 2011 decreased by $15.1 million compared to the previous year. Although income
from our U.S. operations in 2011 reflects a 9 percent increase in unit shipments, this improvement was more than offset by higher
operating costs which caused gross profit to decrease $15.3 million and as a percentage of net sales our margins declined 7
percentage points in 2011 when compared to 2010. The decline reflects increases in labor, repair, maintenance, and supply and
small tool costs (see cost of sales discussion above), as well as the impact of changes in product mix which impacted negatively
on production efficiencies and gross margins.
Mexico Operations
Operating income from our Mexico operations decreased by $5.6 million in 2011 compared to 2010. Income from our Mexico
operations in 2011 included an increase in unit shipments of 5 percent. However, the benefit of higher unit shipments was offset
by operating cost increases and negative product mix changes in 2011 when compared to a year ago. Higher operating expense
included labor, repair, maintenance, supply and small tool costs (see cost of sales discussion above). Changes in product mix,
impacting both pricing and manufacturing efficiencies, and higher operating expense caused our gross profit to decrease $6.3
million and as a percentage of net sales our margins declined 3 percentage points in 2011 when compared to 2010.
U.S. versus Mexico Production
During 2011, wheels produced by our Mexico and U.S. operations accounted for 63 percent and 37 percent, respectively, of our
total production. This compares to 62 percent in Mexico and 38 percent in the U.S. in 2010.
Interest Income, net and Other Income (Expense), net
Net interest income for 2012 increased 14 percent to $1.3 million from $1.1 million in 2011, due principally to an increase in the
average rate of return on the average balance of cash invested. Net interest income for 2011 decreased 31 percent to $1.1 million
from $1.6 million in 2010, due primarily to a decrease in the average rate of return on the average balance of cash invested.
Net other income (expense) was income of $0.4 million, $1.0 million and $0.2 million in 2012, 2011 and 2010, respectively.
Foreign exchange gains and (losses) included in other income (expense) net was a $0.1 million gain in 2012, and losses of ($0.9)
million and ($1.2) million in 2011 and 2010, respectively. Other income and expense items included were income of $0.3 million,
$1.9 million and $1.4 million in 2012, 2011 and 2010, respectively.
Effective Income Tax Rate
Our income before income taxes and equity earnings was $34.5 million in 2012, $41.9 million in 2011 and $57.5 million in 2010.
The effective tax rate on the 2012 pretax income was 10.4 percent compared to a benefit of 60.2 percent in 2011 and expense of
5.2 percent in 2010. The following is a reconciliation of the U. S. federal tax rate to our effective income tax rate along with a
discussion of the key drivers that impacted our effective income tax rates for the periods presented:
20
Year Ended December 31,
2012
2011
2010
Statutory rate - (provision) benefit
State tax provisions, net of federal income tax benefit (1)
Permanent differences (2)
Tax credits
Foreign income taxed at rates other than the statutory rate (3)
Valuation allowance (4)
Changes in tax liabilities, net (5)
Other (6)
Effective income tax rate
(35.0)%
(0.6)
5.3
3.3
0.5
(9.8)
22.0
3.9
(35.0)%
(0.4)
1.6
1.5
1.0
100.9
(5.8)
(3.6)
(35.0)%
(5.6)
0.3
1.5
(11.0)
40.1
6.5
(2.0)
(10.4)%
60.2 %
(5.2)%
1) During the three years ended December 31, 2012, actual state tax provisions, net of federal income taxes, were $0.2
million, $0.2 million and $3.2 million in 2012, 2011 and 2010, respectively. The primary drivers for the decrease in the
state tax expense in 2011, compared to 2010, relate to the favorable changes in the Michigan state income tax law, and
to lower apportionment of income to the state of California.
2) Actual permanent differences impacting the income tax provisions during the three years ended December 31, 2012 were
benefits of $1.8 million, $0.7 million and $0.2 million in 2012, 2011 and 2010, respectively. The permanent differences
increased in 2012 primarily due to income from the reversal of a reserve for a non-deductible cost related to the resolution
of a certain VAT tax exposure of $3.5 million during 2012, there were no other material changes overall in the permanent
differences in the periods presented. Changes in the effective income tax rate related to permanent differences are also
affected by the fluctuating levels of income before income taxes and equity earnings.
3) The impact of foreign income taxed at rates other than the statutory rate on our reported tax provisions during the three
years ended December 31, 2012 were benefits of $0.2 million and $0.4 million in 2012 and 2011, respectively, and
expense of $6.3 million in 2010. In 2011, the decline in foreign taxes resulted from being subject to Mexico's income
tax regime, rather than to a flat tax regime which was applied in 2010.
4) During 2012, increases in our valuation allowances resulted in additional tax expense of $3.4 million primarily due to
state deferred tax assets for net operating loss and tax credit carryforwards that are no longer expected to be realized.
During 2011, we released valuation allowances carried against our deferred tax assets based on an evaluation of current
evidence and in accordance with our accounting policy. This adjustment resulted in a benefit of $42.3 million to the
provision. 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. During 2011, we generated pre-tax income of $41.9
million, and in the fourth quarter of 2011 we achieved three years of cumulative pre-tax income. We also reached sustained
profitability, which our accounting policy defines as two consecutive one year periods of pre-tax income. With further
consideration given to, among other things, historical operating results, estimates of future earnings in different taxing
jurisdictions and the expected timing of reversals of temporary differences, we concluded that it was more likely than
not that our deferred tax assets would be realized. During 2010, we released a portion of our valuation allowance which
resulted in a benefit of $22.9 million. The primary driver for the release in the valuation allowance in 2010 was the use
of federal, state, and foreign net operating losses and credits which were offset against taxable income, thus reducing our
need for a valuation allowance.
5) During 2012, the Mexican taxing authorities finalized their audit of the 2004 tax year, and the statute of limitations expired
for the 2006 tax year, of one of our wholly-owned subsidiaries in Mexico. As a result, we recorded a net benefit of $8.1
million primarily due to a release of liabilities related to uncertain tax positions resulting from the Mexican taxing
authorities finalizing their audit of the 2004 tax year. As a result of the audit settlement, the company paid $0.9 million
and reversed approximately $21.7 million of liabilities for uncertain tax positions, which was partially offset by the $12.7
million reversal of related deferred tax assets established for the indirect benefit in the U.S. for the potential non-
deductibility of expenses in Mexico. In 2012 we also had a net benefit of approximately $2.1 million from the expiration
of the statute of limitations for the 2006 tax year. Partially offsetting these benefits was $2.0 million of interest and
penalties we continue to accrue on the liability for uncertain tax positions established at the beginning of 2007 upon
adoption of the U.S. GAAP method of accounting. The impact of changes in our tax liabilities for uncertain tax positions
resulted in a net expense of $2.4 million in 2011, primarily due to $3.1 million of interest and penalties on the beginning
21
tax liabilities which resulted in increases to our tax provision. During 2010 we had a net benefit of $3.7 million from
changes in our tax liabilities for uncertain tax positions as a result of the completion of certain tax examinations, which
reduced our tax liabilities and provision, offset in part by $3.2 million of interest and penalties on the beginning tax
liabilities which resulted in increases to our tax provision.
We are a multinational company subject to taxation in many jurisdictions. We record liabilities dealing with uncertainty in the
application of complex tax laws and regulations in the various taxing jurisdictions in which we operate. If we determine that
payment of these liabilities will be unnecessary, we reverse the liability and recognize the tax benefit during the period in which
we determine the liability no longer applies. Conversely, we record additional tax liabilities or valuation allowances in a period
in which we determine that a recorded liability is less than we expect the ultimate assessment to be or that a tax asset is impaired.
The effects of recording liability increases and decreases are included in the effective income tax rate.
Unconsolidated Subsidiaries
Joint Venture in Hungary
In 1995, we entered into a joint venture with Otto Fuchs Kg ("Otto Fuchs"), based in Meinerzhagen, Germany, to form Suoftec
Light Metal Products Production & Distribution Ltd ("Suoftec") to manufacture cast and forged aluminum wheels in Hungary
principally for the European automobile industry. On June 18, 2010, we sold our 50-percent ownership to our joint venture partner,
Otto Fuchs. Total sales proceeds of 7.0 million euros ($8.6 million) for our investment consisted of 4.0 million euros ($4.9 million)
received in the second quarter of 2010, and 3.0 million euros ($3.7 million) subsequently received in machinery, equipment and
cash. As of the date of sale, our net investment in Suoftec, including amounts included in other comprehensive income, was
approximately $12.8 million, resulting in a loss on the sale of our investment of $4.1 million.
Being 50-percent owned and non-controlled, Suoftec was not consolidated but was accounted for using the equity method of
accounting. Equity losses through the date of sale in June 2010 were $2.8 million. Our share of the joint venture's net loss was
included in “Equity in Losses of Unconsolidated Affiliates" in the Consolidated Statements of Operations in Item 8 - Financial
Statements and Supplementary Data.
Investment in India
On June 28, 2010, we executed a share subscription agreement (the "Agreement") with Synergies Casting Limited ("Synergies"),
a private aluminum wheel manufacturer based in Visakhapatnam, India, providing for our acquisition of a minority interest in
Synergies by the company. As of December 31, 2012, the total cash investment in the equity of Synergies amounted to $4.5
million, representing 12.6 percent of the outstanding equity shares of Synergies. Our share of the equity income associated with
our investment in Synergies since our initial investment has been immaterial to the consolidated results of the company. Our
investment in Synergies was initially accounted for under the equity method of accounting; however, during the third quarter of
2011, an amendment of the Synergies shareholder agreement eliminated our ability to exercise significant influence over the
financial policies and operations of Synergies. As a result, effective with the amendment, we began accounting for the investment
using the cost method of accounting on a prospective basis. As of December 31, 2012 we have a note receivable from Synergies
totaling $0.3 million.
Net Income
Net income in 2012 was $30.9 million, or 4 percent of net sales, and included an income tax provision of $3.6 million, compared
to $67.2 million, or 8 percent of net sales in 2011, including an income tax benefit of $25.2 million, and to $51.6 million, or 7
percent of net sales in 2010, including an income tax provision of $3.0 million. Earnings per share was $1.13, $2.46 and $1.93
per diluted share in 2012, 2011 and 2010, respectively.
Liquidity and Capital Resources
Our sources of liquidity include cash and cash equivalents, short-term investments, net cash provided by operating activities, and
other external sources of funds. During the three years ended December 31, 2012, we had no bank or other interest-bearing debt.
At December 31, 2012, our cash, cash equivalents and short-term investments totaled $207.3 million compared to $192.9 million
at year-end 2011 and $151.6 million at the end of 2010.
Our working capital requirements, investing activities and cash dividend payments have historically been funded from internally
generated funds, proceeds from the exercise of stock options or existing cash, cash equivalents and short-term investments, and
we believe these sources will continue to meet our capital requirements in the foreseeable future.
22
We recently announced plans to invest between $125 million and $135 million to build a new manufacturing facility in Mexico.
Although our existing liquidity is currently adequate to fund the project, we are evaluating various financing options available to
the company, including new borrowings.
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,
(Thousands of dollars)
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash
Net increase in cash and cash equivalents
2012 versus 2011
2012
2011
2010
$
$
65,761
(18,532)
(33,344)
1,684
15,569
$
$
67,660
3,681
(12,509)
(668)
58,164
$
$
30,578
5,146
(14,660)
—
21,064
Our liquidity remained strong in 2012. Working capital (current assets minus current liabilities) and our current ratio (current
assets divided by current liabilities) were $338.3 million and 6.1:1, respectively, at December 31, 2012, versus $335.7 million and
5.9:1 at December 31, 2011. We generate our principal working capital resources primarily through operations. Working capital
increased slightly in 2012 and primarily reflects increases in cash, cash equivalents and inventory, partially offset by lower accounts
receivable. Accordingly, we believe we are well positioned to take advantage of new and complementary business opportunities,
with the ability to further expand into emerging international markets and to fund our working capital and capital expenditure
requirements for the foreseeable future.
Net cash provided by operating activities decreased $1.9 million to $65.8 million for 2012, compared to net cash provided by
operating activities of $67.7 million for 2011. The primary operating activities during 2012 included net income of $30.9 million,
changes in operating assets and liabilities totaling $19.3 million, and adjustments for non-cash items of $15.5 million, primarily
due to depreciation of $26.3 million, deferred income tax changes of $13.6 million substantially related to the reversal of deferred
tax assets established for the indirect benefit from uncertain tax positions that were resolved during the year, and stock-based
compensation expense of $2.1 million, partially offset by ($26.3) million of non-cash reductions in tax liabilities primarily related
to uncertain tax positions resolved during the year. Changes in operating assets included a $21.4 million decrease in our trade
accounts receivable, an ($8.3) million change in inventory and an ($8.1) million change in other assets primarily due to customer
owned tooling. The changes in operating liabilities in 2012 included an $8.8 million increase substantially related to deferred
tooling revenues.
Our principal investing activities during 2012 were the funding of $23.1 million of capital expenditures and the purchase of $4.0
million of certificates of deposit, partially offset by the receipt of $5.1 million cash proceeds from maturing certificates of
deposit. Investing activities during 2011 included the receipt of $21.7 million cash proceeds from maturing certificates of deposits,
partially offset by the funding of $17.0 million of capital expenditures and the purchase of $4.9 million of certificates of deposit.
Financing activities during 2012 consisted of the payment of cash dividends on our common stock totaling $34.9 million, partially
offset by the receipt of cash proceeds from the exercise of stock options totaling $1.5 million. Financing activities during 2011
consisted of the payment of cash dividends on our common stock totaling $17.4 million, partially offset by the receipt of cash
proceeds from the exercise of stock options totaling $4.5 million.
2011 versus 2010
Working capital (current assets minus current liabilities) and our current ratio (current assets divided by current liabilities) were
$335.7 million and 5.9:1, respectively, at December 31, 2011, versus $311.1 million and 5.4:1 at December 31, 2010. We generate
our principal working capital resources primarily through operations. Working capital increased in 2011 and primarily reflects
increases in cash, cash equivalents and short-term investments, partially offset by lower prepaid aluminum.
Net cash provided by operating activities increased $37.1 million to $67.7 million for 2011, compared to net cash provided by
operating activities of $30.6 million for 2010. The primary operating activities during 2011 included net income of $67.2 million,
changes in operating assets and liabilities totaling $7.5 million, and adjustments for non-cash items resulting in a net reduction of
($7.0) million, primarily due to deferred income tax changes of ($38.7) million related to the release of the valuation allowance,
23
depreciation of $27.5 million, stock-based compensation expense of $2.3 million and asset impairment charges totaling $1.3
million. Changes in operating assets included an $11.0 million increase in our trade accounts receivable, an $8.0 million decrease
in other assets primarily due to lower prepaid aluminum, and a $4.6 million decrease in inventory. The changes in operating
liabilities in 2011 included a $6.7 million increase in other liabilities, principally deferred tooling revenue.
Our principal investing activities during 2011 were the receipt of $21.7 million cash proceeds from maturing certificates of deposit,
offset by the funding of $17.0 million of capital expenditures and the purchase of $4.9 million of certificates of deposit. Investing
activities during 2010 included the receipt of $36.1 million cash proceeds from maturing certificates of deposit, partially offset
by the purchase of $22.1 million of certificates of deposit and the funding of $9.3 million of capital expenditures.
Financing activities during 2011 consisted of the payment of cash dividends on our common stock totaling $17.4 million, partially
offset by the receipt of cash proceeds from the exercise of stock options totaling $4.5 million. Financing activities during 2010
consisted of the payment of cash dividends on our common stock totaling $17.1 million, partially offset by the receipt of cash
proceeds from the exercise of stock options totaling $2.4 million.
Risk Management
We are subject to various risks and uncertainties in the ordinary course of business due, in part, to the competitive global nature
of the industry in which we operate, to changing commodity prices for the materials used in the manufacture of our products, and
to development of new products.
We have operations in Mexico with sale and purchase transactions denominated in both pesos and dollars. The peso is the functional
currency of certain of our operations in Mexico. The settlement of accounts receivable and accounts payable transactions
denominated in a non-functional currency results in foreign currency transaction gains and losses. In 2012, the value of the
Mexican peso increased by 6 percent in relation to the U.S. dollar. For the year ended December 31, 2012, we had foreign currency
transaction gains of $0.1 million, and for the years ended December 31, 2011 and 2010, we had foreign currency transaction losses
of ($0.9) million, and ($1.2) million, respectively, which are included in other income (expense) in the Consolidated Statements
of Operations in Item 8 - Financial Statements and Supplementary Data of this Annual Report.
Since 1990, the Mexican peso has experienced periods of relative stability followed by periods of major declines in value. The
impact of this change in value relative to our Mexico operations has resulted in a cumulative unrealized translation loss at
December 31, 2012 of $56.5 million. Translation gains and losses are included in other comprehensive income (loss) in the
Consolidated Statements of Shareholders' Equity in Item 8 - Financial Statements and Supplementary Data of this Annual Report.
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. We currently have several purchase
commitments, placed in January 2013, for the delivery of natural gas through 2013. These natural gas contracts are considered
to be derivatives under U.S. GAAP, and when entering into these contracts, it was expected that we would take full delivery of
the contracted quantities of natural gas over the normal course of business. Accordingly, at inception, these contracts qualified
for the normal purchase, normal sale ("NPNS") exemption provided for under U.S. GAAP. As such, we do not account for these
purchase commitments as derivatives unless there is a change in facts or circumstances in regard to the company's intent or ability
to use the contracted quantities of natural gas over the normal course of business. As of December 31, 2012 there were no fixed
price natural gas purchase agreements outstanding.
During 2010, certain of these natural gas contracts no longer qualified for the NPNS exemption because we could not take full
delivery of the contracted quantities of natural gas under these contracts due to plant shutdowns and low levels of production
caused by the sharp decline in our customers' requirements. In accordance with U.S. GAAP, the purchase commitments that no
longer qualified for the NPNS exemption were accounted for as derivatives, with the changes in estimated fair value of these
contracts being recorded in cost of sales in our income statement. The fair value measurements of our natural gas purchase
commitments that were accounted for as derivatives were based on quoted market prices using the market approach and the fair
values were determined using Level 1 inputs within the fair value hierarchy provided by U.S. GAAP. During 2010, the gains
recorded in cost of sales totaled $1.9 million. The natural gas purchase commitments accounted for as derivatives were settled or
full delivery was taken by December 31, 2010. In the first quarter of 2010, settlement payments for natural gas purchase
commitments related to closed facilities totaled $1.1 million.
24
Contractual Obligations
Contractual obligations as of December 31, 2012 are as follows (amounts in millions):
Payments Due by Fiscal Year
Contractual Obligations
2013
2014
2015
2016
2017
Thereafter
Total
Retirement plans
Operating leases
Total
$
$
1.4
1.4
2.8
$
$
1.5
1.4
2.9
$
$
1.5
1.0
2.5
$
$
1.5
0.1
1.6
$
$
1.2
—
1.2
$
$
48.9
—
48.9
$
$
56.0
3.9
59.9
The table above does not reflect unrecognized tax benefits of $11.3 million. Approximately $0.3 million of this amount will be
paid during the first quarter of 2013. The timing of the settlement of the remaining amount is uncertain.
Off-Balance Sheet Arrangements
As of December 31, 2012, we had no significant off-balance sheet arrangements.
Inflation
Inflation has not had a material impact on our results of operations or financial condition for the three years ended December 31,
2012. Cost increases in our principal raw material, aluminum, fundamentally are passed through to our customers, with timing
of the pass-through dependent on the specific commercial agreements. Wage increases have averaged 4 to 5 percent during this
period. Cost increases for labor, other raw materials and for energy may not be recovered in our selling prices. Additionally,
competitive global pricing pressures are expected to continue, which may lessen the possibility of recovering these types of cost
increases in selling prices.
Critical Accounting Policies
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to apply significant
judgment in making estimates and assumptions that affect amounts reported therein, as well as financial information included in
this Management's Discussion and Analysis of Financial Condition and Results of Operations. These estimates and assumptions,
which are based upon historical experience, industry trends, terms of various past and present agreements and contracts, and
information available from other sources that are believed to be reasonable under the circumstances, form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent through other sources. There can be no
assurance that actual results reported in the future will not differ from these estimates, or that future changes in these estimates
will not adversely impact our results of operations or financial condition. As described below, the most significant accounting
estimates inherent in the preparation of our financial statements include estimates and assumptions as to revenue recognition,
allowance for doubtful accounts, inventory valuation, amortization of preproduction costs, impairment of and the estimated useful
lives of our long-lived assets and the fair value of stock-based compensation, as well as those used in the determination of liabilities
related to self-insured portions of employee benefits, workers' compensation and general liability programs and deferred income
taxes.
Wheel Revenue Recognition - Our products are manufactured to customer specifications under standard purchase orders. We ship
our products to OEM customers based on release schedules provided weekly by our customers. Our sales and production levels
are highly dependent upon the weekly forecasted production levels of our customers. Sales of these products, net of estimated
pricing adjustments, and their related costs are recognized when title and risk of loss transfers to the customer, generally upon
shipment. A portion of our selling prices to OEM customers is attributable to the aluminum content of our wheels. Our selling
prices are adjusted periodically for changes in the current aluminum market based upon specified aluminum price indices during
specific pricing periods, as agreed with our customers. See Preproduction Costs and Revenue Recognition Related to Long-Term
Supply Arrangements below for a discussion of tooling reimbursement revenues.
Allowance for Doubtful Accounts - 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 are stated at the lower of cost or market value and categorized as raw material, work-in-process or finished
goods. When necessary, management uses estimates of net realizable value to record inventory reserves for obsolete and/or slow-
25
moving inventory. Our inventory values, which are based upon standard costs for raw materials and labor and overhead established
at the beginning of the year, are adjusted to actual costs on a first-in, first-out ("FIFO") basis. Current raw material prices and
labor and overhead costs are utilized in developing these adjustments.
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 that 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 the customer-owned tooling and the deferred tooling
reimbursement revenues. Recognized tooling reimbursement revenues totaled approximately $8.0 million, $8.3 million and $10.0
million, in 2012, 2011 and 2010, respectively, and are included in net sales in the Consolidated Statements of Operations in Item
8 - Financial Statements and Supplementary Data of this Annual Report. The following tables summarize the unamortized customer-
owned tooling costs included in our long-term other assets, and the deferred tooling revenues included in accrued expenses and
other non-current liabilities:
December 31,
(Dollars in Thousands)
Unamortized Preproduction Costs
Preproduction costs
Accumulated amortization
Net preproduction costs
Deferred Tooling Revenue
Accrued expenses
Other non-current liabilities
Total deferred tooling revenue
2012
2011
$
$
$
$
51,638
(38,667)
12,971
5,688
3,443
9,131
$
$
$
$
42,118
(31,548)
10,570
5,158
2,401
7,559
Impairment of Long-Lived Assets and Investments - In accordance with U.S. GAAP, 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. See Note 14 - Impairment of Long-Lived Assets and Other Charges in Notes
to Consolidated Financial Statements in Item 8 for further discussion of asset impairments.
When facts and circumstances indicate that there may have been a loss in value, management will also evaluate its cost and equity
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 in earnings. See Note 6 - Investment in
Unconsolidated Subsidiaries in Notes to Consolidated Financial Statements in Item 8 for further discussion of investment
impairments.
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, future
salary increases and the mortality of the participants. The net periodic pension costs and related obligations are measured using
actuarial techniques and assumptions. See Note 9 - Retirement Plans in Notes to Consolidated Financial Statements in Item 8 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, 2012. Note that these sensitivities may be asymmetrical, and are specific to 2012. They also may not be additive,
so the impact of changing multiple factors simultaneously cannot be calculated by combining the individual sensitivities shown.
26
The effect of the indicated increase (decrease) in selected factors is shown below (in thousands):
Assumption
Discount rate
Rate of compensation increase
Percentage
Change
+ 1.0%
+ 1.0%
Increase (Decrease) in:
Projected Benefit
Obligation at
December 31, 2012
2012 Net Periodic
Pension Cost
$
$
(3,501) $
$
1,309
(264)
210
Stock-Based Compensation - We account for stock-based compensation using the fair value recognition in accordance with U.S.
GAAP. We use the Black-Scholes option-pricing model to determine the fair value of any stock options granted, which requires
us to make estimates regarding dividend yields on our common stock, expected volatility in the price of our common stock, risk
free interest rates, forfeiture rates and the expected life of the option. To the extent these estimates change, our stock-based
compensation expense would change as well. The fair value of any restricted shares awarded is calculated using the closing market
price of our common stock on the date of issuance. We recognize these compensation costs net of the applicable forfeiture rates
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 option vesting term of three or four years. We estimated the forfeiture rate based on
our historical experience.
Workers' Compensation and Loss Reserves - We self-insure any losses arising out of workers' compensation claims. Workers'
compensation accruals are based upon reported claims in process and actuarial estimates for losses incurred but not reported. Loss
reserves, including incurred but not reported reserves, are estimated using actuarial methods and ultimate settlements may vary
significantly from such estimates due to increased claim frequency or the severity of claims.
Accounting for 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 evaluation of current
information including, among other things, historical operating results, estimates of future earnings in different taxing jurisdictions
and the expected timing of the reversals of temporary differences. 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 future taxable income in the United States and certain other jurisdictions, 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. Consistent with our policy, the valuation allowance against our net deferred
income tax assets will not reversed until such time as we have generated three years of cumulative pre-tax income and have reached
sustained profitability, which we define as two consecutive one year periods of pre-tax income.
We account for our uncertain tax positions in accordance with U.S. GAAP. The purpose of this method is to clarify accounting
for uncertain tax positions recognized. The U.S. GAAP method of accounting for uncertain tax positions utilizes 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.
27
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. During 2011, the company provided a provision for taxes for its
European subsidiary, as a result of the repatriation of 2011 earnings and profits of approximately $0.1 million. At this time the
company does not have any plans to repatriate additional income from its foreign subsidiaries.
New Accounting Standards
In June 2011, the FASB modified the presentation of comprehensive income in the financial statements. The revised standard
requires an entity to present the total of comprehensive income, the components of net income, and the components of other
comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive
statements and must be applied retrospectively. This standard eliminates the former option to report other comprehensive income
and its components in the statement of changes in equity. The revised standard does not change the items that must be reported
in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The
modification of the standard did not have an effect on our consolidated results of operations and financial position, when adopted,
on December 26, 2011.
ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency. A significant portion of our business operations are conducted in Mexico. As a result, we have a certain
degree of market risk with respect to our cash flows due to changes in foreign currency exchange rates when transactions are
denominated in currencies other than our functional currency, including inter-company transactions. Historically, we have not
actively engaged in substantial exchange rate hedging activities and, at December 31, 2012, we had not entered into any significant
foreign exchange contracts.
During 2012, the Mexican peso to U.S. dollar exchange rate averaged 13.19 pesos to $1.00. Based on the balance sheet at
December 31, 2012, the value of net assets for our operations in Mexico was 1,518 million pesos. Accordingly, a 10 percent
change in the relationship between the peso and the U.S. dollar may result in a translation impact of between $10.5 million and
$12.8 million, which would be recognized in other comprehensive income (loss).
Our business requires us to settle transactions between currencies in both directions - i.e., peso to U.S. dollar and vice versa. To
the greatest extent possible, we attempt to match the timing of transaction settlements between currencies to create a “natural
hedge.” For the full year 2012, we had a $0.1 million net foreign exchange transaction gain related to the peso. Based on the
current business model and levels of production and sales activity, the net imbalance between currencies depends on specific
circumstances and there can be no assurances that the net transaction balance will not change significantly in the future.
Natural Gas Purchase Commitments. When market conditions warrant, we enter into purchase commitments to secure the supply
of certain commodities used in the manufacture of our products, such as natural gas. However, under no circumstances do we
enter into derivatives or other financial instrument transactions for speculative purposes. At December 31, 2012, we had no fixed
price natural gas purchase agreements outstanding. Subsequent to December 31, 2012, we entered into natural gas purchase
agreements for deliveries in 2013 of 590 MMbtu of natural gas for a total cost of $2.3 million. These fixed price natural gas
contracts may expose us to higher costs that cannot be recouped in selling prices in the event that the market price of natural gas
declines below the contract price.
See the section captioned "Risk Management" in Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations for a further discussion about the market risk we face.
28
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to the Consolidated Financial Statements of Superior Industries International, Inc.
Report of Independent Registered Public Accounting Firm
Financial Statements
Consolidated Income Statements for the Fiscal Years 2012, 2011 and 2010
Consolidated Statements of Comprehensive Income for the Fiscal Years 2012, 2011, 2010
Consolidated Balance Sheets as of the Fiscal Year End 2012 and 2011
Consolidated Statements of Shareholders’ Equity for the Fiscal Years 2012, 2011 and 2010
Consolidated Statements of Cash Flows for the Fiscal Years 2012, 2011 and 2010
Notes to Consolidated Financial Statements
PAGE
30
32
34
35
36
37
29
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Superior Industries International, Inc.
Van Nuys, California
We have audited the accompanying consolidated balance sheets of Superior Industries International, Inc. and
subsidiaries (the "Company") as of December 30, 2012 and December 25, 2011, and the related consolidated
statements of income, comprehensive income, stockholders' equity, and cash flows for each of the three years ended
December 30, 2012, December 25, 2011, and December 26, 2010. Our audits also included the financial statement
schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an opinion on the financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position
of Superior Industries International, Inc. and subsidiaries as of December 30, 2012 and December 25, 2011, and the
results of their operations and their cash flows for each of the three years ended December 30, 2012, December 25,
2012, and December 26, 2010, in conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth
therein.
As discussed in Note 1 to the consolidated financial statements, during 2012 the Company adopted Accounting
Standards Update 2011-5 which revises the presentation of comprehensive income.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Company's internal control over financial reporting as of December 30, 2012, based on the
criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 12, 2013 expressed an unqualified opinion
on the Company's internal control over financial reporting.
DELOITTE & TOUCHE LLP
Los Angeles, California
March 12, 2013
30
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Superior Industries International, Inc.
Van Nuys, CA
We have audited the internal control over financial reporting of Superior Industries International, Inc. and
subsidiaries (the "Company") as of December 30, 2012, based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. 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 Annual
Report of Management 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 conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). 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.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the
company's principal executive and principal financial officers, or persons performing similar functions, and effected
by the company's board of directors, management, and other personnel 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 the inherent limitations of internal control over financial reporting, including the possibility of collusion
or improper management override of controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over
financial reporting to future periods are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 30, 2012, based on the criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements and financial statement schedule as of and for the year ended
December 30, 2012 of the Company and our report dated March 12, 2013 expressed an unqualified opinion on
those financial statements and financial statement schedule.
DELOITTE & TOUCHE LLP
Los Angeles, California
March 12, 2013
31
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED INCOME STATEMENTS
(Dollars in thousands, except per share data)
Fiscal Year Ended December 31,
2012
2011
2010
NET SALES
Cost of sales
GROSS PROFIT
Selling, general and administrative expenses
Impairments of long-lived assets and other charges
INCOME FROM OPERATIONS
Loss on sale of unconsolidated affiliates
Interest income, net
Other income (expense), net
$
821,454
$
822,172
$
760,847
755,112
60,607
27,727
—
32,880
—
1,252
357
67,060
25,888
1,337
39,835
—
1,101
990
719,500
630,263
89,237
28,285
1,153
59,799
(4,110)
1,604
190
INCOME BEFORE INCOME TAXES AND EQUITY
EARNINGS
34,489
41,926
57,483
Income tax (provision) benefit
Equity in losses of unconsolidated affiliates
NET INCOME
EARNINGS PER SHARE - BASIC
EARNINGS PER SHARE - DILUTED
(3,598)
—
30,891
1.13
1.13
$
$
$
25,243
—
67,169
2.48
2.46
$
$
$
(2,993)
(2,847)
51,643
1.93
1.93
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
32
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
Fiscal Year Ended December 31,
2012
2011
2010
Net income
Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss)
Realized loss on sale of investment in unconsolidated affiliate
Defined benefit pension plan:
Actuarial losses on pension obligation, net of amortization
Tax benefit
Pension changes, net of tax
Other comprehensive income (loss), net of tax
Comprehensive income
$
30,891
$
67,169
$
51,643
4,839
—
(2,994)
1,141
(1,853)
2,986
33,877
$
(9,133)
—
(2,763)
2,018
(745)
(9,878)
57,291
$
5,997
(4,715)
(428)
—
(428)
854
52,497
$
The accompanying notes are an integral part of these consolidated financial statements.
33
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
Fiscal Year Ended December 31,
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventories
Income taxes receivable
Deferred income taxes
Assets held for sale
Other current assets
Total current assets
Property, plant and equipment, net
Investment in and advances to unconsolidated affiliate
Non-current deferred income taxes, net
Other non-current assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Total current liabilities
Non-current income tax liabilities
Non-current deferred income tax liabilities, net
Other non-current liabilities
Commitments and contingent liabilities (Note 11)
Shareholders' equity:
Preferred stock, no par value
Authorized - 1,000,000 shares
Issued - none
Common stock, no par value
Authorized - 100,000,000 shares
Issued and outstanding - 27,295,488 shares
(27,164,013 shares at December 31, 2011)
Accumulated other comprehensive loss
Retained earnings
Total shareholders' equity
Total liabilities and shareholders' equity
2012
2011
$
203,364
3,970
98,467
71,948
4,925
7,935
—
14,299
404,908
147,544
4,638
17,038
25,473
599,601
$
$
32,400
34,178
66,578
11,328
18,876
35,914
—
187,795
5,126
119,895
66,933
4,950
5,299
1,500
12,785
404,283
145,747
4,725
16,795
21,681
593,231
29,018
39,532
68,550
33,102
—
31,064
—
—
—
71,819
(62,614)
457,700
466,905
599,601
$
68,775
(65,600)
457,340
460,515
593,231
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
34
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share data)
Accumulated Other
Comprehensive Income
(Loss)
Common Stock
Number of
Shares
Amount
Pension
Obligations
Cumulative
Translation
Adjustment
Retained
Earnings
Total
26,668,440
$ 56,854
$
(2,004) $
(54,572) $ 372,994
$ 373,272
51,643
51,643
(428)
1,282
2,448
—
2,373
—
—
—
—
(17,108)
(17,108)
1,282
—
—
—
—
(428)
—
—
—
—
145,350
2,448
40,000
—
—
—
2,373
—
26,853,790
61,675
(2,432)
(53,290)
407,529
413,482
(745)
67,169
67,169
(745)
(9,133)
4,546
—
2,251
303
—
—
—
—
—
(17,358)
(17,358)
(9,133)
—
—
—
—
—
286,973
4,546
23,250
—
—
—
—
2,251
303
—
27,164,013
68,775
(3,177)
(62,423)
457,340
460,515
(1,853)
30,891
30,891
(1,853)
4,839
1,530
—
2,072
(558)
—
—
—
—
—
(30,531)
(30,531)
4,839
—
—
—
—
—
32,800
—
—
—
—
2,072
(558)
—
27,295,488
$ 71,819
$
(5,030) $
(57,584) $ 457,700
$ 466,905
BALANCE AT FISCAL YEAR END
2009
Net income
Change in employee benefit plans, net of
taxes
Net foreign currency translation adjustment
Stock options exercised
Restricted stock awards granted, net of
forfeitures
Stock-based compensation expense
Cash dividends declared ($0.64 per share)
BALANCE AT FISCAL YEAR END
2010
Net income
Change in employee benefit plans, net of
taxes
Net foreign currency translation adjustment
Stock options exercised
Restricted stock awards granted, net of
forfeitures
Stock-based compensation expense
Tax impact of stock options
Cash dividends declared ($0.64 per share)
BALANCE AT FISCAL YEAR END
2011
Net income
Change in employee benefit plans, net of
taxes
Net foreign currency translation adjustment
Restricted stock awards granted, net of
forfeitures
Stock-based compensation expense
Tax impact of stock options
Cash dividends declared ($1.12 per share)
BALANCE AT FISCAL YEAR END
2012
Stock options exercised
98,675
1,530
The accompanying notes are an integral part of these consolidated financial statements.
35
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Fiscal Year Ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
2012
2011
2010
$
30,891
$
67,169
$
51,643
Depreciation
Tax liabilities, non-cash changes
Deferred income taxes
Loss on sale of unconsolidated affiliate
Equity in losses of unconsolidated affiliates
Impairments of long-lived assets and other charges
Stock-based compensation
Other non-cash items
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Other assets
Accounts payable
Income taxes
Accrued expenses and other liabilities
Non-current tax liabilities
NET CASH PROVIDED BY OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment
Proceeds from sales and maturities of investments
Purchase of investments
Purchase of unconsolidated affiliate
Proceeds from sale of unconsolidated affiliate
Proceeds from sales of fixed assets
Other
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid
Proceeds from exercise of stock options
Excess tax benefits from exercise of stock options
NET CASH USED IN FINANCING ACTIVITIES
Effect of exchange rate changes on cash
Net increase in cash and cash equivalents
26,362
(26,275)
13,626
—
—
—
2,072
(256)
21,428
(8,345)
(8,126)
2,684
3,786
8,784
(870)
65,761
(23,145)
5,133
(3,977)
—
—
1,981
1,476
(18,532)
(34,878)
1,530
4
(33,344)
1,684
15,569
27,538
—
(38,704)
—
—
1,337
2,251
595
(11,016)
4,609
8,031
(719)
(3,553)
6,654
3,468
67,660
(16,961)
21,720
(4,924)
—
2,867
1,659
(680)
3,681
(17,358)
4,546
303
(12,509)
(668)
29,093
—
8,627
4,110
2,847
1,153
2,373
55
(22,136)
(25,832)
(23,961)
5,488
7,713
4,448
(15,043)
30,578
(9,313)
36,149
(22,094)
(4,500)
4,945
406
(447)
5,146
(17,108)
2,448
—
(14,660)
—
58,164
21,064
Cash and cash equivalents at the beginning of the period
187,795
129,631
108,567
Cash and cash equivalents at the end of the period
$
203,364
$
187,795
$
129,631
The accompanying notes are an integral part of these consolidated financial statements.
36
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Headquartered in Van Nuys, California, the principal business of Superior Industries International, Inc. (referred to herein as the
“company” or in the first person notation “we,” “us” and “our”) is the design and manufacture of aluminum road wheels for sale
to original equipment manufacturers ("OEM"). We are one of the largest suppliers of cast aluminum wheels to the world’s leading
automobile and light truck manufacturers, with wheel manufacturing operations in the United States and Mexico. Customers in
North America represent the principal market for our products. As described in Note 2 - Business Segments, the company operates
as a single integrated business and, as such, has only one operating segment - automotive wheels.
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. The equity method of accounting is used for investments in non-controlled affiliates
in which the company's ownership ranges from 20 to 50 percent, or in instances in which the company is able to exercise significant
influence but not control (such as representation on the investee's Board of Directors.) The carrying value of these equity investments
is reported in long-term investments and the company's equity in net earnings of these investments is reported separately in the
consolidated income statements.
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 accounting principles generally accepted in the United States of America
("U.S. GAAP") as delineated by the Financial Accounting Standards Board ("FASB") in its Accounting Standards Codification
("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,
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.
Our fiscal year is the 52- or 53-week period ending generally on the last Sunday of the calendar year. The 2012 fiscal year
comprised the 53-week period ended December 30, 2012. The fiscal years 2011 and 2010 comprised the 52-week periods ended
on December 25, 2011, and December 26, 2010, respectively. For convenience of presentation, all fiscal years are referred to as
beginning as of January 1, and ending as of December 31, but actually reflect our financial position and results of operations for
the periods described above.
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. Included in cash and cash equivalents are money market funds of $28.5 million and $13.4 million
as of December 31, 2012 and 2011, respectively. Our money market funds are categorized as Level 1 in the fair value hierarchy
with fair value measurements based on quoted prices in active markets for identical assets. 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 assets in our consolidated balance sheets. The purchase of any certificates of deposit or fixed deposits that are classified
as short-term investments or non-current assets appear in the investing section of our consolidated statements of cash flows. At
times throughout the year and at year-end, cash balances held at financial institutions were in excess of federally insured limits.
Restricted Deposits
We purchase certificates of deposit that mature within twelve months and are used to secure our workers’ compensation obligations
and collateralize letters of credit securing our forward natural gas contracts. At December 31, 2012 and 2011, certificates of deposit
totaling $4.0 million and $5.1 million, respectively, were restricted in use and were classified as short-term investments on our
consolidated balance sheet.
37
Non-Cash Investing Activities
During the years ended December 31, 2012, 2011 and 2010, an additional $0.9 million, $0.4 million and $0.3 million, respectively,
of equipment had been purchased but not yet paid for and are included in accounts payable in our consolidated balance sheets.
On June 18, 2010, we sold our 50-percent ownership interest in an unconsolidated affiliate, as described in Note 6 - Investments
in Unconsolidated Affiliates. The total sales proceeds for our investment included cash of 4.0 million euros, or $4.9 million, which
was received in the second quarter of 2010, and the balance of 3.0 million euros, or $3.8 million, which was subsequently received
in machinery and equipment and cash. As of December 31, 2010, we had received equipment valued at 0.8 million euros and had
a receivable in the amount of 2.2 million euros, or $2.9 million, which was collected in cash in 2011.
At December 31, 2012 and 2011, we had proceeds receivable from company executive life insurance policies totaling $0.3 million
and $1.7 million, respectively.
Fair Values of Financial Instruments and Commitments
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. 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.
The carrying amounts for cash and cash equivalents, investments in certificates of deposit, accounts receivable, accounts payable
and accrued expenses approximate their fair values due to the short period of time until maturity. Fair values of our natural gas
contracts that we accounted for as derivatives are discussed further in Note 11 - Commitments and Contingent Liabilities, and
were based upon quoted market prices using the market approach on a recurring basis and were considered Level 1 inputs within
the fair value hierarchy provided in accordance with U.S. GAAP.
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 or finished goods, are stated at the lower of cost or market
using the first-in, first-out method. When necessary, management uses estimates of net realizable value to record inventory reserves
for obsolete and/or slow-moving inventory. Aluminum is the primary material component in our inventories. Our aluminum
requirements are supplied from two primary vendors, each accounting for more than 10 percent of our aluminum purchases during
2012.
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.
38
Classification
Computer equipment
Production machinery and equipment
Buildings
Expected Useful Life
3 to 5 years
7 to 10 years
25 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 asset is disposed of, any gains and losses are recorded
in other income or expense in the period of disposition or write down.
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 $8.0 million,
$8.3 million and $10.0 million in 2012, 2011 and 2010, respectively, are included in net sales in the consolidated income statements.
The following tables summarize the unamortized customer-owned tooling costs included in our non-current other assets, and the
deferred tooling revenues included in accrued expenses and other non-current liabilities:
December 31,
(Dollars in Thousands)
Unamortized Preproduction Costs
Preproduction costs
Accumulated amortization
Net preproduction costs
Deferred Tooling Revenue
Accrued expenses
Other non-current liabilities
Total deferred tooling revenue
2012
2011
$
$
$
$
51,638
(38,667)
12,971
5,688
3,443
9,131
$
$
$
$
42,118
(31,548)
10,570
5,158
2,401
7,559
Impairment of Long-Lived Assets and Investments
In accordance with the Property, Plant and Equipment Topic of the ASC, 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. See Note 14 - Impairment of
Long-Lived Assets and Other Charges for further discussion of asset impairments.
When facts and circumstances indicate that there may have been a loss in value, management will also evaluate its cost and equity
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. See Note 6 - Investment in Unconsolidated
Affiliates for further discussion of investment impairments.
Derivative 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
39
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. At December 31, 2012 and 2011, we held no derivative financial instruments other than the natural gas contracts
discussed below.
We enter into contracts to purchase certain commodities used in the manufacture of our products, such as aluminum, natural gas,
and other raw materials. Our natural gas contracts are considered to be derivatives instruments under US GAAP. However, upon
entering into these contracts, we expect to fulfill our purchase commitments and take full delivery of the contracted quantities of
natural gas during the normal course of business. Accordingly, under U.S. GAAP, these purchase contracts are not accounted for
as derivatives because we typically qualify for the normal purchase normal sale exception under US 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 11 - Commitments and Contingent Liabilities for additional information pertaining to these purchase
commitments.
Foreign Currency Transactions and Translation
We have a wholly-owned foreign subsidiary with operations in Mexico whose functional currency is the peso. In addition, we
have operations with U.S. dollar functional currencies with transactions denominated in pesos 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 income (expense) in the consolidated income statements. For the
year ended December 31, 2012, we had foreign currency transaction gains of $0.1 million, and for the years ended December 31,
2011 and 2010, we had transaction losses of $(0.9) million and $(1.2) million, respectively, which are included in other income
(expense) in the consolidated income statements. In addition, we have a minority investment in India and, until June 2010, an
investment in Hungary previously accounted for under the equity method. The functional currency of our Indian investee is the
Indian rupee and the functional currency of our Hungarian investee was the euro.
When our foreign subsidiaries and equity method investees 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 (loss) in shareholders' equity, as reflected in the consolidated statements of shareholders'
equity. For our equity method investees, we record our proportionate share of the equity method investees cumulative effect of
translation as a separate component of accumulated other comprehensive loss in shareholders' equity. The value of the Mexican
peso increased by 6% in relation to the U.S. dollar in 2012.
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 statements of operations. Amounts expensed during each of the three years in the period ended
December 31, 2012, 2011 and 2010 were $5.8 million, $5.3 million, and $4.9 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 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 option vesting term of three
40
to four years. We estimate the forfeiture rate based on our historical experience. See Note - 12 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 evaluation of current
information including, among other things, historical operating results, estimates of future earnings in different taxing jurisdictions
and the expected timing of the reversals of temporary differences. 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 future taxable income in the United States and certain other jurisdictions, 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. Consistent with our policy, the valuation allowance against our net deferred income
tax assets will not reversed until such time as we have generated three years of cumulative pre-tax income and have reached
sustained profitability, which we define as two consecutive one year periods of pre-tax income.
The company adopted the U.S. GAAP method of accounting for uncertain tax positions during 2007. The purpose of this method
is to clarify accounting for uncertain tax positions recognized. The U.S. GAAP method of accounting for uncertain tax positions
utilizes 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.
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. During 2011, the company provided a provision for taxes for its
European subsidiary, as a result of the repatriation of 2011 earnings and profits of approximately $0.1 million. At this time the
company does not have any plans to repatriate income from its foreign subsidiaries.
Earnings Per Share
As summarized below, basic earnings per share is computed by dividing net income for the period 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 of our outstanding stock options under the treasury
stock method, which includes consideration of stock-based compensation required by U.S. GAAP.
41
Year Ended December 31,
2012
2011
2010
(Thousands of dollars, except per share amounts)
Basic Earnings Per Share
Reported net income
Weighted average shares outstanding
Basic earnings per share
Diluted Earnings Per Share
Reported net income
Weighted average shares outstanding
Weighted average dilutive stock options
Weighted average shares outstanding - diluted
Diluted earnings per share
$
$
$
$
30,891
$
67,169
$
27,219
27,052
1.13
$
2.48
$
30,891
$
67,169
$
27,219
111
27,330
27,052
278
27,330
1.13
$
2.46
$
51,643
26,704
1.93
51,643
26,704
85
26,789
1.93
The following potential shares of common stock were excluded from the diluted earnings per share calculations because they
would have been anti-dilutive due to their exercise prices exceeding the average market prices for the respective periods: for the
year ended December 31, 2012, options to purchase 1,828,727 shares at prices ranging from $18.37 to $43.22; for the year ended
December 31, 2011, options to purchase 1,456,440 shares at prices ranging from $21.72 to $43.22; and for the year ended
December 31, 2010, options to purchase 2,956,100 shares at prices ranging from $16.32 to $43.22 per share.
New Accounting Pronouncement
In June 2011, the FASB modified the presentation of comprehensive income in the financial statements. The revised standard
requires an entity to present the total of comprehensive income, the components of net income, and the components of other
comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive
statements and must be applied retrospectively. This standard eliminates the former option to report other comprehensive income
and its components in the statement of changes in equity. The revised standard does not change the items that must be reported
in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The
modification of the standard did not have an effect on our consolidated results of operations and financial position, when adopted,
on December 26, 2011.
NOTE 2 - BUSINESS SEGMENTS
The company's Chairman and Chief Executive Officer is the chief operating decision maker ("CODM") because he has final
authority over performance assessment and resource allocation decisions. The CODM evaluates both consolidated and
disaggregated financial information for each of the company's business units in deciding how to allocate resources and assess
performance. Each manufacturing facility manufactures the same products, ships product to the same group of customers, utilizes
the same cast manufacturing process and as a result, production can generally be transferred amongst our facilities. Accordingly,
we operate as a single integrated business and, as such, have only one operating segment - automotive wheels.
42
Year Ended December 31,
(Thousands of dollars)
Net sales:
U.S.
Mexico
Consolidated net sales
December 31,
(Thousands of dollars)
Property, plant and equipment, net:
U.S.
Mexico
Consolidated property, plant and equipment, net
NOTE 3 - ACCOUNTS RECEIVABLE
December 31,
(Thousands of dollars)
Trade receivables
Other receivables
Allowance for doubtful accounts
Accounts receivable, net
2012
2011
2010
$
$
316,238
505,216
821,454
$
$
$
$
$
$
302,150
520,022
822,172
2012
52,458
95,086
147,544
$
$
$
$
254,387
465,113
719,500
2011
45,936
99,811
145,747
2012
2011
91,747
$
7,293
99,040
(573)
98,467
$
114,811
5,423
120,234
(339)
119,895
The following percentages of our consolidated net sales were made to Ford, GM and Chrysler: 2012 - 38 percent, 27 percent and
12 percent; 2011 - 35 percent, 30 percent and 11 percent; and 2010 - 33 percent, 33 percent and 14 percent, respectively. These
three customers represented 82 percent and 75 percent of trade receivables at December 31, 2012 and 2011, respectively.
NOTE 4 - INVENTORIES
December 31,
(Dollars in thousands)
Raw materials
Work in process
Finished goods
Inventories
2012
2011
$
$
18,325
31,525
22,098
71,948
$
$
24,347
26,921
15,665
66,933
Service wheel and supplies inventory included in other non-current assets in the consolidated balance sheets totaled $6.5 million
and $2.8 million at December 31, 2012 and 2011, respectively. Included in raw materials were operating supplies and spare parts
totaling $10.2 million and $14.4 million at December 31, 2012 and 2011, respectively.
43
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
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
2012
2011
$
$
$
70,235
408,620
8,374
7,565
494,794
(347,250)
67,500
390,304
8,274
8,908
474,986
(329,239)
147,544
$
145,747
The net book values of all assets available for sale, totaling $1.5 million at December 31, 2011, were removed from the respective
fixed asset categories above and were included in assets held for sale on the consolidated balance sheet. As of December 31, 2012
all assets held for sale have been sold. Depreciation expense was $26.4 million, $27.5 million and $29.1 million for the years
ended December 31, 2012, 2011 and 2010, respectively.
NOTE 6 - INVESTMENTS IN UNCONSOLIDATED AFFILIATES
Investment in Hungary
In 1995, we entered into a joint venture with Otto Fuchs Kg, based in Meinerzhagen, Germany ("Otto Fuchs"), to form Suoftec
Light Metal Products Production & Distribution Ltd ("Suoftec") to manufacture cast and forged aluminum wheels in Hungary
principally for the European automobile industry. During the second quarter of 2010, we made a strategic decision to liquidate
our investment in Suoftec and, on June 18, 2010, we sold our 50 percent ownership interest to our joint venture partner, Otto
Fuchs. Total sales proceeds for our investment included cash of 4.0 million euros, or $4.9 million, which was received in the
second quarter of 2010, and an unconditional right to receive machinery and equipment from Suoftec valued up to 3.0 million
euros, or $3.8 million. As of December 31, 2010, we had received equipment valued at 0.8 million euros and had recorded a
receivable in the amount of 2.2 million euros, or $2.9 million which was collected in cash in 2011. As of the date of sale, the net
investment in Suoftec was $12.8 million, resulting in a loss on the sale of our investment of $4.1 million.
Being 50-percent owned and non-controlled, Suoftec was not consolidated, but was accounted for using the equity method of
accounting. Included below are Suoftec's summary statements of operations through the date of sale in June 2010.
Summary Statements of Operations
(Thousands of dollars)
Net sales
Cost of sales
Gross loss
Selling, general and administrative expenses
Loss from operations
Other expense, net
Loss before income taxes
Income tax benefit (provision)
Net loss
Fifty-percent share of Suoftec net loss
Intercompany profit elimination
Equity in losses of unconsolidated affiliate
44
Through Date of
Sale in
June 2010
$
$
$
$
39,456
43,347
(3,891)
1,145
(5,036)
(1,089)
(6,125)
3
(6,122)
(3,061)
214
(2,847)
Investment in India
On June 28, 2010, we executed a share subscription agreement (the "Agreement") with Synergies Castings Limited ("Synergies"),
a private aluminum wheel manufacturer based in Visakhapatnam, India, providing for our acquisition of a minority interest in
Synergies. As of December 31, 2012, the total cash investment in Synergies amounted to $4.5 million, representing 12.6 percent
of the outstanding equity shares of Synergies. Through September 22, 2011, the Agreement provided the company with rights to
appoint a member to the Synergies board of directors and veto powers over significant financial policy and operating decisions,
and as a result of these provisions, we were able to exert significant influence over Synergies and accounted for this investment
under the equity method.
Effective September 23, 2011, the Agreement was amended for certain events and to remove the company's rights to appoint a
director and the veto powers over significant financial policy and operating decisions. As a result of the amendment, it was
determined that the company no longer had the ability to exercise significant influence over Synergies' financial policies and
operations, and that the equity method of accounting for our investment was no longer appropriate. Accordingly, effective with
the amendment, the company began accounting for Synergies under the cost method of accounting on a prospective basis. Our
proportionate share of Synergies operating results was immaterial from our original investment through September 23, 2011.
During 2011, a group of existing equity holders, including the company, made a loan of $1.5 million to Synergies for working
capital needs. The company's share of this unsecured advance was $450,000, to be repaid over twenty-four months beginning in
October 2011 and bearing interest at 7 percent per annum, payable quarterly. The terms and conditions of the loan were substantially
the same for all equity holders involved in the transaction. Based upon our review of Synergies operating results, recent share
issuances, and our review of the projected results, we do not believe there is an other-than-temporary impairment as of December 31,
2012. The principal balance as of December 31, 2012 was $346,000.
NOTE 7 - INCOME TAXES
Year Ended December 31,
(Thousands of dollars)
Income before income taxes and equity earnings:
Domestic
International
2012
2011
2010
$
$
26,661
7,828
34,489
$
$
35,569
6,357
41,926
$
$
39,840
17,643
57,483
The (provision) benefit for income taxes is comprised of the following:
Year Ended December 31,
(Thousands of dollars)
Current taxes
Federal
State
Foreign (1)
Total current taxes
Deferred taxes
Federal
State
Foreign
Total deferred taxes
2012
2011
2010
$
$
(7,629)
(554)
18,211
10,028
$
(6,421)
(310)
(6,730)
(13,461)
(10,589)
(4,023)
986
(13,626)
29,183
8,244
1,277
38,704
(1,777)
(1,144)
8,555
5,634
(6,961)
—
(1,666)
(8,627)
Income tax (provision) benefit
$
(3,598)
$
25,243
$
(2,993)
(1) Included in the current foreign tax provisions are $23.9 million and $15.9 million net reversals of liabilities for uncertain tax
positions for the years ending December 31, 2012 and 2010, respectively.
45
The following is a reconciliation of the United States federal tax rate to our effective income tax rate:
Year Ended December 31,
Statutory rate
State tax provisions, net of federal income tax benefit
Permanent differences
Tax credits
Foreign income taxed at rates other than the statutory rate
Valuation allowance
Changes in tax liabilities, net
Other
Effective income tax rate
2012
2011
2010
(35.0)%
(0.6)
5.3
3.3
0.5
(9.8)
22.0
3.9
(35.0)%
(0.4)
1.6
1.5
1.0
100.9
(5.8)
(3.6)
(35.0)%
(5.6)
0.3
1.5
(11.0)
40.1
6.5
(2.0)
(10.4)%
60.2 %
(5.2)%
Our effective income tax rate for 2012 was 10 percent. Our effective income tax rate differed from the U.S. federal tax rate of 35
percent during 2012 primarily due to changes in our tax liability for uncertain tax positions resulting from the Mexican taxing
authorities finalizing their audit of the 2004 tax year of Superior Industries de Mexico S.A. de C.V. ("SIM"), our wholly-owned
Mexican subsidiary. As a result of the settlement, the company paid $0.9 million and reversed approximately $21.7 million of
liabilities for uncertain tax positions, which was partially offset by the $12.7 million reversal of related deferred tax assets established
for the indirect benefit in the U.S. for the potential non-deductibility of expenses in Mexico. Additional factors favorably impacting
the 2012 effective tax rate include the net release of foreign tax liabilities for the 2006 tax year of $2.1 million as a result of the
expiration of the statute of limitations, permanent differences including income from the reversal of a $3.5 million reserve
established for an uncertainty related to certain non-deductible VAT tax credits, and income tax credits. The 2012 effective tax
rate was unfavorably impacted by valuation allowance increases of approximately $3.4 million related primarily to state deferred
tax assets for net operating loss ("NOL") and tax credit carryforwards that are no longer expected to be realized due to changes
in tax law and cessation of business in Kansas.
Our effective income tax rate for 2011 was negative 60 percent. Our effective income tax rate differed from the U.S. federal tax
rate of 35 percent during 2011 primarily due to the reversal of valuation allowances that benefited the income tax provision by
$42.3 million. During the fourth quarter of 2011, we determined that it was more likely than not that our deferred tax assets would
be realized in future periods and reversed the valuation allowances accordingly. Absent the reversal of the valuation allowances
during 2011, our overall effective tax rate would have been 41 percent. The effective tax rate excluding the reversal of the valuation
allowances was higher than the U.S. federal tax rate primarily due to the accrual of $3.1 million of additional interest and penalties
on existing uncertain tax positions and state income taxes. In addition, during 2011 our operations in Mexico were not subject to
the IETU tax regime and were subjected to regular income tax, causing a more normalized rate, absent the reversal of valuation
allowances. The 2010 rate was favorably impacted by a net $3.7 million reduction in our tax liability caused by the benefit from
a favorable outcome of a tax examination in Mexico which was partially offset by the reversal of related deferred tax assets and
the accrual of additional interest and penalties on existing tax positions. The rate in 2010 was also favorably impacted by the
utilization of net operating losses in the U.S. of $16.0 million, for which a valuation allowance had previously been provided.
During 2010, our effective tax rate in Mexico was 27 percent. The statutory tax rate in Mexico is 30 percent. Much like in the
U.S. the effective rate was reduced by the net reversal of valuation allowance which had been provided against our net operating
loss carryforward, but increased as a result of the company being subject to the IETU tax regime. Additionally, the overall effective
rate was increased by the $4.1 million loss on the sale of our investment in Suoftec for which no tax benefit had been recorded.
We are a multinational company subject to taxation in many jurisdictions. We record liabilities dealing with uncertainty in the
application of complex tax laws and regulations in the various taxing jurisdictions in which we operate. If we determine that
payment of these liabilities will be unnecessary, we reverse the liability and recognize the tax benefit during the period in which
we determine the liability no longer applies. Conversely, we record additional tax liabilities or valuation allowances in a period
in which we determine that a recorded liability is less than we expect the ultimate assessment to be or that a tax asset is impaired.
Income taxes are accounted for pursuant to U.S. GAAP, which requires the use of the liability method and the recognition of
deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement
carrying amounts and the tax basis of assets and liabilities. The effect on deferred taxes for a change in tax rates is recognized in
the provision for income taxes in the period of enactment. U.S. income taxes on undistributed earnings of our international
subsidiaries have not been provided as such earnings are considered permanently reinvested. Tax credits and special deductions
are accounted for as a reduction of the provision for income taxes in the period in which the credits arise.
46
Tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred liabilities at
December 31, 2012 and 2011:
December 31,
(Thousands of dollars)
Deferred income tax assets:
2012
2011
Liabilities deductible in the future
$
8,006
$
Deferred compensation
Net loss carryforward
Tax credit carryforward
Competent authority deferred tax assets and other foreign timing differences
Other
Total before valuation allowances
Valuation allowances
Net deferred income tax assets
Deferred income tax liabilities:
14,973
2,043
1,062
6,307
1,621
34,012
(3,394)
30,618
5,663
13,785
2,851
3,513
17,833
3,362
47,007
—
47,007
Differences between the book and tax basis of property, plant and equipment
Deferred income tax liabilities
Net deferred income tax assets
(24,521)
(24,521)
6,097
$
(24,913)
(24,913)
22,094
$
As of December 31, 2012 we had approximately $6.1 million of net deferred tax assets in Mexico and the U.S. During 2012, the
decrease in our deferred tax assets related primarily to the indirect benefit in the U.S. for potential non-deductibility of expenses
in Mexico resulting from uncertain tax positions, which were reversed as a result of an audit settlement and the expiration of the
statute of limitations for open tax years.
As of December 31, 2011 we had approximately $22.1 million of net deferred tax assets. During the fourth quarter of 2011, we
released valuation allowances carried against our net deferred tax assets in the U.S. based on an evaluation of current evidence
and in accordance with our accounting policy. This release of the valuation allowance during 2011 resulted in a benefit of $42.3
million. In determining when to release the valuation allowance established against our U.S. net deferred income tax assets, we
consider all available evidence, both positive and negative. During 2011, we generated pre-tax income of $41.9 million, and in
the fourth quarter of 2011 we achieved three years of cumulative pre-tax income. We also reached sustained profitability, which
our accounting policy defines as two consecutive one year periods of pre-tax income. With further consideration given to, among
other things, historical operating results, estimates of future earnings in different taxing jurisdictions and the expected timing of
reversals of temporary differences, we concluded that it was more likely than not that our deferred tax assets would be realized.
Realization of any of our deferred tax assets at December 31, 2012 is dependent on the company generating sufficient taxable
income in the future. The determination of whether or not to record a full or partial valuation allowance on our deferred tax assets
is a critical accounting estimate requiring a significant amount of judgment on the part of management. We perform our analysis
on a jurisdiction by jurisdiction basis at the end of each reporting period.
At the end of 2009, the company determined that it was more likely than not that 1) the federal U.S. and state deferred tax assets
would not be realized within the carryforward period and 2) the foreign NOL carryforwards would not be realized within the
carryforward period. Based on our cumulative losses at the end of 2009, we could not look to projected operating results as a
source of income. We, therefore, continued to establish full valuation allowances against those deferred tax assets that would be
realized through the reversal of taxable temporary differences until the fourth quarter of 2011.
During 2010, the valuation allowances against our deferred tax assets decreased by $22.9 million to $43.2 million from $66.1
million at the end of 2009. Due to our increased profitability in 2010 as the automotive industry experienced a significant recovery,
we were able to generate enough domestic taxable income to use our NOL carryforward from 2009, as well as realize the benefit
of the reversal of certain taxable temporary differences. Also in 2010, the carryback period for NOLs was extended from two
years to five years, thereby allowing us to carryback our 2008 NOL in full to 2003. Therefore, the valuation allowance associated
with these items was released during 2010.
47
Year Ended December 31,
(Thousands of dollars)
Beginning balance
Due to our continued profitability in 2011, along with the continued improvement in the automotive industry, we were able to
generate enough domestic taxable income to use our state NOL carryforwards from 2010 as well as reverse certain temporary
items. During 2011, we also generated foreign income which allowed us to use a portion of our foreign NOL carryforwards.
As of December 31, 2012, we have cumulative state NOL carryforwards of $39.4 million that begin to expire in 2016. Also, we
have $1.0 million of state tax credit carryforwards for 2012 and 2011 which are available indefinitely.
We have not provided for deferred income taxes or foreign withholding tax on basis differences in our non-U.S. subsidiaries that
result from undistributed earnings of $124.8 million which the company has the intent and the ability to reinvest in its foreign
operations. Determination of the deferred income tax liability on these basis differences is not reasonably estimable because such
liability, if any, is dependent on circumstances existing if and when remittance occurs. During 2011, the company established a
provision for taxes for its European subsidiary, as a result of the repatriation of 2011 earnings and profits of approximately $0.1
million.
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 for the three years ended December 31, 2012 is as follows:
2012
2011
2010
$
12,637
$
Increases (decreases) due to foreign currency translations
Increases (decreases) as a result of positions taken during:
Prior periods
Current period
Settlements with taxing authorities
Expiration of applicable statutes of limitation
Ending balance (1)
$
632
(6,362)
2,700
(870)
(2,427)
6,310
$
$
13,555
(1,296)
176
353
—
(151)
12,637
$
19,046
633
924
—
(7,048)
—
13,555
(1) Excludes $5.0 million, $20.4 million and $19.5 million of potential interest and penalties associated with uncertain tax positions
in 2012, 2011 and 2010, respectively.
Our policy regarding interest and penalties related to unrecognized tax benefits is to record interest and penalties as an element
of income tax expense. The cumulative amounts related to interest and penalties are added to the total unrecognized tax liabilities
on the balance sheet. Accordingly, the balance sheet at December 31, 2012 includes the unrecognized tax benefits, cumulative
interest and penalties accrued on the liabilities totaling $11.3 million. During 2012, we accrued potential interest and penalties
of $1.6 million and $0.4 million, respectively, related to unrecognized tax benefits. As of December 31, 2012, we have cumulative
recorded liabilities for potential interest and penalties of $3.1 million and $1.9 million, respectively. Included in the unrecognized
tax benefits of $11.3 million at December 31, 2012, was $5.8 million of tax benefit that, if recognized, would affect our annual
effective tax rate. Within the next twelve-month period ending December 31, 2012, we do not expect any of the unrecognized
tax benefits to be recognized due to the expiration of certain statute of limitations or settlements with tax authorities, except as
described below.
We conduct business internationally and, as a result, one or more of our subsidiaries files income tax returns in U.S. federal, U.S.
state and certain foreign jurisdictions. Accordingly, in the normal course of business, we are subject to examination by taxing
authorities throughout the world, including Hungary, Mexico, the Netherlands, India, and the United States. We are no longer
under examination by taxing authorities regarding any U.S. federal income tax returns for years before 2009 while the years open
for examination under various state and local jurisdictions varies. Within the next twelve month period ending December 31,
2013, we do not expect any income tax examinations to be completed, except as described below.
Mexico's Tax Administration Service (Servicio de Administracion Tributaria, or "SAT"), finalized their examination of the 2007
tax year of Superior Industries de Mexico S.A. de C.V., our wholly-owned Mexican subsidiary, during February 2013. In February
2013 we reached a settlement with SAT for the 2007 tax year and made a cash payment of $0.3 million. The closure of the 2007
tax year audit resulted in an immaterial decrease in the liability for uncertain tax positions.
Total income tax payments made were $11.0 million in 2012, $15.8 million in 2011 and $9.6 million in 2010.
48
NOTE 8 - LEASES AND RELATED PARTIES
We lease certain land, facilities and equipment under long-term operating leases expiring at various dates through 2016. Total
lease expense for all operating leases amounted to $1.5 million in 2012, $1.0 million in 2011 and $1.7 million in 2010.
Our corporate office and former manufacturing and warehouse facility in Van Nuys, California were leased from the Louis L.
Borick Trust and the Nita A. Borick Management Trust (the Trusts). The Trusts are controlled by Mr. Steven J. Borick, Chairman
and Chief Executive Officer of the company, as sole trustee, and Nita A. Borick, Mr. L. Borick's former spouse, respectively. Due
to the closure of our manufacturing and warehouse operations at our Van Nuys, California facility in June 2009, we entered into
an amended lease in May 2010 of the office space occupied by our corporate office.
The current operating lease expires at the end of March 2015. There are two additional lease extension options of approximately
five years each. The current annual lease payment is approximately $425 thousand. The facilities portion of the lease agreement
requires rental increases every five years based upon the change in a specific Consumer Price Index. The future minimum lease
payments that are payable to the Trusts for the Van Nuys corporate office lease are $1.0 million. Total lease payments to these
related entities were $0.4 million in 2012, $0.4 million in 2011 and $1.0 million for 2010.
The following are summarized future minimum payments under all leases. The table below contains the current annual lease
payments of approximately $425 thousand for the corporate office facility through March 2015.
Year Ended December 31,
(Thousands of dollars)
2013
2014
2015
2016
2017
Thereafter
NOTE 9 - RETIREMENT PLANS
Operating Leases
$
$
1,426
1,403
1,006
69
17
—
3,921
We have an unfunded salary continuation plan covering certain directors, officers and other key members of management. We
purchase life insurance policies on certain participants to provide in-part for future liabilities. Cash surrender value of these
policies, totaling $5.9 million and $5.6 million at December 31, 2012 and 2011, respectively, are included in other non-current
assets in the company's consolidated balance sheets. 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. We have measured the plan assets and obligations of our salary
continuation plan as of our fiscal year end for all periods presented.
The following table summarizes the changes in plan benefit obligations:
Year Ended December 31,
(Thousands of dollars)
Change in benefit obligation
Beginning benefit obligation
Service cost
Interest cost
Actuarial loss
Benefit payments
Ending benefit obligation
2012
2011
$
$
25,490
249
1,242
3,262
(1,168)
29,075
$
$
22,132
295
1,294
2,785
(1,016)
25,490
49
Year Ended December 31,
(Thousands of dollars)
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
Components of net periodic pension cost are described in the following table:
$
$
$
$
$
$
$
2012
2011
— $
1,168
(1,168)
— $
—
1,016
(1,016)
—
(29,075)
$
(25,490)
$
$
$
$
(1,389)
(27,686)
(29,075)
8,190
(1)
8,189
4.00%
3.00%
(1,282)
(24,208)
(25,490)
5,196
(1)
5,195
5.00%
3.00%
Year Ended December 31,
(Thousands of dollars)
Components of net periodic pension cost:
Service cost
Interest cost
Contractual termination benefits
Amortization of actuarial loss
Net periodic pension cost
2012
2011
2010
$
$
249
$
295
$
1,242
—
268
1,294
—
22
583
1,267
—
—
1,759
$
1,611
$
1,850
Weighted average assumptions used to determine net periodic pension cost:
Discount rate
Rate of compensation increase
5.00%
3.00%
6.00%
3.00%
6.25%
3.00%
The increase in the 2012 net periodic pension cost compared to the 2011 cost was primarily due to an increase in amortization of
actuarial losses. The decrease in the 2011 net periodic pension cost compared to the 2010 cost was primarily due to a decrease in
the discount rate.
50
Benefit payments during the next ten years, which reflect applicable future service, are as follows:
Year Ended December 31,
(Thousands of dollars)
2013
2014
2015
2016
2017
Years 2018 to 2022
The following is an estimate of the components of net periodic pension cost in 2013:
Estimated Year Ended December 31,
(Thousands of dollars)
Service cost
Interest cost
Amortization of actuarial loss
Estimated 2013 net periodic pension cost
Other Retirement Plans
Amount
1,417
1,480
1,500
1,487
1,196
7,365
268
1,135
538
1,941
2013
$
$
$
$
$
$
$
$
We also have a contributory employee retirement savings plan (a 401k plan) covering substantially all of our employees. The
employer contribution totaled $1.8 million, $1.8 million and $1.3 million for the three years ended December 31, 2012, 2011 and
2010, respectively.
Pursuant to the deferred compensation provision of his 1994 Employment Agreement ("1994 Agreement"), Mr. Louis L. Borick,
Founding Chairman and a Director of the company until his passing in November 2011, was paid an annual amount of $1.0 million
in 26 equal payments for five years through 2009. Beginning in 2010, the 1994 Agreement called for this annual amount to be
reduced to $0.5 million.
NOTE 10 - ACCRUED EXPENSES
December 31,
(Thousands of dollars)
Payroll and related benefits
Dividends
Taxes, other than income taxes
Current portion of executive retirement liabilities
Other
Accrued expenses
2012
2011
$
$
12,637
$
—
8,191
1,389
11,961
34,178
$
13,458
4,347
11,776
1,282
8,669
39,532
NOTE 11 - COMMITMENTS AND CONTINGENT LIABILITIES
The 2012 cost of sales includes a $3.5 million benefit from the release of a contingency reserve, established in a prior year, for an
uncertainty related to a foreign consumption tax that was resolved during the third quarter of 2012. 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
51
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.
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 commodities. At December 31, 2012 we held no derivative financial instruments, and at December 31, 2011 we held no
derivative financial instruments other than the natural gas contracts discussed below.
When market conditions warrant, we may also 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. These natural gas contracts are
considered to be derivatives under U.S. GAAP, and when entering into these contracts, it was expected that we would take full
delivery of the contracted quantities of natural gas over the normal course of business. Accordingly, at inception, these contracts
qualified for the normal purchase, normal sale ("NPNS") exemption provided for under U.S. GAAP. As such, we do not account
for these purchase commitments as derivatives unless there is a change in facts or circumstances in regard to the company's intent
or ability to use the contracted quantities of natural gas over the normal course of business. As of December 31, 2012, there were
no fixed price natural gas purchase agreements outstanding.
During 2010, certain of these natural gas contracts no longer qualified for the NPNS exemption because we could not take full
delivery of the contracted quantities of natural gas under these contracts due to plant shutdowns and low levels of production
caused by the sharp decline in our customers' requirements in prior years. In accordance with U.S. GAAP, the purchase commitments
that no longer qualified for the NPNS exemption were accounted for as derivatives, with the changes in estimated fair value of
these contracts being recorded in cost of sales in our consolidated income statement. The fair value measurements of our natural
gas purchase commitments that were accounted for as derivatives were based on quoted market prices using the market approach
and the fair values were determined using Level 1 inputs within the fair value hierarchy provided by U.S. GAAP. During 2010,
the gains recorded in cost of sales totaled $1.9 million. The natural gas purchase commitments accounted for as derivatives were
settled or full delivery was taken by December 31, 2010. In the first quarter of 2010, settlement payments for natural gas purchase
commitments related to closed facilities totaled $1.1 million.
NOTE 12 - STOCK BASED COMPENSATION
Our 2008 Equity Incentive Plan authorizes us to issue incentive and non-qualified stock options, as well as stock appreciation
rights, restricted stock and performance units to our non-employee directors, officers, employees and consultants totaling up to
3.5 million shares of common stock. No more than 100,000 shares may be used under such plan as “full value” awards, which
include restricted stock and performance units. Stock options are granted at not less than fair market value on the date of grant
and expire no later than ten years after the date of grant. Options granted under this plan require no less than a three year ratable
vesting period if vesting is based on continuous service. Vesting periods may be shorter than three years if performance based.
Restricted stock, or “full value” awards, vest ratably over no less than a three year period. Restricted shares are considered issued
and outstanding at the date of grant, have the same dividend and voting rights as other outstanding common stock, are subject to
forfeiture if employment terminates prior to vesting, and are expensed ratably over the vesting period. Dividends paid on the
restricted shares are non-forfeitable. During 2012, we granted 33,550 shares of restricted stock, which vest ratably over a three
year period. During 2011, we granted 29,250 shares of restricted stock, which vest ratably over a three year period.
We received cash proceeds of $1.5 million, $4.5 million and $2.4 million from stock options exercised in 2012, 2011 and 2010,
respectively. The total intrinsic value of options exercised was $0.3 million and $1.9 million, during the years ended December 31,
2012 and 2011, respectively. It is our policy to issue shares from authorized but not issued shares upon the exercise of stock
options and upon the issuance of restricted stock awards. At December 31, 2012, there were 2.0 million shares available for future
grants under this plan.
We have elected to adopt the alternative transition method for calculating the initial pool of excess tax benefits and to determine
the subsequent impact of the tax effects of employee stock-based compensation awards that are outstanding on shareholders' equity
and the consolidated statements of cash flows.
52
Stock option activity in 2012:
Balance at December 31, 2011
Granted
Exercised
Canceled
Expired
Balance at December 31, 2012
Outstanding
3,212,277
$
247,500
$
(98,675) $
(225,125) $
(94,750) $
$
3,041,227
Options vested or expected to vest
2,960.232
Exercisable at December 31, 2012
2,323,902
$
$
Weighted
Average
Exercise
Price
Remaining
Contractual
Life in Years
Aggregate
Intrinsic
Value
22.49
18.13
15.51
20.61
41.36
21.92
22.02
23.27
5.0
4.9
4.0
$
$
$
4,235,000
4,093,000
2,547,000
Included in the total stock options outstanding at December 31, 2012 are 1.9 million options that were granted under prior stock
option plans that have expired. The aggregate intrinsic value represents the total pretax difference between the closing stock price
on the last trading day of the reporting period and the option exercise price, multiplied by the number of in-the-money options.
This is the amount that would have been received by the option holders had they exercised and sold their options on that day. This
amount varies based on changes in the fair market value of our common stock. The closing price of our common stock on the
last trading day of our fiscal year was $19.55.
Stock options outstanding at December 31, 2012:
Range of
Exercise Prices
Options
Outstanding
at 12/31/2012
Weighted
Average
Remaining
Contractual
Life (in Years)
Weighted
Average
Exercise
Price
Options
Exercisable
at 12/31/2012
Weighted
Average
Exercise
Price
$
$
$
$
$
$
10.09 — $
16.55 — $
17.64 — $
19.50 — $
21.92 — $
28.93 — $
16.54
17.63
19.49
21.91
28.92
43.22
583,575
483,925
460,600
550,377
579,300
383,450
3,041,227
$
$
$
$
$
$
$
14.94
17.39
18.47
21.31
23.88
40.29
21.92
297,950
371,258
310,100
460,377
500,767
383,450
2,323,902
$
$
$
$
$
$
$
14.91
17.56
18.19
21.66
24.08
40.29
23.27
6.9
5.0
6.4
5.7
3.7
1.1
5.0
53
Restricted stock activity in 2012:
Balance at December 31, 2011
Granted
Vested
Canceled
Balance at December 31, 2012
Number of
Awards
Weighted
Average Grant
Date Fair Value
53,250
$
33,550
$
(17,495) $
(750) $
$
68,555
19.38
16.92
19.33
22.57
18.15
Weighted
Average
Remaining
Amortization
Period (in Years)
1.8
Stock-based compensation expense related to our equity incentive plans in accordance with U.S. GAAP was allocated as follows:
Year Ended December 31,
(Thousands of dollars)
Cost of sales
2012
2011
2010
$
248
$
449
$
Selling, general and administrative expenses
Stock-based compensation expense before income taxes
Income tax benefit
Total stock-based compensation expense after income taxes
$
1,824
2,072
(513)
1,559
$
1,802
2,251
(400)
1,851
$
445
1,928
2,373
—
2,373
As discussed in Note 7 – Income Taxes, we had previously provided valuation allowances on our U.S. deferred tax
assets. Consequently, the income tax benefit on our stock-based compensation expense in 2010 was entirely offset by changes in
valuation allowances. There were no significant capitalized stock-based compensation costs at December 31, 2012 or 2011. As
of December 31, 2012, there was $2.8 million of unrecognized stock-based compensation expense expected to be recognized
related to unvested stock-based awards. That cost is expected to be recognized over a weighted-average period of 1.9 years.
The fair value of each option grant was estimated as of the date of grant using the Black-Scholes option-pricing model with the
following assumptions:
Year Ended December 31,
Expected dividend yield (a)
Expected stock price volatility (b)
Risk-free interest rate (c)
Expected option lives (d)
2012
3.7%
41.2%
1.4%
2011
3.9%
37.8%
2.7%
2010
4.3%
36.7%
2.9%
6.9 years
6.9 years
7.0 years
Weighted average grant date fair value of options granted
during the period
$5.10
$5.72
$4.07
(a) This assumes that cash dividends of $0.16 per share are paid each quarter on our common stock.
(b) Expected volatility is based on the historical volatility of our stock price, over the expected term of the option.
(c) The risk-free rate is based upon the rate on a U.S. Treasury note for the period representing the expected term of the option.
(d) The expected term of the option is based on historical employee exercise behavior, a contractual life of ten years and employees'
post-vesting employment termination behavior.
NOTE 13 - COMMON STOCK PURCHASE PROGRAMS
Since 1995, our Board of Directors has authorized several common stock repurchase programs totaling 8.0 million shares, under
which we have repurchased approximately 4.8 million shares for approximately $130.9 million, or $27.16 per share. Under the
54
latest authorization to repurchase up to 4.0 million shares, approved in March 2000, to date we have repurchased a total of 818,000
shares for a total cost of $26.9 million at an average cost per share of $32.82. All repurchased shares are immediately canceled
and retired. There have been no stock repurchases since 2005. As of December 31, 2012, approximately 3.2 million additional
shares can be repurchased under the current authorization.
NOTE 14 - IMPAIRMENT OF LONG-LIVED ASSETS AND OTHER CHARGES
Due to changing and deteriorating conditions in the automotive industry and reduced production requirements between 2006 and
2009, we ceased production at several of our facilities, including our Pittsburg, Kansas and Johnson City, Tennessee facilities. As
a result of these plant shut-downs and the analyses of our long-lived assets, we recorded impairment charges related to the long-
lived assets associated with facilities reducing the carrying value of certain assets at the facilities to their respective fair values.
The excess property, plant and equipment associated with the closed facilities that were being actively marketed for sale were
included in assets held for sale. During 2011 and 2010, the estimated fair values of certain of these assets declined to an amount
that was less than their respective book values, resulting in additional asset impairment charges of $1.3 million and $1.2 million,
during 2011 and 2010, respectively. The fair value of these assets was determined based upon comparable sales information and
with the assistance of independent third party appraisers and we had classified the inputs to the nonrecurring fair value measurement
of these assets as being level 2 within the fair value hierarchy in accordance with U.S. GAAP. During 2011, impairment charges
of $1.3 million related to our idle Pittsburg, Kansas and Johnson City, Tennessee facilities were recorded because the fair values
were determined to be less than their remaining book values based on negotiations for the sales of the assets. During the third
quarter of 2012, we completed the sale of the idle Pittsburg, Kansas facility for $2.0 million, and the purchase price less commission
and fees was collected in cash, consistent with the carrying value. During 2011, the company completed the sale of the closed
Johnson City, Tennessee facility for $1.7 million, and the purchase price less commission and fees was collected in cash, consistent
with the carrying value.
Below is a summary of the long-lived asset impairment charges discussed above:
Year Ended December 31,
(Thousands of dollars)
Assets Held for Sale:
Net book value of assets held for sale
Fair value of assets
Impairment of assets held for sale
Impairment of assets sold during period
Impairment charges
2011
2010
$
$
2,497
$
1,500
997
340
1,337
$
5,701
4,548
1,153
—
1,153
In 2010, the company completed a restructuring program, which included plant closures and workforce reductions, caused by the
general decline in the automotive industry. Plant closure and related costs are included in the table below. All of the non-impairment
costs were included in cost of sales. The following table summarizes the expenses, payments and resulting liabilities that were
included in accrued expenses for one-time termination benefits and other plant closure related costs:
Year Ended December 31,
(Thousands of dollars)
Beginning liability balance
Other plant closure costs
Payments
Ending liability balance
2010
$
$
2,471
2,109
(4,580)
—
55
NOTE 15 - QUARTERLY FINANCIAL DATA (UNAUDITED)
(Thousands of dollars, except per share amounts)
Year 2012
Net sales
Gross profit
Impairment of long-lived assets
and other charges (Note 15)
Income from operations
Income before income taxes and
equity earnings
Income tax (provision) benefit
Net income
Income per share:
Basic
Diluted
Dividends declared per share
$
$
$
$
$
$
$
$
$
$
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
202,457
17,108
$
$
215,053
15,716
$
$
193,926
15,020
$
$
210,018
12,763
$
$
Year
821,454
60,607
— $
10,223
10,864
$
$
(4,131) $
6,733
0.25
0.25
0.16
$
$
$
$
— $
8,226
$
8,438
$
(2,024) $
$
6,414
0.24
0.23
0.16
$
$
$
— $
— $
—
9,060
9,882
5,174
15,056
0.55
0.55
0.16
$
$
$
$
$
$
$
5,371
$
32,880
5,305
$
(2,617) $
$
2,688
0.10
0.10
0.64
$
$
$
34,489
(3,598)
30,891
1.13
1.13
1.12
(1) The third quarter of 2012 includes the income tax benefit of the settlement of an income tax audit and the reversal of the related liability for
uncertain tax positions.
Year 2011
Net sales
Gross profit
Impairment of long-lived assets
and other charges (Note 15)
Income from operations
Income before income taxes and
equity earnings
Income tax (provision) benefit
Net income
Income per share:
Basic
Diluted
Dividends declared per share
$
$
$
$
$
$
$
$
$
$
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
189,534
16,877
$
$
208,734
19,547
— $
10,185
11,167
$
$
(3,113) $
8,054
$
0.30
0.29
0.16
$
$
$
340
12,853
13,645
1,055
14,700
0.54
0.53
0.16
$
$
$
$
$
$
$
$
$
$
207,057
12,575
$
$
216,847
18,061
— $
5,968
$
$
5,124
(896) $
$
4,228
0.16
0.16
0.16
$
$
$
997
10,829
11,990
28,197
40,187
1.48
1.48
0.16
Year
822,172
67,060
1,337
39,835
41,926
25,243
67,169
2.48
2.46
0.64
$
$
$
$
$
$
$
$
$
$
(1) The fourth quarter of 2011 includes the income tax benefit of the release of valuation allowances established in prior years against our deferred
tax assets.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
56
ITEM 9A - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls
The company's management, with the participation of the 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 30, 2012. 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 30, 2012, 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 30, 2012 based upon criteria established in 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 30, 2012 based on the criteria in the Internal Control --
Integrated Framework issued by COSO.
The effectiveness of the company's internal control over financial reporting as of December 30, 2012 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 30,
2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, except
as discussed above in the Management's Report on Internal Control Over Financial Reporting.
ITEM 9B - OTHER INFORMATION
None.
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
57
PART III
Except as set forth herein, the information required by this Item is incorporated by reference to our 2013 Annual 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 2013 Annual
Proxy Statement under the caption “Election of Directors.” Such information is incorporated herein by reference. With the
exception of the Chief Executive Officer (CEO), 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 CEO’s employment agreement, see “Employment Agreements” in
our 2013 Annual Proxy Statement, which is incorporated herein by reference.
Code of Ethics - Included on our website, www.supind.com, under “Investor,” is our Code of Conduct, which, among others,
applies to our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer. Copies of our Code of Conduct are
available, without charge, from Superior Industries International, Inc., Shareholder Relations, 7800 Woodley Avenue, Van Nuys,
CA 91406.
ITEM 11 - EXECUTIVE COMPENSATION
Information relating to Executive Compensation is set forth under the captions “Compensation of Directors” and “Compensation
Discussion and Analysis” in our 2013 Annual 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 Holders” in our 2013 Annual Proxy Statement. Also see Note 12- Stock
Based Compensation in 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 captions, “Election of Directors” and
“Transactions with Related Persons,” in our 2013 Annual Proxy Statement, and in Note 8 - Leases and Related Parties in Notes
to the Consolidated Financial Statements in Item 8 – Financial Statements and Supplementary Data of this Annual Report.
ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information related to Principal Accountant Fees and Services is set forth under the caption “Audit Fees,” “Audit Related Fees”
and “Tax Fees” in our 2013 Annual Proxy Statement and is incorporated herein by reference.
ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this report:
PART IV
1. Financial Statements: See the “Index to the Consolidated Financial Statements and Financial Statement Schedule”
in Item 8 of this Annual Report.
2. Financial Statement Schedule
Schedule II – Valuation and Qualifying Accounts for the Years Ended December 31, 2012, 2011 and 2010
3. Exhibits
2.1
Agreement dated June 14, 2010 between the Registrant and Otto Fuchs Kg (Incorporated by reference to
Exhibit 2.1 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2010)
58
2.2
3.1
3.2
10.1
10.2
10.3
Sale and Purchase Agreement dated June 14, 2010 between the Registrant and Otto Fuchs Kg (Incorporated
by reference to Exhibit 2.2 to Registrant’s Annual Report on Form 10-K for the year ended December 31,
2010)
Restated Articles of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1 to Registrant’s
Annual Report on Form 10-K for the year ended December 31, 1994)
Amended and Restated By-Laws of the Registrant (Incorporated by reference to Exhibit 3.1 to Registrant’s
Current Report on Form 8-K filed on September 5, 2007.
Sublease dated March 2, 1976 between the Registrant and Louis L. Borick filed on Registrant’s Current
Report on Form 8-K dated May 1976 (Incorporated by reference to Exhibit 10.2 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1983) *
Supplemental Executive Individual Retirement Plan of the Registrant (Incorporated by reference to Exhibit
10.20 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987.) *
Employment Agreement dated January 1, 1994 between Louis L. Borick and the Registrant (Incorporated
by reference to Exhibit 10.32 to Registrant’s Annual Report on Form 10-K for the year ended December
31, 1993, as amended) *
10.4.1 1993 Stock Option Plan of the Registrant (Incorporated by reference to Exhibit 28.1 to Registrant’s Form
S-8 filed June 10, 1993, as amended. Registration No. 33-64088.) *
10.4.2 2003 Equity Incentive Plan of the Registrant (Incorporated by reference to Exhibit 99.1 to Registrant's
Form S-8 dated July 28, 2003. Registration No. 333-107380.) *
10.5
10.6
10.7
10.8
10.9
Executive Employment Agreement dated January 1, 2005 between Steven J. Borick and the registrant
(Incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the first
quarter of 2005 ended March 27, 2005) *
Executive Annual Incentive Plan dated January 1, 2005 between Steven J. Borick and the registrant
(Incorporated by reference to Exhibit A to Registrant’s Definitive Proxy Statement on Schedule 14A filed
on April 19, 2005 *
Salary Continuation Plan of The Registrant, amended and restated as of November 14, 2008 (Incorporated
by reference to Exhibit 10.12 to Registrant’s Annual Report on Form 10-K for the year ended December
31, 2008) *
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 Inventive 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)
10.10 Employment letter between the Registrant and Kerry A. Shiba, Senior Vice President and Chief Financial
Officer (Incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the
period ended September 26, 2010)*
10.11 Form of Notice of Grant and Restricted Stock Agreement pursuant to Registrant's 2008 Equity Incentive
filed May 20,
Plan (Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form
2010)*
10.12 Second Amendment to Sublease Agreement dated April 1, 2010 by and among The Louis L. Borick Trust
and The Nita Borick Management Trust and Registrant (Incorporated by reference to Exhibit 10.1 to
Registrant's Current Report on Form 8-K filed March 25, 2010)*
10.13 2010 Employee Incentive Plan of the Registrant (Incorporated b1 to Registrant’s Annual0.14 Report on
Form 10-K for the year ended December 31, 2010)
10.14 Services Agreement dated May 23, 2007 between the Registrant and Louis L. Borick (Incorporated by
reference to Exhibit 10315 to Registrant’s Annual Report on Form 10-K for the year ended December 31,
2010)*
10.15 Superior Industries International, Inc. Annual Incentive Performance Plan (Incorporated by reference to
Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated March 24, 2011)
10.16 Superior Industries International, Inc. CEO Annual Incentive Performance Plan (Incorporated by
reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K dated March 24, 2011)*
59
10.17 Executive Employment Agreement, effective December 31, 2010, by and between Superior and Steven
J. Borick. (Incorporated by reference to Exhibit 10.3 to Registrant’s Current Report on Form 8-K dated
March 24, 2011)*
10.18 Superior Industries International, Inc. Executive Change in Control Severance Plan (Incorporated by
reference to Exhibit 10.4 to Registrant’s Current Report on Form 8-K dated March 24, 2011)*
11
21
23
31.1
31.2
32
101
Computation of Earnings Per Share (contained in Note 1 – Summary of Significant Accounting Policies
in Notes to Consolidated Financial Statements in Item 8 – Financial Statements and Supplementary Data
of this Annual Report on Form 10-K)
List of Subsidiaries of the Company (filed herewith)
Consent of Deloitte and Touche LLP, our Independent Registered Public Accounting Firm (filed herewith)
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 (filed herewith)
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 (filed herewith)
Certification of Steven J. Borick, Chairman, Chief Executive Officer and President, and Kerry A. Shiba,
Senior 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)
Interactive data file (furnished electronically herewith pursuant to Rule 406T of Regulation S-T).
* Indicates management contract or compensatory plan or arrangement.
60
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
ANNUAL REPORT ON FORM 10-K
Schedule II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010
(Thousands of dollars)
Additions
Balance at
Beginning of
Year
Charge to
Costs and
Expenses
Other
Comprehensive
Income (Loss)
Deductions
From
Reserves
Balance at
End of
Year
2012
Allowance for doubtful accounts
Valuation allowances for deferred tax
assets
2011
Allowance for doubtful accounts
Valuation allowances for deferred tax
assets
2010
Allowance for doubtful accounts
Valuation allowances for deferred tax
assets
$
$
$
$
$
$
339
$
234
— $
3,394
983
$
22
$
$
$
$
— $
— $
573
— $
— $
3,394
— $
(666)
(955)
$
(42,295)
$
$
$
$
339
—
983
43,250
504
$
— $
(7)
— $
132
$
(23,025)
43,250
486
66,143
$
$
S-1
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/ Steven J. Borick
Steven J. Borick
Chairman, Chief Executive Officer and President
March 12, 2013
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/ Steven J. Borick
Steven J. Borick
/s/ Kerry A. Shiba
Kerry A. Shiba
/s/ Mike Nelson
Mike Nelson
/s/ Margaret S. Dano
Margaret S. Dano
/s/ Sheldon I. Ausman
Sheldon I. Ausman
/s/ Philip W. Colburn
Philip W. Colburn
/s/ V. Bond Evans
V. Bond Evans
/s/ Michael J. Joyce
Michael J. Joyce
/s/ Francisco S. Uranga
Francisco S. Uranga
/s/ Timothy McQuay
Timothy McQuay
Chairman, Chief Executive Officer and President
(Principal Executive Officer)
March 12, 2013
Executive Vice President and Chief Financial Officer
March 12, 2013
(Principal Financial Officer)
Vice President and Corporate Controller
March 12, 2013
(Principal Accounting Officer)
Lead Director
March 12, 2013
Director
Director
Director
Director
Director
Director
March 12, 2013
March 12, 2013
March 12, 2013
March 12, 2013
March 12, 2013
March 12, 2013
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
ANNUAL REPORT ON FORM 10-K
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements No. 33-64088, 333-107380, and 333-155258 on Form
S-8 of our report dated March 12, 2013, relating to the consolidated financial statements and financial statement schedule of
Superior Industries International, Inc. (the “Company”), and our report dated March 12, 2013 relating to internal control over
financial reporting, appearing in this Annual Report on Form 10-K of the Company for the year ended December 30, 2012.
/s/ Deloitte and Touche LLP
Los Angeles, California
March 12, 2013
CERTIFICATION
PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.1
I, Steven J. Borick, certify that:
1
2
3
4
I have reviewed this Annual Report on Form 10-K of Superior Industries International, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting or caused such internal control over financial reporting
to be designed under our supervision, 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;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period
covered by the report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant's internal control over financial reporting.
Date: March 12, 2013
/s/ Steven J. Borick
Steven J. Borick
Chairman, Chief Executive Officer and President
CERTIFICATION
PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.2
I, Kerry A. Shiba, certify that:
1
2
3
4
I have reviewed this Annual Report on Form 10-K of Superior Industries International, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting or caused such internal control over financial reporting
to be designed under our supervision, 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;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period
covered by the report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant's internal control over financial reporting.
Date: March 12, 2013
/s/ Kerry A. Shiba
Kerry A. Shiba
Executive Vice President and Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
Each of the undersigned hereby certifies, in his capacity as an officer of Superior Industries International, Inc. (the “company”),
for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best
of his knowledge:
• The Annual Report of the company on Form 10-K for the period ended December 30, 2012 as filed with the Securities
and Exchange Commission fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the
Securities Exchange Act of 1934, as amended; and
• The information contained in such report fairly presents, in all material respects, the financial condition and results of
operations of the company.
Dated: March 12, 2013
/s/ Steven J. Borick
Name: Steven J. Borick
Title: Chairman, Chief Executive Officer and President
/s/ Kerry A. Shiba
Name: Kerry A. Shiba
Title: Executive Vice President and Chief Financial Officer
NOTES
NOTES
NOTES
Corporate Information
DIRECTORS
Steven J. Borick
Chairman, Chief Executive Officer
and President
Margaret S. Dano
Lead Director
Audit Committee
Nominating and Corp Governance
Committee (*)
Sheldon I. Ausman
Audit Committee (*)
Compensation and Benefits Committee
Philip W. Colburn
Audit Committee
Nominating and Corp Governance
Committee
V. Bond Evans
Michael J. Joyce
Timothy C. McQuay
Audit Committee
Compensation and Benefits Committee (*)
Francisco S. Uranga
Compensation and Benefits Committee
Nominating and Corporate Governance
Committee
(*) Committee Chair
CORPORATE OFFICERS
Steven J. Borick
Chairman, Chief Executive Officer
and President
Michael J. O’Rourke
Executive Vice President,
Sales, Marketing and Operations
Kerry A. Shiba
Executive Vice President and
Chief Financial Officer
Robert D. Bracy
Senior Vice President,
Project Management
Parveen Kakar
Senior Vice President, Corporate
Engineering and Product Development
Michael Bakaric
Vice President,
Midwest Operations
CORPORATE OFFICERS
(continued)
Emory C. Brown
Vice President,
Project Management
Robert A. Earnest
Vice President,
General Counsel and
Corporate Secretary
Mike Nelson
Vice President &
Corporate Controller
Razmik R. Perian
Chief Information Officer
Cameron D. Toyne
Vice President,
Supply Chain Management
Felicia A. Williams
Vice President,
Human Resources
PLANT AND SUBSIDIARY
LOCATIONS
Fayetteville, Arkansas
Richard Quinlan
Director of Operations
Rogers, Arkansas
Melissa Turner
General Manager
Superior Industries
de Mexico, S. de R.L. de C.V.
Gabriel Soto
Vice President,
Mexico Operations
MINORITY EqUITY
INVESTMENT
Synergies Castings Limited
Visakhapatnam, India
CORPORATE OFFICES
Superior Industries International, Inc.
7800 Woodley Avenue
Van Nuys, California 91406
Phone: 818/ 781.4973
Fax: 818/ 780.3500
www.supind.com
DIVIDEND REINVESTMENT
PLAN, TRANSFER AGENT
AND REGISTRAR
Information about the Company’s Dividend
Reinvestment Plan, a convenient and
economical method of using the dividend to
increase holdings, and any questions about
shareholder accounts should be directed to:
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
800/ 368.5948
www.rtco.com
ANNUAL MEETING
The annual meeting of Superior Industries
International, Inc. will be held at 10:00 a.m.
on May 17, 2013 at the:
Airtel Plaza Hotel
7277 Valjean Avenue
Van Nuys, California 91406
SHAREHOLDER
RELATIONS
818/ 902.2701
www.supind.com
Form 10-K Annual Report to the
Securities and Exchange Commission
will be sent free of charge to
shareholders upon written request to:
Shareholder Relations
at the Company’s Corporate Office
INVESTOR RELATIONS
PondelWilkinson, Inc.
1880 Century Park East, Suite 350
Los Angeles, California 90067
310/ 279.5980
AUDITORS
Deloitte & Touche LLP
STOCK EXCHANGE
Superior common stock is listed for trading
on the New York Stock Exchange under
the ticker symbol SUP.
2012
ANNUAL
REPORT
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
7800 Woodley Avenue
Van Nuys, California 91406
TEL 818.781.4973
FAX 818.780.3500
www.supind.com