1
EXHIBIT 13.1
FRONT COVER
[PHOTO]
1995
Annual
Report
Superior
Industries
International, Inc.
BACK COVER
[PHOTO]
7800 Woodley Avenue
Van Nuys, CA 91406
818.781.4973
Fax 818.780.3500
Superior
Industries
International, Inc.
SUP
Listed
NYSE
THE NEW YORK STOCK EXCHANGE
Front & Back Covers
Global Expansion
Established in 1957, Superior Industries International, Inc. is the world's
largest manufacturer of cast aluminum wheels and a leading manufacturer of
automotive accessory products for the aftermarket. Superior manufactures wheels
for approximately 40 percent of all cars produced with aluminum wheels in North
America, enjoying long term relationships with Ford and General Motors as their
largest and highest-rated supplier. On the international front, Superior has
expanded its business with Japanese original equipment manufacturers (OEMs), is
growing its business in Latin America through its newly completed plant in
Mexico, and has established a significant presence in the European market with
its most recent joint venture and future plant in Hungary. The Company will
continue to look at other parts of the globe for geographic expansion and joint
venture opportunities. By forming and strengthening its alliances with other
international industry leaders today, Superior is setting the groundwork for
tomorrow's globalization.
Quarterly Common Stock Price Information
1995 1994 1993
High Low High Low High Low
First Quarter $29 $23 7/8 $46 1/4 $31 3/8 $29 1/8 $18 5/8
Second Quarter 32 1/8 24 3/4 37 30 38 28 1/8
Third Quarter 35 3/4 25 3/4 34 28 39 1/4 37
Fourth Quarter 29 24 1/2 30 1/4 24 1/4 49 3/8 34 5/8
The common stock of Superior Industries International, Inc. is traded on the New
York Stock Exchange (symbol: SUP). The Company had approximately 1,500
stockholders of record and 28.9 million shares outstanding as of January 31,
1996.
2
Corporate Information
DIRECTORS
Louis L. Borick
President and
Chairman of the Board
Raymond C. Brown
Senior Vice President
R. Jeffrey Ornstein
Vice President & CFO
Sheldon I. Ausman
Senior V.P.,
Johnson & Higgins
Retired Managing Partner, Arthur Andersen LLP
Steven J. Borick
President, Texakota, Inc.
Philip W. Colburn
Chairman, Allen Group, Inc.
V. Bond Evans
Retired President and CEO, Alumax Inc.
Jack H. Parkinson
Retired Executive V.P.,
Sunroad Enterprises
CORPORATE
OFFICERS
Louis L. Borick
President and
Chairman of the Board
Raymond C. Brown
Senior Vice President
Joseph T. D'Amico
Vice President, Materiel
Michael D. Dryden
Vice President,
International Business
Development
Ronald F. Escue
Vice President, General
Manager - Aftermarket
Wheel Division
James M. Ferguson
Vice President, OEM
Marketing Group
Morris Herstein
Vice President, Services
John Knott
Vice President, Midwest Group
Daniel L. Levine
Corporate Secretary and Assistant Treasurer
Henry C. Maldini
Vice President, Engineering
R. Jeffrey Ornstein
Vice President & CFO
Michael J. O'Rourke
Vice President, OEM Program Administrator
Delbert J. Schmitz
Vice President, Aftermarket Marketing
COUNSEL AND
AUDITORS
General Counsel
Irell & Manella
Auditors
Arthur Andersen LLP
PLANT AND
SUBSIDIARY
LOCATIONS
Superior Van Nuys
Bernard J. O'Neil
Plant Manager
Fayetteville, Arkansas
Peter J. Corio,
Plant Manager
Rogers, Arkansas
David C. Rodgers,
Plant Manager
Chrome Plating Plant
Fayetteville, Arkansas
Anthony P. Trama,
Plant Manager
Pittsburg, Kansas
P.S. Reddy,
General Manager
Johnson City, Tennessee
Leon E. Easton,
Plant Manager
Superior Puerto Rico
Pedro Mora,
General Manager
Superior Industries
de Mexico, SA de CV
Gabriel Soto,
General Manager
Superior West Memphis
Terrence J. Schultz,
General Manager
Superior Engineered
Technologies, Inc.
Joint Ventures
Aluminum Company
of America (Alcoa)
Astechnology, Inc.
Superior-Otto Fuchs (Europe)
Topy-Superior Limited (Japan)
TRANSFER AGENT
AND REGISTRAR
Chemical Mellon
Shareholder Services
Los Angeles, California
800.356.2017
ANNUAL
MEETING
The annual meeting of Superior Industries International, Inc. will be held at
10:00 a.m. on May 17, 1996 at the:
Regent Beverly Wilshire Hotel, 9500 Wilshire Blvd.,
Beverly Hills, California.
SHAREHOLDER
INFORMATION
Form 10K Annual Report to the Securities and Exchange Commission will be sent
free of charge to shareholders upon written request to R. Jeffrey Ornstein, Vice
President & CFO.
CORPORATE
OFFICES
7800 Woodley Avenue
Van Nuys, California 91406
818.781.4973
Fax 818.780.3500
SHAREHOLDER
RELATIONS
818.771.5906
Superior
Industries
International, Inc.
3
Financial Highlights
(In thousands except share data) Years Ended December 31,
1995 1994 1993 1992 1991
Income Statement
Net Sales $521,997 $456,638 $393,033 $325,314 $273,490
Gross Profit 113,797 111,368 91,464 61,942 45,306
Net Income 53,064 56,315 45,177 28,596 18,220
Balance Sheet
Current Assets $142,659 $160,771 $141,219 $134,158 $146,603
Current Liabilities 81,746 106,923 75,991 63,296 91,870
Working Capital 60,913 53,848 65,228 70,862 54,733
Total Assets 341,770 357,683 310,123 267,198 271,001
Long-Term Debt, net 5,814 23,075 34,004 44,073 53,320
Shareholders' Equity 229,153 200,182 176,869 136,747 103,992
Financial Ratios
Current Ratio 1.7:1 1.5:1 1.9:1 2.1:1 1.6:1
Long-Term Debt/Total Capitalization 2.5% 10.3% 16.1% 24.4% 33.9%
Return on Average Shareholders' Equity 24.7% 29.9% 28.8% 23.8% 19.2%
Share Data
Earnings $ 1.78 $ 1.85 $ 1.47 $ .94 $ .63
Shareholders' Equity at Year-End 7.89 6.76 5.88 4.56 3.59
Dividends .195 .165 .11 .10 .09
Net Sales
(in millions)
$ 273.5 $ 325.3 $ 393.0 $ 456.6 $ 522.0
91 92 93 94 95
Net Income
(in millions)
$ 18.2 $ 28.6 $ 45.2 $ 56.3 $ 53.1
91 92 93 94 95
Shareholders
Equity
(in millions)
$ 104.0 $ 136.7 $ 176.9 $ 200.2 $ 229.2
91 92 93 94 95
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To Our Shareholders
[PHOTO]
Louis L. Borick,
President and Chairman of the Board
At Superior, we have always taken on challenges with tenacity and optimism. Back
in 1970, we met the challenge of improving our standards to procure our first
original equipment manufacturer (OEM) order from Ford and enter into this
growing market. Today, we are the world's leading manufacturer of OEM cast
aluminum wheels. Superior is now facing a period of new challenges. We are
steadfast to our long-term growth and potential by prudently expanding into new
geographic markets and seeking new joint-ventures. Superior does not stand
still. Continually improving our technology, reducing costs, and developing new
markets is embedded in our corporate culture. And just as we were back in 1970,
we are now equally optimistic these new challenges will prove as profitable as
our OEM cast aluminum wheel business.
Global Expansion
The theme of globalization was selected for our 1995 annual report since it
represents the Company's long-term strategy to ensure continued revenue growth
and shareholder value. Last year marked a significant achievement and continued
progress in the global market for Superior. We solidified our joint-venture with
German-based Otto Fuchs Metallwerke and started construction on our new aluminum
wheel manufacturing facility in Hungary. Since announcing our plans for the
European plant, we have sold 33 percent of the plant's initial capacity with the
joint-venture's first long-term contract from a major European automaker for
700,000 light forged wheels a year. The joint-venture is expected to strengthen
our ties with European OEMs, provide substantial annual revenues, and bring a
new technology to Superior.
We continue to expand our state-of-the-art facility in Mexico, increasing its
capacity. As we create more export opportunities for U.S. automakers, our plant
in Mexico will be the focus of expansion in years to come. Further-more, our
business with Japanese automakers has expanded despite a downturn in Japan's
economy and automotive industry. We continue to be optimistic about Japan as a
source for future growth potential.
Financial Results
In 1995, the Company reached a significant milestone in its financial results.
For the first time in Superior's history, the Company reached a record of over
$500 million in net sales, a total of $522 million, up over 14 percent from
1994. 1995 was also the second best year in profit gains with $53 million in net
income and $1.78 in earnings per share.
Despite difficulties with our chrome-plating facility in Fayetteville, we
reported our second best quarter earnings last year. Consistent order levels and
improvements in our OEM cast aluminum manufacturing process more than offset the
impact of the start-up of our chrome-plating operations.
Producing new products and entering new markets rarely takes place without some
pitfalls, but we are continually improving our technology and seeking new market
opportunities. We made progress on improving our chrome-plating technology last
year which could yield growth in earnings in 1996. The development of our ALCOA
truck wheel program is well on its way and we plan to begin production on two
new wheels for medium sized trucks this year. Shortly after year end, we signed
a definitive joint-venture agreement with ALCOA to produce such wheels. Through
the ALCOA joint-venture, we are entering an arena of new business with
substantial annual revenue growth.
Sales in our aftermarket division decreased reflecting the soft market
conditions in this area of the auto-motive industry. We have focused on adding
several new aftermarket custom road wheels and continue to evaluate new and
existing accessory product lines.
Outlook
While our outlook for 1996 is subject to change according to overall market
conditions, we anticipate a solid year of continuing sales and earnings momentum
comparable to 1994's performance. The Company will continue to benefit by the
increasing penetration of aluminum wheels, particularly in the light-truck
segment, which is currently the highest growth segment of the vehicle market.
And through our new Technical Sales Center in Detroit, we will better service
and continue to strengthen our existing relationships with our customers.
We enter 1996 with outstanding financial strength. Since we internally funded
our capital expansion programs over the past three years to build a stronger
company with increased production capability, we are now poised to generate
significant cash from our operations. Chrome-plating has been a slow, costly
progression of steps to correct start-up problems. Waste treatment was a major
problem which we have totally re-designed, re-engineered and installed new
equipment. We believe that we are very close to resolving the major items of
concern in that plant. Our manufacturing processes are world class and we
continue to be the lowest cost producer of aluminum wheels. The strength of our
financial position will enable the Company to thrive during a growth period and
sustain an economic downturn. Regardless of the economic environment, our
balance sheets and resources are managed in such a way that allows us to
succeed.
Last year, the Company increased the regular quarterly cash dividend 11 percent
to a rate of $.05 per share, representing the twelfth consecutive year of cash
dividend increases for Superior stockholders.
We reinstated our stock repurchase program for up to 1 million shares of common
stock. Superior's repurchase of 850,000 shares of stock to date - a large
investment valued at approximately $23 million - reflects our confidence in the
strength and future of the Company.
Globalization has made the world our field of opportunity to cultivate and grow.
We look to the future with great anticipation for solid growth and thank you for
your continued interest and support of our Company.
5
European Plant
[PHOTO]
Construction already underway at the Tatabanya, Hungary manufacturing facility
One of the most significant highlights of 1995 attesting to Superior's long-term
global strategy is the signing of its joint-venture with German-based Otto Fuchs
Metallwerke and the groundbreaking of its new aluminum wheel manufacturing
facility in Tatabanya, Hungary. Designed for a total production capacity of 2.5
million wheels and $125 million in annual revenues, the plant will manufacturer
both lightweight forged and low pressure cast aluminum wheels for the European
automotive market. The Company plans to complete the facility's initial phase of
construction and begin wheel shipments by early 1997.
Superior's alliance with Otto Fuchs, a well-known European manufacturer with
sales of $1.2 billion, will position the Company as a major player in the
European marketplace. First of all, the alliance will be a strong force in the
European original equipment manufacturer (OEM) automotive wheel industry since
it combines Otto Fuchs' lightweight forging process with Superior's
technological expertise, lightweight low pressure casting process, and styling
flexibility. Automakers are looking forward to the engineering expertise, and
high standards of quality and cost control that Superior will bring to the
European OEM market.
Secondly, Otto Fuch's established presence in Europe coupled with the lower
costs and high skill labor force in Hungary will competitively position Superior
in Europe's service and price driven OEM market.
Since announcing its plans for the European plant, Superior created significant
interest among European OEMs and has gained a new customer base. The
joint-venture already received its first long term contract from a major
European automaker to supply 700,000 light forged wheels a year, filling over
one third of the new Hungarian plant's initial capacity prior to the first year
of operation.
[PHOTO]
Ground breaking celebration attended by from left, Gunter Scheipermeier, General
Partner and CEO, Otto Fuchs; Louis L. Borick, President; Wendel Schindele and
Tatabanya mayor Janos Bencsik
6
New Detroit Office
The complexion of the OEM automotive industry is continually evolving. However,
three constants that have become even more critical today in supplying to OEMs
remain: pricing, service, and concept to customers. For that reason, the opening
of Superior's Technical Sales Center in Detroit last year is so significant. It
demonstrates the Company's full service commitment to customers.
Superior equipped its new Detroit office with the technology and staff to
provide integral engineering support, reduced lead times, and more cost
effective customer service. Through the expertise of its program managers,
Superior is now taking a larger role in the customer's development process,
interfacing with other system-related component suppliers and managing programs
from concept to completion.
The new Technical Sales Center will not only increase Superior's presence in
Detroit but it will enable the Company to maintain its integral relationship as
a "full service" wheel supplier, a relationship that is expected to help grow
our business.
Engineering & Manufacturing
Superior's ability to maintain its reputation as the world's leading
manufacturer of OEM aluminum wheels is based on the Company's technological
leadership, depth of expertise and foresight. Demonstrating the Company's
foresight was the decision to establish a corporate-wide systems approach that
would serve as a building block for Superior's long-term strategy to expand
globally. The project, whereby all plants would be linked and share the same
common data base for purchasing, inventory control, and delivery, was initially
tested at the Company's Johnson City plant.
Last year, the Company focused on implementing this technology throughout all
its plants, reorganizing document control into one centralized system and
building the basis for a computerized project management system for engineering.
This corporate-wide systems approach is critical to Superior's preparation for
the QS9000, an independent audit for companies with international operations who
must meet specific requirements involving documentation, traceability, and
processes and quality control.
In addition to expanding and reorganizing its engineering resources with the
opening of the new Technical Sales Center in Detroit, Superior continues to
research new casting technologies that will improve the performance and cost of
aluminum wheels. Currently, the Company is looking at bringing together the
lightweight forging technology of its European joint-venture partner, Otto
Fuchs, and Superior's styling flexibility to produce a lighter wheel design.
1995 also highlighted the start-up of production at Superior's new OEM aluminum
wheel chrome-plating facility, and the completion of the second phase of
expansion at its Fayetteville plant, now the largest OEM cast aluminum wheel
facility in the world.
The groundbreaking of Superior's new plant in Hungary, where both lightweight
forged and low pressure cast aluminum wheels will be manufactured for the
European automotive market, marked a significant milestone for the Company.
Along with the Company's state-of-the art manufacturing facility in Chihuahua,
Mexico, the new plant in Hungary reinforces Superior as an internationally
recognized corporation.
[PHOTO]
Production in Superior's fully automated chrome-plating plant
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Original Equipment Manufacturing
[PHOTO]
Superior is the exclusive supplier of light alloy wheels for the popular Nissan
Primera sold in Japan
Superior has continued its leading position as the largest aluminum wheel
manufacturer in the world and anticipates exciting prospects ahead as it moves
into new products and expands its customer base and geographic reach.
Though Superior is positioned to benefit from greater aluminum wheel
penetration, the Company has strategically lessened its dependence on North
American installation of aluminum wheels through its chrome-plating technology,
operations in Mexico, joint-ventures with Aluminum Company of America (ALCOA)
and Topy Industries, and most recently, the new venture in Hungary with Otto
Fuchs.
[PHOTO]
BMW Z-3 Roadster with Superior's stylized wheels
Expanding Global Reach
"Superior's decision to partner with Otto Fuchs made good sense," said James M.
Ferguson, Vice President, OEM Marketing Group. "Otto Fuchs' process was
competitive and lighter weight, but didn't have the styling flexibility of
Superior's cast aluminum wheels. Together, we will be offering our customers the
best product mix because we will provide the styling, affordability and mass
that people are looking for."
The new plant in Hungary will present excellent opportunities for Superior and
reinforce its presence in Europe. The joint-venture's first contract from a
European OEM for 700,000 forged wheels will fill over one third of the initial
capacity of the new plant. Furthermore, Superior is currently looking at several
contract possibilities with European OEMs for cast aluminum wheels to be
manufactured in Hungary.
Over the past three years, Superior has enjoyed strong relationships with
several European OEMs including Bayerische Motoren Werke (BMW). Superior
increased its BMW business last year with five new contracts and is now
supplying wheels for the two-seat roadster, the new Z3, and the 3 and 5 series
models. Wheels for the 3 and 5 series models will be manufactured at the
Company's Chihuahua plant for export to Germany, demonstrating Superior's
quality and cost competitiveness.
[PHOTO]
Newly designed Ford Explorer with Superior wheels
8
Developing Growth in Mexico and Japan
Operations in Mexico through the Company's facility in Chihuahua have been very
successful, indicating additional growth opportunities for Superior. Superior
has been creating more export opportunities out of its Mexico plant to offset
the impact of the devaluation and provide its U.S. customers with additional
foreign export credits. As U.S. automakers continue to invest more money in
their Mexico operations and export more cars, Superior anticipates as much as 80
percent of the wheels produced in its Mexico plant will be used for export.
However, the Company has the capacity to supply the local market in Mexico when
the Mexican economy recovers.
Despite a downturn in Japan's economy and automotive industry, Superior has
maintained its market share and looks to Japan as a good source for future
growth. First of all, Superior's established relationship with Japanese OEMs
positions the Company for increased business once the economy rebounds. Through
the Company's joint-venture partnership with Topy Industries and by continually
meeting and exceeding the high standards of Japanese OEMs, Superior has gained
the confidence of Japanese manufacturers who have historically been reluctant to
do business with U.S. suppliers. Secondly, Superior is ideally positioned to
take advantage of the opportunities presented by last year's automotive trade
agreement between Japan and the U.S. While the impact of the new trade agreement
is not readily visible, the agreement is likely to increase the sale of U.S.
automobiles and automotive parts to Japan.
Japan is also expected to be an excellent market for Superior's new line of cast
aluminum wheels for medium sized commercial trucks and buses to be manufactured
under the ALCOA name this year.
[PHOTO]
Pontiac Firebird with Superior chrome-plated aluminum wheels
Developing New Business Opportunities
Another growing business opportunity for Superior is its OEM chrome-plated
aluminum wheels. Superior experienced some delays in gearing up operations at
its chrome-plating facility in Fayetteville last year. However, the Company has
been improving the chrome-plating process which could yield substantial
financial results this year when it achieves operational goals and consistent
week-to-week improvements. Phase I production is expected to run at full
capacity to keep up with the pace of demand for chrome-plated aluminum wheels.
Strengthening Domestic Customer Base
Superior continues to strengthen its relationship as a key supplier to Ford and
General Motors. The Company has maintained its status as Ford's only "full
service" wheel supplier. In 1995, General Motors solidified its relationship
with Superior by signing a "lifetime" contract for the production of cast
aluminum wheels. Estimated to exceed $1 billion in GM business over the next
five years, the contract pertains to the "lifetime" of all current models
extending from 1996 to 2000.
Securing Future Opportunities
Superior's future in the OEM market is one of growth opportunities with new
technology and processes, new products, new customers, and new plant locations.
Suppliers willing to make global investments today and support their customers'
worldwide operations will secure increased business by OEM manufacturers in the
future. Superior has already taken major strides to ensure its global
competitive stance by making the financial commitment to meet customers' needs
for technological enhancements, reduced costs, and globalization.
Aftermarket
Superior currently supplies 62 product lines and 3,000 parts for the automotive
aftermarket ranging from steering wheels and covers, suspension products, seat
belts and license plate holders to chrome-plated steel and aluminum road wheels.
The Company's diverse aftermarket products are sold through some of the most
prominent wholesalers and retail outlets in the U.S. and Canada including ITCO
Tire Company, Les Schwab, Pep Boys, Auto-Zone, Northern Automotive, Belle Tire,
Wal-Mart, Western Auto, Canadian Tire, and Paccar. Superior's aftermar-ket
business accounted for 6.9 percent of overall revenue in 1995, a total of
approximately $36 million. While this area of Superior's business was affected
last year by softening aftermarket industry conditions, the Company has focused
on developing products and expanding existing product lines with the most
profitability and future sales potential.
For example, Superior expanded its exhaust extension line with new styles and
finishes last year. The Company also introduced a new super wide cover for
thicker steering wheels called the Super Sport Grip, and developed a new line of
stretch on velour steering wheel covers. In addition, the recent introduction of
several new after-market wheels developed last year has already resulted in
orders in excess of $1 million with two additional styles to be introduced this
year.
In 1996, Superior will continue to focus on developing profitable product
lines such as interior accessories for the light truck and sport utility market.
In addition, many of Superior's distributors are continuing to expand
geographically, which should prove beneficial to the Company's after-market
business in years to come.
[PHOTO]
Assortment of aftermarket accessory products
Alcoa Joint-Venture
In 1993, Superior entered into a joint development project with ALCOA, the
world's largest manufacturer of forged aluminum wheels for large trucks and
buses, to develop a new line of cast aluminum wheels for medium sized commercial
trucks and buses in the Class 3 through 8 range.
The Company made substantial progress last year by completing the development of
the 19 1/2" cast aluminum wheel for Class 4 through 6 trucks. Superior plans to
begin manufacturing wheels under the ALCOA name in 1996.
Although the marketing process involves more time to develop, the Company
believes the ALCOA truck program will build momentum and open an arena of new
business. This is another statement of confidence for the future growth of our
Company.
[PHOTO]
Example of successfully developed 19 1/2" cast aluminum truck wheel for class 4
through 6 trucks
9
Management's Discussion and Analysis of Financial Condition
RESULTS OF OPERATIONS
1995 Compared to 1994
Net sales in 1995 increased 14.3 percent to a record $522.0 million compared to
$456.6 million in 1994. Higher net sales reflects higher pricing due to
increased material costs to original equipment manufacturer (OEM) customers. The
Company's OEM business increased $68.5 million, or 16.4 percent over 1994, with
unit shipments of cast aluminum road wheels increasing 1.4 percent from 1994,
while North American automotive production decreased 1.6 percent. Aluminum wheel
installation rates on automobiles and light trucks rose to a record 43.9 percent
for the 1995 model year from 41.0 percent for the 1994 model year and 39.5
percent for the 1993 model year. Management believes the trend of higher cast
aluminum wheel installation rates will continue.
Aftermarket product net sales decreased $3.1 million, or 8.1 percent over 1994
as a sluggish economy impacted the entire aftermarket industry.
Gross profit was 21.8 percent of net sales in 1995 compared to 24.4 percent in
1994. Reduced gross profit margins reflect a number of factors. First, lower
than expected OEM wheel shipment and production levels were accentuated by
additional wheel making capacity added as a result of plant expansion activities
in Fayetteville, Arkansas and Chihuahua, Mexico. Secondly, the price of raw
material increased throughout the year. The aluminum content of selling prices
to OEMs is adjusted to current market conditions which, when the Company, from
time to time, enters into fixed purchase contracts, subjects the Company to the
risks of market changes. The cost of aluminum is a significant component in the
overall cost of a wheel. As the price of aluminum increases the effect is to
reduce overall gross margin percentages although gross profit in absolute
dollars remains unchanged. Finally, while the Company has ongoing programs to
reduce costs to its customers and in the past, has generally been successful in
substantially mitigating pricing pressure from its customers, it is becoming
increasingly more difficult to do so without impacting margins. The Company will
continue to aggressively implement cost savings strategies to meet customer
pricing expectations and maintain margins; however, the impact of future
customer pricing pressures and increasing industry-wide competition to the
Company's financial position and results of operations is not known. Selling,
general and administrative expenses, measured as a percentage of net sales,
decreased to 3.8 percent in 1995 compared to 4.2 percent in 1994, and increased
in absolute dollars. The increase in absolute dollars is a result of higher OEM
commissions, which are paid as a percentage of sales dollars, and two
aftermarket product liability lawsuit settlements.
Interest expense increased $426,000 compared to 1994. The largest component of
the change was a reduction of capitalized interest in 1995 reflecting reduced
OEM plant construction activities. However, the overall interest cost in 1995
was lower than 1994 due to current and prior year payments and prepayments on
Senior notes, including the retirement of the 10.22% Senior notes, offset
substantially by increased use of short-term borrowings required to manage
working capital requirements.
Interest income decreased $734,000 over 1994 as cash and short-term investments
were utilized to fund capital expenditures, repurchases of the Company's common
stock and on-going working capital requirements.
Miscellaneous, net was $6.7 million and increased $5.9 million from 1994. Higher
expenses primarily reflect $5.8 million of pre-production costs associated with
the Fayetteville chrome-plating facility start-up, compared to $1.8 million of
pre-production charges for the Chihuahua, Mexico and Fayetteville chrome-plating
facilities in 1994, and investment and foreign exchange losses. The consolidated
tax rate in 1995 decreased slightly to 37.5 percent of pre-tax income versus
37.6 percent in 1994. See Note 6 of the consolidated financial statements.
10
1994 Compared to 1993
Net sales in 1994 increased 16.2 percent to $456.6 million compared to $393
million in 1993. The increase was primarily attributable to growth in the
Company's original equipment manufacturer (OEM) cast aluminum wheel business.
Buoyed by a strong North American automotive market, the Company's OEM business
increased $60.4 million, or 16.9 percent over 1993. Unit shipments of cast
aluminum road wheels increased 15.5 percent from 1993, while average selling
prices, which rose throughout the year, were slightly higher than 1993.
Aftermarket product net sales, without the impact of "Do-Ray," a Canadian mirror
and light business sold in August, 1993, increased $7.4 million, or 23.5 percent
over 1993, and reflected increases in the "Streetwear" product line, including
new styles of aluminum and chrome-plated aluminum wheels. Year-to-date net sales
in the aftermarket business increased $3.2 million, or 8.9 percent over 1993.
Gross profit was 24.4 percent of net sales in 1994 compared to 23.3 percent in
1993. Improved gross profit margins reflected higher customer order levels that
translated into greater production requirements and more efficient and high
plant utilization resulting in incrementally higher margins. Additionally, the
Company's aggressive and ongoing cost containment programs continued to
effectively reduce costs. The Company was able to achieve significant margin
gains in spite of the January 17, 1994 Northridge earthquake, which resulted in
a $1.1 million charge to earnings, and plant expansion activities at the new
Chihuahua, Mexico OEM facility and at the Fayetteville, Arkansas OEM facility.
Selling, general and administrative expenses, measured as a percentage of net
sales, decreased to 4.2 percent in 1994 compared to 4.3 percent in 1993, and
increased in absolute dollars. The increase in absolute dollars is a result of
the additional resources required to manage the Company's expanding business
while the decrease as a percentage of net sales reflects management's successful
containment of this required expansion.
Interest expense decreased $1.4 million compared to 1993, reflecting current and
prior year payments and prepayments of Senior notes. Accentuating this decrease
was $1.9 million of interest that was capitalized as a result of the OEM plant
expansion activities. Offsetting these decreases were higher interest costs
relating to greater short-term borrowings required to manage working capital
requirements.
Interest income decreased $1.5 million over 1993 as cash and short-term
investments were utilized to fund record capital expenditures of $60.2 million,
repurchases of the Company's common stock and on-going working capital
requirements.
Miscellaneous, net was $839,000 and decreased $186,000 from 1993. Included in
this category are $1.8 million of pre-production costs relating to the start-up
of the Chihuahua, Mexico cast aluminum wheel and Fayetteville, Arkansas
chrome-plating facilities.
The consolidated tax rate in 1994 decreased slightly to 37.6 percent of pre-tax
income versus 37.8 percent in 1993. See note 6 of the consolidated financial
statements.
11
Financial Condition, Liquidity and Capital Resources
Cash provided by operating activities was $83.7 million in 1995 compared to $50
million in 1994, reflecting strong earnings and high levels of non-cash charges
such as depreciation and amortization that were offset somewhat by the build-up
of inventories and the reduction of receivables. Higher inventory levels
primarily reflect the higher cost of raw materials.
Strong cash flows from operating activities were supplemented through the
partial liquidation of the Company's investment portfolio which, in turn, was
utilized for a number of activities. The Company paid down outstanding short and
long-term borrowings by a combined $42.8 million. Such payments included the
retirement of the 10.22% Senior notes three years prior to scheduled maturity,
and paying the maximum advance principal payments currently available in
addition to the required principal payments on its 9.31% Senior notes. After
paying the required principal payments on its 9.31% Senior notes in 1996, the
Company will have effectively retired all of its long-term debt. The Company
also funded OEM plant expansion and enhancements, including both the
chrome-plating and cast aluminum wheel expansions in Fayetteville, Arkansas, and
the second phase of the Chihuahua, Mexico wheel facility. Cash resources were
also utilized for the retirement of 737,000 shares of the Company's common
stock. Finally, the Company contributed $9.7 million to its Hungarian
joint-venture with German-based Otto Fuchs Metallwerke ("Otto Fuchs"). See
discussion below.
During 1995, the Company formalized its 50/50 joint-venture agreement with
Otto-Fuchs to construct a plant in Tatabanya, Hungary for the production of both
lightweight forged and low pressure cast aluminum wheels for the European
automotive market. Ground breaking for this facility took place in the fourth
quarter of 1995 and initial shipments are slated for the first quarter of 1997.
The cost of this facility, currently estimated at $70 million, will be funded
through mimimum equal capital contributions of approximately $20 million by each
partner and long-term project financing.
Since 1990, funding for plant expansion, in excess of $325 million, has come
from internally generated cash flow and working capital.
The value of the Mexican peso experienced a precipitous decline in value
relative to the U.S. dollar and the local Mexican economy entered into a severe
recession. This decline in value of the Mexican peso, which began in December
1994 with the Mexican government removing currency controls, continued
throughout 1995. The impact of these declines in value relative to the Company's
wholly owned subsidiary, Superior Industries de Mexico, SA de CV, has resulted
in a cumulative unrealized translation loss of $13.8 million, net of taxes and
has been charged directly to shareholders' equity. The Mexican production
facility represents less than 10 percent of the Company's total capacity.
The softening of the North American automotive market during 1995, accentuated
by the harsh winter weather conditions that continued into 1996, has reduced the
Company's production requirements thereby creating excess manufacturing
capacity. While management believes that 1996 will be a solid year for the
Company and is optimistic about its long-term opportunities for growth, current
economic conditions may continue and negatively impact customer order levels for
aluminum road wheels. In addition, the start-up of the chrome-plating facility
in Fayetteville, Arkansas may significantly impact the results of operations in
1996.
The Company's financial condition remains strong. In 1995, working capital and
current ratio increased to $60.9 million and 1.7:1, versus $53.8 million and
1.5:1 in 1994, respectively,as the Company completed its domestic plant
expansion program. The long-term debt to total capitalization ratio improved to
2.5 percent in 1995 from 10.3 percent in 1994. The Company believes it is well
positioned to take full advantage of new and complementary business
opportunities, expanding international markets and, at the same time, able to
withstand downturns in the economy. During 1995, the Board of Directors
announced an 11 percent increase in the cash dividend, representing the twelfth
consecutive year of dividend payments and increases. Management anticipates
continuing its policy of paying dividends; however, this is contingent upon
various factors, including economic and market conditions, all of which cannot
be accurately predicted.
During 1995 the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of" and SFAS No.
123, "Accounting for Stock-Based Compensation" (See note 4 of the Consolidated
Financial Statements), both of which become effective for fiscal years beginning
after December 15, 1995. Had the Company elected early adoption of SFAS No. 121,
management believes there would not be a material impact to the results of
operations or financial position of the Company.
Inflation
Inflation did not have a material impact on the results of operations or the
financial condition of the Company. The Company believes its purchasing and the
majority of its customer contracts are structured to minimize the impact of
changes caused by inflation.
12
Consolidated Statements of Income
Years Ended December 31,
1995 1994 1993
Net Sales $ 521,997,000 $ 456,638,000 $ 393,033,000
Cost of Sales 408,200,000 345,270,000 301,569,000
Gross Profit 113,797,000 111,368,000 91,464,000
Selling, general and administrative expenses 19,965,000 19,203,000 16,887,000
Income From Operations 93,832,000 92,165,000 74,577,000
Interest expense 3,288,000 2,862,000 4,298,000
Interest income 1,106,000 1,840,000 3,386,000
Miscellaneous expense, net 6,732,000 839,000 1,025,000
(8,914,000) (1,861,000) (1,937,000)
Income Before Income Taxes 84,918,000 90,304,000 72,640,000
Income Taxes 31,854,000 33,989,000 27,463,000
Net Income $ 53,064,000 $ 56,315,000 $ 45,177,000
Earnings Per Share $ 1.78 $ 1.85 $ 1.47
See notes to consolidated financial statements.
Consolidated Balance Sheets
December 31,
1995 1994
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 3,366,000 $ 5,884,000
Marketable securities, net 7,813,000 21,158,000
Receivables, net
Trade 56,092,000 63,704,000
Other 14,797,000 17,619,000
70,889,000 81,323,000
Inventories 53,823,000 44,746,000
Deferred income taxes 5,382,000 5,899,000
Other current assets 1,386,000 1,761,000
Total current assets 142,659,000 160,771,000
PROPERTY, PLANT AND EQUIPMENT, net 177,538,000 185,853,000
OTHER LONG-TERM ASSETS 21,573,000 11,059,000
$341,770,000 $357,683,000
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of long-term debt $ 13,628,000 $ 39,201,000
Accounts payable 46,920,000 46,135,000
Accrued liabilities 21,198,000 21,587,000
Total current liabilities 81,746,000 106,923,000
LONG-TERM DEBT, net 5,814,000 23,075,000
OTHER LONG-TERM LIABILITIES 17,207,000 16,897,000
DEFERRED INCOME TAXES 7,850,000 10,606,000
SHAREHOLDERS' EQUITY 229,153,000 200,182,000
$341,770,000 $357,683,000
See notes to consolidated financial statements.
13
Consolidated Statements of Shareholders' Equity
Unrealized
Common Stock Additional Cumulative Loss On
Number of Paid-In Translation Marketable Retained
Shares Amount Capital Adjustment Securities Earnings Total
Balances at
December 31, 1992 19,998,460 $ 9,999,000 $ 71,908,000 $ 101,000 $ -- $ 54,739,000 $136,747,000
Net income -- -- -- -- -- 45,177,000 45,177,000
Stock options exercised,
including related
tax benefit 114,818 58,000 2,080,000 -- -- -- 2,138,000
Stock split 10,031,136 5,016,000 -- -- -- (5,016,000) --
Repurchases of
common stock (83,000) (42,000) (3,199,000) -- -- -- (3,241,000)
Cash dividends
($.11/share) -- -- -- -- -- (3,409,000) (3,409,000)
Foreign currency
translation -- -- -- (543,000) -- -- (543,000)
Balances at
December 31, 1993 30,061,414 15,031,000 70,789,000 (442,000) -- 91,491,000 176,869,000
Net income -- -- -- -- -- 56,315,000 56,315,000
Stock options exercised,
including related
tax benefit 94,221 47,000 1,585,000 -- -- -- 1,632,000
Repurchases of
common stock (544,000) (272,000) (16,819,000) -- -- -- (17,091,000)
Cash dividends
($.165/share) -- -- -- -- -- (4,913,000) (4,913,000)
Unrealized losses:
Foreign currency
translation -- -- -- (10,130,000) -- -- (10,130,000)
Marketable
securities -- -- -- -- (2,500,000) -- (2,500,000)
Balances at
December 31, 1994 29,611,635 14,806,000 55,555,000 (10,572,000) (2,500,000) 142,893,000 200,182,000
Net income -- -- -- -- -- 53,064,000 53,064,000
Stock options exercised,
including related
tax benefit 154,372 77,000 2,812,000 -- -- -- 2,889,000
Repurchases of
common stock (737,000) (369,000) (19,456,000) -- -- -- (19,825,000)
Cash dividends
($.195/share) -- -- -- -- -- (5,749,000) (5,749,000)
Unrealized losses:
Foreign currency
translation -- -- -- (3,256,000) -- -- (3,256,000)
Marketable
securities -- -- -- -- 1,848,000 -- 1,848,000
Balances at
December 31, 1995 29,029,007 $14,514,000 $ 38,911,000 $(13,828,000) $ (652,000) $190,208,000 $229,153,000
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
Years Ended December 31,
1995 1994 1993
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 83,747,000 $ 49,953,000 $ 72,713,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (25,903,000) (60,231,000) (53,834,000)
Investment in unconsolidated joint-venture (9,664,000) -- --
Proceeds from sales of investments 17,732,000 29,377,000 78,369,000
Purchases of investments (2,911,000) (26,834,000) (82,519,000)
NET CASH USED IN INVESTING ACTIVITIES (20,746,000) (57,688,000) (57,984,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings (payments) (23,467,000) 28,267,000 --
Repurchases of common stock (19,825,000) (17,091,000) (3,241,000)
Payments of long-term debt (19,367,000) (2,550,000) (13,732,000)
Cash dividends (5,749,000) (4,913,000) (3,409,000)
Stock options exercised 2,889,000 1,632,000 2,138,000
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (65,519,000) 5,345,000 (18,244,000)
Net Decrease in Cash and Equivalents (2,518,000) (2,390,000) (3,515,000)
Cash and Equivalents at Beginning of Year 5,884,000 8,274,000 11,789,000
Cash and Equivalents at End of Year $ 3,366,000 $ 5,884,000 $ 8,274,000
See notes to consolidated financial statements.
14
Reconciliation of Net Income to Net Cash
Provided By Operating Activities
Years Ended December 31,
1995 1994 1993
Net Income $ 53,064,000 $ 56,315,000 $ 45,177,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 27,716,000 26,604,000 21,695,000
Provision for retirement plans 1,169,000 1,108,000 904,000
Other non cash items (1,320,000) 1,043,000 (262,000)
Changes in assets and liabilities:
(Increase) decrease in:
Receivables, net 10,252,000 (16,044,000) (7,042,000)
Inventories (9,077,000) (18,112,000) (2,112,000)
Other items 3,786,000 3,637,000 422,000
Increase (decrease) in:
Accounts payable 785,000 (5,869,000) 15,341,000
Accrued liabilities (389,000) 155,000 2,198,000
Deferred income taxes (2,239,000) 1,116,000 (3,608,000)
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 83,747,000 $ 49,953,000 $ 72,713,000
See notes to consolidated financial statements.
15
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES THE COMPANY
The principal business of Superior Industries International, Inc. and its
subsidiaries (the Company), is the design and manufacture of cast aluminum road
wheels primarily for the domestic original equipment manufacturer (OEM) market.
It is also a leading manufacturer of custom road wheel and accessory products
for the automotive aftermarket.
The Company maintains both domestic and foreign manufacturing facilities,
including operations in Mexico and a manufacturing facility currently under
construction through a 50 percent owned joint-venture in Hungary. As of December
31, 1995, the carrying amount of these foreign facilities is $29,500,000.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company, after elimination of all significant intercompany accounts and
transactions. Investments in joint-ventures in which the Company has common
stock ownership of 50 percent are accounted for on the equity method.
These consolidated financial statements have been prepared in accordance with
generally accepted accounting principals which require the use of estimates and
assumptions by management.
FISCAL YEAR END
For presentation purposes, the Company denotes December 31 as the fiscal year
end. However, the Company's fiscal year ends on the last Sunday of the calendar
year.
FINANCIAL INSTRUMENTS
Financial instruments consist primarily of cash and equivalents, marketable
securities, short-term borrowings and Senior notes. The Company generally places
these financial instruments with high quality institutions operating in various
industries, including government agencies, over a broad geographic area.
Cash equivalents consist primarily of certificates of deposit, carried at cost,
which approximates market value. Certificates of deposit were $2,880,000 and
$5,630,000 at December 31, 1995 and 1994, respectively.
Marketable securities, which generally consist of U.S. government agency
securities, corporate bonds, money market preferred stock and equities, are all
considered "available-for-sale" and are carried at the lower of cost or market
on a portfolio basis. The stated maturities of market-able debt securities are
generally over ten years. Market value at December 31, 1995, which was
determined using quoted prices from national exchanges, resulted in a $652,000
unrealized loss recorded directly to shareholders' equity. The net realized loss
from sales of available-for-sale securities utilizing the specific
identification method was $709,000 and $99,000 for the years ended December 31,
1995 and 1994, respectively. At December 31, 1995 and 1994, marketable
securities of $5,792,000 and $4,960,000, respectively, were pledged as
collateral against outstanding letters of credit.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs of $3,265,000, $5,413,000 and $3,332,000 have
been charged against operations during 1995, 1994 and 1993, respectively.
16
FOREIGN CURRENCY TRANSLATION
Foreign currency asset and liability accounts are translated at exchange rates
in effect at the end of the accounting period. Revenue and expense accounts are
translated at a weighted average of exchange rates during the period. The
cumulative effect of translation as well as gains and losses on intercompany
foreign currency transactions are recorded as a separate component of
shareholders' equity. Foreign exchange gains/(losses) of ($287,000), $164,000,
and ($70,000) have been recorded as part of operations during 1995, 1994 and
1993, respectively.
In December 1994, the Mexican government devalued and then removed currency
controls on the New Peso (the "Peso") which caused a decline in the value of the
Peso relative to the U.S. dollar that continued throughout 1995. The impact of
this decline in value has resulted in a cumulative unrealized translation loss
of $13.8 million, net of related tax effects, and has been charged directly to
shareholders' equity.
STATEMENTS OF CASH FLOWS
For purposes of the Consolidated Statements of Cash Flows, the Company considers
all certificates of deposit and highly liquid investments with an original
maturity of three months or less to be cash equivalents. Purchases and proceeds
from investment transactions were all transacted in the Company's
available-for-sale portfolio of debt and equity securities.
Interest paid, net of amounts capitalized (see note 10), and income taxes paid
were $3,540,000 and $25,448,000 for 1995; $2,494,000 and $32,610,000 for 1994;
$4,543,000 and $27,779,000 for 1993, respectively.
RECLASSIFICATIONS
Certain prior year items have been reclassified to conform with current year
presentations.
2. BORROWING ARRANGEMENTS
The Company maintains a $25,000,000 credit facility on a committed, unsecured
basis expiring in May 1997. This facility provides for an interest rate of 40 or
50 basis points above either the Interbank Offered Rate or the Federal Funds
rate, respectively. The Company also maintains combined line and letter of
credit facilities under which it may borrow up to $30,000,000 on an uncommitted,
unsecured basis at rates generally below prime. There were $4,800,000 and
$28,267,000 in short-term borrowings outstanding at December 31, 1995 and 1994,
respectively. The weighted average interest rates during 1995, 1994 and 1993
were 6.7 percent, 4.8 percent, and 3.9 percent, respectively.
The long-term debt of the Company is summarized as follows:
December 31,
1995 1994
9.31% Senior notes due 1997, with annual principal
payments of $8,333,000 beginning in 1995 $11,666,000 $25,000,000
Capitalized lease obligations and other debt, substantially
all of which is secured by fixed assets, with various maturities
and interest rates ranging between 7.3 percent and 11.3 percent 2,976,000 3,438,000
10.22% Senior notes due 1998, with annual principal payments
of $2,143,000 was paid in full during 1995 -- 5,571,000
14,642,000 34,009,000
Less - Current portion 8,828,000 10,934,000
$ 5,814,000 $23,075,000
The Senior notes and certain credit facility agreements contain, among other
covenants, restrictions with respect to borrowings, dividends, investments,
purchases and sales of assets outside the ordinary course of business, and
certain guarantees. Also required is the maintenance of a minimum tangible net
worth, as defined, of $180,000,000 and certain financial ratios.
Included with capitalized lease obligations and other debt is a capital lease of
$1,260,000, funded through the proceeds of an industrial development revenue
bond, payable in varying annual principal payments through 1999 with remaining
interest rates ranging between 7.4 percent and 7.6 percent. The Company has
guaranteed the repayment of the underlying bonds.
Future maturities of long-term debt are approximately $8,828,000 for 1996,
$3,878,000 for 1997, $592,000 for 1998, $645,000 for 1999, $330,000 for 2000 and
$369,000 thereafter.
3. LEASES
The Company leases its corporate office and certain manufacturing facilities
from Louis L. Borick, President, and Juanita A. Borick. The lease expires in the
year 2001 and has a current annual payment of $1,140,000 (including rent of
$748,000 related to land and escalations which are accounted for as operating
leases), exclusive of future escalation payments which are determined every five
years.
Included in property, plant and equipment at both December 31, 1995 and 1994,
are buildings and
17
equipment held under capital leases of $5,590,000 with accumulated amortization
of $2,949,000 and $2,738,000, respectively.
The Company leases certain land, facilities and equipment under long-term
operating leases expiring at various dates through 2063. The terms of certain of
these leases require scheduled rent increases at specified intervals which are
not dependent on the occurrence of any future events. Additionally, the Company
reduced the amortization period of these same operating leases to appropriately
match the estimated useful life of the underlying machinery. Total lease expense
for all operating leases amounted to $5,040,000 in 1995, $4,183,000 in 1994 and
$3,904,000 in 1993.
Future minimum payments under all leases are summarized as follows:
Leases
Years Ending December 31, Operating Capital
1996 $ 5,165,000 $ 767,000
1997 4,628,000 771,000
1998 4,311,000 768,000
1999 7,684,000 768,000
2000 2,216,000 392,000
Thereafter 371,000 392,000
24,375,000 3,858,000
Amounts representing interest -- 895,000
$24,375,000 $2,963,000
Future minimum payments of $3,803,000 for operating leases, including known rent
escalations, and $2,352,000, including interest, for capital leases are payable
to Louis L. Borick, President, and Juanita A. Borick. The amounts paid to Louis
L. Borick, Juanita A. Borick or a related entity owned by Louis L. Borick's
children during 1995, 1994 and 1993, for all leases were $1,583,000, $1,571,000
and $1,542,000, respectively.
4. STOCK OPTIONS
At December 31, 1995 and 1994, the Company had reserved 2,243,965 and 2,398,337
shares of its common stock, respectively, for issuance to directors, officers
and key employees under Stock Option Plans. Options are generally subject to
grant at not less than fair market value on the date of grant and expire no
later than ten years after the date of the grant. At December 31, 1995 and 1994,
exercisable options to purchase shares of the Company's common stock totaled
844,726 and 616,540, respectively.
18
A summary of changes in outstanding options follows:
Years Ended December 31,
1995 1994 1993
Under Option Under Option Under Option
Option Price Option Price Option Price
Options outstanding
at beginning of year 1,432,223 $ 1.80-$39.88 1,413,944 $ 1.80-$39.88 444,446 $ 2.70-$22.63
Options granted 137,000 24.50- 34.00 119,000 26.25- 31.00 602,500 19.08- 39.88
Stock split -- -- -- -- 485,948 1.80- 29.67
Options exercised (154,372) 3.75- 31.00 (94,221) 5.19- 19.08 (114,818) 3.75- 15.09
Options canceled
or expired (113,375) 19.08- 31.00 (6,500) 15.09- 31.00 (4,132) 5.19- 15.09
Options outstanding
at end of year 1,301,476 $ 1.80-$39.88 1,432,223 $ 1.80-$39.88 1,413,944 $ 1.80-$39.88
No significant amounts are reflected in the Company's income accounts with
respect to these stock options. Proceeds from the sales of stock under option
are credited to common stock at par value, with amounts in excess of par value
credited to additional paid-in capital.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". Statement 123 introduces a fair-value based method of accounting
for stock-based compensation and encourages, but does not require, companies to
recognize compensation expense for grants of stock, stock options and other
equity instruments to employees based on this new fair value method. Currently,
compensation expense for a stock option is measured on the first date at which
both the number of shares and the exercise price are known. Under the Company's
stock option plans, this would typically be the date of grant. To the extent the
exercise price equals or exceeds the market value of the stock on the grant
date, no expense is recognized.
The Company will adopt the disclosure requirements of Statement 123 during the
year ended December 31, 1996, but, as permitted, does not intend to adopt its
accounting rules for the recognition of compensation expense.
5. RETIREMENT PLANS
The Company has an unfunded supplemental executive retirement plan covering its
directors, officers and other key members of management. The Company has
purchased key man life insurance policies on each of the participants to provide
for future liabilities. The plan provides for a defined benefit to become
payable on the employee's death or upon retirement which is based on final
average compensation, subject to certain vesting requirements.
The components of cost for this retirement plan are as follows:
Years Ended December 31,
1995 1994 1993
Service cost $315,000 $335,000 $226,000
Interest cost 425,000 360,000 312,000
Net amortization 54,000 55,000 55,000
Other unrecognized loss 17,000 -- --
Net cost $811,000 $750,000 $593,000
A schedule reconciling the projected benefit obligation with recorded plan
liability follows:
December 31,
1995 1994
Actuarial present value of benefit obligations:
Vested benefit obligation $ 3,690,000 $ 3,230,000
Accumulated benefit obligation $ 5,900,000 $ 4,962,000
Projected benefit obligation $ 6,497,000 $ 5,501,000
Unrecognized prior service cost (329,000) (383,000)
Adjustment required to recognize minimum liability 457,000 330,000
Other unrecognized experience losses (725,000) (486,000)
Recorded liability $ 5,900,000 $ 4,962,000
19
Actuarial assumptions for the retirement plan include seven percent for the
assumed discount rate and five percent for the assumed rate of average future
compensation increases for 1995 and 1994. During 1995, the Company recorded an
adjustment of $127,000 to recognize the minimum pension liability required by
Statement of Financial Accounting Standards No. 87. The adjustment, which had no
effect on income, was offset by recording an equal amount as an intangible
asset.
The Company has contributory employee retirement savings plans in addition to
mandatory profit sharing plans covering substantially all of its employees. The
employer contribution is determined at the discretion of the Company and totaled
$2,605,000, $2,471,000 and $2,401,000 for 1995, 1994 and 1993, respectively.
The Company also has a deferred compensation agreement with its President under
which the Company has agreed to pay certain amounts annually subsequent to
retirement. For accounting purposes, the present value of such payments is being
charged ratably to expense over the average estimated remaining years of active
employment. These charges totaled $358,000, $358,000 and $300,000 for 1995, 1994
and 1993, respectively.
6. TAXES ON INCOME
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". Under Statement 109, deferred
tax assets and liabilities are determined under the "liability method" based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. Prior to the adoption of Statement
109, income tax expense was determined under the "deferred method" based on
items of income and expense that were reported in different years in the
financial statements and tax returns and were measured at the tax rate in effect
in the year the differences originated.
As permitted by Statement 109, the Company has elected not to restate the
financial statements of any prior years. The cumulative effect of the change in
the method of accounting for income taxes for the year ended December 31, 1993
was not material.
The provision (credit) for income taxes is comprised of the following
components:
Years Ended December 31,
1995 1994 1993
Federal: Current $22,338,000 $26,501,000 $24,836,000
Deferred 1,884,000 2,007,000 (1,421,000)
24,222,000 28,508,000 23,415,000
State: Current 3,891,000 5,527,000 4,160,000
Deferred 208,000 169,000 (306,000)
4,099,000 5,696,000 3,854,000
Foreign: Current 175,000 414,000 95,000
Deferred 3,358,000 (629,000) 99,000
3,533,000 (215,000) 194,000
$31,854,000 $33,989,000 $27,463,000
Total: Current $26,404,000 $32,442,000 $29,091,000
Deferred 5,450,000 1,547,000 (1,628,000)
$31,854,000 $33,989,000 $27,463,000
Provision is made for United States income taxes on undistributed earnings of
international subsidiaries. Tax credits are accounted for as a reduction of the
provision for income taxes in the year in
20
which the credits arise.
The reconciliation of the statutory United States federal income tax rate to the
Company's effective income tax rate is as follows:
Years Ended December 31,
1995 1994 1993
Statutory amount, computed
at 35 percent $29,721,000 $31,606,000 $25,424,000
State tax provisions,
net of federal income tax benefit 2,664,000 3,702,000 2,505,000
Foreign income taxed at rates
other than the statutory rate (107,000) (592,000) (602,000)
Federal tax credits (722,000) (486,000) --
Other, net 298,000 (241,000) 136,000
$31,854,000 $33,989,000 $27,463,000
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
December 31,
1995 1994
Deferred tax assets
Insurance reserves not currently deductible $ (1,166,000) $ (1,297,000)
Inventory reserves not currently deductible (569,000) (520,000)
Other reserves not currently deductible (4,369,000) (6,509,000)
Deferred compensation (3,523,000) (2,844,000)
Revenue recognized for tax purposes (597,000) (437,000)
State taxes expensed currently, deductible in following year (1,057,000) (831,000)
Foreign currency translation adjustment (7,400,000) --
Net operating loss carryforwards -- (735,000)
Other (1,675,000) (1,818,000)
(20,356,000) (14,991,000)
Deferred tax liabilities
Differences between book and tax basis
of property, plant and equipment 19,351,000 18,068,000
Other 3,473,000 1,630,000
22,824,000 19,698,000
$ 2,468,000 $ 4,707,000
7. SHAREHOLDERS' EQUITY
The common stock of the Company at December 31, 1995 consists of 100,000,000
authorized shares with a $.50 par value. The Company also has authorized
1,000,000 shares of preferred stock with a par value of $25.00, none of which
has been issued.
The computation of earnings per share is based upon the weighted average number
of common shares outstanding and common stock equivalents, when dilutive. During
1995, 1994 and 1993 the weighted average number of common shares outstanding was
29,895,000, 30,376,000 and 30,708,000, respectively.
8. BUSINESS SEGMENT
The Company manufactures motor vehicle parts and accessories for sale on normal,
21
generally unsecured trade terms to original equipment manufacturers (OEMs) and
the auto-motive aftermarket on an integrated one-segment basis. At December 31,
1995 and 1994, the allowance for doubtful accounts receivable was $722,000 and
$541,000, respectively. The following percentages of the Company's consolidated
net sales were made to the Ford Motor Company and General Motors Corporation:
1995, 47.4 percent and 41.2 percent; 1994, 47.0 percent and 41.0 percent; 1993,
46.8 percent and 42.4 percent.
9. INVENTORIES
December 31,
1995 1994
Raw materials $18,485,000 $18,210,000
Work in process 12,815,000 8,965,000
Finished goods 22,523,000 17,571,000
$53,823,000 $44,746,000
Inventories (which include material, labor and factory overhead) are stated at
the lower of cost, using the first-in, first-out (FIFO) method, or market.
10. PROPERTY AND DEPRECIATION
December 31,
1995 1994
Land and buildings $ 47,900,000 $ 43,030,000
Machinery and equipment 243,685,000 214,656,000
Leasehold improvements and other 4,540,000 4,487,000
Construction in progress 13,764,000 30,609,000
309,889,000 292,782,000
Less -
Accumulated depreciation
and amortization 132,351,000 106,929,000
$177,538,000 $185,853,000
Property, plant and equipment are recorded at cost. Major replacements or
improvements are capitalized, with expenditures for minor replacements,
maintenance and repairs and tooling costs charged against current operations.
Maintenance and repairs charged against operations during 1995, 1994 and 1993
were $15,103,000, $12,113,000 and $10,877,000, respectively. Depreciation and
amortization are generally provided on the straight-line method over the
estimated useful lives which range from 3-33 years. Such depreciation and
amortization of fixed assets totaled $25,947,000, $24,571,000 and $20,595,000
during 1995, 1994 and 1993, respectively. Costs and related accumulated
depreciation of property replaced, retired or otherwise disposed of are removed
from the accounts and gains or losses, if any, are included in the results of
operations for the period. Property and equipment no longer used in operations
are stated at the lower of cost or estimated net realizable value and included
in other current assets.
Interest is capitalized on the construction of major facilities. Capitalized
interest is recorded as part of the cost of the asset to which it is related and
is depreciated over the asset's estimated useful life. Interest costs of
$850,000, $1,933,000 and $405,000 were capitalized during 1995, 1994 and 1993,
respectively.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of the Company's financial instruments are summarized as
follows:
22
December 31,
1995 1994
Carrying Carrying
Amount Fair Value Amount Fair Value
Assets:
Cash and equivalents $ 3,366,000 $ 3,366,000 $ 5,884,000 $ 5,884,000
Marketable securities 7,813,000 7,813,000 21,158,000 21,158,000
Long-term investments 6,883,000 6,883,000 5,322,000 5,322,000
Liabilities:
Short-term borrowings 4,800,000 4,800,000 28,267,000 28,267,000
Senior notes 11,666,000 12,048,000 30,571,000 31,033,000
Long-term investments include interests in affordable housing limited
partnerships which provide favorable income tax benefits to the Company over a
fifteen-year period. While the fair value of these long-term investments is not
practicable to obtain, the Company believes that the carrying amount represents
the best estimate of fair value. The carrying amount of short-term borrowings
approximates fair value. The fair value of the Company's Senior notes is
estimated based on the discounted value of future cash flows utilizing an
estimated discount rate currently available to the Company for similarly
structured debt.
12. LIABILITIES
The components of accrued and long-term liabilities are as follows:
December 31,
1995 1994
Accrued
Payroll and related benefits $ 9,665,000 $10,171,000
Insurance reserves 3,969,000 4,473,000
Taxes, other than income tax 2,478,000 2,135,000
Income taxes 2,217,000 1,579,000
Interest and dividends 1,538,000 1,664,000
Tooling and maintenance 718,000 732,000
Other 613,000 833,000
$21,198,000 $21,587,000
Long-term
Executive retirement and deferred
compensation plans $ 8,290,000 $ 6,949,000
Deferred operating lease payments 7,168,000 6,262,000
Other 1,749,000 3,686,000
$17,207,000 $16,897,000
13. CONTINGENCIES
The Company is party to various legal and environmental proceedings incidental
to its business. Certain claims, suits and complaints arising in the ordinary
course of business have been filed or are pending against the Company. Based on
facts now known to the Company, management believes all such matters are
adequately provided for, covered by insurance or, if not so covered or provided
for, are without merit, or involve such amounts that would not materially
adversely affect the consolidated results of operations and cash flows or
financial position of the Company.
The Company has employment agreements with certain executive officers that, in
addition to customary benefit and severance provisions, guarantee lump sum
payments after a change in control of the Company, if certain events occur.
Compensation which might be payable under these agreements has not been accrued
as no such change in control has occurred.
23
14. OTHER INCOME
Other income (expense) includes pre-production costs of $5,830,000 and
$1,100,000 relating to the start-up of the Fayetteville, Arkansas chrome-plating
facility in 1995 and 1994, respectively. In 1994, other income (expense)
includes pre-production costs of $730,000 related to the start-up of the
Chihuahua, Mexico cast aluminum wheel facility.
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands except per share amounts)
December 31, 1995
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
Net Sales $134,360 $142,761 $113,176 $131,700 $521,977
Gross Profit 31,419 34,200 20,890 27,288 113,797
Net Income 15,725 16,699 8,285 12,355 53,064
Earnings Per Share .53 .56 .28 .42 1.78
Dividends Per Share .045 .05 .05 .05 .195
December 31, 1994
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
Net Sales $105,938 $120,706 $107,384 $122,610 $456,638
Gross Profit 24,574 30,328 26,138 30,328 111,368
Net Income 12,515 15,397 12,642 15,761 56,315
Earnings Per Share .41 .51 .42 .52 1.85
Dividends Per Share .03 .045 .045 .045 .165
24
Statement of Management's
Financial Responsibility
To Our Shareholders:
The management of Superior Industries International, Inc. is responsible for the
integrity and objectivity of the financial and operating information contained
in this Annual Report, including the consolidated financial statements. The
consolidated financial statements were prepared in accordance with generally
accepted accounting principles appropriate in the circumstances, and include
amounts that are based on management's best estimates and judgment.
Management of the Company has established a system of internal accounting
controls which provides reasonable assurance that assets are properly
safeguarded and accounted for and that transactions are executed in accordance
with management's authorization and recorded and reported properly.
The consolidated financial statements have been audited by our independent
public accountants, Arthur Andersen LLP whose unqualified report is presented
herein. Their opinion is based on procedures performed in accordance with
generally accepted auditing standards, including tests of the accounting
records, obtaining an understanding of internal accounting controls solely for
purposes of planning and performing their audits, and such other auditing
procedures as they considered necessary in the circumstances to provide them
reasonable assurance that the consolidated financial statements are neither
materially misleading nor contain material errors.
The Audit Committee of the Board of Directors, consisting solely of outside
Directors, meets periodically with the independent public accountants and
management to review and discuss the scope and major findings of the independent
accountants' examination. The independent accountants have free access to the
Audit Committee at any time.
Louis L. Borick
President and Chairman of the Board
R. Jeffrey Ornstein
Vice President & CFO
25
Report of Independent Public Accountants
To Superior Industries International, Inc.:
We have audited the accompanying consolidated balance sheets of Superior
Industries International, Inc. (a California corporation) and subsidiaries as of
December 31, 1995 and 1994, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Superior Industries
International, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Los Angeles, California
February 13, 1996