UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the fiscal year ended December 30, 2007
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For
the transition period from _________ to _________
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Commission
file number 1-6615
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SUPERIOR
INDUSTRIES INTERNATIONAL, INC.
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(Exact
Name of Registrant as Specified in Its Charter)
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California
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95-2594729
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(State
or Other Jurisdiction of
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(IRS
Employer
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Incorporation
or Organization)
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Identification
No.)
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7800 Woodley Avenue,
Van Nuys, California
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91406
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(Address
of Principal Executive Offices)
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(Zip
Code)
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Registrant’s
Telephone Number, Including Area Code: (818)
781-4973
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Securities
registered pursuant to Section 12(b) of the Act:
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Title Of Each
Class
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Name Of Each Exchange
On Which Registered
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Common
Stock, $0.50 par value
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New
York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act:
None
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
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Yes
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¨
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No
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x
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Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
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Yes
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¨
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No
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x
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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.
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Yes
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x
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No
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¨
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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. [ ]
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of “large
accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.
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Large
accelerated filer
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¨
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Accelerated
filer
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x
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Non-accelerated
filer
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¨
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Smaller
reporting company
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¨
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
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Yes
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¨
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No
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x
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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 $579,081,000, based on a closing price of $21.76. On
March 14, 2008, there were 26,639,190 shares of common stock issued and
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrant’s 2008
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
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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
During
the preparation and review of our 2007 income tax provision, we discovered that
we had not properly reconciled our tax liabilities related to differences
between the net book basis and the net tax basis of our depreciable property,
plant and equipment and several other miscellaneous deferred tax liabilities. As
a result of completing the necessary reconciliations for each year since 2002,
we identified errors that impacted our previously filed financial statements for
the fiscal years 2003 through 2006 and our previously filed interim financial
statements for those years related to our tax liabilities and our income tax
provisions.
During
the fourth quarter of 2007, we determined the cumulative impact of known
differences in our accounting for our equity method investment in Suoftec Light
Metal Products Production and Distribution Ltd. (Suoftec) and our summary
financial information presented for Suoftec, which we considered to be
immaterial to any individual reporting period, required
restatement. The errors relate to the quantification and recording of
the adjustments to report the Suoftec earnings on the basis of U.S. GAAP versus
on the Hungarian accounting rules followed by Suoftec. These
differences principally relate to overhead cost capitalization into inventory
and deferred income taxes on property, plant and equipment.
In
accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 154, “Accounting Changes and Error Corrections” (SFAS No. 154), we
have restated, to the earliest period practical, our previously filed financial
statements. See Item 6 – Selected Financial Data in Part I of this Annual Report
on Form 10-K, for the effect of the restatements on fiscal years 2003 and 2004,
Note 2 – Restatement of Consolidated Financial Statements in Notes to
Consolidated Financial Statements in Item 8 – Financial Statements and
Supplementary Data of this Annual Report on Form 10-K, for the effect of the
restatements on fiscal years 2005 and 2006, and Exhibit 99.1 for the effect of
the restatements on the interim consolidated condensed financial information for
the first three quarters of fiscal year 2007 and all four quarters of fiscal
year 2006. We have not amended and do not intend to amend any of our
previously filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q
for the periods affected by these restatements.
We have
reported a material weakness in our internal control over financial reporting,
in this 2007 Annual Report on Form 10-K relating to corrections to our income
tax provisions and deferred tax liabilities included in previously filed
financial statements, and as such have concluded that our internal control over
financial reporting was not effective as of December 30, 2007. See
Item 9A – Controls and Procedures in Part II of this Annual Report on Form 10-K
for further discussion regarding this material weakness.
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 19 percent of our unit
shipments 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, Founding Chairman and a Director of the company. These
businesses had been engaged in the design, manufacture and sale of principally
automotive accessories and related aftermarket products since 1957.
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 2007, TSL
had agreements to provide 34 wheel programs being manufactured in our facilities
for delivery to Japanese customers.
As part
of our strategy to reduce costs, the company has 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 began operations at the end of 2001. A third facility was
completed and began 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 larger diameter wheels. In addition, we
completed the planned closure of our wheel manufacturing facility located in
Johnson City, Tennessee, at the end of the first quarter of 2007. This was the
latest step in our program to rationalize our production capacity and reduce
costs.
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 outsourced 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 Production
& Distribution 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 St. Jean Industries, SAS, from whom we licensed the
Cobapressä technology,
for $17.0 million. See Note 17 – Discontinued Operations in Notes to
Consolidated Financial Statements in Item 8 – Financial Statements and
Supplementary Data in this Annual Report on Form 10-K for further
discussion.
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 2007 comprised the 52-week period
ended December 30, 2007. The fiscal year 2006 comprised the 53-week
period ended December 31, 2006. The fiscal years 2005, 2004 and 2003
comprised the 52-week periods ended December 25, 2005, December 26, 2004 and
December 28, 2003, 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 Hungary, are sold for factory installation, or as optional or
standard equipment on many vehicle models, to Ford, General Motors, Chrysler,
Audi, BMW, Fiat, Jaguar, Land Rover, Mazda, Mercedes Benz, Mitsubishi, Nissan,
Seat, Skoda, Subaru, Suzuki, Toyota, Volkswagen and Volvo. 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 Chrysler LLC were the only customers accounting for more than 10 percent of
our consolidated net sales in 2007. Sales to GM, as a percentage of consolidated
net sales, were 36 percent in 2007, and 37 percent in 2006 and
2005. Sales to Ford, as a percentage of consolidated net sales, were
33 percent in 2007, 34 percent in 2006 and 33 percent in 2005. Sales
to Chrysler LLC, as a percentage of consolidated net sales, were 13 percent in
2007, and 15 percent in 2006 and 2005.
The loss
of all or a substantial portion of our sales to Ford, GM or Chrysler LLC 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 have had 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 in those purchase orders each year,
thereby reducing our profit margins or increasing the risk of our losing future
sales 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 firm backlog is insignificant.
Seasonal
Variations
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 2007. 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 2007, 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 2008.
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 $11 million at December 31, 2007. As of
December 31, 2006, the aggregate contract value and fair value of these
commitments were $15 million and $12 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, that maintains a complement of engineering staff centrally located
near our largest customers’ headquarters, engineering and purchasing
offices. Research
and development costs (primarily engineering and related costs), which are
expensed as incurred, are included in cost of sales in the consolidated
statements of operations. Amounts expended during each of the three
years were $6.3 million in 2007, $6.8 million in 2006 and $9.6 million in
2005.
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 $1.3 million in 2007, $1.7 million in 2006 and $3.4
million in 2005. We expect that future environmental compliance expenditures
will approximate these levels and will not have a material effect on our
consolidated financial position.
Competition
The
market for aluminum road wheels is 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 10
percent of the total. See additional comments concerning competition
in Item 1A – Risk Factors below. For the model year 2006, according
to Wards Auto Info
Bank, an industry publication, aluminum wheel installation rates on
passenger cars and light trucks produced in North America were unchanged at
approximately 63 percent for the model years 2006 and 2005. While
aluminum wheel installation rates have grown from only 10 percent in the
mid-1980s, in recent years, this growth rate has slowed. We expect
the trend of slow growth or no growth in installation rates to
continue. Accordingly, we expect that our ability to grow in the
future will be dependent upon increasing our share of the existing
market. In addition, intense global pricing pressure may decrease
profitability and could potentially result in the loss of business in the
future.
Employees
As of
December 31, 2007, we had approximately 5,300 full-time employees including our
joint venture, Suoftec, compared to 5,700 and 6,700 at December 31, 2006 and
2005, respectively. Our joint venture manufacturing facility in Hungary employed
488 full-time employees at December 31, 2007. 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
Notes to Consolidated Financial Statements 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 or through 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 domestic 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 further 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 North American competitors have excess capacity and, in
order to promote volume, 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, to a lesser
extent, 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 an adverse impact on our
financial performance.
Dependence on Major Customers
- We derived approximately 82 percent of our fiscal 2007 net sales on a
worldwide basis from Ford, GM and Chrysler LLC 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 Chrysler LLC 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 wheels 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 other supply cost increases that
we may attempt to pass along to them. This inability to pass on these cost
increases to our customers could adversely affect our operating margins and cash
flow, possibly resulting in lower operating income and
profitability.
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, downsized our Van Nuys, California wheel operations, and sold our
unprofitable components business. During 2007, we completed our
planned closure of our Johnson City, Tennessee, wheel manufacturing
facility. In addition, we are continuing to evaluate 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 control over financial reporting, or cash flows could be adversely
affected.
Effective Internal Control 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. We
have reported a material weakness in our internal control over financial
reporting, in this 2007 Annual Report on Form 10-K relating to corrections to
our income tax provisions and deferred tax liabilities included in previously
filed financial statements, and as such have concluded that our internal control
over financial reporting was not effective as of December 30,
2007. 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 a shareholder derivative lawsuit 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 this lawsuit. 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 are currently considering upgrades to our financial reporting 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 control 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. Therefore, 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
upon 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 may include 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
year 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 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 eight facilities that produce aluminum wheels for the
automotive industry, located in Arkansas, California, Kansas, 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 eight facilities encompass 3,652,000
square feet of manufacturing space, 50,000 square feet of warehouse space and
30,000 square feet of office space. We own all of our facilities with
the exception of two warehouses, one in Rogers, Arkansas, and the other in
Chihuahua, Mexico, and our worldwide headquarters and adjacent manufacturing and
warehousing facilities located in Van Nuys, California, that are
leased. We ceased wheel manufacturing operations in our Johnson City,
Tennessee facility, totaling 301,500 square feet, at the end of the first
quarter of 2007. This property is available for sale 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
Notes to the Consolidated Financial Statements in Item 8 – Financial Statements
and Supplementary Data of this Annual Report on Form 10-K.
ITEM 3 - LEGAL PROCEEDINGS
In late
2006, two shareholder derivative complaints were filed, one each by plaintiffs
Gary B. Eldred and Darrell D. Mack, based on allegations concerning some of the
company’s past stock option grants and practices. These cases were
subsequently consolidated as In re Superior Industries
International, Inc. Derivative Litigation, which is pending in the United
States District Court for the Central District of California. In the
plaintiffs’ consolidated complaint, filed on March 23, 2007, the company was
named only as a nominal defendant from whom the plaintiffs sought no monetary
recovery. In addition to naming the company as a nominal defendant,
the plaintiffs named various present and former employees, officers and
directors of the company as individual defendants from whom they sought monetary
and/or equitable relief, purportedly for the benefit of the
company.
Plaintiffs
purported to base their claims against the individual defendants on allegations
that the grant dates for some of the options granted to certain company
directors, officers and employees occurred prior to upward movements in the
stock price, and that the stock option grants were not properly accounted for in
the company’s financial reports and not properly disclosed in the company’s SEC
filings. The company and the individual defendants filed motions to
dismiss plaintiffs’ consolidated complaint on May 14, 2007. In an
order dated August 9, 2007, the court granted Superior's motion to dismiss the
consolidated complaint, and granted the plaintiffs leave to file an amended
complaint.
On August
29, 2007, the plaintiffs filed an amended consolidated complaint that is
substantially similar to the prior consolidated complaint. In
response, the company and the individual defendants filed motions to dismiss on
September 21, 2007. These renewed motions to dismiss were originally
scheduled to be heard on November 12, 2007. However, the hearing on
the motions was taken off calendar to accommodate the reassignment of the case
to a new judge. As of March 24, 2008, the court has yet to reset on
the calendar of the new judge the motions to dismiss. Discovery is
stayed in the case pending resolution of motions to dismiss. As this
litigation remains at a preliminary stage, it would be premature to anticipate
the probable outcome of this case 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 among other claims, certain
employees at our Van Nuys, California, facility were denied rest and meal
periods as required under the California Labor Code. After conducting
initial discovery, the parties participated in mediation that concluded on
August 22, 2007. The mediator proposed that the parties settle the
lawsuit for a total settlement payment not to exceed $2,700,000. This
settlement amount is all-inclusive and includes the company’s settlement payment
to the lead plaintiff and the settlement class, together with costs and
attorneys’ fees for plaintiff’s counsel. In addition, the mediator
proposed that the settlement payment to the class would be on a “claims made”
basis, with a minimum of 40 percent of the net settlement being distributed to
the settlement class. Provided the minimum settlement claims are paid
to the settlement class, the company will not be liable for any claim that is
not valid or timely filed.
Subject
to certain conditions, both parties agreed to the mediator’s proposal and
executed a Settlement Term Sheet on August 22, 2007. The parties
submitted the proposed settlement for preliminary approval with the Superior
Court of Los Angeles County, which granted preliminary approval on December 19,
2007. On March 17, 2008, the court granted final approval of
the proposed settlement, thereby giving the settlement class until May 16, 2008
to appeal the court’s order. Management estimates that its expected
liability is $2.2 million and has accordingly recorded a charge to selling,
general and administrative expenses during the year ended December 31,
2007.
We are
party to various other 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 2007, no matters were submitted to a vote of security
holders through the solicitation of proxies or otherwise.
EXECUTIVE
OFFICERS OF THE REGISTRANT
Information
regarding executive officers that are Directors is contained in our 2008 Annual
Proxy Statement under the caption “Election of Directors”. Such
information is incorporated herein by reference. All executive
officers are appointed annually by the Board of Directors and serve one-year
terms. Also see “Employment Agreements” in our 2008 Annual Proxy
Statement, which is incorporated herein by reference.
Listed
below are the name, age, position and business experience of each of our
officers who are not directors:
|
Assumed
|
||||||||||
|
Name
|
Age
|
Position
|
Position
|
|||||||
|
Robert
H. Bouskill
|
62
|
Senior
Vice President, Manufacturing Technology
|
2005
|
|||||||
|
Vice
President, Manufacturing Technology
|
2000
|
|||||||||
|
Robert
D. Bracy
|
60
|
Senior
Vice President, Facilities
|
2005
|
|||||||
|
Vice
President, Facilities
|
1997
|
|||||||||
|
Robert
A. Earnest
|
46
|
Vice
President, General Counsel and
Corporate
Secretary
|
2007
|
|||||||
|
Director,
Tax and Legal and Corporate Secretary
|
2006
|
|||||||||
|
Director,
Tax and Customs – Nissan North America
|
2001
|
|||||||||
|
Emil
J. Fanelli
|
65
|
Vice
President and Corporate Controller
|
2008
|
|||||||
|
Acting
Chief Financial Officer
|
2007
|
|||||||||
|
Vice
President and Corporate Controller
|
2001
|
|||||||||
|
Stephen
H. Gamble
|
53
|
Vice
President, Treasurer
|
2006
|
|||||||
|
Director,
Financial Planning and Analysis
|
2001
|
|||||||||
|
Parveen
Kakar
|
41
|
Vice
President, Program Development
|
2003
|
|||||||
|
Director,
Engineering Services
|
1989
|
|||||||||
|
Michael
J. O’Rourke
|
47
|
Executive
Vice President, Sales and Administration
|
2008
|
|||||||
|
Senior
Vice President, Sales and Administration
|
2003
|
|||||||||
|
Vice
President, OEM Program Administration
|
1995
|
|||||||||
|
Razmik
Perian
|
50
|
Chief
Information Officer
|
2006
|
|||||||
|
Director,
Corporate Information Technology
|
2000
|
|||||||||
|
Name
|
Age
|
Position
|
Position
|
|||||||
|
Eddie
Rodriquez
|
53
|
Vice
President, Human Resources
|
2007
|
|||||||
|
Director,
Human Resources – The Coca-Cola Company
|
2004
|
|||||||||
|
Vice
President, Operations – First Data Corporation
|
1999
|
|||||||||
|
Gabriel
Soto
|
59
|
Vice
President, Mexico Operations
|
2004
|
|||||||
|
General
Manager, Mexico Operations
|
1994
|
|||||||||
|
Kenneth
A. Stakas
|
56
|
Senior
Vice President, Manufacturing
|
2006
|
|||||||
|
Vice
President of Operations -
|
||||||||||
|
Amcast
Automotive, Components Group
|
2000
|
|||||||||
|
Cameron
Toyne
|
48
|
Vice
President, Supply Chain
|
2008
|
|||||||
|
Vice
President, Purchasing
|
2007
|
|||||||||
|
Director
of Purchasing
|
2004
|
|||||||||
|
Manager
of Supply Chain – L-3 Communications
|
2002
|
|||||||||
|
Erika
H. Turner
|
53
|
Chief
Financial Officer
|
2008
|
|||||||
|
Chief
Financial Officer/ Vice President, Finance – Monogram
Systems
|
2004
|
|||||||||
|
Chief
Financial Officer – Quantum Corporation, Storage Solutions
Group
|
2003
|
|||||||||
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 591 shareholders of record as of December
30, 2007 and 26.6 million shares issued and outstanding as of March 14, 2008.
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, 2007 is set forth below.
*Assumes
the value of the investment in Superior Industries International common stock
and each index was $100 on December 31, 2002 and that all dividends were
reinvested.
|
|
|
|||||||||||
|
Superior
Industries
|
Dow
Jones
US
Total
|
Dow
Jones
US
Auto
|
||||||||||
|
International,
Inc.
|
Market
Index
|
Parts
Index
|
||||||||||
|
2002
|
$ | 100.00 | $ | 100.00 | $ | 100.00 | ||||||
|
2003
|
$ | 106.59 | $ | 130.75 | $ | 142.21 | ||||||
|
2004
|
$ | 72.48 | $ | 146.45 | $ | 150.00 | ||||||
|
2005
|
$ | 57.05 | $ | 155.72 | $ | 126.40 | ||||||
|
2006
|
$ | 51.13 | $ | 179.96 | $ | 135.37 | ||||||
|
2007
|
$ | 49.74 | $ | 190.77 | $ | 155.51 | ||||||
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.
|
2007
|
2006
|
|||||||||||||
|
High
|
Low
|
High
|
Low
|
|||||||||||
|
First
Quarter
|
$
|
23.19
|
$
|
19.07
|
$
|
23.21
|
$
|
19.06
|
||||||
|
Second
Quarter
|
$
|
24.06
|
$
|
21.25
|
$
|
19.63
|
$
|
17.25
|
||||||
|
Third
Quarter
|
$
|
23.05
|
$
|
18.33
|
$
|
18.88
|
$
|
16.38
|
||||||
|
Fourth
Quarter
|
$
|
22.23
|
$
|
17.81
|
$
|
20.23
|
$
|
16.40
|
||||||
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 – Stock-based Compensation in Notes to the Consolidated Financial
Statements in Item 8 – 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
|
|||||
|
Plan
Category
|
warrants
and rights
|
warrants
and rights
|
compensation
plans
|
||||
|
Equity
compensation plans approved by security holders
|
3,198,111
|
$ |
26.53
|
746,902
|
|||
|
Equity
compensation plans not approved by security holders
|
-
|
-
|
-
|
||||
|
Total
|
3,198,111
|
$ |
26.53
|
746,902
|
|||
Dividend
Policy
Cash
dividends declared during 2007 and 2006 totaled $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 2007, there were no repurchases
of common stock. As of December 31, 2007, 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 2007 comprised the 52-week period
ended December 30, 2007. The fiscal year 2006 comprised the 53-week
period ended December 31, 2006. The fiscal years 2005, 2004 and 2003
comprised the 52-week periods ended December 25, 2005,
December 26, 2004 and December 28, 2003, 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,
2007, 2006 and 2005, and the consolidated balance sheet data at December 31,
2007 and 2006, are derived from our audited consolidated financial statements
appearing Item 8 – Financial Statements and Supplementary Data in this Annual
Report on Form 10-K. The consolidated statements of operations data
for the years ended December 31, 2004 and 2003 and the consolidated balance
sheet data at December 31, 2005, 2004 and 2003 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 2006,
2005, 2004 and 2003 have been restated to correct errors in the accounting for
certain deferred tax liabilities and our equity method investment in Suoftec, as
further described in Note 2 – Restatement of Consolidated Financial Statements
in Notes to Consolidated Financial Statements in Item 8 – Financial Statements
and Supplementary Data in this Annual Report on Form 10-K. These historical
results are not indicative of the results to be expected in any future
period.
|
Fiscal
Year Ended December 31,
|
2007
|
2006
|
2005
(4)
|
2004
(4)
|
2003
(4)
|
|||||||||||||||
|
As
restated
|
As
restated
|
As
restated
|
As
restated
|
|||||||||||||||||
|
Statement
of Operations (000's)
|
||||||||||||||||||||
|
Net
Sales
|
$ | 956,892 | $ | 789,862 | $ | 804,161 | $ | 872,258 | $ | 825,940 | ||||||||||
|
Net
Income (Loss) from Continuing Operations
|
$ | 9,292 | $ | (10,799 | ) | $ | 19,375 | $ | 53,167 | $ | 80,550 | |||||||||
|
Balance
Sheet (000's)
|
||||||||||||||||||||
|
Current
Assets
|
$ | 356,079 | $ | 346,593 | $ | 359,740 | $ | 368,976 | $ | 388,510 | ||||||||||
|
Current
Liabilities
|
95,596 | 112,083 | 110,634 | 87,343 | 83,621 | |||||||||||||||
|
Working
Capital
|
260,483 | 234,510 | 249,106 | 281,633 | 304,889 | |||||||||||||||
|
Total
Assets
|
729,922 | 712,505 | 719,895 | 745,180 | 703,205 | |||||||||||||||
|
Long-Term
Debt
|
- | - | - | - | - | |||||||||||||||
|
Shareholders'
Equity
|
$ | 550,573 | $ | 563,114 | $ | 583,988 | $ | 609,731 | $ | 581,368 | ||||||||||
|
Financial
Ratios
|
||||||||||||||||||||
|
Current
Ratio (1)
|
3.7:1
|
3.1:1
|
3.3:1
|
4.2:1
|
4.6:1
|
|||||||||||||||
|
Long-Term
Debt/Total Capitalization (2)
|
0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||||
|
Return
on Average Shareholders' Equity (3)
|
1.7 | % | -1.8 | % | -1.2 | % | 7.6 | % | 13.9 | % | ||||||||||
|
Share
Data
|
||||||||||||||||||||
|
Net
Income (Loss) from Continuing Operations
|
||||||||||||||||||||
|
-
Basic
|
$ | 0.35 | $ | (0.41 | ) | $ | 0.73 | $ | 2.00 | $ | 3.01 | |||||||||
|
-
Diluted
|
$ | 0.35 | $ | (0.41 | ) | $ | 0.73 | $ | 1.99 | $ | 2.97 | |||||||||
|
Shareholders'
Equity at Year-End
|
$ | 20.67 | $ | 21.16 | $ | 21.95 | $ | 22.90 | $ | 21.72 | ||||||||||
|
Dividends
Declared
|
$ | 0.6400 | $ | 0.6400 | $ | 0.6350 | $ | 0.6025 | $ | 0.5375 | ||||||||||
|
(1) The
Current Ratio is current assets divided by current
liabilities.
|
||||||||||||||||
|
(2) Long-term
Debt/Total Capitalization represents long-term debit divided by total
shareholders' equity plus long-term debt.
|
||||||||||||||||
|
(3) Return
on Average Shareholders' Equity is net income (loss) divided by average
shareholders' equity. Average shareholders'
equity
|
||||||||||||||||
|
is
the beginning of the year shareholders' equity plus the end of year
shareholders' equity divided by two.
|
||||||||||||||||
|
(4) Restated
consolidated statements of operations for the fiscal years 2004 and 2003
and consolidated balance sheets for the
|
||||||||||||||||
|
fiscal
years ended December 31, 2005, 2004 and 2003 are
unaudited.
|
||||||||||||||||
SUPERIOR
INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED
STATEMENT OF OPERATIONS
(Thousands
of dollars, except per share amounts)
(Unaudited)
|
Fiscal
Year 2004
|
As
reported
|
Adjustments
|
As
restated
|
|||||||||
|
NET
SALES
|
$ | 872,258 | $ | - | $ | 872,258 | ||||||
|
Cost
of sales
|
779,752 | - | 779,752 | |||||||||
|
GROSS
PROFIT
|
92,506 | - | 92,506 | |||||||||
|
Selling,
general and administrative expenses
|
24,154 | - | 24,154 | |||||||||
|
Impairments
of long-lived assets
|
- | - | - | |||||||||
|
INCOME
(LOSS) FROM OPERATIONS
|
68,352 | - | 68,352 | |||||||||
|
Interest
income, net
|
2,772 | - | 2,772 | |||||||||
|
Other
income (expense), net
|
(1,614 | ) | - | (1,614 | ) | |||||||
|
INCOME
(LOSS) FROM CONTINUING OPERATIONS
|
||||||||||||
|
BEFORE
INCOME TAXES AND EQUITY EARNINGS
|
69,510 | - | 69,510 | |||||||||
|
Income
tax (provision) benefit
|
(26,209 | ) | 592 | (25,617 | ) | |||||||
|
Equity
in earnings of joint ventures
|
8,611 | 663 | 9,274 | |||||||||
|
NET
INCOME (LOSS) FROM CONTINUING OPERATIONS
|
51,912 | 1,255 | 53,167 | |||||||||
|
Income
(loss) from discontinued operations, net of taxes
|
(8,108 | ) | - | (8,108 | ) | |||||||
|
NET
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
|
||||||||||||
|
OF
ACCOUNTING CHANGE
|
43,804 | 1,255 | 45,059 | |||||||||
|
Cumulative
effect of accounting change, net of taxes
|
- | - | - | |||||||||
|
NET
INCOME (LOSS)
|
$ | 43,804 | $ | 1,255 | $ | 45,059 | ||||||
|
EARNINGS
(LOSS) PER SHARE - BASIC:
|
||||||||||||
|
Net
income (loss) from continuing operations
|
$ | 1.95 | $ | 0.05 | $ | 2.00 | ||||||
|
Income
(loss) from discontinued operations, net of taxes
|
(0.30 | ) | - | (0.30 | ) | |||||||
|
Cumulative
effect of accounting change, net of taxes
|
- | - | - | |||||||||
|
Net
income (loss)
|
$ | 1.65 | $ | 0.05 | $ | 1.70 | ||||||
|
EARNINGS
(LOSS) PER SHARE - DILUTED:
|
||||||||||||
|
Net
income (loss) from continuing operations
|
$ | 1.94 | $ | 0.05 | $ | 1.99 | ||||||
|
Income
(loss) from discontinued operations, net of taxes
|
(0.30 | ) | - | (0.30 | ) | |||||||
|
Cumulative
effect of accounting change, net of taxes
|
- | - | - | |||||||||
|
Net
income (loss)
|
$ | 1.64 | $ | 0.05 | $ | 1.69 | ||||||
SUPERIOR
INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED
STATEMENT OF OPERATIONS
(Thousands
of dollars, except per share amounts)
(Unaudited)
|
Fiscal
Year 2003
|
As
reported
|
Adjustments
|
As
restated
|
|||||||||
|
NET
SALES
|
$ | 825,940 | $ | - | $ | 825,940 | ||||||
|
Cost
of sales
|
691,531 | - | 691,531 | |||||||||
|
GROSS
PROFIT
|
134,409 | - | 134,409 | |||||||||
|
Selling,
general and administrative expenses
|
24,309 | - | 24,309 | |||||||||
|
Impairments
of long-lived assets
|
- | - | - | |||||||||
|
INCOME
(LOSS) FROM OPERATIONS
|
110,100 | - | 110,100 | |||||||||
|
Interest
income, net
|
2,727 | - | 2,727 | |||||||||
|
Other
income (expense), net
|
1,144 | - | 1,144 | |||||||||
|
INCOME
(LOSS) FROM CONTINUING OPERATIONS
|
||||||||||||
|
BEFORE
INCOME TAXES AND EQUITY EARNINGS
|
113,971 | - | 113,971 | |||||||||
|
Income
tax (provision) benefit
|
(43,345 | ) | 1,269 | (42,076 | ) | |||||||
|
Equity
in earnings of joint ventures
|
8,655 | - | 8,655 | |||||||||
|
NET
INCOME (LOSS) FROM CONTINUING OPERATIONS
|
79,281 | 1,269 | 80,550 | |||||||||
|
Income
(loss) from discontinued operations, net of taxes
|
(6,476 | ) | - | (6,476 | ) | |||||||
|
NET
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
|
||||||||||||
|
OF
ACCOUNTING CHANGE
|
72,805 | 1,269 | 74,074 | |||||||||
|
Cumulative
effect of accounting change, net of taxes
|
- | - | - | |||||||||
|
NET
INCOME (LOSS)
|
$ | 72,805 | $ | 1,269 | $ | 74,074 | ||||||
|
EARNINGS
(LOSS) PER SHARE - BASIC:
|
||||||||||||
|
Net
income (loss) from continuing operations
|
$ | 2.97 | $ | 0.05 | $ | 3.02 | ||||||
|
Income
(loss) from discontinued operations, net of taxes
|
(0.24 | ) | - | (0.24 | ) | |||||||
|
Cumulative
effect of accounting change, net of taxes
|
- | - | - | |||||||||
|
Net
income (loss)
|
$ | 2.73 | $ | 0.05 | $ | 2.78 | ||||||
|
EARNINGS
(LOSS) PER SHARE - DILUTED:
|
||||||||||||
|
Net
income (loss) from continuing operations
|
$ | 2.93 | $ | 0.05 | $ | 2.98 | ||||||
|
Income
(loss) from discontinued operations, net of taxes
|
(0.24 | ) | - | (0.24 | ) | |||||||
|
Cumulative
effect of accounting change, net of taxes
|
- | - | - | |||||||||
|
Net
income (loss)
|
$ | 2.69 | $ | 0.05 | $ | 2.74 | ||||||
SUPERIOR
INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED
BALANCE SHEET
(Thousands
of dollars, except per share amounts)
(Unaudited)
|
Fiscal
Year Ended December 31, 2005
|
As
reported
|
Adjustments
|
As
restated
|
|||||||||
|
ASSETS
|
||||||||||||
|
Current
assets:
|
||||||||||||
|
Cash
and cash equivalents
|
$ | 107,349 | $ | - | $ | 107,349 | ||||||
|
Short-term
investments
|
- | - | - | |||||||||
|
Accounts
receivable, net
|
135,501 | - | 135,501 | |||||||||
|
Inventories,
net
|
107,726 | - | 107,726 | |||||||||
|
Income
taxes receivable
|
- | - | - | |||||||||
|
Deferred
income taxes
|
2,585 | - | 2,585 | |||||||||
|
Other
current assets
|
6,579 | - | 6,579 | |||||||||
|
Total
current assets
|
359,740 | - | 359,740 | |||||||||
|
Property,
plant and equipment, net
|
292,289 | - | 292,289 | |||||||||
|
Investments
|
59,572 | 416 | 59,988 | |||||||||
|
Non-current
deferred tax asset, net
|
- | - | - | |||||||||
|
Other
assets
|
7,878 | - | 7,878 | |||||||||
|
Total
assets
|
$ | 719,479 | $ | 416 | $ | 719,895 | ||||||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||||||
|
Current
liabilities:
|
||||||||||||
|
Accounts
payable
|
$ | 53,527 | $ | - | $ | 53,527 | ||||||
|
Accrued
expenses
|
39,401 | - | 39,401 | |||||||||
|
Income
taxes payable
|
17,706 | - | 17,706 | |||||||||
|
Total
current liabilities
|
110,634 | - | 110,634 | |||||||||
|
Non-current
tax liabilities
|
- | - | - | |||||||||
|
Executive
retirement liabilities
|
18,747 | - | 18,747 | |||||||||
|
Non-current
deferred tax liabilities, net
|
10,209 | (3,683 | ) | 6,526 | ||||||||
|
Commitments
and contingent liabilities
|
- | - | - | |||||||||
|
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 - 26,910,161 shares
|
13,305 | - | 13,305 | |||||||||
|
Additional
paid-in capital
|
32,062 | - | 32,062 | |||||||||
|
Accumulated
other comprehensive loss
|
(40,717 | ) | (80 | ) | (40,797 | ) | ||||||
|
Retained
earnings
|
575,239 | 4,179 | 579,418 | |||||||||
|
Total
shareholders' equity
|
579,889 | 4,099 | 583,988 | |||||||||
|
Total
liabilities and shareholders' equity
|
$ | 719,479 | $ | 416 | $ | 719,895 | ||||||
SUPERIOR
INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED
BALANCE SHEET
(Thousands
of dollars, except per share amounts)
(Unaudited)
|
Fiscal
Year Ended December 31, 2004
|
As
reported
|
Adjustments
|
As
restated
|
|||||||||
|
ASSETS
|
||||||||||||
|
Current
assets:
|
||||||||||||
|
Cash
and cash equivalents
|
$ | 119,644 | $ | - | $ | 119,644 | ||||||
|
Short-term
investments
|
- | - | - | |||||||||
|
Accounts
receivable, net
|
150,560 | - | 150,560 | |||||||||
|
Inventories,
net
|
89,984 | - | 89,984 | |||||||||
|
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 | 652 | 92,512 | |||||||||
|
Other
assets
|
8,862 | - | 8,862 | |||||||||
|
Total
assets
|
$ | 744,528 | $ | 652 | $ | 745,180 | ||||||
|
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 | |||||||||
|
Non-current
deferred tax liabilities, net
|
35,263 | (4,360 | ) | 30,903 | ||||||||
|
Commitments
and contingent liabilities
|
- | - | - | |||||||||
|
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
|
31,484 | - | 31,484 | |||||||||
|
Accumulated
other comprehensive loss
|
(38,586 | ) | (11 | ) | (38,597 | ) | ||||||
|
Retained
earnings
|
598,511 | 5,023 | 603,534 | |||||||||
|
Total
shareholders' equity
|
604,719 | 5,012 | 609,731 | |||||||||
|
Total
liabilities and shareholders' equity
|
$ | 744,528 | $ | 652 | $ | 745,180 | ||||||
SUPERIOR
INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED
BALANCE SHEET
(Thousands
of dollars, except per share amounts)
(Unaudited)
|
Fiscal
Year Ended December 31, 2003
|
As
reported
|
Adjustments
|
As
restated
|
|||||||||
|
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 | |||||||||
|
Non-current
deferred tax liabilities, net
|
26,960 | (3,768 | ) | 23,192 | ||||||||
|
Commitments
and contingent liabilities
|
- | - | - | |||||||||
|
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
|
35,392 | - | 35,392 | |||||||||
|
Accumulated
other comprehensive loss
|
(41,935 | ) | - | (41,935 | ) | |||||||
|
Retained
earnings
|
570,759 | 3,768 | 574,527 | |||||||||
|
Total
shareholders' equity
|
577,600 | 3,768 | 581,368 | |||||||||
|
Total
liabilities and shareholders' equity
|
$ | 703,205 | $ | - | $ | 703,205 | ||||||
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, which
is based on restated data as described below, should be read in conjunction with
our Consolidated Financial Statements and the Notes to the Consolidated
Financial Statements included in Item 8 - Financial Statements and
Supplementary Data in this Annual Report 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.
Restatement
and Impact on Financial Statements
During
the preparation and review of our 2007 income tax provision, we discovered that
we had not properly reconciled our tax liabilities related to differences
between the net book basis and the net tax basis of our depreciable property,
plant and equipment and several other miscellaneous deferred tax liabilities. As
a result of completing the necessary reconciliations for each year since 2002,
we identified errors that impacted our previously filed financial statements for
the fiscal years 2003 through 2006 and our previously filed interim financial
statements for those years related to our tax liabilities and our income tax
provisions.
During
the fourth quarter of 2007, we determined the cumulative impact of known
differences in our accounting for our equity method investment in Suoftec and
our summary financial information presented for Suoftec, which we considered to
be immaterial to any individual reporting period, required
restatement. The errors relate to the quantification and recording of
the adjustments to report the Suoftec earnings on the basis of U.S. GAAP versus
on the Hungarian accounting rules followed by Suoftec. These
differences principally relate to overhead cost capitalization into inventory
and deferred income taxes on property, plant and equipment.
In
accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 154, “Accounting Changes and Error Corrections” (SFAS No. 154), we
have restated, to the earliest period practical, our previously filed financial
statements. See Note 2 – Restatement of Consolidated Financial Statements in
Notes to Consolidated Financial Statements in Item 8 – Financial Statements and
Supplementary Data of this Annual Report on Form 10-K, for the effect of the
restatements on fiscal years 2005 and 2006.
The
following table details the net income effect of these corrections for fiscal
years 2005 and 2006:
|
Net
|
||||||||||||||||
|
Income
(Loss)
|
Income
Tax
|
Equity
Earnings
|
Net
|
|||||||||||||
|
as
Previously
|
(Provision)
|
(Losses)
of
|
Income
(Loss)
|
|||||||||||||
|
Fiscal
Year
|
Reported
|
Benefit
|
Joint
Ventures
|
as
Restated
|
||||||||||||
|
(Thousands
of dollars)
|
||||||||||||||||
|
2005
|
$ | (6,367 | ) | $ | (677 | ) | $ | (167 | ) | $ | (7,211 | ) | ||||
|
2006
|
$ | (9,321 | ) | $ | (1,249 | ) | $ | 28 | $ | (10,542 | ) | |||||
See Note
2 – Restatement of Consolidated Financial Statements in Notes to Consolidated
Financial Statements in Item 8 – Financial Statements and Supplementary Data in
this Annual Report on Form 10-K for further discussion on the effect of these
corrections for fiscal years 2006 and 2005 to the previously reported
amounts.
Executive Overview
Our unit
shipments increased 10 percent in 2007 and our units produced increased 13
percent, both factors contributing to the increase in gross profit. During 2007,
we also completed the closing of our Johnson City, Tennessee plant as discussed
below. 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 lower than our historical levels. We will
continue to attempt to increase our operating margins from current operating
levels by aggressively implementing cost-saving 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, results of operations and cash
flow may 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 reductions in customer
demand in future periods.
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. 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.
An asset impairment charge against pretax earnings totaling $4.5 million was
recorded in the third quarter of 2006 to reduce the carrying value of certain
long-lived assets in this facility. The closure of this facility was completed
at the end of the first quarter of 2007.
Listed in
the table below are several key indicators we use to monitor our financial
condition and operating performance.
Results
of Operations
|
Fiscal
Year End
|
2007
|
2006
|
2005
|
|||||||||
|
(Thousands
of dollars, except per share amounts)
|
As
restated
|
As
restated
|
||||||||||
|
Net
sales
|
$ | 956,892 | $ | 789,862 | $ | 804,161 | ||||||
|
Gross
profit
|
$ | 32,492 | $ | 8,740 | $ | 48,824 | ||||||
|
Percentage
of net sales
|
3.4 | % | 1.1 | % | 6.1 | % | ||||||
|
Income
(loss) from operations
|
$ | 3,321 | $ | (21,409 | ) | $ | 19,167 | |||||
|
Percentage
of net sales
|
0.3 | % | -2.7 | % | 2.4 | % | ||||||
|
Net
income (loss) from continuing operations
|
$ | 9,292 | $ | (10,799 | ) | $ | 19,375 | |||||
|
Percentage
of net sales
|
1.0 | % | -1.4 | % | 2.4 | % | ||||||
|
Diluted
earnings (loss) per share - continuing operations
|
$ | 0.35 | $ | (0.41 | ) | $ | 0.73 | |||||
Sales
In 2007,
total revenues increased approximately 21 percent, while unit shipments to our
OEM customers increased 10 percent versus the prior year. Consolidated net sales
increased $167.0 million to $956.9 million in 2007 from $789.9 million in 2006.
Wheel program development revenues decreased to $12.4 million this year compared
to $19.8 million a year ago, while aluminum wheel sales increased $174.4 million
in 2007 to $944.5 million from $770.1 million a year ago, a 23 percent increase
compared to the 10 percent increase in unit shipments. The average selling price
of our wheels increased approximately 12 percent in 2007, due principally to the
continued shift in sales mix to larger, higher-priced wheels. The pass-through
price of aluminum increased the average selling price by approximately 3 percent
in 2007.
Unit
shipments to Ford and GM totaled 68 percent of total OEM unit shipments in 2007
compared to 69 percent a year ago. Unit shipments to Chrysler LLC decreased to
13 percent from 16 percent in 2006, while shipments to our international
customers totaled 19 percent compared to 15 percent in 2006. According to Wards Auto Info Bank, an
industry publication, overall North American production of passenger cars and
light trucks in 2007 decreased approximately 2 percent compared to our 10
percent increase in aluminum wheel unit shipments. Furthermore, production of
the specific passenger cars and light trucks using our wheel programs decreased
6 percent compared to our 10 percent increase in shipments, indicating an
increase in market share. Production of passenger cars with our wheel programs
was down 11 percent compared to our 12 percent increase in shipments. Likewise,
production of light
trucks and SUVs with our wheel programs decreased 3 percent compared to our 9
percent increase in shipments.
According
to Wards Auto Info
Bank, an industry publication, aluminum wheel installation rates on
passenger cars and light trucks in the U.S. remained flat at 63 percent for the
2006 and 2005 model years. 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 wheel
installation rate increasing only 11 percentage points from 52 percent for the
1997 model year, while 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 in the future may be negatively impacted by
continued customer pricing pressures and overall economic conditions that impact
the sales of passenger cars and light trucks, such as continued high fuel prices
and declines in the construction industry.
Consolidated
net sales in 2006 decreased $14.3 million, or 2 percent, to $789.9 million from
$804.2 million in 2005. Excluding wheel program development revenues, which
totaled $19.8 million in 2006 compared to $18.6 million in 2005, OEM wheel sales
decreased $15.5 million to $770.1 million from $785.6 million in 2005, a 2
percent decrease compared to a decrease in unit shipments of 12 percent. Our
decrease in OEM aluminum wheel unit shipments in 2006 compared unfavorably to
the decrease of 3 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 12
percent decrease in shipments, indicating only a slight decrease in market
share. The average selling price of our wheels in 2006 increased approximately
11 percent from 2005, due principally to an increase of 9 percent in the
pass-through price of aluminum.
Gross
Profit
During
2007, consolidated gross profit increased $23.8 million to $32.5.million, or 3.4
percent of net sales, from $8.7 million, or 1.1 percent of net sales, in 2006,
which included $10.1 million of preproduction start-up costs of our new wheel
plant in Mexico. Due to a higher level of new wheel programs and additional
take-over business, gross profit in 2007 included an additional $4.5 million of
wheel program development costs compared to a year ago. These additional costs
were more than offset by the 10 percent increase in unit shipments and the
increased plant productivity from a 13 percent increase in production.
Operational performance improved in our plants in 2007, and our newest wheel
plant in Chihuahua, Mexico steadily increased production of larger diameter
aluminum wheels. The improvements seen in our financial performance indicate
that our multi-year restructuring program is starting to deliver the positive
operating results we have been working hard to achieve. Gross profit
in the fourth quarter of 2007 also included normal adjustments for physical
inventory results and the true-up of workers’ compensation reserves, which were
favorable and totaled $2.8 million compared to $0.3 million in
2006.
During
2006, 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. Gross profit in 2006 included $10.1 million of preproduction
start-up costs of our newest wheel plant in Mexico, compared to only $0.9
million of such costs in 2005. 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 our principal customers,
were down 6 percent overall, while production of light trucks was 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
these factors. As indicated above, our unit shipments in 2006 decreased 12
percent and our units produced during the same period decreased 15 percent.
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.
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 $29.2 million, or 3.0 percent of net
sales in 2007, compared to $25.7 million, or 3.3 percent of net sales in 2006
and $21.8 million, or 2.7 percent of net sales in 2005. In accordance with the
adoption of SFAS No. 123R, 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 2007 was
$2.6 million, compared to $2.4 million in 2006 and $0.8 million in
2005. See Note 13 – Stock-Based Compensation in Notes to Consolidated
Financial Statements 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 2007 included professional fees, principally
legal and accounting costs of $2.9 million, and payroll related benefit
accruals. Selling, general and administrative expenses were $3.9 million higher
in 2006 than 2005, due principally to an increase of $1.6 million related to
stock-based compensation expense and accruals for professional fees and
retirement benefits.
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 was completed in the first quarter of 2007. This was the
latest step in our program to rationalize our production capacity and reduce
costs. 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 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”.
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. Actual expenditures related to machinery and
equipment shutdown and removal totaled approximately $0.9 million.
Interest
Income, net and Other Income (Expense), net
Interest
income, net for the year decreased 34 percent to $3.7 million from $5.6 million
in 2006, due principally to a decrease in the average balance invested to $87.1
million from $111.2 million in 2006, offsetting an increase in the average rate
of return. Interest income, net in 2006 increased to $5.6 million from $5.3
million in 2005, as the average rate of return in 2006 increased to 4.9 percent
from 3.1 percent in 2005. Other income (expense), net in 2007
included a gain on the sale of available-for-sale investments totaling $2.9
million.
Effective
Income Tax Rate
Our
pretax income (loss) from continuing operations was $10.2 million in 2007,
$(16.1) million in 2006, and $23.9 million in 2005. The effective tax rate on
the 2007 pretax income from continuing operations was a tax provision of 61.4
percent compared to a benefit of 1.8 percent in 2006 and a tax provision of 40.0
percent in 2005. The relationship of federal tax credits, changes in tax
liabilities, permanent tax differences and foreign income, which is taxed at
rates other than the U.S. statutory federal rate, to pretax income (loss) from
continuing operations are the principal reasons for increases and decreases in
the effective income tax rate. We are a multinational company subject to
taxation in many jurisdictions. We record liabilities dealing with
uncertainty in the application of complex tax laws and regulations in the
various taxing jurisdictions in which we operate. If we determine
that payment of these liabilities will be unnecessary, we reverse the liability
and recognize the tax benefit during the period in
which we determine the liability no longer applies. Conversely, we
record additional tax liabilities in a period in which we determine that a
recorded liability is less than we expect the ultimate assessment to
be.
As a
multinational corporation, we are subject to taxation in many jurisdictions, and
the calculation of our tax liabilities involves dealing with uncertainties in
the application of complex tax laws and regulations in the various
jurisdictions. The effects of recording liability increases and
decreases are included in the effective income tax rate.
In 2007
the company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (FIN 48). As a result of adopting the provisions of FIN
48, we recognized a reduction in retained earnings of $16.8 million at January
1, 2007. The initial recording of the liability at adoption of FIN 48
did not impact our effective rate. The effect was recorded as a
cumulative effect of accounting change, the recording of a deferred tax asset, a
reclassification in our reserve for taxes balance, and an increase to our
valuation allowance. Increases and decreases to the liability during
the year 2007 were reflected in our current year effective income tax rate, and
had an overall increase to our rate of 18.30 percent.
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, 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.
Suoftec Joint
Venture
Net sales
of our 50-percent owned joint venture in Hungary, Suoftec, increased $13.7
million, or 10.4 percent, in 2007 to $145.7 million from $132.0 million in 2006.
The majority of this increase, or 9.6 percent, was due to the sharp increase in
the average exchange rate of the U.S. dollar to the euro, the functional
currency of the joint venture, with the balance of the increase due to an
increase of less than 1 percent in the average selling price. The average
exchange rate increased in 2007 to $1.3715 from $1.2510 in 2006. Unit shipments
were virtually flat with those of the prior year at 2.3 million units. Net sales
in 2006 increased $22.9 million, or 21.0 percent, to $132.0 million from $109.1
million in 2005. The increase in net sales was due to the 15.6
percent increase in unit shipments and a 3.9 percent increase in the average
selling price. There was only a minor change in the average exchange
rate in 2006 compared to 2005.
Gross
profit in 2007 increased slightly to $14.9 million, or 10.3 percent of net
sales, from $14.7 million, or 11.2 percent of net sales, in 2006. Gross profit
margin in 2007 was impacted negatively by additional unreimbursed wheel
development costs and higher utility costs than in the prior year. Gross profit
in 2006 decreased $0.8 million to $14.7 million, or 11.2 percent of net sales,
from $15.5 million, or 14.2 percent of net sales in 2005, due principally to a
30 percent increase in aluminum costs, which due to contractual arrangements
with customers was only partially offset by allowable pass-through price
increases.
Selling,
general and administrative costs in 2007 were $2.0 million, or 1.4 percent
of net sales, compared to $1.7 million, or 1.3 percent of net sales in 2006
and $1.5 million, or 1.4 percent of net sales in 2005. The principal reason
for the $0.3 million increase in 2007 over 2006 was the average exchange rate
increase in the current year.
The $1.9
million improvement in other income (expense), net in 2007 was due principally
to foreign exchange transaction gains increasing by $1.1 million and interest
income increasing by $0.4 million.
The
statutory income tax rate in Hungary was 16.0 percent in all periods. The annual
effective income tax rates were 18.7 percent in 2007, compared to 16.4 percent
in 2006 and 15.9 percent in 2005. The increase in 2007 was due to the addition
of a new solidarity tax of 4.0 percent. These rates were also impacted slightly
by various permanent differences, such as for depreciation of property, plant
and equipment.
The
resulting net income was $11.2 million in 2007, compared to $10.0 million in
2006 and $10.7 million in 2005. Our 50-percent share of these earnings was $5.6
million, $5.0 million and $5.4 million, respectively. After adjusting
for the
elimination of intercompany profits on wheels purchased from Suoftec, our equity
earnings in each year were $5.2 million in 2007, $4.9 million in 2006 and $5.4
million in 2005.
Cash at
the end of 2007 was $29.5 million compared to $24.7 million a year ago. Working
capital increased $14.9 million to $55.3 million from $40.4 million at the end
of 2006, due principally to a reduction of $5.8 million in current liabilities
and the $4.8 million increase in cash. The current ratio increased to 4.9:1 from
3.0:1 a year ago. Capital expenditures in 2007 were $10.5 million, compared to
$4.6 million in 2006. There were no dividends declared in 2007
compared to $10.1 million declared in 2006. The joint venture’s cash balance is
more than sufficient for future capital expenditure requirements and cash
dividends.
Our
previous disclosures of summary financial information of Suoftec, did not give
effect to any differences between U.S. GAAP and Hungarian accounting rules,
since management believed that these differences were not material to any one
reporting period. As a result of the restatement of Suoftec equity
earnings, to give effect to these differences, we have revised our Suoftec
summary financial information, as described in Note 2 – Restatement of
Consolidated Financial Statements in Notes to Consolidated Financial Statements
in Item 8 – Financial Statements and Supplementary Data of this Annual Report on
Form 10-K.
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. See Note 7 – Investments in Notes to
Consolidated Financial Statements 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
Net
income from continuing operations in 2007 was $9.3 million, compared to a loss
of $10.8 million last year and income of $19.4 million in
2005. Diluted earnings (loss) per share from continuing operations
for the year ended December 31, 2007 was $0.35 per diluted share compared to
$(0.41) per diluted share in 2006 and $0.73 per diluted share in
2005.
Discontinued
Operations
On
September 20, 2006, we entered into an agreement with St. Jean Industries, Inc.,
a Delaware corporation, as buyer, and the buyer’s parent, St. 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
percent, 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. See Note 17 – Discontinued Operations in Notes to Consolidated
Financial Statements 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)
Net
income in 2007 was $9.3 million, or 1.0 percent of net sales, compared to a loss
in 2006 of $10.5 million, or –1.3 percent of net sales, and a loss of $7.2
million, or –0.9 percent of net sales, in 2005. Diluted earnings (loss) per
share was $0.35 per diluted share in 2007 compared to $(0.40) in 2006 and
$(0.27) in 2005.
Liquidity
and Capital Resources
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, 2007, we had no long-term debt. At December
31, 2007, our cash and cash equivalents totaled $106.8 million compared to cash
and short-term investments totaling $78.1 million a year ago and $107.3 million
at the end of 2005. The $38.4 million increase in cash and
cash equivalents in 2007 was due principally to net cash provided by operating
activities of $74.9 million offsetting net cash used in investing activities and
financing activities of $19.9 million and $16.6 million, respectively. The $29.2
million decrease in cash and short-term investments in 2006 was due principally
to fund capital expenditure requirements for our new plant in Chihuahua, Mexico.
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.
|
Fiscal
Year End
|
2007
|
2006
|
2005
|
|||||||||
|
(Thousands
of dollars)
|
||||||||||||
|
Net
cash provided by operating activities
|
$ | 74,858 | $ | 36,130 | $ | 76,501 | ||||||
|
Net
cash used in investing activities
|
(19,872 | ) | (58,062 | ) | (71,775 | ) | ||||||
|
Net
cash used in financing activities
|
(16,602 | ) | (17,032 | ) | (17,021 | ) | ||||||
|
Net
increase (decrease) in cash and cash equivalents
|
$ | 38,384 | $ | (38,964 | ) | $ | (12,295 | ) | ||||
We
generate our principal working capital resources primarily through operations.
Net cash provided by operating activities increased $38.7 million to $74.9
million in 2007, compared to $36.1 million for the same period a year ago. In
addition to the $19.8 million increase in net income, the change in non-cash
items was unfavorable by $6.6 million offset by favorable changes in operating
assets and liabilities totaling $25.5 million. The principal changes in non-cash
items were unfavorable variances in impairment charges of $4.5 million, and
equity earnings of joint ventures, net of dividends received, of $3.5 million.
The favorable change in operating assets and liabilities was due principally to
favorable changes in inventories of $26.6 million, accounts receivable of $11.4
million and income taxes of $8.8 million, reduced by unfavorable changes in
funding requirements of accounts payable of $20.2 million.
The
favorable change in inventories was due to a reduction in work-in-process and
finished goods funding of $11.0 million in the current year versus a funding
requirement of $15.6 million a year ago. The favorable change in accounts
receivable in the current period was due to the collection of a dividend
receivable from our equity joint venture in Hungary, totaling $5.3 million, and
a reduction in wheel program development receivables of $3.1 million, compared
to an unfavorable change a year ago, due to the recording of the dividend
receivable in 2006. The unfavorable change in funding of accounts payable in the
current period was due to a lower requirement for capital expenditures for our
newest plant in Mexico.
The $74.9
million cash flow from operating activities in 2007, $68.4 million of cash and
cash equivalents from a year ago and the $17.8 million cash portion of the
proceeds from the sale of certain assets were used in part for capital
expenditures of $37.6 million and for cash dividends of $17.0 million. Capital
expenditures in 2007 included $25.0 million for our latest 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 $40.4 million to $36.1 million in
2006, compared to $76.5 million for the same period in 2005. In addition to the
$3.3 million decrease in net income, the change in non-cash items was
unfavorable by $7.5 million and unfavorable changes in operating assets and
liabilities totaled $29.6 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 $27.7 million, equity earnings of joint ventures, net of dividends
received of $3.8 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
$26.0 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 2006 was due principally to a lower tax liability at
the end of fiscal year 2006 compared to the year prior, while the favorable
change in 2005 was due to an over payment
situation at the end of 2004. The unfavorable change in accounts
receivable in 2006 was due to decreased customer sales, resulting in a net cash
outflow of $4.3 million compared to a cash inflow of $13.6 million in
2005.
The $36.1
million cash flow from operating activities in 2006, $39.0 million of cash and
cash equivalents from 2005 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.
Our
financial condition remained strong in 2007. Working capital of
$260.5 million at December 31, 2007 included $106.8 million in cash and cash
equivalents. The current ratio at year-end was 3.7:1 compared to
3.1:1 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. The value of the Mexican peso in relation to the U.S. dollar in 2007
remained relatively unchanged. The euro experienced an 11 percent
increase versus the U.S. dollar in 2007. 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, 2007 of $34.1 million. Since our initial investment in our joint venture in
Hungary in 1995, the fluctuations in functional currencies have resulted in a
cumulative unrealized translation gain at December 31, 2007 of $8.2 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-currency-denominated
receivables, payables or purchase obligations. At December 31, 2007 and 2006, we
held no foreign currency euro forward contracts.
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 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 $11 million, at December 31, 2007. As of
December 31, 2006, the aggregate contract value and fair value of these
commitments were $15 million and $12 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, 2007 are as follows (amounts in
millions):
|
Payments
Due by Fiscal Year
|
||||||||||||||||||||||||||||
|
Contractual
Obligations
|
2008
|
2009
|
2010
|
2011
|
2012
|
Thereafter
|
Total
|
|||||||||||||||||||||
|
Commodity
contracts
|
$ | 11 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 11 | ||||||||||||||
|
Retirement
plans
|
2 | 2 | 2 | 2 | 2 | 52 | 62 | |||||||||||||||||||||
|
Operating
leases
|
3 | 3 | 2 | 2 | 1 | - | 11 | |||||||||||||||||||||
|
Total
|
$ | 16 | $ | 5 | $ | 4 | $ | 4 | $ | 3 | $ | 52 | $ | 84 | ||||||||||||||
The table
above does not reflect unrecognized tax benefits of $62.2 million, the timing of
which is uncertain.
Inflation
Inflation
has not had a material impact on our results of operations or financial
condition for the three years ended December 31, 2007. 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 collectability 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 plan generally provides
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 periodic 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 net periodic pension costs and related obligations are
measured using actuarial techniques and assumptions. See Note 10 –
Retirement Plans in Notes to Consolidated Financial Statements in Item 8 –
Financial Statements and Supplementary Data for a description of these
assumptions.
The
following information illustrates the sensitivity to a change in certain
assumptions of our unfunded retirement plans as of December 31,
2007. Note that these sensitivities may be asymmetrical, and
are specific to 2007. 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
|
|||||||||||||||||
|
Obligation
|
2007
|
||||||||||||||||
|
Percentage
|
at
December 31,
|
Net
Periodic
|
|||||||||||||||
|
Assumption
|
Change
|
2007
|
Pension
Cost
|
||||||||||||||
|
Discount
rate
|
+
1.0%
|
$
|
(2,154
|
)
|
$
|
(181
|
)
|
||||||||||
|
Rate
of compensation increase
|
+
1.0%
|
$
|
779
|
$
|
164
|
||||||||||||
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.. Accordingly, during fiscal year 2006 and 2007,
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 and 2007 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 in Notes to the
Consolidated Financial Statements in Item 8 – Financial Statements and
Supplementary Data for a detailed description of these assumptions.
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 estimated using
actuarial methods and ultimate settlements may vary significantly from such
estimates due to increased claims frequency or the severity of
claims.
Accounting for in Income
Taxes – 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 positions, 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 provisions for newly identified
uncertainties, as well as reductions for uncertainties resolved through audit,
expiration of a statute of limitations, audit adjustments, estimates of future
earnings, changes in the valuation allowance, or other substantive changes in
facts and circumstances. We believe that the determination to record
a valuation allowance to reduce a deferred income tax asset is a significant
accounting estimate because it is based on an estimate of future taxable income
in the United States and certain other jurisdictions, which is susceptible to
change and may or may not occur, and because the impact of adjusting a valuation
allowance may be material.
The
company adopted FIN 48 during 2007. The purpose of FIN 48 is to
clarify accounting for uncertain tax positions recognized. FIN 48
utilizes a two-step approach to evaluate tax positions. Recognition,
step one, requires evaluation of the tax position to determine if based solely
on technical merits it is more likely than not to be sustained upon
examination. Measurement, step two, is addressed only if a position
is more likely than not to be sustained. In step two, the tax benefit
is measured as the largest amount of benefit, determined on a cumulative
probability basis, which is more likely than not to be realized upon ultimate
settlement with tax authorities. If a position does not meet the more
likely than not threshold for recognition in step one, no benefit is recorded
until the first subsequent period in which the more likely than not standard is
met, the issue is resolved with the taxing authority, or the statute of
limitations expires. Positions previously recognized are derecognized
when a Company subsequently determines the position no longer is more likely
than not to be sustained. Evaluation of tax positions, their
technical merits, and measurement using cumulative probability are highly
subjective management estimates. Actual results could differ
materially from these estimates.
As a
result of adopting the provisions of FIN 48, we recognized a reduction in
retained earnings of $16.8 million at January 1, 2007. The initial
recording of the liability at adoption of FIN 48 did not impact our effective
rate. The effect was recorded as a cumulative effect of accounting
change, the recording of a deferred tax asset, a reclassification in our reserve
for taxes account, and an increase to our valuation allowance.
Included
in the unrecognized tax benefits of $62.2 million, at December 31, 2007 was
$29.1 million of tax benefit that, if recognized, would reduce our annual
effective tax rate.
Within
the next twelve-month period ending December 31, 2008, it is reasonably possible
that up to $3.6 million of unrecognized tax benefits will be recognized due to
the expiration of certain statues of limitation.
New
Accounting Standards
In
September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No.
157, “Fair Value Measurements” (SFAS No. 157). SFAS
No. 157 establishes a common definition for fair value to be applied to U.S.
GAAP guidance requiring use of fair value, establishes a framework for measuring
fair value, and expands disclosure about such fair value measurements. SFAS No.
157 is effective for fiscal years beginning after November 15, 2007. In
February 2008, the FASB decided to issue a final Staff Position to allow a
one-year deferral of adoption of SFAS No. 157 for nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed at fair value in the
financial statements on a nonrecurring basis. The FASB also decided
to amend SFAS No. 157 to exclude Statement of Financial Accounting Standard No.
13 and its related interpretive accounting pronouncements that address leasing
transactions. We are currently evaluating the expected impact on our
financial statements of adopting SFAS No. 157.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (SFAS No. 159) 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 for fiscal years beginning
after November 15, 2007. 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
|
||||
|
35
|
||||
|
Financial
Statements
|
||||
|
37
|
||||
|
38
|
||||
|
39
|
||||
|
41
|
||||
|
42
|
||||
|
Supporting
Financial Statement Schedule Covered By 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.
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 30, 2007 and
December 31, 2006, and the results of their operations and their cash flows for
each of the three years in the period ended December 30, 2007 in conformity with
accounting principles generally accepted in the United States of America.
Additionally, 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. Also in our opinion, the Company did not maintain, in all
material respects, effective internal control over financial reporting as of
December 30, 2007, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), because a material weakness in internal control over
financial reporting related to the completeness, accuracy and valuation of the
accounting for and disclosure of income taxes existed as of that date. A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the annual or interim financial statements will
not be prevented or detected on a timely basis. The material weakness referred
to above is described in Management's Report on Internal Control Over Financial
Reporting appearing under Item 9A. We considered this material weakness in
determining the nature, timing, and extent of audit tests applied in our audit
of the 2007 consolidated financial statements and our opinion regarding the
effectiveness of the Company’s internal control over financial reporting does
not affect our opinion on those consolidated financial statements. The Company's
management is responsible for these financial statements and financial statement
schedule, for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in management’s report referred to above. Our responsibility
is to express opinions on these financial statements, on the financial statement
schedule, and on the Company's internal control over financial reporting based
on our integrated audits. We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial statements
included 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. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.
As
discussed in Note 2 to the consolidated financial statements, the Company has
restated its 2006 and 2005 consolidated financial statements.
As
discussed in Note 1 to the consolidated financial statements, the Company
changed the manner in which it accounts for uncertain tax positions in 2007 and
the manner in which accounts it accounts for share-based compensation in
2006.
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.
/s/
PricewaterhouseCoopers LLP
Los
Angeles, California
March 31,
2008
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Thousands
of dollars, except per share amounts)
|
Fiscal
Year
|
2007
|
2006
|
2005
|
|||||||||
|
As
restated
|
As
restated
|
|||||||||||
|
NET
SALES
|
$ | 956,892 | $ | 789,862 | $ | 804,161 | ||||||
|
Cost
of sales
|
924,400 | 781,122 | 755,337 | |||||||||
|
GROSS
PROFIT
|
32,492 | 8,740 | 48,824 | |||||||||
|
Selling,
general and administrative expenses
|
29,171 | 25,679 | 21,802 | |||||||||
|
Impairments
of long-lived assets
|
- | 4,470 | 7,855 | |||||||||
|
INCOME
(LOSS) FROM OPERATIONS
|
3,321 | (21,409 | ) | 19,167 | ||||||||
|
Interest
income, net
|
3,684 | 5,589 | 5,329 | |||||||||
|
Other
income (expense), net
|
3,195 | (268 | ) | (588 | ) | |||||||
|
INCOME
(LOSS) FROM CONTINUING OPERATIONS
|
||||||||||||
|
BEFORE
INCOME TAXES AND EQUITY EARNINGS
|
10,200 | (16,088 | ) | 23,908 | ||||||||
|
Income
tax (provision) benefit
|
(6,263 | ) | 285 | (9,572 | ) | |||||||
|
Equity
in earnings of joint ventures
|
5,355 | 5,004 | 5,039 | |||||||||
|
NET
INCOME (LOSS) FROM CONTINUING OPERATIONS
|
9,292 | (10,799 | ) | 19,375 | ||||||||
|
Income
(loss) from discontinued operations, net of taxes
|
- | 257 | (27,811 | ) | ||||||||
|
NET
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
|
||||||||||||
|
OF
ACCOUNTING CHANGE
|
9,292 | (10,542 | ) | (8,436 | ) | |||||||
|
Cumulative
effect of accounting change, net of taxes
|
- | - | 1,225 | |||||||||
|
NET
INCOME (LOSS)
|
$ | 9,292 | $ | (10,542 | ) | $ | (7,211 | ) | ||||
|
EARNINGS
(LOSS) PER SHARE - BASIC:
|
||||||||||||
|
Net
income (loss) from continuing operations
|
$ | 0.35 | $ | (0.41 | ) | $ | 0.73 | |||||
|
Income
(loss) from discontinued operations, net of taxes
|
- | 0.01 | (1.05 | ) | ||||||||
|
Cumulative
effect of accounting change, net of taxes
|
- | - | 0.05 | |||||||||
|
Net
income (loss)
|
$ | 0.35 | $ | (0.40 | ) | $ | (0.27 | ) | ||||
|
EARNINGS
(LOSS) PER SHARE - DILUTED:
|
||||||||||||
|
Net
income (loss) from continuing operations
|
$ | 0.35 | $ | (0.41 | ) | $ | 0.73 | |||||
|
Income
(loss) from discontinued operations, net of taxes
|
- | 0.01 | (1.05 | ) | ||||||||
|
Cumulative
effect of accounting change, net of taxes
|
- | - | 0.05 | |||||||||
|
Net
income (loss)
|
$ | 0.35 | $ | (0.40 | ) | $ | (0.27 | ) | ||||
See notes
to consolidated financial statements.
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED
BALANCE SHEETS
(Thousands
of dollars, except per share amounts)
|
Fiscal
Year End
|
2007
|
2006
|
||||||
|
As
restated
|
||||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 106,769 | $ | 68,385 | ||||
|
Short-term
investments
|
- | 9,750 | ||||||
|
Accounts
receivable, net
|
125,704 | 138,552 | ||||||
|
Inventories,
net
|
107,170 | 118,724 | ||||||
|
Income
taxes receivable
|
6,677 | - | ||||||
|
Deferred
income taxes
|
6,569 | 6,416 | ||||||
|
Other
current assets
|
3,190 | 4,766 | ||||||
|
Total
current assets
|
356,079 | 346,593 | ||||||
|
Property,
plant and equipment, net
|
302,253 | 310,414 | ||||||
|
Investments
|
51,055 | 46,739 | ||||||
|
Non-current
deferred tax asset, net
|
12,673 | - | ||||||
|
Other
assets
|
7,862 | 8,759 | ||||||
|
Total
assets
|
$ | 729,922 | $ | 712,505 | ||||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 51,603 | $ | 60,959 | ||||
|
Accrued
expenses
|
43,993 | 41,898 | ||||||
|
Income
taxes payable
|
- | 9,226 | ||||||
|
Total
current liabilities
|
95,596 | 112,083 | ||||||
|
Non-current
tax liabilities (Note 8)
|
62,223 | - | ||||||
|
Executive
retirement liabilities
|
21,530 | 21,666 | ||||||
|
Non-current
deferred tax liabilities, net
|
- | 15,642 | ||||||
|
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 - 26,633,440 shares
|
||||||||
|
(26,610,191
shares at December 31, 2006)
|
13,317 | 13,305 | ||||||
|
Additional
paid-in capital
|
38,516 | 35,094 | ||||||
|
Accumulated
other comprehensive loss
|
(28,578 | ) | (37,129 | ) | ||||
|
Retained
earnings
|
527,318 | 551,844 | ||||||
|
Total
shareholders' equity
|
550,573 | 563,114 | ||||||
|
Total
liabilities and shareholders' equity
|
$ | 729,922 | $ | 712,505 | ||||
See notes
to consolidated financial statements.
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHESIVE INCOME (LOSS)
(Thousands
of dollars, except per share amounts)
|
Accumulated
|
||||||||||||||||||||||||
|
Common
Stock
|
Additional
|
Other
|
||||||||||||||||||||||
|
Number
of
|
Paid-In
|
Comprehensive
|
Retained
|
|||||||||||||||||||||
|
As
restated
|
Shares
|
Amount
|
Capital
|
Income
(Loss)
|
Earnings
|
Total
|
||||||||||||||||||
|
BALANCE
AT FISCAL YEAR END
|
||||||||||||||||||||||||
|
2004,
AS REPORTED
|
26,621,191 | $ | 13,310 | $ | 31,484 | $ | (38,586 | ) | $ | 598,511 | $ | 604,719 | ||||||||||||
|
Cumulative
effect of error
|
||||||||||||||||||||||||
|
corrections
(Note 2)
|
- | - | - | (11 | ) | 5,023 | 5,012 | |||||||||||||||||
|
BALANCE
AT FISCAL YEAR END
|
||||||||||||||||||||||||
|
2004,
AS RESTATED
|
26,621,191 | 13,310 | 31,484 | (38,597 | ) | 603,534 | 609,731 | |||||||||||||||||
|
Comprehensive
loss:
|
||||||||||||||||||||||||
|
Net
loss, as restated
|
- | - | - | - | (7,211 | ) | (7,211 | ) | ||||||||||||||||
|
Other
comprehensive loss
|
- | - | - | (2,200 | ) | - | (2,200 | ) | ||||||||||||||||
|
Comprehensive
loss
|
(9,411 | ) | ||||||||||||||||||||||
|
Stock-based
compensation
|
||||||||||||||||||||||||
|
expense
|
- | - | 817 | - | - | 817 | ||||||||||||||||||
|
Stock
options exercised,
|
||||||||||||||||||||||||
|
net
of related tax benefit
|
5,000 | 3 | 130 | - | - | 133 | ||||||||||||||||||
|
Repurchase
of common stock
|
(16,000 | ) | (8 | ) | (369 | ) | - | - | (377 | ) | ||||||||||||||
|
Cash
divided declared
|
||||||||||||||||||||||||
|
($0.635
per share)
|
- | - | - | - | (16,905 | ) | (16,905 | ) | ||||||||||||||||
|
BALANCE
AT FISCAL YEAR END
|
||||||||||||||||||||||||
|
2005,
AS RESTATED
|
26,610,191 | 13,305 | 32,062 | (40,797 | ) | 579,418 | 583,988 | |||||||||||||||||
|
Comprehensive
income (loss):
|
||||||||||||||||||||||||
|
Net
loss, as restated
|
- | - | - | - | (10,542 | ) | (10,542 | ) | ||||||||||||||||
|
Other
comprehensive income
|
- | - | - | 5,458 | - | 5,458 | ||||||||||||||||||
|
Comprehensive
loss
|
(5,084 | ) | ||||||||||||||||||||||
|
Stock-based
compensation
|
||||||||||||||||||||||||
|
expense
|
- | - | 3,032 | - | - | 3,032 | ||||||||||||||||||
|
Adjustment
to initially apply
|
||||||||||||||||||||||||
|
SFAS
No. 158
|
- | - | - | (1,790 | ) | - | (1,790 | ) | ||||||||||||||||
|
Repurchase
of common stock
|
- | - | - | - | - | - | ||||||||||||||||||
|
Cash
divided declared
|
||||||||||||||||||||||||
|
($0.64
per share)
|
- | - | - | - | (17,032 | ) | (17,032 | ) | ||||||||||||||||
|
BALANCE
AT FISCAL YEAR END
|
||||||||||||||||||||||||
|
2006,
AS RESTATED
|
26,610,191 | $ | 13,305 | $ | 35,094 | $ | (37,129 | ) | $ | 551,844 | $ | 563,114 | ||||||||||||
SUPERIOR
INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHESIVE INCOME (LOSS)
(Thousands
of dollars, except per share amounts)
|
Accumulated
|
||||||||||||||||||||||||
|
Common
Stock
|
Additional
|
Other
|
||||||||||||||||||||||
|
Number
of
|
Paid-In
|
Comprehensive
|
Retained
|
|||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Income
(Loss)
|
Earnings
|
Total
|
|||||||||||||||||||
|
BALANCE
AT FISCAL YEAR END
|
||||||||||||||||||||||||
|
2006,
AS RESTATED
|
26,610,191 | $ | 13,305 | $ | 35,094 | $ | (37,129 | ) | $ | 551,844 | $ | 563,114 | ||||||||||||
|
Cumulative
effect of adoption
|
||||||||||||||||||||||||
|
of
FIN 48 (Note 8)
|
- | - | - | - | (16,786 | ) | (16,786 | ) | ||||||||||||||||
|
Comprehensive
income:
|
||||||||||||||||||||||||
|
Net
income
|
- | - | - | - | 9,292 | 9,292 | ||||||||||||||||||
|
Other
comprehensive income
|
- | - | - | 8,551 | - | 8,551 | ||||||||||||||||||
|
Comprehensive
income
|
17,843 | |||||||||||||||||||||||
|
Stock-based
compensation
|
||||||||||||||||||||||||
|
expense
|
- | - | 3,073 | - | - | 3,073 | ||||||||||||||||||
|
Stock
options exercised
|
23,249 | 12 | 418 | - | - | 430 | ||||||||||||||||||
|
Repricing
of stock option grants
|
- | - | (57 | ) | - | - | (57 | ) | ||||||||||||||||
|
Tax
impact of stock options
|
||||||||||||||||||||||||
|
exercised
|
- | - | (12 | ) | - | - | (12 | ) | ||||||||||||||||
|
Cash
dividend declared
|
||||||||||||||||||||||||
|
($0.64
per share)
|
- | - | - | - | (17,032 | ) | (17,032 | ) | ||||||||||||||||
|
BALANCE
AT FISCAL
|
||||||||||||||||||||||||
|
YEAR
END 2007
|
26,633,440 | $ | 13,317 | $ | 38,516 | $ | (28,578 | ) | $ | 527,318 | $ | 550,573 | ||||||||||||
See notes
to consolidated financial statements.
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH
FLOW
(Thousands
of dollars)
|
Fiscal
Year
|
2007
|
2006
|
2005
|
|||||||||
|
As
restated
|
As
restated
|
|||||||||||
|
NET
INCOME (LOSS)
|
$ | 9,292 | $ | (10,542 | ) | $ | (7,211 | ) | ||||
|
Adjustment
to reconcile net income (loss) to net cash
|
||||||||||||
|
provided
by operating activities:
|
||||||||||||
|
Depreciation
and amortization
|
42,925 | 39,137 | 46,468 | |||||||||
|
Equity
in earnings of joint ventures, net of dividends received
|
258 | 3,723 | (73 | ) | ||||||||
|
Stock-based
compensation
|
3,073 | 3,032 | 817 | |||||||||
|
Impairments
of long-lived assets
|
- | 4,470 | 41,895 | |||||||||
|
Deferred
income taxes
|
5,890 | 5,285 | (22,417 | ) | ||||||||
|
Other
non-cash items
|
3,667 | 4,936 | 1,494 | |||||||||
|
Gain
on sale of available for sale securities
|
(2,906 | ) | - | - | ||||||||
|
Gain
on sale of discontinued operations
|
- | (1,077 | ) | - | ||||||||
|
Cumulative
effect of accounting change
|
- | - | (1,225 | ) | ||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Accounts
receivable
|
7,136 | (4,278 | ) | 13,647 | ||||||||
|
Inventories
|
11,037 | (15,568 | ) | (16,838 | ) | |||||||
|
Other
assets
|
2,330 | 3,100 | (604 | ) | ||||||||
|
Accounts
payable
|
(9,310 | ) | 10,915 | 10,916 | ||||||||
|
Income
taxes
|
350 | (8,485 | ) | 17,528 | ||||||||
|
Other
liabilities
|
241 | 1,482 | (7,896 | ) | ||||||||
|
Non-current
tax liabilities
|
875 | - | - | |||||||||
|
NET
CASH PROVIDED BY OPERATING ACTIVITIES
|
74,858 | 36,130 | 76,501 | |||||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Additions
to property, plant and equipment
|
(37,639 | ) | (73,062 | ) | (100,800 | ) | ||||||
|
Proceeds
from a held-to-maturity security
|
9,750 | - | 29,025 | |||||||||
|
Proceeds
from sale of available-for-sale securities
|
5,198 | - | - | |||||||||
|
Proceeds
from sale of fixed assets
|
1,530 | - | - | |||||||||
|
Proceeds
from affordable-housing partnership investment
|
1,289 | - | - | |||||||||
|
Proceeds
from sale of discontinued operations
|
- | 15,000 | - | |||||||||
|
NET
CASH USED IN INVESTING ACTIVITIES
|
(19,872 | ) | (58,062 | ) | (71,775 | ) | ||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
Cash
dividends paid
|
(17,032 | ) | (17,032 | ) | (16,772 | ) | ||||||
|
Stock
options exercised
|
430 | - | 128 | |||||||||
|
Repurchases
of common stock
|
- | - | (377 | ) | ||||||||
|
NET
CASH USED IN FINANCING ACTIVITIES
|
(16,602 | ) | (17,032 | ) | (17,021 | ) | ||||||
|
Net
increase (decrease) in cash and cash equivalents
|
38,384 | (38,964 | ) | (12,295 | ) | |||||||
|
Cash
and cash equivalents at the beginning of the year
|
68,385 | 107,349 | 119,644 | |||||||||
|
Cash
and cash equivalents at the end of the year
|
$ | 106,769 | $ | 68,385 | $ | 107,349 | ||||||
See notes
to consolidated financial statements.
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Description
Headquartered
in Van Nuys, California, our principal business is the design and manufacture of
aluminum road wheels for sale to OEMs. 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 19 percent of our products being sold to
international customers.
GM, Ford
and Chrysler LLC together represented approximately 82 percent of our annual
sales in 2007 and 86 percent and 85 percent of annual sales in 2006 and 2005,
respectively. Although the loss of all or a substantial portion of our sales to
any of these customers would have a significant adverse impact on our financial
results, unless the lost volume could be replaced, we believe this risk is
partially offset due to long-term relationships with each, including multi-year
program arrangements. However, recent global competition pricing pressures have
put these multi-year arrangements at risk. Including our 50 percent-owned joint
venture in Europe, we also manufacture aluminum wheels for, Audi, BMW, Fiat,
Isuzu, Jaguar, Land Rover, Mazda, Mercedes Benz, Mitsubishi, Nissan, Seat,
Skoda, Subaru, Suzuki, Toyota, Volkswagen and Volvo.
On
September 20, 2006, we entered into an agreement with St. Jean Industries, Inc.,
a Delaware corporation, as buyer, and the buyer’s parent, St. 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. See Note 17 – Discontinued Operations for further discussion
of the aluminum suspension components business.
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 closure was completed at the end of
the first quarter of 2007. This was the latest step in our program to
rationalize our production capacity and reduce costs. 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.
Presentation
of Consolidated Financial Statements
The
consolidated financial statements include the accounts of the company and its
wholly owned subsidiaries. All significant intercompany transactions are
eliminated in consolidation. Affiliated 50 percent-owned joint ventures are
recorded in the financial statements using the equity method of accounting. The
carrying value of these equity investments is reported in long-term investments
and the company’s equity in net earnings of these investments is reported
separately in the consolidated statements of operations.
In 2005,
we changed the method of recording our 50 percent share of Suoftec earnings from
recording on a one-month lag to recording the results of operations on a current
basis. The purpose of the change was to have this 50 percent-owned
investee report on the same basis as our fiscal reporting period, as its
financial information is now available on a timely basis. As a
result, net income for the year ended December 31, 2005 includes a cumulative
effect of accounting change of $1.2 million, representing the company’s share of
Suoftec’s net income for the month of December 2004.
We have
made a number of estimates and assumptions related to the reporting of assets,
liabilities, revenues and expenses to prepare these financial statements in
conformity with accounting principles generally accepted in the United States of
America. Generally, assets and liabilities that are subject to estimation and
judgment include the allowance for doubtful accounts, inventory valuation
reserves, depreciation and amortization periods of long-lived assets,
self-insurance accruals, fair value of stock-based compensation and income
taxes. While actual results could differ, we believe such estimates to be
reasonable.
Our
fiscal year is the 52- or 53-week period ending on the last Sunday of the
calendar year. The fiscal year 2007 comprised the 52-week period
ended on December 30, 2007. The 2006 fiscal year comprised the
53-week period ended on December 31, 2006 while fiscal year 2005 comprises the
52-week period ended on December 25, 2005. 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.
Cash
and Cash Equivalents
Cash and
cash equivalents generally consist of cash, certificates of deposit, money
market funds and short-term, highly liquid investments with original maturities
of three months or less. Our cash and cash equivalents are not
subject to significant interest rate risk due to the short maturities of these
investments. At times throughout the year and at year-end, cash
balances held at financial institutions were in excess of federally insured
limits.
Marketable
Investments
Marketable
debt and equity securities, not classified as cash equivalents, are classified
as held-to-maturity or available-for-sale. Securities are classified as
held-to-maturity when we have the positive intent and ability to hold the
securities to maturity. We record held-to-maturity securities, which are stated
at amortized cost, as either short-term or long-term on the balance sheet based
upon contractual maturity dates. Securities not classified as held-to-maturity
are classified as available-for-sale and are carried at fair value, with the
associated unrealized gains and losses, net of deferred taxes, excluded from
operating results and reported in shareholders’ equity as a component of
accumulated other comprehensive income (loss) until realized, or until any
unrealized losses are determined to be other than temporary, at which time the
losses would be recognized in our operating results. The fair values of
securities are determined based upon quoted market prices. Gains or losses on
securities sold are based on the specific identification method.
In the
first quarter of 2007, the short-term corporate debt security, which was
classified as held-to-maturity as of December 31, 2006, matured and was redeemed
for $9.8 million. In addition, long-term corporate equity securities,
which were classified as available-for-sale at the end of 2006, were sold for
$5.1 million and gains totaling $2.9 million were recognized in our operating
results in other income (expense), net. As of December 31,
2007, we held no short-term investments.
Fair
Values of Financial Instruments and Commitments
The
carrying amounts for cash and cash equivalents, short-term investments, accounts
receivable, accounts payable and accrued expenses approximate their fair values
due to the short period of time until maturity. Fair values of long-term
marketable investments and future purchase commitments, which are discussed
further in Note 12 – Commitments and Contingent Liabilities, are based upon
quoted market prices.
Inventories
Inventories,
which are categorized as raw materials, work-in-process or finished goods, are
stated at the lower of cost or market using the first-in, first-out
method.
Property,
Plant and Equipment
Property,
plant and equipment are carried at cost, less accumulated depreciation. The cost
of additions, improvements and interest during construction, if any, are
capitalized. Our maintenance and repair costs are charged to expense
when incurred. Depreciation is calculated generally on the straight-line method
based on the estimated useful lives of the assets.
|
Classification
|
Expected
Useful Life
|
|
Computer
equipment
|
3
to 5 years
|
|
Production
machinery and equipment
|
7
to 10 years
|
|
Buildings
|
25
years
|
When
property and equipment is replaced, retired or disposed of, the cost and related
accumulated depreciation are removed from the accounts. Property and equipment
no longer used in operations, which are generally insignificant in amount, are
stated at the lower of cost or estimated net realizable value. Gains
and losses, if any, are recorded in other income or expense in the period of
disposition or write down.
Impairment
of Long-Lived Assets
The
company’s policy regarding long-lived assets is to evaluate the recoverability
of its assets at least annually or when the facts and circumstances suggest that
the assets may be impaired. This assessment of recoverability is
performed based on the estimated undiscounted cash flows compared to the
carrying value of the assets. If the future cash flows (undiscounted
and without interest charges) are less than the carrying value, a write-down
would be recorded to reduce the related asset to its estimated fair
value. See Note 16 – Impairment of Long-Lived Assets and Other
Charges for further discussion of asset impairments.
Derivative
Instruments and Hedging Activities
We may
periodically enter into foreign currency forward contracts to reduce the risk
from exchange rate fluctuations associated with future purchase commitments,
such as wheel purchases denominated in euros from our 50 percent owned joint
venture in Hungary. This type of risk management activity, which attempts to
protect our planned gross margin as of the date of the purchase commitment, may
qualify as a cash flow hedge under SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities.” Accordingly, we assess whether
the cash flow hedge is effective both at inception and periodically thereafter.
The effective portion of the related gains and losses is recorded as an asset or
liability in the consolidated balance sheets with the offset as a component of
other comprehensive income (loss) in shareholders’ equity. The ineffective
portion of related gains or losses, if any, is reported in current earnings. As
hedged transactions are consummated, amounts previously accumulated in other
comprehensive income (loss) are reclassified into current earnings. At December
31, 2007 and 2006, we held no euro forward contracts.
We also
enter into contracts to purchase certain commodities used in the manufacture of
our products, such as aluminum, natural gas, and other raw materials. Such
contracts are considered normal purchases as the commodities are physically
delivered and, therefore, pursuant to SFAS No. 133 are not accounted for as
derivatives. See Note 12 – Commitments and Contingent Liabilities for additional
information pertaining to these purchase commitments.
Foreign
Currency Transactions
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 currencies – the Mexican peso and the
euro. Foreign currency asset and liability accounts are translated
using the exchange rates in effect at the end of the accounting
period. Revenue and expense accounts are translated at the weighted
average of exchange rates during the period. The cumulative effect of
translation is recorded as a separate component of accumulated other
comprehensive income (loss) in shareholders' equity, as reflected in Note 15 –
Other Comprehensive Income (Loss). Foreign exchange transaction gains
and (losses) of $0.5 million, $(0.0) million and $(0.9) million have been
recorded as part of other income, net during 2007, 2006 and 2005,
respectively.
Revenue
Recognition
Sales of
products and any related costs are recognized when title and risk of loss
transfers to the purchaser, generally upon shipment. Wheel program development
revenues and initial tooling that are reimbursed by our customers are recognized
as such related costs and expenses are incurred and recoverability is probable,
generally upon issuance of a customer purchase order. Wheel program
development revenues totaled $12.4 million in 2007, $19.8 million in 2006, and
$18.6 million in 2005, and are included in net sales in the consolidated
statements of operations.
Research
and Development
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, 2007 were $6.3 million in 2007, $6.8 million in
2006, and $9.6 million in 2005.
Stock-Based
Compensation
Effective
January 1, 2006, we adopted the fair value recognition provisions of SFAS No.
123 (revised 2004), "Share-Based Payment" (SFAS No. 123R), using the modified
prospective transition method and, therefore, have not restated results for
prior periods. Under this transition method, stock-based compensation expense
for the years subsequent to December 31, 2005 include compensation expense for
all stock-based compensation awards granted prior to, but not yet vested as of
January 1, 2006, based on the grant date fair value estimated in accordance with
the provisions of SFAS No. 123. For options granted subsequent to
January 1, 2006, such expense is in accordance with the provisions of SFAS No.
123R. We recognize these compensation costs on a straight-line basis over the
requisite service period of the award, which is generally the option vesting
term of four years. Prior to the adoption of SFAS No. 123R, we recognized
stock-based compensation expense in accordance with the intrinsic value method
that followed the recognition and measurement principles of Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25), and we provided pro forma disclosure amounts in accordance
with SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and
Disclosure” (SFAS No. 148), as if the fair value method defined by SFAS No. 123
had been applied to our stock-based compensation. In March 2005, the SEC issued
Staff Accounting Bulletin No. 107 (SAB 107) regarding the SEC's interpretation
of SFAS No. 123R and the valuation of share-based payments for public companies.
We have applied the provisions of SAB 107 in our adoption of SFAS No.
123R.
Since the
only awards issued under our equity incentive plans have been, and are
currently, stock option awards, the stock-based compensation expense recorded in
2007 and 2006, as detailed in Note 13 – Stock-Based Compensation presents the
impact of the adoption of SFAS No. 123R. This expense is comparable to the
previously disclosed stock-based compensation expense presented as pro forma
information. The table below reflects the pro forma net earnings and
basic and diluted earnings (loss) per share for the year ended December 31,
2005, had we applied the fair value recognition provisions of SFAS No.
123:
|
Year
Ended December 31,
|
2005
|
|||
|
(Thousands
of dollars)
|
As
restated
|
|||
|
Net
loss
|
$ | (7,211 | ) | |
|
Stock-based
compensation expense included
|
||||
|
in
reported net loss, net of taxes
|
531 | |||
|
Stock-based
compensation expense determined
|
||||
|
under
fair value method for all awards, net of
|
||||
|
taxes
|
(5,617 | ) | ||
|
Pro
forma net loss
|
$ | (12,297 | ) | |
|
Year
Ended December 31,
|
2005
|
|||
|
As
restated
|
||||
|
Loss
per share:
|
||||
|
Basic
– as reported
|
$ | (0.27 | ) | |
|
Basic
– pro forma
|
$ | (0.46 | ) | |
|
Diluted
– as reported
|
$ | (0.27 | ) | |
|
Diluted
– pro forma
|
$ | (0.46 | ) | |
Income
Taxes
We
account for income taxes using the asset and liability method. The asset and
liability method requires the recognition of deferred tax assets and liabilities
for expected future tax consequences of temporary differences that currently
exist between the tax basis and financial reporting basis of our assets and
liabilities. We calculate current and deferred tax provisions based on estimates
and assumptions that could differ from actual results reflected on the
income
tax returns filed during the following years. Adjustments based on filed returns
are recorded when identified in the subsequent years.
The
effect on deferred taxes for a change in tax rates is recognized in income in
the period of enactment. In assessing the realizability of deferred tax assets,
we consider whether it is more likely than not that some portion of the deferred
tax assets will not be realized. A valuation allowance is provided for deferred
income taxes when, in our judgment, based upon currently available information
and other factors, it is more likely than not that all or a portion of such
deferred income tax assets will not be realized. The determination of the need
for a valuation allowance is based on an on-going evaluation of current
information including, among other things, estimates of future earnings in
different taxing jurisdictions and the expected timing of the reversals of
temporary differences. We believe that the determination to record a valuation
allowance to reduce a deferred income tax asset is a significant accounting
estimate because it is based on an estimate of future taxable income in the
United States and certain other jurisdictions, which is susceptible to change
and may or may not occur, and because the impact of adjusting a valuation
allowance may be material.
The
company adopted FIN 48 during 2007. The purpose of FIN 48 is to
clarify accounting for uncertain tax positions recognized. FIN 48
utilizes a two-step approach to evaluate tax positions. Recognition,
step one, requires evaluation of the tax position to determine if based solely
on technical merits it is more likely than not to be sustained upon
examination. Measurement, step two, is addressed only if a position
is more likely than not to be sustained. In step two, the tax benefit
is measured as the largest amount of benefit, determined on a cumulative
probability basis, which is more likely than not to be realized upon ultimate
settlement with tax authorities. If a position does not meet the more
likely than not threshold for recognition in step one, no benefit is recorded
until the first subsequent period in which the more likely than not standard is
met, the issue is resolved with the taxing authority, or the statute of
limitations expires. Positions previously recognized are derecognized
when a Company subsequently determines the position no longer is more likely
than not to be sustained. Evaluation of tax positions, their
technical merits, and measurement using cumulative probability are highly
subjective management estimates. Actual results could differ
materially from these estimates.
Presently
we have not recorded a deferred tax liability for temporary differences related
to investments in foreign subsidiaries that are essentially permanent in
duration. These temporary differences may become taxable upon a repatriation of
earnings from the subsidiaries or a sale or liquidation of the subsidiaries. At
this time the company does not have any plans to repatriate income from its
foreign subsidiaries.
The
company adopted FIN 48 during 2007. Our tax positions are analyzed at
least quarterly, and adjustments are made as events occur to warrant adjustment.
As a result of adopting the provisions of FIN 48, we recognized a reduction in
retained earnings of $16.8 million at January 1, 2007. The initial
recording of the liability at adoption of FIN 48 did not impact our effective
rate. The effect was recorded as a cumulative effect of accounting
change, the recording of a deferred tax asset, a reclassification in our reserve
for taxes account, and an increase to our valuation
allowance. Increases and decreases to the liability during the year
2007 were reflected in our current year effective income tax rate, and had an
overall increase to our rate of 18.30 percent.
Earnings
(Loss) Per Share
As
summarized below, basic earnings (loss) per share is computed by dividing net
income (loss) for the period by the weighted average number of common shares
outstanding for the period. For purposes of calculating diluted
earnings per share, net income is divided by the total of the weighted average
shares outstanding plus the dilutive effect of our outstanding stock options
under the treasury stock method, which includes consideration of stock-based
compensation required by SFAS No. 123R and SFAS No. 128, “Earnings Per
Share.”
|
Year
Ended December 31,
|
2007
|
2006
|
2005
|
|||||||||
|
(Thousands
of dollars, except per share amounts)
|
As
restated
|
As
restated
|
||||||||||
|
Basic Earnings (Loss)
Per Share
|
||||||||||||
|
Reported
net income (loss)
|
$ | 9,292 | $ | (10,542 | ) | $ | (7,211 | ) | ||||
|
Weighted
average shares outstanding
|
26,617 | 26,610 | 26,614 | |||||||||
|
Basic
earnings (loss) per share
|
$ | 0.35 | $ | (0.40 | ) | $ | (0.27 | ) | ||||
|
Diluted Earnings
(Loss) Per Share
|
||||||||||||
|
Reported
net income (loss)
|
$ | 9,292 | $ | (10,542 | ) | $ | (7,211 | ) | ||||
|
Weighted
average shares outstanding
|
26,617 | 26,610 | 26,614 | |||||||||
|
Weighted
average dilutive stock options
|
18 | - | 6 | |||||||||
|
Weighted
average shares outstanding - diluted
|
26,635 | 26,610 | 26,620 | |||||||||
|
Diluted
earnings (loss) per share
|
$ | 0.35 | $ | (0.40 | ) | $ | (0.27 | ) | ||||
The
following potential shares of common stock were excluded from the diluted
earnings per share calculations because they would have been anti-dilutive due
to their exercise prices exceeding the market prices for the respective periods:
for the year ended December 31, 2007, options to purchase 3,147,792 shares at
prices ranging from $21.72 to $43.22 and for the year ended December 31, 2005,
options to purchase 2,292,775 shares at prices ranging from $24.80 to $42.87 per
share.
New
Accounting Standards
In
September 2006, the Financial Accounting Standards Board issued SFAS No. 157,
“Fair Value Measurements” (SFAS No. 157). SFAS
No. 157 establishes a common definition for fair value to be applied to U.S.
GAAP guidance requiring use of fair value, establishes a framework for measuring
fair value, and expands disclosure about such fair value measurements. SFAS No.
157 is effective for fiscal years beginning after November 15, 2007. In
February 2008, the FASB decided to issue a final Staff Position to allow a
one-year deferral of adoption of SFAS No. 157 for nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed at fair value in the
financial statements on a nonrecurring basis. The FASB also decided
to amend SFAS No. 157 to exclude FASB Statement No. 13 and its related
interpretive accounting pronouncements that address leasing
transactions. We are currently evaluating the expected impact on its
financial statements of adopting SFAS No. 157.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (SFAS No. 159) 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 for fiscal years beginning
after November 15, 2007. We do not expect the adoption of SFAS No.
159 to have a material effect on our operating results or financial
position.
NOTE
2 – RESTATEMENT OF PRIOR PERIODS’ FINANCIAL STATEMENTS
During
the fourth quarter of 2007, we identified errors in the accounting for certain
tax liabilities and we determined the cumulative impact of known differences in
our accounting for our equity method investment in Suoftec, relating to
differences between U.S. GAAP and those accepted in Hungary which we considered
immaterial to any individual reporting period, requires
restatement. These errors are more fully described
below. In accordance with the provisions of Statement on Financial
Accounting Standards No. 154 – “Accounting Changes and Error Corrections",
we have restated our prior years’ financial statements. Details of
the restatements for fiscal years 2005 and 2006 are included below.
The
following table details the net income effect of these corrections for fiscal
years 2005 and 2006:
|
Net
|
||||||||||||||||
|
Income
(Loss)
|
Income
Tax
|
Equity
Earnings
|
Net
|
|||||||||||||
|
as
Previously
|
(Provision)
|
(Losses)
of
|
Income
(Loss)
|
|||||||||||||
|
Fiscal
Year
|
Reported
|
Benefit
|
Joint
Ventures
|
as
Restated
|
||||||||||||
|
(Thousands
of dollars)
|
||||||||||||||||
|
Cumulative
error - beginning of fiscal 2005
|
$ | 4,360 | $ | 663 | ||||||||||||
|
2005
|
$ | (6,367 | ) | (677 | ) | (167 | ) | $ | (7,211 | ) | ||||||
|
2006
|
$ | (9,321 | ) | (1,249 | ) | 28 | $ | (10,542 | ) | |||||||
|
Cumulative
error - end of fiscal 2006
|
$ | 2,434 | $ | 524 | ||||||||||||
Restatement
of Tax Liabilities
During
the preparation and review of our 2007 income tax provision, we discovered that
we had not properly reconciled our tax liabilities primarily related to
differences between the net book basis and the net tax basis of our depreciable
property, plant and equipment and several other miscellaneous deferred tax
liabilities. Other unreconciled deferred tax differences
approximating $0.5 million were also identified. As a result of
completing the necessary reconciliations for each year since 2002, we identified
the errors listed above.
The
following tables detail the effect of the corrections to our previously reported
income tax provisions for fiscal years 2006 and 2005:
|
Year
Ended December 31, 2006
|
As
reported
|
Adjustments
|
As
restated
|
|||||||||
|
(Thousands
of dollars)
|
||||||||||||
|
Continuing
operations
|
||||||||||||
|
Current
Taxes
|
||||||||||||
|
Federal
|
$ | 1,329 | $ | 1,027 | $ | 2,356 | ||||||
|
State
|
(1,029 | ) | - | (1,029 | ) | |||||||
|
Foreign
|
(3,925 | ) | - | (3,925 | ) | |||||||
|
Total
Current
|
(3,625 | ) | 1,027 | (2,598 | ) | |||||||
|
Deferred
Taxes
|
||||||||||||
|
Federal
|
6,084 | (1,763 | ) | 4,321 | ||||||||
|
State
|
687 | (513 | ) | 174 | ||||||||
|
Foreign
|
(1,612 | ) | - | (1,612 | ) | |||||||
|
Total
Deferred Taxes
|
5,159 | (2,276 | ) | 2,883 | ||||||||
|
(Provision)
benefit for income taxes from:
|
||||||||||||
|
Continuing
operations
|
$ | 1,534 | $ | (1,249 | ) | $ | 285 | |||||
|
Discontinued
operations
|
$ | (173 | ) | $ | - | $ | (173 | ) | ||||
|
Year
Ended December 31, 2005
|
As
reported
|
Adjustments
|
As
restated
|
|||||||||
|
(Thousands
of dollars)
|
||||||||||||
|
Continuing
operations
|
||||||||||||
|
Current
Taxes
|
||||||||||||
|
Federal
|
$ | (10,949 | ) | $ | - | $ | (10,949 | ) | ||||
|
State
|
(3,005 | ) | - | (3,005 | ) | |||||||
|
Foreign
|
(4,648 | ) | - | (4,648 | ) | |||||||
|
Total
Current
|
(18,602 | ) | - | (18,602 | ) | |||||||
|
Deferred
Taxes
|
||||||||||||
|
Federal
|
6,015 | (758 | ) | 5,257 | ||||||||
|
State
|
579 | 81 | 660 | |||||||||
|
Foreign
|
3,113 | - | 3,113 | |||||||||
|
Total
Deferred Taxes
|
9,707 | (677 | ) | 9,030 | ||||||||
|
(Provision)
benefit for income taxes from:
|
||||||||||||
|
Continuing
operations
|
$ | (8,895 | ) | $ | (677 | ) | $ | (9,572 | ) | |||
|
Discontinued
operations
|
$ | 18,852 | $ | - | $ | 18,852 | ||||||
The
following tables detail the effect of the corrections to our previously reported
reconciliation of the statutory United States federal income tax rate for fiscal
years 2006 and 2005:
|
Year
Ended December 31, 2006
|
As
reported
|
Adjustments
|
As
restated
|
|||||||||
|
Statutory
rate - (provision) benefit
|
35.0 | % | - | % | 35.0 | % | ||||||
|
State
tax (provisions), net of federal income tax benefit
|
(1.9 | ) | - | (1.9 | ) | |||||||
|
Permanent
differences
|
(18.0 | ) | (7.7 | ) | (25.7 | ) | ||||||
|
Tax
credits
|
0.8 | - | 0.8 | |||||||||
|
Foreign
income taxed at rates of than the statutory rate
|
3.2 | - | 3.2 | |||||||||
|
Valuation
allowance
|
(4.4 | ) | - | (4.4 | ) | |||||||
|
Changes
in reserves, net
|
(3.7 | ) | - | (3.7 | ) | |||||||
|
Other
|
(1.5 | ) | - | (1.5 | ) | |||||||
|
Effective
income tax rate for continuing operations
|
9.5 | % | (7.7 | ) % | 1.8 | % | ||||||
|
Year
Ended December 31, 2005
|
As
reported
|
Adjustments
|
As
restated
|
|||||||||
|
Statutory
rate - (provision) benefit
|
(35.0 | ) % | - | % | (35.0 | ) % | ||||||
|
State
tax (provisions), net of federal income tax benefit
|
(6.6 | ) | - | (6.6 | ) | |||||||
|
Permanent
differences
|
0.2 | (2.8 | ) | (2.6 | ) | |||||||
|
Tax
credits
|
3.2 | - | 3.2 | |||||||||
|
Foreign
income taxed at rates of than the statutory rate
|
2.8 | - | 2.8 | |||||||||
|
Valuation
allowance
|
(3.0 | ) | - | (3.0 | ) | |||||||
|
Changes
in reserves, net
|
(1.1 | ) | - | (1.1 | ) | |||||||
|
Other
|
2.3 | - | 2.3 | |||||||||
|
Effective
income tax rate for continuing operations
|
(37.2 | ) % | (2.8 | ) % | (40.0 | ) % | ||||||
The
following table details the effects of the corrections to our previously
reported tax effects of temporary differences for fiscal year 2006:
|
Year
Ended December 31, 2006
|
As
reported
|
Adjustments
|
As
restated
|
|||||||||
|
(Thousands
of dollars)
|
||||||||||||
|
Deferred
Tax Assets
|
||||||||||||
|
Other
comprehensive income and loss adjustments
|
$ | 658 | $ | - | $ | 658 | ||||||
|
Reserves
for deductible in the future
|
7,435 | - | 7,435 | |||||||||
|
Deferred
compensation
|
9,786 | - | 9,786 | |||||||||
|
Net
loss carryforward
|
- | - | - | |||||||||
|
Tax
credit carryforward
|
- | - | - | |||||||||
|
Differences
with financial and tax accounting related
|
||||||||||||
|
to
foreign operations
|
- | - | - | |||||||||
|
State
taxes expensed currently, deductible for taxes
|
||||||||||||
|
in
the following year
|
1,221 | - | 1,221 | |||||||||
| 19,100 | - | 19,100 | ||||||||||
|
Valuation
allowance
|
(1,418 | ) | (1,418 | ) | ||||||||
|
Net
deferred tax assets
|
17,682 | - | 17,682 | |||||||||
|
Deferred
Tax Liabilities
|
||||||||||||
|
Differences
between the book and tax basis of property, plant
|
||||||||||||
|
and
equipment
|
(18,140 | ) | 1,407 | (16,733 | ) | |||||||
|
Differences
between financial and tax accounting associated
|
||||||||||||
|
with
foreign operations
|
(12,100 | ) | - | (12,100 | ) | |||||||
|
Other
|
1,925 | - | 1,925 | |||||||||
|
Deferred
tax liabilities
|
(28,315 | ) | 1,407 | (26,908 | ) | |||||||
|
Net
Deferred Tax Asset (Liability)
|
$ | (10,633 | ) | $ | 1,407 | $ | (9,226 | ) | ||||
Restatement
of Equity Method Investment in Suoftec
During
the fourth quarter of 2007, we determined the cumulative impact of known
differences in our accounting for our equity method investment in Suoftec and
our summary financial information presented for Suoftec, which we considered to
be immaterial to any individual reporting period, required
restatement. The errors relate to the quantification and recording of
the adjustments to report the Suoftec earnings on the basis of U.S. GAAP versus
on the Hungarian accounting rules followed by Suoftec. These
differences principally relate to overhead cost capitalization into inventory
and deferred income taxes on property, plant and equipment.
The
following tables detail the effect of the corrections to our previously reported
Summary Statements of Operations for Suoftec for fiscal years 2006 and
2005:
|
Summary
Statement of Operation - Suoftec
|
||||||||||||
|
Year
Ended December 31, 2006
|
As
reported
|
Adjustments
|
As
restated
|
|||||||||
|
(Thousands
of dollars)
|
||||||||||||
|
Net
sales
|
$ | 132,020 | $ | - | $ | 132,020 | ||||||
|
Cost
of sales
|
117,323 | (29 | ) | 117,294 | ||||||||
|
Gross
profit
|
14,697 | 29 | 14,726 | |||||||||
|
Selling,
general and administrative expenses
|
1,680 | - | 1,680 | |||||||||
|
Income
from operations
|
13,017 | 29 | 13,046 | |||||||||
|
Other
income (expense), net
|
(1,096 | ) | - | (1,096 | ) | |||||||
|
Income
before income taxes
|
11,921 | 29 | 11,950 | |||||||||
|
Income
tax (provision) benefit
|
(1,980 | ) | 26 | (1,954 | ) | |||||||
|
Net
income
|
$ | 9,941 | $ | 55 | $ | 9,996 | ||||||
|
Superior's
share of net income
|
$ | 4,971 | $ | 28 | $ | 4,998 | ||||||
|
Summary
Statement of Operation - Suoftec
|
||||||||||||
|
Year
Ended December 31, 2005
|
As
reported
|
Adjustments
|
As
restated
|
|||||||||
|
(Thousands
of dollars)
|
||||||||||||
|
Net
sales
|
$ | 109,131 | $ | - | $ | 109,131 | ||||||
|
Cost
of sales
|
93,191 | 410 | 93,601 | |||||||||
|
Gross
profit
|
15,940 | (410 | ) | 15,530 | ||||||||
|
Selling,
general and administrative expenses
|
1,514 | - | 1,514 | |||||||||
|
Income
from operations
|
14,426 | (410 | ) | 14,016 | ||||||||
|
Other
income (expense), net
|
(1,242 | ) | - | (1,242 | ) | |||||||
|
Income
before income taxes
|
13,184 | (410 | ) | 12,774 | ||||||||
|
Income
tax (provision) benefit
|
(2,111 | ) | 76 | (2,035 | ) | |||||||
|
Net
income (loss)
|
$ | 11,073 | $ | (334 | ) | $ | 10,739 | |||||
|
Superior's
share of net income (loss)
|
$ | 5,537 | $ | (167 | ) | $ | 5,370 | |||||
The
following table details the effect of the corrections to our previously reported
Summary Balance Sheet for Suoftec as of December 31, 2006:
|
Summary
Balance Sheet - Suoftec
|
||||||||||||
|
as
of December 31, 2006
|
As
reported
|
Adjustments
|
As
restated
|
|||||||||
|
(Thousands
of dollars)
|
||||||||||||
|
Cash
and cash equivalents
|
$ | 24,688 | $ | - | $ | 24,688 | ||||||
|
Accounts
receivable, net
|
21,420 | - | 21,420 | |||||||||
|
Inventories,
net
|
13,904 | 328 | 14,232 | |||||||||
|
Total
current assets
|
60,012 | 328 | 60,340 | |||||||||
|
Property,
plant and equipment, net
|
37,878 | - | 37,878 | |||||||||
|
Other
assets
|
201 | 708 | 909 | |||||||||
|
Total
assets
|
98,091 | 1,036 | 99,127 | |||||||||
|
Current
liabilities
|
19,885 | 53 | 19,938 | |||||||||
|
Non-current
liabilities
|
42 | - | 42 | |||||||||
|
Total
liabilities
|
19,927 | 53 | 19,980 | |||||||||
|
Net
assets
|
$ | 78,164 | $ | 983 | $ | 79,147 | ||||||
|
Superior's
share of net assets
|
$ | 39,082 | $ | 492 | $ | 39,574 | ||||||
Restatement
of Financial Statements
The
“Adjustments” column in the following tables reflects the effect of the
corrections to our previously reported financial statements indicated
above.
SUPERIOR
INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED
STATEMENT OF OPERATIONS
(Thousands
of dollars, except per share amounts)
|
Fiscal
Year 2006
|
As
reported
|
Adjustments
|
As
restated
|
|||||||||
|
NET
SALES
|
$ | 789,862 | $ | - | $ | 789,862 | ||||||
|
Cost
of sales
|
781,122 | - | 781,122 | |||||||||
|
GROSS
PROFIT
|
8,740 | - | 8,740 | |||||||||
|
Selling,
general and administrative expenses
|
25,679 | - | 25,679 | |||||||||
|
Impairments
of long-lived assets
|
4,470 | - | 4,470 | |||||||||
|
INCOME
(LOSS) FROM OPERATIONS
|
(21,409 | ) | - | (21,409 | ) | |||||||
|
Interest
income, net
|
5,589 | - | 5,589 | |||||||||
|
Other
income (expense), net
|
(268 | ) | - | (268 | ) | |||||||
|
INCOME
(LOSS) FROM CONTINUING OPERATIONS
|
||||||||||||
|
BEFORE
INCOME TAXES AND EQUITY EARNINGS
|
(16,088 | ) | - | (16,088 | ) | |||||||
|
Income
tax (provision) benefit
|
1,534 | (1,249 | ) | 285 | ||||||||
|
Equity
in earnings of joint ventures
|
4,976 | 28 | 5,004 | |||||||||
|
NET
INCOME (LOSS) FROM CONTINUING OPERATIONS
|
(9,578 | ) | (1,221 | ) | (10,799 | ) | ||||||
|
Income
(loss) from discontinued operations, net of taxes
|
257 | - | 257 | |||||||||
|
NET
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
|
||||||||||||
|
OF
ACCOUNTING CHANGE
|
(9,321 | ) | (1,221 | ) | (10,542 | ) | ||||||
|
Cumulative
effect of accounting change, net of taxes
|
- | - | - | |||||||||
|
NET
INCOME (LOSS)
|
$ | (9,321 | ) | $ | (1,221 | ) | $ | (10,542 | ) | |||
|
EARNINGS
(LOSS) PER SHARE - BASIC:
|
||||||||||||
|
Net
income (loss) from continuing operations
|
$ | (0.36 | ) | $ | (0.05 | ) | $ | (0.41 | ) | |||
|
Income
(loss) from discontinued operations, net of taxes
|
0.01 | - | 0.01 | |||||||||
|
Cumulative
effect of accounting change, net of taxes
|
- | - | - | |||||||||
|
Net
income (loss)
|
$ | (0.35 | ) | $ | (0.05 | ) | $ | (0.40 | ) | |||
|
EARNINGS
(LOSS) PER SHARE - DILUTED:
|
||||||||||||
|
Net
income (loss) from continuing operations
|
$ | (0.36 | ) | $ | (0.05 | ) | $ | (0.41 | ) | |||
|
Income
(loss) from discontinued operations, net of taxes
|
0.01 | - | 0.01 | |||||||||
|
Cumulative
effect of accounting change, net of taxes
|
- | - | - | |||||||||
|
Net
income (loss)
|
$ | (0.35 | ) | $ | (0.05 | ) | $ | (0.40 | ) | |||
See notes
to consolidated financial statements.
SUPERIOR
INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED
STATEMENT OF OPERATIONS
(Thousands
of dollars, except per share amounts)
|
Fiscal
Year 2005
|
As
reported
|
Adjustments
|
As
restated
|
|||||||||
|
NET
SALES
|
$ | 804,161 | $ | - | $ | 804,161 | ||||||
|
Cost
of sales
|
755,337 | - | 755,337 | |||||||||
|
GROSS
PROFIT
|
48,824 | - | 48,824 | |||||||||
|
Selling,
general and administrative expenses
|
21,802 | - | 21,802 | |||||||||
|
Impairments
of long-lived assets
|
7,855 | - | 7,855 | |||||||||
|
INCOME
(LOSS) FROM OPERATIONS
|
19,167 | - | 19,167 | |||||||||
|
Interest
income, net
|
5,329 | - | 5,329 | |||||||||
|
Other
income (expense), net
|
(588 | ) | - | (588 | ) | |||||||
|
INCOME
(LOSS) FROM CONTINUING OPERATIONS
|
||||||||||||
|
BEFORE
INCOME TAXES AND EQUITY EARNINGS
|
23,908 | - | 23,908 | |||||||||
|
Income
tax (provision) benefit
|
(8,895 | ) | (677 | ) | (9,572 | ) | ||||||
|
Equity
in earnings of joint ventures
|
5,206 | (167 | ) | 5,039 | ||||||||
|
NET
INCOME (LOSS) FROM CONTINUING OPERATIONS
|
20,219 | (844 | ) | 19,375 | ||||||||
|
Income
(loss) from discontinued operations, net of taxes
|
(27,811 | ) | - | (27,811 | ) | |||||||
|
NET
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
|
||||||||||||
|
OF
ACCOUNTING CHANGE
|
(7,592 | ) | (844 | ) | (8,436 | ) | ||||||
|
Cumulative
effect of accounting change, net of taxes
|
1,225 | - | 1,225 | |||||||||
|
NET
INCOME (LOSS)
|
$ | (6,367 | ) | $ | (844 | ) | $ | (7,211 | ) | |||
|
EARNINGS
(LOSS) PER SHARE - BASIC:
|
||||||||||||
|
Net
income (loss) from continuing operations
|
$ | 0.76 | $ | (0.03 | ) | $ | 0.73 | |||||
|
Income
(loss) from discontinued operations, net of taxes
|
(1.05 | ) | - | (1.05 | ) | |||||||
|
Cumulative
effect of accounting change, net of taxes
|
0.05 | - | 0.05 | |||||||||
|
Net
income (loss)
|
$ | (0.24 | ) | $ | (0.03 | ) | $ | (0.27 | ) | |||
|
EARNINGS
(LOSS) PER SHARE - DILUTED:
|
||||||||||||
|
Net
income (loss) from continuing operations
|
$ | 0.76 | $ | (0.03 | ) | $ | 0.73 | |||||
|
Income
(loss) from discontinued operations, net of taxes
|
(1.05 | ) | - | (1.05 | ) | |||||||
|
Cumulative
effect of accounting change, net of taxes
|
0.05 | - | 0.05 | |||||||||
|
Net
income (loss)
|
$ | (0.24 | ) | $ | (0.03 | ) | $ | (0.27 | ) | |||
See notes
to consolidated financial statements.
SUPERIOR
INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED
BALANCE SHEET
(Thousands
of dollars, except per share amounts)
|
Fiscal
Year Ended December 31, 2006
|
As
reported
|
Adjustments
|
As
restated
|
|||||||||
|
ASSETS
|
||||||||||||
|
Current
assets:
|
||||||||||||
|
Cash
and cash equivalents
|
$ | 68,385 | $ | - | $ | 68,385 | ||||||
|
Short-term
investments
|
9,750 | - | 9,750 | |||||||||
|
Accounts
receivable, net
|
138,552 | - | 138,552 | |||||||||
|
Inventories,
net
|
118,724 | - | 118,724 | |||||||||
|
Income
taxes receivable
|
- | - | - | |||||||||
|
Deferred
income taxes
|
6,416 | - | 6,416 | |||||||||
|
Other
current assets
|
4,766 | - | 4,766 | |||||||||
|
Total
current assets
|
346,593 | - | 346,593 | |||||||||
|
Property,
plant and equipment, net
|
310,414 | - | 310,414 | |||||||||
|
Investments
|
46,247 | 492 | 46,739 | |||||||||
|
Non-current
deferred tax asset, net
|
- | - | - | |||||||||
|
Other
assets
|
8,759 | - | 8,759 | |||||||||
|
Total
assets
|
$ | 712,013 | $ | 492 | $ | 712,505 | ||||||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||||||
|
Current
liabilities:
|
||||||||||||
|
Accounts
payable
|
$ | 60,959 | $ | - | $ | 60,959 | ||||||
|
Accrued
expenses
|
41,898 | - | 41,898 | |||||||||
|
Income
taxes payable
|
10,253 | (1,027 | ) | 9,226 | ||||||||
|
Total
current liabilities
|
113,110 | (1,027 | ) | 112,083 | ||||||||
|
Non-current
tax liabilities (Note 8)
|
- | - | - | |||||||||
|
Executive
retirement liabilities
|
21,666 | - | 21,666 | |||||||||
|
Non-current
deferred tax liabilities, net
|
17,049 | (1,407 | ) | 15,642 | ||||||||
|
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 - 26,610,191 shares
|
13,305 | - | 13,305 | |||||||||
|
Additional
paid-in capital
|
35,094 | - | 35,094 | |||||||||
|
Accumulated
other comprehensive loss
|
(37,097 | ) | (32 | ) | (37,129 | ) | ||||||
|
Retained
earnings
|
548,886 | 2,958 | 551,844 | |||||||||
|
Total
shareholders' equity
|
560,188 | 2,926 | 563,114 | |||||||||
|
Total
liabilities and shareholders' equity
|
$ | 712,013 | $ | 492 | $ | 712,505 | ||||||
See notes
to consolidated financial statements.
SUPERIOR
INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED
STATEMENT OF CASH FLOW
(Thousands
of dollars, except per share amounts)
|
Fiscal
Year 2006
|
As
reported
|
Adjustments
|
As
restated
|
|||||||||
|
NET
INCOME (LOSS)
|
$ | (9,321 | ) | $ | (1,221 | ) | $ | (10,542 | ) | |||
|
Adjustment
to reconcile net income (loss) to net cash
|
||||||||||||
|
provided
by operating activities:
|
||||||||||||
|
Depreciation
and amortization
|
39,137 | - | 39,137 | |||||||||
|
Equity
in earnings of joint ventures, net of dividends received
|
3,751 | (28 | ) | 3,723 | ||||||||
|
Stock
based compensation
|
3,032 | - | 3,032 | |||||||||
|
Impairments
of long-lived assets
|
4,470 | - | 4,470 | |||||||||
|
Deferred
income taxes
|
3,009 | 2,276 | 5,285 | |||||||||
|
Other
non-cash items
|
4,936 | - | 4,936 | |||||||||
|
Gain
on sale of available for sale securities
|
- | - | - | |||||||||
|
Gain
on affordable housing partnership investment
|
- | - | - | |||||||||
|
Gain
on sale of discontinued operations
|
(1,077 | ) | - | (1,077 | ) | |||||||
|
Cumulative
effect of accounting change
|
- | - | - | |||||||||
|
Changes
in operating assets and liabilities:
|
- | |||||||||||
|
Accounts
receivable
|
(4,278 | ) | - | (4,278 | ) | |||||||
|
Inventories
|
(15,568 | ) | - | (15,568 | ) | |||||||
|
Other
assets
|
3,100 | - | 3,100 | |||||||||
|
Accounts
payable
|
10,915 | - | 10,915 | |||||||||
|
Income
taxes
|
(7,458 | ) | (1,027 | ) | (8,485 | ) | ||||||
|
Other
liabilities
|
1,482 | - | 1,482 | |||||||||
|
Non-current
tax liabilities
|
- | - | - | |||||||||
|
NET
CASH PROVIDED BY OPERATING ACTIVITIES
|
36,130 | - | 36,130 | |||||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Additions
to property, plant and equipment
|
(73,062 | ) | - | (73,062 | ) | |||||||
|
Proceeds
from a held-to maturity security
|
- | - | - | |||||||||
|
Proceeds
from sale of available-for-sale securities
|
- | - | - | |||||||||
|
Proceeds
from sale of fixed assets
|
- | - | - | |||||||||
|
Proceeds
from affordable housing partnership investment
|
- | - | - | |||||||||
|
Proceeds
from sale of discontinued operations
|
15,000 | - | 15,000 | |||||||||
|
NET
CASH USED IN INVESTING ACTIVITIES
|
(58,062 | ) | - | (58,062 | ) | |||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
Cash
dividends paid
|
(17,032 | ) | - | (17,032 | ) | |||||||
|
Stock
options exercised
|
- | - | - | |||||||||
|
Repurchases
of common stock
|
- | - | - | |||||||||
|
NET
CASH USED IN FINANCING ACTIVITIES
|
(17,032 | ) | - | (17,032 | ) | |||||||
|
Net
increase (decrease) in cash and cash equivalents
|
(38,964 | ) | - | (38,964 | ) | |||||||
|
Cash
and cash equivalents at the beginning of the period
|
107,349 | - | 107,349 | |||||||||
|
Cash
and cash equivalents at the end of the period
|
$ | 68,385 | $ | - | $ | 68,385 | ||||||
See notes
to consolidated financial statements.
SUPERIOR
INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED
STATEMENT OF CASH FLOW
(Thousands
of dollars, except per share amounts)
|
Fiscal
Year 2005
|
As
reported
|
Adjustments
|
As
restated
|
|||||||||
|
NET
INCOME (LOSS)
|
$ | (6,367 | ) | $ | (844 | ) | $ | (7,211 | ) | |||
|
Adjustment
to reconcile net income (loss) to net cash
|
||||||||||||
|
provided
by operating activities:
|
||||||||||||
|
Depreciation
and amortization
|
46,468 | - | 46,468 | |||||||||
|
Equity
in earnings of joint ventures, net of dividends received
|
(240 | ) | 167 | (73 | ) | |||||||
|
Stock
based compensation
|
817 | - | 817 | |||||||||
|
Impairments
of long-lived assets
|
41,895 | - | 41,895 | |||||||||
|
Deferred
income taxes
|
(23,094 | ) | 677 | (22,417 | ) | |||||||
|
Other
non-cash items
|
1,494 | - | 1,494 | |||||||||
|
Gain
on sale of available for sale securities
|
- | - | - | |||||||||
|
Gain
on affordable housing partnership investment
|
- | - | - | |||||||||
|
Gain
on sale of discontinued operations
|
- | - | - | |||||||||
|
Cumulative
effect of accounting change
|
(1,225 | ) | - | (1,225 | ) | |||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Accounts
receivable
|
13,647 | - | 13,647 | |||||||||
|
Inventories
|
(16,838 | ) | - | (16,838 | ) | |||||||
|
Other
assets
|
(604 | ) | - | (604 | ) | |||||||
|
Accounts
payable
|
10,916 | - | 10,916 | |||||||||
|
Income
taxes
|
17,528 | - | 17,528 | |||||||||
|
Other
liabilities
|
(7,896 | ) | - | (7,896 | ) | |||||||
|
Non-current
tax liabilities
|
- | - | - | |||||||||
|
NET
CASH PROVIDED BY OPERATING ACTIVITIES
|
76,501 | - | 76,501 | |||||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Additions
to property, plant and equipment
|
(100,800 | ) | - | (100,800 | ) | |||||||
|
Proceeds
from a held-to maturity security
|
29,025 | - | 29,025 | |||||||||
|
Proceeds
from sale of available-for-sale securities
|
- | - | - | |||||||||
|
Proceeds
from sale of fixed assets
|
- | - | - | |||||||||
|
Proceeds
from affordable housing partnership investment
|
- | - | - | |||||||||
|
Proceeds
from sale of discontinued operations
|
- | - | - | |||||||||
|
NET
CASH USED IN INVESTING ACTIVITIES
|
(71,775 | ) | - | (71,775 | ) | |||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
Cash
dividends paid
|
(16,772 | ) | - | (16,772 | ) | |||||||
|
Stock
options exercised
|
128 | - | 128 | |||||||||
|
Repurchases
of common stock
|
(377 | ) | - | (377 | ) | |||||||
|
NET
CASH USED IN FINANCING ACTIVITIES
|
(17,021 | ) | - | (17,021 | ) | |||||||
|
Net
increase (decrease) in cash and cash equivalents
|
(12,295 | ) | - | (12,295 | ) | |||||||
|
Cash
and cash equivalents at the beginning of the period
|
119,644 | - | 119,644 | |||||||||
|
Cash
and cash equivalents at the end of the period
|
$ | 107,349 | $ | - | $ | 107,349 | ||||||
See notes
to consolidated financial statements.
NOTE
3 – BUSINESS SEGMENTS
Our chief
operating decision-maker assesses operating performance, makes operating
decisions, and allocates resources at the plant level. As each of our plants
manufactures aluminum automotive road wheels and exhibit similar economic
characteristics, they have been aggregated into one reportable segment.
Consequently, we currently have only one reportable segment – automotive
wheels.
|
Net
sales and net property, plant and equipment by geographic area are
summarized below:
|
||||||||||||
|
Year
Ended December 31,
|
2007
|
2006
|
2005
|
|||||||||
|
(Thousands
of dollars)
|
||||||||||||
|
Net
sales:
|
||||||||||||
|
U.S.
|
$ | 568,489 | $ | 572,863 | $ | 634,987 | ||||||
|
Mexico
|
388,403 | 216,999 | 169,174 | |||||||||
|
Consolidated
net sales
|
$ | 956,892 | $ | 789,862 | $ | 804,161 | ||||||
|
December
31,
|
2007
|
2006
|
||||||||||
|
(Thousands
of dollars)
|
||||||||||||
|
Property,
plant and equipment, net:
|
||||||||||||
|
U.S.
|
$ | 116,599 | $ | 141,653 | ||||||||
|
Mexico
|
185,654 | 168,761 | ||||||||||
|
Consolidated
property, plant and equipment, net
|
$ | 302,253 | $ | 310,414 | ||||||||
NOTE
4 – ACCOUNTS RECEIVABLE
|
December
31,
|
2007
|
2006
|
||||||
|
(Thousands
of dollars)
|
||||||||
|
Trade
receivables
|
$ | 119,175 | $ | 121,707 | ||||
|
Wheel
program development receivables
|
5,102 | 8,199 | ||||||
|
Dividend
receivable from Suoftec
|
- | 5,266 | ||||||
|
Value-added
tax receivables
|
- | 1,414 | ||||||
|
Other
receivables
|
3,854 | 4,755 | ||||||
| 128,131 | 141,341 | |||||||
|
Allowance
for doubtful accounts
|
(2,427 | ) | (2,789 | ) | ||||
|
Accounts
receivable, net
|
$ | 125,704 | $ | 138,552 | ||||
The
following percentages of our consolidated net sales were made to GM, Ford and
Chrysler LLC: 2007 - 36 percent, 33 percent and 13 percent; 2006 - 37 percent,
34 percent and 15 percent; and 2005 - 37 percent, 33 percent and 15 percent,
respectively. These three customers represented 79 percent and 87
percent of trade receivables at December 31, 2007 and 2006,
respectively.
NOTE
5 – INVENTORIES
|
December
31,
|
2007
|
2006
|
||||||
|
(Thousands
of dollars)
|
||||||||
|
Raw
materials
|
$ | 16,482 | $ | 16,279 | ||||
|
Work-in-process
|
30,004 | 35,810 | ||||||
|
Finished
goods
|
60,684 | 66,635 | ||||||
|
Inventories,
net
|
$ | 107,170 | $ | 118,724 | ||||
NOTE
6 – PROPERTY, PLANT AND EQUIPMENT
|
December
31,
|
2007
|
2006
|
||||||
|
(Thousands
of dollars)
|
||||||||
|
Land
and buildings
|
$ | 94,610 | $ | 95,712 | ||||
|
Machinery
and equipment
|
519,869 | 498,243 | ||||||
|
Leasehold
improvements and others
|
14,055 | 13,829 | ||||||
|
Construction
in progress
|
29,739 | 55,455 | ||||||
| 658,273 | 663,239 | |||||||
|
Accumulated
depreciation
|
(356,020 | ) | (352,825 | ) | ||||
|
Property,
plant and equipment, net
|
$ | 302,253 | $ | 310,414 | ||||
The 2006
$4.5 million asset impairment charge related to our Johnson City, Tennessee
wheel manufacturing facility, as discussed in Note 16 – Impairment of Long-Lived
Assets and Other Charges, was recorded in the appropriate fixed asset cost
categories in the table above.
NOTE
7 - INVESTMENTS
|
December
31,
|
2007
|
2006
|
||||||
|
(Thousands
of dollars)
|
As
restated
|
|||||||
|
Investments
in and advances to 50% owned joint ventures:
|
||||||||
|
Suoftec
Light Metal Products, Ltd.
|
$ | 49,902 | $ | 39,574 | ||||
|
Topy-Superior
Limited
|
209 | 135 | ||||||
| 50,111 | 39,709 | |||||||
|
Corporate
equities
|
- | 4,894 | ||||||
|
Other
|
944 | 2,136 | ||||||
|
Investments
|
$ | 51,055 | $ | 46,739 | ||||
In 1995,
we entered into a joint venture with Otto Fuchs, to form Suoftec to manufacture
cast and forged aluminum wheels in Hungary for the European automobile industry.
During each of the three years in the period ended December 31, 2007, we
acquired cast and forged wheels from this joint venture, totaling $50.0 million
in 2007, $56.3 million in 2006 and $44.2 million in 2005. At December 31, 2007
and 2006, accounts payable included amounts owed to Suoftec for unpaid wheel
purchases totaling $10.3 million and $7.2 million, respectively.
In 2005,
we changed the method of recording our 50 percent share of Suoftec’s earnings
from recording on a one- month lag to recording the results of operations on a
current basis. As a result, net income for the year ended December
31, 2005 includes a cumulative effect of accounting change of $1.2 million,
representing the company’s share of Suoftec’s net income for month of December
2004.
During
the fourth quarter of 2007, the Company identified errors relating to our equity
method accounting for our investee, Suoftec, and our summary financial
information presented for Suoftec, which we had previously considered to be
immaterial to any individual reporting period. The errors relate to
the quantification and recording of the adjustments to report the Suoftec
earnings on the basis of U.S. GAAP versus on the Hungarian accounting rules
followed by Suoftec. These differences principally relate to overhead
cost capitalization into inventory and deferred income taxes on property, plant
and equipment.
Included
below are summary statements of operations and balance sheets for Suoftec, which
is 50 percent-owned, non-controlled, and, therefore, not consolidated but
accounted for using the equity method.
|
Year
Ended December 31,
|
||||||||||||
|
Summary
Statements of Operations
|
2007
|
2006
|
2005
|
|||||||||
|
(Thousands
of dollars)
|
As
restated
|
As
restated
|
||||||||||
|
Net
sales
|
$ | 145,707 | $ | 132,020 | $ | 109,131 | ||||||
|
Cost
of sales
|
130,769 | 117,294 | 93,601 | |||||||||
|
Gross
profit
|
14,938 | 14,726 | 15,530 | |||||||||
|
Selling,
general and administrative expenses
|
2,011 | 1,680 | 1,514 | |||||||||
|
Income
from operations
|
12,927 | 13,046 | 14,016 | |||||||||
|
Other
income (expense), net
|
812 | (1,096 | ) | (1,242 | ) | |||||||
|
Income
before income taxes
|
13,739 | 11,950 | 12,774 | |||||||||
|
Income
tax provision
|
(2,569 | ) | (1,954 | ) | (2,035 | ) | ||||||
|
Net
income
|
$ | 11,170 | $ | 9,996 | $ | 10,739 | ||||||
|
Superior's
share of net income
|
$ | 5,585 | $ | 4,998 | $ | 5,370 | ||||||
|
Summary
Balance Sheets as of December 31,
|
2007
|
2006
|
||||||
|
(Thousands
of dollars)
|
As
restated
|
|||||||
|
Cash
and cash equivalents
|
$ | 29,485 | $ | 24,688 | ||||
|
Accounts
receivable, net
|
23,331 | 21,420 | ||||||
|
Inventories,
net
|
16,641 | 14,232 | ||||||
|
Total
current assets
|
69,457 | 60,340 | ||||||
|
Property,
plant and equipment, net
|
43,384 | 37,878 | ||||||
|
Other
assets
|
1,369 | 909 | ||||||
|
Total
assets
|
114,210 | 99,127 | ||||||
|
Current
liabilities
|
14,188 | 19,938 | ||||||
|
Non-current
liabilities
|
218 | 42 | ||||||
|
Total
liabilities
|
14,406 | 19,980 | ||||||
|
Net
assets
|
$ | 99,804 | $ | 79,147 | ||||
|
Superior's
share of net assets
|
$ | 49,902 | $ | 39,574 | ||||
Other
Investments
In the
first quarter of 2007, the short-term corporate debt security, which was
classified as held-to-maturity as of December 31, 2006, matured and was redeemed
for $9.8 million. In addition, long-term corporate equity securities,
which were classified as available-for-sale at the end of 2006, were sold for
$5.1 million and gains totaling $2.9 million
were recognized in other income (expense), net. As of December
31, 2007, we held no marketable debt or equity securities that were not
classified as cash equivalents.
NOTE
8 – INCOME TAXES
|
Year
Ended December 31,
|
2007
|
2006
|
2005
|
|||||||||
|
(Thousands
of dollars)
|
As
restated
|
As
restated
|
||||||||||
|
Income
(loss) from continuing operations before income
|
||||||||||||
|
taxes,
equity earnings and effect of accounting change:
|
||||||||||||
|
Domestic
|
$ | (13,168 | ) | $ | (21,275 | ) | $ | 10,740 | ||||
|
International
|
23,368 | 5,187 | 13,168 | |||||||||
| 10,200 | (16,088 | ) | 23,908 | |||||||||
|
Income
(loss) from discontinued operations before
|
||||||||||||
|
income
taxes
|
$ | - | $ | 430 | $ | (46,663 | ) | |||||
The
(provision) benefit for income taxes is comprised of the following:
|
Year
Ended December 31,
|
2007
|
2006
|
2005
|
|||||||||
|
(Thousands
of dollars)
|
As
restated
|
As
restated
|
||||||||||
|
Continuing
operations
|
||||||||||||
|
Current
Taxes
|
||||||||||||
|
Federal
|
$ | (41 | ) | $ | 2,356 | $ | (10,949 | ) | ||||
|
State
|
1,040 | (1,029 | ) | (3,005 | ) | |||||||
|
Foreign
|
(1,372 | ) | (3,925 | ) | (4,648 | ) | ||||||
|
Total
Current
|
(373 | ) | (2,598 | ) | (18,602 | ) | ||||||
|
Deferred
Taxes
|
||||||||||||
|
Federal
|
2,714 | 4,321 | 5,257 | |||||||||
|
State
|
(605 | ) | 174 | 660 | ||||||||
|
Foreign
|
(7,999 | ) | (1,612 | ) | 3,113 | |||||||
|
Total
Deferred Taxes
|
(5,890 | ) | 2,883 | 9,030 | ||||||||
|
(Provision)
benefit for income taxes from:
|
||||||||||||
|
Continuing
operations
|
$ | (6,263 | ) | $ | 285 | $ | (9,572 | ) | ||||
|
Discontinued
operations
|
$ | - | $ | (173 | ) | $ | 18,852 | |||||
The
following is a reconciliation of the statutory United States federal tax rate to
our effective income tax rate:
|
Year
Ended December 31,
|
2007
|
2006
|
2005
|
|||||||||
|
As
restated
|
As
restated
|
|||||||||||
|
Statutory
rate - (provision) benefit
|
(35.0 | ) % | 35.0 | % | (35.0 | ) % | ||||||
|
State
tax (provisions), net of federal income tax benefit
|
(0.6 | ) | (1.9 | ) | (6.6 | ) | ||||||
|
Permanent
differences
|
(20.9 | ) | (25.7 | ) | (2.6 | ) | ||||||
|
Tax
credits
|
0.7 | 0.8 | 3.2 | |||||||||
|
Foreign
income taxed at rates of than the statutory rate
|
19.6 | 3.2 | 2.8 | |||||||||
|
Valuation
allowance
|
(6.5 | ) | (4.4 | ) | (3.0 | ) | ||||||
|
Changes
in tax liabilities, net
|
(18.3 | ) | (3.7 | ) | (1.1 | ) | ||||||
|
Other
|
(0.4 | ) | (1.5 | ) | 2.3 | |||||||
|
Effective
income tax rate for continuing operations
|
(61.4 | ) % | 1.8 | % | (40.0 | ) % | ||||||
The state
tax provisions, net of federal income tax benefit, varies year to year primarily
because we file state income tax returns on a non-consolidated basis for several
of our subsidiaries. The permanent differences in 2007 increased
primarily due to significant permanent differences in our foreign
operations. Foreign income taxed at rates other than statutory rates
increased as a result of foreign income representing a greater percentage of our
total income. An increase in foreign income at a percentage greater
than total income growth will result in significant impact on our effective
rate. The change in liabilities relates to increases in our
unrecognized tax benefits, primarily increases in interest, and penalty
expenses.
Tax
effects of temporary differences that gave rise to significant portions of the
deferred tax assets and deferred liabilities at December 31, 2007 and
2006:
|
December
31,
|
2007
|
2006
|
||||||
|
(Thousands
of dollars)
|
As
restated
|
|||||||
|
Deferred
Tax Assets
|
||||||||
|
Other
comprehensive income and loss adjustments
|
$ | 6,665 | $ | 658 | ||||
|
Liabilities
deductible in the future
|
6,016 | 7,435 | ||||||
|
Deferred
compensation
|
11,777 | 9,786 | ||||||
|
Net
loss carryforward
|
3,390 | - | ||||||
|
Tax
credit carryforward
|
11,436 | - | ||||||
|
Differences
with financial and tax accounting related to foreign
operations
|
28,377 | - | ||||||
|
Other
|
311 | 1,221 | ||||||
| 67,972 | 19,100 | |||||||
|
Valuation
allowance
|
(12,083 | ) | (1,418 | ) | ||||
|
Net
deferred tax assets
|
55,889 | 17,682 | ||||||
|
Deferred
Tax Liabilities
|
||||||||
|
Differences
between the book and tax basis of property, plant
|
||||||||
|
and
equipment
|
(12,586 | ) | (16,733 | ) | ||||
|
Differences
between financial and tax accounting associated
|
||||||||
|
with
foreign operations
|
(23,627 | ) | (12,100 | ) | ||||
|
Other
|
(434 | ) | 1,925 | |||||
|
Deferred
tax liabilities
|
(36,647 | ) | (26,908 | ) | ||||
|
Net
Deferred Tax Asset (Liability)
|
$ | 19,242 | $ | (9,226 | ) | |||
As of
December 31, 2007, we had approximately $19.2 million in U.S. net deferred tax
asset. Realization of the deferred tax assets of $68.0 million is dependent on
the company generating sufficient taxable income in the future. We established a
valuation allowance for deferred tax assets of $12.0 million at December 31,
2007, based on management’s assessment of the company’s ability to utilize these
deferred tax assets. The amount of deferred tax assets considered realizable,
however, could be increased in the future if estimates of future taxable income
are increased. We have federal tax credit carry forwards of $10.5 million for
2007 that begin to expire in 2014. We have federal and state net
operating loss carryforwards for 2007 of $0.1 million and $9.4 million
respectively that begin to expire 2011. We have state tax credit
carryforwards for 2007 and 2006 of $0.9 million and $1.4 million,
respectively. The state tax credit carryforwards begin to expire in
2008. The valuation allowance for 2007 and 2006 is $12.0 million and
$1.4 million, respectively. We establish a valuation allowance for
certain state deferred tax assets based on our assessment of our ability to
utilize these deferred tax assets.
We have
not provided for deferred income taxes or foreign withholding tax on basis
differences in our non-U.S. subsidiaries of $116.6 million that result primarily
from undistributed earnings the company intends to reinvest
indefinitely. Determination of the deferred income tax liability on
these basis differences is not reasonably estimable because such liability, if
any, is dependent on circumstances existing if and when remittance
occurs.
The
Company adopted the provisions of FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes”, on January 1, 2007. As a result of the
implementation of Interpretation 48, the Company established approximately a $37
million as a liability for unrecognized tax benefits. A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows:
|
Summary
of Unrecognized Tax Benefits
|
Amount
|
|||
|
(Thousands
of dollars)
|
||||
|
Balance
at January 1, 2007
|
$ | 36,521 | ||
|
Increases
(decreases) as a result of positions taken
during:
|
||||
|
Prior
period
|
- | |||
|
Current
period
|
- | |||
|
Settlements
with taxing authorities
|
- | |||
|
Expiration
of applicable statue of limitations
|
(1,659 | ) | ||
|
Other
|
(58 | ) | ||
|
Balance
at December 31, 2007
(1)
|
$ | 34,804 | ||
|
(1)
Excludes $27.4 million of potential interest and penalties associated with
uncertain tax positions.
|
||||
At
December 31, 2007, we had unrecognized tax benefits in the amount of $62.2
million. We also accrued potential penalties and interest of $0.6
million and $4.2 million, respectively, related to unrecognized tax benefits
during 2007, and in total, as of December 31, 2007, we have recorded a liability
for potential penalties and interest of $13.7 million and $13.7 million,
respectively.
Included
in the unrecognized tax benefits of $62.2 million at December 31, 2007, was
$29.1 million of tax benefit that, if recognized, would reduce our annual
effective tax rate.
Within
the next twelve-month period ending December 31, 2008, it is reasonably possible
that up to $3.6 million of unrecognized tax benefits will be recognized due to
the expiration of certain statues of limitation.
The
company's policy regarding interest and penalties related to unrecognized tax
benefits is to record interest and penalties as an element of the tax
expense. The cumulative amounts related to interest and penalties
are added to the total FIN 48 tax liability in the balance
sheet. Accordingly, the total amount on the balance sheet includes the
unrecognized tax benefit, cumulative interest accrued on the liability, and
penalties accrued on the liability.
We
conduct business internationally and, as a result, one or more of our
subsidiaries files income tax returns in U.S. federal, U.S. state and certain
foreign jurisdictions. Accordingly, in the normal course of business,
we are subject to examination by taxing authorities throughout the world,
including Hungary, Mexico, the Netherlands, Japan and the United States. We are
no longer subject to U.S. federal, state and local, or Mexico (our major filing
jurisdictions) income tax examinations for years before 2002.
Superior
Industries International, Inc. and subsidiaries are under audit for 2004, 2005
and 2006 tax years by the Internal Revenue Service (IRS). In 2007 we
received notice that Mexico’s Tax Administration Service (Servicio de
Administracion Tributaria) was reviewing the work papers prepared by our tax
preparers in relation to Superior Industries de Mexico S.A. de C.V. for the 2003
tax year. It is not reasonably possible to quantify at this time any
estimated reductions in the recognized or unrecognized tax
benefits.
Total
income tax payments made were $4.9 million in 2007, $6.9 million in 2006 and
$2.5 million in 2005.
NOTE
9 - LEASES AND RELATED PARTIES
We lease
certain land, facilities and equipment under long-term operating leases expiring
at various dates through 2012. Total lease expense for all operating
leases amounted to $3.8 million in 2007, $3.0 million in 2006 and $3.2 million
in 2005.
Our
corporate office and manufacturing facility in Van Nuys, California, are leased
from the Louis L. Borick Trust and the Juanita A. Borick Management Trust (the
Trusts). The Trusts are controlled by Mr. L. Borick, Founding
Chairman and a Director of the company, and Juanita A. Borick, Mr. L. Borick’s former
spouse, respectively. The current operating lease expires in June 2012. An
option to extend the lease for ten years was exercised as of July 2002.
There is one additional ten-year lease extension option remaining. The current
annual lease payment is $2.1 million. The facilities portion of the
lease agreement requires rental increases every five years based upon the change
in a specific Consumer Price Index. The last such adjustment was as
of July 1, 2006. A lease arrangement for another facility that had
been leased for $0.3 million annually from a related entity owned by Steven J.
Borick, Chairman, CEO and President, and two other children of Mr. L. Borick’s
was terminated in the first half of 2007. Total lease payments to
these related entities were $1.7 million in 2007, $1.8 million for 2006 and $1.6
million for 2005. During 2007, a $1.0 million payment was made to the
Trusts as settlement for a retroactive rental rate adjustment on the ground
lease portion of the agreement for our Van Nuys, California, property for the
five year period ended June 30, 2007.
The
following are summarized future minimum payments under all leases:
|
Year
Ended December 31,
|
Operating
Leases
|
|||
|
(Dollars
in thousands)
|
||||
|
2008
|
$
|
2,948
|
||
|
2009
|
2,754
|
|||
|
2010
|
2,477
|
|||
|
2011
|
2,172
|
|||
|
2012
|
1,047
|
|||
|
Thereafter
|
-
|
|||
|
$
|
11,398
|
|||
NOTE
10 – RETIREMENT PLANS
Beginning
December 31, 2006, we recognized a net liability or asset to report the funded
status of their defined benefit pension and other postretirement benefit plans
on their balance sheets.
We have
an unfunded supplemental executive retirement plan covering our directors,
officers and other key members of management. We purchase life
insurance policies on the participants to provide for future
liabilities. Cash surrender value of these policies, totaling $4.3
million at December 31, 2007 and $4.4 million as of December 31, 2006, are
included in Other Assets as general assets of the company. Subject to
certain vesting requirements, the plan provides for a benefit based on final
average compensation, which becomes payable on the employee's death or upon
attaining age 65, if retired. We have measured the plan assets and
obligations of our supplemental executive retirement plan as of our fiscal year
end for all periods presented.
|
Year
Ended December 31,
|
2007
|
2006
|
||||||
|
(Thousands
of dollars)
|
||||||||
|
Change
in benefit obligation
|
||||||||
|
Beginning
benefit obligation
|
$ | 19,972 | $ | 19,084 | ||||
|
Service
cost
|
567 | 916 | ||||||
|
Interest
cost
|
1,121 | 1,032 | ||||||
|
Actuarial
(gain) loss
|
(28 | ) | (1,101 | ) | ||||
|
Contractual
termination benefits
|
- | 572 | ||||||
|
Benefit
payments
|
(837 | ) | (531 | ) | ||||
|
Ending
benefit obligation
|
$ | 20,795 | $ | 19,972 | ||||
|
Year
Ended December 31,
|
2007
|
2006
|
||||||
|
(Thousands
of dollars)
|
||||||||
|
Change
in plan assets
|
||||||||
|
Fair
value of plan assets at beginning of year
|
$ | - | $ | - | ||||
|
Employer
contribution
|
837 | 531 | ||||||
|
Benefit
payments
|
(837 | ) | (531 | ) | ||||
|
Fair
value of plan assets at end of year
|
$ | - | $ | - | ||||
|
Funded
Status
|
$ | (20,795 | ) | $ | (19,972 | ) | ||
|
Amounts
recognized in the Consolidated Balance Sheet consist of:
|
||||||||
|
Current
liabilities
|
$ | (1,333 | ) | $ | (925 | ) | ||
|
Non-current
liabilities
|
(19,462 | ) | (19,047 | ) | ||||
|
Net
amount recognized
|
$ | (20,795 | ) | $ | (19,972 | ) | ||
|
Amounts
recognized in Accumulated Other Comprehensive Loss consist
of:
|
||||||||
|
Net
actuarial loss
|
$ | 4,257 | $ | 4,477 | ||||
|
Prior
service cost
|
- | - | ||||||
|
Net
amount recognized, before tax effect
|
$ | 4,257 | $ | 4,477 | ||||
|
Weighted
average assumptions used to determine benefit obligations:
|
||||||||
|
Discount
rate
|
5.75 | % | 5.75 | % | ||||
|
Rate
of compensation increase
|
3.50 | % | 3.50 | % | ||||
Components
of net periodic pension cost are:
|
Year
Ended December 31,
|
2007
|
2006
|
2005
|
|||||||||
|
(Thousands
of dollars)
|
||||||||||||
|
Components
of net periodic pension cost
|
||||||||||||
|
Service
cost
|
$ | 567 | $ | 916 | $ | 731 | ||||||
|
Interest
cost
|
1,121 | 1,032 | 904 | |||||||||
|
Contractual
termination benefits
|
- | 572 | - | |||||||||
|
Amortization
of actuarial loss
|
192 | 334 | 158 | |||||||||
|
Net
periodic pension cost
|
$ | 1,880 | $ | 2,854 | $ | 1,793 | ||||||
|
Weighted
average assumptions used to determine net periodic pension
cost
|
||||||||||||
|
Discount
rate
|
5.75 | % | 5.50 | % | 6.00 | % | ||||||
|
Rate
of compensation increase
|
3.50 | % | 3.50 | % | 3.50 | % | ||||||
|
The
benefit payments, which reflect applicable future service, are expected to
be paid in the following years:
|
||||
|
Year
Ended December 31,
|
Amount
|
|||
|
(Thousands
of dollars)
|
||||
|
2008
|
$ | 1,060 | ||
|
2009
|
1,137 | |||
|
2010
|
1,191 | |||
|
2011
|
1,280 | |||
|
2012
|
1,404 | |||
|
Years
2013 - 2017
|
7,353 | |||
|
The
following is an estimate of the components of net periodic pension cost in
2008:
|
||||
|
Estimated
Year Ended December 31,
|
2008
|
|||
|
(Thousands
of dollars)
|
||||
|
Service
cost
|
$ | 472 | ||
|
Interest
cost
|
1,156 | |||
|
Amortization
of actuarial loss
|
167 | |||
|
Estimated
2008 net periodic pension cost
|
$ | 1,795 | ||
We also
have a contributory employee retirement savings plan covering substantially all
of our employees. The employer contribution was determined at the
discretion of the company and totaled $2.9 million, $3.1 million and $3.6
million for 2007, 2006 and 2005, respectively.
Pursuant
to the deferred compensation provision of his 1994 Employment Agreement
(Agreement), Mr. Louis L. Borick, Founding Chairman and a Director, is being
paid an annual amount of $1.0 million in 26 equal payments per year. The
Agreement calls for such payments to be made at this level in 2008 and 2009,
followed by similar payments at one-half of such amount for up to 10 years, or
until his death. As of December 31, 2007, the actuarial present value of the
remaining payments under the Agreement, totaling $3.0 million, has been accrued
for and is included in accrued expenses and executive retirement
liabilities.
NOTE
11 – ACCRUED EXPENSES
|
December
31,
|
2007
|
2006
|
||||||
|
(Thousands
of dollars)
|
||||||||
|
Payroll
and related benefits
|
$ | 14,390 | $ | 16,208 | ||||
|
Insurance
|
8,880 | 10,555 | ||||||
|
Dividends
|
4,261 | 4,258 | ||||||
|
Taxes,
other than income taxes
|
8,144 | 4,397 | ||||||
|
Other
|
8,318 | 6,480 | ||||||
|
Accrued
expenses
|
$ | 43,993 | $ | 41,898 | ||||
NOTE
12 - COMMITMENTS AND CONTINGENT LIABILITIES
In late
2006, two purported shareholder derivative complaints were filed, one each by
plaintiffs Gary B. Eldred and Darrell D. Mack, based on allegations concerning
some of the company’s past stock option grants and practices. These
cases were subsequently consolidated as In re Superior Industries
International, Inc. Derivative Litigation, which is pending in the United
States District Court for the Central District of California. In the
plaintiffs’ consolidated complaint, filed on March 23, 2007, the company was
named only as a nominal defendant from whom the plaintiffs sought no monetary
recovery. In addition to naming the company as a nominal defendant,
the plaintiffs
named various present and former employees, officers and directors of the
company as individual defendants from whom they sought monetary and/or equitable
relief, purportedly for the benefit of the company.
Plaintiffs
purported to base their claims against the individual defendants on allegations
that the grant dates for some of the options granted to certain company
directors, officers and employees occurred prior to upward movements in the
stock price, and that the stock option grants were not properly accounted for in
the company’s financial reports and not properly disclosed in the company’s SEC
filings. The company and the individual defendants filed motions to
dismiss plaintiffs’ consolidated complaint on May 14, 2007. In an
order dated August 9, 2007, the court granted Superior's motion to dismiss the
consolidated complaint, and granted the plaintiffs leave to file an amended
complaint.
On August
29, 2007, the plaintiffs filed an amended consolidated complaint that is
substantially similar to the prior consolidated complaint. In
response, the company and the individual defendants filed motions to dismiss on
September 21, 2007. These renewed motions to dismiss were originally
scheduled to be heard on November 12, 2007. However, the hearing on
the motions was taken off calendar to accommodate the reassignment of the case
to a new judge. As of March 24, 2008, the court has yet to reset on
the calendar of the new judge the motions to dismiss. Discovery is
stayed in the case pending resolution of motions to dismiss. As this
litigation remains at a preliminary stage, it would be premature to anticipate
the probable outcome of this case 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 among other claims, certain
employees at our Van Nuys, California, facility were denied rest and meal
periods as required under the California Labor Code. After conducting
initial discovery, the parties participated in mediation that concluded on
August 22, 2007. The mediator proposed that the parties settle the
lawsuit for a total settlement payment not to exceed $2,700,000. This
settlement amount is all-inclusive and includes the company’s settlement payment
to the lead plaintiff and the settlement class, together with costs and
attorneys’ fees for plaintiff’s counsel. In addition, the mediator
proposed that the settlement payment to the class would be on a “claims made”
basis, with a minimum of 40 percent of the net settlement being distributed to
the settlement class. Provided the minimum settlement claims are paid
to the settlement class, the company will not be liable for any claim that is
not valid or timely filed.
Subject
to certain conditions, both parties agreed to the mediator’s proposal and
executed a Settlement Term Sheet on August 22, 2007. The parties
submitted the proposed settlement for preliminary approval with the Superior
Court of Los Angeles County, which granted preliminary approval on December 19,
2007. On March 17, 2008, the court granted final approval of
the proposed settlement, thereby giving the settlement class until May 16, 2008
to appeal the court’s order. Management estimates that its expected
liability is $2.2 million and has accordingly recorded a charge to selling,
general and administrative expenses during the year ended December 31,
2007.
We are
party to various other 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.
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. The value of the Mexican peso in relation to the U.S. dollar in 2007
remained relatively unchanged. The euro experienced an 11 percent
increase versus the U.S. dollar in 2007. 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, 2007 of $34.1 million. Since our initial investment in our joint venture in
Hungary in 1995, the fluctuations in functional currencies have
resulted in a cumulative unrealized translation gain at December 31, 2007 of
$8.2 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-currency-denominated
receivables, payables or purchase obligations. At December 31, 2007 and 2006, we
held no foreign currency euro forward contracts.
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 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, 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 $11 million, at December 31, 2007. As of December 31,
2006, the aggregate contract value and fair value of these commitments were $15
million and $12 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.
At December 31, 2007 and 2006, we had
outstanding letters of credit of approximately $7.5 million and $6.8 million,
respectively.
NOTE
13 – STOCK-BASED COMPENSATION
We have
one unexpired stock option plan that authorizes us to issue incentive and
non-qualified stock options to our directors, officers and key employees
totaling up to 3.0 million shares of common stock. Our policy is to
issue shares from authorized but not issued shares upon the exercise of stock
options. At December 31, 2007, there were 0.7 million shares
available for future grants under this plan. Options are generally granted at
not less than fair market value on the date of grant and expire no later than
ten years after the date of grant. Options granted generally vest ratably over a
four-year service period.
Effective
January 1, 2006, we adopted the fair value recognition provisions of SFAS No.
123R, using the modified prospective transition method and, therefore, have not
restated prior periods' results. Under this transition method, stock-based
compensation expense for the years ended subsequent to December 31, 2005
included compensation expense for all stock-based compensation awards granted
prior to, but not yet vested as of, January 1, 2006, based on the grant date
fair value estimated in accordance with the provisions of SFAS No.
123. For options granted subsequent to January 1, 2006, stock-based
compensation expense was calculated in accordance with the provisions of SFAS
No. 123R. We recognize these compensation costs net of the applicable forfeiture
rate and recognize the compensation costs for only those shares expected to vest
on a straight-line basis over the requisite service period of the award, which
is generally the option vesting term of four years. We estimated the forfeiture
rate based on our historical experience. The aggregate intrinsic
value of options exercised during the year was approximately $62,000 and the
aggregate intrinsic value of shares vested during the year was approximately
$151,000.
We have
elected to adopt the alternative transition method 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.
|
Weighted
|
||||||||||||||||
|
Average
|
Remaining
|
Aggregate
|
||||||||||||||
|
Exercise
|
Contractual
|
Intrinsic
|
||||||||||||||
|
Outstanding
|
Price
|
Life
in Years
|
Value
|
|||||||||||||
|
Balance
at December 31, 2006
|
3,147,792 | $ | 26.36 | |||||||||||||
|
Granted
|
473,000 | 19.53 | ||||||||||||||
|
Exercised
|
(23,249 | ) | 18.48 | |||||||||||||
|
Cancelled
|
(399,432 | ) | 26.98 | |||||||||||||
|
Balance
at December 31, 2007
|
3,198,111 | $ | 26.53 | 6.37 | $ | 437,483 | ||||||||||
|
Options
vested or expected to vest
|
3,109,283 | $ | 26.74 | 6.55 | $ | 413,452 | ||||||||||
|
Exercisable
at December 31, 2007
|
2,097,388 | $ | 30.32 | 4.98 | $ | 140,816 | ||||||||||
Options
outstanding at December 31, 2007:
|
Weighted
|
Weighted
|
Weighted
|
||||||||||||||||||||||||
|
Options
|
Average
|
Average
|
Options
|
Average
|
||||||||||||||||||||||
|
Range
of
|
Outstanding
|
Remaining
|
Exercise
|
Exercisable
|
Exercise
|
|||||||||||||||||||||
|
Exercise
Prices
|
at
12/31/07
|
Contractual
Life
|
Price
|
at
12/31/07
|
Price
|
|||||||||||||||||||||
|
(in
years)
|
||||||||||||||||||||||||||
| $ | 17.29 | - | $ | 21.61 | 1,086,525 | 8.84 | $ | 17.96 | 256,120 | $ | 17.85 | |||||||||||||||
| $ | 21.61 | - | $ | 25.93 | 1,059,750 | 5.60 | 24.39 | 822,249 | 25.12 | |||||||||||||||||
| $ | 25.93 | - | $ | 30.25 | 126,791 | 2.67 | 28.23 | 126,791 | 28.23 | |||||||||||||||||
| $ | 30.25 | - | $ | 34.58 | 201,374 | 5.08 | 33.46 | 168,557 | 33.34 | |||||||||||||||||
| $ | 34.58 | - | $ | 38.90 | 321,502 | 3.79 | 36.80 | 321,502 | 36.80 | |||||||||||||||||
| $ | 38.90 | - | $ | 43.22 | 402,169 | 5.60 | 43.08 | 402,169 | 43.08 | |||||||||||||||||
| 3,198,111 | 6.37 | $ | 26.53 | 2,097,388 | $ | 30.32 | ||||||||||||||||||||
The
aggregate intrinsic value represents the total pretax difference between the
closing stock price on the last trading day of the reporting period and the
option exercise price, multiplied by the number of in-the-money
options. This is the amount that would have been received by the
option holders had they exercised and sold their options on that day. This
amount varies based on changes in the fair market value of our common stock. The
closing price of our common stock on the last day of the year was
$18.26.
The 2007
stock-based compensation expense related to stock option plans under SFAS No.
123R was allocated as follows:
|
Year
Ended December 31,
|
2007
|
2006
|
||||||
|
(Thousands
of dollars)
|
||||||||
|
Cost
of sales
|
$ | 487 | $ | 622 | ||||
|
Selling,
general and administrative expenses
|
2,586 | 2,410 | ||||||
|
Stock-based
compensation expense before income taxes
|
3,073 | 3,032 | ||||||
|
Income
tax benefit
|
(1,038 | ) | (289 | ) | ||||
|
Total
stock-based compensation expense after income taxes
|
$ | 2,035 | $ | 2,743 | ||||
|
Loss
per share:
|
||||||||
|
Basic
|
$ | 0.08 | $ | 0.10 | ||||
|
Diluted
|
$ | 0.08 | $ | 0.10 | ||||
As of
December 31, 2007, there was $4.5 million of unrecognized stock-based
compensation expense related to unvested stock options. That cost is expected to
be recognized over a weighted-average period of 3.01 years.
Prior to
the adoption of SFAS No. 123R, we presented the tax benefit of stock option
exercises as operating cash flows in the consolidated statement of cash flows.
Upon the adoption of SFAS No. 123R, tax benefits resulting from tax deductions
in excess of the compensation cost recognized for those options are classified
as financing cash flows in that statement. We received cash proceeds
of $430,000 from stock options exercised in 2007 and $128,000 from stock options
exercised in 2005. There were no stock options exercised in 2006.
The fair
value of each option grant was estimated as of the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
|
Year
Ended December 31,
|
2007
|
2006
|
2005
|
|||||||||
|
Expected
dividend yield (a)
|
3.3 | % | 3.5 | % | 2.8 | % | ||||||
|
Expected
stock price volatility (b)
|
30.1 | % | 31.2 | % | 31.5 | % | ||||||
|
Risk-free
interest rate (c)
|
4.0 | % | 4.9 | % | 4.2 | % | ||||||
|
Expected
option lives in years (d)
|
7.30 | 7.48 | 7.79 | |||||||||
|
Weighted
average grant date fair value of
|
||||||||||||
|
options
granted during the period
|
$ | 5.14 | $ | 4.99 | $ | 8.06 | ||||||
|
(a)
|
This
assumes that cash dividends of $0.16 per share are paid each quarter on
our common stock.
|
|
(b)
|
Expected
volatility is based on the historical volatility of our stock price, over
the expected life of the option.
|
|
(c)
|
The
risk-free rate is based upon the rate on a U.S. Treasury note for the
period representing the average remaining contractual life of all options
in effect at the time of the grant.
|
|
(d)
|
The
expected term of the option is based on historical employee exercise
behavior, the vesting terms of the respective option and a contractual
life of ten years.
|
NOTE
14 - COMMON STOCK REPURCHASE PROGRAMS
Since
1995, our Board of Directors has authorized several common stock repurchase
programs totaling 8.0 million shares, under which we have repurchased
approximately 4.8 million shares for approximately $131 million, or $27.16 per
share. Under the latest authorization to repurchase up to 4.0 million shares,
approved in March 2000, we repurchased 16,000 shares in 2005 at a total cost of
$0.4 million or $23.56 per share. In 2006 and 2007 there were
no stock
repurchases. All repurchased shares are immediately cancelled and retired. As of
December 31, 2007, an additional 3.2 million shares can be repurchased under the
current authorization.
NOTE
15 - OTHER COMPREHENSIVE INCOME (LOSS)
Components
of other comprehensive income (loss) as reflected in the consolidated statements
of shareholders’ equity as follows:
|
Year
Ended December 31,
|
2007
|
2006
|
2005
|
|||||||||
|
(Thousands
of dollars)
|
As
restated
|
As
restated
|
||||||||||
|
Foreign
currency translation adjustments
|
$ | 10,112 | $ | 4,205 | $ | 531 | ||||||
|
Net
actuarial gain (loss) on pension obligation (Note 10)
|
221 | 1,147 | (1,587 | ) | ||||||||
|
Unrealized
gain (loss) on marketable securities
|
40 | 1,102 | (267 | ) | ||||||||
|
Reclassification
adjustment for realized gains from
|
||||||||||||
|
marketable
securities included in net income
|
(2,720 | ) | - | - | ||||||||
|
Net
unrealized (loss) gain
|
(2,680 | ) | 1,102 | (267 | ) | |||||||
|
Unrealized
gain (loss) on forward foreign currency contracts
|
- | - | (203 | ) | ||||||||
|
Reclassification
adjustment for realized gains from forward
|
||||||||||||
|
foreign
currency contracts included in net income
|
- | 203 | (2,620 | ) | ||||||||
|
Net
unrealized gain (loss)
|
- | 203 | (2,823 | ) | ||||||||
|
Income
tax benefit (provision)
|
898 | (1,199 | ) | 1,946 | ||||||||
|
Other
comprehensive income (loss)
|
$ | 8,551 | $ | 5,458 | $ | (2,200 | ) | |||||
Accumulated
balances of other comprehensive income (loss) as reflected in the consolidated
balance sheets and statements of shareholders’ equity as follows:
|
Year
Ended December 31,
|
2007
|
2006
|
2005
|
|||||||||
|
(Thousands
of dollars)
|
As
restated
|
As
restated
|
||||||||||
|
Foreign
currency translation adjustments
|
$ | (25,877 | ) | $ | (35,990 | ) | $ | (40,195 | ) | |||
|
Unrealized
gain (loss) on marketable securities
|
- | 2,680 | 1,578 | |||||||||
|
Net
actuarial gain (loss) on pension obligation (Note 10)
|
(4,257 | ) | (4,477 | ) | (2,800 | ) | ||||||
|
Unrealized
gain (loss) on forward foreign currency contracts
|
- | - | (203 | ) | ||||||||
|
Income
tax (provision) benefit
|
1,556 | 658 | 823 | |||||||||
|
Accumulated
other comprehensive (loss)
|
$ | (28,578 | ) | $ | (37,129 | ) | $ | (40,797 | ) | |||
NOTE
16 – IMPAIRMENT OF LONG-LIVED ASSETS AND OTHER CHARGES
On
September 15, 2006, we announced the planned closure of and the resulting lay
off of approximately 500 employees at our Johnson City, Tennessee
facility. 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 near future. In the third
quarter of 2006, events or changes in circumstances suggested the carrying value
of certain long-lived assets at our Johnson City, Tennessee wheel manufacturing
facility was not recoverable and the undiscounted future cash flows did not
support the carrying value of those long-lived assets. Accordingly,
an asset impairment charge against pretax earnings totaling $4.5 million,
reducing the carrying value of certain long-lived assets to their respective
fair values, was
recorded in the third quarter of 2006. We estimated the fair value of
the long-lived assets based in part on an appraisal of the
assets. These assets were classified as held and used.
On June
16, 2006, we announced that we were restructuring our chrome plating business
located in Fayetteville, Arkansas, that would result in a lay off of
approximately 225 employees. The restructuring of the chrome plating business
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 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 pretax 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. Other costs related to this restructuring
were insignificant. The out-sourcing of our current and future
customer requirements for chrome plated wheels to a third-party processor was
completed by the end of the third quarter of 2006. This restructuring does not
affect the company’s bright polish operation, which is located at the same
facility.
NOTE
17 – DISCONTINUED OPERATIONS
On
September 20, 2006, we entered into an agreement with St. Jean Industries, Inc.,
a Delaware corporation, as buyer, and the buyer’s parent, St. 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 dates of the completion date, and bears interest at LIBOR plus 1
percent, adjusted quarterly.
Selected
financial information for the components business included in discontinued
operations in the consolidated statement of operations follows:
|
Year
Ended December 31,
|
2006
|
2005
|
||||||
|
(Thousands
of dollars)
|
||||||||
|
Net
sales
|
$
|
37,006
|
$
|
40,723
|
||||
|
Loss
from operations before income taxes
|
$
|
(647
|
)
|
$
|
(46,663
|
)
|
||
|
Income
tax benefit
|
263
|
18,852
|
||||||
|
Loss
from operations, net of taxes
|
$
|
(384
|
)
|
$
|
(27,811
|
)
|
||
|
Gain
on disposal of discontinued operations, net of $436 tax
provision
|
$
|
641
|
$
|
-
|
||||
|
Discontinued
operations, net of taxes
|
$
|
257
|
$
|
(27,811
|
)
|
NOTE 18 - QUARTERLY
FINANCIAL DATA (UNAUDITED)
(Thousands
of dollars, except per share amounts)
As
discussed in Note 2- Restatement of Consolidated Financial Statements, we have
restated our annual results for fiscal year 2006 as well as the quarterly
periods therein to correct errors in our accounting for deferred tax liabilities
and our equity method investment in Suoftec. We have also corrected
the interim results for the first three quarters of fiscal 2007 for these same
errors. The amounts below have been restated to give effect of these
corrections to the interim periods in 2006 and 2007.
|
As
Restated
|
||||||||||||||||||||
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||||||||
|
Year
2007
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Year
|
|||||||||||||||
|
Net
sales
|
$ | 244,875 | $ | 255,217 | $ | 227,557 | $ | 229,243 | $ | 956,892 | ||||||||||
|
Gross
profit
|
$ | 2,145 | $ | 13,578 | $ | 5,276 | $ | 11,493 | $ | 32,492 | ||||||||||
|
Net
income (loss)
|
$ | 2,051 | $ | 3,232 | $ | (739 | ) | $ | 4,748 | $ | 9,292 | |||||||||
|
Earnings
(loss) per share:
|
||||||||||||||||||||
|
Basic
|
$ | 0.08 | $ | 0.12 | $ | (0.03 | ) | $ | 0.18 | $ | 0.35 | |||||||||
|
Diluted
|
$ | 0.08 | $ | 0.12 | $ | (0.03 | ) | $ | 0.18 | $ | 0.35 | |||||||||
|
Dividend
declared per share
|
$ | 0.16 | $ | 0.16 | $ | 0.16 | $ | 0.16 | $ | 0.64 | ||||||||||
|
As
Restated
|
||||||||||||||||||||
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||||||||
|
Year
2006
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Year
|
|||||||||||||||
|
Net
sales
|
$ | 183,525 | $ | 219,880 | $ | 174,288 | $ | 212,169 | $ | 789,862 | ||||||||||
|
Gross
profit (loss)
|
$ | 4,223 | $ | 9,176 | $ | (3,711 | ) | $ | (948 | ) | $ | 8,740 | ||||||||
|
Net
income (loss) from:
|
||||||||||||||||||||
|
Continuing
operations
|
$ | 1,124 | $ | 1,916 | $ | (9,108 | ) | $ | (4,731 | ) | $ | (10,799 | ) | |||||||
|
Discontinued
operations
|
$ | (326 | ) | $ | (121 | ) | $ | 1,085 | $ | (381 | ) | $ | 257 | |||||||
|
Net
income (loss)
|
$ | 798 | $ | 1,795 | $ | (8,023 | ) | $ | (5,112 | ) | $ | (10,542 | ) | |||||||
|
Earnings
(loss) per share - Basic:
|
||||||||||||||||||||
|
Continuing
operations
|
$ | 0.04 | $ | 0.07 | $ | (0.34 | ) | $ | (0.18 | ) | $ | (0.41 | ) | |||||||
|
Discontinued
operations
|
(0.01 | ) | (0.01 | ) | 0.04 | (0.01 | ) | 0.01 | ||||||||||||
|
Net
income (loss)
|
$ | 0.03 | $ | 0.06 | $ | (0.30 | ) | $ | (0.19 | ) | $ | (0.40 | ) | |||||||
|
Earnings
(loss) per share - Diluted:
|
||||||||||||||||||||
|
Continuing
operations
|
$ | 0.04 | $ | 0.07 | $ | (0.34 | ) | $ | (0.18 | ) | $ | (0.41 | ) | |||||||
|
Discontinued
operations
|
(0.01 | ) | (0.01 | ) | 0.04 | (0.01 | ) | 0.01 | ||||||||||||
|
Net
income (loss)
|
$ | 0.03 | $ | 0.06 | $ | (0.30 | ) | $ | (0.19 | ) | $ | (0.40 | ) | |||||||
|
Dividend
declared per share
|
$ | 0.16 | $ | 0.16 | $ | 0.16 | $ | 0.16 | $ | 0.64 | ||||||||||
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A - CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls
The
company's management, with the participation of the Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of the company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of
December 30, 2007. Our disclosure controls and procedures are
designed to ensure that information required to be disclosed in reports we file
or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms and that such
information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, to allow timely decision
regarding required disclosures.
Based on
our evaluation and the identification of the material weakness in internal
control over financial reporting described below in Management's Report on
Internal Control Over Financial Reporting, our Chief Executive Officer and Chief
Financial Officer concluded that, as of December 30, 2007, our disclosure
controls and procedures were not effective. Notwithstanding the
material weakness, management has concluded that the consolidated financial
statements included in this Annual Report on Form 10-K fairly represent in all
material respects our financial condition, results of operations and cash flows
for the periods presented in conformity with accounting principles generally
accepted in the United States of America.
Management’s
Report on Internal Control Over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting. 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. The 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 changing conditions, or that the degree of
compliance with policies or procedures may deteriorate.
Management
performed an assessment of the effectiveness of the company’s internal control
over financial reporting as of December 30, 2007 based upon criteria established
in Internal Control --
Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission ("COSO").
A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company's annual or interim financial
statements will not be prevented or detected on a timely
basis. Management identified the following material weakness in the
company’s internal control over financial reporting as of December 30,
2007:
We did
not maintain effective controls over the completeness, accuracy and valuation of
the accounting for and disclosure of income taxes. Specifically, we
did not have effective controls to ensure that the income tax provision and
related taxes payable and deferred tax liabilities were properly reconciled to
the differences between the net book basis and net tax basis of our depreciable
property, plant and equipment subsidiary ledgers. Also, we did not have
sufficient resources to enable us to properly consider and apply GAAP for income
taxes. These control deficiencies resulted in the misstatement of our
deferred income tax provision and deferred tax liabilities accounts and
related
financial disclosures in the consolidated financial statements, and in the
restatement of our annual consolidated financial statements for 2006 and 2005,
each of the quarters of 2006 and the first three quarters of
2007. Additionally, these control deficiencies could result in the
misstatement of the aforementioned accounts and disclosures that would result in
a material misstatement in our annual or interim consolidated financial
statements that would not be prevented or detected. Accordingly,
management has determined that these control deficiencies constitute a material
weakness.
Because
of the material weakness, described above, management has concluded that company
did not maintain effective internal control over financial reporting as of
December 30, 2007, based on the criteria in the Internal Control-Integrated
Framework issued by COSO.
The
effectiveness of internal control over financial reporting as of December 30,
2007 has been audited by PricewaterhouseCoopers LLP, an independent registered
public accounting firm, as stated in their report, which appears
herein.
Changes
in Internal Control Over Financial Reporting
In
December 2007, we hired a Director of Tax with the appropriate level of
knowledge, experience and training commensurate with our financial reporting
requirements. This addition is not certain to remedy our material
weakness in internal control over financial reporting. There were no
changes, other than the above, in our internal control over financial reporting
during the fourth quarter of fiscal 2007 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
Statement
Regarding NYSE Mandated Disclosures
The
company has filed with the SEC as exhibits to its 2007 Annual Report on Form
10-K the certifications of the company's Chief Executive Officer and its Chief
Financial Officer required under Section 302 of the Sarbanes-Oxley Act and SEC
Rule 13a-14(a) regarding the company's financial statements, disclosure controls
and procedures and other matters. On June 4, 2007, following its 2007
annual meeting of stockholders, the company submitted to the NYSE the annual
certificate of the company's Chief Executive Officer required under Section
303A.12(a) of the NYSE Listed Company Manual, that he was not aware of any
violation by the company of the NYSE's corporate governance listing
standards.
ITEM 9B – OTHER INFORMATION
None.
ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
Except as
set forth herein, the information required by this Item is incorporated by
reference to our 2008 Annual Proxy Statement.
Executive
Officers
The names
of corporate executive officers as of fiscal year end that are not also
Directors are listed at the end of Items 4 – Submission of Matters to a Vote of
Security Holders. Information regarding executive officers that are
Directors is contained in our 2008 Annual Proxy Statement under the caption
“Election of Directors”. Such information is incorporated herein by
reference. All executive officers are appointed annually by the Board
of Directors and serve one-year terms. Also see “Employment
Agreements” in our 2008 Annual Proxy Statement, which is incorporated herein by
reference.
Code of
Ethics
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 our Code of
Business Conduct and Ethics are available, without charge, from Superior
Industries International, Inc., Shareholder Relations, 7800 Woodley Avenue, Van
Nuys, CA 91406.
ITEM 11 - EXECUTIVE COMPENSATION
Information
relating to Executive Compensation is set forth under the captions “Compensation
of Directors” and “Compensation Discussion and Analysis” in our 2008 Annual
Proxy Statement, which is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Information
related to Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters is set forth under the caption “Voting Securities
and Principal Holders” in our 2008 Annual Proxy Statement. Also see
Note 13- Stock Based Compensation in Notes to the Consolidated Financial
Statements in Item 8 – Financial Statements and Supplementary Data of this
Annual Report on Form 10-K.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
Information
related to Certain Relationships and Related Transactions is set forth under the
captions, “Election of Directors” and “Transactions with Related Persons”, in
our 2008 Annual Proxy Statement, and in Note – 9 - Leases and Related Parties in
Notes to the Consolidated Financial Statements in Item 8 – Financial Statements
and Supplementary Data of this Annual Report on Form 10-K.
ITEM 14 – PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information
related to Principal Accountant Fees and Services is set forth under the caption
“Audit Fees”, “Audit Related Fees” and “Tax Fees” in our 2008 Annual Proxy
Statement and is incorporated herein by reference.
ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
|
(a)
|
The
following documents are filed as a part of this
report:
|
|
|
1.
|
Financial
Statements: See the “Index to the Consolidated Financial Statements” in
Item 8 of this Annual Report.
|
|
|
2.
|
Financial
Statement Schedule
|
Schedule
II – Valuation and Qualifying Accounts for the Years Ended
December
31, 2007, 2006 and
2005 S-1
|
|
3.
|
Exhibits
|
|
|
2.1
|
Asset
Purchase Agreement with St. Jean Industries, Inc. and St. Jean Industries,
SAS (Incorporated by reference to Exhibit 2.1 to Registrant’s Annual
Report on Form 10-K for the year ended December 31,
2006.)
|
|
|
3.1
|
Articles
of Incorporation of the Registrant (Incorporated by reference to Exhibit
3.1 to Registrant’s Annual Report on Form 10-K for the year ended December
31, 1994.)
|
|
|
3.2
|
By-Laws
of the Registrant (Incorporated by reference to Exhibit 3.2 to
Registrant’s Annual Report on Form 10-K for the year ended December 31,
1994.)
|
|
|
10.2
|
Lease
dated March 2, 1976 between the Registrant and Louis L. Borick filed on
Form 8-K dated May 1976 (Incorporated by reference to Exhibit 10.2 to
Registrant's Annual Report on Form 10-K for the year ended December 31,
1983.)
|
|
|
10.20
|
Supplemental
Executive Individual Retirement Plan of the Registrant (Incorporated by
reference to Exhibit 10.20 to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1987.)
|
|
|
10.32
|
Employment
Agreement dated January 1, 1994 between Louis L. Borick and the Registrant
(Incorporated by reference to Exhibit 10.32 to Registrant’s Annual Report
on Form 10-K for the year ended December 31, 1993, as
amended.)
|
|
|
10.33
|
1993
Stock Option Plan of the Registrant (Incorporated by reference to Exhibit
28.1 to Registrant's Form S-8 filed June 10, 1993, as
amended. Registration No.
33-64088.)
|
|
|
10.36
|
Stock
Option Agreement dated March 9, 1993 between Louis L. Borick and the
Registrant (Incorporated by Reference to Exhibit 28.2 to Registrant's Form
S-8 filed June 10, 1993. Registration No.
33-64088.)
|
|
|
10.39
|
Chief
Executive Officer Annual Incentive Program dated May 9, 1994 between Louis
L. Borick and the Registrant (Incorporated by reference to Exhibit 10.39
to Registrant’s Annual Report on Form 10-K for the year ended December 31,
1994.)
|
|
|
10.42
|
2003
Equity Incentive Plan of the Registrant (Incorporated by reference to
Exhibit 99.1 to Registrant’s Form S-8 dated July 28,
2003. Registration No.
333-107380.)
|
|
|
10.43
|
Executive
Employment Agreement dated January 1, 2005 between Steven J. Borick and
the registrant (Incorporated by reference to Exhibit 10.43 to Registrant’s
Annual Report on Form 10-K for the year ended December 25,
2005.)
|
|
|
10.44
|
Executive
Annual Incentive Plan dated January 1, 2005 between Steven J. Borick and
the registrant (Incorporated by reference to Exhibit 10.44 to Registrant’s
Annual Report on Form 10-K for the year ended December 25,
2005.)
|
|
|
10.45
|
2006
Option Repricing Agreement entered into between the Registrant and each of
the following persons separately: Raymond C. Brown, Philip C. Colburn, V.
Bond Evans, R. Jeffery Ornstein, Emil J. Fanelli, Stephen H. Gamble and
Kola Phillips dated December 28, 2006; Sheldon I. Ausman, Steven J.
Borick, Jack H. Parkinson, Robert H. Bouskill, Bob Bracy, Parveen Kakar,
Michael J. O’Rourke and Gabriel Soto dated December 29, 2006 (Incorporated
by reference to Exhibit 10.45 to Registrant’s Annual Report on Form 10-K
for the year ended December 31,
2006.)
|
|
|
10.46
|
2006
Option Correction Amendment entered into between the Registrant and each
of the following persons separately: Louis L. Borick, James H.
Ferguson and William B. Kelley dated December 29, 2006 (Incorporated by
reference to Exhibit 10.46 to Registrant’s Annual Report on Form 10-K for
the year ended December 31, 2006.)
|
|
|
10.47
|
Amendment
to Stock Option Agreement entered into between the Registrant and each of
the following persons separately: Robert A. Earnest, Razmick
Perian and Cameron Toyne dated October 9, 2007 (filed
herewith)
|
|
|
11
|
Computation
of Earnings Per Share (contained in Note 1 – Summary of Significant
Accounting Policies in Notes to Consolidated Financial Statements in Item
8 – Financial Statements and Supplementary Data of this Annual Report on
Form 10-K)
|
|
|
14
|
Code
of Business Conduct and Ethics (posted on the Registrant’s Internet
Website pursuant to Regulation S-K, item 406
(c)(2).)
|
|
|
21
|
List
of Subsidiaries of the Company (filed
herewith)
|
|
|
23
|
Consent
of PricewaterhouseCoopers LLP, our Independent Registered Public
Accounting Firm (filed herewith)
|
|
|
31.1
|
Chief
Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
(filed herewith)
|
|
|
31.2
|
Chief
Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
(filed herewith)
|
|
|
32
|
Certification
of Steven J. Borick, Chairman, Chief Executive Officer and President, and
Erika H. Turner, Chief Financial Officer, Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (furnished
herewith)
|
|
|
99.1
|
Selected
Unaudited Quarterly Consolidated Financial Data (filed
herewith)
|
SUPERIOR
INDUSTRIES INTERNATIONAL, INC.
ANNUAL
REPORT OF FORM 10-K
Schedule II
VALUATION
AND QUALIFYING ACCOUNTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(Thousands
of dollars)
|
Additions
|
||||||||||||||||||||
|
Balance
at
|
Charge
to
|
Adoption
of
|
Deductions
|
Balance
at
|
||||||||||||||||
|
Beginning
of
|
Costs
and
|
New
Accounting
|
From
|
End
of
|
||||||||||||||||
|
Year
|
Expenses
|
Principles
|
Reserves
|
Year
|
||||||||||||||||
|
2007
|
||||||||||||||||||||
|
Allowance
for doubtful
|
||||||||||||||||||||
|
accounts
|
$ | 2,789 | $ | 95 | $ | - | $ | (457 | ) | $ | 2,427 | |||||||||
|
Inventory
reserve
|
1,204 | 896 | - | (449 | ) | 1,651 | ||||||||||||||
|
Valuation
allowance for
|
||||||||||||||||||||
|
deferred
tax assets
|
1,418 | 665 | 10,000 | - | 12,083 | |||||||||||||||
|
2006
|
||||||||||||||||||||
|
Allowance
for doubtful
|
||||||||||||||||||||
|
accounts
|
$ | 2,000 | $ | 2,154 | $ | - | $ | (1,365 | ) | $ | 2,789 | |||||||||
|
Inventory
reserve
|
512 | 714 | - | (22 | ) | 1,204 | ||||||||||||||
|
Valuation
allowance for
|
||||||||||||||||||||
|
deferred
tax assets
|
705 | 713 | - | - | 1,418 | |||||||||||||||
|
2005
|
||||||||||||||||||||
|
Valuation
Reserve
|
||||||||||||||||||||
|
accounts
|
$ | 3,384 | $ | 644 | $ | - | $ | (2,028 | ) | $ | 2,000 | |||||||||
|
Inventory
reserve
|
983 | 79 | - | (550 | ) | 512 | ||||||||||||||
|
Valuation
allowance for
|
||||||||||||||||||||
|
deferred
tax assets
|
- | 705 | - | - | 705 | |||||||||||||||
S-1
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
ANNUAL
REPORT OF FORM 10-K
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
SUPERIOR
INDUSTRIES INTERNATIONAL, INC.
|
|||||
|
(Registrant)
|
|||||
|
By
|
/s/ Steven J.
Borick
|
March
31, 2008
|
|||
|
Steven
J. Borick
|
|||||
|
Chairman,
Chief Executive Officer and President
|
|||||
Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacity and on the
dates indicated.
|
/s/ Louis L.
Borick
|
Founding
Chairman and Director
|
March
31, 2008
|
|||||
|
Louis
L. Borick
|
|||||||
|
/s/ Steven J.
Borick
|
Chairman,
Chief Executive Officer and President
|
March
31, 2008
|
|||||
|
Steven
J. Borick
|
(Principal
Executive Officer)
|
||||||
|
/s/ Erika H.
Turner
|
Chief
Financial Officer
|
March
31, 2008
|
|||||
|
Erika
H. Turner
|
(Principal
Financial Officer)
|
||||||
|
/s/ Emil J.
Fanelli
|
Vice
President and Corporate Controller
|
March
31, 2008
|
|||||
|
Emil
J. Fanelli
|
(Principal
Accounting Officer)
|
||||||
|
/s/ Sheldon I.
Ausman
|
Lead
Director
|
March
31, 2008
|
|||||
|
Sheldon
I. Ausman
|
|||||||
|
/s/ Philip W.
Colburn
|
Director
|
March
31, 2008
|
|||||
|
Philip
W. Colburn
|
|||||||
|
/s/ Margaret S.
Dano
|
Director
|
March
31, 2008
|
|||||
|
Margaret
S. Dano
|
|||||||
|
/s/ V. Bond
Evans
|
Director
|
March
31, 2008
|
|||||
|
V.
Bond Evans
|
|||||||
|
/s/ Michael J.
Joyce
|
Director
|
March
31, 2008
|
|||||
|
Michael
J. Joyce
|
|||||||
|
/s/ Francisco S.
Uranga
|
Director
|
March
31, 2008
|
|||||
|
Francisco
S. Uranga
|