-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R8CpWhkqWTQO+OnwBnH6qGQVm97694kV/ITuIthFyOTlCXB0e4rkMQq+r3ONVl14 fQ/ERyX+ZyBvu8tkjr7+Ow== 0000950148-97-000714.txt : 19970329 0000950148-97-000714.hdr.sgml : 19970329 ACCESSION NUMBER: 0000950148-97-000714 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUPERIOR INDUSTRIES INTERNATIONAL INC CENTRAL INDEX KEY: 0000095552 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 952594729 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-06615 FILM NUMBER: 97567593 BUSINESS ADDRESS: STREET 1: 7800 WOODLEY AVE CITY: VAN NUYS STATE: CA ZIP: 91406 BUSINESS PHONE: 8187814973 MAIL ADDRESS: STREET 1: 7800 WOODLEY AVENUE CITY: VAN NUYS STATE: CA ZIP: 91406 10-K405 1 FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the Fiscal Year Ended December 31, 1996 OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from ___________ to ___________ COMMISSION FILE NO. 1-6615 SUPERIOR INDUSTRIES INTERNATIONAL, INC. --------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 95-2594729 - ---------- ---------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 7800 WOODLEY AVENUE, VAN NUYS, CALIFORNIA 91406 - ----------------------------------------- ----- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (818) 781-4973 ------------------- Securities registered pursuant to Section 12(b) of the Act: COMMON STOCK, PAR VALUE $0.50 REGISTERED ON THE NEW YORK STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of 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. Yes X No_________ 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 ___ 28,228,014 shares of common stock were outstanding as of March 17, 1997. Aggregate market value of voting stock held by nonaffiliates of registrant was $494,997,528 on March 17, 1997. The following documents are incorporated by reference and made a part of the Form 10-K: 1. Registrant's 1996 Annual Report to Shareholders (Parts I, II and IV) 2. Registrant's Proxy Statement for its Annual Meeting of Stockholders to be held May 16, 1997 (Part III) Listing of Exhibits - Pages 20-22 Page 1 2 PART I STATEMENT REGARDING FORWARD LOOKING STATEMENTS Certain statements included in this filing which are not historical in nature are forward looking statements within the meaning of the Private Securities Legislation Act of 1995. Forward looking statements regarding the Company's future performance and financial results are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in the forward looking statements due to a variety of factors. Factors that may impact such forward looking statements include, among others, changes in the condition of the industry, changes in general economic conditions and the success of the Company's strategic and operating plans. ITEM 1. BUSINESS GENERAL DEVELOPMENT OF BUSINESS Superior Industries International, Inc.'s (the "Company" or the "Registrant") principal business is the design and manufacture of cast aluminum road wheels for original equipment manufacturers (OEMs). It also designs and distributes a variety of products for the automotive aftermarket, including custom road wheels and accessories. The Registrant was initially incorporated in Delaware in 1969 and reincorporated in California in 1994 as the successor to three businesses founded by Louis L. Borick, which had been engaged in the design, manufacture and sale of automotive accessories and related products since 1957. Recent developments in the Company's business are described in the Company's 1996 Annual Report to Shareholders ("Annual Report") which is incorporated herein by reference. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The Company manages its business on an integrated one-segment basis. Information relating thereto has been included in Note 8 of "Notes to Consolidated Financial Statements" in the Annual Report which is incorporated herein by reference. NARRATIVE DESCRIPTION OF BUSINESS Principal Products The Registrant's products are divided into two categories: 1. OEM - Cast Aluminum Road Wheels (93.7 percent of net sales) 2. Aftermarket - Custom Road Wheels and Automotive Accessories (6.3 percent of net sales) Page 2 3 The Company's net sales for these product lines for 1996, 1995 and 1994 are included in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of the Annual Report which is incorporated herein by reference. OEM - Cast Aluminum Road Wheels The Company's entry into the OEM road wheel business in 1973 resulted from its successful development of manufacturing technology, quality control and quality assurance techniques which enabled it to satisfy the quality and volume requirements of the OEM market. The Company's OEM cast aluminum road wheels are sold to The Ford Motor Company ("Ford"), General Motors Corporation ("General Motors"), Chrysler de Mexico, several Japanese manufacturers, including Toyota Motor Corporation ("Toyota"), Mazda Motor Corporation ("Mazda"), Nissan Motor Corporation Ltd. ("Nissan"), Fuji Heavy Industries, Ltd. ("Subaru"), and Isuzu Motors Limited ("Isuzu"), and two European automotive manufacturers, Bayerische Motoren Werke ("BMW"), Jaguar Cars Ltd. ("Jaguar") and Ford of Australia for factory installation as optional or standard equipment on selected vehicle models. As discussed below, there are several advantages for automobile and light truck manufacturers, dealers and consumers provided by cast aluminum wheels. These advantages help promote the success of the Company. Consolidated net sales in 1996, 1995, and 1994 were to principally two major automotive manufacturers, Ford and General Motors. During the past twenty-three years the Company has provided cast aluminum road wheels to Ford, General Motors, Chrysler and, for the last decade, Japanese and European auto manufacturers for an increasing number of vehicle models, from eight models in 1980 to 163 currently. It has been the Company's experience that once the manufacturer has ordered the Company's cast aluminum wheels for use on a particular year's model, the Company's wheel will be included in that model's production in later years as well. Demand for OEM cast aluminum wheels such as those manufactured by the Company has been increasing. Ward's Automotive, an industry publication, reports that the installation rate of such wheels for domestic cars rose from approximately 4 percent in 1980 to 31 percent for the 1990 model year then to 41 percent for the 1996 model year. Aluminum road wheel installation rates for domestic light trucks and utility vehicles jumped from approximately 24 percent for the 1990 model year to almost 53 percent for the 1996 model year. This growth in aluminum wheel installation rates has taken place while the automotive market has been cyclical. The Company believes that the increased use of cast aluminum wheels on domestic vehicles is due to several factors. The aesthetic appeal of cast aluminum wheels has fueled customer demand. Aluminum wheels typically weigh less than conventional steel wheels and this weight savings contributes to increasing the vehicle's fuel efficiency. Because the federal government requires each domestic manufacturer's total annual production to meet certain minimum fuel efficiency levels referred to as "CAFE" (Corporate Average Fuel Economy), the Company's customers have sought to meet these levels in part by reducing the weight of their vehicles with the installation of cast aluminum wheels. Manufacturers and dealers also benefit from the installation of aluminum wheels on their models because of higher profit margins. Aluminum wheels contribute to the road handling ability and ride of a vehicle because of the weight savings to critical suspension areas and because of the greater precision achieved in manufacturing aluminum wheels over conventional steel wheels. Page 3 4 With approximately 88 percent of the Company's 1996 sales made to Ford and General Motors, the Company is dependent on these two significant customers. The Company does not believe this represents a material risk due to the following factors. First, in 1993 the Company was awarded a new five-year contract with Ford. The contract, which expires in 1998, replaces previous long-term contracts and covers passenger cars, light trucks and utility vehicles. This relationship should result in the Company continuing to be Ford's primary aluminum wheel supplier. Second, in 1995, the Company signed a "lifetime" contract with General Motors which extends from January 1, 1996 through December 31, 2000 and pertains to the "lifetime" of all current models. In addition to securing all current models, the contract also gives the Company last right of refusal for all replacement wheels. Accordingly, the Company expects to be awarded a significant portion of General Motors overall aluminum requirements. The Company has proven its ability to be a consistently low-cost producer of quality aluminum wheels with the capability of quickly expanding production capacity to meet increasing customer sales demands. This has been evidenced not only through the Company's rapid plant expansion program, but also through the Company's demonstrated ability to meet frequent customer requests to absorb additional capacity requirements. The Company strives to continually enhance its relationships with its customers through continuous improvement programs. These factors have resulted in the Company's market share expanding to approximately 40 percent of the domestic aluminum road wheel market. Moreover, the Company currently ships wheels for approximately 127 different vehicle models to Ford and General Motors indicating the broad usage of the Company's wheels throughout both OEM customers' product lines. Finally, both Ford and General Motors continue to rank the Company as one of their highest rated suppliers of cast aluminum road wheels. The Company's long-term strategy involves broadening both its domestic and international OEM customer base and expanding its product lines into complementary areas which will utilize the Company's manufacturing expertise. The Company has embarked on a strategy to develop three new international markets: Japan, Europe and Latin America as well as related foreign OEMs with manufacturing facilities in the United States. The Company's first step towards achieving this goal was to explore and develop relationships with Japanese OEMs. During 1989 the Company announced it had, in conjunction with Topy Industries, Limited ("Topy"), Japan's largest wheel manufacturer, obtained its first order with a Japanese OEM from Mazda. In 1990, the Company further penetrated this market by receiving a contract from Toyota. Also in 1990, the Company increased its marketing efforts into this area by forming a sales and marketing joint-venture with Topy. The joint-venture, named Topy-Superior Limited ("TSL"), markets and sells wheels made by the Company to Japanese OEM customers both in Japan and the United States. Since inception, the Company, through TSL, has received several new contracts to manufacture wheels for domestic Japanese OEMs as well as for three of their U.S. operations. In total, TSL has contracts with five Japanese OEM customers. This venture is one key step forward in the Company's international marketing efforts and the Company expects continued sales growth from this venture. A second step in the Company's international marketing efforts was achieved in 1994 as the Company successfully entered the European marketplace by obtaining two new customers. The Company was awarded a contract by Jaguar to supply wheels. The wheels are manufactured in the United States and exported to the United Kingdom. In addition, the Company received a contract with European based Page 4 5 BMW, to supply wheels for the new BMW Z3 roadster convertible. Shipments began in 1995 to BMW's new plant in Spartanburg, South Carolina. Moreover, in 1995, validating BMW's high regard for its quality and production capabilities, the Company was awarded five additional wheel programs by BMW for shipment to the Spartanburg plant as well as export to Germany. The Company began deliveries to Ford of Australia in 1996 of a chrome plated wheel for their LTD "Hawk" luxury car. Further in pursuit of developing its ties to the European market, the Company in 1995 entered into a 50-50 joint venture with German based Otto Fuchs Metallwerke ("Otto Fuchs") to establish a European manufacturing presence. The joint venture, known as Suoftec Light Metal Products, KFT ("Suoftec") will produce both light weight forged and cast aluminum wheels for sale to European OEMs. Construction of the building is complete and initial shipments are slated to begin in 1997. The facility, located in Tatabanya, Hungary, a country with competitive labor and production costs and available labor force, establishes the Company's commitment toward entering the European market. The facility is located in close proximity to large European OEM assembly plants and will bring new wheel making technology to the Company for use in European and U.S. markets. Demonstrating OEMs' interest in this new light weight forging technology, Suoftec received a long term contract from Audi calling for 700,000 wheels per year. The contract represents over $30 million per year in revenues and represents almost half of first phase capacity of 1.5 million wheels per year. The Company also received a new multi-year contract to supply cast aluminum wheels for the new Audi TT convertible. Negotiations continue for business with additional OEMs. Development of the Company's initial Latin American program commenced during 1994 with the first shipments from the Company's Chihuahua, Mexico plant. Relative to this market, the Company received orders from Ford and GM and renewed its relationship with Chrysler by receiving orders to produce two wheel models from Chrysler de Mexico for the 1995 and 1996 model years. Wheels manufactured at the Chihuahua, Mexico facility are both for installation on Mexican-manufactured cars built mostly for export back to the U.S. and as direct exports to the U.S. and Europe. Prior to the devaluation of the Mexican Peso (see "Management's Discussion and Analysis of Financial Conditions and Results of Operations" section of the Annual Report which is incorporated herein by reference) the Mexican market was growing rapidly and major automotive manufacturers were increasing production and adding capacity. Subsequent to the devaluation, this expansion activity in the domestic Mexican automotive industry has slowed. However, management views the long-term prospects of this manufacturing operation positively and, moreover, has held discussions with OEMs regarding new and expanded export activities from this facility. This plant is currently operating at very competitive costs. During 1996 the Company acquired land next to the plant for future expansion to handle the expected increase in demand. Contracts for OEMs other than Ford and GM doubled from 3% to 6% in 1996. They are significant for the growth of the Company by geographically diversifying and expanding its global presence. The Company will continue to focus its efforts on new global markets as they become the fastest growing segments of its business. In 1994, in response to the steadily growing popularity of chrome-plated cast aluminum wheels and to provide capacity for several new customer orders, the Company completed construction of a new fully automated chrome-plating wheel facility. The Company is the only OEM aluminum wheel Page 5 6 manufacturer to develop this in-house capability and the plant is the largest of its kind in the world. This facility has encountered severe start up difficulties but has implemented corrective action that has led to improved results during the fourth quarter of 1996. One of the most severe problems was in establishing waste treatment systems that were reliable and able to meet production levels. Significant resources were devoted and key managers placed to achieve higher production levels. The plant represents the Company's commitment toward diversifying into new product lines complementary to its core business (see also "Manufacturing"). New Products The Company reported on March 11, 1997 that General Motors had awarded Superior a contract to supply cast aluminum transmission brackets for one new Oldsmobile Intrigue program. This contract marks the Company's initial move into other aluminum components for the automotive market. It is part of the Company's planned diversification program, aimed at maximizing its resources and applying its manufacturing expertise and more than four decades of industry experience to meet increasing demand for aluminum components, which are increasingly replacing traditional heavier metals. The new product, which replaces a heavier stamped steel bracket, will reduce vibration and provide for quieter performance. Production is planned for Superior's plant in Van Nuys, California. The GM contract represents the first step in the Company's diversification program. Management looks forward to continuing the strategic expansion into other aluminum products for the automotive industry as a means to create even stronger partnering relationships with customers and to foster the profitable growth of the Company. Aftermarket The automotive aftermarket consists of products sold to vehicle owners as replacements for, or additions to, OEM equipment to enhance the comfort, safety, style, design and performance of vehicles such as passenger cars, pick-up trucks, vans, recreational and off-road vehicles, light motor homes and boat trailers. The Company designs, manufactures and distributes 68 different product lines including 3,800 part numbers of custom steel, aluminum and chrome-plated steel and aluminum road wheels and accessories, including steering wheel covers, lighting products, suspension and other accessories for this market. The Company's Sport Grip(R) steering wheel cover continues to be a significant product line and has achieved national recognition. The decline of 8.5% in 1996 in aftermarket accessories shows a trend begun in 1995 and continued in 1996 due to soft economic conditions and reduced customer order levels. In 1996 the Company has also experienced a decrease of 13.9% in the roadwheel product lines, specifically, stylized aluminum and chrome-plated aluminum wheels sold under the "Streetwear" trade name. Aftermarket net sales, since 1992, excluding the impact of the August, 1993 divestiture of the Canadian aftermarket mirror and light business, which marketed products under the trade name "Do-Ray", have experienced a compounded 7.5 percent growth rate in the roadwheel product line while the accessory business has declined approximately 1 percent. The approach to this business entails the identification of strategic geographic markets throughout the United States and the development of key alliances with distributors who maintain extensive lines of distribution within those markets. Simultaneously, new styles of aluminum and Page 6 7 chrome-plated aluminum wheels with mass market appeal are developed and introduced to the product line. Consumer response to new wheel styles has encouraged development of new wheel programs. Factors accounting for the decline in the aftermarket business include high customer inventory levels accentuating a soft economic environment which reduced orders. The aftermarket general accessories line continues to be negatively impacted by ongoing retail market contraction and intensive market competition. The trend of manufacturers to incorporate more accessories as original equipment when vehicles are sold has also impacted this business. The Company is a major aftermarket road wheel and accessory supplier to companies with multiple retail outlets such as Autozone, Pep Boys, Canadian Tire, Wal-Mart, Northern Automotive (Schuck's, Checker, Kragen), Western Auto, Paccar Automotive Inc. (formerly General Automotive/Grand Auto), NAPA and Discount Auto Parts. The Company also supplies major tire distributors such as Les Schwab, Interstate Tire Corp.(ITCO), Belle Tire, and other wheel and performance distributors. Manufacturing The Company believes that its ability to efficiently process raw materials into finished goods has enhanced its competitive position as a manufacturer of OEM and aftermarket products. The Company employs low-pressure casting technology in its existing North American factories, a process which the Company believes is the most efficient process for high volume, high quality aluminum wheels. The manufacture of cast aluminum wheels, in which aluminum ingot is melted, cast, de-sprued, heat treated, painted, machined, clearcoated or chrome plated and packaged, is performed entirely at the Company's facilities. The Company operates six OEM aluminum wheel manufacturing facilities. The facilities, located in Fayetteville and Rogers, Arkansas, Van Nuys, California, Pittsburg, Kansas, Johnson City, Tennessee and Chihuahua, Chihuahua, Mexico are recognized by the Company's customers as "world class" manufacturing plants utilizing state-of-the-art processes and equipment. Five of the facilities have been constructed and brought on-line over the past nine years beginning with Fayetteville in 1986 (with subsequent expansion in 1993 and 1994), Rogers in 1988, Pittsburg in 1991, Johnson City in 1992 and Chihuahua in 1994. Chihuahua began shipping wheels in the beginning of the third quarter of 1994. Implementing the Company's long-term strategy of penetrating the Latin American market, the Company has purchased additional land next to its OEM wheel facility in Chihuahua, Mexico. This will allow for future expansion of the existing plant. Entry into the European market, through the joint-venture with Otto Fuchs, with its newly completed aluminum wheel facility begins in 1997 in Tatabanya, Hungary. The plant will be initially capable of producing 1.5 million wheels per year. The manufacturing process will take advantage of a new forging technology developed by Otto Fuchs to forge lighter weight aluminum wheels, supplemented with Superior's own light weight low pressure process. The cost of the facility has been funded through capital contributions by each partner and long-term project financing. Page 7 8 In response to the growing popularity of chrome-plated cast aluminum wheels, the Company completed construction in 1994 of a new state-of-the-art chrome-plating facility primarily to service the OEM market. The facility is located adjacent to the Company's Fayetteville, Arkansas wheel plant and shipments commenced in 1995. The plant experienced severe start up difficulties related to waste treatment and production processes. These problems required capital and process improvements which were managed by key personnel. Further discussion related to the chrome plant can be found in the "Management's Discussion and Analysis of Financial Condition" section of the Annual Report incorporated herein by reference. The Company maintains a high level of quality assurance in the manufacture of its products and has built and maintained a reputation as a supplier of high quality aluminum road wheels. This reputation is maintained by day-to-day product, process and systems audits. In addition, Company-wide continuous improvement programs are employed to ensure competitive leadership in all facets of the Company's business. The Company's facilities and processes are subject to continual technical and quality review by the OEM engineering, quality and purchasing departments. To maintain its position as a "world class" OEM supplier and ensure all products and underlying services meet and exceed customer expectations the Company utilizes a Total Quality Management ("TQM") system. Optimal process performance at the lowest cost is significantly enhanced by the use of statistical process control (SPC) and advanced statistical analysis, such as design of experiments (DOE). Advanced Product Quality Planning ("APQP") and Quality Operating Systems ("QOS") are elements in place that provide management with a summary of key measurables to monitor operations and to identify and promote continuous improvement throughout the organization. Beginning in 1989, the Company earned General Motors' highest quality "Mark of Excellence" award for excellence in all five categories (Quality, Cost, Delivery, Technology and Management.) Since then all plants producing GM parts have received this coveted award. Ford awarded the Company's domestic OEM facilities and Chihuahua producing Ford wheels with the prestigious "Q1" quality rating. In 1994, Ford awarded the Company the highly coveted "Full Service Supplier" award in recognition of its advanced design, engineering and program management capabilities. Superior was the first OEM wheel supplier in the world to achieve this status. In 1994 the Company was named by General Motors as one of the elite 171 suppliers selected from a total of 30,000 companies recognized as Worldwide Suppliers of the Year 1993. The award reflects the Company's ability to exceed specific performance standards established by GM relative to quality, service and price. The Company's quality, management and employee efforts have enabled the Company to achieve QS-9000 Registration of our Rogers and Pittsburg OEM plants and engineering center in Fayetteville. Registration of all other plants is expected by the end of 1997. The ability to achieve this hallmark of excellence, a quality system conformance standard jointly developed by Chrysler, Ford, and General Motors, further emphasizes the Company's commitment to the highest quality at a competitive price. Page 8 9 Marketing Commencing January 1, 1996 the Company established a technical sales center in Detroit and terminated its relationship with a third party representative. The office will provide technical engineering and sales staff in closer proximity to the Company's major customers and will enhance the Company's already strong sales and technical resources to meet the ever demanding requirements of its OEM customers. In addition, the Company's sales and marketing joint-venture with Topy maintains an office in Japan which adds local support to the Company's Japanese customers. The Company believes that it has maintained its long-standing relationships with OEMs on the basis of quality production with timely deliveries in accordance with OEM requirements, timely response to customer needs and competitive pricing. A large proportion of the Company's aftermarket sales are made through eighteen independent manufacturers' representative organizations throughout North America. These representative organizations solicit orders from catalog houses, department and auto accessory stores and chain stores. These manufacturers' representatives are also supported by the Company's internal marketing and sales organization. In 1996, the Company had approximately 300 aftermarket accounts operating through thousands of retail outlets. The Company's ten largest customers in 1996 accounted for approximately 76 percent of aftermarket sales. Net Sales Backlog The Company receives OEM tooling purchase orders to produce multi-year requirements for cast aluminum road wheels. These purchase orders are for vehicle model programs that can last one to five years. The Company manufactures and ships based on customer firm releases, normally provided on a weekly basis, which can vary due to cyclical automobile production. Customer orders for aftermarket products are normally shipped within ten days of receipt. As of December 31, 1996 and 1995, the Company had no significant backlog of such orders. Seasonal Variations The automotive industry is cyclical and varies based on the timing of consumer purchases of vehicles and general economic conditions. Production schedules can vary significantly from quarter to quarter to meet customer scheduling demands. During 1996, seasonal factors included work stoppages at our customer assembly plants in the first and fourth quarters and severe winter weather during the first quarter. During the past few years, there has been no significant consistent seasonal variation. Page 9 10 Suppliers The Company purchases substantial quantities of aluminum ingot for the manufacture of its cast aluminum road wheels. These purchases accounted for approximately 80 percent of the Company's total material requirements during 1996. The majority of the Company's requirements are met through purchase orders with several major domestic aluminum 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, which is typically one year. The Company was able to successfully secure aluminum commitments from its primary suppliers at the beginning of 1996 to meet its production requirements. For 1997, the Company has procured contracts to meet the majority of its estimated aluminum ingot requirements. The aluminum market over the past several years has been extremely volatile. Selling prices are adjusted for these raw material increases. See "Management Discussion and Analysis" in the Annual Report for further information. The Company obtains its requirements for other materials through numerous suppliers with whom it has established trade relations. In instances where outside suppliers produce components for the Company's products, the Company normally owns the tools and dies located in the supplier's facilities, or has the right to purchase such items. Patents And Licensing Agreements The Company currently holds patents for 20 of its inventions and has six other patents pending. While the Company has a policy of applying for patents if and when it develops new products or processes, it believes that its success is dependent upon its manufacturing and engineering skills and the quality and market acceptance of its products, rather than upon its ability to obtain and defend patents. The Company is currently licensed to use five patents owned by other persons. Most of these licenses are for the duration of the patent and are exclusive for the United States. Research And Development The Company's policy is to continuously review, improve and develop engineering capabilities so that advance compliance with customer requirements are met in the most efficient and cost effective manner available. The Company strives 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. Two fully staffed engineering centers located in Van Nuys, California and Fayetteville, Arkansas support the Company's R & D manufacturing needs. Further in pursuit of this objective and to enhance customer relationships, the Company opened, in 1996, a technical center in Detroit which maintains a compliment of engineering staff centrally located near the Company's largest customers. Page 10 11 The Company utilizes computer-aided design, computer-aided engineering and computer-aided manufacturing (CAD/CAE/CAM) in the design of a wheel, finite element analysis to identify potential design problems prior to manufacturing and three dimensional prototyping for styling evaluation. The Company also utilizes fluid flow and thermal analysis capabilities to aid in molds and casting cycles. By continuously improving its engineering capabilities, the Company is able to reduce the time required to develop a wheel and identify cost saving technologies which can be shared with customers. As part of the Company's on-going continuous improvement programs, manufacturing technologies and processes are continually challenged, refined, and enhanced to ensure the Company maintains its position as the low cost and highest quality manufacturer of cast aluminum wheels. Development of the Company's patented helium leak testing device for aluminum wheels has been a breakthrough in the Company's ongoing effort to provide the most efficient manufacturing processes and methods. These machines, which detect microscopic leaks at a rapid rate, are currently utilized in several of the Company's facilities. Through its wholly-owned subsidiary, Superior Engineered Technologies, Inc., the Company has begun to market this technology and has made limited shipments of helium leak test machines to other companies since 1993. Further evidencing the Company's commitment towards diversifying its product lines and maintaining a leadership position in new technologies, shortly after year end 1995, the Company consummated a joint venture agreement with Aluminum Company of America ("Alcoa") to manufacture and sell a new line of cast aluminum wheels for commercial trucks and buses in the class 3 through 6 range. Class 3 through 6 vehicles include small or medium size wholesale and retail delivery trucks, airport-type courtesy vans, motor homes, buses and heavy duty over-the-road tractor trailer rigs. The Company developed a cast aluminum wheel for this market and is beginning to manufacture sample wheels at its Van Nuys facility marketed through Alcoa's existing Wheel Division sales organization. The joint venture could serve as a basis for the Company to expand its technology to develop other cast aluminum parts. Through joint-ventures and development projects, technological advances, new processes and expanded engineering capabilities, the Company is positioning itself to become a full spectrum manufacturer of aluminum wheels as well as other aluminum products. These efforts have resulted in receiving our first order to produce cast aluminum transmission brackets for the Oldsmobile Intrigue. The Company is currently engaged in many engineering programs for the development of OEM wheels for future model years, including several wheel models for Japanese, Latin American and European OEM manufacturers, including 9 engineering programs for the development of chrome-plated aluminum wheels. Reference is made to Note 1 of "Notes to Consolidated Financial Statements" in the Annual Report which is incorporated herein by reference for a summary of research and development costs over the past three years. Page 11 12 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. The Company believes that it is in compliance with all federal standards currently applicable to OEM suppliers and to automotive aftermarket manufacturers and products. Environmental Controls The Company's manufacturing facilities 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. Although from time to time the Company has paid fines arising out of asserted violations of these standards, no such fines have been material in nature. The Company believes it is substantially in compliance with all standards presently applicable. Compliance with environmental regulations has necessitated changes in processes and equipment upgrades and may in certain instances require the acquisition of "trading credits". The 1996 annual cost of environmental compliance is approximately $2,500,000. The Company will continue on an on-going basis to modify its processes in order to maintain compliance with federal, state and local laws. See Item 3. "Legal Proceedings" for information concerning the Company's involvement with certain United States Environmental Protection Agency activities. Significant resources were expended during the start up period to modify the waste treatment system in the chrome plant so that it could increase production levels. Liability Insurance The Company maintains liability insurance including product liability, for limits it believes are appropriate to match the risks and exposures inherent to the Company's business. Over the past five years, the Company has never settled claims in excess of the coverage then in effect. Competition The business sectors in each of the Company's product areas are highly competitive. The Company is one of the leading suppliers of cast aluminum road wheels for OEM installations in the world and the Company estimates it supplies between 35 and 40 percent of the North American aluminum wheels for the car and light truck market. Based on Ward's Automotive, an industry publication, aluminum wheel installation rates on automobiles and light trucks rose to a record 46.1 percent for the 1996 model year. This significant growth began in 1980 when demand for OEM cast aluminum road wheels was approximately four percent of vehicle installations. The Company anticipated this eventuality and developed new state-of-the-art "world class" manufacturing facilities located closer to OEM final assembly plants. The Company believes that as a result it has become very competitive both in terms of cost and quality. The Company's primary competitor in the North American market is Hayes Wheels International, Inc. Page 12 13 In the aftermarket business intense market competition has been heightened by ongoing market contraction of major retailers and the presence of more products manufactured outside the United States. In order to retain valued customers, the Company has had to provide greater sales allowances to its customers and has been generally unable to pass along timely and matching selling price increases. These factors in the past have contributed to diminished margins in the aftermarket business. Employees As of December 31, 1996, the Company had approximately 4,500 full-time employees. At the present time approximately 80 employees at the Company's Tijuana, Mexico maquiladora, which polishes wheels for aftermarket applications, are covered by collective bargaining agreements. For the past several years, union organizations have attempted to organize workers at certain of the Company's plants. In every instance, the workers voted overwhelmingly against representation by the union. ITEM 2. PROPERTIES The Company maintains and operates 12 facilities located in Arkansas, California, Michigan, Hungary, Kansas, Tennessee, Puerto Rico, and Baja and Chihuahua, Mexico. The facilities encompass manufacturing, warehouse and office space in 15 buildings with approximately 2.2 million square feet. Six of the buildings are owned by the Company, with the remainder operated under lease agreements expiring at various dates through 2063. The Company's corporate offices, manufacturing and warehousing facilities located in Van Nuys, California are subleased from Louis L. Borick, its President and Chairman of the Board, and Juanita A. Borick. The Company also leases additional plant and warehousing facilities in Van Nuys, California from Keswick Properties, owned jointly by Steven J. Borick, a director of the Company, and two other of Mr. Louis L. Borick's children and the Borick Building Corporation, a company wholly-owned by Louis L. Borick and Juanita A. Borick. The Company believes that the terms of the aforementioned leases are no less favorable than those which it could obtain from an unaffiliated party on similar property with comparable facilities in the vicinity. In general, the facilities are in good operating condition, have been designed and constructed for their specific use, and are adequate to meet the productive capacity requirements of each plant. Additionally, reference is made to Notes 3 and 10 of the "Consolidated Financial Statements" and "Notes to Consolidated Financial Statements" section of the Annual Report which are incorporated herein by reference. ITEM 3. LEGAL PROCEEDINGS In 1988, the Company was notified by the United States Environmental Protection Agency (EPA), that the Company is considered a potentially responsible party (PRP) for costs to clean up the Operating Industries, Inc. (OII) site because of deposits, which were permitted and approved by appropriate regulatory agencies when made, at the site located in Monterey Park, California. The total costs to clean up the site cannot be determined but the EPA has informed all PRP's that such costs may exceed $500 million. Page 13 14 The PRP's are jointly and severally liable although it is possible that the EPA will accept contribution according to the severity of the deposits made. The Company's insurance carriers have been placed on notice and their insurance policies are currently under review to determine whether the Company's liability is covered by insurance. To date, by private agreement with the other settling defendants, the Company has paid $461,816, net of settlements from other parties, to settle its liability under the first three phases of clean-up. Based on facts now known to the Company, including the low level of participation claimed against the Company by the EPA and based on the number and financial strength of Companies with greater participation in the cleanup activities, management believes sufficient reserves have been established to cover the Company's ultimate financial exposure. On December 5, 1995, a class action complaint was filed in the United States District Court - Central District of California naming as defendants the Company and current and former officers and directors and an affiliated party. The complaint was brought by a shareholder purporting to represent all purchasers of the Company's common stock during the period from March 31, 1995 through September 7, 1995. The Company filed a motion to dismiss this action on the basis that it failed to state a claim and failed to plead fraud with the requisite particularity. The United States District Court initially dismissed the complaint on June 10, 1996 without prejudice. On July 1, 1996, the same plaintiff filed an amended complaint against the Company and several of the individuals named as defendants in the original complaint. Subsequently, the Company and the other defendants moved to dismiss the plaintiff's amended complaint. On March 9, 1997, the District Court granted the defendants' motion and dismissed the amended complaint with prejudice. (This space intentionally left blank) Page 14 15 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted during the fourth quarter of 1996 to a vote of security holders through the solicitation of proxies or otherwise. EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below is information regarding executive officers of the Company who are not directors. Information regarding executive officers who are directors is contained in the Company's Proxy Statement issued in connection with its Annual Meeting of Stockholders scheduled to be held on May 17, 1996 which is incorporated herein by reference (1996 Proxy Statement). All executive officers are appointed annually by the Board of Directors and serve one-year terms. Also see "Employment Agreements" in the Company's 1996 Proxy Statement.
Name Age Position ---- --- -------- Joseph T. D'Amico 67 Vice President, Materiel Michael D. Dryden 59 Vice President, International Business Development Ronald F. Escue 51 Vice President, General Manager - Aftermarket Wheel Division James M. Ferguson 48 Vice President, OEM Marketing Group Morris Herstein 69 Vice President, Services John Knott 56 Vice President, Manufacturing Daniel L. Levine 38 Corporate Secretary and Assistant Treasurer Henry C. Maldini 62 Vice President, Engineering Frank Monteleone 58 Vice President, Purchasing Michael J. O'Rourke 36 Vice President, Program Administration Delbert J. Schmitz 64 Vice President, Aftermarket Marketing
Joseph T. D'Amico Mr. D'Amico joined Superior in 1981 as Director of Materiel. In 1984, he was promoted to Vice President, Materiel. He is responsible for domestic and international purchasing, raw materials and finished goods inventories, warehousing, receiving, distribution, traffic and material control. Michael D. Dryden Mr. Dryden joined Superior in March 1990 as Vice President, International Business Development to assist Mr. Ferguson in the sales and marketing of products to international original equipment manufacturers. For the prior five years, he served as the Director of Business Development, Asia-Pacific for Kelsey Hayes Company, Aluminum Wheel Group. Page 15 16 Ronald F. Escue Mr. Escue became Vice President, Aftermarket Sales in January 1987 and he was promoted to Vice President, General Manager - Aftermarket Wheel division in January 1995. He is responsible for the Company's aftermarket wheel division including, nationwide sales, marketing and manufacturing activities. He joined Superior in September 1975. James M. Ferguson Mr. Ferguson joined Superior in 1977 as an OEM Sales Engineer and became an officer in 1984 and was promoted in 1990 to Vice President, OEM Marketing Group. He is responsible for assisting Mr. Raymond C. Brown, Senior Vice President, in directing the sales and marketing of products for national and international original equipment manufacturers. Morris Herstein Mr. Herstein, Vice President, Services, has held this position since 1957, and is responsible for Superior's industrial relations and safety programs. His brother-in-law, Louis L. Borick, is Superior's President and Chairman of the Board of Directors. John L. Knott Mr. Knott joined Superior in 1995 as Vice President, Manufacturing. Before coming to Superior, Mr. Knott was Vice President and General Manager of the Norris Defense Unit of NI Industries. Daniel L. Levine Mr. Levine became Corporate Secretary in March 1996. He is also responsible for overseeing the Company's taxes and assisting in the administration of corporate treasury activities, including risk management and credit. He joined Superior in 1990. Henry C. Maldini Mr. Maldini was appointed Vice President, Engineering in June 1986. Previously he was Assistant Vice President, Engineering for the Company. He joined the Company in 1975. Frank Monteleone Mr. Monteleone was appointed Corporate Vice President, Purchasing in July 1996. Prior to his appointment, Mr. Monteleone was Corporate Purchasing Director beginning in February 1986. He joined the Company in 1982. Page 16 17 Michael J. O'Rourke Mr. O'Rourke was appointed Vice President, Program Administration in July 1995. He is responsible to assist Mr. Ferguson in the administration of OEM sales and marketing programs of the Company including executive oversight of the Company's Detroit technical sales center. Mr. O'Rourke joined Superior in 1987. Prior to his promotion he held various managerial positions in the marketing department. Delbert J. Schmitz Mr. Schmitz was appointed Vice President, Aftermarket Marketing in January 1987 and is responsible for the marketing and sales of the Company's entire line of aftermarket accessories. Mr. Schmitz was employed as Vice President, Sales from 1972 until January 1987. (This space intentionally left blank) Page 17 18 PART II ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED STOCKHOLDER MATTERS Reference is made to the "Quarterly Common Stock Price Information," "Financial Highlights", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 15 to "Notes to Consolidated Financial Statements" sections of the Annual Report which are incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA Reference is made to the "Financial Highlights" section of the Annual Report which is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of the Annual Report which is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to the "Consolidated Financial Statements" and "Notes to Consolidated Financial Statements" sections of the Annual Report which is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None (This space intentionally left blank) Page 18 19 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Reference is made to Item 4. "Executive Officers of the Registrant" and the Company's 1996 Proxy Statement which is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Reference is made to the Company's 1996 Proxy Statement which is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Reference is made to the Company's 1996 Proxy Statement which is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Reference is made to the Company's 1996 Proxy Statement which is incorporated herein by reference. (This space intentionally left blank) Page 19 20 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K The following documents are filed as a part of this report: (a)1. Financial Statements The following financial statements of the Registrant, together with the Report of Independent Public Accountants, are included in the Annual Report, which is incorporated herein by reference, and filed herewith as part of this report: (1) Report of Independent Public Accountants (2) Consolidated Statements of Income for each of the three years in the period ended December 31, 1996 (3) Consolidated Balance Sheets as of December 31, 1996 and 1995 (4) Consolidated Statements of Shareholders' Equity for each of the three years in the period ended December 31, 1996 (5) Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1996 (6) Notes to Consolidated Financial Statements 2. Supplemental Financial Statement Schedules The following report and schedule appear on pages 24 and 26 of this report: (1) Report of Independent Public Accountants on Supplemental Schedule (2) Schedule II, Valuation and Qualifying Accounts Schedules other than those listed above have been omitted because the required information is shown in the consolidated financial statements or in the notes thereto, or the amounts involved are not significant or the required matter is not applicable. (This space intentionally left blank) Page 20 21 3. Exhibits 3.1 Articles of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.) 3.2 By-Laws of the Registrant (Incorporated by reference to Exhibit 3.2 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.) 9.1 Voting Trust Agreement (Incorporated by reference to Exhibit 9.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1985.) 9.2 First Amendment to the Voting Trust Agreement (Incorporated by reference to Exhibit 9.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1989.) 9.3 Second Amendment to the Voting Trust Agreement (Incorporated by reference to Exhibit 9.1 to Registrant's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1992.) 9.4 Third Amendment to the Voting Trust Agreement. (Incorporate by reference to Exhibit 9.4 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995.) 10.2 Lease dated March 2, 1976 between the Registrant and Louis L. Borick filed 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.) 10.9 Incentive Stock Option Plan and Third Amendment of Non-Qualified Stock Option Plan of the Registrant (Incorporated by reference to the Registrant's 1984 Proxy Statement.) 10.11 Lease Agreement dated December 18, 1970 and amendments dated November 30, 1974 and April 20, 1981 between Borick Building Corporation and Registrant (Incorporated by reference to Exhibit 10.11 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1983.) 10.15 Employment Agreement dated January 1, 1992 between Louis L. Borick and the Registrant (Incorporated by reference to Exhibit 10.15 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991.) 10.16 Employment Agreement dated January 1, 1987 between Raymond C. Brown and the Registrant (Incorporated by reference to Exhibit 10.16 to Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1986.) 10.17 Employment Agreement dated January 1, 1987 between R. Jeffrey Ornstein and the Registrant (Incorporated by reference to Exhibit 10.17 to Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1986.) Page 21 22 10.19 Lease and Addenda thereto dated December 19, 1987 between Steven J. Borick, Linda S. Borick and Robert A. Borick as tenants in common, d.b.a. Keswick Properties, and the Registrant (Incorporated by reference to Exhibit 10.19 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987.) 10.20 Supplemental Executive 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.) 10.24 1988 Stock Option Plan of the Registrant (Incorporated by Reference to Exhibit 10.24 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1988.) 10.26 $25 million Note Agreement dated as of September 15, 1989 between Aetna Life Insurance Company, Teachers Insurance Annuity Association of America and the Registrant (Incorporated by Reference to Exhibit 10.25 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1989.) 10.27 Stock Option Agreement dated February 24, 1989 between the Registrant and Louis L. Borick (Incorporated by reference to Exhibit 28.2 to Registrant's Form S-8 dated November, 1989.) 10.30 Amendment dated January 1, 1991 to Employment agreements between the Registrant and each of Raymond C. Brown and R. Jeffrey Ornstein (Incorporated by Reference to Exhibit 10.29 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1990.) 10.32 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.) 10.33 1993 Stock Option Plan of the Registrant (Incorporated by reference to Exhibit 28.1 to Registrant's Form S-8 filed June 10, 1993.) 10.34 Amendment to the 1988 Stock Option Plan of the Registrant (Incorporated by reference to Exhibit 10.34 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991.) 10.35 1991 Non-Employee Director Stock Option Plan (Incorporated by reference to Exhibit 28.1 to Registrant's Form S-8 dated June, 1992.) 10.36 Stock Option Agreement dated March 9, 1993 between Louis L. Borick and the Registrant (Incorporated by Reference to Exhibit 28.2 to Registrant's Form S-8 filed June 10, 1993.) 10.38 Stock Option Agreement dated January 4, 1993 between Robert F. Sloane and the Registrant (Incorporated by Reference to Exhibit 28.3 to Registrant's Form S-8 filed June 10, 1993.) Page 22 23 10.39 Chief Executive Officer Annual Incentive Program dated May 9, 1994 between Louis L. Borick and the Registrant (Incorporated by reference to Exhibit 10.39 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.) 10.40 Letter dated February 15, 1995 between Iftikhar H. Kazmi and the Registrant (Incorporated by reference to Exhibit 10.40 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994.) 10.41 Amendment dated December 15, 1995 to Employment agreements between Registrant and Raymond C. Brown and R. Jeffrey Ornstein. (Incorporate by reference to Exhibit 10.41 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995.) 11.1 Computation of earnings per share (see Note 7 of "Notes to Consolidated Financial Statements" in the Annual Report to Shareholders which is incorporated herein by reference.) 13.1 1996 Annual Report to Shareholders 21.1 List of Subsidiaries of the Company 23.1 Consent of Arthur Andersen LLP, Independent Public Accountants for the Registrant 27.1 1996 Financial Data Schedule 1996 Proxy Statement (b) Reports of Form 8-K No reports on Form 8-K have been filed during the fourth quarter of 1996. (This space intentionally left blank) Page 23 24 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE To Superior Industries International, Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Superior Industries International, Inc.'s annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 12, 1997. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index above is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Los Angeles, California February 12, 1997 Page 24 25 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. March 28, 1997 SUPERIOR INDUSTRIES INTERNATIONAL, INC. By /s/ Louis L. Borick ------------------------------ LOUIS L. BORICK President and Chief Executive Officer 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 capacities and on the dates indicated. President, /s/ Louis L. Borick Chairman of the Board - ------------------- and Director Louis L. Borick (Principal Executive Officer) March 28, 1997 /s/ R. Jeffrey Ornstein Vice President & CFO - ----------------------- and Director R. Jeffrey Ornstein (Principal Financial Officer) March 28, 1997 /s/ Raymond C. Brown Senior Vice President - -------------------- and Director March 28, 1997 Raymond C. Brown /s/ Sheldon I. Ausman Director March 28, 1997 - --------------------- Sheldon I. Ausman /s/ Steven J. Borick Director March 28, 1997 - -------------------- Steven J. Borick /s/ Philip W. Colburn Director March 28, 1997 - --------------------- Philip W. Colburn /s/ V. Bond Evans Director March 28, 1997 - --------------------- V. Bond Evans /s/ Jack H. Parkinson Director March 28, 1997 - --------------------- Jack H. Parkinson
Page 25 26 SUPERIOR INDUSTRIES INTERNATIONAL, INC. AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 ALLOWANCE FOR DOUBTFUL ACCOUNTS BALANCE AT DECEMBER 31, 1993 $ 569,000 ADD (DEDUCT): PROVISION - RECOVERIES 1,000 ACCOUNTS WRITTEN OFF (29,000) --------------- BALANCE AT DECEMBER 31, 1994 541,000 ADD (DEDUCT): PROVISION 244,000 RECOVERIES 20,000 ACCOUNTS WRITTEN OFF (83,000) --------------- BALANCE AT DECEMBER 31, 1995 722,000 --------------- ADD (DEDUCT): PROVISION 35,000 RECOVERIES - ACCOUNTS WRITTEN OFF ( 39,000) --------------- BALANCE AT DECEMBER 31, 1996 $ 718,000 ===============
Page 26 EX-13.1 2 EXHIBIT 13.1 1 EXHIBIT 13.1 Cover 1996 Annual Report Superior Industries International, Inc. 2 (IFC) The Company Superior Industries International, Inc. is one of the world's leading manufacturers of cast aluminum wheels for the original equipment manufacturer (OEM) automotive industry with sales of over $500 million in 1996. The Company is also a leading manufacturer of automotive accessory products for the aftermarket, supplying 68 product lines and 3,800 parts ranging from steering wheels and covers, suspension products, seat belts and license plate holders to chrome-plated steel and aluminum road wheels. Superior, which is beginning its 40th year in business, grew from its modest beginnings as a small aftermarket supplier in 1957 to an internationally recognized corporation, one of the leading suppliers of OEM aluminum wheels in the world. With a strong presence in Detroit, Superior has enjoyed long term relationships with Ford and General Motors as their largest and one of their highest-rated suppliers. The Company has also expanded and is increasing its business with international customers, supplying to Chrysler de Mexico, BMW, Audi, and Jaguar as well as various Japanese manufacturers including Toyota, Mazda, Nissan, Subaru and Isuzu. Throughout its history, Superior has aggressively pursued a growth-oriented approach with new technologies, capital improvements, and strategic investments to gain advantages over its competition. Approximately 4,500 employees operate 12 manufacturing plants and offices throughout the United States, Puerto Rico, Mexico and Europe. Together they bring a commitment to world-class excellence as Superior continues to target future growth markets and meet the global challenges of the 21st century. Graph: Shareholders' Equity (in millions) $250 200 150 100 50 92 93 94 95 96 Graph: Long-Term Debt (in millions) $50 40 30 20 10 92 93 94 95 96 Certain statements included in this Annual Report which are not historical in nature are forward looking statements within the meaning of the Private Securities Legislation Act of 1995. Forward looking statements regarding the Company's future performance and financial results are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in the forward looking statements due to a variety of factors. Factors that may impact such forward looking statements include, among others, changes in the condition of the industry, changes in general economic conditions and the success of the Company's strategic and operating plans. 3 Page 1 Financial Highlights
(In thousands except share data) Years Ended December 31, 1996 1995 1994 1993 1992 Income Statement Net Sales $504,241 $521,997 $456,638 $393,033 $325,314 Gross Profit 101,713 113,797 111,368 91,464 61,942 Net Income 46,850 53,064 56,315 45,177 28,596 Balance Sheet Current Assets $164,080 $142,659 $160,771 $141,219 $134,158 Current Liabilities 76,369 81,746 106,923 75,991 63,296 Working Capital 87,711 60,913 53,848 65,228 70,862 Total Assets 357,590 341,770 357,683 310,123 267,198 Long-Term Debt, net 1,940 5,814 23,075 34,004 44,073 Shareholders' Equity 251,111 229,153 200,182 176,869 136,747 Financial Ratios Current Ratio 2.1:1 1.7:1 1.5:1 1.9:1 2.1:1 Long-Term Debt/Total Capitalization 0.8% 2.5% 10.3% 16.1% 24.4% Return on Average Shareholders' Equity 19.5% 24.7% 29.9% 28.8% 23.8% Share Data Earnings $ 1.63 $ 1.78 $ 1.85 $ 1.47 $ .94 Shareholders' Equity at Year-End 8.87 7.89 6.76 5.88 4.56 Dividends .23 .19 .17 .11 .10
Quarterly Common Stock Price Information
1996 1995 1994 High Low High Low High Low First Quarter $ 28 $23 7/8 $29 $23 7/8 $46 1/4 $31 3/8 Second Quarter 28 1/4 24 1/4 32 1/8 24 3/4 37 30 Third Quarter 26 1/2 22 7/8 35 3/4 25 3/4 34 28 Fourth Quarter 25 7/8 22 3/4 29 24 1/2 30 1/4 24 1/4
The common stock of Superior Industries International, Inc. is traded on the New York Stock Exchange (symbol: SUP). The Company had approximately 1,400 stockholders of record and 28.2 million shares outstanding as of January 31, 1997. Cash Flow per Share (in dollars) $3.00 2.50 2.00 1.50 1.00 .50 92 93 94 95 96 Net Sales (in millions) $600 500 400 300 200 100 87 88 89 90 91 92 93 94 95 96 Earnings per Share (in dollars) $2.00 1.50 1.00 .50 92 93 94 95 96 4 Page 2 To Our Shareholders In the competitive, ever-changing automotive OEM industry, Superior keeps evolving . . . even though we are the recognized leader in the aluminum wheel market. Since we introduced the first cast aluminum wheel to the OEM market in 1973 for the 1974 Mustang, there has been explosive growth. Installation rates of aluminum wheels climbed significantly year to year. We continue to achieve technological and financial successes and have consistently performed beyond customer expectations. Amid all that success, we are keenly aware of the industry's evolution. It's a new era in which OEMs are building closer ties with fewer tier one suppliers. Superior has developed large production economies of scale, technological expertise, the acumen to stay competitive in the world marketplace and a global presence to support our customers' worldwide operations. In 1996, we demonstrated our ability to successfully address these challenges, made significant strides to ensure future growth, and maintained a solid year of financial results. First of all, we implemented an aggressive initiative last year to achieve significant cost reductions and other profit improvements by the end of 1997 and beyond. We developed programs to identify how each of our facilities and departments can contribute to the goal including cutting production costs, improving operating efficiencies as well as enhancing quality control and plant scheduling. This commitment comes from our management right down to the plant floor and we have already started to see the successful implementation of these programs through reduced costs at our plants. Secondly, we solidified our position as a tier one supplier by achieving QS-9000 Registration of our Rogers and Pittsburg OEM plants and engineering center in Fayetteville last year. Registration of all our other plants is expected by the end of 1997. Our ability to achieve registration for QS-9000 -- a quality system conformance standard jointly developed by Chrysler, Ford, and General Motors -- demonstrates Superior's continuing progress towards World Class excellence. Adding to the progress in expanding our global presence was the timely completion of our new joint venture OEM plant in Hungary which remains on schedule to begin shipping wheels during the second quarter of 1997. Along with our facility in Mexico, which we are looking to expand with additional equipment, our new European plant will enable us to support the operations of Superior's growing client base. Caption "At Superior, we believe quality enhancement is synonymous with cost reduction. By improving the quality of our product, we have the ability to manufacture at less cost and meet our customers' pricing requirements." - Louis L. Borick 5 Page 3 One of our most significant accomplishments was the resolution of start-up difficulties at our OEM chrome-plating facility. After assigning key personnel to oversee the operations and implementing the necessary capital and process improvements, we have seen an exceptional turn-around at our chrome plating plant and are confident this operation is now well on the road to making a positive impact on future earnings. Last year also marked Superior's progress in other product markets that we have been developing. The achievements include development of aluminum truck wheels through our joint venture with ALCOA, and the expansion of our aftermarket product line with stylized wheels and other innovative accessory products. We have also advanced our expertise in aluminum casting to bring other components to the OEM automotive market. This effort resulted in the Company's first contract from General Motors to supply cast aluminum transmission brackets for the Oldsmobile Intrigue, with initial shipments scheduled in early 1998. We solidified our presence with our OEM customers by expanding our Detroit Technical Sales Center with additional engineering and program management personnel and sophisticated computer equipment to improve design and service capabilities. This office has been instrumental in exceeding our customers' demand for additional product development involvement. Financial Results We are pleased with the Company's overall financial results for 1996, particularly since -- after absorbing significant losses at our chrome plating facility during the first three quarters -- we ended so strongly. Net income was $46.9 million and earnings per share were $1.63 compared to $53.1 million and $1.78 in 1995. Company-wide sales exceeded $504 million, a 3.4% decrease from 1995. The Company continued to achieve record unit shipments of aluminum road wheels with a 5% increase over 1995. This increase is strong considering overall light vehicle sales in North America were down 1% due to labor disruptions and severe winter weather. We enter 1997 with a strong financial standing, exceptional cash flow, and key programs that focus on competitive strategic positioning and profitability improvement. Superior generated $97 million in cash from operations last year which will fuel the Company's ability to seize future opportunities and repurchase our Company's stock. In the long term, we are well positioned to achieve excellent growth and will continue to search for complementary businesses and products that extend our existing markets. In closing, I would like to recognize the more than 4,500 Superior employees whose unrelenting focus on customer needs, cost, and quality serve as the major impetus that will enable the Company to seize growth opportunities, innovate new products and processes, and enhance our vision for the future. On behalf of each of them, I thank you for your continued support of our Company now and in the years to come. Signature Louis L. Borick President and Chairman of the Board Photo (Award) Specialty Equipment Market Association (SEMA) Hall of Fame Award presented to Louis L. Borick 6 Page 4 Management Team Superior is headed by seasoned and dedicated management that operates on teamwork, integrity, and productivity. Under the careful leadership of Superior's President and Chairman, Louis Borick, the Company has maintained a history of financial stability and excellent profit margins that is second to none in the industry. An entrepreneur and major stockholder in Superior, Mr. Borick recognizes and takes advantages of market opportunities without risking the Company's financial strength. Superior's management structure is such that it promulgates the entrepreneurial spirit and synergy that has advanced the Company through 39 years of growth. The Company maintains ongoing communications between and within each division to ensure management stays apprised of expenses, production, inventory, and quality issues on a daily basis. Management also has the ability to solve problems quickly and react to customer needs which is essential in today's competitive automotive marketplace. Superior believes strongly that integrity is the underpinning for every aspect of its business. It is what drives the Company to engineer and manufacture the highest quality products. And, it's the basis for the consistent exceptional service provided and sound financial decisions made by Superior. Such integrity would not be possible if it were not ingrained in Superior's people. The Company's policy is to hire, train, and promote the best people in the industry with a goal of enabling each individual to realize his or her full potential. Superior recognizes that the individual talents and contributions of its people enhance the Company's competitive advantage. From accounting and marketing to engineering and manufacturing, Superior has a solid infrastructure in place to successfully carry the Company into the 21st century and beyond. Caption-Photo Ray Brown, Senior Vice President; Lou Borick, President and Chairman of the Board; Jeff Ornstein, Vice President & CFO Caption-Photo Dan Levine, Corporate Secretary and Assistant Treasurer; Jeff Ornstein, Vice President & CFO Caption-Photo Mike O'Rourke, Vice President, OEM Programs; Mike Dryden, Vice President, International Marketing; Seated: Jim Ferguson, Vice President, OEM Marketing; Ray Brown, Senior Vice President Caption-Photo Henry Maldini, Vice President, Engineering; Bernie O'Neil, Director of Manufacturing Caption-Photo Del Schmitz, Vice President, Aftermarket; Ron Escue, Vice President, Aftermarket Wheel Division; Seated: Frank Monteleone, Vice President, Purchasing; Joe D'Amico, Vice President, Materiel 7 Page 5 Joint Ventures Hungarian Plant Last year marked a significant milestone for Superior's joint venture with Germany-based Otto Fuchs Mettalwerke, exemplifying the success of Superior's entry into the European market. Superior completed the initial phase of construction of its new manufacturing plant in Hungary. The initial phase, designed for a capacity of 1.5 million wheels a year, is now equipped with state-of-the-art casting and forging machinery. After testing the equipment, the Company is now ramping up production on its previously announced order from Audi for 700,000 annual lightweight forged wheels. In 1996, the Company received a new multi-year contract to supply cast aluminum wheels for the new Audi TT convertible -- representing the first casting order for the plant. Shipment of these wheels to Audi's plant in Gyor, Hungary is scheduled to begin in April 1998. The Audi contracts combined amount to a total of over $40 million in annual revenues and fill over one half of the plant's initial production capacity prior to the first full year of operation. The results of this newly established customer relationship reinforce the Company's growth opportunities in Europe. Furthermore, Superior has been working very closely with other major European OEMs and is confident that the technical quality and cost benefits of the new Hungarian joint venture will result in increased cast and forged wheel business. Hungary's highly skilled labor force at competitive rates and close proximity to Western Europe, coupled with Otto Fuch's lightweight forging process and Superior's technological expertise and casting process, underline the Company's ability to succeed in the European OEM market. Alcoa Superior's joint venture with ALCOA, the world's largest manufacturer of forged aluminum wheels for large trucks and buses, continued to progress in 1996. Equipment to produce low-pressure cast aluminum truck wheels is now in place at the Company's plant in Van Nuys. With customer interest high, Superior is producing an initial run of sample 19 1/2" wheels for Class 4 through 6 trucks. The Company has also been developing a 17 1/2" wheel for Class 3 trucks and expects to begin full production on both wheels this year. Through this joint venture, called ASI (Alcoa Superior International), Superior is opening an arena of new business that will become a successful addition to the Company's financial results in the near future. Caption-Photo Superior's European joint venture plant located in Hungary Caption-Photo New 19 1/2 cast aluminum truck wheel developed for ASI joint venture 8 Page 6 Manufacturing Superior has continually made strides in the global OEM market, demonstrating its technological leadership, depth of expertise, and progress toward World Class excellence. Last year was no exception. As highlighted earlier in this annual report, the Company completed the construction of its state-of-the-art manufacturing facility in Tatabanya, Hungary. Completion of this new joint venture plant establishes a significant operational presence for Superior in the European marketplace. Built to support the business Superior anticipated receiving from European automakers, the Hungarian plant has already proven successful with orders filling over one-half of its initial capacity. The success of the operations in Hungary demonstrates Superior's expertise in designing, building, and equipping its own OEM wheel manufacturing facilities, selling a major portion of each facilities' production capacity prior to completion, and achieving profitable results within a short period of time. Achieving World Class Excellence In addition, Superior made an unprecedented commitment to achieve QS-9000 Registration of all its manufacturing facilities. QS-9000 was jointly developed by a Chrysler/Ford/General Motors Supplier Quality Requirements Task Force to harmonize the fundamental quality system expectations of the three major North American automakers. Last year, Superior's Rogers and Pittsburg manufacturing facilities as well as its engineering center in Fayetteville were awarded QS-9000 Registration. Superior is one of the select automotive suppliers to achieve this newly created quality conformance -- standards that will secure the company's global competitive stance in the future. By the end of 1997, all of Superior's aluminum wheel plants are expected to receive registration. This multi-registration of Superior's plants and engineering centers will allow for tremendous flexibility with OEM customers. Whereas most contracts require that a particular wheel program be produced at a specific plant, the goal of multi-registration is to allow production in multiple plants, therefore enabling the company to cross-load production and increase manufacturing efficiencies. Caption-Photo "Superior's position as a tier one supplier and growth in the international marketplace will carry the Company into the 21st Century." 9 Page 7 Progress At Chrome-Plating Operations Superior is most pleased to announce the progress made at its aluminum wheel chrome-plating facility last year. Located in Fayetteville, Arkansas, the facility is the first of its kind in the world using a highly specialized and automated process to manufacture chrome-plated aluminum wheels for the OEM market. After experiencing significant delays in gearing up the plant's operations, Superior instituted major capital and process improvements. These improvements, coupled with key personnel changes to oversee the operation, resulted in an exceptional turnaround during the fourth quarter. Now that the plant is achieving consistent higher production levels at substantially reduced operating costs, Superior is focusing on increasing plant utilization and improving manufacturing efficiencies. Measuring Cost-Reduction & Quality Enhancement The Company's focus on cutting production costs, improving operating efficiencies and enhancing plant scheduling is not just limited to its chrome plating plant. Last year, Superior established an aggressive company-wide initiative to achieve significant cost reductions and other profit improvement by the end of 1997 and beyond. From improvements in product engineering and higher performance manufacturing equipment to consistent output of higher quality products, the Company is identifying how each Superior facility and department can contribute to the goal. Key variables such as cost and labor per wheel as well as specific problems and opportunities are shared among all Superior plants and challenged periodically by a cost reduction management team. Through this cost reduction team, the Company has implemented extensive checks and balances to measure the manufacturing performance of each of its plants to ensure specific cost reduction and quality enhancement goals are met. Superior has already started to see successful implementation of this program through reduced costs at the Company's plants. Preparing For Future Expansion Superior has not only consistently improved and refined its manufacturing process, but the Company has maintained its reputation for prompt service and accurate delivery by paying attention to its markets and anticipating future capacity requirements. In addition to studying opportunities in other markets of Latin America, the Company is looking into expanding its plant in Mexico with additional equipment. Superior anticipates as much as 80% of the wheels produced in its Mexico plant - -- which is operating at the lowest manufacturing cost for the Company -- will be used for export as U.S. automakers continue to invest more money in their Mexico operations and export more cars. The Company has also focused on upgrading human resources and bringing new talent into the Company's plants to prepare for new products and future expansion. Caption-Photo Wheels exiting Automatic Machining Cell 10 Page 8 Continuing improvement is key to the success of any business, and therefore progress is an essential element at Superior. It means finding new ways to enhance the quality and reduce the cost of Superior's product, increasing the Company's service to customers, and examining the potential for entirely new product applications of the Company's aluminum casting expertise. Human Resource and Equipment Enhancements Focused strongly on continual improvements is Superior's engineering team which has expanded into three geographic centers in Detroit, Fayetteville, and Van Nuys. All three centers are currently being equipped with additional and new state-of-the-art cad cam computers. Superior has also been adding design, quality and systems engineers to enhance its capabilities and provide customers greater assembly plant service. In particular, the newest Technical Sales Center in Detroit has strengthened Superior's customer relationships through its enhanced service and technical support. Improved Processes Superior is listening to customer needs more closely than ever to exceed their expectations. And, the Company has been broadening its aluminum wheel technology and adding value to its design and manufacturing processes through weight reduction procedures. Other enhancements include improving controls on casting procedures and practices to achieve even more consistent quality and improved productivity. Also, through new computer-simulated thermal analysis software as well as improved tooling fabrication processes and casting process enhancements, the Company has substantially reduced its research and development time schedules beyond customer expectations. New Product Development In addition, Superior worked on developing other aluminum products for the automotive industry as part of the Company's strategic plan for diversification. This effort by Superior's engineering team culminated last year in the Company's first contract from General Motors to supply cast aluminum transmission brackets for the Oldsmobile Intrigue. This order is significant since it represents the Company's entry into a new growth market with opportunities to expand into other aluminum products such as chassis, suspension and engine components. As a technological leader in aluminum foundry, Superior is positioned to benefit by the increasing demand for aluminum components which are replacing many traditional iron forged and steel parts. Caption-Photo "Superior's engineering team made a breakthrough last year with the development of a new aluminum product for the automotive industry, representing the Company's entry into a new growth market with opportunities for further diversification." 11 Page 9 Aftermarket While Superior's aftermarket business accounted for about 6% of overall revenue in 1996, the opportunity for growth is excellent. During the year, the Company acquired certain new product lines and continues to work on new product ideas. With industry-wide consolidation, more enhanced accessories being offered as standard equipment on new cars, and increasing demand for price concessions, the evolving automotive aftermarket is creating new challenges for Superior -- challenges the Company views as opportunities. Superior is meeting these chal- lenges with its expertise to diversify further into other growth industries, develop and acquire new product lines for the aftermarket, and broaden the Company's distribution base. In addition to popular accessory items, Superior has been focusing on the extension of its existing product lines -- a profitable growth area for the Company. Last year, Superior acquired the "Perfection" product lines from Walker Manufacturing Company, adding approximately $3 million in annual revenues to the Company's aftermarket business. The newly acquired product lines, some of which are new accessories for Superior, include convoluted tubing and suspension products. Superior's aftermarket wheel line, comprised of 28 different styles of steel, chrome-plated steel, and aluminum road wheels, continues to be popular among tire dealers and large wholesalers. The Company has strategically expanded its network of distributors and worked closely with customers to create new wheel designs that are consumer-driven. Last year, the Company established various accounts with distribution in new geographical areas such as Florida, Mississippi and Texas. In addition, Superior developed five new wheel designs that have proven to be successful in the marketplace. Superior currently supplies 68 product lines and 3,800 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 in the U.S. and Canada through such prominent wholesalers and retail outlets as ITCO Tire Company, Les Schwab, Pep Boys, AutoZone, Northern Automotive, Belle Tire, Wal-Mart, Western Auto, Canadian Tire, and Paccar. Caption-Photo Innovative new accessory products demonstrating excellent quality, variety, styling and packaging Caption-Photo Additional examples of new products 12 Page 10 Original Equipment Market International Business Business with international customers was one key to Superior's growth in the OEM market last year and will be the focus of Superior's growth in the future. Shipments to international customers doubled to 6% of Superior's total OEM unit shipments in 1996. Superior projects this part of its business will increase to 10% in the future as the Company continues to build upon its relationships with OEMs abroad and expand its customer base. Several years of working on a customer relationship with BMW (Bayerische Motoren Werke) resulted in a significant amount of business that continues to grow each year. Through Superior's joint venture in Hungary, the Company has now established a new relationship with Audi and an annual business estimated at $40 million for the new European plant. Superior's business with Japanese customers continues to increase through the expansion of existing wheel programs as well as new contracts. Most significant was Superior's growth in business with Toyota and Nissan last year, evident by major new tooling orders. Domestic Programs As a key supplier to Ford and General Motors, Superior led the industry as one of the leading suppliers of aluminum wheels in the world. Superior continued to receive new replacement business for existing wheel programs such as for General Motors' Chevrolet and Oldsmobile minivans. Calling for a 30% increase in tooling capacity, this new replacement business for the new model year represented over $30 million in annual revenues. Another highlight was the new business secured from Ford to supply aluminum wheels for the Windstar minivan, a contract valued in excess of $30 million in annual revenues. By every measure made, Superior is one of the world's leading manufacturers of OEM aluminum wheels with respect to technology, market share, quality and reliability. And the Company will remain that way. Though Superior is positioned to benefit from greater aluminum wheel penetration, the Company's focus for future growth is on the expansion of its customer base and geographic reach as well as new product markets. Caption-Photo "By every measure made, Superior is one of the world's leading manufacturers of OEM aluminum wheels with respect to technology, market share, quality and reliability. And the Company will remain that way." Ford Explorer 13 Page 11 Caption-Car Photos Buick Regal GS Sedan Mercury Mountaineer Mercury Sable BMW Roadster Toyota 4Runner Mercury Cougar Chevrolet Suburban 1500 4x4 Chevrolet Camaro Z28 BMW 540i Sedan 14 Page 12 Financial Outlook Considering all of Superior's accomplishments last year, nothing says more about the strength and vitality of the Company than its cash flow. Superior generated $97 million in cash from operations. Combining powerful cash generating capability with a tradition of market innovation and growth, Superior has a very bright future. Installation of aluminum wheels continues to rise. Last year, Superior's total OEM shipments were up 5% while overall North American automobile production was virtually flat. Sales to international customers are expected to continue growing and should account for 10% of Superior's OEM business in the next 12 months. All aspects of the Company are under control. Superior's cost-cutting initiative established in 1996 is expected to realize significant cost reductions and other profit improvements by the end of this year, with the full effect to be felt in 1998 and beyond. Superior's chrome-plating operations reported an exceptional turnaround during the fourth quarter and, accordingly, have now been consolidated into the Company's regular financial statements. This turnaround, coupled with the increase in aluminum wheel usage on North American vehicles and expanding shipments to international customers will result in continued earnings performance and gains in 1997. Furthermore, growth opportunities are already being realized in Europe with the completion of Superior's joint venture plant in Hungary. Superior is close to announcing additional cast and forged wheel orders for its European plant, continuing to fill capacity and increase production efficiency. In addition, new product lines developed for the automotive aftermarket and OEMs are beginning to yield results and represent exceptional growth opportunities for the Company. Superior's virtually debt-free balance sheet will enable the Company to explore additional strategic growth opportunities and repurchase the Company's stock. To date, the Company purchased over 1.5 million shares of stock against the currently authorized 2 million share program. In 1996, Superior stockholders enjoyed the thirteenth consecutive year of cash dividend increases. Commencing with the second quarter dividend, the Company increased its quarterly cash dividend by 20% to a rate of $.06 per share. With a strong capital base to seek new market and product opportunities and the strategies that will ensure the Company's continued success, Superior has never been in a better position to face the challenges of the 21st century. Caption-Photo "Superior enters 1997 with a tradition of market innovation and growth, a strong capital base to seek new market and product opportunities, and the strategies that will ensure the Company's continued success." 15 Page 13 Results of Operations Management's Discussion and Analysis of Financial Condition Summary of Sales by Product Line (In Thousands)
For the Years Ended December 31, 1996 1995 1994 OEM cast aluminum road wheels $472,431 $486,045 $417,537 Aftermarket 31,810 35,952 39,101 $504,241 $521,997 $456,638
1996 Compared to 1995 Net sales in 1996 decreased 3.4 percent to $504.2 million compared to the record net sales achieved in 1995 of $522.0 million. The Company continued to achieve record unit shipments of cast aluminum road wheels with a 4.9 percent increase over 1995 shipments. This increase in unit shipments occurred despite a 1.2 percent decline in North American automotive production. Based on Wards Automotive, an industry publication, aluminum wheel installation rates on automobiles and light trucks rose to a record 46.1 percent for the 1996 model year compared to 43.9 percent for the 1995 model year, 41.0 percent for the 1994 model year and 39.5 percent for the 1993 model year. The modest decline from 1995 sales primarily reflects reduced prices as a result of lower material costs to original equipment manufacturer (OEM) customers. 1996 net sales for the Company's Aftermarket products decreased $4.1 million or 11.5 percent from 1995 due to the continued economic sluggishness in the aftermarket segment of the automotive industry. Gross profit margin was 20.2 percent of net sales in 1996 compared to 21.8 percent in 1995. 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 difficult to do so without impacting margins. The Company will continue to aggressively implement cost saving strategies to meet customer pricing expectations and maintain margins; however, the impact of future customer pricing pressures and increasing industrywide competition to the Company's financial position and results of operations is not known. During 1996, the price of raw material decreased throughout the year. The aluminum content of selling prices to OEM customers is adjusted to current market conditions which subjects the Company to the risks of market changes when the Company, from time to time, enters into fixed purchase contracts. The cost of aluminum is a significant component in the overall cost of a wheel. As the price of aluminum decreases, the effect is to increase overall gross margin percentage although gross profit in absolute dollars remains unchanged. However, this percentage increase did not occur in 1996 due to several offsetting factors. During 1996, plant utilization rates were affected by difficulties maintaining level loading of plant production as a result of several customer work stoppages throughout the year and severe winter weather early in the year. These difficulties were accentuated by additional wheel making capacity added as a result of plant expansions in prior years. Also, starting in the fourth quarter of 1996, operating results of the Fayetteville, Arkansas chrome plating plant are being consolidated with those of the entire Company, thereby reducing the overall gross profit margin percentage. Refer to the discussion below on Miscellaneous, net regarding the start-up of chrome plating operations. Selling, general and administrative expenses in 1996 are approximately the same as 1995, both as a percentage of net sales and in absolute dollars. A decline in selling expenses in 1996 was substantially offset by increased legal expenses associated with defending certain lawsuits. Interest expense in 1996 was $1.5 million compared to $3.3 million in 1995. This reduction occurred from the payments of the Senior notes and from not requiring short-term borrowings during 1996, as had been required for 1995 working capital requirements. Superior Industries International, Inc. 13 16 Page 14 Management's Discussion and Analysis of Financial Condition (continued) Interest income was approximately the same as the prior year as cash generated from operations continued to be utilized to fund capital expenditures, joint venture investments, repurchases of the Company's common stock and on-going working capital requirements. Moving forward into 1997, management expects cash to continue increasing with a related increase in the amount of interest income earned by the Company. Miscellaneous, net for 1996 includes $7.4 million of pre-operating losses from the Fayetteville, Arkansas chrome plating plant compared to $5.8 million of pre-operating losses in 1995. During 1996, the Company instituted major improvements in its chrome plating operations which are expected to decrease its ongoing operating costs. Accordingly, the pre-production period was deemed by management to cease as of September 30, 1996. Thereafter, the Company began consolidating the operating results of the chrome plating plant with those of the entire Company for the fourth quarter of 1996. The results of chrome-plating for the fourth quarter 1996 were a $0.1 million loss after charging $0.6 million of depreciation. The consolidated tax rate in 1996 decreased to 36.75 percent of pre-tax income from 37.5 percent in 1995. The reduced rate resulted from greater utilization of federal tax credits and lower state income taxes. The Company expects a modest decrease in the tax rate in the future. See Note 6 of the consolidated financial statements. 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 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. 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 causing lower 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, pricing pressure from its customers may not be fully mitigated without impacting margins. 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 $0.4 million compared to 1994. The largest component of 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 $0.7 million 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. Superior Industries International, Inc. 17 Page 15 Management's Discussion and Analysis of Financial Condition (continued) Financial Condition, Liquidity and Capital Resources Cash provided by operating activities was $96.5 million in 1996 compared to $83.7 million in 1995, reflecting strong earnings and high levels of non-cash charges such as depreciation and amortization that were supplemented by reductions of inventories and receivables. Lower inventory levels primarily reflect the lower cost of raw materials. Strong cash flows from operating activities were utilized for a number of activities. The Company paid down outstanding short and long-term borrowings by a combined $13.6 million, including the required principal payments on its 9.31% Senior notes. After paying the required principal payments on its 9.31% Senior notes in 1997, the Company will have effectively retired all of its long-term debt. The Company also funded OEM plant enhancements, including improvements to the chrome-plating plant in Fayetteville, Arkansas. Cash resources were also utilized for the retirement of 740,000 shares of the Company's common stock. Finally, the Company contributed its remaining investment of $10.6 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 second quarter of 1997. The cost of this facility, approximately $70 million, was funded through equal capital contributions by each partner and long-term project financing. Since 1990, funding for plant expansion in excess of $339 million, has come from internally generated cash flow and working capital. During 1996, the value of the Mexican peso experienced relative stability to the U.S. dollar as a result of the local Mexican economy achieving moderate growth. Since 1990, the Mexican peso has repeatedly experienced periods of relative stability followed by periods of major decline in value. 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 Company's financial condition remains strong. In 1996, working capital and current ratio increased to $87.7 million and 2.1:1, versus $60.9 million and 1.7:1 in 1995, respectively, as the Company paid down its debt and repurchased its common stock. The long-term debt to total capitalization ratio improved to 0.8 percent in 1996 from 2.5 percent in 1995. 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 1996, the Board of Directors announced a 20 percent increase in the cash dividend, representing the thirteenth 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. 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. Superior Industries International, Inc. 18 Page 16 Consolidated Statements of Income
Years Ended December 31, 1996 1995 1994 Net Sales $ 504,241,000 $ 521,997,000 $ 456,638,000 Cost of Sales 402,528,000 408,200,000 345,270,000 Gross Profit 101,713,000 113,797,000 111,368,000 Selling, general and administrative expenses 19,931,000 19,965,000 19,203,000 Income From Operations 81,782,000 93,832,000 92,165,000 Other Income (Expense) Interest expense (1,484,000) (3,288,000) (2,862,000) Interest income 1,158,000 1,106,000 1,840,000 Miscellaneous, net (7,385,000) (6,732,000) (839,000) (7,711,000) (8,914,000) (1,861,000) Income Before Income Taxes 74,071,000 84,918,000 90,304,000 Income Taxes 27,221,000 31,854,000 33,989,000 Net Income $ 46,850,000 $ 53,064,000 $ 56,315,000 Earnings Per Share $ 1.63 $ 1.78 $ 1.85
See notes to consolidated financial statements Superior Industries International, Inc. 19 Page 17 Consolidated Balance Sheets
December 31, 1996 1995 ASSETS CURRENT ASSETS: Cash and equivalents $ 36,815,000 $ 3,366,000 Short-term investments, net 5,288,000 7,813,000 Receivables, net Trade 52,465,000 56,092,000 Other 14,102,000 14,797,000 66,567,000 70,889,000 Inventories 47,730,000 53,823,000 Deferred income taxes 5,970,000 5,382,000 Other current assets 1,710,000 1,386,000 Total current assets 164,080,000 142,659,000 PROPERTY, PLANT AND EQUIPMENT, net 161,670,000 177,538,000 OTHER LONG-TERM ASSETS 31,840,000 21,573,000 $357,590,000 $341,770,000 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable and current portion of long-term debt $ 3,874,000 $ 13,628,000 Accounts payable 46,178,000 46,920,000 Accrued liabilities 26,317,000 21,198,000 Total current liabilities 76,369,000 81,746,000 LONG-TERM DEBT, net 1,940,000 5,814,000 OTHER LONG-TERM LIABILITIES 17,850,000 17,207,000 DEFERRED INCOME TAXES 10,320,000 7,850,000 SHAREHOLDERS' EQUITY 251,111,000 229,153,000 $357,590,000 $341,770,000
See notes to consolidated financial statements Superior Industries International, Inc. 20 Page 18 Consolidated Statements of Shareholders' Equity
Unrealized Common Stock Additional Cumulative Loss On Number of Paid-In Translation Short-term Retained Shares Amount Capital Adjustment Investments Earnings Total 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) Short-term investments -- -- -- -- (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 ($.195/share) -- -- -- -- -- (5,749,000) (5,749,000) Unrealized losses: Foreign currency translation -- -- -- (3,256,000) -- -- (3,256,000) Short-term investments -- -- -- -- 1,848,000 -- 1,848,000 Balances at December 31, 1995 29,029,007 14,514,000 38,911,000 (13,828,000) (652,000) 190,208,000 229,153,000 Net income -- -- -- -- -- 46,850,000 46,850,000 Stock options exercised, including related tax benefit 34,559 17,000 561,000 -- -- -- 578,000 Repurchases of common stock (739,900) (370,000) (18,627,000) -- -- -- (18,997,000) Cash dividends ($.23/share) -- -- -- -- -- (6,554,000) (6,554,000) Unrealized losses: Foreign currency translation -- -- -- (17,000) -- -- (17,000) Short-term investments -- -- -- -- 98,000 -- 98,000 Balances at December 31, 1996 28,323,666 $14,161,000 $20,845,000 $(13,845,000) $(554,000) $230,504,000 $251,111,000
See notes to consolidated financial statements. Superior Industries International, Inc. 21 Page 19 Consolidated Statements of Cash Flows
Years Ended December 31, 1996 1995 1994 NET CASH PROVIDED BY OPERATING ACTIVITIES $ 96,548,000 $ 83,747,000 $ 49,953,000 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (13,465,000) (25,903,000) (60,231,000) Investment in unconsolidated joint ventures (11,410,000) (9,664,000) -- Proceeds from sales of investments 1,350,000 17,732,000 29,377,000 Purchases of investments (973,000) (2,911,000) (26,834,000) NET CASH USED IN INVESTING ACTIVITIES (24,498,000) (20,746,000) (57,688,000) CASH FLOWS FROM FINANCING ACTIVITIES: Short-term borrowings (4,800,000) (23,467,000) 28,267,000 Repurchases of common stock (18,997,000) (19,825,000) (17,091,000) Payments of long-term debt (8,828,000) (19,367,000) (2,550,000) Cash dividends (6,554,000) (5,749,000) (4,913,000) Stock options exercised 578,000 2,889,000 1,632,000 NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (38,601,000) (65,519,000) 5,345,000 Net Increase (Decrease) in Cash and Equivalents 33,449,000 (2,518,000) (2,390,000) Cash and Equivalents at Beginning of Year 3,366,000 5,884,000 8,274,000 Cash and Equivalents at End of Year $ 36,815,000 $ 3,366,000 $ 5,884,000 See notes to consolidated financial statements
Superior Industries International, Inc. 22 Page 20 Reconciliation of Net Income to Net Cash Provided By Operating Activities
Years Ended December 31, 1996 1995 1994 Net Income $ 46,850,000 $ 53,064,000 $ 56,315,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 27,330,000 27,716,000 26,604,000 Provision for retirement plans 1,098,000 1,169,000 1,108,000 Other non cash items 12,000 (1,320,000) 1,043,000 Changes in assets and liabilities: (Increase) decrease in: Receivables, net 4,322,000 10,252,000 (16,044,000) Inventories 6,093,000 (9,077,000) (18,112,000) Other items 3,357,000 3,786,000 3,637,000 Increase (decrease) in: Accounts payable (742,000) 785,000 (5,869,000) Accrued liabilities 6,346,000 (389,000) 155,000 Deferred income taxes 1,882,000 (2,239,000) 1,116,000 NET CASH PROVIDED BY OPERATING ACTIVITIES $ 96,548,000 $ 83,747,000 $ 49,953,000
See notes to consolidated financial statements Superior Industries International, Inc. 23 Page 21 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 through a 50 percent owned joint venture in Hungary. As of December 31, 1996, the carrying amount of these foreign facilities is $61,493,000. 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 investments are included in other long-term assets and total $21,074,000 as of December 31, 1996. 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 $5,444,000 and $2,880,000 at December 31, 1996 and 1995, 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 marketable debt securities are generally over ten years. Market value at December 31, 1996, which was determined using quoted prices from national exchanges, resulted in a $554,000 unrealized loss recorded directly to shareholders' equity. The net realized gain from sales of available-for-sale securities utilizing the specific identification method was $141,000 during 1996 compared to the net realized loss from sales of $709,000 for 1995. At December 31, 1996 and 1995, marketable securities of $948,000 and $974,000, respectively, were pledged as collateral against outstanding letters of credit. Research and Development Costs Research and development costs of $3,310,000, $3,265,000 and $5,413,000 have been charged against operations during 1996, 1995 and 1994, respectively. Superior Industries International, Inc. 24 Page 22 Notes to Consolidated Financial Statements, (continued) 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 is recorded as a separate component of shareholders' equity. Foreign exchange gains/(losses) of $(109,000), $(287,000) and $164,000 have been recorded as part of operations during 1996, 1995 and 1994, respectively. 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 $1,445,000 and $24,155,000 for 1996; $3,540,000 and $25,448,000 for 1995; $2,494,000 and $32,610,000 for 1994, respectively. reclassifications Certain prior year items have been reclassified to conform with current year presentation. 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. The Company had no short term borrowings outstanding at December 31, 1996 as opposed to $4,800,000 at December 31, 1995. The weighted average interest rates during 1996, 1995 and 1994 were 5.8 percent, 6.7 percent and 4.8 percent, respectively. The long-term debt of the Company is summarized as follows:
December 31, 1996 1995 9.31% Senior notes due 1997, with annual principal payments of $8,333,000 beginning in 1995 $ 3,333,000 $11,666,000 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 2,481,000 2,976,000 5,814,000 14,642,000 Less - Current portion 3,874,000 8,828,000 $ 1,940,000 $ 5,814,000
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 $980,000, 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 $3,878,000 for 1997, $592,000 for 1998, $645,000 for 1999, $330,000 for 2000 and $369,000 for 2001. Superior Industries International, Inc. 25 Page 23 Notes to Consolidated Financial Statements, (continued) 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, 1996 and 1995, are buildings and equipment held under capital leases of $5,590,000 with accumulated amortization of $3,134,000 and $2,949,000, respectively. The Company leases certain land, facilities and equipment under long-term operating leases expiring at various dates through 2063. The terms of certain equipment 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 equipment leases to appropriately match with the estimated useful life of the underlying machinery. Total lease expense for all operating leases amounted to $5,165,000 in 1996, $5,040,000 in 1995 and $4,183,000 in 1994. Future minimum payments under all leases are summarized as follows:
Leases Years Ending December 31, Operating Capital 1997 $ 4,628,000 $ 771,000 1998 4,311,000 768,000 1999 7,684,000 768,000 2000 2,217,000 392,000 2001 315,000 392,000 Thereafter 56,000 -- 19,211,000 3,091,000 Amounts representing interest -- 619,000 $19,211,000 $ 2,472,000
Future minimum payments of $3,211,000 for operating leases, including known rent escalations, and $1,960,000, 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 1996, 1995 and 1994, for all leases were $1,583,000, $1,583,000 and $1,571,000, respectively. 4. STOCK OPTIONS The Company has Stock Option Plans under which the Company is authorized to issue incentive and non-qualified stock options to its directors, officers and key employees totaling up to 3,200,000 shares of common stock. At December 31, 1996, 357,000 shares are available for future grant under these plans. Options are generally 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. Vesting periods are set at the discretion of the Option Committee, generally over a three or four year period. When options are exercised, proceeds from the sale 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. Beginning with the 1996 consolidated financial statements, the Company adopted the disclosure requirements of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("Statement 123"). Therefore, the following information is presented in accordance with the provisions of Statement 123, including restatements of 1995 and 1994 information consistent with the new disclosure requirements for 1996. Superior Industries International, Inc. 26 Page 24 Notes to Consolidated Financial Statements, (continued) As permitted in Statement 123, the Company continues to apply the accounting rules of APB Opinion 25 and related Interpretations governing the recognition of compensation expense from its Stock Option Plans. Such accounting rules measure compensation expense on the first date at which both the number of shares and the exercise price are known. Under the Company's plans, this would typically be the date of grant. To the extent that the exercise price equals or exceeds the market value of the stock on the grant date, no expense is recognized. Accordingly, no compensation expense has been recognized in the Company's income accounts with respect to these Stock Option Plans. Had the Company applied the fair-value based method of accounting which is not required under Statement 123, compensation expense from its plans would have had the effects of reducing 1996, 1995 and 1994 net income to the proforma amounts of $46,257,000, $51,702,000, and $54,143,000, respectively, with corresponding proforma earnings per share of $1.61, $1.73, and $1.78, respectively. These proforma amounts were determined by estimating the fair value of each option on its grant date using the Black-Scholes option-pricing model. Assumptions of 1 percent for dividend yield, 6.5 percent for risk-free interest rate and 22.77 percent for expected volatility rate were applied to all grants for each year presented. Other assumptions applied separately to incentive stock options and non qualified stock options include expected turnover rates of 15.32 percent and 2.49 percent, respectively, and expected lives of 7.21 years and 9.69 years, respectively. A summary of the status of the Company's Stock Option Plans and changes in outstanding options is presented below: Years Ended December 31,
1996 1995 1994 Weighted Weighted Weighted Shares Average Shares Average Shares Average Under Exercise Under Exercise Under Exercise Option Price Option Price Option Price Options outstanding at beginning of year 1,301,476 $21.73 1,432,223 $20.99 1,413,944 $ 19.34 Options granted 53,000 22.98 137,000 25.31 119,000 30.75 Options exercised (34,559) 11.48 (154,372) 11.84 (94,221) 8.38 Options canceled or expired (35,561) 30.66 (113,375) 30.21 (6,500) 23.56 Options outstanding at end of year 1,284,356 $21.81 1,301,476 $21.73 1,432,223 $20.99 Options exercisable at end of year 1,136,832 856,268 636,515 $ 8.53 $ 9.96 $ 12.02 Weighted-average fair value of options granted during the year
The following table summarizes information about options outstanding at December 31, 1996:
Options Outstanding Options Exercisable Number Weighted Average Weighted Number Weighted Range of Outstanding Remaining Average Exercisable Average Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price $1.80-$16.00 261,648 4.25 years $ 11.01 261,648 $ 11.01 $19.00 - $25.00 265,208 7.54 years 21.97 121,434 20.68 Over $25.00 757,500 6.20 years 25.48 753,750 25.45 1,284,356 6.08 years $ 21.81 1,136,832 $ 21.62
Superior Industries International, Inc. 27 Page 25 Notes to Consolidated Financial Statements, (continued) 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, 1996 1995 1994 Service cost $323,000 $315,000 $335,000 Interest cost 475,000 425,000 360,000 Net amortization 54,000 54,000 55,000 Other unrecognized loss 4,000 17,000 -- Net cost $856,000 $811,000 $750,000
A schedule reconciling the projected benefit obligation with recorded plan liability follows:
December 31, 1996 1995 Actuarial present value of benefit obligations: Vested benefit obligation $ 4,571,000 $ 3,690,000 Accumulated benefit obligation $ 6,583,000 $ 5,900,000 Projected benefit obligation $ 7,259,000 $ 6,497,000 Unrecognized prior service cost (274,000) (329,000) Adjustment required to recognize minimum liability 283,000 457,000 Other unrecognized experience losses (685,000) (725,000) Recorded liability $ 6,583,000 $ 5,900,000
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 1996 and 1995. 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 $2,606,000, $2,330,000 and $2,471,000 for 1996, 1995 and 1994, 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 $444,000, $358,000 and $358,000 for 1996, 1995 and 1994, respectively. Superior Industries International, Inc. 28 Page 26 Notes to Consolidated Financial Statements, (continued) 6. TAXES ON INCOME The provision (credit) for income taxes is comprised of the following components:
Years Ended December 31, 1996 1995 1994 Federal: Current $22,718,000 $22,338,000 $26,501,000 Deferred (1,374,000) 1,884,000 2,007,000 21,344,000 24,222,000 28,508,000 State: Current 2,466,000 3,891,000 5,527,000 Deferred (186,000) 208,000 169,000 2,280,000 4,099,000 5,696,000 Foreign: Current 116,000 175,000 414,000 Deferred 3,481,000 3,358,000 (629,000) 3,597,000 3,533,000 (215,000) $27,221,000 $31,854,000 $33,989,000 Total: Current $25,300,000 $26,404,000 $32,442,000 Deferred 1,921,000 5,450,000 1,547,000 $27,221,000 $31,854,000 $33,989,000
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 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, 1996 1995 1994 Statutory amount, computed at 35 percent $ 25,925,000 $ 29,721,000 $ 31,606,000 State tax provisions, net of federal income tax benefit 1,482,000 2,664,000 3,702,000 Foreign income taxed at rates other than the statutory rate (78,000) (107,000) (592,000) Federal tax credits (1,266,000) (722,000) (486,000) Other, net 1,158,000 298,000 (241,000) $ 27,221,000 $ 31,854,000 $ 33,989,000
Superior Industries International, Inc. 29 Page 27 Notes to Consolidated Financial Statements, (continued) 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, 1996 1995 Deferred tax assets Insurance reserves not currently deductible $ (834,000) $ (1,166,000) Inventory reserves not currently deductible (641,000) (569,000) Other reserves not currently deductible (5,348,000) (4,369,000) Deferred compensation (3,913,000) (3,523,000) Revenue recognized for tax purposes (607,000) (597,000) State taxes expensed currently, deductible in following year (1,021,000) (1,057,000) Foreign currency translation adjustment (7,300,000) (7,400,000) Other (1,569,000) (929,000) (21,233,000) (19,610,000) Deferred tax liabilities Differences between book and tax basis of property, plant and equipment 19,316,000 19,351,000 Differences between financial & tax accounting associated with foreign operations 6,267,000 2,727,000 25,583,000 22,078,000 $ 4,350,000 $ 2,468,000
7. SHAREHOLDERS' EQUITY The common stock of the Company at December 31, 1996 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 1996, 1995 and 1994 the weighted average number of common shares outstanding was 28,798,000, 29,895,000 and 30,376,000, respectively. 8. BUSINESS SEGMENT AND SIGNIFICANT CUSTOMERS The Company manufactures motor vehicle parts and accessories for sale on normal, generally unsecured trade terms to original equipment manufacturers (OEMs) and the automotive aftermarket on an integrated one-segment basis. At December 31, 1996 and 1995, the allowance for doubtful accounts receivable was $718,000 and $722,000, respectively. The following percentages of the Company's consolidated net sales were made to the Ford Motor Company and General Motors Corporation: 1996, 47.4 percent and 40.1 percent; 1995, 47.4 percent and 41.2 percent; 1994, 47.0 percent and 41.0 percent. These two customers represented 81% of trade receivables at December 31, 1996. 9. INVENTORIES
December 31, 1996 1995 Raw materials $16,474,000 $18,485,000 Work in process 13,461,000 12,815,000 Finished goods 17,795,000 22,523,000 $47,730,000 $53,823,000
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. Superior Industries International, Inc. 30 Page 28 Notes to Consolidated Financial Statements, (continued) 10. PROPERTY AND DEPRECIATION
December 31, 1996 1995 Land and buildings $ 48,124,000 $ 47,900,000 Machinery and equipment 258,490,000 243,685,000 Leasehold improvements and other 4,746,000 4,540,000 Construction in progress 10,495,000 13,764,000 321,855,000 309,889,000 Less - Accumulated depreciation and amortization 160,185,000 132,351,000 $161,670,000 $177,538,000
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. 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 $40,000, $850,000 and $1,933,000 were capitalized during 1996, 1995 and 1994, respectively. 11. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of the Company's financial instruments are summarized as follows:
December 31, 1996 1995 Carrying Carrying Amount Fair Value Amount Fair Value Assets: Cash and equivalents $36,815,000 $36,815,000 $ 3,366,000 $ 3,366,000 Short-term investments 5,288,000 5,288,000 7,813,000 7,813,000 Long-term investments 6,378,000 6,378,000 6,883,000 6,883,000 Liabilities: Short-term borrowings -- -- 4,800,000 4,800,000 Senior notes 3,333,000 3,421,000 11,666,000 12,048,000
The carrying amount of short-term cash equivalents represents the best estimate of fair value. At December 31, 1996, the Company's cash in banks exceeded federally insured limits by $14,700,000, however substantially all of these deposits are held by the largest banks in North America. 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. Superior Industries International, Inc. 31 Page 29 Notes to Consolidated Financial Statements, (continued) 12. LIABILITIES The components of accrued and long-term liabilities are as follows:
December 31, 1996 1995 Accrued Payroll and related benefits $11,609,000 $ 9,665,000 Insurance reserves 3,347,000 3,969,000 Taxes, other than income tax 3,199,000 2,478,000 Income taxes 2,988,000 2,217,000 Interest and dividends 1,777,000 1,538,000 Tooling and maintenance 611,000 718,000 Other 2,786,000 613,000 $26,317,000 $21,198,000 Long-term Executive retirement and deferred compensation plans $ 9,424,000 $ 8,290,000 Deferred operating lease payments 7,801,000 7,168,000 Other 625,000 1,749,000 $17,850,000 $17,207,000
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. 14. OTHER INCOME Miscellaneous, net includes pre-production costs of $7,400,000 and $5,800,000 in 1996 and 1995, respectively, relating to the start-up of the Fayetteville, Arkansas chrome-plating facility. Superior Industries International, Inc. 32 Page 30 Notes to Consolidated Financial Statements, (continued) 15. QUARTERLY FINANCIAL DATA (UNAUDITED) (In thousands except per share amounts)
First Second Third Fourth Total December 31, 1996 Quarter Quarter Quarter Quarter Year Net Sales $121,461 $137,554 $120,447 $124,779 $504,241 Gross Profit 21,724 30,356 24,409 25,224 101,713 Net Income 8,629 13,909 11,428 12,884 46,850 Earnings Per Share .30 .48 .40 .45 1.63 Dividends Per Share .05 .06 .06 .06 .23
First Second Third Fourth Total December 31, 1995 Quarter Quarter Quarter Quarter Year Net Sales $134,360 $142,761 $113,176 $131,700 $521,997 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 .52 .56 .28 .42 1.78 Dividends Per Share .045 .05 .05 .05 .195
Superior Industries International, Inc. 33 Page 31 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, the internal auditor, and management to review and discuss the scope and major findings of the independent accountants' examination and results of internal audit reviews, including the system of internal accounting control, and accounting principles and practices. Both the independent accountants and the internal auditor have free access to the Audit Committee at any time. Signature Louis L. Borick President and Chairman of the Board Signature R. Jeffrey Ornstein Vice President & CFO Superior Industries International, Inc. 34 Page 32 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, 1996 and 1995, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Signature Arthur Andersen LLP Los Angeles, California February 12, 1997 Superior Industries International, Inc. 35 IBC 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. & Director Bowne of Los Angeles 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 Managing Director, Chrysler de Mexico, SA. 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 L. Knott Vice President, Midwest Group Daniel L. Levine Corporate Secretary and Assistant Treasurer Henry C. Maldini Vice President, Engineering Frank Monteleone Vice President, Purchasing R. Jeffrey Ornstein Vice President & CFO Michael J. O'Rourke Vice President, OEM Program Administration Delbert J. Schmitz Vice President, Aftermarket Marketing COUNSEL AND AUDITORS General Counsel Irell & Manella Auditors Arthur Andersen LLP PLANT AND SUBSIDIARY LOCATIONS Van Nuys, California Bernard J. O'Neil Corporate Director of Manufacturing Fayetteville, Arkansas Peter J. Corio, Plant Manager Rogers, Arkansas David C. Rodgers, Plant Manager Chrome Plating Plant Fayetteville, Arkansas I. Armando Valdez, Plant Manager Pittsburg, Kansas P.S. Reddy, General Manager Johnson City, Tennessee Superior Puerto Rico Pedro Mora, General Manager Superior Industries de Mexico, SA de CV Gabriel Soto, General Manager West Memphis, Arkansas Terrence J. Schultz, General Manager Superior Engineered Technologies, Inc. JOINT VENTURES ASI Aluminum Company of America (Alcoa) Suoftec Kft (Europe) Otto Fuchs Metallwerke Topy-Superior Limited (Japan) Topy Industries Limited TRANSFER AGENT AND REGISTRAR Chase 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 16, 1997 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 INTERNET WEB ADDRESS http://www.supind.com INVESTOR RELATIONS Pondel Parsons & Wilkinson Los Angeles, California 310.207.9300 Design & Production by DIMON Creative Communications, Burbank, CA 36 Back Cover Superior Industries International, Inc. 7800 Woodley Avenue Van Nuys, CA 91406 818.781.4973 Fax 818.780.3500 http://www.supind.com Logo: NYSE EX-21.1 3 EXHIBIT 21.1 1 LIST OF SUBSIDIARIES
Percentage of Voting Stock Jurisdiction Owned by the of Company or Name Incorporation Other Subsidiary ---- ------------- ---------------- Superior - Ideal, Inc. Iowa, U.S.A. 100% owned by Company Superior Performance Ontario, Canada 100% Products (Canada) Inc. owned by Company Industrias Universales Mexico 100% Unidas de Mexico, S.A. owned by Company Superior Industries Delaware, U.S.A. 100% International - owned by Company P.R. Inc. Suinco Assurance Ltd. Bermuda 100% owned by Company Superior Industries Delaware, U.S.A. 100% International Leasing owned by Superior Corporation Industries International - P.R. Inc. Superior Astechnology Delaware, U.S.A. 100% Inc. owned by Company Topy-Superior Limited Tokyo, Japan 50% owned by Company Superior Engineered Delaware, U.S.A. 100% Technologies, Inc. owned by Company Superior Industries Chihuahua, Mexico 100% de Mexico S.A. de C.V. owned by Company and Superior Engineered Technologies, Inc. Suoftec Light Metal Products B.V. Netherlands 100% owned by Company
Exhibit 21.1 2
Percentage of Voting Stock Jurisdiction Owned by the of Company or Name Incorporation Other Subsidiary ---- ------------- ---------------- Suoftec Light Metal Products KFT Hungary 50% owned by Suoftec Light Metal Products B.V. Superior Industries International - Tennessee, U.S.A. 100% Tennessee, Inc. owned by Superior International Distribution Corporation Superior Industries International - Kansas, U.S.A. 100% Kansas, Inc. owned by Superior International Distribution Corporation Superior Industries International - Arkansas, U.S.A. 100% Arkansas, Inc. owned by Superior International Distribution Corporation Superior Industries International - California, U.S.A. 100% California, Inc. owned by Superior International Distribution Corporation Superior Industries Management California, U.S.A. 100% Corporation owned by Company Superior Industries International California, U.S.A. 100% Distribution Corporation owned by Company Superior Industries International - Michigan, U.S.A. 100% Michigan, Inc. owned by Superior International Distribution Corporation
Exhibit 21.1 EX-23.1 4 EXHIBIT 23.1 1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 12, 1997, included in Superior Industries International, Inc.'s annual report to shareholders on Form 10-K for the year ended December 31, 1996, into the Company's previously filed Registration Statements File Nos. 2-80130, 33-48547 and 33-64088. ARTHUR ANDERSEN LLP Los Angeles, California March 21, 1997 Exhibit 23.1 EX-27.1 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1996 AND THE CONSOLIDATED STATEMENTS OF INCOME FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 36,815 5,288 67,837 1,270 47,730 164,080 321,885 160,195 357,590 3,874 2,473 0 0 14,162 236,949 357,590 504,241 505,399 402,528 422,459 7,385 0 1,484 74,071 27,221 46,850 0 0 0 46,850 1.63 0 FOOTNOTE 1: OTHER EXPENSES INCLUDE MISCELLANEOUS EXPENSE.
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