UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM 10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the fiscal year ended December 28, 2008
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, no 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.
Yes [ ] No
[X]
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act.
Yes
[ ] No
[X]
Indicate by check mark whether the
registrant: (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes
[X] No
[ ]
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.
Large
accelerated
filer [ ] Accelerated
filer [X] Non-accelerated
filer [ ] Smaller
reporting company [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No
[X]
The aggregate market value of the
registrant’s no par value common equity held by non-affiliates as of the last
business day of the registrant’s most recently completed second quarter was
$464,399,000, based on a closing price of $17.42. On March 9, 2009,
there were 26,668,440 shares of common stock issued and
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrant’s 2009
Annual Proxy Statement, to be filed with the Securities and Exchange Commission
within 120 days after the close of the registrant’s fiscal year, are
incorporated by reference into Part III of this Form 10-K.
SUPERIOR
INDUSTRIES INTERNATIONAL, INC.
ANNUAL
REPORT ON FORM 10-K
TABLE OF CONTENTS
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PART
I
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PART
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PART
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PART
IV
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Item
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15
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61
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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 (Exchange Act), 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,
the worsening financial crisis, changes in the automotive industry, declines in
industry sales volumes resulting from economic conditions, 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.
PART
I
ITEM 1 - BUSINESS
General
Development and Description of Business
Headquartered
in Van Nuys, California, the principal business of Superior Industries
International, Inc. (referred to herein as the “company” or in the first person
notation “we,” “us” and “our”) is the design and manufacture of aluminum road
wheels for sale to original equipment manufacturers (OEM). We are one of the
largest suppliers of cast and forged aluminum wheels to the world’s leading
automobile and light truck manufacturers, with wheel manufacturing operations in
the United States, Mexico and Hungary. Customers in North America represent the
principal market for our products, with approximately 18 percent of our net
sales 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. All of the
aftermarket businesses were sold or discontinued by the end of 2002. 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 OEM customer was a Mustang wheel for Ford Motor Company
(Ford).
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 (GM),
Chrysler, Audi, BMW, 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.
Since
each of our plants manufactures OEM aluminum road wheels, sells the same product
to the same customers and exhibits other similar economic characteristics, they
have been aggregated into one reportable segment – automotive wheels. Financial
information about this segment and geographic areas is contained in Note 2 –
Business Segments in Notes to Consolidated Financial Statements in Item 8 –
Financial Statements and Supplementary Data of this Annual Report on Form
10-K.
There
were historic shifts in our industry in 2008. Our sales were
negatively impacted by the American Axle strike against GM assembly plants in
the first half of 2008 which reduced our unit shipments by over 0.5 million
units. The U.S. experienced historic increases in fuel prices during
the summer months of 2008, which further eroded consumer demand for automobiles,
particularly the light truck and SUV platforms, and negatively impacted our
sales. In the third and fourth quarters of 2008, fluctuating fuel
prices were more than offset by the severe tightening of consumer credit markets
which further constricted consumer spending for automobiles and not only had a
negative impact on our sales, but severely weakened the financial condition of
our three major customers (Ford, GM and Chrysler) to the point that two of them
required assistance from the Federal Government to continue to
operate. In addition, all of our major customers announced
restructuring actions, including planned assembly plant closures, delays in
launching key 2009 model-year light truck programs, and other actions to
accelerate movement toward more fuel-efficient passenger cars and crossover-type
vehicles. Described below are the actions taken in 2008 to right-size
our capacity, curtail operating losses and strengthen our company for the near
and long-term future.
In August
2008, we announced the planned closure of our wheel manufacturing facility
located in Pittsburg, Kansas and workforce reductions in our other North
American plants, resulting in the layoff of approximately 665 employees and the
elimination of 90 open positions. In January 2009, we also announced the planned
closure of our Van Nuys, California wheel manufacturing facility, thereby
eliminating an additional 290 jobs. The Kansas facility ceased operations in
December 2008 and the California facility is expected to terminate operations in
June 2009. These were the latest steps in our program to rationalize our
production capacity after announcements by our major customers of assembly plant
closures and sweeping production cuts, particularly in the light truck and SUV
platforms. Asset impairment charges against pretax earnings totaling $17.8
million were recorded in 2008 to reduce the carrying value of certain long-lived
assets in these facilities. An additional impairment charge of $0.7 million was
recorded in the fourth quarter of 2008 to reduce the real estate value of a
third facility in Johnson City, Tennessee, which ceased operations in March
2007 and has since been held for sale to its estimated fair value.
Due to
the deteriorating financial condition of our major customers and others in the
automotive industry, we performed impairment analyses on all of our long-lived
assets, in accordance with Statement of Financial Accounting Standards (SFAS)
No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS
No. 144). Excluding the two plant closures described above, our estimated
undiscounted cash flow projections exceeded the asset carrying values in all of
our wheel manufacturing plants, resulting in no additional impairment charges.
Additionally, because our 50 percent-owned joint venture in Hungary is also
affected by these same economic conditions, we performed an analysis of our
investment in the joint venture, in accordance with Accounting Principles Board
Opinion No. 18 “The Equity Method of Accounting for Investments in Common Stock”
(APB No. 18). This analysis also indicated that our investment was not impaired
as of December 31, 2008.
Raw
Materials
We
purchase aluminum for the manufacture of our aluminum road wheels, which
accounted for substantially all of our total raw material requirements during
2008. 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 2008, we were able to successfully secure aluminum
commitments from our primary suppliers to meet production requirements and we
are not anticipating any problems with aluminum requirements for our expected
level of production in 2009. We procure other raw materials through
numerous suppliers with whom we have established trade
relationships.
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. Typically, any such commodity commitments are
expected to be purchased and used over a reasonable period of time in the normal
course of business. Accordingly, such commodity commitments are not subject to
the provisions of Statement of Financial Accounting Standards (SFAS) No. 133,
“Accounting for Derivative Instruments and Hedging Activities,” (SFAS No. 133)
unless there is a change in the facts or circumstances in regard to the
commitments being used in the normal course of business.
We
currently have several purchase agreements for the delivery of natural gas
through 2011. With the recently announced closure of our
manufacturing facility in Van Nuys, California expected in June 2009, and our
recently completed closure in December 2008 of our manufacturing facility in
Pittsburg, Kansas, we no longer qualify for the “normal purchase” exemption
provided for under SFAS No. 133 for the remaining natural gas purchase
commitments related to those facilities. In accordance with SFAS No.
133, these natural gas purchase commitments are classified as derivatives with
“no hedging designation” and, accordingly, we are required to record any gains
and/or losses associated with these commitments in our current
earnings. The contract and fair values of these purchase commitments
at December 31, 2008 were $4.6 million and $3.0 million, respectively, and the
resulting loss of $1.6 million was recorded in the fourth quarter cost of sales
in our 2008 consolidated statement of operations.
The
remaining natural gas purchase commitments for our other manufacturing
facilities qualify for the “normal purchase” exemption provided for under SFAS
No. 133. The contract and fair values of these remaining purchase
commitments were $23.4 million and $18.1 million, respectively, at December 31,
2008. As of December 31, 2007, the aggregate contract and fair values
of these commitments were approximately $11 million.
The fair
values of the natural gas purchase commitments are based on quoted market prices
using the market approach which are considered Level 1 inputs within the fair
value hierarchy provided for under SFAS No. 157, “Fair Value Measurements” (SFAS
No. 157). Percentage changes in the market prices of natural gas will
impact the fair values by a similar percentage.
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, availability of consumer credit, interest rates and
fuel costs. While there have been no significant seasonal variations
in the past few years, production schedules in our industry can vary
significantly from quarter to quarter to meet the scheduling demands of our
customers.
Customer
Dependence
We have
proven our ability to be a consistent producer of quality aluminum wheels with
the capability to meet our customers’ price, quality, delivery and service
requirements. We strive to continually enhance our relationships with our
customers through continuous improvement programs, not only through our
manufacturing operations but in the engineering, wheel 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 were the only customers accounting for more than 10 percent of our
consolidated net sales in 2008. Sales to GM, as a percentage of consolidated net
sales, were 40 percent in 2008, 36 percent in 2007 and 37 percent in
2006. Sales to Ford, as a percentage of consolidated net sales, were
28 percent in 2008, 33 percent in 2007 and 34 percent in 2006. Sales
to Chrysler, as a percentage of consolidated net sales, were 14 percent in 2008,
13 percent in 2007 and 15 percent in 2006.
The loss
of all or a substantial portion of our sales to Ford, GM or Chrysler would have a significant
adverse effect on our financial results, unless the lost sales volume could be
replaced. However, given the worsening financial crisis and the
current economic climate in the automobile industry, we can not provide any
assurance that any lost sales volume could be replaced. We have had
excellent long-term relationships with our customers. However, intense global
competitive pricing pressure continues to make it difficult to maintain these
relationships, and we expect this trend to continue into the
future.
Net
Sales Backlog
We
receive OEM purchase orders to produce aluminum road wheels typically for
multiple model years. These purchase orders are for vehicle wheel
programs that usually 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.
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 North American production capacity. See
additional comments concerning competition in Item 1A – Risk Factors
below. For the model year 2007, according to Wards Auto Info Bank, an
industry publication, aluminum wheel installation rates on passenger cars and
light trucks produced in North America increased to approximately 65 percent
from 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 declining
market. In addition, intense global pricing pressures and further
contraction of the automotive industry may further decrease our profitability
and could potentially result in the loss of business in the future.
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. A fully staffed engineering center, located in
Fayetteville, Arkansas, supports 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 last
three years were $4.7 million in 2008, $6.3 million in 2007 and $6.8 million in
2006. The decrease experienced in 2008 was due to closure of our
engineering center in Van Nuys, California, and the reduction of wheel program
development activities in the current year.
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 $1.0 million in 2008, $1.3 million in 2007 and $1.7
million in 2006. We expect that future environmental compliance expenditures
will approximate these levels and will not have a material effect on our
consolidated financial position. See further discussion of
environmental compliance issues in Item 3 – Legal Proceedings.
Employees
As of
December 31, 2008, we had approximately 3,700 full-time employees including our
joint venture, Suoftec Light Metal Products Production & Distribution Ltd.
(Suoftec), compared to 5,300 and 5,700 at December 31, 2007 and December 31,
2006, respectively. Our joint venture manufacturing facility in Hungary employed
500 full-time employees at December 31, 2008. None of our employees
are part of a collective bargaining agreement.
Fiscal
Year End
Our
fiscal year is the 52- or 53-week period ending on the last Sunday of the
calendar year. The fiscal years 2008 and 2007 comprised the 52-week
periods ended December 28, 2008 and December 30, 2007,
respectively. The fiscal year 2006 comprised the 53-week period ended
December 31, 2006. 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.
Available
Information
Our
Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, proxy and other 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 100 F Street, NE, Washington, DC 20549. Information on the operation of
the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.
The SEC also maintains a website, www.sec.gov, which contains these reports,
proxy and information statements and other information regarding the company.
Also included on our website, www.supind.com under 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 and
uncertainties. Our business, results of operations and financial
condition could be materially adversely affected by the factors described
below. Discussion about the important operational risks that our
businesses encounter can also be found in the MD&A section and in the
business description in Item 1 – Business of this Annual Report on Form
10-K. Below, we have described our present view of certain risks and
uncertainties we face. Additional risks and uncertainties not
presently known to us, or that we currently do not consider significant, could
also potentially impair our business, results of operations and financial
condition. Our reactions to these risks and uncertainties as well as
our competitors’ reactions will affect our future operating
results.
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. The second half of 2008 was negatively impacted
by severe reductions in customer demand caused by the economic recession,
fluctuating fuel prices and a lack of consumer credit. All of our customers
announced restructuring actions, including planned assembly plant closures,
delays in launching key 2009 model-year light truck programs, and other actions
to accelerate movement toward more fuel-efficient passenger cars and
crossover-type vehicles. As a result, economic and other factors adversely
affecting automotive production and consumer spending could continue to
adversely impact our business. Weakening of the U.S. and global
economies has adversely and may continue to 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 further adversely
affected.
In
addition, relatively modest declines in our customers’ production levels could
have a significant adverse impact on our short-term profitability as any further
declines in production by our customers may require further actions on our part
to address our capacity requirements. 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, due to the
present uncertainty in the economy, 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. If actual OEM production volume were to continue 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.
Current Economic and Financial
Market Conditions - Current global economic and financial markets
conditions, including severe disruptions in the credit markets and the
significant and potentially prolonged global economic recession, may materially
and adversely affect our results of operations and financial condition. These
conditions have and are likely to continue to materially impact the automotive
industry generally and the financial stability of our customers, suppliers and
other parties with whom we do business. Specifically, the impact of
these volatile and negative conditions may include: decreased demand for our
products due to the financial position of our OEM customers and general declines
in the level of automobile demand; our decreased ability to accurately forecast
future product trends and demand; and a negative impact on our ability to timely
collect receivables from our customers and, conversely, reductions in the level
and tightening of terms of trade credit available to us.
The
foregoing economic and financial conditions, including decreased access to
credit, may lead to increased levels of restructurings, bankruptcies,
liquidations and other unfavorable events for our customers, suppliers and other
service providers and financial institutions with whom we do
business. Such events could, in turn, negatively affect our business
either through loss of sales or inability to meet our commitments (or inability
to meet them without excess expense) because of loss of suppliers or other
providers.
In
addition, several of our major customers, GM, Ford and Chrysler, are undergoing
unprecedented financial distress which may result in such customers undergoing
major restructuring, reorganization or other significant changes. The occurrence
of any such event could have further adverse consequences to our business
including a decrease in demand for our products and modifications of our
existing customer agreements. If these or any other OEM become
insolvent or file for bankruptcy, our ability to recover accounts receivables
from that customer would be adversely affected and any payment we received in
the preference period prior to a bankruptcy filing may be potentially
recoverable by the bankruptcy estate.
There are
no assurances that government responses to these disruptions will restore
consumer confidence or improve the state of the current economic and financial
conditions. Although the U.S. Department of the Treasury has outlined an
Automotive Industry Financing Program designed to prevent significant disruption
of the U.S. auto industry, eligible OEMs may face significant restrictions
imposed by the government that could adversely affect output or the OEM's
ability to operate effectively.
The Impairment of Financial
Institutions - We routinely execute transactions with companies in the
financial services industry, including commercial banks, investment banks and
other investment funds and institutions. Many of these transactions expose us to
risk in the event of default by one of these financial service
companies. We routinely maintain cash balances at financial
institutions in excess of federally insured limits and in money market funds
which are subject to risks that may result in losses and affect the liquidity of
these funds. We may also on occasion have exposure to these financial
institutions in the form of an unsecured line of credit, insurance contracts and
investments. There can be no assurance that any such losses or impairments to
the carrying value of these assets would not materially and adversely affect our
business and results of operations and cash flows.
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 and cash flows.
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 and cash flows 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 and cash flows.
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 ensure 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 condition and results of operations and cash flows.
Dependence on Major Customers
- We derived approximately 82 percent of our fiscal 2008 net sales on a
worldwide basis from Ford, GM and Chrysler 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 would have a material adverse effect on
our business, unless the lost revenues were replaced. Ford, GM and Chrysler 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 expectations 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 August 2008, we announced the planned closure of our
wheel manufacturing facility located in Pittsburg, Kansas, and workforce
reductions in our other North American plants, resulting in the layoff of
approximately 665 employees and the elimination of 90 open positions. In January
2009, we also announced the planned closure of our Van Nuys, California wheel
manufacturing facility, thereby eliminating an additional 290 jobs. The Kansas
facility ceased operations in December 2008 and the California facility is
expected to terminate operations in June 2009. These steps were taken in our
program to rationalize our production capacity after announcements by our major
customers of assembly plant closures and sweeping production cuts, particularly
in the light truck and SUV platforms. 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 be sufficient to offset future price pressures from our customers
which 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 North
America, possibly resulting in additional impairment charges. 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 raw material or
other supplies, labor disputes or other reasons could result in our inability to
produce our products, which would reduce our sales and operating results 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.
Valuation of Deferred Tax
Assets – We currently believe that we are likely to have taxable income
in the future sufficient to realize the benefit of our deferred tax assets
(consisting primarily of foreign tax credits, competent authority adjustments,
reserves and accruals that are not currently deductible for tax purposes, as
well as net operating loss carryforwards from losses we previously incurred).
However, some or all of these deferred tax assets could expire unused if we are
unable to generate taxable income in the future sufficient to utilize them or we
enter into transactions that limit our right to use them. If it becomes more
likely than not that our deferred tax assets will expire unused, we will have to
recognize a valuation allowance, which may materially increase our income tax
expense, and therefore adversely affect our results of operations and financial
condition in the period in which it is recorded.
In
considering whether a valuation allowance was required for our U.S. federal
deferred tax assets, we considered all available positive and negative
evidence. Positive evidence considered included reversing taxable
temporary differences and restructuring our operations in line with the
deteriorating automotive industry and moving wheel production to our lower cost
operations in Mexico. This restructuring has continued with the
closure of the Pittsburg facility in December 2008 and with the January 2009
announced closure of the Van Nuys facility, which is expected to cease
operations in June 2009. These closures allow us to realign capacity
within our remaining plants and reduce our total fixed costs. During 2008, we
completed our evaluation of an international tax restructuring plan, which is
currently being implemented. We expect that the new tax structure
will be in effect on January 1, 2010. Based on its nature,
implementation of this tax strategy will enable us to generate domestic taxable
income, thereby allowing us to utilize our federal deferred tax assets and, at
the same time, reduce world-wide tax payments. Negative evidence
considered included the taxable losses in the U.S. recorded during the three
year period ended December 31, 2008, on both an annual and cumulative basis, the
continued deterioration of the automotive industry into 2009 and the uncertainty
as to the timing of recovery of both the automotive industry and global
economy.
Based on
the weight of all available evidence discussed above, we have concluded that the
positive evidence outweighs the negative and that it is more likely than not
that the federal U.S. deferred tax asset, net of valuation allowance, will be
realized within the carry forward period. However, we will continue
to assess the need for a valuation allowance in the future. If our
actual future results and projections are less than currently projected, or if
we are unable to complete our international tax restructuring, a substantial
valuation allowance may be required in the near term, which could have a
material impact on our results of operations in the period in which it is
recorded.
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.
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 for the period being reported.
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 undertaking an upgrade of 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 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.
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; or (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 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 future years
may expose us to higher costs that cannot be immediately recouped in selling
prices. The impact of these factors on our future financial position and results
of operations may be negative, to an extent that cannot be predicted, and we may
not be able to implement sufficient cost saving strategies to mitigate any
future impact.
Resources for Future
Expansion - In 2006, we opened our newest 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 ensure, 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 ensure 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 ensure 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 adverse relationships with our workforce, 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 growth of 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 we and our foreign competitors 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 ensure
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 ensure 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 currently
maintain and operate a total of seven facilities that produce aluminum wheels
for the automotive industry, located in Arkansas; California; Chihuahua, Mexico;
and Tatabanya, Hungary. These seven facilities encompass 3,160,000 square feet
of manufacturing space, 40,000 square feet of warehouse space and 30,000 square
feet of office space. We own all of our facilities with the exception
of one warehouse in Rogers, Arkansas, 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. Additionally, we ceased wheel
manufacturing operations in our Pittsburg, Kansas facility, totaling 492,000
square feet during the fourth quarter of 2008. Both of these
properties are currently available for sale. In January 2009, we
announced the planned closure of the Van Nuys, California manufacturing and
warehousing facilities, totaling 318,000 square feet. The worldwide
headquarters will remain in the Van Nuys location.
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.
Each of
our plants manufactures OEM aluminum road wheels, sells to the same customers
and exhibits other similar economic characteristics. Accordingly,
they have been aggregated into one reportable segment – automotive wheels.
Financial information about this segment and its geographic areas is contained
in Note 2 – Business Segments in Notes to Consolidated Financial Statements in
Item 8 – Financial Statements and Supplementary Data of this Annual Report on
Form 10-K.
Additionally,
reference is made to Note 1 - Summary of Significant Accounting Policies, Note 5
- Property, Plant and Equipment and Note 8 - 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
Derivative
Litigation
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 our 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 was
substantially similar to the prior consolidated complaint. In response, the
company and the individual defendants filed motions to dismiss on September 21,
2007. In an order dated April 14, 2008, the court again granted our motion to
dismiss the amended consolidated complaint, with leave to amend. On May 5, 2008,
the plaintiff filed a second amended consolidated shareholder derivative
complaint that alleges claims substantially similar to the prior complaints.
Once again, the company and the individual defendants filed motions to dismiss
on May 30, 2008. The court conducted a hearing on the motions to dismiss on
September 15, 2008, but has yet to rule on the motions. 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.
Air
Quality Matters
The South
Coast Air Quality Management District (the SCAQMD) issued to us notices of
violation, dated December 14, 2007 and December 5, 2008, alleging violations of
certain permitting and air quality rules at our Van Nuys, California
manufacturing facility. The December 2008 notice was issued
after the company disclosed and corrected certain discrepancies associated with
the manner that the facility reported nitrogen oxide (NOx) emissions in 2004 and
2005. After researching the history of the air quality permits and
other facts, we met with the SCAQMD on May 1, 2008 and October 17, 2008, to
resolve the issues raised in the notices of violation and address other
compliance issues.
The
company has remedied the issues associated with the violations except
for the issues associated with permit applications for three
facility furnaces. The initial notice of violation alleged that
we failed to submit permit applications to modify the burners for three of the
plant’s furnaces and failed to update the NOx emission factors for the same
three furnaces. We agreed to conduct source testing to update the NOx
emission factors and to submit new permit applications for the furnaces, which
we did on June 6, 2008. In approximately December 2008, the
SCAQMD put our permit applications, as well as other companies' permit
applications, on temporary hold to address internal agency policy on the
processing of permit applications. In response, we have proposed
amendments to its permit applications to allow the agency to suspend the
temporary hold.
We have
also proposed that in lieu of penalties, the violations be resolved through a
Supplemental Environmental Project (SEP) to enhance air quality controls and
compliance. However, it is premature to anticipate what the probable
SEP may be or its associated cost. We anticipate that the resolution
of these matters will not have a material adverse effect on our financial
position or results of operation.
Other
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 2008, 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 who are also Directors is contained in our 2009
Annual Proxy Statement under the caption “Election of
Directors.” Such information is incorporated into Part III, Item 10 –
Directors, Executive Officers and Corporate Governance. All executive
officers are appointed annually by the Board of Directors and serve one-year
terms. Also see “Employment Agreements” in our 2009 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
D. Bracy
|
61
|
Senior
Vice President, Facilities
|
2005
|
|||||||
|
Vice
President, Facilities
|
1997
|
|||||||||
|
Robert
A. Earnest
|
47
|
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
|
66
|
Vice
President and Corporate Controller
|
2008
|
|||||||
|
Acting
Chief Financial Officer
|
2007
|
|||||||||
|
Vice
President and Corporate Controller
|
2001
|
|||||||||
|
Stephen
H. Gamble
|
54
|
Vice
President, Treasurer
|
2006
|
|||||||
|
Director,
Financial Planning and Analysis
|
2001
|
|||||||||
|
Parveen
Kakar
|
42
|
Senior
Vice President, Corporate Engineering and Product
Development
|
2008
|
|||||||
|
Vice
President, Program Development
|
2003
|
|||||||||
|
Michael
J. O’Rourke
|
47
|
Executive
Vice President, Sales and Administration
|
2008
|
|||||||
|
Senior
Vice President, Sales and Administration
|
2003
|
|||||||||
|
Razmik
Perian
|
51
|
Chief
Information Officer
|
2006
|
|||||||
|
Director,
Corporate Information Technology
|
2000
|
|||||||||
|
Eddie
Rodriguez
|
54
|
Vice
President, Human Resources
|
2007
|
|||||||
|
Director,
Human Resources – The Coca-Cola Company
|
2004
|
|||||||||
|
Gabriel
Soto
|
60
|
Vice
President, Mexico Operations
|
2004
|
|||||||
|
Kenneth
A. Stakas
|
57
|
Senior
Vice President, Manufacturing
|
2006
|
|||||||
|
Vice
President of Operations -
|
||||||||||
|
Amcast
Automotive, Components Group
|
2000
|
|||||||||
|
Cameron
Toyne
|
49
|
Vice
President, Supply Chain Management
|
2008
|
|||||||
|
Vice
President, Purchasing
|
2007
|
|||||||||
|
Director
of Purchasing
|
2004
|
|||||||||
|
Erika
H. Turner
|
53
|
Chief
Financial Officer
|
2008
|
|||||||
|
Chief
Financial Officer/ Vice President, Finance – Monogram
Systems
|
2004
|
|||||||||
PART
II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Our
common stock is traded on the New York Stock Exchange (symbol:
SUP). We had approximately 571 shareholders of record as of March 6,
2009 and 26.7 million shares issued and outstanding as of March 6,
2009.
*Assumes
the value of the investment in Superior Industries International common stock
and each index was $100 on December 31, 2003 and that all dividends were
reinvested.
|
Superior
Industries
|
Dow
Jones
US
Total
|
Dow
Jones
US
Auto
|
||||||||||
|
International,
Inc.
|
Market
Index
|
Parts
Index
|
||||||||||
|
2003
|
$ | 100.00 | $ | 100.00 | $ | 100.00 | ||||||
|
2004
|
$ | 67.99 | $ | 112.01 | $ | 105.48 | ||||||
|
2005
|
$ | 53.52 | $ | 119.10 | $ | 88.88 | ||||||
|
2006
|
$ | 47.97 | $ | 137.64 | $ | 95.19 | ||||||
|
2007
|
$ | 46.66 | $ | 145.91 | $ | 109.35 | ||||||
|
2008
|
$ | 28.13 | $ | 91.69 | $ | 54.47 | ||||||
Dividends
Cash
dividends declared during 2008 and 2007 totaled $0.64 per share in each year and
were paid on a quarterly basis. Continuation of quarterly dividends
is contingent upon various factors, including economic and market conditions,
none of which can be accurately predicted, and the approval of our Board of
Directors.
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.
|
2008
|
2007
|
||||||||||||||
|
High
|
Low
|
High
|
Low
|
||||||||||||
|
First
Quarter
|
|
$ |
21.55
|
$
|
16.43
|
$
|
23.19
|
$
|
19.07
|
||||||
|
Second
Quarter
|
|
$ |
22.21
|
$
|
17.42
|
$
|
24.06
|
$
|
21.25
|
||||||
|
Third
Quarter
|
|
$ |
19.97
|
$
|
16.07
|
$
|
23.05
|
$
|
18.33
|
||||||
|
Fourth
Quarter
|
|
$ |
19.35
|
$
|
8.92
|
$
|
22.23
|
$
|
17.81
|
||||||
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 (Repurchase
Plan). During the fourth quarter of 2008, there were no repurchases
of common stock. As of December 31, 2008, approximately 3.2 million
shares remained available for repurchase under the Repurchase Plan.
Recent
Sales of Unregistered Securities
During
the fourth quarter of 2008, there were no sales of unregistered
securities.
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 years 2008 and 2007 comprised the 52-week
periods ended December 28, 2008 and December 30, 2007,
respectively. The fiscal year 2006 comprised the 53-week period ended
December 31, 2006. The fiscal years 2005 and 2004 comprised the
52-week periods ended December 25, 2005 and December 26, 2004,
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.
|
Fiscal
Year Ended December 31,
|
2008
|
2007
|
2006
|
2005
|
2004
|
|||||||||||||||
|
Statement
of Operations (000's)
|
||||||||||||||||||||
|
Net
Sales
|
$ | 754,894 | $ | 956,892 | $ | 789,862 | $ | 804,161 | $ | 872,258 | ||||||||||
|
Net
Income (Loss) from Continuing Operations
|
$ | (26,053 | ) | $ | 9,292 | $ | (10,799 | ) | $ | 19,375 | $ | 53,167 | ||||||||
|
Balance
Sheet (000's)
|
||||||||||||||||||||
|
Current
Assets
|
$ | 319,289 | $ | 356,079 | $ | 346,593 | $ | 359,740 | $ | 368,976 | ||||||||||
|
Current
Liabilities
|
62,201 | 95,596 | 112,083 | 110,634 | 87,343 | |||||||||||||||
|
Working
Capital
|
257,088 | 260,483 | 234,510 | 249,106 | 281,633 | |||||||||||||||
|
Total
Assets
|
628,539 | 729,922 | 712,505 | 719,895 | 745,180 | |||||||||||||||
|
Long-Term
Debt
|
- | - | - | - | - | |||||||||||||||
|
Shareholders'
Equity
|
$ | 471,593 | $ | 550,573 | $ | 563,114 | $ | 583,988 | $ | 609,731 | ||||||||||
|
Financial
Ratios
|
||||||||||||||||||||
|
Current
Ratio (1)
|
5.1:1
|
3.7:1
|
3.1:1
|
3.3:1
|
4.2:1
|
|||||||||||||||
|
Long-Term
Debt/Total Capitalization (2)
|
0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||||
|
Return
on Average Shareholders' Equity (3)
|
-5.1 | % | 1.7 | % | -1.8 | % | -1.2 | % | 7.6 | % | ||||||||||
|
Share
Data
|
||||||||||||||||||||
|
Net
Income (Loss) from Continuing Operations
|
||||||||||||||||||||
|
-
Basic
|
$ | (0.98 | ) | $ | 0.35 | $ | (0.41 | ) | $ | 0.73 | $ | 2.00 | ||||||||
|
-
Diluted
|
$ | (0.98 | ) | $ | 0.35 | $ | (0.41 | ) | $ | 0.73 | $ | 1.99 | ||||||||
|
Shareholders'
Equity at Year-End
|
$ | 17.68 | $ | 20.67 | $ | 21.16 | $ | 21.95 | $ | 22.90 | ||||||||||
|
Dividends
Declared
|
$ | 0.6400 | $ | 0.6400 | $ | 0.6400 | $ | 0.6350 | $ | 0.6025 | ||||||||||
|
(1) The
Current Ratio is current assets divided by current
liabilities.
|
||||||||||||||||||||
|
(2) Long-term
Debt/Total Capitalization represents long-term debt 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.
|
||||||||||||||||||||
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND
RESULTS OF OPERATIONS
The
following discussion of our financial condition and results of operations should
be read in conjunction with our Consolidated Financial Statements and the 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.
Executive
Overview
Sales in
the first half of 2008 were negatively impacted by the American Axle strike
against GM’s plants, which reduced our unit shipments by over 0.5 million units.
The second half of 2008 was negatively impacted by severe reductions in customer
demand caused by the economic recession, fluctuating fuel prices and a lack of
consumer credit. All of our major customers announced restructuring actions,
including planned assembly plant closures, delays in launching key 2009
model-year light truck programs, and other actions to accelerate movement toward
more fuel-efficient passenger cars and crossover-type vehicles. Described below
are the actions taken to right-size our capacity, curtail operating losses and
strengthen our company for the near and long-term future.
In August
2008, we announced the planned closure of our wheel manufacturing facility
located in Pittsburg, Kansas, and workforce reductions in our other North
American plants, resulting in the layoff of approximately 665 employees and the
elimination of 90 open positions. On January 13, 2009, we also announced the
planned closure of our Van Nuys, California wheel manufacturing facility,
thereby eliminating an additional 290 jobs. The Kansas facility ceased
operations in December 2008 and the California facility is expected to terminate
operations in June 2009. These steps were taken in order to rationalize our
production capacity after announcements by our major customers of assembly plant
closures and sweeping production cuts, particularly in the light truck and SUV
platforms. Asset impairment charges against pretax earnings totaling $17.8
million were recorded in 2008 to reduce the carrying value of certain long-lived
assets in these facilities to their estimated fair values. An additional
impairment charge of $0.7 million was recorded in 2008 to reduce the real estate
value of a third facility in Johnson City, Tennessee, which ceased operations in
March 2007, to its estimated fair value.
Due to
the deteriorating financial condition of our major customers and others in the
automotive industry, we performed impairment analyses on all of our long-lived
assets, in accordance with SFAS No. 144. Excluding the two plant closures
described above, our estimated undiscounted cash flow projections exceeded the
asset carrying values in all of our wheel manufacturing plants, resulting in no
additional impairment charges. Additionally, because our 50 percent-owned joint
venture in Hungary is also affected by these same economic conditions, we
performed an analysis of our investment in the joint venture, in accordance with
APB No. 18. This analysis also indicated that our investment was not impaired as
of December 31, 2008.
Our
customers continue to request price reductions as they work through their own
financial hurdles. We are engaged in ongoing programs to reduce our
own costs through process automation and identification of industry best
practices, and we have been successful in substantially mitigating pricing
pressures in the past. However, it has become increasingly more
difficult to react quickly enough given the continuing pressure for price
reductions, reductions in customer orders, and the lengthy transitional periods
necessary to reduce labor and other costs. As such, our profit
margins will continue to be lower than our historical levels. We will continue
to attempt to increase our operating margins from current operating levels by
aligning our plant capacity with industry demand and aggressively implementing
cost-saving strategies to enable us to meet customer-pricing expectations.
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. Additionally, 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.
Listed in
the table below are several key indicators we use to monitor our financial
condition and operating performance.
Results
of Operations
|
Fiscal
Year Ended December 31,
|
2008
|
2007
|
2006
|
|||||||||
|
(Thousands
of dollars, except per share amounts)
|
||||||||||||
|
Net
sales
|
$ | 754,894 | $ | 956,892 | $ | 789,862 | ||||||
|
Gross
profit
|
$ | 6,577 | $ | 32,492 | $ | 8,740 | ||||||
|
Percentage
of net sales
|
0.9 | % | 3.4 | % | 1.1 | % | ||||||
|
Income
(loss) from operations
|
$ | (37,668 | ) | $ | 3,321 | $ | (21,409 | ) | ||||
|
Percentage
of net sales
|
-5.0 | % | 0.3 | % | -2.7 | % | ||||||
|
Net
income (loss) from continuing operations
|
$ | (26,053 | ) | $ | 9,292 | $ | (10,799 | ) | ||||
|
Percentage
of net sales
|
-3.5 | % | 1.0 | % | -1.4 | % | ||||||
|
Diluted
earnings (loss) per share - continuing operations
|
$ | (0.98 | ) | $ | 0.35 | $ | (0.41 | ) | ||||
Sales
Consolidated
net sales decreased $202.0 million, or 21 percent, to $754.9 million in 2008
from $956.9 million in 2007. Aluminum wheel sales decreased $206.1 million in
2008 to $738.4 million from $944.5 million a year ago, a 22 percent decrease.
Unit shipments in 2008 decreased 2.8 million, or 22 percent, to 10.4 million
from 13.2 million in 2007. The average selling price of our wheels in 2008 was
approximately the same as the average selling price a year ago, as the average
pass-through price of aluminum was the same in both years and there was no
significant change in sales mix. Wheel program development revenues were $16.5
million this year compared to $12.4 million a year ago.
Unit
shipments to Ford and GM totaled 65 percent of our total OEM unit shipments in
2008 compared to 68 percent a year ago. Unit shipments to Chrysler increased to
15 percent from 13 percent in 2007, while shipments to our international
customers totaled 20 percent compared to 19 percent in 2007. According to Wards Auto Info Bank, overall
North American production of passenger cars and light trucks in 2008 decreased
approximately 16 percent compared to our 22 percent decrease in aluminum
wheel shipments. However, production of the specific passenger cars and light
trucks using our wheel programs decreased 21 percent compared to our 22 percent
decrease in our total shipments, indicating only a slight decrease in market
share. Production of passenger cars with our wheel programs was down 6 percent
compared to our 11 percent increase in shipments. Production of light trucks and
SUVs with our wheel programs decreased 34 percent compared to our 37 percent
decrease in shipments.
According
to Wards Automotive Yearbook
2008, aluminum wheel installation rates on passenger cars and light
trucks in the U.S. increased to 65 percent for the 2007 model year from 63
percent for the two prior 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 13 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
fluctuating fuel prices and a continued lack of available consumer
credit.
Consolidated
net sales in 2007 increased $167.0 million, or 21 percent, to $956.9 million
from $789.9 million in 2006. Excluding wheel program development revenues, which
totaled $12.4 million in 2007 compared to $19.8 million in 2006, OEM wheel sales
increased $174.4 million to $944.5 million from $770.1 million in 2006, a 23
percent increase compared to an increase in unit shipments of 10 percent. Our
increase in OEM aluminum wheel unit shipments in 2007 compared favorably to the
decrease of 2 percent in North American automotive production of passenger cars
and light trucks. 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 decreased 11 percent in 2007 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. The average selling price of our wheels in 2007 increased
approximately 12 percent from 2006, due principally to a shift in sales mix to
larger, high priced wheels and an increase of 3 percent in the pass-through
price of aluminum.
Gross
Profit
During
2008, consolidated gross profit decreased $25.9 million to $6.6.million, or 0.9
percent of net sales, from $32.5 million, or 3.4 percent of net sales, in 2007.
The major factors contributing to the decreased gross profit in 2008 were the 22
percent decreases in both unit shipments and wheels produced in our plants. As
indicated above, unit shipments and, therefore, plant productivity were impacted
severely by various customer restructuring actions and market conditions that
affected the entire automotive industry. Due to our own restructuring
actions during 2008 referred to above, gross profit included one-time charges
totaling approximately $6.4 million. Severance and other plant closure costs for
the Kansas facility amounted to $3.8 million, and the severance costs associated
with the workforce reductions at our other North American plants amounted to
approximately $1.0 million. Because of the closures of the Kansas and California
facilities, the forward natural gas contracts for those operations no longer
qualify for the normal purchase exemption under the accounting rules.
Accordingly, gross profit included a charge of $1.6 million, representing the
difference between the contract and fair values of those contracts as of the end
of 2008. Gross profit in 2008 was also negatively impacted by the loss on the
sale of wheels purchased from our joint venture, totaling $3.8 million. This
amount included reductions to inventory valuation due to decreases in the
aluminum portion of our selling prices, freight and duty charges and third party
warehousing costs.
During
2007, 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. Gross profit in 2006 included $10.1 million of preproduction
start-up costs of our newest wheel plant in Mexico. The principal factors
impacting our improved gross profit in 2007 were the increased unit shipments,
including a higher level of new wheel programs and additional take-over
business, and increased productivity in our wheel manufacturing facilities
resulting from a 13 percent increase in production. Also contributing was the
steadily increasing production of larger diameter wheels in our newest plant in
Chihuahua, Mexico.
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 though we are exposed to timing differences. Theoretically,
assuming selling price adjustments and raw material purchase prices move at the
same rate, as the price of aluminum increases, the effect is an overall decrease
in the gross margin percentage, since the gross profit in absolute dollars would
be the same. The opposite would then be true in periods during which the price
of aluminum decreases.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses were $25.7 million, or 3.4 percent of net
sales, in 2008 compared to $29.2 million, or 3.0 percent of net sales, in 2007,
and $25.7 million, or 3.3 percent of net sales, in 2006. The $3.7 million
decrease in selling, general and administrative expenses in 2008 was due
principally to reductions in legal expenses of $2.9 million and in bonus expense
of $0.8 million. Selling, general and administrative expenses were $3.5 million
higher in 2007 than 2006, due principally to increased legal and other
professional fees totaling $3.6 million.
Impairment
of Long-Lived Assets and Other Charges
In
January 2009, we announced the planned closure of our wheel manufacturing
facility located in Van Nuys, California, in an effort to further reduce costs
and more closely align our capacity with sharply lower demand for aluminum
wheels by the automobile and light truck manufacturers. The closure, which is
expected to be completed by the end of the second quarter of 2009, will result
in the layoff of approximately 290 employees, saving approximately $16.5 million
in annualized labor costs. A pretax asset impairment charge against earnings
totaling $10.3 million, reducing the carrying value of certain assets at the Van
Nuys manufacturing facility to their respective fair values, was recorded in the
fourth quarter of 2008, when we concluded that the estimated future undiscounted
cash flows of that operation would not be sufficient to recover the carrying
value of our long-lived assets attributable to that facility. Severance and
other shutdown costs related to this plant closure are estimated to approximate
$2.1 million, which will be recognized during 2009.
In August
2008, we announced the planned closure of our wheel manufacturing facility
located in Pittsburg, Kansas, in an effort to eliminate excess wheel capacity
and enhance overall efficiency. The closure, which was completed in December
2008, resulted in the layoff of approximately 600 employees. A pretax asset
impairment charge against earnings totaling $5.0 million, reducing the carrying
value of certain assets at the Pittsburg facility to their respective fair
values, was recorded in the third quarter of 2008, when we concluded that the
estimated future undiscounted cash flows of that operation would not be
sufficient to recover the carrying value of our long-lived assets attributable
to that facility. In the fourth quarter of 2008, when it was determined that the
carrying values of additional long-lived assets would not be recovered, the
impairment charge was increased by an additional $2.4 million. Severance and
other shutdown costs related to this plant closure totaled approximately $4.6
million.
In
September 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 of the Johnson City facility
was completed in the first quarter of 2007. This step was taken to rationalize
our production capacity and to 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
that operation would not be sufficient to recover the carrying value of our
long-lived assets attributable to that facility. Severance and other shutdown
costs related to this plant closure totaled approximately $2.5 million. In the
fourth quarter of 2008, the carrying value of the Johnson City real property,
which was classified as held-for-sale since the closure date in March 2007, was
further reduced by $0.7 million, to its indicated current fair
value.
In June
2006, we announced that we were discontinuing our chrome plating business
located in Fayetteville, Arkansas, that would result in a layoff 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. During the
fourth quarter of 2005, the long-lived assets of this business were written down
to their estimated fair value by recording an asset impairment charge against
pretax earnings of $7.9 million. Actual expenditures in 2006 related to
severance and machinery and equipment shutdown and removal totaled approximately
$0.9 million.
For all
of the above impairments, we estimated the fair value of the long-lived assets
based on independent appraisals. For the periods between the
announced plant closures and the date operations actually ceased, these assets
are classified as held-and-used, in accordance with SFAS No. 144, “Accounting
for the Impairment or Disposal of Long-Lived Assets” (SFAS No. 144). Upon
termination of plant operations, the remaining assets are classified as
held-for-sale.
Interest
Income, net and Other Income (Expense), net
Net
interest income for the year decreased 21 percent to $2.9 million from $3.7
million in 2007, due principally to a decrease in the average rate of return to
2.7 percent from 4.9 percent in 2007, offsetting an increase of $28.1 million in
the average balance of cash invested. Net interest income in 2007 decreased 34
percent to $3.7 million from $5.6 million in 2006, as the average balance of
cash invested decreased $24.1 million, offsetting a slight increase in the
average rate of return.
Net other
income (expense) in 2008 was $6.2 million compared to $3.2 million in 2007. For
the first nine months of 2008, the Mexican peso exchange rate averaged 10.54
pesos to the U.S. dollar. During the fourth quarter, this rate increased to
13.85 Mexican pesos to the U.S. dollar, averaging 13.20 Mexican pesos to the
U.S. dollar for the quarter. As a result, net other income (expense) in 2008
included foreign exchange transaction gains totaling $5.9 million in the fourth
quarter and $5.4 million for the year 2008. Other income, net in 2007 included
gains on the sale of available-for-sale investments totaling $2.9
million.
Effective
Income Tax Rate
Our
pretax income (loss) from continuing operations was ($28.6) million in 2008,
$10.2 million in 2007, and ($16.1) million in 2006. The effective tax rate on
the 2008 pretax income from continuing operations was a tax benefit of 6.2
percent compared to a provision of 61.4 percent in 2007 and a benefit of 1.8
percent in 2006. The relationship of federal and state tax credits, changes in
tax liabilities and valuation allowance, 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 or
valuation allowance in a period in which we determine that a recorded
liability is less than we expect the ultimate assessment to be or that a tax
asset is impaired. The effects of recording liability increases and
decreases are included in the effective income tax rate.
In 2007
the company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (FIN 48). Increases and decreases to the liability and
related interest changes during the year 2008 were reflected in our current year
effective income tax rate, and had an overall increase to our rate of 0.6
percent.
Equity
in Earnings of Joint Ventures
Effective
in June 2008, we terminated our 50 percent-owned marketing joint venture,
Topy-Superior Limited (TSL), which earned commissions for marketing our products
to potential OEM customers based in Asia. The net operating results through the
date of dissolution and the final settlement of the TSL joint venture did not
have a material impact on our results of operations or financial
condition.
We have a
50 percent-owned joint venture, Suoftec Light Metal Products Production &
Distribution Ltd (Suoftec), a manufacturer of both light-weight forged and cast
aluminum wheels in Hungary. The investment in this joint venture is accounted
for utilizing the equity method of accounting. Accordingly, our share of joint
venture’s net income is included in the consolidated statements of operations in
“Equity in Earnings of Joint Ventures”.
Suoftec Joint
Venture
Net sales
of Suoftec were also negatively impacted by customer restructuring and the
economic conditions affecting the automotive industry in Europe. The joint
venture’s net sales decreased $8.5 million, or 6 percent, in 2008 to $137.2
million from $145.7 million in 2007, as unit shipments declined 9 percent
offsetting a 3 percent increase in the average selling price in U.S. dollars.
However, the average selling price in euros, the functional currency of the
joint venture, declined approximately 5 percent, which was offset by an increase
in the U.S. dollar/euro exchange rate of approximately 8 percent.
Net sales
in 2007 increased $13.7 million, or 10 percent, to $145.7 million from $132.0
million in 2006. Unit shipments were virtually flat with those of the prior year
at 2.3 million units, while the average selling price in U.S. dollars increased
11 percent. However, the average selling price in euros, the functional currency
of the joint venture, increased approximately 1 percent, while the U.S.
dollar/euro exchange rate of increased approximately 10 percent.
Gross
profit in 2008 decreased to $2.9 million, or 2 percent of net sales, from $14.9
million, or 10 percent of net sales, in 2007. Gross profit margin in 2008 was
impacted negatively by a significant shift in sales mix from larger, higher
profit margin aluminum wheels to smaller, lower-profit margin wheels. Gross
profit in 2008 was also impacted negatively by a 25 percent increase in utility
costs, which was partially offset by lower operating supplies and depreciation
expense. Gross profit in 2007 increased slightly to $14.9 million, or 10 percent
of net sales, from $14.7 million, or 11 percent of net sales, in 2006. Gross
profit margin in 2007 was impacted negatively by increased unreimbursed wheel
development costs and higher utility costs than in 2006.
Selling,
general and administrative costs in 2008 were $2.6 million, or 2 percent of net
sales, compared to $2.0 million, or 1 percent of net sales in 2007 and $1.7
million, or 1 percent of net sales in 2006. The principal reasons for the $0.6
million increase in 2008 over 2007 were higher commission based sales in the
current period and the 8 percent increase in the U.S. dollar/euro exchange
rate.
The
reduction in other income (expense), net in 2008 of $0.6 million was due
principally to increased interest income being offset by foreign exchange
translation losses. 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 percent in all periods. An
additional 4 percent solidarity tax was added in 2007. The annual
effective income tax rates were 22.2 percent in 2008, compared to 18.7 percent
in 2007 and 16.4 percent in 2006.
The
resulting net income was $0.4 million in 2008, compared to $11.2 million in 2007
and $10.0 million in 2006. Our 50 percent share of these earnings was $0.2
million, $5.6 million and $5.0 million, respectively. After adjusting for the
elimination of intercompany profits on wheels purchased from Suoftec, our equity
earnings in each year were $0.7 million in 2008, $5.2 million in 2007 and $4.9
million in 2006.
Suoftec’s
cash at the end of 2008 was $25.4 million compared to $29.5 million a year ago.
Working capital decreased $8.4 million to $46.8 million from $55.3 million at
the end of 2007, due principally to a reduction of $11.3 million in accounts
receivable and a $2.9 million decrease in current liabilities. The current ratio
increased to 5.1 from 4.9 a year ago. Capital expenditures in 2008 were $15.5
million, compared to $10.5 million in 2007. There were no dividends
declared in 2008 or 2007. The joint venture’s cash balance is more than
sufficient for its future operating and capital expenditure requirements, as
well as for additional cash dividends.
Net
Income (Loss)
Net loss
in 2008 was $26.1 million, or 3.5 percent of net sales, compared to income of
$9.3 million, or 1.0 percent of net sales, in 2007, and a loss of $10.5 million,
or 1.3 percent of net sales, in 2006. Diluted earnings (loss) per share was
($0.98) per diluted share in 2008 compared to $0.35 in 2007 and ($0.40) in
2006.
Liquidity
and Capital Resources
Our
sources of cash liquidity include cash and cash equivalents, net cash provided
by operating activities, and other external sources of funds. During the three
years ended December 31, 2008, we had no long-term debt. At December 31, 2008,
our cash and cash equivalents totaled $146.9 million compared to cash and cash
equivalents totaling $106.8 million a year ago and $78.1 million of cash and
short-term investments at the end of 2006. The $40.1 million increase in cash
and cash equivalents in 2008 was due principally to net cash provided by
operating activities of $67.9 million offsetting net cash used in investing
activities and financing activities of $11.3 million and $16.5 million,
respectively. 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. Accordingly, all
working capital requirements, investing activities and cash dividend payments
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 Ended December 31,
|
2008
|
2007
|
2006
|
|||||||||
|
(Thousands
of dollars)
|
||||||||||||
|
Net
cash provided by operating activities
|
$ | 67,872 | $ | 74,858 | $ | 36,130 | ||||||
|
Net
cash used in investing activities
|
(11,325 | ) | (19,872 | ) | (58,062 | ) | ||||||
|
Net
cash used in financing activities
|
(16,445 | ) | (16,602 | ) | (17,032 | ) | ||||||
|
Net
increase (decrease) in cash and cash equivalents
|
$ | 40,102 | $ | 38,384 | $ | (38,964 | ) | |||||
We
generate our principal working capital resources primarily through operations.
Net cash provided by operating activities decreased $7.0 million to $67.9
million in 2008 compared to $74.9 million for the same period a year ago. The
decrease in net income of $35.3 million was offset by the favorable change in
non-cash items of $12.7 million and favorable changes in operating assets and
liabilities totaling $15.6 million. The principal changes in non-cash items were
adding back of the impairment charges of $18.5 million offset by the change in
deferred income taxes of $15.6 million. The favorable change in operating assets
and liabilities was due principally to favorable changes in accounts receivable
and inventories of $20.1 million and $19.1 million, respectively, reduced by
unfavorable changes in funding requirements of accounts payable of $13.4 million
and other liabilities of $8.6 million.
The
funding requirement for accounts receivable in the current period declined $27.2
million due to the 36 percent decline in sales during the last two months of
2008 compared to the prior year. The funding requirement for accounts receivable
a year ago declined by only $7.1 million. The favorable change in inventories
was due to a reduction in funding requirement of $30.1 million in the current
year versus a reduction in funding requirement of $11.0 million a year ago.
Inventories have declined over the past two years as we have closed plants and
managed inventory levels to meet reduced customer demand. The unfavorable change
in funding requirements of accounts payable and other liabilities in the current
period was due to lower levels of raw material and other purchases in the
current period and lower accruals for operating expenses.
The $67.9
million cash flow from operating activities in 2008, the $106.8 million of cash
and cash equivalents as of the prior year end and the $2.5 million of other cash
proceeds from investing activities were used in part for capital expenditures of
$13.2 million and for cash dividends of $17.1 million.
Net cash
provided by operating activities increased $38.7 million in 2007 to $74.9
million from $36.1 million. 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 2007 versus a funding requirement of
$15.6 million in 2006. The favorable change in accounts receivable in 2007
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 in
2006, due to the recording of the dividend receivable. The unfavorable change in
funding of accounts payable in 2007 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, the $78.1 million of cash
and short-term investments at December 31, 2006, and the $8.0 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.
Our
financial condition remained strong in 2008. Working capital of
$257.1 million at December 31, 2008 included $146.9 million in cash and cash
equivalents. The current ratio at year-end was 5.1:1 compared to
3.7:1 a year ago. Accordingly, we believe we are well positioned to
withstand the current financial crisis and downturn in the automotive
industry.
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 decreased by 26 percent in relation to the
U.S. dollar in 2008, the majority of which occurred in the fourth
quarter. The euro experienced a 5 percent decrease versus the U.S.
dollar in 2008. For the year ended December 31, 2008 and 2007 we had
foreign currency transaction gains totaling $5.5 million and $0.5 million,
respectively, which are included in other income (expense) in the consolidated
statements of operations. Foreign currency losses during 2006 were
insignificant.
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, 2008 of $71.2 million, the majority of which,
or $39.9 million, was recorded in the fourth quarter of 2008. 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, 2008 of $5.8 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, 2008 and 2007, we
held no foreign currency 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. Typically, any such commodity commitments are
expected to be purchased and used over a reasonable period of time in the normal
course of business. Accordingly, such commodity commitments are not subject to
the provisions of SFAS No. 133 unless there is a change in the facts
or circumstances in regard to the commitments being used in the normal course of
business.
We
currently have several purchase agreements for the delivery of natural gas
through 2011. With the recently announced closure of our
manufacturing facility in Van Nuys, California expected in June 2009, and our
recently completed closure in December 2008 of our manufacturing facility in
Pittsburg, Kansas, we no longer qualify for the “normal purchase” exemption
provided for under SFAS No. 133 for the remaining natural gas purchase
commitments related to those facilities. In accordance with SFAS No.
133, these natural gas purchase commitments are classified as derivatives with
“no hedging designation” and, accordingly, we are required to record any gains
and/or losses associated with these commitments in our current
earnings. The contract and fair values of these purchase commitments
at December 31, 2008 were $4.6 million and $3.0 million, respectively, and the
resulting loss of $1.6 million was recorded in the fourth quarter cost of sales
in our 2008 consolidated statement of operations.
The
remaining natural gas purchase commitments for our other manufacturing
facilities qualify for the “normal purchase” exemption provided for under SFAS
No. 133. The contract and fair values of these remaining purchase
commitments were $23.4 million and $18.1 million, respectively, at December 31,
2008. As of December 31, 2007, the aggregate contract and fair values
of these commitments were approximately $11 million.
The fair
values of the natural gas purchase commitments are based on quoted market prices
using the market approach and are considered Level 1 inputs within the fair
value hierarchy provided for under SFAS No. 157. Percentage changes
in the market prices of natural gas will impact the fair values by a similar
percentage.
Contractual
obligations as of December 31, 2008 are as follows (amounts in
millions):
|
Payments
Due by Fiscal Year
|
||||||||||||||||||||||||||||
|
Contractual
Obligations
|
2009
|
2010
|
2011
|
2012
|
2013
|
Thereafter
|
Total
|
|||||||||||||||||||||
|
Commodity
contracts
|
$ | 14 | $ | 13 | $ | 1 | $ | - | $ | - | $ | - | $ | 28 | ||||||||||||||
|
Retirement
plans
|
2 | 2 | 2 | 2 | 2 | 61 | 71 | |||||||||||||||||||||
|
Operating
leases
|
3 | 2 | 2 | 1 | - | - | 8 | |||||||||||||||||||||
|
Total
|
$ | 19 | $ | 17 | $ | 5 | $ | 3 | $ | 2 | $ | 61 | $ | 107 | ||||||||||||||
The table above does not reflect unrecognized tax benefits of $51.3 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, 2008. 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. Tooling reimbursement revenues for the
development of wheels 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, we periodically review the
carrying value of our property and equipment, 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 group is greater than the expected undiscounted cash flows to be generated
by such asset group, then an impairment adjustment needs to be
recognized. Such adjustments consist of the amount by which the
carrying value of the asset group 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 at 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 9 –
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,
2008. Note that these sensitivities may be asymmetrical, and
are specific to 2008. 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
|
2009
|
||||||||||||||||
|
Percentage
|
at
December 31,
|
Net
Periodic
|
|||||||||||||||
|
Assumption
|
Change
|
2008
|
Pension
Cost
|
||||||||||||||
|
Discount
rate
|
+
1.0%
|
$
|
(2,169
|
)
|
$
|
(171
|
)
|
||||||||||
|
Rate
of compensation increase
|
+
1.0%
|
$
|
740
|
$
|
196
|
||||||||||||
Stock-Based Compensation –
Our 2008 Equity Incentive Plan authorizes us to issue incentive and
non-qualified stock options, as well as stock appreciation rights, restricted
stock and performance units to our non-employee directors, officers, employees
and consultants totaling up to 3.5 million shares of common stock. No more than
100,000 shares may be used under such plan as “full value” awards, which include
restricted stock and performance units. It is our policy to issue
shares from authorized but not issued shares upon the exercise of stock
options. At December 31, 2008, there were 3.5 million shares
available for future grants under this plan. Options are 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 under this plan to employees
and non-employee directors require no less than a three year ratable vesting
period if vesting is based on continuous service. Vesting periods may
be shorter than three years if performance based.
We
account for stock-based compensation using the fair value recognition provisions
of SFAS No. 123(R), “Share-based Payments” (SFAS No. 123(R)). 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 $95,000 and the total fair value of
shares vested during the year was approximately $2.0 million.
Workers' Compensation 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 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, 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 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
determination of whether or not to record a full or partial valuation allowance
on our deferred tax assets is a critical accounting estimate requiring a
significant amount of judgment on the part of management. In
considering whether a valuation allowance was required for our U.S. federal
deferred tax assets, we considered all available positive and negative
evidence. Positive evidence considered included reversing taxable
temporary differences and restructuring our operations in line with the
deteriorating automotive industry and moving wheel production to our lower cost
operations in Mexico. This restructuring has continued with the
closure of the Pittsburg facility in December 2008 and with the January 2009
announced closure of the Van Nuys facility, which is expected to cease
operations in June 2009. These closures allow us to realign capacity
within our remaining plants and reduce our total fixed costs. During 2008, we
completed our evaluation of an international tax restructuring plan, which is
currently being implemented. We expect that the new tax structure
will be in effect on January 1, 2010. Based on its nature,
implementation of this tax strategy will enable us to generate domestic taxable
income, thereby allowing us to utilize our federal deferred tax assets and, at
the same time, reduce world-wide tax payments. Negative evidence
considered included the taxable losses in the U.S. recorded during the three
year period ended December 31, 2008, on both an annual and cumulative basis, the
continued deterioration of the automotive industry into 2009 and the uncertainty
as to the timing of recovery of both the automotive industry and global
economy.
Based on
the weight of all available evidence discussed above, we have concluded that the
positive evidence outweighs the negative and that it is more likely than not
that the federal U.S. deferred tax asset, net of valuation allowance, will be
realized within the carry forward period. However, we will continue
to assess the need for a valuation allowance in the future. If our
actual future results and projections are less than currently projected, or if
we are unable to complete our international tax restructuring, a substantial
valuation allowance may be required in the near term, which could have a
material impact on our results of operations in the period in which it is
recorded.
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
tax 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 $51.3 million, at December 31, 2008 was
$26.1 million of tax benefit that, if recognized, would reduce our annual
effective tax rate.
During
the next twelve-month period ending December 31, 2009, it is reasonably possible
that up to $0.6 million of unrecognized tax benefits will be recognized due to
the expiration of certain statutes of limitation and audit
settlements.
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. The adoption of the applicable provisions of SFAS No. 157 as of
January 1, 2008 did not have an impact on our consolidated results of operations
or statement of financial position. 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 impact of this Statement on our financial results of operations
and financial position.
In
December 2007, the FASB issued SFAS No. 141(R), “Business
Combinations.” This Statement replaces SFAS No. 141, “Business
Combinations” (SFAS No. 141), and defines the acquirer as the entity that
obtains control of one or more businesses in the business combination and
establishes the acquisition date as the date that the acquirer achieves control.
This Statement’s scope is broader than that of SFAS No. 141, which applied only
to business combinations in which control was obtained by transferring
consideration. This Statement applies to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities” (SFAS No. 161), an amendment of FASB
Statement No. 133 “Accounting for Derivative Instruments and Hedging
Activities” (SFAS No. 133). This Statement is intended to improve
transparency in financial reporting by requiring enhanced disclosures of an
entity’s derivative instruments and hedging activities and their effects on the
entity’s financial position, financial performance, and cash flows.
SFAS No. 161 applies to all derivative instruments within the scope of
SFAS No. 133, as well as related hedged items, bifurcated derivatives,
and non-derivative instruments that are designated and qualify as hedging
instruments. Entities with instruments subject to SFAS No. 161 must
provide more robust qualitative disclosures and expanded quantitative
disclosures. SFAS No. 161 is effective prospectively for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application permitted. We are currently
evaluating the disclosure implications of this Statement.
In
November 2008, the FASB ratified EITF Issue No. 08-06 “Equity Method
Investment Accounting Considerations” (EITF 08-06), which clarifies the
accounting for certain transactions and impairment considerations involving
equity method investments. EITF 08-06 is effective for fiscal years
beginning after December 15, 2008, with early adoption prohibited. We are
currently evaluating the potential impact, if any, of the adoption of EITF 08-06
on our financial position, results of operations and
disclosures.
ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Information
related to Quantitative and Qualitative Disclosures About Market Risk are set
forth in Item 1A – Risk Factors and Item 7 – Management’s Discussion and
Analysis of Financial Condition and Results of Operation, under the caption
“Risk Management”.
ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
Index
to the Consolidated Financial Statements and Financial Statement
Schedule
|
||||
|
PAGE
|
||||
|
Report
of Independent Registered Public Accounting Firm
|
31
|
|||
|
Financial
Statements
|
||||
|
Consolidated
Statements of Operations for the Fiscal Years 2008, 2007 and
2006
|
32 | |||
|
Consolidated
Balance Sheets as of Fiscal Year End 2008 and 2007
|
33
|
|||
|
Consolidated
Statements of Shareholders’ Equity and Comprehensive Income (Loss) for the
Fiscal Years 2008, 2007 and 2006
|
34 | |||
|
Consolidated
Statements of Cash Flows for the Fiscal Years 2008, 2007 and
2006
|
35 | |||
|
Notes
to Consolidated Financial Statements
|
36
|
|||
|
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 28, 2008 and
December 30, 2007 and the results of their operations and their cash flows for
each of the three years in the period ended December 28, 2008 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of
December 28, 2008, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). 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 on Internal Control over Financial Reporting" appearing
under Item 9A - Controls and
Procedures. 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 1 to the consolidated financial statements, the Company
changed the manner in which it accounts for uncertain tax positions in
2007.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
PricewaterhouseCoopers
LLP
Los
Angeles, California
March 10,
2009
SUPERIOR
INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Thousands
of dollars, except share amounts)
|
Fiscal
Year Ended December 31,
|
2008
|
2007
|
2006
|
|||||||||
|
NET
SALES
|
$ | 754,894 | $ | 956,892 | $ | 789,862 | ||||||
|
Cost
of sales
|
748,317 | 924,400 | 781,122 | |||||||||
|
GROSS
PROFIT
|
6,577 | 32,492 | 8,740 | |||||||||
|
Selling,
general and administrative expenses
|
25,744 | 29,171 | 25,679 | |||||||||
|
Impairments
of long-lived assets
|
18,501 | - | 4,470 | |||||||||
|
INCOME
(LOSS) FROM OPERATIONS
|
(37,668 | ) | 3,321 | (21,409 | ) | |||||||
|
Interest
income, net
|
2,917 | 3,684 | 5,589 | |||||||||
|
Other
income (expense), net
|
6,178 | 3,195 | (268 | ) | ||||||||
|
INCOME
(LOSS) FROM CONTINUING OPERATIONS
|
||||||||||||
|
BEFORE
INCOME TAXES AND EQUITY EARNINGS
|
(28,573 | ) | 10,200 | (16,088 | ) | |||||||
|
Income
tax (provision) benefit
|
1,778 | (6,263 | ) | 285 | ||||||||
|
Equity
in earnings of joint ventures
|
742 | 5,355 | 5,004 | |||||||||
|
NET
INCOME (LOSS) FROM CONTINUING OPERATIONS
|
(26,053 | ) | 9,292 | (10,799 | ) | |||||||
|
Income
from discontinued operations, net of taxes
|
- | - | 257 | |||||||||
|
NET
INCOME (LOSS)
|
$ | (26,053 | ) | $ | 9,292 | $ | (10,542 | ) | ||||
|
EARNINGS
(LOSS) PER SHARE - BASIC:
|
||||||||||||
|
Net
income (loss) from continuing operations
|
$ | (0.98 | ) | $ | 0.35 | $ | (0.41 | ) | ||||
|
Income
from discontinued operations, net of taxes
|
- | - | 0.01 | |||||||||
|
Net
income (loss)
|
$ | (0.98 | ) | $ | 0.35 | $ | (0.40 | ) | ||||
|
EARNINGS
(LOSS) PER SHARE - DILUTED:
|
||||||||||||
|
Net
income (loss) from continuing operations
|
$ | (0.98 | ) | $ | 0.35 | $ | (0.41 | ) | ||||
|
Income
from discontinued operations, net of taxes
|
- | - | 0.01 | |||||||||
|
Net
income (loss)
|
$ | (0.98 | ) | $ | 0.35 | $ | (0.40 | ) | ||||
See notes
to consolidated financial statements.
SUPERIOR
INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED
BALANCE SHEETS
(Thousands
of dollars, except per share amounts)
|
Fiscal
Year Ended December 31,
|
2008
|
2007
|
||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 146,871 | $ | 106,769 | ||||
|
Accounts
receivable, net
|
89,426 | 125,704 | ||||||
|
Inventories,
net
|
70,115 | 107,170 | ||||||
|
Income
taxes receivable
|
3,901 | 6,677 | ||||||
|
Deferred
income taxes
|
5,995 | 6,569 | ||||||
|
Other
current assets
|
2,981 | 3,190 | ||||||
|
Total
current assets
|
319,289 | 356,079 | ||||||
|
Property,
plant and equipment, net
|
216,209 | 302,253 | ||||||
|
Investments
|
48,196 | 51,055 | ||||||
|
Non-current
deferred tax asset, net
|
39,152 | 12,673 | ||||||
|
Other
assets
|
5,693 | 7,862 | ||||||
|
Total
assets
|
$ | 628,539 | $ | 729,922 | ||||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 26,318 | $ | 51,603 | ||||
|
Accrued
expenses
|
35,239 | 43,993 | ||||||
|
Income
taxes payable
|
644 | - | ||||||
|
Total
current liabilities
|
62,201 | 95,596 | ||||||
|
Non-current
tax liabilities (Note 7)
|
51,330 | 62,223 | ||||||
|
Executive
retirement liabilities
|
20,880 | 21,530 | ||||||
|
Non-current
deferred tax liabilities, net
|
22,535 | - | ||||||
|
Commitments
and contingent liabilities (Note 11)
|
||||||||
|
Shareholders'
equity:
|
||||||||
|
Preferred
stock, no par value
|
||||||||
|
Authorized
- 1,000,000 shares
|
||||||||
|
Issued
- none
|
- | - | ||||||
|
Common
stock, no par value
|
||||||||
|
Authorized
- 100,000,000 shares
|
||||||||
|
Issued
and outstanding - 26,668,440 shares
|
||||||||
|
(26,633,440
shares at December 31, 2007)
|
54,634 | 51,833 | ||||||
|
Accumulated
other comprehensive loss
|
(67,244 | ) | (28,578 | ) | ||||
|
Retained
earnings
|
484,203 | 527,318 | ||||||
|
Total
shareholders' equity
|
471,593 | 550,573 | ||||||
|
Total
liabilities and shareholders' equity
|
$ | 628,539 | $ | 729,922 | ||||
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)
|
Common
Stock
|
Accumulated
Other
|
|||||||||||||||||||
|
Number
of
|
Comprehensive
|
Retained
|
||||||||||||||||||
|
Shares
|
Amount
|
Income
(Loss)
|
Earnings
|
Total
|
||||||||||||||||
|
BALANCE
AT FISCAL
|
||||||||||||||||||||
|
YEAR
END 2005
|
26,610,191 | $ | 45,367 | $ | (40,797 | ) | $ | 579,418 | $ | 583,988 | ||||||||||
|
Comprehensive
income (loss):
|
||||||||||||||||||||
|
Net
loss
|
- | - | - | (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 | ) | |||||||||||||
|
Cash
dividend declared ($0.64 per share)
|
- | - | - | (17,032 | ) | (17,032 | ) | |||||||||||||
|
BALANCE
AT FISCAL
|
||||||||||||||||||||
|
YEAR
END 2006
|
26,610,191 | $ | 48,399 | $ | (37,129 | ) | $ | 551,844 | 563,114 | |||||||||||
|
Cumulative
effect of adoption
|
||||||||||||||||||||
|
of
FIN 48 (Note 7)
|
- | - | - | (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 | 430 | - | - | 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 | $ | 51,833 | $ | (28,578 | ) | $ | 527,318 | $ | 550,573 | ||||||||||
|
Comprehensive
loss:
|
||||||||||||||||||||
|
Net
loss
|
- | - | - | (26,053 | ) | (26,053 | ) | |||||||||||||
|
Other
comprehensive loss
|
- | - | (38,666 | ) | - | (38,666 | ) | |||||||||||||
|
Comprehensive
loss
|
(64,719 | ) | ||||||||||||||||||
|
Stock-based
compensation expense
|
- | 2,407 | - | - | 2,407 | |||||||||||||||
|
Stock
options exercised
|
35,000 | 617 | - | - | 617 | |||||||||||||||
|
Tax
impact of stock options exercised
|
- | (223 | ) | - | - | (223 | ) | |||||||||||||
|
Cash
dividend declared ($0.64 per share)
|
- | - | - | (17,062 | ) | (17,062 | ) | |||||||||||||
|
BALANCE
AT FISCAL
|
||||||||||||||||||||
|
YEAR
END 2008
|
26,668,440 | $ | 54,634 | $ | (67,244 | ) | $ | 484,203 | $ | 471,593 | ||||||||||
See notes
to consolidated financial statements.
SUPERIOR
INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH
FLOW
(Thousands
of dollars)
|
Fiscal
Year Ended December 31,
|
2008
|
2007
|
2006
|
|||||||||
|
NET
INCOME (LOSS)
|
$ | (26,053 | ) | $ | 9,292 | $ | (10,542 | ) | ||||
|
Adjustment
to reconcile net income (loss) to net cash
|
||||||||||||
|
provided
by operating activities:
|
||||||||||||
|
Depreciation
and amortization
|
43,712 | 42,925 | 39,137 | |||||||||
|
Equity
in earnings of joint ventures, net of dividends received
|
(742 | ) | 258 | 3,723 | ||||||||
|
Stock-based
compensation
|
2,407 | 3,073 | 3,032 | |||||||||
|
Impairments
of long-lived assets
|
18,501 | - | 4,470 | |||||||||
|
Deferred
income taxes
|
(9,705 | ) | 5,890 | 5,285 | ||||||||
|
Other
non-cash items
|
11,433 | 3,667 | 4,936 | |||||||||
|
Gain
on sale of available for sale securities
|
- | (2,906 | ) | - | ||||||||
|
Gain
on sale of discontinued operations
|
- | - | (1,077 | ) | ||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Accounts
receivable
|
27,192 | 7,136 | (4,278 | ) | ||||||||
|
Inventories
|
30,148 | 11,037 | (15,568 | ) | ||||||||
|
Other
assets
|
(120 | ) | 2,330 | 3,100 | ||||||||
|
Accounts
payable
|
(22,755 | ) | (9,310 | ) | 10,915 | |||||||
|
Income
taxes
|
3,891 | 350 | (8,485 | ) | ||||||||
|
Other
liabilities
|
(8,379 | ) | 241 | 1,482 | ||||||||
|
Non-current
tax liabilities
|
(1,658 | ) | 875 | - | ||||||||
|
NET
CASH PROVIDED BY OPERATING ACTIVITIES
|
67,872 | 74,858 | 36,130 | |||||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Additions
to property, plant and equipment
|
(13,227 | ) | (37,639 | ) | (73,062 | ) | ||||||
|
Proceeds
from collection of notes receivable
|
1,606 | - | - | |||||||||
|
Proceeds
from dissolution of TSL joint venture
|
152 | - | - | |||||||||
|
Proceeds
from sale of fixed assets
|
144 | 1,530 | - | |||||||||
|
Proceeds
from a held-to-maturity security
|
- | 9,750 | - | |||||||||
|
Proceeds
from sale of available-for-sale securities
|
- | 5,198 | - | |||||||||
|
Proceeds
from affordable-housing partnership investment
|
- | 1,289 | - | |||||||||
|
Proceeds
from sale of discontinued operations
|
- | - | 15,000 | |||||||||
|
NET
CASH USED IN INVESTING ACTIVITIES
|
(11,325 | ) | (19,872 | ) | (58,062 | ) | ||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
Cash
dividends paid
|
(17,062 | ) | (17,032 | ) | (17,032 | ) | ||||||
|
Stock
options exercised
|
617 | 430 | - | |||||||||
|
NET
CASH USED IN FINANCING ACTIVITIES
|
(16,445 | ) | (16,602 | ) | (17,032 | ) | ||||||
|
Net
increase (decrease) in cash and cash equivalents
|
40,102 | 38,384 | (38,964 | ) | ||||||||
|
Cash
and cash equivalents at the beginning of the year
|
106,769 | 68,385 | 107,349 | |||||||||
|
Cash
and cash equivalents at the end of the year
|
$ | 146,871 | $ | 106,769 | $ | 68,385 | ||||||
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 18 percent of annual sales to international
customers.
GM, Ford
and Chrysler together represented approximately 82 percent of our annual sales
in 2008 and 2007 and 86 percent of annual sales in 2006, 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, current global economic and financial markets conditions, including
severe disruptions in the credit markets and the potential for a significant and
prolonged global economic recession, decreased demand for our products due to
the financial position of our OEM customers and general declines in the level of
automobile demand 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, Isuzu, Jaguar, Land Rover, Mazda, Mercedes Benz, Mitsubishi,
Nissan, Seat, Skoda, Subaru, Suzuki, Toyota, Volkswagen and Volvo.
In August
2008, we announced the planned closure of our wheel manufacturing facility
located in Pittsburg, Kansas, and workforce reductions in our other North
American plants, resulting in the layoff of approximately 665 employees and the
elimination of 90 open positions. In January 2009, we also announced the planned
closure of our Van Nuys, California wheel manufacturing facility, thereby
eliminating an additional 290 jobs. The Kansas facility ceased operations in
December 2008 and the California facility is expected to terminate operations in
June 2009. These were the latest steps in our program to rationalize our
production capacity after announcements by our major customers of assembly plant
closures and sweeping production cuts, particularly in the light truck and SUV
platforms. Asset impairment charges against pretax earnings totaling $17.8
million were recorded in 2008 to reduce the carrying value of certain long-lived
assets in these facilities to their estimated fair values. An additional
impairment charge of $0.7 million was recorded in 2008 to reduce the real estate
value of a third facility in Johnson City, Tennessee, which ceased operations in
March 2007, to its estimated fair value. See Note 15 – Impairment of
Long-lived Assets and Other Charges for further discussion of asset
impairments.
In
September 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 16 – Discontinued Operations for further discussion
of the aluminum suspension components business.
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.
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
allowance, 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 2008 comprised the 52-week period
ended on December 28, 2008. The 2007 fiscal year comprised the
52-week period ended on December 30, 2007 while fiscal year 2006 comprises the
53-week period ended on December 31, 2006. 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, and money
market funds 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.
Fair
Values of Financial Instruments and Commitments
The
carrying amounts for cash and cash equivalents, 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 11 –
Commitments and Contingent Liabilities, are based upon quoted market prices
using the market approach on a recurring basis and are considered Level 1 inputs
within the fair value hierarchy provided in SFAS No. 157.
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, plant and equipment is replaced, retired or disposed of, the cost and
related accumulated depreciation are removed from the accounts. Property, plant
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 15 – Impairment of Long-Lived Assets and Other
Charges for further discussion of asset impairments.
Due to
the deteriorating financial condition of our major customers and others in the
automotive industry, we performed impairment analyses of our long-lived assets,
as described above. Excluding the two plant closures, our estimated undiscounted
cash flow projections exceeded the asset carrying values in all of our wheel
manufacturing plants, resulting in no impairment charges. Additionally, because
our 50 percent-owned joint venture in Hungary is also affected by these same
economic conditions, we performed a similar analysis of our investment in the
joint venture, in accordance with APB No. 18. This analysis also indicated that
our investment was not impaired as of December 31, 2008.
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” (SFAS No. 133). 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, 2008 and 2007, we held no foreign currency 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. Typically,
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, such commodity commitments would not be accounted for
as a derivative, unless there is a change in the facts or circumstances that
causes management to believe that these commitments would not be used in the
normal course of business. See Note 11 – 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 certain
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 14 –
Other Comprehensive Income (Loss). The value of the Mexican peso
decreased by 26 percent in relation to the U.S. dollar in 2008, the majority of
which occurred in the fourth quarter. The euro experienced a 5
percent decrease versus the U.S. dollar in 2008. Foreign exchange
transaction gains and (losses) of $5.5 million and $0.5 million have been
recorded as part of net other income (expense) during 2008 and 2007,
respectively. Foreign currency losses during 2006 were
insignificant.
Revenue
Recognition
Sales of
products and any related costs are recognized when title and risk of loss
transfers to the purchaser, generally upon shipment. Tooling reimbursement
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. Tooling
reimbursement revenues totaled $16.5 million in 2008, $12.4 million in 2007, and
$19.8 million in 2006, 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, 2008 were $4.7 million in 2008, $6.3
million in 2007, and $6.8 million in 2006. The decrease experienced
in 2008 was due to closure of our engineering center in Van Nuys, California,
and the reduction of wheel program development activities in the current
year.
Stock-Based
Compensation
Our 2008
Equity Incentive Plan authorizes us to issue incentive and non-qualified stock
options, as well as stock appreciation rights, restricted stock and performance
units to our non-employee directors, officers, employees and consultants
totaling up to 3.5 million shares of common stock. No more than 100,000 shares
may be used under such plan as “full value” awards, which include restricted
stock and performance units. It is our policy to issue shares from
authorized but not issued shares upon the exercise of stock
options. At December 31, 2008, there were 3.5 million shares
available for future grants under this plan. Options are 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 under this plan to employees
and non-employee directors require no less than a three year ratable vesting
period if vesting is based on continuous service. Vesting periods may
be shorter than three years if performance based.
We
account for stock-based compensation using the fair value recognition provisions
of SFAS No. 123(R), “Share-based Payment” (SFAS No. 123(R)). 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 $95,000 and the
total fair value of shares vested during the year was approximately $2.0
million.
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
tax assets 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
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 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 or recording a valuation allowance may be
material.
We
adopted the provisions of FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes” (FIN 48) in 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
determination of whether or not to record a full or partial valuation allowance
on our deferred tax assets is a critical accounting estimate requiring a
significant amount of judgment on the part of management. In considering whether
a valuation allowance was required for our U.S. federal deferred tax assets, we
considered all available positive and negative evidence. Positive
evidence considered included reversing taxable temporary differences and
restructuring our operations in line with the deteriorating automotive industry
and moving wheel production to our lower cost operations in
Mexico. This restructuring has continued with the closure of the
Pittsburg facility in December 2008 and with the January 2009 announced closure
of the Van Nuys facility, which is expected to cease operations in June
2009. These closures allow us to realign capacity within our
remaining plants and reduce our total fixed costs. During 2008, we completed our
evaluation of an international tax restructuring plan, which is currently being
implemented. We expect that the new tax structure will be in effect
on January 1, 2010. Based on its nature, implementation of this tax
strategy will enable us to generate domestic taxable income, thereby allowing us
to utilize our federal deferred tax assets and, at the same time, reduce
world-wide tax payments. Negative evidence considered included the
taxable losses in the U.S. recorded during the three year period ended December
31, 2008, on both an annual and cumulative basis, the continued deterioration of
the automotive industry into 2009 and the uncertainty as to the timing of
recovery of both the automotive industry and global economy. Based on the weight
of all available evidence discussed above, we have concluded that the positive
evidence outweighs the negative and that it is more likely than not that the
federal U.S. deferred tax asset, net of valuation allowance, will be realized
within the carry forward period.
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
2008 were reflected in our current year effective income tax rate, and had an
overall increase to our rate of 0.6 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. 123(R) and SFAS No. 128, “Earnings Per
Share.”
|
Year
Ended December 31,
|
2008
|
2007
|
2006
|
|||||||||
|
(Thousands
of dollars, except per share amounts)
|
||||||||||||
|
Basic Earnings (Loss)
Per Share
|
||||||||||||
|
Reported
net income (loss)
|
$ | (26,053 | ) | $ | 9,292 | $ | (10,542 | ) | ||||
|
Weighted
average shares outstanding
|
26,655 | 26,617 | 26,610 | |||||||||
|
Basic
earnings (loss) per share
|
$ | (0.98 | ) | $ | 0.35 | $ | (0.40 | ) | ||||
|
Diluted Earnings (Loss) Per
Share
|
||||||||||||
|
Reported
net income (loss)
|
$ | (26,053 | ) | $ | 9,292 | $ | (10,542 | ) | ||||
|
Weighted
average shares outstanding
|
26,655 | 26,617 | 26,610 | |||||||||
|
Weighted
average dilutive stock options
|
- | 18 | - | |||||||||
|
Weighted
average shares outstanding - diluted
|
26,655 | 26,635 | 26,610 | |||||||||
|
Diluted
earnings (loss) per share
|
$ | (0.98 | ) | $ | 0.35 | $ | (0.40 | ) | ||||
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, 2008, options to purchase 3,214,737 shares at
prices ranging from $17.55 to $43.22, for the year ended December 31, 2007,
options to purchase 3,147,792 shares at prices ranging from $21.72 to $43.22 per
share; and for the year ended December 31, 2006, options to purchase 2,294,092
shares at prices ranging from $20.23 to $42.87 per share.
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. The
adoption of the applicable provisions of SFAS No. 157 as of January 1, 2008 did
not have an impact on our consolidated results of operations or statement of
financial position. 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 impact
of this Statement on our financial results of operations and financial
position.
In
December 2007, the FASB issued SFAS No. 141(R), “Business
Combinations.” This Statement replaces SFAS No. 141, “Business
Combinations” (SFAS No. 141), and defines the acquirer as the entity that
obtains control of one or more businesses in the business combination and
establishes the acquisition date as the date that the acquirer achieves control.
This Statement’s scope is broader than that of SFAS No. 141, which applied only
to business combinations in which control was obtained by transferring
consideration. This Statement applies to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities” (SFAS No. 161), an amendment of FASB
Statement No. 133 “Accounting for Derivative Instruments and Hedging
Activities,” (SFAS No. 133). This Statement is intended to improve
transparency in financial reporting by requiring enhanced disclosures of an
entity’s derivative instruments and hedging activities and their effects on the
entity’s financial position, financial performance, and cash flows.
SFAS No. 161 applies to all derivative instruments within the scope of
SFAS No. 133, as well as related hedged items, bifurcated derivatives,
and non-derivative instruments that are designated and qualify as hedging
instruments. Entities with instruments subject to SFAS No. 161 must
provide more robust qualitative disclosures and expanded quantitative
disclosures. SFAS No. 161 is effective prospectively for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application permitted. We are currently
evaluating the disclosure implications of this Statement.
In
November 2008, the FASB ratified EITF Issue No. 08-06 “Equity Method
Investment Accounting Considerations” (EITF 08-06), which clarifies the
accounting for certain transactions and impairment considerations involving
equity method investments. EITF 08-06 is effective for fiscal years
beginning after December 15, 2008, with early adoption prohibited. We are
currently evaluating the potential impact, if any, of the adoption of EITF 08-06
on our financial position, results of operations and
disclosures.
NOTE
2 – BUSINESS SEGMENTS
Our principal
executive officer assesses operating performance, makes operating
decisions, and allocates resources at the plant level. As each of our plants
manufactures aluminum automotive road wheels, sells to the same customers and
exhibit other 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,
|
2008
|
2007
|
2006
|
|||||||||
|
(Thousands
of dollars)
|
||||||||||||
|
Net
sales:
|
||||||||||||
| U.S. | $ | 415,059 | $ | 568,489 | $ | 572,863 | ||||||
|
Mexico
|
339,835 | 388,403 | 216,999 | |||||||||
|
Consolidated
net sales
|
$ | 754,894 | $ | 956,892 | $ | 789,862 | ||||||
|
December
31,
|
2008
|
2007
|
||||||||||
|
(Thousands
of dollars)
|
||||||||||||
|
Property,
plant and equipment, net:
|
||||||||||||
|
U.S.
|
$ | 80,016 | $ | 116,599 | ||||||||
|
Mexico
|
136,193 | 185,654 | ||||||||||
|
Consolidated
property, plant and equipment, net
|
$ | 216,209 | $ | 302,253 | ||||||||
NOTE
3 – ACCOUNTS RECEIVABLE
|
December
31,
|
2008
|
2007
|
||||||
|
(Thousands
of dollars)
|
||||||||
|
Trade
receivables
|
$ | 82,647 | $ | 119,175 | ||||
|
Tooling
reimbursement receivables
|
4,628 | 5,102 | ||||||
|
Other
receivables
|
5,279 | 3,854 | ||||||
| 92,554 | 128,131 | |||||||
|
Allowance
for doubtful accounts
|
(3,128 | ) | (2,427 | ) | ||||
|
Accounts
receivable, net
|
$ | 89,426 | $ | 125,704 | ||||
The
following percentages of our consolidated net sales were made to GM, Ford and
Chrysler: 2008 - 40 percent, 28 percent and 14 percent; 2007 - 36 percent, 33
percent and 13 percent; and 2006 - 37 percent, 34 percent and 15 percent,
respectively. These three customers represented 90 percent and 79
percent of trade receivables at December 31, 2008 and 2007,
respectively.
NOTE
4 – INVENTORIES
|
December
31,
|
2008
|
2007
|
||||||
|
(Thousands
of dollars)
|
||||||||
|
Raw
materials
|
$ | 12,755 | $ | 16,482 | ||||
|
Work-in-process
|
22,266 | 30,004 | ||||||
|
Finished
goods
|
35,094 | 60,684 | ||||||
|
Inventories,
net
|
$ | 70,115 | $ | 107,170 | ||||
NOTE
5 – PROPERTY, PLANT AND EQUIPMENT
|
December
31,
|
2008
|
2007
|
||||||
|
(Thousands
of dollars)
|
||||||||
|
Land
and buildings
|
$ | 86,600 | $ | 94,610 | ||||
|
Machinery
and equipment
|
464,674 | 519,869 | ||||||
|
Leasehold
improvements and others
|
9,359 | 14,055 | ||||||
|
Construction
in progress
|
18,728 | 29,739 | ||||||
| 579,361 | 658,273 | |||||||
|
Accumulated
depreciation
|
(363,152 | ) | (356,020 | ) | ||||
|
Property,
plant and equipment, net
|
$ | 216,209 | $ | 302,253 | ||||
The 2008
asset impairment charges of $10.3 million, $7.5 million and $0.7 million related
to our Van Nuys, Pittsburg and Johnson City wheel manufacturing facilities,
respectively, were recorded in the appropriate fixed asset cost categories in
the table above as discussed in Note 15 – Impairment of Long-Lived Assets and
Other Charges. The net book values of all assets available for sale
at the Pittsburg and Johnson City plants subsequent to impairment were $7.5
million and $2.8 million, respectively.
NOTE
6 - INVESTMENTS
|
December
31,
|
2008
|
2007
|
||||||
|
(Thousands
of dollars)
|
||||||||
|
Investments
in and advances to 50% owned joint ventures:
|
||||||||
|
Suoftec
Light Metal Products, Ltd.
|
$ | 47,697 | $ | 49,902 | ||||
|
Topy-Superior
Limited
|
- | 209 | ||||||
| 47,697 | 50,111 | |||||||
|
Other
Investments
|
499 | 944 | ||||||
|
Investments
|
$ | 48,196 | $ | 51,055 | ||||
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, 2008, we
acquired cast and forged wheels from this joint venture, totaling $21.0 million
in 2008, $50.0 million in 2007 and $56.3 million in 2006. There were
no payables to Suoftec for wheel purchases at the end of 2008. At
December 31, 2007, accounts payable included amounts owed to Suoftec for unpaid
wheel purchases totaling $10.3 million.
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
|
2008
|
2007
|
2006
|
|||||||||
|
(Thousands
of dollars)
|
||||||||||||
|
Net
sales
|
$ | 137,173 | $ | 145,707 | $ | 132,020 | ||||||
|
Cost
of sales
|
134,226 | 130,769 | 117,294 | |||||||||
|
Gross
profit
|
2,947 | 14,938 | 14,726 | |||||||||
|
Selling,
general and administrative expenses
|
2,612 | 2,011 | 1,680 | |||||||||
|
Income
from operations
|
335 | 12,927 | 13,046 | |||||||||
|
Other
income (expense), net
|
165 | 812 | (1,096 | ) | ||||||||
|
Income
before income taxes
|
500 | 13,739 | 11,950 | |||||||||
|
Income
tax provision
|
(111 | ) | (2,569 | ) | (1,954 | ) | ||||||
|
Net
income
|
$ | 389 | $ | 11,170 | $ | 9,996 | ||||||
|
Superior's
share of net income
|
$ | 195 | $ | 5,585 | $ | 4,998 | ||||||
|
Summary
Balance Sheets as of December 31,
|
2008
|
2007
|
||||||
|
(Thousands
of dollars)
|
||||||||
|
Cash
and cash equivalents
|
$ | 25,403 | $ | 29,485 | ||||
|
Accounts
receivable, net
|
11,984 | 23,331 | ||||||
|
Inventories,
net
|
20,750 | 16,641 | ||||||
|
Total
current assets
|
58,137 | 69,457 | ||||||
|
Property,
plant and equipment, net
|
47,435 | 43,384 | ||||||
|
Other
assets
|
1,281 | 1,369 | ||||||
|
Total
assets
|
106,853 | 114,210 | ||||||
|
Current
liabilities
|
11,311 | 14,188 | ||||||
|
Non-current
liabilities
|
148 | 218 | ||||||
|
Total
liabilities
|
11,459 | 14,406 | ||||||
|
Net
assets
|
$ | 95,394 | $ | 99,804 | ||||
|
Superior's
share of net assets
|
$ | 47,697 | $ | 49,902 | ||||
NOTE
7 – INCOME TAXES
|
Year
Ended December 31,
|
2008
|
2007
|
2006
|
|||||||||
|
(Thousands
of dollars)
|
||||||||||||
|
Income
(loss) from continuing operations before income taxes and equity
earnings:
|
||||||||||||
|
Domestic
|
$ | (41,407 | ) | $ | (13,168 | ) | $ | (21,275 | ) | |||
|
International
|
12,834 | 23,368 | 5,187 | |||||||||
| $ | (28,573 | ) | $ | 10,200 | $ | (16,088 | ) | |||||
The
(provision) benefit for income taxes is comprised of the following:
|
Year
Ended December 31,
|
2008
|
2007
|
2006
|
|||||||||
|
(Thousands
of dollars)
|
||||||||||||
|
Current
Taxes
|
||||||||||||
|
Federal
|
$ | (758 | ) | $ | (41 | ) | $ | 2,356 | ||||
|
State
|
(213 | ) | 1,040 | (1,029 | ) | |||||||
|
Foreign
|
(6,956 | ) | (1,372 | ) | (3,925 | ) | ||||||
|
Total
Current
|
(7,927 | ) | (373 | ) | (2,598 | ) | ||||||
|
Deferred
Taxes
|
||||||||||||
|
Federal
|
12,832 | 2,714 | 4,321 | |||||||||
|
State
|
1,077 | (605 | ) | 174 | ||||||||
|
Foreign
|
(4,204 | ) | (7,999 | ) | (1,612 | ) | ||||||
|
Total
Deferred Taxes
|
9,705 | (5,890 | ) | 2,883 | ||||||||
|
(Provision)
benefit for income taxes:
|
$ | 1,778 | $ | (6,263 | ) | $ | 285 | |||||
The
following is a reconciliation of the United States federal tax rate to our
effective income tax rate:
|
Year
Ended December 31,
|
2008
|
2007
|
2006
|
||||||||||||
|
Statutory
rate - (provision) benefit
|
35.0
|
%
|
(35.0)
|
%
|
35.0
|
%
|
|||||||||
|
State
tax (provisions), net of federal income tax benefit
|
5.0
|
(0.6)
|
(1.9)
|
||||||||||||
|
Permanent
differences
|
(12.0)
|
(20.9)
|
(25.7)
|
||||||||||||
|
Tax
credits
|
0.7
|
0.7
|
0.8
|
||||||||||||
|
Foreign
income taxed at rates other than the statutory rate
|
(0.3)
|
19.6
|
3.2
|
||||||||||||
|
Valuation
allowance
|
(25.2)
|
(6.5)
|
(4.4)
|
||||||||||||
|
Changes
in tax liabilities, net
|
(0.6)
|
(18.3)
|
(3.7)
|
||||||||||||
|
Other
|
3.6
|
(0.4)
|
(1.5)
|
||||||||||||
|
Effective
income tax rate for continuing operations
|
6.2
|
%
|
(61.4)
|
%
|
1.8
|
%
|
|||||||||
The state
tax provision, 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 primary differences relate to depreciation
and inflationary gains reported on our foreign operations that are
non-deductible for tax on a permanent basis. Foreign income taxed at
rates other than statutory rates resulted in a provision in 2008. The change in
liabilities relates to increases in our unrecognized tax benefits, primarily
increases in interest, and penalty expenses. Additionally, the
increase to our valuation allowance related primarily to a net operating loss
from foreign operations which resulted in an unfavorable adjustment to our tax
rate.
Tax
effects of temporary differences that gave rise to significant portions of the
deferred tax assets and deferred liabilities at December 31, 2008 and
2007:
|
December
31,
|
2008
|
2007
|
||||||
|
(Thousands
of dollars)
|
||||||||
|
Deferred
Tax Assets
|
||||||||
|
Other
comprehensive income and loss adjustments
|
$ | 847 | $ | 6,665 | ||||
|
Liabilities
deductible in the future
|
5,940 | 6,016 | ||||||
|
Deferred
compensation
|
12,463 | 11,777 | ||||||
|
Net
loss carryforward
|
22,632 | 3,390 | ||||||
|
Tax
credit carryforward
|
12,813 | 11,436 | ||||||
|
Financial
and tax accounting differences associated with foreign
operations
|
25,256 | 28,377 | ||||||
|
Other
|
114 | 311 | ||||||
|
Total
before valuation allowances
|
80,065 | 67,972 | ||||||
|
Valuation
allowances
|
(19,357 | ) | (12,083 | ) | ||||
|
Net
deferred tax assets
|
60,708 | 55,889 | ||||||
|
Deferred
Tax Liabilities
|
||||||||
|
Differences
between the book and tax basis of property, plant
|
||||||||
|
and
equipment
|
(34,885 | ) | (32,956 | ) | ||||
|
Differences
between financial and tax accounting associated
|
||||||||
|
with
foreign operations
|
(2,813 | ) | (3,257 | ) | ||||
|
Other
|
(398 | ) | (434 | ) | ||||
|
Deferred
tax liabilities
|
(38,096 | ) | (36,647 | ) | ||||
|
Net
Deferred Tax Assets (Liabilities)
|
$ | 22,612 | $ | 19,242 | ||||
As of December 31, 2008 and 2007, we had approximately $22.6 million and $19.2 million, respectively, of net deferred tax assets, the majority of which are in the U.S. We have recorded valuation allowances of $19.4 million and $12.1 million against these deferred tax assets at December 31, 2008 and 2007, respectively, based on our assessment of our ability to utilize these deferred tax assets. The valuation allowances established primarily relate to state net operating loss carryforwards, state tax credit carryforwards, foreign tax credit carryforwards, and foreign net operating loss carryforwards for which we have determined that it is more likely than not that a benefit will not be realized.
Realization
of the remaining $22.6 million of deferred tax assets at December 31, 2008 is
dependent on the company generating sufficient taxable income in the
future. The determination of whether or not to record a full or
partial valuation allowance on our deferred tax assets is a critical accounting
estimate requiring a significant amount of judgment on the part of
management. We perform our analysis on a jurisdiction by jurisdiction
basis.
In
considering whether a valuation allowance was required for our U.S. federal
deferred tax assets, we considered all available positive and negative
evidence. Positive evidence considered included reversing taxable
temporary differences and restructuring our operations in line with the
deteriorating automotive industry and moving wheel production to our lower cost
operations in Mexico. This restructuring has continued with the
closure of the Pittsburg facility in December 2008 and with the January 2009
announced closure of the Van Nuys facility, which is expected to cease
operations in June 2009. These closures allow us to realign capacity
within our remaining plants and reduce our total fixed costs. During 2008, we
completed our evaluation of an international tax restructuring plan, which is
currently being implemented. We expect that the new tax structure
will be in effect on January 1, 2010. Based on its nature,
implementation of this tax strategy will enable us to generate domestic taxable
income, thereby allowing us to utilize our federal deferred tax assets and, at
the same time, reduce world-wide tax payments. Negative evidence
considered included the taxable losses in the U.S. recorded during the three
year period ended December 31, 2008, on both an annual and cumulative basis, the
continued deterioration of the automotive industry into 2009 and the uncertainty
as to the timing of recovery of both the automotive industry and global
economy.
Based on
the weight of all available evidence discussed above, we have concluded that the
positive evidence outweighs the negative and that it is more likely than not
that the federal U.S. deferred tax asset, net of valuation allowance, will be
realized within the carry forward period. However, we will continue
to assess the need for a valuation allowance in the future. If our
actual future results and projections are less than currently projected, or if
we are unable to complete our international tax restructuring, a substantial
valuation allowance may be required in the near term, which could have a
material impact on our results of operations in the period in which it is
recorded.
As of
December 31, 2008, we have federal tax credit carryforwards of $11.9
million that begin to expire in 2014. We have federal and state
net operating loss carryforwards for 2008 of $17.3 million and $23.1million
respectively that begin to expire in 2028 and 2016, respectively. We
have foreign net operating loss carryforwards for 2008 $55.4 million that
begin to expire in 2015. We have state tax credit carryforwards for
2008 and 2007 of $1.4 million and $1.4 million, respectively. The
state tax credit carryforwards begin to expire in 2014. The valuation
allowance for 2008 and 2007 is $19.4 million and $12.1 million,
respectively. We established a valuation allowance for certain
federal, state and foreign deferred tax assets based on our assessment of our
ability to utilize these deferred tax assets. The increase in our
valuation allowance is primarily due to an increase in the valuation allowance
against our state deferred tax assets in the amount of $1.2 million, an increase
relating to our foreign net operation losses in the amount of $6.8 million, and
a decrease of $0.7 million relating to our federal deferred tax
assets. The increases relating to our state deferred tax assets are
due to the fact that states in which we operate have limited carryover
provisions. At this time, management believes that it may be unable
to realize the benefits of the state deferred tax assets. During the
fourth quarter of 2008, the company increased its valuation allowance by
establishing a reserve against its foreign losses as a result of determining
that it expects to be in a flat tax position in 2009 in Mexico, and as such, it
will receive no benefit for approximately $6.8 million of net operating
losses.
We have
not provided for deferred income taxes or foreign withholding tax on basis
differences in our non-U.S. subsidiaries of $126.2 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.
We
adopted FIN 48 on January 1, 2007. A reconciliation of the beginning and ending
amount of unrecognized tax benefits is as follows:
|
Year
Ended December 31,
|
||||||||
|
Summary
of Unrecognized Tax Benefits
|
2008
|
2007
|
||||||
|
(Thousands
of dollars)
|
||||||||
|
Beginning
balance
|
$ | 34,804 | $ | 36,521 | ||||
|
Increases
(decreases) as a result of positions taken
during:
|
||||||||
|
Prior
period
|
(2,480 | ) | (58 | ) | ||||
|
Current
period
|
- | - | ||||||
|
Settlements
with taxing authorities
|
- | - | ||||||
|
Expiration
of applicable statute of limitation
|
(3,756 | ) | (1,659 | ) | ||||
|
Ending
balance
(1)
|
$ | 28,568 | $ | 34,804 | ||||
|
(1)
Excludes $22.8 million and $27.4 million of potential interest and
penalties associated with uncertain tax
|
||||||||
|
positions
in 2008 and 2007, respectively.
|
||||||||
At
December 31, 2008, we had unrecognized tax benefits in the amount of $51.3
million. We also accrued potential interest and penalties of $3.6
million and $1.3 million, respectively, related to unrecognized tax benefits
during 2008, and in total, as of December 31, 2008, we have recorded a liability
for potential interest and penalties of $12.2 million and $10.6 million,
respectively.
Included
in the unrecognized tax benefits of $51.3 million at December 31, 2008, was
$26.1 million of tax benefit that, if recognized, would reduce our annual
effective tax rate.
Within
the next twelve-month period ending December 31, 2009, it is reasonably possible
that up to $0.6 million of unrecognized tax benefits will be recognized due to
the expiration of certain statutes 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). We are
currently under audit by Mexico’s Tax Administration Service (Servicio de
Administracion Tributaria) in relation to Superior Industries de Mexico S.A. de
C.V. for the 2003 tax year.
Total
income tax payments made were $2.2 million in 2008, $4.9 million in 2007 and
$6.9 million in 2006.
NOTE
8 - LEASES AND RELATED PARTIES
We lease
certain land, facilities and equipment under long-term operating leases expiring
at various dates through 2013. Total lease expense for all operating
leases amounted to $3.1 million in 2008, $3.8 million in 2007 and $3.0 million
in 2006.
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. Total lease payments to these related entities were
$2.0 million in 2008, $1.6 million for 2007 and $1.5 million for
2006. 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
|
|||
|
(Thousands
of dollars)
|
||||
|
2009
|
$ | 2,596 | ||
|
2010
|
2,457 | |||
|
2011
|
2,216 | |||
|
2012
|
1,100 | |||
|
2013
|
6 | |||
|
Thereafter
|
- | |||
| $ | 8,375 | |||
NOTE
9 – RETIREMENT PLANS
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 $4.6
million at December 31, 2008 and $4.3 million as of December 31, 2007, 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.
The
following table summarizes the changes in plan benefit
obligations:
|
Year
Ended December 31,
|
2008
|
2007
|
||||||
|
(Thousands
of dollars)
|
||||||||
|
Change
in benefit obligation
|
||||||||
|
Beginning
benefit obligation
|
$ | 20,795 | $ | 19,972 | ||||
|
Service
cost
|
471 | 567 | ||||||
|
Interest
cost
|
1,156 | 1,121 | ||||||
|
Actuarial
(gain) loss
|
(1,179 | ) | (28 | ) | ||||
|
Benefit
payments
|
(864 | ) | (837 | ) | ||||
|
Ending
benefit obligation
|
$ | 20,379 | $ | 20,795 | ||||
The
following table summarizes the balance sheet components:
|
Year
Ended December 31,
|
2008
|
2007
|
||||||
|
(Thousands
of dollars)
|
||||||||
|
Change
in plan assets
|
||||||||
|
Fair
value of plan assets at beginning of year
|
$ | - | $ | - | ||||
|
Employer
contribution
|
864 | 837 | ||||||
|
Benefit
payments
|
(864 | ) | (837 | ) | ||||
|
Fair
value of plan assets at end of year
|
$ | - | $ | - | ||||
|
Funded
Status
|
$ | (20,379 | ) | $ | (20,795 | ) | ||
|
Amounts
recognized in the Consolidated Balance Sheets consist of:
|
||||||||
|
Current
liabilities
|
$ | (1,004 | ) | $ | (1,333 | ) | ||
|
Non-current
liabilities
|
(19,375 | ) | (19,462 | ) | ||||
|
Net
amount recognized
|
$ | (20,379 | ) | $ | (20,795 | ) | ||
|
Amounts
recognized in Accumulated Other Comprehensive Loss consist
of:
|
||||||||
|
Net
actuarial loss
|
$ | 2,911 | $ | 4,257 | ||||
|
Prior
service cost
|
- | - | ||||||
|
Net
amount recognized, before tax effect
|
$ | 2,911 | $ | 4,257 | ||||
|
Weighted
average assumptions used to determine benefit obligations:
|
||||||||
|
Discount
rate
|
6.25 | % | 5.75 | % | ||||
|
Rate
of compensation increase
|
3.00 | % | 3.50 | % | ||||
Components
of net periodic pension cost are:
|
Year
Ended December 31,
|
2008
|
2007
|
2006
|
|||||||||
|
(Thousands
of dollars)
|
||||||||||||
|
Components
of net periodic pension cost
|
||||||||||||
|
Service
cost
|
$ | 471 | $ | 567 | $ | 916 | ||||||
|
Interest
cost
|
1,156 | 1,121 | 1,032 | |||||||||
|
Contractual
termination benefits
|
- | - | 572 | |||||||||
|
Amortization
of actuarial loss
|
168 | 192 | 334 | |||||||||
|
Net
periodic pension cost
|
$ | 1,795 | $ | 1,880 | $ | 2,854 | ||||||
|
Weighted
average assumptions used to determine net periodic pension
cost
|
||||||||||||
|
Discount
rate
|
5.75 | % | 5.75 | % | 5.50 | % | ||||||
|
Rate
of compensation increase
|
3.50 | % | 3.50 | % | 3.50 | % | ||||||
|
Benefit
payments during the next ten years, which reflect applicable future
service, are as follows:
|
||||
|
Year
Ended December 31,
|
Amount
|
|||
|
(Thousands
of dollars)
|
||||
|
2009
|
$ | 1,035 | ||
|
2010
|
1,105 | |||
|
2011
|
1,203 | |||
|
2012
|
1,339 | |||
|
2013
|
1,426 | |||
|
Years
2014 - 2018
|
7,622 | |||
|
The
following is an estimate of the components of net periodic pension cost in
2009:
|
||||
|
Estimated
Year Ended December 31,
|
2009
|
|||
|
(Thousands
of dollars)
|
||||
|
Service
cost
|
$ | 921 | ||
|
Interest
cost
|
1,242 | |||
|
Amortization
of actuarial loss
|
64 | |||
|
Estimated
2009 net periodic pension cost
|
$ | 2,227 | ||
The $0.4
million increase in the 2009 estimated net periodic pension cost over the
comparable 2008 amount is due to the addition of nine new participants in the
current year.
Other
Retirement Plans
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 $2.2 million, $2.9 million and $3.1
million for the three years ended December 31, 2008, 2007 and 2006,
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 2009, followed by
similar payments at one-half of such amount for up to 10 years, or until his
death. As of December 31, 2008, the actuarial present value of the remaining
payments under the Agreement, totaling $2.5 million, has been accrued for and is
included in accrued expenses and executive retirement liabilities.
NOTE
10 – ACCRUED EXPENSES
|
December
31,
|
2008
|
2007
|
||||||
|
(Thousands
of dollars)
|
||||||||
|
Payroll
and related benefits
|
$ | 8,129 | $ | 14,390 | ||||
|
Insurance
|
7,767 | 8,880 | ||||||
|
Dividends
|
4,267 | 4,261 | ||||||
|
Taxes,
other than income taxes
|
7,234 | 8,144 | ||||||
|
Other
|
7,842 | 8,318 | ||||||
|
Accrued
expenses
|
$ | 35,239 | $ | 43,993 | ||||
NOTE
11 - COMMITMENTS AND CONTINGENT LIABILITIES
Derivative
Litigation
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 our 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 was
substantially similar to the prior consolidated complaint. In response, the
company and the individual defendants filed motions to dismiss on September 21,
2007. In an order dated April 14, 2008, the court again granted our motion to
dismiss the amended consolidated complaint, with leave to amend. On May 5, 2008,
the plaintiff filed a second amended consolidated shareholder derivative
complaint that alleges claims substantially similar to the prior complaints.
Once again, the company and the individual defendants filed motions to dismiss
on May 30, 2008. The court conducted a hearing on the motions to dismiss on
September 15, 2008, but has yet to rule on the motions. 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.
Air
Quality Matters
The South Coast Air Quality Management
District (the SCAQMD) issued to us notices of violation, dated December 14,
2007 and December 5, 2008, alleging violations of certain permitting and air
quality rules at our Van Nuys, California manufacturing
facility. The December 2008 notice was issued after the company
disclosed and corrected certain discrepancies associated with the manner that
the facility reported nitrogen oxide (NOx) emissions in 2004 and
2005. After researching the history of the air quality permits and
other facts, we met with the SCAQMD on May 1, 2008 and October 17, 2008, to
resolve the issues raised in the notices of violation and address other
compliance issues.
The
company has remedied the issues associated with the violations except
for the issues associated with permit applications for three
facility furnaces. The initial notice of violation alleged that
we failed to submit permit applications to modify the burners for three of the
plant’s furnaces and failed to update the NOx emission factors for the same
three furnaces. We agreed to conduct source testing to update the NOx
emission factors and to submit new permit applications for the furnaces, which
we did on June 6, 2008. In approximately December 2008, the
SCAQMD put our permit applications, as well as other companies' permit
applications, on temporary hold to address internal agency policy on the
processing of permit applications. In response, we have proposed
amendments to its permit applications to allow the agency to suspend the
temporary hold.
We have
also proposed that in lieu of penalties, the violations be resolved through a
Supplemental Environmental Project (SEP) to enhance air quality controls and
compliance. However, it is premature to anticipate what the probable
SEP may be or its associated cost. We anticipate that the resolution
of these matters will not have a material adverse effect on our financial
position or results of operation.
Other
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 decreased by 26 percent in relation to the
U.S. dollar in 2008, the majority of which occurred in the fourth
quarter. The euro experienced a 5 percent decrease versus the U.S.
dollar in 2008. For the year ended December 31, 2008 we had foreign
currency transaction gains totaling $5.5 million, which is included in other
income (expense) in the consolidated statements of operations. There
were no foreign currency transaction gains or losses during 2007. For
the year ended December 31, 2006, we had foreign currency transaction gains
totaling $0.4 million which was included in other income (expense) in the
consolidated statements of operations.
As it
relates to foreign currency translation gains and 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, 2008 of $71.2 million, the majority of which,
or $39.9 million was recorded in the fourth quarter of 2008. 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, 2008 of $5.8 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, 2008 and 2007, we
held no foreign currency 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, environmental emission credits and other raw materials. Typically, any such
commodity commitments are expected to be purchased and used over a reasonable
period of time in the normal course of business. Accordingly, such commodity
commitments are not subject to the provisions of SFAS No. 133 unless
there is a change in the facts or circumstances in regard to the commitments
being used in the normal course of business.
We
currently have several purchase agreements for the delivery of natural gas
through 2011. With the recently announced closure of our
manufacturing facility in Van Nuys, California expected in June 2009, and our
recently completed closure in December 2008 of our manufacturing facility in
Pittsburg, Kansas, we will no longer qualify for the “normal purchase” exemption
provided for under SFAS No. 133 for the remaining natural gas purchase
commitments related to those facilities. In accordance with SFAS No.
133, these natural gas purchase commitments are classified as being with “no
hedging designation” and, accordingly, we are required to record any gains
and/or losses associated with these commitments in our current
earnings. The contract and fair values of these purchase
commitments at December 31, 2008 were $4.6 million and $3.0 million,
respectively, and the resulting loss of $1.6 million is recorded in cost of
sales in our 2008 consolidated statement of operations.
The
remaining natural gas purchase commitments for our other manufacturing
facilities do qualify for the “normal purchase” exemption provided for under
SFAS No. 133. The contract and fair values of these remaining
purchase commitments were $23.4 million and $18.1 million, respectively, at
December 31, 2008. As of December 31, 2007, the aggregate contract
and fair values of these commitments were approximately $11
million.
The fair
values of the natural gas purchase commitments are based on quoted market prices
using the market approach and are considered Level 1 inputs within the fair
value hierarchy provided for under SFAS No. 157. Percentage changes
in the market prices of natural gas will impact the fair values by a similar
percentage.
At December 31, 2008 and 2007, we had
outstanding letters of credit of approximately $6.5 million and $7.5 million,
respectively.
NOTE
12 – STOCK-BASED COMPENSATION
Our 2008
Equity Incentive Plan authorizes us to issue incentive and non-qualified stock
options, as well as stock appreciation rights, restricted stock and performance
units to our non-employee directors, officers, employees and consultants
totaling up to 3.5 million shares of common stock. No more than 100,000 shares
may be used under such plan as “full value” awards, which include restricted
stock and performance units. It is our policy to issue shares from
authorized but not issued shares upon the exercise of stock
options. At December 31, 2008, there were 3.5 million shares
available for future grants under this plan. Options are 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 under this plan to employees
and non-employee directors require no less than a three year ratable vesting
period if vesting is based on continuous service. Vesting periods may
be shorter than three years if performance based.
We
account for stock-based compensation using the fair value recognition provisions
of SFAS No. 123(R), “Share-based Payment” (SFAS No. 123(R)). 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 $95,000 and the
total fair value of shares vested during the year was approximately $2.0
million.
We have
elected to adopt the alternative transition method for calculating the initial
pool of excess tax benefits and to determine the subsequent impact of the tax
effects of employee stock-based compensation awards that are outstanding upon
adoption of SFAS No. 123(R) on shareholders’ equity and Consolidated
Statements of Cash Flow.
|
Weighted
|
||||||||||||||||
|
Average
|
Remaining
|
Aggregate
|
||||||||||||||
|
Exercise
|
Contractual
|
Intrinsic
|
||||||||||||||
|
Outstanding
|
Price
|
Life
in Years
|
Value
|
|||||||||||||
|
Balance
at December 31, 2007
|
3,198,111 | $ | 26.53 | |||||||||||||
|
Granted
|
616,000 | 20.92 | ||||||||||||||
|
Exercised
|
(35,000 | ) | 17.63 | |||||||||||||
|
Cancelled
|
(564,374 | ) | 25.17 | |||||||||||||
|
Balance
at December 31, 2008
|
3,214,737 | $ | 25.79 | 6.56 | $ | - | ||||||||||
|
Options
vested or expected to vest
|
3,122,288 | $ | 25.96 | 6.76 | $ | - | ||||||||||
|
Exercisable
at December 31, 2008
|
1,977,134 | $ | 29.50 | 5.25 | $ | - | ||||||||||
Options
outstanding at December 31, 2008:
|
Weighted
|
Weighted
|
Weighted
|
||||||||||||||||||||||||
|
Options
|
Average
|
Average
|
Options
|
Average
|
||||||||||||||||||||||
|
Range
of
|
Outstanding
|
Remaining
|
Exercise
|
Exercisable
|
Exercise
|
|||||||||||||||||||||
|
Exercise
Prices
|
at
12/31/08
|
Contractual
Life
|
Price
|
at
12/31/08
|
Price
|
|||||||||||||||||||||
|
(in
years)
|
||||||||||||||||||||||||||
| $ | 17.55 | - | $ | 21.83 | 1,208,200 | 8.18 | $ | 18.31 | 481,098 | $ | 18.12 | |||||||||||||||
| $ | 21.84 | - | $ | 26.12 | 1,032,625 | 7.36 | 23.31 | 522,124 | 24.72 | |||||||||||||||||
| $ | 26.13 | - | $ | 30.41 | 98,815 | 1.94 | 28.25 | 98,815 | 28.25 | |||||||||||||||||
| $ | 30.42 | - | $ | 34.70 | 193,250 | 4.10 | 33.44 | 193,250 | 33.44 | |||||||||||||||||
| $ | 34.71 | - | $ | 38.99 | 307,727 | 2.82 | 36.81 | 307,727 | 36.81 | |||||||||||||||||
| $ | 39.00 | - | $ | 43.22 | 374,120 | 4.68 | 43.09 | 374,120 | 43.09 | |||||||||||||||||
| 3,214,737 | 6.56 | $ | 25.79 | 1,977,134 | $ | 29.50 | ||||||||||||||||||||
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 trading day of our fiscal year was
$9.95.
Stock-based
compensation expense related to stock option plans under SFAS No. 123(R) was
allocated as follows:
|
Year
Ended December 31,
|
2008
|
2007
|
2006
|
|||||||||
|
(Thousands
of dollars)
|
||||||||||||
|
Cost
of sales
|
$ | 353 | $ | 487 | $ | 622 | ||||||
|
Selling,
general and administrative expenses
|
2,054 | 2,586 | 2,410 | |||||||||
|
Stock-based
compensation expense before income taxes
|
2,407 | 3,073 | 3,032 | |||||||||
|
Income
tax benefit
|
(694 | ) | (1,038 | ) | (289 | ) | ||||||
|
Total
stock-based compensation expense after income taxes
|
$ | 1,713 | $ | 2,035 | $ | 2,743 | ||||||
As of
December 31, 2008, there was $5.2 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 2.59 years.
We
received cash proceeds of $617,000 from stock options exercised in 2008 and
$430,000 from stock options exercised in 2007. 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,
|
2008
|
2007
|
2006
|
|||||||||
|
Expected
dividend yield (a)
|
3.2 | % | 3.3 | % | 3.5 | % | ||||||
|
Expected
stock price volatility (b)
|
30.2 | % | 30.1 | % | 31.2 | % | ||||||
|
Risk-free
interest rate (c)
|
3.5 | % | 4.0 | % | 4.9 | % | ||||||
|
Expected
option lives in years (d)
|
7.10 | 7.30 | 7.48 | |||||||||
|
Weighted
average grant date fair value of
|
||||||||||||
|
options
granted during the period
|
$ | 5.30 | $ | 5.14 | $ | 4.99 | ||||||
|
(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
13 - 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, to date we have repurchased a total of 818,000 shares
for a total cost of $26.9 million at an average cost per share of
$32.82. All repurchased shares are immediately cancelled and retired.
There have been no stock repurchases since 2005. As of December 31,
2008, approximately 3.2 million additional shares can be repurchased under the
current authorization.
NOTE 14 - 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,
|
2008
|
2007
|
2006
|
|||||||||
|
(Thousands
of dollars)
|
||||||||||||
|
Foreign
currency translation adjustments
|
$ | (39,567 | ) | $ | 10,113 | $ | 4,205 | |||||
|
Net
actuarial gain (loss) on pension obligation (Note 9)
|
1,346 | 220 | 1,147 | |||||||||
|
Unrealized
gain (loss) on marketable securities
|
- | 40 | 1,102 | |||||||||
|
Reclassification
adjustment for realized gains from
|
||||||||||||
|
marketable
securities included in net income
|
- | (2,720 | ) | - | ||||||||
|
Net
unrealized (loss) gain
|
- | (2,680 | ) | 1,102 | ||||||||
|
Reclassification
adjustment for realized gains from forward
|
||||||||||||
|
foreign
currency contracts included in net income
|
- | - | 203 | |||||||||
|
Income
tax benefit (provision)
|
(445 | ) | 898 | (1,199 | ) | |||||||
|
Other
comprehensive income (loss)
|
$ | (38,666 | ) | $ | 8,551 | $ | 5,458 | |||||
Accumulated
balances of other comprehensive income (loss) as reflected in the consolidated
balance sheets and statements of shareholders’ equity as follows:
|
December
31,
|
2008
|
2007
|
2006
|
|||||||||
|
(Thousands
of dollars)
|
||||||||||||
|
Foreign
currency translation adjustments
|
$ | (65,444 | ) | $ | (25,877 | ) | $ | (35,990 | ) | |||
|
Unrealized
gain (loss) on marketable securities
|
- | - | 2,680 | |||||||||
|
Net
actuarial gain (loss) on pension obligation (Note 9)
|
(2,911 | ) | (4,257 | ) | (4,477 | ) | ||||||
|
Unrealized
gain (loss) on forward foreign currency contracts
|
- | - | - | |||||||||
|
Income
tax (provision) benefit
|
1,111 | 1,556 | 658 | |||||||||
|
Accumulated
other comprehensive loss
|
$ | (67,244 | ) | $ | (28,578 | ) | $ | (37,129 | ) | |||
During
the year 2008, the value of the Mexican peso decreased by 26 percent in relation
to the U.S. dollar, resulting in a loss of $37.1 million in foreign currency
translation adjustments related to our operations in Mexico. In
addition, the euro decreased by 5 percent relative to the U.S. dollar and
resulted in a loss for the year of $2.4 million in foreign currency translation
adjustments related to our 50 percent-owned joint in Hungary. At
December 31, 2008, cumulative unrealized foreign currency translation losses
related to our operations in Mexico was $71.2 million, compared to the
cumulative unrealized foreign currency translation gains of $5.8 million related
to our joint venture in Hungary.
NOTE
15 – IMPAIRMENT OF LONG-LIVED ASSETS AND OTHER CHARGES
In
September 2008, we announced the planned closure of our wheel manufacturing
facility located in Pittsburg, Kansas, and workforce reductions in our other
North American plants, resulting in the layoff of approximately 665 employees
and the elimination of 90 open positions. On January 13, 2009, we also announced
the planned closure of our Van Nuys, California wheel manufacturing facility,
thereby eliminating an additional 290 jobs. The Kansas facility ceased
operations in December 2008 and the California facility is expected to terminate
operations in June 2009. These were the latest steps in our program to
rationalize our production capacity after announcements by our major customers
of assembly plant closures and sweeping production cuts, particularly in the
light truck and SUV platforms. Asset impairment charges against pretax earnings
totaling $17.8 million were recorded in 2008 to reduce the carrying value of
certain long-lived assets in these facilities to their estimated fair values. An
additional impairment charge of $0.7 million was recorded in 2008 to reduce the
real estate value of a third facility in Johnson City, Tennessee, which ceased
operations in March 2007, to its estimated fair value.
In
September 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.
In
June 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
16 – 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 that bears interest at LIBOR
plus 1 percent, adjusted quarterly. Included in the discontinued
operations line item of our 2006 consolidated statement of operations was a loss
from operations of $384,000, including a $263,000 tax benefit, and a gain on the
disposal of $641,000, including a $436,000 tax provision.
NOTE 17 - QUARTERLY FINANCIAL DATA
(UNAUDITED)
(Thousands
of dollars, except per share amounts)
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||||||||
|
Year
2008
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Year
|
|||||||||||||||
|
Net
sales
|
$ | 222,238 | $ | 217,385 | $ | 163,354 | $ | 151,917 | $ | 754,894 | ||||||||||
|
Gross
profit (loss)
|
$ | 9,386 | $ | 12,054 | $ | (11,191 | ) | $ | (3,672 | ) | $ | 6,577 | ||||||||
|
Net
income (loss)
|
$ | 3,179 | $ | 5,095 | $ | (14,207 | ) | $ | (20,120 | ) | $ | (26,053 | ) | |||||||
|
Earnings
(loss) per share:
|
||||||||||||||||||||
|
Basic
|
$ | 0.12 | $ | 0.19 | $ | (0.53 | ) | $ | (0.76 | ) | $ | (0.98 | ) | |||||||
|
Diluted
|
$ | 0.12 | $ | 0.19 | $ | (0.53 | ) | $ | (0.76 | ) | $ | (0.98 | ) | |||||||
|
Dividend
declared per share
|
$ | 0.16 | $ | 0.16 | $ | 0.16 | $ | 0.16 | $ | 0.64 | ||||||||||
|
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 | ||||||||||
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
Exchange Act) as of December 31, 2008. 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, our Chief Executive Officer and Chief Financial Officer
concluded that, as of December 31, 2008, our disclosure controls and procedures
were effective.
Management’s
Report on Internal Control Over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting. As defined in Rule 13a-15(f) under the Exchange
Act, 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 31, 2008 based upon criteria established
in Internal Control --
Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Based on their assessment,
management determined that our internal control over financial reporting was
effective as of December 31, 2008 based on the criteria in the Internal Control -- Integrated
Framework issued by COSO. The effectiveness of the company’s
internal control over financial reporting as of December 31, 2008 has been
audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, as stated in their report, which is included in this Annual
Report on Form 10-K.
Remediation
Steps to Address the 2007 Material Weaknesses
We made
the following changes to our internal controls over financial reporting to
remediate the material weakness, as disclosed in our 2007 Annual Report on Form
10-K:
|
1)
|
We
have hired a Director of Tax with the appropriate level of knowledge,
experience and training commensurate with our financial reporting
requirements. We also developed a documented workflow process
to ensure that the appropriate procedures relating to the completion of an
accurate income tax provision and recording of the required adjustments to
the related tax accounts take place on an annual
basis.
|
|
2)
|
We
have implemented the following procedures: (i) properly and accurately
identifying and quantifying the temporary differences between the use of
accelerated depreciation for taxes and straight-line depreciation for
financial reporting; (ii) accurately computing and booking the deferred
tax liabilities for these differences; and (iii) recognizing a deferred
tax liability for exempted taxable temporary differences only if those
temporary differences will reverse in the foreseeable
future. These procedures are reviewed by our Director of Tax,
as well as an independent review of the process and final income tax
provision by our Chief Financial
Officer.
|
We have
completed the documentation and testing of the corrective processes and, as of
December 31, 2008, have concluded that the steps taken have remediated the
material weakness disclosed in our 2007 Annual Report on Form 10-K.
Changes
in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting, other than the
remedial actions described above, which occurred during the fourth quarter of
fiscal 2008 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Statement
Regarding New York Stock Exchange (NYSE) Mandated Disclosures
The
company has filed with the SEC as exhibits to its 2008 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 9, 2008, following its 2008
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.
PART
III
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 2009 Annual Proxy Statement.
Executive
Officers
The names
of corporate executive officers as of fiscal year end who are not also Directors
are listed at the end of Item 4 – Submission of Matters to a Vote of Security
Holders. Information regarding executive officers who are Directors
is contained in our 2009 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 2009 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 2009 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 2009 Annual Proxy Statement. Also see
Note 12- 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 2009 Annual Proxy Statement, and in Note 8 - 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 2009 Annual Proxy
Statement and is incorporated herein by reference.
PART
IV
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 and
Financial Statement Schedule” in Item 8 of this Annual
Report.
|
|
2.
|
Financial
Statement Schedule Page
|
Schedule
II – Valuation and Qualifying Accounts for the Years Ended
December
31, 2008, 2007 and
2006
S-1
|
3.
|
Exhibits
|
|
3.1
|
Restated
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
|
Amended
and Restated By-Laws of the Registrant (Incorporated by reference to
Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed on September
5, 2007.
|
|
10.1
|
Lease
dated March 2, 1976 between the Registrant and Louis L. Borick filed on
Registrant’s Current Report 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) *
|
|
10.2
|
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.)
*
|
|
10.3
|
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)
*
|
|
10.4
|
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)
*
|
|
10.5
|
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)
*
|
|
10.6
|
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) *
|
|
10.7
|
Executive
Employment Agreement dated January 1, 2005 between Steven J. Borick and
the registrant (Incorporated by reference to Exhibit 10.1 to Registrant’s
Quarterly Report on Form 10-Q for the first quarter of
2005 ended March 27, 2005)
*
|
|
10.8
|
Executive
Annual Incentive Plan dated January 1, 2005 between Steven J. Borick and
the registrant (Incorporated by reference to Exhibit A to Registrant’s
Definitive Proxy Statement on Schedule 14A filed on April 19, 2005
*
|
|
10.9
|
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)
*
|
|
10.10
|
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) *
|
|
10.11
|
Amendment
to Stock Option Agreement entered into between the Registrant and each of
the following persons separately: Robert A. Earnest, Razmik
Perian and Cameron Toyne dated October 9, 2007 (Incorporated by reference
to Exhibit 10.47 to Registrant’s Annual Report on Form 10-K for the year
ended December 30, 2007) *
|
|
10.12
|
Salary
Continuation Plan of The Registrant, amended and restated as of November
14, 2008 (filed herewith) *
|
|
10.13
|
2008
Equity Incentive Plan of the Registrant (Incorporated by reference to
Exhibit A to Registrant’s Definitive Proxy Statement on Schedule 14A filed
on April 28, 2008)
|
|
10.14
|
2008
Equity Inventive Plan Notice of Stock Option Grant and Agreement
(Incorporated by reference to Exhibit 10.2 to Registrant’s Form S-8 filed
November 10, 2008. Registration No.
333-155258)
|
|
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)
|
*
Indicates management contract or compensatory plan or
arrangement.
SUPERIOR
INDUSTRIES INTERNATIONAL, INC.
ANNUAL
REPORT OF FORM 10-K
Schedule
II
VALUATION
AND QUALIFYING ACCOUNTS
FOR
THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(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
|
||||||||||||||||
|
2008
|
||||||||||||||||||||
|
Allowance
for doubtful
|
||||||||||||||||||||
|
accounts
|
$ | 2,427 | $ | 1,164 | $ | - | $ | (463 | ) | $ | 3,128 | |||||||||
|
Inventory
reserve
|
$ | 1,651 | $ | 806 | $ | - | $ | (225 | ) | $ | 2,232 | |||||||||
|
Valuation
allowance for
|
||||||||||||||||||||
|
deferred
tax assets
|
$ | 12,083 | $ | 7,274 | $ | - | $ | - | $ | 19,357 | ||||||||||
|
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 | ||||||||||
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
10, 2009
|
|||
|
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
10, 2009
|
|||||
|
Louis
L. Borick
|
|||||||
|
/s/ Steven J.
Borick
|
Chairman,
Chief Executive Officer and President
|
March
10, 2009
|
|||||
|
Steven
J. Borick
|
(Principal
Executive Officer)
|
||||||
|
/s/ Erika H.
Turner
|
Chief
Financial Officer
|
March
10, 2009
|
|||||
|
Erika
H. Turner
|
(Principal
Financial Officer)
|
||||||
|
/s/ Emil J.
Fanelli
|
Vice
President and Corporate Controller
|
March
10, 2009
|
|||||
|
Emil
J. Fanelli
|
(Principal
Accounting Officer)
|
||||||
|
/s/ Sheldon I.
Ausman
|
Lead
Director
|
March
10, 2009
|
|||||
|
Sheldon
I. Ausman
|
|||||||
|
/s/ Philip W.
Colburn
|
Director
|
March
10, 2009
|
|||||
|
Philip
W. Colburn
|
|||||||
|
/s/ Margaret S.
Dano
|
Director
|
March
10, 2009
|
|||||
|
Margaret
S. Dano
|
|||||||
|
/s/ V. Bond
Evans
|
Director
|
March
10, 2009
|
|||||
|
V.
Bond Evans
|
|||||||
|
/s/ Michael J.
Joyce
|
Director
|
March
10, 2009
|
|||||
|
Michael
J. Joyce
|
|||||||
|
/s/ Francisco S.
Uranga
|
Director
|
March
10, 2009
|
|||||
|
Francisco
S. Uranga
|