Financial Overview

Factors
1)Consolidated net sales decreased $14.3 million to $789.9 million in 2006 from $804.2 million in 2005. Excluding wheel program development revenues, which totaled $19.8 million this year compared to $18.6 million a year ago, aluminum wheel sales decreased $15.5 million in 2006 to $770.1 million from $785.6 million a year ago, a 2 % decrease compared to the 12 % decrease in unit shipments.
- Unit shipments to Ford and GM totaled 69 % of total OEM unit shipments in 2006 compared to 73 % a year ago. Unit shipments to DaimlerChrysler remained flat with those in 2005 at 16 %, while shipments to its international customers totaled 15 % compared to 11 % in 2005.
-For the most part, concentration on GM and Ford, and particularly SUVs and light trucks, caused its shipments to be lower than the overall industry average. However, production of the specific passenger cars and light trucks using its wheel programs decreased 10 % compared to its 12 % decrease in shipments, indicating a slight decrease in market share.

2) During 2006, consolidated gross profit decreased $40.1 million, or 82 %, to $8.7.million, or 1.1 % of net sales, from $48.8 million, or 6.1 % of net sales, in 2005. However, gross profit in 2006 includes $10.1 million of preproduction start-up costs of its new wheel plant in Mexico, compared to only $0.9 million of such costs in the same period a year ago. Also included in gross profit in 2006 were approximately $3.5 million of costs associated the various plant restructurings.
The principal factor impacting its gross profit in 2006 was related to the overall reduction in North American production of passenger cars and light trucks, which was reported as being down by 3 %. However, domestic OEMs, who are principal customers, were down 6 % overall with production of light trucks down 13 %. Being one of those suppliers who sell predominately to GM and Ford and are most heavily oriented to the SUV platforms, the Company was impacted greatly by this reduction. As indicated above, its unit shipments in 2006 decreased 12 %, but its units produced during the same period declined 15 %, to the lowest level since 1998. Since that year, the Company has opened two new plants in Mexico and expanded three of its Midwest facilities. Accordingly, gross profit in 2006 declined significantly due to the reduced unit shipments and the lost absorption of fixed costs on the sharply reduced production. Gross profit was also impacted, although to a lesser extent, by continued global pricing pressures from its customers, decreased demand for high-volume, high-profit specialty wheels, and operating issues and inefficiencies in two of its Midwest facilities related to productivity on larger diameter wheels.

New Contracts
In 2006, TSL, a sales and marketing joint venture with Topy Industries, Ltd., had agreements to provide 30 wheel programs being manufactured in Superior's facilities for delivery to Japanese Customers.

-The Company announced that it has won seven new and replacement aluminum wheel supply programs from Ford. (From a press release by the company on Feb. 15, 2006)

-The Company announced the award of new contracts from General Motors to supply large-diameter aluminum wheels for passenger vehicles and SUVs. These programs represent a combination of new and replacement business. (From a press release by the company on Mar. 14, 2006)

- The Company announced that it has been awarded four new and replacement aluminum wheel multi-year supply programs by the Chrysler Group. The program wins include 18-inch aluminum wheels for the 2006 Dodge Magnum and Charger and a 17-inch wheel for the all-new Jeep Commander. These are new programs for the Company. The Company also will manufacture 17-inch aluminum wheels for the 2006 Dodge Ram Pickup. (From a press release by the company on Mar. 23, 2006)

- The Company announced that it has been awarded a contract to supply 17-inch aluminum wheels for the 2007 Subaru. This is a new program for the Company. This program represents a significant increase in its volume with Subaru, and is its first contract win for this popular Subaru model. (From a press release by the company on Apr. 12, 2006)

Restructuring
- In June, 2006, the Company announced that the Company was discontinuing its chrome plating business located in Fayetteville, Arkansas. This decision was the result of a shift in customer preference to less expensive bright finishing processes that reduced the sales outlook for chromed wheel products. The shift away from chromed wheel products and the resulting impact on the company's chrome plating business had been previously disclosed in the fourth quarter of 2005, when the company estimated that it would not be able to eventually recover the carrying value of certain machinery and equipment in the chrome plating operation. During the third quarter of 2006, the Company successfully transferred its requirements for chrome-plated wheels to a third-party processor and its chrome plating operation ceased. This restructuring does not affect the company's bright polish operation, which is located at the same facility.

In September 2006, the Company sold substantially all of the assets and working capital of the aluminum suspension components business to Saint Jean Industries, SAS, from whom the Company licensed the Cobapressa technology, for $17.0 million.

- In September , 2006, the Company announced the planned closure of its wheel manufacturing facility located in Johnson City, Tennessee. The planned closure of the Johnson City facility is expected to be completed in the first quarter of 2007. This was the latest step in its program to rationalize its production capacity after the recent announcements by its customers of sweeping production cuts, particularly in the light truck and sport utility platforms, that have reduced its requirements for the near future.

R&D Expenditures

R&D Structure
-Two fully staffed engineering centers, located in Van Nuys, California; and Fayetteville, Arkansas, support its research and development manufacturing needs. The Company also has a technical center in Detroit, Michigan, which maintains a team of engineering staff located near the headquarters, engineering, and purchasing offices of its largest customers.
-The Company is currently engaged in approximately 72 engineering programs for the development of OEM wheels and chrome wheels for future model years, including several wheel models for Japanese and European OEM manufacturers.