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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
for the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
for the transition period from ___________ to ___________
COMMISSION FILE NO. 1-6615
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-2594729
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
7800 WOODLEY AVENUE, VAN NUYS, CALIFORNIA 91406
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (818) 781-4973
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, PAR VALUE $0.50
REGISTERED ON THE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if 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 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.
Yes X No
----- -----
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
----- -----
The aggregate market value of voting stock of the registrant held by
nonaffiliates of the registrant on March 16, 1998 was $635,647,711. On March 16,
1998, there were 27,905,378 shares of common stock issued and outstanding.
The following documents are incorporated by reference and made a
part of the Form 10-K:
1. Portions of Superior's 1997 Annual Report to Shareholders are
incorporated into Parts I, II and IV.
2. Portions of Superior's 1997 Annual Proxy Statement are
incorporated into Part III.
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TABLE OF CONTENTS
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PART I
Item 1 Business 1
General Development of Business 1
Financial Information About Industry Segments 1
Narrative Description of Business 1
Principal Products 1
OEM - Aluminum Road Wheels 2
New Products 4
Aftermarket 5
Manufacturing 6
Marketing 7
Net Sales Backlog 7
Seasonal Variations 7
Raw Materials 8
Patents and Licensing Agreements 8
Research and Development 8
Government Regulation 9
Environmental Controls 9
Competition 10
Employees 10
Item 2 Properties 11
Item 3 Legal Proceedings 11
Item 4 Submission of Matters to a Vote of Security Holders 12
Executive Officers of The Registrant 12
PART II
Item 5 Market Price of and Dividends on the Registrant's Common
Equity and Related Stockholder Matters 13
Item 6 Selected Financial Data 13
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 8 Financial Statements and Supplementary Data 13
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 13
PART III
Item 10 Directors and Executive Officers of the Registrant 14
Item 11 Executive Compensation 14
Item 12 Security Ownership of Certain Beneficial Owners and Management 14
Item 13 Certain Relationships and Related Transactions 14
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 15
Signatures
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PART I
STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Certain statements included in this filing which are not historical
in nature are forward looking statements within the meaning of the Private
Securities Legislation Act of 1995. Forward looking statements regarding the
Company's future performance and financial results are subject to certain risks
and uncertainties that could cause actual results to differ materially from
those set forth in the forward looking statements due to a variety of factors.
Factors that may impact such forward looking statements include, among others,
changes in the condition of the industry, changes in general economic conditions
and the success of the Company's strategic and operating plans.
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Superior Industries International, Inc.'s (the "Company" or the
"Registrant") principal business is the design and manufacture of motor parts
and accessories, primarily vehicle aluminum road wheels for the domestic and
international original equipment manufacturers (OEMs). It also designs and
distributes a variety of products for the automotive aftermarket, including
custom road wheels and accessories. The Registrant was initially incorporated in
Delaware in 1969 and reincorporated in California in 1994 as the successor to
three businesses founded by Louis L. Borick, President and Chief Executive
Officer, which had been engaged in the design, manufacture and sale of
automotive accessories and related products since 1957.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company manufactures motor vehicle parts and accessories for
sale on normal, generally unsecured trade terms to original equipment
manufacturers (OEMs) and the automotive aftermarket on an integrated one-segment
basis.
NARRATIVE DESCRIPTION OF BUSINESS
Principal Products
The Registrant's products include OEM aluminum road wheels,
representing 93.8 percent of 1997 consolidated net sales, aftermarket custom
road wheels and automotive accessories, representing 3.2 percent and 3.0
percent, respectively of 1997 consolidated net sales.
The Company's net sales for these product lines for 1997, 1996 and
1995 are included in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section of the Company's 1997 Annual Report
to Shareholders, which is incorporated herein by reference.
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OEM - Aluminum Road Wheels
The Company's entry into the OEM road wheel business in 1973
resulted from its successful development of manufacturing technology, quality
control and quality assurance techniques which enabled it to satisfy the quality
and volume requirements of the OEM market. The Company's OEM aluminum road
wheels are sold for factory installation as optional or standard equipment on
selected vehicle models, to Ford Motor Company ("Ford"), General Motors
Corporation ("General Motors"), Chrysler de Mexico ("Chrysler"), Toyota Motor
Corporation ("Toyota"), Mazda Motor Corporation ("Mazda"), Nissan Motor
Corporation Ltd. ("Nissan"), Fuji Heavy Industries, Ltd. ("Subaru"), Isuzu
Motors Limited ("Isuzu"), Audi AG ("Audi"), Bayerische Motoren Werke ("BMW"),
Jaguar Cars Ltd. ("Jaguar") and Ford of Australia. As discussed below, there are
several advantages for automobile and light truck manufacturers, dealers and
consumers provided by aluminum wheels. These advantages help promote the success
of the Company.
During the past twenty-four years the Company has provided aluminum
road wheels to Ford, General Motors, Chrysler and, for the last decade, Japanese
and European auto manufacturers for an increasing number of vehicle platforms,
from eight models in 1980 to approximately 163 currently. It has been the
Company's experience that once the manufacturer has ordered the Company's
aluminum wheels for use on a particular year's model, the Company's wheel will
be included in that model's production in later years as well.
Demand for OEM aluminum wheels such as those manufactured by the
Company has been increasing. Ward's Automotive, an industry publication, reports
that the installation rate of such wheels for domestic cars, light trucks and
utility vehicles rose from approximately 4 percent in 1980 to 52 percent for the
1997 model year. This growth in aluminum wheel installation rates has taken
place while the automotive market has been cyclical.
The Company believes that the increased use of aluminum wheels on
domestic vehicles is due to several factors. The aesthetic appeal of aluminum
wheels has fueled customer demand. Aluminum wheels typically weigh less than
conventional steel wheels and this weight savings contributes to increasing the
vehicle's fuel efficiency. Because the federal government requires each domestic
manufacturer's total annual production to meet certain minimum fuel efficiency
levels referred to as "CAFE" (Corporate Average Fuel Economy), the Company's
customers have sought to meet these levels in part by reducing the weight of
their vehicles with the installation of aluminum wheels. Manufacturers and
dealers also benefit from the installation of aluminum wheels on their models
because of higher profit margins. Aluminum wheels contribute to the road
handling ability and ride of a vehicle because of the weight savings to critical
suspension areas and because of the greater precision achieved in manufacturing
one piece aluminum wheels over conventional steel wheels.
With approximately 85 percent of the Company's 1997 sales made to
Ford and General Motors, the Company is dependent on these two significant
customers. The Company does not believe this represents a material risk due to
the following factors. First, in 1993 the Company was awarded a new five-year
contract with Ford. The contract, which expires in 1998, replaces previous
long-term contracts and covers passenger cars, light trucks and utility
vehicles. This relationship should result in the Company continuing to be Ford's
primary aluminum wheel supplier. Second, in 1995, the Company signed a
"lifetime" contract with General Motors which extends from January 1, 1996
through December 31, 2000 and pertains to the "lifetime" of all current models.
In addition to securing current models, the
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contract also appoints the Company to be the preferred supplier for all
replacement wheels. Accordingly, the Company should be awarded a significant
portion of General Motors overall aluminum requirements.
The Company has proven its ability to be a consistently low-cost
producer of quality aluminum wheels with the capability of quickly expanding
production capacity to meet increasing customer sales demands. This has been
evidenced not only through the Company's rapid plant expansion program, but also
through the Company's demonstrated ability to meet frequent customer requests to
absorb additional capacity requirements. The Company strives to continually
enhance its relationships with its customers through continuous improvement
programs. Moreover, the Company ships wheels for over 90 different vehicle
platforms / trimlines to Ford and General Motors indicating the broad usage of
the Company's wheels throughout both OEM customers' product lines. Finally, both
Ford and General Motors continue to rank the Company as one of their highest
rated supplier of aluminum road wheels.
The Company's long-term strategy involves broadening both its
domestic and international OEM customer base and expanding its product lines
into complementary areas which will utilize the Company's manufacturing
expertise. The Company has embarked on a strategy to develop three new
international markets: Japan, Europe and Latin America as well as related
foreign OEMs with manufacturing facilities in the United States.
The Company's first step towards achieving this goal was to explore
and develop relationships with Japanese OEMs. During 1989 the Company announced
it had, in conjunction with Topy Industries, Limited ("Topy"), Japan's largest
wheel manufacturer, obtained its first order with a Japanese OEM from Mazda. In
1990, the Company further penetrated this market by receiving a contract from
Toyota. Also in 1990, the Company increased its marketing efforts into this area
by forming a sales and marketing joint venture with Topy. The joint venture,
named Topy-Superior Limited ("TSL"), markets and sells wheels made by the
Company to Japanese OEM customers both in Japan and the United States. Since
inception, the Company, through TSL, has received many new contracts to
manufacture wheels for domestic Japanese OEMs as well as for three of their U.S.
operations. In total, TSL has contracts with five Japanese OEM customers. This
venture is one key step forward in the Company's international marketing efforts
and the Company expects continued sales growth from this venture.
A second step in the Company's international marketing efforts was
achieved in 1994 as the Company successfully entered the European marketplace by
obtaining two new customers. The Company was awarded a contract by Jaguar to
supply wheels. The wheels are manufactured in the United States and exported to
the United Kingdom. In addition, the Company received a contract with European
based BMW, to supply wheels for the new BMW roadster convertible. Shipments
began in 1995 to BMW's new plant in Spartanburg, South Carolina. Moreover, in
1995, validating BMW's high regard for its quality and production capabilities,
the Company was awarded five additional wheel programs by BMW for shipment to
the Spartanburg plant as well as export to Germany.
Further in pursuit of developing its ties to the European market,
the Company in 1995 entered into a 50-50 joint venture with German based Otto
Fuchs Metallwerke ("Otto Fuchs") to establish a European manufacturing presence.
The joint venture, known as Suoftec Light Metal Products, KFT ("Suoftec") will
produce both light weight forged and aluminum wheels for sale to European OEMs.
Construction of the building is complete and shipments began in early 1997. The
facility, located in Tatabanya, Hungary, a country with competitive labor and
production costs and available labor force, establishes the Company's commitment
toward entering the European market. The facility is located in close proximity
to large European OEM assembly plants and brings new wheel making technology to
the Company for use in European and U.S. markets.
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Demonstrating OEM's interest in this new light weight forging
technology, Suoftec received a long term contract from Audi calling for 700,000
wheels per year. The contract represents over $30 million per year in revenues
and represents almost half of first phase capacity of 1.5 million wheels per
year. The Company also received a new multi-year contract to supply aluminum
wheels for the new Audi TT convertible.
Development of the Company's initial Latin American program
commenced during 1994 with the first shipments from the Company's Chihuahua,
Mexico plant. Relative to this market, the Company received orders from Ford and
General Motors and renewed its relationship with Chrysler by receiving orders to
produce two wheel models from Chrysler de Mexico for the 1995 and 1996 model
years. Wheels manufactured at the Chihuahua, Mexico facility are for both export
and installation on Mexican-manufactured cars built mostly for in-direct export
back to the U.S. Prior to the devaluation of the Mexican peso, the Mexican
market was growing rapidly and major automotive manufacturers were increasing
production and adding capacity. Subsequent to the devaluation, this expansion
activity in the domestic Mexican automotive industry slowed. However, the
Mexican economy has improved and expansion activity has increased dramatically.
During 1997, the Company announced an expansion project at the plant doubling
its capacity to meet future increases in export activities and customers
demands.
Contracts for OEMs other than Ford and General Motors increased from
6% to 8% in 1997. They are significant for the growth of the Company by
geographically diversifying and expanding its global presence. The Company will
continue to focus its efforts on new global markets as they become the fastest
growing segments of its business.
In 1994, in response to the steadily growing popularity of
chrome-plated aluminum wheels and to provide capacity for several new customer
orders, the Company completed construction of a new chrome-plating wheel
facility. The Company is the only OEM aluminum wheel manufacturer to develop
this in-house capability and the plant is the largest of its kind in the world.
This facility encountered severe start up difficulties but implemented
corrective action that has led to improved results beginning in the fourth
quarter of 1996. One of the most severe problems was in establishing waste
treatment systems that were reliable and able to meet production levels.
Significant resources were devoted and key managers placed to achieve higher
production levels. The plant represents the Company's commitment toward
diversifying into new product lines complementary to its core business (See also
"Manufacturing"). Also during 1997 the Company approved the addition of a fully
automated polishing facility for aluminum wheels adjacent to the Fayetteville,
Arkansas chrome plant. Production orders have been received and deliveries will
occur in early 1998. This addition gives the Company the most diverse wheel
finishing capacity in the industry and a significant competitive advantage.
New Products
In March 1997, General Motors awarded the Company a contract to
supply aluminum transmission brackets for the Oldsmobile Intrigue program. This
product, which replaces a stamped steel bracket, will reduce vibration and
provide for quieter performance. Production of new products, which will not
require a significant capital investment, is taking place at Superior's plant in
Van Nuys, California.
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The contract marks the Company's initial move into other aluminum
components for the automotive market. It is part of the Company's planned
diversification program, aimed at maximizing its resources and applying its
manufacturing expertise and more than four decades of industry experience to
meet increasing demand for aluminum components, which are increasingly replacing
traditional heavier metals.
Management looks forward to continuing the strategic expansion into
other aluminum products for the automotive industry as a means to create even
stronger partnering relationships with customers and to foster the profitable
growth of the Company.
Aftermarket
The automotive aftermarket consists of products sold to vehicle
owners as replacements for, or additions to, OEM equipment to enhance the
comfort, safety, style, design and performance of vehicles such as passenger
cars, pick-up trucks, vans, recreational and off-road vehicles, light motor
homes and boat trailers. The Company designs, manufactures and distributes 68
different product lines including 3,800 part numbers of custom steel, aluminum
and chrome-plated steel and aluminum road wheels and accessories, including
steering wheel covers, lighting products, suspension and other accessories for
this market. The Company's Sport Grip(R) steering wheel cover has been a
significant product line and has achieved national recognition.
In 1997 the Company experienced a 1.7% sales increase in roadwheel
product lines, specifically, the Diamond Dust(R) wheel style. The Diamond
Dust(R) wheel style should continue to show increased sales volume, with
possible expansion of wheel styles in 1998. The aftermarket accessory product
lines' volume increase of 18% in 1997 is attributed primarily to the acquisition
and absorption of the "Perfection" product lines acquired in late 1996. The
approach to this business entails the identification of strategic geographic
markets throughout the United States and the development of key alliances with
distributors who maintain extensive lines of distribution within those markets.
Simultaneously, new styles of aluminum and chrome-plated aluminum wheels with
mass market appeal are developed and introduced to the product line. Consumer
response to new wheel styles has encouraged development of new wheel programs.
The aftermarket general accessories line continues to be negatively
impacted by ongoing retail market contraction and intensive market competition.
The trend of manufacturers to incorporate more accessories as original equipment
when vehicles are sold has also impacted this business. The accessory product
lines are geared toward the do-it-yourself consumer, although recently,
customers have been purchasing installation services along with the product.
The Company is a major aftermarket road wheel and accessory supplier
to companies with multiple retail outlets such as AutoZone, Pep Boys, Canadian
Tire, Wal-Mart, CSK Auto, Inc. (Checker, Schuck's, Kragen), Western Auto, Paccar
Automotive Inc. (formerly General Automotive/Grand Auto), NAPA and Discount Auto
Parts. The Company also supplies major tire distributors such as Les Schwab,
ITCO Tire Corp., Belle Tire, and other wheel and performance distributors.
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Manufacturing
The Company believes that its ability to efficiently process raw
materials into finished goods has enhanced its competitive position as a
manufacturer of OEM and aftermarket products. The Company employs low-pressure
casting in its existing North American factories, a process which the Company
believes is the most efficient process for high volume, high quality aluminum
wheels. The manufacture of aluminum wheels, in which aluminum ingot is melted,
cast, de-sprued, heat treated, painted, machined, clearcoated or chrome-plated
and packaged, is performed entirely at the Company's facilities.
The Company operates six OEM aluminum wheel manufacturing
facilities. The facilities, located in Fayetteville and Rogers, Arkansas, Van
Nuys, California, Pittsburg, Kansas, Johnson City, Tennessee and Chihuahua,
Chihuahua, Mexico are recognized by the Company's customers as "world class"
manufacturing plants utilizing state-of-the-art processes and equipment.
Construction has begun on the planned expansion of the Chihuahua facility as
part of the Company's long-term strategy of penetrating the Latin American
market. When completed in late 1998, capacity of this OEM wheel facility will be
double its current production level.
Entry into the European market, through the joint venture with Otto
Fuchs, with its newly completed aluminum wheel facility began in 1997 in
Tatabanya, Hungary. The plant will be initially capable of producing 1.5 million
wheels per year. The manufacturing process will take advantage of a new forging
technology developed by Otto Fuchs to forge lighter weight aluminum wheels,
supplemented with Superior's own light weight low pressure process. The cost of
the facility has been funded through capital contributions by each partner and
long-term project financing.
In response to the growing popularity of chrome-plated aluminum
wheels, the Company completed construction in 1994 of a new state-of-the-art
chrome-plating facility primarily to service the OEM market. The facility is
located adjacent to the Company's Fayetteville, Arkansas wheel plant and
shipments commenced in 1995. The plant experienced severe start up difficulties
related to waste treatment and production processes in 1995 and the majority of
1996. These problems have been eliminated in 1997 by committing the required
capital and process improvements which were managed by key personnel.
The Company maintains a high level of quality assurance in the
manufacture of its products and has built and maintained a reputation as a
supplier of high quality aluminum road wheels. This reputation is maintained by
day-to-day product, process and systems audits. In addition, Company-wide
continuous improvement programs are employed to ensure competitive leadership in
all facets of the Company's business. The Company's facilities and processes are
subject to continual technical and quality review by the AIAG and QS9000 Quality
Certification System. To maintain its position as a "world class" OEM supplier
and ensure all products and underlying services meet and exceed customer
expectations all seven North American and the European plant are QS9000
Certified through the QS9000 registration process. The ability to achieve this
hallmark of excellence, a quality system conformance standard jointly developed
by Chrysler, Ford, and General Motors, further emphasizes the Company's
commitment to the highest quality at a competitive price.
Optimal process performance at the lowest cost is significantly
enhanced by the use of advanced statistical analysis, such as design of
experiments and loss function analysis. Quality Functional Deployment ("QFD")
and Quality Operating Systems ("QOS") are elements in place that provide
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management with a summary of key measurable to monitor operations and to
identify and promote continuous improvement throughout the organization.
In 1995, Ford awarded the Company the highly coveted "Full Service
Supplier" award in recognition of its advanced design, engineering and program
management capabilities. Superior is the only OEM wheel supplier in the world to
achieve this status.
In 1994 the Company was named by General Motors as one of the elite
171 suppliers selected from a total of 30,000 companies recognized as Worldwide
Suppliers of the Year 1993. The award reflects the Company's ability to exceed
specific performance standards established by General Motors relative to
quality, service and price.
Marketing
Commencing January 1, 1996 the Company established a technical sales
center in Detroit and terminated its relationship with a third party
representative. The office provides technical engineering and sales staff in
closer proximity to the Company's major customers and will enhance the Company's
already strong sales and technical resources to meet the ever demanding
requirements of its OEM customers. In addition, the Company's sales and
marketing joint-venture with Topy maintains an office in Japan which adds local
support to the Company's Japanese customers. The Company believes that it has
maintained its long-standing relationships with OEMs on the basis of quality
production, timely deliveries in accordance with OEM requirements, timely
response to customer needs and competitive pricing.
A large proportion of the Company's aftermarket sales are made
through eighteen independent manufacturers' representative organizations
throughout North America. These representative organizations solicit orders from
catalog houses, department and auto accessory stores and chain stores. These
manufacturers' representatives are also supported by the Company's internal
marketing and sales organization.
In 1997, the Company had approximately 330 active aftermarket
accounts operating through thousands of retail outlets. The Company's ten
largest customers in 1997 accounted for approximately 68 percent of aftermarket
sales.
Net Sales Backlog
The Company receives OEM tooling purchase orders to produce
multi-year requirements for aluminum road wheels. These purchase orders are for
vehicle model programs that can last three to five years. The Company
manufactures and ships based on customer firm releases, normally provided on a
weekly basis, which can vary due to cyclical automobile production.
Customer orders for aftermarket products are normally shipped within
ten days of receipt. As of December 31, 1997 and 1996, the Company had no
significant backlog of such orders.
Seasonal Variations
The automotive industry is cyclical and varies based on the timing
of consumer purchases of vehicles and general economic conditions. Production
schedules can vary significantly from quarter to quarter to
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quarter to meet customer scheduling demands. During 1997, the only seasonal
factor included a work stoppage at our customer assembly plants in the first
quarter. During the past few years, there has been no significant consistent
seasonal variation.
Raw Materials
The Company purchases substantial quantities of aluminum ingot for
the manufacture of its aluminum road wheels. These purchases accounted for
approximately 80 percent of the Company's total material requirements during
1997. The majority of the Company's requirements are met through purchase orders
with several major domestic aluminum 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, which is typically one year. During the last
year, the Company was able to successfully secure aluminum commitments from its
primary suppliers to meet its production requirements.
The Company obtains its requirements for other materials through
numerous suppliers with whom it has established trade relations. In instances
where outside suppliers produce components for the Company's products, the
Company normally owns the tools and dies located in the supplier's facilities,
or has the right to purchase such items.
Patents And Licensing Agreements
The Company currently holds patents for 14 of its inventions and has
one patent pending. While the Company has a policy of applying for patents if
and when it develops new products or processes, it believes that its success is
dependent upon its manufacturing and engineering skills and the quality and
market acceptance of its products, rather than upon its ability to obtain and
defend patents. The Company is currently paying royalties on two patents owned
by other persons
Research And Development
The Company's policy is to continuously review, improve and develop
engineering capabilities so that advance compliance with customer requirements
are met in the most efficient and cost effective manner available. The Company
strives to achieve this objective by attracting and retaining top engineering
talent and by maintaining the latest state-of-the-art computer technology to
support engineering development. Two fully staffed engineering centers located
in Van Nuys, California and Fayetteville, Arkansas support the Company's R & D
manufacturing needs. Further in pursuit of this objective and to enhance
customer relationships, the Company opened, in 1996, a technical center in
Detroit which maintains a compliment of engineering staff centrally located near
the Company's largest customers.
The Company utilizes computer-aided design, computer-aided
engineering and computer-aided manufacturing (CAD/CAE/CAM) in the design of a
wheel, finite element analysis to identify potential design problems prior to
manufacturing and three dimensional prototyping for styling evaluation. The
Company also utilizes fluid flow and thermal analysis capabilities to aid in
molds and casting cycles at both its engineering centers. By continuously
improving its engineering capabilities, the Company is able to reduce the time
required to develop a wheel and identify cost saving technologies which can be
shared with customers. An example of this continuous improvement is the
application of "Simultaneous Engineering" to the development of a new wheel,
resulting in a major time reduction on priority programs requiring short lead
times from 13 weeks down to 5 weeks from final design to tested and approved
wheel samples.
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As part of the Company's on-going continuous improvement programs,
manufacturing technologies and processes are continually challenged, refined,
and enhanced to ensure the Company maintains its position as the low cost and
highest quality manufacturer of aluminum wheels. Further evidence of the
Company's commitment toward maintaining its leadership position in cost savings
technologies, the R & D group, in cooperation with the manufacturing group, has
successfully completed the "Rim Flow Forming" for aluminum wheels. This new
technology allows the Company to further reduce wheel weight and increase wheel
quality.
Development of the Company's patented helium leak testing device for
aluminum wheels has been a breakthrough in the Company's ongoing effort to
provide the most efficient manufacturing processes and methods. These machines,
which detect microscopic leaks at a rapid rate, are currently utilized in
several of the Company's facilities. Through its wholly-owned subsidiary,
Superior Engineered Technologies, Inc., the Company has redesigned the machine
for bigger wheels (13" up to 18") and added full automation and the capability
of mixed wheel size to the new H.L.T. 5100 Model.
Through joint-ventures and development projects, technological
advances, new processes and expanded engineering capabilities, the Company is
positioning itself to become a full spectrum manufacturer of aluminum wheels as
well as other aluminum components. These efforts have resulted in receiving our
first order to produce aluminum transmission brackets for the 1999 Oldsmobile
Intrigue, now released for production.
The Company is currently engaged in approximately 60 engineering
programs for the development of OEM wheels for future model years, including
several wheel models for Japanese, Latin American and European OEM
manufacturers, including approximately 8 engineering programs for the
development of chrome-plated aluminum wheels.
Reference is made to Note 1 of "Notes to Consolidated Financial
Statements" in the Company's 1997 Annual Report to Shareholders which is
incorporated herein by reference for a summary of research and development costs
over the past three years.
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. The Company believes that it is in compliance with all
federal standards currently applicable to OEM suppliers and to automotive
aftermarket manufacturers and products.
Environmental Controls
The Company's manufacturing facilities 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. Although from time to time the Company has paid fines arising out of
asserted violations of these standards, no such fines have been material in
nature. The Company believes it is substantially in compliance with all
standards presently applicable. Compliance with environmental regulations has
necessitated changes in processes and equipment upgrades and may in certain
instances require the acquisition of "trading credits". The 1997 annual cost of
environmental compliance is
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approximately $1,275,000. The Company will continue to modify its processes in
order to maintain compliance with federal, state and local laws. See Item 3.
"Legal Proceedings" for information concerning the Company's involvement with
certain United States Environmental Protection Agency activities. In 1997, the
waste treatment system in the chrome plant was improved to handle desired
production levels by providing the necessary resources to correct the problem.
Competition
The business sectors in each of the Company's product areas are
highly competitive. The Company is one of the leading suppliers of aluminum road
wheels for OEM installations in the world and the Company estimates it supplies
36 percent of the aluminum wheels for the North American car and light truck
market. Based on Wards Automotive, and industry publication, aluminum wheel
installation rates on automobiles and light trucks rose to a record 52 percent
for the 1997 model year. This significant growth began in 1980 when demand for
OEM aluminum road wheels was approximately four percent of vehicle
installations. Anticipating these continuing increases, the Company has
successfully located and expanded its state-of-the-art "world class"
manufacturing facilities closer to OEM final assembly plants. The Company
believes that as a result it has become very competitive both in terms of cost
and quality. The Company's primary competitor in the North American market is
Hayes Lemmerz International, Inc.
In the aftermarket business intense market competition has been
heightened by ongoing market contraction of major retailers and the presence of
more products manufactured outside the United States. In order to retain valued
customers, the Company has had to provide greater sales allowances to its
customers and has been generally unable to pass along timely and matching
selling price increases. These factors in the past have contributed to
diminished margins in the aftermarket business.
Employees
As of December 31, 1997, the Company had approximately 4,500
full-time employees. At the present time approximately 75 employees at the
Company's Tijuana, Mexico maquiladora, which polishes wheels for aftermarket
applications, are covered by collective bargaining agreements.
(This space intentionally left blank)
10
<PAGE> 13
ITEM 2. PROPERTIES
The Company maintains and operates 12 facilities located in Arkansas,
California, Michigan, Kansas, Tennessee, Puerto Rico, Tijuana and Chihuahua,
Mexico and Tatabanya, Hungary. The facilities encompass manufacturing, warehouse
and office space in 15 buildings with approximately 2.8 million square feet.
Excluding the Tatabanya, Hungary facility, six of the buildings are owned by the
Company, with the remainder operated under lease agreements expiring at various
dates through 2001.
The Company's corporate offices, manufacturing and warehousing
facilities located in Van Nuys, California are leased from Louis L. Borick, its
President and Chairman of the Board, and Juanita A. Borick. The Company also
leases additional plant and warehousing facilities in Van Nuys, California from
Keswick Properties, owned jointly by Steven J. Borick, son of Louis L. Borick
and a director of the Company, and two other of Mr. Louis L. Borick's children.
The Company believes that the terms of the aforementioned leases are no less
favorable than those which it could obtain from an unaffiliated party on similar
property with comparable facilities in the vicinity.
In general, the facilities are in good operating condition, have
been designed and constructed for their specific use, and are adequate to meet
the productive capacity requirements of each plant.
Additionally, reference is made to Notes 5 and 9 of "Notes to
Consolidated Financial Statements" on pages 23 and 26, respectively, in the
Company's 1997 Annual Report to Shareholders, which are incorporated herein by
reference.
ITEM 3. LEGAL PROCEEDINGS
In 1988, the Company was notified by the United States Environmental
Protection Agency (EPA), that the Company is considered a potentially
responsible party (PRP) for costs to clean up the Operating Industries, Inc.
(OII) site because of deposits, which were permitted and approved by appropriate
regulatory agencies when made, at the site located in Monterey Park, California.
The total costs to clean up the site cannot be determined but the EPA has
informed all PRP's that such costs may exceed $500 million. The PRP's are
jointly and severally liable although it is possible that the EPA will accept
contribution according to the severity of the deposits made. The Company's
insurance carriers have been placed on notice and their insurance policies are
currently under review to determine whether the Company's liability is covered
by insurance. To date, by private agreement with the other settling defendants,
the Company has paid $466,000 net of settlements from other parties, to settle
its liability under the first three phases of clean-up. Based on facts now known
to the Company, including the low level of participation claimed against the
Company by the EPA and based on the number and financial strength of Companies
with greater participation in the cleanup activities, management believes
sufficient reserves have been established to cover the Company's ultimate
financial exposure.
On December 5, 1995, a class action complaint was filed in the
United States District Court - Central District of California naming as
defendants the Company, current and former officers and directors and an
affiliated party. The complaint was brought by a shareholder purporting to
represent all purchasers of the Company's common stock during the period from
March 31, 1995 through September 7, 1995. On March 9, 1997, the District Court
granted the Company's motion and dismissed the action with prejudice. A
subsequent appeal filed by the plaintiff was dismissed by the Court of Appeals
on September 22, 1997, and accordingly, the matter is closed.
11
<PAGE> 14
ITEM 4. SUBMISSION OF MATTERS TO
A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1997 to a vote
of security holders through the solicitation of proxies or otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information regarding executive officers of the
Company who are not directors. Information regarding executive officers who are
directors is contained in the Company's Proxy Statement issued in connection
with its Annual Meeting of Stockholders scheduled to be held on May 15, 1998,
which is incorporated herein by reference (1998 Proxy Statement). All executive
officers are appointed annually by the Board of Directors and serve one-year
terms. Also see "Employment Agreements" in the Company's 1998 Proxy Statement.
Listed below is the name, age, position and business experience of each officer
of the Company:
Joseph T. D'Amico (age 68) - Vice President, Materiel since 1984.
Michael D. Dryden (age 60) - Vice President, International Business Development
since March 1990.
Ronald F. Escue (age 52) - Vice President, General Manager - Aftermarket Wheel
Division since January 1995; Vice President, Aftermarket Sales from
1987 to 1994.
James M. Ferguson (age 49) - Vice President, OEM Marketing Group since 1990;
Vice President - OEM Marketing from 1984 to 1990.
Daniel L. Levine (age 39) - Corporate Secretary and Treasurer since July
1997; Corporate Secretary and Assistant Treasurer from March 1996;
Assistant Treasurer and Director of Taxes from 1992.
Henry C. Maldini (age 63) - Vice President, Engineering since June 1986.
Frank Monteleone (age 59) - Vice President, Purchasing since July 1996;
Corporate Purchasing Director from 1986 to 1996.
Michael J. O'Rourke (age 37) - Vice President, Program Administration since July
1995; Director, OEM Programs from 1991 to 1995.
Delbert J. Schmitz (age 65) - Vice President, Aftermarket Marketing since
January 1987.
(This space intentionally left blank)
12
<PAGE> 15
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS
ON THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Reference is made to the presentation of "Quarterly Common Stock
Price" information," on page 1 and Note 15 to "Notes to Consolidated Financial
Statements", on page 30 of the Company's 1997 Annual Report to Shareholders,
which are incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the presentation of "Financial Highlights" on
page 1 of the Company's 1997 Annual Report to Shareholders, which is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Reference is made to the presentation of "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on pages 13
through 15 of the Company's 1997 Annual Report to Shareholders, which is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
Reference is made to the Consolidated Statements of Income,
Consolidated Balance Sheets, Consolidated Statement of Shareholders' Equity,
Consolidated Statements of Cash Flow, Notes to Consolidated Financial
Statements, Quarterly Financial Data and the Report of Independent Public
Accountants, as set forth on pages 16 through 32 of the Company's 1997 Annual
Report to Shareholders, which is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There has been no change in independent public accountants nor have
there been any disagreements on accounting and financial disclosure.
13
<PAGE> 16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT
Information relating to Directors is set forth under the caption
"Election of Directors" on page 3 through 7 in the Company's 1998 Annual Proxy
Statement and is incorporated herein be reference. Certain information regarding
Executive Officers of the Registrant is contained in Item 4 of Part I of this
Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to Executive Compensation is set forth under
the captions "Compensation of Directors" and "Executive Compensation" on page 7
through 11 in the Company's 1998 Annual Proxy Statement and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Information related to Security Ownership of Certain Beneficial
Owners and Management is set forth under caption "Voting Securities and
Principal Holders" on pages 1 and 2 in the Company's 1998 Annual Proxy Statement
and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
Information related to Certain Relationships and Related
Transactions is set forth under captions "Election of Directors" and "Certain
Relationships and Related Transations", on pages 3 through 7 in the Company's
1998 Annual Proxy Statement and is incorporated herein by reference.
(This space intentionally left blank)
14
<PAGE> 17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. Financial Statements
Among the responses to this Item 14(a) are the following financial
statements which are incorporated herein by reference:
(i) Consolidated Statements of Income for the three years
ended December 31, 1997, 1996 and 1995
(ii) Consolidated Balance Sheets as of December 31, 1997 and
1996
(iii) Consolidated Statements of Shareholders' Equity for the
three years ended December 31, 1997, 1996 and 1995
(iv) Consolidated Statements of Cash Flows for the three
years ended December 31, 1997, 1996 and 1995
(v) Notes to Consolidated Financial Statements
(vi) Report of Independent Public Accountants
2. Financial Statement Schedules
<TABLE>
<CAPTION>
(A) Schedule Description Pages
-------- ----------- -----
<S> <C>
Report of Independent Public Accountants on
Financial Statement Schedule S-1
Schedule II Valuation and Qualifying Accounts S-2
</TABLE>
All other schedules are omitted because they are not required, are
inapplicable, or the information is otherwise shown in the financial
statements or notes thereto.
(This space intentionally left blank)
15
<PAGE> 18
3. Exhibits
<TABLE>
<S> <C>
3.1 Articles of Incorporation of the Registrant (Incorporated by reference to
Exhibit 3.1 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.)
3.2 By-Laws of the Registrant (Incorporated by reference to Exhibit 3.2 to
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994.)
10.2 Lease dated March 2, 1976 between the Registrant and Louis L. Borick filed
on Form 8-K dated May, 1976 (Incorporated by reference to Exhibit 10.2 to
Registrant's Annual Report on Form 10-K for the year ended December 31,
1983.)
10.19 Lease and Addenda thereto dated December 19, 1987 between Steven J. Borick,
Linda S. Borick and Robert A. Borick as tenants in common, d.b.a. Keswick
Properties, and the Registrant (Incorporated by reference to Exhibit 10.19
to Registrant's Annual Report on Form 10-K for the year ended December 31,
1987.)
10.20 Supplemental Executive 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.)
10.24 1988 Stock Option Plan of the Registrant (Incorporated by Reference to
Exhibit 10.24 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1988.)
10.32 Employment Agreement dated January 1, 1994 between Louis L. Borick and the
Registrant (Incorporated by reference to Exhibit 10.32 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993.)
10.33 1993 Stock Option Plan of the Registrant (Incorporated by reference to
Exhibit 28.1 to Registrant's Form S-8 filed June 10, 1993.)
10.34 Amendment to the 1988 Stock Option Plan of the Registrant (Incorporated by
reference to Exhibit 10.34 to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991.)
10.35 1991 Non-Employee Director Stock Option Plan (Incorporated by reference to
Exhibit 28.1 to Registrant's Form S-8 dated June, 1992.)
10.36 Stock Option Agreement dated March 9, 1993 between Louis L. Borick and the
Registrant (Incorporated by Reference to Exhibit 28.2 to Registrant's Form
S-8 filed June 10, 1993.)
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
<S> <C>
10.38 Stock Option Agreement dated January 4, 1993 between Robert F. Sloane and
the Registrant (Incorporated by Reference to Exhibit 28.3 to Registrant's
Form S-8 filed June 10, 1993.)
10.39 Chief Executive Officer Annual Incentive Program dated May 9, 1994 between
Louis L. Borick and the Registrant (Incorporated by reference to Exhibit
10.39 to Registrant's Annual Report on Form 10-K for the year ended December
31, 1994.)
11 Computation of earnings per share (see Note 1 of "Notes to Consolidated
Financial Statements" in the Company's 1997 Annual Report to Shareholders,
which is incorporated herein by reference.)
13 1997 Annual Report to Shareholders
21 List of Subsidiaries of the Company
23 Consent of Arthur Andersen LLP, Independent Public Accountants for the
Registrant
27 1997 Financial Data Schedule
</TABLE>
(b) Reports of Form 8-K
No reports on Form 8-K have been filed during the fourth quarter of
1997.
(This space intentionally left blank)
17
<PAGE> 20
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.
March 20, 1998
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
By /s/ Louis L. Borick
-------------------------------------
LOUIS L. BORICK
President and Chief Executive Officer
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 capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
President,
/s/ Louis L. Borick Chairman of the Board
- -------------------------- and Director
Louis L. Borick (Principal Executive Officer) March 20, 1998
/s/ R. Jeffrey Ornstein Vice President & CFO
- -------------------------- and Director
R. Jeffrey Ornstein (Principal Financial Officer) March 20, 1998
/s/ Raymond C. Brown Director March 20, 1998
- --------------------------
Raymond C. Brown
/s/ Sheldon I. Ausman Director March 20, 1998
- --------------------------
Sheldon I. Ausman
/s/ Steven J. Borick Director March 20, 1998
- --------------------------
Steven J. Borick
/s/ Philip W. Colburn Director March 20, 1998
- --------------------------
Philip W. Colburn
/s/ V. Bond Evans Director March 20, 1998
- --------------------------
V. Bond Evans
/s/ Jack H. Parkinson Director March 20, 1998
- --------------------------
Jack H. Parkinson
</TABLE>
<PAGE> 1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To Superior Industries International, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in Superior Industries International,
Inc.'s annual report to shareholders incorporated by reference in this Form
10-K, and have issued our report thereon dated February 12, 1998. Our audits
were made for the purpose of forming an opinion on those statements taken as a
whole. The schedule listed in the index above is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Los Angeles, California
February 12, 1998
S-1
<PAGE> 2
SCHEDULE II
SUPERIOR INDUSTRIES INTERNATIONAL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<S> <C> <C>
BALANCE AT DECEMBER 31, 1994 $ 1,092,000
===========
DOUBTFUL ACCOUNTS 541,000
ADD (DEDUCT):
PROVISION 244,000
RECOVERIES 20,000
ACCOUNTS WRITTEN OFF (83,000)
-----------
722,000
SALES DISCOUNTS AND ALLOWANCES 552,000
-----------
BALANCE AT DECEMBER 31, 1995 $ 1,274,000
===========
DOUBTFUL ACCOUNTS 772,000
ADD (DEDUCT):
PROVISION 35,000
RECOVERIES --
ACCOUNTS WRITTEN OFF (39,000)
-----------
718,000
SALES DISCOUNTS AND ALLOWANCES 552,000
-----------
BALANCE AT DECEMBER 31, 1996 $ 1,270,000
===========
DOUBTFUL ACCOUNTS 718,000
ADD (DEDUCT):
PROVISION --
RECOVERIES 6,000
ACCOUNTS WRITTEN OFF (91,000)
-----------
633,000
SALES DISCOUNTS AND ALLOWANCES 552,000
-----------
BALANCE AT DECEMBER 31, 1997 $ 1,185,000
===========
</TABLE>
S-2
<PAGE> 3
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
1997 ANNUAL REPORT
<PAGE> 4
COVER
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
ANNUAL REPORT 1997
(IFC)
Looking Back 40 Years. The year 1957 was a year of many "firsts" . . . the
first round-the-world, nonstop jet plan flight; the beginning of the Space Age
with the launch of the world's first artificial satellite, Sputnik 1, into
Earth's orbit, and the unveiling of what would become the classic '57 Chevy Bel
Air. In the midst of these significant events Superior Industries
International, Inc. was established.
Superior grew in its early years by supplying accessories for the automotive
aftermarket. The Company's first product was an automobile bug screen which
recorded $27,000 in sales. In the late 1960s the Company began supplying custom
chrome plated steel wheels and later cast aluminum wheels to the automotive
aftermarket. This set the stage for Superior's growth as supplier of aluminum
wheels in the original equipment manufacturer (OEM) automotive industry.
Today, Superior is the world's largest manufacturer of cast aluminum wheels for
the OEM automotive industry with sales of nearly $550 million in 1997. The
Company also remains a leading manufacturer of automotive accessory products
for the aftermarket, supplying 68 product lines and 3,800 parts ranging from
steering wheels and covers, suspension products, seat belts and license plate
holders to chrome-plated steel and aluminum road wheels. In 1997, Superior
entered a new market with its first contract to supply aluminum components to
the automotive industry.
Looking back 40 years, who would have known the '57 Chevy would become a
classic automobile and Superior would become an internationally recognized
corporation? Throughout its history, Superior has aggressively pursued a
growth-oriented strategy based on new technologies, capital improvements and
timely investments.
40 YEARS OF GROWTH
SALES IN MILLIONS
1957 1962 1967 1972 1977 1982 1987 1992 1997
$27K $2.0 $4.6 $16.5 $66.0 $69.0 $169.0 $325.3 $549.1
<PAGE> 5
<TABLE>
<CAPTION>
Cash Flow Per Share (in dollars) Earnings Per Share (in dollars)
- -------------------------------- -------------------------------
<S> <C> <C> <C>
1993 $ 2.19 1993 $ 1.47
1994 $ 2.80 1994 $ 1.85
1995 $ 2.70 1995 $ 1.78
1996 $ 2.61 1996 $ 1.63
1997 $ 3.12 1997 $ 1.96
</TABLE>
<TABLE>
<CAPTION>
Shareholders' Equity (in millions)
- ----------------------------------
<S> <C>
1993 $ 177
1994 $ 200
1995 $ 229
1996 $ 251
1997 $ 287
</TABLE>
<PAGE> 6
SUPERIOR INDUSTRIES INTERNATIONAL, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT (000'S)
Net Sales $549,131 $504,241 $521,997 $456,638 $393,033
Gross Profit 108,170 101,713 113,797 111,368 91,464
Net Income $ 55,389 $ 46,850 $ 53,064 $ 56,315 $ 45,177
- --------------------------------------------------------------------------------------------------------
BALANCE SHEET (000'S)
Current Assets $199,846 $164,080 $142,659 $160,771 $141,219
Current Liabilities 65,415 76,369 81,746 106,923 75,991
Working Capital 134,431 87,711 60,913 53,848 65,228
Total Assets 382,679 357,590 341,770 357,683 310,123
Long-term Debt, net 1,344 1,940 5,814 23,075 34,004
Shareholders'
Equity $287,416 $251,111 $229,153 $200,182 $176,869
- --------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
Current Ratio 3.1:1 2.1:1 1.7:1 1.5:1 1.9:1
Long-term Debt/Total
Capitalization .5% .8% 2.5% 10.3% 16.1%
Return on Average
Shareholders'
Equity 20.6% 19.5% 24.7% 29.9% 28.8%
- --------------------------------------------------------------------------------------------------------
SHARE DATA
Earnings - Basic $ 1.97 $ 1.64 $ 1.80 $ 1.89 $ 1.50
Earnings - Diluted $ 1.96 $ 1.63 $ 1.78 $ 1.85 $ 1.47
Shareholders' Equity
at Year-End $ 10.30 $ 8.87 $ 7.89 $ 6.76 $ 5.88
Dividends Declared $ 0.27 $ 0.23 $ 0.19 $ 0.17 $ 0.11
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 7
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
QUARTERLY COMMON STOCK PRICE INFORMATION
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
First Quarter $25 3/8 $22 1/2 $28 $23 7/8 $29 $23 7/8
Second Quarter 27 1/8 22 5/8 28 1/4 24 1/4 32 1/8 24 3/4
Third Quarter 29 3/8 25 13/16 26 1/2 22 7/8 35 3/4 25 3/4
Fourth Quarter 28 1/2 25 25 7/8 22 3/4 29 24 1/2
</TABLE>
The common stock of Superior Industries International, Inc. is traded on the New
York Stock Exchange (symbol: SUP). The Company had approximately 1,400
shareholders of record and 27.9 million shares outstanding as of January 31,
1998.
<PAGE> 8
A MESSAGE TO OUR SHAREHOLDERS...
Nineteen-ninety-seven, our fortieth anniversary, was one of the most exciting
years in Superior's history. Revenue and earnings per share set new records. We
added several significant new OEM customers for our aluminum road wheels,
resolved the production issues for our new chrome plating technology,
diversified our product line with our first contract for aluminum automotive
components outside of the wheel market, and opened our new manufacturing
facility in Hungary.
Superior was built on a commitment to excellence and a vision to become a
leading supplier to the automotive industry. We've come a long way since our
modest beginnings in 1957. Today, with facilities throughout the U.S. as well as
in Mexico and Europe, Superior is recognized as a world-class manufacturer of
aluminum wheels and automotive components.
Over the years, Superior's reputation for quality has helped us earn new
business that has been the foundation for our steady growth. 1997 was no
exception. Ford awarded the Company new contracts to supply wheels for the 1998
Lincoln Navigator sport utility vehicle, its popular F-150 pick-up truck, and
its Expedition sport utility vehicle. In addition, we were awarded two new
General Motors' contracts for chrome wheels for the Buick Regal and Oldsmobile
Intrigue. The Company won in excess of $50 million in new business from Nissan
for the 1998 1/2 through 2004 model years. We also were awarded an exclusive
contract to supply two aluminum wheels for the new Volkswagen Beetle -
Superior's first wheel business with Volkswagen. Additional orders were received
in early 1998.
These new contracts are just the latest sign of how the performance and
appearance advantages of aluminum road wheels are continuing to expand our core
market. We expect this trend to continue, setting the stage for further growth
in the years ahead.
Another significant accomplishment in 1997 was the opening of our
state-of-the-art
<PAGE> 9
manufacturing facility in Hungary. The grand opening ceremony was attended by
representatives from every major European automotive manufacturer. The President
of the Republic of Hungary, Arpad Goncz, also was in attendance. This facility
now is shipping lightweight forged aluminum wheels to Audi under an initial
annualized order for 700,000 wheels. The installation of low pressure aluminum
casting equipment has been completed with shipments to begin in early 1998.
We have been actively pursuing emerging opportunities for OEM aluminum
suspension systems and other automotive components. This is an entirely new
growth opportunity for Superior that may ultimately rival our opportunity in
aluminum wheels. Our patient development efforts paid off in 1997 with our first
order for a non-wheel component an aluminum transmission bracket for the
Oldsmobile Intrigue. We are working very aggressively to develop additional
non-wheel aluminum parts business.
We are proud to have completed the QS-9000 Registration of all of our seven OEM
plants during 1997, an achievement shared by only a handful of manufacturers
worldwide. QS-9000 is a quality system conformance standard jointly developed by
Chrysler, Ford and General Motors. Superior's QS-9000 Registration further
strengthens the Company's position as a Tier One supplier.
FINANCIAL RESULTS
Net sales for 1997 rose 9% to a record $549 million. Net income rose 18% to $55
million, or a record $1.96 per share.
Improvements in our chrome plating technology, aggressive cost cutting, and high
capacity utilization rates at our factories contributed to these outstanding
results. The start-up problems at our OEM chrome plating facility in
Fayetteville that affected earnings in 1996 now are behind us. Chrome plating
made a positive contribution to earnings in 1997 and we expect this operation to
be an important contributor to the Company's profitability in 1998 as well.
<PAGE> 10
Unit shipments of Superior's aluminum wheels were up by more than 6% in 1997
despite a relatively flat auto sales environment. This validates our strategy to
develop a diversified portfolio of OEM aluminum wheel customers, whether
measured by country of origin, manufacturer, type of vehicle or nameplate. For
the industry as a whole, aluminum wheel installation rates for cars and light
trucks continued their steady rise to a record 52% for 1997, a trend we expect
to continue.
We are as excited as we've ever been about Superior's future growth. Our
confidence is evident in the reinstatement of our stock repurchase program, with
an additional 2 million share buy back approved by the Board of Directors in
late 1997.
On a personal note, my thanks to Ray Brown, former Senior Vice President for his
many years of devoted service with Superior. Ray has retired from active duty,
but he will continue to make valuable contributions as a member of our Board of
Directors.
It is with great sadness that I report the passing of Morris Herstein, a dear
friend who joined me when I founded Superior forty years ago. Morrie will be
remembered fondly by all of us who worked closely with him during these
wonderful and challenging years.
Thank you for your continued interest and support. Superior's future is bright.
We look forward to reporting our progress to you.
Louis L. Borick
President and Chairman of the Board
<PAGE> 11
OVERSEAS - JOINT VENTURES
SUOFTEC IN HUNGARY. 1997 was highlighted by the opening of Superior's
state-of-the-art facility in Tatabanya, Hungary. The 400,000 square foot
facility is part of a 50-50 joint venture between Superior and Otto Fuchs
Metallwerke, a German manufacturing company, to produce both lightweight forged
and cast aluminum wheels for the European automotive market. A grand opening
ceremony held on October 10, 1997 kicked-off the official opening of the
Hungarian plant which included a plant tour and presentations by management of
both partners, local government officials, as well as the President of the
Republic of Hungary, Mr. Arpad Goncz. The Hungarian facility demonstrates our
ability to build a turn key operation, sell a major portion of production
capacity prior to completion and quickly achieve positive results. Completion of
the plant's first phase was on schedule and production ramp up went smoothly. In
1997, Superior shipped several wheel models to Audi against its initial annual
order of 700,000 lightweight forged wheels.
The plant has also been approved for cast wheel production. Customers have
surveyed the plant and prototypes have been submitted and approved. Shipments of
cast wheels for the new Audi TT convertible, the plant's first cast wheel order,
will begin in the second quarter of 1998. By the end of 1998, production output
is expected to reach an annual rate of 1.5 million units, including both forged
and cast aluminum wheels. Superior has excellent growth opportunities IN Europe
and is looking forward to reporting additional cast and forged wheel business
with other major European OEMs in the future.
TOPY INDUSTRIES, LTD. IN JAPAN. Last year marked the seventh anniversary of
Superior's joint venture with Topy Industries, Ltd., Japan's largest wheel
manufacturer. By exceeding the high standards of Japanese OEMs over the years,
Superior expanded its export business as well as with Japanese operations in the
U.S. In 1997, we increased our business with Nissan Motor Co. Ltd. with the
receipt of a multi-year contract valued at $50 million, to supply two new
aluminum wheel styles beginning with the 1998 1/2 model year. This program is an
addition to Superior's three
<PAGE> 12
current wheel models exported to Japan as well as wheels shipped to Nissan's
U.S. assembly plant in Smyrna, Tennessee.
ASI TRUCK WHEELS. The Company's third joint venture, ASI (Alcoa Superior
International), established to produce aluminum wheels for medium to large
trucks and buses, made progress in 1997. As planned, the joint venture delivered
several thousand wheels for fleet trials. Through this joint venture, Superior
looks forward to opening an arena of new business that can enhance the Company's
growth.
ENGINEERING
LAST YEAR SUPERIOR set a record of five weeks to develop a new wheel program,
compared to the industry standard of 18 weeks, an accomplishment that captured
Detroit's attention. Developing a model, a mold, then a sample and having it
fully tested in record time requires simultaneous engineering and intense
program management attention.
It was the Company's ability to react quickly to customers' requirements and
meet market demand in a short time that won Superior several contracts with Ford
last year. Major contracts to supply the 1998 model year wheels for the
Navigator, Expedition, and F-150 represented incremental business for the
Company.
Another breakthrough for Superior in 1997 was the development of a new process
called "flow forming." An enhancement to casting, flow forming allows the
Company to produce lighter weight wheel rims and obtain quality similar to
forging without the tremendous complexity and high cost of forged wheels.
The Company continued to improve its technology and quality standards in 1997 by
developing a new helium leak testing machine. Superior developed its first
helium leak testing technology in 1992, a specialized machine that detects
microscopic leaks. The new model 5100 incorporates fully automated features,
enhancing efficiency, and
<PAGE> 13
providing increased precision in the testing of wheels for leak detection.
Superior made exceptional progress last year and has once again widened the gap
between its competition through proactive engineering and technological
expertise. Maintaining the highest quality, efficiency and profitability has
been Superior's hallmark for 40 years and will remain the key to our success in
the future,
MANUFACTURING
HIGH QUALITY STANDARDS AND CONTINUOUS
manufacturing improvements are the foundations of Superior's position as a Tier
One supplier and reinforce our reputation as an industry leader. An important
step towards securing Superior's position in the global marketplace was the
QS-9000 Registration in 1997 of all seven of the Company's OEM facilities,
including its newest facility in Hungary. The Hungarian plant received
certification less than a month after its official opening. QS-9000 is a quality
system conformance standard jointly developed by a Chrysler/Ford/General Motors
Supplier Quality Requirements Task Force. Under the QS-9000 Program, each plant
will be reaudited every six months for the next three years before going through
the entire registration process once again. Superior has assigned a quality
control team at each of its plants as well as a team from its corporate offices
to quickly resolve any problems. In preparing for the QS-9000 Program, Superior
improved efficiency, reduced internal reject rates and lowered costs.
Superior has also seen positive results from its aggressive cost-cutting
initiative announced in 1996. Key to Superior's success was its ability to share
information within and between plants through our computer network. Key
variables such as material and labor cost per wheel as well as specific problems
and opportunities are shared among all Superior plants and challenged
periodically by a cost reduction management team. This effort is paying off. For
example, the Company realized a significant cost improvement after implementing
a restructuring idea that emerged at one of management's monthly meetings. The
idea was initially implemented at the Rogers
<PAGE> 14
plant and produced such favorable results that it is being implemented
companywide.
CHROME PLATING OPERATIONS in Fayetteville had an exceptional year. The start-up
difficulties at the plant have been resolved and Superior was able to meet its
customer commitments throughout 1997. As a result, the plant operated at a high
capacity, producing an average of approximately 10,000 wheels a week. Last year
Superior received new orders from General Motors to supply chrome plated wheels
for the 1998 Buick Regal and Oldsmobile Intrigue.
PLANT EXPANSION has begun at our Company's state-of-the-art facility in
Chihuahua, Mexico. To meet the anticipated demand for its operations in Mexico,
Superior announced an aggressive $25-million expansion project that will double
the plant's capacity to about 2.2 million wheels a year. Last year this facility
won a multi-year contract to supply two wheel programs for the new Volkswagen
Beetle. Wheels will be shipped to Volkswagen's Mexican plant. Both foreign and
domestic automakers are seeking to increase production in Mexico. Superior's
plant has been shipping wheels to Ford, General Motors, and BMW in Mexico. In
addition, wheels are being exported to Ford and General Motors in the U.S. as
well as to BMW in both the U.S. and Germany.
Throughout its history, Superior has been successful by paying attention to its
markets and anticipating future capacity requirements. The Company's
manufacturing facility in Tatabanya, Hungary was built to support the business
Superior anticipates from European automakers. The Company sold over one-half of
its initial capacity in this new plant and ramped up production on its initial
order with Audi received in 1997.
ORIGINAL EQUIPMENT
SALES OF OEM aluminum wheels increased nine percent to a record $514.8 million
in 1997. The Company benefited from greater aluminum wheel penetration.
Installation of aluminum wheels on light trucks and cars jumped to 52.3 percent,
compared to 46
<PAGE> 15
percent in 1996, In addition, the Company reported a 6.5 percent increase in
unit shipments while the automotive sales environment remained fiat, indicating
growth in Superior's market share. The Company's original equipment wheel
business in 1997 was highlighted by a stronger relationship with Ford and a new
international customer.
Superior was awarded three separate orders from Ford to supply wheels for its
most popular vehicle platforms. The Company first received a multi-million
dollar contract to supply wheels for the popular Ford Expedition sport utility
vehicle through the 1998 model year shipments began in July, 1997. This was
followed by a multi-million dollar, multi-year contract to supply three aluminum
wheel styles for the 1998 Lincoln Navigator sport utility vehicle including a
chrome plated version. An additional multi-million dollar contract was awarded
to supply aluminum wheels for Ford's F-150 pick-up truck, the largest selling
vehicle in North America. This additional business with Ford was a significant
accomplishment. It represented an increase in market share and an expansion of
our position in the popular sport utility and light truck vehicle platforms.
These wins demonstrate Superior's ability to respond to the marketplace and
develop new wheel programs in record time.
Internationally, the Company was pleased to announce its new customer
relationship with Volkswagen. Superior received an exclusive contract from
Volkswagen to supply two aluminum wheel programs for the new Volkswagen Beetle.
This order represents Superior's first aluminum wheel business with Volkswagen.
The wheels will be manufactured at Superior's Mexico plant and shipped to
Volkswagen's plant in Puebla, Mexico beginning in mid 1998.
Superior continues to build on its relationships with QEMs and expand its
customer base. Business with Japanese customers increased in 1997 through the
expansion of existing wheel programs as well as new contracts. Most significant
was the growth in
<PAGE> 16
business with Nissan, evidenced by a new multi-year contract, valued at $50
million, to supply two aluminum wheel styles beginning with the 1998 1/2 model
year.
PRODUCT DEVELOPMENT
SUPERIOR ENJOYS a solid book of business as the world's largest manufacturer of
aluminum wheels. We now are moving into other aluminum components with
substantial growth potential, an exciting prospect for Superior's future.
In 1997, the Company announced a contract from General Motors to supply aluminum
transmission brackets for the Oldsmobile Intrigue. It was the first non-wheel
aluminum product for Superior and a springboard for our diversification
strategy. The brackets are currently in production at Superior's Van Nuys plant
and will be shipped on schedule.
Aluminum content on light trucks and cars is expected to increase substantially
as more and more automotive components convert from heavier metals to aluminum.
The lighter weight aluminum bracket for example, reduces vibration and provides
quieter performance. Superior is seeking to maximize its resources and to apply
its expertise in aluminum foundry technology to meet this increasing demand.
With four decades of industry experience, Superior is committed to new product
applications for its aluminum casting expertise.
In addition to new applications for its aluminum casting process, the Company's
engineering group developed a record number of new wheel programs in 1997. The
Company's ability to quickly develop new products that meet customer
requirements was significantly supported by the Technical Sales Center in
Detroit. The Detroit office, equipped with engineering, marketing and quality
control capabilities, provides integral engineering support, reduced lead times,
and more cost effective customer service. It is the vital link between
Superior's engineering centers in Fayetteville and Van Nuys and has been
instrumental in exceeding customers' expectations for additional product
development involvement.
<PAGE> 17
AFTERMARKET
1997 WAS ANOTHER YEAR of consolidation in the automotive aftermarket industry,
reflecting the steady increase in standard equipment on new cars and demands of
the industry in the face of these trends, Superior's aftermarket sales increased
8 percent to $34.3 million, compared to $31.8 million a year ago. The
acquisition of the "Perfection" product lines in 1996 played a significant role
in this sales increase last year. In addition, the Company's aluminum wheels for
the after-market have been successful among dealers and large wholesalers as
Superior developed seven new wheel designs for its aftermarket line.
Superior also focused on perfecting "Diamond Dust(R)," an acrylic clear coat
that protects chrome plated steel wheels and provides a three-year maintenance
free warranty. Diamond Dust(R) has helped boost sales in cold weather markets.
Superior expanded its network of distributors in 1997, and opened other new
geographic markets in Connecticut and other New England states.
Superior's 68 product lines and 3,800 parts for the automotive aftermarket range
from steering wheel covers to suspension products, seat belts and license plate
holders to chrome plated steel and aluminum road wheels. Wholesalers and retail
outlets now carrying Superior's diverse aftermarket products include ITCO Tire
Company, Les Schwab, Pep Boys, AutoZone, CSK Auto, Inc., Belle Tire, Wal-Mart,
Western Auto, Canadian Tire, Dunlap & Kyle, and Paccar.
<PAGE> 18
FINANCIAL OUTLOOK
1997 WAS AN EXCEPTIONAL YEAR for Superior by every measure. The outlook for 1998
and beyond is just as promising. Superior's core business continues to grow.
Aluminum wheel penetration is expected to increase, particularly in the light
truck and sport utility vehicle platforms. At the same time, the Company is
increasing market share due to its exceptional track record in engineering,
technology, arid manufacturing.
International business as a percentage of total OEM sales increased with new and
expansion orders from Audi, BMW, Toyota, and more recently, Nissan and
Volkswagen. Another opportunity for significant growth is Superior's chrome
plating operations, Demand for chrome wheels is increasing and we believe the
Company will receive new orders for chrome products in 1998. Superior is also
aggressively exploring new product applications for its aluminum casting
process, an area of substantial earnings potential for the Company.
We expect to expand Superior's global presence and look to finalize plans for
growth in Latin America later this year. We also anticipate growth in Chihuahua,
Mexico and will be doubling the plant's capacity to about 2.2 million wheels a
year. Overall, we expect to invest approximately $45 million in capital
improvements in 1998.
Superior is well positioned for the future. The Company's strong cash position
and virtually debt-free balance sheet will support our plans to explore
additional growth opportunities.
Superior continues to aggressively pursue opportunities to expand its product
and market base in the future. Opportunities to establish new joint ventures, to
acquire new technology arid to take a foothold in new markets, through acquiring
or developing new products, expansion into new geographic areas and the addition
of new customers. The Company's strong financial condition will provide the
funds necessary to take advantage of these opportunities as well as sustain the
Company through any market fluctuations.
<PAGE> 19
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Summary of Sales by Product Line (In Thousands)
Years Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
OEM cast aluminum road wheels $ 514,811 $ 472,431 $ 486,045
Aftermarket 34,320 31,810 35,952
----------- ----------- ---------
$ 549,131 $ 504,241 521,997
=========== =========== =========
</TABLE>
RESULTS OF OPERATIONS
1997 Compared to 1996
Net sales in 1997 increased 8.9 percent to a record $549.1 million compared to
the $504.2 million in 1996. Unit shipments of aluminum road wheels continued to
attain record levels, increasing 6.5 percent over 1996 shipments. This 6.5
percent increase compares to an increase of only 3.3 percent in North American
automotive production. Based on Ward's Automotive, an industry publication,
aluminum wheel installation rates on automobiles and light trucks rose to a
record 52.3 percent for the 1997 model year compared to 46.3 percent for the
1996 model year. Sales also increased due to the consolidation of chrome plating
sales for the full year in 1997 versus only fourth quarter sales in 1996, and,
to a lesser extent, the pass through of slightly higher material costs to
original equipment manufacturer (OEM) customers.
1997 sales for the Company's aftermarket products increased $2.5 million or 7.9
percent from 1996, representing a slight increase in aftermarket road wheel
sales and a 15.1 percent increase in automotive accessories, due principally to
the new product lines acquired near the end of 1996.
<PAGE> 20
While the Company has ongoing programs to reduce costs to its customers and, in
the past, has generally been successful in substantially mitigating pricing
pressure from its customers, it is becoming increasingly difficult to do so
without impacting margins. The Company will continue to aggressively implement
cost savings strategies to meet customer pricing expectations and maintain
margins; however, the impact of future customer pricing pressures and increasing
industrywide competition to the Company's financial position and results of
operations is not known.
Gross profit margin was 19.7 percent of net sales in 1997 compared to 20.2
percent in 1996. However, excluding the results of the Fayetteville, Arkansas
chrome plating plant from both periods, the resulting gross margin for 1997 was
20.5 percent of net sales versus 20.4 percent of net sales in 1996. The chrome
plating plant operating results were consolidated beginning with the fourth
quarter of 1996.
The aluminum content of selling prices to OEM customers is adjusted to current
market conditions which subjects the Company to the risks of market changes when
the Company, from time to time, enters into fixed purchase contracts. The cost
of aluminum is a significant component in the overall cost of a wheel. As the
price of aluminum increases, the effect is to decrease overall gross margin
percentage, although gross profit in absolute dollars remains unchanged. The
opposite is true in periods during which the price of aluminum decreases. During
1997, the price of aluminum increased slightly. However, the increase in
customer orders in 1997 translated into greater production requirements and more
efficient and higher plant utilization, thereby offsetting the impact of
slightly higher aluminum costs and their effect on the gross profit percentage.
Selling, general and administrative expenses, which were approximately the same
in absolute dollars as in the prior year, decreased to 3.6 percent of net sales
compared to 4.0 percent of net sales in 1996, due to the increase in sales in
1997. Selling expenses increased in 1997, but were the same percent of net sales
as in 1996, while administrative expenses were lower than a year ago due
principally to decreased legal expenses.
<PAGE> 21
In December 1997, the Company made the final payment of $3.3 million on its
Senior notes. This, along with the $8.3 million payment made in December a year
ago, is the principal reason for the $1.0 million reduction in interest expense.
Interest income in 1997 increased to $2.7 million from $1.2 million in 1996 as
cash generated during the year increased $36.9 million, due to strong earnings
and decreased utilization of cash for investing and financing activities, as
discussed below.
The 50/50 joint venture formalized in 1995 with Otto Fuchs to construct a plant
in Tatabanya, Hungary for the production of both lightweight forged and low
pressure cast aluminum wheels for the European automotive market, began
production of forged wheels in early 1997. Sales for the year ended December 31,
1997 totaled $6.5 million. Production and shipment of cast wheels is scheduled
to begin in the second quarter of 1998. Miscellaneous expense for 1997 included
$3.4 million of expense representing the Company's share of start-up costs
associated with this new facility. Miscellaneous expense for 1996 included $7.4
million of pre-operating losses from the Fayetteville, Arkansas chrome plating
plant.
The consolidated tax rate in 1997 decreased to 35.75 percent of pre-tax
income from 36.75 percent in 1996. The reduced rate was due primarily to an
increase in foreign income which is taxed at rates below the U.S. statutory
rate. The Company expects a modest decrease in the tax rate in the future.
Having recognized several years ago, the need for its computer systems
to accommodate the turn of the century, the Company developed a plan that
established January 1, 1998 for all integrated software to be Year 2000
compliant. That target date has been met, as a test environment was established
as of that date for users to evaluate the various software changes which will
become effective during the second quarter of 1998. There were no significant
expenditures associated with this project. The Company feels confident based on
reviews by outside consultants, that it has recognized and addressed the need
for making its centralized integrated computing able to manage the business upon
entering the twenty-first
<PAGE> 22
century.
1996 Compared to 1995
Net sales in 1996 decreased 3.4 percent to $504.2 million from $522.0 million in
1995. Unit shipments of cast aluminum road wheels increased 4.9 percent over
1995 shipments. This increase occurred despite a 1.2 percent decline in North
American automotive production. The modest decline in sales from 1995 reflected
reduced prices as a result of the pass through of lower material costs to
original equipment manufacturer (OEM) customers.
1996 net sales for the Company's aftermarket products decreased $4.1 million or
11.5 percent from 1995 due to the continued economic sluggishness in the
aftermarket segment of the automotive industry.
Gross profit margin was 20.2 percent of net sales in 1996 compared to 21.8
percent in 1995. The reduced gross profit margin reflects a number of factors.
During 1996, the price of raw material decreased throughout the year. As
aluminum prices decrease, the effect is to increase the overall gross margin
percentage, although gross profit in absolute dollars remains unchanged.
However, this increase did not occur in 1996 due to several offsetting factors.
First, plant utilization rates were affected by several customer work stoppages
and severe winter weather early in the year. Secondly, as of the fourth quarter
of 1996, operating results of the chrome plating plant were consolidated,
thereby reducing the overall gross profit margin percentage.
<PAGE> 23
Selling, general and administrative expenses in 1996 were approximately the same
as 1995, both as a percentage of net sales and in absolute dollars. A decline in
selling expenses in 1996 was substantially offset by increased legal expenses
associated with defending certain lawsuits.
Interest expense in 1996 was $1.5 million compared to $3.3 million in 1995. This
reduction occurred from the payments of the Senior notes and from not requiring
short-term borrowings during 1996, as had been required for 1995 working capital
requirements.
Interest income was approximately the same as the prior year as cash generated
from operations continued to be utilized to fund capital expenditures, joint
venture investments, repurchases of the Company's common stock and on-going
working capital requirements.
Miscellaneous expense for 1996 included $7.4 million of pre-operating losses
from the Fayetteville, Arkansas chrome plating plant compared to $5.8 million of
similar losses in 1995. As a result of major improvements in the chrome plating
operation during 1996, the pre-production period ended as of September 30, 1996.
The consolidated tax rate in 1996 decreased to 36.75 percent of pre-tax income
from 37.6 percent in 1995. The reduced rate resulted from greater utilization of
federal tax credits and lower state income taxes.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
<PAGE> 24
Cash provided by operating activities was $74.6 million in 1997 compared to
$96.5 million in 1996. Increased earnings adjusted for high levels of non-cash
charges such as depreciation, amortization and the equity losses of the joint
ventures, were reduced by increased accounts receivable and the timing of
payments of accounts payable. The increased receivables were due to the strong
sales level at the end of the year.
The $21.9 million reduction in cash flows from operating activities was offset
by reduced cash utilized for investing and financing activities, totaling $25.4
million. Investing activities decreased by $9.8 million in 1997, as cash
advanced to the Company's joint ventures decreased by $4.4 million and proceeds
from the sale of investments increased $4.1 million. Financing activities
decreased by $15.6 million in 1997, as debt repayments decreased $9.7 million
and stock repurchases decreased by $5.7 million. During 1997, the Company paid
the final installment of its 9.31% Senior notes and repurchased 523,700 shares
of its common stock, compared to 739,900 shares repurchased in 1996.
In addition to investing approximately $20 million in capital and $6.3
million of advances to the wheel plant in Hungary, OEM facility expansion
programs have resulted in the Company expending approximately $320 million over
the past ten years, the majority of which came from internally generated cash
flow, to construct and expand its world-class road wheel facilities and to
continuously improve all OEM manufacturing plants. In further pursuit of this
objective, the Company anticipates expending an additional $45 million in 1998
to double the capacity of its Chihuahua, Mexico plant and to make further
improvements to other plant locations. Management anticipates funding these
plans from internally generated cash flow and, to the extent necessary, from
existing cash and cash equivalents.
During 1997, the value of the Mexican peso again experienced relative
stability to the U.S. dollar as a result of the Mexican economy achieving
moderate growth. Since 1990, the Mexican Peso has repeatedly experienced periods
of relative stability followed by periods of major decline in value. The impact
of these declines in value relative to the Company's wholly owned subsidiary,
Superior Industries de Mexico, SA de CV, has resulted in a cumulative
<PAGE> 25
unrealized translation loss of $14.2 million, net of taxes, which has been
charged directly to shareholders' equity. The Mexican production facility
currently represents less than 10 percent of the Company's total capacity.
The Company's financial condition remains strong. While continuing to
paydown its debt and repurchase its common stock, the Conpany's working capital
and current ratio increased to $134.4 million and 3.1:1, versus $87.7 million
and 2.1:1 in 1996, respectively. The long-term debt to total capitalization
ratio improved to 0.5 percent in 1997, as total long-term debt was reduced to
less than $1.5 million. The Company believes it is well positioned to take full
advantage of new and complimentary business opportunities, expanding
international markets and, at the same time, able to withstand downturns in the
economy.
During 1997, the Board of Directors announced a 17 percent increase in the cash
dividend, representing the fourteenth consecutive year of dividend payments and
increases. Management anticipates continuing its policy of paying dividends;
however, this is contingent upon various factors, including economic and market
conditions, all of which cannot be accurately predicted.
INFLATION
Inflation did not have a material impact on the results of operations or the
financial condition of the Company. The Company believes its purchasing and the
majority of its customer contracts are structured to minimize the impact of
changes caused by inflation.
<PAGE> 26
SUPERIOR INDUSTRIES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
NET SALES $ 549,131,000 $ 504,241,000 $ 521,997,000
Cost of Sales 440,961,000 402,528,000 408,200,000
------------- ------------- -------------
GROSS PROFIT 108,170,000 101,713,000 113,797,000
Selling, general and
administrative
expenses 19,986,000 19,931,000 19,965,000
------------- ------------- -------------
INCOME FROM OPERATIONS 88,184,000 81,782,000 93,832,000
Other Income (Expense)
Interest expense (492,000) (1,484,000) (3,288,000)
Interest income 2,662,000 1,158,000 1,106,000
Miscellaneous, net (4,146,000) (7,385,000) (6,732,000)
------------- ------------- -------------
(1,976,000) (7,711,000) (8,914,000)
INCOME BEFORE INCOME TAXES 86,208,000 74,071,000 84,918,000
Income Taxes 30,819,000 27,221,000 31,854,000
------------- ------------- -------------
NET INCOME $ 55,389,000 $ 46,850,000 $ 53,064,000
============= ============= =============
EARNINGS PER SHARE - BASIC $ 1.97 $ 1.64 $ 1.80
============= ============= =============
EARNINGS PER SHARE - DILUTED $ 1.96 $ 1.63 $ 1.78
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 27
SUPERIOR INDUSTRIES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1997 1996
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 73,693,000 $ 36,815,000
Marketable securities -- 5,288,000
Accounts receivable 78,543,000 66,567,000
Inventories 42,387,000 47,730,000
Deferred income taxes 3,902,000 5,970,000
Other current assets 1,321,000 1,710,000
------------- -------------
Total current assets 199,846,000 164,080,000
PROPERTY, PLANT AND EQUIPMENT 147,989,000 161,670,000
LONG-TERM ASSETS 34,844,000 31,840,000
------------- -------------
$ 382,679,000 $ 357,590,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 34,251,000 $ 46,178,000
Accrued liabilities 30,575,000 26,317,000
Current portion of long-term debt 589,000 3,874,000
------------- -------------
Total current liabilities 65,415,000 76,369,000
LONG-TERM DEBT 1,344,000 1,940,000
OTHER LONG-TERM LIABILITIES 16,377,000 17,850,000
DEFERRED INCOME TAXES 12,127,000 10,320,000
COMMITMENTS AND CONTINGENT LIABILITIES
SHAREHOLDERS' EQUITY
Preferred stock, par value $25.00,
1,000,000 shares authorized, none issued -- --
Common Stock, par value $.50,
100,000,000 shares authorized 13,951,000 14,161,000
Additional paid-in capital 9,306,000 20,845,000
Cumulative translation adjustments (14,156,000) (13,845,000)
Unrealized loss on short-term investments -- (554,000)
Retained earnings 278,315,000 230,504,000
------------- -------------
Total shareholders' equity 287,416,000 251,111,000
------------- -------------
$ 382,679,000 $ 357,590,000
============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 28
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK UNREALIZED
------------------------ ADDITIONAL CUMULATIVE LOSS ON
NUMBER OF PAID-IN TRANSLATION SHORT-TERM RETAINED
SHARES AMOUNT CAPITAL ADJUSTMENT INVESTMENTS EARNINGS TOTAL
------------- ----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT
DECEMBER 31, 1994 29,611,635 $14,806,000 $55,555,000 $(10,572,000) $(2,500,000) $142,893,000 $200,182,000
Net income -- -- -- -- -- 53,064,000 53,064,000
Stock options
exercised, including
related tax benefit 154,372 77,000 2,812,000 -- -- -- 2,889,000
Repurchases of
common stock (737,000) (369,000) (19,456,000) -- -- (19,825,000)
Cash dividends
($.195/share) -- -- -- -- -- (5,749,000) (5,749,000)
Unrealized losses:
Foreign currency
translation -- -- -- (3,256,000) -- -- (3,256,000)
Short-term
investments -- -- -- -- 1,848,000 -- 1,848,000
------------- ----------- ----------- ----------- ----------- ------------ ------------
BALANCES AT
DECEMBER 31, 1995 29,029,007 14,514,000 38,911,000 (13,828,000) (652,000) 190,208,000
Net income -- -- -- -- -- 46,850,000 46,850,000
Stock options
exercised, including
related tax benefit 34,559 17,000 561,000 -- -- -- 578,000
Repurchases of
common stock (739,900) (370,000) (18,627,000) -- -- (18,997,000)
Cash dividends
($.23/share) -- -- -- -- -- (6,554,000) (6,554,000)
Unrealized losses:
Foreign currency
translation -- -- -- (17,000) -- -- (17,000)
Short-term
investments -- -- -- -- 98,000 -- 98,000
------------- ----------- ----------- ----------- ----------- ------------ ------------
BALANCES AT
DECEMBER 31, 1996 28,323,666 14,161,000 20,845,000 (13,845,000) (554,000) 230,504,000 251,111,000
</TABLE>
<PAGE> 29
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Net income -- -- -- -- -- 55,389,000 55,389,000
Stock options exercised,
including related
tax benefit 102,421 51,000 1,478,000 -- -- -- 1,529,000
Repurchases of
common stock (523,700) (261,000) (13,017,000) -- -- -- (13,278,000)
------------- ------------- ------------- ------------- ------------- ------------- -------------
Cash dividends
($.27/share) -- -- -- -- -- (7,578,000) (7,578,000)
Unrealized losses:
Foreign currency
translation -- -- -- (311,000) -- -- (311,000)
Short-term
investments -- -- -- -- 554,000 -- 554,000
------------- ------------- ------------- ------------- ------------- ------------- -------------
BALANCES AT
DECEMBER 31, 1997 27,902,387 $ 13,951,000 $ 9,306,000 $ (14,156,000) $ -- $ 278,315,000 $ 287,416,000
</TABLE>
See notes to consolidated financial statements.
<PAGE> 30
SUPERIOR INDUSTRIES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 74,614,000 $ 96,548,000 $ 83,747,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to property,
plant and equipment (13,326,000) (13,465,000) (25,903,000)
Investment in and advances to
joint ventures (7,052,000) (11,410,000) (9,664,000)
Proceeds from sales of
investments 5,488,000 1,350,000 17,732,000
Proceeds from sales of property,
plant and equipment 150,000 -- --
Purchases of investments -- (973,000) (2,911,000)
------------ ------------ ------------
NET CASH USED IN
INVESTING ACTIVITIES (14,740,000) (24,498,000) (20,746,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Repurchases of common stock (13,278,000) (18,997,000) (19,825,000)
Cash dividends paid (7,329,000) (6,554,000) (5,749,000)
Payments of long-term debt (3,918,000) (8,828,000) (19,367,000)
Stock options exercised 1,529,000 578,000 2,889,000
Payments of short-term debt -- (4,800,000) (23,467,000)
------------ ------------ ------------
NET CASH USED IN
FINANCING ACTIVITIES (22,996,000) (38,601,000) (65,519,000)
------------ ------------ ------------
Net Increase (Decrease) in
Cash and Equivalents 36,878,000 33,449,000 (2,518,000)
Cash and Equivalents at
Beginning of Year 36,815,000 3,366,000 5,884,000
------------ ------------ ------------
Cash and Equivalents at
End of Year $ 73,693,000 $ 36,815,000 $ 3,366,000
============ ============ ============
</TABLE>
<PAGE> 31
RECONCILIATION OF NET INCOME
TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Years Ended December 31,
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
NET INCOME $ 55,389,000 $ 46,850,000 $ 53,064,000
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 26,917,000 27,330,000 27,716,000
Provision for
retirement plans 1,127,000 1,098,000 1,169,000
Equity losses of
joint ventures 3,722,000 -- --
Other non cash items 905,000 12,000 (1,320,000)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (11,976,000) 4,322,000 10,252,000
Inventories 5,343,000 6,093,000 (9,077,000)
Other items (697,000) 3,357,000 3,786,000
Increase (decrease) in:
Accounts payable (11,927,000) (742,000)
785,000
Other liabilities 1,936,000 6,346,000 (389,000)
Deferred income taxes 3,875,000 1,882,000 (2,239,000)
------------ ------------ ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 74,614,000 $ 96,548,000 $ 83,747,000
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 32
SUPERIOR INDUSTRIES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
The principal business of Superior Industries International, Inc. and its
subsidiaries (the Company), is the design and manufacture of motor vehicle parts
and accessories, primarily aluminum road wheels for the domestic and
international original equipment manufacturer (OEM) markets. It is also a
leading manufacturer of custom road wheel and accessory products for the
automotive aftermarket.
The Company maintains both domestic and foreign manufacturing facilities,
including a wholly-owned subsidiary in Mexico and a manufacturing facility in
Hungary through a 50 percent owned joint venture.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries, after elimination of all significant intercompany
accounts and transactions. Investments in 50 percent owned joint ventures are
accounted for using the equity method. The Company's share of joint ventures'
operating results is reflected in non-operating income or expense.
These investments are included in long-term assets.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires that management make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FISCAL YEAR END
For presentation purposes, the Company denotes December 31 as the fiscal year
end. However, the Company's fiscal year ends on the last Sunday of the calendar
year.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments recorded on the balance sheet include cash
and cash equivalents, accounts and notes receivable, long-term investments and
accounts payable. Because of their short maturity, the carrying amount of cash
and cash equivalents, accounts and notes receivable and accounts payable
approximates fair value. Fair value of the Company's long-term investments is
discussed in Note 6 to the consolidated financial statements.
<PAGE> 33
CASH AND EQUIVALENTS
Cash and equivalents generally consist of cash and certificates of deposit with
maturities of three months or less. Certificate of deposit at December 31, 1997
and 1996 totaled $6,205,000 and $5,444,000, respectively.
MARKETABLE SECURITIES
Marketable securities, which generally consist of U.S. government agency
securities, corporate bonds, money market preferred stocks and equities, are all
considered "available-for-sale" and are carried at the lower of cost or market,
with any unrealized gains and losses reported as a component of shareholders'
equity. The net realized loss from sale of available-for-sale marketable
securities was $354,000 during 1997 compared to a net realized gain of $141,000
for 1996.
FOREIGN CURRENCY TRANSLATION
Foreign currency asset and liability accounts are translated at exchange rates
in effect at the end of the accounting period. Revenue and expense accounts are
translated at a weighted average of exchange rates during the period. The
cumulative effect of translation is recorded as a separate component of
shareholders' equity. Foreign exchange gains/(losses) of $85,000, ($109,000) and
($287,000) have been recorded as part of operations during 1997, 1996 and 1995,
respectively.
INVENTORIES
Inventories, which include material, labor and factory overhead, are stated at
the lower of cost or market. The Company uses the first-in, first-out (FIFO)
method of determining cost for all inventories.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated depreciation
and amortization. The cost of additions, improvements and interest during
construction are capitalized, while maintenance and repairs and tooling costs
are charged to expense when incurred. Depreciation and amortization are provided
generally on the straight-line basis over estimated useful lives ranging from 3
- - 33 years. Cost and related accumulated depreciation or amortization of
property replaced, retired or disposed of are removed from the accounts, and
gains or losses, if any, are included in the results of operations for the
period. Property and equipment no longer used in operations are stated at the
lower of cost or estimated net realizable value and are included in other
assets.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Amounts expended during
the three years ended December 31,1997 were $4,204,000 in 1997, $3,310,000 in
1996 and $3,265,000 in 1995.
<PAGE> 34
INCOME TAXES
Income taxes are accounted for using the asset and liability method pursuant to
Statement of Financial Accounting Standards, "Accounting for Income Taxes" ("FAS
109"). Deferred taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future years
differences between the financial statement carrying amounts and the tax bases
of existing assets and liabilities. The effect on deferred taxes for a change in
tax rates is recognized in income in the period of enactment. Provision is made
for U.S. income taxes on undistributed earnings of international subsidiaries
and 50 percent owned joint ventures, unless such earnings are considered
permanently reinvested. Tax credits are accounted for as a reduction of the
provision for income taxes in the period in which the credits arise.
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of employee stock options equals or exceeds the
market price of the underlying stock on the date of grant, no compensation
expense is recorded. The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123").
EARNINGS PER SHARE
Earnings per share calculations for 1997 and all prior periods are in accordance
with the provisions of Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("FAS128"). Accordingly, "basic" earnings per share is
computed by dividing net income by the weighted average shares outstanding for
the period of 28,069,000 in 1997, 28,624,000 in 1996 and 29,559,000 in 1995. 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
the Company's outstanding stock options ("common stock equivalents"), or
28,221,000 in 1997, 28,798,000 in 1996 and 29,895,000 in 1995.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS
130") and Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and related Information" ("FAS 131"). Management
believes that implementation of the disclosure requirements of FAS 130 and FAS
131 will not have a material effect on the Company's consolidated financial
statements.
<PAGE> 35
SUPERIOR INDUSTRIES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. BUSINESS SEGMENT
The Company manufactures motor vehicle parts and accessories for sale on normal,
generally unsecured trade terms to original equipment manufacturers (OEMs) and
the automotive aftermarket on an integrated one-segment basis
3. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
December 31, 1997 1996
------------ ------------
<S> <C> <C>
Trade receivables $ 64,251,000 $ 53,735,000
Other receivables 15,477,000 14,102,000
------------ ------------
79,728,000 67,837,000
Allowance for doubtful accounts (1,185,000) (1,270,000)
------------ ------------
Total $ 78,543,000 $ 66,567,000
============ ============
</TABLE>
The following percentages of the Company's consolidated net sales were made to
the Ford Motor Company and General Motors Corporation: 1997, 42.8 percent and
43.1 percent; 1996, 47.4 percent and 40.1 percent; 1995, 47.4 percent and 41.2
percent. These two customers represented 78% of trade receivables at December
31, 1997.
4. INVENTORIES
<TABLE>
<CAPTION>
December 31, 1997 1996
----------- -----------
<S> <C> <C>
Raw materials $14,039,000 $16,474,000
Work in process 12,642,000 13,461,000
Finished goods 15,706,000 17,795,000
----------- -----------
$42,387,000 $47,730,000
=========== ===========
</TABLE>
<PAGE> 36
SUPERIOR INDUSTRIES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PROPERTY PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
December 31, 1997 1996
------------ ------------
<S> <C> <C>
Land and buildings $ 48,462,000 $ 48,124,000
Machinery and equipment 266,187,000 258,490,000
Leasehold improvements and other 4,835,000 4,746,000
Construction in progress 11,795,000 10,495,000
------------ ------------
331,279,000 321,855,000
Less -
Accumulated depreciation
and amortization 183,290,000 160,185,000
------------ ------------
$147,989,000 $161,670,000
============ ============
</TABLE>
Included in property, plant and equipment at December 31, 1997 and 1996, were
buildings and equipment held under capital lease of $5,360,000, with accumulated
depreciation of $3,321,000 and $3,068,000, respectively.
Maintenance and repairs charged against operations during 1997, 1996 and 1995
were $14,252,000, $14,193,000 and $15,103,000, respectively. The Company
capitalized no interest in 1997, however, interest totaling $40,000 and $850,000
was capitalized during 1996 and 1995, respectively.
6. LONG-TERM ASSETS
Long-term assets at December 31, 1997 and 1996 include investments in and
advances to the Company's 50 percent owned joint ventures, totaling $24,458,000
and $21,128,000, respectively. Also included are the Company's interests in
affordable housing limited partnerships which provide favorable income tax
benefits over a fifteen-year period. These investments totaled $5,767,000 and
$6,378,000 at December 31, 1997 and 1996, respectively. While the fair value of
these long-term investments is not practicable to obtain, the Company believes
that the carrying amount represents the best estimate of fair value.
<PAGE> 37
SUPERIOR INDUSTRIES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. BORROWING ARRANGEMENTS
The Company maintains combined line and letter of credit facilities under which
it may borrow up to $55,000,000 on an uncommitted, unsecured basis at rates
generally below prime. The Company had no short-term borrowings during 1997 or
at December 31, 1996. The weighted average interest rates for short-term
borrowings during 1996 and 1995 were 5.8 percent and 6.7 percent, respectively.
The long-term debt of the Company is summarized as follows:
<TABLE>
<CAPTION>
December 31, 1997 1996
---------- ----------
<S> <C> <C>
9.31% Senior notes due 1997 $ -- $3,333,000
Capitalized lease obligations payable in
installments through 2001, with a weighted
average interest rate of 11.3% 1,258,000 1,501,000
Industrial development revenue bonds
due in installments of $325,000 in 1998
and $350,000 in 1999, with a weighted
average interest rate of 7.6% 675,000 980,000
---------- ----------
1,933,000 5,814,000
Less - Current portion 589,000 3,874,000
---------- ----------
$1,344,000 $1,940,000
========== ==========
</TABLE>
<PAGE> 38
SUPERIOR INDUSTRIES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. TAXES ON INCOME
The provision (credit) for income taxes is comprised of the following
components:
<TABLE>
<CAPTION>
Years Ended
December 31, 1997 1996 1995
-------------- ---------------- -----------------
<S> <C> <C> <C>
FEDERAL: Current $ 25,225,000 $ 22,718,000 $ 22,338,000
Deferred (706,000) (1,374,000) 1,884,000
-------------- ---------------- -----------------
24,519,000 21,344,000 24,222,000
------------- ----------------- -----------------
STATE: Current 2,365,000 2,466,000 3,891,000
Deferred 104,000 (186,000) 208,000
------------- ----------------- -----------------
2,469,000 2,280,000 4,099,000
------------- ----------------- -----------------
FOREIGN: Current 104,000 116,000 175,000
Deferred 3,727,000 3,481,000 3,358,000
------------- ----------------- -----------------
3,831,000 3,597,000 3,533,000
------------- ----------------- -----------------
TOTAL: Current 27,694,000 25,300,000 26,404,000
Deferred 3,125,000 1,921,000 5,450,000
------------- ----------------- -----------------
$ 30,819,000 $ 27,221,000 $ 31,854,000
============= ================= =================
</TABLE>
Income tax payments during the three year periods ending December 31, 1997 were
$24,305,000 in 1997, $24,155,000 in 1996 and $25,448,000 in 1995.
The reconciliation of the statutory United States federal income tax rate to the
Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
Years Ended
December 31, 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory amount, computed
at 35 percent $ 30,173,000 $ 25,925,000 $ 29,721,000
State tax provisions, net
of federal income tax benefit 1,607,000 1,482,000 2,664,000
Foreign income taxed at rates
other than the statutory rate (539,000) (78,000) (107,000)
Federal tax credits (1,241,000) (1,266,000) (722,000)
Other, net 819,000 1,158,000 298,000
------------ ------------ ------------
$ 30,819,000 $ 27,221,000 $ 31,854,000
============ ============ ============
</TABLE>
<PAGE> 39
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
December 31, 1997 1996
------------ ------------
DEFERRED TAX ASSETS
<S> <C> <C>
Reserves not currently deductible (4,630,000) (6,823,000)
Deferred compensation (4,268,000) (3,913,000)
Revenue recognized for tax purposes (569,000) (607,000)
State taxes expensed currently,
deductible in following year (1,021,000) (1,021,000)
Foreign currency translation adjustment (7,600,000) (7,300,000)
Other (1,982,000) (1,569,000)
------------ ------------
(20,070,000) (21,233,000)
------------ ------------
DEFERRED TAX LIABILITIES
Differences between book and tax basis
of property, plant and equipment 19,449,000 19,316,000
Differences between financial & tax accounting
associated with foreign operations 8,846,000 6,267,000
------------ ------------
28,295,000 25,583,000
------------ ------------
$ 8,225,000 $ 4,350,000
============ ============
</TABLE>
<PAGE> 40
9. LEASES
The Company leases certain land, facilities and equipment under long-term
operating leases expiring at various dates through 2003. The terms of certain
equipment leases require scheduled rent increases at specified intervals which
are not dependent on the occurrence of any future events. Additionally, the
Company reduced the amortization period for certain of these operating leases to
appropriately match with the estimated useful life of the underlying machinery.
Total lease expense for all operating leases amounted to $6,835,000 in 1997,
$5,165,000 in 1996 and $5,040,000 in 1995.
The Company leases its corporate office and certain manufacturing facilities,
under both capital and operating leases, from Louis L. Borick, President, and
Juanita A. Borick. The leases, which expire in the year 2001, have two option
periods of ten years each. The annual lease payment is $1,140,000, including
$392,000 for the capital lease portion as shown in the table below. Future
minimum payments to the Boricks through 2001 are $2,930,000 for the operating
lease and $1,535,000, including interest, for the capital lease. In addition,
certain other facilities were leased under short term lease arrangements from a
related entity owned by the Borick children. Total lease payments to the Boricks
and the related entity during the three years ending December 31, 1997 were
$1,533,000 in 1997, $1,583,000 in 1996 and $1,583,000 in 1995.
Future minimum payments under all leases are summarized as follows:
<TABLE>
<CAPTION>
LEASES
Years Ended December 31, OPERATING CAPITAL
<S> <C> <C>
1998 $ 4,496,000 $ 392,000
1999 7,850,000 392,000
2000 2,398,000 392,000
2001 1,185,000 359,000
2002 130,000 --
Thereafter 19,000 --
----------- -----------
16,078,000 1,535,000
Amounts representing interest -- 277,000
----------- -----------
$16,078,000 $ 1,258,000
=========== ===========
</TABLE>
<PAGE> 41
SUPERIOR INDUSTRIES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. RETIREMENT PLANS
The Company has an unfunded supplemental executive retirement plan
covering its directors, officers and other key members of management. The
Company has purchased key-man life insurance policies on each of the
participants to provide for future liabilities. Subject to certain vesting
requirements, the plan provides for a defined benefit based on final average
compensation which becomes payable on the employee's death or upon retirement.
The components of cost for this retirement plan are as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost $279,000 $323,000 $315,000
Interest cost 521,000 475,000 425,000
Net amortization 55,000 54,000 54,000
Other unrecognized loss -- 4,000 17,000
-------- -------- --------
Net cost $855,000 $856,000 $811,000
======== ======== ========
</TABLE>
A schedule reconciling the projected benefit obligation with recorded plan
liability follows:
<TABLE>
December 31, 1997 1996
----------- -----------
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 5,276,000 $ 4,571,000
=========== ===========
Accumulated benefit obligation $ 7,225,000 $ 6,583,000
=========== ===========
Projected benefit obligation $ 7,958,000 $ 7,259,000
Unrecognized prior service cost (219,000) (274,000)
Adjustment required to recognize
minimum liability 70,000 283,000
Other unrecognized experience losses (584,000) (685,000)
----------- -----------
Recorded liability $ 7,225,000 $ 6,583,000
=========== ===========
</TABLE>
Actuarial assumptions for the retirement plan for 1997 and 1996 include
seven percent for the assumed discount rate and five percent for the assumed
rate of average future compensation increases.
The Company has contributory employee retirement savings plans in
addition to mandatory profit sharing plans covering substantially all of its
employees. The employer contribution is determined at the discretion of the
Company and totaled $3,089,000, $2,606,000 and $2,330,000 for 1997, 1996 and
1995, respectively.
<PAGE> 42
The Company also has a deferred compensation agreement with its
President under which the Company has agreed to pay certain amounts annually
subsequent to retirement. For accounting purposes, the present value of such
payments is being charged ratably to expense over the estimated remaining years
of active employment. These charges totaled $272,000, $444,000 and $358,000 for
1997, 1996 and 1995, respectively.
11. LIABILITIES
The components of accrued and long-term liabilities are as follows:
<TABLE>
<CAPTION>
December 31, 1997 1996
---- ----
<S> <C> <C>
ACCRUED
Payroll and related benefits $ 12,089,000 $ 11,609,000
Income taxes 5,109,000 2,988,000
Insurance reserves 4,000,000 3,347,000
Taxes, other than income tax 3,269,000 3,199,000
Interest and dividends 1,958,000 1,777,000
Deferred operating lease payment 1,884,000 -
Tooling and maintenance 86,000 611,000
Other 2,180,000 2,786,000
---------------- ----------------
$ 30,575,000 $ 26,317,000
================ ================
LONG-TERM
Executive retirement and deferred
compensation plans $ 10,313,000 $ 9,424,000
Deferred operating lease payments 5,467,000 7,801,000
Other 597,000 625,000
---------------- ----------------
$ 16,377,000 $ 17,850,000
================ ================
</TABLE>
12. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is party to various legal and environmental proceedings
incidental to its business. Certain claims, suits and complaints arising in the
ordinary course of business have been filed or are pending against the Company.
Based on facts now known to the Company, management believes all such matters
are adequately provided for, covered by insurance or, if not so covered or
provided for, are without merit, or involve such amounts that would not
materially adversely affect the consolidated results of operations and cash
flows or financial position of the Company. At December 31, 1997, the Company
had outstanding letters of credit of approximately $2.0 million.
<PAGE> 43
13. STOCK OPTIONS
The Company has stock option plans under which the Company is authorized
to issue incentive and non-qualified stock options to its directors, officers
and key employees totaling up to 3,200,000 shares of common stock. Shares
available for future grants under these plans totaled 559,688 at December 31,
1997. Options are generally granted at not less than fair market value on the
date of grant and expire no later than ten years after the date of grant.
Options granted generally vest ratably over a four year period. When options are
exercised, proceeds from the sale of stock under option are credited to common
stock at par value, with amounts in excess of par value credited to additional
paid-in capital.
The Company has adopted the disclosure-only requirements of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). Therefore, the following information is presented in
accordance with the provisions of that Statement.
Had the Company elected to recognize compensation cost based on the fair value
of options granted as prescribed by FAS 123, net income and earnings per diluted
share would have been reduced to the proforma amounts indicated below.
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Reported net income $55,389,000 $46,850,000 $53,064,000
Proforma net income $54,927,000 $46,448,000 $51,965,000
Reported diluted E.P.S. $1.96 $1.63 $1.78
Proforma diluted E.P.S. $1.95 $1.61 $1.74
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate 5.6% 6.5% 6.5%
Expected dividend yield 1.0% 1.0% 1.0%
Expected stock price volatility 25.0% 22.8% 22.8%
Expected option lives
Incentive 7.0 7.2 7.2
Non-qualified 7.0 7.0 9.7
</TABLE>
<PAGE> 44
A summary of the status of the Company's stock option plans and changes in
outstanding options is presented below:
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996 1995
------------------------ ------------------------ ----------------------------
SHARES WEIGHTED Shares Weighted Shares Weighted
UNDER AVERAGE Under Average Under Average
OPTION EXERCISE PRICE Option Exercise Price Option Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Options outstanding
at beginning of year 1,284,356 $21.81 1,301,476 $21.73 1,432,223 $20.99
Options granted 76,500 22.97 53,000 22.98 137,000 25.31
Options exercised (102,421) 10.97 (34,559) 11.48 (154,372) 11.84
Options canceled
or expired (19,584) 26.84 (35,561) 30.66 (113,375) 30.21
---------- ------ ---------
Options outstanding
at end of year 1,238,851 $22.69 1,284,356 $21.81 1,301,476 $21.73
========== ======
Options exercisable
at end of year 1,112,045 1,136,832 856,268
========== ========= ==========
Weighted-average fair
value of options
granted during the
year $ 8.27 $ 8.53 $ 9.96
=========== ========== ==========
</TABLE>
The following table summarizes information about options outstanding at December
31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------- ---------------------------------------
Number Weighted Average Number
Range of Outstanding Remaining Weighted Average Exercisable Weighted Average
Exercise Prices at 12/31/97 Contractual Life Exercise Price at 12/31/97 Exercise Price
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$3.75-$16.00 181,559 3.74 years $ 12.12 181,559 $ 12.12
$19.00-$25.00 302,292 7.22 years 22.21 180,486 21.52
Over $25.00 755,000 5.21 years 25.43 750,000 25.42
--------- ---- ------------- --------- ----------
1,238,851 5.48 years $ 22.69 1,112,045 $ 22.62
========= ==== ============= ========= ==========
</TABLE>
<PAGE> 45
SUPERIOR INDUSTRIES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. OTHER EXPENSE
Other expense for 1997 included $3.4 million representing the Company's share of
start-up costs associated with the joint venture facility in Tatabanya, Hungary.
Other expense in 1996 included $7.4 million of pre-operating losses from the
Company's chrome plating facility in Fayetteville, Arkansas.
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
First Second Third Fourth Total
December 31, 1997 Quarter Quarter Quarter Quarter Year
- ----------------- ------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
Net Sales $ 125,893 $ 142,090 $ 130,243 $ 150,905 $ 549,131
Gross Profit 22,397 28,706 24,544 32,523 108,170
Net Income 11,548 15,074 13,119 15,648 55,389
Earnings Per Share
Basic .41 .54 .47 .56 1.97
Diluted .41 .53 .47 .56 1.96
Dividends Declared Per
Share .06 .07 .07 .07 .27
First Second Third Fourth Total
December 31, 1996 Quarter Quarter Quarter Quarter Year
- ----------------- ------- ------- ------- ------- ----
Net Sales $ 121,461 $ 137,554 $ 120,447 $ 124,779 $ 504,241
Gross Profit 21,724 30,356 24,409 25,224 101,713
Net Income 8,629 13,909 11,428 12,884 46,850
Earnings Per Share
Basic .30 .48 .40 .45 1.64
Diluted .30 .48 .40 .45 1.63
Dividends Declared Per
Share .05 .06 .06 .06 .23
</TABLE>
<PAGE> 46
STATEMENT OF MANAGEMENT'S FINANCIAL RESPONSIBILITY
To Our Shareholders:
The management of Superior Industries International, Inc. is responsible
for the integrity and objectivity of the financial and operating information
contained in this Annual Report, including the consolidated financial
statements. The consolidated financial statements were prepared in accordance
with generally accepted accounting principles appropriate in the circumstances,
and include amounts that are based on management's best estimates and judgment.
Management of the Company has established a system of internal
accounting controls which provides reasonable assurance that assets are properly
safeguarded and accounted for and that transactions are executed in accordance
with management's authorization and recorded and reported properly.
The consolidated financial statements have been audited by our
independent public accountants, Arthur Andersen LLP whose unqualified report is
presented herein. Their opinion is based on procedures performed in accordance
with generally accepted auditing standards, including tests of the accounting
records, obtaining an understanding of internal accounting controls solely for
purposes of planning and performing their audits, and such other auditing
procedures as they considered necessary in the circumstances to provide them
reasonable assurance that the consolidated financial statements are neither
materially misleading nor contain material errors.
The Audit Committee of the Board of Directors, consisting solely of
outside Directors, meets periodically with the independent public accountants,
the internal auditor, and management to review and discuss the scope and major
findings of the independent accountants' examination and results of internal
audit reviews, including the system of internal accounting controls, and
accounting principles and practices. Both the independent accountants and the
internal auditor have free access to the Audit Committee at any time.
Louis L. Borick R. Jeffrey Ornstein
President and Chairman of the Board Vice President & CFO
<PAGE> 47
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Superior Industries International, Inc.:
We have audited the accompanying consolidated balance sheets of Superior
Industries International, Inc. (a California corporation) and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Superior Industries
International, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Los Angeles, California
February 12, 1998
<PAGE> 48
IBC
DIRECTORS
Louis L. Borick
President and Chairman of the Board
Sheldon I. Ausman
Senior V.P. & Director
Bowne of Los Angeles
Retired Managing Partner, Arthur Andersen LLP
Steven J. Borick
President, Texakota, Inc.
Raymond C. Brown
Retired Senior Vice President
Philip W. Colburn
Chairman, Allen Group, Inc.
V. Bond Evans
Retired President and CEO, Alumax Inc.
R. Jeffrey Ornstein
Vice President & CFO
Jack H. Parkinson
Retired Managing Director, Chrysler de Mexico, SA
CORPORATE OFFICERS
Louis L. Borick
President and Chairman of the Board
Joseph T. D'Amico
Vice President, Materiel
Michael D. Dryden
Vice President, International Business Development
Ronald F. Escue
Vice President, General Manager - Aftermarket Wheel Division
James M. Ferguson
Vice President, OEM Marketing Group
Daniel L. Levine
Corporate Secretary and Treasurer
Henry C. Maldini
Vice President, Engineering
Frank Monteleone
Vice President, Purchasing
R. Jeffrey Ornstein
Vice President & CFO
Michael J. O'Rourke
Vice President, OEM Program Administration
Delbert J. Schmitz
Vice President, Aftermarket Marketing
COUNSEL AND AUDITORS
General Counsel
Irell & Manella Auditors
Arthur Andersen LLP
MIDWEST FACILITIES
Robert D. Bracy
Vice President
PLANT AND SUBSIDIARY LOCATIONS
Van Nuys, California
Bernard J. O'Neil, Corporate Director of Manufacturing
Fayetteville, Arkansas
P.S. Reddy, General Manager
Rogers, Arkansas
David C. Rodgers, Plant Manager, Chrome Plating Plant
Fayetteville, Arkansas
I. Armando Valdez, Plant Manager
Pittsburg, Kansas
Robert W. McDole, General Manager
Johnson City, Tennessee
Gene W. Jole, General Manager
Superior, Puerto Rico
Pedro Mora, General Manager
Superior Industries de Mexico, SA de CV
Gabriel Soto, General Manager
West Memphis, Arkansas
Terrence J. Schultz, General Manager, Superior Engineered Technologies, Inc.
JOINT VENTURES
ASI
Aluminum Company of America (ALCOA)
Suoftec Kft (Europe)
Otto Fuchs Metallwerke
Topy-Superior Limited (Japan)
Topy Industries Limited
DIVIDEND REINVESTMENT PLAN TRANSFER AGENT AND REGISTRAR
Information about the Company's Dividend Reinvestment Plan, a convenient and
economical method of using the dividend to increase holdings and any other
questions about shareholder accounts should be directed to:
Chase Mellon Shareholder Services, Los Angeles, California
800.356.2017 - http://www.chasemellon.com
ANNUAL MEETING
The annual meeting of Superior Industries International, Inc. will be held at
10:00 a.m. on May 15, 1998 at the: Regent Beverly Hilton Hotel,
9500 Wilshire Boulevard, Beverly Hills, California
SHAREHOLDER INFORMATION
Form 10-K Annual Report to the Securities and Exchange Commission will be sent
free of charge to shareholders upon written request to R. Jeffrey Ornstein,
Vice President & CFO
CORPORATE OFFICES
7800 Woodley Avenue, Van Nuys, California 91406
818.781.4973 - Fax 818.780.3500
SHAREHOLDER RELATIONS
818.771.5906
INTERNET WEB ADDRESS
http://www.supind.com
INVESTOR RELATIONS
Neil G. Berkman Associates, Los Angeles, California - 310.277.5162
<PAGE> 49
BACK COVER
VAN NUYS, CALIFORNIA PITTSBURG, KANSAS ROGERS, ARKANSAS
WEST MEMPHIS, ARKANSAS FAYETTEVILLE, ARKANSAS TIJUANA, MEXICO
CHIHUAHUA, MEXICO JOHNSON CITY, TENNESSEE TATABANYA, HUNGARY
ARECIBO, PUERTO RICO
WORLD CLASS - WORLD WIDE CORPORATE MILESTONES
1957 Manufacturer of auto bug screen, revenues $27,000
1958 Auto aftermarket expanded
1961 Built new manufacturing plant - Van Nuys, 25,000 square feet
1962 Introduced safety belts
1967 Built chrome plating plant and began manufacturing
1968 Introduced chrome plated steel wheels for aftermarket
1969 First public offering of Superior stock
1970 Added low pressure aluminum castings; produced both steel and
aluminum aftermarket wheels; Tijuana, Mexico polishing plant added
1974 First OEM aluminum wheel for the Ford Motor Company Mustang model
1976 Produced chrome plated steel wheels for Dodge trucks; aluminum wheels
for Chrysler passenger cars; produced GM's first cast aluminum wheel
for Olds Cutlass; built new manufacturing plant - Van Nuys
1979 Arecibo, Puerto Rico aftermarket plant opened
1982 New contracts with General Motors; became largest aluminum wheel
supplier to Ford Motor Company
1983 Toronto, Canada aftermarket plant opened; Newmarket, Canada OEM
aluminum wheel plant acquired
1986 Fayetteville, Arkansas OEM aluminum wheel plant opened
1988 Ford Motor Company Q-1 Award
1989 Listed SUP on New York Stock Exchange; Rogers, Arkansas OEM aluminum
wheel plant opened; General Motors Mark of Excellence Award and
became GM's largest supplier
1990 West Memphis, Arkansas Aftermarket and aluminum chrome plating plant
opened; Joint venture with Topy Industries, Ltd., of Tokyo, Japan;
established market to Japanese OEM customers in Japan and the
United States
1991 Pittsburg, Kansas OEM aluminum wheel plant opened
1992 Johnson City, Tennessee OEM aluminum wheel plant opened; revenues of
over $325,000,000; largest manufacturer of aluminum wheels in the world
1994 Chihuahua, Mexico aluminum wheel plant opened; Tijuana Mexico
polishing plant expanded
1995 Joint agreement established with Otto Fuchs of Germany and construction
of aluminum wheel plant in Hungary to serve European markets.
Superior Industries International, Inc.
7800 Woodley Avenue
Van Nuys, California 91406
818.781.4973 Fax 818.789.3500
http://www.supind.com
Logo: NYSE
<PAGE> 1
Exhibit 21
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Percentage of
Voting Stock
Jurisdiction Owned by the
of Company or
Name Incorporation Other Subsidiary
---- ------------- ----------------
<S> <C> <C>
Alcoa - Superior, Inc. LLC Delaware, U.S.A. 50%
owned by Company
Industrias Universales 100%
Unidas de Mexico, S.A. Mexico owned by Company
Suoftec Light Metal Products B.V. Netherlands 100%
owned by Company
Suoftec Light Metal Products KFT Hungary 50%
Superior Engineered 100%
Technologies, Inc. Delaware, U.S.A. owned by Company
Superior Industries 100%
de Mexico S.A. de C.V. Chihuahua, Mexico owned by Company
Superior Industries International 100%
Distribution Corporation California, U.S.A. owned by Company
Superior Industries International - 100%
Arkansas, Inc. Arkansas, U.S.A.
Superior Industries International - 100%
California, Inc. California, U.S.A.
Superior Industries International - 100%
Kansas, Inc. Kansas, U.S.A.
Superior Industries International - 100%
Michigan, Inc. Michigan, U.S.A.
Superior Industries International - 100%
Tennessee, Inc. Tennessee, U.S.A.
</TABLE>
S-3
<PAGE> 2
Exhibit 21
LIST OF SUBSIDIARIES (CON'T)
<TABLE>
<CAPTION>
Percentage of
Voting Stock
Jurisdiction Owned by the
of Company or
Name Incorporation Other Subsidiary
---- ------------- ----------------
<S> <C> <C>
Superior Industries Management 100%
Corporation California, U.S.A. owned by Company
Superior Industries 100%
International - P.R. Inc. Delaware, U.S.A. owned by Company
Superior Industries V.I., Inc. Virgin Islands 100%
owned by Company
Topy-Superior Limited Tokyo, Japan 50%
owned by Company
</TABLE>
S-4
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports dated February 12, 1998, included in Superior Industries International,
Inc.'s Annual Report to Shareholders on Form 10-K for the year ended December
31, 1997, into the Company's previously filed Registration Statements File Nos.
2-80130, 33-48547 and 33-64088.
ARTHUR ANDERSEN LLP
Los Angeles, California
March 20, 1998
S-5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statements and is qualified in its entirety by reference
to such Consolidated Financial Statements. Financial Statements are reported as
0 herein:
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 76,693
<SECURITIES> 0
<RECEIVABLES> 78,543<F1>
<ALLOWANCES> 0<F2>
<INVENTORY> 42,387
<CURRENT-ASSETS> 199,846
<PP&E> 331,279
<DEPRECIATION> (183,290)
<TOTAL-ASSETS> 382,679
<CURRENT-LIABILITIES> 65,415
<BONDS> 0
0
0
<COMMON> 13,952
<OTHER-SE> 273,464
<TOTAL-LIABILITY-AND-EQUITY> 382,679
<SALES> 549,131
<TOTAL-REVENUES> 549,131
<CGS> 440,961
<TOTAL-COSTS> 460,947
<OTHER-EXPENSES> 4,231
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,255)
<INCOME-PRETAX> 86,208
<INCOME-TAX> 30,819
<INCOME-CONTINUING> 55,389
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,389
<EPS-PRIMARY> 1.97
<EPS-DILUTED> 1.96
<FN>
<F1>Notes and accounts receivable trade are reported net of allowances for doubtful
accounts in the Consolidated Balance Sheet.
<F2>
Amounts inapplicable or not disclosed as a separate line on the Consolidated
Financial Statements are reported as 0 herein.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1995 JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> DEC-31-1996 DEC-31-1995 MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 36,815 3,366 40,099 44,501 49,636
<SECURITIES> 5,288 7,813 5,267 5,446 5,605
<RECEIVABLES> 67,837 72,163 67,422 73,829 74,628<F5>
<ALLOWANCES> 1,270 1,274 1,405 (1,205) 0<F5>
<INVENTORY> 47,730 53,823 52,514 49,962 49,237
<CURRENT-ASSETS> 164,080 142,659 171,574 179,835 186,929
<PP&E> 321,885 309,889 325,721 327,386 327,998
<DEPRECIATION> 160,195 177,538 166,234 (171,591) (176,813)
<TOTAL-ASSETS> 357,590 341,770 363,873 371,540 375,143
<CURRENT-LIABILITIES> 3,874 81,746 75,168 73,032 70,374
<BONDS> 2,473 2,964 1,883 0 0
0 0 0 0 0
0 0 0 0 0
<COMMON> 14,162 14,515 14,114 14,040 13,951
<OTHER-SE> 236,949 214,638 244,179 253,915 260,146
<TOTAL-LIABILITY-AND-EQUITY> 357,590 341,770 363,873 371,540 375,143
<SALES> 504,241 521,997 125,893 267,983 398,226
<TOTAL-REVENUES> 505,399 523,103 126,474 268,971 398,226
<CGS> 402,528 408,200 103,496 216,880 322,579
<TOTAL-COSTS> 422,459 428,165 108,270 226,924 337,643
<OTHER-EXPENSES> 7,385<F1> 6,732<F2> (54)<F3> 4<F4> (1,702)
<LOSS-PROVISION> 0 0 0 0 0
<INTEREST-EXPENSE> 1,484 3,288 143 283 431
<INCOME-PRETAX> 74,071 84,918 18,115 41,760 61,854
<INCOME-TAX> 27,221 31,854 6,567 15,138 22,113
<INCOME-CONTINUING> 46,850 53,064 11,548 26,622 39,741
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 46,850 53,064 11,548 26,622 39,741
<EPS-PRIMARY> 1.64 1.80 0.41 0.95 1.42
<EPS-DILUTED> 1.63 1.78 0.41 0.94 1.41
<FN>
AMOUNTS INAPPLICABLE OR NOT DISCLOSED AS A SEPARATE LINE ON THE
CONDOLIDATED CONDENSED FINANCIAL STATEMENTS ARE REPORTED AS 0 HEREIN.
<F1>OTHER EXPENSES INCLUDE MISCELLANEOUS EXPENSE.
<F2>OTHER EXPENSES INCLUDE MISCELLANEOUS EXPENSE.
<F3>OTHER EXPENSES INCLUDE MISCELLANEOUS EXPENSE.
<F4>OTHER EXPENSES INCLUDE MISCELLANEOUS EXPENSE.
<F5>NOTES AND ACCOUNTS RECEIVABLE - TRADE ARE REPORTED NET OF ALLOWANCES FOR
DOUBTFUL ACCOUNTS IN THE CONSOLIDATED CONDENSED BALANCE SHEET.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 SEP-30-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 12,688 17,968 27,440
<SECURITIES> 6,347 7,240 5,062
<RECEIVABLES> 72,267 77,318 70,349
<ALLOWANCES> 1,278 1,278 1,236
<INVENTORY> 51,186 43,706 42,388
<CURRENT-ASSETS> 147,487 151,091 152,242
<PP&E> 313,143 315,477 164,472
<DEPRECIATION> 138,666 144,679 151,408
<TOTAL-ASSETS> 343,349 353,666 384,715
<CURRENT-LIABILITIES> 80,096 87,389 75,793
<BONDS> 2,911 2,858 2,806
0 0 0
0 0 0
<COMMON> 14,444 14,280 14,198
<OTHER-SE> 218,452 221,768 227,667
<TOTAL-LIABILITY-AND-EQUITY> 343,349 353,666 348,715
<SALES> 121,461 259,015 379,462
<TOTAL-REVENUES> 121,635 259,375 380,054
<CGS> 99,737 206,935 302,973
<TOTAL-COSTS> 104,569 217,296 317,921
<OTHER-EXPENSES> 2,888<F1> 5,543<F2> 7,293
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 481 903 1,139
<INCOME-PRETAX> 13,697 35,633 53,701
<INCOME-TAX> 5,068 13,095 19,735
<INCOME-CONTINUING> 8,629 22,538 33,966
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 8,629 22,538 33,966
<EPS-PRIMARY> 0.30 .78 1.18
<EPS-DILUTED> 0.30 .78 1.18
<FN>
<F1>OTHER EXPENSES INCLUDE MISCELLANEOUS EXPENSE.
<F2>OTHER EXPENSES INCLUDE MISCELLANEOUS EXPENSE.
</FN>
</TABLE>
