SUPERIOR INDUSTRIES INTERNATIONAL INC (Form: 10-Q, Received: 08/05/2020 16:02:34)

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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, 2020

☐	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 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 July 29, 2020: 25,591,930

TABLE OF CONTENTS

					Page
PART I	-	FINANCIAL INFORMATION

		Item 1	-	Financial Statements (Unaudited)

				Condensed Consolidated Statements of Income (Loss)	1

				Condensed Consolidated Statements of Comprehensive Income (Loss)	2

				Condensed Consolidated Balance Sheets	3

				Condensed Consolidated Statements of Cash Flows	4

				Condensed Consolidated Statements of Shareholders’ Equity (Deficit)	5

				Notes to Condensed Consolidated Financial Statements	7

		Item 2	-	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

		Item 3	-	Quantitative and Qualitative Disclosures About Market Risk	42

		Item 4	-	Controls and Procedures	42

PART II	-	OTHER INFORMATION			43

		Item 1	-	Legal Proceedings	43

		Item 1A	-	Risk Factors	43

		Item 2	-	Unregistered Sales of Equity Securities and Use of Proceeds	44

		Item 5	-	Other Information	44

		Item 6	-	Exhibits	45

		Signatures			46

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

SUPERIOR INDUSTRIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS)

(Dollars in thousands, except per share data)

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019
NET SALES	$	144,835		$	352,499		$	445,947		$	710,192
Cost of sales		167,676			312,504			445,627			637,075
GROSS (LOSS) PROFIT		(22,841	)		39,995			320			73,117
Selling, general and administrative expenses		11,276			15,964			23,811			30,447
Impairment of goodwill and indefinite-lived intangibles		—			—			193,641			—
(LOSS) INCOME FROM OPERATIONS		(34,117	)		24,031			(217,132	)		42,670
Interest expense, net		(12,184	)		(11,852	)		(24,034	)		(23,725	)
Other (expense) income, net		(670	)		2,632			653			2,759
(LOSS) INCOME BEFORE INCOME TAXES		(46,971	)		14,811			(240,513	)		21,704
Income tax benefit (provision)		3,753			(7,541	)		7,213			(12,484	)
NET (LOSS) INCOME	$	(43,218	)	$	7,270		$	(233,300	)	$	9,220
LOSS PER SHARE – BASIC	$	(2.00	)	$	(0.04	)	$	(9.81	)	$	(0.27	)
LOSS PER SHARE – DILUTED	$	(2.00	)	$	(0.04	)	$	(9.81	)	$	(0.27	)

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, 2020			June 30, 2019			June 30, 2020			June 30, 2019
Net (loss) income	$	(43,218	)	$	7,270		$	(233,300	)	$	9,220
Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss)		9,443			8,033			(26,090	)		684
Change in unrecognized gains (losses) on derivative instruments:
Change in fair value of derivatives		19,673			2,130			(38,752	)		8,544
Tax (provision) benefit		(4,375	)		(274	)		8,753			(1,762	)
Change in unrecognized gains (losses) on derivative instruments, net of tax		15,298			1,856			(29,999	)		6,782
Defined benefit pension plan:
Amortization of actuarial losses on pension obligations		72			53			144			105
Tax (provision)		(13	)		(11	)		(30	)		(22	)
Pension changes, net of tax		59			42			114			83
Other comprehensive income (loss), net of tax		24,800			9,931			(55,975	)		7,549
Comprehensive (loss) income	$	(18,418	)	$	17,201		$	(289,275	)	$	16,769

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)

(Unaudited)

	June 30, 2020			December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	130,732		$	77,927
Accounts receivable, net		61,249			76,786
Inventories, net		149,450			168,470
Income taxes receivable		4,226			4,630
Other current assets		16,774			26,375
Total current assets		362,431			354,188
Property, plant and equipment, net		502,393			529,282
Deferred income tax assets, net		48,365			38,607
Goodwill		—			184,832
Intangibles, net		113,795			137,078
Other non-current assets		58,973			67,880
Total assets	$	1,085,957		$	1,311,867
LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	90,726		$	123,112
Short-term debt		58,297			4,010
Accrued expenses		63,905			60,845
Income taxes payable		3,530			3,148
Total current liabilities		216,458			191,115
Long-term debt (less current portion)		655,526			611,025
Non-current income tax liabilities		6,953			6,523
Deferred income tax liabilities, net		—			12,369
Other non-current liabilities		88,743			71,640
Commitments and contingent liabilities (Note 17)		—			—
Mezzanine equity:
Preferred stock, $0.01 par value
Authorized - 1,000,000 shares
Issued and outstanding – 150,000 shares outstanding at June 30, 2020 and December 31, 2019		169,935			160,980
European non-controlling redeemable equity		1,518			6,525
Shareholders’ equity (deficit):
Common stock, $0.01 par value
Authorized - 100,000,000 shares
Issued and outstanding – 25,591,930 and 25,128,158 shares at June 30, 2020 and December 31, 2019		93,541			93,331
Accumulated other comprehensive loss		(156,053	)		(100,078	)
Retained earnings		9,336			258,437
Total shareholders’ equity (deficit)		(53,176	)		251,690
Total liabilities, mezzanine equity and shareholders’ equity (deficit)	$	1,085,957		$	1,311,867

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

SUPERIOR INDUSTRIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

	Six Months Ended
	June 30, 2020			June 30, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(233,300	)	$	9,220
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		48,316			46,673
Income tax, non-cash changes		(13,975	)		1,582
Impairment of goodwill and indefinite-lived intangibles		193,641			—
Stock-based compensation		210			1,917
Amortization of debt issuance costs		2,261			2,456
Other non-cash items		(2,456	)		(1,630	)
Changes in operating assets and liabilities:
Accounts receivable		9,839			(22,538	)
Inventories		17,053			(2,660	)
Other assets and liabilities		1,186			12,574
Accounts payable		(31,276	)		10,655
Income taxes		1,366			11,382
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES		(7,135	)		69,631
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment		(22,761	)		(28,665	)
Other investing activities		—			9,631
NET CASH USED IN INVESTING ACTIVITIES		(22,761	)		(19,034	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt		11,690			—
Repayments of debt		(24,066	)		(24,183	)
Cash dividends paid		(6,767	)		(12,910	)
Purchase of non-controlling redeemable shares		(4,938	)		(1,411	)
Payments related to tax withholdings for stock-based compensation		—			(108	)
Proceeds from borrowings on revolving credit facility		213,825			43,800
Repayments of borrowings on revolving credit facility		(106,992	)		(43,800	)
Other financing activities		(547	)		(654	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		82,205			(39,266	)
Effect of exchange rate changes on cash		496			(1,872	)
Net increase in cash and cash equivalents		52,805			9,459
Cash and cash equivalents at the beginning of the period		77,927			47,464
Cash and cash equivalents at the end of the period	$	130,732		$	56,923

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

SUPERIOR INDUSTRIES INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

(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 dividend declared ($0.09 per common share)		—		—		—			—			—			(4,582	)		(4,582	)
Redeemable preferred 9% dividend, participating dividend 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 dividend declared ($0.09 per common share)		—		—		—			—			—			(2,259	)		(2,259	)
Redeemable preferred 9% dividend, participating dividend 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

For the six months ended June 30, 2020

(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, 2019		25,128,158	$	93,331	$	9,951		$	(5,571	)	$	(104,458	)	$	258,437		$	251,690
Net (loss)		—		—		—			—			—			(233,300	)		(233,300	)
Change in unrecognized gains/losses on derivative instruments, net of tax		—		—		(29,999	)		—			—			—			(29,999	)
Change in employee benefit plans, net of taxes		—		—		—			114			—			—			114
Net foreign currency translation adjustment		—		—		—			—			(26,090	)		—			(26,090	)
Common stock issued, net of shares withheld for employee taxes		463,772		—		—			—			—			—			—
Stock-based compensation		—		210		—			—			—			—			210
Redeemable preferred 9% dividend and accretion		—		—		—			—			—			(15,755	)		(15,755	)
European non-controlling redeemable equity dividend		—		—		—			—			—			(46	)		(46	)
BALANCE AT JUNE 30, 2020		25,591,930	$	93,541	$	(20,048	)	$	(5,457	)	$	(130,548	)	$	9,336		$	(53,176	)

For the three months ended June 30, 2020

(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, 2020		25,474,477	$	92,678	$	(35,346	)	$	(5,516	)	$	(139,991	)	$	60,485		$	(27,690	)
Net (loss)		—		—		—			—			—			(43,218	)		(43,218	)
Change in unrecognized gains/losses on derivative instruments, net of tax		—		—		15,298			—			—			—			15,298
Change in employee benefit plans, net of taxes		—		—		—			59			—			—			59
Net foreign currency translation adjustment		—		—		—			—			9,443			—			9,443
Common stock issued, net of shares withheld for employee taxes		117,453		—		—			—			—			—			—
Stock-based compensation		—		863		—			—			—			—			863
Redeemable preferred 9% dividend and accretion		—		—		—			—			—			(7,905	)		(7,905	)
European non-controlling redeemable equity dividend		—		—		—			—			—			(26	)		(26	)
BALANCE AT JUNE 30, 2020		25,591,930	$	93,541	$	(20,048	)	$	(5,457	)	$	(130,548	)	$	9,336		$	(53,176	)

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, 2020

(Unaudited)

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

Nature of Operations

Superior Industries International, Inc.’s (referred herein as the “Company,” “Superior,” or “we” and “our”) principal business is the design and manufacture of aluminum wheels for sale to original equipment manufacturers (OEMs) in North America and Europe and aftermarket distributors in Europe. We employ approximately 7,600 employees, operating in eight manufacturing facilities in North America and Europe with a combined annual manufacturing capacity of approximately 20 million wheels. We are one of the largest suppliers to global OEMs and we believe we are the #1 European aluminum wheel aftermarket manufacturer and supplier. Our OEM aluminum wheels accounted for approximately 92 percent of our sales in the first half of 2020 and are primarily sold for factory installation on vehicle models manufactured by BMW (including Mini), Daimler AG Company (Mercedes-Benz, AMG, Smart), FCA, Ford, GM, Honda, Jaguar-Land Rover, Mazda, Mitsubishi, Nissan, PSA, Renault, Subaru, Suzuki, Toyota, VW Group (Volkswagen, Audi, SEAT, 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 have determined that our North American and European operations should be treated as separate reportable 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. Generally Accepted Accounting Principles (“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 statements of income (loss) for the three and six-month periods ended June 30, 2020 and June 30, 2019, (ii) the condensed consolidated statements of comprehensive income (loss) for the three and six-month periods ended June 30, 2020 and June 30, 2019, (iii) the condensed consolidated balance sheets at June 30, 2020 and December 31, 2019, (iv) the condensed consolidated statements of cash flows for the six-month periods ended June 30, 2020 and June 30, 2019, and (v) the condensed consolidated statements of shareholders’ equity (deficit) for the three and six-month periods ended June 30, 2020 and June 30, 2019. 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 2019 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.

Certain prior year amounts have been reclassified to conform with the current year presentation.

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

Cash paid for interest was $21.5 million and $21.6 million for the six months ended June 30, 2020 and June 30, 2019, respectively. Net cash income taxes paid was $5.4 million and $2.9 million for the six months ended June 30, 2020 and June 30, 2019, respectively. As of June 30, 2020 and June 30, 2019, $2.9 million and $18.1 million, respectively, of equipment had been purchased but not yet paid and was included in accounts payable in our condensed consolidated balance sheets.

New Accounting Standards

Accounting Standards Update (“ASU”) 2018-13, “Fair Value Measurement.” Effective January 1, 2020, the Company adopted ASU 2018-13 which allows companies to remove, modify and add certain disclosures related to fair value measurements. The adoption of this standard did not have a significant impact on the Company’s condensed consolidated financial statement disclosures.

Accounting Standards Issued but Not Yet Adopted

ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, "Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" (ASU 2016-13), which requires entities to use a new impairment model based on current expected credit losses (“CECL”) rather than incurred losses. Under CECL, estimated credit losses would incorporate relevant information about past events, current conditions and reasonable and supportable forecasts and any expected credit losses would be recognized at the time of sale. As a smaller reporting company (as defined under SEC regulations), the Company is not required to adopt the new standard until fiscal years beginning after December 31, 2022. We are evaluating the impact this new standard will have on our financial statements and 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” (ASU 2018-14), 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. We are evaluating the impact this new standard will have on our financial statement disclosures.

ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” In March 2020, the FASB issued ASU 2020-04 entitled “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides temporary optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The relief provided by this guidance is elective and applies to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform initiatives being undertaken in an effort to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The optional amendments of this guidance are effective for all entities upon adoption. We are currently assessing the impact of this new standard on our financial statements and disclosures.

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-month periods ended June 30, 2020 and 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, 2020 and December 31, 2019 are as follows (in thousands):

	June 30, 2020		December 31, 2019		Change
Customer receivables	$	56,417	$	68,283	$	(11,866	)
Contract liabilities—current		8,574		5,880		2,694
Contract liabilities—noncurrent		14,405		13,577		828

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 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, 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.

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 following tables categorize items measured at fair value at June 30, 2020 and December 31, 2019:

			Fair Value Measurement at Reporting Date Using
June 30, 2020			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	$	6,711	$	—	$	6,711	$	—
Total	$	6,711	$	—	$	6,711	$	—
Liabilities					.
Derivative contracts	$	35,155	$	—	$	35,155	$	—
Total	$	35,155	$	—	$	35,155	$	—

			Fair Value Measurement at Reporting Date Using
December 31, 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	$	21,973	$	—	$	21,973	$	—
Total	$	21,973	$	—	$	21,973	$	—
Liabilities
Derivative contracts	$	8,709	$	—	$	8,709	$	—
Total	$	8,709	$	—	$	8,709	$	—

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, 2020		December 31, 2019
(Dollars in thousands)
Estimated aggregate fair value	$	648,959	$	606,093
Aggregate carrying value ⁽¹⁾		727,163		630,635

⁽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 derivatives 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 do not qualify for designation as hedging instruments.

The following tables display the fair value of derivatives by balance sheet line item at June 30, 2020 and December 31, 2019:

	June 30, 2020
	Other Current Assets		Other Non-current Assets		Accrued Liabilities		Other Non-current Liabilities
(Dollars in thousands)
Foreign exchange forward contracts designated as hedging instruments	$	1,179	$	1,968	$	7,730	$	15,043
Foreign exchange forward contracts not designated as hedging instruments		3,111		—		115		—
Aluminum forward contracts designated as hedging instruments		—		—		396		—
Natural gas forward contracts designated as hedging instruments		327		126		231		453
Interest rate swap contracts designated as hedging instruments		—		—		4,973		6,214
Total derivative financial instruments	$	4,617	$	2,094	$	13,445	$	21,710

	December 31, 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	$	7,808	$	12,821	$	60	$	100
Foreign exchange forward contracts not designated as hedging instruments		1,196		—		554		—
Aluminum forward contracts designated as hedging instruments		60		—		127		—
Natural gas forward contracts designated as hedging instruments		81		7		1,312		727
Interest rate swap contracts designated as hedging instruments		—		—		2,304		3,525
Total derivative financial instruments	$	9,145	$	12,828	$	4,357	$	4,352

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

	June 30, 2020					December 31, 2019
	Notional U.S. Dollar Amount		Fair Value			Notional U.S. Dollar Amount		Fair Value
(Dollars in thousands)
Foreign currency forward contracts designated as hedging instruments	$	420,799	$	(19,626	)	$	449,181	$	20,469
Foreign exchange forward contracts not designated as hedging instruments		58,455		2,996			73,491		642
Aluminum forward contracts designated as hedging instruments		6,150		(396	)		9,405		(67	)
Natural gas forward contracts designated as hedging instruments		6,058		(231	)		5,816		(1,951	)
Interest rate swap contracts designated as hedging instruments		235,000		(11,187	)		260,000		(5,829	)
Total derivative financial instruments	$	726,462	$	(28,444	)	$	797,893	$	13,264

Notional amounts are presented on a net 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, 2020 and 2019, the amounts reclassified from AOCI into earnings and the amounts recognized directly into earnings for the three and six months ended June 30, 2020 and 2019:

Three Months Ended June 30, 2020	Amount of Gain or (Loss) Recognized in AOCI on Derivatives			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	$	15,298		$	(3,980	)	$	1,692
Total	$	15,298		$	(3,980	)	$	1,692

Six Months Ended June 30, 2020	Amount of Gain or (Loss) Recognized in AOCI on Derivatives			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	$	(29,999	)	$	(5,094	)	$	(3,747	)
Total	$	(29,999	)	$	(5,094	)	$	(3,747	)

Three Months Ended June 30, 2019	Amount of Gain or (Loss) Recognized in AOCI on Derivatives		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		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

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 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, 2020		June 30, 2019		June 30, 2020			June 30, 2019
North America	$	58,916	$	180,402	$	(19,792	)	$	11,827
Europe		85,919		172,097		(14,325	)		12,204
	$	144,835	$	352,499	$	(34,117	)	$	24,031

(Dollars in thousands)	Depreciation and Amortization				Capital Expenditures
Three Months Ended	June 30, 2020		June 30, 2019		June 30, 2020			June 30, 2019
North America	$	8,420	$	7,950	$	5,876		$	4,435
Europe		15,504		15,392		3,020			10,838
	$	23,924	$	23,342	$	8,896		$	15,273

(Dollars in thousands)	Net Sales				Income from Operations
Six Months Ended	June 30, 2020		June 30, 2019		June 30, 2020			June 30, 2019
North America	$	214,467	$	365,518	$	(13,683	)	$	18,026
Europe		231,480		344,674		(203,449	)		24,644
	$	445,947	$	710,192	$	(217,132	)	$	42,670

(Dollars in thousands)	Depreciation and Amortization				Capital Expenditures
Six Months Ended	June 30, 2020		June 30, 2019		June 30, 2020			June 30, 2019
North America	$	17,225	$	15,816	$	12,436		$	10,563
Europe		31,091		30,857		10,325			18,102
	$	48,316	$	46,673	$	22,761		$	28,665

(Dollars in thousands)	Property, Plant and Equipment, net				Goodwill and Intangible Assets
	June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019
North America	$	215,110	$	237,372	$	—	$	—
Europe		287,283		291,910		113,795		321,910
	$	502,393	$	529,282	$	113,795	$	321,910

(Dollars in thousands)	Total Assets
	June 30, 2020		December 31, 2019
North America	$	434,774	$	484,689
Europe		651,183		827,178
	$	1,085,957	$	1,311,867

Geographic information

Net sales by geographic location are as follows:

	Three Months Ended				Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
(Dollars in thousands)
Net sales:
U.S.	$	3,619	$	26,466	$	19,796	$	54,722
Mexico		55,297		153,936		194,671		310,796
Germany		33,726		57,189		83,764		121,237
Poland		52,193		114,908		147,716		223,437
Consolidated net sales	$	144,835	$	352,499	$	445,947	$	710,192

NOTE 6 - INVENTORIES

	June 30, 2020		December 31, 2019
(Dollars in thousands)
Raw materials	$	34,406	$	44,245
Work in process		36,917		40,344
Finished goods		78,127		83,881
Inventories, net	$	149,450	$	168,470

Service wheel and supplies inventory included in other non-current assets in the condensed consolidated balance sheets totaled $9.7 million and $10.6 million at June 30, 2020 and December 31, 2019, respectively.

NOTE 7 - PROPERTY, PLANT AND EQUIPMENT

	June 30, 2020			December 31, 2019
(Dollars in thousands)
Land and buildings	$	161,539		$	158,907
Machinery and equipment		807,319			856,961
Leasehold improvements and others		11,195			12,173
Construction in progress		42,279			30,179
		1,022,332			1,058,220
Accumulated depreciation		(519,939	)		(528,938	)
Property, plant and equipment, net	$	502,393		$	529,282

Depreciation expense for the three and six months ended June 30, 2020 was $17.8 million and $36.1 million, respectively. Depreciation expense for the three and six months ended June 30, 2019 was $16.6 million and $33.2 million, respectively.

NOTE 8 - GOODWILL AND OTHER INTANGIBLE ASSETS

At March 31, 2020, the impact of COVID-19 and uncertainty with respect to the economic effects of the pandemic had introduced significant volatility in the financial markets and was having, and continues to have, a widespread adverse effect on the automotive industry, including reductions in both consumer demand and OEM automotive production. In response to the COVID-19 pandemic, our key customers temporarily closed nearly all their production facilities in Europe and North America (our primary markets) during the quarter ended March 31, 2020. As a result, we concluded that an interim test of our goodwill was required as of March 31, 2020. More specifically, the Company concluded that the following events and circumstances, in the aggregate, indicated that it was more likely than not that the carrying value of our European reporting unit exceeded its fair value: (1) our European reporting unit’s carrying value was effectively set to fair value at December 31, 2019, due to the $102.2 million impairment charges to goodwill and indefinite-lived intangibles, (2) lower forecasted 2020 industry production volumes for Western and Central Europe, including those for our primary European customers, due to OEM shutdowns to mitigate COVID-19 spread and subsequent reduced production levels over the remainder of the year, as compared to our prior production forecasts (including estimates used in our 2019 assessment) and (3) the volatility in financial markets that has both increased European interest rates due to rising credit spreads and risk premiums and lowered median European automotive market multiples. Based on the results of our quantitative analysis, we recognized a non-cash goodwill impairment charge equal to the remaining goodwill balance of $182.6 million since the carrying value exceeded the fair value of the European reporting unit by more than the amount of the goodwill balance at March 31, 2020. Additionally, we recognized a non-cash impairment charge of $11.0 million related to our aftermarket trade name indefinite-lived intangible asset which was primarily attributable to a further decline in forecasted aftermarket revenues and a decline in associated profitability. Total impairment charges of $193.6 million were recognized as a separate charge at March 31, 2020 and included in income (loss) from operations.

We utilized both an income and a market approach, weighted 75 percent and 25 percent respectively, to determine the fair value of the European reporting unit as part of our goodwill impairment assessment. The income approach is based on projected debt-free cash flow, which is discounted to the present value using discount factors that consider the timing and risk of cash flows. The discount rate used is the weighted average of an estimated cost of equity and of debt (“weighted average cost of capital”). The weighted average cost of capital is adjusted as necessary to reflect risk associated with the business of the European reporting unit. Financial projections are based on estimated production volumes, product prices and expenses, including raw material cost, wages, energy and other expenses. Other significant assumptions include terminal value cash flow and growth rates, future capital expenditures and changes in future working capital requirements. The market approach is based on the observed ratios of enterprise value to earnings before interest, taxes, depreciation and amortization (EBITDA) of comparable, publicly traded companies. The market approach fair value is determined by multiplying historical and anticipated financial metrics of the European reporting unit by the EBITDA pricing multiples derived from comparable, publicly traded companies.

weighted average cost of capital (WACC) of 12.0 percent and a long-term growth rate of 1.5 percent, as compared to 10.0 percent and 2.0 percent, respectively, used in the 2019 assessment. In determining the WACC, management considered the level of risk inherent in the cash flow projections and current market conditions, including the significant increase in credit spreads and systemic market and Company specific risk premiums. The decline in the fair value under the market approach is attributable to the decline in the average EBITDA market multiple (4.9X EBITDA in 2020, 5.7X EBITDA in 2019) and lower forecasted EBITDA, as compared to the 2019 assessment. The use of these unobservable inputs results in classification of the fair value estimate as a Level 3 measurement in the fair value hierarchy. A considerable amount of management judgment and assumptions are required in performing the quantitative impairment test, principally related to determining the fair value of the reporting unit. While the Company believes its judgments and assumptions are reasonable, different assumptions could change the estimated fair value.

Following is a summary of the Company’s finite-lived and indefinite-lived intangible assets and goodwill as of June 30, 2020 and December 31, 2019.

As of June 30, 2020	Gross Carrying Amount		Impairment			Accumulated Amortization			Currency Translation			Net Carrying Amount		Remaining Weighted Average Amortization Period
(Dollars in thousands)
Brand name	$	9,000	$	—		$	(5,662	)	$	111		$	3,449	2-3
Technology		15,000		—			(9,437	)		181			5,744	1-3
Customer relationships		167,000		—			(63,621	)		1,223			104,602	3-8
Total finite		191,000		—			(78,720	)		1,515			113,795
Trade names		14,000		(13,772	)		—			(228	)		—	Indefinite
Total intangibles	$	205,000	$	(13,772	)	$	(78,720	)	$	1,287		$	113,795

Six Months Ended June 30, 2020	Beginning Balance													Ending Balance
	Gross		Accumulated Impairment			Net Balance		Impairment			Currency Translation			Gross		Accumulated Impairment			Net Balance
(Dollars in thousands)
Goodwill	$	284,337	$	(99,505	)	$	184,832	$	(182,528	)	$	(2,304	)	$	282,033	$	(282,033	)	$	—

As of December 31, 2019	Gross Carrying Amount		Impairment			Accumulated Amortization			Currency Translation			Net Carrying Amount		Remaining Weighted Average Amortization Period
(Dollars in thousands)
Brand name	$	9,000	$	—		$	(4,778	)	$	110		$	4,332	3-4
Technology		15,000		—			(7,963	)		183			7,220	2-4
Customer relationships		167,000		—			(53,681	)		954			114,273	4-9
Total finite		191,000		—			(66,422	)		1,247			125,825
Trade names		14,000		(2,733	)		—			(14	)		11,253	Indefinite
Total intangibles	$	205,000	$	(2,733	)	$	(66,422	)	$	1,233		$	137,078

Year Ended December 31, 2019	Beginning Balance												Ending Balance
	Gross		Accumulated Impairment		Net Balance		Impairment			Currency Translation			Gross		Accumulated Impairment			Net Balance
(Dollars in thousands)
Goodwill	$	291,434	$	—	$	291,434	$	(99,505	)	$	(7,097	)	$	284,337	$	(99,505	)	$	184,832

Amortization expense for these intangible assets was $6.1 million and $6.7 million for the three months ended June 30, 2020 and 2019, respectively. Amortization expense for the six months ending June 30, 2020 and 2019 was $12.2 million and $13.5 million, respectively. The anticipated annual amortization expense for these intangible assets is $24.5 million for 2020 to 2021, $21.7 million for 2022 and $19.8 million for 2023 and 2024.

NOTE 9 – DEBT

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

	June 30, 2020 (Dollars in Thousands)
Debt Instrument	Total Debt		Debt Issuance Costs ⁽¹⁾			Total Debt, Net			Weighted Average Interest Rate
Term Loan Facility	$	349,200	$	(8,424	)	$	340,776			4.2	%
6.00% Senior Notes due 2025		244,008		(4,916	)		239,092			6.0	%
Corporate Revolving Credit Facility		55,000		—			55,000			3.4	%
European CapEx Loans		23,168		—			23,168			2.5	%
European Revolving Credit Facility		52,837		—			52,837			1.6	%
Finance Leases		2,950		—			2,950			3.0	%
	$	727,163	$	(13,340	)		713,823
Less: Current portion							(58,297	)
Long-term debt						$	655,526

	December 31, 2019 (Dollars in Thousands)
Debt Instrument	Total Debt		Debt Issuance Costs ⁽¹⁾			Total Debt, Net			Weighted Average Interest Rate
Term Loan Facility	$	371,800	$	(10,192	)	$	361,608			5.7	%
6.00% Senior Notes due 2025		243,074		(5,408	)		237,666			6.0	%
European CapEx Loan		12,693		—			12,693			2.2	%
Finance Leases		3,068		—			3,068			2.9	%
	$	630,635	$	(15,600	)		615,035
Less: Current portion							(4,010	)
Long-term debt						$	611,025

(1)

Unamortized portion

Senior Notes

On June 15, 2017, the Company issued €250.0 million aggregate principal amount of 6.00% Senior Notes (“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 June 15, 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. 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 second quarter of 2019, the Company opportunistically purchased Notes on the open market with a face value totaling

$22.4 million (20.0 million Euro) for $19.4 million (17.4 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 was included in other income. During the third and fourth quarter of 2019, the Company purchased additional Notes on the open market with a face value of $14.4 million (13.0 million Euro) for $12.9 million. The associated carrying value of the Notes, net of allocable debt issuance cost, was $14.1 million, resulting in an additional net gain of $1.3 million.

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, 2020, 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 (“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 (“Term Loan Facility”), which matures on May 23, 2024, and a $160.0 million revolving credit facility maturing on May 23, 2022 (“Revolving Credit Facility” and, together with the Term Loan Facility, the USD Senior Secured Credit Facilities (“USD SSCF”)).

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, adjusted for statutory requirements, subject to a floor of 0.00 percent per annum, 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 bear interest at a rate equal to, at the Company’s option, either (a) LIBOR for the relevant interest period, with a floor of 0.00 percent per annum, plus the applicable rate or (b) a base rate, with a floor of 0.00 percent, 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 the applicable rate. 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 ranging between 3.50 percent and 3.00 percent, currently 3.25 percent, base rate applicable rates between 2.50 percent and 2.00 percent, currently 2.25 percent and commitment fees between 0.50 percent and 0.25 percent, currently 0.375 percent. Commitment fees are included in interest expense.

As of June 30, 2020, the Company had repaid $50.8 million under the Term Loan Facility resulting in a balance of $349.2 million. In addition, the Company had borrowings outstanding of $55.0 million under the Revolving Credit Facility, outstanding letters of credit of $4.8 million and available unused commitments under this facility of $100.2 million as of June 30, 2020. In July 2020, the Company paid the outstanding balance down to $30.0 million and, as a result, has available and unused commitments under the Revolving Credit Facility of $125.2 million at July 31, 2020.

Guarantees and Collateral Security

Our obligations under the Credit Agreement are unconditionally guaranteed by 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. 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 Subsidiary Guarantors 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 Credit Agreement contains 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, and, solely with respect to the Revolving Credit Facility, requires a Total Net Leverage Ratio (calculated as defined in the Credit Agreement) of not more than 4.5 to 1.0 as of each fiscal quarter-end when outstanding borrowings, together with undrawn letters of credit exceeding $20 million, under the Revolving Credit Facility exceed 35% of the $160 million commitment amount.

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, 2020, the Company was in compliance with all covenants under the Credit Agreement.

European Debt

In connection with the acquisition of Uniwheels, AG, the Company assumed $70.7 million of outstanding debt. At June 30, 2020, $11.3 million of the assumed debt remained outstanding and bears interest at 2.2 percent.

During the second quarter of 2019, the Company amended its European Revolving Credit Facility (“EUR SSCF”), increasing the available borrowing limit from €30.0 million to €45.0 million and extending the term to May 22, 2022. On January 31, 2020, the available borrowing limit of the EUR SSCF was increased from €45.0 million to €60.0 million. All other terms of the EUR SSCF remained unchanged. At June 30, 2020, the Company had borrowings outstanding of $52.8 million (€47 million), outstanding letters of credit of $0.4 million (€0.4 million) and available unused commitments under this facility of $14.2 million (€12.6 million). In early August 2020, the Company repaid $43.6 million (€37 million), resulting in an outstanding balance of $11.8 million and available and unused commitments of $58.9 million. The EUR SSCF 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 management fee is assessed equal to 0.07 percent of borrowings outstanding at each 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 equipment loans) as collateral under the EUR SSCF.

The EUR SSCF 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, 2020, Superior Europe AG was in compliance with all covenants under the EUR SSCF.

During the fourth quarter of 2019, the Company entered into new equipment loan agreements totaling $13.4 million (€12.0 million) which bear interest at 2.74 percent and mature on September 30, 2027. Interest and principal repayments are due quarterly. The funds are used to finance costs incurred to acquire certain property, plant and equipment at the Company’s Werdohl, Germany plant. The loans are secured with liens on the financed equipment and are subject to covenants that, among other things, include a material adverse change default provision pursuant to which the lender could accelerate the loan maturity, as well as a provision that restricts the ability of Superior Europe AG to reduce its ownership interest in Superior Industries Production Germany GmbH, its wholly-owned subsidiary and the borrower under the loan. During the first quarter 2020, the Company had drawn down on the equipment loans and the balance outstanding at June 30, 2020 was $11.9 million (€10.6 million). Quarterly installment payments of $480.8 thousand (€427.7 thousand) under the loan agreements will begin in December of 2020. At June 30, 2020, the Company was in compliance with all covenants under the loans.

NOTE 10 - 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 (approximately 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.

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 was 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, 2020 is $34.4 million resulting in an adjusted redeemable preferred stock balance of $169.9 million.

NOTE 11 – 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. 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 €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 €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. As a result of purchases pursuant to the tender offer and the DPLTA, the Company has increased its ownership to 99.9 percent as of June 30, 2020. 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 through the period ended June 30, 2020 (in thousands):

Balance at December 31, 2018	$	13,849
Dividends accrued		566
Dividends paid		(848	)
Translation adjustment		(361	)
Purchase of shares		(6,681	)
Balance at December 31, 2019		6,525
Dividends accrued		46
Dividends paid		(43	)
Translation adjustment		(72	)
Purchase of shares		(4,938	)
Balance at June 30, 2020	$	1,518

NOTE 12 – EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income (loss), 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 three- and six-month periods ended June 30, 2020 and 2019.

	Three Months Ended						Six Months Ended
	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019
(Dollars in thousands, except per share amounts)
Basic Earnings Per Share:
Net (loss) income	$	(43,218	)	$	7,270		$	(233,300	)	$	9,220
Less: Redeemable preferred stock dividends and accretion		(7,905	)		(7,917	)		(15,755	)		(15,688	)
Less: European non-controlling redeemable equity dividend		(26	)		(262	)		(46	)		(383	)
Basic numerator	$	(51,149	)	$	(909	)	$	(249,101	)	$	(6,851	)
Basic loss per share	$	(2.00	)	$	(0.04	)	$	(9.81	)	$	(0.27	)
Weighted average shares outstanding – Basic		25,562			25,106			25,403			25,070
Diluted Earnings Per Share:
Net (loss) income	$	(43,218	)	$	7,270		$	(233,300	)	$	9,220
Less: Redeemable preferred stock dividends and accretion		(7,905	)		(7,917	)		(15,755	)		(15,688	)
Less: European non-controlling redeemable equity dividend		(26	)		(262	)		(46	)		(383	)
Diluted numerator	$	(51,149	)	$	(909	)	$	(249,101	)	$	(6,851	)
Diluted loss per share	$	(2.00	)	$	(0.04	)	$	(9.81	)	$	(0.27	)
Weighted average shares outstanding – Basic		25,562			25,106			25,403			25,070
Dilutive effect of common share equivalents		—			—			—			—
Weighted average shares outstanding – Diluted		25,562			25,106			25,403			25,070

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 benefit for the three and six months ended June 30, 2020, was $3.8 and $7.2 million, respectively, resulting in an effective income tax rate of 8 percent and 3 percent, respectively. The effective tax rate was lower than the statutory rate primarily due to the mix of earnings among tax jurisdictions and the impairment of goodwill for which there is no corresponding tax benefit, partially offset by the recognition of a valuation allowance on non-deductible interest.

The income tax provision for the three and six months ended June 30, 2019 was $7.5 and 12.5 million, 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, and the recognition of a valuation allowance on non-deductible interest, partially offset by a benefit due to the mix of earnings among tax jurisdictions.

NOTE 14 - LEASES

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.

Right-of-use (“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 and cash flow for the three and six months ended June 30, 2020 and 2019 and operating and finance lease assets and liabilities, average lease term and average discount rate as of June 30, 2020 and December 31, 2019 are as follows:

	Three Months Ended						Six Months Ended
	June 30, 2020			June 30, 2019			June 30, 2020		June 30, 2019
Lease Expense
Finance lease expense:
Amortization of right-of-use assets	$	290		$	487		$	644	$	1,003
Interest on lease liabilities		20			17			42		31
Operating lease expense		835			861			1,680		1,714
Total lease expense	$	1,145		$	1,365		$	2,366	$	2,748

Cash Flow Components
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from finance leases	$	20		$	17		$	42	$	31
Operating cash outflows from operating leases		873			835			1,764		1,663
Financing cash outflows from finance leases		255			329			547		654
Right-of-use assets obtained in exchange for finance lease liabilities, net of terminations and disposals		72			(45	)		220		511
Right-of-use assets obtained in exchange for operating lease liabilities, net of terminations and disposals		215			56			280		18,341


	June 30, 2020			December 31, 2019
Balance Sheet Information
Operating leases:
Other non-current assets	$	13,574		$	15,201
Accrued liabilities	$	(2,859	)	$	(2,949	)
Other non-current liabilities		(11,731	)		(13,282	)
Total operating lease liabilities	$	(14,590	)	$	(16,231	)

Finance leases:
Property and equipment gross	$	5,023		$	4,821
Accumulated depreciation		(2,762	)		(2,118	)
Property and equipment, net	$	2,261		$	2,703
Current portion of long-term debt	$	(1,020	)	$	(1,023	)
Long-term debt		(1,930	)		(2,045	)
Total finance lease liabilities	$	(2,950	)	$	(3,068	)

Lease Term and Discount Rates
Weighted-average remaining lease term - finance leases (years)		3.9			4.1
Weighted-average remaining lease term - operating leases (years)		6.1			6.4
Weighted-average discount rate - finance leases		3.0	%		2.9	%
Weighted-average discount rate - operating leases		3.8	%		3.9	%

Summarized future minimum payments under our leases as of June 30, 2020 are as follows:

	June 30, 2020
	Finance Leases			Operating Leases
Lease Maturities (in thousands)
Six remaining months of 2020	$	906		$	1,640
2021		1,000			3,105
2022		564			2,576
2023		135			2,231
2024		122			2,071
Thereafter		435			4,958
Total		3,162			16,581
Less: Imputed interest		(212	)		(1,991	)
Total lease liabilities, net of interest	$	2,950		$	14,590

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.

For the six months ended June 30, 2020, payments to retirees or their beneficiaries totaled approximately $0.7 million. We presently anticipate benefit payments in 2020 to total approximately $1.3 million. The following table summarizes the components of net periodic pension cost for the three and six months ended June 30, 2020 and 2019.

	Three Months Ended				Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
(Dollars in thousands)
Interest cost	$	251	$	286	$	502	$	572
Net amortization		72		52		144		104
Net periodic pension cost	$	323	$	338	$	646	$	676

NOTE 16 - 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, 2020, there were 73 thousand 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 stock 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 then 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.

Restricted stock unit and restricted performance stock unit activity for the six months ended June 30, 2020 is summarized in the following table:

	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, 2019		1,047,256		$	5.39		1,548,793		$	7.17		50,250		$	18.86
Granted		634,317			2.87		948,636			3.25		—			—
Settled		(401,723	)		6.14		(245,713	)		5.05		—			—
Forfeited or expired		(7,776	)		4.78		(44,827	)		20.95		(23,250	)		16.81
Balance at June 30, 2020		1,272,074		$	3.90		2,206,889		$	5.33		27,000		$	20.63

Vested or expected to vest at June 30, 2020		1,122,573		$	3.88		361,278		$	7.74		27,000		$	20.63

Stock-based compensation expense was $0.9 million and $1.4 million for the three-month periods ended June 30, 2020 and 2019, respectively. Stock-based compensation expense was $0.7 million and $1.9 million for the six-month periods ended June 30, 2020 and 2019, respectively. The year-over-year reduction in expense is due to the reduction of our estimates regarding the achievement of the performance metric, to zero, in light of the global pandemic. This change in estimate resulted in a reversal of $1.2 million of previously accrued expense in the first quarter of 2020. Unrecognized stock-based compensation expense related to non-vested awards of $5.1 million is expected to be recognized over a weighted average period of approximately 1.8 years as of June 30, 2020.

NOTE 17 – 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, 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 18 – 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 three months ended June 30, 2020 and 2019, the Company sold trade receivables totaling $67.7 million and $80.1 million, respectively, and incurred factoring fees of $0.2 million and $0.2 million, respectively. During the six months ended June 30, 2020 and 2019, the Company sold trade receivables totaling $137.6 million and $191.8 million, respectively, and incurred factoring fees of $0.4 million and $0.6 million, respectively. As of June 30, 2020 and December 31, 2019, $59.3 million and $49.6 million, respectively, of receivables had been factored under the arrangements. The collective limit under our factoring arrangements as of June 30, 2020 was $100.0 million, while the collective limit under our factoring arrangements as of December 31, 2019 was $117.3 million.

NOTE 19 – RESTRUCTURING

During the third quarter of 2019, the Company initiated a plan to significantly reduce production and manufacturing operations at its Fayetteville, Arkansas location. As a result, the Company recognized a non-cash charge of $13.0 million in cost of sales, comprised of (1) $7.6 million of accelerated depreciation for excess equipment, (2) $3.2 million relating to the write-down of certain supplies inventory to net salvage value, (3) $1.6 million of employee severance and (4) $0.6 million of accelerated amortization of right of use assets under operating leases. In addition, relocation costs for redeployment of machinery and equipment of $1.8 million were recognized in the fourth quarter of 2019. During the three and six months ended June 30, 2020, we recognized additional relocation costs for redeployment of machinery and equipment of $0.9 million and $1.6 million, respectively. Additional relocation costs are expected to be incurred over the next six months. As of June 30, 2020, $0.4 million of the restructuring severance accrual remains.

During the quarter ended June 30, 2020, the Company discontinued the manufacture and sale of high performance aftermarket wheels for the automotive racing market segment. The Company incurred a total non-cash charge of $3.4 million, including $2.8 million recorded in cost of sales, comprised of $1.3 million relating to write-downs of certain after-market inventory to salvage value, $1.0 million of employee severance costs, $0.5 million in contract terminations and other costs, as well as a $0.6 million non-cash charge recorded in SG&A related to non-production employee severance costs.

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, the impact of COVID-19 on our future business, results, operation and prospects, 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, 2019, Part II —Item 1A—“Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and Part I—Item 2—“Management’s Discussion and Analysis and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on 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, 2019.

Executive Overview

Overview of Superior

Superior Industries International, Inc.’s (referred herein as the “Company,” “Superior,” or “we” and “our”) principal business is the design and manufacture of aluminum wheels for sale to original equipment manufacturers (OEMs) in North America and Europe and aftermarket distributors in Europe. We employ approximately 7,600 employees, operating in eight manufacturing facilities in North America and Europe with a combined annual manufacturing capacity of approximately 20 million wheels. We are one of the largest suppliers to global OEMs and we believe we are the #1 European aluminum wheel aftermarket manufacturer and supplier. Our OEM aluminum wheels accounted for approximately 92 percent of our sales in the first six months of 2020 and are primarily sold for factory installation on vehicle models manufactured by BMW (including Mini), Daimler AG Company (Mercedes-Benz, AMG, Smart), FCA, Ford, GM, Honda, Jaguar-Land Rover, Mazda, Mitsubishi, Nissan, PSA, Renault, Subaru, Suzuki, Toyota, VW Group (Volkswagen, Audi, SEAT, 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, 2020 and 2019.

Demand for our products is primarily driven by the production of light vehicles in North America and Europe and customer take rates on specific vehicle platforms that we serve and wheel SKUs that we produce. 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.

COVID-19 Pandemic

In December 2019, a novel strain of coronavirus (“COVID-19”) was reported in Wuhan, China. Since then, COVID-19 has spread to over 180 countries. On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. In North America and Europe (our primary markets), federal, state and local governments have either recommended or mandated actions to slow the transmission of COVID-19. Most U.S. states and most countries implemented shelter-in-place orders, quarantines, significant restrictions on travel, as well as work restrictions that prohibited non-essential employees from going to work. Borders between countries have been closed to contain the spread of COVID-19 contagion. Superior has been complying with these government restrictions to reduce the transmission of COVID-19.

The impact of the COVID-19 developments and uncertainty with respect to the economic effects of the pandemic has introduced significant volatility in the financial markets and continues to have a widespread adverse effect on the automotive industry, including reductions in consumer demand and OEM automotive production. Our key customers temporarily closed nearly all of their production facilities in Europe and North America in the second half of March. The OEMs’ facilities in Europe and North America were reopened during May 2020.

While navigating through this period of volatility and uncertainty, Superior’s top priorities are:

•

Ensuring the health and safety of our employees

•

Maintaining the financial health of the Company, and

•

Serving our customers.

Consistent with these priorities, to ensure the health and safety of our employees globally and respond to the current industry production environment, we closed production at our European facilities in late March 2020. In North America, our manufacturing operations ceased production in early April 2020. Production remained suspended at the majority of our global facilities for the month of April 2020 and part of May 2020. In May, Superior reopened three of its four facilities in Europe and reopened the fourth in June based on demand and in line with identified safety precautions. In North America, the Company reopened its facilities on June 1, 2020, in line with production demand, finished goods levels, and in accordance with local government requirements.

To ensure the health and safety of its employees, Superior has developed and is executing a Safe Work Playbook across its footprint in connection with our employees’ return to work. We have also instituted a Global Employee Health & Safety (“EH&S”) Steering Team, led by our Director of EH&S, and comprised of our global and regional leaders from Operations and Human Resources. The purpose of the EH&S Steering Team is to ensure the Safe Work Playbook leverages global best practices and to ensure the consistent and complete implementation of the policies across our global footprint, including all policies and protocols in compliance with local rules and regulations. We have invested in facility updates to ensure social distancing, including changes in cafeteria layout and practices, transportation services and marked spacing throughout our manufacturing facilities. Formalized protocols have been implemented to measure employee temperatures prior to entering any Superior work environment to proactively identify potential COVID-19 symptoms. Formalized protocols and checklists are being used to ensure deep cleaning of equipment between plant shifts. Company-provided employee transportation vehicles are being sanitized after every route, with limited seating to ensure spacing between employees. Finally, we have established Personal Protective Equipment levels for each location, based on local requirements, and the purchasing controls are in place to ensure adequate supplies. In the event of a COVID-19 incident, the local COVID-19 response team immediately executes the defined protocols, including isolation of any employee showing symptoms, and conducts traceability activities to identify and quarantine all potentially exposed individuals.

To date, the Company’s manufacturing operations have successfully managed through the challenges of an extended shutdown and efficient restart. Also, leading up to and during the restart, Superior worked closely with its supply base, which continues to be supportive and effective delivering all material and services required for Superior’s production.

We are in continuous contact with our customers to understand their expected weekly vehicle platform order volumes. While Superior experienced stronger demand in June compared to April and May from its customers in North America, specifically on pickup/SUV platforms, as well as in Europe, the Company continues to extend and expand cost reduction initiatives to align costs to the lower production environment. Superior has executed temporary and permanent cost savings including furloughs, compensation and benefit reductions, temporary facility closures, deferral of merit increases, reduced travel, personnel restructurings, and use of government subsidies where available. In total, these cost initiatives are expected to benefit 2020 by approximately $40 million. Further, Superior may utilize in the future selective, temporary facility closures to efficiently balance capacity with production costs and inventory levels. In addition to these cost reductions, the Company is taking other measures to improve cash flow through targeted working capital initiatives and by reducing capital expenditures.

Industry production for the second quarter of 2020 declined by 69.1% in North America and Europe (71.2% in North America and 67.2% in Europe) compared to the same period in 2019. While our expectation during the first quarter of 2020 was that the Company’s unit shipments would decline by 60% to 70% in the second quarter of 2020, the Company’s second quarter unit shipments actually declined 57.7% year-over-year, which continued the trend of outperformance versus the industry. This decline in unit shipments in the second quarter of 2020 was driven by plant closures in April and May. Our shipments declined 92.2% and 67.6% year-over-year in April and May, respectively. The Company’s unit shipments declined only 12.5% in June as industry production volumes recovered.

While the Company has taken swift and decisive actions to reduce costs across the organization, Superior’s second quarter financial results were negatively impacted by lower unit shipments. As a result, the Company’s net loss was $43.2 million and $233.3 million

for the second quarter of 2020 and the six months ended June 30, 2020, respectively, as compared to a net income of $7.3 million and $9.2 million for the same periods in 2019. Our Adjusted EBITDA amounted to a loss of $3.7 million for the second quarter of 2020 and $35.8 million for the six months ended June 30, 2020, as compared to $49.2 million and $92.4 million for the same periods in 2019.

Because of the complexity of the global automotive supply chain, significant volume uncertainty remains. Based on recent IHS production forecasts, full-year 2020 industry volumes are now expected to be down approximately 24% in our key regions, 23% in North America and 25% in Western and Central Europe, as compared to the prior year, which may negatively impact our year-over-year financial results and cash flows.

The ultimate impact that COVID-19 will have on our business, results of operations and financial condition will depend on a number of evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, OEMs’, suppliers’, customers’ and individuals’ actions that have been and continue to be taken in response to the pandemic; and the impact of the pandemic on economic activity and actions that continue to be taken in response to such impact by the OEMs’ suppliers and customers. We will continue to obtain and assess all relevant available data, including customer orders and industry forecasts (and revisions) to manage our productive capacity as efficiently as possible.

Overview of the Second Quarter of 2020

The following charts show the operational performance in the quarter ended June 30, 2020 in comparison to June 30, 2019 ($ in millions):

SALES AND PROFITABILITY FOR THE 3RD QUARTER OF 2019 AND 2018 ($ in millions) Sales for 3rd Quarter 2019 & 2018 $352.0 $347.6 2019 2019 Income from Operations 3rd Quarter 2019 & 2018$(0.2) $7.7 2019 218 Net Income & Adjusted EBITDA* for 3rd Quarter 2019 & 2018 Net Income Adjusted EBITDA $38.9 $30.6 $(6.6) 2019 2018 * See the Non-GAAP Financial Measures section of this quarterly report for a reconciliation of our Adjusted EBITDA to Net Income (Loss).

Results of Operations

	Three Months Ended
	June 30, 2020			June 30, 2019			Net Change
(Dollars in thousands, except per share data)
Net sales
North America	$	58,916		$	180,402		$	(121,486	)
Europe		85,919			172,097			(86,178	)
Net sales		144,835			352,499			(207,664	)
Cost of sales		167,676			312,504			144,828
Gross (loss) profit		(22,841	)		39,995			(62,836	)
Percentage of net sales		(15.8	)%		11.3	%		(27.1	)%
Selling, general and administrative		11,276			15,964			4,688
Income (loss) from operations		(34,117	)		24,031			(58,148	)
Percentage of net sales		(23.6	)%		6.8	%		(30.4	)%
Interest expense, net		(12,184	)		(11,852	)		(332	)
Other (expense) income, net		(670	)		2,632			(3,302	)
Income tax benefit (provision)		3,753			(7,541	)		11,294
Net (loss) income	$	(43,218	)	$	7,270		$	(50,488	)
Percentage of net sales		(29.8	)%		2.1	%		(31.9	)%
Diluted loss per share	$	(2.00	)	$	(0.04	)	$	(1.96	)
Value added sales (1)	$	84,284		$	193,646		$	(109,362	)
Adjusted EBITDA (2)	$	(3,696	)	$	49,210		$	(52,906	)
Percentage of net sales		(2.6	)%		14.0	%		(16.6	)%
Percentage of value added sales		(4.4	)%		25.4	%		(29.8	)%

Unit shipments in thousands

2,068

4,890

(2,822

)

(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 2.1 million for the second quarter of 2020 compared to unit shipments of 4.9 million in the prior year period, a decrease of 57.7 percent. The decrease occurred in both our North American and European operations and was primarily driven by temporary plant closings at our European and North American operations related to production shutdowns at our key OEM customers in response to the COVID-19 pandemic.

Net Sales

Net sales for the second quarter of 2020 were $144.8 million, compared to net sales of $352.5 million for the same period in 2019. The decrease in net sales is driven by lower production volumes in North America and Europe primarily due to the COVID-19 pandemic of approximately $200.0 million and lower aluminum pricing, which was partially offset by favorable mix.

Cost of Sales

Cost of sales were $167.7 million for the second quarter of 2020 compared to cost of sales of $312.5 million for the same period in 2019. The decrease in cost of sales was primarily due to significantly lower production volume in North America and Europe, lower aluminum prices and cost savings related to temporarily closing our global manufacturing facilities, reducing headcount and operating expenses and the rationalization of the Company’s manufacturing footprint.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses for the second quarter of 2020 were $11.3 million compared to SG&A expense of $16.0 million for same period in 2019. SG&A expenses were lower due to implementation of furloughs and wage, bonus, and travel expense reductions.

Net Interest Expense

Net interest expense for the second quarter of 2020 was $12.2 million compared to net interest expense of $11.9 million for same period in 2019. The increase in interest expense was primarily due to elevated borrowings under our revolving lines of credit during the second quarter of 2020, partially offset by the reduced interest expense due to early extinguishment of a portion of the 6% Senior Notes (the “Notes”) in the same period in 2019 and additional principal repayments of the Term Loan Facility in the 2019 calendar year and the first quarter of 2020.

Other Income (Expense)

Other expense was $0.7 million for the second quarter of 2020 compared to other income of $2.6 million for same period in 2019. The decline in other income in the second quarter of 2020 was primarily driven by a $2.4 million gain on early extinguishment of a portion of our Notes recognized in the second quarter of 2019. Additionally, we recognized a foreign exchange loss of $0.1 million in the second quarter of 2020 versus a foreign exchange gain of $0.5 million in the same period in 2019.

Income Tax (Provision) Benefit

The income tax benefit for the quarter ended June 30, 2020 was $3.8 million on a pre-tax loss of $47.0 million, representing an effective rate benefit of 8 percent. This was lower than the statutory rate due to the mix of earnings among tax jurisdictions partially offset by the recognition of a valuation allowance on non-deductible interest. The income tax provision for the quarter ended June 30, 2019 was $7.5 million on pre-tax income of $14.8 million, representing an effective rate of 50.9 percent. This was higher than the statutory rate due to the United States, Global Intangible Low-Tax Income (“GILTI”) provisions and the recognition of a valuation allowance on non-deductible interest, partially offset by a benefit from a mix of earnings among tax jurisdictions.

Net Income (Loss)

Net loss for the second quarter of 2020 was $43.2 million, or a loss of $2.00 per diluted share, compared to a net income of $7.3 million, or a loss of $0.04 per diluted share, for the same period in 2019.

Segment Sales and Income from Operations

	Three Months Ended
	June 30, 2020			June 30, 2019		Change
(Dollars in thousands)
Selected data
Net sales
North America	$	58,916		$	180,402	$	(121,486	)
Europe		85,919			172,097		(86,178	)
Total net sales	$	144,835		$	352,499	$	(207,664	)
Income (loss) from operations
North America	$	(19,792	)	$	11,827	$	(31,619	)
Europe		(14,325	)		12,204		(26,529	)
Total income (loss) from operations	$	(34,117	)	$	24,031	$	(58,148	)

North America

Net sales for our North American segment for the second quarter of 2020 decreased 67.3 percent, compared to the same period in 2019 due to a 66.2 percent decrease in volumes resulting from the temporary closure of our North American manufacturing plants in April and May and lower aluminum prices. The reduction in net sales was partially offset by improved product mix comprised of larger diameter wheels and premium wheel finishes. The decline in unit shipments was primarily due to production shutdowns by Superior’s key North American OEM customers during the quarter. U.S. and Mexico sales as a percentage of North America total sales were approximately 6.1 percent and 93.9 percent, respectively, for the quarter ended June 30, 2020, which compares to 14.7 percent and 85.3 percent for the same period of the prior year. The change in North American sales by country is due to discontinuation of manufacturing activities at our Fayetteville, Arkansas location in the fourth quarter of 2019. North American segment income from operations for the three months ended June 30, 2020 was lower than the same period of the prior year, due to significantly reduced volumes related to OEM customer shutdowns; partially offset by the execution of temporary and permanent cost reductions including furloughs, hourly and salary wage and benefit reductions, temporary facility closures, deferral of merit increases, reduced travel and personnel restructuring.

Europe

Net sales for our European segment for the second quarter of 2020 decreased 50.1 percent, compared to the same period in 2019, due to a 48.9 percent decrease in volumes, which is primarily attributable to COVID-19, and a weaker Euro. The decline in unit shipments was mainly due to production shutdowns by Superior’s key European OEM customers during the quarter. European segment sales in Germany and Poland were approximately 39.3 percent and 60.7 percent, respectively, during the quarter ended June 30, 2020, which compares to 33.2 percent and 66.8 percent for the same period of the prior year. European segment income from operations for the second quarter in 2020 decreased, compared to the same period in 2019 primarily due to reduced volumes related to OEM customer shutdowns, partially offset by temporary and permanent cost reductions related to temporary facility closures and use of government subsidies in both Poland and Germany, deferral of merit increases, reduced travel and personnel restructurings partially offset by costs to exit the automotive racing wheel market.

Overview of the First Half of 2020

The following chart shows the operational performance in the six months ended June 30, 2020 in comparison to the six months ended June 30, 2019 ($ in millions):

Results of Operations

	Six Months Ended
	June 30, 2020			June 30, 2019			Net Change
(Dollars in thousands, except per share data)
Net sales
North America	$	214,467		$	365,518		$	(151,051	)
Europe		231,480			344,674			(113,194	)
Net sales		445,947			710,192			(264,245	)
Cost of sales		445,627			637,075			(191,448	)
Gross profit		320			73,117			(72,797	)
Percentage of net sales		0.1	%		10.3	%		(10.2	)%
Selling, general and administrative		23,811			30,447			6,636
Impairment of goodwill and indefinite-lived intangibles		193,641			—			(193,641	)
Income (loss) from operations		(217,132	)		42,670			(259,802	)
Percentage of net sales		(48.7	)%		6.0	%		(54.7	)%
Interest expense, net		(24,034	)		(23,725	)		(309	)
Other income, net		653			2,759			(2,106	)
Income tax benefit (provision)		7,213			(12,484	)		19,697
Net (loss) income	$	(233,300	)	$	9,220		$	(242,520	)
Percentage of net sales		(52.3	)%		1.3	%		(53.6	)%
Diluted loss per share	$	(9.81	)	$	(0.27	)	$	(9.54	)
Value added sales (1)	$	254,375		$	386,448		$	(132,073	)
Adjusted EBITDA (2)	$	35,834		$	92,430		$	(56,596	)
Percentage of net sales		8.0	%		13.0	%		(5.0	)%
Percentage of value added sales		14.1	%		23.9	%		(9.8	)%
Unit shipments in thousands		6,375			9,929			(3,554	)

⁽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 6.4 million for the first half of 2020 compared to unit shipments of 9.9 million in the prior year period, a decrease of 35.8 percent. The decrease occurred in both our North American and European operations and was primarily driven by production shutdowns at our key OEM customers in response to the COVID-19 pandemic.

Net Sales

Net sales for the first half of 2020 were $445.9 million, compared to net sales of $710.2 million for the same period in 2019. The decrease in net sales was driven by lower production volumes in North America and Europe primarily due to the COVID-19 pandemic of approximately $240.0 million, lower aluminum pricing and a weaker Euro, partially offset by favorable mix.

Cost of Sales

Cost of sales were $445.6 million for the first half of 2020 compared to cost of sales of $637.1 million for the same period in 2019. The decrease in cost of sales was primarily due to significantly lower production volume in North America and Europe, lower aluminum prices and utilities (due to both lower volumes and cost savings from our North American plant investments in 2019 to use electricity from the secondary market), cost savings related to temporarily closing our global manufacturing facilities, reducing headcount and operating expenses and the rationalization of the Company’s manufacturing footprint.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses for the first half of 2020 were $23.8 million, compared to SG&A expense of $30.4 million for same period in 2019 due to due to reduced management compensation, implementing furloughs, and reducing wages, bonuses, certain benefits and travel expenses.

Impairment of Goodwill and Indefinite-lived Intangibles

For the first quarter of 2020, we recognized a goodwill and indefinite-lived intangible asset impairment charge totaling $193.6 million relating to our European reporting unit (refer to Note 8, “Goodwill and Other Intangible Assets” in the notes to the condensed consolidated financial statements).

Net Interest Expense

Net interest expense for the first half of 2020 was $24.0 million compared to net interest expense of $23.7 million for same period in 2019. The increase in interest expense was primarily due to elevated borrowings under our revolving lines of credit during the second quarter of 2020, partially offset by the reduced interest expense due to early extinguishment of a portion of the Notes in 2019 and additional principal repayments of the Term Loan Facility in the 2019 calendar year and the first quarter of 2020.

Other Income (Expense)

Other income was $0.7 million for the first half of 2020 compared to other income of $2.8 million for same period in 2019. The decline in other income in 2020 was primarily driven by a $2.4 million gain on early extinguishment of a portion of the Notes recognized in the second quarter of 2019.

Income Tax (Provision) Benefit

The income tax benefit for the six months ended June 30, 2020 was $7.2 million on a pre-tax loss of $240.5 million, representing an effective rate benefit of 3 percent. This was lower than the statutory rate due to the mix of earnings among tax jurisdictions, the impairment of goodwill for which there is no corresponding tax benefit, partially offset by the recognition of a valuation allowance on non-deductible interest. The income tax provision for the six months ended June 30, 2019 was $12.5 million on pre-tax income of $21.7 million, representing an effective rate of 57.5 percent. This was higher than the statutory rate due to the United States GILTI provisions and the recognition of a valuation allowance on non-deductible interest, partially offset by a benefit due to the mix of earnings among tax jurisdictions.

Net Income (Loss)

Net loss for the first half of 2020 was $233.3 million, or a loss of $9.81 per diluted share, compared to a net income of $9.2 million, or a loss of $0.27 per diluted share, for the same period in 2019.

Segment Sales and Income from Operations

	Six Months Ended
	June 30, 2020			June 30, 2019		Change
(Dollars in thousands)
Selected data
Net Sales
North America	$	214,467		$	365,518	$	(151,051	)
Europe		231,480			344,674		(113,194	)
Total net sales	$	445,947		$	710,192	$	(264,245	)
Income (loss) from operations
North America	$	(13,683	)	$	18,026	$	(31,709	)
Europe		(203,449	)		24,644		(228,093	)
Total income (loss) from operations	$	(217,132	)	$	42,670	$	(259,802	)

North America

Net sales for our North American segment for the first six months of 2020 decreased 41.3 percent, compared to the same period in 2019, due to a 40.2 percent decrease in volumes, which was primarily attributable to COVID-19 and lower aluminum prices, partially offset by improved product mix comprised of larger diameter wheels and premium wheel finishes. U.S. and Mexico sales as a percentage of North America total sales were approximately 9.2 percent and 90.8 percent, respectively, for the first six months of 2020, which compares to 15.0 percent and 85.0 percent for the prior year period. The change in North American sales by country is due to ending manufacturing activities at our Fayetteville, Arkansas location in the fourth quarter of 2019. North American segment income from operations for the six months ended June 30, 2020 was lower than the prior year period, due to significantly reduced volumes related to North American OEM customer shutdowns, partially offset by favorable product mix, utilities savings associated with plant investments made in 2019 to use electricity from a competitively priced market and cost reductions including furloughs, hourly and salary wage and benefit reductions, a temporary closure of our manufacturing facilities, deferral of merit increases, reduced travel and personnel restructuring.

Europe

Net sales for our European segment for the first six months of 2020 decreased 32.8 percent, compared to the same period in 2019, due to a 31.2 percent decrease in volumes, which was primarily attributable to COVID-19, 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 36.2 percent and 63.8 percent, respectively, during the first six months of 2020, which compares to 35.2 percent and 64.8 percent for the first six months of 2019. European segment income from operations for the six months ended June 30, 2020 was lower than the prior year period primarily due to lower volumes related to OEM customer shutdowns and negative foreign exchange effects from the Euro partially offset by favorable mix and by temporary and permanent cost reductions related to temporary facility closures and use of government subsidies in both Poland and Germany, deferral of merit increases, reduced travel and personnel restructurings.

Financial Condition, Liquidity and Capital Resources

As of June 30, 2020, our cash and cash equivalents totaled $130.7 million compared to $56.9 million and $77.9 million at June 30, 2019 and December 31, 2019, respectively. 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 $146.0 million and 1.7:1.0, respectively, at June 30, 2020, versus $163.1 million and 1.9:1.0 at December 31, 2019.

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, as well as our currently anticipated short-term needs. Capital expenditures consist of ongoing maintenance and operational improvements (“maintenance”), as well as capital related to new product offerings and expanded capacity for existing products (“new business”). Over time capital expenditures have consisted of roughly equal components of maintenance and new business, the most significant of which in recent years has been our investment in physical vapor deposition technology which went into production in 2019.

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 USD Senior Secured Credit facility (“USD SSCF”) consisting of a $400.0 million Senior Secured Term Loan Facility (“Term Loan Facility”) and a $160.0 million Revolving Credit Facility (“Revolving Credit Facility”). On May 22, 2017, we issued 150,000 shares of redeemable preferred stock for an aggregate purchase price of $150.0 million. On June 15, 2017, we issued €250.0 million aggregate principal amount of 6.00% Senior Notes due June 15, 2025 (“the Notes”). Finally, as part of the European business acquisition, we also assumed $70.7 million of outstanding debt, including a €45.0 million European Revolving Credit Facility (“EUR SSCF”).

On January 31, 2020, the available borrowing limit of the EUR SSCF was increased from €45.0 million to €60.0 million. All other terms of the EUR SSCF remained unchanged. In addition, the European business entered into equipment loan agreements totaling $13.4 million (€12.0 million) in the fourth quarter of 2019. During the first quarter of 2020, the Company drew down on these equipment loans and the outstanding balance was $11.9 million as of June 30, 2020.

In response to the COVID 19 pandemic and the ensuing economic uncertainty and to maintain and enhance our liquidity, we took the following actions during the six-month period ended June 30, 2020:

•

reduced both the CEO’s base salary and the cash compensation of the non-employee Board of Directors members to $0 for April and May

•

implemented temporary facility closures, salary reductions, layoffs, furloughs, personnel restructurings, eliminated or deferred merit increases and reduced selected employee benefits across our global workforce in accordance with local laws and regulations

•

put on hold all non-critical capital expenditures

•

reduced purchases of direct materials

•

eliminated discretionary spending

•

drew down $156.0 million under our Revolving Credit Facility in late March 2020 and, in accordance with the provisions of the underlying agreement, repaid $101 million during the second quarter of 2020, resulting in an outstanding balance of $55.0 million as of June 30, 2020

•

drew on our EUR SSCF in late March 2020, resulting in an outstanding balance of $52.8 million (or €47 million) as of June 30, 2020

•

implemented regional cash disbursement councils who review and approve all cash disbursements, and

•

established an on-going communication protocol with our key suppliers and vendors to negotiate mutually acceptable credit terms and monitor productive material availability within our supply chain.

In July 2020, the Company paid the outstanding balance on the Revolving Credit Facility down to $30.0 million and, as a result, has available and unused commitments under the Revolving Credit Facility of $125.2 million at July 31, 2020. In addition, the Company repaid $43.6 million (€37 million) on the EUR SSCF in early August 2020, resulting in an outstanding balance of $11.8 million and available and unused commitments of $58.9 million.

Both of our revolving credit facilities mature in May 2022, and based on various forecasted scenarios, Superior expects, at this time, to remain compliant with the terms of these facilities. The Company has no other significant funded debt obligations until May 2024.

Balances outstanding under the Term Loan Facility, Notes, the Revolving Credit Facility, EUR SSCF and equipment loans as of June 30, 2020 were $349.2 million, $244.0 million, $55.0 million, $52.8 million and $23.2 million, respectively. The redeemable preferred stock amounted to $169.9 million as of June 30, 2020. Our liquidity totaled $245.1 million at June 30, 2020, including cash on hand of $130.7 million and available and unused commitments under credit facilities of $114.4 million.

To further bolster our liquidity position, we are benefiting from COVID-19 related subsidies in Germany and Poland and assessing the availability of a low-interest rate loan in Germany.

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, 2020			June 30, 2019			Change
(Dollars in thousands)
Net cash provided by (used in) operating activities		(7,135	)		69,631			(76,766	)
Net cash used in investing activities		(22,761	)		(19,034	)		(3,727	)
Net cash provided by (used in) financing activities		82,205			(39,266	)		121,471
Effect of exchange rate changes on cash		496			(1,872	)		2,368
Net increase (decrease) in cash and cash equivalents	$	52,805		$	9,459		$	43,346

Operating Activities

Net cash used in operating activities was $7.1 million for the first six months of 2020 versus a source of cash of $69.6 million for the same period in 2019. The decrease in cash flow provided by operating activities was mainly due to lower sales volumes, driven by shutdowns at our key North American and European OEM customers in response to the COVID-19 pandemic. Additionally, working capital was a use of cash in the first six months of 2020 compared to a source of cash in the prior year period.

Investing Activities

Net cash used in investing activities was $22.8 million for the first six months of 2020 compared to $19.0 million for the same period in 2019. The increased usage of cash for investing activities year-over-year is driven by a one-time benefit from the sale of other assets in the second quarter of 2019, partially offset by 2020 reductions in capital expenditures.

Financing Activities

Net cash provided by financing activities was $82.2 million for the first six months of 2020 compared to a use of cash of $39.3 million for the same period in 2019. This was primarily due to increased borrowings under our revolving lines of credit and proceeds from the new European equipment loans, as well as the elimination of the common dividend in the third quarter of 2019.

Off-Balance Sheet Arrangements

As of June 30, 2020, we had no significant off-balance sheet arrangements other than factoring of $59.3 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, proxy contest fees, gains associated with early debt extinguishment and accounts receivable factoring fees. We use adjusted EBITDA as an important 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 adjusted 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, 2020			June 30, 2019			June 30, 2020			June 30, 2019
(Dollars in thousands)
Net sales	$	144,835		$	352,499		$	445,947		$	710,192
Less: aluminum value and outside service provider costs		(60,551	)		(158,853	)		(191,572	)		(323,744	)
Value added sales	$	84,284		$	193,646		$	254,375		$	386,448

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, 2020			June 30, 2019			June 30, 2020			June 30, 2019
(Dollars in thousands)
Net income (loss)	$	(43,218	)	$	7,270		$	(233,300	)	$	9,220
Interest expense, net		12,184			11,852			24,034			23,725
Income tax provision (benefit)		(3,753	)		7,541			(7,213	)		12,484
Depreciation		17,798			16,637			36,052			33,191
Amortization		6,127			6,705			12,264			13,482
Impairment of goodwill and indefinite-lived intangibles		—			—			193,641			—
Integration, restructuring, factoring fees and other ^{(1) (2) (3)}		7,166			(795	)		10,356			328
Adjusted EBITDA	$	(3,696	)	$	49,210		$	35,834		$	92,430
Adjusted EBITDA as a percentage of net sales		-2.6	%		14.0	%		8.0	%		13.0	%
Adjusted EBITDA as a percentage of value added sales		-4.4	%		25.4	%		14.1	%		23.9	%

(1)

In the second quarter of 2020, we incurred approximately $3.1 million of restructuring costs comprised of on-going fixed costs associated with our Fayetteville, Arkansas, facility, relocation and installation costs of repurposed machinery and severance costs as well as $0.2 million of accounts receivables factoring fees. Additionally, in the second quarter of 2020, we incurred $3.4 million of restructuring costs related to discontinuing the manufacturing and sale of high-performance wheels for the automotive racing market segment, $0.2 million for certain asset impairments and $0.3 million of other costs.

(2)

In the first half of 2020, we incurred approximately $9.5 million of restructuring costs comprised of on-going fixed costs associated with our Fayetteville, Arkansas facility, relocation and installation costs of repurposed machinery, salaried severance cost and second quarter 2020 costs incurred with exiting the automotive racing market segment, as well as $0.4 million of accounts receivable factoring fees, $0.2 million of certain asset impairments and $0.3 million of other costs.

(3)

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

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.

Impairment of Goodwill –Goodwill and indefinite-lived intangible assets, such as certain trade names, are not amortized, but are instead evaluated for impairment annually at the end of the fiscal year, or more frequently if events or circumstances indicate that impairment may be more likely than not.

At March 31, 2020, the impact of the COVID-19 developments and uncertainty with respect to the economic effects of the pandemic had introduced significant volatility in the financial markets and was having, and continues to have, a widespread adverse effect on the automotive industry, including reductions in both consumer demand and OEM automotive production. In response, our key customers temporarily closed nearly all production facilities in Europe and North America (our primary markets) during the quarter ended March 31, 2020. As a result, we concluded that an interim test of our goodwill was required. More specifically, the Company concluded that the following events and circumstances, in the aggregate, indicated that it was more likely than not that the carrying value of our European reporting unit exceeded its fair value at March 31, 2020: (1) our European reporting unit’s carrying value was effectively set to fair value at December 31, 2019, due to the $102.2 million impairment charges to goodwill and indefinite-lived intangibles, (2) lower forecasted 2020 industry production volumes for Western and Central Europe, including those for our primary European customers, due to OEM shutdowns to mitigate COVID-19 spread and subsequent reduced production levels over the remainder of the year, as compared to our prior production forecasts (including estimates used in our 2019 assessment), and (3) the volatility in financial markets that has both increased European interest rates due to rising credit spreads and risk premiums and lowered median European automotive market multiples. Based on the results of our quantitative analysis, we recognized a non-cash goodwill impairment charge equal to the remaining goodwill balance of $182.6 million since the carrying value exceeded the fair value of the European reporting unit by more than the amount of the goodwill balance at March 31, 2020. This impairment was recognized at March 31, 2020 as a separate charge (together with the indefinite-lived intangible asset trade name) included in income (loss) from operations.

At March 31, 2020, we determined that the carrying value of the European reporting unit exceeded its fair value by an amount greater than the remaining goodwill balance. The decline in fair value was primarily due to significantly lower market multiples and increased discount rates, as well as further declines in forecasted industry production volumes in Western and Central Europe as a result of the COVID-19 pandemic and consequent economic instability. Forecasted revenues, EBITDA and cash flow for the European reporting unit also declined as compared to the prior year long-range plan due to lower forecasted industry production volumes which adversely impacted fair value under both the income and market approaches. In determining the fair value, the Company weighted the income and market approaches, 75 percent and 25 percent, respectively. Significant assumptions used under the income approach included a weighted average cost of capital (WACC) of 12.0 percent and a long-term growth rate of 1.5 percent, as compared to 10.0 percent and 2.0 percent, respectively, used in the 2019 assessment. In determining the WACC, management considered the level of risk inherent in the cash flow projections and current market conditions, including the significant increase in credit spreads and systemic market and Company specific risk premiums. The decline in the fair value under the market approach is attributable to the decline in the average EBITDA market multiple (4.9X EBITDA in 2020, 5.7X EBITDA in 2019) and lower forecasted EBITDA, as compared to the 2019 assessment. The use of these unobservable inputs results in classification of the fair value estimate as a Level 3 measurement in the fair value hierarchy. A considerable amount of management judgment and assumptions are required in performing the quantitative impairment test, principally related to determining the fair value of the reporting unit. While the Company believes its judgments and assumptions are reasonable, different assumptions could change the estimated fair value.

Impairment of Intangible Assets – Intangible assets include both finite and indefinite-lived intangible assets. Finite-lived intangible assets consist of brand names, technology and customer relationships. Finite-lived intangible assets are amortized on a straight-line over their estimated useful lives (since the pattern in which the asset will be consumed cannot be reliably determined). Indefinite-lived intangible assets, excluding goodwill, consist of trade names associated with our aftermarket business. In the first quarter of 2020, we recognized a non-cash impairment charge of $11.0 million related to our aftermarket trade name indefinite-lived intangible asset which was primarily attributable to a further decline in forecasted aftermarket revenues and a decline in associated profitability (refer to Note 8, “Goodwill and Other Intangible Assets” in the notes to condensed consolidated financial statements in Item 1, “Financial Statements and Supplementary Data” in this Quarterly Report for further discussion of asset impairments).

Also see Item 7— “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of our 2019 Annual Report on Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable for smaller reporting companies.

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, 2020. 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, 2020 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, 2020 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, 2019.

Item 1A. Risk Factors

In light of the recent events surrounding COVID-19, in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, we added the below risk factors entitled “The COVID-19 pandemic has disrupted, and may continue to disrupt our business, which we expect will have a material adverse impact on our business, results of operations and financial condition” and “A delisting of our common stock from the NYSE could reduce the liquidity and market price of our common stock; reduce the number of investors and analysts that cover our common stock; limit our ability to issue additional shares, and damage our reputation which could have a material adverse impact on our business, results of operations and financial condition. In addition, a delisting of our common stock from the NYSE could cause a redemption of some or all of our outstanding redeemable preferred stock which would negatively impact our liquidity” to the risk factors as previously disclosed in “Item 1A Risk Factors” of our Form 10-K for the year ended December 31, 2019. Other than as set forth below, there have been no material changes to the risk factors set forth in “Item 1A Risk Factors” of our Form 10-K for the year ended December 31, 2019. However, many of the risk factors set forth in our Form 10-K for the year ended December 31, 2019 are, and will continue to be, exacerbated by the COVID-19 pandemic and any resulting worsening of the economic environment.

The COVID-19 pandemic has disrupted, and may continue to disrupt our business, which we expect will have a material adverse impact on our business, results of operations and financial condition.

The ongoing COVID-19 pandemic has caused a widespread health crisis, resulting in an economic downturn and government imposed measures to reduce the spread of COVID-19. In Europe and North America (our primary markets), federal, state and local governments have either recommended or mandated actions to slow the transmission of COVID-19. Most U.S. states and most countries have been implementing shelter-in-place orders, quarantines, significant restrictions on travel, as well as work restrictions that prohibit non-essential employees from going to work. The impact of COVID-19 and uncertainty with respect to the economic effects of the pandemic has introduced significant volatility in the financial markets and is having a widespread adverse effect on the automotive industry. Specific risks to our Company associated with the COVID-19 pandemic include the following:

•

reductions in both consumer demand for vehicles and OEM automotive production, due to lower consumer confidence, may decrease demand for our products

•

OEMs may shift production to lower trim-levels or delay new product launches that result in the manufacture of less expensive light-vehicle products, which generally would decrease demand for our larger and/or premium wheel finishes that have higher average profit margins

•

OEMs may adjust their supply chains to eliminate reliance on certain suppliers, including Superior, based on credit rating agencies’ assessments of suppliers

•

further deterioration of worldwide credit and financial markets could limit our ability to factor customer receivables, or end-consumers’ ability to obtain financing to purchase new vehicles

•

the uncertainties associated with COVID-19 impacts on the automotive sector coupled with our negative equity position and a NYSE de-listing notification (as described below), may result in a decrease in (or elimination of) credit insurance available to our European and North American suppliers causing adverse payment term changes with our suppliers

•

disruptions to our supply chain in connection with the sourcing of materials and equipment from efforts to contain the spread of COVID-19

•

negative impacts to our operations, including reductions in production levels and increased costs resulting from our efforts to mitigate the impact of COVID-19 and to protect our employees’ health and well-being, and

•

the occurrence of COVID-19 incidents at our customers’ facilities or in our facilities may interrupt our customers’ and our operations for an indeterminate period of time, and

•

the temporary or permanent closure of our customers’ facilities or our facilities.

The ultimate impact that COVID-19 will have on our business, results of operations and financial condition will depend on a number of evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, OEMs’, suppliers’, customers’ and individuals’ actions that have been and continue to be taken in response to the pandemic and the impact of the pandemic on economic activity and actions taken in response to such impact by the OEMs’ suppliers and customers.

A delisting of our common stock from the NYSE could reduce the liquidity and market price of our common stock; reduce the number of investors and analysts that cover our common stock; limit our ability to issue additional shares, and damage our reputation which could have a material adverse impact on our business, results of operations and financial condition. In addition, a delisting of our common stock from the NYSE could cause a redemption of some or all of our outstanding redeemable preferred stock which would negatively impact our liquidity.

We are required under the NYSE continued listing standards to maintain a market capitalization of at least $50 million, over a consecutive 30 trading-day period, and maintain stockholders’ equity of at least $50 million. As of March 31, 2020, our market capitalization was less than $50 million over a consecutive 30-day trading period and our stockholders’ equity was less that the minimum threshold. As a result, on June 5, 2020, the NYSE sent us a formal notification that we were not compliance with the NYSE continued listing standards. In response, on July 20, 2020, we submitted a remediation plan to the NYSE. The NYSE has 45 days to review our plan. If the NYSE accepts our plan, we will have 18 months to cure the deficiency. The cure period effectively began on July 1, 2020 and will end on January 1, 2022. In the event that the NYSE does not accept our compliance plan or we are unable to cure the deficiency during the 18-month period, our stock may be delisted from the NYSE.

A delisting of our common stock could have a material adverse impact on our business, results of operations and financial condition by, among other things:

•

reducing the liquidity and market price of our common stock

•

reducing the number of investors, including institutional investors, willing to hold or acquire our common stock, which could negatively impact our ability to raise equity

•

decreasing the amount of news and analyst coverage relating to us

•

limiting our ability to issue additional securities, obtain additional financing or pursue strategic restructuring, refinancing or other transactions, and

•

impacting our reputation and, as a consequence, our ability to attract new business.

In addition, the holder of our redeemable preferred stock has the right to redeem all of the outstanding shares of redeemable preferred stock if our common stock is delisted from the NYSE. If we are delisted from the NYSE and the holder exercises its right to redeem all of the outstanding shares of redeemable preferred stock, we would be required to: (1) increase the then carrying value of the redeemable preferred stock to the $300 million redemption value through a corresponding charge (decrease) to our retained earnings, and (2) make a redemption payment in any amount up to $300 million if our Board determined, under Delaware law, that there was a “surplus” to fund a full or partial redemption and such payment would not render us insolvent. The shares of preferred stock that have not been redeemed would continue to receive a dividend of 9% per annum on the Stated Value, as defined in the Certificate of Designations, until such shares of preferred stock are redeemed. A redemption payment, if required, for some or all of our outstanding shares of preferred stock would negatively impact our liquidity and could adversely affect our business, results of operations and financial condition.

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

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

10.1	Amendment Agreement, dated April 6, 2020, to 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.*

10.5	Superior Industries International, Inc. Executive Change in Control Severance Plan, as Amended and Restated as of March 30, 2012.*

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.*

101.INS	Inline XBRL Instance Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document **

101.SCH	Inline XBRL Taxonomy Extension Schema Document **

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

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

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

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document **

104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in exhibit 101) **

*	Filed herewith.

**	Submitted electronically with the Report.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SUPERIOR INDUSTRIES INTERNATIONAL, INC.

(Registrant)

Date: August 5, 2020

/s/ Majdi B. Abulaban

Majdi B. Abulaban

President and Chief Executive Officer

Date: August 5, 2020

/s/ Matti M. Masanovich

Matti M. Masanovich

Executive Vice President and Chief Financial Officer

Exhibit 10.1

AMENDMENT TO SUPERIOR INDUSTRIES INTERNATIONAL, INC.

EXECUTIVE EMPLOYMENT AGREEMENT

This Amendment to Superior Industries International, Inc. Executive Employment Agreement (“Agreement”) dated this 6^th day of April, 2020 by and between Superior Industries International, Inc. (the “Company”) and Majdi B. Abulaban (“Executive”), collectively the “Parties.”

The Parties entered into the Agreement on March 28, 2019 related to the employment of Executive with Company.

In light of the global COVID-19 pandemic, Executive volunteered to forgo 100% of his base salary from April 1, 2020 until May 31, 2020 and the Board of Directors of the Company agreed to reduce his compensation accordingly.

The Parties desire to amend the Agreement to reflect this change on the terms and conditions set forth in this Amendment.

Executive and the Company, intending to be legally bound, agree as follows:

Section 3.1.1 of the Agreement shall be amended to read:

“Base Compensation. During the Term, except as otherwise specified below in this section 3.1.1, the Company agrees to pay Executive an initial annual base salary of $800,000.00, less applicable withholdings, payable in equal installments on the Company’s normal payroll dates, with increases, if any, to Executive’s base salary level to be determined by the independent members of the Board, based on the recommendation by the Compensation and Benefits Committee of the Board (the “Compensation Committee”), in its or their discretion. In response to the economic impact the COVID-19 pandemic has had on the Company and in support of the Company’s liquidity preservation efforts, Executive agrees to forego all of Executive’s base salary for the period April 1, 2020 through May 31, 2020 (“Salary Forbearance”). In the event the Salary Forbearance adversely affects any of Executive’s benefits as stated in this Agreement or other rights to payments hereunder, Company shall compensate Executive for the full amount of such impact.

Entire Agreement. With respect to its subject matter, namely, amendment of the Agreement, this Amendment contains the entire understanding between the Parties, and supersedes any prior agreements, understandings, and communications between the Parties, whether oral, written, implied or otherwise.

Counterparts. This Amendment may be signed in counterpart copies, each of which shall represent an original document, and all of which shall constitute a single document.

Governing Law. This Amendment and the rights and obligations of the Parties hereunder shall be governed by, and construed in accordance with, the laws of the State of Michigan, without giving effect to the conflict of law principles thereof.

The Parties have executed this Amendment as of the date first stated above.


EXECUTIVE	SUPERIOR INDUSTRIES INTERNATIONAL, INC.

/s/ Majdi B. Abulaban	By:	/s/ Timothy C. McQuay
Majdi B. Abulaban	Name:	Timothy C. McQuay
	Title:	Chairman of the Board

NOTICE ADDRESS	NOTICE ADDRESS
Executive’s address most recently reflected in the Company’s records	Superior Industries International, Inc. 26600 Telegraph Rd., Suite 400 Southfield, MI 48033

Exhibit 10.5

SUPERIOR INDUSTRIES INTERNATIONAL, INC.

EXECUTIVE CHANGE IN CONTROL SEVERANCE PLAN

(As approved by the Compensation and Benefits Committee of

the Board of Directors on March 18, 2011

and amended and restated as of March 30, 2012)

LEGAL02/33138772v2

SUPERIOR INDUSTRIES INTERNATIONAL, INC.

EXECUTIVE CHANGE IN CONTROL SEVERANCE PLAN

ARTICLE 1

PURPOSE AND TERM

1.1Purpose. Superior Industries International, Inc. (the "Company") established this Superior Industries International, Inc. Executive Change in Control Severance Plan (the "Plan") in order to provide transitional income to certain executive officers who are involuntarily terminated in connection with a Change in Control (as defined herein). The Compensation and Benefits Committee of the Board amended and restated the Plan effective as of March 30, 2012 to accommodate three new classes of participation, add a claims procedure, specify a form of Separation Agreement and General Release, and make certain other modifications. The Company intends that this Plan qualify as and come within the various exceptions and exemptions under the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended, for an unfunded plan maintained primarily for a select group of management or highly compensated employees, and any ambiguities in this Plan shall be construed to effect that intent.

1.2Term. The Plan shall be effective as of the Effective Date, subject to amendment from time to time in accordance with Section 7.2. The Plan shall continue until terminated pursuant to Article 7 of the Plan.

ARTICLE 2

DEFINITIONS

As used herein, the following words and phrases shall have the following meanings:

2.1"Affiliate" means any corporation or entity (including, but not limited to, a partnership or a limited liability company) that is affiliated with the Company through stock or equity ownership or otherwise, and is designated as an Affiliate for purposes of this Plan by the Committee.

2.2"Base Salary" means the amount a Participant is entitled to receive as wages or salary on an annualized basis as in effect from time to time, without reduction for any pre-tax contributions to benefit plans. Base Salary does not include bonuses, commissions, overtime pay or income from stock options, stock grants or other incentive compensation.

2.3"Board" means the Board of Directors of the Company.

2.4"Cause" means, as a reason for a Participant's termination of employment, a determination by the Board that the Participant has committed or engaged in any of the following:

(i)any act that constitutes, on the part of the Participant, fraud, dishonesty, breach of fiduciary duty, misappropriation, embezzlement or gross misfeasance of duty;

(ii)willful disregard of published Company policies and procedures or codes of ethics; or

LEGAL02/33138772v2

(iii)conduct by the Participant in his or her office with the Company that is grossly inappropriate and demonstrably likely to lead to material injury to the Company, as determined by the Board acting reasonably and in good faith. Notwithstanding the foregoing, in the case of conduct described in clause (ii) or (iii) above, such conduct shall not constitute "Cause" unless the Board shall have delivered to the Participant notice setting forth with specificity (A) the conduct deemed to qualify as "Cause," (B) reasonable action that would remedy such objection, and (C) a reasonable time (not less than thirty (30) days) within which the Participant may take such remedial action, and the Participant shall not have taken such specified remedial action within the specified time.

2.5"Change in Control" means any transaction or series of transactions qualifying as a "change in control" under Section 409A of the Code.

2.6"Change in Control Severance Benefits" means the benefits payable in accordance with Section 4.2 of the Plan.

2.7"Code" means the Internal Revenue Code of 1986, as amended from time to time, and includes a reference to the underlying proposed or final regulations.

2.8"Committee" means the Compensation and Benefits Committee of the Board.

2.9"Company" means Superior Industries International, Inc., or its successor as provided in Section 9.6.

2.10"Disability" shall mean any physical or mental condition which would qualify a Participant for a disability benefit under the long-term disability plan maintained by the Company and applicable to that particular Participant, or if no such disability plan exists, "Disability" means Permanent and Total Disability as defined in Section 22(e)(3) of the Code.

2.11"Effective Date" means March 18, 2011.

2.12"Employee" means any regular, full-time or part-time employee of the Company or any Affiliate.

2.13"Good Reason" means, as a reason for a Participant's resignation from employment, the occurrence of any of the following without the consent of the Participant:

(i)a material diminution in the Participant's Base Salary;

(ii)a material diminution in the Participant's authority, duties, or responsibilities; or

(iii)a material change in the geographic location at which the Participant must perform services (it being agreed that for purposes of this Plan, a required relocation of more than fifty (50) miles shall be material).

LEGAL02/33138772v2

A termination by the Participant shall not constitute termination for Good Reason unless the Participant shall first have delivered to the Company written notice setting forth with specificity the occurrence deemed to give rise to a right to terminate for Good Reason (which notice must be given no later than 90 days after the initial occurrence of such event), and there shall have passed a reasonable time (not less than 30 days) within which the Company may take action to correct, rescind or otherwise substantially reverse the occurrence supporting termination for Good Reason as identified by the Participant. Good Reason shall not include the Participant's death or Disability. The parties intend, believe and take the position that a resignation by the Participant for Good Reason as defined above effectively constitutes an involuntary separation from service within the meaning of Section 409A of the Code and Treas. Reg. §1.409A-1(n)(2).

2.14"Participant" means any Employee designated by the Committee as a participant in the Plan. Each Participant shall be designated as a Tier I, Tier II, Tier III or Tier IV Participant, as specified in Exhibit A hereto, as amended from time to time.

2.15"Payment Multiple" means 2.0 for Tier I Participants, 1.0 for Tier II Participants, 0.5 for Tier III Participants, and as designated by the Committee on an individual basis for Tier IV Participants.

2.16"Plan" means this Superior Industries International, Inc. Executive Change in Control Severance Plan, as amended from time to time.

2.17"Target Annual Bonus" means, with respect to any Participant, the Participant's annualized target bonus opportunity, unadjusted for either company performance or individual performance, under the annual corporate incentive plan applicable to the Participant.

2.18"Termination Date" means the date of the termination of a Participant's employment with the Company as determined in accordance with Article 6.

ARTICLE 3

ELIGIBILITY

3.1Participation. The Committee shall designate from time to time those Employees who are Participants in the Plan. Exhibit A, attached hereto and made a part hereof, sets forth the Participants as of the Effective Date, which may be amended by the Committee, at any time prior to a Change in Control to add or remove individual Participants; provided, however, that the removal of individual Participants from the Plan shall not be effective for at least twenty-four (24) months after notification to the Participants of such action. If a Change in Control occurs during such 24-month period, any such action to remove individual Participants shall be null and void. The Corporate Secretary of the Company shall sign and date Exhibit A each time it is amended, and shall keep a copy of the current official copy of Exhibit A as part of the Company's corporate records.

3.2Duration of Participation. Subject to Article 7 and the provisions of Section 3.1, an Employee shall cease to be a Participant in the Plan if (i) his or her employment is terminated under circumstances in which he or she is not entitled to Change in Control Severance Benefits under the terms of this Plan, or (ii) prior to a Change in Control, he or she is removed as a Participant. Notwithstanding the foregoing, a Participant who has terminated employment and is entitled to Change in Control Severance Benefits under Article 4 shall remain a Participant in the Plan until the full amount of the Change in Control Severance Benefits have been paid to such Participant.

LEGAL02/33138772v2

ARTICLE 4

CHANGE IN CONTROL SEVERANCE BENEFITS

4.1Right to Change in Control Severance Benefits.

(a)A Participant shall be entitled to the Change in Control Severance Benefits in the amount provided in Section 4.2 if, within the two-year period following a Change in Control, (i) the Participant's employment with the Company or any Affiliate is terminated by the Company without Cause (other than by reason of the Participant's death or Disability) or (ii) the Participant's employment is terminated by the Participant for Good Reason within a period of 160 days after the occurrence of the event giving rise to Good Reason.

(b)If a Change in Control occurs and (i) a Participant's employment with the Company or any Affiliate was terminated by the Company without Cause (other than by reason of the Participant's death or Disability) prior to the date of the Change in Control or (ii) an action was taken with respect to the Participant prior to the date of the Change in Control that would have constituted Good Reason if taken after a Change in Control, and the Participant can reasonably demonstrate that such termination or action, as applicable, occurred at the request of a third party who had taken steps reasonably calculated to effect the Change in Control, then the termination or action, as applicable, 5 will be treated for all purposes of this Plan as having occurred immediately following the Change in Control and such former Participant shall be entitled to the benefits of the Plan accordingly.

(c)Notwithstanding anything to the contrary, no Change in Control Severance Benefits shall be provided to a Participant unless the Participant has executed and not revoked a Separation Agreement and General Release in substantially the form attached hereto as Exhibit B (the "Release") within the time period set forth in the Release.

4.2Amount of Change in Control Severance Benefits. If a Participant's employment is terminated in circumstances entitling him or her to Change in Control Severance Benefits as provided in Section 4.1, then the Company shall pay to the Participant in a single lump sum cash payment within sixty (60) days after the Termination Date (or such later date as may be required by Article 8 hereof), a severance payment equal to the Payment Multiple applicable to such Participant times the sum of (x) the Participant's then-current Base Salary (or, if higher, the Participant's Base Salary as in effect immediately prior to the Change in Control) and (y) the higher of the Participant's Target Annual Bonus for the year in which the Change in Control occurs or the Participant's Target Annual Bonus for the year in which the Termination Date occurs.

4.3Annual Bonus for Year in Which a Change in Control Occurs. The annual cash incentive bonus for Participants for the year in which a Change in Control occurs shall be an amount equal to the Participant's Target Annual Bonus for such year, times a fraction, the numerator of which is the number of days in the fiscal year preceding the Change in Control and the denominator of which is 360 (the "Prorated Target Bonus"). A Participant's Prorated Target Bonus shall be paid within 30 days after the Change in Control. The Company or its successor may, but shall not be required to, institute a prorated cash incentive bonus opportunity for the portion of the year occurring after the Change in Control.

4.4Equity Awards. All of the Participant's equity awards outstanding on the Termination Date shall be governed by the plans under which they were granted and the agreements evidencing such awards.

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4.5Non-Duplication of Benefits. In the event that a Participant becomes entitled to receive benefits under this Plan and any such benefit duplicates a benefit that would otherwise be provided under any other plan, program, arrangement or agreement as a result of the Participant's termination of employment, then the Participant shall be entitled to receive the greater of the benefit available under the Plan, on the one hand, and the benefit available under such other plan, program, arrangement or agreement, on the other.

4.6Full Settlement No Mitigation. The Company's obligation to make the payments provided for under this Plan and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Participant or others. In no event 6 shall the Participant be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Participant under any of the provisions of this Plan and such amounts shall not be reduced whether or not the Participant obtains other employment.

ARTICLE 5

REDUCTION OF PAYMENTS

5.1Mandatory Reduction of Payments in Certain Events.

(a)Notwithstanding anything in this Plan to the contrary, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Participant (whether paid or payable or distributed or distributable pursuant to the terms of this Plan or otherwise) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then, prior to the making of any Payment to the Participant, a calculation shall be made comparing (i) the net benefit to the Participant of the Payment after payment of the Excise Tax, to (ii) the net benefit to the Participant if the Payment had been limited to the extent necessary to avoid being subject to the Excise Tax. If the amount calculated under (i) above is less than the amount calculated under (ii) above, then the Payment shall be limited to the extent necessary to avoid being subject to the Excise Tax (the "Reduced Amount"). The reduction of the Payments due hereunder, if applicable, shall be made by first reducing cash Payments and then, to the extent necessary, reducing those Payments having the next highest ratio of Parachute Value to actual present value of such Payments as of the date of the change of control, as determined by the Determination Firm (as defined in subsection (b) below). For purposes of this Section 5.1, present value shall be determined in accordance with Section 280G(d)(4) of the Code. For purposes of this Section 5.1, the "Parachute Value" of a Payment means the present value as of the date of the change of control of the portion of such Payment that constitutes a "parachute payment" under Section 280G(b)(2) of the Code, as determined by the Determination Firm for purposes of determining whether and to what extent the Excise Tax will apply to such Payment.

(b)The determination of whether an Excise Tax would be imposed, the amount of such Excise Tax, and the calculation of the amounts referred to in Section 5.1(a)(i) and (ii) above shall be made at the expense of the Company by an independent, nationally recognized accounting firm or compensation consulting firm mutually acceptable to the Company and the Participant (the "Determination Firm") which shall provide detailed supporting calculations. Any determination by the Determination Firm shall be binding upon the Company and the Participant. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial deteunination by the Determination Firm hereunder, it is possible that Payments which the Participant was entitled to, but did not receive pursuant to Section 5.1(a), could have been made without the imposition of the Excise Tax ("Underpayment"). In such event, the Determination Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Participant but no later than March 15 of the year after the year in which the 7 Underpayment is determined to exist, which is when the legally binding right to such Underpayment arises.

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(c)In the event that the provisions of Code Section 280G and 4999 or any successor provisions are repealed without succession, this Section 5.1 shall be of no further force or effect.

ARTICLE 6

NOTICE; TERMINATION DATE

6.1Written Notice Required. Any purported termination of employment, whether by the Company or by the Participant, shall be communicated by written notice to the other (a "Notice of Termination"). The failure by the Participant or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Participant or the Company, respectively, hereunder or preclude the Participant or the Company, respectively, from asserting such fact or circumstance in enforcing the Participant's or the Company's rights hereunder.

6.2Termination Date. In the case of the Participant's death, the Participant's Termination Date shall be his or her date of death. In all other cases, the Participant's Termination Date shall be the date of receipt of the Notice of Termination or any later date specified therein within 60 days after receipt of the Notice of Termination.

ARTICLE 7

DURATION; AMENDMENT AND TERMINATION

7.1Duration. The Plan shall become effective as of the Effective Date, and shall continue until terminated by the Committee or the Board. Subject to Section 7.2, the Committee or the Board may terminate the Plan as of any date that is at least twenty-four (24) months after the date of the Committee's or the Board's action. If any Participants become entitled to any payments or benefits hereunder during such 24-month period, this Plan shall continue in full force and effect and shall not terminate or expire with respect to such Participants until after all such Participants have received such payments and benefits in full.

7.2Amendment and Termination. Subject to the following sentence, the Plan may be amended from time to time in any respect by the Committee or the Board; provided, however, that any amendment that would adversely affect the rights or potential rights of Participants shall not be effective for at least twenty-four (24) months after the date of the Board's action; and, provided, further, that in the event that a Change in Control occurs within twenty-four (24) months following an amendment to the Plan that would adversely affect the rights or potential rights of Participants, the amendment will not be effective. In anticipation of or on or following a Change in Control, the Plan shall not be subject to amendment, change, substitution, deletion, revocation or termination in any respect which adversely affects the rights of Participants without the consent of each Participant so affected. For the avoidance of doubt, removal of a Participant as a Participant (other than as a result of the Participant ceasing to be an Employee) or any reduction in payments or benefits shall be deemed to be an amendment of the Plan which adversely affects the rights of the Participant.

7.3Form of Amendment. The form of any amendment or termination of the Plan shall be a written instrument signed by a duly authorized officer or officers of the Company, certifying that the amendment or termination has been approved by the Committee or the Board. Subject to Sections 7.1 and 7.2 above (i) an amendment of the Plan in accordance with the terms hereof shall automatically effect a corresponding amendment to all Participants' rights and benefits hereunder, and (ii) a termination of the Plan shall in accordance with the terms hereof automatically effect a termination of all Participants' rights and benefits hereunder.

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7.4Claims Procedure.

(a)A Participant may file a claim with respect to amounts asserted to be due hereunder by filing a written claim with the Committee specifying the nature of such claim in detail. The Committee shall notify the claimant within 60 days as to whether the claim is allowed or denied, unless the claimant receives written notice from the Committee prior to the end of the 60 day period stating that special circumstances require an extension of time for a decision on the claim, in which case the period shall be extended by an additional 60 days. Notice of the Committee's decision shall be in writing, sent by mail to the Participant's last known address and, if the claim is denied, such notice shall (i) state the specific reasons for denial, (ii) refer to the specific provisions of the Plan upon which such denial is based, and (iii) if applicable, describe any additional information or material necessary to perfect the claim, an explanation of why such information or material is necessary, and an explanation of the review procedure in Section 7.4(b).

(b)A claimant is entitled to request a review of any denial of his claim under Section 7.4(a). The request for review must be submitted to the Committee in writing within 60 days of mailing by the Committee of notice of the denial. Absent a request for review within the 60 day period, the claim will be deemed conclusively denied. The claimant or his representative shall be entitled to review all pertinent documents, and to submit issues and comments orally and in writing to the Committee. The review shall be conducted by the Committee, which shall afford the claimant a hearing and which shall render a decision in writing within 60 days of a request for a review, provided that, if the Committee determines prior to the end of such 60 day review period that special circumstances require an extension of time for the review and decision of the denial, the period for review and decision on the denial shall be extended by an additional 60 days. The claimant shall receive written notice of the Committee's review decision, together with specific reasons for the decision and reference to the pertinent provisions of the Plan.

(c)If after complying with the claims procedures in Section 7.4(a) and (b), a Participant is unsatisfied with the Committee's resolution of the claim, the Company agrees that the final resolution of the claim shall be settled by arbitration. The arbitration shall be conducted in the County of Los Angeles, California, in accordance with the Employment Dispute Rules of the American Arbitration Association and the Federal Arbitration Act, 9 U.S.C. §1, et. seq. The arbitrator(s) shall be authorized to award both liquidated and actual damages, in addition to injunctive relief, but no punitive damages. The arbitrator(s) may also award attorney's fees and costs to either or both parties. Such an award shall be binding and conclusive upon the parties, subject to 9 U.S.C. §10. Each party shall have the right to have the award made the judgment of a court of competent jurisdiction.

ARTICLE 8

CODE SECTION 409A

8.1General. This Plan shall be interpreted and administered in a manner so that any amount or benefit payable hereunder shall be paid or provided in a manner that is either exempt from or compliant with the requirements Section 409A of the Code and applicable Internal Revenue Service guidance and Treasury Regulations issued thereunder (and any applicable transition relief under Section 409A of the Code). Nevertheless, the tax treatment of the benefits provided under the Plan is not warranted or guaranteed. Neither the Company nor its directors, officers, employees or advisers shall be held liable for any taxes, interest, penalties or other monetary amounts owed by the Participant as a result of the application of Section 409A of the Code.

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8.2Definitional Restrictions. Notwithstanding anything in this Plan to the contrary, to the extent that any amount or benefit that would constitute non-exempt "deferred compensation" for purposes of Section 409A of the Code ("Non-Exempt Deferred Compensation") would otherwise be payable or distributable hereunder by reason of the Participant's termination of employment, such Non-Exempt Deferred Compensation will not be payable or distributable to the Participant by reason of such circumstance unless the circumstances giving rise to such termination of employment meet any description or definition of "separation from service" in Section 409A of the Code and applicable regulations (without giving effect to any elective provisions that may be available under such definition). This provision does not prohibit the vesting of any Non-Exempt Deferred Compensation upon a termination of employment, however defined. If this provision prevents the payment or distribution of any Non-Exempt Deferred Compensation, such payment or distribution shall be made on the date, if any, on which an event occurs that constitutes a Section 409A-compliant "separation from service," or such later date as may be required by Section 8.3 below.

8.3Six-Month Delay in Certain Circumstances. Notwithstanding anything in this Plan to the contrary, if any amount or benefit that would constitute Non-Exempt Deferred Compensation would otherwise be payable or distributable under this Plan by reason of the Participant's separation from service during a period in which he or she is a Specified Employee (as defined below), then, subject to any permissible acceleration of payment by the Company under Treas. Reg. Section 1.409A-3(j)(4)(ii) (domestic relations order), (j)(4)(iii) (conflicts of interest), or (j)(4)(vi) (payment of employment taxes):

(i)the amount of such Non-Exempt Deferred Compensation that would otherwise be payable during the six-month period immediately following the Participant's separation from service will be accumulated through and paid or provided on the first day of the seventh month following the Participant's separation from service (or, if the Participant dies during such period, within 30 days after the Participant's death) (in either case, the "Required Delay Period"); and

(ii)the normal payment or distribution schedule for any remaining payments or distributions will resume at the end of the Required Delay Period.

For purposes of this Plan, the term "Specified Employee" has the meaning given such term in Code Section 409A and the final regulations thereunder; provided, however, that the Company's Specified Employees and its application of the six-month delay rule of Code Section 409A(a)(2)(B)(i) shall be determined in accordance with rules adopted by the Board or a committee thereof, which shall be applied consistently with respect to all nonqualified deferred compensation arrangements of the Company, including this Plan.

8.4Timing of Release of Claims. Whenever in this Plan a payment or benefit is conditioned on the Participant's execution and non-revocation of a release of claims, such release must be executed and all revocation periods shall have expired within sixty (60) days after the Termination Date; failing which such payment or benefit shall be forfeited. If such payment or benefit constitutes Non-Exempt Deferred Compensation, and if such 60-day period begins in one calendar year and ends in the next calendar year, the payment or benefit shall not be made or commence before the second such calendar year, even if the release becomes irrevocable in the first such calendar year. If such payment or benefit is exempt from Section 409A of the Code, the Company may elect to make or commence payment at any time during such 60-day period.

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ARTICLE 9

MISCELLANEOUS

9.1Employment Status. This Plan does not constitute a contract of employment or impose on the Participant or the Company any obligation to retain the Participant as an Employee, to change the status of the Participant's employment, or to change the Company's policies regarding termination of employment.

9.2Nature of Plan and Benefits. Participants and any other person who may have rights hereunder shall be unsecured general creditors of the Company with respect to the Change in Control Severance Benefits due hereunder, and all amounts shall be payable from the general assets of the Company.

9.3Withholding of Taxes. The Company may withhold from any amount payable or benefit provided under this Plan such federal, state, local, foreign and other taxes as are required to be withheld pursuant to any applicable law or regulation.

9.4No Effect on Other Benefits. Change in Control Severance Benefits, if any, shall not be counted as compensation for purposes of determining benefits under other benefit plans, programs, policies and agreements, except to the extent expressly provided therein or herein.

9.5Validity and Severability. The invalidity or unenforceability of any provision of the Plan shall not affect the validity or enforceability of any other provision of the Plan, which shall remain in full force and effect, and any prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

9.6Successors. This Plan shall bind any successor of or to the Company, its assets or its businesses (whether direct or indirect, by purchase, merger, consolidation or otherwise), in the same manner and to the same extent that the Company would be obligated under this Plan if no succession had taken place. In the case of any transaction in which a successor would not by the foregoing provision or by operation of law be bound by this Plan, the Company shall require such successor expressly and unconditionally to assume and agree to perform the Company's obligations under this Plan, in the same 'Timmer and to the same extent that the Company would be required to perform if no such succession had taken place. The term "Company," as used in this Plan, shall mean the Company as hereinbefore defined and any successor or assignee to the business or assets which by reason hereof becomes bound by this Plan.

9.7Assignment. This Plan shall inure to the benefit of and shall be enforceable by a Participant's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If a Participant should die while any amount is still payable to the Participant under this Plan had the Participant continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Plan to the Participant's estate. A Participant's rights under this Plan shall not otherwise be transferable or subject to lien or attachment.

9.8Enforcement. This Plan is intended to constitute an enforceable contract between the Company and each Participant subject to the terms hereof.

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9.9Governing Law. The validity, interpretation, construction and performance of the Plan shall in all respects be governed by the laws of California, without reference to principles of conflict of law.

*************

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The foregoing is hereby acknowledged as being the Superior Industries International, Inc. Executive Change in Control Severance Plan as adopted by the Committee on March 18, 2011, and amended and restated on March 30, 2012.


SUPERIOR INDUSTRIES INTERNATIONAL, INC.

By:		/s/ Steven I. Boric
		Steven I. Boric
		Chairman, CEO and President

4847-8396-3589.1

EXHIBIT A

Participants in the

Superior Industries International, Inc. Executive Change in Control Severance Plan

Tier I Participants as of March 18, 2011

Steven J. Borick

Michael J. O'Rourke

Parveen Kakar

Kerry A. Shiba

Robert A. Earnest

Tier II Participants as of March 30, 2012

James Taylor

Michael D. Nelson

The undersigned officer of Superior Industries International, Inc. attests that the above list of Participants in the Executive Change in Control Severance Plan is current and correct as of March 30, 2012.

/s/ Robert A. Earnest

Robert A. Earnest

Corporate Secretary

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EXHIBIT B

SEPARATION AGREEMENT AND GENERAL RELEASE

(Date Given to Employee)

This Separation Agreement and General Release (this "Agreement") is entered into by and between Superior Industries International, Inc. (together with its subsidiaries and affiliates, the "Company") and the undersigned employee ("Employee").

Notice to Employee:

Under the Superior Industries International, Inc. Executive Change in Control Severance Plan (the "Plan") you are eligible to receive severance pay if you agree to waive, to the extent permitted by law, all of your potential claims against the Company and agree to the other terms in this Separation Agreement. This means that you cannot sue or pursue any other claim against the Company as provided for in this release. PLEASE READ THIS DOCUMENT CAREFULLY BEFORE YOU SIGN IT. ALSO, YOU ARE ADVISED TO CONSULT AN ATTORNEY OR OTHER REPRESENTATIVE BEFORE SIGNING THIS DOCUMENT. YOU HAVE TWENTY-ONE (21) DAYS TO THINK ABOUT WHETHER YOU WANT TO SIGN THIS DOCUMENT AND TO CONSULT WHOMEVER YOU WISH.

1.	In consideration for signing this Separation Agreement and General Release, you are entitled to receive severance pay and benefits under the Plan.

IF YOU SIGN THIS AGREEMENT, YOU ARE PERMANENTLY WAIVING (GIVING UP) YOUR RIGHT TO SUE THE COMPANY FOR ANY REASON PROVIDED HEREIN. YOUR WAIVER WILL INCLUDE ANY RIGHTS YOU HAVE TO SUE THE COMPANY UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT, TITLE VII OF THE CIVIL RIGHTS ACT, THE AMERICANS WITH DISABILITIES ACT, STAlh WRONGFUL TERMINATION LAWS, AND ALL OTHER LAWS AND REGULATIONS UNDER WHICH YOU MIGHT BE ABLE TO ASSERT ANY CLAIM AGAINST THE COMPANY.

3.	You will be waiving all claims which have arisen or may arise in the future, whether known or unknown, that are based on acts or events that have occurred up until the Effective Date (as defined herein).

Because this waiver involves your legal rights, you are advised to speak with an attorney before signing this Agreement. You have twenty-one (21) days from the date listed at the top of this page to make your decision. If you have not signed this Agreement by the end of the twenty-first (21st) day after the date listed above, you will be ineligible to receive any severance pay.

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In addition, you will have seven (7) days from the date you sign this Agreement to revoke it. This means that if you change your mind for any reason after signing the Agreement, you can revoke it if you notify the Company within seven (7) days. You must notify the Company in writing and the notice must be received by the Company within seven (7) days of the date you sign this Agreement. This Agreement will become effective on the eighth (8th) day after you sign it (the "Effective Date"). Any revocation of this Agreement must be made in writing and delivered within the seven-day revocation period to: Robert A. Earnest, Vice President, General Counsel and Secretary, Superior Industries International, Inc., 7800 Woodley Avenue, Van Nuys, California 91406.

Part I

Release of Claims and Covenant Not to Sue.

In consideration of the severance pay from the Company set forth above, the receipt and sufficiency of which are hereby acknowledged, Employee, on behalf of himself and his agents and successors in interest, hereby UNCONDITIONALLY RELEASES AND DISCHARGES Company, its successors, subsidiaries, parent corporations, assigns, joint ventures, and affiliated companies, and their respective agents, legal representatives, shareholders, attorneys, employees, officers and directors, (collectively, the "Releasees") from ALL CLAIMS, LIABILITIES, DEMANDS AND CAUSES OF ACTION, whether known or unknown, fixed or contingent, that he may have or claim to have against Company or any of the Releasees for any reason as of the Effective Date (as defined above). Except to the extent that applicable law requires that Employee be allowed to file a Charge with the Equal Employment Opportunity Commission ("EEOC"), Employee further hereby AGREES NOT TO FILE A LAWSUIT or other legal claim or charge or to assert any claim against any of the Releasees based on facts that occurred prior to, or that exist as of, the Effective Date. This Release and Covenant Not To Sue includes, but is not limited to, claims arising under federal, state or local laws prohibiting employment discrimination, claims arising under severance plans and contracts, and claims growing out of any legal restrictions on Company's rights to terminate its employees or to take any other employment action, whether statutory, contractual or arising under common law or case law. Employee specifically acknowledges and agrees that he is releasing any and all rights under federal, state and local employment laws including, without limitation, the Age Discrimination in Employment Act of 1967 ("ADEA"), as amended, 29 U.S.C. § 621, et seq., the Civil Rights Act of 1964 ("Title VII"), as amended, 42 U.S.C. § 2000e, et seq., 42 U.S.C. § 1981, as amended, the Americans With Disabilities Act ("ADA"), as amended, 42 U.S.C. § 12101 et seq., the Rehabilitation Act of 1973, as amended, as amended, 29 U.S.C. § 701, et seq., the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended, 29 U.S.C. § 301 et seq., the Worker Adjustment and Retraining Notification Act ("WARN"), 29 U.S.C. § 2101, et seq., the Family and Medical Leave Act of 1993 ("FMLA"), as amended, 29 U.S.C. § 2601 et seq., the Fair Labor Standards Act ("FLSA"), as amended, 29 U.S.C. § 201 et seq., the Employee Polygraph Protection Act of 1988, 29 U.S.C. § 2001, et seq., all other state and federal code sections and legal principles, including, without limitation, claims for defamation and slander, and the state and federal worker's compensation laws. Employee further agrees that if anyone (including, but not limited to, Employee, the EEOC or any other government agency or similar such body) makes a claim or undertakes an investigation involving Employee in any way, Employee waives any and all right and claim to financial recovery resulting from such claim or investigation.

As a material inducement for Superior Industries International, Inc. to enter into this Agreement, Employee represents and warrants that he does not have any complaint, claim or action pending against Company or any of the Releasees in any federal, state or local court or government agency or before any arbitrator or other tribunal.

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Part II

Non-Disparagement.

Employee hereby agrees that he shall not disparage, criticize or otherwise publish or communicate any statements or opinions that are derogatory to or could otherwise harm the business or reputation of the Company. However, Employee is not restricted from making any factual statement that is required to be disclosed by law, subpoena, court order or other legal process.

Part III

Return of Property.

Employee agrees to return immediately and warrants that he has returned before executing or receiving payment pursuant to this Agreement, all documents, materials and other things in his possession or control relating to Company, or that have been in his possession or control at the time of or since the termination of his employment with Company, without retaining any copies, summaries, abstracts, excerpts, portions, replicas or other representations thereof. Employee likewise represents and warrants that Company has returned all of Employee's personal property and that any such property is no longer in possession of Company.

This Agreement has been executed voluntarily by the parties. The parties acknowledge that they have read this Agreement carefully, that they have had a full and reasonable opportunity to consider this Agreement, and that they have not been pressured or in any way coerced, threatened or intimidated into its execution.

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SIGNATURE BY EMPLOYEE

I acknowledge that I have been advised to consult with an attorney prior to signing this Agreement. I further acknowledge that the consideration for signing this Agreement is a benefit to which I otherwise would not have been entitled had I not signed this Agreement.

I have read this entire document and I understand and agree to each of its terms. SPECIFICALLY, I AGREE THAT BY SIGNING THIS DOCUMENT, I AM WAIVING MY RIGHTS TO SUE THE COMPANY AS SET FORTH ABOVE IN PART L I also understand that this is the entire Agreement between the Company and me regarding severance pay and the termination of my employment and that no other agreements or promises about those matters, written or oral will be enforceable.



(Signature of Employee)		(Date Signed)


(Print Employee Name)		(Witness)

ACCEPTANCE BY THE COMPANY

The Company hereby enters into and accepts this Agreement as set forth above.


SUPERIOR INDUSTRIES INTERNATIONAL, INC.


By:
Name:
Title:

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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 5, 2020

/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 5, 2020

/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, 2020 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

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

Dated: August 5, 2020	/s/ Majdi B. Abulaban
	Name: Majdi B. Abulaban
	Title: President and Chief Executive Officer

Date: August 5, 2020

/s/ Matti M. Masanovich

Name: Matti M. Masanovich

Title: Executive Vice President and

Chief Financial Officer