WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
|
|
|
þ
|
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended March 30, 2008
|
|
OR
|
|
|
|
o
|
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
|
|
|
|
For
the transition period from
to
|
Commission
file number: 1-6615
SUPERIOR
INDUSTRIES INTERNATIONAL, INC.
(Exact
Name of Registrant as Specified in Its Charter)
|
|
|
California
|
|
95-2594729
|
(State
or Other Jurisdiction of
incorporation
or organization)
|
|
(I.R.S.
Employer Identification No.)
|
|
|
|
7800
Woodley Avenue
|
|
|
Van
Nuys, California
|
|
91406
|
(Address
of Principal Executive Offices)
|
|
(Zip
Code)
|
Registrant’s
Telephone Number, Including Area Code: (818) 781-4973
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.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer”
and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
|
|
|
|
|
|
|
|
|
|
|
Large
Accelerated Filer
|
o
|
|
Accelerated
Filer
|
þ
|
|
Non-Accelerated
Filer
|
o
|
|
Smaller
Reporting Company
|
o
|
|
|
|
|
|
|
|
|
|
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Number of
shares of $0.50 par value common stock outstanding as of April 25, 2008:
26,645,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL
INFORMATION
Superior Industries International, Inc.
Consolidated
Condensed Statements of Operations
(Thousands
of dollars, except per share data)
(Unaudited)
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
SALES
|
|
$ |
222,238 |
|
|
$ |
244,875 |
|
Cost
of sales
|
|
|
212,852 |
|
|
|
242,730 |
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
9,386 |
|
|
|
2,145 |
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
6,210 |
|
|
|
6,915 |
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) FROM OPERATIONS
|
|
|
3,176 |
|
|
|
(4,770 |
) |
|
|
|
|
|
|
|
|
|
Interest
income, net
|
|
|
980 |
|
|
|
822 |
|
Other
income (expense), net
|
|
|
(442 |
) |
|
|
2,374 |
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) BEFORE INCOME TAXES AND EQUITY EARNINGS
|
|
|
3,714 |
|
|
|
(1,574 |
) |
|
|
|
|
|
|
|
|
|
Income
tax (provision) benefit
|
|
|
(2,620 |
) |
|
|
2,807 |
|
Equity
in earnings of joint ventures
|
|
|
2,085 |
|
|
|
818 |
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$ |
3,179 |
|
|
$ |
2,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS
PER SHARE - BASIC
|
|
$ |
0.12 |
|
|
$ |
0.08 |
|
|
|
|
|
|
|
|
|
|
EARNINGS
PER SHARE - DILUTED
|
|
$ |
0.12 |
|
|
$ |
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIVIDENDS
DECLARED PER SHARE
|
|
$ |
0.16 |
|
|
$ |
0.16 |
|
|
|
|
|
|
|
|
|
|
See notes
to consolidated condensed financial statements.
Superior Industries International, Inc.
Consolidated
Condensed Balance Sheets
(Thousands
of dollars, except per share data)
(Unaudited)
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
105,204 |
|
|
$ |
106,769 |
|
Accounts
receivable, net
|
|
|
143,922 |
|
|
|
125,704 |
|
Inventories,
net
|
|
|
103,162 |
|
|
|
107,170 |
|
Income
taxes receivable
|
|
|
5,861 |
|
|
|
6,677 |
|
Deferred
income taxes
|
|
|
7,016 |
|
|
|
6,569 |
|
Other
current assets
|
|
|
2,602 |
|
|
|
3,190 |
|
Total
current assets
|
|
|
367,767 |
|
|
|
356,079 |
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
296,753 |
|
|
|
302,253 |
|
Investments
|
|
|
57,271 |
|
|
|
51,055 |
|
Non-current
deferred tax asset, net
|
|
|
11,620 |
|
|
|
12,673 |
|
Other
assets
|
|
|
6,801 |
|
|
|
7,862 |
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
740,212 |
|
|
$ |
729,922 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
50,973 |
|
|
$ |
51,603 |
|
Accrued
expenses
|
|
|
45,076 |
|
|
|
43,993 |
|
Total
current liabilities
|
|
|
96,049 |
|
|
|
95,596 |
|
|
|
|
|
|
|
|
|
|
Non-current
tax liabilities (Note 8)
|
|
|
65,887 |
|
|
|
62,223 |
|
Executive
retirement liabilities
|
|
|
21,589 |
|
|
|
21,530 |
|
Commitments
and contingencies (Note 14)
|
|
|
- |
|
|
|
- |
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $25.00 par value
|
|
|
|
|
|
|
|
|
Authorized
- 1,000,000 shares
|
|
|
|
|
|
|
|
|
Issued
- none
|
|
|
- |
|
|
|
- |
|
Common
stock, $0.50 par value
|
|
|
|
|
|
|
|
|
Authorized
- 100,000,000 shares
|
|
|
|
|
|
|
|
|
Issued
and outstanding - 26,643,065 shares
|
|
|
|
|
|
|
|
|
(26,633,440
shares at December 31, 2007)
|
|
|
13,322 |
|
|
|
13,317 |
|
Additional
paid-in capital
|
|
|
39,274 |
|
|
|
38,516 |
|
Accumulated
other comprehensive loss
|
|
|
(22,145 |
) |
|
|
(28,578 |
) |
Retained
earnings
|
|
|
526,236 |
|
|
|
527,318 |
|
Total
shareholders' equity
|
|
|
556,687 |
|
|
|
550,573 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
$ |
740,212 |
|
|
$ |
729,922 |
|
|
|
|
|
|
|
|
|
|
See notes
to consolidated condensed financial statements.
Superior Industries International, Inc.
Consolidated
Condensed Statements of Cash Flows
(Thousands
of dollars)
(Unaudited)
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
|
$ |
5,515 |
|
|
$ |
(5,652 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
to property, plant and equipment
|
|
|
(3,095 |
) |
|
|
(14,494 |
) |
Proceeds
from sale of fixed assets
|
|
|
105 |
|
|
|
- |
|
Proceeds
from a held-to-maturity security
|
|
|
- |
|
|
|
9,750 |
|
Proceeds
from sale of available-for-sale securities
|
|
|
- |
|
|
|
4,892 |
|
|
|
|
|
|
|
|
|
|
NET
CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
|
|
|
(2,990 |
) |
|
|
148 |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends paid
|
|
|
(4,259 |
) |
|
|
(4,252 |
) |
Stock
options exercised
|
|
|
169 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
NET
CASH USED IN FINANCING ACTIVITIES
|
|
|
(4,090 |
) |
|
|
(4,252 |
) |
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(1,565 |
) |
|
|
(9,756 |
) |
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at the beginning of the period
|
|
|
106,769 |
|
|
|
68,385 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at the end of the period
|
|
$ |
105,204 |
|
|
$ |
58,629 |
|
|
|
|
|
|
|
|
|
|
See notes
to consolidated condensed financial statements.
Superior Industries International, Inc.
Consolidated
Condensed Statement of Shareholders’ Equity
(Thousands
of dollars, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Number
of
|
|
|
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income
(Loss)
|
|
|
Earnings
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
AT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER
31, 2007
|
|
|
26,633,440 |
|
|
$ |
13,317 |
|
|
$ |
38,516 |
|
|
$ |
(28,578 |
) |
|
$ |
527,318 |
|
|
$ |
550,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,179 |
|
|
|
3,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6,385 |
|
|
|
- |
|
|
|
6,385 |
|
Net
actuarial loss on pension obligation
|
|
|
|
|
|
|
|
|
|
|
|
48 |
|
|
|
|
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expense
|
|
|
- |
|
|
|
- |
|
|
|
631 |
|
|
|
- |
|
|
|
- |
|
|
|
631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options exercised
|
|
|
9,625 |
|
|
|
5 |
|
|
|
164 |
|
|
|
- |
|
|
|
- |
|
|
|
169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
impact of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exercised
|
|
|
- |
|
|
|
- |
|
|
|
(37 |
) |
|
|
- |
|
|
|
- |
|
|
|
(37 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividend declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($0.16
per share)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,261 |
) |
|
|
(4,261 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
AT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MARCH
31, 2008
|
|
|
26,643,065 |
|
|
$ |
13,322 |
|
|
$ |
39,274 |
|
|
$ |
(22,145 |
) |
|
$ |
526,236 |
|
|
$ |
556,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Comprehensive
loss, net of tax was $(2,252,000) for the three months ended March 31,
2007, which included: net income
|
|
|
of
$2,051,000, foreign currency translation adjustment loss of $(2,812,000),
a realized gain on available-for-sale securities
|
|
|
of
$(1,498,000) and an unrealized gain on available-for-securities of
$7,000.
|
|
|
|
|
|
|
|
|
|
See notes
to consolidated condensed financial statements.
Superior Industries International, Inc.
Notes
to Consolidated Condensed Financial Statements
March
31, 2008
(Unaudited)
Note
1 – Nature of Operations
Headquartered
in Van Nuys, California, the principal business of Superior Industries
International, Inc. (referred to herein as the “company”, “Superior” or in the
first person notation “we,” “us” and “our”) is the design and manufacture of
aluminum road wheels for sale to original equipment manufacturers (OEM). We are
one of the largest suppliers of cast and forged aluminum wheels to the world’s
leading automobile and light truck manufacturers, with wheel manufacturing
operations in the United States, Mexico and Hungary.
Ford
Motor Company (Ford), General Motors Corporation (GM) and Chrysler LLC
(Chrysler) together represented approximately 78 percent of our total wheel
sales during the first three months of 2008 and 82 percent of annual wheel sales
for the 2007 fiscal year. The loss of all or a substantial portion of our sales
to Ford, GM or Chrysler would have a significant adverse impact on our financial
results, unless the lost volume could be replaced. This risk is partially
mitigated over the short term due to the long term relationships we have with
our customers. However, as previously reported, intense global
competitive pricing pressure continues to make it difficult to maintain these
contractual arrangements and there are no guarantees that similar arrangements
could be negotiated in the future. We expect global competitive
pricing pressures to continue into the foreseeable future. Including
our 50 percent owned joint venture in Europe, we also manufacture aluminum
wheels for Audi, BMW, Fiat, Jaguar, Land Rover, Mazda, Mercedes Benz,
Mitsubishi, Nissan, Seat, Skoda, Subaru, Suzuki, Toyota, Volkswagen and
Volvo.
The
availability and demand for aluminum wheels are subject to unpredictable
factors, such as changes in the general economy, the automobile industry,
gasoline prices and consumer interest rates. The raw materials used in producing
our products are readily available and are obtained through numerous suppliers
with whom we have established trade relations.
Note
2 – Presentation of Consolidated Condensed Financial Statements
As
discussed in Exhibit 99.1 of our 2007 Annual Report on Form 10-K, we discovered
during the preparation and review of our 2007 income tax provision that we had
not properly reconciled our tax liabilities related to the differences between
the net book basis and the net tax basis of our depreciable property, plant and
equipment. As a result of completing the necessary reconciliations for each year
since 2002, we identified errors that impacted our previously filed financial
statements for the fiscal years 2003 through 2006 and our previously filed
interim financial statements for those years and the first three quarters of
2007 related to our tax liabilities and our income tax provisions.
During
the fourth quarter of 2007, we also determined the cumulative impact of known
differences in our accounting for our equity method investment in Suoftec Light
Metal Products Production and Distribution, Ltd. (Suoftec) and our summary
financial information presented for Suoftec, which we considered to be
immaterial to any individual reporting period, required
restatement. The errors relate to the quantification and recording of
the adjustments to report the Suoftec earnings on the basis of U.S. GAAP versus
on the Hungarian accounting rules followed by Suoftec. These
differences principally relate to overhead cost capitalization into inventory
and deferred income taxes on property, plant and equipment. The 2007
U.S. GAAP differences were immaterial to any one interim period and were
recorded in the fourth quarter of 2007.
The
following tables summarizes the impact of these corrections to our consolidated
condensed statement of operations for the fiscal quarter in 2007 and to our
consolidated condensed balance sheet as of March 31, 2007 as previously
presented in Exhibit 99.1 of our 2007 Annual Report on Form
10-K. There was no impact to our 2007 interim Net Cash provided by
Operating Activities due to the correction of the above errors.
Three
Months ended March 31, 2007
|
|
As
reported
|
|
|
Adjustment
|
|
|
As
restated
|
|
(Thousands
of dollars)
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
$ |
2,610 |
|
|
$ |
197 |
|
|
$ |
2,807 |
|
Net
income
|
|
$ |
1,854 |
|
|
$ |
197 |
|
|
$ |
2,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.07 |
|
|
$ |
0.01 |
|
|
$ |
0.08 |
|
Diluted
|
|
$ |
0.07 |
|
|
$ |
0.01 |
|
|
$ |
0.08 |
|
March
31, 2007
|
|
As
reported
|
|
|
Adjustments
|
|
|
As
restated
|
|
(Thousands
of dollars)
|
|
|
|
|
|
|
|
|
|
Income
tax receivable
|
|
$ |
7,386 |
|
|
$ |
1,027 |
|
|
$ |
8,413 |
|
Investments
|
|
$ |
42,826 |
|
|
$ |
497 |
|
|
$ |
43,323 |
|
Non-current
deferred tax asset, net
|
|
$ |
11,746 |
|
|
$ |
1,604 |
|
|
$ |
13,350 |
|
Accumulated
other comprehensive loss
|
|
$ |
(41,400 |
) |
|
$ |
(27 |
) |
|
$ |
(41,427 |
) |
Retained
earnings
|
|
$ |
531,638 |
|
|
$ |
3,155 |
|
|
$ |
534,793 |
|
During
interim periods, we follow the accounting policies set forth in our 2007 Annual
Report on Form 10-K and apply appropriate interim financial reporting standards
for a fair statement of our operating results and financial position in
conformity with accounting principles generally accepted in the United States of
America, as indicated below. Users of financial information produced
for interim periods in 2008 are encouraged to read this Quarterly Report on Form
10-Q in conjunction with our consolidated financial statements and notes thereto
filed with the Securities and Exchange Commission (SEC) in our 2007 Annual
Report on Form 10-K.
Interim
financial reporting standards require us to make estimates that are based on
assumptions regarding the outcome of future events and circumstances not known
at that time, including the use of estimated effective tax
rates. Inevitably, some assumptions will not materialize,
unanticipated events or circumstances may occur which vary from those estimates
and such variations may significantly affect our future results. Additionally,
interim results may not be indicative of our annual results.
Rather
than utilizing a calendar quarter for our fiscal quarters, we utilize a 4-4-5
convention, with each 13-week quarter generally ending on the last Sunday of
March, June, September and December. Accordingly, our fiscal years
comprise the 52-week period ending on the last Sunday in
December. For convenience of presentation in these consolidated
condensed financial statements, the number of weeks in and period end dates for
all fiscal periods in 2007 and 2008 are as follows:
|
|
|
|
|
|
|
Actual
|
|
|
Presented
|
|
|
|
|
Number
of
|
|
|
Period
|
|
|
Period
|
Fiscal
Periods
|
|
|
Weeks
|
|
|
End
Date
|
|
|
End
Date
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
year 2007
|
|
|
|
|
|
|
|
|
|
|
First
quarter
|
|
|
13
|
|
|
04/01/2007
|
|
|
03/31/2007
|
|
Second
quarter
|
|
|
13
|
|
|
07/01/2007
|
|
|
06/30/2007
|
|
Third
quarter
|
|
|
13
|
|
|
09/30/2007
|
|
|
09/30/2007
|
|
Fourth
quarter
|
|
|
13
|
|
|
12/30/2007
|
|
|
12/31/2007
|
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
year 2008
|
|
|
|
|
|
|
|
|
|
|
First
quarter
|
|
|
13
|
|
|
03/30/2008
|
|
|
03/31/2008
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with the SEC’s requirements for Form 10-Q and contain all
adjustments, of a normal and recurring nature, which are necessary for a fair
statement of (i) the consolidated condensed statements of operations for the
three months ended March 31, 2008 and 2007, (ii) the consolidated condensed
balance sheets at March 31, 2008 and December 31, 2007, (iii) the consolidated
condensed statements of cash flows for the three months ended March 31, 2008 and
2007, and (iv) the consolidated condensed statement of shareholders’ equity for
the three months ended March 31, 2008. The consolidated condensed balance sheet
as of December 31, 2007 was derived from our 2007 audited financial statements,
but does not include all disclosures required by U.S. GAAP.
Note
3 – Stock-Based Compensation
We have a
stock option plan that authorizes us to issue incentive and non-qualified stock
options to our directors, officers and key employees totaling up to 3.0 million
shares of common stock. It is our policy to issue shares from authorized but not
issued shares upon the exercise of stock options. At March 31, 2008,
there were 0.6 million shares available for future grants under this plan.
Options are granted at not less than fair market value on the date of grant and
expire no later than ten years after the date of grant. Options granted to
employees generally vest ratably over a four-year period, while options granted
to non-employee directors generally vest one year from the date of
grant.
During
the first three months of 2008, we granted options for a total of 140,000
shares, while in the first three months of 2007, we granted options for a total
of 120,000 shares. The weighted average fair value at the grant date
for options issued during the first
three months of 2008 and 2007 was $4.48 and $6.07 per option, respectively. The
fair value of options at the grant date was estimated utilizing the
Black-Scholes valuation model with the following weighted average assumptions
for 2008 and 2007, respectively: (a) dividend yield on our common stock of 3.25
percent and 3.32 percent; (b) expected stock price volatility of 30.7 percent
and 30.8 percent; (c) a risk-free interest rate of 3.15 percent and 4.70
percent; and (d) an expected option term of 7.3 years for both
periods. For the three months ended March 31, 2008, options for 9,625
shares were exercised and there were no options exercised during the three
months ended March 31, 2007.
For the
three months ended March 31, 2008 and 2007, stock-based compensation expense
related to our stock option plan under Statement of Financial Accounting
Standards (SFAS) No. 123 (revised 2004), "Share-Based Payment" (SFAS 123R), was
allocated as follows:
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
(Thousands
of dollars)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
$ |
107 |
|
|
$ |
191 |
|
Selling,
general and administrative
|
|
|
524 |
|
|
|
733 |
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense before income taxes
|
|
|
631 |
|
|
|
924 |
|
Income
tax benefit
|
|
|
(197 |
) |
|
|
(334 |
) |
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense after income taxes
|
|
$ |
434 |
|
|
$ |
590 |
|
As of
March 31, 2008, a total of $4.7 million of unrecognized compensation cost
related to non-vested awards is expected to be recognized over a weighted
average period of approximately 2.9 years.
There
were no significant capitalized stock-based compensation costs at March 31, 2008
and December 31, 2007.
We
received cash totaling $169,000 from stock options exercised during the first
three months of 2008 and no stock options were exercised in the first three
months of 2007.
Note
4 - New Accounting Standards
In
September 2006, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements” (SFAS No. 157). SFAS
No. 157 establishes a common definition for fair value to be applied to U.S.
GAAP guidance requiring use of fair value, establishes a framework for measuring
fair value, and expands disclosure about such fair value measurements. SFAS No.
157 is effective for fiscal years beginning after November 15, 2007. The
adoption of the applicable provisions of SFAS No. 157 as of January 1 2008, did
not have a material impact on our consolidated results of operations or
statement of financial position. In February 2008, the FASB decided
to issue a final Staff Position to allow a one-year deferral of adoption of SFAS
No. 157 for nonfinancial assets and nonfinancial liabilities that are recognized
or disclosed at fair value in the financial statements on a nonrecurring
basis. The FASB also decided to amend SFAS No. 157 to exclude FASB
Statement No. 13 and its related interpretive accounting pronouncements that
address leasing transactions. We do not expect that the adoption of
the provisions of SFAS No. 157 for nonfinancial assets and liabilities measured
on a nonrecurring basis will have a material impact on our consolidated results
of operations or statement of financial position.
In
December 2007, the FASB issued SFAS No. 141(R), “Business
Combinations.” This Statement replaces SFAS No. 141, “Business
Combinations,” (SFAS No. 141), and defines the acquirer as the entity that
obtains control of one or more business in the business combination and
establishes the acquisition date as the date that the acquirer achieves control.
This Statement’s scope is broader than that of SFAS No. 141, which applied only
to business combinations in which control was obtained by transferring
consideration. This Statement applies to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. We do not expect that the
adoption of SFAS No. 141 will have a material impact on our consolidated results
of operations or statement of financial position.
Note
5 – Business Segments
Each of
our plants manufactures similar aluminum automotive road wheels, utilizes
similar production processes and distribution methods, sells to many of the same
OEM customers and faces similar variations in product demand levels. In order to
effectively manage our overall business, we must maintain the ability to
allocate production and resources interchagably among our
plants as necessary. Accordingly, we have only one reportable segment –
automotive road wheels. We assess operating performance and make operating
decisions at this segment level and allocate resources among individual plants
as deemed necessary to meet both customer requirements and our overall segment
financial objectives.
Net
sales and net property, plant and equipment by geographic area are
summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
(Thousands
of dollars)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Net
sales:
|
|
|
|
|
|
|
U.S.
|
|
$ |
127,906 |
|
|
$ |
148,264 |
|
Mexico
|
|
|
94,332 |
|
|
|
96,611 |
|
Consolidated
net sales
|
|
$ |
222,238 |
|
|
$ |
244,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
|
December
31,
|
|
(Thousands
of dollars)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net:
|
|
|
|
|
|
|
|
|
U.S.
|
|
$ |
110,508 |
|
|
$ |
116,599 |
|
Mexico
|
|
|
186,245 |
|
|
|
185,654 |
|
Consolidated
property, plant and equipment, net
|
|
$ |
296,753 |
|
|
$ |
302,253 |
|
Note
6 - Revenue Recognition
Sales of
products and any related costs are recognized when title and risk of loss
transfers to the purchaser, generally upon shipment. Wheel program development
revenues, representing internal development expenses and initial tooling that
are reimbursable by our customers, are recognized as such related costs and
expenses are incurred and recoverability is probable, generally upon receipt of
a customer purchase order. Wheel program development revenues totaled
$3.5 million and $3.6 million for the three months ended March 31, 2008 and
2007, respectively.
Note
7 – Earnings Per Share
In
accordance with the provisions of SFAS No. 128, “Earnings Per Share,” basic net
income per share is computed by dividing net income by the weighted average
number of common shares outstanding during the period. Diluted net income
per share includes the dilutive effect of outstanding stock options, calculated
using the treasury stock method. Of the 3.3 million stock options outstanding at
March 31, 2008, 2.4 million shares had an exercise price greater than the
weighted average market price of the stock for the period and were excluded in
the calculation of diluted earnings per share for that
period. Summarized below are the calculations of basic and diluted
earnings per share for the respective periods:
|
|
Three
Months Ended
|
|
|
March
31,
|
(In
Thousands, except per share amounts)
|
|
2008
|
|
|
2007
|
Basic Earnings Per
Share:
|
|
|
|
|
As
restated
|
Reported
net income
|
|
$ |
3,179 |
|
|
$ |
2,051 |
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
26,639 |
|
|
|
26,610 |
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.12 |
|
|
$ |
0.08 |
|
|
|
|
|
|
|
|
Diluted Earnings per
Share:
|
|
|
|
|
|
|
|
Reported
net income
|
|
$ |
3,179 |
|
|
$ |
2,051 |
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
26,639 |
|
|
|
26,610 |
Weighted
average dilutive stock options
|
|
|
3 |
|
|
|
6 |
|
|
|
|
|
|
|
|
Weighted
average shares outstanding plus dilutive stock options
|
|
|
26,642 |
|
|
|
26,616 |
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$ |
0.12 |
|
|
$ |
0.08 |
Note
8 – Income Taxes
Income
taxes are accounted for pursuant to SFAS No. 109, “Accounting for Income Taxes”,
which requires use of the liability method and the recognition of deferred tax
assets and liabilities for the expected future tax consequences of temporary
differences between the financial statement carrying amounts and the tax basis
of 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 future 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.
The
income tax (provision) benefit on income before income taxes and equity earnings
for the three months ended March 31, 2008 was a provision of $(2.6) million
compared to a benefit of $2.8 million for the same period in 2007. As of the end
of March 2008, the estimated annualized effective tax rate for the year was 51.9
percent compared to the 39.6 percent rate estimated at the same time a year ago.
For the first quarter of 2008, this required a tax provision before discrete
items of $(1.9) million. Discrete items during the current period, which totaled
an additional provision of $(0.7) million, were principally for increases in our
liabilities for uncertain tax positions. For the first quarter of 2007, the
estimated annualized effective tax rate of 39.6 percent resulted in a benefit
before discrete items during the period of $0.6 million. Discrete items in the
first quarter of 2007, which totaled $2.2 million, related principally to
refunds from prior year amended returns of $0.6 million, decreases in valuation
reserves of $0.3 million and decreases in our liabilities for uncertain tax
positions of $1.0 million, due principally to the expiration of a statute of
limitations.
Within
the next twelve month period ending March 31, 2009, it is reasonably possible
that up to $3.7 million of unrecognized tax benefits will be recognized due to
the expiration of certain statutes of limitation. We recognize interest and
penalties that are accrued related to unrecognized tax benefits in income tax
expense.
We
conduct business internationally and, as a result, one or more of our
subsidiaries files income tax returns in U.S. federal, U.S. state and certain
foreign jurisdictions. Accordingly, in the normal course of business,
we are subject to examination by taxing authorities throughout the world,
including Hungary, Mexico, the Netherlands, Japan and the United States. We are
no longer
subject to U.S. federal, state and local, or Mexico (our major filing
jurisdictions) income tax examinations for years before 1999.
Superior
Industries International, Inc. and Subsidiaries are under audit for 2004 through
2006 tax years by the Internal Revenue Service (IRS). It is expected
that the examination phase will conclude during the third quarter of
2008. In addition, the 2003 income tax return of Superior Industries
de Mexico S.A. de C.V is under review by Mexico’s Tax Administration Service
(Servicio de Administracion Tributaria). However, it is not
reasonably possible to quantify at this time any estimated reductions in the
recognized or unrecognized tax benefits.
Note
9 – Equity in Earnings of Joint Ventures and Other Income (Expense),
net
Included
below are summary statements of operations for Suoftec , our 50 percent owned
joint venture in Hungary, which manufactures cast and forged aluminum wheels
principally for the European automobile industry. Being 50 percent
owned and non-controlled, Suoftec is not consolidated, but accounted for using
the equity method.
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
(Thousands
of dollars)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
44,120 |
|
|
$ |
36,531 |
|
Cost
of sales
|
|
|
37,869 |
|
|
|
35,043 |
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
6,251 |
|
|
|
1,488 |
|
Selling,
general and administrative expenses
|
|
|
688 |
|
|
|
443 |
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
5,563 |
|
|
|
1,045 |
|
Other
income (expense), net
|
|
|
(16 |
) |
|
|
130 |
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
5,547 |
|
|
|
1,175 |
|
Income
tax provision
|
|
|
(1,059 |
) |
|
|
(213 |
) |
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
4,488 |
|
|
$ |
962 |
|
|
|
|
|
|
|
|
|
|
Superior's
share of Suoftec net income
|
|
$ |
2,244 |
|
|
$ |
481 |
|
Intercompany
profit elimination
|
|
|
(159 |
) |
|
|
310 |
|
Superior's
equity in earnings of Suoftec
|
|
|
2,085 |
|
|
|
791 |
|
Equity
in earnings of Topy-Superior Ltd
|
|
|
- |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
Total
equity in earnings of joint ventures
|
|
$ |
2,085 |
|
|
$ |
818 |
|
In the
first quarter of 2007, we sold available-for-sale corporate equity securities
realizing a $2.4 million gain that was included in other income (expense),
net.
Note
10 – Accounts Receivable
|
|
March
31,
|
|
|
December
31,
|
|
(Thousands
of dollars)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Trade
receivables
|
|
$ |
133,863 |
|
|
$ |
119,175 |
|
Wheel
program development receivables
|
|
|
6,714 |
|
|
|
5,102 |
|
Receivable
from Suoftec
|
|
|
1,090 |
|
|
|
557 |
|
Current
portion of note receivable
|
|
|
1,000 |
|
|
|
- |
|
Other
receivables
|
|
|
3,544 |
|
|
|
3,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
146,211 |
|
|
|
128,131 |
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
|
(2,289 |
) |
|
|
(2,427 |
) |
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
$ |
143,922 |
|
|
$ |
125,704 |
|
Note
11 – Inventories
|
|
March
31,
|
|
|
December
31,
|
|
(Thousands
of dollars)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$ |
16,742 |
|
|
$ |
16,482 |
|
Work
in process
|
|
|
30,052 |
|
|
|
30,004 |
|
Finished
goods
|
|
|
56,368 |
|
|
|
60,684 |
|
|
|
|
|
|
|
|
|
|
Inventories,
net
|
|
$ |
103,162 |
|
|
$ |
107,170 |
|
Note
12 – Property, Plant and Equipment
|
|
March
31,
|
|
|
December
31,
|
|
(Thousands
of dollars)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Land
and buildings
|
|
$ |
95,408 |
|
|
$ |
94,610 |
|
Machinery
and equipment
|
|
|
524,292 |
|
|
|
519,869 |
|
Leasehold
improvements and others
|
|
|
14,028 |
|
|
|
14,055 |
|
Construction
in progress
|
|
|
28,509 |
|
|
|
29,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
662,237 |
|
|
|
658,273 |
|
Accumulated
depreciation
|
|
|
(365,484 |
) |
|
|
(356,020 |
) |
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
$ |
296,753 |
|
|
$ |
302,253 |
|
Depreciation
expense was $11.3 million and $10.1 million for the three months ended March 31,
2008 and 2007, respectively.
Note
13 – Retirement Plans
We
currently have individual Salary Continuation Agreements with each of our
directors, officers, and other key members of management who are participants in
our unfunded supplemental executive retirement program. Due to recent changes in
the tax law, payments made under this program could be subject to substantial
new taxes for the participants, which may be avoided if these agreements are
amended or are replaced by a plan that complies with this tax law. Accordingly,
we have now offered affected participants the opportunity to terminate their
individual Salary Continuation Agreements and become a participant in a new
unfunded Salary Continuation Plan (Plan), a copy of which is included as Exhibit
10.1 to this Quarterly Report on Form 10-Q. Similar to the terms of the Salary
Continuation Agreements, the Plan provides to those participants meeting
specified vesting requirements a monthly benefit amount equal to 30 percent of
the participant’s final average compensation during the last thirty-six months
of service.
Plan
benefits become payable upon the participant’s death or disability, if still an
active employee, or upon attaining the specified retirement date - age 65, if no
longer employed by the company. Benefit payments will generally commence on the
first day of the month coinciding with or next following the participant’s
retirement date, and shall continue for a period of not less than 120 months or
until participant’s death, if later. However, in the case of certain
participants who are specified employees, as defined in the Plan, on their
retirement date, all or a portion of their benefit payments will not occur until
six months following the date of separation from service. We may, solely at our
discretion, purchase life insurance policies on the participants to provide for
future liabilities. For the three months ended March 31, 2008,
payments to retirees or their beneficiaries approximating $203,000 have been
made in accordance with our supplemental executive retirement
program. We presently anticipate benefit payments in 2008 to total
$855,000.
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
(Thousands
of dollars)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
118 |
|
|
$ |
137 |
|
Interest
cost
|
|
|
289 |
|
|
|
280 |
|
Net
amortization
|
|
|
42 |
|
|
|
48 |
|
Net
periodic pension cost
|
|
$ |
449 |
|
|
$ |
465 |
|
Note
14 – Commitments and Contingencies
In late
2006, two shareholder derivative complaints were filed, one each by plaintiffs
Gary B. Eldred and Darrell D. Mack, based on allegations concerning some of the
company’s past stock option grants and practices. These cases were
subsequently consolidated as In re Superior Industries
International, Inc. Derivative Litigation, which is pending in the United
States District Court for the Central District of California. In the
plaintiffs’ consolidated complaint, filed on March 23, 2007, the company was
named only as a nominal defendant from whom the plaintiffs sought no monetary
recovery. In addition to naming the company as a nominal defendant,
the plaintiffs named various present and former employees, officers and
directors of the company as individual defendants from whom they sought monetary
and/or equitable relief, purportedly for the benefit of the
company.
The
plaintiffs purported to base their claims against the individual defendants on
allegations that the grant dates for some of the options granted to certain
company directors, officers and employees occurred prior to upward movements in
the stock price, and that the stock option grants were not properly accounted
for in the company’s financial reports and not properly disclosed in the
company’s SEC filings. The company and the individual defendants
filed motions to dismiss plaintiffs’ consolidated complaint on May 14,
2007. In an order dated August 9, 2007, the court granted Superior's
motion to dismiss the consolidated complaint, and granted the plaintiffs leave
to file an amended complaint.
On August
29, 2007, the plaintiffs filed an amended consolidated complaint that was
substantially similar to the prior consolidated complaint. In
response, the company and the individual defendants filed motions to dismiss on
September 21, 2007. In an order dated April 14, 2008, the court
granted again Superior's motion to dismiss the amended consolidated complaint.
On May 5, 2008, the plaintiff filed a verified second amended consolidated
shareholder derivative complaint that alleges claims substantially similar to
the prior complaints. Because this litigation remains at a
preliminary stage, it would be premature to anticipate the probable
outcome of this case and whether such an outcome would be materially adverse to
the company.
In 2006,
we were served with notice of a class action lawsuit against the
company. The complaint alleges that among other claims, certain
employees at our Van Nuys, California, facility were denied rest and meal
periods as required under the California Labor Code. After conducting
initial discovery, the parties participated in mediation that concluded on
August 22, 2007. The mediator proposed that the parties settle the
lawsuit for a total settlement payment not to exceed $2,700,000. This
settlement amount is all-inclusive and includes the company’s settlement payment
to the lead plaintiff and the settlement class, together with costs and
attorneys’ fees for plaintiff’s counsel. In addition, the mediator
proposed that the settlement payment to the class would be on a “claims made”
basis, with a minimum of 40 percent of the net settlement being distributed to
the settlement class. Provided the minimum settlement claims are paid
to the settlement class, the company will not be liable for any claim that is
not valid or timely filed.
Subject
to certain conditions, both parties agreed to the mediator’s proposal and
executed a Settlement Term Sheet on August 22, 2007. The parties
submitted the proposed settlement for preliminary approval with the Superior
Court of Los Angeles County, which granted preliminary approval on December 19,
2007. On March 17, 2008, the court granted final approval of
the proposed settlement, thereby giving the settlement class until May 16, 2008
to appeal the court’s order. During 2007, we estimated that our
expected liability would be $2.2 million and, accordingly, recorded a charge of
that amount to selling, general and administrative expenses.
We are
party to various other legal and environmental proceedings incidental to our
business. Certain claims, suits and complaints arising in the
ordinary course of business have been filed or are pending against
us. Based on facts now known, we believe all such matters are
adequately provided for, covered by insurance, are without merit, and/or involve
such amounts that would not materially adversely affect our consolidated results
of operations, cash flows or financial position.
Note
15 – Risk Management
We are
subject to various risks and uncertainties in the ordinary course of business
due, in part, to the competitive global nature of the industry in which we
operate, to changing commodity prices for the materials used in the manufacture
of our products, and to development of new products.
We have
foreign operations in Mexico and Hungary that, due to the settlement of accounts
receivable and accounts payable, require the transfer of funds denominated in
their respective functional currencies – the Mexican peso and the euro. The
value of the Mexican peso relative to the U.S. dollar for the first three months
of 2008 increased approximately 2 percent. The value of the euro
relative to the U.S. dollar increased approximately 8 percent during the first
three months of 2008. Foreign currency
transaction gains and losses, which are included in other income (expense), net
in the consolidated condensed statements of operations, have not been
material.
When
market conditions warrant, we may also enter into contracts to purchase certain
commodities used in the manufacture of our products, such as aluminum, natural
gas and other raw materials. Any such commodity commitments are expected to be
purchased and used over a reasonable period of time in the normal course of
business. Accordingly, pursuant to SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” they are not accounted for as derivatives.
We currently have several purchase agreements for the delivery of natural gas
during 2008. The contract value and fair value of these purchase
commitments approximated $7.0 million and $9.4 million, respectively, at March
31, 2008. Percentage changes in the market prices of natural gas will
impact the fair value by a similar percentage. We do not hold or purchase any
natural gas forward contracts for trading purposes.
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Forward-Looking
Statements
The
Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements made by us or on our behalf. We may from time to time
make written or oral statements that are “forward-looking”, within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities and Exchange Act of 1934, as amended, including statements contained
in this report and other filings with the Securities and Exchange Commission and
reports and other public statements to our shareholders. These statements may,
for example, express expectations or projections about future actions or results
that we may anticipate but, due to developments beyond our control, do not
materialize. Actual results could differ materially because of issues and
uncertainties such as those listed herein, which, among others, should be
considered in evaluating our financial outlook. The principal factors that could
cause our actual performance and future events and actions to differ materially
from such forward-looking statements include, but are not limited to, changes in
the automotive industry, increased global competitive pressures, our dependence
on major customers and third party suppliers and manufacturers, our exposure to
foreign currency fluctuations, and other factors or conditions described in Item
1A – Risk Factors in Part II of this Quarterly Report on Form 10-Q and in Item
1A – Risk Factors in Part I of our 2007 Annual Report on Form
10-K. We assume no obligation to update publicly any forward-looking
statements.
Executive
Overview
Overall
North American production of passenger cars and light trucks in the first
quarter was reported by industry publications as being down approximately 8.7
percent versus the same period a year ago, compared to a 9.8 percent decrease
for our unit shipments in the same period. However, production of the specific
passenger cars and light trucks using our wheel programs decreased 11.7 percent
compared to our 9.8 percent decrease in unit shipments. North American
production and our unit shipments in the current period were impacted negatively
by the United Auto Workers (UAW) strike against American Axle &
Manufacturing Holdings, Inc., (American Axle) which idled approximately 30 GM
plants. Approximately half of our decrease in unit shipments in the current
quarter was caused specifically by this situation. Consolidated revenues in the
first quarter of 2008 decreased 9.2 percent from the same period in 2007, while
gross profit increased to 4.2 percent of net sales from 0.9 percent of net sales
a year ago. Income from operations increased to $3.2 million from a loss of $4.8
million a year ago, net income increased to $3.2 from $2.1 million in 2007, and
diluted earnings per share was $0.12 compared to $0.08 per share a year
ago.
Results
of Operations
|
|
Three
Months Ended
|
|
Selected
data
|
|
March
31,
|
|
(Thousands
of dollars, except per share amounts)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
As
restated
|
|
Net
sales
|
|
$ |
222,238 |
|
|
$ |
244,875 |
|
Gross
profit
|
|
$ |
9,386 |
|
|
$ |
2,145 |
|
Percentage
of net sales
|
|
|
4.2 |
% |
|
|
0.9 |
% |
Income
(loss) from operations
|
|
$ |
3,176 |
|
|
$ |
(4,770 |
) |
Percentage
of net sales
|
|
|
1.4 |
% |
|
|
-1.9 |
% |
Net
income
|
|
$ |
3,179 |
|
|
$ |
2,051 |
|
Percentage
of net sales
|
|
|
1.4 |
% |
|
|
0.8 |
% |
Diluted
earnings per share
|
|
$ |
0.12 |
|
|
$ |
0.08 |
|
Sales
Consolidated
revenues in the first quarter of 2008 decreased $22.7 million, or 9.2 percent,
to $222.2 million from $244.9 million in the same period a year ago. Wheel
program development revenues totaled $3.5 million in the first quarter of 2008
and $3.6 million in the first quarter of 2007, while wheel sales decreased $22.6
million, or 9.3 percent, to $218.7 million from $241.3 million in the first
quarter a year ago, as our wheel shipments decreased by 9.8 percent. The average
selling price of our wheels increased less than 1 percent in the current quarter
as the continued shift in sales mix to larger, higher-priced wheels offset the
3.5 percent decrease in the pass-through price of aluminum in the current
quarter.
According
to WARD’s AutoInfoBank,
an industry data publication, overall North American production of light
trucks and passenger cars during the first quarter of 2008 decreased
approximately 8.7 percent, compared to our 9.8 percent decrease in aluminum
wheel shipments. However, production of the specific passenger cars and light
trucks using our wheel programs decreased 11.7 percent compared to our 9.8
percent decrease in unit shipments. As indicated above, the UAW strike against
American Axle, which idled approximately 30 GM plants, impacted total North
American production of light trucks and our unit shipments in the current
quarter. Slightly more than half of our 9.8 percent decrease in unit shipments
was due specifically to the strike. Additionally, our first quarter of 2007
sales included a higher than normal amount of takeover business that we were
awarded from other suppliers in our industry.
Shipments
to GM decreased to 35 percent of total OEM unit shipments from 39 percent in the
first quarter of 2007, while shipments to Ford decreased to 28 percent from 32
percent a year ago. Shipments to Chrysler increased to 15 percent of total OEM
unit shipments during the quarter from 12 percent a year ago and shipments to
international customers increased to 22 percent from 17 percent a year ago. The
principal unit shipment decreases in the current period compared to a year ago
were for GM’s GMT 800/900 platform, Chevy Trail Blazer and Hummer, Ford’s
Expedition, Mustang and Mercury Grand Marquis, Chrysler’s Jeep Grand Cherokee,
and Nissan’s Sentra. The principal unit shipment increases in the current period
compared to a year ago were for GM’s Malibu and Impala, Ford’s Fusion and Focus,
Chrysler’s 300 and Dodge’s Journey and Magnum/Charger, Nissan’s Altima and
Toyota’s Avalon.
Gross
Profit
Consolidated
gross profit increased $7.2 million for the first quarter of 2008 to $9.4
million, or 4.2 percent of net sales, compared to a $2.1 million, or 0.9 percent
of net sales, for the same period a year ago. Despite the impact of
the American Axle strike on our shipments to GM during the first quarter of
2008, the continued progress made towards resolving certain production
inefficiencies in several of our facilities contributed to the increased gross
profit in the current period. As indicated in our fourth quarter of 2007, when
we reported a 5 percent gross margin, the benefits experienced from the steps
taken earlier that year to achieve sustainable optimized manufacturing and
performance levels have also continued into 2008. The American Axle strike
impacted our unit shipments by approximately 6 percent in the current quarter.
Had this not occurred, our gross margin would have been comparable to that in
the fourth quarter of 2007.
We are
continuing to implement action plans to improve operational performance and
mitigate the impact of the severe pricing environment in which we now operate.
We must emphasize, however, that while we continue to reduce costs through
process automation and identification of industry best practices, the pace of
global pricing pressures may continue at a rate faster than our progress on
achieving cost reductions for an indefinite period of time. This is
due to the slow and methodical nature of developing and implementing these cost
reduction programs. In addition, fixed-price natural gas contracts that expire
at the end of 2008 may expose us to higher costs that cannot be immediately
recouped in selling prices. The impact of these factors on our future financial
position, results of operations and cash flows may be negative, to an extent
that cannot be predicted, and we may not be able to implement sufficient
cost-saving strategies to mitigate any future impact.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses for the first quarter of 2008 were $6.2
million, or 2.8 percent of net sales, compared to $6.9 million, or 2.8 percent
of net sales, in the same period in 2007. The reductions in accruals
related to professional fees and doubtful accounts were the main contributors to
our overall decrease in selling, general and administrative expense in the first
quarter of 2008 compared to the same period last year.
Interest
Income, Net and Other Income (Expense), Net
Net
interest income for the first quarter increased to $1.0 million from $0.8
million a year ago. The increase in net interest income in the 2008
was due primarily to an increase in the average amount of cash invested during
the period offsetting the decrease in the average rate of interest earned during
the period. The increase in the average amount of cash invested was due
principally to the lower cash requirements to fund capital
expenditures.
Other
income (expense), net for the first three months of 2007 included a $2.4 million
gain on sale of an available-for-sale security.
Equity
in Earnings of Joint Ventures
Equity in
earnings of joint ventures is represented principally by our share of the equity
earnings of our 50-percent owned joint venture in Hungary, Suoftec. Our share of
Suoftec’s net income totaled $2.2 million in the first quarter of 2008 compared
to $0.5 million in 2007. Including an adjustment for the elimination
of intercompany profits in inventory, our adjusted equity earnings of this joint
venture was $2.1 million in the first quarter of 2008 and $0.8 million in the
first quarter of 2007.
Suoftec Joint
Venture
Net sales
of our 50 percent owned joint venture Suoftec increased $7.6 million, or 20.8
percent, to $44.1 million in the first three months of 2008 compared to $36.5
million last year. The increase in net sales was due to the 9.2
percent increase in units shipped and the 13.9 percent increase in the average
euro to U.S. dollar exchange rate, partially offset by 3.2 percent decrease in
the average euro selling price.
Gross
profit in the first quarter increased to $6.3 million, or 14.1 percent of net
sales, compared to $1.5 million, or 4.1 percent of net sales, for the same
quarter of last year. The main contributors to the increase in gross
profit this quarter compared to the same quarter last year were the 9.2 percent
increase in units shipped, the 13.6 percent decrease in the price of raw
materials and the increase in the average euro to U.S. dollar exchange
rate.
Selling,
general and administrative expenses this quarter increased to $0.7 million from
$0.4 million in the same quarter last year. The $0.3 million increase
in selling, general and administrative expenses was principally due to the
increase in the average euro to U.S. dollar exchange rate coupled with increases
in professional fees and sales commission totaling approximately $0.1
million.
Suoftec’s
net income was $4.5 million in the first quarter of 2008 compared to $1.0
million in the same quarter last year. The 13.9 percent increase in
the average euro to U.S. dollar exchange rate impacted Suoftec’s net income
favorably by approximately $0.5 million.
Income
Tax (Provision) Benefit
The
income tax (provision) benefit on income before income taxes and equity earnings
for the three months ended March 31, 2008 was a provision of $(2.6) million
compared to a benefit of $2.8 million for the same period in 2007. As of the end
of March 2008, the estimated annualized effective tax rate for the year was 51.9
percent compared to the 39.6 percent rate estimated at the same time a year ago.
For the first quarter of 2008, this required a tax provision before discrete
items of $(1.9) million. Discrete items during the current period, which totaled
an additional provision of $(0.7) million, were principally for increases in our
liabilities for uncertain tax positions. As of the end of the first quarter of
2007, the estimated annualized effective tax rate of 39.6 percent resulted in a
benefit before discrete items during the period of $0.6 million. Discrete items
in the first quarter of 2007, which totaled $2.2 million, related principally to
refunds from prior year amended returns of $0.6 million, decreases in valuation
reserves of $0.3 million and decreases in our liabilities for uncertain tax
positions of $1.0 million, due principally to the expiration of a statute of
limitations.
Within
the next twelve month period ending March 31, 2009, it is reasonably possible
that up to $3.2 million of unrecognized tax benefits will be recognized due to
the expiration of certain statutes of limitation. We recognize interest and
penalties that are accrued related to unrecognized tax benefits in income tax
expense. See Note 8 – Income Taxes for further discussion of accounting for
unrecognized tax benefits and other income tax matters.
Financial
Condition, Liquidity and Capital Resources
Our
sources of liquidity include cash and cash equivalents, net cash provided by
operating activities and other external sources of funds. Working capital and
the current ratio were $271.7 million and 3.8:1, respectively, at March 31,
2008, versus $260.5 million and 3.7:1 at December 31, 2007. We have no long-term
debt. As of March 31, 2008, our cash and cash equivalents totaled $105.2 million
compared to $106.8 million at December 31, 2007, and $58.6 million at March 31,
2007. The increase in cash and cash equivalents since March 31, 2007, was due
principally to reduced funding requirements of capital expenditures in the
latter half of 2007, primarily related to our recently constructed
state-of-the-art wheel facility in Chihuahua, Mexico. Additionally, with
the closure of our Johnson City, Tennessee, wheel facility in 2007, much of that
plant’s recently purchased equipment was transferred to other wheel facilities,
thereby further reducing capital requirements. Accordingly, despite the reduced
profitability experienced the last few years, for the foreseeable future, we
currently expect all working capital requirements, funds required for investing
activities, cash dividend payments and repurchases of our common stock to be
funded from internally generated funds or existing cash and cash
equivalents.
Net cash
provided by operating activities increased $11.2 million to $5.5 million for the
three months ended March 31, 2008, compared to the net cash used in operating
activities of $5.7 million a year ago. The change in net income after
adjusting for the change in non-cash items increased net cash provided by
operating activities by $0.1 million, and the changes in operating assets and
liabilities were a further increase of $11.1 million. The principal
favorable changes in operating assets and liabilities were the changes in
accounts receivable of $16.5 million, liabilities for uncertain tax positions
and related interest and penalties of $8.1 million and in inventories, income
taxes and other assets totaling $10.3 million. These favorable
changes were offset by unfavorable changes in the funding requirements of
accounts payable and other liabilities of $22.2 million and $1.6 million,
respectively.
The
principal investing activities during the three months ended March 31, 2008,
were funding $3.1 million of capital expenditures and proceeds from the sale of
fixed assets of $0.1 million. Similar investing activities during the same
period a year ago included, funding of $14.5 million of capital expenditures,
proceeds from held-to-maturity securities of $9.8 million and proceeds from the
sale of available-for-sale securities of $4.9 million. Capital expenditures in
the current period include approximately $2.4 million for our new wheel
manufacturing facility in Chihuahua, Mexico, compared to $10.9 million in the
same period a year ago. The remainder of the capital expenditures in both
periods was for ongoing improvements to our existing facilities, none of which
were individually significant.
Financing
activities during the three months ended March 31, 2008 and March 31, 2007
consisted primarily of the payment of cash dividends on our common stock
totaling $4.3 million in both periods. In addition, $0.2 million was
received from the exercise of stock options during the three months ended March
31, 2008.
Critical
Accounting Estimates
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to apply significant judgment in making estimates and assumptions
that affect amounts reported therein, as well as financial information included
in this Management’s Discussion and Analysis of Financial Condition and Results
of Operations. These estimates and assumptions, which are based upon historical
experience, industry trends, terms of various past and present agreements and
contracts, and information available from other sources that are believed to be
reasonable under the circumstances, form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
through other sources. There can be no assurance that actual results reported in
the future will not differ from these estimates, or that future changes in these
estimates will not adversely impact our results of operations or financial
condition.
New
Accounting Standards
In
September 2006, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements” (SFAS No. 157). SFAS
No. 157 establishes a common definition for fair value to be applied to U.S.
GAAP guidance requiring use of fair value, establishes a framework for measuring
fair value, and expands disclosure about such fair value measurements. SFAS No.
157 is effective for fiscal years beginning after November 15, 2007. The
adoption of the applicable provisions of SFAS No. 157 as of January 1, 2008 did
not have a material impact on our consolidated results of operations or
statement of financial position. In February 2008, the FASB decided
to issue a final Staff Position to allow a one-year deferral of adoption of SFAS
No. 157 for nonfinancial assets and nonfinancial liabilities that are recognized
or disclosed at fair value in the financial statements on a nonrecurring
basis. The FASB also decided to amend SFAS No. 157 to exclude FASB
Statement No. 13 and its related interpretive accounting pronouncements that
address leasing transactions. We do not expect that the adoption of
the provisions of SFAS No. 157 for nonfinancial assets and liabilities measured
on a nonrecurring basis will have a material impact on our consolidated results
of operations or statement of financial position.
In
December 2007, the FASB issued SFAS No. 141(R), “Business
Combinations.” This Statement replaces SFAS No. 141, “Business
Combinations,” (SFAS No. 141), and defines the acquirer as the entity that
obtains control of one or more business in the business combination and
establishes the acquisition date as the date that the acquirer achieves control.
This Statement’s scope is broader than that of SFAS No. 141, which applied only
to business combinations in which control was obtained by transferring
consideration. This Statement applies to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. We do not expect the
adoption of SFAS No. 141 will have a material impact on our consolidated results
of operations and statement of financial position.
Risk
Management
We are
subject to various risks and uncertainties in the ordinary course of business
due, in part, to the competitive global nature of the industry in which we
operate, to changing commodity prices for the materials used in the manufacture
of our products, and to development of new products.
We have
foreign operations in Mexico and Hungary that, due to the settlement of accounts
receivable and accounts payable, require the transfer of funds denominated in
their respective functional currencies – the Mexican peso and the euro. The
value of the Mexican peso relative to the U.S. dollar for the first three months
of 2008 increased approximately 2 percent. The value of the euro
relative to the U.S. dollar increased approximately 8 percent for the first
three months of 2008. Foreign currency transaction gains and losses,
which are included in other income (expense) in the consolidated condensed
statements of operations, have not been material.
When
market conditions warrant, we may also enter into contracts to purchase certain
commodities used in the manufacture of our products, such as aluminum, natural
gas and other raw materials. Any such commodity commitments are expected to be
purchased and used over a reasonable period of time in the normal course of
business. Accordingly, pursuant to SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” they are not accounted for as derivatives.
We currently have several purchase agreements for the delivery of natural gas
during 2008. The contract value and fair value of these purchase
commitments approximated $7.0 million and $9.4 million, respectively, at March
31, 2008. Percentage changes in the market prices of natural gas will
impact the fair value by a similar percentage. We do not hold or purchase any
natural gas forward contracts for trading purposes.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
See Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations – “Risk Management”.
Item 4. Controls and Procedures
Evaluation of Disclosure
Controls and Procedures
The
company's management, with the participation of the Chief Executive Officer
(CEO) and Chief Financial Officer (CFO), evaluated the effectiveness of the
company's disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) as of March 30, 2008. Based on this
evaluation, the CEO and CFO concluded that, as of March 30, 2008, the company's
disclosure controls and procedures were not effective based on the material
weakness described below.
Notwithstanding
the material weakness that existed at March 30, 2008 as described below,
management has concluded that the consolidated condensed financial
statements, and other financial information included in this report, fairly
present in all material respects in accordance with accounting principles
generally accepted in the United States of America our financial condition,
results of operations and cash flows as of, and for, the periods presented in
this report.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changing conditions, or that the degree of compliance with
policies or procedure may deteriorate.
A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company's annual or interim financial
statements will not be prevented or detected on a timely
basis. Management identified the following material weakness in the
company’s internal control over financial reporting as of March 30,
2008:
We did
not maintain effective controls over the completeness, accuracy and valuation of
the accounting for and disclosure of income taxes. Specifically, we
did not have effective controls to ensure that the income tax provision and
related taxes payable and deferred tax liabilities were properly reconciled to
the differences between the net book basis and
net tax basis of our depreciable property, plant and equipment subsidiary
ledgers. Also, we did not have sufficient resources to enable us to
properly consider and apply GAAP for income taxes. These control
deficiencies resulted in the misstatement of our deferred income tax provision
and deferred tax liabilities accounts and related financial disclosures in the
consolidated financial statements, and in the restatement of our annual
consolidated financial statements for 2006 and 2005, each of the quarters of
2006 and the first three quarters of 2007. Additionally, these
control deficiencies could result in the misstatement of the aforementioned
accounts and disclosures that would result in a material misstatement in our
annual or interim consolidated financial statements that would not be prevented
or detected. Accordingly, management has determined that these
control deficiencies constitute a material weakness.
The
material weakness above, as reported in our 2007 Annual Report on Form 10-K, was
originally identified during management’s evaluation of the effectiveness of our
internal control over financial reporting as of December 30, 2007.
Remediation Steps to Address
the Material Weakness
Summarized
below are the measures we will undertake in an effort to remediate the material
weakness described above. We will continue to evaluate the effectiveness of our
internal controls over financial reporting on an ongoing basis and will take
further action as appropriate.
We are
developing a documented workflow process to ensure that the appropriate
procedures relating to the completion of an accurate income tax provision and
recording of the required adjustments to the related tax accounts take place on
a quarterly basis. These procedures will include a review by our Director of
Tax, who has the requisite knowledge and experience in accounting for income
taxes, as well as an independent review of the process and final income tax
provision by our CFO.
Changes in Internal Control
Over Financial Reporting
No
changes in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter
ended March 30, 2008 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
OTHER
INFORMATION
Information
regarding reportable legal proceedings is contained in Item 3 - Legal
Proceedings in Part I of our 2007 Annual Report on Form 10-K and in Note 14
– Commitments and Contingencies of this Quarterly Report on Form
10-Q. On August 29, 2007, the plaintiffs filed an amended
consolidated complaint that was substantially similar to the prior consolidated
complaint in the matter In re
Superior Industries International, Inc. Derivative
Litigation. In response, the company and the individual
defendants filed motions to dismiss on September 21, 2007. In an
order dated April 14, 2008, the court granted again Superior's motion to dismiss
the amended consolidated complaint. On May 5, 2008, the plaintiff filed a
verified second amended consolidated shareholder derivative complaint that
alleges claims substantially similar to the prior complaints. Because
this litigation remains at a preliminary stage, it would be premature to
anticipate the probable outcome of this case and whether such an outcome would
be materially adverse to the company.
Other
than the above, there were no material developments during the current quarter
that require us to amend or update descriptions of legal proceedings previously
reported in our 2007 Annual Report on Form 10-K.
In
addition to the other information set forth in this report, you should carefully
consider the factors discussed in Item 1A – Risk Factors in Part I of our 2007
Annual Report on Form 10-K, which could materially affect our business,
financial condition or future results. The risks described in this
report and in our Annual Report on Form 10-K are not the only risks we
face. Additional risks and uncertainties not currently known to us or
that we currently deem to be immaterial also may materially adversely affect our
business, financial condition or future results.
Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds
There
were no repurchases of our common stock during the first quarter of
2008.
|
|
|
10.1
|
|
Salary
Continuation Plan of The Registrant dated March 28, 2008 (filed
herewith).
|
|
|
|
|
|
|
|
|
|
31.1
|
|
Certification
of Steven J. Borick, Chairman, Chief Executive Officer and President,
Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted
Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 (filed
herewith).
|
|
|
|
|
|
|
|
|
|
31.2
|
|
Certification
of Erika H. Turner, Chief Financial Officer, Pursuant to Exchange Act
Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302(a) of
the Sarbanes-Oxley Act of 2002 (filed herewith).
|
|
|
|
|
|
|
|
|
|
32
|
|
Certification
of Steven J. Borick, Chairman, Chief Executive Officer and President, and
Erika H. Turner, Chief Financial Officer, Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(furnished herewith).
|
|
|
|
|
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
|
|
|
SUPERIOR
INDUSTRIES INTERNATIONAL, INC.
(Registrant)
|
|
|
|
|
|
Date: May
9, 2008
|
|
/s/
Steven J. Borick
|
|
|
|
|
Steven
J. Borick
Chairman,
Chief Executive Officer and President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: May
9, 2008
|
|
/s/
Erika H. Turner
|
|
|
|
|
Erika
H. Turner
Chief
Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|