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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO _________
COMMISSION FILE NUMBER 1-6615
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-2594729
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
7800 WOODLEY AVENUE
VAN NUYS, CALIFORNIA 91406
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(818) 781-4973
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO [ ]
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S
CLASSES OF COMMON STOCK, AS OF THE LAST PRACTICABLE DATE.
CLASS OF COMMON STOCK OUTSTANDING AT APRIL 30, 1999
- --------------------- -----------------------------
$.50 PAR VALUE 27,021,785
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SUPERIOR INDUSTRIES INTERNATIONAL, INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
TABLE OF CONTENTS
Page
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Part I - Financial Information
Item 1 - Financial Statements
Consolidated Condensed Statements of Income ......................... 1
Consolidated Condensed Balance Sheets ............................... 2
Consolidated Condensed Statements of Cash Flows ..................... 3
Consolidated Condensed Statements of Shareholders' Equity ........... 4
Notes to Consolidated Condensed Financial Statements ................ 5
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations ......................................... 9
Part II - Other Information
Signatures ................................................................ 12
Exhibit 27 - Financial Data Schedule
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SUPERIOR INDUSTRIES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended
1999 1998
-------- --------
Net Sales .................................. $136,909 $136,371
Cost of Sales .............................. 108,258 111,534
-------- --------
Gross Profit ............................... 28,651 24,837
Selling, General and Administrative Expenses 5,131 5,383
-------- --------
Income From Operations ..................... 23,520 19,454
Non-Operating Income Expense:
Interest income, net .................... 1,049 890
Miscellaneous expense, net .............. 640 590
-------- --------
409 300
Income Before Provision for Income Taxes ... 23,929 19,754
Provision for Income Taxes ................. 8,435 6,963
-------- --------
Net Income ................................. $ 15,494 $ 12,791
======== ========
Earnings Per Share - Basic ................. $ 0.57 $ 0.46
======== ========
Earnings Per Share - Diluted ............... $ 0.57 $ 0.46
======== ========
Dividends Declared Per Share ............... $ 0.08 $ 0.07
======== ========
See accompanying Notes to Consolidated Condensed Financial Statements
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SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands, except par value and share data)
March 31 December 31
ASSETS 1999 1998
----------- -----------
(Unaudited)
Current Assets:
Cash and cash equivalents ..................................... $ 96,508 $ 86,566
Accounts receivable, net ...................................... 75,945 100,754
Inventories ................................................... 46,700 41,433
Other current assets .......................................... 6,619 7,133
--------- ---------
Total current assets .................................... 225,772 235,886
Property, Plant and Equipment, net ............................... 160,724 158,194
Other Long-term Assets ........................................... 32,764 33,350
--------- ---------
Total Assets ..................................................... $ 419,260 $ 427,430
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable .............................................. $ 33,405 $ 57,707
Accrued liabilities ........................................... 40,858 32,756
Current portion of long-term debt ............................. 648 648
--------- ---------
Total current liabilities ............................... 74,911 91,111
Long-term Debt ................................................... 600 673
Other Long-term Liabilities ...................................... 14,538 14,862
Deferred Income Taxes ............................................ 9,150 8,750
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 .............................. 13,542 13,656
Foreign currency translation adjustments ...................... (16,485) (17,233)
Retained earnings ............................................. 323,004 315,611
--------- ---------
Total shareholders' equity .............................. 320,061 312,034
Total Liabilities and Shareholders' Equity ....................... $ 419,260 $ 427,430
========= =========
See accompanying Notes to Consolidated Condensed Financial Statements
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SUPERIOR INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Three Months Ended
1999 1998
-------- --------
Net Cash Provided by Operating Activities ............ $ 28,130 $ 26,802
Cash Flows from Financing Activities:
Repurchases of common stock ....................... (5,950) (4,374)
Cash dividends paid ............................... (2,185) (1,953)
Stock options exercised ........................... 173 2,246
Payments of long-term debt ........................ (73) (72)
-------- --------
Net Cash Used in Financing Activities .......... (8,035) (4,153)
-------- --------
Cash Flows from Investing Activities:
Additions to property, plant and equipment ........ (9,905) (6,223)
Investment in and advances to joint ventures ...... (280) (1,909)
Proceeds from sale of property, plant and equipment 32 0
-------- --------
Net Cash Used in Investing Activities .......... (10,153) (8,132)
-------- --------
Net Increase in Cash and Cash Equivalents ............ 9,942 14,517
Cash and Cash Equivalents at Beginning of Period ..... 86,566 73,693
-------- --------
Cash and Cash Equivalents at End of Period ........... $ 96,508 $ 88,210
======== ========
See accompanying Notes to Consolidated Condensed Financial Statements
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SUPERIOR INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
(Dollars in thousand, except share data)
Common Stock Foreign
--------------------------- Additional Currency
Number of Paid-In Translation Retained
Shares Amount Capital Adjustment Earnings Total
----------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 1998 27,312,086 $ 13,656 $ 0 $ (17,233) $ 315,611 $ 312,034
Comprehensive income:
Net income -- -- -- -- 15,494 15,494
Foreign currency translation
adjustment -- -- -- 748 -- 748
Comprehensive income -- -- -- -- -- 16,242
Cash dividends ($.08/share) -- -- -- -- (2,438) (2,438)
Repurchases of common stock (235,800) (118) (169) -- (5,663) (5,950)
Stock options exercised,
including related tax
benefit 7,200 4 169 -- -- 173
----------- ----------- ----------- ----------- ----------- -----------
Balances at March 31, 1999 27,083,486 $ 13,542 $ 0 $ (16,485) $ 323,004 $ 320,061
=========== =========== =========== =========== =========== ===========
See accompanying Notes to Consolidated Condensed Financial Statements
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SUPERIOR INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
1. Presentation of Consolidated Condensed Financial Statements
During interim periods, Superior Industries International, Inc. and its
subsidiaries follow the accounting policies set forth in its Annual Report
to Shareholders and apply appropriate interim financial reporting
standards, as indicated below. Users of financial information produced for
interim periods are encouraged to refer to the notes contained in the 1998
Annual Report to Shareholders when reviewing interim financial results.
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 may not materialize and
unanticipated events and circumstances may occur which vary from those
estimates and such variations may significantly affect our future results.
In our opinion, the accompanying unaudited consolidated condensed
financial statements have been prepared in accordance with the Securities
and Exchange Commission's requirements of Form 10-Q and contain all
adjustments, of a normal and recurring nature, which are necessary for a
fair presentation of i) the consolidated condensed statements of income
for the three months ended March 31, 1999 and 1998, ii) the consolidated
condensed balance sheets at March 31, 1999 and December 31, 1998, iii) the
consolidated condensed statements of cash flows for the three months ended
March 31, 1999 and 1998, and iv) the consolidated condensed statements of
shareholders' equity at March 31, 1999 and December 31, 1998.
2. 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, or 27,234,000 and 27,906,000 for the three months ended March 31,
1999 and 1998, respectively. For purposes of calculating "diluted"
earnings per share, net income is divided by the total of the weighted
averaged shares outstanding plus the dilutive effect of our outstanding
stock options ("common stock equivalents"), or 27,355,000 and 28,102,000
for the three months ended March 31, 1999 and 1998, respectively.
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SUPERIOR INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
3. Accounting Matters
Segment Reporting - We manufacture motor vehicle parts and accessories for
sale on normal, generally unsecured trade terms to original equipment
manufacturers (OEM) and the automotive aftermarket, primarily in North
America, on an integrated one-segment basis.
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.
4. Accounts Receivable
The following is a summary of our consolidated accounts receivable:
(Thousands of dollars)
March 31, December 31,
1999 1998
--------- ------------
Accounts Receivable:
Trade $ 64,990 $ 91,629
Other 12,325 10,498
--------- ---------
77,315 102,127
Allowance for Doubtful Accounts (1,370) (1,373)
--------- ---------
$ 75,945 $ 100,754
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SUPERIOR INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
5. Inventories
The following is a summary of our consolidated inventories:
(Thousands of dollars)
March 31, December 31,
1999 1998
--------- ------------
Raw materials $12,150 $12,987
Work in process 12,552 10,998
Finished goods 21,998 17,448
------- -------
$46,700 $41,433
6. Property, Plant and Equipment
Property, plant and equipment, net consists of the following:
(Thousands of dollars)
March 31, December 31,
1999 1998
--------- ------------
Land and building $ 50,953 $ 47,944
Machinery and equipment 290,119 285,899
Leasehold improvements and others 5,432 5,283
Construction in progress 27,622 26,083
--------- ---------
374,126 365,209
Accumulated depreciation (213,402) (207,015)
--------- ---------
$ 160,724 $ 158,194
Depreciation expense was $7.2 million and $5.7 million for the three month
periods ended March 31, 1999 and 1998, respectively.
7. Contingencies
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 to us, 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.
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SUPERIOR INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
8. Forward Looking Statements
Some statements included in this filing which are not historical in nature
are forward looking statements within the meaning of the Private
Securities Legislation Act of 1995. Forward looking statements regarding
our 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 our strategic and operating plans.
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SUPERIOR INDUSTRIES INTERNATIONAL, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the first quarter of 1999, we reported sharply higher net income and set new
first quarter records for revenues, unit shipments and earnings per share.
Additionally, for the first time ever, shipments to international customers,
including both export sales and sales to their U.S. plants, exceeded 10% of
total OEM shipments.
Our consolidated net sales increased $0.5, or 0.4%, to $136.9 million in the
first quarter of 1999 from $136.4 million a year ago. OEM sales increased $3.7
million, or 3.0%, to $130.7 million, as unit shipments increased by 8.5% and
chrome plating sales increased over the same period a year ago. This strong
sales performance was partially offset by lower pass-through aluminum pricing
during the current period. Our 8.5% growth in OEM unit shipments for the first
quarter of 1999 exceeded the 5% growth in North American vehicle production,
suggesting further gains in aluminum wheel penetration. During 1998,
industry-wide aluminum wheel installation rates rose to 53%, continuing a
long-term upward trend.
Net sales of our automotive aftermarket products decreased $3.2 million, or
33.9%, to $6.2 million in the first quarter of 1999 from $9.4 million a year
ago, as consolidation of the customer base continues to impact sales. We are
currently reviewing our marketing strategy alternatives for these products.
Gross margin for the quarter increased to $28.7 million, or 20.9% of net sales,
compared to $24.8 million, or 18.2% of net sales, for the same period a year
ago. The increased gross margin was due principally to higher utilization rates
at our OEM wheel plants, the improved profitability of the chrome plating
facility and the percentage improvement due to the lower pass-through aluminum
pricing.
Selling, general and administrative expenses for the first quarter of 1999 were
$5.1 million, or 3.7% of sales in 1999 compared to $5.4 million, or 3.9% of
sales in 1998, a decrease of approximately $250,000, due principally to lower
travel expenses in the current period.
Operating income for the quarter increased $4.1 million, or 20.9%, to $23.5
million from $19.4 million in the same period a year ago, due principally to the
improved gross margin explained above. Accordingly, the operating income margin
for the first quarter of 1999 was 17.2% compared to 14.3% in the same period in
1998.
Interest income for the first quarter increased to $1.1 million from $0.9
million a year ago, as cash available for investing during the period increased
by approximately $17.2 million. Miscellaneous expense includes pre-tax equity
losses of $675,000 in 1999 and $350,000 in 1998, related to our start up of the
fifty percent owned joint venture operation in Hungary.
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SUPERIOR INDUSTRIES INTERNATIONAL, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
As a result of the above, net income for the quarter increased $2.7 million, or
21.1%, to $15.5 million, or 11.3% of net sales, from $12.8 million, or 9.4% of
net sales last year. Diluted earnings per share for the 1999 quarter was $0.57,
an increase of 23.9% over the $0.46 per diluted share in the same period a year
ago.
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 balance of 1999. Minimal cost was incurred during the
first quarter of 1999.
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.
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SUPERIOR INDUSTRIES INTERNATIONAL, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $28.1 million for the three months
ended March 31, 1999, compared to $26.8 million for the same period a year ago.
The increase in net income and non-cash items, principally depreciation,
totaling $5.1 million was partially offset by a higher funding requirement of
$3.8 million for working capital. Our principal financing activities during the
three months ended March 31, 1999 were to repurchase 235,800 shares of our
common stock for $5.9 million, pursuant to a 2.0 million share repurchase plan
authorized in the fourth quarter of 1997, and to pay cash dividends on our
common stock totaling $2.2 million. Similar financing activities during the same
period a year ago were for $4.4 million to repurchase common stock and $1.9
million to pay cash dividends.
The principal investing activity during the three month period ended March 31,
1999 was funding $9.9 million of capital expenditures for the Chihuahua, Mexico
facility expansion and for modernization of our other plants. Similar investment
activities during the same period a year ago were for $6.2 million of capital
expenditures and $1.9 million for investment in and advances to joint ventures.
Working capital and current ratio were $150.9 million and 3.0:1 versus $144.8
million and 2.6:1 at March 31, 1999 and December 31, 1998, respectively, and
$141.3 million and 2.7:1, respectively, at March 31, 1998. Cash and short-term
investments as of March 31, 1999 were $96.5 million compared to $86.6 million at
December 31, 1998 and $88.2 million at March 31, 1998. Our cash position is
forecasted to be substantially more than sufficient to fund working capital and
capital investment requirements for the balance of the year.
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SUPERIOR INDUSTRIES INTERNATIONAL, INC.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K - There were no reports on Form 8-K filed during the
three months ended March 31, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUPERIOR INDUSTRIES INTERNATIONAL, INC.
(Registrant)
Date 5/05/99 /s/ LOUIS L. BORICK
-------------------------------------------
Louis L. Borick
President and Chairman of the Board
Date 5/05/99 /s/ R. JEFFREY ORNSTEIN
-------------------------------------------
R. Jeffrey Ornstein
Vice President and CFO
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