Acquisition

On March 23, 2017, Superior announced that it had entered into various agreements to commence a tender offer to acquire 100% of the outstanding equity interests of Uniwheels (the "Acquisition") through a newly-formed, wholly-owned subsidiary (the “Acquisition Sub”). The Acquisition was effected through a multi-step process as more fully described below.

In the first step of the Acquisition, on March 23, 2017, Superior obtained a commitment from the owner of approximately 61 percent of the outstanding stock of Uniwheels, Uniwheels Holding (Malta) Ltd. (the “Significant Holder”), evidenced by an irrevocable undertaking agreement (the “Undertaking Agreement”) to tender such stock in the second step of the Acquisition. In connection with the Undertaking Agreement, on March 23, 2017: (i) Superior entered into a business combination agreement with Uniwheels pursuant to which, subject to the provisions of the German Stock Corporation Act, Uniwheels and its subsidiaries undertook to, among other things, cooperate with the financing of the Acquisition; and (ii) Superior and the Significant Holder entered into a guarantee and indemnification agreement pursuant to which Superior will hold the Significant Holder harmless for claims that may arise relating to its involvement with Uniwheels. As Uniwheels is a company listed on the Warsaw Stock Exchange, the Acquisition was required to be carried out in accordance with the Polish Act of 29 July 2005 on Public Offerings and the Conditions for Introducing Financial Instruments to Organized Trading and Public Companies (the “Public Offering Act”).

Following the publication of a formal tender offer document by Superior, as required by the Public Offering Act, Superior commenced the acceptance period for the tender offer (the “Tender Offer”) on April 12, 2017, pursuant to which, Superior offered to purchase all (but not less than 75 percent of) the outstanding stock of Uniwheels and, upon the consummation of the Tender Offer, agreed to purchase the stock of the Significant Holder along with all other stock of Uniwheels tendered pursuant to the Tender Offer. On May 30, 2017, Superior acquired 92.3 percent of the outstanding stock of Uniwheels for approximately $703.0 million (based on an exchange rate of 1.00 Dollar = 3.74193 Polish Zloty). We refer to this acquisition as the “First Step Acquisition.”

Under the terms of the Tender Offer:

• the Significant Holder received cash consideration of Polish Zloty 226.5 per share; and

• Uniwheels’ other shareholders received cash consideration of Polish Zloty 247.87 per share, equivalent to the volume weighted-average-price of Uniwheels’ shares for the three months prior to commencement of the Tender Offer, plus 5.0 percent.

On June 30, 2017, the company announced that it had commenced the delisting and associated tender process for the remaining outstanding shares of Uniwheels. As of July 31, 2017, 109,959 additional shares were tendered. Following or simultaneously with the approval of the delisting by the Polish regulator, Superior anticipates (i) consummating an upstream merger of Uniwheels into Acquisition Sub pursuant to which fair cash compensation will be paid to Uniwheels’ minority stockholders and (ii) entering into a Domination and Profit Loss Transfer Agreement (“DPLTA”). Superior anticipates that the process of acquiring the remaining 7.7 percent of Uniwheels’ outstanding shares will take approximately eight to ten months. We refer to this acquisition as the “Second Step Acquisition.” The aggregate equity purchase price of the Acquisition (assuming the remaining 7.7 percent of Uniwheels’ stock is acquired for cash consideration of Polish Zloty 247.87 per share (the price paid to Uniwheels’ shareholders in the Tender Offer) and an exchange rate of 1.00 Dollar = 3.74193 Polish Zloty) will be approximately $778.0 million. We entered into foreign currency hedges prior to the closing of the First Step Acquisition intended to reduce currency risk associated with the settlement of the Tender Offer (the “Hedging Transactions”). The net benefit of such Hedging Transactions to Superior reduced the total anticipated purchase price of the Acquisition to $766.2 million.

The company’s condensed consolidated financial statements for the thirteen and twenty-six week periods ended June 25, 2017 and June 26, 2016 include Uniwheels results of operations from May 30, 2017 through June 30, 2017 (please see Note 7, "Business Segments" for the geographic segment results included within the condensed consolidated financial statements for the thirteen and twenty-six week periods ended June 25, 2017 and June 26, 2016, which include Uniwheels results of operations from May 30, 2017 through June 30, 2017). The company’s condensed consolidated financial statements reflect the purchase accounting adjustments in accordance with ASC 805 “Business Combinations”, whereby the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date.

During the second quarter of 2017, the company determined a preliminary valuation of the identifiable assets acquired and the liabilities assumed. The following is the allocation of the purchase price:



(Dollars in thousands)
Estimated purchase price
Cash consideration	$	703,000

Non-controlling interest	63,200

Preliminary purchase price allocation
Cash and cash equivalents	12,296
Accounts receivable	60,580
Inventories	82,402
Prepaid expenses and other current assets	11,479
Total current assets	166,757
Property and equipment	250,000
Intangible assets ⁽¹⁾	212,000
Goodwill	306,154
Other assets	20,937
Total assets acquired	955,848
Accounts payable	61,883
Other current liabilities	40,361
Total current liabilities	102,244
Other long-term liabilities	87,404
Total liabilities assumed	189,648
Net assets acquired	$	766,200

(1) Intangible assets are recorded at estimated fair value, as determined by management based on available information which includes a preliminary valuation prepared by an independent third party. The fair values assigned to identifiable intangible assets were determined through the use of the income approach, specifically the relief from royalty and multi-period excess earnings methods. The major assumptions used in arriving at the estimated identifiable intangible asset values included management’s estimates of future cash flows, discounted at an appropriate rate of return which are based on the weighted average cost of capital for both the company and other market participants. The useful lives for intangible assets were determined based upon the remaining useful economic lives of the intangible assets that are expected to contribute directly or indirectly to future cash flows. The estimated fair value of intangible assets and related useful lives as included in the preliminary purchase price allocation include:



	Estimated Fair Value		Estimated Useful Life (in Years)
(Dollars in thousands)
Brand name	$	9,000	5-6
Technology	16,000		4-6
Customer relationships	167,000		6-11
Trade names	20,000		Indefinite
	$	212,000

The above goodwill represents future economic benefits expected to be recognized from the company’s expansion into the European wheel market, as well as expected future synergies and operating efficiencies from combining operations with Uniwheels. Goodwill resulting from the Acquisition of $306.2 million has been allocated to the European segment.

The unaudited combined pro forma information is for informational purposes only. The pro forma information is not necessarily indicative of what the combined company’s results actually would have been had the Acquisition been completed as of the beginning of the periods as indicated. In addition, the unaudited pro forma information does not purport to project the future results of the combined company.



	Thirteen Weeks Ended						Twenty-six Weeks Ended
	June 25, 2017			June 26, 2016			June 25, 2017			June 26, 2016
	Proforma			Proforma			Proforma			Proforma
(Dollars in thousands)
Net sales as reported	$	240,628		$	182,709		$	414,848		$	368,774
Uniwheels sales, prior to the Acquisition	103,751			128,655			243,744			248,946
Proforma combined sales	$	344,379		$	311,364		$	658,592		$	617,720

Net (loss) income as reported	$	(7,519	)	$	13,165		$	(4,417	)	$	27,628
Uniwheels net income before income taxes, prior to the Acquisition	8,465			16,445			25,394			28,197
Incremental interest expense on the debt	(7,081		)	(10,622		)	(17,776		)	(21,332		)
Incremental amortization on the identifiable intangible assets	(4,388		)	(6,582		)	(10,970		)	(13,164		)
Transaction expenses incurred by both the company and Uniwheels	12,722			—			19,684			—
Income tax expense related to the proforma adjustments	875			1,675			33			4,411
Proforma net income	$	3,074		$	14,081		$	11,948		$	25,740

Restricted Cash

Restricted cash disclosed on the condensed consolidated balance sheet relates to funds held for the purpose of acquiring the remaining 7.7% of Uniwheels’ outstanding shares, which will take approximately eight to ten months, and to pay down assumed debt related to our European operations.