SUPERIOR INDUSTRIES INTERNATIONAL, INC.
2013 Annual Report
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
facilities employing
approximately 3,600 people in the United States and
Mexico.
six manufacturing
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
ANNUAL REPORT 2013
1
Dear Fellow Shareholders:
In this, my inaugural letter to shareholders as your new president, chief executive
officer and a member of the board of directors, I am happy to say that my first two
months on the job have been very exciting.
Since joining Superior on May 5th, I have had an opportunity to meet with many of
our more than 3,600 team members representing all areas of the company—from
our manufacturing plants, to our engineering professionals, to our corporate staff.
I also have spent time with a number of customers, suppliers and shareholders.
Through those meetings, I have gained valuable insight that will be instrumental
over the coming months in formulating our strategic plan to take Superior to
its next stage of development. Importantly, my instincts about the growth and
value-enhancing opportunities that I envisioned prior to joining the company
have proven to be accurate.
Founded in 1957 by the late Louis Borick, and since 2005 under the leadership of
Steven Borick, Superior Industries International, Inc. has become an iconic brand
in the automotive industry. The company has maintained its leadership position
and technological prowess through good as well as challenging economic times.
Today, as the automotive sector demonstrates strength and positive momentum, I
am confident that Superior’s solid business foundation provides us with a strong
platform upon which to build a more profitable future.
In early 2013, Superior continued to strengthen its leadership position in North
America by starting construction of a new manufacturing plant in Mexico. The
almost 500,000 square-foot facility, with a competitive capacity of over 2 million
wheels per year, is on budget and expected to be producing wheels in the first
half of 2015.
Superior continued its 30 year uninterrupted cash dividend program, and in 2013
increased the regular quarterly cash dividend payment rate by 12.5 percent. Over
the past 20 years, Superior has returned more than $260 million to shareholders
through its common stock dividend. In March 2013, the board authorized a
$30 million stock repurchase program, under which approximately $22,000,000
million of its common stock has been repurchased thus far.
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
ANNUAL REPORT 2013
2
Superior’s balance sheet remains strong. At March 30, 2014, which was the most
recent reporting period as of this writing, our cash and short-term investments
were $162 million. At that same time, approximately $65-70 million was needed
to complete our new manufacturing facility and fund its start-up costs, with
another approximately $20 million to be used in working capital for the new
facility. Superior has no debt, and the board and management team continue to
evaluate the most prudent use of cash, given the new plant construction, and as we
develop our strategic growth plan.
As I assume the leadership of Superior, I join my fellow board members and our
management team in expressing sincere gratitude to Steven Borick, who retired
earlier this year and was instrumental in building the company, establishing its
leadership position in the automotive industry and setting the stage for a strong
future.
To our shareholders, customers, suppliers and employees, you have my
commitment to work tirelessly to move Superior to a higher level. I look forward
to working closely with our board and talented team, as we continue to foster
the highest degree of professionalism, product excellence and customer service,
and as we embark on a new era pursuing opportunities for growth and value
enhancement.
Sincerely,
Donald J. Stebbins,
President and Chief Executive Officer
July 7, 2014
FINANCIAL HIGHLIGHTS
Fiscal Year Ended December 31,
2013
2012
2011
2010
2009
Statement of Operations (000s)
Net sales
$
789,564
$
821,454
$
822,172
$
719,500
$ 418,846
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
$
$
$
$
$
$
$
$
$
$
$
QUARTERLY COMMON STOCK PRICE INFORMATION
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
64,061
—
34,593
36,841
(14,017)
—
22,824
384,218
99,430
284,788
653,388
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)
1,153
59,799
57,483
(2,993)
(2,847)
51,643
11,804
(44,618)
(43,255)
(26,047)
(24,840)
$ (94,142)
381,612
70,538
$ 308,132
66,776
$
311,074
$ 241,356
572,442
$ 541,853
$
$
$
$
$
— $
— $
— $
— $
—
483,063
$
466,905
$
460,515
$
413,482
$ 373,272
3.9:1
—%
4.8%
6.1:1
—%
6.7%
5.9:1
—%
15.4%
5.4:1
—%
13.1%
4.6:1
— %
(22.3)%
0.83
0.83
17.79
0.20
$
$
$
$
$
$
$
$
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
2013
2012
High
Low
High
Low
22.09
18.81
18.83
20.66
$
$
$
$
18.38
17.01
17.15
17.50
$
$
$
$
20.22
20.27
18.42
19.79
$
$
$
$
16.26
15.50
15.75
16.51
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 29, 2013
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 $472,070,000, based on a closing price of $17.21. On February 21, 2014, there were 27,108,065
shares of common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s 2014 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.
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.
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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 have included or incorporated by reference in this Annual Report on Form 10-K (including in the section entitled
Management’s Discussion and Analysis of Financial Condition and Results of Operations), and from time to time our management
may make, statements that may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange 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. These statements include our belief and statements regarding general automotive
industry and market conditions and growth rates, as well as general domestic and international economic conditions.
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"), Toyota, Chrysler Group
LLC ("Chrysler"), BMW, Mitsubishi, Nissan, Subaru, Volkswagen and Tesla.
Production levels of the U.S. automotive industry for 2013 were 16.1 million vehicles, a 5 percent, or 0.7 million unit, increase
over 2012. 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, vans and "crossover vehicles") continue the trend of
growth since the 2009 recession. 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 2013 that the average age of an automobile in the U.S. reached 11.4 years, a new record
according to Polk Automotive Research.
In 2012, production of automobiles and light-duty trucks in North America reached 15.4 million units, an increase of 18 percent
over 2011. Production in 2011 reached 13.1 million units, an increase of 1.2 million, or 10 percent, from 11.9 million vehicles in
2010. Continued improvement in the U.S. economy, low consumer interest rates and pent-up demand for vehicles following the
2009 recession all contributed to market demand recovery.
The 2013 rate of vehicle production increase was strongest in the light-duty truck category with the domestic brands gaining
market share in 2013. Consistent with the overall market, the company's unit sales were stronger in light-duty trucks than passenger
cars and domestic brands held firmer than 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 2013. 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 2013, 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 2014. 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 for the delivery of natural gas through 2015. 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.
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
1
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, Toyota and Chrysler were our only customers accounting for more than 10 percent of our consolidated net sales in
2013. Net sales to these customers in 2013, 2012 and 2011 were as follows (dollars in millions):
Ford
GM
Toyota
Chrysler
2013
2012
2011
Percent of
Net Sales
45%
24%
12%
10%
Dollars
$349.7
$186.4
$92.1
$78.1
Percent of
Net Sales
38%
27%
9%
12%
Dollars
$313.3
$217.5
$77.0
$95.4
Percent of
Net Sales
35%
30%
8%
11%
Dollars
$286.5
$245.7
$66.8
$90.3
The loss of all or a substantial portion of our sales to Ford, GM, Toyota 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 2013 totaled $503.2 million and represented 64 percent of our total net sales.
Net property, plant and equipment used in our operations in Mexico totaled $157.1 million at December 31, 2013, including $67.0
million related to our new wheel plant under construction. 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 23 percent of the aluminum wheels installed on passenger
cars and light-duty 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-duty trucks in the U.S. was 80 percent for
the 2013 model year and 78 percent for the 2012 model year, compared to 74 percent for the 2011 model year. We expect the
ratio of aluminum to steel wheels to remain relatively stable. However, several factors can affect this rate including price, fuel
economy requirements and styling preference. Although aluminum wheels currently are more costly than steel, aluminum is a
2
lighter material than steel, which is desirable for fuel efficiency and generally viewed as aesthetically superior to steel, 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 some of 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 $4.8 million in 2013; $5.8 million in 2012; and $5.3 million in 2011.
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
$0.5 million in 2013; $0.3 million in 2012; and $0.5 million in 2011. 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, 2013, we had approximately 3,700 full-time employees compared to approximately 3,900 employees at
December 31, 2012. 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 fiscal years 2013 and
2011 comprised the 52-week periods ended on December 29, 2013, and December 25, 2011, respectively. The 2012 fiscal year
comprised the 53-week period ended December 30, 2012. 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.
The content on any web site referred to in this Annual Report on Form 10-K is not incorporated by reference in this Annual Report
on Form 10-K unless expressly noted.
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.
Customer Concentration - Ford, GM, Toyota and Chrysler, together represented approximately 91 percent of our total wheel sales
in 2013. 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
manufacture 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
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 and 2013.
Our ability to increase manufacturing capacity requires significant investments in facilities, equipment and personnel. Although
we have chosen to make investments to increase manufacturing capacity (see "Future Expansion" below), our ability to meet
customer demand for our products and increase revenues will 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 - Due to the anticipation of continued growth in demand for aluminum wheels in the North American market,
in 2013 we began construction of a new manufacturing facility in Mexico with an estimated cost of $125 million to $135 million.
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, including future demand for our products, 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. Operating results could be unfavorably impacted by start-up costs until production levels at the new facility
reach planned levels. Additionally, our overall ability to increase total company revenues in the future can be affected by factors
affecting the volume of product manufactured at our existing factories.
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 in 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 our customers awarding business 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 competitors' 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.
5
Although we are able to periodically pass certain 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 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 production interruption 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 to our customers 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 could include supply-chain
disruption for parts other than wheels, equipment breakdowns or other events affecting vehicle 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. As a result, the timing of aluminum price adjustments flowing through sales rarely will match the timing of such
changes in cost and can result in fluctuation to our gross profit which may at times be negative. 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.
The aluminum we use to manufacture wheels also contains additional alloying materials, including silicon. The cost of alloying
materials also is a component of the overall cost of a wheel. The price of the alloys we purchase is also based on certain published
market indices; however, most of our customer agreements do not provide price adjustments for changes in market prices of
alloying materials. Increases or decreases in the market prices of these alloying materials could have a material effect on our
operating margins and results of operations.
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.
6
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.
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. Legal
and regulatory requirements differ among jurisdictions worldwide. Violations of these laws and regulations could result in fines,
criminal sanctions against us, our officers, or our employees, prohibitions on the conduct of our business, and damage to our
reputation. Although we have policies, controls, and procedures designed to ensure compliance with these laws, our employees,
contractors, or agents may violate our policies.
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
7
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)
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,
we believe there is a long-term trend 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.
CEO Search; Dependence on Key Personnel - We are currently conducting a search for a new Chief Executive Office to replace
Steven J. Borick, who is retiring. Any failure to timely retain a chief executive officer, or interim chief executive officer, with the
necessary qualifications may materially and adversely affect our ability to develop and execute long term strategies as well as our
ability to operate with the desired level of efficiency. 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.
Repurchases of Common Stock - Although our existing liquidity is currently adequate to fund our approved common stock
repurchase plan, dedication of our financial resources to the repurchase of outstanding shares 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 expenditures, 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.
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.
8
Implementation of New Systems - Technical and operating difficulties are often encountered when implementing new systems both
during and following the implementation process. Disruptions while implementing 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 new systems 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
Our worldwide headquarters is located 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. An additional facility that
will also produce aluminum wheels for the automotive industry is under construction in Chihuahua, Mexico. These six facilities
encompass 2,907,000 square feet of manufacturing 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 2014 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 2014 Annual Proxy Statement, which is incorporated herein by reference.
9
Listed below are the name, age as of December 31, 2013, position and business experience of each of our officers who are not
directors:
Name
Michael Bakaric
Robert D. Bracy
Emory Brown
Parveen Kakar
Age
46
66
53
47
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
Senior Vice President, Corporate Engineering and
Product Development
Vice President, Program Development
Mike Nelson
59
Vice President and Corporate Controller
Michael J. O’Rourke
Razmik Perian
Kerry A. Shiba
Gabriel Soto
Cameron Toyne
53
56
59
65
54
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
Assumed
Position
2011
2009
2008
2005
2012
2010
2009
2003
2008
2003
2011
2007
2009
2003
2006
2010
2010
2006
2004
2008
2007
2004
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 479 shareholders of record
and 27.1 million shares issued and outstanding as of February 21, 2014.
2008
2009
2010
2011
2012
2013
Dow Jones
US Total
Market Index
Dow Jones
US Auto
Parts Index
$
$
$
$
$
$
100.00
128.79
150.24
152.26
177.11
235.51
$
$
$
$
$
$
100.00
149.18
235.98
208.15
232.93
363.50
Superior
Industries
International, Inc.
100.00
$
152.14
219.02
174.91
231.23
236.14
$
$
$
$
$
11
Dividends
Cash dividends declared totaled $0.20 and $1.12 during 2013 and 2012, respectively. Dividends declared and paid in 2012 included
an accelerated payment of the 2013 regular cash dividend of $0.64 that was paid in December 2012 in addition to the regular
dividend paid each quarter during 2012 equal to $0.16 per share. The accelerated dividend payment was intended to be in lieu of
regular quarterly dividends that the company otherwise would have paid in calendar year 2013. In the third quarter of 2013, the
Board of Directors approved a $0.02 increase in the company's quarterly dividend to $0.18 per share from $0.16 per share, or on
an annualized basis to $0.72 per share from $0.64 per share. 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
2013
2012
High
Low
High
Low
$
$
$
$
22.09
18.81
18.83
20.66
$
$
$
$
18.38
17.01
17.15
17.50
$
$
$
$
20.22
20.27
18.42
19.79
$
$
$
$
16.26
15.50
15.75
16.51
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On March 27, 2013, our Board of Directors approved a new stock repurchase program (the "Repurchase Program") authorizing
the repurchase of up to $30.0 million of our common stock. This new repurchase program replaced the previously existing share
repurchase program. Under the Repurchase Program, we may repurchase common stock from time to time on the open market or
in private transactions. Currently, we expect to fund the repurchases through available cash, although credit options are being
evaluated in the context of total capital needs. The timing and extent of the repurchases will depend upon market conditions and
other corporate considerations in our sole discretion.
The following table provides common stock repurchases made by or on behalf of the company during the three months ended
December 29, 2013:
Total
Number
of Shares
Purchased
Average
Price Paid
per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
and Programs
Maximum Approximate
Dollar Value of Shares
That May Yet be
Purchased Under the
Plans or Programs
(Thousands of dollars, except per share amounts)
September 30, 2013 - October 27, 2013
October 28, 2013 - November 24, 2013
— $
— $
—
—
November 25, 2013 - December 29, 2013
421,199
$
19.31
Total
421,199
—
—
421,199
421,199
$
$
21,866
21,866
In January 2014, an additional 92,485 shares were repurchased at a total cost of $1.8 million.
Recent Sales of Unregistered Securities
During the fiscal year 2013, there were no sales of unregistered securities.
12
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 fiscal years 2013 and
2011 comprised the 52-week periods ended on December 29, 2013, and December 25, 2011, respectively. The 2012 fiscal year
comprised the 53-week period ended December 30, 2012. 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.
Fiscal Year Ended December 31,
2013
2012
2011
2010
2009
Statement of Operations (000s)
Net sales
$
789,564
$
821,454
$
822,172
$
719,500
$ 418,846
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
$
$
$
$
$
$
$
$
$
$
$
64,061
—
34,593
36,841
(14,017)
—
22,824
384,218
99,430
284,788
653,388
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)
1,153
59,799
57,483
(2,993)
(2,847)
51,643
11,804
(44,618)
(43,255)
(26,047)
(24,840)
$ (94,142)
381,612
$ 308,132
70,538
$
66,776
311,074
$ 241,356
572,442
$ 541,853
$
$
$
$
$
— $
— $
— $
— $
—
483,063
$
466,905
$
460,515
$
413,482
$ 373,272
3.9:1
—%
4.8%
6.1:1
—%
6.7%
5.9:1
—%
15.4%
5.4:1
—%
13.1%
4.6:1
— %
(22.3)%
0.83
0.83
17.79
0.20
$
$
$
$
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
(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 2013, 2012 and 2011 income tax provisions.
(2) In 1995, we entered into a joint venture, based in Meinerzhagen, Germany, named 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 for total sales proceeds of 7.0 million euros ($8.6 million) and the loss on sale of our investment was
$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 in 2010 through the date of sale in June 2010 were $2.8 million. Our share of the joint venture's net losses was included
in “Equity Earnings (Loss).”
(3) The current ratio is current assets divided by current liabilities.
13
(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. For cautions about relying on such forward-looking statements, please refer to the section entitled “Forward Looking
Statements” at the beginning of this Annual Report immediately prior to Item 1. 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.
Executive Overview
Overall North American production of passenger cars and light-duty trucks in 2013 was reported by industry publications as being
up by approximately 5 percent versus 2012, with production of light-duty trucks--the light-duty truck category includes pick-up
trucks, SUV's, vans and "crossover vehicles"--increasing 7 percent and production of passenger cars increasing 2 percent. While
current production levels of the U.S. automotive industry are better than 2012 levels, they are still below historical highs. Results
for 2013, 2012 and 2011 reflect the continuing trend of growth since the 2009 recession. 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 2013 decreased $31.9 million to $789.6 million from $821.5 million in 2012. Wheel sales in 2013 decreased $32.9
million to $779.5 million from $812.4 million in 2012, while our wheel unit shipments decreased 0.6 million to 11.9 million in
2013. Gross profit in 2013 was $64.1 million, or 8 percent of net sales, compared to $60.6 million, or 7 percent of net sales, in
2012. Net income for 2013 was $22.8 million, or $0.83 per diluted share, including income tax expense of $14.0 million, compared
to net income in 2012 of $30.9 million, or $1.13 per diluted share, which included an income tax expense of $3.6 million.
The comparisons below of 2013 and 2012 operating results reflect higher margins due to lower operating costs in 2013 at our U.S.
operations. Lower costs in 2013 resulted from several factors including improved equipment and manufacturing process reliability
as a result of capital reinvestment and more rigorous maintenance programs. The comparisons below of 2012 and 2011 operating
results reflect higher costs in 2012 resulting 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.
We continue to focus on programs to reduce costs overall through improved operational and procurement practices, increased
capital reinvestment and more rigorous factory maintenance to improve equipment reliability. Our capital investment projects
have increased significantly in 2013 and 2012. These investments typically consisted of equipment upgrades and other capital
projects that are focused on improving equipment reliability, increasing production efficiency and enhancing manufacturing process
control to better accommodate newer, more complex wheel programs. It is possible that capital expenditure levels will continue
at these higher levels as we continue to focus on achieving further improvement to operational efficiencies and manufacturing
process capability. Despite our gross margin improvement in 2013, it is possible that global pricing pressures may continue at a
pace faster than our ability to reduce costs. In addition, although we have a portion of our natural gas requirements covered by
fixed-price contracts expiring through 2015, costs may increase to a level that cannot be immediately recouped in selling prices
or offset by cost-saving strategies.
Due to the anticipation of continued growth in demand for aluminum wheels in the North American market, during 2013 we
announced our plans to invest between $125 million and $135 million to build a new manufacturing facility in Mexico. In June
2013, we entered into a contract for the construction of the new facility and in the second half of 2013 we entered into contracts
for the purchase of equipment for the new facility. The total value of these contracts was approximately $96.6 million at the end
of 2013. We currently project the new facility will be operational in late 2014, with commercial production beginning towards
the middle of 2015 after we are able to qualify the manufacturing process and products with our customers.
Committed to enhance shareholder value, in March 2013, our Board of Directors approved a new stock repurchase program
authorizing the repurchase of up to $30.0 million of our common stock. During 2013 we repurchased 421,000 shares of our
14
common stock at a total investment of $8.1 million and in January 2014 we repurchased an additional 92,000 shares bringing our
total investment under the program to $10.0 million.
Listed in the table below are several key indicators we use to monitor our financial condition and operating performance.
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
2013 versus 2012
2013
2012
2011
$
$
$
$
$
789,564
64,061
8.1%
34,593
4.4%
22,824
2.9%
0.83
$
$
$
$
$
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
Net sales in 2013 decreased $31.9 million to $789.6 million from $821.5 million in 2012. Wheel sales in 2013 decreased $32.9
million to $779.5 million from $812.4 million in 2012. Wheel shipments decreased by 5 percent compared to 2012 with the lower
volume resulting in $37.5 million lower sales compared to 2012. Net sales were unfavorably impacted by a decline in the value
of the aluminum component of sales which we generally pass through to our customers and resulted in $12.8 million lower revenues.
The average selling price of our wheels was relatively flat as the unfavorable impact of the decline in aluminum value was offset
by favorable changes in the mix of wheel sizes and finishes sold. Decreases in unit shipments to Nissan, GM, Chrysler, Subaru,
BMW, Mitsubishi and VW were partially offset by increases in unit shipments to Ford, Toyota, Tesla and Mazda. Wheel program
development revenues totaled $10.1 million in 2013 and $9.1 million in 2012.
U.S. Operations
Net sales of our U.S. wheel plants in 2013 decreased $30.9 million, or 10 percent, to $277.1 million from $308.0 million a year
ago, reflecting a decrease in unit shipments partially offset by an increase in the average selling price of our wheels. Unit shipments
decreased 12 percent in 2013, with the decline in volume resulting in $36.7 million lower sales. The volume impact was partially
offset by a 1 percent increase in the average selling price of our wheels primarily due to an improved mix of wheel sizes and
finishes sold partially offset by a decrease in the pass-through price of aluminum. The decline in aluminum value reduced revenues
by approximately $4.2 million in 2013 when compared to 2012.
Mexico Operations
Net sales of our Mexico wheel plants in 2013 decreased $1.8 million, or less than 1 percent, to $502.5 million from $504.3 million
in 2012, reflecting flat unit shipments and a slight decrease in average selling prices of our wheels. The average selling price of
our wheels decreased 1 percent in 2013 primarily as a result of a lower pass-through price of aluminum partially offset by a
favorable mix of wheel sizes and finishes sold. The decline in aluminum value reduced revenues approximately $8.6 million when
compared to 2012.
2012 versus 2011
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.
15
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.
When looking at our major customer mix, OEM unit shipment percentages were as follows:
Fiscal Year Ended December 31,
2013
2012
2011
Ford
GM
Toyota
Chrysler
International customers (excluding Toyota)
Total
42%
25%
12%
11%
10%
37%
27%
9%
12%
15%
34%
30%
8%
11%
17%
100%
100%
100%
According to Ward's Auto Info Bank, overall North American production of passenger cars and light-duty trucks in 2013 increased
approximately 5 percent, while production of the specific passenger car and light-duty truck programs using our wheels increased
3 percent. In contrast to the market, our total shipments decreased 5 percent as lack of available manufacturing capacity was a
key factor constraining our ability to participate in the market growth. As a result, our share of the North American aluminum
wheel market decreased by 3 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 2 percentage points in light-duty
trucks, with a 5 percentage point decline in passenger car programs.
According to Ward's Automotive Group, the aluminum wheel penetration rate on passenger cars and light-duty trucks in the U.S.
was 80 percent for the 2013 model year and 78 percent for the 2012 model year, compared to 74 percent for the 2011 model year.
We expect the ratio of aluminum to steel wheels to remain relatively stable. 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-duty trucks.
At the customer level, shipments in 2013 to Ford increased 9 percent compared to last year, as shipments of light-duty truck wheels
increased 11 percent and passenger car wheels increased 1 percent. At the program level, the major unit shipment increases were
for the F-Series trucks, the Lincoln MKZ, Explorer, Edge, Fiesta and Flex with shipment decreases for the Fusion and Mustang.
Shipments to GM in 2013 decreased 11 percent compared to 2012, as unit volume of passenger car wheels decreased 57 percent
and light-duty truck wheel shipments decreased 1 percent. The major unit shipment decreases to GM were for Chevrolet’s Malibu,
Impala and Traverse, and the Cadillac SRX which were partially offset by major unit shipment increases for the Chevrolet Enclave
and the Cadillac ATS.
Shipments to Toyota in 2013 increased 21 percent compared to last year, as shipments of passenger car wheels increased 61 percent
and light-duty truck wheels increased 5 percent. The major unit shipment increases to Toyota were for the Avalon and Sienna.
Shipments to Chrysler in 2013 decreased 17 percent compared to last year, as unit volume of light-duty truck wheels decreased
19 percent and passenger car wheel shipments increased 7 percent. The major unit shipment decreases to Chrysler were for the
16
Jeep Grand Cherokee, Dodge Journey, Jeep Compass, Dodge Caravan, and Jeep Liberty, which were partially offset by major unit
shipment increases for the Dodge Ram, Durango and Challenger.
Shipments to international customers, excluding Toyota, in 2013 decreased 33 percent compared to 2012, as shipments of passenger
car wheels decreased 38 percent and shipments of light-duty truck wheels decreased 20 percent. Unit shipments decreased to each
of our international customers except Toyota and Mazda when compared to last year. The lower unit volumes included decreases
of 41 percent to Nissan, 28 percent to Subaru, 14 percent to BMW and 98 percent to Mitsubishi along with smaller decreases to
VW and Isuzu. At the program level, major unit shipment decreases to international customers were for Nissan's Sentra, Maxima,
Altima and Versa, Subaru's Outback, BMW's X3 and Mitsubishi's Galant, offset by major unit shipment increases for the Nissan
Note.
Cost of Sales
2013 versus 2012
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 decreased $35.3 million to $725.5 million in 2013, or 92 percent of net sales, compared to $760.8
million, or 93 percent of net sales, in 2012. Cost of sales in 2013 primarily reflects a decrease in costs due to a 5 percent decrease
in unit shipments, a decrease in aluminum prices, which we generally pass through to our customers and decreases in labor and
other costs, when compared to a year ago. Direct material and subcontract costs decreased approximately $29.8 million to $431.7
million from $461.5 million in 2012. The decrease in direct material costs includes approximately $13.6 million of aluminum
price decreases which we generally pass through to our customers. Plant labor and benefit costs decreased $5.5 million to $127.3
million in 2013, from $132.8 million in 2012, repair and maintenance costs decreased $3.0 million to $29.2 million in 2013,
compared to $32.2 million in 2012, and supply costs decreased $2.9 million to $26.3 million in 2013, from $29.2 million in 2012.
Cost of goods sold for our U.S. operations decreased $36.6 million while cost of goods sold for our Mexico operations decreased
$0.1 million, when comparing 2013 to 2012. The 2012 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 increased $1.4 million in 2013 when compared to 2012.
The lower levels of manufacturing costs reflect a variety of factors which primarily include lower unit volumes, labor costs,
supplies and maintenance spending. Productivity, measured in terms of wheels produced per labor hour decreased 3 percent in
2013 when compared with 2012 primarily due to the volume decline. 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 2013.
U.S. Operations
Cost of sales for our U.S. operations decreased by $36.6 million, or 11 percent, in 2013, as compared to 2012. Cost of sales for
our U.S. wheel plants in 2013 primarily reflects a decrease in costs due to a 12 percent decline in unit shipments and reduced
labor, aluminum and other costs, when compared to a year ago. During 2013, plant labor and benefit costs including overtime
premiums decreased approximately $8.9 million, or 11 percent, primarily as a result of reduced headcount and decreases in contract
labor when compared to last year. The decline in aluminum prices, which we generally pass through to our customers was $5.7
million. During 2013, labor cost per wheel decreased slightly while the wheels produced per labor hour incurred increased 1
percent, as compared to 2012. Other favorable changes in 2013 included a $4.0 million decrease in supply and small tool costs
and a $3.5 million decrease in plant repair and maintenance costs. These cost reductions largely reflect efficiency gains due to
improved equipment reliability and process control resulting from capital reinvestment and more robust maintenance programs.
A decline in production levels in 2013 also contributed overall to improved factory reliability.
Mexico Operations
Cost of sales for our Mexico operations decreased by $0.1 million in 2013, when compared to 2012. The 2012 cost of goods sold
includes a reduction of $3.5 million from release of the foreign consumption tax reserve described above. Cost of sales in 2013
also reflects a decrease in aluminum prices, which we generally pass through to our customers, of approximately $7.9 million,
17
partially offset by labor and other cost increases. During 2013, plant labor and benefit costs increased approximately $3.4 million,
or 7 percent, when compared to last year primarily as a result of higher average headcount and wage increases, while supply and
small tool costs increased $1.0 million and plant repair and maintenance expenses increased $0.4 million. A 9 percent increase
in labor cost per wheel manufactured partially reflects the higher labor cost incurred, as well as a change in product mix which
contributed to a 6 percent decline in the number of wheels produced per labor hour in 2013 as compared to 2012.
2012 versus 2011
In 2012, consolidated cost of goods sold increased $5.7 million to $760.8 million, or 93 percent of net sales, compared to $755.1
million, or 92 percent 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
In 2012, cost of sales for our U.S. operations increased by $34.6 million, or 12 percent, 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
In 2012, cost of sales for our Mexico operations decreased by $25.8 million, or 6 percent, 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
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.
Gross Profit
Consolidated gross profit increased $3.5 million in 2013 to $64.1 million, or 8 percent of net sales, compared to $60.6 million, or
7 percent of net sales, in 2012 as unit shipments decreased 5 percent in 2013. The 2012 gross profit includes a $3.5 million benefit
from the release of a reserve for an uncertainty related to a foreign consumption tax, as described above. The gross profit and
margin percentage increases were largely the result of efficiency improvements at our U.S. operations due to improved equipment
18
reliability and process control resulting from capital reinvestment and more robust maintenance programs. A decline in production
levels in 2013 also contributed overall to improved factory reliability.
In 2012, consolidated gross profit decreased $6.5 million 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 the $3.5 million benefit from the release of foreign consumption
tax reserve discussed above. 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 "2012 versus 2011" discussion of cost of sales
above.
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. 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 2013 related to such differences in timing of aluminum adjustments was not material
when compared to the same period in 2012.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $29.5 million, or 4 percent of net sales, in 2013 compared to $27.7 million, or
3 percent of net sales, in 2012 and $25.9 million, or 3 percent of net sales, in 2011. Compared to 2012, the $1.7 million increase
in 2013 expenses primarily reflects a $2.0 million increase in executive severance related costs, $0.8 million higher medical self-
insurance costs and a $0.9 million higher provision for uncollectible receivables, partially offset by $0.9 million lower legal fees
in 2013 and a $0.7 million gain from land granted to the company by the state of Chihuahua, Mexico for our new wheel plant
currently under construction. 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.
Impairment of Long-Lived Assets and Other Charges
Impairment of long-lived assets and other charges totaled $1.3 million in 2011. The $1.3 million charge in 2011 primarily reflects
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
2013 versus 2012
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 increased $1.7 million in 2013 to $34.6 million, or 4 percent of net sales, from $32.9 million,
or 4 percent of net sales, in 2012. Income from our U.S. operations increased $5.3 million, while income from our Mexico
operations decreased $2.9 million when comparing 2013 to 2012. Corporate costs were $0.7 million higher during 2013 when
19
compared to 2012. Included below are the major items that impacted income from operations for our U.S. and Mexico operations
during 2013.
Consolidated income from operations in the near future may be unfavorably impacted by start-up costs associated with our new
wheel plant under construction in Mexico. The new facility is expected to be operational by the end of 2014; however, until
production volumes reach planned levels profit margins will be unfavorably affected.
U.S. Operations
Operating income from our U.S. operations for 2013 increased by $5.3 million compared to the previous year. Income from
operations in 2013 reflects a $5.5 million improvement in gross margin versus 2012 due to reductions in operating costs which
more than offset the impact of a 12 percent decrease in unit shipments and caused a 2 percentage point increase in margin as a
percentage of net sales, when comparing 2013 with 2012. The operating cost reduction reflects declines in expense for labor,
supplies and small tools, and repairs and maintenance as more fully explained in the cost of sales discussion above. Better cost
performance largely was the result of efficiency gains due to improved equipment reliability and process control resulting from
capital reinvestment and more robust maintenance programs. A decline in production levels in 2013 also contributed overall to
improved factory reliability.
Mexico Operations
Operating income from our Mexico operations decreased by $2.9 million in 2013 compared to 2012. Excluding the benefit from
release of the consumption tax reserve in 2012 discussed above, income from operations in 2013 increased $0.6 million as gross
profit increased $1.6 million, while as a percentage of net sales our margins were flat in 2013, as compared to 2012. Unit shipments
were flat in 2013 compared to 2012.
U.S. versus Mexico Production
During 2013, wheels produced by our Mexico and U.S. operations accounted for 64 percent and 36 percent, respectively, of our
total production. During 2012, 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 2014.
2012 versus 2011
In 2012, consolidated income from operations decreased $6.9 million 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
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.
20
Interest Income, net and Other Income (Expense), net
Net interest income for 2013 increased 35 percent to $1.7 million from $1.3 million in 2012, due principally to an increase in the
average rate of return on the average balance of cash invested. Net interest income for 2012 increased 14 percent to $1.3 million
from $1.1 million in 2011, due primarily to an increase in the average rate of return on the average balance of cash invested.
Net other income (expense) was income of $0.6 million, $0.4 million and $1.0 million in 2013, 2012 and 2011, respectively.
Foreign exchange gains and (losses) included in other income (expense) net were gains of $0.2 million and $0.1 million in 2013
and 2012, respectively, and a loss of ($0.9) million in 2011. Other income and expense items included were income of $0.4 million,
$0.3 million and $1.9 million in 2013, 2012 and 2011, respectively.
Effective Income Tax Rate
Our income before income taxes and equity earnings was $36.8 million in 2013, $34.5 million in 2012 and $41.9 million in 2011.
The effective tax rate on the 2013 pretax income was 38.0 percent compared to 10.4 percent in 2012 and a benefit of 60.2 percent
in 2011. 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:
Year Ended December 31,
2013
2012
2011
Statutory rate - (provision) benefit
State tax provisions, net of federal income tax benefit (1)
Permanent differences (2)
Tax credits (3)
Foreign income taxed at rates other than the statutory rate (4)
Valuation allowance (5)
Changes in tax liabilities, net (6)
Other (7)
Effective income tax rate
(35.0)%
(1.0)
(0.1)
6.0
0.7
—
(5.7)
(2.9)
(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)
(38.0)%
(10.4)%
60.2 %
1) During the three years ended December 31, 2013, actual state tax provisions, net of federal income taxes, were $0.4
million, $0.2 million and $0.2 million in 2013, 2012 and 2011, respectively. The state provisions, net of federal income
taxes, are relatively small primarily due to state income tax credits, and in 2013 a $0.7 million refund of state taxes paid
in prior years related to an issue that was resolved in 2013.
2) Actual permanent differences impacting the income tax provisions during the three years ended December 31, 2013 were
an expense of $0.1 million in 2013, and benefits of $1.8 million and $0.7 million in 2012 and 2011, respectively. The
permanent differences decreased in 2013 due primarily to non-deductible costs of $2.7 million and 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) Tax credits for 2013 include credits recognized as a result of the 2013 enactment of the American Taxpayer Relief Act
of 2012 of $0.5 million recognized retroactively from 2012 and $0.5 million for 2013. Also included in 2013 are state
tax credits totaling $1.2 million.
4) 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, 2013 were benefits of $0.3, $0.2 million and $0.4 million in 2013, 2012 and 2011, respectively.
5) 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
21
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.
6) During 2013, the impact of changes in our tax liabilities for uncertain tax positions resulted in a net expense of $2.1
million, primarily due to $1.3 million of interest and penalties which resulted in increases to our tax provision, as well
as increases for new uncertain tax positions. 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 continued 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 tax liabilities which resulted in increases to our tax provision.
7) A change in tax law in 2013 had a discrete $1.0 million negative impact on our 2013 foreign income tax expense. In
2013 the Mexican Congress approved the 2014 Mexican tax reform package, which among other provisions, eliminated
scheduled reductions in corporate income tax rates and thereby increased our deferred tax liabilities.
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 Subsidiary
On June 28, 2010, we executed a share subscription 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. As of
December 31, 2013, 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 our consolidated results. 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, 2013 we have a note receivable from Synergies totaling $0.3 million.
Net Income
Net income in 2013 was $22.8 million, or 3 percent of net sales, and included an income tax provision of $14.0 million, compared
to $30.9 million, or 4 percent of net sales in 2012, and included an income tax provision of $3.6 million, and to $67.2 million, or
8 percent of net sales in 2011, including an income tax benefit of $25.2 million. Earnings per share was $0.83, $1.13 and $2.46
per diluted share in 2013, 2012 and 2011, 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, 2013, we had no bank or other interest-bearing debt.
At December 31, 2013, our cash, cash equivalents and short-term investments totaled $203.1 million compared to $207.3 million
at year-end 2012 and $192.9 million at the end of 2011.
22
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.
During the first half of 2013 we announced our plans to invest between $125 million and $135 million to build a new manufacturing
facility in Mexico, in order to meet anticipated growth in demand for aluminum wheels in the North American market. In June
2013 we entered into a contract for the construction of the new facility and in the second half of 2013 we entered into contracts
for the purchase of equipment for the new facility. The total value of these contracts was approximately $96.6 million at the end
of 2013 and cash paid under these agreements totaled $35.8 million in 2013. We currently project the new facility will be operational
in late 2014. Although our existing liquidity is currently adequate to fund the project, we are evaluating various financing options
available to the company, including new borrowings.
On March 27, 2013, our Board of Directors approved a new stock repurchase program (the "Repurchase Program") authorizing
the repurchase of up to $30.0 million of our common stock. Under the Repurchase Program, we may repurchase common stock
from time to time on the open market or in private transactions. The timing and extent of the repurchases will depend upon market
conditions and other corporate considerations in our sole discretion. As of December 31, 2013, additional shares with a total cost
of $21.9 million may be purchased under the Repurchase Program authorization. During 2013 we repurchased 421,000 shares of
our common stock at a total investment of $8.1 million, and in January 2014, we repurchased an additional 92,000 shares bringing
our total investment under the program to $10.0 million. Currently, we expect to continue funding any repurchases through
available cash, although credit options are being evaluated in the context of total capital needs.
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
2013 versus 2012
2013
2012
2011
$
$
$
69,252
(67,424)
(5,566)
(325)
(4,063) $
65,761
(18,532)
(33,344)
1,684
15,569
$
$
67,660
3,681
(12,509)
(668)
58,164
Our liquidity remained strong in 2013. Working capital (current assets minus current liabilities) and our current ratio (current
assets divided by current liabilities) were $284.8 million and 3.9:1, respectively, at December 31, 2013, versus $338.3 million and
6.1:1 at December 31, 2012. The 2013 decreases in working capital and current ratio primarily reflect liabilities and expenditures
for our new wheel plant, expenditures for repurchases of our common stock (see "Item 5. Market for Registrant's Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity Securities" in this Annual Report) and timing of activity affecting the
working capital accounts. We generate our principal working capital resources primarily through operations. The decrease in
working capital in 2013 resulted primarily from lower accounts receivable, prepaid aluminum costs, inventory and cash-on-hand
balances, as well as significant increases in accrued costs related to our new wheel plant in Mexico. Assuming continuation of
our historically strong liquidity, we believe we are well positioned to successfully complete our new wheel plant, take advantage
of new and complementary business opportunities, and to fund our working capital and capital expenditure requirements for the
foreseeable future.
Net cash provided by operating activities increased $3.5 million to $69.3 million for 2013, compared to net cash provided by
operating activities of $65.8 million for 2012. The primary operating activities during 2013 included net income of $22.8 million,
and adjustments for non-cash items of $35.7 million, primarily due to depreciation of $28.5 million, income tax liability changes
of $3.7 million and stock-based compensation expense of $2.7 million, as well as changes in operating assets and liabilities totaling
$10.7 million. Changes in operating assets included a $9.1 million decrease in our accounts receivable, a $5.7 million decrease
in inventory and a ($3.6) million change in other assets primarily due to customer owned tooling. The changes in operating
liabilities in 2013 included a $4.3 million increase primarily related to deferred tooling revenues and a ($4.8) million change in
income taxes payable.
23
Our principal investing activities during 2013 were the funding of $68.0 million of capital expenditures and the purchase of $3.8
million of certificates of deposit, partially offset by the receipt of $4.0 million cash proceeds from maturing certificates of
deposit. Principal investing activities during 2012 included 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.
Our principal financing activities during 2013 consisted of the repurchase of our common stock for cash totaling $8.1 million and
payment of cash dividends on our common stock totaling $0.6 million, partially offset by the receipt of cash proceeds from the
exercise of stock options totaling $2.9 million. 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. As discussed in "Item 5 - Dividends" in this Annual Report, dividends declared and paid in 2012 included an
accelerated payment of the 2013 regular cash dividend of $0.64 that was paid in December 2012 in addition to the regular dividend
paid each quarter during 2012 of $0.16 per share.
2012 versus 2011
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.
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.
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 2013, the value of the
Mexican peso decreased by 1 percent in relation to the U.S. dollar. For the years ended December 31, 2013 and 2012, we had
foreign currency transaction gains of $0.2 million and $0.1 million, respectively, and for the year ended December 31, 2011, we
had a foreign currency transaction loss of ($0.9) million, which are included in other income (expense) in the Consolidated Income
Statements 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
24
December 31, 2013 of $57.1 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 for the delivery of natural gas through 2015. 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. Based on the quarterly analysis of our estimated future production
levels, we believe that our remaining natural gas purchase commitments that were in effect as of December 31, 2013 will continue
to qualify for the NPNS exemption since we can assert that it is probable we will take full delivery of the contracted quantities.
Contractual Obligations
Contractual obligations as of December 31, 2013 excluding amounts already recorded in our consolidated balance sheet, are as
follows (amounts in millions):
Payments Due by Fiscal Year
Contractual Obligations
2014
2015
2016
2017
2018
Thereafter
Total
Natural gas contracts
Retirement plans
Purchase obligations
Operating leases
CEO separation obligation
Total
$
$
2.1
1.5
60.7
1.4
1.3
$
67.0
$
1.1
1.5
—
0.9
—
3.5
1.5
—
0.4
—
1.9
$
1.2
—
0.2
—
1.4
$
1.5
—
—
—
44.0
—
—
—
3.2
51.2
60.7
2.9
1.3
$
1.5
$
44.0
$
119.3
$
— $
— $
— $
— $
The table above includes, under Purchase Obligations, amounts committed on outstanding contracts related to the construction of
the facility and equipment for our new wheel plant in Mexico. The table above does not reflect unrecognized tax benefits of $15.2
million, for which the timing of settlement is uncertain.
Off-Balance Sheet Arrangements
As of December 31, 2013, 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,
2013. 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
25
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-
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 $9.3 million, $8.0 million and $8.3
million, in 2013, 2012 and 2011, respectively, and are included in net sales in the Consolidated Income Statements 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
2013
2012
$
$
$
$
60,776
(46,213)
14,563
5,950
2,619
8,569
$
$
$
$
51,638
(38,667)
12,971
5,688
3,443
9,131
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.
26
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 Affiliate in Notes to Consolidated Financial Statements in Item 8 for discussion of our investment.
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, 2013. Note that these sensitivities may be asymmetrical, and are specific to 2013. They also may not be additive,
so the impact of changing multiple factors simultaneously cannot be calculated by combining the individual sensitivities shown.
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, 2013
2013 Net Periodic
Pension Cost
$
$
(2,776) $
$
948
(51)
142
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.
27
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.
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. Generally, the U.S. income taxes imposed on the repatriated earnings
would be reduced by foreign income taxes paid on the earnings. 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 July 2013, the FASB issued guidance regarding the presentation in the statement of financial position of an unrecognized tax
benefit when a net operating loss carryforward or a tax credit carryfoward exists. The guidance generally provides that an entity's
unrecognized tax benefit, or a portion of its unrecognized tax benefit, should be presented in its financial statements as a reduction
to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. The new guidance
applies prospectively to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss,
or a tax credit carryforward exists at the reporting date. The new standard is effective for fiscal years, and interim periods within
those years, beginning after December 15, 2013, early adoption is permitted. The new standard did not have a material effect on
our consolidated results of operations and financial position, when adopted, on December 29, 2013.
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, 2013, we had not entered into any significant
foreign exchange contracts.
During 2013, the Mexican peso to U.S. dollar exchange rate averaged 12.8 pesos to $1.00. Based on the balance sheet at
December 31, 2013, the value of net assets for our operations in Mexico was 1,499 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 $10.7 million and
$13.1 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 2013, we had a $0.2 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, 2013, we had natural
gas purchase agreements with deliveries through 2015 for 720 MMbtu of natural gas for a total cost of $3.2 million. These fixed
28
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.
29
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 2013, 2012 and 2011
Consolidated Statements of Comprehensive Income for the Fiscal Years 2013, 2012, 2011
Consolidated Balance Sheets as of the Fiscal Year End 2013 and 2012
Consolidated Statements of Shareholders’ Equity for the Fiscal Years 2013, 2012 and 2011
Consolidated Statements of Cash Flows for the Fiscal Years 2013, 2012 and 2011
Notes to Consolidated Financial Statements
PAGE
31
33
34
35
36
37
38
30
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 29, 2013 and December 30, 2012, and the related consolidated statements
of income, comprehensive income, stockholders' equity, and cash flows for each of the three years ended December
29, 2013, December 30, 2012, and December 25, 2011. 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 29, 2013 and December 30, 2012, and the
results of their operations and their cash flows for each of the three years ended December 29, 2013, December 30,
2012, and December 25, 2011, 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.
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 29, 2013, based on the criteria
established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated March 7, 2014 expressed an unqualified opinion on the Company's
internal control over financial reporting.
/s/ Deloitte & Touche, LLP
Los Angeles, California
March 7, 2014
31
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 29, 2013, based on criteria established in Internal Control - Integrated Framework
(1992) 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 29, 2013, based on the criteria established in Internal Control - Integrated Framework (1992) 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
29, 2013 of the Company and our report dated March 7, 2014 expressed an unqualified opinion on those financial
statements and financial statement schedule.
/s/ Deloitte & Touche, LLP
Los Angeles, California
March 7, 2014
32
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED INCOME STATEMENTS
(Dollars in thousands, except per share data)
Fiscal Year Ended December 31,
2013
2012
2011
NET SALES
Cost of sales
GROSS PROFIT
Selling, general and administrative expenses
Impairments of long-lived assets and other charges
INCOME FROM OPERATIONS
Interest income, net
Other income (expense), net
$
789,564
$
821,454
$
725,503
760,847
64,061
29,468
—
34,593
1,691
557
60,607
27,727
—
32,880
1,252
357
822,172
755,112
67,060
25,888
1,337
39,835
1,101
990
INCOME BEFORE INCOME TAXES AND EQUITY
EARNINGS
36,841
34,489
41,926
Income tax (provision) benefit
NET INCOME
EARNINGS PER SHARE - BASIC
EARNINGS PER SHARE - DILUTED
(14,017)
22,824
0.83
0.83
$
$
$
$
$
$
(3,598)
30,891
1.13
1.13
$
$
$
25,243
67,169
2.48
2.46
The accompanying notes are an integral part of these consolidated financial statements.
33
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
Fiscal Year Ended December 31,
2013
2012
2011
Net income
Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss)
Defined benefit pension plan:
$
22,824
$
30,891
$
67,169
(521)
4,839
(9,133)
Actuarial gains (losses) on pension obligation, net of curtailments
and amortization
Tax (provision) benefit
Pension changes, net of tax
Other comprehensive income (loss), net of tax
Comprehensive income
$
4,477
(1,705)
2,772
2,251
25,075
$
(2,994)
1,141
(1,853)
2,986
33,877
$
(2,763)
2,018
(745)
(9,878)
57,291
The accompanying notes are an integral part of these consolidated financial statements.
34
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
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 liabilities
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 - 27,155,550 shares
(27,295,488 shares at December 31, 2012)
Accumulated other comprehensive loss
Retained earnings
Total shareholders' equity
Total liabilities and shareholders' equity
2013
2012
$
199,301
3,750
89,623
67,193
7,584
7,917
8,850
384,218
219,892
4,565
14,664
30,049
653,388
$
$
34,494
64,936
99,430
15,050
21,070
34,775
—
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
—
—
—
75,305
(60,363)
468,121
483,063
653,388
$
71,819
(62,614)
457,700
466,905
599,601
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
35
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
Obligation
Cumulative
Translation
Adjustment
Retained
Earnings
Total
26,853,790
$ 61,675
$
(2,432) $
(53,290) $ 407,529
$413,482
67,169
67,169
(9,133)
—
—
—
—
—
—
—
—
—
— (17,358)
(745)
(9,133)
4,546
—
2,251
303
(17,358)
(745)
—
—
—
—
—
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
4,839
—
—
—
—
—
—
—
—
—
— (30,531)
(1,853)
4,839
1,530
—
2,072
(558)
(30,531)
98,675
1,530
32,800
—
—
—
—
2,072
(558)
—
27,295,488
71,819
(5,030)
(57,584)
457,700
466,905
198,296
2,865
82,965
—
—
(421,199)
—
—
2,685
(899)
(1,165)
—
2,772
—
—
—
—
—
—
22,824
22,824
(521)
—
—
—
—
—
—
—
—
—
—
(6,968)
(5,435)
2,772
(521)
2,865
—
2,685
(899)
(8,133)
(5,435)
27,155,550
$ 75,305
$
(2,258) $
(58,105) $ 468,121
$483,063
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
Stock options exercised
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
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
Common stock repurchased
Cash dividends declared ($0.20 per share)
BALANCE AT FISCAL YEAR END
2013
The accompanying notes are an integral part of these consolidated financial statements.
36
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:
2013
2012
2011
$
22,824
$
30,891
$
67,169
Depreciation
Tax liabilities, non-cash changes
Deferred income taxes
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
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
Cash paid for common stock repurchase
Proceeds from exercise of stock options
Excess tax benefits from exercise of stock options
NET CASH USED IN FINANCING ACTIVITIES
28,466
3,730
1,900
—
2,685
(1,095)
9,074
5,716
(3,570)
(2,549)
(4,780)
7,148
(297)
69,252
(67,980)
3,970
(3,750)
—
16
320
(67,424)
(550)
(8,133)
2,865
252
(5,566)
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)
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)
Effect of exchange rate changes on cash
(325)
1,684
(668)
Net (decrease) increase in cash and cash equivalents
(4,063)
15,569
58,164
Cash and cash equivalents at the beginning of the period
203,364
187,795
129,631
Cash and cash equivalents at the end of the period
$
199,301
$
203,364
$
187,795
The accompanying notes are an integral part of these consolidated financial statements.
37
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
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 ("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. 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.)
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 fiscal years 2013 and
2011 comprised the 52-week periods ended on December 29, 2013, and December 25, 2011, respectively. The 2012 fiscal year
comprised the 53-week period ended December 30, 2012. 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 zero and $28.5 million as of
December 31, 2013 and 2012, 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 or collateralize letters of credit securing
our workers’ compensation obligations. At December 31, 2013 and 2012, certificates of deposit totaling $3.8 million and $4.0
million, respectively, were restricted in use and were classified as short-term investments on our consolidated balance sheet.
38
Non-Cash Investing Activities
As of December 31, 2013, 2012 and 2011, $32.4 million, $0.9 million and $0.4 million, respectively, of equipment had been
purchased but not yet paid for and are included in accounts payable and accrued liabilities in our consolidated balance sheets.
During 2013 the company received a grant of a parcel of land valued at $0.7 million from the state of Chihuahua, Mexico, which
is included in property, plant and equipment in our 2013 consolidated balance sheet.
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.
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
2013.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, less accumulated depreciation. The cost of additions, improvements and interest
during construction, if any, are capitalized. Our maintenance and repair costs are charged to expense when incurred. Depreciation
is calculated generally on the straight-line method based on the estimated useful lives of the assets.
Classification
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.
39
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 $9.3 million,
$8.0 million and $8.3 million in 2013, 2012 and 2011, 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 liabilities and other non-current liabilities:
December 31,
(Dollars in Thousands)
Unamortized Preproduction Costs
Preproduction costs
Accumulated amortization
Net preproduction costs
Deferred Tooling Revenue
Accrued liabilities
Other non-current liabilities
Total deferred tooling revenue
2013
2012
$
$
$
$
60,776
(46,213)
14,563
5,950
2,619
8,569
$
$
$
$
51,638
(38,667)
12,971
5,688
3,443
9,131
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.
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
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, 2013 and 2012, 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 derivative 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 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.
40
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
years ended December 31, 2013 and December 31, 2012, we had foreign currency transaction gains of $0.2 million and $0.1
million, respectively, and we had transaction losses of $(0.9) million for the year ended December 31, 2011, which are included
in other income (expense) in the consolidated income statements. In addition, we have a minority investment in India whose
functional currency is the Indian rupee.
When our foreign subsidiaries translate their financial statements from the functional currency to the reporting currency, the balance
sheet accounts are translated using the exchange rates in effect at the end of the accounting period and retained earnings is translated
using historical rates. The income statement accounts are generally translated at the weighted average of exchange rates during
the period and the cumulative effect of translation is recorded as a separate component of accumulated other comprehensive income
(loss) in shareholders' equity, as reflected in the consolidated statements of shareholders' equity. The value of the Mexican peso
decreased by 1 percent in relation to the U.S. dollar in 2013.
Revenue Recognition
Sales of products and any related costs are recognized when title and risk of loss transfers to the purchaser, generally upon shipment.
Tooling reimbursement revenues related to initial tooling reimbursed by our customers are deferred and recognized over the
expected life of the wheel program on a straight line basis, as discussed above.
Research and Development
Research and development costs (primarily engineering and related costs) are expensed as incurred and are included in cost of
sales in the consolidated income statements. Amounts expensed during each of the three years in the period ended December 31,
2013, 2012 and 2011 were $4.8 million, $5.8 million, and $5.3 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
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
41
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 be 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. 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.
Year Ended December 31,
2013
2012
2011
(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
$
$
$
$
22,824
$
30,891
$
27,392
27,219
0.83
$
1.13
$
22,824
$
30,891
$
27,392
139
27,531
27,219
111
27,330
0.83
$
1.13
$
67,169
27,052
2.48
67,169
27,052
278
27,330
2.46
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, 2013, options to purchase 1,291,427 shares at prices ranging from $19.19 to $43.22; for the year ended
December 31, 2012, options to purchase 1,828,727 shares at prices ranging from $18.37 to $43.22; and for the year ended
December 31, 2011, options to purchase 1,456,440 shares at prices ranging from $21.72 to $43.22 per share.
42
New Accounting Pronouncement
In July 2013, the FASB issued guidance regarding the presentation in the statement of financial position of an unrecognized tax
benefit when a net operating loss carryforward or a tax credit carryfoward exists. The guidance generally provides that an entity's
unrecognized tax benefit, or a portion of its unrecognized tax benefit, should be presented in its financial statements as a reduction
to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. The new guidance
applies prospectively to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss,
or a tax credit carryforward exists at the reporting date. The new standard is effective for fiscal years, and interim periods within
those years, beginning after December 15, 2013, early adoption is permitted. The new standard did not have a material effect on
our consolidated results of operations and financial position, when adopted, on December 29, 2013.
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.
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
2013
2012
2011
$
$
286,380
503,184
789,564
$
$
$
$
$
$
316,238
505,216
821,454
2013
62,821
157,071
219,892
$
$
$
$
302,150
520,022
822,172
2012
52,458
95,086
147,544
2013
2012
82,809
$
7,724
90,533
(910)
89,623
$
91,747
7,293
99,040
(573)
98,467
The following percentages of our consolidated net sales were made to Ford, GM, Toyota and Chrysler: 2013 - 45 percent, 24
percent, 12 percent and 10 percent; 2012 - 38 percent, 27 percent, 9 percent and 12 percent; and 2011 - 35 percent, 30 percent, 8
percent and 11 percent, respectively. These four customers represented 91 percent and 90 percent of trade receivables at
December 31, 2013 and 2012, respectively.
43
NOTE 4 - INVENTORIES
December 31,
(Dollars in thousands)
Raw materials
Work in process
Finished goods
Inventories
2013
2012
$
$
15,631
27,835
23,727
67,193
$
$
18,325
31,525
22,098
71,948
Service wheel and supplies inventory included in other non-current assets in the consolidated balance sheets totaled $5.6 million
and $6.5 million at December 31, 2013 and 2012, respectively. Included in raw materials were operating supplies and spare parts
totaling $9.2 million and $10.2 million at December 31, 2013 and 2012, respectively.
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
2013
2012
$
$
$
72,310
421,219
9,152
78,442
581,123
(361,231)
70,235
408,620
8,374
7,565
494,794
(347,250)
219,892
$
147,544
At December 31, 2013, construction in progress includes approximately $66.3 million of costs related to our new wheel plant
under construction in Mexico. Depreciation expense was $28.5 million, $26.4 million and $27.5 million for the years ended
December 31, 2013, 2012 and 2011, respectively.
NOTE 6 - INVESTMENT IN UNCONSOLIDATED AFFILIATE
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, 2013, 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 and the terms and conditions of the loan were
substantially the same for all equity holders involved in the transaction. The principal balance of the unsecured advance as of
December 31, 2013 was $273,000 and is scheduled to be repaid over the next 22 months. Based upon our review of Synergies
operating results, latest share issuances, and our review of the projected results, we do not believe there is an other-than-temporary
impairment as of December 31, 2013.
44
NOTE 7 - INCOME TAXES
Year Ended December 31,
(Thousands of dollars)
Income before income taxes and equity earnings:
Domestic
International
2013
2012
2011
$
$
27,981
8,860
36,841
$
$
26,661
7,828
34,489
$
$
35,569
6,357
41,926
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
2013
2012
2011
$
$
(9,951)
(859)
(1,307)
(12,117)
$
(7,629)
(554)
18,211
10,028
183
277
(2,360)
(1,900)
(10,589)
(4,023)
986
(13,626)
(6,421)
(310)
(6,730)
(13,461)
29,183
8,244
1,277
38,704
Income tax (provision) benefit
$
(14,017)
$
(3,598)
$
25,243
(1) Included in the current foreign tax provision is a $23.9 million net reversal of liabilities for uncertain tax positions for the year
ending December 31, 2012.
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
2013
2012
2011
(35.0)%
(1.0)
(0.1)
6.0
0.7
—
(5.7)
(2.9)
(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)
(38.0)%
(10.4)%
60.2 %
Our effective income tax rate for 2013 was 38 percent. The effective rate was unfavorably affected by increases in unrecognized
tax benefits, changes in tax laws in Mexico that increased our long-term deferred tax liabilities by $1.0 million and state income
taxes (net of federal tax benefit). Our effective tax rate was favorably impacted by income tax credits, including $1.0 million
credit recognized as a result of the 2013 enactment of the American Taxpayer Relief Act of 2012 and foreign income that is taxed
at rates lower than the U.S. statutory rates.
45
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., 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.
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.
Tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred liabilities at
December 31, 2013 and 2012:
December 31,
(Thousands of dollars)
Deferred income tax assets:
2013
2012
Liabilities deductible in the future
$
8,164
$
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:
13,026
2,359
1,040
6,426
1,091
32,106
(3,398)
28,708
Differences between the book and tax basis of property, plant and equipment
Deferred income tax liabilities
Net deferred income tax assets
(27,197)
(27,197)
1,511
$
$
8,006
14,973
2,043
1,062
6,307
1,621
34,012
(3,394)
30,618
(24,521)
(24,521)
6,097
46
Realization of any of our deferred tax assets at December 31, 2013 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.
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
federal deferred tax assets would be realized.
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, 2013, we have cumulative state NOL carryforwards of $47.0 million that begin to expire in 2016. Also, we
have $1.6 million of state tax credit carryforwards 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 $120.9 million which the company has the intent and the ability to reinvest in its foreign
operations. Generally, the U.S. income taxes imposed upon repatriation of undistributed earnings would be reduced by foreign
tax credits from foreign income taxes paid on the earnings. 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.
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, 2013 is as follows:
2013
2012
2011
$
6,310
$
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)
—
(197)
3,655
(306)
—
$
9,462
$
632
(6,362)
2,700
(870)
(2,427)
6,310
$
13,555
(1,296)
176
353
—
(151)
12,637
(1) Excludes $5.8 million, $5.0 million and $20.4 million of potential interest and penalties associated with uncertain tax positions
in 2013, 2012 and 2011, 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. The balance sheet at December 31, 2013 includes the unrecognized tax benefits, cumulative interest and
penalties accrued on the liabilities totaling $15.1 million. During 2013, we accrued potential interest and penalties of $1.0 million
and $0.3 million, respectively, related to unrecognized tax benefits. As of December 31, 2013, we have cumulative recorded
liabilities for potential interest and penalties of $3.8 million and $2.0 million, respectively. Included in the unrecognized tax
benefits of $15.1 million at December 31, 2013, was $7.2 million of tax benefit that, if recognized, would affect our annual effective
47
Year Ended December 31,
(Thousands of dollars)
Beginning balance
tax rate. Within the next twelve-month period ending December 31, 2014, 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 the taxing authority regarding any U.S. federal income tax returns for years before 2010 while the years
open for examination under various state and local jurisdictions vary. We have been notified the Internal Revenue Service ("IRS")
will be conducting an audit of tax years 2011 and 2012 of Superior Industries International and subsidiaries, beginning in the first
quarter of 2014. We expect this IRS audit to be settled within the twelve month period ending December 31, 2014. We expect
approximately $1.0 million of unrecognized tax benefits related to our U.S. operations will be recognized in 2014 due to the
expiration of a statute of limitations.
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 $13.7 million in 2013, $11.0 million in 2012 and $15.8 million in 2011.
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 $1.8 million in 2013, $1.5 million in 2012 and $1.0 million in 2011.
Our corporate office and former manufacturing and warehouse facility in Van Nuys, California was leased from the Louis L.
Borick Trust and the Nita A. Borick Management Trust. During 2013 the Louis L. Borick Foundation (the "Foundation") replaced
the Louis L. Borick Trust as a landlord for the company's corporate office facility. The Foundation is controlled by Mr. Steven J.
Borick, Chairman and Chief Executive Officer of the company, as President and Director of the Foundation. The Nita A. Borick
Management Trust is controlled by Nita A. Borick and Mr. Steven J. Borick as trustees. 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 $425,000. 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 Foundation and Trust for the Van Nuys corporate office lease total $0.5 million. Total lease payments to
these related entities were $0.4 million in 2013, $0.4 million in 2012 and $0.4 million for 2011.
The following are summarized future minimum payments under all leases. The table below contains the current annual lease
payments of approximately $425,000 for the corporate office facility through March 2015.
Year Ended December 31,
(Thousands of dollars)
2014
2015
2016
2017
2018
Thereafter
48
Operating Leases
$
$
1,394
918
422
158
—
—
2,892
NOTE 9 - RETIREMENT PLANS
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 $6.1 million and $5.9 million at December 31, 2013 and 2012, 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 (gain) loss
Curtailment
Benefit payments
Ending benefit obligation
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 liabilities
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
49
$
$
$
$
$
$
$
$
$
2013
2012
29,075
230
1,159
(3,526)
(521)
(1,272)
25,145
$
$
25,490
249
1,242
3,262
—
(1,168)
29,075
2013
2012
— $
1,272
(1,272)
— $
—
1,168
(1,168)
—
(25,145)
$
(29,075)
$
$
$
$
(1,461)
(23,684)
(25,145)
3,713
(1)
3,712
4.8%
3.0%
(1,389)
(27,686)
(29,075)
8,190
(1)
8,189
4.0%
3.0%
Components of net periodic pension cost are described in the following table:
Year Ended December 31,
(Thousands of dollars)
Components of net periodic pension cost:
Service cost
Interest cost
Amortization of actuarial loss
Net periodic pension cost
2013
2012
2011
$
$
230
$
249
$
1,159
430
1,242
268
1,819
$
1,759
$
295
1,294
22
1,611
Weighted average assumptions used to determine net periodic pension cost:
Discount rate
Rate of compensation increase
4.0%
3.0%
5.0%
3.0%
6.0%
3.0%
The increase in the 2013 net periodic pension cost compared to the 2012 cost and the increase in the 2012 cost compared to the
2011 cost were primarily due to increases in amortization of actuarial losses.
Benefit payments during the next ten years, which reflect applicable future service, are as follows:
Year Ended December 31,
(Thousands of dollars)
2014
2015
2016
2017
2018
Years 2019 to 2023
The following is an estimate of the components of net periodic pension cost in 2014:
Estimated Year Ended December 31,
(Thousands of dollars)
Service cost
Interest cost
Amortization of actuarial loss
Estimated 2014 net periodic pension cost
Other Retirement Plans
Amount
1,496
1,514
1,499
1,180
1,455
7,025
84
1,171
119
1,374
2014
$
$
$
$
$
$
$
$
We also have a contributory employee retirement savings plan (a 401k plan) covering substantially all of our employees. The
employer contribution totaled $2.1 million, $1.8 million and $1.8 million for the three years ended December 31, 2013, 2012 and
2011, 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.
50
NOTE 10 - ACCRUED LIABILITIES
December 31,
(Thousands of dollars)
Construction in progress
Payroll and related benefits
Dividends
Taxes, other than income taxes
Current portion of executive retirement liabilities
Other
Accrued liabilities
2013
2012
$
$
27,669
$
14,615
4,884
5,730
1,461
10,577
64,936
$
—
12,637
—
8,191
1,389
11,961
34,178
NOTE 11 - COMMITMENTS AND CONTINGENT LIABILITIES
Steven J. Borick Separation Agreement
On October 14, 2013, the company and Steven J. Borick entered into a Separation Agreement, providing for Mr. Borick's separation
from employment as the company's President and Chief Executive Officer, effective upon the earlier of March 31, 2014 or the
announcement of the hiring of a successor to either of these offices (the "Separation Date"). Mr. Borick remains the Chairman of
the Board of Directors of the company.
Under the Separation Agreement, in addition to payment of his salary and accrued vacation through the Separation Date, the
company will pay or provide Mr. Borick with the following:
(a) A lump-sum cash payment in an amount equal to (i) $1,345,833 (eighteen months of Mr. Borick's current base salary and an
amount equal to an additional 30 days of compensation at Mr. Borick's current salary rate), plus (ii) if the Separation Date occurs
prior to March 31, 2014, the amount of base salary that would have been payable to Mr. Borick during the period beginning on
the Separation Date and ending on March 31, 2014;
(b) A lump-sum cash payment in an amount equal to that which Mr. Borick is eligible to receive under the company's CEO Annual
Incentive Performance Plan (described in the company's most recent proxy statement) for 2013, calculated as though Mr. Borick
remains employed by the company as of the end of the calendar year;
(c) A grant of a number of shares of company common stock equal to the Black-Scholes value of an annual award of 120,000
stock options that Mr. Borick would have been eligible to receive under the company's Equity Incentive Plan (see Note 12 - Stock-
Based Compensation), divided by the company's closing stock price as reported on the New York Stock Exchange on the Separation
Date (or if no price is reported on that day, then the last day prior to such day on which a price is reported); and
(d) Vesting of all of Mr. Borick's unvested stock options and unvested restricted stock.
In addition, the company and Mr. Borick entered into a Consulting Agreement, dated the same date as the Separation Agreement,
providing for Mr. Borick to consult with the company for a twelve-month period beginning on the later of the Separation Date or
the date on which he ceases to be a member of the board of directors of the company (provided, such period shall begin no later
than the date of the company's annual meeting of stockholders in 2015), in exchange for monthly payments of $5,000. In 2013,
the company recorded $1.8 million of compensation expense in connection with Mr. Borick's Separation Agreement.
Mexico Facility and Customs Issue
In June 2013 we entered into a contract for the construction of the facility for our new wheel plant in Mexico and we subsequently
entered into non-cancellable contracts for the purchase of equipment for the new facility. These contracts are denominated in U.S.
dollars, Mexican pesos and Euros with a U.S. dollar value of approximately $96.6 million, of which $35.8 million was paid in
cash in 2013, with the remaining payments expected to be made over the next 12 months.
51
During 2013 we reached a settlement of an issue with the customs authorities relating to our operations in Mexico, during a period
of time in 2010 when we did not timely file required customs forms. The settlement did not have a significant impact on our results
of operations for the period.
Stock Repurchase Program
As discussed in Note13 - Common Stock Purchase Program, in March 2013, our board of directors approved a new stock repurchase
program authorizing the repurchase of up to $30.0 million of our common stock. As of December 31, 2013, authorization for the
repurchase of $21.9 million of our common stock remains under the Repurchase Program.
Foreign Consumption Tax
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 2012.
Derivatives and Purchase Commitments
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, 2013 and 2012 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. We currently have several purchase
commitments in place for the delivery of natural gas through 2015. 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. Based on the quarterly analysis of our estimated future
production levels, we believe that our remaining natural gas purchase commitments that were in effect as of December 31, 2013
will continue to qualify for the NPNS exemption since we can assert that it is probable we will take full delivery of the contracted
quantities.
Other
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.
NOTE 12 - STOCK-BASED COMPENSATION
Our 2008 Equity Incentive Plan was amended and restated effective May 22, 2013 upon approval by our shareholders at our annual
shareholders meeting. As amended, the plan authorizes us to issue up to 3.5 million shares of common stock, along with non-
qualified stock options, stock appreciation rights, restricted stock and performance units to our officers, key employees, non-
employee directors and consultants. No more than 600,000 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 generally 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, generally 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
52
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 2013, we granted 92,631 shares of restricted stock, with original vesting periods
of one to three years. During 2012, we granted 33,550 shares of restricted stock, which vest ratably over a three year period.
We received cash proceeds of $2.9 million, $1.5 million and $4.5 million from stock options exercised in 2013, 2012 and 2011,
respectively. The total intrinsic value of options exercised was $0.9 million and $0.3 million, during the years ended December 31,
2013 and 2012, 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, 2013, 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.
Stock option activity in 2013:
Balance at December 31, 2012
Granted
Exercised
Canceled
Expired
Balance at December 31, 2013
Outstanding
3,041,227
$
— $
(198,296) $
(122,425) $
(253,900) $
$
2,466,606
Options vested or expected to vest
2,436,871
Exercisable at December 31, 2013
2,123,968
$
$
Weighted
Average
Exercise
Price
Remaining
Contractual
Life in Years
Aggregate
Intrinsic
Value
21.92
—
14.47
22.32
43.20
20.31
20.33
20.63
4.2
4.2
3.7
$
$
$
4,617,000
4,558,000
3,775,000
Included in the total stock options outstanding at December 31, 2013 are 1.6 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 $20.60.
Stock options outstanding at December 31, 2013:
Range of
Exercise Prices
$
$
$
$
$
14.85 — $
17.06 — $
17.71 — $
21.79 — $
23.70 — $
17.05
17.70
21.78
23.69
43.22
Options
Outstanding
at 12/31/2013
Weighted
Average
Remaining
Contractual
Life (in Years)
Weighted
Average
Exercise
Price
Options
Exercisable
at 12/31/2013
Weighted
Average
Exercise
Price
497,204
481,625
553,850
486,677
444,750
2,464,106
6.4
3.2
5.6
4.5
1.0
4.2
53
$
$
$
$
$
$
15.67
17.59
19.55
22.03
27.50
20.31
363,916
471,625
392,267
451,410
444,750
2,123,968
$
$
$
$
$
$
15.49
17.59
19.68
21.99
27.50
20.63
Restricted stock activity in 2013:
Balance at December 31, 2012
Granted
Vested
Canceled
Balance at December 31, 2013
Number of
Awards
Weighted
Average Grant
Date Fair Value
68,555
$
92,631
$
(27,357) $
(9,666) $
$
124,163
18.15
17.61
18.42
18.01
17.70
Weighted
Average
Remaining
Amortization
Period (in Years)
1.6
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
2013
2012
2011
$
214
$
248
$
Selling, general and administrative expenses
Stock-based compensation expense before income taxes
Income tax benefit
Total stock-based compensation expense after income taxes
$
2,471
2,685
(762)
1,923
$
1,824
2,072
(513)
1,559
$
449
1,802
2,251
(400)
1,851
The 2013 compensation expense includes $0.7 million of costs primarily for accrued and accelerated share-based payment costs
associated with the company CEO's Separation Agreement, see Note 11 - Commitments and Contingent Liabilities. There were
no significant capitalized stock-based compensation costs at December 31, 2013 or 2012. As of December 31, 2013, there was
$2.2 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 1.1 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%
6.9 years
2011
3.85%
37.76%
2.7%
6.9 years
Weighted average grant date fair value of options granted during the period
$5.10
$5.72
(a) This assumed that cash dividends of $0.16 per share would be 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.
54
NOTE 13 - COMMON STOCK PURCHASE PROGRAM
On March 27, 2013, our board of directors approved a new stock repurchase program (the "Repurchase Program") authorizing
the repurchase of up to $30.0 million of our common stock. This new repurchase program replaced the previously existing share
repurchase program. Under the Repurchase Program, we may repurchase common stock from time to time on the open market
or in private transactions. Currently, we expect to continue funding repurchases through available cash, although credit options
are being evaluated in the context of total capital needs. The timing and extent of the repurchases will depend upon market
conditions and other corporate considerations at the company's sole discretion. As of December 31, 2013, additional shares with
a total cost of $21.9 million may be purchased under the Repurchase Program authorization. During the three months ended
December 31, 2013 the company repurchased 421,199 shares of its common stock at an average price of $19.31 per share. All
repurchased shares were canceled and retired.
NOTE 14 - IMPAIRMENTS 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, 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. 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
$
$
2,497
1,500
997
340
1,337
55
NOTE 15 - QUARTERLY FINANCIAL DATA (UNAUDITED)
(Thousands of dollars, except per share amounts)
Year 2013
Net sales
Gross profit
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
Year 2012
Net sales
Gross profit
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
206,441
13,518
6,309
6,875
$
$
$
$
(1,941) $
4,934
0.18
0.18
$
$
$
— $
198,993
16,237
9,147
$
$
$
$
9,871
(3,547) $
$
6,324
0.23
0.23
$
$
— $
191,619
15,418
7,163
$
$
$
$
7,718
(2,547) $
$
5,171
0.19
0.19
0.02
$
$
$
192,511
18,888
11,974
$
$
$
$
12,377
(5,982) $
$
6,395
0.23
0.23
0.18
$
$
$
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
210,018
12,763
5,371
$
$
$
5,305
$
(2,617) $
$
2,688
202,457
17,108
10,223
10,864
$
$
$
$
(4,131) $
6,733
$
215,053
15,716
8,226
$
$
$
8,438
$
(2,024) $
$
6,414
0.25
0.25
0.16
$
$
$
0.24
0.23
0.16
$
$
$
193,926
15,020
9,060
9,882
5,174
15,056
0.55
0.55
0.16
$
$
$
$
$
$
$
$
$
Year
789,564
64,061
34,593
36,841
(14,017)
22,824
0.83
0.83
0.20
Year
821,454
60,607
32,880
34,489
(3,598)
30,891
0.10
0.10
0.64
$
$
$
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.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls
56
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 29, 2013. 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 29, 2013, 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 29, 2013 based upon criteria established in Internal Control -- Integrated Framework (1992) 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 29, 2013 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 29, 2013 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 29,
2013 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.
PART III
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Except as set forth herein, the information required by this Item is incorporated by reference to our 2014 Annual Proxy Statement.
57
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 2014 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 2014 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 2014 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 2014 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 2014 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 2014 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, 2013, 2012 and 2011
3. Exhibits
2.1
2.2
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)
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)
58
3.1
3.2
10.1
10.2
10.3
Restated Articles of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1 to Registrant’s
Current Report on Form 8-K filed May 23, 2013).
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 May 25, 2010).
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 by reference to exhibit 10.14 to Registrant’s
Annual 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 10.15 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)*
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)*
59
10.19 Amended and restated 2008 Equity Incentive Plan of the Registrant (Incorporated by reference to Exhibit
10.1 to Registrant’s Current Report on Form 8-K filed May 23, 2013).
10.20 Separation Agreement between the Registration and Robert Earnest (Incorporated by reference to
Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed August 22, 2013)*
10.21 Separation Agreement between the Registration and Steven J. Borick (Incorporated by reference to
Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed October 15, 2013)*
10.22 Consulting Agreement between the Registration and Steven J. Borick (Incorporated by reference to
Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed October 15, 2013)*
11
21
23
31.1
31.2
32
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)
101
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, 2013, 2012 AND 2011
(Thousands of dollars)
2013
Allowance for doubtful accounts
Valuation allowances for deferred tax
assets
2012
Allowance for doubtful accounts
Valuation allowances for deferred tax
assets
2011
Allowance for doubtful accounts
Valuation allowances for deferred tax
assets
Additions
Balance at
Beginning of
Year
Charge to
Costs and
Expenses
Other
Comprehensive
Income (Loss)
Deductions
From
Reserves
Balance at
End of
Year
$
$
$
$
$
$
573
3,394
$
$
838
4
339
$
234
— $
3,394
983
$
22
43,250
$
$
$
$
$
$
— $
(501)
$
910
— $
— $
3,398
— $
— $
573
— $
— $
3,394
— $
(666)
(955)
$
(42,295)
$
$
339
—
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 7, 2014
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/ James S. McElya
James S. McElya
/s/ Timothy McQuay
Timothy McQuay
/s/ Francisco S. Uranga
Francisco S. Uranga
Chairman, Chief Executive Officer and President
(Principal Executive Officer)
March 7, 2014
Executive Vice President and Chief Financial Officer
March 7, 2014
(Principal Financial Officer)
Vice President and Corporate Controller
March 7, 2014
(Principal Accounting Officer)
Lead Director
March 7, 2014
Director
Director
Director
Director
Director
March 7, 2014
March 7, 2014
March 7, 2014
March 7, 2014
March 7, 2014
LIST OF SUBSIDIARIES
Name of Subsidiaries
Jurisdiction of
Incorporation
Superior Industries International Arkansas, LLC
Delaware, U.S.A.
Superior Industries International Asset Management, Inc.
California, U.S.A.
Superior Industries International Holdings, LLC
Superior Industries International Kansas, LLC
Superior Industries International Michigan, LLC
Superior Industries International - Tennessee, LLC
Superior Industries North America, LLC
Delaware, U.S.A.
Delaware, U.S.A.
Delaware, U.S.A.
Tennessee, U.S.A.
Delaware, U.S.A.
Superior Industries de Mexico, S. de R.L. de C.V.
Chihuahua, Mexico
Superior Industries North America, S. de R.L. de C.V.
Chihuahua, Mexico
Superior Industries Trading de Mexico, S. de R.L. de C.V.
Chihuahua, Mexico
Superior Industries International Netherlands B.V.
Superior Industries International Cyprus Limited
The Netherlands
Nicosia, Cyprus
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 7, 2014, relating to the consolidated financial statements and financial statement schedule of
Superior Industries International, Inc. (the “Company”), and our report dated March 7, 2014 relating to internal control over
financial reporting, appearing in this Annual Report on Form 10-K of the Company for the year ended December 29, 2013.
/s/ Deloitte and Touche LLP
Los Angeles, California
March 7, 2014
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 7, 2014
/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 7, 2014
/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 29, 2013 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 7, 2014
/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
Corporate Information
DIRECTORS
Margaret S. Dano
Chairman
Audit Committee
Nominating and Corporate Governance
Committee (*)
CORPORATE OFFICERS
(continued)
Emory C. Brown
Vice President,
Project Management
Donald J. Stebbins
President and Chief Executive Officer
Paula W. Barnett
Corporate Counsel & Secretary
Sheldon I. Ausman
Audit Committee (*)
Compensation and Benefits Committee
Michael D. Nelson
Vice President &
Corporate Controller
Philip W. Colburn
Audit Committee
Nominating and Corporate Governance
Committee
James S. McElya
Compensation and Benefits Committee
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
Donald J. Stebbins
President and Chief Executive Officer
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 N. Bakaric
Vice President,
Midwest Operations
Razmik R. Perian
Chief Information Officer
Cameron D. Toyne
Vice President,
Supply Chain Management
Donald Chambers
Vice President,
Human Resources
PLANT AND SUBSIDIARY
LOCATIONS
Fayetteville, Arkansas
Richard G. Quinlan
Director of Operations
Rogers, Arkansas
Melissa M. 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 August 15, 2014 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 and 10-K/A 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.
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
7800 Woodley Avenue
Van Nuys, California 91406
TEL 818.781.4973
FAX 818.780.3500
www.supind.com