The following discussion of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the Notes to the Consolidated Financial Statements included in Item 8 - Financial Statements and Supplementary Data in this Annual Report on Form 10-K. This discussion contains forward-looking statements, which involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors, including but not limited to those discussed in Item 1A - Risk Factors and elsewhere in this Annual Report on Form 10-K.

Executive Overview

Sales in the first half of 2008 were negatively impacted by the American Axle strike against GM's plants, which reduced our unit shipments by over 0.5 million units. The second half of 2008 was negatively impacted by severe reductions in customer demand caused by the economic recession, fluctuating fuel prices and a lack of consumer credit. All of our major customers announced restructuring actions, including planned assembly plant closures, delays in launching key 2009 model-year light truck programs, and other actions to accelerate movement toward more fuel-efficient passenger cars and crossover-type vehicles. Described below are the actions taken to right-size our capacity, curtail operating losses and strengthen our company for the near and long-term future.

In August 2008, we announced the planned closure of our wheel manufacturing facility located in Pittsburg, Kansas, and workforce reductions in our other North American plants, resulting in the layoff of approximately 665 employees and the elimination of 90 open positions. On January 13, 2009, we also announced the planned closure of our Van Nuys, California wheel manufacturing facility, thereby eliminating an additional 290 jobs. The Kansas facility ceased operations in December 2008 and the California facility is expected to terminate operations in June 2009. These steps were taken in order to rationalize our production capacity after announcements by our major customers of assembly plant closures and sweeping production cuts, particularly in the light truck and SUV platforms. Asset impairment charges against pretax earnings totaling $17.8 million were recorded in 2008 to reduce the carrying value of certain long-lived assets in these facilities to their estimated fair values. An additional impairment charge of $0.7 million was recorded in 2008 to reduce the real estate value of a third facility in Johnson City, Tennessee, which ceased operations in March 2007, to its estimated fair value.

Due to the deteriorating financial condition of our major customers and others in the automotive industry, we performed impairment analyses on all of our long-lived assets, in accordance with SFAS No. 144. Excluding the two plant closures described above, our estimated undiscounted cash flow projections exceeded the asset carrying values in all of our wheel manufacturing plants, resulting in no additional impairment charges. Additionally, because our 50 percent-owned joint venture in Hungary is also affected by these same economic conditions, we performed an analysis of our investment in the joint venture, in accordance with APB No. 18. This analysis also indicated that our investment was not impaired as of December 31, 2008.

Our customers continue to request price reductions as they work through their own financial hurdles. We are engaged in ongoing programs to reduce our own costs through process automation and identification of industry best practices, and we have been successful in substantially mitigating pricing pressures in the past. However, it has become increasingly more difficult to react quickly enough given the continuing pressure for price reductions, reductions in customer orders, and the lengthy transitional periods necessary to reduce labor and other costs. As such, our profit margins will continue to be lower than our historical levels. We will continue to attempt to increase our operating margins from current operating levels by aligning our plant capacity with industry demand and aggressively implementing cost-saving strategies to enable us to meet customer-pricing expectations. However, as we incur costs to implement these strategies, the initial impact on our future financial position, results of operations and cash flow may be negative, the extent to which cannot be predicted. Additionally, even if successfully implemented, these strategies may not be sufficient to offset the impact of on-going pricing pressures and additional reductions in customer demand in future periods.

Listed in the table below are several key indicators we use to monitor our financial condition and operating performance.

Results of Operations

Fiscal Year Ended December 31,                         2008          2007          2006
(Thousands of dollars, except per share amounts)

Net sales                                            $ 754,894     $ 956,892     $ 789,862
Gross profit                                         $   6,577     $  32,492     $   8,740
Percentage of net sales                                    0.9 %         3.4 %         1.1 %
Income (loss) from operations                        $ (37,668 )   $   3,321     $ (21,409 )
Percentage of net sales                                   -5.0 %         0.3 %        -2.7 %
Net income (loss) from continuing operations         $ (26,053 )   $   9,292     $ (10,799 )
Percentage of net sales                                   -3.5 %         1.0 %        -1.4 %
Diluted earnings (loss) per share - continuing
operations                                           $   (0.98 )   $    0.35     $   (0.41 )

Sales

Consolidated net sales decreased $202.0 million, or 21 percent, to $754.9 million in 2008 from $956.9 million in 2007. Aluminum wheel sales decreased $206.1 million in 2008 to $738.4 million from $944.5 million a year ago, a 22 percent decrease. Unit shipments in 2008 decreased 2.8 million, or 22 percent, to 10.4 million from 13.2 million in 2007. The average selling price of our wheels in 2008 was approximately the same as the average selling price a year ago, as the average pass-through price of aluminum was the same in both years and there was no significant change in sales mix. Wheel program development revenues were $16.5 million this year compared to $12.4 million a year ago.

Unit shipments to Ford and GM totaled 65 percent of our total OEM unit shipments in 2008 compared to 68 percent a year ago. Unit shipments to Chrysler increased to 15 percent from 13 percent in 2007, while shipments to our international customers totaled 20 percent compared to 19 percent in 2007. According to Wards Auto Info Bank, overall North American production of passenger cars and light trucks in 2008 decreased approximately 16 percent compared to our 22 percent decrease in aluminum wheel shipments. However, production of the specific passenger cars and light trucks using our wheel programs decreased 21 percent compared to our 22 percent decrease in our total shipments, indicating only a slight decrease in market share. Production of passenger cars with our wheel programs was down 6 percent compared to our 11 percent increase in shipments. Production of light trucks and SUVs with our wheel programs decreased 34 percent compared to our 37 percent decrease in shipments.

According to Wards Automotive Yearbook 2008, aluminum wheel installation rates on passenger cars and light trucks in the U.S. increased to 65 percent for the 2007 model year from 63 percent for the two prior model years. Aluminum wheel installation rates have increased to this level since the mid-1980s, when this rate was only 10 percent. However, in recent years, this growth rate has slowed with the aluminum wheel installation rate increasing only 13 percentage points from 52 percent for the 1997 model year, while experiencing a slight decrease between 2004 and 2005. We expect this trend of slow growth or no growth to continue. In addition, our ability to grow in the future may be negatively impacted by continued customer pricing pressures and overall economic conditions that impact the sales of passenger cars and light trucks, such as continued fluctuating fuel prices and a continued lack of available consumer credit.

Consolidated net sales in 2007 increased $167.0 million, or 21 percent, to $956.9 million from $789.9 million in 2006. Excluding wheel program development revenues, which totaled $12.4 million in 2007 compared to $19.8 million in 2006, OEM wheel sales increased $174.4 million to $944.5 million from $770.1 million in 2006, a 23 percent increase compared to an increase in unit shipments of 10 percent. Our increase in OEM aluminum wheel unit shipments in 2007 compared favorably to the decrease of 2 percent in North American automotive production of passenger cars and light trucks. Production of the specific passenger cars and light trucks using our wheel programs decreased 6 percent compared to our 10 percent increase in shipments, indicating an increase in market share. Production of passenger cars with our wheel programs decreased 11 percent in 2007 compared to our 12 percent increase in shipments. Likewise, production of light trucks and SUVs with our wheel programs decreased 3 percent compared to our 9 percent increase in shipments. The average selling price of our wheels in 2007 increased approximately 12 percent from 2006, due principally to a shift in sales mix to larger, high priced wheels and an increase of 3 percent in the pass-through price of aluminum.

Gross Profit

During 2008, consolidated gross profit decreased $25.9 million to $6.6.million, or 0.9 percent of net sales, from $32.5 million, or 3.4 percent of net sales, in 2007. The major factors contributing to the decreased gross profit in 2008 were the 22 percent decreases in both unit shipments and wheels produced in our plants. As indicated above, unit shipments and, therefore, plant productivity were impacted severely by various customer restructuring actions and market conditions that affected the entire automotive industry. Due to our own restructuring actions during 2008 referred to above, gross profit included one-time charges totaling approximately $6.4 million. Severance and other plant closure costs for the Kansas facility amounted to $3.8 million, and the severance costs associated with the workforce reductions at our other North American plants amounted to approximately $1.0 million. Because of the closures of the Kansas and California facilities, the forward natural gas contracts for those operations no longer qualify for the normal purchase exemption under the accounting rules. Accordingly, gross profit included a charge of $1.6 million, representing the difference between the contract and fair values of those contracts as of the end of 2008. Gross profit in 2008 was also negatively impacted by the loss on the sale of wheels purchased from our joint venture, totaling $3.8 million. This amount included reductions to inventory valuation due to decreases in the aluminum portion of our selling prices, freight and duty charges and third party warehousing costs.

During 2007, gross profit increased $23.8 million to $32.5 million, or 3.4 percent of net sales, from $8.7 million, or 1.1 percent of net sales, in 2006. Gross profit in 2006 included $10.1 million of preproduction start-up costs of our newest wheel plant in Mexico. The principal factors impacting our improved gross profit in 2007 were the increased unit shipments, including a higher level of new wheel programs and additional take-over business, and increased productivity in our wheel manufacturing facilities resulting from a 13 percent increase in production. Also contributing was the steadily increasing production of larger diameter wheels in our newest plant in Chihuahua, Mexico.

The cost of aluminum is a significant component in the overall cost of a wheel. Additionally, a portion of our selling prices to OEM customers is attributable to the cost of aluminum. Our selling prices are adjusted periodically to current aluminum market conditions based upon market price changes during specific pricing periods though we are exposed to timing differences. Theoretically, assuming selling price adjustments and raw material purchase prices move at the same rate, as the price of aluminum increases, the effect is an overall decrease in the gross margin percentage, since the gross profit in absolute dollars would be the same. The opposite would then be true in periods during which the price of aluminum decreases.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $25.7 million, or 3.4 percent of net sales, in 2008 compared to $29.2 million, or 3.0 percent of net sales, in 2007, and $25.7 million, or 3.3 percent of net sales, in 2006. The $3.7 million decrease in selling, general and administrative expenses in 2008 was due principally to reductions in legal expenses of $2.9 million and in bonus expense of $0.8 million. Selling, general and administrative expenses were $3.5 million higher in 2007 than 2006, due principally to increased legal and other professional fees totaling $3.6 million.

Impairment of Long-Lived Assets and Other Charges

In January 2009, we announced the planned closure of our wheel manufacturing facility located in Van Nuys, California, in an effort to further reduce costs and more closely align our capacity with sharply lower demand for aluminum wheels by the automobile and light truck manufacturers. The closure, which is expected to be completed by the end of the second quarter of 2009, will result in the layoff of approximately 290 employees, saving approximately $16.5 million in annualized labor costs. A pretax asset impairment charge against earnings totaling $10.3 million, reducing the carrying value of certain assets at the Van Nuys manufacturing facility to their respective fair values, was recorded in the fourth quarter of 2008, when we concluded that the estimated future undiscounted cash flows of that operation would not be sufficient to recover the carrying value of our long-lived assets attributable to that facility. Severance and other shutdown costs related to this plant closure are estimated to approximate $2.1 million, which will be recognized during 2009.

In August 2008, we announced the planned closure of our wheel manufacturing facility located in Pittsburg, Kansas, in an effort to eliminate excess wheel capacity and enhance overall efficiency. The closure, which was completed in December 2008, resulted in the layoff of approximately 600 employees. A pretax asset impairment charge against earnings totaling $5.0 million, reducing the carrying value of certain assets at the Pittsburg facility to their respective fair values, was recorded in the third quarter of 2008, when we concluded that the estimated future undiscounted cash flows of that operation would not be sufficient to recover the carrying value of our long-lived assets attributable to that facility. In the fourth quarter of 2008, when it was determined that the carrying values of additional long-lived assets would not be recovered, the impairment charge was increased by an additional $2.4 million. Severance and other shutdown costs related to this plant closure totaled approximately $4.6 million.

In September 2006, we announced the planned closure of our wheel manufacturing facility located in Johnson City, Tennessee, and the resulting lay off of approximately 500 employees. The closure of the Johnson City facility was completed in the first quarter of 2007. This step was taken to rationalize our production capacity and to reduce costs. A pretax asset impairment charge against earnings totaling $4.5 million, reducing the carrying value of certain assets at the Johnson City facility to their respective fair values, was recorded in 2006 when we estimated that the future undiscounted cash flows of that operation would not be sufficient to recover the carrying value of our long-lived assets attributable to that facility. Severance and other shutdown costs related to this plant closure totaled approximately $2.5 million. In the fourth quarter of 2008, the carrying value of the Johnson City real property, which was classified as held-for-sale since the closure date in March 2007, was further reduced by $0.7 million, to its indicated current fair value.

In June 2006, we announced that we were discontinuing our chrome plating business located in Fayetteville, Arkansas, that would result in a layoff of approximately 225 employees during the third quarter of 2006. 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. During the fourth quarter of 2005, the long-lived assets of this business were written down to their estimated fair value by recording an asset impairment charge against pretax earnings of $7.9 million. Actual expenditures in 2006 related to severance and machinery and equipment shutdown and removal totaled approximately $0.9 million.

For all of the above impairments, we estimated the fair value of the long-lived assets based on independent appraisals. For the periods between the announced plant closures and the date operations actually ceased, these assets are classified as held-and-used, in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144). Upon termination of plant operations, the remaining assets are classified as held-for-sale.

Interest Income, net and Other Income (Expense), net

Net interest income for the year decreased 21 percent to $2.9 million from $3.7 million in 2007, due principally to a decrease in the average rate of return to 2.7 percent from 4.9 percent in 2007, offsetting an increase of $28.1 million in the average balance of cash invested. Net interest income in 2007 decreased 34 percent to $3.7 million from $5.6 million in 2006, as the average balance of cash invested decreased $24.1 million, offsetting a slight increase in the average rate of return.

Net other income (expense) in 2008 was $6.2 million compared to $3.2 million in 2007. For the first nine months of 2008, the Mexican peso exchange rate averaged 10.54 pesos to the U.S. dollar. During the fourth quarter, this rate increased to 13.85 Mexican pesos to the U.S. dollar, averaging 13.20 Mexican pesos to the U.S. dollar for the quarter. As a result, net other income (expense) in 2008 included foreign exchange transaction gains totaling $5.9 million in the fourth quarter and $5.4 million for the year 2008. Other income, net in 2007 included gains on the sale of available-for-sale investments totaling $2.9 million.

Effective Income Tax Rate

Our pretax income (loss) from continuing operations was ($28.6) million in 2008, $10.2 million in 2007, and ($16.1) million in 2006. The effective tax rate on the 2008 pretax income from continuing operations was a tax benefit of 6.2 percent compared to a provision of 61.4 percent in 2007 and a benefit of 1.8 percent in 2006. The relationship of federal and state tax credits, changes in tax liabilities and valuation allowance, permanent tax differences and foreign income, which is taxed at rates other than the U.S. statutory federal rate, to pretax income (loss) from continuing operations are the principal reasons for increases and decreases in the effective income tax rate. We are a multinational company subject to taxation in many jurisdictions. We record liabilities dealing with uncertainty in the application of complex tax laws and regulations in the various taxing jurisdictions in which we operate. If we determine that payment of these liabilities will be unnecessary, we reverse the liability and recognize the tax benefit during the period in which we determine the liability no longer applies. Conversely, we record additional tax liabilities or valuation allowance in a period in which we determine that a recorded liability is less than we expect the ultimate assessment to be or that a tax asset is impaired. The effects of recording liability increases and decreases are included in the effective income tax rate.

In 2007 the company adopted FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48). Increases and decreases to the liability and related interest changes during the year 2008 were reflected in our current year effective income tax rate, and had an overall increase to our rate of 0.6 percent.

Equity in Earnings of Joint Ventures

Effective in June 2008, we terminated our 50 percent-owned marketing joint venture, Topy-Superior Limited (TSL), which earned commissions for marketing our products to potential OEM customers based in Asia. The net operating results through the date of dissolution and the final settlement of the TSL joint venture did not have a material impact on our results of operations or financial condition.

We have a 50 percent-owned joint venture, Suoftec Light Metal Products Production & Distribution Ltd (Suoftec), a manufacturer of both light-weight forged and cast aluminum wheels in Hungary. The investment in this joint venture is accounted for utilizing the equity method of accounting. Accordingly, our share of joint venture's net income is included in the consolidated statements of operations in "Equity in Earnings of Joint Ventures".

Suoftec Joint Venture
Net sales of Suoftec were also negatively impacted by customer restructuring and the economic conditions affecting the automotive industry in Europe. The joint venture's net sales decreased $8.5 million, or 6 percent, in 2008 to $137.2 million from $145.7 million in 2007, as unit shipments declined 9 percent offsetting a 3 percent increase in the average selling price in U.S. dollars. However, the average selling price in euros, the functional currency of the joint venture, declined approximately 5 percent, which was offset by an increase in the U.S. dollar/euro exchange rate of approximately 8 percent.

Net sales in 2007 increased $13.7 million, or 10 percent, to $145.7 million from $132.0 million in 2006. Unit shipments were virtually flat with those of the prior year at 2.3 million units, while the average selling price in U.S. dollars increased 11 percent. However, the average selling price in euros, the functional currency of the joint venture, increased approximately 1 percent, while the U.S. dollar/euro exchange rate of increased approximately 10 percent.

Gross profit in 2008 decreased to $2.9 million, or 2 percent of net sales, from $14.9 million, or 10 percent of net sales, in 2007. Gross profit margin in 2008 was impacted negatively by a significant shift in sales mix from larger, higher profit margin aluminum wheels to smaller, lower-profit margin wheels. Gross profit in 2008 was also impacted negatively by a 25 percent increase in utility costs, which was partially offset by lower operating supplies and depreciation expense. Gross profit in 2007 increased slightly to $14.9 million, or 10 percent of net sales, from $14.7 million, or 11 percent of net sales, in 2006. Gross profit margin in 2007 was impacted negatively by increased unreimbursed wheel development costs and higher utility costs than in 2006.

Selling, general and administrative costs in 2008 were $2.6 million, or 2 percent of net sales, compared to $2.0 million, or 1 percent of net sales in 2007 and $1.7 million, or 1 percent of net sales in 2006. The principal reasons for the $0.6 million increase in 2008 over 2007 were higher commission based sales in the current period and the 8 percent increase in the U.S. dollar/euro exchange rate.

The reduction in other income (expense), net in 2008 of $0.6 million was due principally to increased interest income being offset by foreign exchange translation losses. The $1.9 million improvement in other income (expense), net in 2007 was due principally to foreign exchange transaction gains increasing by $1.1 million and interest income increasing by $0.4 million.

The statutory income tax rate in Hungary was 16 percent in all periods. An additional 4 percent solidarity tax was added in 2007. The annual effective income tax rates were 22.2 percent in 2008, compared to 18.7 percent in 2007 and 16.4 percent in 2006.

The resulting net income was $0.4 million in 2008, compared to $11.2 million in 2007 and $10.0 million in 2006. Our 50 percent share of these earnings was $0.2 million, $5.6 million and $5.0 million, respectively. After adjusting for the elimination of intercompany profits on wheels purchased from Suoftec, our equity earnings in each year were $0.7 million in 2008, $5.2 million in 2007 and $4.9 million in 2006.

Suoftec's cash at the end of 2008 was $25.4 million compared to $29.5 million a year ago. Working capital decreased $8.4 million to $46.8 million from $55.3 million at the end of 2007, due principally to a reduction of $11.3 million in accounts receivable and a $2.9 million decrease in current liabilities. The current ratio increased to 5.1 from 4.9 a year ago. Capital expenditures in 2008 were $15.5 million, compared to $10.5 million in 2007. There were no dividends declared in 2008 or 2007. The joint venture's cash balance is more than sufficient for its future operating and capital expenditure requirements, as well as for additional cash dividends.

Net Income (Loss)

Net loss in 2008 was $26.1 million, or 3.5 percent of net sales, compared to income of $9.3 million, or 1.0 percent of net sales, in 2007, and a loss of $10.5 million, or 1.3 percent of net sales, in 2006. Diluted earnings (loss) per share was ($0.98) per diluted share in 2008 compared to $0.35 in 2007 and ($0.40) in 2006.

Liquidity and Capital Resources

Our sources of cash liquidity include cash and cash equivalents, net cash provided by operating activities, and other external sources of funds. During the three years ended December 31, 2008, we had no long-term debt. At December 31, 2008, our cash and cash equivalents totaled $146.9 million compared to cash and cash equivalents totaling $106.8 million a year ago and $78.1 million of cash and short-term investments at the end of 2006. The $40.1 million increase in cash and cash equivalents in 2008 was due principally to net cash provided by operating activities of $67.9 million offsetting net cash used in investing activities and financing activities of $11.3 million and $16.5 million, respectively. The $38.4 million increase in cash and cash equivalents in 2007 was due principally to net cash provided by operating activities of $74.9 million offsetting net cash used in investing activities and financing activities of $19.9 million and $16.6 million, respectively. Accordingly, all working capital requirements, investing activities and cash dividend payments during these three years have been funded from internally generated funds, the exercise of stock options or existing cash and short-term investments. The following table summarizes the cash flows from operating, investing and financing activities as reflected in the consolidated statements of cash flows.

Fiscal Year Ended December 31,                           2008          2007          2006
(Thousands of dollars)

Net cash provided by operating activities              $  67,872     $  74,858     $  36,130
. . .