<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- --------------------------------------------------------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
_________ TO _________
COMMISSION FILE NUMBER 1-6615
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-2594729
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
7800 WOODLEY AVENUE
VAN NUYS, CALIFORNIA 91406
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(818) 781-4973
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 AND (2)
HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO[ ]
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE
ISSUER'S CLASSES OF COMMON STOCK, AS OF THE
LAST PRACTICABLE DATE.
CLASS OF COMMON STOCK OUTSTANDING AT JULY 31, 1998
--------------------- ----------------------------
$.50 PAR VALUE 27,673,853
<PAGE> 2
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Cover Page...................................................................... 1
Table of Contents............................................................... 2
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Condensed Statements of Income .............................. 3
Consolidated Condensed Statements of Comprehensive Income ................ 4
Consolidated Condensed Balance Sheets..................................... 5
Consolidated Condensed Statements of Cash Flows........................... 6
Consolidated Condensed Statements of Shareholders' Equity................. 7
Notes to Consolidated Condensed Financial Statements............................ 8
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 10
Part II - Other Information
Signatures...................................................................... 12
Exhibit 27 - Financial Data Schedule
</TABLE>
2
<PAGE> 3
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------------------- --------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales .................................. $138,130 $142,090 $274,501 $267,983
Cost of Sales .............................. 114,709 113,384 226,243 216,880
-------- -------- -------- --------
Gross Profit ............................... 23,421 28,706 48,258 51,103
Selling, General and Administrative Expenses 5,286 5,270 10,669 10,044
-------- -------- -------- --------
Income From Operations ..................... 18,135 23,436 37,589 41,059
Non-Operating Income/Expense:
Interest income, net .................... 1,057 267 1,947 705
Miscellaneous expense, net .............. 189 58 779 4
-------- -------- -------- --------
868 209 1,168 701
Income Before Provision for Income Taxes ... 19,003 23,645 38,757 41,760
Provision for Income Taxes ................. 6,699 8,571 13,662 15,138
-------- -------- -------- --------
Net Income ................................. $ 12,304 $ 15,074 $ 25,095 $ 26,622
======== ======== ======== ========
Earnings Per Share - Basic ................. $ 0.44 $ 0.54 $ 0.90 $ 0.94
======== ======== ======== ========
Earnings Per Share - Diluted ............... $ 0.44 $ 0.53 $ 0.89 $ 0.94
======== ======== ======== ========
Dividends Declared Per Share ............... $ 0.08 $ 0.07 $ 0.15 $ 0.13
======== ======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements
3
<PAGE> 4
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
--------------------------- ---------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Income ................................ $ 12,304 $ 15,074 $ 25,095 $ 26,622
Other Comprehensive Income, net of tax:
Foreign Currency Translation Adjustments (780) (43) (1,030) (52)
Unrealized Loss on Marketable Securities -- 189 -- 167
-------- -------- -------- --------
Total Other Comprehensive Income .......... (780) 146 (1,030) 115
Comprehensive Income ...................... $ 11,524 $ 15,220 $ 24,065 $ 26,737
======== ======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements
4
<PAGE> 5
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
--------- ---------
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents ............. $ 90,033 $ 73,693
Accounts receivable, net .............. 67,908 78,543
Inventories
Raw materials ...................... 15,358 14,039
Work in process .................... 12,812 12,642
Finished goods ..................... 20,072 15,706
--------- ---------
48,242 42,387
Other current assets .................. 8,000 5,223
--------- ---------
Total current assets ............ 214,183 199,846
Property, Plant and Equipment ............ 340,550 331,279
Less: Accumulated Depreciation .......... 194,128 183,290
--------- ---------
Net property, plant and equipment ..... 146,422 147,989
Other Assets ............................. 37,208 34,844
--------- ---------
Total Assets ............................. $ 397,813 $ 382,679
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ...................... $ 33,358 $ 34,251
Accrued liabilities ................... 35,613 30,575
Current portion of long-term debt ..... 589 589
--------- ---------
Total current liabilities ....... 69,560 65,415
Long-term Debt ........................... 1,200 1,344
Other Long-term Liabilities .............. 11,327 16,377
Deferred Income Taxes .................... 15,261 12,127
Shareholders' Equity
Common stock .......................... 16,417 23,257
Accumulated other comprehensive income (15,186) (14,156)
Retained earnings ..................... 299,234 278,315
--------- ---------
Total shareholders' equity ...... 300,465 287,416
Total Liabilities and Shareholders' Equity $ 397,813 $ 382,679
========= =========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements
5
<PAGE> 6
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
---------------------------
1998 1997
-------- --------
<S> <C> <C>
Net Cash Provided by Operating Activities ............ $ 41,860 $ 28,232
Cash Flows from Financing Activities:
Repurchases of common stock ....................... (9,920) (6,659)
Cash dividends paid ............................... (3,909) (3,376)
Payments of long-term debt ........................ (144) (117)
Stock options exercised ........................... 3,080 424
-------- --------
Net Cash Used in Financing Activities .......... (10,893) (9,728)
-------- --------
Cash Flows from Investing Activities:
Additions to property, plant and equipment ........ (11,293) (7,479)
Investment in and advances to joint ventures ...... (3,451) (3,658)
Proceeds from sale of property, plant and equipment 117 319
-------- --------
Net Cash Used in Investing Activities .......... (14,627) (10,818)
-------- --------
Net Increase in Cash and Cash Equivalents ............ 16,340 7,686
Cash and Cash Equivalents at Beginning of Period ..... 73,693 36,815
-------- --------
Cash and Cash Equivalents at End of Period ........... $ 90,033 $ 44,501
======== ========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements
6
<PAGE> 7
SUPERIOR INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(Dollars in thousand, except share data)
<TABLE>
<CAPTION>
Common Stock Accumulated
----------------------------- Additional Other
Number of Paid-In Comprehensive Retained
Shares Amount Capital Income Earnings Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1997 27,902,387 $ 13,951 $ 9,306 $ (14,156) $ 278,315 $ 287,416
Net income -- -- -- -- 25,095 25,095
Foreign currency
translation -- -- -- (1,030) -- (1,030)
Cash dividends declared
($.15/share) -- -- -- -- (4,176) (4,176)
Repurchases of
common stock (336,700) (169) (9,751) -- -- (9,920)
Stock options
exercised 155,166 78 2,480 -- -- 2,558
Stock option
tax benefit -- -- 522 -- -- 522
----------- ----------- ----------- ----------- ----------- -----------
Balances at
June 30, 1998 27,720,853 $ 13,860 $ 2,557 $ (15,186) $ 299,234 $ 300,465
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements
7
<PAGE> 8
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Basis of Presentation
During interim periods, Superior Industries International, Inc. and its
subsidiaries (the "Company") follow the accounting policies set forth in its
Annual Report to Shareholders and apply appropriate interim financial reporting
standards, as indicated below. Users of financial information produced for
interim periods are encouraged to refer to the notes contained in the Annual
Report to Shareholders when reviewing interim financial results.
Interim financial reporting standards require management to make estimates that
are based on assumptions regarding the outcome of future events and
circumstances not known at the present time, including the use of estimated
effective tax rates. Inevitably, some assumptions may not materialize and
unanticipated events and circumstances may occur which vary from those estimates
and such variations may significantly affect the Company's future results.
In the opinion of management, the accompanying unaudited consolidated condensed
financial statements of the Company have been prepared in accordance with the
Securities and Exchange Commission's requirements of Form 10-Q and contain all
adjustments, of a normal and recurring nature, which are necessary for a fair
presentation of i) the consolidated condensed statements of income for the three
and six months ended June 30, 1998 and 1997, ii) the consolidated condensed
statements of comprehensive income for the three and six months ended June 30,
1998 and 1997, iii) the consolidated condensed balance sheets at June 30, 1998
and December 31, 1997, iv) the consolidated condensed statements of cash flows
for the six months ended June 30, 1998 and 1997, and v) the consolidated
condensed statements of shareholders' equity at June 30, 1998 and December 31,
1997.
Contingencies
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.
Segment Reporting
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information". This Statement, which is effective for all
reporting periods beginning in 1998, redefines the way publicly held companies
report information about segments. Based upon the Company's assessment of this
pronouncement, it has determined that the Company will continue to report on an
integrated one segment basis.
8
<PAGE> 9
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Earnings per Share
Earnings per share calculations for all periods are in accordance with the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per
Share". Accordingly, "basic" earnings per share is calculated by dividing net
income by the weighted average shares outstanding for the period, or 27,818,000
and 28,132,000 for the three month periods ended June 30, 1998 and 1997 and
27,864,000 and 28,198,000 for the six month periods ended June 30, 1998 and
1997, respectively. For purposes of calculating "diluted" earnings per share,
net income is divided by the total of the weighted averaged shares outstanding
plus the dilutive effect of the Company's outstanding stock options ("common
stock equivalents"), or 27,998,000 and 28,276,000 for the three month periods
ended June 30, 1998 and 1997 and 28,061,000 and 28,333,000 for the six month
periods ended June 30, 1998 and 1997, respectively.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income". This
Statement, which is effective for all reporting periods beginning in 1998,
requires the prominent disclosure of all components of Comprehensive Income, as
defined - see the Consolidated Condensed Statements of Comprehensive Income and
Shareholders' Equity. Accumulated Other Comprehensive Income as reflected in the
Statement of Shareholders' Equity represents the cumulative foreign currency
translation adjustments through December 31, 1997 and June 30, 1998.
Forward Looking Statements
Some 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.
9
<PAGE> 10
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's results of operations for the second quarter and year-to-date
period ended June 30, 1998, were affected significantly by the United Auto
Worker's (UAW) strike against General Motors (GM), one of the Company's major
customers. The work stoppage that began in early June reduced shipments of the
Company's aluminum road wheels to GM, contributing to the decline of $4.0
million, or 2.8%, in consolidated net sales for the quarter to $138.1 million
from $142.1 million in the same period a year ago. Consolidated net sales for
the six months ended June 30, 1998 were $274.5 million compared to $268.0
million a year ago, an increase of $6.5 million, or 2.4%.
OEM net sales were $128.5 million for the quarter ended June 30, 1998 compared
to $132.4 million for the same period in 1997, a decrease of $3.9 million, or
2.9%. OEM unit shipments decreased 4.1% for the quarter, excluding chrome-plated
units, which increased approximately 46% over a year ago. During this same
period, production by Ford and GM of passenger cars and light trucks in North
America, the principal market served by the Company, decreased by 9% and 16%,
respectively. This indicates a continued market share increase usage of aluminum
wheels. On a year-to-date basis, OEM net sales were $255.4 million, up $5.3
million, or 2.1%, from $250.1 million a year ago. OEM unit shipments during the
same period were up 1.1%. Chrome plating revenues were up $2.8 million, or 45%,
for the quarter ended June 30, 1998 and up $5.8 million, or 55%, for the six
months then ended.
Net sales of the Company's automotive aftermarket products remained virtually
unchanged from a year ago at $9.6 million for the quarter, as a decrease of $0.5
million in road wheel sales was offset by an increase of a like amount in the
net sales of other automotive accessories. On a year-to-date basis, net sales of
automobile aftermarket products increased $1.2 million, or 6.5%, to $19.1
million from $17.9 million a year ago.
Gross margin for the quarter decreased to 17.0% from 20.2% for the same period a
year ago, due principally to production inefficiencies, including two plant
closures, related to the UAW strike against GM. For the six month period ended
June 30, 1998, the gross margin decreased to 17.6% from 19.1% in 1997, as the
impact of the strike in the second quarter offset the slight gain in the gross
margin achieved in the first quarter of 1998.
Selling, general and administrative expenses for the second quarter of 1998 were
unchanged at $5.3 million, or 3.8% in 1998 compared to 3.7% in 1997 on higher
sales volume. For the six months ended June 30,1998, these expenses were 3.9% of
sales compared to 3.7% in the same period a year ago, which included a
non-recurring credit related to insurance expense of approximately $0.4 million.
Interest income for the second quarter increased to $1.1 million from $0.4
million a year ago, as cash available for investing during the period increased
by approximately $39.4 million. For the six months ended June 30, 1998, interest
income was $2.0 million compared to $1.0 million in 1997, again due to an
increase in cash available for investing.
10
<PAGE> 11
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Interest expense was $41,000 for the second quarter compared to $140,000 a year
ago and $82,000 for the six months ended June 30, 1998, versus $283,000 in the
same period a year ago. The principal reason for the decreased interest expense
was the payment in late 1997 of the final $3.3 million installment on the
Company's Senior Notes. Miscellaneous expense for 1998 includes pre-tax equity
losses of $400,000 in the second quarter and $750,000 for the six month period,
related to the Company's start up of the fifty percent owned joint venture
operations in Hungary.
During the first quarter of 1998, the Company completed its plan to have all
integrated business systems software be Year 2000 compliant. The compliant
systems were tested and became effective in the second quarter of 1998.
Additionally, a corporate project manager, reporting to the Vice President of
Operations, has developed an action plan to inventory and assess all of the
Company's other systems and processes, including third party relationships,
that may materially effect the Company's business. Risk assessment and
development of contingency plans will be completed by the end of the second
quarter of 1999.
The Company believes there will be no significant expenditures associated with
the Year 2000 compliance procedures.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $41.9 million for the six months
ended June 30, 1998, compared to $28.2 million for the same period a year ago.
The principal reason for the increased cash flow from operating activities in
1998 was a reduction in funding requirements for working capital, primarily
accounts receivable due to the reduction in sales in the month of June caused by
the GM strike. The principal financing activities of the Company during the six
months ended June 30, 1998 were to repurchase 336,700 shares of the Company's
common stock for $9.9 million, pursuant to a 2.0 million share repurchase plan
authorized in the fourth quarter of 1997, and to pay cash dividends totaling
$3.9 million on the Company's common stock. Similar financing activities during
the same period a year ago were for $6.7 million to repurchase common stock and
$3.4 million to pay cash dividends. These expenditures were partially offset by
proceeds of $3.1 million in 1998 and $0.4 million in 1997 from the exercise of
the Company's stock options.
Investing activities during the six month period ended June 30, 1998 included
funding $11.3 million of capital expenditures for modernization of the Company's
plants, including $2.0 million related to the initial phase of the Chihuahua,
Mexico facility expansion, and $3.5 million of additional investments in and
advances to the Company's joint ventures. Similar investment activities during
the same period a year ago were for $7.5 million of capital expenditures and
$3.7 million for advances to joint ventures.
Working capital and current ratio were $144.6 million and 3.1:1 versus $134.4
million and 3.1:1 at December 31, 1997, respectively, and $106.8 million and
2.5:1 at June 30, 1997, respectively. Cash and short-term investments as of June
30, 1998 were $90.0 million compared to $73.7 million at December 31, 1997 and
$44.5 million a year ago. The Company's current cash position is forecasted to
be sufficient to fund working capital and capital investment requirements
(approximately $45.0 million) for the full year 1998.
11
<PAGE> 12
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K - There were no reports on Form 8-K filed during the
three months ended June 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
(Registrant)
Date 8/12/98 /s/ Louis L. Borick
------------------------------------
Louis L. Borick
President and Chairman of the Board
Date 8/12/98 /s/ R. Jeffrey Ornstein
------------------------------------
R. Jeffrey Ornstein
Vice President and CFO
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED, CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 90,033
<SECURITIES> 0
<RECEIVABLES> 67,908<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 48,242
<CURRENT-ASSETS> 214,183
<PP&E> 340,550
<DEPRECIATION> (194,128)
<TOTAL-ASSETS> 397,813
<CURRENT-LIABILITIES> 69,560
<BONDS> 0
0
0
<COMMON> 16,417<F2>
<OTHER-SE> 284,048
<TOTAL-LIABILITY-AND-EQUITY> 397,813
<SALES> 274,501
<TOTAL-REVENUES> 274,501
<CGS> 226,243
<TOTAL-COSTS> 236,912
<OTHER-EXPENSES> 779
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,947)
<INCOME-PRETAX> 38,757
<INCOME-TAX> 13,662
<INCOME-CONTINUING> 25,095
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,095
<EPS-PRIMARY> 0.90
<EPS-DILUTED> 0.89
<FN>
<F1>NOTES AND ACCOUNTS RECEIVABLE-TRADE ARE REPORTED NET OF ALLOWANCES FOR
DOUBTFUL ACCOUNTS IN THE CONSOLIDATED CONDENSED BALANCE SHEET.
<F2>COMMON STOCK AND ADDITIONAL PAID-IN-CAPITAL ARE COMBINED IN THE CONSOLIDATED
CONDENSED BALANCE SHEET.
</FN>
</TABLE>
