SUPERIOR INDUSTRIES INTERNATIONAL INC (Form: 10-Q, Received: 08/08/2019 15:03:17)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

☐	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)

Delaware	95-2594729
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

26600 Telegraph Road, Suite 400
Southfield, Michigan	48033
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code: (248) 352-7300

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value	SUP	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☐	Accelerated Filer	☒
Non-Accelerated Filer	☐	Smaller Reporting Company	☐
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of common stock outstanding as of August 3, 2019: 25,128,158

TABLE OF CONTENTS

					Page
PART I	-	FINANCIAL INFORMATION

		Item 1	-	Financial Statements (Unaudited)

				Condensed Consolidated Income Statements	1

				Condensed Consolidated Statements of Comprehensive Income	2

				Condensed Consolidated Balance Sheets	3

				Condensed Consolidated Statements of Cash Flows	4

				Condensed Consolidated Statements of Shareholders’ Equity	5

				Notes to Condensed Consolidated Financial Statements	7

		Item 2	-	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

		Item 3	-	Quantitative and Qualitative Disclosures About Market Risk	39

		Item 4	-	Controls and Procedures	39

PART II	-	OTHER INFORMATION

		Item 1	-	Legal Proceedings	40

		Item 1A	-	Risk Factors	40

		Item 2	-	Unregistered Sales of Equity Securities and Use of Proceeds	40

		Item 6	-	Exhibits	41

		Signatures			42

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

SUPERIOR INDUSTRIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED INCOME STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

	Three months ended						Six months ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
NET SALES	$	352,499		$	388,944		$	710,192		$	775,392
Cost of sales		312,504			335,385			637,075			671,842
GROSS PROFIT		39,995			53,559			73,117			103,550
Selling, general and administrative expenses		15,964			22,289			30,447			44,646
INCOME FROM OPERATIONS		24,031			31,270			42,670			58,904
Interest expense, net		(11,852	)		(13,182	)		(23,725	)		(25,039	)
Other income (expense), net		2,539			(570	)		2,040			(3,558	)
Change in fair value of redeemable preferred stock embedded derivative	93				(4,588	)	719				(3,690	)
INCOME BEFORE INCOME TAXES		14,811			12,930			21,704			26,617
Income tax provision		(7,541	)		(4,795	)		(12,484	)		(8,165	)
NET INCOME	$	7,270		$	8,135		$	9,220		$	18,452
EARNINGS (LOSS) PER SHARE – BASIC	$	(0.04	)	$	(0.02	)	$	(0.27	)	$	0.05
EARNINGS (LOSS) PER SHARE – DILUTED	$	(0.04	)	$	(0.02	)	$	(0.27	)	$	0.05

The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.

SUPERIOR INDUSTRIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands)

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Net income	$	7,270		$	8,135		$	9,220		$	18,452
Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss), net of tax		8,033			(35,233	)		684			(14,329	)
Change in unrecognized gains (losses) on derivative instruments:
Change in fair value of derivatives		2,130			(22,566	)		8,544			(4,894	)
Tax (provision) benefit		(274	)		4,577			(1,762	)		815
Change in unrecognized gains (losses) on derivative instruments, net of tax		1,856			(17,989	)		6,782			(4,079	)
Defined benefit pension plan:
Amortization of actuarial loss		53			68			105			177
Tax provision		(11	)		(24	)		(22	)		(46	)
Pension changes, net of tax		42			44			83			131
Other comprehensive income (loss), net of tax		9,931			(53,178	)		7,549			(18,277	)
Comprehensive income (loss)	$	17,201		$	(45,043	)	$	16,769		$	175

The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.

SUPERIOR INDUSTRIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

	June 30, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	56,923		$	47,464
Short-term investments		—			750
Accounts receivable, net		127,825			104,649
Inventories, net		177,981			175,578
Income taxes receivable		309			6,791
Other current assets		20,811			35,189
Total current assets		383,849			370,421
Property, plant and equipment, net		538,693			532,767
Non-current deferred income tax assets, net		38,346			42,105
Goodwill		289,831			291,434
Intangibles, net		154,666			168,369
Other non-current assets		62,505			46,520
Total assets	$	1,467,890		$	1,451,616
LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	128,980		$	107,274
Short-term debt		3,741			3,052
Accrued expenses		66,646			65,662
Income taxes payable		3,106			2,475
Total current liabilities		202,473			178,463
Long-term debt (less current portion)		636,148			661,426
Embedded derivative liability		2,415			3,134
Non-current income tax liabilities		9,653			9,046
Non-current deferred income tax liabilities, net		18,249			18,664
Other non-current liabilities		63,233			49,306
Commitments and contingent liabilities (Note 18)		—			—
Mezzanine equity:
Preferred stock, $0.01 par value
Authorized - 1,000,000 shares
Issued and outstanding - 150,000 shares outstanding at June 30, 2019 and December 31, 2018		152,498			144,463
European non-controlling redeemable equity		12,031			13,849
Shareholders’ equity:
Common stock, $0.01 par value
Authorized - 100,000,000 shares
Issued and outstanding – 25,114,598 and 25,019,237 shares at June 30, 2019 and December 31, 2018		89,532			87,723
Accumulated other comprehensive loss		(97,946	)		(105,495	)
Retained earnings		379,604			391,037
Total shareholders’ equity		371,190			373,265
Total liabilities, mezzanine equity and shareholders’ equity	$	1,467,890		$	1,451,616

The accompanying notes are an integral part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED S TATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

SUPERIOR INDUSTRIES INTERNATIONAL, INC.

Six Months Ended June 30,	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	9,220		$	18,452
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		46,673			48,340
Income tax, non-cash changes		1,582			6,968
Stock-based compensation		1,917			1,712
Amortization of debt issuance costs		2,456			1,928
Other non-cash items		(1,630	)		1,921
Changes in operating assets and liabilities:
Accounts receivable		(22,538	)		(22,087	)
Inventories		(2,660	)		(16,240	)
Other assets and liabilities		12,574			(7,635	)
Accounts payable		10,655			(2,288	)
Income taxes		11,382			(270	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		69,631			30,801
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment		(28,665	)		(38,020	)
Other investing activities		9,631			(118	)
NET CASH USED IN INVESTING ACTIVITIES		(19,034	)		(38,138	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt repayment		(24,183	)		(3,614	)
Cash dividends paid		(12,910	)		(15,547	)
Purchase of non-controlling redeemable shares		(1,411	)		—
Payments related to tax withholdings for stock-based compensation		(108	)		(605	)
Proceeds from the exercise of stock options		—			68
Proceeds from borrowings on revolving credit facility		43,800			85,400
Repayments of borrowings on revolving credit facility		(43,800	)		(85,400	)
Other financing activities		(654	)		—
NET CASH USED IN FINANCING ACTIVITIES		(39,266	)		(19,698	)
Effect of exchange rate changes on cash		(1,872	)		(258	)
Net increase (decrease) in cash and cash equivalents		9,459			(27,293	)
Cash and cash equivalents at the beginning of the period		47,464			46,360
Cash and cash equivalents at the end of the period	$	56,923		$	19,067

The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.

SUPERIOR INDUSTRIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Dollars in thousands)

For the six months ended June 30, 2018

(Unaudited)	Common Stock					Accumulated Other Comprehensive (Loss) Income
	Number of Shares		Amount			Unrecognized Gains (Losses) on Derivative Instruments			Pension Obligations			Cumulative Translation Adjustment			Retained Earnings			Non-controlling Interest			Total
BALANCE AT DECEMBER 31, 2017		24,917,025	$	89,755		$	(8,498	)	$	(5,257	)	$	(75,366	)	$	393,146		$	51,943		$	445,723
Net income		—		—			—			—			—			18,452			—			18,452
Change in unrecognized gains (losses) on derivative instruments, net of tax		—		—			(4,079	)		—			—			—			—			(4,079	)
Change in employee benefit plans, net of taxes		—		—			—			131			—			—			—			131
Net foreign currency translation adjustment		—		—			—			—			(14,329	)		—			—			(14,329	)
Stock options exercised		4,500		68			—			—			—			—			—			68
Common stock issued, net of shares withheld for employee taxes		90,205		—			—			—			—			—			—			—
Stock-based compensation		—		1,107			—			—			—			—			—			1,107
Cash dividends declared ($0.09 per common share)		—		—			—			—			—			(4,845	)		—			(4,845	)
Redeemable preferred dividend (9% per preferred share and $0.09 per common share equivalent) and accretion		—		—			—			—			—			(16,204	)		—			(16,204	)
Reclassification to European non-controlling redeemable equity		—		—			—			—			—			—			(51,943	)		(51,943	)
Adjust European non-controlling redeemable equity to redemption value		—		(3,625	)		—			—			—			—			—			(3,625	)
European non-controlling redeemable equity dividend		—		—			—			—			—			(1,084	)		—			(1,084	)
BALANCE AT JUNE 30, 2018		25,011,730	$	87,305		$	(12,577	)	$	(5,126	)	$	(89,695	)	$	389,465		$	—		$	369,372

For the three months ended June 30, 2018

(Unaudited)	Common Stock				Accumulated Other Comprehensive (Loss) Income
	Number of Shares		Amount		Unrecognized Gains (Losses) on Derivative Instruments			Pension Obligations			Cumulative Translation Adjustment			Retained Earnings			Non-controlling Interest		Total
BALANCE AT MARCH 31, 2018		24,984,791	$	86,259	$	5,412		$	(5,170	)	$	(54,462	)	$	392,241		$	—	$	424,280
Net income		—		—		—			—			—			8,135			—		8,135
Change in unrecognized gains (losses) on derivative instruments, net of tax		—		—		(17,989	)		—			—			—			—		(17,989	)
Change in employee benefit plans, net of taxes		—		—		—			44			—			—			—		44
Net foreign currency translation adjustment		—		—		—			—			(35,233	)		—			—		(35,233	)
Stock options exercised		4,500		68		—			—			—			—			—		68
Common stock issued, net of shares withheld for employee taxes		22,439		—		—			—			—			—			—		—
Stock-based compensation		—		978		—			—			—			—			—		978
Cash dividends declared ($0.09 per common share)		—		—		—			—			—			(2,265	)		—		(2,265	)
Redeemable preferred dividend (9% per preferred share and $0.09 per common share equivalent) and accretion		—		—		—			—			—			(8,135	)		—		(8,135	)
European non-controlling redeemable equity dividend		—		—		—			—			—			(511	)		—		(511	)
BALANCE AT JUNE 30, 2018		25,011,730	$	87,305	$	(12,577	)	$	(5,126	)	$	(89,695	)	$	389,465		$	—	$	369,372

SUPERIOR INDUSTRIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Dollars in thousands)

For the six months ended June 30, 2019

(Unaudited)	Common Stock				Accumulated Other Comprehensive (Loss) Income
	Number of Shares		Amount		Unrecognized Gains (Losses) on Derivative Instruments			Pension Obligations			Cumulative Translation Adjustment			Retained Earnings			Total
BALANCE AT DECEMBER 31, 2018		25,019,237	$	87,723	$	(3,205	)	$	(3,000	)	$	(99,290	)	$	391,037		$	373,265
Net income		—		—		—			—			—			9,220			9,220
Change in unrecognized gains (losses) on derivative instruments, net of tax		—		—		6,782			—			—			—			6,782
Change in employee benefit plans, net of taxes		—		—		—			83			—			—			83
Net foreign currency translation adjustment		—		—		—			—			684			—			684
Common stock issued, net of shares withheld for employee taxes		95,361		—		—			—			—			—			—
Stock-based compensation		—		1,809		—			—			—			—			1,809
Cash dividends declared ($0.09 per common share)		—		—		—			—			—			(4,582	)		(4,582	)
Redeemable preferred dividend (9% per preferred share and $0.09 per common share equivalent) and accretion		—		—		—			—			—			(15,688	)		(15,688	)
European non-controlling redeemable equity dividend		—		—		—			—			—			(383	)		(383	)
BALANCE AT JUNE 30, 2019		25,114,598	$	89,532	$	3,577		$	(2,917	)	$	(98,606	)	$	379,604		$	371,190

For the three months ended June 30, 2019

(Unaudited)	Common Stock				Accumulated Other Comprehensive (Loss) Income
	Number of Shares		Amount		Unrecognized Gains (Losses) on Derivative Instruments		Pension Obligations			Cumulative Translation Adjustment			Retained Earnings			Total
BALANCE AT MARCH 31, 2019		25,073,360	$	88,119	$	1,721	$	(2,959	)	$	(106,639	)	$	382,772		$	363,014
Net income		—		—		—		—			—			7,270			7,270
Change in unrecognized gains (losses) on derivative instruments, net of tax		—		—		1,856		—			—			—			1,856
Change in employee benefit plans, net of taxes		—		—		—		42			—			—			42
Net foreign currency translation adjustment		—		—		—		—			8,033			—			8,033
Common stock issued, net of shares withheld for employee taxes		41,238		—		—		—			—			—			—
Stock-based compensation		—		1,413		—		—			—			—			1,413
Cash dividends declared ($0.09 per common share)		—		—		—		—			—			(2,259	)		(2,259	)
Redeemable preferred dividend (9% per preferred share and $0.09 per common share equivalent) and accretion		—		—		—		—			—			(7,917	)		(7,917	)
European non-controlling redeemable equity dividend		—		—		—		—			—			(262	)		(262	)
BALANCE AT JUNE 30, 2019		25,114,598	$	89,532	$	3,577	$	(2,917	)	$	(98,606	)	$	379,604		$	371,190

The accompanying unaudited notes are an integral part of these condensed consolidated financial statements.

Superior Industries International, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2019

(Unaudited)

NOTE 1 – NATURE OF OPERATIONS AND PRESENTATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Nature of Operations

Superior Industries International, Inc. (referred to herein as the “Company” or “we,” “us” and “our”) designs and manufactures aluminum wheels for sale to original equipment manufacturers (“OEMs”) and aftermarket customers. We are one of the largest suppliers of cast aluminum wheels to the world’s leading automobile and light truck manufacturers, with manufacturing operations in the United States, Mexico, Germany and Poland. Our OEM aluminum wheels are sold primarily for factory installation, as either standard equipment or optional equipment on vehicle models manufactured by BMW-Mini, Daimler AG Company (Mercedes-Benz, AMG, Smart), FCA, Ford, GM, Honda, Jaguar-Land Rover, Mazda, Nissan, PSA, Renault, Subaru, Suzuki, Toyota, VW Group (Volkswagen, Audi, Skoda, Porsche, Bentley) and Volvo. We also sell aluminum wheels to the European aftermarket under the brands ATS, RIAL, ALUTEC and ANZIO. North America and Europe represent the principal markets for our products, but we have a global presence and influence with North American, European and Asian OEMs. We have determined that our North American and European operations should be treated as separate operating segments as further described in Note 5, “Business Segments.”

Presentation of Condensed Consolidated Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the SEC’s requirements for quarterly reports on Form 10-Q and U.S. GAAP and, in our opinion, contain all adjustments, of a normal and recurring nature, which are necessary for fair presentation of (i) the condensed consolidated income statements for the three and six month periods ended June 30, 2019 and June 30, 2018, (ii) the condensed consolidated statements of comprehensive income (loss) for the three and six month periods ended June 30, 2019 and June 30, 2018, (iii) the condensed consolidated balance sheets at June 30, 2019 and December 31, 2018, (iv) the condensed consolidated statements of cash flows for the six month periods ended June 30, 2019 and June 30, 2018, and (v) the condensed consolidated statements of shareholders’ equity for the three and six month periods ended June 30, 2019 and June 30, 2018. This Quarterly Report on Form 10-Q should be read in conjunction with our consolidated financial statements and notes thereto filed with the Securities and Exchange Commission (“SEC”) in our 2018 Annual Report on Form 10-K.

Interim financial reporting standards require us to make estimates that are based on assumptions regarding the outcome of future events and circumstances not known at that time, including the use of estimated effective tax rates. Inevitably, some assumptions will not materialize, unanticipated events or circumstances may occur which vary from those estimates and such variations may significantly affect our future results. Additionally, interim results may not be indicative of our results for future interim periods or our annual results.

Cash Paid for Interest and Taxes and Non-Cash Investing Activities

Cash paid for interest was $21.6 million and $22.1 million for the six months ended June 30, 2019, and 2018, respectively. Net cash income taxes paid was $2.9 million and $0.9 million for the six months ended June 30, 2019, and 2018, respectively. As of June 30, 2019, and 2018, $18.1 million and $8.3 million, respectively, of equipment had been purchased but not yet paid for and is included in accounts payable and accrued expenses in our consolidated balance sheets.

New Accounting Standards

ASU 2016-02, Topic 842, “Leases.” Effective January 1, 2019, we adopted ASU 2016-02, ASC 842, “Leases,” the new lease accounting standard, using the optional transition approach. Adoption of the standard resulted in recognition of operating lease right-of-use (“ROU”) assets and lease liabilities of $18.2 million and $18.6 million, respectively, as well as a charge to eliminate previously deferred rent of $0.4 million, as of January 1, 2019. The ASU also requires lessees to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. Under the optional transition approach, financial statements for prior periods have not been restated and the disclosures applicable under the previous standard will be included for those periods. In adopting the standard, the Company has adopted the package of practical expedients. As a consequence, the Company has not reassessed (1) whether existing or expired contracts contain leases under the new definition of a lease, (2) lease classification for expired or existing leases (finance vs. operating) and (3) whether previously capitalized initial direct costs qualify for capitalization under the new standard. In addition, the Company has also adopted an accounting policy to exclude leases of less than one year from capitalization.

ASU 2018-02, “Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” In January 2018, the FASB issued ASU 2018-02, “Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which gives entities the option to reclassify to retained earnings the tax effects resulting from the Tax Cut and Jobs Act (“the Act”) related to items in accumulated other comprehensive income (“AOCI”) that the FASB refers to as having been stranded in AOCI. The new guidance may be applied retrospectively to each period in which the effect of the Act is recognized in the period of adoption. The Company adopted this guidance in the first quarter of 2019. The guidance requires new disclosures regarding a company’s accounting policy for releasing tax effects in AOCI. The Company has elected to not reclassify the income tax effects of the Tax Cut and Jobs Act from AOCI.

Accounting Standards Issued But Not Yet Adopted

ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” The objective of the ASU is to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the test. Step 2 measures goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill to the carrying amount. This standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted. We are evaluating the impact this new standard will have on our financial statements and disclosures.

ASU 2018-13, “Fair Value Measurement .” In August 2018, the FASB issued an ASU entitled “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement,” which is designed to improve the effectiveness of disclosures by removing, modifying and adding disclosures related to fair value measurements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The ASU allows for early adoption in any interim period after issuance of the update. We are evaluating the impact this guidance will have on our financial statement disclosures.

ASU 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans.” In August 2018, the FASB issued an ASU entitled “Compensation - Retirement Benefits - Defined Benefit Plans - General Subtopic 715-20 - Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans,” which is designed to improve the effectiveness of disclosures by removing and adding disclosures related to defined benefit plans. ASU 2018-14 is effective for fiscal years ending after December 15, 2020. The new standard allows for early adoption in any year end after issuance of the update. We are evaluating the impact this new standard will have on our financial statement disclosures.

Restatement for Reclassification of Certain Foreign Currency Translation Adjustments

Subsequent to the issuance of the September 30, 2018 interim financial statements, the Company identified an error related to the classification of foreign currency translation adjustments associated with the European non-controlling redeemable equity within the June 30, 2018 and September 30, 2018 condensed consolidated statements of shareholders’ equity, condensed consolidated balance sheets, condensed consolidated income statements and condensed consolidated statements of comprehensive income. As a result, the amounts previously reported have been corrected as the Company has reclassified $2.9 million of European non-controlling redeemable equity translation adjustments from retained earnings to cumulative translation adjustment for the three and six month periods ended June 30, 2018. In addition, the basic and diluted earnings (loss) per share amounts for the three and six month periods ended June 30, 2018 have been corrected accordingly. The Company’s condensed consolidated statements of cash flows for the six month period ended June 30, 2018 were unaffected. Management evaluated the materiality of this misstatement from quantitative and qualitative perspectives and concluded it is not material to the prior period.

	Three Months Ended									Six Months Ended
	June 30, 2018									June 30, 2018
	As Previously Reported			Adjustment			As Restated			As Previously Reported			Adjustment			As Restated
Condensed Consolidated Income Statements and Note 12 Earnings per Share
Earnings (loss) per share - Basic	$	0.09		$	(0.11	)	$	(0.02	)	$	0.16		$	(0.11	)	$	0.05
Earnings (loss) per share - Diluted		0.09			(0.11	)		(0.02	)		0.16			(0.11	)		0.05

Condensed Consolidated Statements of Comprehensive Income (Loss)
Foreign currency translation gain (loss), net of tax	$	(38,084	)		2,851			(35,233	)	$	(17,180	)		2,851			(14,329	)
Other comprehensive income (loss), net of tax		(56,029	)		2,851			(53,178	)		(21,128	)		2,851			(18,277	)
Comprehensive income (loss)		(47,894	)		2,851			(45,043	)		(2,676	)		2,851			175

	Six Months Ended
	June 30, 2018
	As Previously Reported			Adjustment			As Restated
Condensed Consolidated Statement of Shareholders' Equity
Cumulative Translation Adjustment:
Net foreign currency translation adjustment	$	(17,180	)	$	2,851		$	(14,329	)
Cumulative translation adjustment balance at June 30, 2018		(92,546	)		2,851			(89,695	)
Retained Earnings:
European non-controlling redeemable equity translation adjustment		2,851			(2,851	)	—
Retained earnings balance at June 30, 2018		392,316			(2,851	)		389,465
Total Shareholders' Equity:
Net foreign currency translation adjustment	$	(17,180	)	$	2,851		$	(14,329	)
European non-controlling redeemable equity translation adjustment		2,851			(2,851	)	—
Total shareholders' equity balance at June 30, 2018		369,372						369,372

NOTE 2 – REVENUE

In accordance with ASC 606, “Revenue from Contracts with Customers,” the Company disaggregates revenue from contracts with customers into our operating segments, North America and Europe. Revenues by segment for the three and six months ended June 30, 2019 are summarized in Note 5, “Business Segments.”

The Company’s customer receivables and current and long-term contract liabilities balances as of June 30, 2019 and December 31, 2018 are as follows (in thousands):

	June 30, 2019		December 31, 2018
Customer receivables	$	115,396	$	97,566
Contract liabilities—current		6,189		5,810
Contract liabilities—noncurrent		10,464		8,354

NOTE 3 – FAIR VALUE MEASUREMENTS

The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis, while other assets and liabilities are measured at fair value on a nonrecurring basis, such as when we have an asset impairment. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

The carrying amounts for cash and cash equivalents, investments in certificates of deposit, accounts receivable, accounts payable and accrued expenses approximate their fair values due to the short period of time until maturity.

Cash and Cash Equivalents

Cash and cash equivalents generally consist of cash, certificates of deposit and fixed deposits and money market funds with original maturities of three months or less. Certificates of deposit and fixed deposits whose original maturity is greater than three months and is one year or less are classified as short-term investments.

Derivative Financial Instruments

Our derivatives are over-the-counter customized derivative transactions and are not exchange traded. We estimate the fair value of these instruments using industry-standard valuation models such as discounted cash flow. These models project future cash flows and discount the future amounts to a present value using market-based expectations for interest rates, foreign exchange rates, commodity prices and the contractual terms of the derivative instruments. The discount rate used is the relevant interbank deposit rate (e.g., LIBOR) plus an adjustment for non-performance risk. In certain cases, market data may not be available and we may use broker quotes and models to determine fair value. This includes situations where there is lack of liquidity for a particular currency or commodity or when the instrument is longer dated. The fair value measurements of the redeemable preferred stock embedded derivative are based upon Level 3 unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the liability – refer to Note 4, “Derivative Financial Instruments.”

Cash Surrender Value

We have an unfunded salary continuation plan, which was closed to new participants effective February 3, 2011. We purchased life insurance policies on certain participants to provide, in part, for future liabilities. In the second quarter of 2019, we terminated our life insurance policies in exchange for the cash surrender value of $7.6 million. We also received $0.6 million for death benefit claims.

The following tables categorize items measured at fair value at June 30 , 2019 and December 31, 2018 :

			Fair Value Measurement at Reporting Date Using
June 30, 2019			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(Dollars in thousands)
Assets
Derivative contracts	$	12,349	$	—	$	12,349	$	—
Total		12,349		—		12,349		—
Liabilities
Derivative contracts		8,973		—		8,973		—
Embedded derivative liability		2,415		—		—		2,415
Total	$	11,388	$	—	$	8,973	$	2,415

			Fair Value Measurement at Reporting Date Using
December 31, 2018			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(Dollars in thousands)
Assets
Certificates of deposit	$	750	$	—	$	750	$	—
Cash surrender value		8,057		—		8,057		—
Derivative contracts		4,218		—		4,218		—
Total		13,025		—		13,025		—
Liabilities
Derivative contracts		8,836		—		8,836		—
Embedded derivative liability		3,134		—		—		3,134
Total	$	11,970	$	—	$	8,836	$	3,134

The following table summarizes the changes during 2019 and 2018 in the Level 3 fair value measurement of the embedded derivative liability relating to the redeemable preferred stock issued May 22, 2017 in connection with the acquisition of our European operations:

January 1, 2018 – June 30, 2019
(Dollars in thousands)
Beginning fair value - January 1, 2018	$	4,685
Change in fair value of redeemable preferred stock embedded derivative liability		(3,480	)
Effect of redeemable preferred stock modification		1,929
Ending fair value - December 31, 2018		3,134
Change in fair value of redeemable preferred stock embedded derivative liability		(719	)
Ending fair value - June 30, 2019	$	2,415

Debt Instruments

The carrying values of the Company’s debt instruments vary from their fair values. The fair values were determined by reference to transacted prices of these securities (Level 2 input based on the U.S. GAAP fair value hierarchy). The estimated fair value, as well as the carrying value, of the Company’s debt instruments are shown below:

	June 30, 2019		December 31, 2018
(Dollars in thousands)
Estimated aggregate fair value	$	599,908	$	624,943
Aggregate carrying value ⁽¹⁾		657,877		684,922

⁽¹⁾	Long-term debt excluding the impact of unamortized debt issuance costs.

NOTE 4 - DERIVATIVE FINANCIAL INSTRUMENTS

Derivative Instruments and Hedging Activities

We use derivatives to partially offset our exposure to foreign currency, interest rate, aluminum and other commodity price risk. We may enter into forward contracts, option contracts, swaps, collars or other derivative instruments to offset some of the risk on expected future cash flows and on certain existing assets and liabilities. However, we may choose not to hedge certain exposures for a variety of reasons including, but not limited to, accounting considerations and the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign currency exchange rates, interest rates, and aluminum or other commodity prices.

To help protect gross margins from fluctuations in foreign currency exchange rates, certain of our subsidiaries, whose functional currency is the U.S. dollar or the Euro, hedge a portion of their forecasted foreign currency costs denominated in the Mexican Peso and Polish Zloty, respectively. We may hedge portions of our forecasted foreign currency exposure up to 48 months.

We record all derivatives in the condensed consolidated balance sheets at fair value. Our accounting treatment for these instruments is based on the hedge designation. Gains or losses on cash flow hedges that are designated as hedging instruments are recorded in accumulated other comprehensive income (loss) (“AOCI”) until the hedged item is recognized in earnings, at which point accumulated gains or losses will be recognized in earnings and classified with the underlying hedged transaction. Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings in the financial statement line item to which the derivative relates. The Company has derivatives that are designated as hedging instruments as well as derivatives that did not qualify for designation as hedging instruments.

Redeemable Preferred Stock Embedded Derivative

We have determined that the conversion option embedded in our redeemable preferred stock is required to be accounted for separately from the redeemable preferred stock as a derivative liability. Separation of the conversion option as a derivative liability is required because its economic characteristics are considered more akin to an equity instrument and therefore the conversion option is not considered to be clearly and closely related to the economic characteristics of the redeemable preferred stock. The economic characteristics of the redeemable preferred stock are considered more akin to a debt instrument due to the fact that the shares are redeemable at the holder’s option, the redemption value is significantly greater than the face amount, the shares carry a fixed mandatory dividend and the stock price necessary to make conversion more attractive than redemption ($56.32) is significantly greater than the price at the date of issuance ($19.05), all of which led to the conclusion that redemption is more likely than conversion.

We also have determined that the embedded early redemption option upon the occurrence of a redemption event (e.g. change of control, etc.) must also be bifurcated and accounted for separately from the redeemable preferred stock, because the debt host contract involves a substantial discount (face of $150.0 million as compared to the redemption value of $300.0 million) and the redemption event would accelerate the holder’s option to redeem the shares (refer to Note 10, “Redeemable Preferred Stock”).

Accordingly, we have recorded an embedded derivative liability representing the combined fair value of the right of holders to receive common stock upon conversion of redeemable preferred stock at any time (the “conversion option”) and the right of the holders to exercise their early redemption option upon the occurrence of a redemption event (the “early redemption option”). The embedded derivative liability is adjusted to reflect fair value at each period end with changes in fair value recorded in the change in fair value of redeemable preferred stock embedded derivative financial statement line item of the Company’s condensed consolidated income statements (refer to Note 3, “Fair Value Measurements”).

A binomial option pricing model is used to estimate the fair value of the conversion and early redemption options embedded in the redeemable preferred stock. The binomial model utilizes a “decision tree” whereby future movement in the Company’s common stoc k price is estimated based on a volatility factor. The binomial option pricing model requires the development and use of assumptions. These assumptions include estimated volatility of the value of our common stock, assumed possible conversion or early rede mption dates, an appropriate risk-free interest rate, risky bond rate and dividend yield.

The expected volatility of the Company’s common stock is estimated based on historical volatility. The assumed base case term used in the valuation model is the period remaining until September 14, 2025 (the earliest date at which the holder may exercise its unconditional redemption option). A number of other scenarios incorporate earlier redemption dates to address the possibility of early redemption upon the occurrence of a redemption event. The risk-free interest rate is based on the U.S. Treasury zero coupon yield with a remaining term equal to the expected term of the conversion and early redemption options. The significant assumptions utilized in the Company’s valuation of the embedded derivative at June 30, 2019 are as follows: valuation scenario terms between 2.50 and 6.21 years, volatility of 55.0 percent, risk-free rate of 1.7 percent to 1.8 percent related to the respective assumed terms, a risky bond rate of 20.9 percent and a dividend yield of 10.4 percent.

The following tables display the fair value of derivatives by balance sheet line item at June 30, 2019 and December 31, 2018:

	June 30, 2019
	Other Current Assets		Other Non-current Assets		Accrued Liabilities		Other Non-current Liabilities
(Dollars in thousands)
Foreign exchange forward contracts designated as hedging instruments	$	5,665	$	6,645	$	56	$	779
Foreign exchange forward contracts not designated as hedging instruments		5		—		251		—
Aluminum forward contracts designated as hedging instruments		—		—		681		—
Natural gas forward contracts designated as hedging instruments		—		34		557		242
Interest rate swaps designated as hedging instruments		—		—		1,855		4,552
Embedded derivative liability		—		—		—		2,415
Total derivative financial instruments	$	5,670	$	6,679	$	3,400	$	7,988

	December 31, 2018
	Other Current Assets		Other Non-current Assets		Accrued Liabilities		Other Non-current Liabilities
(Dollars in thousands)
Foreign exchange forward contracts designated as hedging instruments	$	2,599	$	1,011	$	659	$	6,202
Foreign exchange forward contracts not designated as hedging instruments		333		—		207		—
Aluminum forward contracts designated as hedging instruments		—		—		927		—
Cross currency swap not designated as a hedging instrument		—		—		227		—
Natural gas forward contracts designated as hedging instruments		275		—		355		—
Interest rate swaps designated as hedging instruments		—		—		131		128
Embedded derivative liability		—		—		—		3,134
Total derivative financial instruments	$	3,207	$	1,011	$	2,506	$	9,464

The following table summarizes the notional amount and estimated fair value of our derivative financial instruments:

	June 30, 2019					December 31, 2018
	Notional U.S. Dollar Amount		Fair Value			Notional U.S. Dollar Amount		Fair Value
(Dollars in thousands)
Foreign exchange forward contracts designated as hedging instruments	$	468,440	$	11,475		$	467,253	$	(3,251	)
Foreign exchange forward contracts not designated as hedging instruments		73,116		(246	)		45,905		126
Aluminum forward contracts designated as hedging instruments		11,964		(681	)		10,810		(927	)
Cross currency swap not designated as a hedging instrument		—		—			12,151		(227	)
Natural gas forward contracts designated as hedging instruments		6,313		(765	)		2,165		(80	)
Interest rate swaps designated as hedging instruments		290,000		(6,407	)		90,000		(259	)
Total derivative financial instruments	$	849,833	$	3,376		$	628,284	$	(4,618	)

Notional amounts are presented on a gross basis. The notional amounts of the derivative financial instruments do not represent amounts exchanged by the parties and, therefore, are not a direct measure of our exposure to the financial risks. The amounts exchanged are calculated by reference to the notional amounts and by other terms of the derivatives, such as interest rates, foreign currency exchange rates or commodity prices.

The following tables summarize the gain or loss recognized in AOCI as of June 30, 2019 and 2018, the amounts reclassified from AOCI into earnings and the amounts recognized directly into earnings for the three and six months ended June 30, 2019 and 2018:

Three months ended June 30, 2019	Amount of Gain or (Loss) Recognized in AOCI on Derivatives, net of tax		Amount of Pre-tax Gain or (Loss) Reclassified from AOCI into Income		Amount of Pre-tax Gain or (Loss) Recognized in Income on Derivatives
(Dollars in thousands)
Derivative contracts	$	1,856	$	878	$	56
Total	$	1,856	$	878	$	56

Six months ended June 30, 2019	Amount of Gain or (Loss) Recognized in AOCI on Derivatives, net of tax		Amount of Pre-tax Gain or (Loss) Reclassified from AOCI into Income		Amount of Pre-tax Gain or (Loss) Recognized in Income on Derivatives
(Dollars in thousands)
Derivative contracts	$	6,782	$	1,714	$	1,740
Total	$	6,782	$	1,714	$	1,740

Three months ended June 30, 2018	Amount of Gain or (Loss) Recognized in AOCI on Derivatives, net of tax			Amount of Pre-tax Gain or (Loss) Reclassified from AOCI into Income			Amount of Pre-tax Gain or (Loss) Recognized in Income on Derivatives
(Dollars in thousands)
Derivative contracts	$	(17,989	)	$	(539	)	$	435
Total	$	(17,989	)	$	(539	)	$	435

Six months ended June 30, 2018	Amount of Gain or (Loss) Recognized in AOCI on Derivatives, net of tax			Amount of Pre-tax Gain or (Loss) Reclassified from AOCI into Income			Amount of Pre-tax Gain or (Loss) Recognized in Income on Derivatives
(Dollars in thousands)
Derivative contracts	$	(4,079	)	$	46		$	(309	)
Total	$	(4,079	)	$	46		$	(309	)

NOTE 5 - BUSINESS SEGMENTS

The North American and European businesses represent separate operating segments in view of significantly different markets, customers and products in each of these regions. Within each of these regions, markets, customers, products and production processes are similar and production can be readily transferred between production facilities. Moreover, our business within each region leverages common systems, processes and infrastructure. Accordingly, North America and Europe comprise the Company’s reportable segments.

(Dollars in thousands)	Net Sales				Income from Operations
Three months ended	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
North America	$	180,402	$	204,758	$	11,827	$	9,676
Europe		172,097		184,186		12,204		21,594
	$	352,499	$	388,944	$	24,031	$	31,270

(Dollars in thousands)	Depreciation and Amortization				Capital Expenditures
Three months ended	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
North America	$	7,950	$	8,603	$	4,435	$	8,565
Europe		15,392		15,384		10,838		6,781
	$	23,342	$	23,987	$	15,273	$	15,346

(Dollars in thousands)	Net Sales				Income from Operations
Six months ended	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
North America	$	365,518	$	408,908	$	18,026	$	23,461
Europe		344,674		366,484		24,644		35,443
	$	710,192	$	775,392	$	42,670	$	58,904

(Dollars in thousands)	Depreciation and Amortization				Capital Expenditures
Six months ended	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
North America	$	15,816	$	17,401	$	10,563	$	18,593
Europe		30,857		30,939		18,102		19,427
	$	46,673	$	48,340	$	28,665	$	38,020

(Dollars in thousands)	Property, Plant and Equipment, net				Goodwill and Intangible Assets
	June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018
North America	$	247,622	$	249,791	$	—	$	—
Europe		291,071		282,976		444,497		459,803
	$	538,693	$	532,767	$	444,497	$	459,803

(Dollars in thousands)	Total Assets
	June 30, 2019		December 31, 2018
North America	$	478,001	$	484,682
Europe		989,889		966,934
	$	1,467,890	$	1,451,616

Geographic information

Net sales by geographic location are as follows:

	Three Months Ended				Six Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
(Dollars in thousands)
Net sales:
U.S.	$	26,466	$	30,527	$	54,722	$	61,010
Mexico		153,936		174,231		310,796		347,898
Germany		57,189		70,968		121,237		142,193
Poland		114,908		113,218		223,437		224,291
Consolidated net sales	$	352,499	$	388,944	$	710,192	$	775,392

NOTE 6 - INVENTORIES

	June 30, 2019		December 31, 2018
(Dollars in thousands)
Raw materials	$	50,474	$	49,571
Work in process		45,948		42,886
Finished goods		81,559		83,121
Inventories, net	$	177,981	$	175,578

Service wheel and supplies inventory included in other non-current assets in the condensed consolidated balance sheets totaled $9.5 million and $8.9 million at June 30, 2019 and December 31, 2018, respectively.

NOTE 7 - PROPERTY, PLANT AND EQUIPMENT

	June 30, 2019			December 31, 2018
(Dollars in thousands)
Land and buildings	$	140,696		$	140,471
Machinery and equipment		791,359			769,451
Leasehold improvements and other		13,435			12,883
Construction in progress		83,930			67,559
		1,029,420			990,364
Accumulated depreciation		(490,727	)		(457,597	)
Property, plant and equipment, net	$	538,693		$	532,767

Depreciation expense for the three and six months ended June 30, 2019 was $16.6 million and $33.2 million, respectively. Depreciation expense for the three and six months ended June 30, 2018 was $17.4 million and $34.9 million, respectively.

NOTE 8 - GOODWILL AND OTHER INTANGIBLE ASSETS

Following is a summary of the Company’s finite-lived and indefinite-lived intangible assets and goodwill as of June 30, 2019 and December 31, 2018.

Six Months Ended June 30, 2019	Gross Carrying Amount		Accumulated Amortization			Currency Translation		Net Carrying Amount		Remaining Weighted Average Amortization Period
(Dollars in thousands)
Brand name	$	9,000	$	(3,891	)	$	200	$	5,309	3-4
Technology		15,000		(6,486	)		335		8,849	2-4
Customer relationships		167,000		(43,723	)		2,998		126,275	4-9
Total finite		191,000		(54,100	)		3,533		140,433
Trade names		14,000		—			233		14,233	Indefinite
Total intangibles	$	205,000	$	(54,100	)	$	3,766	$	154,666

Six Months Ended June 30, 2019

Beginning Balance

Currency

Translation

Ending

Balance

(Dollars in thousands)

Goodwill

291,434

(1,603

)

289,831

Year Ended December 31, 2018	Gross Carrying Amount		Accumulated Amortization			Currency Translation		Net Carrying Amount		Remaining Weighted Average Amortization Period
(Dollars in thousands)
Brand name	$	9,000	$	(2,979	)	$	237	$	6,258	4-5
Technology		15,000		(4,964	)		394		10,430	3-5
Customer relationships		167,000		(33,468	)		3,823		137,355	5-10
Total finite		191,000		(41,411	)		4,454		154,043
Trade names		14,000		—			326		14,326	Indefinite
Total intangibles	$	205,000	$	(41,411	)	$	4,780	$	168,369

Beginning Balance

Currency

Translation

Ending

Balance

Year Ended December 31, 2018

(Dollars in thousands)

Goodwill

304,805

(13,371

)

291,434

Amortization expense for these intangible assets was $6. 7 million and $ 6.4 million for the quarter s ended June 30 , 2019 and 2018 , respectively . Amortization for the first half of the year was $ 13.5 million and $13.4 million for Ju ne 30, 2019 and 2018 , respectively . The anticipated annual amortization expense for these intangible assets is $25.0 million for 2019 to 2021, $22.2 million for 2022 and $20.2 million for 2023.

NOTE 9 – DEBT

A summary of long-term debt and the related weighted average interest rates is shown below:

	June 30, 2019 (Dollars in Thousands)
Debt Instrument	Total Debt		Debt Issuance Costs ⁽¹⁾			Total Debt, Net			Weighted Average Interest Rate
Term Loan Facility	$	378,800	$	(11,731	)	$	367,069		6.4%
6.00% Senior Notes due 2025		261,579		(6,257	)		255,322		6.0%
Other		15,164		—			15,164		2.2%
Capital Leases		2,334		—			2,334		2.8%
	$	657,877	$	(17,988	)		639,889
Less: Current portion							(3,741	)
Long-term debt						$	636,148

	December 31, 2018 (Dollars in Thousands)
Debt Instrument	Total Debt		Debt Issuance Costs ⁽¹⁾			Total Debt, Net			Weighted Average Interest Rate
Term Loan Facility	$	382,800	$	(13,078	)	$	369,722		6.3%
6.00% Senior Notes due 2025		286,100		(7,366	)		278,734		6.0%
Other		16,022		—			16,022		2.2%
	$	684,922	$	(20,444	)		664,478
Less: Current portion							(3,052	)
Long-term debt						$	661,426

⁽¹⁾	Unamortized portion

Senior Notes

On June 15, 2017, the Company issued 250.0 million Euro aggregate principal amount of 6.00% Senior Notes (the “Notes”) due June 15, 2025. Interest on the Notes is payable semiannually, on June 15 and December 15. The Company may redeem the Notes, in whole or in part, on or after June 15, 2020 at redemption prices of 103.000% and 101.500% of the principal amount thereof if the redemption occurs during the 12-month period beginning June 15, 2020 or 2021, respectively, and a redemption price of 100% of the principal amount thereof on or after June 15, 2022, in each case plus accrued and unpaid interest to, but not including, the applicable redemption date. In addition, the Company may redeem some or all of the Notes prior to June 15, 2020 at a price equal to 100.0% of the principal amount thereof plus a “make-whole” premium and accrued and unpaid interest, if any, up to, but not including, the redemption date. Prior to June 15, 2020, the Company may redeem up to 40% of the aggregate principal amount of the Notes using the proceeds of certain equity offerings at a certain redemption price. If we experience a change of control or sell certain assets, the Company may be required to offer to purchase the Notes from the holders. The Notes are senior unsecured obligations ranking equally in right of payment with all of its existing and future senior indebtedness and senior in right of payment to any subordinated indebtedness. The Notes are effectively subordinated in right of payment to the existing and future secured indebtedness of the Company, including the Senior Secured Credit Facilities (as defined below), to the extent of the assets securing such indebtedness.

During the se cond quarter of 2019 , t he Company opportunistically purchased Notes on the open market with a face value totaling $22.4 million ( 20.0 million Euro ) for $19.4 million (1 7 .4 million Euro ). The associated carrying value of the Notes , net of allocable debt issuance cost, was $21.8 million, resulting in a net gain of $ 2. 4 million, which is included in other income .

Guarantee

The Notes are unconditionally guaranteed by all material wholly-owned direct and indirect domestic restricted subsidiaries of the Company (the “Subsidiary Guarantors”), with customary exceptions including, among other things, where providing such guarantees is not permitted by law, regulation or contract or would result in adverse tax consequences.

Covenants

Subject to certain exceptions, the indenture governing the Notes contains restrictive covenants that, among other things, limit the ability of the Company and the Subsidiary Guarantors to: (i) incur additional indebtedness or issue certain preferred stock; (ii) pay dividends on, or make distributions in respect of, their capital stock; (iii) make certain investments or other restricted payments; (iv) sell certain assets or issue capital stock of restricted subsidiaries; (v) create liens; (vi) merge, consolidate, transfer or dispose of substantially all of their assets; and (vii) engage in certain transactions with affiliates. These covenants are subject to several important limitations and exceptions that are described in the indenture.

The indenture provides for customary events of default that include, among other things (subject in certain cases to customary grace and cure periods): (i) nonpayment of principal, premium, if any, and interest, when due; (ii) breach of covenants in the indenture; (iii) a failure to pay certain judgments; and (iv) certain events of bankruptcy and insolvency. If an event of default occurs and is continuing, the Bank of New York Mellon, London Branch (“the Trustee”) or holders of at least 30% in principal amount of the then outstanding Notes may declare the principal, premium, if any, and accrued and unpaid interest on all the Notes to be due and payable. These events of default are subject to several important qualifications, limitations and exceptions that are described in the indenture. As of June 30, 2019, the Company was in compliance with all covenants under the indenture governing the Notes.

Senior Secured Credit Facilities

On March 22, 2017, the Company entered into a senior secured credit agreement (the “Credit Agreement”) with Citibank, N.A, as Administrative Agent, Collateral Agent and Issuing Bank, JP Morgan Chase N.A., Royal Bank of Canada and Deutsche Bank A.G. New York Branch as Joint Lead Arrangers and Joint Book Runners, and the other lenders party thereto (collectively, the “Lenders”). The Credit Agreement consisted of a $400.0 million senior secured term loan facility (the “Term Loan Facility”), which matures on May 23, 2024, and a $160.0 million revolving credit facility maturing on May 23, 2022 (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Senior Secured Credit Facilities”).

On June 29, 2018, the Company entered into an amendment to the Credit Agreement pursuant to which the interest rate under the Term Loan Facility was reduced to LIBOR plus 4.00 percent (from LIBOR plus 4.50 percent), subject to a LIBOR floor of 0.00 percent (in place of the previous LIBOR floor of 1.00 percent). Substantially all of the original loans under the Term Loan Facility were replaced with loans from existing lenders under terms that were not substantially different than those of the original loans. As a result, this transaction did not result in any debt extinguishment and the unamortized debt issuance costs associated with the original loans will continue to be amortized over the remaining term of the replacement loans (which is unchanged from the original term).

Borrowings under the Term Loan Facility will bear interest at a rate equal to, at the Company’s option, either (a) LIBOR for the relevant interest period, with a floor of zero, plus an applicable rate of 4.00 percent or (b) a base rate, subject to a floor of 2.00 percent per annum, equal to the highest of (1) the rate of interest in effect as publicly announced by the administrative agent as its prime rate, (2) the federal funds rate plus 0.50 percent and (3) LIBOR for an interest period of one month plus 1.00 percent, in each case, plus an applicable rate of 3.00 percent.

Borrowings under the Revolving Credit Facility initially bear interest at a rate equal to, at the Company’s option, either (a) LIBOR for the relevant interest period, with a floor of 1.00 percent per annum, plus an applicable rate of 3.50 percent or (b) a base rate, equal to the highest of (1) the rate of interest in effect as publicly announced by the administrative agent as its prime rate, (2) the federal funds effective rate plus 0.50 percent and (3) LIBOR for an interest period of one month plus 1.00 percent, in each case, plus an applicable rate of 2.50 percent provided such rate may not be less than zero. The initial commitment fee for unused commitments under the Revolving Credit Facility shall be 0.50 percent. The applicable rates for borrowings under the Revolving Credit Facility and commitment fees for unused commitments under the Revolving Credit Facility are based upon the First Lien Net Leverage Ratio effective for the preceding quarter with LIBOR applicable rates between 3.50 percent and 3.00 percent, base rate applicable rates between 2.50 percent and 2.00 percent and commitment fees between 0.50 percent and 0.25 percent. Commitment fees are included in our consolidated financial statements line, interest expense.

As of June 30 , 2019 , the Company had repaid $ 21 .2 million under the Term Loan Facility re sulting in a balance of $ 3 78 .8 million . The repayment of $3.0 million principal amount during the second quarter of 2019 included $2.0 million principal amount of initially unscheduled repayments . A s of June 30 , 2019 , the Company had no outstanding borrowings under the Revolving Credit Facility and had outstanding letters of credit of $ 3 . 4 m illion and available unused commitments under this facility of $ 156 . 6 million.

Guarantees and Collateral Security

Our obligations under the Credit Agreement are unconditionally guaranteed by all material wholly-owned direct and indirect domestic restricted subsidiaries of the Company, with customary exceptions including, among other things, where providing such guarantees is not permitted by law, regulation or contract or would result in adverse tax consequences. The guarantees of such obligations, will be secured, subject to permitted liens and other exceptions, by substantially all of our assets and the Subsidiary Guarantors’ assets, including but not limited to: (i) a perfected pledge of all of the capital stock issued by each of the Company’s direct wholly-owned domestic restricted subsidiaries or any guarantor (subject to certain exceptions) and up to 65 percent of the capital stock issued by each direct wholly-owned foreign restricted subsidiary of the Company or any guarantor (subject to certain exceptions) and (ii) perfected security interests in and mortgages on substantially all tangible and intangible personal property and material fee-owned real property of the Company and the guarantors (subject to certain exceptions and exclusions).

Covenants

The Senior Secured Credit Facilities contain a number of restrictive covenants that, among other things, restrict, subject to certain exceptions, our ability to incur additional indebtedness and guarantee indebtedness, create or incur liens, engage in mergers or consolidations, sell, transfer or otherwise dispose of assets, make investments, acquisitions, loans or advances, pay dividends, distributions or other restricted payments, or repurchase our capital stock, prepay, redeem, or repurchase any subordinated indebtedness, enter into agreements which limit our ability to incur liens on our assets or that restrict the ability of restricted subsidiaries to pay dividends or make other restricted payments to us, and enter into certain transactions with our affiliates.

In addition, the Credit Agreement contains customary default provisions, representations and warranties and other covenants. The Credit Agreement also contains a provision permitting the Lenders to accelerate the repayment of all loans outstanding under the Senior Secured Credit Facilities during an event of default. As of June 30, 2019, the Company was in compliance with all covenants under the Credit Agreement.

Acquisition Debt and European Credit Facility

In connection with the acquisition of Uniwheels, AG, the Company assumed $70.7 million of outstanding debt. At June 30, 2019, $15.2 million of debt remained outstanding, of which $3.0 million was classified as current. The outstanding debt is related to equipment and bears interest at 2.2 percent.

During the second quarter of 2019, the Company amended its European revolving credit facility (the “European Credit Facility”), increasing the available borrowing limit from 30.0 million Euro to 45.0 million Euro and extending the term to May 22, 2022. At June 30, 2019, there were 44.6 million Euro of available funds under the European Credit Facility. The credit facility bears interest at Euribor (with a floor of zero) plus a margin (ranging from 1.55 percent to 3.0 percent based on the net debt leverage ratio of Superior Industries Europe AG and its wholly owned subsidiaries, collectively “Superior Europe AG”), currently 1.55 percent. The annual commitment fee for unused commitments (ranging from 0.50 percent to 1.05 percent based on the net debt leverage ratio of Superior Europe AG), is currently 0.50 percent per annum. In addition, a monthly management fee is assessed equal to 0.07 percent of borrowings outstanding at month end. The commitment and management fees are both included in interest expense. Superior Europe AG has pledged substantially all of its assets, including land and buildings, receivables, inventory, and other moveable assets (other than collateral associated with the equipment loan) as collateral under the European Credit Facility.

The European Credit Facility is subject to a number of restrictive covenants that, among other things, restrict, subject to certain exceptions, the ability of Superior Europe AG to incur additional indebtedness and guarantee indebtedness, create or incur liens, engage in mergers or consolidations, sell, transfer or otherwise dispose of assets, make investments, acquisitions, loans or advances, pay dividends or distributions, or repurchase our capital stock, prepay, redeem, or repurchase any subordinated indebtedness, and enter into agreements which limit our ability to incur liens on our assets. At June 30, 2019, Superior Europe AG was in compliance with all covenants under the European Credit Facility.

NOTE 1 0 - REDEEMABLE PREFERRED STOCK

During 2017, we issued 150,000 shares of Series A (140,202 shares) and Series B (9,798 shares) Perpetual Convertible Preferred Stock, par value $0.01 per share to TPG Growth III Sidewall, L.P. (“TPG”) for an aggregate purchase price of $150.0 million. On August 30, 2017, the Series B shares were converted into Series A redeemable preferred stock, the “redeemable preferred stock” after approval by our shareholders. The redeemable preferred stock has an initial stated value of $1,000 per share, par value of $0.01 per share and liquidation preference over common stock.

The redeemable preferred stock is convertible into shares of our common stock equal to the number of shares determined by dividing the sum of the stated value and any accrued and unpaid dividends by the conversion price of $28.162. The redeemable preferred stock accrues dividends at a rate of 9 percent per annum, payable at our election either in-kind or in cash and is also entitled to participate in dividends on common stock in an amount equal to that which would have been due had the shares been converted into common stock.

We may mandate conversion of the redeemable preferred stock if the price of the common stock exceeds $84.49. TPG may redeem the shares upon the occurrence of any of the following events (referred to as a “redemption event”): a change in control, recapitalization, merger, sale of substantially all of the Company’s assets, liquidation or delisting of the Company’s common stock. In addition, as originally issued, TPG has the right, at its option, to unconditionally redeem the shares at any time after May 23, 2024, subsequently extended to September 14, 2025 (the “redemption date”). We may, at our option, redeem in whole at any time all of the shares of redeemable preferred stock outstanding. At redemption by either party, the redemption value will be the greater of two times the initial face value ($150.0 million) and any accrued unpaid dividends or dividends paid-in-kind, currently $300.0 million, or the product of the number of common shares into which the redeemable preferred stock could be converted (5.3 million shares currently) and the then current market price of the common stock. We have determined that the conversion option and the redemption option exercisable upon occurrence of a “redemption event” which are embedded in the redeemable preferred stock must be accounted for separately from the redeemable preferred stock as a derivative liability (as more fully described under Note 4, “Derivative Financial Instruments”).

Since the redeemable preferred stock may be redeemed at the option of the holder, but is not mandatorily redeemable, the redeemable preferred stock has been classified as mezzanine equity and initially recognized at fair value of $150.0 million (the proceeds on the date of issuance) less issuance costs of $3.7 million, resulting in an initial value of $146.3 million. This amount has been further reduced by $10.9 million assigned to the embedded derivative liability at date of issuance, resulting in an adjusted initial value of $135.5 million. The difference between the adjusted initial value of $135.5 million and the redemption value of $300 million was being accreted over the seven-year period from the date of issuance through May 23, 2024 (the original date at which the holder had the unconditional right to redeem the shares, deemed to be the earliest likely redemption date) using the effective interest method. The accretion to the carrying value of the redeemable preferred stock is treated as a deemed dividend, recorded as a charge to retained earnings and deducted in computing earnings per share (analogous to the treatment for stated and participating dividends paid on the redeemable preferred stock).

On November 7, 2018, the Company filed a Certificate of Correction to the Certificate of Designations for the preferred stock, which became effective upon filing and corrected the redemption date to September 14, 2025. This resulted in a modification of the redeemable preferred stock. As a result of the modification, the carrying value of the redeemable preferred stock decreased $17.2 million (which was credited to retained earnings, treated as a deemed dividend and is added back to compute earnings per share) and the period for accretion of the carrying value to the redemption value has been extended to September 14, 2025. The accretion has been adjusted to amortize the excess of the redemption value over the carrying value over the period through September 14, 2025. The accumulated accretion net of the modification adjustment as of June 30, 2019 is $17.1 million resulting in an adjusted redeemable preferred stock balance of $152.5 million.

NOTE 1 1 – EUROPEAN NON-CONTROLLING REDEEMABLE EQUITY

On May 30, 2017, the Company acquired 92.3 percent of the outstanding shares of Uniwheels, Inc. Subsequently, the Company commenced a delisting and associated tender offer for the remaining shares, increasing its ownership to 98.7 percent. On January 17, 2018, the Company entered into a Domination and Profit and Loss Transfer agreement (“DPLTA”) retroactively effective as of January 1, 2018 pursuant to which we offered to purchase the remaining outstanding shares at Euro 62.18. This price may be subject to change based on appraisal proceedings initiated by the minority shareholders which have not yet been concluded. The Company must also pay an annual dividend of Euro 3.23 as long as the DPLTA is in effect. For any shares tendered prior to the annual dividend payment, we must pay interest at a statutory rate, currently 4.12 percent, in place of the dividend. As a result, non-controlling interests with a carrying value of $51.9 million were reclassified from stockholders’ equity to mezzanine equity as of January 1, 2018 because non-controlling interests with redemption rights (not within the Company’s control) are considered redeemable and must be classified outside shareholders’ equity. In addition, the carrying value of the non-controlling interests must be adjusted to redemption value since they are currently redeemable. The following table summarizes the European non-controlling redeemable equity activity for the eighteen months ended June 30, 2019 (in thousands):

Balance at December 31, 2017	$	—
Reclassification of non-controlling interests		51,943
Redemption value adjustment		3,625
Dividends accrued		1,512
Dividends paid		(964	)
Translation adjustment		(3,219	)
Purchase of shares		(39,048	)
Balance at December 31, 2018		13,849
Dividends accrued		383
Dividends paid		(680	)
Translation adjustment		(110	)
Purchase of shares		(1,411	)
Balance at June 30, 2019	$	12,031

NOTE 1 2 – EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income (loss) attributable to Superior, after deducting preferred dividends and accretion and European non-controlling redeemable equity dividends, by the weighted average number of common shares outstanding. For purposes of calculating diluted earnings per share, the weighted average shares outstanding includes the dilutive effect of outstanding stock options and time and performance based restricted stock units under the treasury stock method. The redeemable preferred shares discussed in Note 10, “Redeemable Preferred Stock” are not included in the diluted earnings per share because the conversion would be anti-dilutive for the periods ended June 30, 2019 and June 30, 2018.

	Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
(Dollars in thousands, except per share amounts)
Basic Earnings Per Share:
Reported net income	$	7,270		$	8,135		$	9,220		$	18,452
Less: Redeemable preferred stock dividends and accretion		(7,917	)		(8,135	)		(15,688	)		(16,204	)
Less: European non-controlling redeemable equity dividend		(262	)		(511	)		(383	)		(1,084	)
Basic numerator	$	(909	)	$	(511	)	$	(6,851	)	$	1,164
Basic (loss) earnings per share	$	(0.04	)	$	(0.02	)	$	(0.27	)	$	0.05
Weighted average shares outstanding-Basic		25,106			25,001			25,070			24,969
Diluted Earnings Per Share:
Reported net income	$	7,270		$	8,135		$	9,220		$	18,452
Less: Redeemable preferred stock dividends and accretion		(7,917	)		(8,135	)		(15,688	)		(16,204	)
Less: European non-controlling redeemable equity dividend		(262	)		(511	)		(383	)		(1,084	)
Diluted numerator	$	(909	)	$	(511	)	$	(6,851	)	$	1,164
Diluted (loss) earnings per share	$	(0.04	)	$	(0.02	)	$	(0.27	)	$	0.05
Weighted average shares outstanding-Basic		25,106			25,001			25,070			24,969
Dilutive effect of common share equivalents		—			—			—			39
Weighted average shares outstanding-Diluted		25,106			25,001			25,070			25,008

NOTE 13 - INCOME TAXES

The estimated annual effective tax rate is forecasted quarterly using actual historical information and forward-looking estimates and applied to year-to-date ordinary income. The tax effects of unusual or infrequently occurring items, including changes in judgment about valuation allowances, settlements with taxing authorities and effects of changes in tax laws or rates, are reported in the interim period in which they occur.

The income tax provision for the three and six months ended June 30, 2019, was $7.5 million and $12.5 million, respectively, resulting in an effective income tax rate of 50.9 percent and 57.5 percent, respectively. The effective tax rate was higher than the statutory rate primarily due to the United States taxation of foreign earnings under the Global Intangible Low-Tax Income (“GILTI”) provisions of the Act, and the recognition of a valuation allowance on forecasted non-deductible interest, offset with a benefit due to the mix of earnings among tax jurisdictions.

The income tax provision for the three and six months ended June 30, 2018, was $4.8 million and $8.2 million, respectively, resulting in an effective income tax rate of 37.1 percent and 30.7 percent, respectively. The effective tax rate for the three and six months ended June 30, 2018 was higher than the statutory rate primarily due to the United States taxation of foreign earnings under the GILTI provisions of the Act, offset in part by earnings in countries with tax rates lower than the U.S. statutory rate.

At June 30, 2019, the Company remains indefinitely reinvested with respect to its initial investment and any associated potential withholding tax on earnings of its non-U.S. subsidiaries subject to the transition tax, as well as with respect to future earnings that will primarily fund the operations of the subsidiaries.

NOTE 1 4 - LEASES

Effective January 1, 2019, we adopted ASU 2016-02, ASC 842, “Leases,” the new lease accounting standard, using the optional transition approach resulting in recognition of operating lease right-of-use (“ROU”) assets and lease liabilities of $18.2 million and $18.6 million, respectively, as well as a charge to eliminate previously deferred rent of $0.4 million.

The Company determines whether an arrangement is or contains a lease at the inception of the arrangement. Operating leases are included in other non-current assets, accrued expenses and other non-current liabilities in our condensed consolidated balance sheets. Finance leases are included in property, plant and equipment, net, short-term debt and long-term debt (less current portion) in our condensed consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of the lease payments over the lease term. Since we generally do not have access to the interest rate implicit in the lease, the Company uses our incremental borrowing rate (for fully collateralized debt) at the inception of the lease in determining the present value of the lease payments. The implicit rate is, however, used where readily available. Lease expense under operating leases is recognized on a straight-line basis over the term of the lease. Certain of our leases contain both lease and non-lease components, which are accounted for separately.

The Company has operating and finance leases for office facilities, a data center and certain equipment. The remaining terms of our leases range from over one year to just under nine years. Certain leases include options to extend the lease term for up to ten years, as well as options to terminate which have been excluded from the term of the lease since exercise of these options is not reasonably certain.

Lease expense, cash flow, operating and finance lease assets and li abilities, average lease term and average discount rate are as follows:

	June 30, 2019
	Three Months Ended			Six Months Ended
Lease Expense
Finance lease expense:
Amortization of right-of-use assets	$	487		$	1,003
Interest on lease liabilities		17			31
Operating lease expense		861			1,714
Total lease expense	$	1,365		$	2,748

Cash Flow Components
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from finance leases	$	17		$	31
Operating cash outflows from operating leases	$	835			1,663
Financing cash outflows from finance leases	$	329			654
Right-of-use assets obtained in exchange for new finance lease liabilities, net of terminations	$	(45	)		511
Right-of-use assets obtained in exchange for operating lease liabilities (including adoption impact of $18.2 million)	$	56			18,341


	June 30, 2019
Balance Sheet Information
Operating leases:
Other non-current assets	$	16,903
Accrued liabilities	$	(2,760	)
Other non-current liabilities		(14,554	)
Total operating lease liabilities	$	(17,314	)

Finance leases:
Property and equipment gross	$	4,612
Accumulated depreciation		(1,673	)
Property and equipment, net	$	2,939
Current portion of long-term debt	$	(708	)
Long-term debt		(1,626	)
Total finance lease liabilities	$	(2,334	)

Lease Term and Discount Rates
Weighted-average remaining lease term - finance leases (years)		2.6
Weighted-average remaining lease term - operating leases (years)		7.3
Weighted-average discount rate - finance leases		2.8	%
Weighted-average discount rate - operating leases		4.0	%

Summarized future minimum payments under our leases are as follows:

	June 30,
	2019
	Finance Leases			Operating Leases
Lease Maturities (in thousands)
Six remaining months of 2019	$	857		$	1,743
2020		836			3,282
2021		461			2,880
2022		238			2,458
2023		12			2,197
Thereafter		—			7,052
Total		2,404			19,612
Less: Imputed interest		(70	)		(2,298	)
Total lease liabilities, net of interest	$	2,334		$	17,314

	December 31,
	2018
	Operating Leases
Lease Maturities (in thousands)
2019		4,249
2020		3,232
2021		2,870
2022		2,635
2023		2,346
Thereafter		7,647
Total	$	22,979

Note: The 2018 disclosure includes certain non-lease components that have been excluded from our ASC 842 accounting and disclosures for 2019.

NOTE 15 – RETIREMENT PLANS

We have an unfunded salary continuation plan covering certain directors, officers and other key members of management. Subject to certain vesting requirements, the plan provides for a benefit based on final average compensation, which becomes payable on the employee’s death or upon attaining age 65, if retired. The plan was closed to new participants effective February 3, 2011. We purchased life insurance policies on certain participants to provide in part for future liabilities. Cash surrender value of these policies, totaling $8.1 million, are included in other non-current assets in the Company’s condensed consolidated balance sheets at December 31, 2018. In the second quarter, we terminated our life insurance policies in exchange for the cash surrender value of $7.6 million. We also received $0.6 million for death benefits claims.

For the six months ended June 30, 2019, payments to retirees or their beneficiaries totaled approximately $0.7 million. We presently anticipate benefit payments in 2019 to total approximately $1.4 million. The following table summarizes the components of net periodic pension cost for the three and six months ended June 30, 2019 and 2018.

	Three Months Ended				Six Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
(Dollars in thousands)
Interest cost	$	286	$	272	$	572	$	543
Net amortization		52		109		104		219
Net periodic pension cost	$	338	$	381	$	676	$	762

NOTE 1 6 - STOCK-BASED COMPENSATION

Equity Incentive Plan

Our 2018 Equity Incentive Plan (the “Plan”) was approved by stockholders in May 2018. The Plan authorizes us to issue up to 4.35 million shares of common stock, along with non-qualified stock options, stock appreciation rights, restricted stock and performance units to our officers, key employees, non-employee directors and consultants. At June 30, 2019, there were 1.5 million shares available for future grants under this Plan. No more than 1.2 million shares may be used under the Plan as “full value” awards, which include restricted stock and performance units. It is our policy to issue shares from authorized but not issued shares upon the exercise of stock options.

Under the terms of the Plan, each year eligible participants are granted time value restricted stock units (“RSUs”), vesting ratably over a three-year period, and performance restricted s tock units (“PSUs”), with three-year cliff vesting. Upon vesting, each restricted stock award is exchangeable for one share of the Company’s common stock, with accrued dividends.

Other Awards

On May 16, 2019 the Company granted the following equity awards to our new President and Chief Executive Officer in connection with the 2019 Inducement Grant Plan (the “Inducement Plan”): (i) an initial award consisting of (a) 666,667 PSUs at target, vesting in three approximately equal installments, to the extent the performance metrics are satisfied, during each of three performance periods and (b) 333,333 RSUs, vesting in approximately equal installments on February 28, 2020, 2021 and 2022; (ii) a 2019-2021 PSU grant, with the target number of 316,832 PSUs, which will vest to the extent the performance metrics are satisfied; and (iii) a 2019 RSU grant of 158,416 RSUs, vesting in approximately equal installments on February 28, 2020, 2021 and 2022. The PSU awards may be earned at up to 200% of target depending on the level of achievement of the performance metrics.

	Equity Incentive Awards
	Restricted Stock Units			Weighted Average Grant Date Fair Value		Performance Shares			Weighted Average Grant Date Fair Value		Options		Weighted Average Exercise Price
Balance at December 31, 2018		183,726		$	17.26		296,523		$	19.1		59,000	$	18.33
Granted		905,089			5.29		1,475,277			6.09		—		—
Settled		(83,937	)		16.52		(31,081	)		22.81		—		—
Forfeited or expired		(18,975	)		15.79		(53,396	)		18.02		—		—
Balance at June 30, 2019		985,903		$	6.36		1,687,323		$	7.68		59,000	$	18.33
Vested or expected to vest at June 30, 2019		843,451		$	6.45		1,349,429		$	6.77		59,000	$	18.33

Stock-based compensation expense was $1.4 million and $1 million for the three-month period ended June 30, 2019 and 2018, respectively. Stock-based compensation expense was $1.9 million and $1.7 million for the six-month period ended June 30, 2019 and 2018, respectively. Unrecognized stock-based compensation expense related to non-vested awards of $11.7 million is expected to be recognized over a weighted average period of approximately 2.1 years as of June 30, 2019.

NOTE 17 - COMMON STOCK REPURCHASE PROGRAMS

In January 2016, our Board of Directors approved a common stock repurchase program (the “Repurchase Program”), authorizing the repurchase of up to $50.0 million of our common stock. Under the Repurchase Program we have purchased $15.4 million, leaving a remaining authorization of $34.6 million, which we may repurchase from time to time on the open market or in private transactions. The timing and extent of the repurchases under the Repurchase Program will depend upon market conditions and other corporate considerations in our sole discretion. There were no repurchases under this program for the six months ended June 30, 2019.

NOTE 1 8 – COMMITMENTS AND CONTINGENCIES

Purchase Commitments

When market conditions warrant, we may enter into purchase commitments to secure the supply of certain commodities used in the manufacture of our products, such as aluminum, natural gas and other raw materials. Prices under our aluminum contracts are based on a market index, the London Mercantile Exchange (LME), and regional premiums for processing, transportation and alloy components which are adjusted quarterly for purchases in the ensuing quarter. Changes in aluminum prices are generally passed through to our OEM customers and adjusted on a quarterly basis. Certain of our purchase agreements include volume commitments, however any excess commitments are generally negotiated with suppliers and those which have occurred in the past have been carried over to future periods.

Contingencies

NOTE 19 – RECEIVABLES FACTORING

The Company sells certain customer trade receivables on a non-recourse basis under factoring arrangements with designated financial institutions. These transactions are accounted for as sales and cash proceeds are included in cash provided by operating activities. Factoring arrangements incorporate customary representations and warranties, including representations as to validity of amounts due, completeness of performance obligations and absence of commercial disputes. During the six months ended June 30, 2019, the Company sold trade receivables totaling $191.8 million and incurred factoring fees of $0.6 million, which are included in other expense, net. During the second quarter of 2019, the Company sold trade receivables totaling $80.1 million and incurred factoring fees of $0.2 million. The collective limit under our factoring arrangements is $97.5 million at any point in time. As of June 30, 2019, $66.6 million of receivables had been factored under the arrangements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf. We have included or incorporated by reference in this Quarterly Report on Form 10-Q (including in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”) and from time to time our management may make statements that may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Exchange Act of 1933 and Section 21E of the Securities Act of 1934. These forward-looking statements are based upon management’s current expectations, estimates, assumptions and beliefs concerning future events and conditions and may discuss, among other things, anticipated future performance (including sales and earnings), expected growth, future business plans and costs and potential liability for environmental-related matters. Any statement that is not historical in nature is a forward-looking statement and may be identified using words and phrases such as “expects,” “anticipates,” “believes,” “will,” “will likely result,” “will continue,” “plans to” and similar expressions. These statements include our belief regarding general automotive industry and market conditions and growth rates, as well as general domestic and international economic conditions.

Readers are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements are necessarily subject to risks, uncertainties and other factors, many of which are outside the control of the company, which could cause actual results to differ materially from such statements and from the company’s historical results and experience. These risks, uncertainties and other factors include, but are not limited to, those described in Part I—Item 1A—“Risk Factors” and Part II—Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2018, and Part I—Item 2—“Management’s Discussion and Analysis and Analysis of Financial Condition and Results of Operations” of this Quarterly Report of Form 10-Q and elsewhere in the Quarterly Report and those described from time to time in our other reports filed with the Securities and Exchange Commission.

Readers are cautioned that it is not possible to predict or identify all the risks, uncertainties and other factors that may affect future results and that the risks described herein should not be considered to be a complete list. Any forward-looking statement speaks only as of the date on which such statement is made, and the company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and notes thereto and with the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2018.

Executive Overview

Overview of Superior

Our principal business is the design and manufacture of aluminum wheels for sale to original equipment manufacturers (“OEM”) in North America and Europe and aftermarket distributors in Europe. We employ approximately 8,000 employees, operating in nine manufacturing facilities in North America and Europe with a combined annual manufacturing capacity of approximately 21 million wheels. We believe we are the #1 North American aluminum wheel manufacturer, the #3 European aluminum wheel manufacturer and the #1 European aluminum wheel aftermarket manufacturer and supplier. Our OEM aluminum wheels account for approximately 93% of our sales and are primarily sold for factory installation on many vehicle models manufactured by BMW-Mini, Daimler AG Company (Mercedes-Benz, AMG, Smart), FCA, Ford, GM, Honda, Jaguar-Land Rover, Mazda, Nissan, PSA, Renault, Subaru, Suzuki, Toyota, VW Group (Volkswagen, Audi, Skoda, Porsche, Bentley) and Volvo. We also sell aluminum wheels to the European aftermarket under the brands ATS, RIAL, ALUTEC and ANZIO. North America and Europe represent the principal markets for our products but we have a global presence and diversified customer base consisting of North American, European and Asian OEMs. We continue to deliver on our strategic plan to be one of the leading light vehicle aluminum wheel suppliers globally, delivering innovative wheel solutions to our customers.

Our global reach encompasses sales to the ten largest OEMs in the world. The following chart shows our sales by customer for the six months ended June 30 , 2019 and 2018 .

Demand for our products is driven by light-vehicle production levels in North America and Europe and customer take rates on specific vehicle platforms. The majority of our customers’ wheel programs are awarded two to four years in advance. Our purchase orders with OEMs are typically specific to a particular vehicle model.

Overview of the Second Quarter of 2019

The following chart shows the operational performance in the quarter ended June 30, 2019 in comparison to June 30, 2018.

Results of O perations

	Three Months Ended
	June 30, 2019			June 30, 2018			Net Change
(Thousands of dollars, except per share amounts)
Net sales
North America	$	180,402		$	204,758		$	(24,356	)
Europe		172,097			184,186			(12,089	)
Net sales		352,499			388,944			(36,445	)
Cost of sales		312,504			335,385			(22,881	)
Gross profit		39,995			53,559			(13,564	)
Percentage of net sales		11.3	%		13.8	%		(2.5	)%
Selling, general and administrative		15,964			22,289			6,325
Income from operations		24,031			31,270			(7,239	)
Percentage of net sales		6.8	%		8.0	%		(1.2	)%
Interest expense, net		(11,852	)		(13,182	)		1,330
Other income (expense), net		2,539			(570	)		3,109
Change in fair value of redeemable preferred stock embedded derivative		93			(4,588	)		4,681
Income tax provision		(7,541	)		(4,795	)		(2,746	)
Net income		7,270			8,135			(865	)
Percentage of net sales		2.1	%		2.1	%		—	%
Diluted (loss) income per share	$	(0.04	)	$	(0.02	)	$	(0.02	)
Value added sales (1)	$	193,646		$	204,395		$	(10,749	)
Adjusted EBITDA (2)	$	49,210		$	57,232		$	(8,022	)
Percentage of net sales		14.0	%		14.7	%		(0.7	)%
Percentage of value added sales		25.4	%		28.0	%		(2.6	)%
Unit shipments in thousands		4,890			5,553			(663	)

⁽¹⁾	Value added sales is a key measure that is not calculated according to U.S. GAAP. Refer to “Non-U.S. GAAP Financial Measures” for a definition of value added sales and a reconciliation of value added sales to net sales, the most comparable U.S. GAAP measure.

⁽²⁾	Adjusted EBITDA is a key measure that is not calculated according to U.S. GAAP. Refer to “Non-U.S. GAAP Financial Measures” for a definition of adjusted EBITDA and a reconciliation of our adjusted EBITDA to net income, the most comparable U.S. GAAP measure.

Shipments

Wheel unit shipments were 4.9 million for the second quarter of 2019 compared to unit shipments of 5.6 million in the prior year period, a decrease of 11.9 percent. The decrease occurred in both our North American and European operations and was driven by softer industry production levels, lower production at our key customers, reduced take rates and share in North America, and lower aftermarket volume in Europe, partially offset by increased OEM share in Europe.

Net Sales

Net sales for the second quarter of 2019 were $352.5 million, compared to net sales of $389.0 million for the same period in 2018. The reduction in sales is primarily driven by reduced volumes in both our North American and European operations, lower aluminum prices and a weaker Euro, partially offset by improved product mix comprised of larger diameter wheels and premium finishes in both regions.

Cost of Sales

Cost of sales were $312.5 million for the second quarter of 2019 compared to cost of sales of $335.4 million for the same period in 2018. The decrease in cost of sales was primarily due to lower volumes in both our North American and European operations, lower aluminum prices and weaker foreign exchange, partially offset by higher aluminum content associated with larger diameter wheels and higher utility costs.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses for the second quarter of 2019 were $16.0 million, or 4.5 percent of net sales, compared to SG&A expense of $22.3 million, or 5.7 percent of net sales for the same period in 2018. The decrease is primarily due to a reduction in acquisition and integration expenses, the alignment of reporting for SG&A between our North American and European operations, and actions to align costs with current industry production levels.

Net Interest Expense

Net interest expense for the second quarter of 2019 was $11.9 million compared to net interest expense of $13.2 million for the same period in 2018. The reduction in interest expense was primarily due to the 2018 repricing of the Company’s term loan facility and reduced interest expense on our Senior Notes, resulting from a devaluation of the Euro.

Other Income (Expense)

Other income was $2.5 million for the second quarter of 2019 compared to other expense of $0.6 million for the same period in 2018. The increase in other income was primarily driven by a $2.4 million gain on the early extinguishment of a portion of our Senior Notes in the second quarter of 2019.

Change in Fair Value of Redeemable Preferred Stock Embedded Derivative

The change in fair value of our redeemable preferred stock embedded derivative for the second quarter of 2019 was insignificant compared to the $4.6 million loss in the same period of 2018, which was primarily due to an increase in our stock price during the second quarter of 2018.

Income Tax Provision

The income tax provision for quarter ended June 30, 2019 was $7.5 million on a pre-tax income of $14.8 million, representing an effective income tax rate of 50.9%. The tax provision amount is primarily due to the effects of U.S. taxation of foreign earnings, under Global Intangible Low-Tax Income (“GILTI”) provisions of tax reform, and a forecasted valuation allowance on non-deductible interest, partially offset by a benefit due to the mix of earnings among tax jurisdictions. The income tax provision for the quarter ended June 30, 2018 was $4.8 million on pre-tax income of $12.9 million, representing an effective income tax rate of 37.1 percent.

Net Income

Net income for the second quarter of 2019 was $7.3 million, or a loss of $0.04 per diluted share, compared to net income of $8.1 million, or a loss of $0.02 per diluted share for the same period in 2018.

Segment Sales and Income from Operations

	Three Months Ended
	June 30, 2019		June 30, 2018		Change
(Dollars in thousands)
Selected data
Net sales
North America	$	180,402	$	204,758	$	(24,356	)
Europe		172,097		184,186		(12,089	)
Total net sales	$	352,499	$	388,944	$	(36,445	)
Income from operations
North America	$	11,827	$	9,676	$	2,151
Europe		12,204		21,594		(9,390	)
Total income from operations	$	24,031	$	31,270	$	(7,239	)

North America

Net sales for our North American segment for the second quarter of 2019 decreased 11.9 percent, compared to the same period in 2018 primarily due to a 15.8 percent decrease in volumes and lower aluminum prices, partially offset by improved product mix comprised of larger diameter wheels and premium wheel finishes. The decline in unit shipments was primarily due to lower sales to Ford, Nissan, FCA and Toyota; partially offset by increased sales to GM and Subaru. U.S. and Mexico sales as a percentage of North America total sales were approximately 14.7 percent and 85.3 percent, respectively, for the quarter ended June 30, 2019, which compares to 14.9 percent and 85.1 percent for the prior year period. North American segment income from operations increased for the three months ended June 30, 2019 primarily due to favorable material costs, foreign exchange and product mix, partially offset by a reduction in volumes.

Europe

Net sales for our European segment for the second quarter of 2019 decreased 6. 6 percent, compared to the same period in 2018, primarily due to 7.5 percent decrease in volumes, a weaker Euro and lower aluminum prices, partially offset by an increase in the sales mix of higher diameter wheels and premium finishes. European segment sales in Germany and Poland were approximately 33.2 percent and 66.8 percent, respectively, during the quarter ended June 30, 2019, which compares to 38.5 percent and 61.5 percent for the prior period. European segment income from operations for the second quarter in 2019 decreased primarily due to lower volumes, higher energy costs and unfavorable Euro foreign exchange effects, partially offset by favorable mix.

Overview of the First Half of 2019

The following chart shows the operational performance in the six months ended June 30, 2019 in comparison to June 30, 2018.

Results of Operations

	Six Months Ended
	June 30, 2019			June 30, 2018			Net Change
(Thousands of dollars, except per share amounts)
Net sales
North America	$	365,518		$	408,908		$	(43,390	)
Europe		344,674			366,484			(21,810	)
Net sales		710,192			775,392			(65,200	)
Cost of sales		637,075			671,842			34,767
Gross profit		73,117			103,550			(30,433	)
Percentage of net sales		10.3	%		13.4	%		(3.1	)%
Selling, general and administrative		30,447			44,646			14,199
Income from operations		42,670			58,904			(16,234	)
Percentage of net sales		6.0	%		7.6	%		(1.6	)%
Interest expense, net		(23,725	)		(25,039	)		1,314
Other income (expense), net		2,040			(3,558	)		5,598
Change in fair value of redeemable preferred stock embedded derivative		719			(3,690	)		4,409
Income tax provision		(12,484	)		(8,165	)		(4,319	)
Net income		9,220			18,452			(9,232	)
Percentage of net sales		1.3	%		2.4	%		(1.1	)%
Diluted (loss) income per share	$	(0.27	)	$	0.05		$	(0.32	)
Value added sales (1)	$	386,448		$	411,831		$	(25,383	)
Adjusted EBITDA (2)	$	92,430		$	109,436		$	(17,006	)
Percentage of net sales		13.0	%		14.1	%		(1.1	)%
Percentage of value added sales		23.9	%		26.6	%		(2.7	)%
Unit shipments in thousands		9,929			11,090			(1,161	)

⁽¹⁾	Value added sales is a key measure that is not calculated according to U.S. GAAP. Refer to “Non-U.S. GAAP Financial Measures” for a definition of value added sales and a reconciliation of value added sales to net sales, the most comparable U.S. GAAP measure.

⁽²⁾	Adjusted EBITDA is a key measure that is not calculated according to U.S. GAAP. Refer to “Non-U.S. GAAP Financial Measures” for a definition of adjusted EBITDA and a reconciliation of our adjusted EBITDA to net income, the most comparable U.S. GAAP measure.

Shipments

Wheel unit shipments were 9.9 million for the first half of 2019 compared to unit shipments of 11.1 million in the prior year period, a decrease of 10.5 percent. The decrease occurred in both our North American and European operations and was driven by softer industry production levels, lower production at our key customers, reduced take rates and share in North America, and lower aftermarket volume in Europe, partially offset by increased OEM share in Europe.

Net Sales

Net sales for the first half of 2019 were $710.2 million, compared to net sales of $775.4 million for the same period in 2018. The reduction in sales is primarily driven by reduced volumes in both our North American and European operations, lower aluminum prices and a weaker Euro, partially offset by improved product mix comprised of larger diameter wheels and premium finishes in both regions.

Cost of Sales

Cost of sales were $637.1 million for the first half of 2019 compared to cost of sales of $671.8 million for the same period in 2018. The decrease in cost of sales was primarily due to lower volumes in both our North American and European operations, lower aluminum prices and weaker foreign exchange, partially offset by higher aluminum content associated with larger diameter wheels and higher utility costs.

Selling, General and Administrative Expenses

SG&A expenses for the first half of 2019 were $30.4 million, or 4.3 percent of net sales, compared to SG&A of $44.6 million, or 5.8 percent of net sales for the same period in 2018. The decrease is primarily due to a reduction in acquisition and integration expenses, the alignment of reporting for SG&A between our North American and European operations, and actions to align costs with current industry production levels.

Net Interest Expense

Net interest expense for the first half of 2019 was $23.7 million compared to interest expense of $25.0 million for the same period in 2018. The reduction in interest expense was primarily due to the 2018 repricing of the Company’s term loan facility and reduced interest expense on our Senior Notes, resulting from a devaluation of the Euro.

Other Income (Expense)

Other income was $2.0 million for the first half of 2019 compared to other expense of $3.6 million for the same period in 2018. The increase in other income was primarily driven by a $2.4 million gain on the early extinguishment of a portion of our Senior Notes in 2019.

Change in Fair Value of Redeemable Preferred Stock Embedded Derivative

The change in fair value of the redeemable preferred stock embedded derivative for the first half of 2019 was a $0.7 million benefit compared to a $3.7 million loss for the same period in 2018, which was primarily due to an increase in our stock price during the second quarter in 2018.

Income Tax Provision

The income tax provision for the six months ended June 30, 2019 was $12.5 million on a pre-tax income of $21.7 million, representing an effective income tax rate of 57.5%. The tax provision amount is primarily due to the effects of U.S. taxation of foreign earnings, under Global Intangible Low-Tax Income (“GILTI”) provisions of tax reform, and a forecasted valuation allowance on non-deductible interest, partially offset with a benefit due to the mix of earnings among tax jurisdictions. The income tax provision for the six months ended June 30, 2018 was $8.2 million on pre-tax income of $26.6 million, representing an effective income tax rate of 30.7 percent.

Net Income

Net income for the first half of 2019 was $9.2 million, or a loss of $0.27 per diluted share, compared to net income of $18.4 million, or income of $0.05 per diluted share for the same period in 2018.

Segment Sales and Income from Operations

	Six Months Ended
	June 30, 2019		June 30, 2018		Change
(Dollars in thousands)
Selected data
Net sales
North America	$	365,518	$	408,908	$	(43,390	)
Europe		344,674		366,484		(21,810	)
Total net sales	$	710,192	$	775,392	$	(65,200	)
Income from operations
North America	$	18,026	$	23,461	$	(5,435	)
Europe		24,644		35,443		(10,799	)
Total income from operations	$	42,670	$	58,904	$	(16,234	)

North America

Net sales for our North American segment for the first six months of 2019 decreased 10.6 percent, compared to the same period in 2018, primarily due to a 14.7 percent decrease in volumes and lower aluminum prices, partially offset by improved product mix comprised of larger diameter wheels and premium wheel finishes. The decline in unit shipments was primarily due to lower sales to Ford, Nissan, FCA and Toyota; partially offset by increased sales to GM and Subaru. U.S. and Mexico sales as a percentage of North America total sales were approximately 15.0 percent and 85.0 percent, respectively, for year-to-date June 30, 2019, which compares to 14.9 percent and 85.1 percent for the prior year period. North American segment income from operations decreased for the first six months of 2019 due primarily to reduction in volumes and increased energy and outside service provider costs, partially offset by favorable foreign exchange and product mix.

Europe

Net sales for our European segment for the first six months of 2019 decreased 6.0 percent, compared to the same period in 2018, primarily due to a 5.5 percent decrease in volumes, a weaker Euro and lower aluminum prices, partially offset by improved product mix comprised of higher diameter wheels and premium wheel finishes. European segment sales between Germany and Poland were approximately 35.2 percent and 64.8 percent, respectively, during the first six months of 2019, which compares to 38.8 percent and 61.2 percent for the first six months of 2018. European segment income from operations for six months ended June 30, 2019 decreased primarily due to lower volumes, negative foreign exchange effects from the Euro and higher energy costs, partially offset by favorable mix.

Financial Condition, Liquidity and Capital Resources

Our sources of liquidity primarily include cash, cash equivalents and short-term investments, net cash provided by operating activities, and borrowings under available debt facilities, factoring arrangements for trade receivables and, from time to time, other external sources of funds. Working capital (current assets minus current liabilities) and our current ratio (current assets divided by current liabilities) were $181.4 million and 1.9:1, respectively, at June 30, 2019, versus $192.0 million and 2.1:1 at December 31, 2018. As of June 30, 2019, our cash, cash equivalents and short-term investments totaled $56.9 million compared to $48.2 million at December 31, 2018.

Our working capital requirements, investing activities and cash dividend payments have historically been funded from internally generated funds, debt facilities, cash equivalents and short-term investments, and we believe these sources will continue to meet our capital requirements in the foreseeable future.

In connection with the acquisition of our European operations, we entered into several debt and equity financing arrangements during 2017. On March 22, 2017, we entered into a senior secured credit agreement (the “Credit Agreement”) consisting of a $400.0 million senior secured term loan facility (the “Term Loan Facility”) and a $160.0 million revolving credit facility. On May 22, 2017, we issued 150,000 shares of redeemable preferred stock to TPG Growth III Sidewall, L.P. (“TPG”) for an aggregate purchase price of $150.0 million. On June 15, 2017, we issued 250.0 million Euro aggregate principal amount of 6.00% Senior Notes (the “Notes”) due June 15, 2025. In addition, as a part of our European business acquisition, we assumed $70.7 million of outstanding debt. At June 30, 2019, balances outstanding under the Term Loan Facility, Notes, and an equipment loan were $378.8 million, $261.6 million, $15.2 million, respectively. At June 30, 2019, we had total available liquidity of $264.2 million, which consisted of $56.9 million in cash and cash equivalents, $156.6 million of unused revolving credit facility commitments and 44.6 million Euro available under our European business line of credit.

The following table summarizes the cash flows from operating, investing and financing activities as reflected in the consolidated statements of cash flows.

Six Months Ended June 30,	2019			2018			Change
(Thousands of dollars)
Net cash provided by operating activities	$	69,631		$	30,801		$	38,830
Net cash used in investing activities		(19,034	)		(38,138	)		19,104
Net cash used in financing activities		(39,266	)		(19,698	)		(19,568	)
Effect of exchange rate changes on cash		(1,872	)		(258	)		(1,614	)
Net increase (decrease) in cash and cash equivalents	$	9,459		$	(27,293	)	$	36,752

Operating Activities

Net cash provided by operating activities was $69.6 million for the first six months of 2019 and $30.8 million for the first six months of 2018. The increase in cash flow provided by operating activities was mainly due to reductions in inventory caused by reduced production volumes and aluminum pricing, as well as reductions in aluminum prepayments and increases in payables due to improved terms with aluminum suppliers.

Investing Activities

Net cash used in investing activities was $19.0 million for the first half of 2019 compared to $38.1 million for the same quarter in 2018. Net cash used in investing activities was lower in 2019 due to the reduction in capital expenditures, as well as cash proceeds received upon termination of certain life insurance policies.

Financing Activities

Net cash used in financing activities was $39.3 million for the first six months of 2019 compared to $19.7 million for the same time period in 2018. This increase was primarily due to the early extinguishment of a portion of our Senior Notes in the second quarter of 2019.

Off-Balance Sheet Arrangements

As of June 30, 2019 we had no significant off-balance sheet arrangements other than factoring of $66.6 million of our trade receivables.

Non-GAAP Financial Measures

In this quarterly report, we discuss two important measures that are not calculated according to U.S. GAAP, value added sales and adjusted EBITDA.

Value added sales is a key measure that is not calculated according to U.S. GAAP. In the discussion of operating results, we provide information regarding value added sales. Value added sales represents net sales less the value of aluminum and services provided by outsourced service providers (“OSP”) that are included in net sales. As discussed further below, arrangements with our customers allow us to pass on changes in aluminum prices; therefore, fluctuations in underlying aluminum price generally does not directly impact our profitability. Accordingly, value added sales is worthy of being highlighted for the benefit of users of our financial statements. Our intent is to allow users of the financial statements to consider our net sales information both with and without the aluminum and OSP cost components. Management utilizes value added sales as a key metric to determine growth of the Company because it eliminates the volatility of aluminum prices.

Adjusted EBITDA is a key measure that is not calculated according to U.S. GAAP. Adjusted EBITDA is defined as earnings before interest income and expense, income taxes, depreciation, amortization, restructuring charges and other closure costs and impairments of long-lived assets and investments, changes in fair value of redeemable preferred stock embedded derivative, acquisition and integration costs , certain hiring and separation related costs, gains associated with early debt extinguishment and accounts receivable factoring fees . We use a djusted EBITDA as an i mportant indicator of the operating performance of our business. Adjusted EBITDA is used in our internal forecasts and models when establishing internal operating budgets, supplementing the financial results and forecasts reported to our Board of Directors and evaluating short-term and long-term operating trends in our operations. We believe the a djusted EBITDA financial measure assists in providing a more complete understanding of our underlying operational measures to manage our business, to evaluate our performance compared to prior periods and the marketplace and to establish operational goals. Adjusted EBITDA is a non- GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with U.S. GAAP. This non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other companies.

The following table reconciles our net sales, the most directly comparable U.S. GAAP financial measure, to our value added sales:

	Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
(Dollars in thousands)
Net sales	$	352,499		$	388,944		$	710,192		$	775,392
Less: aluminum value and outside service provider costs		(158,853	)		(184,549	)		(323,744	)		(363,561	)
Value added sales	$	193,646		$	204,395		$	386,448		$	411,831

The following table reconciles our net income, the most directly comparable U.S. GAAP financial measure, to our adjusted EBITDA:

	Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
(Dollars in thousands)
Net income	$	7,270		$	8,135		$	9,220		$	18,452
Interest expense, net		11,852			13,182			23,725			25,039
Income tax provision		7,541			4,795			12,484			8,165
Depreciation		16,637			17,365			33,191			34,891
Amortization		6,705			6,621			13,482			13,449
Acquisition, integration, hiring and separation costs, debt extinguishment gains and factoring fees ⁽¹⁾		(702	)		2,546			1,047			5,750
Change in fair value of redeemable preferred stock embedded derivative liability		(93	)		4,588			(719	)		3,690
Adjusted EBITDA	$	49,210		$	57,232		$	92,430		$	109,436
Adjusted EBITDA as a percentage of net sales		14.0	%		14.7	%		13.0	%		14.1	%
Adjusted EBITDA as a percentage of value added sales		25.4	%		28.0	%		23.9	%		26.6	%

⁽ ¹ ⁾

In the second quarter of 2019, we incurred approximately $1.4 million of hiring and separation costs, $0.2 million of accounts receivable factoring fees, $0.1 million of integration costs and $2.4 million of gains on extinguishment of debt. In the second quarter of 2018, we incurred approximately $1.3 million in restructuring costs and $1.2 million in integration costs. In the first half of 2019, we incurred approximately $0.6 million in integration costs, $2.2 million of restructuring costs, $0.6 million of accounts receivable factoring fees and $2.4 million of gains on extinguishment of debt. In the first half of 2018, we incurred approximately $2.2 million in restructuring costs and $3.5 million in integration costs.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to apply significant judgment in making estimates and assumptions that affect amounts reported therein, as well as financial information included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. These estimates and assumptions, which are based upon historical experience, industry trends, terms of various past and present agreements and contracts, and information available from other sources that are believed to be reasonable under the circumstances, form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent through other sources. There can be no assurance that actual results reported in the future will not differ from these estimates, or that future changes in these estimates will not adversely impact our results of operations or financial condition.

Also see Item 7— “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of our 2018 Annual Report on Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency. We have business operations in the United States, Mexico, Germany and Poland. As a result, we have a certain degree of market risk with respect to our cash flows due to changes in foreign currency exchange rates when transactions are denominated in currencies other than our functional currency, including inter-company transactions.

In accordance with our corporate risk management policies, we may enter into foreign currency forward, swap and option contracts with financial institutions to mitigate foreign currency exposures associated with certain existing assets and liabilities, firmly committed transactions and forecasted future cash flows. We have implemented a program to hedge a portion of our Peso, Zloty and Euro foreign exchange exposure, for up to approximately 48 months. We do not use derivative contracts for trading, market-making, or speculative purposes. For additional information on our derivatives, refer to Note 4, “Derivative Financial Instruments” in the notes to these condensed consolidated financial statements.

At June 30, 2019, the net fair value asset of foreign currency exchange derivatives with an aggregate notional value of $541.6 million was $11.2 million. The potential loss in fair value of such financial instruments from a 10 percent adverse change in foreign currency exchange rates would be $56.9 million at June 30, 2019.

Interest Rate Risk. At June 30, 2019, approximately $378.8 million of our debt bears interest at variable rates, currently 6.4 percent. A 100 basis point change in our rate would result in an increase or decrease in our interest expense of $3.8 million. We have entered into interest rate swaps exchanging floating for fixed rate interest payments in order to reduce interest rate volatility. At June 30, 2019 the fair value liability for interest rate swaps with a notional value of $290 million was $6.4 million. These swaps mature as follows: $30.0 million in September 30, 2019, $25.0 million in March 31, 2020, $35.0 million in December 31, 2020, $50 million September 30, 2022 and $150 million in December 31, 2022. In the future, we may again enter into interest rate swaps to reduce interest rate volatility. However, we may not maintain interest rate swaps with respect to all of our variable rate indebtedness, and any swaps we enter into may not fully mitigate our interest rate risk.

Also see Item 7A—“Quantitative and Qualitative Disclosures About Market Risk” in Part II of our 2018 Annual Report on Form 10-K.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2019. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2019 our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during the six months ended June 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

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, we believe all such matters are adequately provided for, covered by insurance, are without merit, and/or involve such amounts that would not materially adversely affect our consolidated results of operations, cash flows or financial position. See also under Item 1A, “Risk Factors - We are from time to time subject to litigation, which could adversely impact our financial condition or results of operations” of our Annual Report on Form 10-K for the year ended December 31, 2018.

Item 1A. Risk Factors

See Part I—Item 1A— “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018.

Item 2 . Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 5 . Other Information

None.

Item 6. E xhibits

10.1	Executive Employment Agreement, dated March 28, 2019, between Superior Industries International, Inc. and Majdi B. Abulaban, including forms of award agreements to be granted under the Inducement Plan (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated April 1, 2019).*

10.2	Form of Superior Industries International, Inc. Indemnification Agreement. **

31.1	Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.**

31.2	Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.**

32.1	Certification of Majdi B. Abulaban, President and Chief Executive Officer, and Matti M. Masanovich, Executive Vice President and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

101.INS	XBRL Instance Document.***

101.SCH	XBRL Taxonomy Extension Schema Document.***

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.***

101.LAB	XBRL Taxonomy Extension Label Linkbase Document.***

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.***

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.***

*	Indicates management contract or compensatory plan or arrangement.

**	Filed herewith.

***	Submitted electronically with the Report.

SIGNAT URES

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: August 8, 2019

/s/ Majdi B. Abulaban

Majdi B. Abulaban

President and Chief Executive Officer

Date: August 8, 2019

/s/ Matti M. Masanovich

Matti M. Masanovich

Executive Vice President and Chief Financial Officer

EXHIBIT 10.2

INDEMNIFICATION AGREEMENT

This Indemnification Agreement (“Agreement”) is made effective as of this ______ day of ______________, 20__ by and between Superior Industries International, Inc., a Delaware corporation (the “Company”), and the undersigned officer, director or employee of the Company (“Indemnitee”).

WHEREAS, the Company and Indemnitee recognize the increasing difficulty in obtaining directors’ and officers’ liability insurance, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance;

WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting officers, directors and employees to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited;

WHEREAS, the Company desires to attract and retain the services of highly qualified individuals such as Indemnitee to serve as officers, directors or employees of the Company; and

WHEREAS, it is reasonable, prudent and in the best interests of the Company and its stockholders for the Company contractually to obligate itself to indemnify persons serving as officers, directors or employees of the Company to the fullest extent permitted by applicable law in order that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified.

NOW THEREFORE, in consideration for Indemnitee’s services as an officer, director or employee of the Company and the covenants contained herein, the Company and Indemnitee hereby agree as follows:

1. Indemnification .

(a) Third Party Proceedings . The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party or otherwise involved (including involvement as a witness) to any threatened, pending or completed action, claim, suit, proceeding or any alternative dispute resolution mechanism, whether civil, criminal, investigative (whether formal or informal), or administrative (other than an action by or in the right of the Company) (the “Proceeding”) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, by reason of any action or inaction on the part of Indemnitee while a director, officer, employee or agent of the Company or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan, against all expenses (including attorneys’ fees), judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred or suffered by Indemnitee in connection with the Proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and, with

respect to any criminal P roceeding, either (i) had reasonable cause to believe Indemnitee’s conduct was lawful or (ii) had no reasonable cause to believe Indemnitee’s conduct was unlawful. The termination of any P roceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal action or proceeding, either did not have reasonable cause to believe that Indemnitee’s conduct was lawful or had reasonable cause to believe that Indemnitee’s conduct was unlawful.

(b) Proceedings by or in the Right of the Company . The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party or otherwise involved (including involvement as a witness) to any threatened, pending or completed Proceeding by or in the right of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, by reason of any action or inaction on the part of Indemnitee while a director, officer, employee or agent of the Company or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan, against all expenses (including attorneys’ fees) and, to the fullest extent permitted by law, amounts paid in settlement actually and reasonably incurred or suffered by Indemnitee in connection with the defense or settlement of such Proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, except that no indemnification shall be made in respect of any Proceeding as to which Indemnitee shall have been adjudged to be liable to the Company unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of the State of Delaware or such other court shall deem proper.

(c) Actions where Indemnitee is Deceased . If Indemnitee was or is a party, or is threatened to be made a party, to any Proceeding by reason of the fact that he or she is or was a director, officer or employee of the Company or by reason of anything done or not done by Indemnitee in any such capacity, and prior to, during the pendency of, or after completion of, such Proceeding, Indemnitee shall die, then the Company shall indemnify, defend and hold harmless the estate, heirs and legatees of Indemnitee against any and all expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by such estate, heirs or legatees in connection with the investigation, defense, settlement or appeal of such Proceeding on the same basis as provided for Indemnitee in subsections (a) and (b) of this Section 1.

(d) Mandatory Payment of Expenses . To the extent that Indemnitee has served as a witness on behalf of the Company or has been successful on the merits or otherwise in defense of any Proceeding referred to in subsections (a) and (b) of this Section 1, or in defense of any claim, issue or matter therein, Company shall indemnify Indemnitee against expenses (including attorneys’ fees) actually and reasonably incurred by Indemnitee in connection therewith.

-2 -

2. Agreement to Serve . I ndemnitee agrees to serve at the will of the Company (or under separate agreement, if such agreement exists) so long as he or she is duly appointed or elected and qualified in accordance with the applicable provisions of the Bylaws of the Company or until such time as he or she tenders his or her resignation in writing. Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment.

3. Expenses; Indemnification Procedure .

(a) Advancement of Expenses . The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any Proceeding referenced in Section 1(a) or (b) (but not amounts actually paid in settlement of such Proceeding). The Company shall not seek from a court, or agree to, a "bar order" which would have the effect of prohibiting or limiting the Indemnitee's rights to receive advancement of expenses under this Agreement. The advances to be made hereunder shall be paid by the Company to Indemnitee within twenty (20) days following delivery of a written request therefor by Indemnitee to the Company. Such request shall reasonably evidence the expenses and costs incurred by the Indemnitee in connection therewith. Without limiting the generality or effect of the foregoing, within thirty days after any request by Indemnitee, the Company shall, in accordance with such request (but without duplication), (a) pay such Expenses on behalf of Indemnitee, (b) advance to Indemnitee funds in an amount sufficient to pay such Expenses, or (c) reimburse Indemnitee for such Expenses. Indemnitee shall give the Company such information and cooperation as it may reasonably request and as shall be within Indemnitee’s power, but in no case shall Indemnitee be required to convey any information that would cause Indemnitee to waive any privilege accorded by applicable law. Indemnitee’s entitlement to such advances shall include those expenses incurred in connection with any proceeding by Indemnitee seeking an adjudication pursuant to this Agreement. Indemnitee hereby undertakes to repay such amounts advanced (without interest) only if, and to the extent that, it shall ultimately be determined by a court of competent jurisdiction in a final judgment, not subject to further appeal, that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. No other form of undertaking shall be required other than the execution of this Agreement. This undertaking is an unlimited general obligation of Indemnitee.

(b) Notice/Cooperation by Indemnitee . Indemnitee shall give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement; provided, however, that a delay in giving such notice will not deprive Indemnitee of any right to be indemnified under this Agreement unless, and then only to the extent that, the Company did not otherwise learn of the Proceeding and such delay is materially prejudicial to the Company’s ability to defend such Proceeding; and, provided, further, that notice will be deemed to have been given without any action on the part of Indemnitee in the event the Company is a party to the same Proceeding. The omission to notify the Company will not relieve the Company from any liability for indemnification which it may have to Indemnitee otherwise than under this Agreement. Notice to the Company shall be directed to the General Counsel of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). Notice shall be deemed received three (3) business days after the date postmarked if sent by domestic certified or registered mail, properly addressed; or five (5) business days if sent by airmail from a country outside of North America; otherwise, notice shall be deemed received when such notice shall actually be received by the Company. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee’s power, but in no case shall Indemnitee be required to convey any information that would cause Indemnitee to waive any privilege accorded by applicable law.

-3 -

(c) Procedure . Any indemnification and advances provided for in Section 1 and this Section 3 shall be made no later than forty-five (45) days (or, in the case of an advance of expenses, twenty (20) days) after receipt of the written request of Indemnitee. If the Company fails to respond within sixty (60) days of a written request for indemnification, the Company shall be deemed to have approved the request. If a claim under this Agreement, under any statute or under any provision of the Company’s Certificate of Incorporation or Bylaws providing for indemnification is not paid in full by the Company within forty-five (45) days (or, in the case of an advance of expenses, twenty (20) days) after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter, bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 14 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys’ fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed. However, Indemnitee shall be entitled to receive interim payments of expenses pursuant to Section 3(a) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties’ intention that if the Company contests Indemnitee’s right to indemnification the question of Indemnitee’s right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of its Board of Directors, independent legal counsel or its stockholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of its Board of Directors, independent legal counsel or its stockholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct.

(d) Notice to Insurers . If, at the time of the receipt of a notice of a claim pursuant to Section 3(b), the Company has directors and officers liability insurance in effect, the Company shall give prompt notice of the commencement of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies. The failure or refusal of any such insurer to pay any such amount shall not affect or impair the obligations of the Company under this Agreement. The Company shall instruct the insurers and their insurance brokers that they may communicate directly with Indemnitee regarding such claim.

-4 -

(e) Selection of Counsel . In the event the Company shall be obligated under Section 3(a) to advance the expenses of any P roceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such P roceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee of written notice of its election and approval of counsel by Indemnitee, which approval shall not be unreasonably withheld. After the delivery of such notice, approval of such counsel by Indemnitee and retention of such counsel by the Company, the Company shall not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same P roceeding, except as provided below. The Indemnitee shall have the right to employ his or her own counsel in any such P roceeding at Indemnitee’s expense unless: (i) the employment of counsel by Indemnitee has been previously authorized by the Company, (ii) Indemnitee shall have reasonably concluded that there may be a material conflict of interest between the Company and Indemnitee in the conduct of any such defense , (iii) the Company shall not, in fact, have employed counsel to assume the defense of such P roceeding, or ( iv) the fees and expenses are non-duplicative and reasonably incurred in connection with Indemnitee’s role in the Proceeding despite the Compa ny’s assumption of the defense, in each of which cases the fees and expenses of Indemnitee’s counsel shall be at the expense of the Company. The Company shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company, or as to which Indemnitee shall have made the determination provided for in (ii) above or under the circumstances provided for in (iii) above. Indemnitee agrees that any such separate counsel retained by I ndemnitee will be a member of any approved list of panel counsel under the Company’s applicable directors’ and officers’ insurance policy, should the applicable policy provide for a panel of approved counsel and should such approved panel list comprise law firms with well-established reputations in the type of litigation at issue.

4. Additional Indemnification Rights; Nonexclusivity .

(a) Scope . Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, by the Company’s Certificate of Incorporation or Bylaws or by statute. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors or an officer or employee of the Company, such changes shall be, ipso facto, within the purview of Indemnitee’s rights and the Company’s obligations under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or an officer or employee of the Company, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties’ rights and obligations hereunder.

(b) Nonexclusivity . The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company’s Certificate of Incorporation or Bylaws, any agreement, any vote of stockholders or disinterested directors, the General Corporation Law of the State of Delaware (the “DGCL”) or otherwise, both as to action in Indemnitee’s official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he or she may have ceased to serve in such capacity at the time of any action, suit or other covered proceeding.

-5 -

5. Partial Indemnification . If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred by him or her in the investigation, defense, appeal or settlement of any P roceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such actual and reasonable expenses, judgments, fines or penalties to which Indemnitee is entitled.

6. Directors and Officers Liability Insurance .

(a) ~~The Company shall obtain and maintain a policy or policies of insurance (“~~ ~~D&O Liability Insurance~~ ”) with reputable insurance companies providing liability insurance for directors and officers of the Company in their capacities as such (and for any capacity in which any director or officer of the Company serves any other person or entity at the request of the Company), in respect of acts or omissions occurring while serving in such capacity, on terms with respect to coverage and amount (including with respect to the payment of expenses) no less favorable than those of such policy in effect on the date hereof except for any changes approved by the Board of Directors of the Company.

(b) Indemnitee shall be covered by the Company’s D&O Liability Insurance policies as in effect from time to time in accordance with the applicable terms to the maximum extent of the coverage available for any other director or officer under such policies.

(c) Upon request by Indemnitee, the Company shall provide to Indemnitee copies of the D&O Liability Insurance policies as in effect from time to time. The Company shall promptly notify Indemnitee of any material changes in such insurance coverage.

(d) The Company shall indemnify Indemnitee for expenses incurred by Indemnitee in connection with action brought by Indemnitee for recovery under any insurance policy referred to in this Section 7, and shall advance to Indemnitee the expenses of such action; provided, however, that by executing this Agreement Indemnitee hereby undertakes to promptly re-pay the Company for any such advanced expenses if a court of competent jurisdiction finds that all of the claims brought by the Indemnitee were frivolous and not in good faith. No other form of undertaking shall be required other than the execution of this Agreement. This undertaking is an unlimited general obligation of Indemnitee.

7. Presumptions and Burdens of Proof; Effect of Certain Proceedings .

(a) In making any determination as to Indemnitee’s entitlement to indemnification hereunder, Indemnitee shall be entitled to a presumption that he or she is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 3(c), and the Company shall have the burden of proof to overcome that presumption.

(b) The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. In the event that any Proceeding to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such Proceeding with or without payment of money or other consideration) it shall be presumed that Indemnitee has been successful on the merits or otherwise in such Proceeding.

-6 -

(c) The termination of any Proceeding or of any claim, issue or matter therein by judgment, order, settlement (with or without court approval) or conviction, or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption (i) that Indemnitee did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Company, (ii) that with respect to any criminal proceeding, Indemnitee either did not have reasonable cause to believe that Indemnitee’s conduct was lawful or had reasonable cause to believe that his or her conduct was unlawful or (iii) that Indemnitee did not otherwise satisfy the applicable standard of conduct to be indemnified pursuant to this Agreement.

(d) If the person or persons so empowered to make a determination pursuant to Section 3 hereof shall have failed to make the requested determination within ninety (90) days after any judgment, order, settlement, dismissal, arbitration award, conviction, acceptance of a plea of nolo contendere or its equivalent, or other disposition or partial disposition of any Proceeding or any other event that could enable the Company to determine Indemnitee’s entitlement to indemnification, the requisite determination that Indemnitee is entitled to indemnification shall be deemed to have been made.

(e) For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Company or other person or entity, as applicable, including financial statements, or on information supplied to Indemnitee by the officers of such person or entity in the course of their duties, or on the advice of legal counsel for such entity or on information or records given or reports made to such entity by an independent certified public accountant, appraiser or other expert selected with reasonable care by such entity. The provisions of this Section 8(c) shall not be deemed to be exclusive or to limit in any way other circumstances in which Indemnitee may be deemed or found to have met the applicable standard of conduct to be indemnified pursuant to this Agreement.

(f) The knowledge or actions or failure to act of any other director, officer, employee or agent of the Company or other person or entity, as applicable, shall not be imputed to Indemnitee for purposes of determining Indemnitee’s right to indemnification under this Agreement.

8. Severability . Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company’s inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 9. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the fullest extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms.

-7 -

9 . Exceptions . Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:

(a) Claims Initiated by Indemnitee . To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 145 of the DGCL, but such indemnification or advancement of expenses may be provided by the Company in specific cases if its Board of Directors has approved the initiation or bringing of such suit; or

(b) Lack of Good Faith . To indemnify Indemnitee for any expenses incurred by Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction in a final adjudication not subject to further appeal determines that each of the material assertions made by Indemnitee in such proceeding was not made in good faith or was frivolous; or

(c) Insured Claims . To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier under a policy of directors and officers liability insurance maintained by the Company; provided , however , that payment made to Indemnitee pursuant to an insurance policy purchased and maintained by Indemnitee at his or her own expense of any amounts otherwise indemnifiable or obligated to be made pursuant to this Agreement shall not reduce the Company’s obligations to Indemnitee pursuant to this Agreement; or

(d) Claims under Section 16(b) . To indemnify Indemnitee for the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, or any similar successor statute;

(e) Claims under the Sarbanes-Oxley Act . To indemnify Indemnitee for any reimbursement of the Company by Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by Indemnitee from the sale of securities of the Company, as required in each case under the Exchange Act (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the “ Sarbanes-Oxley Act ”), or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act);

(f) Excluded Act or Omission . To indemnify Indemnitee if a court of competent jurisdiction in a final adjudication not subject to further appeal determines that such indemnification is illegal, including, without limitation, by virtue of such indemnification being in violation of public policy or any other provision of law.

-8 -

10 . Construction of Certain Terms and Phrases .

(a) For purposes of this Agreement, references to the “Company” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger with the Company, which constituent corporation, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.

(b) For purposes of this Agreement, references to “other enterprises” shall include employee benefit plans; and references to “serving at the request of the Company” shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan or its participants or beneficiaries, including as a deemed fiduciary thereto; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.

11. Counterparts . This Agreement may be executed in one or more counterparts, each of which shall constitute an original.

12. Successors and Assigns . This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and Indemnitee’s estate, heirs, legal representatives and assigns. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement to the fullest extent permitted by law.

13. Attorneys’ Fees . In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys’ fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action was not made in good faith or was frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys’ fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee’s counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of Indemnitee’s material defenses to such action was made not in good faith or was frivolous. In any such proceeding to enforce any rights pursuant to this Agreement, the Company shall be precluded from asserting that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Agreement and is precluded from making any assertion to the contrary.

-9 -

1 4 . Notice . Except as provided in Section 3(b), all notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressee, on the date of such receipt, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice.

15. Consent to Jurisdiction . The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of Delaware.

16. Choice of Law . This Agreement shall be governed by and its provisions construed in accordance with the laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely within Delaware without regard to the conflict of law principles thereof.

17. Period of Limitations . No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee’s estate, spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.

18. Subrogation . In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.

19. Primary Responsibility . The Company acknowledges that Indemnitee has or may from time to time obtain certain rights to indemnification and advancement of expenses provided by one or more third parties (collectively, the “Secondary Indemnitors”). The Company agrees that, as between the Company and the Secondary Indemnitors, the Company is primarily responsible for amounts required to be indemnified or advanced under the Company’s certificate of incorporation or bylaws or this Agreement and any obligation of the Secondary Indemnitors to provide indemnification or advancement for the same amounts is secondary to those Company obligations. To the extent not in contravention of any insurance policy or policies providing liability or other insurance for the Company or any director, trustee, general partner, managing member, officer, employee, agent or fiduciary of the Company or any other enterprise, the Company waives any right of contribution or subrogation against the Secondary Indemnitors with respect to the liabilities for which the Company is primarily responsible under this Section 19. In the event of any payment by the Secondary Indemnitors of amounts otherwise required to be indemnified or advanced by the Company under the Company’s certificate of incorporation or bylaws or this Agreement, the Secondary Indemnitors shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee for indemnification or advancement of expenses under the Company’s certificate of incorporation or bylaws or this Agreement or, to the extent such subrogation is unavailable and contribution is found to be the applicable remedy, shall have a right of contribution with respect to the amounts paid. The Secondary Indemnitors are express third-party beneficiaries of the terms of this Section 19.

-10 -

20. Retroactivity . This Agreement shall be deemed to have been in effect during all periods that Indemnitee was a director, officer or employee of the Company, regardless of the date of this Agreement.

21. Amendment and Termination . No amendment, modification, termination or cancellation of this Agreement shall be effective unless it is in a writing signed by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver.

22. Integration and Entire Agreement . Subject to the provisions of Section 4, this Agreement sets forth the entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto.

23. Settlements. The Company shall be permitted to settle any Proceeding except that it shall not settle any Proceeding in any manner which would impose any penalty or limitation on the Indemnitee without Indemnitee’s written consent, which may be given or withheld in Indemnitee’s sole discretion. The Company shall not, on its own behalf, settle any part of any Proceeding to which Indemnitee is party with respect to other parties (including the Company) if any portion of such settlement is to be funded from corporate insurance proceeds unless approved by (1) the written consent of Indemnitee or (ii) a majority of the independent directors of the board; provided, however, that the right to constrain the Company’s use of corporate insurance as described in this section shall terminate at the time the Company concludes (per the terms of this Agreement) that (i) Indemnitee is not entitled to indemnification pursuant to this Agreement, or (ii) such indemnification obligation to Indemnitee has been fully discharged by the Company.

24. Monetary Damages Insufficient/Specific Performance . The Company and Indemnitee agree that a monetary remedy for breach of this Agreement may be inadequate, impracticable and difficult of proof, and further agree that such breach may cause Indemnitee irreparable harm. Accordingly, the parties hereto agree that Indemnitee may enforce this Agreement by seeking injunctive relief and/or specific performance hereof, without any necessity of showing actual damage or irreparable harm (having agreed that actual and irreparable harm will result in not forcing the Company to specifically perform its obligations pursuant to this Agreement) and that by seeking injunctive relief and/or specific performance, Indemnitee shall not be precluded from seeking or obtaining any other relief to which he may be entitled. The Company and Indemnitee further agree that Indemnitee shall be entitled to such specific performance and injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions, without the necessity of posting bonds or other undertaking in connection therewith. The Company acknowledges that in the absence of a waiver, a bond or undertaking may be required of Indemnitee by the Court, and the Company hereby waives any such requirement of a bond or undertaking.

-11 -

2 5 . Contribution . If the indemnification provided pursuant to this Agreement is unavailable in whole or in part and may not be paid to Indemnitee for any reason other than those set forth in Section 9 , then in respect to any Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding), to the fullest extent permissible under applicable law, the Company, in lieu of indemnifying and holding harmless Indemnitee, shall pay, in the first instance, the entire amount incurred by Indemnitee, whether for e xpenses, judgments, decisions of arbitrators, fines, penalties, and/or amounts paid or to be paid in settlement, in connection with any Proceeding without requiring Indemnitee to contribute to such payment, and the Company hereby waives and relinquishes any right of contribution it may have at any time against Indemnitee; provided, however, that such right to contribution described in this section shall terminate at the time the Company concludes (per the terms of this Agreement) that (i) Indemnitee is not entitled to indemnification pursuant to this A greement, or (ii) such indemnification obligation to Indemnitee has been fully discharged by the Company .

26. Information Sharing . To the extent not prohibited by any law, rule or regulation, and to the extent it would not cause a breach of a confidentiality obligation or waiver of the Company’s attorney-client privilege, if a governmental agency (the “Requesting Agency”) requests that the Company produce information concerning an investigation, whether formal or informal, that in the Company’s reasonable opinion, is likely to include a review of the conduct of an Indemnitee, the Company shall (i) notify the Indemnitee of any information requests that may implicate the Indemnitee and (ii) share with the Indemnitee any information it has turned over to the Requesting Agency that relates to conduct of the Indemnitee (the “Shared Information”). By executing this agreement, Indemnitee agrees that such Shared Information will be maintained as confidential and acknowledges that such Shared Information may also constitute material non-public information, in which case Indemnitee is obligated not to trade in securities of the Company; provided , however , that Indemnitee is permitted to use the Shared Information and to disclose such Shared Information to Indemnitee’s legal counsel and third parties solely in connection with defending Indemnitee from legal liability who further agree to be bound by the restrictions on its usage.

[signature page follows]

-12 -

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

Superior Industries International, Inc.
a Delaware corporation

By:
Name:
Title:

Address for notice :

26600 Telegraph Road, Suite 400
Southfield, MI 48033

AGREED TO AND ACCEPTED:

INDEMNITEE:

By:
Name:
Title:

Address for notice :

EXHIBIT 31.1

CERTIFICATION

PURSUANT TO EXCHANGE ACT RULES 13a-14(a)

AND 15d-14(a), AS ADOPTED PURSUANT TO

SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

I, Majdi B. Abulaban, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Superior Industries International, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by the report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 8, 2019

/s/ Majdi B. Abulaban

Majdi B. Abulaban

President and Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION

PURSUANT TO EXCHANGE ACT RULES 13a-14(a)

AND 15d-14(a), AS ADOPTED PURSUANT TO

SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

I, Matti M. Masanovich, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Superior Industries International, Inc.;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 8, 2019

/s/ Matti M. Masanovich

Matti M. Masanovich

Executive Vice President and Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION

PURSUANT TO 18

U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certify, in their capacities as officers of Superior Industries International, Inc. (the “company”), for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of their knowledge:

•

The Quarterly Report of the company on Form 10-Q for the period ended June 30, 2019 as filed with the Securities and Exchange Commission fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

•

The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the company.

Dated: August 8, 2019	/s/ Majdi B. Abulaban
	Name: Majdi B. Abulaban
	Title: President and Chief Executive Officer

Date: August 8, 2019

/s/ Matti M. Masanovich

Name: Matti M. Masanovich

Title: Executive Vice President and

Chief Financial Officer