UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

SUPERIOR INDUSTRIES INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in Its Charter)

California		95-2594729
(State or Other Jurisdiction of		(IRS Employer
Incorporation or Organization)		Identification No.)
7800 Woodley Avenue, Van Nuys, California		91406
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (818) 781-4973

Securities registered pursuant to Section 12(b) of the Act:

Title Of Each Class		Name Of Each Exchange On Which Registered
Common Stock, $0.50 par value		New York Stock Exchange

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

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o       No þ

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o       No þ

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ       No o

     Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o       Accelerated Filer þ       Non-Accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o       No þ

     The aggregate market value of the registrant’s $0.50 per share par value common equity held by non-affiliates as of the last business day of the registrant’s most recently completed second quarter was $497,078,000, based on a closing price of $18.68. On March 30, 2007, there were 26,610,191 shares of common stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant’s 2007 Annual Proxy Statement, to be filed with the Securities and Exchange Commission within 120 days after the close of the registrant’s fiscal year, are incorporated by reference into Part III of this Form 10-K.

 

 

SUPERIOR INDUSTRIES INTERNATIONAL, INC.
ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

				PAGE
PART I
Item 1		Business.			4
Item 1A		Risk Factors.			8
Item 1B		Unresolved Staff Comments.			13
Item 2		Properties.			13
Item 3		Legal Proceedings.			14
Item 4		Submission of Matters to a Vote of Security Holders.			15
PART II
Item 5		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.			16
Item 6		Selected Financial Data.			17
Item 7		Management’s Discussion and Analysis of Financial Condition and Results of Operations.			24
Item 7A		Quantitative and Qualitative Disclosures About Market Risk.			37
Item 8		Financial Statements and Supplementary Data.			38
Item 9		Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.			77
Item 9A		Controls and Procedures.			77
Item 9B		Other Information.			79
PART III
Item 10		Directors, Executive Officers and Corporate Governance.			80
Item 11		Executive Compensation.			80
Item 12		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.			81
Item 13		Certain Relationships and Related Transactions, and Director Independence.			81
Item 14		Principal Accountant Fees and Services.			81
PART IV
Item 15		Exhibits and Financial Statement Schedules.			82
SIGNATURES
EXHIBIT 10.45
EXHIBIT 10.46
EXHIBIT 18
EXHIBIT 21
EXHIBIT 23
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32
EXHIBIT 99.1

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf. We may from time to time make written or oral statements that are “forward-looking”, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, including statements contained in this report and other filings with the Securities and Exchange Commission and reports and other public statements to our shareholders. These statements may, for example, express expectations or projections about future actions or results that we may anticipate but, due to developments beyond our control, do not materialize. Actual results could differ materially because of issues and uncertainties such as those listed herein, which, among others, should be considered in evaluating our financial outlook. The principal factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, changes in the automotive industry, increased global competitive pressures, our dependence on major customers and third party suppliers and manufacturers, our exposure to foreign currency fluctuations, and other factors or conditions described in Item 1A – Risk Factors section of this Annual Report on Form 10-K. We assume no obligation to update publicly any forward-looking statements.

EXPLANATORY NOTE REGARDING RESTATEMENTS

This Annual Report on Form 10-K for our fiscal year ended December 31, 2006 includes restatements of the following previously filed financial statements and data (and related disclosures): (1) our consolidated financial statements as of and for our fiscal years 2005 and 2004; (2) our selected consolidated financial data as of and for our fiscal years 2005, 2004, 2003 and 2002, and (3) our unaudited quarterly financial data for all quarters in our fiscal year ended December 31, 2005. See Item 6 – Selected Financial Data, Note 2 – Review of Stock Option Practices and Restatement of Consolidated Financial Statements to the Consolidated Financial Statements in Item 8 – Financial Statements and Supplementary Data and Exhibit 99.1 for a detailed discussion of the effect of the restatements.

During the fourth quarter of 2006, two shareholder derivative lawsuits were filed against us and certain present and former officers and directors of the company alleging that the defendants (1) improperly backdated stock options of officers and directors, in violation of the company’s shareholder-approved stock option plans; (2) improperly recorded and accounted for the backdated stock options, in violation of generally accepted accounting principles; (3) improperly reported tax deductions based on the backdated stock options, in violation of Section 162(m) of the Internal Revenue Code; and (4) produced and disseminated to shareholders and the market false financial statements and other SEC filings . To evaluate these allegations, under the oversight of the Audit Committee of the Board of Directors, outside counsel and forensic accounting experts (the “Review Team”), conducted a comprehensive review of the company’s historical stock option grant practices.

The Review Team analyzed approximately 1,125 option grants, involving approximately 3,875,500 options, or 98% of the total options granted, made on 52 separate grant dates between 1997 and 2006. The Review Team also reviewed certain option grants for the time period between 1991 and 1996. Based on this review, we concluded that, for most option grants, there were deficiencies in the process of granting, documenting or accounting for stock options, including in several instances retrospectively obtaining lower exercise prices and granting options to new employees at prices set before their actual hire dates. These errors resulted in our using incorrect measurement dates for financial reporting purposes. This means that the option exercise price was not the market price of the option shares on the actual grant date of the option, but instead was a lower market price on an earlier date. The actual grant date—when the essential actions necessary to grant the option were completed, including the final determination of the number of shares to be granted to each employee and the exercise price—is the correct measurement date to determine the market price of the option shares under the accounting rules in effect at the time. After considering all of the quantitative and qualitative factors, these errors are not considered to be material to any one prior period. However, because the cumulative effect of the historical misdated options would be material to the 2006 period, we have restated our prior period financial statements based on the guidance in Accounting Principles Board Opinion No. 28, “Interim Financial Reporting”, paragraph 29, and SEC SAB Topic 5F, “Accounting Changes Not Retroactively Applied Due to Immateriality.”

We previously applied Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related Interpretations and provided the required pro forma disclosures under Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” through the fiscal year ended December 31, 2005. Under APB Opinion No. 25, a non-cash, stock-based compensation expense was to be recognized for any option for which the exercise price was below the market price on the actual grant date. Because most of our misdated options had an exercise price below the market price on the actual grant date, there should have been a charge for these options under APB Opinion No. 25 equal to the number of option shares, multiplied by the difference between the exercise price and the market price on the actual grant date. That expense should have been amortized over the vesting period of each option. Since we did not record this stock-based compensation expense as required by APB Opinion No. 25, we are restating our previously issued financial statements to reflect in each reported period through 2005, the impact of our misdated options. To correct our past accounting for stock options, we recorded pre-tax, non-cash, stock-based compensation expense of $11.1 million for the periods December 31, 1991 to December 31, 2005 under APB Opinion No. 25. Starting in our fiscal year ended December 31, 2006, we adopted SFAS No. 123R, “Share-Based Payment.” As a result, for fiscal year 2006, the stock-based compensation expense required to be recorded for each option was equal to the fair value of these options on the actual grant date over the remaining vesting period of the option. The impact of the measurement date errors on the fair value of stock option grants was not material to 2006.

PART I

ITEM 1 — BUSINESS

General Development and Description of Business

Headquartered in Van Nuys, California, the principal business of Superior Industries International, Inc. (referred to herein as the “company” or in the first person notation “we,” “us” and “our”) is the design and manufacture of aluminum road wheels for sale to original equipment manufacturers (OEM). We are one of the largest suppliers of cast and forged aluminum wheels to the world’s leading automobile and light truck manufacturers, with wheel manufacturing operations in the United States, Mexico and Hungary. Customers in North America represent the principal market for our products, with approximately 14 percent of our products sold to international customers by our North American facilities, primarily delivered to their assembly operations in the United States.

The company was initially incorporated in Delaware in 1969 and reincorporated in California in 1994, as the successor to three businesses founded by Louis L. Borick, Chairman of the Board. These businesses had been engaged in the design, manufacture and sale of principally automotive accessories and related aftermarket products since 1957. The discontinuance and subsequent sale of the accessories business in January 2003 did not have a material impact on our financial position, results of operations or cash flows.

Aluminum Road Wheels - Our entry into the OEM aluminum road wheel business in 1973 resulted from our successful development of manufacturing technology, quality control and quality assurance techniques that enabled us to satisfy the quality and volume requirements of the OEM market. Initial production of an aluminum road wheel for a domestic customer was a Mustang wheel for Ford Motor Company (Ford). In 1990, we formed a sales and marketing joint venture, Topy-Superior Limited (TSL), with Topy Industries, Limited (Topy), Japan’s largest wheel manufacturer. TSL markets our wheels to Japanese OEM customers with plants in Japan and in the United States. In 2006, TSL had agreements to provide 30 wheel programs being manufactured in our facilities for delivery to Japanese customers.

As part of our strategy to reduce costs, the company has aggressively located facilities in low labor cost regions of the world. In 1994, we built our first facility in Chihuahua, Mexico. Subsequently another facility was built nearby and a third facility was completed and begun operations at the end of 2006. These facilities set the standard for state-of-the art worldwide cast aluminum wheel making and are optimized for production of increasingly popular larger diameter wheels.

Also in 1994, in response to the steadily growing popularity of chrome-plated aluminum wheels and to provide capacity due to increased customer demand, we completed construction of a wheel plating facility. We were the first OEM aluminum wheel manufacturer to develop this in-house capability and the operation was one of the largest of its kind in the world. In 1998, we added a polishing operation for aluminum wheels to this facility. Due to a recent shift in the market for chromed wheels to a less expensive chrome finishing process, the sales forecasts for our chromed wheels declined significantly. Accordingly, on December 1, 2005, we estimated that we would not be able to recover the carrying value of certain machinery and equipment in our chrome plating operation. Accordingly, such assets were written down to their estimated fair value and we recorded an asset impairment and other charges totaling approximately $9.2 million. In the third quarter of 2006, all of our chrome-plating requirements were transferred to a third party supplier and we ceased operations of our chrome finishing operation.

In 1995, we entered into a 50-50 joint venture, Suoftec Light Metal Products, Ltd. (Suoftec), with Germany-based Otto Fuchs Metallwerke (Otto Fuchs) to establish a European manufacturing facility. The joint venture produces both lightweight forged and cast aluminum wheels for sale to OEM customers, principally in Europe. Shipments of forged and cast wheels began in 1997 and 1998, respectively, from our facility located in Tatabanya, Hungary. This venture established our commitment to enter the European market and introduced new wheel making technology to both the European and U.S. markets. In 1998, we completed an initial expansion of the cast aluminum production facility, which doubled its original casting capacity. Following a second expansion of the cast aluminum operations in 2002, the facility’s total capacity has increased to approximately 2.5 million wheels per year.

Aluminum Suspension Components - In 1999, we began to manufacture aluminum suspension and related underbody components using the licensed Cobapressä technology, which was another step toward expanding our sales to the OEM market. At the time, this diversification of our business emphasized the commitment to our long-term strategy to broaden our domestic and international OEM customer base and to expand our product lines into complementary areas, which utilize our design and manufacturing expertise. However, this strategy had not produced sufficient results to warrant the diversion of our attention away from our core business. Consequently, on September 24, 2006, we sold substantially all of the assets and working capital of the aluminum suspension components business to Saint Jean Industries, SAS, from whom we licensed the Cobapressä technology, for $17.0 million.

Fiscal Year End

Our fiscal year is the 52- or 53-week period ending on the last Sunday of the calendar year. The fiscal year 2006 comprises the 53-week period ended December 31, 2006. The fiscal years 2005, 2004, 2003 and 2002 comprise the 52-week periods ended December 25, 2005, December 26, 2004, December 28, 2003 and December 29, 2002, respectively. For convenience of presentation, all fiscal years are referred to as beginning as of January 1 and ending as of December 31, but actually reflect our financial position and results of operations for the periods described above.

Principal Products

Our OEM aluminum road wheels, including shipments from our 50 percent owned joint venture in Europe, are sold for factory installation, or as optional or standard equipment on many vehicle models, to Ford, General Motors Corporation (GM), DaimlerChrysler, Audi, BMW, Isuzu, Jaguar, Land Rover, Mazda, MG Rover, Mitsubishi, Nissan, Subaru, Toyota and Volkswagen. We currently supply cast and forged aluminum wheels for many North American model passenger cars and light trucks.

Customer Dependence

We have proven our ability to be a consistent producer of quality aluminum wheels with the capability of quickly expanding production capacity to meet increasing customer demand. We strive to continually enhance our relationships with our customers through continuous improvement programs, not only through our manufacturing operations but in the engineering, program development and quality areas, as well. These key business relationships have resulted in multiple vehicle supply contract awards with key customers over the past year.

Ford, GM and DaimlerChrysler were customers accounting for more than 10 percent of our consolidated net sales in 2006. Sales to GM, as a percentage of consolidated net sales, were 37 percent in 2006, 37 percent in 2005 and 43 percent in 2004. Sales to Ford, as a percentage of consolidated net sales, were 34 percent in 2006, 33 percent in 2005 and 36 percent in 2004. Sales to DaimlerChrysler, as a percentage of consolidated net sales, were 15 percent in 2006, 15 percent in 2005 and 9 percent in 2004.

The loss of all or a substantial portion of our sales to Ford, GM or DaimlerChrysler would have a significant adverse effect on our financial results, unless the lost sales volume could be replaced. However, this risk is partially offset in part by the numerous multi-year purchase orders for wheel programs with these customers. We also have excellent long-term relationships, including contractual arrangements that are in place, with our other customers. However, intense global competitive pricing pressure continues to make it difficult to maintain these contractual arrangements. and we expect this trend to continue into the future.

Net Sales Backlog

We receive OEM purchase orders to produce aluminum road wheels and component parts typically for multiple model years. These purchase orders are for vehicle wheel programs that can last three to five years. However, customers can impose competitive pricing provisions of those purchase orders each year, thereby reducing our profit margins or increasing the risk of our losing future shipments under those purchase orders. We manufacture and ship based on customer release schedules, normally provided on a weekly basis, which can vary due to cyclical automobile production or high dealer inventory levels. Accordingly, even though we have purchase orders covering multiple model years, weekly release schedules can vary with customer demand, thus there is no firm backlog.

Seasonal Variations and Work Stoppage

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, 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. During the past few years, there have been no significant consistent seasonal variations.

Raw Materials

We purchase substantial quantities of aluminum for the manufacture of our aluminum road wheels, which accounted for approximately all of our total raw material requirements during 2006. The majority of our aluminum requirements are met through purchase orders with several major domestic and foreign producers. Generally, the orders are fixed as to minimum and maximum quantities of aluminum, which the producers must supply during the term of the orders. During 2006, we were able to successfully secure aluminum commitments from our primary suppliers to meet production requirements and we are not anticipating any problems with our aluminum requirements for our expected level of production in 2007.

When market conditions warrant, we may also enter into contracts to purchase certain commodities used in the manufacture of our products, such as aluminum, natural gas, environmental emission credits and other raw materials. Any such commodity commitments are expected to be purchased and used over a reasonable period of time in the normal course of business. Accordingly, pursuant to Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” they are not accounted for as a derivative. We currently have several purchase agreements for the delivery of natural gas through 2008. The contract value and fair value of these purchase commitments approximated $15 million and $12 million, respectively, at December 31, 2006. As of December 31, 2005, the aggregate contract value and fair value of these commitments were $8 million and $17 million, respectively. Percentage changes in the market prices of natural gas will impact the fair value by a similar percentage. We do not hold or purchase any natural gas forward contracts for trading purposes.

We obtain our requirements for other materials through numerous suppliers with whom we have established trade relationships. When an outside supplier produces components for our products, we normally own or have the right to purchase the tools and dies located in the supplier’s facilities or have developed alternative sources.

Patents and Licensing Agreements

We currently hold patents for eight of our inventions and one other patent is pending. We have a policy of applying for patents when new products or processes are developed. However, we believe our success is more dependent upon manufacturing and engineering skills and the quality and market acceptance of our products, than upon our ability to obtain and defend patents.

Research and Development

Our policy is to continuously review, improve and develop engineering capabilities so that customer requirements are met 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. Two fully staffed engineering centers, located in Van Nuys, California, and Fayetteville, Arkansas, support our research and development manufacturing needs. We also have a technical center in Detroit, Michigan, which maintains a complement of engineering staff centrally located near our largest customers’ headquarters, engineering and purchasing offices. We are currently engaged in approximately 72 engineering programs for the development of OEM wheels and chrome wheels for future model years, including wheel models for Japanese and European OEM manufacturers.

Research and development costs (primarily engineering and related costs), which are expensed as incurred, are included in cost of sales in the consolidated statements of operations. Amounts expended during each of the three

years in the period ended December 31, 2006 were $6.8 million in 2006, $9.6 million in 2005 and $12.9 million in 2004.

Government Regulation

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

Environmental Compliance

Our manufacturing facilities, like most other manufacturing companies, are subject to solid waste, water and air pollution control standards mandated by federal, state and local laws. Violators of these laws are subject to fines and, in extreme cases, plant closure. We believe our facilities are substantially in compliance with all standards presently applicable. However, costs related to environmental protection may continue to grow due to increasingly stringent laws and regulations and our ongoing commitment to rigorous internal standards. The cost of environmental compliance was approximately $1.7 million in 2006, $3.4 million in 2005 and $1.5 million in 2004. We expect that future environmental compliance expenditures will approximate these levels and will not have a material effect on our consolidated financial position.

Competition

Aluminum wheels are highly competitive based primarily on price, technology, quality, delivery and overall customer service. We are one of the leading suppliers of aluminum road wheels for OEM installations in the world. We supply approximately 30 to 35 percent of the aluminum wheels installed on passenger cars and light trucks in North America. Competition is global in nature with growing exports from Asia. There are several competitors with facilities in North America, none of which aggregate greater than 15 percent of the total. See additional comments concerning competition in Item 1A – Risk Factors below. For the model year 2005, according to Ward’s Automotive Yearbook, an industry publication, aluminum wheel installation rates on passenger cars and light trucks produced in North America decreased to approximately 63 percent, compared to 65 percent in 2004. While aluminum wheel installation rates have grown from only 10 percent in the mid-1980s, in recent years, this growth rate slowed prior to 2005 and fell slightly in 2006. We expect the trend of slow growth or no growth to continue. Accordingly, we expect that our future growth will be more dependent upon additional future wheel contracts. In addition, intense global pricing pressure will decrease profitability and could potentially result in the loss of business in the future.

Employees

As of December 31, 2006, we had approximately 5,700 full-time employees compared to 6,700 and 6,900 at December 31, 2005 and 2004, respectively. Our joint venture manufacturing facility in Hungary employed 442 full-time employees at December 31, 2006. None of our employees are part of a collective bargaining agreement.

Financial Information About Geographic Areas

Financial information about geographic areas is contained in Note 3 – Business Segments in Item 8 – Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

Available Information

Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements, and any amendments thereto are available, without charge, on our website www.supind.com under “Investor”, as soon as reasonably practicable after they are filed electronically with the Securities and Exchange Commission (SEC). The public may read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, 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, that contains these reports, proxy and other information regarding the company. Also included on our

website, www.supind.com under Investors is our Code of Business Conduct and Ethics, which, among others, applies to our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer. Copies of all SEC filings and our Code of Business Conduct and Ethics are also available, without charge, from Superior Industries International, Inc., Shareholder Relations, 7800 Woodley Avenue, Van Nuys, CA 91406.

ITEM 1A – RISK FACTORS

The following discussion of risk factors contains “forward-looking” statements, which may be important to understanding any statement in this Annual Report on Form 10-K 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 on Form 10-K.

Our business routinely encounters and addresses risks, some of which will cause our future results to differ, sometimes materially, from those originally anticipated. Discussion about the important operational risks that our businesses encounter can be found in the MD&A section of this Annual Report on Form 10-K and in the business descriptions in Item 1 – Business of this Annual Report on Form 10-K. Below, we have described our present view of certain important strategic risks. Our reactions to material future developments as well as our competitors’ reactions to those developments will determine our future results.

Risks Relating To Our Company

Automotive Industry Trends — A significant portion of our sales are to automotive OEMs, and therefore our financial performance depends, in large part, on conditions in the automotive industry, which, in turn, are dependent upon the U.S. and global economies generally. As a result, economic and other factors adversely affecting automotive production and consumer spending could adversely impact our business. A weakening of the U.S. and global economies could adversely affect consumer spending, and result in decreased demand for automobiles and light trucks. If OEMs were to decrease production due to such reduced demand or union work stoppages, our financial performance could be adversely affected. In addition, relatively modest declines in our customers’ production levels could have a significant adverse impact on our profitability because we have substantial fixed production costs. Due to the present uncertainty in the economy, some of our OEM customers have been reducing their forecasts for new vehicle production. If actual production volume were to be reduced accordingly, our business would be adversely affected. Our sales are also impacted by our customers’ inventory levels and production schedules. If our OEM customers significantly reduce their inventory levels and reduce their orders from us, our performance would be adversely impacted. In this environment, we cannot predict future production rates or inventory levels or the underlying economic factors. Continued uncertainty and unexpected fluctuations may have a significant negative impact on our business.

Changing Nature of the Automotive Industry — In the automotive industry, there has been a trend toward consolidation. Continued consolidation of the automotive industry could adversely affect our business. Such consolidation could result in a loss of some of our present customers to our competitors and could thereby lead to reduced demand, which may have a significant negative impact on our business. Additionally, our major customers have been seeking ways to lower their own costs of manufacturing through increased use of internal manufacturing or through relocation of production to countries with lower production costs. This internal manufacturing or reliance on local or other foreign suppliers may have a significant negative impact on our business.

Global Pricing Pressure — We continue to experience increased competition in our domestic and international markets. Since some products are being shipped to the U.S. from Asia and elsewhere, many of our competitors have excess capacity and, because of their financial condition, are placing intense pricing pressure in our market place. These competitive pressures are expected to continue and may result in decreased sales volumes and unit price reductions, resulting in lower revenues, gross profit and operating income.

Additionally, cost-cutting initiatives adopted by our customers generally result in increased downward pressure on pricing. OEMs historically have had significant leverage over their outside suppliers because the automotive component supply industry is fragmented and serves a limited number of automotive OEMs, and, as such, Tier 1

suppliers are subject to substantial continued pressure from OEMs to reduce the price of their products. If we are unable to generate sufficient production cost savings in the future to offset price reductions, our gross margin and profitability would be adversely affected. In addition, changes in OEMs’ purchasing policies or payment practices could have an adverse effect on our business.

Cyclical Nature of Industry - Our principal operations are directly related to domestic and foreign production of passenger cars and light trucks. Industry sales and production are cyclical and therefore can be affected by the strength of the economy generally, by consumer spending, or, in specific regions such as North America or Europe, by prevailing interest rates and by other factors, which may have an effect on the level of sales of new automobiles. Any decline in the demand for new automobiles could have a material adverse impact on our financial condition and results of operations.

Competition - The automotive component supply industry is highly competitive, both domestically and internationally. Competition is based primarily on price, technology, quality, delivery and overall customer service. Some of our competitors are companies, or divisions or subsidiaries of companies that are larger and have greater financial and other resources than we do. We cannot assure you that our products will be able to compete successfully with the products of these or other companies. Furthermore, the rapidly evolving nature of the markets in which we compete has attracted new entrants, particularly in low cost countries. As a result, our sales levels and margins are being adversely affected by pricing pressures caused by such new entrants, especially in low-cost foreign markets, such as China. Such new entrants with lower cost structures pose a significant threat to our ability to compete internationally and domestically. These factors led to selective sourcing of future business by our customers to foreign competitors in the past and they may continue to do so in the future. In addition, any of our competitors may foresee the course of market development more accurately than us, develop products that are superior to our products, have the ability to produce similar products at a lower cost than us, or adapt more quickly than us to new technologies or evolving customer requirements. As a result, our products may not be able to compete successfully with their products. As a result of highly competitive market conditions in our industry, a number of our competitors have been forced to seek bankruptcy protection. These competitors may emerge and in some cases have emerged from bankruptcy protection with stronger balance sheets and a desire to gain market share by offering their products at a lower price than our products, which would have adverse impact on our financial performance.

Dependence on Major Customers - We derived approximately 86 percent of our fiscal 2006 net sales on a worldwide basis from Ford, GM and DaimlerChrysler and their subsidiaries. We do not have guaranteed long-term agreements with these customers and cannot predict that we will maintain our current relationships with these customers or that we will continue to supply them at current levels. The loss of a significant portion of sales to Ford, GM or DaimlerChrysler would have a material adverse effect on our business, unless the lost revenues were replaced. Ford and GM have been experiencing decreasing market share in North America. In addition, if any of our significant customers were to encounter financial difficulties, work stoppages or seek bankruptcy protection, our business could be adversely affected.

Furthermore, our OEM customers are not required to purchase any minimum amount of products from us. The contracts we have entered into with most of our customers provide for supplying the customers for a particular vehicle model, rather than for manufacturing a specific quantity of products. Such contracts range from one year to the life of the model (usually three to five years), typically are non-exclusive, and do not require the purchase by the customer of any minimum number of parts from us. Therefore, a significant decrease in demand for certain key models or group of related models sold by any of our major customers, or a decision by a manufacturer not to purchase from us, or to discontinue purchasing from us, for a particular model or group of models, could have a material adverse effect on us.

Dependence on Third-Party Suppliers and Manufacturers - Generally, our raw materials, supplies and energy requirements are obtained from various sources and in the quantities desired. Although we currently maintain alternative sources, our business is subject to the risk of price increases and periodic delays in the delivery. Fluctuations in the prices of these requirements may be driven by the supply/demand relationship for that commodity or governmental regulation. In addition, if any of our suppliers seek bankruptcy relief or otherwise cannot continue their business as anticipated, the availability or price of these requirements could be adversely affected.

Although we are able to periodically pass aluminum cost increases onto our customers, our customers are not obligated to accept energy or supply cost increases that we may attempt to pass along to them. This inability to pass on these cost increases to our customers when our prices increase to significantly higher than historic levels could adversely affect our operating margins and cash flow, possibly resulting in lower operating income and profitability.

Existing Cost Structure – In recent years, we have implemented several cost cutting initiatives in order to reduce our overall costs and improve our margins in response to pricing pressures from our customers. We have built additional production facilities in Mexico with cost structures lower than our U.S. facilities, in order to optimize our global manufacturing capacity and align our cost structures more effectively with the realities of the automotive market. During 2006, we discontinued our in-house chrome-plating operation, down-sized our Van Nuys, California wheel operations, sold our unprofitable components business and announced the planned closure in early 2007 of our Johnson City, Tennessee wheel manufacturing facility. In addition, this year we are currently evaluating our workforce requirements at all of our facilities. However, our strategy of optimizing our cost structures may never materialize or may not be sufficient to offset future price pressures from our customers and may have an adverse impact on our financial performance.

In light of the additional capacity coming on line in our new facility in Mexico, if North American production of passenger cars and light trucks using our wheel programs continues to decrease, it is possible that we will be unable to recover the full value of certain other production assets in our other plants in the United States. We will continue to monitor the recoverability of these assets.

Unexpected Production Interruptions - An interruption in production capabilities at any of our facilities as a result of equipment failure, interruption of supply, labor disputes or other reasons could result in our inability to produce our products, which would reduce our sales and earnings for the affected period. We have, from time to time, undertaken significant re-tooling and modernization initiatives at our facilities, which in the past have caused, and in the future may cause unexpected delays and plant underutilization, and such adverse consequences may continue to occur as we continue to modernize our production facilities. In addition, we generally deliver our products only after receiving the order from the customer and thus do not hold large inventories. In the event of a stoppage in production at any of our manufacturing facilities, even if only temporary, or if we experience delays as a result of events that are beyond our control, delivery times could be severely affected. Any significant delay in deliveries to our customers could lead to returns or cancellations and cause us to lose future sales, as well as expose us to claims for damages. Our manufacturing facilities are also subject to the risk of catastrophic loss due to unanticipated events such as fires, earthquakes, explosions or violent weather conditions. We have in the past and may in the future experience plant shutdowns or periods of reduced production as a result of facility modernization initiatives, equipment failure, delays in deliveries or catastrophic loss, which could have a material adverse effect on our results of operations or financial condition.

Dependence on Key Personnel - Our success depends in part on our ability to attract, hire, train, and retain qualified managerial, engineering, sales and marketing personnel. We face significant competition for these types of employees in our industry. We may be unsuccessful in attracting and retaining the personnel we require to conduct our operations successfully.

In addition, key personnel may leave us and compete against us. Our success also depends to a significant extent on the continued service of our senior management team. We may be unsuccessful in replacing key managers who either resign or retire. The loss of any member of our senior management team or other experienced, senior employees could impair our ability to execute our business plans and strategic initiatives, cause us to lose customers and reduce our net sales, or lead to employee morale problems and/or the loss of other key employees. In any such event, our financial condition, results of operations, internal controls over financial reporting, or cash flows could be adversely affected.

Effective Internal Controls Over Financial Reporting – Management is responsible for establishing and maintaining adequate internal control over financial reporting. Many of our key controls rely on maintaining a sufficient complement of personnel with an appropriate level of accounting knowledge, experience and training in the application of accounting principles generally accepted in the United States of America in order to operate effectively. If we are unable to attract, hire, train and retain a sufficient complement of qualified personnel required

to operate these controls effectively, our financial statements may contain material misstatements, unintentional errors, or omissions and late filings with regulatory agencies may occur. In addition, we may report material weaknesses in our internal controls over financial reporting similar to the material weaknesses reported in our 2005 Annual Report on Form 10-K and in Item 4 in Part I of our 2006 Quarterly Reports on Form 10-Q. Reporting of material weaknesses may result in negative perceptions of our business among our customers, suppliers, investors and others, which may have a material adverse impact on our business.

Impact of Aluminum Pricing - The cost of aluminum is a significant component in the overall production cost of a wheel. Additionally, a portion of our selling prices to OEM customers is tied to the cost of aluminum. Our selling prices are adjusted periodically to current aluminum market conditions based upon market price changes during specific pricing periods. Theoretically, assuming selling price adjustments and raw material purchase prices move at the same rate, as the price of aluminum increases, the effect is an overall decrease in the gross margin percentage, since the gross profit in absolute dollars would be the same. The opposite would then be true in periods during which the price of aluminum decreases.

However, since the pricing periods and pricing methodologies during which selling prices are adjusted for changes in the market prices of aluminum differ for each of our customers, and the selling price changes are fixed for various periods, our selling price adjustments may not entirely offset the increases or decreases experienced in our aluminum raw material purchase prices. This is especially true during periods of frequent increases or decreases in the market price of aluminum and when a portion of our aluminum purchases is via long-term fixed purchase agreements. Accordingly, our gross profit is subject to fluctuations, since the change in the product selling prices related to the cost of aluminum does not necessarily match the change in the aluminum raw material purchase prices during the period being reported, which may have a material adverse effect on our operating results.

Legal Proceedings - The nature of our business subjects us to litigation in the ordinary course of our business. We are exposed to potential product liability and warranty risks that are inherent in the design, manufacture and sale of automotive products, the failure of which could result in property damage, personal injury or death. Accordingly, individual or class action suits alleging product liability or warranty claims could result. Although we currently maintain what we believe to be suitable and adequate product liability insurance in excess of our self-insured amounts, we cannot assure you that we will be able to maintain such insurance on acceptable terms or that such insurance will provide adequate protection against potential liabilities. In addition, if any of our products prove to be defective, we may be required to participate in a recall involving such products. A successful claim brought against us in excess of available insurance coverage, if any, or a requirement to participate in any product recall, could have a material adverse effect on our results of operations or financial condition. In addition, we have been named as a nominal defendant in two shareholder derivative lawsuits relating to our historical stock option practices, and a number of our past and present directors, officers and employees have been named as individual defendants in these lawsuits. We may in the future be named in additional lawsuits or government inquiries relating to our historical stock price practices. See Item 3 — Legal Proceedings section of this Annual Report on Form 10-K for a description of the significant legal proceedings in which we are presently involved. We cannot assure you that any current or future claims will not adversely affect our cash flows, financial condition or results of operations.

Implementation of New Systems - We periodically upgrade our software systems that support certain of our financial accounting and other operational functions within our business. We may encounter technical and operating difficulties during the implementation of these upgrades, as our employees learn and operate the systems, which are critical to our operations. Any difficulties that we encounter in upgrading the system may affect our internal controls over financial reporting; disrupt our ability to deal effectively with our employees, customers and other companies with which we have commercial relationships; and also may prevent us from effectively reporting our financial results in a timely manner. Any such disruption could have a material adverse impact on our financial condition, cash flows or results of operations. In addition, the costs incurred in correcting any errors or problems with the upgraded system could be substantial.

Intellectual Property - We consider ourselves to be an industry leader in product and process technology, and therefore the protection of our intellectual properties is important to our business. We rely on a combination of intellectual property, principally patents, to provide protection in this regard, but this protection might be inadequate. For example, our pending or future patent applications might not be approved or, if allowed, they might not be of sufficient strength or scope. Conversely, third parties might assert that our technologies infringe their proprietary

rights. In either case, litigation, which could result in substantial costs and diversion of our efforts, might be necessary, and whether or not we are ultimately successful, the litigation could adversely affect our business.

Implementation of Operational Improvements - As part of our ongoing focus on being a low-cost provider of high quality products, we continually analyze our business to further improve our operations and identify cost-cutting measures. Our continued analysis includes identifying and implementing opportunities for: (i) further rationalization of manufacturing capacity; (ii) streamlining of marketing and general and administrative overhead; (iii) implementation of lean manufacturing and Six Sigma initiatives; and (iv) efficient investment in new equipment and technologies and the upgrading of existing equipment. We may be unable to successfully identify or implement plans targeting these initiatives, or fail to realize the benefits of the plans we have already implemented, as a result of operational difficulties, a weakening of the economy or other factors.

We are continuing to implement action plans to improve operational performance and mitigate the impact of the severe pricing environment in which we now operate. We must emphasize, however, that while we continue to reduce costs through process automation and identification of industry best practices, the curve of customer price reductions may continue to be at a rate faster than our progress on achieving cost reductions for an indefinite period of time, due to the slow and methodical nature of developing and implementing these cost reduction programs. In addition, fixed price natural gas contracts that expire in the next two years may expose us to higher costs that cannot be immediately recouped in selling prices. The impact of these factors on our future financial position and results of operations may be negative, to an extent that cannot be predicted, and we may not be able to implement sufficient cost saving strategies to mitigate any future impact.

Resources for Future Expansion - We have recently completed building a new facility in Chihuahua, Mexico, to supply aluminum wheels to the North American aluminum wheel market. This is our third manufacturing facility in Chihuahua, Mexico. A significant change in our business, the economy or an unexpected decrease in our cash flow for any reason could result in our inability to have the capital required to complete similar projects in the future without outside financing.

New Product Introduction - In order to effectively compete in the automotive supply industry, we must be able to launch new products to meet our customers’ demand in a timely manner. We cannot assure you, however, that we will be able to install and certify the equipment needed to produce products for new product programs in time for the start of production, or that the transitioning of our manufacturing facilities and resources to full production under new product programs will not impact production rates or other operational efficiency measures at our facilities. In addition, we cannot assure you that our customers will execute on schedule the launch of their new product programs, for which we might supply products. Our failure to successfully launch new products, or a failure by our customers to successfully launch new programs, could adversely affect our results.

Technological and Regulatory Changes - Changes in legislative, regulatory or industry requirements or in competitive technologies may render certain of our products obsolete or less attractive. Our ability to anticipate changes in technology and regulatory standards and to successfully develop and introduce new and enhanced products on a timely basis will be a significant factor in our ability to remain competitive. We cannot assure you that we will be able to achieve the technological advances that may be necessary for us to remain competitive or that certain of our products will not become obsolete. We are also subject to the risks generally associated with new product introductions and applications, including lack of market acceptance, delays in product development and failure of products to operate properly.

International Operations - We manufacture our products in Mexico and Hungary and sell our products throughout the world. Unfavorable changes in foreign cost structures, trade protection laws, policies and other regulatory requirements affecting trade and investments, social, political, labor, or economic conditions in a specific country or region, including foreign exchange rates, difficulties in staffing and managing foreign operations and foreign tax consequences, among other factors, could have a negative effect on our business and results of operations.

Labor Relations - We do not anticipate our workforce becoming unionized, but if such eventuality occurred, our labor costs could increase which would increase our overall production costs. In addition, we could be adversely affected by any labor difficulties or work stoppage involving our customers.

Foreign Currency Fluctuations – Due to the increase in our operations outside of the United States, we have experienced increased foreign currency gains and losses in the ordinary course of our business. As a result, fluctuations in the exchange rate between the U.S. dollar, the euro, the Mexican peso, the Hungarian Forint and any currencies of other countries in which we conduct our business may have a material impact on our financial condition as cash flows generated in other currencies will be used, in part, to service our U.S. dollar-denominated creditors.

In addition, fluctuations in foreign currency exchange rates may affect the value of our foreign assets as reported in U.S. dollars, and may adversely affect reported earnings and, accordingly, the comparability of period-to-period results of operations. Changes in currency exchange rates may affect the relative prices at which foreign competitors and we sell products in the same market. In addition, changes in the value of the relevant currencies may affect the cost of certain items required in our operations. We cannot assure you that fluctuations in exchange rates will not otherwise have a material adverse effect on our financial condition or results of operations, or cause significant fluctuations in quarterly and annual results of operations.

Environmental Matters - We are subject to various foreign, federal, state and local environmental laws, ordinances, and regulations, including those governing discharges into the air and water, the storage, handling and disposal of solid and hazardous wastes, the remediation of soil and groundwater contaminated by hazardous substances or wastes, and the health and safety of our employees. Under certain of these laws, ordinances or regulations, a current or previous owner or operator of property may be liable for the costs of removal or remediation of certain hazardous substances on, under, or in its property, without regard to whether the owner or operator knew of, or caused, the presence of the contaminants, and regardless of whether the practices that resulted in the contamination were legal at the time they occurred. The presence of, or failure to remediate properly, such substances may adversely affect the ability to sell or rent such property or to borrow using such property as collateral. Persons who generate, arrange for the disposal or treatment of, or dispose of hazardous substances may be liable for the costs of investigation, remediation or removal of these hazardous substances at or from the disposal or treatment facility, regardless of whether the facility is owned or operated by that person. Additionally, the owner of a site may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site. We believe that we are in material compliance with environmental laws, ordinances and regulations and do not anticipate any material adverse effect on our earnings or competitive position relating to environmental matters. It is possible, however, that future developments could lead to material costs of environmental compliance for us. The nature of our current and former operations and the history of industrial uses at some of our facilities expose us to the risk of liabilities or claims with respect to environmental and worker health and safety matters which could have a material adverse effect on our financial health. We are also required to obtain permits from governmental authorities for certain operations. We cannot assure you that we have been or will be at all times in complete compliance with such permits. If we violate or fail to comply with these permits, we could be fined or otherwise sanctioned by regulators. In some instances, such a fine or sanction could be material. In addition, some of our properties are subject to indemnification and/or cleanup obligations of third parties with respect to environmental matters. However, in the event of the insolvency or bankruptcy of such third parties, we could be required to bear the liabilities that would otherwise be the responsibility of such third parties.

ITEM 1B – UNRESOLVED STAFF COMMENTS

None.

ITEM 2 – PROPERTIES

Our worldwide headquarters is located in leased office space adjacent to leased manufacturing and warehousing facilities in Van Nuys, California. We maintain and operate a total of nine facilities that produce aluminum wheels for the automotive industry, located in Arkansas, California, Kansas, Tennessee, Chihuahua, Mexico, and Tatabanya, Hungary. In 2004, we started construction of our third aluminum wheel facility in Chihuahua, Mexico, which began producing aluminum wheels at the end of 2006. These nine facilities encompass 4,103,900 square feet of manufacturing space, 120,000 square feet of warehouse space and 30,000 square feet of office space. We own all of our facilities with the exception of our facility in Van Nuys, California, and one warehouse in Chihuahua, Mexico that are leased. Wheel manufacturing

operations in our Johnson City, Tennessee facility, totaling 301,500 square feet, will cease at the end of the first quarter of 2007. The ultimate disposition of this property is not known at this time.

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

Additionally, reference is made to Note 1 — Summary of Significant Accounting Policies, Note 6 - Property, Plant and Equipment and Note 9 — Leases and Related Parties, in Item 8 – Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

ITEM 3 — LEGAL PROCEEDINGS

We are currently awaiting approval from the Los Angeles City Council of our offer to settle a dispute with the City of Los Angeles regarding a retroactive rental rate adjustment on the ground lease for our Van Nuys, California property. Although there can be no assurance as to the final outcome of these negotiations or the case itself, we believe that in the event of an adverse result there would not be a material adverse impact to our financial condition or results of operations.

In late 2006, two purported shareholder derivative lawsuits were filed based on allegations concerning some of the Company’s past stock option grants and practices. In these lawsuits, the Company is named only as a nominal defendant from whom the plaintiffs seek no monetary recovery. In addition to naming the Company as a nominal defendant, the plaintiffs name various present and former employees, officers and directors of the Company as individual defendants from whom they seek monetary relief, purportedly for the benefit of the Company.

The first of these lawsuits, entitled Eldred v. Ausman, et al., Case No. CV 06-07213 JFW (FMOx), was filed on November 9, 2006, in the United States District Court for the Central District of California, and assigned to Judge John F. Walter. The complaint in the Eldred lawsuit names the following individuals as defendants: Sheldon Ausman; Raymond Brown; Lou Borick; Steven Borick; Phillip Colburn; V. Bond Evans; R. Jeffrey Ornstein; Jack Parkinson; Robert Bouskill; Joseph D’Amico; Michael Dryden; Ronald Escue; Emil J. Fanelli; James Ferguson; Parveen Kakar; Iftikhar Kazmi; William Kelley; Daniel Levine; Henry Maldini; Frank Monteleone; Michael O’Rourke and Delbert Schmitz. In the complaint, the plaintiff purports to state the following alleged claims for relief: (1) violations of § 10(b) of the Securities Exchange Act of 1934 (“the 1934 Act”); (2) violations of § 14(a) of the 1934 Act; (3) violations of § 20(a) of the 1934 Act; (4) accounting; (5) breach of fiduciary duties and aiding and abetting breach of fiduciary duties; (6) unjust enrichment; (7) rescission; and (8) violations of the California Corporation Code § 25402.

The second of these lawsuits, entitled Mack v. Borick, et al., Case No. CV 06-07709 JFW (FMOx), was filed on December 5, 2006, in the United States District Court for the Central District of California, and is now assigned to Judge Walter. The complaint in the Mack lawsuit names the following individuals as defendants: Steven Borick; Lou Borick; Raymond Brown; R. Jeffrey Ornstein; James Ferguson; Henry Maldini; Michael O’Rourke; Sheldon Ausman; Phillip Colburn; Jack Parkinson; and V. Bond Evans. In the complaint, the plaintiff purports to assert the following alleged claims for relief: (1) violations of § 10(b) of the Securities Exchange Act of 1934 (“the 1934 Act”); (2) violations of § 14(a) of the 1934 Act; (3) violations of § 20(a) of the 1934 Act; (4) breach of fiduciary duty; and (5) common law restitution/unjust enrichment.

Both of these cases are based on general allegations that the grant dates for a number of the options granted to certain Company directors, officers and employees occurred prior to upward movements in the stock price, and that the stock options grants were not properly accounted for in the Company’s financial reports and not properly disclosed in the Company’s SEC filings. The two lawsuits were recently consolidated and a consolidated complaint was filed which generally tracks the same allegations and legal claims made in the original Eldred and Mack complaints. It is anticipated that the Company and the individual defendants will file motions to dismiss in the near future. As this litigation is at such a preliminary stage, it would be premature to anticipate the probable outcome of these cases and whether such an outcome would be materially adverse to the Company.

In 2006, we were served with notice of a class action lawsuit against the company. The complaint alleges that certain employees at our Van Nuys, California facility were denied rest and meal periods as required under the California Labor Code. We believe this matter is without merit. Although no assurance can be given as to the final outcome, we believe that in the event of an adverse result there would not be a material adverse impact to our financial condition, results of operations, or cash flows.

We are also 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.

ITEM 4 — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of 2006, no matters were submitted to a vote of security holders through the solicitation of proxies or otherwise.

PART II

ITEM 5 —		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the New York Stock Exchange (symbol: SUP). We had approximately 652 shareholders of record as of December 31, 2006 and 26.6 million shares issued and outstanding as of March 30, 2007. Information relating to equity securities authorized under our equity compensation plans and a five year cumulative total return of our Common Stock as of December 31, 2006 is set forth below.

*Assumes the value of the investment in Superior Industries common stock and each index was $100 on December 31, 2001 and that all   dividends were reinvested.

						Dow Jones				Dow Jones
		Superior Industries				US Total				US Auto
		International, Inc.				Market Index				Parts Index
2001		$	100.00			$	100.00			$	100.00
2002		$	103.82			$	77.92			$	90.17
2003		$	110.67			$	101.98			$	128.23
2004		$	75.25			$	114.12			$	135.26
2005		$	59.23			$	121.34			$	113.98
2006		$	53.09			$	140.23			$	122.06

Quarterly Common Stock Price Information ($)

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

		2006								2005
		High				Low				High				Low
First Quarter			23.21				19.06				29.34				24.78
Second Quarter			19.63				17.25				26.41				20.33
Third Quarter			18.88				16.38				25.16				20.66
Fourth Quarter			20.23				16.40				23.37				19.90

Securities Authorized for Issuance Under Equity Compensation Plans

The table below contains information about securities authorized for issuance under equity compensation plans. The features of these plans are described further in Note 13 to the Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

Number of securities

Number of securities

to be issued

Weighted-average

remaining available

upon exercise of

exercise price of

for future issuance

outstanding options,

outstanding options,

under equity

warrants and rights

warrants and rights

compensation plans

Equity compensation plans approved by security holders

3,147,792

$

26.36

940,825

Equity compensation plans not approved by security holders

—

—

—

Total

3,147,792

$

26.36

940,825

Dividend Policy

Cash dividends declared during 2006 and 2005 totaled approximately $0.64 per share in each year and were paid on a quarterly basis. We anticipate continuing the policy of paying dividends quarterly, which is contingent upon various factors, including economic and market conditions, none of which can be accurately predicted.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

On March 17, 2000, the Board of Directors authorized the repurchase of 4.0 million shares of our common stock as part of the 2000 Stock Repurchase Plan (Plan). During the fourth quarter of 2006, there were no repurchases of common stock. As of December 31, 2006, approximately 3.2 million shares remained available for repurchase under the Plan.

ITEM 6 — SELECTED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction with Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8 – Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

Our fiscal year is the 52- or 53-week period ending on the last Sunday of the calendar year. The fiscal year 2006 comprises the 53-week period ended December 31, 2006. The fiscal years 2005, 2004, 2003 and 2002 comprise the 52-week periods ended December 25, 2005, December 26, 2004, December 28, 2003 and December 29, 2002, respectively. For convenience of presentation, all fiscal years are referred to as beginning as of January 1 and ending as of December 31, but actually reflect our financial position and results of operations for the periods described above.

The consolidated statements of operations data for the years ended December 31, 2006, 2005 and 2004, and the consolidated balance sheet data at December 31, 2006 and 2005, are derived from our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K. The consolidated statements of operations data for the years ended December 31, 2003 and 2002, and the consolidated balance sheet data at December 31, 2004, 2003, and 2002, are derived from our unaudited financial statements that are not included in this Annual Report on Form 10-K. The financial statements as of and for the fiscal years 2005, 2004, 2003 and 2002 have been restated to correct the accounting for certain stock option grants and practices, as further described in Note 2 to the consolidated financial statements included herein. These historical results are not necessarily indicative of the results to be expected in any future period.

		2006				2005				2004(4)				2003(4)				2002(4)
						As restated				As restated				As restated				As restated
Income Statement
Net Sales		$	789,862			$	804,161			$	872,258			$	825,940			$	782,599
Income (Loss) from Continuing Operations			(9,578	)			20,219				51,912				79,281				82,531
Balance Sheet
Current Assets		$	346,593			$	359,740			$	368,976			$	388,510			$	368,941
Current Liabilities			113,110				110,634				87,343				83,621				97,123
Working Capital			233,483				249,106				281,633				304,889				271,818
Total Assets			712,013				719,479				744,528				703,205				645,796
Long–Term Debt			—				—				—				—				—
Shareholders’ Equity		$	560,188			$	579,889			$	604,719			$	577,600			$	516,295
Financial Ratios
Current Ratio (1)			3.1:1				3.3:1				4.2:1				4.6:1				3.8:1
Long–Term Debt/Total Capitalization (2)			0.0	%			0.0	%			0.0	%			0.0	%			0.0	%
Return on Average Shareholders’ Equity (3)			-1.6	%			-1.1	%			7.4	%			13.3	%			16.2	%
Share Data
Income (Loss) from Continuing Operations
- Basic		$	(0.36	)		$	0.76			$	1.95			$	2.97			$	3.13
- Diluted		$	(0.36	)		$	0.76			$	1.94			$	2.93			$	3.07
Shareholders’ Equity at Year–End		$	21.05			$	21.79			$	22.72			$	21.58			$	19.43
Dividends Declared		$	0.640			$	0.635			$	0.6025			$	0.5375			$	0.485

SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)

Fiscal Year 2003		As reported				Adjustments				As restated
		(reclassified)
NET SALES		$	825,940			$	—			$	825,940
Cost of sales			691,531				—				691,531
GROSS PROFIT			134,409				—				134,409
Selling, general and administrative expenses			22,902				1,407				24,309
Impairment of long-lived assets			—				—				—
INCOME FROM OPERATIONS			111,507				(1,407	)			110,100
Interest income, net			2,727				—				2,727
Other expense, net			1,144				—				1,144
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY EARNINGS			115,378				(1,407	)			113,971
Income tax benefit (provision)			(43,837	)			492				(43,345	)
Equity in earnings of joint ventures			8,655				—				8,655
NET INCOME FROM CONTINUING OPERATIONS			80,196				(915	)			79,281
Discontinued operations, net of taxes			(6,476	)			—				(6,476	)
NET INCOME (LOSS)		$	73,720			$	(915	)		$	72,805
EARNINGS (LOSS) PER SHARE — BASIC:
Net income from continuing operations		$	3.01			$	(0.04	)		$	2.97
Discontinued operations, net of taxes			(0.24	)			—				(0.24	)
NET INCOME (LOSS)		$	2.77			$	(0.04	)		$	2.73
EARNINGS (LOSS) PER SHARE — DILUTED:
Net income from continuing operations		$	2.97			$	(0.04	)		$	2.93
Discontinued operations, net of taxes			(0.24	)			—				(0.24	)
NET INCOME (LOSS)		$	2.73			$	(0.04	)		$	2.69

See notes to consolidated financial statements.

SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)

Fiscal Year 2002		As reported				Adjustments				As restated
(reclassified)
NET SALES		$	782,599			$	—			$	782,599
Cost of sales			642,289				—				642,289
GROSS PROFIT			140,310				—				140,310
Selling, general and administrative expenses			22,313				1,276				23,589
Impairment of long-lived assets			—				—				—
INCOME FROM OPERATIONS			117,997				(1,276	)			116,721
Interest income, net			3,519				—				3,519
Other expense, net			1,138				—				1,138
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY EARNINGS			122,654				(1,276	)			121,378
Income tax benefit (provision)			(45,554	)			447				(45,107	)
Equity in earnings of joint ventures			6,260				—				6,260
NET INCOME FROM CONTINUING OPERATIONS			83,360				(829	)			82,531
Discontinued operations, net of taxes			(5,110	)			—				(5,110	)
NET INCOME (LOSS)		$	78,250			$	(829	)		$	77,421
EARNINGS (LOSS) PER SHARE — BASIC:
Net income from continuing operations		$	3.16			$	(0.03	)		$	3.13
Discontinued operations, net of taxes			(0.19	)			—				(0.19	)
NET INCOME (LOSS)		$	2.97			$	(0.03	)		$	2.94
EARNINGS (LOSS) PER SHARE — DILUTED:
Net income from continuing operations		$	3.10			$	(0.03	)		$	3.07
Discontinued operations, net of taxes			(0.19	)			—				(0.19	)
NET INCOME (LOSS)		$	2.91			$	(0.03	)		$	2.88

See notes to consolidated financial statements.

SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)

Fiscal Year End 2004		As reported				Adjustments				As restated
(reclassified)
ASSETS
Current assets:
Cash and cash equivalents		$	119,644			$	—			$	119,644
Short-term investments			—				—				—
Accounts receivable, net			150,560				—				150,560
Inventories, net			89,894				—				89,894
Deferred income taxes			2,583				—				2,583
Other current assets			6,205				—				6,205
Total current assets			368,976				—				368,976
Property, plant and equipment, net			274,830				—				274,830
Investments			91,860				—				91,860
Other assets			8,862				—				8,862
Total Assets		$	744,528			$	—			$	744,528
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	42,351			$	—			$	42,351
Accrued expenses			44,814				—				44,814
Income taxes payable			178				—				178
Total current liabilities			87,343				—				87,343
Executive retirement liabilities			17,203				—				17,203
Deferred income taxes			36,718				(1,455	)			35,263
Commitments and contingent liabilities (Note 12)			—				—				—
Shareholders’ equity:
Preferred stock, $25.00 par value Authorized — 1,000,000 shares; Issued — none
Common stock, $0.50 par value Authorized — 100,000,000 shares Issued and outstanding — 26,621,191 shares			13,310				—				13,310
Additional paid-in-capital			23,235				8,249				31,484
Accumulated other comprehensive loss			(38,586	)			—				(38,586	)
Retained earnings			605,305				(6,794	)			598,511
Total shareholders’ equity			603,264				1,455				604,719
Total Liabilities and Shareholders’ Equity		$	744,528			$	—			$	744,528

See notes to consolidated financial statements.

SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)

Fiscal Year End 2003		As reported				Adjustments				As restated
(reclassified)
ASSETS
Current assets:
Cash and cash equivalents		$	156,847			$	—			$	156,847
Short-term investments			—				—				—
Accounts receivable, net			147,579				—				147,579
Inventories, net			68,228				—				68,228
Deferred income taxes			3,616				—				3,616
Other current assets			12,240				—				12,240
Total current assets			388,510				—				388,510
Property, plant and equipment, net			261,733				—				261,733
Investments			45,503				—				45,503
Other assets			7,459				—				7,459
Total Assets		$	703,205			$	—			$	703,205
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	30,398			$	—			$	30,398
Accrued expenses			38,534				—				38,534
Income taxes payable			14,689				—				14,689
Total current liabilities			83,621				—				83,621
Executive retirement liabilities			15,024				—				15,024
Deferred income taxes			27,978				(1,018	)			26,960
Commitments and contingent liabilities (Note 12)			—				—				—
Shareholders’ equity:
Preferred stock, $25.00 par value Authorized — 1,000,000 shares; Issued — none
Common stock, $0.50 par value Authorized — 100,000,000 shares Issued and outstanding — 26,768,666 shares			13,384				—				13,384
Additional paid-in-capital			28,431				6,961				35,392
Accumulated other comprehensive loss			(41,935	)			—				(41,935	)
Retained earnings			576,702				(5,943	)			570,759
Total shareholders’ equity			576,582				1,018				577,600
Total Liabilities and Shareholders’ Equity		$	703,205			$	—			$	703,205

See notes to consolidated financial statements.

SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)

Fiscal Year End 2002		As reported				Adjustments				As restated
		(reclassified)
ASSETS
Current assets:
Cash and cash equivalents		$	155,184			$	—			$	155,184
Short-term investments			—				—				—
Accounts receivable, net			134,030				—				134,030
Inventories, net			67,824				—				67,824
Deferred income taxes			4,530				—				4,530
Other current assets			7,373				—				7,373
Total current assets			368,941				—				368,941
Property, plant and equipment, net			235,566				—				235,566
Investments			34,630				—				34,630
Other assets			6,659				—				6,659
Total Assets		$	645,796			$	—			$	645,796
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	43,987			$	—			$	43,987
Accrued expenses			38,100				—				38,100
Income taxes payable			15,036				—				15,036
Total current liabilities			97,123				—				97,123
Executive retirement liabilities			14,258				—				14,258
Deferred income taxes			19,188				(1,068	)			18,120
Commitments and contingent liabilities (Note 12)			—				—				—
Shareholders’ equity:
Preferred stock, $25.00 par value Authorized — 1,000,000 shares; Issued — none
Common stock, $0.50 par value Authorized — 100,000,000 shares Issued and outstanding — 26,573,437 shares			13,287				—				13,287
Additional paid-in-capital			23,251				6,096				29,347
Accumulated other comprehensive loss			(38,646	)			—				(38,646	)
Retained earnings			517,335				(5,028	)			512,307
Total shareholders’ equity			515,227				1,068				516,295
Total Liabilities and Shareholders’ Equity		$	645,796			$	—			$	645,796

See notes to consolidated financial statements.

ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the related notes included in Item 8 - Financial Statements and Supplementary Data in this Annual Report on Form 10-K. This discussion contains forward-looking statements, which involve risks and uncertainties. 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 on Form 10-K.

Review of Stock Option Practices and Restatements of Consolidated Financial Statements

During the fourth quarter of 2006, two shareholder derivative lawsuits were filed against us and certain present and former officers and directors of the company alleging that the defendants (1) improperly backdated stock options of officers and directors, in violation of the company’s shareholder-approved stock option plans; (2) improperly recorded and accounted for the backdated stock options, in violation of generally accepted accounting principles; (3) improperly reported tax deductions based on the backdated stock options, in violation of Section 162(m) of the Internal Revenue Code; and (4) produced and disseminated to shareholders and the market false financial statements and other SEC filings. To evaluate these allegations, under the oversight of the Audit Committee of the Board of Directors, outside counsel and forensic accounting experts (the “Review Team”), thereafter conducted a comprehensive review of our historical stock option grant practices.

The Review Team analyzed approximately 1,125 option grants, involving approximately 3,875,500 options, or 98% of the total options granted, made on 52 separate grant dates between 1997 and 2006. The Review Team also reviewed certain option grants for the time period between 1991 and 1996. Based on this review, we concluded that, for most option grants, there were deficiencies in the process of granting, documenting or accounting for stock options that resulted in our using incorrect measurement dates for financial accounting purposes. These deficiencies included:

	•		For certain option grants, we generally failed to comply with the terms of the applicable stock option plans concerning the timing of option grants. In particular, our 1988 and 1993 Stock Option plans required that any option grants approved by Unanimous Written Consent (“UWC”) be considered granted on the date the last Compensation and Benefits Committee member executed the consent. Instead, we considered options granted, and used a measurement date for accounting purposes, prior to the date on which the last Committee member executed the UWC;
	•		For certain option grants, there was incomplete or missing documentation of the requisite corporate actions. For example, in most cases involving grants made by UWC, the Review Team was not able to locate all of the executed versions of the UWCs and, therefore, could not determine the date the UWC became effective. As a result, we concluded the date of the next Board of Directors meeting, when a duplicate UWC was executed, was the appropriate accounting measurement date;
	•		For certain option grants, we granted options before the completion of required corporate actions. In one instance, a grant to our then CEO and current Chairman of the Board requiring shareholder approval was made before that approval was obtained. In addition, as discussed above, certain grants were made before the approving UWC was finally executed;
	•		For certain option grants, we did not finalize the allocation of the number of options granted to each employee until after the purported grant date;
	•		For certain option grants, we selected a grant date retrospectively to obtain a lower exercise price; and

•

For certain option grants, we awarded new employees options prior to their actual start date to obtain a lower exercise price.

Under paragraph 10 of Accounting Principles Board Opinion 25, “Accounting for Stock Issued to Employees,” the measurement date for determining the compensation cost of a stock option grant is the first date on which both the following are known: (1) the number of options that an individual employee is entitled to receive and (2) the option or purchase price. If the fair market value of the company’s common stock on the measurement date exceeds an option’s exercise price, the company is required to record compensation expense for the difference. Applying these principles, we determined that, after accounting for forfeitures, compensation expense in the pretax amount of $11.1 million should have been recorded over the years 1991 through 2005. Accordingly, we adjusted certain accounts, including retained earnings in the amount of $5.9 million, in the opening balance sheet for fiscal year 2004. After considering all of the quantitative and qualitative factors, these errors are not considered to be material to any one prior period. However, because the cumulative effect of the historical misdated options would be material to the 2006 period, we have restated our prior financial statements based on the guidance in Accounting Principles Board Opinion No. 28, “Interim Financial Reporting”, paragraph 29 and SEC SAB Topic 5F, “Accounting Changes Not Retroactively Applied Due to Immateriality.”

Based on the Review Team’s findings, we also concluded that none of the members of the Board of Directors or senior management engaged in intentional or fraudulent misconduct in connection with the option granting issues identified by the Review Team. This conclusion was based on the determination that (1) a majority of the deficiencies were administrative in nature and not the result of deliberate conduct; (2) to the extent hindsight was used to select grant dates with lower exercise prices, our current Chief Executive Officer and our current Chairman of the Board did not benefit financially or appreciate the related accounting implications of such actions; and (3) while our Chief Financial Officer was aware of the use of hindsight to select option grant dates with lower exercise prices and had personally obtained some financial benefit from exercising these misdated options, after considering all related positive and negative factors, the Review Team found that he did not appear to have appreciated fully, the accounting implications of the misdated option grants. The stock-based compensation expense required to be recorded due to retrospectively obtaining a lower exercise price, which would have been recorded over the four-year vesting period, approximated $3.7 million for option grants totaling 645,100 shares.

Additionally, based on the Review Team’s findings, the Board of Directors approved certain remediation and corporate governance measures to address the deficiencies identified by the Review Team and to align our option-granting processes with prevailing best practices and generally accepted accounting principles.

Restatement and Impact on Financial Statements

In addition to restating the consolidated financial statements in response to the Review Team’s findings, we also 1) reclassified the operations of the aluminum suspension components business to discontinued operations due to the decision reached in 2006 to sell that business (see Note 17 — Discontinued Operations in Item 8 — Financial Statements and Supplementary Data) and 2) reclassified certain short-term investments to “cash and cash equivalents” in conjunction with an accounting policy change, affected during 2006, described under “Cash and Cash Equivalents” in Note 1 — Summary of Significant Accounting Policies in Item 8 — Financial Statements and Supplementary Data. For the fiscal years 2005 and prior, we previously had not recorded stock-based compensation expenses; therefore, the additional stock based-compensation noted below represents the total stock-based compensation expense for these periods. The impact to the statement of operations of the stock-based compensation restatement is as follows (in thousands):

						Stock-Based								Stock-Based
		Net Income,				Compensation								Compensation
		as Previously				Expense				Net Income,				Expense
Fiscal Year		Reported				Net of Tax				as Restated				Pretax
Cumulative effect as of the beginning of fiscal 2002						$	(4,199	)						$	(6,273	)
2002		$	78,250				(829	)		$	77,421				(1,276	)
2003		$	73,720				(915	)		$	72,805				(1,407	)
Cumulative effect as of the end of fiscal 2003						$	(5,943	)						$	(8,956	)
2004		$	44,655			$	(851	)		$	43,804				(1,310	)
2005		$	(5,836	)			(531	)		$	(6,367	)			(817	)
Cumulative effect as of the end of fiscal 2005						$	(7,325	)						$	(11,083	)

		Stock-Based				Stock-Based
		Compensation				Compensation
		Expense				Expense
Fiscal Year		Net of Tax				Pretax
2001		$	(460	)		$	(708	)
2000			(204	)			(314	)
1999			(148	)			(228	)
1998			(66	)			(102	)
1997			(17	)			(26	)
1996			(211	)			(325	)
1995			(1,183	)			(1,630	)
1994			(1,059	)			(1,630	)
1993			(848	)			(1,305	)
1992			(3	)			(5	)
1991			—				—
Cumulative effect as of the beginning of fiscal 2002		$	(4,199	)		$	(6,273	)

See Note 2 — Review of Stock Option Practices and Restatements of Consolidated Financial Statements in Item 8 — Financial Statements and Supplementary Data for a reconciliation of the restated results for fiscal years 2005 and 2004 to the previously reported amounts.

Executive Overview

Being a supplier who sells predominately to General Motors and Ford and who is heavily oriented to the sport utility vehicle (SUV) platforms, we experienced another very difficult year in the North American supplier market. In addition to continued global price competitiveness (particularly from Asia), our concentration on primarily domestic SUV platforms has exposed us to continued margin compression and volume constriction. This was evidenced by the numerous production cutbacks announced by our customers in 2006. Our unit shipments decreased 12 percent in 2006 and our units produced declined 15 percent, both factors causing a significant decrease in gross profit. While we have ongoing programs to reduce our own costs through process automation and identification of industry best practices, and had been successful in substantially mitigating these pricing pressures in the past, it has become increasingly more difficult to do so. Given the continuing nature of customer requests for price reductions, and the lengthy transitional periods necessary to implement best practices and to reduce labor and other costs through automation, our profit margins may continue to be less than our historical levels. We will continue to attempt to increase our operating margins from current operating levels by aggressively implementing cost savings strategies to meet customer-pricing expectations and mitigate increasing industry-wide price competition. However, as we incur

costs to implement these strategies, the initial impact on our future financial position and results of operations will be negative, the extent to which cannot be predicted, and even if successfully implemented these strategies may not be sufficient to offset the impact of on-going pricing pressures and additional customer production cuts on our financial position and results of operations in future periods.

Several specific actions to preserve our financial strength going forward were taken during the fourth quarter of 2005 that were finalized during 2006. Since 1999, we had embarked on a diversification effort to broaden our product offering to our customers and achieve accelerated revenue growth by combining our expertise in aluminum casting with our long-term customer base to begin manufacturing aluminum suspension components. Through 2005, we had made a significant investment in the aluminum suspension components business and had incurred significant losses since inception. Accordingly, in the fourth quarter of 2005, we recorded a pretax asset impairment charge totaling $34.0 million and, on January 9, 2006, announced our plan to dispose of this operation in order to focus on our core wheel business. Beginning in January and through the date of sale in late September, the results of operations of this business were presented as discontinued operations in our consolidated statements of operations for all periods reported. See Note 17 — Discontinued Operations for further discussion of the sale of the aluminum suspension components business.

In the fourth quarter of 2005, we announced a major restructuring of our wheel facility in Van Nuys, California, which in the future will only produce aluminum wheels requiring specialty processing methods and finishes. This resulted in the layoff of approximately 350 employees, the accelerated depreciation of certain idled machinery and equipment totaling $2.5 million pretax in the fourth quarter of 2005, and an additional $1.8 million pretax in 2006. Severance and other costs associated with this restructuring were approximately $1.0 million. This restructuring did not impact the corporate offices, which are also located at the Van Nuys facility.

Due to a shift in the market for chrome plated wheels to a less expensive chrome finishing process, another action taken was related to our chrome plating operation in Fayetteville, Arkansas, where production volumes were forecasted to decrease significantly in 2006. Accordingly, we recorded in the fourth quarter of 2005 an asset impairment and other charges totaling approximately $9.2 million pretax to write down certain machinery and equipment to estimated fair value and to accrue for the related potential environmental exposures related to machinery and equipment shutdown and removal. In the third quarter of 2006, all of our chrome plating requirements were transferred to a third-party supplier and we ceased operations of our chrome plating facility. Severance and other costs associated with this closure were minimal and current estimates of the required environmental remediation costs are well within the accrual originally recorded.

In addition to these actions initiated in late 2005, in September 2006, we announced the planned closure of our wheel manufacturing facility located in Johnson City, Tennessee, and the resulting layoff of approximately 500 employees. The closure of this facility will be completed at the end of the first quarter of 2007. This was the latest step in our program to rationalize our production capacity after announcements by our major customers of sweeping production cuts, particularly in the light truck and SUV platforms. Severance and other costs related to the facility closure were approximately $0.8 million in the fourth quarter of 2006. Additionally, an asset impairment charge against pretax earnings totaling $4.4 million was recorded in the third quarter of 2006 to reduce the carrying value of certain long-lived assets in this facility.

Listed in the table below are several key indicators we use to monitor our financial condition and operating performance. Please see Note 2 — Review of Stock Option Practices and Restatements of Consolidated Financial Statements to the Consolidated Financial Statements in Item 8 — Financial Statements and Supplementary Data, and Exhibit 99.1 to this Annual Report on Form 10-K for further detail of the impact of the restatements on these annual operating results.

Results of Operations

Year Ended December 31 ,		2006				2005				2004
(Dollars in thousands, except per share amounts)
Net Sales		$	789,862			$	804,161			$	872,258
Gross Profit			8,740				48,824				92,506
Percent of Net Sales			1.1	%			6.1	%			10.6	%
Income (Loss) from Operations		$	(21,409	)		$	19,167			$	68,352
Percent of Net Sales			-2.7	%			2.4	%			7.8	%
Net Income (Loss) from Continuing Operations		$	(9,578	)		$	20,219			$	51,912
Percent of Net Sales			-1.2	%			2.5	%			6.0	%
Diluted Earnings (Loss) Per Share — Continuing Operations		$	(0.36	)		$	0.76			$	1.94

Sales

In 2006, total revenues decreased approximately 2 percent, while unit shipments to our OEM customers decreased 12 percent versus the prior year. Unit shipments in 2006 were at their lowest level since 1999. Consolidated net sales decreased $14.3 million to $789.9 million in 2006 from $804.2 million in 2005. Excluding wheel program development revenues, which totaled $19.8 million this year compared to $18.6 million a year ago, aluminum wheel sales decreased $15.5 million in 2006 to $770.1 million from $785.6 million a year ago, a 2 percent decrease compared to the 12 percent decrease in unit shipments. The average selling price of our wheels increased approximately 11 percent in 2006, due principally to the pass-through price of aluminum increasing our average selling price by approximately 9 percent.

Unit shipments to Ford and GM totaled 69 percent of total OEM unit shipments in 2006 compared to 73 percent a year ago. Unit shipments to DaimlerChrysler remained flat with those in 2005 at 16 percent, while shipments to our international customers totaled 15 percent compared to 11 percent in 2005. According to Wards Auto Info Bank, an industry publication, overall North American production of passenger cars and light trucks in 2006 decreased approximately 3 percent compared to our 12 percent decrease in aluminum wheel unit shipments. For the most part, concentration on GM and Ford, and particularly SUVs and light trucks, caused our shipments to be lower than the overall industry average. However, production of the specific passenger cars and light trucks using our wheel programs decreased 10 percent compared to our 12 percent decrease in shipments, indicating a slight decrease in market share. According to Ward’s Automotive Yearbook 2006, an auto industry publication, aluminum wheel installation rates on passenger cars and light trucks in the U.S. decreased to 63 percent for the 2005 model year from 65 percent for the prior model year. Aluminum wheel installation rates have increased to this level since the mid-1980s, when this rate was only 10 percent. However, in recent years, this growth rate has slowed with the aluminum installation rate increasing only 11 percentage points from 52 percent for the 1997 model year and experiencing a slight decrease between 2004 and 2005. We expect this trend of slow growth or no growth to continue. In addition, our ability to grow will be negatively impacted by the customer pricing pressure cited above and overall economic conditions that impact the sales of passenger cars and light trucks.

Consolidated net sales in 2005 decreased $68.1 million, or 8 percent, to $804.2 million from $872.3 million in 2004. Excluding wheel program development revenues, which totaled $18.6 million in 2005 compared to $13.0 million in 2004, OEM wheel sales decreased $73.6 million to $785.6 million from $859.3 million in 2004, a 9 percent decrease compared to a decrease in unit shipments of 11 percent. Our decrease in OEM aluminum wheel unit shipments in 2005 compared unfavorably to the decrease of 6 percent in North American automotive production of passenger cars and light trucks. However, production of the specific passenger cars and light trucks using our wheel programs decreased 10 percent compared to our 11 percent decrease in shipments, indicating only a slight decrease in market share. The average selling price of our wheels in 2005 increased approximately 2 percent from 2004 due principally to an increase of 3 percent in the pass-through price of aluminum.

Gross Profit

During 2006, consolidated gross profit decreased $40.1 million, or 82 percent, to $8.7.million, or 1.1 percent of net sales, from $48.8 million, or 6.1 percent of net sales, in 2005. However, gross profit in 2006 includes $10.1 million of preproduction start-up costs of our new wheel plant in Mexico, compared to only $0.9 million of such costs in the same period a year ago. Also included in gross profit in 2006 were approximately $3.5 million of costs associated the various plant restructurings referred to above.

The principal factor impacting our gross profit in 2006 was related to the overall reduction in North American production of passenger cars and light trucks, which was reported as being down by 3 percent. However, domestic OEMs, who are principal customers, were down 6 percent overall with production of light trucks down 13 percent. Being one of those suppliers who sell predominately to GM and Ford and are most heavily oriented to the SUV platforms, we were impacted greatly by this reduction. As indicated above, our unit shipments in 2006 decreased 12 percent, but our units produced during the same period declined 15 percent, to the lowest level since 1998. Since that year, we have opened two new plants in Mexico and expanded three of our Midwest facilities. Accordingly, gross profit in 2006 declined significantly due to the reduced unit shipments and the lost absorption of fixed costs on the sharply reduced production. Gross profit was also impacted, although to a lesser extent, by continued global pricing pressures from our customers, decreased demand for high-volume, high-profit specialty wheels, and operating issues and inefficiencies in two of our Midwest facilities related to productivity on larger diameter wheels.

During 2005, gross profit decreased $43.7 million, or 47.2 percent, to $48.8.million, or 6.1 percent of net sales, from $92.5 million, or 10.6 percent of net sales, in 2004. The principal factors impacting our gross profit were continued global pricing pressures from our customers, decreased demand for high-volume, high-profit specialty wheels, lower capacity utilization and costs associated with the process of consolidating and further automating our production facilities. In order to mitigate some of these factors, we began implementing best practices to (1) reduce our own cost structure, (2) respond to customer changes in cosmetic and quality standards and (3) improve product flow due to a higher mix of larger diameter wheels.

The cost of aluminum is a significant component in the overall cost of a wheel. Additionally, a portion of our selling prices to OEM customers is attributable to the cost of aluminum. Our selling prices are adjusted periodically to current aluminum market conditions based upon market price changes during specific pricing periods. Theoretically, assuming selling price adjustments and raw material purchase prices move at the same rate, as the price of aluminum increases, the effect is an overall decrease in the gross margin percentage, since the gross profit in absolute dollars would be the same. The opposite would then be true in periods during which the price of aluminum decreases.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $25.7 million, or 3.3 percent of net sales in 2006, compared to $21.8 million, or 2.7 percent of net sales in 2005 and $24.2 million, or 2.8 percent of net sales in 2004. In accordance with a recent accounting rule change related to stock options, as of the beginning of 2006, we began recording stock-based compensation expense related to all outstanding unvested stock options. The impact on selling, general and administrative expenses in 2006 was $2.4 million. Additionally, as indicated above, selling, general and administrative expenses in 2005 and 2004 have been restated to include $0.8 million and $1.3 million, respectively, of stock-based compensation, representing the required correction to our past accounting for stock options. See Note 1 — Summary of Significant Accounting Policies, Note 2 — Review of Stock Option Practices and Restatement of Consolidated Financial Statements and Note 13 — Stock-Based Compensation in Item 8 — Financial Statements and Supplementary Data of this Annual Report on Form 10-K for additional information regarding Stock-Based Compensation. Other increases in 2006 included professional fees and retirement benefit accruals. Selling, general and administrative expenses were $2.4 million lower in 2005 than 2004, due principally to a reduction of $1.7 million in bonuses, which were based on overall company profitability.

Impairment of Long-Lived Assets and Other Charges

On September 15, 2006, we announced the planned closure of our wheel manufacturing facility located in Johnson City, Tennessee, and the resulting lay off of approximately 500 employees. The planned closure of the Johnson City facility is expected to be completed in the first quarter of 2007. This was the latest step in our program to rationalize

our production capacity after the recent announcements by our customers of sweeping production cuts, particularly in the light truck and sport utility platforms, that have reduced our requirements for the future. Severance and other costs related to the closure of this facility were approximately $0.8 million in 2006, with an additional $0.7 million estimated to be recorded in 2007. Accordingly, a pretax asset impairment charge against earnings totaling $4.5 million, reducing the carrying value of certain assets at the Johnson City facility to their respective fair values, was recorded in 2006 when we estimated that the future undiscounted cash flows of our facility would not be sufficient to recover the carrying value of our long-lived assets attributable to that facility. We estimated the fair value of the long-lived assets based on an independent appraisal of the assets. These assets are classified as held and used, in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, until they are available for immediate sale at which time they will be classified as held for sale.

On June 16, 2006, we announced that we were discontinuing our chrome plating business located in Fayetteville, Arkansas, that would result in a lay off of approximately 225 employees during the third quarter of 2006. This decision was the result of a shift in customer preference to less expensive bright finishing processes that reduced the sales outlook for chromed wheel products. The shift away from chromed wheel products and the resulting impact on the company’s chrome plating business had been previously disclosed in the fourth quarter of 2005, when the company estimated that it would not be able to eventually recover the carrying value of certain machinery and equipment in the chrome plating operation. Accordingly, such assets were written down to their estimated fair value by recording an asset impairment charge against earnings of $7.9 million in the fourth quarter of 2005. At the same time, an accrual of $1.3 million was recorded for potential environmental exposure related to machinery and equipment shutdown and removal. Any additional environmental costs are not possible to estimate at this time, however an environmental assessment is currently underway. During the third quarter of 2006, we successfully transferred our requirements for chrome-plated wheels to a third-party processor and our chrome plating operation ceased. Any additional non-environmental costs related to the closure of this operation and employee lay-offs were insignificant. This restructuring does not affect the company’s bright polish operation, which is located at the same facility.

Interest Income, net

Interest income, net for the year increased 5 percent to $5.6 million from $5.3 million in 2005, due principally to an increase in the average rate of return to 4.9 percent from 3.1 percent in 2005, offsetting a reduction in the average cash balance invested of $53.4 million. Interest income in 2005 increased to $5.3 million from $2.8 million in 2004, as the average rate of return in 2005 increased to 3.1 percent from 1.5 percent in 2004.

Effective Income Tax Rate

Our pretax income (loss) from continuing operations was $(16.1) million in 2006, $23.9 million in 2005 and $69.5 million in 2004. The effective tax rate on the 2006 pretax loss from continuing operations was a benefit of 9.5 percent compared to a tax provision of 37.2 percent in 2005 and a tax provision of 37.7 percent in 2004. The relationship of federal tax credits, changes in tax reserves, permanent tax differences and foreign income, which is taxed at rates other than statutory, to pretax income (loss) from continuing operations are the principal reasons for increases and decreases in the effective income tax rate. Accounting judgment is required when reserving for probable disallowance of identified exposures. Accounting rules dictate that general reserves are not allowed and that changed substantive facts or specific events must exist to change reserve amounts. For example, the resolution of an audit by taxing authorities or the expiration of a statute of limitations governs when a reserve is no longer required for a given exposure. During 2006, 2005 and 2004, statute of limitations expired on certain previously identified tax reserves, while certain additional tax reserves were identified. The tax reserve for the three years ended December 31, 2006 experienced net increases of $0.6 million in 2006, $2.8 million in 2005 and $3.7 million in 2004, which are included in the respective effective income tax rates.

Equity in Earnings of Joint Ventures and Cumulative Effect of Accounting Change

We have two 50 percent owned joint ventures — Topy-Superior Limited (TSL), which earns a commission for marketing our products to potential OEM customers based in Asia, and Suoftec Light Metal Products, Ltd. (Suoftec), a manufacturer of both light-weight forged and cast aluminum wheels in Hungary. The investment in these joint ventures is accounted for utilizing the equity method of accounting. Accordingly, our share of joint

venture net income is included in the consolidated statements of operations in “Equity in Earnings of Joint Ventures”. The net operating results of the TSL joint venture did not have a material impact on our results of operations or financial condition.

Our share of profits from the Suoftec joint venture declined to $4.9 million for 2006 compared to $5.2 million a year earlier and $8.6 million in 2004. Unit shipments in 2006 increased 16 percent for the year, while operating profits were down by approximately 20 percent. However, profitability decreased due principally to a 30 percent increase in aluminum cost, which was only partially offset by allowable pass-through price increases to customers. The decrease in profitability in 2005 was due principally to a 4 percent decline in unit shipments, lower average selling prices and higher operating costs due to a recent expansion of the casting operation.

In 2005, we aligned the accounting period for our Suoftec 50-percent owned joint venture with the fiscal year period reported by our other operations. Our share of the joint venture’s net income was previously recorded one month in arrears. The impact of this change in accounting principle added $1.2 million, or $0.05 per diluted share, to our net income in 2005, representing our share of Suoftec’s earnings for the month of December 2004. Additionally, our share of the joint venture’s operating results for all interim periods in 2005 have been adjusted to be comparable with this change in accounting principle effective in the first quarter of 2005. See Note 7 - Investments in Item 8 — Financial Statements and Supplementary Data of this Annual Report on Form 10-K for additional information regarding the Suoftec joint venture.

Continuing Operations

As a result of the above, the net loss from continuing operations in 2006 was $9.6 million, compared to income of $20.2 million last year and income of $51.9 million in 2004. Diluted earnings (loss) per share from continuing operations for the year ended December 31, 2006 was $(0.36) per diluted share compared to $0.76 per diluted share in 2005 and $1.94 per diluted share in 2004.

Discontinued Operations

On September 20, 2006, we entered into an agreement with Saint Jean Industries, Inc., a Delaware corporation, as buyer, and the buyer’s parent, Saint Jean Industries, SAS, a French simplified joint stock company, to sell substantially all of the assets and working capital of our suspension components business for $17.0 million, including a $2.0 million promissory note. The $2.0 million promissory note is due in two equal installments on the 24th and 36th month anniversary date of the completion date, and bears interest at LIBOR plus 1%, adjusted quarterly. Discontinued operations for the year ended December 31, 2006, including a $1.1 million pretax gain on disposal, was income of $0.3 million, or $0.01 per diluted share, compared to a loss of $27.8 million, or $(1.05) per diluted share, for the same period in 2005 and a loss $8.1 million, or $(0.30) per diluted share, in 2004. See Note 17 — Discontinued Operations in Item 8 — Financial Statements and Supplementary Data of this Annual Report on Form 10-K for further discussion of the disposal of the components business.

Net Income (Loss)

As a result of the above, the net loss in 2006 was $9.3 million, or -1.2 percent of net sales, compared to a loss in 2005 of $6.4 million, or -0.8 percent of net sales, and income of $43.8 million, or 5.0 percent of net sales, in 2004. Diluted earnings (loss) per share was $(0.35) per diluted share in 2006 compared to $(0.24) in 2005 and $1.64 in 2004.

Liquidity and Capital Resources

In the fourth quarter of 2006, we expanded our definition of cash and cash equivalents to include short-term marketable debt securities with an original maturity of less than three months. We believe this change in accounting principle is to a preferable method of accounting for these short-term investments since the new methodology better reflects the underlying economics of these transactions. The adoption of this new accounting methodology does not change the underlying economics of our business or these transactions. We have, in accordance with SFAS No. 154, “Accounting Changes and Error Corrections”, retrospectively applied this new methodology. See “Cash and Cash Equivalents” in Note 1 — Summary of Significant Accounting Policies in Item 8 — Financial Statements and

Supplementary Data in this Annual Report on Form 10-K for further discussion of this change in accounting methodology.

Our sources of cash liquidity include cash and short-term investments, net cash provided by operating activities, and other external sources of funds. During the three years ended December 31, 2006, we had no long-term debt. At December 31, 2006, our cash and short-term investments totaled $78.1 million compared to cash and short-term investments totaling $107.3 million a year ago and $119.6 million at the end of 2004. The $29.2 million decrease in cash and short-term investments in 2006 was used principally to fund capital expenditure requirements for our new plant in Chihuahua Mexico. The decrease in cash and short-term investments in 2005 was due to our investing $38.7 million in long-term corporate bonds during the year. Accordingly, all working capital requirements, investing activities, cash dividend payments and repurchases of our common stock during these three years have been funded from internally generated funds, the exercise of stock options or existing cash and short-term investments. The following table summarizes the cash flows from operating, investing and financing activities as reflected in the consolidated statements of cash flows.

Year Ended December 31 ,		2006								2005								2004
(In thousands)
Net cash provided by operating activities		$	36,130							$	76,501							$	77,111
Net cash used in investing activities			(58,062	)							(71,775	)							(93,277	)
Net cash used in financing activities			(17,032	)							(17,021	)							(21,037	)
Net decrease in cash and cash equivalents		$	(38,964	)						$	(12,295	)						$	(37,203	)

We generate our principal working capital resources primarily through operations. Net cash provided by operating activities decreased $40.4 million to $36.1 million in 2006, compared to $76.5 million for the same period a year ago. In addition to the $2.9 million decrease in net income, the change in non-cash items was unfavorable by $8.9 million and unfavorable changes in operating assets and liabilities totaled $28.6 million. The principal changes in non-cash items were unfavorable variances in impairment charges of $37.4 million and depreciation and amortization of $7.3 million, reduced by favorable changes in deferred taxes totaling $26.1 million, equity earnings of joint ventures, net of dividends received of $4.0 million and stock-based compensation totaling $2.2 million. The unfavorable change in operating assets and liabilities was due principally to unfavorable changes in funding requirements of income taxes payable, totaling $25.0 million, and accounts receivable totaling $17.9 million, reduced by a favorable change in funding requirements of other assets and liabilities totaling $13.1 million, due principally to the change in funding requirements for payroll and related fringe benefits. The unfavorable change in requirements for income taxes payable in the current period was due principally to lower tax liability at the end of the current period compared to a year ago, while the favorable change a year ago was due to an over payment situation at the end of 2004. The unfavorable change in accounts receivable in the current period was due to a requirement of $4.3 million in funding versus a decrease in funding requirement of $13.6 million in the same period a year ago, as there was an increase in customer sales in the current period.

The $36.1 million cash flow from operating activities in 2006, $39.0 million of cash and cash equivalents from a year ago and the $15.0 million cash portion of the proceeds from the sale of our components business were used for capital expenditures of $73.1 million and for cash dividends of $17.0 million. Capital expenditures in 2006 included $54.2 million for our new wheel facility in Chihuahua, Mexico. The balance of capital expenditures was for automation projects and ongoing improvements in our other wheel facilities.

Net cash provided by operating activities decreased $0.6 million to $76.5 million in 2005, compared to $77.1 million in 2004. The $50.2 million decrease in net income was offset by favorable changes in non-cash items totaling $14.9 million and favorable changes in operating assets and liabilities of $34.7 million. The principal favorable changes in non-cash items were in impairment charges of $41.9 million and depreciation and amortization of 7.2 million, reduced by changes in deferred taxes totaling $31.4 million. The favorable change in operating assets and liabilities was due principally to favorable changes in funding requirements of income taxes payable, totaling $32.0 million, and accounts receivable, totaling $19.9 million, offset by unfavorable change in funding requirements of other assets and liabilities, totaling $17.2 million, due principally to the change in funding requirements for payroll and related benefits. The favorable change in requirements for income taxes payable in the current period was due principally

to an over payment situation at the end of the prior year. The favorable change in accounts receivable in the current period was due to a reduction of $13.6 million in funding required in the current period versus a requirement of $6.3 million in the same period a year ago, as the increase in customer sales was less in the current period.

The $77.1 million cash flow from operating activities in 2004, $37.2 million of cash and cash equivalents from the year prior, and the $1.4 million proceeds from the exercise of company stock options, were used for capital expenditures of $54.6 million, for cash dividends of $15.6 million, for common stock repurchases totaling $6.8 million, with the balance reinvested in long-term investments of $38.7 million. Capital expenditures in 2004 included $45.4 million for wheel manufacturing operations and $9.2 million for the aluminum suspension components operation. The principal expenditures for the wheel facilities were for automation projects and ongoing improvements.

Our financial condition remained strong in 2006. Working capital of $233.5 million at December 31, 2006 included $78.1 million in cash and short-term investments. The current ratio at year-end was 3.1:1 compared to 3.3:1 a year ago. Accordingly, we believe we are well positioned to take advantage of new and complementary business opportunities, to further expand into international markets and to withstand any moderate downturns in the economy.

Risk Management

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

We have foreign operations in Mexico and Hungary that, due to the settlement of accounts receivable and accounts payable, require the transfer of funds denominated in their respective functional and legal currencies — the Mexican Peso and the Euro and the Hungarian Forint. The value of the Mexican Peso experienced a 2 percent decrease in relation to the U.S. dollar in 2006. The Euro also experienced an 11 percent increase versus the U.S. dollar in 2006 and the Hungarian Forint experienced a 10 percent increase versus the U.S. dollar in 2006. Foreign currency transaction gains and losses, which are included in other income (expense) in the consolidated statements of operations, have not been significant.

As it relates to foreign currency translation losses, however, since 1990, the Mexican Peso has experienced periods of relative stability followed by periods of major declines in value. The impact of these changes in value relative to our Mexico operations has resulted in a cumulative unrealized translation loss at December 31, 2006 of $40.2 million. Since our initial investment in our joint venture in Hungary in 1995, the fluctuations in functional currencies — originally the German Deutsche Mark and now the Euro — have resulted in a cumulative unrealized translation gain at December 31, 2006 of $4.0 million. Translation gains and losses are included in other comprehensive income (loss) in the consolidated statements of shareholders’ equity.

Our primary risk exposure relating to derivative financial instruments results from the periodic use of foreign currency forward contracts to offset the impact of currency rate fluctuations with regard to foreign denominated receivables, payables or purchase obligations. At December 31, 2006, we held no foreign currency Euro forward contracts. At December 31, 2005, we held open foreign currency Euro forward contracts totaling $10.7 million, with an unrealized loss of $(0.2) million. Any unrealized gains and losses are included in other comprehensive income (loss) in shareholders’ equity until the actual contract settlement date. Percent changes in the Euro/U.S. Dollar exchange rate will impact the unrealized gain/loss by a similar percentage of the current market value. We do not have similar derivative instruments for the Mexican Peso.

When market conditions warrant, we may also enter into contracts to purchase certain commodities used in the manufacture of our products, such as aluminum, natural gas, environmental emission credits and other raw materials. Any such commodity commitments are expected to be purchased and used over a reasonable period of time in the normal course of business. Accordingly, pursuant to SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” they are not accounted for as a derivative. We currently have several purchase agreements for the delivery of natural gas through 2008. The contract value and fair value of these purchase commitments approximated $15 million and $12 million, respectively, at December 31, 2006. As of December 31,

2005, the aggregate contract value and fair value of these commitments were $8 million and $17 million, respectively. Percentage changes in the market prices of natural gas will impact the fair value by a similar percentage. We do not hold or purchase any natural gas forward contracts for trading purposes.

Contractual obligations as of December 31, 2006 (amounts in millions):

		Payments Due by Period
Contractual Obligations		2007				2008				2009				2010				2011				Thereafter				Total
Commodity contracts		$	10			$	5			$	—			$	—			$	—			$	—			$	15
Retirement plans			2				2				2				2				2				55				65
Euro forward contracts			—				—				—				—				—				—				—
Operating leases			3				2				2				2				2				1				12
Total contractual		$	15			$	4			$	4			$	4			$	4			$	56			$	92

Inflation

Inflation has not had a material impact on our results of operations or financial condition for the three years ended December 31, 2006. Wage increases have averaged 2 to 3 percent during this period and, as indicated above, cost increases of our principal raw material, aluminum, are passed through to our customers. However, cost increases for our other raw materials and for energy may not be similarly recovered in our selling prices. Additionally, the competitive global pricing pressures we have experienced recently are expected to continue, which may also lessen the possibility of recovering these types of cost increases.

Critical Accounting Policies

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to apply significant judgment in making estimates and assumptions that affect amounts reported therein, as well as financial information included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. These estimates and assumptions, which are based upon historical experience, industry trends, terms of various past and present agreements and contracts, and information available from other sources that are believed to be reasonable under the circumstances, form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent through other sources. There can be no assurance that actual results reported in the future will not differ from these estimates, or that future changes in these estimates will not adversely impact our results of operations or financial condition.

As described below, the most significant accounting estimates inherent in the preparation of our financial statements include estimates and assumptions as to revenue recognition, inventory valuation, impairment of and the estimated useful lives of our long-lived assets, as well as those used in the determination of liabilities related to self-insured portions of employee benefits, workers’ compensation, general liability programs and taxation.

Revenue Recognition — Our products are manufactured to customer specification under standard purchase orders. We ship our products to OEM customers based on release schedules provided weekly by our customers. Our sales and production levels are highly dependent upon the weekly forecasted production levels of our customers. Sales of these products, net of estimated pricing adjustments, and their related costs are recognized when title and risk of loss transfers to the customer, generally upon shipment. A portion of our selling prices to OEM customers is attributable to the aluminum content of our wheels. Our selling prices are adjusted periodically for changes in the current aluminum market based upon specified aluminum price indices during specific pricing periods, as agreed with our customers. Wheel program development revenues for the development of wheels and components and related initial tooling that are reimbursed by our customers are recognized as such related costs and expenses are incurred and recoverability is confirmed by the issuance of a customer purchase order.

Allowance for Doubtful Accounts — We maintain an allowance for doubtful accounts receivable based upon the expected collectibility of all trade receivables. The allowance is reviewed continually and adjusted for accounts deemed uncollectible by management.

Inventories — Inventories are stated at the lower of cost or market value and categorized as raw material, work-in-process or finished goods. When necessary, management uses estimates of net realizable value to record inventory reserves for obsolete and/or slow-moving inventory. Our inventory values, which are based upon standard costs for raw materials and labor and overhead established at the beginning of the year, are adjusted to actual costs on a first-in, first-out (FIFO) basis. Current raw material prices and labor and overhead costs are utilized in developing these adjustments.

Impairment of Long-Lived Assets — In accordance with SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets “(SFAS No. 144), we periodically review the carrying value of our property and equipment and intangible assets, with finite lives, to test whether current events or circumstances indicate that such carrying value may not be recoverable. If the tests indicate that the carrying value of the asset is greater than the expected undiscounted cash flows to be generated by such asset, then an impairment adjustment needs to be recognized. Such adjustments consist of the amount by which the carrying value of such asset exceeds fair value. We generally measure fair value by considering sale prices for similar assets or by discounting estimated future cash flows from such asset using an appropriate discount rate. Considerable management judgment is necessary to estimate the fair value of assets, and accordingly, actual results could vary significantly from such estimates. Assets to be disposed of are carried the lower of their carrying value or fair value less costs to sell.

Retirement Plans — Subject to certain vesting requirements, our unfunded retirement plans generally provide for a benefit based on final average compensation, which becomes payable on the employee’s death or upon attaining age 65, if retired. The net pension cost and related benefit obligations are based on, among other things, assumptions of the discount rate, future salary increases and the mortality of the participants. The periodic costs and related obligations are measured using actuarial techniques and assumptions.

The following information illustrates the sensitivity to a change in certain assumptions of our unfunded retirement plans as of December 31, 2006. Note that these sensitivities may be asymmetrical, and are specific to 2006. They also may not be additive, so the impact of changing multiple factors simultaneously cannot be calculated by combining the individual sensitivities shown. The effect of the indicated increase (decrease) in selected factors is shown below (in thousands):

						Increase (Decrease) in:
						Projected Benefit
		Percentage				Obligation
		Point				at December 31,				2006
Assumption		Change				2006				Net Pension Cost
Discount rate			+ 1.0	%		$	(2,223	)		$	(291	)
Rate of compensation increase			+ 1.0	%		$	1,040			$	267

Stock-Based Compensation — Prior to January 1, 2006, we applied APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related Interpretations and provided the required pro forma disclosures under SFAS No. 123, “Accounting for Stock-Based Compensation.” In accordance with APB Opinion No. 25, a non-cash, stock-based compensation expense was to be recognized for any options for which the exercise price was below the market price on the actual grant date. The charge for the options with an exercise price below the market price on the actual grant date was equal to the number of options multiplied by the difference between the exercise price and the market price of the option shares on the actual grant date. That expense was to be amortized over the vesting period of the option. Beginning January 1, 2006, we have accounted for stock-based compensation using the fair value of stock options using a Black-Scholes valuation model, consistent with the provisions of SFAS No. 123R, Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 107. We elected to adopt the modified prospective application method as provided by SFAS No. 123R. Accordingly, during fiscal year 2006, we recorded stock-based compensation cost totaling the amount that would have been recognized had the fair value method under SFAS No. 123 been applied since the effective date of SFAS No. 123 for any unvested pre-fiscal 2006 grants

and under SFAS No. 123R for the fiscal year 2006 grants, using the Black-Scholes option-pricing model. Option-pricing models require the input of highly subjective assumptions, including the option’s expected life, stock price volatility of the underlying stock, an expected dividend yield and a risk-free interest rate. See Note 13 — Stock-Based Compensation to the Consolidated Financial Statements in Item 8 — Financial Statements and Supplementary Data for a detailed description of these assumptions.

In November 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) No. 123R-3, “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards” (“FSP 123R-3”). We have elected to adopt the alternative transition method provided in the FSP 123R-3 for calculating the initial pool of excess tax benefits and to determine the subsequent impact on the Additional Paid-In-Capital (“APIC”) pool and Consolidated Statements of Cash Flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of SFAS No. 123R. See Note 13 — Stock-Based Compensation to the Consolidated Financial Statements in Item 8 — Financial Statements and Supplementary Data for a detailed description.

Product Liability and Loss Reserves — Workers’ compensation accruals are based upon reported claims in process and actuarial estimates for losses incurred but not reported. Loss reserves, including incurred but not reported reserves, are based on estimates developed by third party administrators and actuaries, and ultimate settlements may vary significantly from such estimates due to increased claims frequency or the severity of claims.

Income Tax Reserves — Despite our belief that our tax return positions are consistent with applicable tax laws, experience has shown that taxing authorities can challenge certain positions. Settlement of any challenge can result in no change, a complete disallowance or some partial adjustment reached through negotiations or even litigation. Accordingly, accounting judgment is required in evaluating our tax reserves, which are adjusted only in light of substantive changes in facts and circumstances, such as the resolution of an audit by taxing authorities or the expiration of a statute of limitations. Accordingly, our tax expense for a given period will include reserve provisions for newly identified exposures, as well as reserve reductions for exposures resolved through audit, expiration of a statute of limitations or other substantive changes in facts and circumstances.

New Accounting Standards

In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 151, “Inventory Costs,” an amendment of Accounting Research Bulletin (ARB) No. 43, Chapter 4. SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and spoilage. This statement requires that those items be recognized as current period charges regardless of whether they meet the criterion of “so abnormal,” which was the criterion specified in ARB No. 43. In addition, this Statement requires that allocation of fixed production overheads to the cost of production be based on normal capacity of the production facilities. The new standard is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of this new accounting standard in 2006 did not have a material impact on our financial position or results of operations.

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (FIN 48), which clarifies the accounting for uncertainty in income taxes recognized in accordance with SFAS No. 109, “Accounting for Income Taxes.” This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. This Interpretation also provides guidance on derecognition, classification, interest, penalties, accounting in interim periods, disclosure and transition. The evaluation of a tax position in accordance with this Interpretation will be a two-step process. The first step will determine if it is more likely than not that a tax position will be sustained upon examination and should therefore be recognized. The second step will measure a tax position that meets the more likely than not recognition threshold to determine the amount of benefit to recognize in the financial statements. This Interpretation is effective for fiscal years beginning after December 15, 2006. We have commenced but not completed our evaluation of the effect of the adoption of FIN 48. The adoption of FIN 48 may have a significant impact on our shareholders’ equity in the consolidated financial statements as of January 1, 2007.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (FAS 157). This Statement defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosure related to the use of fair value measures in financial statements. The Statement is to be effective for our financial statements issued in 2008; however, earlier application is encouraged. We are currently evaluating the timing of adoption and the impact that adoption might have on our financial position or results of operations.

In September 2006, the FASB released SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (FAS 158). Under the new standard, companies must recognize a net liability or asset to report the funded status of their defined benefit pension and other postretirement benefit plans on their balance sheets. The recognition and disclosure provisions of SFAS No. 158 were adopted as of December 31, 2006. There was no impact of adopting SFAS No. 158 requirement to measure defined benefit plan assets and obligations as of the date of a company’s fiscal year-end statement of financial position. See Note 10 — Retirement Plan in Item 8 — Financial Statements and Supplementary Data in this Annual Report on Form 10-K for further discussion of defined benefit pension and other postretirement plans.

In September 2006, the SEC staff issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB No. 108 was issued in order to eliminate the diversity of practice surrounding how public companies quantify financial statement misstatements. SAB No. 108 requires registrants to quantify the impact of correcting all misstatements using both the “rollover” method, which focuses primarily on the impact of a misstatement on the income statement, and the “iron curtain” method, which focuses primarily on the effect of correcting the period-end balance sheet. The use of both of these methods is referred to as the “dual approach” and should be combined with the evaluation of qualitative elements surrounding the errors in accordance with SAB No. 99, “Materiality.” The provisions of SAB No. 108 are effective in 2006. The adoption of SAB No. 108 had no impact on our consolidated financial position, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”, which provides companies with an option to report selected financial assets and liabilities at fair value. The objective of SFAS No. 159 is to reduce both the complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective fiscal years beginning after November 15, 2007. We have not completed our evaluation of SFAS No. 159, but we do not expect the adoption of SFAS No. 159 to have a material effect on our operating results or financial position.

ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information related to Quantitative and Qualitative Disclosures About Market Risk are set forth in Item 1A — Risk Factors and Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operation, under the caption “Risk Management”.

ITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to the Consolidated Financial Statements And Financial Statement Schedule:

		PAGE
Report of Independent Registered Public Accounting Firm			39
Financial Statements
Consolidated Statements of Operations for the Fiscal Years 2006, 2005 and 2004			41
Consolidated Balance Sheets as of Fiscal Year End 2006 and 2005			42
Consolidated Statements of Shareholders’ Equity and Comprehensive Income (Loss) for the Fiscal Years 2006, 2005 and 2004			43
Consolidated Statements of Cash Flows for the Fiscal Years 2006, 2005 and 2004			45
Notes to Consolidated Financial Statements			46
Supporting Financial Statement Schedule Covered By the Forgoing Report of Independent Registered Public Accounting Firm:
Schedule II — Valuation and Qualifying Accounts and Reserves			S-1

All other financial statement schedules have been omitted as they are not applicable, not material or the required information is included in the financial statements or notes thereto

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders
of Superior Industries International, Inc.:

We have completed integrated audits of Superior Industries International, Inc.’s consolidated financial statements and of its internal control over financial reporting as of December 31, 2006, in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedule

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Superior Industries International, Inc. and its subsidiaries at December 31, 2006 and December 25, 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 2, to the consolidated financial statements, the Company restated its 2005 and 2004 consolidated financial statements.

As discussed in Note 1, Note 10 and Note 13 to the consolidated financial statements, the company changed the manner in which it accounts for cash and cash equivalents and short-term investments, defined benefit pension plans, and stock-based compensation, respectively, in 2006.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in Management’s Report On Internal Control Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2006 based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other

procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP
Los Angeles, California
April 9, 2007

SUPERIOR INDUSTRIES INTERNATIONAL, INC.

Fiscal Year		2006				2005				2004
						As restated				As restated
NET SALES		$	789,862			$	804,161			$	872,258
Cost of sales			781,122				755,337				779,752
GROSS PROFIT			8,740				48,824				92,506
Selling, general and administrative expenses			25,679				21,802				24,154
Impairment of long-lived assets			4,470				7,855				—
INCOME (LOSS) FROM OPERATIONS			(21,409	)			19,167				68,352
Interest income, net			5,589				5,329				2,772
Other expense, net			(268	)			(588	)			(1,614	)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY EARNINGS			(16,088	)			23,908				69,510
Income tax benefit (provision)			1,534				(8,895	)			(26,209	)
Equity in earnings of joint ventures			4,976				5,206				8,611
NET INCOME (LOSS) FROM CONTINUING OPERATIONS			(9,578	)			20,219				51,912
Discontinued operations, net of taxes			257				(27,811	)			(8,108	)
NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE			(9,321	)			(7,592	)			51,912
Cumulative effect of accounting change, net of taxes			—				1,225				—
NET INCOME (LOSS)		$	(9,321	)		$	(6,367	)		$	43,804
EARNINGS (LOSS) PER SHARE – BASIC:
Net income (loss) from continuing operations		$	(0.36	)		$	0.76			$	1.95
Discontinued operations, net of taxes			0.01				(1.05	)			(0.30	)
Cumulative effect of accounting change, net of taxes			—				0.05				—
NET INCOME (LOSS)		$	(0.35	)		$	(0.24	)		$	1.65
EARNINGS (LOSS) PER SHARE – DILUTED:
Net income (loss) from continuing operations		$	(0.36	)		$	0.76			$	1.94
Discontinued operations, net of taxes			0.01				(1.05	)			(0.30	)
Cumulative effect of accounting change, net of taxes			—				0.05				—
NET INCOME (LOSS)		$	(0.35	)		$	(0.24	)		$	1.64