Boyd wheels manufactured the very first "billet wheel" over a decade ago. Boyds Billet Wheels were a true original creation and definition of what a "billet wheel" was. The center of each wheel begins as a solid billet of 6061 T-6 aluminum. From this solid chunk of metal each design is carved, one at a time, on computer controlled (CNC) lathes and presses. Once mated to the aluminum outer rim, each wheel is polished to a mirrored brilliance. The high density of the "billet" allows the wheel to be polished to a brighter finish and to retain the brightness much longer.Boyds Wheels are made to order. Billet wheels are offered in 14" to 20" diameters and cast are offered in 14" to 17" diameters.
Boyd Coddington Companies © ALL RIGHTS RESERVED.
Boyd Wheels, Inc. (the "Company") designs, manufactures and markets high quality aluminum wheels and accessories for the specialty automotive and motorcycle aftermarkets. The Company also markets a premium line of car care products and a line of sportswear under its own label. The Company's premium aluminum products are machined emphasizing high quality and unique designs intended to enhance individual vehicle styling. The Company sells its products domestically through a national distribution network of tire and performance retailers, warehouse distributors and mail order outlets, and internationally through foreign distribution channels.
The Company was founded in 1988 by the Company's current Chairman and Chief Executive Officer Boyd Coddington in response to consumer demand for billet aluminum wheels similar to those featured on the custom hot rods designed and manufactured by Hot Rods by Boyd, founded by Coddington in 1978. Now recognized internationally as a leading designer, manufacturer and marketer of custom cars and hot rods, Hot Rods by Boyd was acquired by the Company in December 1996 on a pooling of interest basis from Mr. Coddington pursuant to the exercise of an option granted in conjunction with the Company's initial public offering. The Company believes that its relationship with Hot Rods by Boyd is integral to the marketing of its premium image and to establishing brand name recognition. Vehicles produced by Hot Rods by Boyd have been featured in numerous automotive and general interest publications, including Car and Driver, Autoweek, Hot Rod, Motortrend, Smithsonian, Playboy, Fortune, and Forbes. The acquisition of Hot Rods by Boyd solidifies this relationship with Boyds Wheels.
The custom wheel market is the second largest segment of the specialty automotive aftermarket. The custom wheel market is generally divided into five product categories: aluminum wheels, composite wheels, modular wheels, steel wheels and custom wheel accessories. According to the Specialty Equipment Market Association ("SEMA"), aluminum wheels are the largest segment of this market, accounting for more than 75% of total sales. SEMA reports that the custom wheel industry has grown from sales of approximately $420 million in 1991 to an estimated $715 million in 1995. SEMA industry analyses also predict strong growth for the appearance and accessory segment. A new SEMA industry report for the years 1995 and 1996 is expected to be available in November 1997.
The Company believes the factors driving the growth of the custom wheel segment, and therefore, factors contributing to the potential future growth of the Company, include: (i) increased overall sales of domestic cars and light trucks resulting in increased potential consumers of automotive aftermarket products; (ii) increases in average vehicle life, contributing to demand for automotive aftermarket parts as owners seek to enhance the appearance of older vehicles; (iii) increases in sales through tire dealers and performance retailers; (iv) increased government regulation of specialty performance automotive aftermarket parts for modification of engine and drive-train components; and (v) continued enthusiasm for individual vehicle styling.
The Company has introduced a line of billet aluminum wheels and accessories, as well as a line of cast, chromed wheels, and marketed under the name Boyds Motorcycle Accessories to address the growing Harley-Davidson Motorcycle Aftermarket. Harley-Davidson reports that annual shipments of its motorcycles have increased 160% since I 986. An estimated 85% of all Harley-Davidson owners modify their vehicles, thereby increasing the potential number of aftermarket consumers in this segment. In a recent Forbes magazine article, industry experts estimated Harley-Davidson's portion of the market (751 cc and above) to be approximately 51 % of all domestic motorcycle sales.
The Company's strategy is to expand its position as a leading niche marketer of premium automotive and motorcycle aftermarket products by capitalizing on consumer recognition of the "Boyds" brand name and the Company's growing distribution network. Key elements of the Company's business strategy include:
Leverage and Strengthen Premium Brand Name Recognition. The Company has developed the reputation for delivering premium products to the marketplace and management intends to leverage the premium brand name recognition in order to introduce new products and product lines to the markets it serves. Furthermore, the Company intends to strengthen its premium brand name recognition through the use of advertising and marketing programs, public relations efforts, licensing agreements and celebrity associations.
Create New Product Lines. The Company continually assesses industry trends, the marketplace and product positioning. The Company is committed to adding selected new product lines in order to build its customer loyalty into a broader based business. For example, the Company has introduced Boyds Ultra Violet car care products and a complete line of motorcycle wheels and accessories. The Company also launched a one-piece cast aluminum automotive wheel to penetrate additional niche markets. The Company believes that by leveraging its brand awareness in these associated markets, it can capitalize on established consumer recognition and diversify the product lines within the industry.
Continue Innovative Product Design and Development. The Company's strategy is to differentiate its products from its competition by continually identifying and introducing trend-setting styles. Innovative designs within existing product lines, as well as new product lines, are critical to the Company's growth. The goal of the Company's product development team is to be a leader in design trends by developing "fashions" for the aftermarket that appeal to the consumer's desire for individuality and superior product quality at reasonable prices.
Diversify Domestic Product Distribution. The Company has successfully established distribution of its products in key regions of the United States, particularly the West Coast and Southwest. The Company believes that future growth of its distribution channels will come from penetration of new geographic markets, most notably the East Coast and southeastern United States.
Expand Penetration of International Markets. The Company's products are recognized in many international markets, but the largest overseas buyer continues to be Japan. In order to meet what the Company anticipates to be a growing international market, management intends to expand its foreign presence by establishing relationships with selected distributors in Europe, Australia, New Zealand, South America and other regions of the Pacific Rim. The Company believes that its premium brand name recognition, promotion of its "Made in the USA" products and unique styling will facilitate penetration into these markets.
Products Innovative designs and premium quality are key elements of each of the Company's seven product lines. The Company currently offers three distinct lines of custom aluminum automotive wheels: two-piece machined billet, two-piece machined cast and one-piece machined cast. The Company also offers a line of custom billet aluminum steering wheels and automotive accessories, as well as a complete line of billet and one-piece cast motorcycle wheels and accessories, and a premium line of car care products.
Two-Piece Billet Wheels. The Company currently markets 54 styles of two-piece machined billet wheels, with a suggested retail price range of $1,300 to $6,500 for a set of four. The Company believes that the machined billet wheel is the most elite and high-quality custom aluminum wheel available. Billet wheel centers are manufactured from a solid piece of aluminum known as billet through the use of computerized numerically controlled ("CNC") machines. After polishing, the finished center is welded into an aluminum outer rim. Through the precision and flexibility of this billet manufacturing process, the Company is able to offer billet wheels with greater design detail and higher quality finish, as well as a larger variety of styles, applications and vehicle applications than other standard manufacturing processes. Billet wheels accounted for approximately I 0.5% and 25.9% of the Company's sales for the years ended December 31, 1996 and 1995, respectively.
Two-Piece Machined Cast Wheels. The Company currently markets 25 styles of custom two-piece machined cast wheels. 17 additional styles are sold to Japanese distributors for sale exclusively in Japan. The suggested retail price range for a set of four wheels is $700 to $1,000. The two-piece cast wheels are produced with an integrated machine process, whereby the wheel centers are molded from aluminum ingot in a low pressure foundry, machined to achieve a more distinctive look (similar to that of the billet wheel), polished, and welded into an aluminum outer rim. This two-piece assembly process allows the Company to weld the center into a variety of positions creating a larger selection of appearances and applications and, in some cases, to produce a variety of designs from a single mold. Two-piece cast wheels accounted for approximately 66.5% and 59.1 % of the Company's sales for the years ended December 31, 1996 and 1995, respectively.
One-Piece Cast Wheels. The Company introduced two styles of one-piece cast aluminum wheels in late 1995 for the sport utility vehicle and European vehicle markets and currently markets a total of seven styles. One-piece cast wheels are produced with integrated machine processes whereby the entire wheel is molded from aluminum ingot in a low pressure foundry. The wheel is then machined to achieve a more distinctive look. One-piece cast wheels have a greater load capacity than the Company's other wheel lines making them suitable for applications on heavier vehicles. Such wheels are manufactured using a simpler, faster production process since the rim and the center are molded as one integral unit thereby eliminating the costs associated with an outside supplier of outer rims and reducing assembly and handling costs. The lower retail prices that result from lower material costs and reduced machining time should enable the Company to reach a market in which it could not otherwise effectively compete. The Company's suggested retail price range for a set of four wheels is $600 to $1,200. One-piece cast wheels accounted for 4.0% of sales for the year ended December 3 I, 1996, compared with less than I% for the 1995 fiscal year.
Machined Cast Private-label Centers. The Company also designs and manufactures five styles of machined cast aluminum wheel centers for American Racing, which assembles the centers with its own outer rims for resale as private label wheels. (See "-- Product Distribution -- Warehouse Distributors.") Private label centers accounted for approximately 5.8% and 1.8% of sales for the years ended December 31, 1996 and I 995, respectively.
Steering Wheels. The Company currently markets six styles of steering wheels, made with the same machining process as its billet wheels. The suggested retail price range for one steering wheel is $400 to $1,000. Each steering wheel begins as a 1/8" thick piece of billet aluminum, which is stamped into a basic pattern and machined on a CNC machine. The wheel is then polished, a foam grip is injected around its perimeter and a hand-stitched leather wrap is sewn to the wheel. The Company also builds limited quantities of an extremely high end steering wheel that is hand machined and available in special finishes. Steering wheels accounted for approximately 2.9 % of the Company's sales for both years ended December 31, 1996 and 1995.
Motorcycle Wheels and Accessories. The Company currently markets 13 styles of billet motorcycle wheels, three styles of one-piece cast chromed wheels, and a complete line of accessories under the name Boyds Motorcycle Accessories. The Company's parts are compatible with all later-model Evolution Big-Twin Harley-Davidsons. The Company's billet motorcycle wheels were first marketed in 1995, with the cast wheel line introduced in early 1997. The products are currently distributed by Drag Specialties, Custom Chrome, Tucker Rocky and Rivera Engineering, as well as through a dealer-direct program initiated in the latter half of 1996. Currently, the motorcycle accessories include stainless steel brake rotors, billet aluminum belt drives, aluminum chain drive sprockets, transmission top covers, trap door and side covers, and cam covers, as well as the recently introduced push rod tubes, drive belts and triple trees. The accessory products are designed to complement the styling of the wheel designs and further enhance the look of the motorcycle. The Company's suggested retail price for one motorcycle wheel ranges from $571 to $933. Motorcycle products accounted for approximately 5.5% and 2.6% of the Company's sales for the years ended December 31, 1996 and 1995, respectively.
Custom Cars and Hot Rods. Hot Rods by Boyd, a wholly owned subsidiary of the Company, designs and manufactures custom cars and hot rods, which range in price from $75,000 to $500,000. The custom vehicles are typically produced for high net worth individuals and celebrities, as promotional vehicles for corporations, or as prototypes or show cars for major automobile manufacturers. The Company believes that the strength of the Boyds brand name is integral to the high-quality vehicles produced by Hot Rods by Boyd. Since its founding in 1977, Hot Rods by Boyd vehicles have been featured in consumer and enthusiastic publications including Care & Driver, Autoweek, Hot Rod, Motortrend, Smithsonian, Fortune and Forbes. Custom Cars and Hot Rods accounted for 2.6% of sales for the year ended December 31, 1996 and 7.8% in fiscal 1995.
Car Care Products and Wheel Accessories. The Company currently sells Boyds Ultra Violet car care products through AutoZone, Inc., a leading retailer with approximately 1,500 stores throughout the East and Southeast, through a non-exclusive license and marketing agreement. The Company is currently exploring other channels of distribution for the product with regional, national and international distributors. The product line currently includes: auto shampoo, pre-wax cleaner, wheel cleaner, glass cleaner, tire shine, hand cleaner, carnauba wax, liquid wax and applicator pads. The Company also markets and sells a variety of billet aluminum accessory items under its "The Boyd Look" trademark, such as pedal kits, horn buttons, air cleaners and license plate frames. These accessories enhance the overall product line and provide ancillary sales at the dealer level. Car products and The Boyd Look products accounted for 2.0% of sales for the year ended December 31, 1996 and less than I% in fiscal 1995.
The Company seeks to design innovative and trend-setting styles for existing and new product lines. The Company's design influence is derived primarily from Boyd Coddington, in collaboration with Chief Designer Chip Foose, and is often referred to within the industry as "The Boyd Look," based on simplicity in style and design. The Company's products are designed by a five-person product development team, which includes Mr. Coddington, who, in collaboration with Mr. Foose, primarily develop the wheel designs and the vehicles for Hot Rods by Boyd. The product development team uses CAD/CAM technology for the development of many new products. The CAD/CAM system enables the Company to transition new products rapidly from design, to prototype development and full-scale production. The Company currently has several new products within each product line under development.
Distribution, Sales and Marketing
The Company's products are currently sold through a national and international distribution network consisting primarily of the categories described below. The following are brief description of the Company's distribution channels:
Tire Dealers and Performance Retailers. The Company sells its custom wheels and other products to tire dealers throughout the United States, including Discount Tire, Les Schwab and Super Shops, Inc. The Company's performance retailer customers currently include Tradertim, Inc., Hunter's and Super Shops, Inc. Tire dealers and performance retailers (two traditionally separate channels that are beginning to overlap in the products they carry) comprised approximately 3.5% and 4.4% of sales for the years ended December 31, 1996 and 1995, respectively. The Company believes that tire dealers have experienced success with "combination" sales of tires with custom wheels and that performance retailers serve as an important link to automotive enthusiasts.
Warehouse Distributors. The Company sells its products to warehouse distributors that sell to tire dealers, performance retailers, service stations and specialty boutiques. Since 1993, the Company has sold both its billet and cast wheels, as well as its private label cast wheel centers, to American Racing, one of the nation's largest warehouse distributors of specialty automotive wheels with approximately 65 warehouses. The Company also sells to Tredit Tire, one of the largest direct distributors of custom wheels and tires to the van/truck conversion industry. Automotive aftermarket warehouse distributors generally seek rapid inventory turnover by heavily stocking a limited selection of high quality merchandise offered at good values. The Company believes that warehouse distributors are, and will continue to be, an important factor in the Company's penetration of new geographic areas and that the van conversion industry will be a new market for distribution of its wheel lines. Sales to warehouse distributors accounted for 63.4% and 43.9% of total sales for the years ended December 31, 1996 and 1995, respectively.
Mail Order Outlets. The Company sells all of its products to mail order catalog houses, which resell them to the public. The Company believes that inclusion of its products in large mail-order catalogs, including Tradertim, lnc.'s and Hunter's, is an effective means to promote the brand name recognition of the Company's products and to increase direct sales to consumers. Mail order accounted for 2.7% and 6.1 % of sales for the years ended December 31, 1996 and 1995, respectively.
Motorcycle Warehouse/Dealer Distributors. The Company's full line of motorcycle wheels and accessory products are currently distributed by Drag Specialties, Tucker Rocky, Custom Chrome and Rivera Engineering, some of the industry's larger distributors of Harley-Davidson aftermarket parts. To more effectively reach the more than 4,000 Harley-Davidson dealers nationwide, the Company initiated a dealer-direct program in the latter half of 1996 for its motorcycle wheel and accessory products, a program the Company believes will continue to be a key means of ramping up sales in this market. Motorcycle warehouse and dealer distributors accounted for 5.5% of sales for the year ended December 31, 1996 and 1.8% in fiscal 1995.
International Sales. The Company seeks to expand its international sales by addressing selected foreign markets and securing foreign distribution channels for its products. In 1992, the Company began selling to the Japanese market through a domestic distributor and currently sells to eight distributors in Japan. In 1996 and 1995, international sales accounted for approximately 22.3% and 36.0%, of the company's sales respectively, the majority of which were to Japan. The Company believes that continued success and growth in this market will be largely due to: (i) significant demand that exists for wheels made and designed in the United States with distinctive styling; and (ii) the offering of exclusive designs to individual distributors. The Company is also exploring distribution opportunities in Australia, New Zealand, South America and Europe.
The Company's strategy to increase sales focuses on: (i) identifying additional niche markets such as sport utility vehicles, sports cars and European vehicles; (ii) increasing domestic distribution channels in new geographic areas of the United States; (iii) using direct marketing to specialty groups through mail order outlet channels; and (iv) developing new products and product lines, including those to be aimed at new market segments, such as the one-piece cast wheels, targeted to heavier vehicles and a lower price-point consumer.
The Company believes that its trademarks, Boyds, Boyds Wheels, Boyds Ultra Violet, The Boyd Look and Hot Rods by Boyd have become recognized brand names in the automotive/motorcycle markets and represent its commitment to well-designed, high-quality and innovative wheels and accessories.
In order to stay abreast of the constantly changing needs of its customers, both consumers and distributors, the Company maintains a consumer data base derived from warranty card information and other sources. Sales personnel also attend distributor open houses and retail store openings, enabling direct one-on-one interaction with customers. Key management personnel attend many of these events in order to develop ideas for new products and programs.
As of December 31, 1996, the Company employed seven individuals in its sales department, which does not include two new sales directors stationed in the Midwest and on the East Coast hired subsequent to the close of the fiscal year. The Company's sales and customer service department is responsible for new orders technical support and customer inquiries. All product returns are subject to pre-approval and a 15% restocking fee.
For the year ended December 31, 1996, the Company's four largest customers accounted for approximately 74.1 % of net sales, with Wheel City at 38.0%, American Racing at 15.6%, American Motoring Accessories at I 1.7% and Mooneyes at 8.8%. The Company does not have any long-term contractual relationships with its major customers. The loss of or any reduction in orders by any such customers could adversely affect the Company's business, financial condition and results of operations.
The Company's premium brand name is at the forefront of all of the Company's marketing, advertising and public relations activities. The Company uses a variety of methods to promote its products and the brand name, including marketing/licensing agreements, a marketing partnership with Hot Rods by Boyd (See --"Collaboration with Hot Rods by Boyd" --), celebrity associations, participation in national automotive events and international trade shows, print advertising/public relations and a corporate newsletter. The Company believes that product licensing and private labeling will continue to be among the main drivers of visibility and brand name recognition.
Marketing and Licensing Agreements. The Company and its subsidiary, Hot Rods by Boyd, promote the Boyds brand name through selected licensing and marketing agreements. The Company charges royalty fees for such licenses and exercises care in selecting the licensees to protect the association of its brand names with premium products. For example, The Franklin Mint and Testor's Corporation (a model company) manufacture and sell selected Hot Rods by Boyd designs. Mattel also recently released a series of four limited edition Hot Wheels cars modeled after four of Hot Rods by Boyd's designs. Additionally, BF Goodrich maintains a marketing agreement whereby Boyds Wheels are featured in many of its tire catalogs, and DuPont Automotive Finishes features a line of "Boyd" colors in an exclusive marketing agreement. Also in 1996, the Company licensed its name to AutoZone, Inc. for a premium line of car care products sold under the name Boyds Ultra Violet, as well as to Orion Industries for Boyd Sounds, a premium line of car audio equipment, currently marketed exclusively to Japan.
Collaboration with Hot Rods by Boyd. Since Mr. Coddington founded Hot Rods by Boyd in 1977, he has built a reputation as a premier designer and builder of custom vehicles, which range in price from $75,000 to $500,000.
In 1988, Mr. Coddington leveraged the premium brand name to form Boyds Wheels, Inc., and since its inception, the Company has maintained a collaborative marketing effort with Hot Rods by Boyd. Originally an affiliate company wholly-owned by Mr. Coddington and his wife, Hot Rods by Boyd now operates as a wholly-owned subsidiary of Boyds Wheels, Inc. and continues to act as a major source of publicity for the Company.
Hot Rods by Boyd vehicles are custom-produced typically for high net worth individuals and celebrities, as promotional vehicles for corporations, or as prototypes or show cars for major automobile manufacturers. The cars, which display the Company's custom wheels, are regularly featured at hot rod and automotive shows and have been featured in national automotive and general interest publications such as Car and Driver, Autoweek, Hot Rod, Motortrend, Smithsonian, Fortune and Forbes. Celebrity owners of Hot Rods by Boyd custom cars, including Michael Anthony of Van Halen and Billy Gibbons of ZZ Top, provide on-going publicity for both companies.
In December 1996, the Company exercised its option to acquire Hot Rods by Boyd in an all-stock pooling or interest transaction valued at approximately $750,000, pursuant to which the Company purchased all of the outstanding Common Stock of Hot Rods by Boyd payable in shares of the Company's Common Stock at its fair market value. The Company exercised this option after delivery of audited financial statements for the year ended December 31, 1995 only. The Company's marketing/promotion agreement with Hot Rods by Boyd, secured in June 1995, was terminated at the time of the acquisition.
Trade Shows. The Company supports its premium brand name image with special event and on-site presentations, featuring three 70-foot semi-tractor/trailer rigs, two "Big Red" trucks and "Big Yellow." These act as mobile displays of the Company's products and award winning vehicles by Hot Rods by Boyd. The rolling displays travel the country attending approximately I 00 shows and dealer events a year, allowing for dealer hospitality in the on-board lounge. These vehicle costs have been partially underwritten by the corporate sponsorship of B.F. Goodrich and revenues derived from direct retail sales from the trucks.
Advertising and Public Relations. The Company is increasingly utilizing print advertising in key automotive, hot rod and motorcycle trade publications and continues to focus on high-profile public relations opportunities, such as coverage in leading specialty automotive publications such as Hot Rod Magazine, Truckin', Street Rodder, Sport Truck and AutoWeek. The Company is also increasingly featured on enthusiast radio and television programs including Hot Rod TV and Motortrend TV on cable television's, The Nashville Network (TNN), and was recently featured in Fortune magazine's "Companies to Watch" column. The Petersen Automotive Museum in Los Angeles has hosted a retrospective of the works of Boyd Coddington, including his hot rods and the Company's wheels, and Smithsonian magazine once also featured one of Boyd's custom vehicles in a cover story. The Company also engages in cooperative advertising efforts with its major retailers and distributors.
Newsletter/Dealer Programs. The Company currently publishes a semi-monthly newsletter that is mailed directly to various newspapers and periodicals, retailers, distributors and customers. The Boyd Report features new products, special events, technical innovations and employee profiles. The Company believes that its direct mail programs are effective in maintaining its reputation as a leading manufacturer of premium custom wheels and related accessories. The Company also believes that dealer support programs are key factors for marketing success and provides its wheel dealers with marketing kits that include ad slicks, product photos, logo sheets, press releases and other advertising information and a videotape presentation featuring the Company's latest products and information.
All of the Company's aluminum products are manufactured, finished and packaged at its Stanton, California, facilities. The Company's corporate offices and manufacturing and distributing facilities occupy IO buildings covering approximately 140,400 square-feet. The Company is committed to maintaining control over the entire design and manufacturing process which it believes enables it to: (i) reduce design and production time; (ii) refine manufacturing techniques and existing products; (iii) support innovative design efforts; and (iv) maintain the Company's high quality standards.
The machined billet aluminum wheel manufacturing process for commercial applications was developed by Mr. Coddington and continues to be refined by the Company. The Company believes that the machined billet manufacturing process results in a superior quality product and that other types of billet manufacturing processes, such as stamped, are inferior due to structural and design limitations. The billet wheel centers for the two-piece machined billet aluminum wheels are manufactured from a solid piece of aluminum known as a billet, through the use of CNC machines, which "carve" out the specialized custom designs from the billet aluminum. After polishing, the finished center is welded into an aluminum outer rim. Through the precision and flexibility of this billet manufacturing process, the Company is able to offer billet wheels with greater detail in design, higher quality finish, and a larger variety of styles. It also affords more vehicle application options than other types of manufacturing processes, such as cast or forged. An additional advantage of the billet manufacturing process is reduced development time, whereby a new wheel design can typically be produced in one to two weeks, compared to IO to 12 weeks required for the development and tooling of a new cast wheel design. The Company believes that the shorter design cycle enables the Company to maintain a competitive advantage as a trend-setter. During 1996, the Company produced approximately 8,300 billet aluminum wheel centers and believes it is capable of producing up to 1,250 billet aluminum wheel centers per month.
The two-piece cast wheels are also produced with integrated machine processes. The wheel centers are molded from aluminum ingot in a low-pressure foundry, machined to achieve a more distinctive look (similar to that of the billet wheel) and, after polishing, welded into an aluminum outer rim. This two-piece assembly process allows the Company to store work-in-process in a smaller area, to weld the center into a variety of positions creating a larger selection of appearances and applications and, in some cases, to produce a variety of designs from a single mold. The Company's cast wheel manufacturing facility is equipped with I I state-of-the art low pressure casting machines, four of which were added in the fourth quarter of 1996. During 1996, the Company produced approximately 228,800 cast aluminum wheels and believes it is capable of producing up to 45,000 cast aluminum wheel centers per month.
One-piece cast automotive wheels are produced with integrated machine processes whereby the entire wheel is molded from aluminum ingot in a low pressure found ry. The wheel is then machined to achieve a more distinctive look. One-piece cast wheels have a greater load capacity than the Company's other wheel lines thereby making them suitable for applications on heavier vehicles. Such wheels are manufactured using a simpler, faster production process since the rim and the center are molded as one integral unit thereby eliminating the costs associated with an outside supplier of outer rims and reducing assembly and handling costs. The one-piece cast motorcycle wheels are cast using the same integrated process as the automotive wheels, but are outsourced for "hipping," a chemical hardening process, and chroming.
Steering wheels begin as a I /8" thick piece of billet aluminum, which are stamped into basic patterns and machined on a CNC machine. The wheel is then polished, a foam grip is injected around its perimeter and a hand-stitched leather wrap is sewn to the wheel. All of the machining processes (except stamping), including polishing, leather wrapping, foam injection and packaging efforts for the manufacture of the Company's steering wheels, are completed on-site at the Company's facilities. The Company's various accessory products are manufactured in-house, while its line of Boyds Ultra Violet car care products are mixed and packaged by an outside contractor.
Motorcycle billet wheels and accessories are produced in a similar process as the billet wheels. The product begins as a solid piece of billet aluminum which is machined on the same type of CNC equipment as the automotive wheels. The wheels undergo a "truing" process to ensure proper fit, and are then polished and welded. Final assembly involves stringent controls that maintain proper fit of the hub assemblies. The exclusive "Invisible Weld" technology employed by the Company in manufacturing its motorcycle wheels was developed by Mr. Coddington and the Company believes it provides a better looking and more structurally sound product.
The custom cars and hot rods produced by Hot Rods by Boyd typically range in price from $75,000 to $500,000. In most cases, the vehicles begin with a design sketch, followed by the frame and body of the vehicle being hand crafting from steel. All steps of the design and manufacturing process are done on-site, including the body production, interior work and painting. In some cases, customers will bring in existing vehicles for restoration or modification. Project length varies depending upon the extent of the project, as well as the customer's timeline and budget.
The Company uses modern design and manufacturing systems for the manufacture of its wheels and billet accessories, which through the use of CAD/CAM technologies, provides the Company with two dimensional CAD drawings. All of the CNC equipment in the Company's manufacturing facility is linked to a Macintosh based CAD/CAM manufacturing system in order to obtain efficiencies and maintain exacting tolerances in manufacture. The Company's design control department monitors the compliance of production processes in order to ensure that the designs have been correctly processed by the manufacturing computers and that finished products are accurately produced. The CAD/CAM system allows the Company to transition new products rapidly from development to full-scale production. The Company's computer controlled machinery maintains precise controls over manufacturing processes. The CNC machinery greatly reduces the chance of error, scrap and injury commonly found in manually operated machines. CNC technology also allows for reduced machine times. The Company continually seeks to increase efficiency at its production facilities through further automation and increased use of technology.
To meet increased demand for its products and sustain future growth, the Company recently completed an expansion of its manufacturing facilities by approximately 50% (See "Item 2. Properties). The additional space serves not only to increase capacity, but also to streamline the manufacturing process. The Company believes the expansion will serve to: (i) streamline the manufacturing process, thereby reducing production time and related overhead costs; (ii) reduce inefficiencies and scrap rates; (iii) increase manufacturing capacity; and (iv) sustain the Company's growth through 1998 or 1999 before additional space is required. In 1996, the Company also added 22 new CNC machines and four new casting machines. Total manufacturing space increased to 118,600 square feet, up from approximately 75,900, thereby increasing manufacturing capacity from approximately 25,000 wheels per month to approximately 45,000 wheels per month.
The Company relies on outside suppliers for its billet aluminum and ingot aluminum requirements. The Company has arranged to purchase billet aluminum from Metal Exchange, a supplier of billet aluminum on a contractual basis through December 1997. The price is set at $.82 per pound for approximately 600,000 pounds per month. The Company believes the contract will protect against aluminum price increases during the length of the contract and that the pound limit at that price is sufficient to service approximately 70% to I 00% of its needs, based on seasonal demands. The Company believes that there are other suppliers of billet and ingot from which the Company could obtain such materials in the future should the need arise. Any significant interruption in the supply of these required raw materials would have a material adverse effect on the Company's business and results of operations. The rims for the Company's wheels are purchased from five different suppliers and the Company believes alternative sources of supply of rims are readily available. In the ordinary course of its manufacturing process, the Company uses metals, oils and similar materials, which are stored on-site. The waste created by use of these materials is transported off-site on a regular basis by a state registered waste hauler. To date, the Company has not experienced any significant environmental compliance problems, although there can be no assurances such problems will not arise in the future.
The custom aluminum wheel business is highly competitive and is based primarily on price, product selection, product availability and service, and is characterized by widespread imitation of popular wheel designs. The preferences of custom aluminum wheel purchasers may also be subject to rapid and unanticipated changes. Competition in the billet segment of the custom wheel market is intense, but concentrated among a limited number of manufacturers, such as Budnik Wheels, Colorado Custom, Weld Racing, and Billet Specialties, Inc. In addition, the Company believes several wheel manufacturers such as Ultra Custom Wheel, Inc., Rocket Racing Wheels Newstalgia and American Racing, could pose significant competition if they were to enter the premium billet aluminum wheels market.
Cast aluminum wheels comprise a much larger portion of the custom wheel market than billet wheels due to their lower retail prices. There are numerous competitors in the cast wheel market including American Racing, Ultra Custom Wheel, Inc. and Prime Wheel. Competition is fierce and based primarily on cost, with most manufacturers seeking high volume to compensate for low margins. The one-piece cast wheels which the Company introduced in I 995, will be aimed at a broader range of customers than the Company's other wheel lines because of their more moderate price range and more varied vehicle applications. Accordingly, the Company expects that these wheels may face more direct and indirect competitors, including branded wheels and "look-alike" designs produced by low-cost offshore manufacturing sources.
There are several competing manufacturers of steering wheel products and motorcycle wheels, including Grant and Weld Racing, Inc., some with substantially more resources than the Company. Increased competition could result in product price reductions, reduced margins and loss of market share, all of which could have a adverse material effect on the Company's results of operations and financial condition. The Company intends to meet its competition with innovative designs, quality workmanship and the strength of its brand name. The Company believes its relationship with its customers is strengthened by its private labeling of products for certain of its competitors that are also customers, such as American Racing.
Historically, the Company's wheels have been sold with limited one- or three-year warranties from the date of purchase. Commencing in February 1996, the Company began honoring a lifetime warranty from the date of purchase. The Company's warranties generally provide that, in the case of defects in material or workmanship, the Company will, at its option, replace or repair the defective product without charge. The Company currently maintains product liability insurance for its products worldwide, with limits of $5,000,000 per occurrence and $5,000,000 in the aggregate, per annum. Such coverage is becoming increasingly expensive and there can be no assurance that the Company's insurance will be adequate to cover future product liability claims, or that the Company will be able to maintain adequate product liability insurance at commercially reasonable rates.
As of December 31, 1996, the Company had 365 employees, a majority of which were full-time employees, including IO employed in sales and marketing, four employed in development and 331 employed in manufacturing and manufacturing support. The remaining full-time employees are administrative and support staff. The Company considers its employee relations to be sound. None of the Company's employees is represented by unions.
Item 2. Properties.
The Company's executive offices, product development and manufacturing facilities are currently housed in a cluster of leased and company-owned industrial buildings in Stanton, California. Building No. I contains the foundry and is approximately 20,700 square-feet. Building No. 2 contains a warehouse and administrative facilities and is approximately 20,400 square-feet. Building No. 3 contains the previous assembly area and is approximately 9,800 square-feet. It will now be utilized for a 6,000 square-foot research and development facility, and the remainder will be used as an equipment maintenance area. Building No. 4 contains the motorcycle wheel and accessories departments and is approximately 17,000 square-feet. Hot Rods by Boyd currently subleases approximately 12,500 square-feet in Building No. 4 from the Company. Building No. 5 contains the previous polishing department and is approximately 5, I 00 square-feet. The space will be used ultimately for additional motorcycle machine shop area. Building No. 6 is currently a machine shop facility and is approximately 8,550 square-feet. Building No. 7 contains machining facilities and is approximately 6,850 square-feet. Building No. 8 is approximately 32,000 square-feet and houses the new polish and assembly facility. Building Nos. I through 8 are leased at monthly rates ranging from $2,060 to $12,000 with expiration dates ranging from March 31, 1997 to September 30, 2000. Building No. 9, purchased in January 1997, contains the new distribution center, customer service and finished goods warehouse. This building contains approximately 20,000 square-feet of interior space and is located on approximately 2.5 acres. The property is financed over five years, with monthly payments of $ I 0,260. The Company has expanded its facilities over the last year in order to accommodate its growing operations and to take advantage of adjacent properties that became available. The Company considers all of its facilities to be well maintained and suitable for its preser.it operations.