<PAGE> 1
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, 1998
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)
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CALIFORNIA 95-2594729
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(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)
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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
non-affiliates of the registrant on March 15, 1999 was $482,485,599. On March
15, 1999, there were 27,147,285 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 1998 Annual Report to Shareholders are
incorporated into Parts I, II and IV.
2. Portions of Superior's 1998 Annual Proxy Statement are incorporated
into Part 5 I and III.
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TABLE OF CONTENTS
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Page
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PART I
Item 1 Business 1
General Development and Description of Business 1
Principal Products 2
Customer Dependence 3
New Products 3
Net Sales Backlog 4
Seasonal Variations and Work Stoppage 4
Raw Materials 4
Patents and Licensing Agreements 4
Research and Development 5
Government Regulation 5
Environmental Compliance 5
Competition 5
Employees 6
Item 2 Properties 6
Item 3 Legal Proceedings 7
Item 4 Submission of Matters to a Vote of Security Holders 7
Executive Officers of the Registrant 7
PART II
Item 5 Market Price of and Dividends on the Registrant's Common
Equity and Related Stockholder Matters 8
Item 6 Selected Financial Data 9
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 7A Quantitative and Qualitative Disclosures About Market Risk 9
Item 8 Financial Statements and Supplementary Data 9
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 9
PART III
Item 10 Directors and Executive Officers of the Registrant 9
Item 11 Executive Compensation 10
Item 12 Security Ownership of Certain Beneficial Owners and Management 10
Item 13 Certain Relationships and Related Transactions 10
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 10
Signatures
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PART I
STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Certain statements incorporated herein by reference 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
our future performance and financial results are subject to certain risks and
uncertainties. These factors could cause actual results to differ materially
from those included 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 our strategic and operating plans.
ITEM 1. BUSINESS
General Development and Description of Business
Superior Industries International, Inc.'s principal business is the design
and manufacture of motor vehicle parts and accessories for sale to original
equipment manufactures (OEMs) and the automotive aftermarket on an integrated
one-segment basis. Our primary production is vehicle aluminum road wheels for
the domestic and international OEMs in the automobile industry. We also design
and distribute a limited product line for the automotive aftermarket, including
custom road wheels and accessories.
The Company was initially incorporated in Delaware in 1969 and
reincorporated in California in 1994 as the successor to three businesses
founded by Louis L. Borick, President and Chief Executive Officer. These
businesses had been engaged in the design, manufacture and sale of automotive
accessories and related products since 1957.
Our entry into the OEM road wheel business in 1973 resulted from our
successful development of manufacturing technology, quality control and quality
assurance techniques which enabled us to satisfy the quality and volume
requirements of the OEM market. Our long-term strategy involved broadening both
our domestic and international OEM customer base and expanding product lines
into complementary areas, which would utilize our design and manufacturing
expertise. Accordingly, we embarked on a strategy to develop three international
markets: Japan, Europe and Latin America, as well as related foreign OEMs with
manufacturing facilities in the United States.
In 1990, we formed a sale and marketing joint venture, Topy-Superior
Limited ("TSL"), with Topy Industries, Limited ("Topy"), Japan's largest wheel
manufacturer. TSL markets and sells wheels made by Superior to Japanese OEM
customers both in Japan and the United States. In 1998, TSL had agreements to
provide ten wheel programs for export to domestic Japanese OEM customers, or to
their U.S. operations.
Development of our initial Latin American program commenced during 1994
with the first shipments from our Chihuahua, Mexico plant. By entering this new
market, we renewed our relationship with Chrysler by receiving orders to produce
two wheel models from Chrysler de Mexico. Wheels manufactured at the Chihuahua,
Mexico facility are for both export and installation on Mexican manufactured
cars built mostly for indirect export back to the U.S.
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During 1997, we announced an expansion project at the plant doubling its
capacity to meet future increases in export activities and customer demands.
This expansion will be completed in 1999.
In 1995, we entered into a 50-50 joint venture, Suoftec Light Metal
Products, KFT ("Suoftec"), with German based Otto Fuchs Metallwerke ("Otto
Fuchs") to establish a European manufacturing facility. The joint venture
produces both lightweight forged and cast aluminum wheels for sale to European
OEM customers. Shipments of forged wheels began in 1997 and of cast aluminum
wheels in 1998. The facility, located in Tatabanya, Hungary, establishes our
commitment to entering the European market and brings new wheel making
technology to both the European and U.S. markets. In 1998, we began expansion of
the cast aluminum production facility to accommodate the demand for these
products in the European market.
In 1994, in response to the steadily growing popularity of chrome-plated
aluminum wheels and to provide capacity for several new customer orders, we
completed construction of a new chrome-plating wheel facility in Fayetteville,
Arkansas. We are the only OEM aluminum wheel manufacturer to develop this
in-house capability and the plant is the largest of its kind in the world. Also
during 1998, we added a fully automated polishing facility for aluminum wheels
to the chrome plating plant. This plant demonstrates our commitment to
diversifying into new product lines complementary to our core business and gives
us the most diverse wheel finishing capacity in the industry.
In 1997, we won our first non-wheel aluminum automotive components order, a
transmission support bracket for the Oldsmobile Intrigue. Taking the next step
in our strategy to expand our non-wheel aluminum components business, during
1998 we entered into an exclusive licensing agreement for a unique proprietary
"hybrid" aluminum casting/forging technology. This new hybrid technology
combines the design flexibility, lightweight and cost advantages of casting with
improved strength characteristics of forging. This technology, which can be used
to manufacture non-wheel components that will be less expensive while
maintaining the structural requirements of conventional forged aluminum and
steel components, is currently being used to manufacture aluminum components for
several automobile manufacturers in Europe and the U.S.
Principal Products
Our 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 ("GM"), Chrysler de Mexico ("Chrysler"),
Toyota Motor Corporation ("Toyota"), Mazda Motor Corporation ("Mazda"), Nissan
Motor Corporation Ltd. ("Nissan"), Isuzu Motors Limited ("Isuzu"), Audi AG
("Audi"), Bayerische Motoren Werke ("BMW"), Volkswagen AG ("Volkswagen") and
Ford of Australia.
During the past twenty-five years, we have provided aluminum road wheels to
Ford, GM and Chrysler. Additionally, for the past eleven years, we have provided
wheels to Japanese and European auto manufacturers from our seven OEM aluminum
wheel manufacturing facilities in three countries. In 1998, we also began
manufacturing, our first OEM, non-wheel aluminum automotive component, a
transmission bracket for the GM's Oldsmobile Intrigue. Sales of OEM aluminum
road wheels for the three years ended December 31, 1998 were approximately 94%
of consolidated net sales in each year. The balance of our consolidated net
sales were represented by a limited line of road wheels and accessories sold to
the automotive aftermarket.
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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. We design, manufacture and distribute 68 different products including
custom steel, aluminum and chrome-plated road wheels and accessories, including
steering wheel covers, lighting products, suspension and other accessories.
Customer Dependence
We have proven our ability to be a consistent 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
our rapid plant expansion program, but also through our demonstrated ability to
meet frequent customer requests to absorb additional capacity requirements. We
strive to continually enhance our relationships with our customers through
continuous improvement programs. Moreover, we ship wheels for approximately 150
individual different wheel styles.
GM and Ford were the only customers accounting for more than 10% of our
consolidated net sales in 1998. Sales to GM, as a percentage of consolidated net
sales, were 43.5%, 43.1% and 40.1% in 1998, 1997 and 1996, respectively. Sales
to Ford, as a percentage of consolidated net sales, were 41.3%, 42.8% and 47.4%
in 1998, 1997 and 1996, respectively.
Although the loss of all or a substantial portion of our sales to GM or
Ford would have a significant adverse effect on our financial results until the
lost sales volume could be replaced, we do not believe this represents a
material risk due to the excellent long-term relationships developed with these
customers.
New Products
In March 1997, General Motors awarded us a contract to supply aluminum
transmission support brackets for the Oldsmobile Intrigue. 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.
Management's continued strategy to expand into other aluminum products for
the automotive industry was advanced with the signing of an exclusive license
agreement for a unique proprietary "hybrid" aluminum casting/forging technology.
The new hybrid technology combines the designed flexibility, lightweight and
cost advantages of casting with improved strength characteristics.
Our U.S. automotive customers are reacting enthusiastically to product
samples of there non-wheel automotive components, and we are working hard to win
additional orders. We believe that volume production employing the new
technology could begin relatively quickly. As a further sign of our commitments
to the non-wheel aluminum component opportunity, we recently named a General
Manger for our Cast/Forge Program based in Fayetteville, Arkansas, and are
beginning to commit capital and additional human resources to this important new
product line.
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Net Sales Backlog
We receive OEM tooling purchase orders to produce multi-year requirements
for aluminum road wheels. These purchase orders are for vehicle wheel programs
that can last three to five years. We manufacture and ship based on customer
release schedules, 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, 1998 and 1997,
we had no significant backlog of orders.
Seasonal Variations and Work Stoppage
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 meet customer
scheduling demands. During the past few years, there has been no significant
consistent seasonal variation.
In early June 1998, the United Auto Workers (UAW) initiated a strike
against General Motors (GM), one of our major customers. The work stoppage,
which reduced shipments of our aluminum road wheels during that period, ended at
the end of July and shipments of aluminum wheels to GM increased steadily during
the fourth quarter.
Raw Materials
We purchase substantial quantities of aluminum ingot for the manufacture of
our aluminum road wheels. These purchases accounted for approximately 80 percent
of our total material requirements during 1998. The majority of our 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 (typically one year)
of the orders. During 1998, we were able to successfully secure aluminum
commitments from our primary suppliers to meet production requirements.
We obtain our requirements for other materials through numerous suppliers
with whom we have established trade relations. When an outside supplier produces
components for our products, we normally own the tools and dies located in the
supplier's facilities, or have the right to purchase them.
Patents and Licensing Agreements
We currently hold patents for 11 of our inventions and have one patent
pending. We have a policy of applying for patents when new products or processes
are developed. However, we believe our success is more dependent upon
manufacturing and engineering skills and the quality and market acceptance of
our products, than upon our ability to obtain and defend patents. We are
currently paying a royalty on one patent owned by another party.
4
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Research and Development
Our 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. We strive to achieve
this objective by attracting and retaining top engineering talent and by
maintaining the latest state-of-the-art computer technology to support
engineering development. Two fully staffed engineering centers located in Van
Nuys, California and Fayetteville, Arkansas support our research and development
manufacturing needs. We also have a technical center in Detroit which maintains
a compliment of engineering staff centrally located near our largest customers.
We are currently engaged in approximately 74 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 6 engineering programs for the development of chrome-plated
aluminum wheels.
Research and development costs are expensed as incurred. Amounts expended
during the three years ended December 31,1998 were $4,959,000 in 1998,
$4,204,000 in 1997 and $3,310,000 in 1996.
Government Regulation
Safety standards in the manufacture of vehicles and automotive equipment
have been established under the National Traffic and Motor Vehicle Safety Act of
1966. We believe that we are in compliance with all federal standards currently
applicable to OEM suppliers and to automotive aftermarket manufacturers and
products.
Environmental Compliance
Our 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. We
believe our facilities are substantially in compliance with all standards
presently applicable. The 1998 cost of environmental compliance was
approximately $2,139,000. See Item 3 "Legal Proceeding" for information
concerning our involvement with certain United States Environmental Protection
Agency activities.
Competition
The business sectors in each of our product areas are highly competitive.
We are one of the leading suppliers of aluminum road wheels for OEM
installations in the world. We supply approximately 36 percent of the aluminum
wheels for the North American car and light truck market. Based on Wards
Automotive, an industry publication, aluminum wheel installation rates on
automobiles and light trucks rose to a record 53 percent for the 1998 model
year. Our primary competitor in the North American market is Hayes Lemmerz
International, Inc.
Market contraction of major retailers and increased foreign imports
continue to heighten pricing pressures on our automotive aftermarket product
line.
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This has resulted in diminished margins on these products.
Employees
As of December 31, 1998, we have approximately 4,900 full-time employees
(including 567 at our joint venture in Hungary). At the present time
approximately 74 employees at our Tijuana, Mexico facility, which polishes
wheels for aftermarket applications, are covered by collective bargaining
agreements.
ITEM 2. PROPERTIES
We maintain and operate 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, with the remainder
operated under lease agreements expiring at various dates through 2001. Our
corporate offices, manufacturing and warehousing facilities in Van Nuys,
California are located in leased facilities.
In general, the facilities are in good operating condition and are adequate
to meet the productive capacity requirements of each plant. The facilities have
been constructed at various times over the past several years. There are active
maintenance programs to keep facilities in good condition. In addition, we have
an active capital spending program to replace equipment as needed to keep it
technologically competitive on worldwide basis.
The principal facilities in the United States are as follows:
- Approximately 1,737,000 square feet of owned space in Arkansas, Kansas,
and Tennessee
- Approximately 406,000 square feet of leased space in California, Puerto
Rico and Michigan
The principal international facilities are as follows:
- Approximately 612,000 square feet of owned space in Chihuahua, Mexico and
Tatabanya, Hungary (a joint venture facility)
- Approximately 26,000 square feet of leased space in Tijuana, Mexico
Additionally, reference is made to Notes 1, 5 and 9 of "Notes to
Consolidated Financial Statements" on pages 21, 23 and 26, respectively, in the
Company's 1998 Annual Report to Shareholders, which are incorporated herein by
reference.
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ITEM 3. LEGAL PROCEEDINGS
In 1988, we were notified by the United States Environmental Protection
Agency (EPA), that we are considered a potentially responsible party (PRP) for
costs to clean up the Operating Industries, Inc. site in Monterey Park,
California. We were identified as a PRP because of deposits made at the site
which were permitted and approved by appropriate regulatory agencies. 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 contributions
according to the severity of the deposits made. Our insurance carriers have been
placed on notice and their insurance policies are currently under review to
determine whether our liability is covered by insurance. To date, by private
agreement with the other settling defendants, we have paid $495,000 net of
settlements from other parties, to settle our liability under the first three
phases of clean-up. Based on known facts, including the low level of
participation claimed against us by the EPA and based on the number and
financial strength of the other PRP's with greater participation in the cleanup
activities, we believe sufficient reserves have been established to cover our
ultimate financial exposure.
In the fall of 1998, we were notified by the EPA that we are considered a
PRP for costs to clean up the Casmalia Disposal Site in Santa Barbara County,
California. The total site remediation cost has been estimated at $399 million
by the EPA based on both past and future response costs, including the EPA's
past response cost.
The EPA has indicated that we qualify for a de minimus settlement because;
1) the amount of waste contributed is minimal in comparison to the other waste
at the site; 2) the toxic or other hazardous effects of the waste contributed
are minimal in comparison to the other waste at the site; and 3) the settlement
is in the public's interest and involves only a minor portion of the response
costs at the site. By accepting the de minimus settlement, the EPA would
provide; 1) a promise not to bring any further legal actions against us
regarding the site; and 2) protection from contribution suits by other PRP's. We
have reviewed and approved this de minimus settlement offer, the payment of
which will be covered by our current reserve for environmental matters.
ITEM 4. SUBMISSION OF MATTERS TO
A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1998 to a vote of
security holders through the solicitation of proxies or otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the names of corporate executive officers as of the fiscal
year end who are not directors. Information regarding executive officers who are
directors is contained in our 1999 Annual Proxy Statement to be issued in
connection with our Annual Meeting of Stockholders scheduled for May 7, 1999.
The 1999 Annual Proxy Statement is incorporated herein by reference. All
executive officers are appointed annually by the Board of Directors and serve
one-year terms. Also see "Employment Agreements" on pages 6 and 7 in our 1999
Annual Proxy Statement, which is incorporated herein by reference.
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Listed below is the name, age, position and business experience of each of our
officers who are not directors:
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Assumed
Name Age Position Position
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Joseph T. D'Amico 69 Vice President, Materiel 1984
Michael D. Dryden 61 Vice President, International Business Development 1990
Ronald F. Escue 53 Vice President, General Manager -- Aftermarket Wheels 1995
Vice President, Aftermarket Sales 1987
Emil J. Fanelli 56 Corporate Controller 1997
Vice President-Finance, Sinclair Paint Company 1982
James M. Ferguson 50 Vice President, OEM Marketing Group 1990
William B. Kelley 50 Vice President, Operations and Quality 1998
Corporate Director Quality Assurance 1993
Daniel L. Levine 40 Corporate Secretary and Treasurer 1997
Corporate Secretary and Assistant Treasurer 1996
Assistant Treasurer and Director of Tax 1992
Frank Monteleone 60 Vice President, Purchasing 1996
Corporate Purchasing Director 1986
Michael J. O'Rourke 38 Vice President, Program Administration 1995
Director, OEM Programs 1991
Delbert J. Schmitz 66 Vice President, Aftermarket Marketing 1987
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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 12 and to Note 16 of "Notes to Consolidated Financial
Statements", on page 30 of our 1998 Annual Report to Shareholders, which is
incorporated herein by reference.
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ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the presentation of "Financial Highlights" on page 1
of our 1998 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
16 of our 1998 Annual Report to Shareholders, which is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Reference is made to the presentation of "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 13 through
16 of our 1998 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 Statements 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 17 through 32 of our 1998 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.
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 our Annual Proxy Statement, which is
incorporated herein by 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.
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ITEM 11. EXECUTIVE COMPENSATION
Information relating to Executive Compensation is set forth under the
captions "Compensation of Directors" on page 7 and "Executive Compensation" on
pages 9 through 12 in our 1999 Annual Proxy Statement, which 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 our 1999 Annual Proxy Statement, which 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 Transactions", on pages 3 through 6 in our 1999 Annual Proxy Statement,
which is incorporated herein by reference.
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, 1998, 1997 and 1996
(ii) Consolidated Balance Sheets as of December 31, 1998 and 1997
(iii) Consolidated Statements of Shareholders' Equity for the three
years ended December 31, 1998, 1997 and 1996
(iv) Consolidated Statements of Cash Flows for the three years ended
December 31, 1998, 1997 and 1996
(v) Notes to Consolidated Financial Statements
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(vi) Report of Independent Public Accountants
2. Financial Statement Schedules
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Report of Independent Public Accountants on
Financial Statement Schedule S-1
Schedule II Valuation and Qualifying Accounts S-2
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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.
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3. Exhibits
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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.)
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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.)
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 1998
Annual Report to Shareholders, which is incorporated
herein by reference.)
13 1998 Annual Report to Shareholders
21 List of Subsidiaries of the Company
23 Consent of Arthur Andersen LLP, Independent Public Accountants
for the Registrant
27 1998 Financial Data Schedule
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(b) Reports of Form 8-K
No reports on Form 8-K have been filed during the fourth quarter of 1998.
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<PAGE> 15
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, 1999. 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 consolidated financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated financial
statements taken as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
February 12, 1999
S-1
<PAGE> 16
SCHEDULE II
SUPERIOR INDUSTRIES INTERNATIONAL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<S> <C> <C>
BALANCE AT DECEMBER 31, 1995 $1,274,000
==========
DOUBTFUL ACCOUNTS 722,000
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
==========
DOUBTFUL ACCOUNTS 633,000
ADD (DEDUCT):
PROVISION 400,000
RECOVERIES 1,000
ACCOUNTS WRITTEN OFF (214,000)
--------
820,000
SALES DISCOUNTS AND ALLOWANCES 552,000
----------
BALANCE AT DECEMBER 31, 1998 $1,372,000
==========
</TABLE>
S-2
<PAGE> 17
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 19, 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>
/s/ Louis L. Borick President,
- ------------------------ Chairman of the Board
Louis L. Borick and Director
(Principal Executive Officer) March 19, 1999
/s/ R. Jeffrey Ornstein Vice President & CFO
- ------------------------ and Director
R. Jeffrey Ornstein (Principal Financial Officer) March 19, 1999
/s/ Sheldon I. Ausman Director March 19, 1999
- ------------------------
Sheldon I. Ausman
/s/ Steven J. Borick Director March 19, 1999
- ------------------------
Steven J. Borick
/s/ Raymond C. Brown Director March 19, 1999
- ------------------------
Raymond C. Brown
/s/ Philip W. Colburn Director March 19, 1999
- ------------------------
Philip W. Colburn
/s/ V. Bond Evans Director March 19, 1999
- ------------------------
V. Bond Evans
/s/ Jack H. Parkinson Director March 19, 1999
- ------------------------
Jack H. Parkinson
</TABLE>
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Numbers Description
-------- -----------
<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.)
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 1998
Annual Report to Shareholders, which is incorporated
herein by reference.)
13 1998 Annual Report to Shareholders
21 List of Subsidiaries of the Company
23 Consent of Arthur Andersen LLP, Independent Public Accountants
for the Registrant
27 1998 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 13
Front Cover
Superior Industries
International,Inc.
ANNUAL REPORT 1998
Building For The FUTURE
Since its founding in 1957, Superior Industries International, Inc. has pursued
a commitment to excellence and a vision to become a leading OEM supplier to the
automotive industry worldwide.
In 1998, with sales of $540 million, Superior ranks as the world's largest
manufacturer of aluminum wheels for the OEM automotive industry. The Company's
12 manufacturing facilities employ more than 4,900 people in the United States,
Hungary and Mexico, and manufacture wheels for approximately 150 individual
vehicle platforms for customers including Ford, General Motors, Chrysler de
Mexico, BMW, Audi, Volkswagen, Toyota, Mazda, Nissan and Isuzu. Superior also is
a leading manufacturer of aftermarket automotive accessory products.
Reflecting the compelling performance and appearance advantages of aluminum road
wheels, aluminum wheel installation rates for cars and light trucks reached a
record 53% for 1998, the continuation of a long-term upward trend. These
performance advantages have stimulated growth in the use of aluminum in other
automotive applications such as suspension components and assemblies; an
entirely new growth opportunity with the potential to rival Superior's
opportunity in aluminum wheels.
"Using more aluminum is part of a campaign by automakers to sharply reduce the
weight of future autos. `This is the final frontier of emissions control,'
observes one Big Three spokesman."(Wall Street Journal, November 9, 1998.)
Superior made substantial progress in 1998 in building its position in this
emerging market. As an industry leader, Superior is well positioned to benefit
from this new growth opportunity for years to come.
Certain statements included in this Annual Report 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.
Chart 1
Cash Available for Expansion
(dollars in millions)
Chart 2
Long Term Debt Reduction
(dollars in millions)
-1-
<PAGE> 2
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT (000'S)
Net Sales $539,431 $549,131 $504,241 $521,997 $456,638
Gross Profit 100,104 108,170 101,713 113,797 111,368
Net Income $ 52,319 $ 55,389 $ 46,850 $ 53,064 $ 56,315
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET (000'S)
Current Assets $235,886 $199,846 $164,080 $142,659 $160,771
Current Liabilities 91,111 65,415 76,369 81,746 106,923
Working Capital 144,775 134,431 87,711 60,913 53,848
Total Assets 427,430 382,679 357,590 341,770 357,683
Long-Term Debt 673 1,344 1,940 5,814 23,075
Shareholders'
Equity $312,034 $287,416 $251,111 $229,153 $200,182
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
Current Ratio 2.6:1 3.1:1 2.1:1 1.7:1 1.5:1
Long-term Debt/Total
Capitalization 0.2% 0.5% 0.8% 2.5% 10.3%
Return on Average
Shareholders'
Equity 17.5% 20.6% 19.5% 24.7% 29.9%
- ---------------------------------------------------------------------------------------------------------------------------
SHARE DATA
Earnings - Basic $ 1.89 $ 1.97 $ 1.64 $ 1.80 $ 1.89
Earnings - Diluted $ 1.88 $ 1.96 $ 1.63 $ 1.78 $ 1.85
Shareholders' Equity
at Year-End $ 11.42 $ 10.30 $ 8.87 $ 7.89 $ 6.76
Dividends Declared $ 0.31 $ 0.27 $ 0.23 $ 0.19 $ 0.17
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Chart 1
Earnings Per Share (in dollars)
94 $1.88
95 $1.96
96 $1.63
97 $1.78
98 $1.85
Chart 2
Net Sales (in millions)
94 $457
95 $522
96 $504
97 $549
98 $539
Chart 3
Shareholders' Equity (in millions)
94 $200
95 $229
96 $251
97 $287
98 $312
-2-
<PAGE> 3
MESSAGE
To Our Shareholders
Nineteen-ninety eight was another exciting year for Superior Industries. While
the strike at General Motors affected our results in the second and third
quarters following a strong first quarter performance, the Company immediately
returned to full volume production with the strike's end, and reported the
strongest quarter in Superior's 41-year history.
As evidenced by our rapid recovery from the GM strike, our commitment to quality
and industry leadership served us well during the year. We won a number of
significant new aluminum wheel supply contracts that set the stage for further
growth in 1999 and thereafter. We also are happy to report that our chrome
plating operation has turned the corner and has become a positive contributor to
our profits.
In addition, we made significant progress in our program to expand Superior's
non-wheel aluminum automotive components business, a business that industry
sources believe will grow into a multi-billion dollar market opportunity. With
its significant weight and performance advantages versus steel components in
suspension and similar applications, aluminum is the material of the future in
the automotive business. We are confident that Superior will win significant new
business as we bring to bear the full weight of our unparalleled design and
manufacturing experience and worldwide reputation for quality on this enormous
new growth opportunity. Based on contracts we currently are negotiating, 1999
looks to be a breakthrough year for Superior in the non-wheel aluminum component
market.
We also successfully ramped up production at our joint venture manufacturing
facility in Tatabanya, Hungary, where production of lightweight forged wheels
for Audi and BMW is nearing capacity. Shipments of low pressure cast wheels for
Volkswagen, Audi and BMW from this facility have also begun. Based on the
progress we are making toward winning additional orders from European automotive
manufacturers, we have begun to expand casting capacity at this facility. We
also are in the process of doubling capacity at our facility in Chihuahua,
Mexico to two million units annually. And we continue to build volume and
enhance efficiency through cost reduction efforts at all of our OEM casting
facilities, and at the chrome plating facility in Fayetteville, Arkansas.
Contract Wins
During the year Superior won new multi-year contracts to supply aluminum road
wheels for Lincoln's new mid-level luxury car, the Lincoln LS, the Cadillac
DeVille, Volkswagen's Golf, and Ford's Windstar. Superior is the principal wheel
supplier for GM's new GMT800 full size light truck program, widely considered to
be GM's most important vehicle launch in recent years. International business
also continued to grow, highlighted by increased volume for Nissan.
We also won exclusive, multi-year contracts to supply chrome plated aluminum
road wheels for the new GMC Denali and Cadillac Escalade, the new luxury model
Sport Utility Vehicles (SUV) of General Motors. These contracts are in addition
to our contracts to supply chrome plated aluminum wheels for the Oldsmobile
Intrigue and Pontiac Firebird for GM, the Lincoln Town Car and Continental for
Ford, BMW Z-3, and several other models for other manufacturers.
Our chrome plating facility introduced a new product in 1998, bright polish
finished wheels, an attractive finishing alternative to traditional painted and
bright machined wheels. We currently supply bright polish wheels for the new
Mercury Cougar and several truck programs, and we have recently won additional
orders for both chrome plated and bright polish wheels for 1999. These contracts
are the latest signs of strength in the market for these road wheels. Superior
remains the world's only high volume manufacturer of both chrome plated and
bright polish wheels with in-house capabilities.
-3-
<PAGE> 4
Non-Wheel Aluminum Components
In 1997, Superior won its first non-wheel aluminum automotive component order, a
transmission support bracket for the Oldsmobile Intrigue. Taking the next step
in our strategy to expand our non-wheel aluminum components business, during
1998 we entered into an exclusive licensing agreement for a unique proprietary
"hybrid" aluminum casting/forging technology. This new hybrid technology
combines the design flexibility, light- weight and cost advantages of casting
with improved strength characteristics of forging. This technology can be used
to manufacture non-wheel components that will be less expensive while
maintaining the structural requirements of conventional forged aluminum and
steel components. This proven technology is currently being used to manufacture
aluminum components for several automotive manufacturers in Europe and the U.S.
Our U.S. automotive customers are reacting enthusiastically to product samples,
and we are working hard to win additional orders. We believe that volume
production employing the new technology could begin relatively quickly. As a
further sign of our commitment to the non-wheel aluminum component opportunity,
we recently named a General Manager for our Cast/Forge Program based in
Fayetteville, Arkansas, and are beginning to commit capital and additional human
resources to this important new product line.
Financial Performance
The fourth quarter of 1998 was Superior's best quarter ever. Net income
increased 25% to a record $19.5 million, or $0.71 per diluted share, exceeding
Wall Street's most optimistic expectations. OEM aluminum wheel shipments set a
new quarterly record. And revenue rose to a record $152.7 million. As we
anticipated, Superior's business recovered rapidly with the settlement of the GM
strike, during which we estimate that we lost approximately $25 million in sales
and as much as $10 million in net income, or $0.35 per share, as a result of the
strike. Our exceptional fourth quarter brought our results for all of 1998 close
to the Company's record performance for 1997. At $1.88 per diluted share, net
income was only slightly below the record $1.96 reported for 1997. Revenue was
$539.4 million for 1998 compared to the all-time record of $549.1 million set in
1997. In view of the reduction in aluminum prices during the year, this is
especially impressive since we typically pass through changes in the price of
aluminum in both our selling prices and our cost of sales.
Signaling our confidence in Superior's future, at its meeting in May 1998 the
Board of Directors raised the quarterly cash dividend by 14% to $0.08 per share.
This is the fifteenth consecutive increase in the cash dividend per share. In
addition, during the year the company repurchased almost 750,000 shares of
common stock under the 2 million share buyback program approved by the Board at
the end of 1997. The Company's balance sheet remains debt-free, and we ended the
year with approximately $87 million in cash.
The momentum we established in the fourth quarter has carried over into the new
year. Nineteen ninety-nine is shaping up to be another great year for Superior
Industries. Our continued growth is a tribute to our employees, whose dedication
and hard work make our success possible, and to our customers, whose loyalty we
work hard to earn every day.
Thank you for your interest and support. We look forward to reporting our
progress to you.
Louis L. Borick
President and Chairman of the Board
Caption 1
Louis L. Borick
-4-
<PAGE> 5
Caption 1
Casting the Olds Intrigue transmission bracket
Caption 2
Casting of an aluminum road wheel
MANUFACTURING AND
Superior's success is built on a foundation of engineering and manufacturing
excellence. We strengthened this foundation during 1998 with new technologies
and capabilities that enhance our competitive position and allow us to provide
unprecedented responsiveness and service to our customers around the world.
During the year, in response to critical customer needs, we developed entirely
new wheel programs for the soon to be launched Lincoln LS and the Cadillac
DeVille in record time. So perhaps it's not surprising that both Ford and
General Motors rated Superior the Number One supplier for product engineering
and development among all wheel suppliers. Nor is it surprising that we continue
to win orders for new and replacement programs from our established customers.
We are taking steps to further improve customer responsiveness and accelerate
product development. During 1998 we completed preparations for a major upgrade
to the latest generation of CAD/CAM technology, a significant development that
will add important new features to our current CAD/CAM system. Among its many
benefits, this advanced technology will provide us -- and our customers -- the
latest solid modeling capability for rapid evaluation of alternative designs.
-5-
<PAGE> 6
Caption 1
Fully automated machining cell
Caption 2
Computerized wheel structural analysis
ENGINEERING TECHNOLOGY
Also during 1998 we began to apply Superior's manufacturing and engineering
expertise to the non-wheel aluminum components business. Our first product -- a
transmission bracket for the Oldsmobile Intrigue -- entered volume production
during the year. We adapted Superior's proprietary Advanced Production Quality
Planning (APQP) system, the system that guides the manufacture of our aluminum
wheels, to the special requirements of the non-wheel component segment. All of
the engineering disciplines developed by Superior over the years, including our
advanced stress and thermal analysis techniques, are directly relevant to
non-wheel products, a synergy that we expect will help Superior win business in
this exciting new market.
All Superior facilities are QS 9000 certified. The Company is confident, based
on reviews by outside consultants, that it has recognized and addressed the
appropriate action plans to make all systems ready for the Year 2000.
-6-
<PAGE> 7
Caption 1
GMC Sierra
Caption 2
Cadillac Sedan DeVille
Caption 3
Ford Explorer XLT
Caption 4
Ford Windstar SEL
Superior is the world's leading supplier of aluminum road wheels to the OEM
automotive industry. During 1998 we confirmed our industry dominance with the
announcement of several significant new contract wins.
We also proved that we made the right decision several years ago when we entered
the chrome-plated aluminum wheel market. After a difficult start-up period, our
chrome plating operation has become a positive contributor to Superior's growth
and profitability. We identified the opportunity in the OEM chrome plated
aluminum wheel market, we developed the products, we invested in building
capacity, and now our persistence has been rewarded. Nineteen ninety-eight was
an excellent year for our chrome plating business. We won exclusive, multi-year
contracts to supply chrome plated aluminum road wheels for the new GMC Denali
and Cadillac Escalade, the luxury models of GM's Yukon SUV platform. And we
continue to supply chrome plated wheels for the Oldsmobile Intrigue, Buick
Regal, Chevrolet Camaro, Pontiac Firebird and other nameplates for GM and other
automotive manufacturers. Superior today is a leading high volume manufacturer
of these increasingly popular wheels. We are proud of this achievement.
During 1998 Superior won multi-year contracts to supply aluminum road wheels for
Lincoln's recently-launched new mid-level luxury car, the Lincoln LS. These
contracts are in addition to our agreements to supply aluminum wheels for the
1999 Lincoln Navigator SUV, the restyled Lincoln Town Car, Lincoln Continental,
Ford's Windstar and F-150 pickup truck, the largest selling vehicle in North
America, and other Ford and Lincoln Mercury nameplates.
We also were awarded an exclusive contract to supply aluminum road wheels for
the Cadillac DeVille, a contract win that represents substantial incremental
business for Superior and
Original Equipment
-7-
<PAGE> 8
Caption 1
Toyota 4 Runner SR5
Caption 2
Lincoln Navigator
Caption 3
Nissan Maxima SE
Caption 4
Mercury Cougar
renews our relationship with the prestigious Cadillac name-plate. In addition,
Superior is the principal wheel supplier for GM's new GMT800 full size light
truck, widely considered to be GM's most important vehicle launch in recent
years.
International sales also increased, highlighted by higher sales to Nissan and a
significant contract win from a major European automotive manufacturer for
product to be manufactured at our joint venture plant in Tatabanya, Hungary. And
we recently won one of the largest contracts in Superior's history to supply
aluminum road wheels for a major global automotive manufacturer.
In another sign of our growing confidence in the business is bright wheel
finishes. During 1998 Superior introduced a new product for this market, bright
polish finished wheels, a lower-cost alternative to chrome. We have already won
supply contracts for bright polish wheels for the Mercury Cougar and the GMC
Sierra pick up truck. Additional orders have been received for 1999.
In sum, during 1998 Superior continued to increase its share of the OEM aluminum
wheel market at the same time that overall aluminum wheel penetration also
continued to rise. The momentum we established in the fourth quarter with our
rapid recovery from last year's GM strike is still with us as we enter 1999,
which is shaping up to be another strong year for Superior's OEM aluminum wheel
business.
-8-
<PAGE> 9
MANUFACTURING FACILITIES
DOMESTIC:
Van Nuys, California
Fayetteville, Arkansas
Rogers, Arkansas
Pittsburg, Kansas
Johnson City, Tennessee
West Memphis, Arkansas
INTERNATIONAL:
Superior Puerto Rico
Superior Industries de Mexico, SA de CV
Chihuahua, Mexico
Suoftec Kft (Europe)
Tatabanya, Hungary
(Joint Venture)
Tijuana, Mexico
QUALITY OF LEADERSHIP
Leadership in senior management, marketing, engineering and manufacturing is the
key to Superior's growth over the years. The Company's management team includes
top professionals in every critical position throughout the organization. With
the rapid consolidation of the worldwide automotive industry, this management
depth is an increasingly important competitive advantage for Superior.
Industry consolidation has resulted in a fundamental, permanent shift in the
relationship between supplier and customer. Customers rely on the design,
engineering and manufacturing capabilities of their suppliers more than ever
before. To be successful, suppliers must satisfy customer requirements for
performance, appearance, weight, cost and other critical parameters that become
more complex with each passing year. Only the strongest, best managed suppliers
can prosper in this competitive environment.
Superior has what it takes. We work directly with our customers' management
teams from initial product concept, to design and engineering specification, to
manufacturing qualification, to volume production and delivery.
-9-
<PAGE> 10
DOMESTIC:
Cadillac DeVille
Cadillac Escalade
GMC Denali
GMC Rally
GMC Safari
GMC Sierra
GMC Sport Van
GMC Suburban
Chevrolet Camaro
Chevrolet Astro
Chevrolet Venture
Chevrolet Silverado
Chevrolet Sport Truck
Pontiac Firebird
Buick Le Sabre
Buick Park Avenue
Buick Regal
Olds Intrigue
Olds Cutlass
Olds Silhouette
Ford Explorer
Ford Mustang
Ford Contour
Ford Taurus
Ford Escort
Ford Windstar
Ford F150 Nascar
Lincoln Continental
Lincoln Town Car
Lincoln Navigator
Mercury Cougar
Mercury Grand Marquis
Mercury Sable
Mercury Mystique
Mercury Tracer
INTERNATIONAL:
Volkswagen Beetle
Volkswagen Lupo
Nissan 200SX
Nissan Sentra
Nissan Safari
Nissan Sunny/Pulsar
Nissan Primera
Nissan Bluebird
Nissan Avenir
Nissan Rasheen
Nissan Maxima/Cefiro
Nissan Altima
Toyota 4Runner
Acura SLX
Audi A3
Audi A4
Audi A6
BMW 3-Series
BMW 5-Series
BMW Z3 Coupe
BMW Z3 Roadster
Ford LTD (Australia)
Mazda MX-3
Mazda MX-6
Mazda Protege
Honda Passport
Caption 1
From left: Del Schmitz, VP, Aftermarket; Jim Ferguson, VP, OEM Group; Jeff
Ornstein, VP & CFO; Bill Kelley, VP, Operations; Joe D'Amico, VP, Materiel; Lou
Borick, President; Mike Dryden, VP, International; Bernie O'Neil, Director of
Manufacturing; Mike O'Rourke, VP, OEM; Frank Monteleone, VP, Purchasing; Steven
Borick, VP, Strategic Planning and Dan Levine, Secretary and Treasurer.
Superior is one of the few suppliers in the aluminum automotive components
industry with the depth of management, the scale of operations, and the
financial strength to meet all customer requirements, consistently, reliably,
and professionally.
Leadership has made Superior's growth possible for more than forty years. With
our vision and experience, we are confident that Superior's leadership will be
equally successful in meeting the challenges of the future.
-10-
<PAGE> 11
Caption 1
Examples of Superior's product opportunities in the emerging aluminum components
segment
NEW TECHNOLOGY
Superior has made a significant commitment to building its position in the
non-wheel aluminum automotive components market. Industry sources estimate that
the emerging market for performance-related aluminum components for suspension,
brake and similar structural applications represents a multi-billion dollar
opportunity over the next few years, driven by the automotive industry's endless
struggle to reduce weight, lower emissions, and improve performance. As one of
the world's leading manufacturers of aluminum products for automotive
applications, with proprietary manufacturing technology developed over many
years and unmatched by anyone, anywhere, Superior is poised to be a major
beneficiary.
We took a critical step in our strategy to expand our non-wheel aluminum
components business in 1998 with the signing of an exclusive licensing agreement
for a unique proprietary "hybrid" aluminum casting/ forging technology. This new
hybrid technology combines the design flexibility and cost advantages of casting
with improved strength and weight characteristics. The technology can be used to
manufacture components that will be less expensive yet match the performance of
conventional forged aluminum and steel components. This process has been tested
in the marketplace -- it currently is being used to manufacture aluminum
components for all of the major European automotive manufacturers.
Some of the products under development or in production are pictured on this
page, including an upper control arm/bracket assembly we are developing for a
major U.S. automotive manufacturer. Our U.S. customers are reacting
enthusiastically to product samples, and we hope to win meaningful orders during
1999. We believe that volume production employing the new technology could begin
relatively quickly, and we recently purchased a forging press suitable for this
application. With our strong balance sheet, we are willing and able to add
production capacity as demand warrants.
-11-
<PAGE> 12
AFTERMARKET
Superior's 68 product lines and 3800 individual parts for the automotive
aftermarket include steering wheel covers and suspension products, seat belts
and license plate holders, chrome plated steel and aluminum road wheels, and
other popular products. Superior's aftermarket products are featured by such
leading wholesale and retail outlets as Pep Boys, AutoZone, Western Auto,
Canadian Tire, Les Schwab, CSK Auto, Inc., Belle Tire, Dunlap & Kyle, and
Paccar.
Industry consolidation has affected our aftermarket business. Revenue for 1998
was $33.3 million compared to $34.3 million for 1997.
We currently are evaluating our options for the future growth of Superior's
automotive aftermarket business. Given our outstanding customer relationships
and excellent distribution network, we are evaluating several new products and
potential acquisition opportunities. As always, our decision will be guided by
the principle of maximizing shareholder value, a principle that has served the
Company and its shareholders well over the years.
-12-
<PAGE> 13
Financial OUTLOOK
We are confident that 1999 will be another great year for Superior Industries.
Automotive industry analysts are forecasting continued strong worldwide demand
for automobiles in the new year. Superior's rapid recovery from the GM strike in
the fourth quarter of 1998 and the first quarter of the new year confirms this
outlook. Both aluminum wheel penetration and Superior's share of the aluminum
wheel market continue to grow, and we believe that the Company will win business
from new customers and for additional automobile platforms in 1999. And with our
excellent cash position and virtually debt free balance sheet, we are well
positioned to take advantage of every growth opportunity.
Diversification of our customer base in the aluminum wheel business continues to
be a top priority. We added new and expanded orders from our international
customers and are aggressively pursuing new customers not currently being
served. We are on schedule doubling our capacity in our Chihuahua, Mexico
facility, expanding our Van Nuys capacity and continuing to increase production
at our Hungarian joint venture facility.
In addition, we are increasingly excited about the potential of the non-wheel
aluminum automotive components business, a business now just in its infancy. We
are working hard to capture our share of this emerging market. Superior has the
customer base, the aluminum manufacturing expertise, the reputation for quality
and reliability required for success, and we are pursuing this opportunity
aggressively. Our customers know that Superior is committed to this new market,
that we have the management, technology, and manufacturing infrastructure
already in place, and that we are prepared to invest heavily in additional
manufacturing capacity to address their most exacting requirements. Underlying
our optimism is a simple fact: aluminum is the material of the future in the
automobile industry. Aluminum's weight and performance advantages are driving a
steady increase in the use of this material in every aspect of automotive
design. Superior is a recognized leader in the design and manufacturing of
aluminum automotive components. We are in the right place at the right time for
continued success.
QUARTERLY COMMON STOCK PRICE INFORMATION
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------ ----------------------------- ---------------------------
High Low High Low High Low
---------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $ 33 3/16 $ 25 7/8 $ 25 3/8 $ 22 1/2 $ 28 $ 23 7/8
Second Quarter 33 1/2 26 5/16 27 1/8 22 5/8 28 1/4 24 1/4
Third Quarter 27 15/16 20 3/16 29 3/8 25 13/16 26 1/2 22 7/8
Fourth Quarter 27 15/16 21 11/16 28 1/2 25 25 7/8 22 3/4
</TABLE>
Our common stock is traded on the New York Stock Exchange (symbol: SUP). We have
approximately 1,200 shareholders of record and 27.3 million shares outstanding
as of January 29, 1999.
-13-
<PAGE> 14
RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
SALES
<TABLE>
<CAPTION>
Years Ended December 31 1998 1997 1996
- ---------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Net Sales $ 539,431 $ 549,131 $504,241
</TABLE>
Unit shipments of aluminum road wheels increased less than 1.0 percent
over 1997 shipments. However, during 1998 the average selling price declined due
to a lower pass-through price of aluminum to our customers. Net sales of our
aftermarket product line decreased 3.0 percent to $33.3 million in 1998,
representing the ongoing contraction of customers and intensified competition.
The slight increase in unit shipments in 1998 compares to a decrease of
3.0 percent in North American automotive production of passenger cars and light
trucks. Based on Ward's Automotive, an industry publication, aluminum wheel
installation rates on automobiles and light trucks rose to a record 53.4 percent
for the 1998 model year compared to 52.3 percent for the 1997 model year.
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
increased 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. Sales
also increased due to the consolidation of chrome plating sales for the full
year in 1997 versus only fourth quarter sales in 1996.
1997 sales of our aftermarket product line increased $2.5 million, or
7.9 percent to $34.3 million, from $31.8 million in 1996, due principally to the
acquisition of new product lines.
GROSS MARGIN
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Gross Profit Margin 18.6% 19.7% 20.2%
</TABLE>
During 1998, the price of aluminum decreased approximately 5.0 percent,
which had a minimal effect on the gross margin percentage. The decrease in gross
margin was due primarily to unabsorbed production costs during the United Auto
Workers (UAW) strike against General Motors in June and July and contractual
price reductions.
The aluminum content of selling prices to OEM customers is adjusted to
current market conditions which subjects us to the risks of market changes when
we, from time to time, enter 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.
While we have ongoing programs to reduce costs to our customers and, in
the past, have generally been successful in substantially mitigating pricing
pressure from our customers, it is becoming increasingly difficult to do so
without impacting margins. We will continue to aggressively implement cost
savings strategies to meet customer pricing expectations and maintain margins.
<PAGE> 15
The impact of future customer pricing pressures and increasing industrywide
competition on our 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.
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. These factors
offset the impact of slightly higher aluminum costs and their effect on the
gross margin percentage.
OPERATING EXPENSES
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Selling, General and
Administrative Expense $19,758 $19,986 $19,931
</TABLE>
Selling, general and administrative expenses, which decreased slightly
compared to the prior year, increased to 3.7 percent on slightly lower net sales
in 1998 compared to 3.6 percent of net sales in 1997.
Selling, general and administrative expenses in 1997, 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.
OTHER INCOME (EXPENSE)
In 1998, interest income increased to $4.5 million from $2.7 million in
1997 as cash available for investment during the year averaged $34.2 million
higher than the prior year.
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 less cash used for investing and financing activities.
In December 1997, we made the final payment of $3.3 million on our
Senior notes. This, along with the $8.3 million payment made in December 1996,
is the principal reason for the $1.0 million reduction in interest expense.
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 and cast wheels in mid 1998. In
accordance with our long-standing policy of expensing all start-up costs as
incurred, miscellaneous expense for 1998 included $3.8 million of expense
representing our share of start-up costs associated with this new facility.
Miscellaneous expense for 1997 included $3.4 million of expense
representing our share of initial start-up costs associated with the new
facility in Hungary. Miscellaneous expense for 1996 included $7.4 million of
pre-operating losses from the Fayetteville, Arkansas chrome plating plant.
EFFECTIVE INCOME TAX RATE
The consolidated tax rate in 1998 decreased to 35.25 percent of pre-tax
income from 35.75 percent in 1997. The reduced rate was due primarily to an
increase in federal tax credits, principally related to research and
development. We expect a modest decrease in the tax rate in the future.
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.
<PAGE> 16
READINESS FOR YEAR 2000
We are aware of the potential for Year 2000 software failures and the
associated impact on business operations. We developed a plan that established
January 1, 1998 for all integrated business software to be Year 2000 compliant.
That target date has been met, as a test environment was established and the
programs were activated in the second quarter of 1998.
Also, we have initiated a company-wide program to identify and address
issues associated with the ability of our date-sensitive business processes to
properly recognize the Year 2000. This program is being conducted by a
management team led by a project manager reporting directly to the Vice
President of Operations & Quality. This team is coordinating the efforts of
internal resources as well as third party customers and vendors in identifying
the various systems, processes and types of equipment requiring analysis and,
potentially, remediation. The program includes systems, processes and equipment
in all of our domestic and international locations. The program also includes
formal communications with "mission critical" suppliers for each of our
manufacturing locations.
As of this writing, a detailed inventory by location of all systems,
processes and types of equipment has been completed. Currently, 99% of our
mission critical suppliers have responded as being Year 2000 compliant. A plan
to test mission critical equipment and software has been developed to ensure
that they are in fact compliant. Reiterative testing will continue through 1999
on all systems, processes and equipment to ensure continued compliance.
Additionally, in conjunction with a group of our key customers, who are
continually monitoring and rating our progress with this program, we will
develop contingency plans for all mission critical processes by the end of the
second quarter of 1999.
Costs incurred from inception of this program to become Year 2000
compliant are estimated at less than $500,000 and are not anticipated to
increase significantly over the next year.
We currently anticipate that the mission critical systems that we
control in our domestic and international operations will be Year 2000 compliant
by January 1, 2000. However, no assurance can be given that unforeseen
circumstances will not arise during the completion of this program, which would
adversely affect the Year 2000 compliance of our systems. As a result, we are
unable to determine the impact that any system interruption, especially those
externally generated, would have on our results of operation, financial position
or cash flows.
We feel confident based on reviews by outside consultants, that we have
recognized and addressed the need for making our centralized integrated
computing able to manage the business upon entering the twenty-first century.
RISK MANAGEMENT
We are not substantially exposed to market risk from changes in foreign currency
exchange rates or interest rates, which could impact our results of operations
and financial condition. Therefore, we do not actively manage interest rate risk
or foreign currency exchange contracts. As a result of the minimal exposure to
the change in market conditions, we do not foresee any significant change in the
current strategy.
INFLATION
Inflation did not have a material impact on our results of operations or the
financial condition for 1998. We believe that purchase commitments and the
majority of our customer contracts are structured to minimize the impact of
changes caused by inflation.
<PAGE> 17
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997
- --------------------------------------------------------------
(In Thousands)
<S> <C> <C>
Total Assets $427,430 $382,679
</TABLE>
Total assets at the end of 1998 increased $44.8 million, or 11.7 percent
from 1997. This increase was primarily due to increases in cash and accounts
receivable of $12.9 million and $22.2 million, respectively. At the end of 1998,
a $20.5 million payment of accounts receivable was not received until the first
business day of 1999. In 1997, this payment was received prior to the end of the
year.
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997
- --------------------------------------------------------------
(In Thousands)
<S> <C> <C>
Total Liabilities $115,396 $ 95,263
</TABLE>
Total liabilities increased $20.1 million, or 21.1 percent from 1997
primarily as a result of the increase in accounts payable due to the record
levels of production in the 4th quarter of the year and to increased capital
equipment purchases for the expansion project at the Mexico facility and
replacement and refurbishment of existing equipment.
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997
- ---------------------------------------------------------------
(In Thousands)
<S> <C> <C>
Total Shareholders' Equity $312,034 $287,416
</TABLE>
Shareholders' equity increased $24.6 million, or 8.6 percent in 1998.
The net income increase of $52.3 million was partially offset by the repurchases
of common stock totaling $19.5 million and cash dividends totaling $8.3 million.
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997
- --------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
Net cash provided by operating
activity $ 79,619 $ 74,614
</TABLE>
Cash provided by operating activities was $79.6 million in 1998 compared
to $74.6 million in 1997. 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 accounts
payable, as described above.
The $79.6 million in cash flows from operating activities in 1998 was
reduced by increased cash utilized for investing and financing activities,
totaling $66.7 million. Investing activities increased by $26.7 million in 1998
due to capital expenditures increasing $23.4 million to $36.7 million from $13.3
million a year ago, due principally to the expansion of Chihuahua, Mexico
facility. Financing activities increased by $2.3 million to $25.3 million in
1998, as repurchases of our common stock increased to $19.5 million from $13.3
million a year ago. This increase was mostly offset by lower debt repayments of
$3.2 million in 1998 and a higher level of stock options being exercised.
In addition to investing approximately $36.7 million in capital
equipment and $3.5 million of advances to the wheel plant in Hungary, OEM
facility expansion programs have resulted in our expending approximately $340
million over the past ten years. The majority of the expansion financing came
from internally generated cash flow, to construct and expand our world-class
road wheel facilities and to continuously improve all OEM manufacturing plants.
In addition, we anticipate expending an
<PAGE> 18
additional $25 million in 1999 to make further improvements to plant locations.
We anticipate funding these plans from internally generated cash flow and, to
the extent necessary, from existing cash and cash equivalents.
During 1998, the value of the Mexican peso experienced a 22.8 percent
decline relative to the U.S. dollar, as a result of the Mexican economy entering
a recessionary period. 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 our wholly owned subsidiary,
Superior Industries de Mexico, SA de CV, has resulted in a cumulative unrealized
translation loss of $17.8 million, net of taxes, which has been charged directly
to shareholders' equity. This facility currently represents approximately 7
percent of our total net sales.
Our financial condition remains very strong. After expending $36.7
million for capital expenditures and $19.5 million to repurchase our common
stock in 1998, our working capital increased to $144.8 million from $134.4
million in 1997. The current ratio decreased slightly to 2.6:1 from 3.1:1 a year
ago. We are well positioned to take full advantage of new and complimentary
business opportunities, expanding international markets and, at the same time,
be able to withstand downturns in the economy.
During 1998, our Board of Directors announced a 14 percent increase in
the cash dividend, representing the fifteenth consecutive year of dividend
payments and increases. We anticipate continuing the policy of paying dividends.
This is contingent upon various factors, including economic and market
conditions, all of which cannot be accurately predicted.
<PAGE> 19
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
NET SALES $ 539,431,000 $ 549,131,000 $ 504,241,000
Cost of Sales 439,327,000 440,961,000 402,528,000
------------- ------------- -------------
GROSS PROFIT 100,104,000 108,170,000 101,713,000
Selling, general and
administrative
expenses 19,758,000 19,986,000 19,931,000
------------- ------------- -------------
INCOME FROM OPERATIONS 80,346,000 88,184,000 81,782,000
Other Income (Expense)
Interest income 4,452,000 2,662,000 1,158,000
Interest expense (165,000) (492,000) (1,484,000)
Miscellaneous, net (3,832,000) (4,146,000) (7,385,000)
------------- ------------- -------------
455,000 (1,976,000) (7,711,000)
INCOME BEFORE INCOME TAXES 80,801,000 86,208,000 74,071,000
Income Taxes 28,482,000 30,819,000 27,221,000
------------- ------------- -------------
NET INCOME $ 52,319,000 $ 55,389,000 $ 46,850,000
============= ============= =============
EARNINGS PER SHARE - BASIC $ 1.89 $ 1.97 $ 1.64
============= ============= =============
EARNINGS PER SHARE - DILUTED $ 1.88 $ 1.96 $ 1.63
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 20
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1998 1997
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 86,566,000 $ 73,693,000
Accounts receivable 100,754,000 78,543,000
Inventories 41,433,000 42,387,000
Deferred income taxes 4,698,000 3,902,000
Other current assets 2,435,000 1,321,000
------------- -------------
Total current assets 235,886,000 199,846,000
PROPERTY, PLANT AND EQUIPMENT 158,194,000 147,989,000
LONG-TERM ASSETS 33,350,000 34,844,000
------------- -------------
$ 427,430,000 $ 382,679,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 57,707,000 $ 34,251,000
Accrued liabilities 32,756,000 30,575,000
Current portion of long-term debt 648,000 589,000
------------- -------------
Total current liabilities 91,111,000 65,415,000
LONG-TERM DEBT 673,000 1,344,000
OTHER LONG-TERM LIABILITIES 14,862,000 16,377,000
DEFERRED INCOME TAXES 8,750,000 12,127,000
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 13,656,000 13,951,000
Additional paid-in capital -- 9,306,000
Accumulated other comprehensive income (loss) (17,233,000) (14,156,000)
Retained earnings 315,611,000 278,315,000
------------- -------------
Total shareholders' equity 312,034,000 287,416,000
------------- -------------
$ 427,430,000 $ 382,679,000
============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 21
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------- ADDITIONAL ACCUMULATED OTHER
NUMBER OF PAID-IN RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT
DECEMBER 31, 1995 29,029,007 $ 14,514,000 $ 38,911,000 $ 190,208,000 $ (14,480,000) $ 229,153,000
Comprehensive Income:
Net income -- -- -- 46,850,000 -- 46,850,000
Other comprehensive
income (loss) -- -- -- -- 81,000 81,000
Comprehensive income -- -- -- -- -- 46,931,000
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
($.23/share) -- -- -- (6,554,000) -- (6,554,000)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 1996 28,323,666 14,161,000 20,845,000 230,504,000 (14,399,000) 251,111,000
Comprehensive income:
Net income -- -- -- 55,389,000 -- 55,389,000
Other comprehensive
income (loss) -- -- -- -- 243,000 243,000
Comprehensive income -- -- -- -- -- 55,632,000
Stock options
exercised, including
related tax benefit 102,421 51,000 1,478,000 -- -- 1,529,000
Repurchases of
common stock (523,700) (261,000) (13,017,000) -- -- (13,278,000)
Cash dividends
($.27/share) -- -- -- (7,578,000) -- (7,578,000)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 1997 27,902,387 13,951,000 9,306,000 278,315,000 (14,156,000) 287,416,000
Comprehensive income:
Net income -- -- -- 52,319,000 -- 52,319,000
Other comprehensive
income (loss) -- -- -- -- (3,077,000) (3,077,000)
Comprehensive income -- -- -- -- -- 49,242,000
Stock options exercised,
including related
tax benefit 158,999 80,000 3,063,000 46,000 -- 3,189,000
Repurchases of
common stock (749,300) (375,000) (12,369,000) (6,786,000) -- (19,530,000)
Cash dividends
($.31/share) -- -- -- (8,283,000) -- (8,283,000)
---------- ------------- ----------- ------------- ------------- -------------
BALANCES AT
DECEMBER 31, 1998 27,312,086 $ 13,656,000 $ -- $ 315,611,000 $ (17,233,000) $ 312,034,000
===================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 22
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
NET INCOME $ 52,319,000 $ 55,389,000 $ 46,850,000
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 26,698,000 26,917,000 27,330,000
Provision for
retirement plans 957,000 1,127,000 1,098,000
Equity losses of
joint ventures 4,123,000 3,722,000 --
Other non cash items (141,000) 905,000 12,000
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (22,211,000) (11,976,000) 4,322,000
Inventories 954,000 5,343,000 6,093,000
Other assets (387,000) (697,000) 3,357,000
Increase (decrease) in:
Accounts payable 23,456,000 (11,927,000) (742,000)
Other liabilities (1,976,000) 1,936,000 6,346,000
Deferred income taxes (4,173,000) 3,875,000 1,882,000
------------ ------------ ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 79,619,000 74,614,000 96,548,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to property,
plant and equipment (36,701,000) (13,326,000) (13,465,000)
Investment in and advances to
joint ventures (4,830,000) (7,052,000) (11,410,000)
Proceeds from sales of property,
plant and equipment 121,000 150,000 --
Proceeds from sales of
investments -- 5,488,000 1,350,000
Purchases of investments -- -- (973,000)
------------ ------------ ------------
NET CASH USED IN
INVESTING ACTIVITIES (41,410,000) (14,740,000) (24,498,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Repurchases of common stock (19,530,000) (13,278,000) (18,997,000)
Cash dividends paid (8,324,000) (7,329,000) (6,554,000)
Stock options exercised 3,189,000 1,529,000 578,000
Payments of long-term debt (671,000) (3,918,000) (8,828,000)
Payments of short-term debt -- -- (4,800,000)
------------ ------------ ------------
NET CASH USED IN
FINANCING ACTIVITIES (25,336,000) (22,996,000) (38,601,000)
------------ ------------ ------------
Net Increase in Cash
and Equivalents 12,873,000 36,878,000 33,449,000
Cash and Equivalents at
Beginning of Year 73,693,000 36,815,000 3,366,000
------------ ------------ ------------
Cash and Equivalents at
End of Year $ 86,566,000 $ 73,693,000 $ 36,815,000
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION
Our principal business 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.
We maintain 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
These consolidated financial statements include our account balances of
all subsidiaries, after elimination of all significant intercompany accounts and
transactions. Investments in 50 percent owned joint ventures are accounted for
using the equity method. Our share of joint ventures' operating results is
reflected in other income. These investments are included in long-term assets.
USE OF ESTIMATES
Our financial statements conform with generally accepted accounting
principles that require us to make estimates and assumptions during the
reporting period. These estimates and assumptions affect the assets and
liabilities that are reported. They also have an affect on the financial
statement revenues and expenses during the reporting period. While actual
results could differ, we believe such estimates to be reasonable.
FISCAL YEAR END
We represent December 31 as the fiscal year end for presentation
purposes. However, our fiscal year ends on the last Sunday of the calendar year.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Our financial instruments recorded on the balance sheet include cash and
equivalents, accounts and notes receivable, long-term investments and accounts
payable. Due to their nature, the carrying amount of cash and equivalents,
accounts and notes receivable and accounts payable approximates fair value. Fair
value of our long-term investments is discussed in Note 6 to the consolidated
financial statements.
CASH AND EQUIVALENTS
Cash and equivalents generally consist of cash and certificates of
deposit with maturities of three months or less. Certificates of deposit at
December 31, 1998 and 1997 totaled $4,406,000 and $6,205,000, respectively. At
times through the year, cash balances held at financial institutions were in
excess of federally insured limits.
MARKETABLE SECURITIES
Marketable securities are carried at the lower of cost or market, with
any unrealized gains and losses reported as a component of shareholders' equity.
These securities, which generally consist of U.S. government agency securities,
corporate bonds, money market preferred stocks and equities, are all considered
"available-for-sale". The net realized loss from sale of 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 using the
exchange rates in effect at the end of the accounting period.
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
$428,000, $85,000 and ($109,000) have been recorded as part of operations during
1998, 1997 and 1996, respectively.
INVENTORIES
Inventories, which include material, labor and factory overhead, are
stated at the lower of cost or market. We use the first-in, first-out (FIFO)
method to value our inventories.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost, less accumulated
depreciation and amortization. The cost of additions, improvements and interest
during construction is capitalized. Our maintenance and repairs and tooling
costs are charged to expense when incurred. Depreciation and amortization are
calculated generally on the straight-line method based on the estimated useful
lives of the assets which range from 3 - 33 years. When property and equipment
is replaced, retired or disposed of, the cost and related accumulated
depreciation or amortization are removed from the accounts. Gains and losses, if
any, are recorded 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 fair value and are included in other assets.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred.
Amounts expended during the three years ended December 31,1998 were $4,959,000
in 1998, $4,204,000 in 1997 and $3,310,000 in 1996.
INCOME TAXES
Income taxes are accounted for using the asset and liability method
pursuant to Statement of Financial Accounting Standards No. 109, "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
We have elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and related
interpretations in accounting for our 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. We have 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 amounts for all periods are in accordance with the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings per
Share," ("FAS 128"). This Statement established new standards for computing and
presenting earnings per share and requires the disclosure of basic and diluted
earnings per share. Basic earnings per share is computed by dividing net income
for the period by the weighted average number of common shares outstanding for
the period of 27,671,000 in 1998, 28,069,000 in 1997 and 28,624,000 in 1996.
Diluted earnings per share is computed by dividing net income for the period by
the weighted average number of common shares outstanding plus the dilutive
effect of our
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
outstanding stock options ("common stock equivalents"), or 27,818,000 in 1998,
28,221,000 in 1997 and 28,798,000 in 1996.
NEW ACCOUNTING STANDARDS
In 1998, The Financial Accounting Standards Board issued Statements of
Financial Accounting Standard No. 132, "Employers Disclosures about Pensions and
Other Postretirement Benefits" ("FAS 132") and No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133"). Implementation of
the disclosure requirements of FAS 132 did not have a material effect on our
consolidated financial statements. We do not anticipate the adoption of FAS 133,
in the year 2000, to have a material effect on our consolidated financial
statements.
2. BUSINESS SEGMENT
We manufacture motor vehicle parts and accessories for sale on normal,
generally unsecured trade terms to original equipment manufacturers (OEMs) and
the automotive aftermarket, primarily in North America, on an integrated
one-segment basis.
3. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
December 31, 1998 1997
------------- -------------
<S> <C> <C>
Trade receivables $ 91,629,000 $64,251,000
Other receivables 10,498,000 15,477,000
------------ -----------
102,127,000 79,728,000
Allowance for doubtful accounts (1,373,000) (1,185,000)
------------ -----------
Total $100,754,000 $78,543,000
============ ===========
</TABLE>
The following percentages of our consolidated net sales were made to
General Motors Corporation and Ford Motor Company: 1998, 43.5 percent and 41.3
percent; 1997, 43.1 percent and 42.8 percent; 1996, 40.1 percent and 47.4
percent, respectively. These two customers represented 82 percent and 78 percent
of trade receivables at December 31, 1998 and 1997, respectively.
4. INVENTORIES
<TABLE>
<CAPTION>
December 31, 1998 1997
------------ -----------
<S> <C> <C>
Raw materials $ 12,987,000 $14,039,000
Work in process 10,998,000 12,642,000
Finished goods 17,448,000 15,706,000
------------ -----------
$ 41,433,000 $42,387,000
============ ===========
</TABLE>
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. PROPERTY PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
December 31, 1998 1997
------------ ------------
<S> <C> <C>
Land and buildings $ 47,944,000 $ 48,462,000
Machinery and equipment 285,899,000 266,187,000
Leasehold improvements and other 5,283,000 4,835,000
Construction in progress 26,083,000 11,795,000
------------ ------------
365,209,000 331,279,000
Less -
Accumulated depreciation
and amortization 207,015,000 183,290,000
------------ ------------
$158,194,000 $147,989,000
============ ============
</TABLE>
Included in property, plant and equipment at December 31, 1998 and 1997,
were buildings and equipment held under capital lease of $5,360,000, with
accumulated depreciation of $3,472,000 and $3,321,000, respectively.
We capitalized no interest in 1998 and 1997, however, interest totaling
$40,000 was capitalized during 1996.
6. LONG-TERM ASSETS
Long-term assets at December 31, 1998 and 1997 include investments in
and advances to our 50 percent owned joint ventures, totaling $23,872,000 and
$24,458,000, respectively. In 1995, we entered into a joint venture with Otto
Fuchs Metallwerke KG, a German manufacturing company, to form Suoftec Metal
Products Production and Distribution Ltd. ("Suoftec") to manufacture cast and
forged aluminum wheels for the European automobile industry.
Initial manufacture and sale of forged aluminum wheels began in early
1997 and cast aluminum wheels in mid 1998. Suoftec reported sales of $26.9
million in 1998 and $8.6 million in 1997. Since the joint venture is accounted
for using the equity method, our 50 percent share of Suoftec's start-up
operating losses, or $3.8 million in 1998 and $3.4 million in 1997, are included
in miscellaneous expenses in the Consolidated Statements of Income. Our
investment in and advances to Suoftec totaled $23.8 million and $23.3 million as
of December 31, 1998 and 1997, respectively.
We also have interests in affordable housing limited partnerships which
provide favorable income tax benefits generally over a fifteen-year period.
These investments totaled $5,397,000 and $5,767,000 at December 31, 1998 and
1997, respectively. We believe that these amounts represent the best estimate of
fair value of these investments.
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. BORROWING ARRANGEMENTS
We maintain line of credit facilities under which we may borrow up to
$40,000,000 on an uncommitted, unsecured basis at rates generally below prime.
We had no short-term borrowings during 1998 or 1997.
Our long-term debt is summarized as follows:
<TABLE>
<CAPTION>
December 31, 1998 1997
---------- ----------
<S> <C> <C>
Capitalized lease obligations, payable in
installments through 2001, with a weighted
average interest rate of 11.3% $ 971,000 $1,258,000
Industrial development revenue bonds, final
installment of $350,000 due in 1999,
with a weighted average interest
rate of 7.6% 350,000 675,000
---------- ----------
1,321,000 1,933,000
Less - Current portion 648,000 589,000
---------- ----------
$ 673,000 $1,344,000
========== ==========
</TABLE>
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. TAXES ON INCOME
The provision (credit) for income taxes is comprised of the following
components:
<TABLE>
<CAPTION>
Years Ended
December 31, 1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CURRENT TAXES
Federal $ 23,759,000 $ 25,225,000 $ 22,718,000
State 3,189,000 2,365,000 2,466,000
Foreign 4,206,000 104,000 116,000
------------ ------------ ------------
31,154,000 27,694,000 25,300,000
DEFERRED TAXES
Federal (1,582,000) (706,000) (1,374,000)
State (272,000) 104,000 (186,000)
Foreign (818,000) 3,727,000 3,481,000
------------ ------------ ------------
(2,672,000) 3,125,000 1,921,000
$ 28,482,000 $ 30,819,000 $ 27,221,000
============ ============ ============
</TABLE>
Income tax payments during the three year periods ending December 31, 1998 were
$29,907,000 in 1998, $24,305,000 in 1997 and $24,155,000 in 1996.
The reconciliation of the statutory United States federal income tax rate to our
effective income tax rate is as follows:
<TABLE>
<CAPTION>
Years Ended
December 31, 1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Statutory rate 35.00% 35.00% 35.00%
State tax provisions, net
of federal income tax benefit 2.35 1.86 2.00
Federal tax credits (2.32) (1.44) (1.71)
Foreign income taxed at rates
other than the statutory rate 0.28 (0.62) (0.10)
Other, net (0.06) 0.95 1.56
------- ------- -------
Effective income tax rate 35.25% 35.75% 36.75%
======= ======= =======
</TABLE>
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Significant components of our deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
December 31, 1998 1997
------------ ------------
<S> <C> <C>
DEFERRED TAX ASSETS
Foreign currency translation adjustment $ (9,500,000) $ (7,600,000)
Accruals not currently deductible (4,789,000) (4,630,000)
Deferred compensation (4,564,000) (4,268,000)
State taxes expensed currently,
deductible in following year (982,000) (1,021,000)
Other (719,000) (742,000)
------------ ------------
(20,554,000) (18,261,000)
------------ ------------
DEFERRED TAX LIABILITIES
Differences between book and tax basis
of property, plant and equipment 16,156,000 17,640,000
Differences between financial and tax accounting
associated with foreign operations 8,450,000 8,846,000
------------ ------------
24,606,000 26,486,000
------------ ------------
Net deferred tax liability $ 4,052,000 $ 8,225,000
============ ============
</TABLE>
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. LEASES
We lease 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, we
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 $2,256,000 in 1998,
$4,156,000 in 1997 and $5,909,000 in 1996.
Our corporate office and certain manufacturing facilities are leased
from Louis L. Borick, President, and Juanita A. Borick, under both capital and
operating leases. The operating lease, which expires in the year 2001, has two
option periods of ten years each. The annual lease payment is $1,232,000,
including $392,000 for the capital lease portion as shown in the table below.
Future minimum payments to the Borick's through 2001 are $2,451,000 for the
operating lease and $1,143,000, 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 Borick's and the related entity during the
three years ending December 31, 1998 were $1,598,000 in 1998, $1,520,000 in 1997
and $1,583,000 in 1996.
FUTURE MINIMUM PAYMENTS UNDER ALL LEASES ARE SUMMARIZED AS FOLLOWS:
<TABLE>
<CAPTION>
OPERATING CAPITAL
Years Ended December 31, LEASES LEASE
---------- ----------
<S> <C> <C>
1999 $3,370,000 $ 392,000
2000 2,022,000 392,000
2001 735,000 359,000
2002 242,000 --
2003 63,000 --
Thereafter -- --
---------- ----------
6,432,000 1,143,000
Amounts representing interest -- 172,000
---------- ----------
$6,432,000 $ 971,000
========== ==========
</TABLE>
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. RETIREMENT PLANS
We have an unfunded supplemental executive retirement plan covering our
directors, officers and other key members of management. We purchase 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
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, 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Service cost $276,000 $279,000 $323,000
Interest cost 509,000 521,000 475,000
Net amortization 55,000 55,000 54,000
Other unrecognized loss -- -- 4,000
-------- -------- --------
Net cost $840,000 $855,000 $856,000
======== ======== ========
</TABLE>
A schedule reconciling the projected benefit obligation with recorded plan
liability follows:
<TABLE>
<CAPTION>
December 31, 1998 1997
----------- -----------
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 5,080,000 $ 5,276,000
=========== ===========
Accumulated benefit obligation $ 7,116,000 $ 7,225,000
=========== ===========
Projected benefit obligation $ 7,781,000 $ 7,958,000
Unrecognized prior service cost (164,000) (219,000)
Adjustment required to recognize
minimum liability -- 70,000
Other unrecognized experience losses (501,000) (584,000)
----------- -----------
Recorded liability $ 7,116,000 $ 7,225,000
=========== ===========
</TABLE>
Actuarial assumptions for the retirement plan for 1998 and 1997 include
seven percent for the assumed discount rate and five percent for the assumed
rate of average future compensation increases.
We also have a contributory employee retirement savings plan covering
substantially all of our employees. The employer contribution is determined at
the discretion of the Company and totaled $2,923,000, $3,089,000 and $2,606,000
for 1998, 1997 and 1996, respectively.
We also have a deferred compensation agreement with our President under
which we have 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 $117,000, $272,000 and $444,000 for 1998, 1997 and 1996,
respectively.
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. LIABILITIES
The components of accrued and other long-term liabilities are as
follows:
<TABLE>
<CAPTION>
December 31, 1998 1997
----------- -----------
<S> <C> <C>
ACCRUED
Payroll and related benefits $13,307,000 $12,089,000
Income taxes 5,416,000 5,109,000
Insurance reserves 4,467,000 4,000,000
Taxes, other than income tax 3,157,000 3,269,000
Operating lease 2,302,000 1,884,000
Other 4,107,000 4,224,000
----------- -----------
Total accrued liabilities $32,756,000 $30,575,000
=========== ===========
OTHER LONG-TERM
Executive retirement and deferred
compensation plans $11,089,000 $10,313,000
Operating lease 3,176,000 5,467,000
Other 597,000 597,000
----------- -----------
Total other long-term liabilities $14,862,000 $16,377,000
=========== ===========
</TABLE>
12. COMMITMENTS AND CONTINGENT LIABILITIES
We are party to various legal and environmental proceedings incidental
to our business. Certain claims, suits and complaints arising in the ordinary
course of business have been filed or are pending against us. Based on facts now
known, we believe all such matters are adequately provided for, covered by
insurance or, if not so covered or provided for, are without merit, or involve
such amounts that would not materially adversely affect our consolidated results
of operations and cash flows or financial position. At December 31, 1998, we had
outstanding letters of credit of approximately $2.5 million.
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. STOCK OPTION
We have a stock option plans that authorize us to issue incentive and
non-qualified stock options to our directors, officers and key employees
totaling up to 3,200,000 shares of common stock. Shares available for future
grants under these plans totaled 148,288 at December 31, 1998. 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.
We have 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.
If we had 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>
Year ended December 31, 1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Reported net income $ 52,319,000 $ 55,389,000 $ 46,850,000
Proforma net income $ 51,970,000 $ 54,927,000 $ 46,448,000
Reported diluted earnings per share $ 1.88 $ 1.96 $ 1.63
Proforma diluted earnings per share $ 1.87 $ 1.95 $ 1.61
</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>
Year ended December 31, 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate 4.8% 5.6% 6.5%
Expected dividend yield 1.0% 1.0% 1.0%
Expected stock price volatility 29.0% 25.0% 22.8%
Expected option lives
Incentive 7.3 7.0 7.2
Non-qualified 9.4 7.0 7.0
</TABLE>
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of the status of our stock option plans and changes in outstanding
options is presented below:
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
---------------------------- --------------------------- ----------------------------
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>
Outstanding at
beginning of year 1,238,851 $ 22.69 1,284,356 $ 21.81 1,301,476 $ 21.73
Granted 413,400 23.74 76,500 22.97 53,000 22.98
Exercised (158,999) 16.49 (102,421) 10.97 (34,559) 11.48
Canceled or expired (2,000) 22.69 (19,584) 26.84 (35,561) 30.66
---------- ---------- ----------
Outstanding at
end of year 1,491,252 $ 23.64 1,238,851 $ 22.69 1,284,356 $ 21.81
========== ========== ==========
Exercisable at
end of year 1,010,852 1,112,045 1,136,832
========== ========== ==========
Weighted-average fair
value of options granted
during the year $ 9.58 $ 8.27 $ 8.53
========== ========== ==========
</TABLE>
The following table summarizes information about options outstanding at December
31, 1998:
<TABLE>
<CAPTION>
Options Weighted Average Options
Range of Outstanding Remaining Weighted Average Exercisable Weighted Average
Exercise Prices at 12/31/98 Contractual Life Exercise Price at 12/31/98 Exercise Price
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 5.19 - $ 5.58 33,244 1.93 years $ 5.23 33,244 $ 5.23
$10.29 - $15.09 56,524 3.19 years 14.33 56,524 14.33
$19.08 - $27.13 1,401,484 6.07 years 24.46 921,284 24.88
--------- ---------- ------------- --------- -------
1,491,252 5.87 years $ 23.64 1,010,852 $ 23.65
========= ========== ============= ========= =======
</TABLE>
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. OTHER EXPENSE
Other expense for 1998 and 1997 included $3.8 million and $3.4 million,
respectively, representing our 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 our chrome plating facility in
Fayetteville, Arkansas.
15. COMPREHENSIVE INCOME
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS
130"), which became effective in 1998. FAS 130 requires presentation of
comprehensive income and its components in the financial statements. Listed
below are the components of other comprehensive income (loss) as reflected in
the consolidated statement of shareholders' equity.
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Foreign currency translation
adjustments $(3,077,000) $ (311,000) $ (17,000)
Unrealized loss on marketable
securities -- 554,000 98,000
----------- ----------- -----------
Comprehensive income (loss) $(3,077,000) $ 243,000 $ 81,000
=========== =========== ===========
</TABLE>
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
First Second Third Fourth Total
December 31, 1998 Quarter Quarter Quarter Quarter Year
- ----------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Sales $ 136,371 $ 138,130 $ 112,245 $ 152,685 $ 539,431
Gross Profit 24,837 23,421 16,551 35,295 100,104
Net Income 12,791 12,304 7,677 19,547 52,319
Earnings Per Share
Basic .46 .44 .28 .71 1.89
Diluted .46 .44 .28 .71 1.88
Dividends Declared Per
Share .07 .08 .08 .08 .31
</TABLE>
<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
</TABLE>
<PAGE> 37
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.
/s/ Louis L. Borick
- -----------------------------------
Louis L.. Borick
President and Chairman of the Board
/s/ R. Jeffrey Ornstein
- -----------------------------------
R. Jeffrey Ornstein
Vice President & CFO
/s/ Emil J. Fanelli
- -----------------------------------
Emil J. Fanelli
Corporate Controller
<PAGE> 38
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, 1998 and 1997, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1998. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
- -----------------------
Arthur Andersen LLP
Los Angeles, California
February 12, 1999
<PAGE> 39
<TABLE>
<CAPTION>
<S> <C> <C>
DIRECTORS COUNSEL AND DIVIDEND
AUDITORS REINVESTMENT PLAN
Louis L. Borick
President and General Counsel TRANSFER AGENT
Chairman of the Board Irell & Manella AND REGISTRAR
Sheldon I. Ausman Auditors Information about the Company's
Vice Chairman Arthur Andersen LLP Dividend Reinvestment Plan,
Compensation Resource Group, Inc. a convenient and economical
method of using the dividend to
Steven J. Borick FACILITIES increase holdings and any other
Vice President, Strategic Planning questions about shareholder
Robert D. Bracy accounts should be directed to:
Raymond C. Brown Vice President
Retired Senior Vice President Chase Mellon
Shareholder Services
Philip W. Colburn PLANT AND Los Angeles, California
Chairman, Allen Telecom, Inc. SUBSIDIARY 800.356.2017
LOCATIONS http://www.chasemellon.com
V. Bond Evans
Retired President and CEO, Van Nuys, California
Alumax Inc. Bernard J. O'Neil ANNUAL
Corporate Director of MEETING
R. Jeffrey Ornstein Manufacturing
Vice President & CFO The annual meeting of
Fayetteville, Arkansas Superior Industries International,
Jack H. Parkinson Pittsburg, Kansas Inc. will be held at 10:00 a.m.
Retired Managing Director, P.S. Reddy, on May 7, 1999 at the:
Chrysler de Mexico, SA. General Manager Airtel Plaza Hotel
7277 Valjean Avenue
Rogers, Arkansas Van Nuys, California
CORPORATE David C. Rodgers,
OFFICERS General Manager
SHAREHOLDER
Louis L. Borick Chrome Plating Plant INFORMATION
President and Fayetteville, Arkansas
Chairman of the Board I. Armando Valdez, Form 10K Annual Report to
General Manager the Securities and Exchange
Steven J. Borick Commission will be sent free of
Vice President, Strategic Planning Johnson City, Tennessee charge to shareholders upon written
Gene W. Jole request to R. Jeffrey Ornstein,
Joseph T. O'Amico General Manager Vice President & CFO
Vice President, Materiel
Superior Puerto Rico CORPORATE
Michael D. Dryden Pedro Mora, OFFICES
Vice President, General Manager
International Business 7800 Woodley Avenue
Development Superior Industries Van Nuys, California 91406
de Mexico, SA de CV 818.781.4973
Ronald F. Escue Gabriel Soto, Fax 818.780.3500
Vice President, General General Manager
Manager - Aftermarket Wheels
West Memphis, Arkansas SHAREHOLDER
Emil J. Fanelli Terrence J. Schultz, RELATIONS
Corporate Controller General Manager
818.771.5906
James M. Ferguson Superior Engineered
Vice President, OEM Technologies, Inc. INTERNET WEB
Marketing Group ADDRESS
William B. Kelley JOINT VENTURES http://www.supind.com
Vice President Operations & Quality
Suoftec Kft (Europe) INVESTOR
Daniel L. Levine Otto Fuchs Metallwerke RELATIONS
Corporate Secretary and Treasurer
Neil G. Berkman Associates
Frank Monteleone Los Angeles, California
Vice President, Purchasing Topy-Superior Limited (Japan) 310.277-5162
Topy Industries Limited
R. Jeffrey Ornstein
Vice President & CFO
[LOGO]
Michael J. O'Rourke
Vice President, OEM Program
Administration
Delbert J. Schmitz
Vice President, Aftermarket
Marketing
</TABLE>
<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>
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 Hungary 50%
Production & Distribution KFT owned by Suoftec Light
Metal Products B.V.
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. owned by Company
Superior Industries International -- 100%
California, Inc. California, U.S.A. owned by Company
Superior Industries International -- 100%
Kansas, Inc. Kansas, U.S.A. owned by Company
Superior Industries International -- 100%
Michigan, Inc. Michigan, U.S.A. owned by Company
Superior Industries International -- 100%
Tennessee, Inc. Tennessee, U.S.A. owned by Company
</TABLE>
<PAGE> 2
EXHIBIT 21
LIST OF SUBSIDIARIES
(Continued)
<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
Superior Industries 100%
International Leasing Corp. Delaware, U.S.A. owned by Company
Superior Performance Products Inc. Canada 100%
owned by Company
Suinco Assurance Ltd. Bermuda 100%
owned by Company
Superior Astechnology Inc. Delaware, USA 100%
owned by Company
Superior - Ideal Inc. Delaware, USA 100%
owned by Company
</TABLE>
<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, 1999, included in Superior Industries International,
Inc.'s Annual Report to Shareholders in this Form 10-K for the year ended
December 31, 1998, into the Company's previously filed Registration Statements
File Nos. 2-80130, 33-48547 and 33-64088.
/s/ ARTHUR ANDERSEN LLP
- -----------------------
ARTHUR ANDERSEN LLP
Los Angeles, California
March 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-28-1997
<PERIOD-END> DEC-27-1998
<CASH> 86,566
<SECURITIES> 0
<RECEIVABLES> 102,127
<ALLOWANCES> (1,373)
<INVENTORY> 41,433
<CURRENT-ASSETS> 235,886
<PP&E> 365,209
<DEPRECIATION> (209,015)
<TOTAL-ASSETS> 427,430
<CURRENT-LIABILITIES> 91,111
<BONDS> 0
0
0
<COMMON> 13,656
<OTHER-SE> 298,378
<TOTAL-LIABILITY-AND-EQUITY> 427,430
<SALES> 539,431
<TOTAL-REVENUES> 539,431
<CGS> 439,327
<TOTAL-COSTS> 459,085
<OTHER-EXPENSES> 3,832
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4,287)
<INCOME-PRETAX> 80,801
<INCOME-TAX> 28,482
<INCOME-CONTINUING> 52,319
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,319
<EPS-PRIMARY> 1.89
<EPS-DILUTED> 1.88
</TABLE>
