UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

SUPERIOR INDUSTRIES INTERNATIONAL, INC.

Securities registered pursuant to Section 12(g) of the Act: None

SUPERIOR INDUSTRIES INTERNATIONAL, INC.

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf.  We have included or incorporated by reference in this Annual Report on Form 10-K (including in the sectionsections entitled Management’s"Risk Factors" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations)Operations"), and from time to time our management may make, statements that may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are based upon management's current expectations, estimates, assumptions and beliefs concerning future events and conditions and may discuss, among other things, anticipated future performance (including sales and earnings), expected growth, future business plans and costs and potential liability for environmental-related matters. Any statement that is not historical in nature is a forward-looking statement and may be identified by the use of words and phrases such as “expects,” “anticipates,” “believes,” “will,” “will likely result,” “will continue,” “plans to” and similar expressions. These statements include our belief and statements regarding general automotive industry and market conditions and growth rates, as well as general domestic and international economic conditions.

Readers are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements are necessarily subject to risks, uncertainties and other factors, many of which are outside the control of the company, which could cause actual results to differ materially from such statements and from the company's historical results and experience.  These risks, uncertainties and other factors include, but are not limited to those described in Part I - Item 1A - Risk Factors and Part II - Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Annual Report on Form 10-K and elsewhere in the Annual Report and those described from time to time in our future reports filed with the Securities and Exchange Commission.

Readers are cautioned that it is not possible to predict or identify all of the risks, uncertainties and other factors that may affect future results and that the risks described herein should not be considered to be a complete list. Any forward-looking statement speaks only as of the date on which such statement is made, and the company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

 

Headquartered in Van Nuys, California, theThe principal business of Superior Industries International, Inc. (referred to herein as the “company” or in the first person notation “we,” “us” and “our”) is the design and manufacture of aluminum road wheels for sale to original equipment manufacturers ("OEMs"). We are one of the largest suppliers of cast aluminum wheels to the world's leading automobile and light truck manufacturers, with wheel manufacturing operations in the United States and Mexico. Products made in our North American facilities are delivered primarily to automotive assembly operations in North America both for domestic and internationally branded customers.global OEMs. Our OEM aluminum road wheels primarily are sold for factory installation, as either optional or standard equipment, on many vehicle models manufactured by BMW, Fiat Chrysler Automobiles N.V. ("FCA"), Ford, General Motors ("GM"), Toyota, Chrysler Group LLC ("Chrysler"), BMW, Mitsubishi, Nissan, Subaru, VolkswagenTesla, Toyota and Tesla.Volkswagen.

 

In 2012,2014, production of automobiles and light-duty trucks in North America reached 15.416.9 million units, an increase of 185 percent over 2011.2013. Production in 20112013 reached 13.116.1 million units, an increase of 1.20.7 million, or 105 percent, from 11.915.4 million vehicles in 2010. Continued improvement in the U.S. economy, low consumer interest rates and pent-up demand for vehicles following the 2009 recession all contributed to market demand recovery.2012.

We were initially incorporated in Delaware in 1969 and reincorporated in California in 1994. In 2015, we moved our headquarters from Van Nuys, California to Southfield, Michigan and reincorporated in Delaware in 2015. Our stock is traded on the light-duty truck category withNew York Stock Exchange under the domestic brands gaining market share in 2013. Consistent with the overall market, the company's unit sales were stronger in light-duty trucks than passenger cars and domestic brands held firmer than international brands.symbol "SUP."

When market conditions warrant, we also may also enter into purchase commitments to secure the supply of certain commodities used in the manufacture of our products, such as aluminum, natural gas and other raw materials. We currently have severalhad purchase commitments for the delivery of natural gas through the end of 2015. These natural gas contracts arewere considered to be derivatives under U.S. GAAP,generally accepted accounting principles ("GAAP"), and when entering into these contracts, it was expected that we would take full delivery of the contracted quantities of natural gas over the normal course of business. Accordingly, at inception, these contracts qualified for the normal purchase, normal sale ("NPNS") exemption provided for under U.S. GAAP. As such, we do not account for these purchase commitments as derivatives unless there is a change in facts or circumstances in regard to the company's intent or ability to use the contracted quantities of natural gas over the normal course of business. See Note 11 - Commitments and Contingent Liabilities in Notes to Consolidated Financial Statements in Item 8 - Financial Statements and Supplementary Data of this Annual Report for further discussion of natural gas contracts.

 

 

We have proven our ability to be a consistent producer of high quality aluminum wheels with the capability to meet our customers' price, quality, delivery and service requirements. We strive to continually enhance our relationships with our customers through

The loss of all or a substantial portion of our sales to Ford, GM, Toyota or ChryslerFCA would have a significant adverse effect on our financial results. See also Item 1A - Risk Factors - Customer Concentration of this Annual Report.

We receive OEM purchase orders to produce aluminum road wheels typically for multiple model years. These purchase orders are typically for one year for vehicle wheel programs that usually last three to five years. However, competitive price clauses in such purchase orders can affect our profit margins or the share of volume we are awarded under those purchase orders. We manufacture and ship based on customer release schedules, normally provided on a weekly basis, which can vary in part due to changes in demand, industry and/or customer maintenance cycles, new program introductions or dealer inventory levels. Accordingly, even though customer purchase orders cover multiple model years, our management does not believe that our firm backlog is a meaningful indicator of future operating results.

 

Our policy is to continuously review, improve and develop our engineering capabilities to satisfy our customer requirements in the most efficient and cost effective manner available. We strive to achieve this objective by attracting and retaining top engineering talent and by maintaining the latest state-of-the-art computer technology to support engineering development. A fully staffed engineering center, located in Fayetteville, Arkansas, supports our research and development manufacturing needs. We also have a technical sales center at our corporate headquarters in Detroit,Southfield, Michigan that maintains a complement of engineering staff centrally located near some of our largest customers' headquarters and engineering and purchasing offices.

Research and development costs (primarily engineering and related costs), which are expensed as incurred, are included in cost of sales in our consolidated income statements. Amounts expended on research and development costs during each of the last three years were $2.6 million in 2015; $4.4 million in 2014; and $4.8 million in 2013; $5.8 million in 2012; and $5.3 million in 2011.2013.

Safety standards in the manufacture of vehicles and automotive equipment have been established under the National Traffic and Motor Vehicle Safety Act of 1966. We believe that we are in compliance with all federal standards currently applicable to OEM suppliers and to automotive manufacturers.

We operate as a single integrated business and, as such, have only one operating segment - automotive wheels. Financial information about this segment and geographic areas is contained in Note 25 - Business Segments in Notes to Consolidated Financial Statements in Item 8 - Financial Statements and Supplementary Data of this Annual Report.

The automotive industry is cyclical and varies based on the timing of consumer purchases of vehicles, which in turn vary based on a variety of factors such as general economic conditions, availability of consumer credit, interest rates and fuel costs. While there have been no significant seasonal variations in the past few years, production schedules in our industry can vary significantly from quarter to quarter to meet the scheduling demands of our customers.

Our Annual Report on Form 10-K, quarterly reports on Form 10-Q current reports on Form 8-K and other information statements, and any amendments thereto are available, without charge, on or through our website, www.supind.com, under “Investor,“Investors,” as soon as reasonably practicable after they are filed electronically with the Securities and Exchange Commission ("SEC"). The public may read and copy any materials filed with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website, www.sec.gov, which contains these reports, proxy and information statements and other information regarding the company. Also included on our website, www.supind.com, under "Investor," is our Code of Conduct, which, among others, applies to our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, and our SEC filings.Officer. Copies of all SEC filings and our Code of Conduct are also available, without charge, upon request from Superior Industries International, Inc., Shareholder Relations, 7800 Woodley Avenue, Van Nuys, CA 91406.26600 Telegraph Road, Suite 400, Southfield, MI 48034.

The content on any web sitewebsite referred to in this Annual Report on Form 10-K is not incorporated by reference in this Annual Report on Form 10-K unless expressly noted.

The following discussion of risk factors contains “forward-looking” statements, which may be important to understanding any statement in this Annual Report or elsewhere. The following information should be read in conjunction with Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") and Item 8 - Financial Statements and Supplementary Data of this Annual Report.

Our business routinely encounters and addresses risks and uncertainties. Our business, results of operations and financial condition could be materially adversely affected by the factors described below. Discussion about the important operational risks that our business encounters can also be found in the MD&A section and in the business description in Item 1 - Business of this Annual Report. Below, we have described our present view of the most significant risks and uncertainties we face. Additional risks and uncertainties not presently known to us, or that we currently do not consider significant, could also potentially impair our business, results of operations and financial condition. Our reactions to these risks and uncertainties as well as our competitors' reactions will affect our future operating results.

The vehicle market is highly competitive at the OEM level, which drives continual cost-cutting initiatives by our existing liquidity is currently adequatecustomers. Customer concentration, relative supplier fragmentation and product commoditization have translated into continual pressure from OEMs to fundreduce the project, dedicationprice of our financial resourcesproducts. It is possible that pricing pressures beyond our expectations could intensify as OEMs pursue restructuring and cost-cutting initiatives. If we are unable to this project will reduce our liquidity and working capital, which in turn may limit our flexibility to pursue other initiatives to grow our business or to return capital to our shareholders. After making such an investment, a significant change in our business, the economy or an unexpected decrease in our cash flow for any reason could resultgenerate sufficient production cost savings in the need for outside financing.

 

Although we are able to periodically pass certain aluminum cost increases ontoon to our customers, we may not be able to pass along all changes in aluminum costs and our customers are not obligated to accept energy or other supply cost increases that we may attempt to pass along to them. In addition, fixed price natural gas contracts that expire in the future may expose us to higher costs that cannot be immediately recouped in selling prices. This inability to pass on these cost increases to our customers could adversely affect our operating margins and cash flow, possibly resulting in lower operating income and profitability.

ItSimilarly, it also is possible that our customers may experience production delays or disruptions for a variety of reasons, which could include supply-chain disruption for parts other than wheels, equipment breakdowns or other events affecting vehicle assembly rates that impact us, work stoppages or slow-downs at factories where our products are consumed, or even catastrophic events such as fires, disruptive weather conditions or natural disasters. Such disruptions at the customer level may cause the affected customer to halt or limit the purchase of our products.

The aluminum we use to manufacture wheels also contains additional alloying materials, including silicon. The cost of alloying materials also is a component of the overall cost of a wheel. The price of the alloys we purchase is also based on certain published market indices; however, most of our customer agreements do not provide price adjustments for changes in market prices of alloying materials. Increases or decreases in the market prices of these alloying materials could have a material effect on our operating margins and results of operations.

Climate changeFurther, changes in legislation or regulations restricting emission of “greenhouse gases” could result in increased operating costs and reduced demand for the vehicles that use our product. On December 15, 2009, the U.S. Environmental Protection Agency (EPA) published its findings that emissions of carbon dioxide, methane and other “greenhouse gases” present an endangerment to public health and the environment because emissions of such gases are, according to the EPA, contributing to warming of the earth's atmosphere and other climatic changes. These findings allow the EPA to adopt and implement regulations that would restrict emissions of greenhouse gases under existing provisions of the federal Clean Air Act. Accordingly, the EPA has proposed regulations that would require a reduction in emissions of greenhouse gases from motor vehicles and could trigger permit review for greenhouse gas emissions from certain stationary sources. In addition, on October 30, 2009, the EPA published a final rule requiring the reporting of greenhouse gas emissions from specified large greenhouse gas emission sources in the United States, including facilities that emit more than 25,000 tons of greenhouse gases on an annual basis, beginning in 2011 for emissions occurring in 2010. At the state level, more than one-third of the states, either individually or through multi-state regional initiatives, already have begun implementing legal measures to reduce emissions of greenhouse gases. The adoption and implementation of any regulationsregulation imposing reporting obligations on, or limiting emissions of greenhouse gases from, or otherwise impacting or limiting our equipment and operations or from the vehicles that use our productproducts could adversely affect demand for those vehicles or require us to incur costs to reduce emissions of greenhouse gases associatedbecome compliant with our operations.

None.

Our worldwide headquarters is located in Van Nuys, California.Southfield, Michigan. We currently maintain and operate a total of five facilities that producemanufacture aluminum wheels for the automotive industry. Four of these five facilities are located in Chihuahua, Mexico and one facility is located in Fayetteville, Arkansas. One of the facilities in Chihuahua, Mexico is new, with construction completed in 2014. The new facility also produces aluminum wheels for the automotive industry, locatedand production levels reached initial rated capacity in the fourth quarter of 2015. An expansion to this facility is in the process of being installed and is expected to be completed during the first quarter of 2016. Excluding the Rogers, Arkansas and Chihuahua, Mexico. An additional facility that will also produce aluminum wheels forlocation which was closed in 2014, the automotive industry is under construction in Chihuahua, Mexico. These sixfive active facilities encompass 2,907,0002,540,000 square feet of manufacturing space. We own all of theseour manufacturing facilities, with the exception ofand we lease one warehouse in Rogers, Arkansas and our worldwide headquarters located in Van Nuys, California that are leased.Southfield, Michigan.

In general, theseour manufacturing facilities, which have been constructed at various times over the past several years, are in good operating condition and are adequate to meet our current productiveproduction capacity requirements. There are active maintenance programs to keep these facilities in good condition, and we have an active capital spending program to replace equipment as needed to keepmaintain factory reliability and remain technologically competitive on a worldwide basis.

Additionally, reference is made to Note 1 - Summary of Significant Accounting Policies, Note 58 - Property, Plant and Equipment and Note 811 - Leases and Related Parties, in Notes to the Consolidated Financial Statements in Item 8 - Financial Statements and Supplementary Data of this Annual Report.

We are party to various legal and environmental proceedings incidental to our business. Certain claims, suits and complaints arising in the ordinary course of business have been filed or are pending against us. Based on facts now known, we believe all such matters are adequately provided for, covered by insurance, are without merit, and/or involve such amounts that would not materially adversely affect our consolidated results of operations, cash flows or financial position. See also under Item 1A - Risk Factors - Legal Proceedings of this Annual Report.

Not applicable.

Listed below are the name, age, as of December 31, 2013, position and business experience of each of our officers, as of the filing date, who are not directors:

Per share cash dividends declared totaled $0.20$0.72 during 2015 and $1.12 during 2013 and 2012, respectively.2014. Dividends declared and paid in 2012 included2013 totaled $0.20 per share and excluded an accelerated payment of the 2013 regular cash dividend of $0.64 that was paid in December 2012 in addition to the regular dividend paid each quarter during 2012 equal to $0.16 per share. The accelerated dividend payment was intended to be in lieu of regular quarterly dividends that the company otherwise would have paid in calendar year 2013. In the third quarter of 2013, the Board of Directors approved a $0.02 increase in the company's quarterly dividend to $0.18 per share from $0.16 per share, or on an annualized basis to $0.72 per share from $0.64 per share. Continuation of dividends is contingent upon various factors, including economic and market conditions, none of which can be accurately predicted, and the approval of our Board of Directors.

The following table sets forth the high and low sales price per share of our common stock during the fiscal periods indicated.

On March 27, 2013, our Board of Directors approved a new stock repurchase program (the "Repurchase"2013 Repurchase Program") authorizing the repurchase of up to $30.0 million of our common stock. ThisThrough December 31, 2014, we repurchased and retired 1,510,759 shares under the program at a total cost of $30.0 million under the 2013 Repurchase Program.

In October 2014, our Board of Directors approved a new stock repurchase program replaced(the "2014 Repurchase Program") authorized the previously existing share repurchase program.of up to $30.0 million of our common stock. Under the 2014 Repurchase Program, we repurchased common stock from time to time on the open market or in private transactions, totaling 1,056,954 shares of company stock at a cost of $19.6 million in 2015 and 585,970 shares for $10.3 million in January 2016.

In January of 2016, our Board of Directors approved a new stock repurchase program (the “2016 Repurchase Program”), authorizing the repurchase of up to an additional $50.0 million of common stock.  Under the 2016 Repurchase Program, we may repurchase common stock from time to time on the open market or in private transactions. Currently, we expect to fund the repurchases through available cash, although credit options are being evaluated in the context of total capital needs. The timing and extent of the repurchases under the 2016 Repurchase Program will depend upon market conditions and other corporate considerations in our sole discretion.

The following selected consolidated financial data should be read in conjunction with Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 8 - Financial Statements and Supplementary Data of this Annual Report.

The following discussion of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the Notes to the Consolidated Financial Statements included in Item 8 - Financial Statements and Supplementary Data in this Annual Report. This discussion contains forward-looking statements, which involve risks and uncertainties. For cautions about relying on such forward-looking statements, please refer to the section entitled “Forward Looking Statements” at the beginning of this Annual Report immediately prior to Item 1. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors, including but not limited to those discussed in Item 1A - Risk Factors and elsewhere in this Annual Report.

Overall North American production of passenger cars and light-duty trucks in 20132015 was reported by industry publications as being up by approximately 5 percentflat versus 2012,2014, with production of light-duty trucks--the light-duty truck categorytrucks which includes pick-up trucks, SUV's, vans and "crossover vehicles"--increasing 75 percent andwith production of passenger cars increasing 2decreasing 1 percent.  While currentCurrent production levels of the U.S.North American automotive industry are better than 2012 levels, they are still below historical highs.now have reached the highest level in the past decade. Results for 2013, 20122015, 2014 and 20112013 reflect the continuing trend of growth since the 2009 recession. Current economic conditions and low consumer interest rates have been generally supportive of market growth and, in addition, the continuing increasehigh levels in the average age of vehicles on the road appears to be contributing to higher rates of vehicle replacement.

Net sales in 20132015 decreased $31.9$17.5 million to $789.6$727.9 million from $821.5$745.4 million in 2012.2014.  Wheel sales in 20132015 decreased $32.9$15.4 million to $779.5$721.1 million from $812.4$736.5 million in 2012,2014, while our wheel unit shipments decreased 0.6increased 0.1 million to 11.911.2 million in 2013.  2015.  Value added sales in 2015 decreased $8.6 million to $360.8 million from $369.4 million in 2014. See the Non-GAAP Financial Measures section of this annual report for a reconciliation of value added sales to net sales.

Gross profit in 20132015 was $64.1$71.2 million, or 810 percent of net sales, compared to $60.6$50.2 million, or 7 percent of net sales, in 2012.2014.  Net income for 20132015 was $22.8$23.9 million, or $0.83$0.90 per diluted share, including income tax expense of $14.0$11.3 million, compared to net income in 20122014 of $30.9$8.8 million, or $1.13$0.33 per diluted share, which included an income tax expense of $3.6$6.9 million. Net income as a percentage of net sales was 3 percent in 2015, as compared to 1 percent in 2014. Adjusted EBITDA as a percentage of value added sales in 2015 was 21 percent, as compared to 15 percent in 2014. See the Non-GAAP Financial Measures section of this annual report for a reconciliation of Adjusted EBITDA to net income, and value added sales to net sales.

The comparisons below of 20132015 and 20122014 operating results reflect higher margins due primarily to lowerthe impacts of the company’s cost reduction efforts. The comparisons below of 2014 and 2013 operating results reflect the impact of costs in 2013 at2014 totaling $12.2 million ($8.6 million after tax, or $0.32 per share) associated with several items including the closure of our U.S. operations.Rogers facility, the sale of the company's two aircraft and the impairment of an investment in an unconsolidated subsidiary located in India. Adjustments for the Rogers facility closure reduced gross profit $8.4 million, while adjustments for the aircraft added charges totaling $1.3 million in SG&A and a $2.5 million impairment charge for the investment in the unconsolidated Indian subsidiary

is included in other income (expense). Lower costs in 2013 resulted from several factors including improved equipment and manufacturing process reliability as a result of capital reinvestment and more rigorous maintenance programs. The comparisons below of 2012 and 2011 operating results reflect higher costs in 2012 resulting from equipment reliability problems and manufacturing process issues with certain wheel programs which continued to increase our costs during sustained periods of high manufacturing capacity utilization.

Committed to enhance shareholder value, in March 2013, our Board of Directors approved a new stock repurchase programthe 2013 Repurchase Program, authorizing the repurchase of up to $30.0 million of our common stock. DuringUnder the 2013 Repurchase Program we repurchased 421,0001,510,759 shares of company stock at a cost of $30.0 million of which 1,089,560 shares were repurchased for $21.8 million in 2014. In October 2014, our Board of Directors approved the 2014 Repurchase Program, authorizing the repurchase of up to $30.0 million of our common stock. Under the 2014 Repurchase Program, we repurchased 1,056,954 shares of company stock at a total investmentcost of $8.1$19.6 million in 2015 and 585,970 shares for $10.3 million in January 2014 we repurchased2016. In January of 2016, our Board of Directors approved the 2016 Repurchase Program, authorizing the repurchase of up to $50.0 million of common stock.

We established a senior secured revolving credit facility in December 2014. The facility provides an additional 92,000 shares bringing our total investmentinitial aggregate principal amount of $100.0 million. In addition, the company is entitled to request, under the programterms and conditions of the agreement, an increase in the aggregate revolving commitments under the facility or to $10.0 million.obtain incremental term loans in an aggregate amount not to exceed $50.0 million, which currently is uncommitted to by any lenders. At December 31, 2015, we had no borrowings under the facility.

Net sales in 20132015 decreased $31.9$17.5 million to $789.6$727.9 million from $821.5$745.4 million in 2012.2014.  Wheel sales in 20132015 decreased $32.9$15.4 million to $779.5$721.1 million from $812.4$736.5 million in 2012.2014. Wheel shipments decreasedincreased by 51 percent in 2015 compared to 20122014 with the lowerhigher volume resulting in $37.5$6.7 million lowerhigher sales compared to 2012.2014. Net sales were unfavorably impacted by a decline in the value of the aluminum component of sales which we generally pass through to our customers and resulted in $12.8$11.3 million lower revenues. The average selling price of our wheels was relatively flatdecreased 2 percent as the unfavorable impact of the decline in aluminum value and the mix of wheel sizes and finishes sold was offset partially by a favorable change in the volume of wheels sold. Decreases

Net sales in 2014 decreased $44.2 million to $745.4 million from $789.6 million in 2013.  Wheel sales in 2014 decreased $43.0 million to $736.5 million from $779.5 million in 2013. Wheel shipments decreased by 7 percent compared to 2013 with the lower volume resulting in $50.6 million lower sales compared to 2013. Net sales were favorably impacted by an increase in the value of the aluminum component of sales which we generally pass through to our customers and resulted in $11.9 million higher revenues. The average selling price of our wheels increased 1 percent as the favorable impact of the increase in aluminum value was offset by favorableunfavorable changes in the mix of wheel sizes and finishes sold. Decreases in unit shipments to Nissan,Ford, GM, Chrysler, Subaru,FCA, BMW, MitsubishiToyota and VWMitsubishi were partially offset by increases in unit shipments to Ford, Toyota,Nissan, Subaru, Mazda, Tesla and Mazda.VW.  Wheel program development revenues totaled $9.0 million in 2014 and $10.1 million in 2013 and $9.1 million in 2012.2013.

Net sales of our U.S. wheel plants in 20132014 decreased $30.9$23.9 million, or 109 percent, to $277.1$253.2 million from $308.0$277.1 million a year ago, reflecting a decrease in unit shipments partially offset by an increase in the average selling price of our wheels. Unit shipments decreased 1213 percent in 2013,2014, with the decline in volume resulting in $36.7$36.4 million lower sales. The volume impact was partially offset by a 15 percent increase in the average selling price of our wheels, primarily due to an improved mix of wheel sizes and finishes sold partially offset by a decreaseand an increase in the pass-through price of aluminum. The decline inhigher aluminum value reducedincreased revenues by approximately $4.2$3.4 million in 20132014 when compared to 2012.2013.

Net sales of our Mexico wheel plants in 20132014 decreased $1.8$19.2 million, or less than 14 percent, to $483.3 million from $502.5 million from $504.3 million in 2012,2013, reflecting flata decline in unit shipments and a slightsmall decrease in average selling prices of our wheels.  Unit shipments decreased 3 percent in 2014, with the decline in volume resulting in $14.0 million lower sales. The average selling price of our wheels decreased 1 percent in 20132014 primarily as a result of a lower pass-through price of aluminum partially offset by a favorable mix of wheel sizes and finishes sold. The decline in aluminum value reduced revenues approximately $8.6 million when compared to 2012.

When looking at our major customer mix, OEM unit shipment percentages were as follows:

At the customer level, shipments in 20132015 to Ford increased 9less than 1 percent compared to last year,2014, as shipments of light-duty truck wheels increased 11 percent and passenger car wheels increased 134 percent and light-duty truck wheels decreased 9 percent.  At the program level, the major unit shipment increases were for the Focus, Fusion, Taurus, F-Series trucks the Lincoln MKZ,and Explorer Edge, Fiesta and Flex withoffset by shipment decreases for the FusionMustang, Fiesta, MKZ, Edge, Flex, Expedition, Escape, MKC and Mustang.Navigator. 

Shipments to GM in 2013 decreased 112015 increased 4 percent compared to 2012,2014, as unit volume of passenger car wheels decreased 57increased 4 percent and light-duty truck wheel shipments increased 4 percent.  The major unit shipment increases to GM were for the Malibu, Traverse, K2XX platform vehicles, Colorado and Denali/Escalade offset by major unit shipment decreases for the ATS, Volt, Impala, XTS, SRX, Enclave, Terrain and Equinox.

Shipments to FCA in 2015 decreased 123 percent compared to 2014, as passenger car wheel shipments decreased 12 percent and unit volume of light-duty truck wheels decreased 24 percent.  The major unit shipment decreases to GMFCA were for Chevrolet’s Malibu, Impalathe Dodge Challenger, Town and Traverse,Country, Journey, Durango, Compass and the Cadillac SRXDodge-Ram trucks which were partially offset by major unit shipment increases for the Chevrolet Enclave and the Cadillac ATS.Magnum/Charger.

Shipments to Toyotaother customers in 20132015 increased 211 percent compared to last year,2014, as shipments of passenger car wheels increased 616 percent and light-duty truck wheels increased 5 percent.  The major unit shipment increases to Toyota were for the Avalon and Sienna.

Aluminum, natural gas and other direct material costs are a significant component of our costs to manufacture wheels.  These costs are substantially the same for all of our plants since many common suppliers service both our U.S. and Mexico operations. Consolidated cost of sales includes costs for both our U.S. and international operations, which are principally our wheel manufacturing operations in Mexico, and certain costs that are not allocated to a specific operation.  These unallocated expenses include corporate services that are primarily incurred in the U.S. but are not charged directly to our world-wide operations, such as engineering services for wheel program development and manufacturing support, environmental and other governmental compliance services.

The lower levels of manufacturing costs reflect a variety of factors which primarily include lower unit volumes, labor costs, supplies and maintenance spending.spending, partially offset by higher aluminum prices and Rogers facility closure costs. Productivity, measured in terms of wheels produced per labor hour decreased 3increased 6 percent in 20132014 when compared with 2012 primarily due to the volume decline. A 22013, and a 1 percent increase in manufacturing labor cost per wheel was lower than the average rate of hourly wage increase in our manufacturing operations. Included below are the major items that impacted cost of sales for our U.S. and Mexico operations during 2013.2014.

Consolidated gross profit increased $3.5decreased $13.9 million in 20132014 to $50.2 million, or 7 percent of net sales, compared to $64.1 million, or 8 percent of net sales, comparedin 2013.  The decrease in gross profit primarily reflects the unfavorable impact of the 7 percent decrease in unit shipments and the $8.4 million of costs related to $60.6 million, or 7the Rogers facility closure which equaled 1 percent of net sales in 2012 as unit shipments decreased 5 percent in 2013.  The 2012 gross profit includes a $3.5 million benefit from the release of a reserve for an uncertainty related to a foreign consumption tax, as described above. The gross profit and margin percentage increases were largely the result of efficiency improvements at our U.S. operations due to improved equipment

The cost of aluminum is a significant component in the overall cost of a wheel and a portion of our selling prices to OEM customers is attributable toand a significant component of the overall cost of aluminum.a wheel. The price for aluminum we purchase is adjusted monthly based primarily on changes in certain published market indices. Our selling prices are adjusted periodically based upon aluminum market price changes, but the timing of such adjustments is based on specific customer agreements and can vary from monthly to quarterly. Even if aluminum selling price adjustments were to perfectly match changes in aluminum purchase prices, an increasing aluminum price will result in a declining gross margin percentage - i.e., same gross profit dollars divided by increased sales dollars equals lower gross profit percentage. The opposite would then beis true in periods during which the price of aluminum decreases. In addition, the timing ofalthough our sales are continuously adjusted for aluminum price changes, these adjustments flowing through sales rarely will match exactly the timing of such changes in cost.our aluminum purchase prices and cost of sales.  As estimated by the company, when compared to 2014, the unfavorable impact on gross profit in 2013 related to such differences in timing of aluminum adjustments was not material when comparedapproximately $6.1 million in 2015. When comparing 2014 with 2013, the favorable impact on gross profit related to the same periodsuch differences in 2012.timing of aluminum adjustments was approximately $1.5 million in 2014; however, this impact was offset by unreimbursed cost increases for aluminum alloying premiums.

Selling, general and administrative expenses were $34.9 million, or 5 percent of net sales, in 2015 compared to $32.3 million, or 4 percent of net sales, in 2014 and $29.5 million, or 4 percent of net sales, in 2013 compared2013. The 2015 increase is primarily attributable to $27.7higher professional service fees of $1.4 million or 3 percentand legal fees of net sales,$0.6 million. The higher level of professional service and legal fees incurred during 2015 relate to cost incurred in 2012association with the move of the corporate office from California to Michigan. We incurred recruiting costs, severance, relocation, duplicative costs and $25.9training costs of $4.1 million or 3 percent of net sales, in 2011.to ensure a successful transition. Compared to 2012,2013, the $1.7$2.8 million increase in 20132014 expenses primarily reflects a $2.0higher professional service fees of $2.1 million, increase in executive severance related costs, $0.8depreciation expense of $1.7 million higher medical self-insurance costswhich includes revised salvage value estimates for the company's aircraft and a $0.9legal fees of $0.6 million, higher provision for uncollectible receivables, partiallysomewhat offset by $0.9$1.3 million lower legal fees in 2013 and a $0.7 million gain from land granted to the company by the state of Chihuahua, Mexicoprovisions for our new wheel plant currently under construction. Compared to 2011, the $1.8 million increase in 2012 expenses primarily reflects $1.0 million higher legal fees in 2012 and a $1.5 million benefit in 2011 for a reduction in our deferred compensation liability.doubtful accounts receivable.

As described in the discussion of cost of sales above, aluminum, natural gas and other direct material costs are substantially the same for all our plants since many common suppliers service both our U.S. and Mexico operations. In addition, our operations in the U.S. and Mexico sell to the same customers, utilize the same marketing and engineering resources, have interchangeable manufacturing processes and provide the same basic end product.  However, profitability between our U.S. and Mexico operations can vary as a result of differing labor and benefit costs, the specific mix of wheels manufactured and sold by each plant, as well as differing plant utilization levels resulting from our internal allocation of wheel programs to our plants.

Consolidated income from operations includes results for both our U.S. and international operations, which are principally our wheel manufacturing operations in Mexico, and certain costs that are not allocated to a specific operation.   These unallocated expenses include corporate services that are primarily incurred in the U.S. but are not charged directly to our world-wide operations, such as selling, general and administrative expenses, engineering services for wheel program development and manufacturing support, environmental and other governmental compliance services.

Consolidated income from operations increased $1.7$18.4 million in 20132015 to $34.6$36.3 million, or 45 percent of net sales, from $32.9$17.9 million, or 42 percent of net sales, in 2012.2014.  Income from our Mexico operations increased $21.3 million and income from our U.S. operations increased $5.3 million, while income from our Mexico operations decreased $2.9$0.6 million, when comparing 20132015 to 2012.  Corporate2014.  Offsetting these increases were costs were $0.7 million higher during 2013 when

Consolidated income from operations in the near future may be2015 was unfavorably impacted by start-up costs associated with our new wheel plant under construction in Mexico. The new facility is expected to be operational byMexico and the endtransition of 2014; however,our corporate office. While initial commercial production began in the first quarter of 2015, cost absorption was sub-optimal until production volumes reach planned levels profit margins will be unfavorably affected.towards the end of the year.

Operating income from our U.S. operations for 20132015 increased by $5.3$0.6 million compared to the previous year. Income from operationsOperating income increased in 2013 reflects a $5.5 million improvement in gross margin versus 2012 due to reductions in operating2015 as lower costs which more thanoverall offset the impact of a 1232 percent decrease in unit shipmentsshipments. The overall cost improvement included reductions in labor due to the reallocation of production to Mexico facilities and caused a 2 percentage point increase in marginimproved productivity, as a percentage of net sales, when comparing 2013 with 2012. The operating cost reduction reflects declines in expense for labor, supplieswell as lower supply, repair and small tools, and repairs and maintenance costs as more fully explained in the cost of sales discussion above. Better cost performance largely wasHowever, the lower production levels had an unfavorable impact on operating income due to lower absorption of fixed overhead costs in 2015 when compared to last year. As a percentage of net sales, our gross margin decreased 2 percent in 2015 when compared to 2014.

Consolidated income from operations decreased $16.7 million in 2014 to $17.9 million, or 2 percent of net sales, from $34.6 million, or 4 percent of net sales, in 2013.  Income from our Mexico operations decreased $5.9 million and income from our U.S. operations decreased $6.3 million, when comparing 2014 to 2013.  Corporate service costs were $4.5 million higher during 2014 when compared to 2013, primarily as a result of efficiency gainsthe higher professional service fees of $2.1 million, depreciation expense of $1.7 million and legal fees of $0.6 million, described above in the selling, general and administrative expense discussion. Included below are the major items that impacted income from operations for our U.S. and Mexico operations during 2014.

Operating income from our U.S. operations for 2014 decreased by $6.3 million compared to the previous year, including $8.4 million of costs incurred in the current year for the Rogers facility closure as discussed above.  Excluding the costs related to the Rogers closure, operating income increased in 2014 as improvements in average selling prices of our wheels and lower costs overall offset the impact of a 13 percent decrease in unit shipments. The average selling price of our wheels increased due to an improved mix of wheel sizes and finishes sold. Excluding the Rogers closure costs, the overall cost improvement included reductions in labor due to improved equipment reliabilityproductivity, and process control resulting from capital reinvestmentlower supply, repair and maintenance costs as more robust maintenance programs. A declinefully explained in the cost of sales discussion above. However, the lower production levels had an unfavorable impact on operating income due to lower absorption of fixed overhead costs in 2013 also contributed overall2014 when compared to last year. As a percentage of net sales, excluding the Rogers closure costs, our gross margin improved factory reliability.slightly in 2014 when compared to the same period of 2013.

Operating income from our Mexico operations decreased by $2.9$5.9 million in 20132014 compared to 2012.  Excluding the benefit from release of the consumption tax reserve in 2012 discussed above, income2013.  Income from operations in 2013 increased $0.62014 reflects a $7.5 million asdecrease in gross profit, increased $1.6 million, while as a percentage of net sales our gross margins were flatdecreased 1 percentage point in 2013,2014, as compared to 2012.2013. Unit shipments were flatdecreased 3 percent in 20132014 and the average selling price of our wheels decreased due to an unfavorable mix of wheel sizes and finishes sold, when compared to 2012.2013.

During 2014, wheels produced by our Mexico and U.S. operations accounted for 69 percent and 31 percent, respectively, of our total production.  During 2013, wheels produced by our Mexico and U.S. operations accounted for 64 percent and 36 percent, respectively, of our total production.  During 2012, wheels produced by our Mexico and U.S. operations accounted for 63 percent and 37 percent, respectively, of our total production. We anticipate that, absent any significant change in the market or overall demand, the percentage of production in Mexico will remainrange between 6085 percent and 6590 percent of our total production for 2014.2016.

Net other income (expense) was expense of $1.1 million and $3.3 million in 2015 and 2014, respectively, and income of $0.6 million $0.4in 2013. Included in other income (expense) in 2014 was a $2.5 million impairment charge for an equity investment accounted for under the cost method of accounting. In 2010 we acquired a minority interest in Synergies Casting Limited ("Synergies"), a private aluminum wheel manufacturer based in Visakhapatnam, India. In October 2014, a typhoon caused significant damage to the facilities and $1.0operations of Synergies and, in the fourth quarter of 2014, we tested the $4.5 million in 2013, 2012carrying value of our investment for impairment. Based on our evaluation, we determined that an other-than-temporary impairment existed and 2011, respectively. Foreign exchange gains and (losses)wrote the investment down to its estimated fair value of $2.0 million.

Also included in other income (expense) net wereare foreign exchange gains and (losses), including losses of $1.2 million and $1.0 million in 2015 and 2014, respectively and a gain of $0.2 million and $0.1 million in 2013 and 2012, respectively, and a loss of ($0.9) million in 2011. Other income and expense items included were income of $0.4 million, $0.3 million and $1.9 million in 2013, 2012 and 2011, respectively.2013.

Our income before income taxes was $35.3 million in 2015, $15.7 million in 2014 and equity earnings was $36.8 million in 2013, $34.5 million in 2012 and $41.9 million in 2011.2013. The effective tax rate on the 20132015 pretax income was 38.032.1 percent compared to 10.443.9 percent in 20122014 and a benefit of 60.238.0 percent in 2011. 2013.

The following is a reconciliation of the U. S. federal tax rate to our2015 effective income tax rate along withwas 32.1 percent.   The effective tax rate was lower than the US federal statutory rate primarily as a discussionresult of net decreases in the key drivers that impacted ourliability for uncertain tax positions partially offset by the reversal of deferred tax assets related to stock based compensation. 

Our effective income tax ratesrate for 2014 was 43.9 percent.   The effective tax rate was higher than the periods presented:

We are a multinational company subject to taxation in many jurisdictions. We record liabilities dealing with uncertainty in the application of complex tax laws and regulations in the various taxing jurisdictions in which we operate. If we determine that payment of these liabilities will be unnecessary, we reverse the liability and recognize the tax benefit during the period in which

we determine the liability no longer applies. Conversely, we record additional tax liabilities or valuation allowances in a period in which we determine that a recorded liability is less than we expect the ultimate assessment to be or that a tax asset is impaired. The effects of recording liability increases and decreases are included in the effective income tax rate.

Net income in 20132015 was $22.8$23.9 million, or 3 percent of net sales, and included an income tax provision of $14.0$11.3 million compared to $30.9$8.8 million, or 41 percent of net sales in 2012,2014, including an income tax provision of $6.9 million, and to $22.8 million, or 3 percent of net sales in 2013, and included an income tax provision of $3.6 million, and to $67.2 million, or 8 percent of net sales in 2011, including an income tax benefit of $25.2$14.0 million. Earnings per share waswere $0.90, $0.33 and $0.83 $1.13 and $2.46 per diluted share in 2013, 20122015, 2014 and 2011,2013, respectively.

Our working capital requirements, investing activities and cash dividend payments have historically been funded from internally generated funds, proceeds from the exercise of stock options or existing cash, cash equivalents and short-term investments, and we believe these sources will continue to meet our capital requirements in the foreseeable future.

During the first half of 2013 we announced our plans to invest between $125 million and $135 million to build a new manufacturing facility in Mexico, in order to meet anticipated growth in demand for aluminum wheels in the North American market. In June 2013, we entered into a contractcontracts for the construction of the new facility and in the second half of 2013 we entered into contracts for the purchase of equipment for the new facility. The total valuecosts incurred to date were $132.7 million, of these contractswhich $127.0 million related to the initial rated capacity of the new facility and $5.7 related to an expansion. The new facility is operational and initial commercial production began in the first quarter of 2015. The facility ramped up production in the first quarter and was approximately $96.6 millionnear full initial rated capacity at the end of 2013 and cash paid under these agreements totaled $35.8 million in 2013. We currently project the new facility will be operational in late 2014. Although our existing liquidity is currently adequate to fund the project, we are evaluating various financing options available to the company, including new borrowings.year.

OnCommitted to enhancing shareholder value on March 27, 2013, our Board of Directors approved a new stock repurchase program (the "Repurchase Program")the 2013 Repurchase Program, authorizing the repurchase of up to $30.0 million of our common stock. Under the 2013 Repurchase Program, we repurchased 1,510,759 shares of company stock at a cost of $30.0 million of which 1,089,560 shares were repurchased for $21.8 million in 2014. In October 2014, our Board of Directors approved the 2014 Repurchase Program, authorizing the repurchase of up to $30.0 million of our common stock. Through December 31, 2015, we repurchased 1,056,954 shares of company stock at a cost of $19.6 million under the 2014 Repurchase Program. The 2014 Repurchase Program was completed in January 2016, with purchases since December 31, 2015 of 585,970 shares for a cost of $10.3 million. In January of 2016, our Board of Directors approved a new stock repurchase program (the “2016 Repurchase Program”), authorizing the repurchase of up to $50.0 million of common stock.  Under the 2016 Repurchase Program, we may repurchase common stock from time to time on the open market or in private transactions. The timing and extent of the repurchases under the 2016 Repurchase Program will depend upon market conditions and other corporate considerations in our sole discretion. As

On December 19, 2014, we entered into a senior secured credit agreement (the "Credit Agreement") with J.P. Morgan Securities LLC, JPMorgan Chase Bank, N.A. (“JPMCB”) and Wells Fargo Bank, National Association (together with JPMCB, the “Lenders”). The Credit Agreement consists of a senior secured revolving credit facility in an initial aggregate principal amount of $100.0 million (the “Facility”). In addition, the company is entitled to request, subject to certain terms and conditions and the agreement of the Lenders, an increase in the aggregate revolving commitments under the Facility or to obtain incremental term loans in an aggregate amount not to exceed $50.0 million, which are uncommitted to by any lender. The company intends to use the proceeds of the Facility to finance the working capital needs, and for the general corporate purposes of the company and its subsidiaries. At December 31, 2013, additional shares with a total cost of $21.9 million may be purchased2015, we had no borrowings under the Repurchase Program authorization. During 2013 we repurchased 421,000 shares of our common stock at a total investment of $8.1 million, and in January 2014, we repurchased an additional 92,000 shares bringing our total investment under the program to $10.0 million. Currently, we expect to continue funding any repurchases through available cash, although credit options are being evaluated in the context of total capital needs.Facility.

The following table summarizes the cash flows from operating, investing and financing activities as reflected in the consolidated statements of cash flows.

 

We are subject to various risks and uncertainties in the ordinary course of business due, in part, to the competitive global nature of the industry in which we operate, to changing commodity prices for the materials used in the manufacture of our products, and to development of new products.

The table above includes, under Purchase Obligations, amounts committed on outstanding contracts related to the constructionexpansion or purchase of the facility and equipment for our new wheel plant in Mexico.equipment. The table above does not reflect unrecognized tax benefits of $15.2$7.3 million, for which the timing of settlement is uncertain.uncertain, and a $14.2 million liability carried on our consolidated balance sheet at December 31, 2015 for derivative financial instruments maturing in 2016 through 2018.