Superior Industries International, Inc.

Thank you, Sarah. I appreciate it.

Good morning, everybody, or good afternoon, depending on the time zone that you're in, and welcome to our fourth quarter and full year 2011 earnings conference call. Just so you know at the outset, while some of my comments specifically will address the fourth quarter, there will be more emphasis on the full year of 2011, overall.

Also, I oftentimes will refer to 2011 as the current year or this year, while I will refer to 2010 as the prior year or last year. As usual, I will be referring today to a PowerPoint presentation which is available on our website at www.supind.com.

As usual, I'm going to open with Slide 2 of the slide deck, and it's a reminder to everyone that any forward-looking statements made in this webcast or contained in this presentation are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially because of issues and uncertainties that need to be considered in evaluating our financial outlook.

We assume no obligation to update publicly any forward-looking statements. Conditions, issues and uncertainties that may be discussed from time to time include, but are not limited to, global competition, product pricing and mix, domestic and foreign market demand, commodity prices, including metal and energy, foreign currency, manufacturing capacity and productivity and our strategic and operating plans.

Please refer to the company's SEC filings, including our annual report on Form 10-K, for a complete discussion on forward-looking statements and risk factors that may cause actual events to differ from these forward-looking statements.

Now before I continue with the presentation, our Chairman and Chief Executive Officer, Steven Borick, would like to make some opening comments. Steven?

Okay, Kerry, thank you, and good morning and afternoon to everyone. Since our last call, our founder and my father, Louis Borick, passed away on November 28 of last year.

Lou founded Superior in 1957 and he led the company through many changes, including entry into the aluminum automotive wheel market. Although an entrepreneur at heart, Lou built Superior into what we are today, the largest publicly-traded supplier of aluminum wheels in the world.

He retired from his role as CEO in 2005, but his spirit remained part of the company and continues on today. I want to thank Dad for all his commitment and his contributions to making Superior what we are today.

He's certainly very missed by me and by many.

First, for those of you who did not see the announcement last week, I'm very happy to acknowledge Kerry Shiba's promotion to Executive Vice President and CFO. Since joining Superior about 1.5 years ago, Kerry, as Senior VP and Chief Financial Officer, Kerry has made significant contributions to the company.

Working closely with me and the rest of the Superior senior management team, he has been deeply involved in many important aspects of running Superior. I especially appreciate the breadth of Kerry's scope and leadership which stretches well beyond the traditional financial role.

He has quickly become a very valuable member of my senior team. So congratulations, Kerry, to you, on that nice change in your title.

No increase in salary, Kerry, just so you know.

I mentioned on our last call that we also have brought in to Superior a number of talented new executives at various levels to help augment and strengthen our management team at the plant and operations level. Since our last call, we have added an additional 2 very talented general managers to join our team running the Midwest operations.

I am pleased with the progress we're making in strengthening our roster here. Many of our new team members already are bringing in fresh ideas and new ways of doing things, and I'm certain we will have additional instrumental things happen that will help us achieve further goals.

As to the year and the fourth quarter, Kerry will review our financial performance in detail, but before turning the call back over to him, I wanted to provide a few oversight comments on my own.

On the positive side, we are pleased that demand for our products remained strong. Vehicle sales rates in the North American automotive industry continue to improve despite stubborn unemployment levels and a somewhat stagnant economy, along with that, of course, also the higher price for crude oil these days, which is manifesting itself in increased prices for gasoline at the pump.

We do continue to be steadfastly focused on our performance improvements. Specifically, we are aggressively addressing our operation needs in both the Midwest and Mexico.

This includes improving factory operations, investing in capital equipment and, as I've mentioned, strengthening and augmenting our organizational structure with new and experienced industry professionals. We believe the actions we are taking will improve efficiencies and contribute to Superior's long-term profitable growth.

However, and as I have said before, the benefits of these actions will take a while to be realized.

Our gross margins on profit in 2011 were impacted by a number of factors such as product pricing, especially in programs where we were awarded during the challenging days of 2009, and the older equipment and machinery in certain plants. As can be expected, this has led to certain inefficiencies, exasperated by our ongoing high utilization run rates in all of our plants.

We continue to run our plans at significant high capacity rates. Moreover, we are facing some product manufacturing challenges related to new product design complexity and there is continuous increasing stringent cosmetic standards by our OEMs.

Fortunately, the automobile market has rebounded nicely from the economic downturn that began in 2008 and bottomed out in the beginning of '09. While a good problem to have, we are in the situation of having to respond to today's better market after aggressively cutting costs, reducing our workforce and closing 2 of our plants during the downturn.

So while it will take some time, and it is not possible in this call to say how long, I am very confident that we will successfully address our challenges, as we continue to take the steps necessary to attract quality people, address our infrastructure needs and effectively manage the business in all our facilities to continue to try to achieve further operating efficiencies. As the largest shareholder of this company, be assured that I am focusing Superior on working diligently toward meeting our collective goal of enhancing results and value in the future.

And with that, I will turn this back over to Kerry and then we will both, and for that matter, all that are in this room, be available to answer any questions you may have. So Kerry, I'd like to turn it back over to you.

Thank you, Steven, for your comments and I'll echo that we all owe our thanks to Lou for his contributions to Superior.

For a brief overview, you may want to turn to Pages 10 and 11 of the slide deck. Page 10 shows the condensed income statement for the fourth quarter, while Page 11 covers the full year.

As you likely have seen in this morning's press release, the fourth quarter and full year results for 2011 were improved on both the top and bottom lines versus the comparable period for 2010. However, growth in net income reflects a significant positive impact from reversing a noncash income tax valuation allowance.

The impact on net income from the reversal was a positive $33.8 million for Q4 and plus $42.3 million for the full year. The tax allowance originally was accrued during the industry recession in 2009.

A look at operating income comparisons provides a more meaningful look at the underlying business, where Q4 current year results were roughly 1/2 of an exceptionally strong fourth quarter in 2010. As a reference point, the fourth quarter of 2010 was the strongest quarter of last year for earnings measured at all levels of the income statement and the second strongest quarter for net sales.

From this overview, you also can see quickly that unit volume was up nicely year-over-year, increasing 11% for the fourth quarter and 7% for the full year. The increase in total revenues was 14% for both quarterly and full year comparisons.

I will peel back the components of the sales increase for you in just a minute. Income per diluted share for Q4 was $1.48 in 2011 compared to $0.82 for the prior year.

And for the full year, the comparison is $2.46 for this year versus $1.93 in 2010.

So with this brief overview in mind, I now would like you to turn back towards the beginning of the slide deck. I will continue to follow the same format of presentation that I've used over the last year.

So if you would please now turn to Slide #3, which is titled North American vehicle production versus Superior shipments. I first would like to focus on some industry and market data to provide a framework of the environment in which we operated during the fourth quarter and the full year of 2011.

In case we have anyone on the call for the first time, let's again orient you quickly to the format. The charts on the top show North America light vehicle production on the left and the company's unit sales volume, which equates to the number of wheels shipped, on the right.

Because our business is focused on North America, the graph on the left is a good indicator of the overall demand driver for our products. So you know, I first am going to address year-over-year changes, I then will address the sequential quarterly change.

As you can see on this graph, as well as in the data table below, the market in Q4 at 3.4 million vehicles was up 15.6% year-over-year. For the full year, the increase was almost 10%.

Although not shown in the chart, for the full 12 months, passenger car volume increased a bit over 8% while production of light trucks and SUVs were up about 11%. However, the comparison for Q4 paints a different picture as the overall vehicle mix shifted about 180 basis points towards passenger cars.

Turning to the chart on the right, you can see that, year-over-year, Superior's unit volume increased almost 11% for the year and 6.6% for the fourth quarter, both very nice increases despite being below the overall rate of the market change.

To better understand Superior's sales changes, it usually is helpful if we look a bit at underlying wheel programs, so please turn to Slide #4, which is titled Superior shipments year-over-year comparison. As you can ascertain by comparing the industry versus Superior growth rates, 2011 market share declined for the fourth quarter and the full year when compared to the same periods last year.

However, the share decline was relatively modest, 1.4 percentage points for the fourth quarter and 1.1 points for the 12 months, especially considering the context of our manufacturing capacity constraints. Again, I feel these were modest declines.

Decline for both periods occurred in the passenger car category. Our share was up modestly for light trucks.

Chrysler was the big winner from a growth perspective in the market both for Q4 and the full year. The 200 series sedan was the largest single Chrysler success, although the Charger, as well as the Jeep and Fiat brands, also were important element of year-to-date growth.

In the international brands, Nissan had the largest unit increase for the year, followed by BMW, Hyundai and Kia. Toyota was down 14% for the year.

As you are all aware, they had significant supply-chain problems in Q2 especially, but they continued to regain some momentum in Q4.

Our sales mix continued to shift towards international brands and away from domestic brands. International brands comprised 25% of overall unit sales mix for the full year and 27% for Q4.

Our full year increases in international brands included Nissan, driven by the Altima and Maxima programs; in BMW, focused on the X3; and Volkswagen, focused on the Jetta. Despite Toyota's overall volume decline in 2011, our unit sales to Toyota still were up 8% for the full year with growth in the Camry, Highlander and Tacoma.

Fourth quarter volume to Toyota was up 37% year-over-year.

Ford continues to be our largest customer. Our share at Ford remained steady for the full year and unit sales to Ford were up about 11%.

Our sales mix there shifted towards light trucks and SUVs, driven especially by increases on the F-Series and Edge programs. In passenger cars, our gains in Fiesta, Fusion and Taurus still were overshadowed by the loss of the Focus program, which we have mentioned before.

Our overall market share decline in the domestic brands for the full year of 2011 most notably was reflective of our position at Chrysler. The decline at Chrysler reflect the decreases for the Dodge Charger and RAM and the Chrysler 300.

GM's overall production increase for the year largely was in the Chevy Cruze, which is a program for which we do not participate. Growth in our shipments for the Malibu, Cadillac SRX, GMT 900 platform, the Enclave and Traverse were offset by declines for the discontinued Cobalt, the Acadia and also the Cadillac DTS, which was another program that was discontinued.

If you would now please turn to Slide #5, we can look at the sequential comparison. The sequential comparison of Q4 to Q3 looks a bit different for both the market and Superior.

The market was up 7.5%, still very nice growth, but more modest than for the year-over-year comparisons we just looked at. Volumes were modestly up at Ford, I think it was about 3%, and relatively flat at GM.

Chrysler again captured the largest gain at almost 15%, with growth in the international brands coming next at 12%.

Against this market change, Superior volume was up slightly more than the market, growing almost 9% and resulting in a 40 basis point share increase. Also different from the year-over-year comparisons, our passenger car volume grew at a higher rate than for light trucks.

Growth in passenger car volume was strongest with Chrysler, while light truck growth was strongest at Ford. I won't go into all the individual programs here, but there are some details provided on the slide for your reference.

I next would like to turn to Slide #6, which focuses more on net sales dollars. As a reminder, this table attempts to isolate the major factors impacting net sales changes on a year-over-year basis.

I will explain each element as we move down the line items shown on the table and try to address both Q4 and year-to-date results as we move on. Q4 comparisons are on the left and year-to-date comparisons are on the right.

Let's first look at volume. For the fourth quarter, shipment volume up 10.7% year-over-year.

Over 2/3 of the increase in net sales for the fourth quarter is due to the volume increase. While the volume increase for the full year is less pronounced at 6.6%, the increase still accounts for over 1/3 of the total increase in sales dollars.

Next come 2 items, namely project development revenues and sales adjustments. Neither of these factors had a meaningful impact on the sales comparison, so I will continue on.

We next have segregated an item labeled clad volume. As I have explained previously, wheel cladding is added by an outside contractor rather than in our factories.

Similar to aluminum, cladding material and installation labor is passed through to our customers and while adding sales dollars, cladding does not add value to gross margin. So you are aware, if you compare this format to last quarter's analysis, we have pulled cladding out of the price mix section where it previously was categorized and made corresponding adjustments to year-to-date amounts.

In any event, on a year-over-year basis, cladding added $2.4 million to sales in the fourth quarter and almost $9 million year-to-date.

The next item is labeled price mix. However, price mix in itself requires further analysis of its own components.

First, you will recall that changes in the price for aluminum flow through net sales based on the nature of our commercial programs. These agreements provide for the periodic pass-through of aluminum fluctuations based on changes in published prices for commodity aluminum.

The aluminum price component of the year-over-year sales increase was about $11 million for the fourth quarter and $55 million for the full year. The Q4 impact is proportionately lower than for the total year due to the pattern of price changes occurring during both 2010 and 2011.

Next is the line item for aluminum weight. Changes in the average weight of wheels shipped also can affect the sales comparison from period to period.

In this case, aluminum weight favorably affected sales in Q4 of this year by $1.9 million, a trend that has been relatively steady when you compare it to the year-to-date impact for this item. Once again, this change adds no gross margin.

We also have added a new element to measure the impact to changes in the exchange rate between the U.S. dollar and the Mexican peso.

A portion of our sales to Ford are denominated in pesos, so exchange rate fluctuations will affect reported revenues. Because of a more significant fluctuation in the exchange rate occurring in the latter stages of 2011, we decided it may be helpful for your understanding if we segregate this component of change.

On average, the Q4 peso was weaker than in the prior year, hence the negative $3.1 million impact for Q4. However, for the 12 months, the peso was stronger than in 2010, which is why the year-to-date impact is positive.

Finally, we have price mix at the bottom of the schedule. As you can see, this negative impact has accumulated to about $10 million for the full year.

When thinking about pricing and product mix, it always is important to recall that, in our business, we typically are bidding for new programs 2 to 3 years in advance of the related model year startup. There are some exceptions for what we refer to as take-over programs, where the time lag between pricing and startup is compressed when contrasted to new model programs.

So much of the impact to price mix erosion we experienced in 2011 relates to programs we priced and bid on during the 2009 recession, which was somewhat of a meltdown for the competitive environment.

Let's now please move on to Slide #7, entitled Q2 significant highlights gross profit. As you can see from the table at the top of Slide #7, we produced just slightly less wheels than we sold in Q4 of this year.

We continue to run our plants at high rates, with the overall utilization rate really exceeding our estimated practical capacity when computed on a straight time labor basis. As with the last quarter, the takeaway you should have is that we continue to run our plants very hard as we fundamentally have all year.

In fact, our production volume for Q4 this year is the highest it has been for the last 8 quarters, the time frame since we began to emerge from the 2009 downturn.

As we have said before, we continue to focus on items such as debottlenecking opportunities, equipment reliability and better process control to move our effective capacity upwards. However, in the near term, incurring overtime hours and premiums has been the primary switch we throw when customer orders increase.

On the lower half of the slide is the year-over-year gross margin comparison in the format we have used previously. For anyone new in the call, we use this analysis to try and point out key items affecting comparability from period to period.

Since we already discussed the impact of aluminum value on sales in the previous slide, let's cover this first. Because aluminum carries no margin for us and changes in value, generally, are passed through to the market, the higher average metal price in Q4 2011 diluted the gross margin percentage by 50 basis points for the quarter.

For the full year, the dilution impact on the gross margin percentage was 70 basis points.

I would like to take an additional moment at this stage to further discuss the impact of changes in aluminum price. Aluminum wheels are made of an alloyed material for which an additional premium over the value of commodity aluminum is charged.

We consider this premium when we decide on the price at which to bid for new programs. As I mentioned previously, our pricing agreements with customers provide for the periodic pass-through of aluminum fluctuations based on changes in published prices for commodity aluminum.

However, this adjustment mechanism does not address changes in the alloyed premium. We typically negotiate contracts on an annual basis with our core metal suppliers, including the premium associated for alloyed material.

However, if we need to place spot purchases of metal on the open market for any reason, it is possible that excess premiums could be incurred which would be absorbed by the company and impact gross margin. Also, year-to-year fluctuations in alloyed premiums, that's year-to-year fluctuations, may be incurred which also could be absorbed by the company.

Although we have not yet included the impact of these changes in alloyed premium in the gross margin analysis, we will discuss this item in the future if the impact becomes noticeable.

The next item listed on the gross margin comparison is product mix. We have commented in the past that our product mix was becoming more challenging.

Changing mix has affected us in 2 fundamental ways. First, using actual pricing and standard cost as the measuring stick, we estimate there was a $3.2 million erosion of profit margin in Q4 due to changing mix, which equates to 150 basis points of margin percentage.

For the year, we estimate the mix impact to be a negative $10 million, or 120 basis points. This erosion fundamentally reflects the impact of program bidding in a highly competitive market, although year-to-year changes in standard costs also can affect this measurement.

The next line item is labeled plant performance. This item reflects the actual performance of our plants measured against standard cost.

As you can see, the variance is negligible for Q4 and estimated to be negative $1.6 million for the full year. This variance primary reflects higher than standard labor costs incurred in our U.S.

plants. Product mix, again, is a factor here.

I also should note that I have segregated a couple more cost elements out of plant performance, which I will discuss in just a minute.

first, ramping up new program volumes amidst already high demand of our factories; secondly, manufacturing new programs requiring higher-than-expected manufacturing resources due to increasingly stringent quality standards. Good examples here are programs for BMW and Volkswagen, as well as the Nissan Maxima.

And finally, another difficulty factor is the negative impacts on productivity due to certain equipment reliability issues.

Keeping in mind that we are a Tier 1 automotive supplier, we do what it takes to get the wheels out the door to meet our customers' needs. When factories such as our -- when factors such as equipment reliability affect the pace and flow of material through the plants, it takes excessive labor and overtime premiums to meet shipment requirements, especially when running at already high capacity utilization rates.

Next on the list is the impact of the one-week maintenance shutdowns we took in 2 of our plants early in 2011, basically including the costs we incurred during the period when production was not occurring. In 2010, we did not take such shutdowns as rapid increases in demand in that year had to be accommodated when we were coming out of the industry recession.

We next list repairs and maintenance expense, which was $5.7 million higher than in the comparable period of last year. This amount does not include maintenance costs incurred during the planned shutdowns.

Some of this cost represents replacement molds and tooling. However, we also have been incurring higher emergency maintenance expense as a result of running our factories very hard now for over 7 successive quarters.

Based on current market conditions, utilization rates are expected to remain high, especially for the first half of 2012.

Next on the list is the impact of weather-related shutdowns we took in 2011, primarily early in the year when a deep freeze affected even our operations in Mexico.

The next line item is project development expense and I will refer to it as net project development expense. When I use the term net, it means expense incurred less customer reimbursements.

And it was higher for both Q4 and the full year. While customer reimbursements were a bit lower for both periods, our higher spending level for wheel development activity was the main factor in this comparison.

To me, this is a positive indicator regarding the level of commercial activity.

Finally, 2 items are shown that individually had an impact on 2010, namely, the cost for closed facilities and favorable mark-to-market adjustments on natural gas contracts. For the full year, these items together basically offset each other.

However, these items were both favorable in Q4 of 2010, with the plant closure amount representing a reversal of a previous accrual.

I also want to note that gross margin rates were improved sequentially with the 8.3% reported rate in Q4 comparing the 6.1% in Q3. Q3 was hampered some by a short maintenance shutdown and related spending, but plant performance overall was improved in Q4.

The Q4 gross margin rate was in line with the overall rate for the full year for 2011.

Turning next to Slide #8. I have a few further comments regarding income performance, now focused exclusively on total year comparisons.

At this point, you also may want to refer to Slide #10, the third quarter income statement. SG&A expense decreased 2.4 -- I'm sorry that was a mistake.

At this point, you may also want refer to Slide #, is it 11, which is the full year, December year-to-date income statement.

SG&A expense decreased $2.4 million in 2011 and was 3.1% of sales. In 2010, we had higher expense due to our ERP software implementation and higher legal fees.

In 2011, higher medical cost was more than offset by a reduction in deferred compensation liability. We incurred asset impairment charges in both years of roughly equal amount.

These charges were to adjust the carrying value of closed facilities down to the estimated market value. We recorded a $4.1 million loss in 2010 related to the sale of our joint venture interest in Suoftec which was our wheel manufacturing business, joint venture business located in Hungary.

The decline in interest and other income reflects slightly lower interest rates and a small sales tax adjustment. The effective income tax rate for 2011 was a benefit of 60.2% which compares to an expense of 5.2% in 2010.

Based on our stated accounting policy, which I have commented on in previous conference calls, and after assessment of other relevant factors, we released our remaining tax valuation allowance. As I mentioned earlier, this release had a positive impact on the tax provision for the year of $42.3 million.

Finally, please turn to Slide #9, which addresses the balance sheet and cash flow -- sorry, that's actually Slide # -- well, sorry for the bad reference. Slides #12 and 13.

Cash and short-term investments was $193 million at year-end 2011, which was $41 million over the balance sheet -- or the balance at the end of 2010. That accounts receivable and inventory shown on the balance sheet decreased about $5 million from year-end 2010, primarily due to foreign exchange rate changes and also because of lower aluminum value.

However, when removing the effect of foreign currency exchange rates, there was a negative cash flow impact which reflected both higher sales levels and a higher value for aluminum sitting in accounts receivable. The decline in prepaid aluminum from the prior year reflects lower quantities and a lower value of aluminum in inventory.

To remind you, we have agreements to pay for metal when it leaves the mill in return for cash discounts. That's what creates this -- the balance in this account.

1.

The final slides are various data tables that we've been referring to along the way. And basically, to summarize today's discussion, the North American automotive market increased very nicely during 2011 despite lack of heat in the economy and persistent unemployment levels.

We experienced a slight decline in market share overall, with shifts occurring in customer mix and product mix. Gross margin declined as compared to the prior year due to several factors, but the Q4 gross margin rate was improved sequentially and in line with total year results.

And liquidity remained strong to support continuing investment, as well as dividends.

I need to note that the last page of this presentation addresses a non-GAAP financial measure we have presented today. And our 2011 report on Form 10-K will be filed with the SEC sometime later this week.

Once filed, the 2011 10-K also will be available on our website at www.supind.com. I would like to thank each of you for attending our conference call today and for your kind attention.

We now will open the lines to take your questions. So Sarah, I'll turn it back to you.

This is Rob Moffatt filling in for Chris. When we look forward into 2012 and we think about some of the gross margin headwinds that you pointed out, I mean, can you give us an idea of what the trajectory might be?

What improves, what stays the same?

I mentioned this on the last call. I guess the first question is obviously a broader one of are we still facing headwinds or are we starting to see some tailwinds at this stage?

There's some pluses and some minuses there, Rob. What has me still concerned is equipment reliability.

The first half of 2012 will stress our plants even more than we have incurred in 2011 and the last 3 quarters of 2010. So it's the successive rate that we've been running -- the successive quarters with which we've been running the plants very hard plus, again, even extra strain in the first half of the year.

To me, equipment reliability may be the largest wild card we have that could be a headwind for us. We're continuing to invest time and money in preventive maintenance, but our maintenance intervals are very, very difficult to find as far as getting a break in operations to go in and take care of things.

On the labor side and the cost side, we have a couple of tough launches behind us. We do have a lot of product launches still coming up this year however.

I forget the exact number, but it's over 20, I believe. It'll...

This is Mike. The next 12 to 18 months really in the mid-30s.

Mid-30s. So we've placed a lot of focus around our whole product launch protocols, following some problems we had in the fourth quarter of -- really starting in 2010 and then going to 2011.

So we're much more confident about our process, but there's a lot of launch activity occurring which is always tough. On the labor side, we are putting in a different staffing model, which hopefully will reduce what was a relatively significant amount of overtime premium that we paid last year, especially in the U.S.

where our labor rates are higher, of course, than that of Mexico. So as I kind of put it all together, I think on the operations side, I'm confident that we should be stabilizing and starting to improve, wildcard being the equipment reliability.

And on the pricing side, we still expect to see some pricing and mix that we still expect to see some decline in 2012 relative to 2011. So a little more headwinds than tailwinds at this stage, one big wildcard.

Got you. And then when we think about CapEx, and what's that trajectory going to look like on a year-over-year basis?

We should continue to move up. We expect to appropriate close to $30 million of projects in 2012.

I'm not entirely sure how that equates to spending but it clearly is going to be significantly higher than what we spent in 2011, which I believe was $17 million again. It's investment in all the things that we've talked about.

Some of these projects take time to engineer, but we do have some major projects, especially focused on the Midwest, which will help address a couple major sources of operational problems we've had over the last couple of years.

And in terms of capacity, is there a way to kind of quantify any increase or improvement to capacity that we might see with those CapEx projects?

I think that our capacity increment's going to be minor from where we ran in 2011. What our target and our objective is, however, is that while producing an equivalent number of wheels, we can do it with better production efficiency, better productivity than we were able to achieve in 2011.

So I think the projects we have going right now clearly, directionally, should help us get a few more hundred thousand wheels out of the plant, if at all, but it's the cost which we incur to do that, that's our real focus right now.

Kerry, couple of questions. One is the -- the trucks being so strong in your mix, do you have any concern to that in '12 with fuel prices?

And I wondered if you could, on a completely different item, if you could size your NOL at year end? And what your outlook is for nat gas?

And where your hedges are at this point?

Okay. I might turn both those questions over to my colleagues here.

And Mike, maybe first the question on the fuel prices. And gas point prices and impact on term...

The OEs are really managing their inventory levels and production levels a lot differently than they did 4 years ago, so we're encouraged by that. There's a lot of discussion in the marketplace on GMT 900 and what's going to happen with their overall schedules and product changeovers that are going to occur later this year and into 2013.

But they just seem to be much more disciplined at managing inventory and production, which is encouraging, I think, for anybody that has a big supply exposure on those vehicles.

This is Steve Borick. With reference to commodities in general, certainly, number one, I do have concerns if we continue to see gasoline creep based on oil prices, I think.

Certainly as we all know that watch part of this movement is based on the situation in the Middle East, which is a little bit uncomfortable. So spikes are potential.

I do believe that if that calms down, we could see a retraction to some degree. On the nat gas side, as we continue to look at, the price of nat gas stays low.

We're buying mostly spot. Whatever we have on contract, we fixed, particularly in U.S.

We're not continuing to fix contract because we think that buying spot is more opportunistic for the moment. The supply of gas in the country is significant and continues to be so.

No short-term concerns about that. But we are watching that market carefully.

Yes, the NOL?

The NOL, I don't -- do we have an NOL in the...

No, it's all... if there's anything left, it's literally a couple million bucks at this point in time but...

We do have an NOL in California, but they don't... out here in wonderful California, they don't let you take it.

I just get to have it.

I forget how much is left, it's just literally sitting on the shelf.

Quite a bit. $10 million.

$10 million, $13 million, but don't hold me to that. But it's relatively sizable, but it's sitting on the shelf at this stage, as Steve mentioned.

Federal level in both Mexico and the U.S., if we have anything left, is very, very minor. Also, I guess to get it, what may be part of that market, the valuation allowance, which was really established against deferred tax assets back in the recession, that's entirely burned off at this stage, also.

So a few things here. I do appreciate the color on the CapEx spending.

Can you give us a sense of the cadence of that spending in 2012 here? Is it going to be pretty even throughout the year or front-end loaded?

It'll be pretty even, the way I look at it. A lot of these programs take months and months once they're kick off just to buy the CapEx equipment.

So I'd say that we're going to see more playing out in the second, third quarter than certainly the spend in the first by a long shot. And depending on how rapidly I sign capital requests.

And I'm being very cautious about what we need to do, but we're also, as Kerry said, looking to spend more capital this year to take care of some of these headwind requirements in these states. And I agree with him on the equipment.

So we'll see third, fourth -- second, third quarter, more spend coming in.

And then so it sounds like a lot of that CapEx is mostly maintenance-related type CapEx versus expansion.

No, it's not necessarily expansion, but it's improvements in the process that will -- the interesting part about our business is that if you can reduce your scrap, number one, through better efficiency and using equipment more effectively, you get more product. So whatever we're trying to do to expand our overall capacity, part of it is putting in better and newer equipment.

If you look back in time, there was a reason why, when the world started to look like it was falling apart, that we didn't spend as much capital, in some of our Midwest plants particularly, to upgrade based on the uncertainty of the business model. So now we've got to do some catch-up there, and trying to create margin out of a much more difficult environment in the United States than certainly we have in Mexico.

So we're going to be cautious, but we need to do that because we need the capacity.

Okay, and it sounds like that's going to yield a hundred thousand units based on Kerry's comments there. And I guess, with the SAR reaching 15 million units in February and potentially trending 13.5, 14.5 depending on who you're talking to, for the full year, and I believe your guys' capacity around 12 million, give or take, can you give us any indication of some of these investments longer-term to expand your capacity and invest in these new technologies beyond 2012?

Well, we're still very diligently working with a complete team of people within the organization to look at additional capacity, be it newbuild completely from scratch, adding capacity through alignments with other players in the industry. That certainly is in the works.

I just got back from China on Tuesday, looking at that opportunity. We certainly haven't turned our India program down.

We're just sitting, trying to work with that team and the private equity group as to what the future is. So there's a lot of open programs on the table and we're diligently moving on all of them.

In this environment, with the margins, you have to be a little bit more cautious. The old days of getting 20-plus percent gross margins are gone and it's going to take a whole different pricing structure to get there again.

So we want to be conservative and yet do the right thing to add capacity appropriately. So everything is on the table and we're busy looking at it.

I'll remind Anthony, I know you're kind of new to the team here, but plant expansion, a major capacity investment is a couple of years, start to finish, before you're making any wheels off of it. So there is not -- even in the case where a company's going to build a new plant, it's not going to be an immediate relief over these next couple years.

Yes, plus it's a $100-plus million venture, minimum.

Got you. A few more here and I appreciate the time.

Steve, you indicated in the release this morning that today's results are reflective of the competitive activity 2 to 3 years ago. And I was wondering if you could provide us some indication of what you're seeing in the bidding activity today, given the high levels of capacity that you're running at.

And how much lower do these OEMs want your wheels for and how do you feel about your competitive position there? And would your tight capacity maybe get reflected in some better pricing or some of the foreign competition just too much to overcome here?

I wouldn't suggest that the foreign competition is too much to overcome, but the game stays the same. Everybody wants everything at a lower price.

I've been proven quite wrong, but I will say it again that I believe that these prices are long-term unsustainable, even though we've been going for quite some time. If you've got companies, and particularly in China, that are owned by the government and they're more interested in job creation than profitability, you're going to continue to have this pricing opportunity that the OEMs continue to take advantage of.

On the other hand, we're seeing that the OEMs are at least recognizing more today that there is a need for some level of stability. And I can't tell you that we're seeing price increases, but I don't believe that we're seeing price decreases.

And in some cases, they're more willing to work with us than they were in the past. That's a moment in time because there is, I believe, still shortsightedness in some cases about what this future of this business is all about.

And so today, it is still a commodity. It is highly competitive and it is price-driven and we're not going to mince our words about that.

In the meantime, we have to react to that and we continue to do so and we will continue to react to that in the best way we can, including, in some cases, not taking programs if that's what we think is in the best interest of the company. So it's a tough game and it continues to be and we continue to create good margins in Mexico and difficult margins in the Midwest, and that's just the truth of the matter and it's based on labor costs.

And then just last question here. Kerry, you had mentioned, what was it, $33.8 million was the value of the valuation allowance reversal?

That was what hit the fourth quarter. We had released some throughout the year also, in more minor amounts.

So it was $42.3 million, if I recall, maybe it was, yes, $42.3 million for the entire year.

So maybe a normalized tax rate would be 47% in the quarter?

I don't know that it would go that high. I still think we can -- we have some things out there that we should hopefully be able to stay under the marginal rates.

So I'd say maybe around 30% average rate.

That's what you're assuming on Ford, but it was 47% in the fourth quarter.

Oh, I'm sorry, that's correct. Yes, yes.

Yes, okay. So maybe in the 30% longer term.

I just have 2. One is, last quarter, on the call last quarter, Steve, I believe you mentioned that you were having some challenges at the Indian location.

And I'd just like an update on what has transpired in the last quarter operationally and just a little bit of a forward look, if you would.

Okay. With regard to India, as everybody knows, we have an investment.

We had looked at one point, certainly, last year to try to increase that investment with our Indian partners. And the private equity group that owns the bulk majority of the company had opted to not go along with our process and thought they had a better way of going.

They now are in a position where they have decided that they need to potentially find an exit strategy. And we're just sitting on the side, kind of watching that process unfold, and we will be, at least, looking at that opportunity again.

Whether we can make sense out of what they want versus what we believe the valuation is, is still up in the air, but that's kind of where we stand. We think there's still an opportunity in India, but we're being optimistically cautious and we're not moving too rapidly.

So that's the position today.

Last, my question is about increasing capacity. This question is about the possibility of a joint venture with one or more automotive manufacturers.

I've noticed that some Chinese component makers have made -- successfully made joint ventures with auto manufacturers to help them increase capacity while reducing the risk to some extent. What I would like to ask you is, not whether or not you're in any specific discussions, but rather instead, conceptually, is that something that is -- how do you feel about that conceptually as a possibility to reduce the risk of increasing capacity for Superior?

Well, I think conceptually, as I say, I just got back from China, and Mike and I went over there in 2010, and I went back over there just last week to meet with one of the wheel players in China, to see if there was some continued opportunity, and we believe that there is. What's most interesting is the reality in -- and I can't really speak to India directly because I haven't talked with SYNERGIES in a while, but I would believe it would be true, is both in China and India and other parts of the world, the pricing competition has become fierce.

And the ability to make margins, particularly in places like China, with their increases in labor costs and other operating costs, has become much more prevalent, and they recognize that the days of cheaper labor are at least dying. And if you look at labor costs in China, they're still far less than, obviously, the U.S.

and Mexico. But the creep is there and the ability to create margins at these low prices continues to be something that is starting to raise its ugly head even in those parts of the world.

So what that says to me is that the game of price product commoditization and competition will start to change as time goes on. And, of course, that's a hopeful for us.

But I believe from everything that I'm gathering, that will play out. From the standpoint of doing something with some of these people, yes, we're open to it.

We're thinking about it. We're massaging it.

There is no panacea out there. And the truth of the matter is I believe the OEMs have to recognize that, eventually, they're going to have to pay a little bit more for this product than they want to, particularly with their demands, as Kerry said, both for cosmetics and, in some case, mechanicals.

If they want, as I said before, a piece of jewelry, they have to pay for it and not at costume jewelry price, which is partly what's taking place here. You can't hold this for that long and not expect to have some erosion eventually.

So I think that's the upside. The downside is the reality is where it is today.

And, Jeff, I may echo some of Steve's words, but I think if you're looking at joint investments, I think it's more logical to think about other wheel suppliers than it is about vehicle manufacturers. As long as the vehicle manufacturers are still finding capacity out there, it would take something just short of desperation for them to even, I think, step into that kind of a mode, and even tougher when we have the kind of liquidity that we have to convince somebody to stick money into the ground for us at the customer level.

Yes, I see. That's helpful.

What I was imagining, the favorable outcome for them would be more of an assurance, a confidence level in continuity of supply, but of course you already provide that.

Can you just give us a sense of what percentage of the production comes out of the Midwest versus Mexico?

About 62% Mexico and 38% Midwest at this point.

2/3, 1/3 ratio.

Kerry, excellent free cash flow generation, both in the quarter and for the full year. You've become a lot more efficient in terms of working capital turns.

Would just like to kind of understand your expectations for working capital as the usage of cash in 2012 as production continues to ramp?

Yes, I think there's a couple of mixed things coming up. First off, metal went on a pretty steady decline throughout the year and the value that we end up carrying on working capital is highly geared to what's going on with metal.

On the receivables side, our terms, our payment terms are fixed for the customers. And collectibility, obviously, isn't an issue, but there's usually -- the only wildcard there is going to be sales activity, which shouldn't change dramatically from where we're at.

But again, metal value would be the bigger wildcard there. On inventory, obviously the market for metal's a big factor.

We were down lower, quite honestly, at the end of 2011 in our prepaid aluminum and inventories than I expect to be sustainable for 2012. There's a couple of reasons for that.

But especially with the liquidity we have, the last thing we're going to do is risk and short line our shortage in the pipeline to be able to produce wheels. So we're going to err probably a little bit more conservative.

Okay, and I guess that liquidity comment kind of ties into my follow-up for Steve. I understand you tend to take a conservative stance with regard to the capital structure.

But with the cash balance here over $190 million and $7 a share and you receiving an enterprise value in the market of just about 6x trailing free cash flow, I'd just like to kind of hear what consideration you and the board have given to buying back some stock here or if you really feel like you kind of need this war chest of cash to be able to greenfield a facility in the 9-figure range.

Well, first of all, we've been having these meetings about trying to really tie down full valuation of a greenfield. And some of the big pieces in there are -- I mean, I'm talking about pieces that are over $10 million.

Over the next, I would say, 30 days, we're going to pretty fully have that tied down because of some of the specifics and how we're going to try to potentially, if we do a greenfield, build this plan to become a more efficient plant. We learned a lot from Plant 10 as to what we don't want to do.

So I'm trying to wait for that. I got some new equipment ideas from China last week.

And so as soon as that question is sort of answered, the next big question becomes, what's the cycle look like, how long do we believe it's going to play out. One thing we don't want to do is put ourselves into a large capital build and find that we don't need the capacity because the cycle changes by the time we have this up and running.

Of course, it's easy to make a statement that you'd rather have it in a lower cost operating environment. And I understand that and we accept that.

So we're kind of playing that out. In the meantime, we've had discussions with the board, we have a board meeting at the end of March, as to look at the other opportunities with the cash.

And you're right, the war chest is little bit tough, but when I look at our war chest and I look at Apple's war chest, I feel like we don't have any problems. So how do you compare...

that's just a joke, I'm kidding. It's a tough question, Jimmy, and I don't want to have a good solid answer, but I realize that we want to create further value for the shareholders.

And where do we spend our capital? We've got a couple other things that are in the mill for the company on some opportunities that we're looking at very seriously that could have some $20 million to $40 million spends to them.

So I want to kind of see how those play out over the next 3 months. And these things will unfold, I would say -- certainly over the next 90 to 120 days, we'll have a much better picture and everybody will see where we're going.

Okay, that color is very helpful, Steve. I guess my last question, nice revenue benefit from mix in the quarter, I think the highest of the year, if I have that right.

But I would have expected that would kind of help you drive a little bit better margins. I know there's a lot of puts and takes specific to this quarter, but going forward, am I correct in thinking that the potential -- of the potential contributors to top line growth, a mix benefit would give you the greatest opportunity for improved profitability?

Or are some of those higher value wheels actually bid in a way that's margin dilutive to your business?

Overall, looking -- comparing what we expect for 2012 to 2011, we expect there to be a margin headwind because of product mix at this stage. Obviously, vehicle build rates will have the -- will be the end determinant on how much that occurs, if at all, but that would be our projection at this stage.

We'll continue to run at very high operating rates. So with regard to operating leverage, I think we tried to address that earlier, the wildcard is equipment reliability.

I think that we're doing some other things better day-to-day, operating-wise, which I would term as stabilizing. But I don't see a big operating leverage opportunity at this stage.

We need to create better efficiencies in our operations throughout the company, and certainly, in the Midwest. And this is one of the reasons that we've made some significant changes in personnel, to help us improve the process and control it better and stabilize it.

We do have equipment issues and we are attacking some of those. There are older plants.

They're not as efficient, they haven't been as efficient as they need to be, and we recognize that. And it's sort of one these Catch-22s about how much capital do you put in inefficient plants.

And do you allow your people to tell you that you can get better margin or do you have to figure out how to prove that? So it's something we're watching.

I like what I'm seeing with the people, but, as Kerry said, it's a time factor to see how it plays out.

Yes, don't take me wrong directionally. I clearly have confidence we have operating upside.

I have very high confidence about that. It's going to take some time for us to get traction on some of the stuff we're doing here.

But I'm going to throw something out to this phone call that I've thrown out to the board and to my team that's very important. There's 3 letters that I'm using, P, C and C.

Price of product, and we know that's been a headwind and a competitive issue. The second is C, which is competition, mostly coming in strong waves from Asia, particularly China.

And then the OEMs, sadly, in my opinion, based on the complexity of the product, which I could use as a C, but they've commoditized the hell out of this product for the moment. And for anybody that wants to take the time to really look at an aluminum wheel and just look at them on cars today, they are complex products to make.

And the demands by the OEMs on the cosmetics, the color, what they want it to look like, the paint, the finishes, are all very demanding. And when I say demanding, sometimes what we end up scrapping or melting and reworking is really shameful and, in most cases, shouldn't be.

But so again, the OEMs and for those OEMs that are listening to this call, they demand something and they're not paying for it. And I'll always say that and I'll never stop saying it.

And does that change anything? Well, it certainly hasn't changed it yet, but we'll see in time.

I was amazed at what I saw in China overall, not only with the cost increases in general, listening to the players over there, but what's happening, in general, in Shanghai, which is where I was, was pretty amazing. So we know that the cost of doing business continues to increase and that does give us some leverage opportunity being in North America versus somewhere else.

But time will tell.

Just a quick follow-up to that. So understood that you expect mix to be a headwind to margins in 2012, but is that because, or at least in part because mix is turning and would be a headwind to revenue?

No. Mix is -- some of the product pricing that we took and quoted out from '08 and '09 is at lower levels that we, as a company, obviously adhere to our responsibilities, and so it creates a more difficult margin environment until we start seeing some higher pricing on some of our product.

And that mix changes all the time. I mean, I'm going to give you a prime example.

At one time, in Mexico, we had a wheel that had a specialty paint finish on it that was very significant to the profitability of that particular plant. That product has completely gone out of the mix and so that margin's gone forever.

So we have to have replacement to some of that margin. It doesn't come as easily as it used to.

There is some both top line and margin impact for what we're talking about, though.

Right. That's true.

Good. I appreciate everybody's time and continued support and look forward to the next quarter.

Thank you, everybody.