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 may from time to time make written or oral statements that are "forward-looking", within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, including statements contained in this report and other filings with the Securities and Exchange Commission and reports and other public statements to our shareholders. These statements may, for example, express expectations or projections about future actions or results that we may anticipate but, due to developments beyond our control, do not materialize. Actual results could differ materially because of issues and uncertainties such as those listed herein, which, among others, should be considered in evaluating our financial outlook. The principal factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to, changes in the automotive industry, increased global competitive pressures, our dependence on major customers and third party suppliers and manufacturers, our exposure to foreign currency fluctuations, increasing fuel prices and other factors or conditions described in Item 1A - Risk Factors in Part II of this Quarterly Report on Form 10-Q and in Item 1A - Risk Factors in Part I of our 2007 Annual Report on Form 10-K. We assume no obligation to update publicly any forward-looking statements.

Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and notes thereto.

Executive Overview

There have been unprecedented recent announcements of North American automotive plant closures and other restructuring activities by our customers, which have and will continue to have a negative impact on our business. At the time of this filing, our customers are still providing us with specific dates and timing of plant closures and restructuring activities and information on the likely impact on their demand for our products. Accordingly, we are continuing our strategic planning and the determination of our near-term course of action to respond to such developments in our industry.

Overall North American production of passenger cars and light trucks in the third quarter was reported by industry publications as being down approximately 16 percent versus the same period a year ago, with production of passenger cars increasing 4 percent while production of light trucks and SUVs decreased 33 percent. The U.S. automotive industry was impacted negatively by the continued dramatic shift away from full-size trucks and SUVs caused by continuing high fuel prices, rapidly rising commodity prices and the tightening of consumer credit, due to the deteriorating U.S. financial markets.

All of our major customers announced that, due to these severe pressures, they were reducing North American production, delaying the introduction of several 2009 model year platforms, planning further manufacturing capacity realignments, additional cost reductions and changes to their model mix in order to bring more fuel-efficient passenger cars and crossovers to market faster. In some cases, they announced certain brands would undergo strategic reviews, ranging from a complete revamping of the full product line to the possibility of the sale of the brand. Accordingly, we and our customers continue to confront an extremely weak economy with a lack of consumer credit and continuing high fuel prices that have reduced demand, especially for SUVs and light trucks. Having assessed a variety of strategic initiatives and additional cost-reductions required to address the changing circumstances we now face, on August 19, 2008, we announced the planned closure in December 2008 of our wheel manufacturing facility in Pittsburg, Kansas, as well as a reduction in work force at several other locations. These actions are described in detail below.

Consolidated revenues in the third quarter of 2008 decreased $64.2 million, or 28 percent, to $163.4 million from $227.6 million in the same period a year ago. Wheel sales decreased $65.8 million, or 29 percent, to $159.3 million from $225.1 million in the third quarter a year ago, as our wheel shipments decreased 29 percent to approximately 2.2 million. This was the lowest level of shipments in a non-strike period since the third quarter of 1995. This decrease profoundly impacted our ability to absorb fixed costs during the quarter, resulting in a gross margin loss of $(11.2) million. The loss from operations for the period, including the pretax impairment charge of $5.0 for the announced plant closure, was $(22.4) million, compared to a loss from operations in 2007 of $(2.5) million. The net loss after income taxes and equity earnings for the period was $(14.2) million, or $(0.53) per diluted share, compared to a net loss in 2007 of $(0.7) million, or $(0.03) per diluted share.

Results of Operations

(Thousands of dollars,
except per share
amounts)                                           Thirteen Weeks Ended                    Thirty-Nine Weeks Ended
                                             September 28,       September 30,       September 28,         September 30,
Selected data                                    2008                2007                2008                  2007
Net sales                                   $       163,354     $       227,557             602,977       $       727,649
Gross profit (loss)                         $       (11,191 )   $         5,276              10,248       $        20,999
Percentage of net sales                                -6.9 %               2.3 %               1.7 %                 2.9 %
Loss from operations                        $       (22,422 )   $        (2,501 )           (14,093 )     $        (2,730 )
Percentage of net sales                               -13.7 %              -1.1 %              -2.3 %                -0.4 %
Net income (loss)                           $       (14,207 )   $          (739 )            (5,934 )     $         4,544
Percentage of net sales                                -8.7 %              -0.3 %              -1.0 %                 0.6 %
Diluted earnings (loss)
per share                                   $         (0.53 )   $         (0.03 )             (0.22 )     $          0.17

Impairment of Long-Lived Assets and Other Charges

On August 19, 2008, we announced the planned closure of our wheel manufacturing facility located in Pittsburg, Kansas, that will result in a lay off of approximately 600 employees. The planned closure of the Pittsburg facility, which will be effective December 19, 2008, was approved by our Board of Directors on August 15, 2008. Also included in this announcement was the elimination of 155 positions at our other U.S. facilities, of which 90 were open positions and 65 were layoffs which resulted in recording $0.2 million in severance costs in the current quarter. These two actions will result in a reduction of 755 positions, or 29 percent of Superior's U.S. workforce. These actions were necessary in order to manage costs and balance our manufacturing capacity in the face of reduced demand for SUVs and light trucks.

Due to the announced closure of the Pittsburg facility, we recorded in the current quarter an asset impairment charge against pretax earnings totaling $5.0 million, reducing the carrying value of certain long-lived assets to their respective fair values. We estimated the fair value of long-lived assets considering independent appraisals of the assets. These assets are classified as held and used, in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", until they are available for immediate sale at which time they will be classified as held for sale. In addition, we recorded severance and other one-time benefit costs totaling $0.7 million which are included in the cost of sales line item of our statement of operations. We expect to incur additional severance and other one-time benefit costs related to the closure of this facility of approximately $1.3 million over the next three months.

Sales

Consolidated revenues in the third quarter of 2008 decreased $64.2 million, or 28.2 percent, to $163.4 million from $227.6 million in the same period a year ago. Wheel sales decreased $65.8 million, or 29.2 percent, to $159.3 million from $225.1 million in the third quarter a year ago, as our wheel shipments decreased by 29.3 percent. Tooling reimbursement revenues totaled $4.0 million in the third quarter of 2008 and $2.5 million in the third quarter of 2007. The average selling price of our wheels increased approximately 1 percent in the current quarter as a 3 percent increase in the pass-through price of aluminum in the current quarter was offset by a 2 percent shift in sales mix to smaller wheels, reversing the trend from the first two quarters of 2008.

Consolidated revenues in the first three quarters of 2008 decreased $124.6 million, or 17.1 percent, to $603.0 million from $727.6 million in the same period a year ago. Wheel sales decreased $130.3 million, or 18.1 percent, to $588.7 million from $719.0 million in the first three quarters a year ago, as our wheel shipments decreased by 18.4 percent. Tooling reimbursement revenues totaled $14.3 million in the first three quarters of 2008 and $8.7 million in the same period of 2007. The average selling price of our wheels during the first nine months of 2008 increased approximately 1 percent as a shift in sales mix to larger, higher-priced wheels offset the 1 percent decrease in the pass-through price of aluminum during the first three quarters.

As reported by industry publications, North American production of passenger cars and light trucks in the third quarter was down approximately 16 percent compared to the same quarter in the previous year. Our wheel shipments on these vehicles fell 29 percent for the same period. The decline of North American production included an increase of 4 percent for passenger cars while light trucks fell by 33 percent. During the same period, our shipments of passenger car wheels increased by 11 percent while light truck wheel shipments decreased by 50 percent. The large drop in light truck shipments was primarily a result of decreased production on the GMT 900 and Ford F-150 programs, as further described below. Even with the significant drop in overall vehicle production, Superior was able to gain market share in the passenger car group.

Our shipments to GM decreased 21 percent in the current quarter to 45 percent of total unit shipments from 40 percent in the third quarter of 2007, as light truck wheel shipments decreased 41 percent while shipments of passenger car wheels increased 104 percent. The major unit shipment decreases were for the GMT800/900, Trail Blazer and Hummer H3, while the largest increases were for Chevrolet's Malibu and Cobalt and Cadillac's CTS. Shipments to Ford decreased 46 percent and were 21 percent of total unit shipments, compared to 27 percent a year ago, as light truck wheel shipments decreased 77 percent and shipments of passenger car wheel shipments increased 5 percent. The major unit shipment decreases were for the F Series trucks, the Explorer and the Mustang, while the largest increases were for the Focus and the Lincoln Town Car. Shipments to Chrysler decreased 14 percent versus the prior year, but increased to 14 percent of total unit shipments during the quarter compared to 12 percent a year ago. Light truck shipments to Chrysler decreased 18 percent, while shipments of passenger car wheels decreased 11 percent. The major decreases in unit shipments were for Sebring and the Dodge Nitro, while the largest increases were for the Dodge's Magnum, Charger and Journey platforms. Shipments to international customers decreased 33 percent compared to a year ago to 20 percent of total unit shipments from 21 percent a year ago. The principal unit shipment decreases to international customers in the current period compared to a year ago were for Nissan's Frontier and Xterra and the Mazda 6, while the largest increases were for the Nissan Altima and the Toyota Vibe.

Gross Profit (Loss)

Consolidated gross profit (loss) decreased $16.5 million for the third quarter of 2008 to a loss of $(11.2) million, or (6.9) percent of net sales, compared to a profit of $5.3 million, or 2.3 percent of net sales, for the same period a year ago. As indicated above, actual unit shipments in the third quarter of 2008 decreased 29.3 percent compared to the same period a year ago, and decreased 23.7 percent from the prior quarter in 2008. The sharp decrease in customer requirements resulted in wheel production decreasing 20.9 percent versus the prior quarter and 25.4 percent compared to the same period a year ago, significantly impacting absorption of plant fixed costs. This, along with the lost margin on the 29.3 percent decrease in unit shipments contributed to the operating margin of our wheel plants in the third quarter of 2008 decreasing approximately 7.6 percent. Severance costs related to the planned plant closure and workforce reductions during the quarter totaled approximately $1.0 million.

Consolidated gross profit for the first three quarters of 2008 decreased $10.8 million to $10.2 million, or 1.7 percent of net sales, compared to a $21.0 million, or 2.9 percent of net sales, for the same period a year ago. For the first half of 2008, our gross profit, including the impact of the American Axle strike, had increased approximately $5.7 million compared to the prior year. Continued progress made towards resolving certain production inefficiencies in several of our facilities contributed to the improved margin. The significant decrease in unit shipments and production in the third quarter more than offset the first half margin improvements.

We are continuing to implement action plans to improve operational performance and mitigate the impact of the declines in U.S. auto industry production and the continuing pricing environment in which we now operate. We must emphasize, however, that while we continue to reduce costs through process automation and identification of industry best practices, the pace of auto production declines and global pricing pressures may continue at a rate faster than our progress on achieving cost reductions for an indefinite period of time. This is due to the methodical nature of developing and implementing these cost reduction programs. In addition, although we have a portion of our natural gas requirements covered by fixed-price contracts expiring through 2010, costs may increase to a level that cannot be immediately recouped in selling prices. The impact of these factors on our future financial position, results of operations and cash flows may be negative, to an extent that cannot be predicted, and we may not be able to implement sufficient cost-saving strategies to mitigate any future impact.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the third quarter of 2008 decreased $1.6 million to $6.2 million, or 3.8 percent of net sales, from $7.8 million, or 3.4 percent of net sales, in the same period in 2007. The third quarter of 2007 included a pretax charge of $2.2 million for the potential settlement of a labor related lawsuit, which was partially offset by a reduction in other professional fees of $0.4 million related to the derivative lawsuit. This favorable variance versus the prior year was partially offset by increased payroll tax expenses in the current quarter of $0.3 million related to our deferred compensation plans. For the first three quarters of 2008, selling, general and administrative expenses were $19.3 million, or 3.2 percent of net sales, compared to $23.7 million, or 3.3 percent of net sales, for the same period in 2007. The principal reductions in the current year-to-date period were in professional fees related to the derivative lawsuit and the potential settlement of the labor related lawsuit, totaling $3.6 million. Other significant reductions versus the prior year were $0.7 million in stock-based compensation and $0.4 million in bonus expense.

Interest Income, Net and Other Income, Net

Net interest income for the third quarter decreased to $0.6 million from $0.8 million a year ago, due to the weighted average rate of interest earned on our cash investments declining to 2.4 percent from 5.6 percent a year ago. For the first three quarters of 2008 net interest income decreased to $2.3 million from $2.7 million a year ago, due to the weighted average rate of interest declining to 3.0 percent from 4.9 percent a year ago.

Other income, net for the third quarter was $2.0 million compared to $0.6 million a year ago, due principally to an increase of $1.1 million in foreign exchange transaction gains on the Mexican peso. Other income, net for the first three quarters of 2008 was $0.1 million compared to $2.5 million in 2007. The first three quarters of 2007 included a $2.4 million gain on sale of an available-for-sale equity security.

Equity in Earnings of Joint Ventures

As indicated below, equity in earnings of joint ventures is represented principally by our share of the equity earnings of our 50-percent owned joint venture in Hungary, Suoftec. Our share of Suoftec's net loss in the third quarter of 2008 was $(0.5) million compared to income of $1.4 million for the same period in 2007. Our share of Suoftec's net income totaled $2.2 million for the first three quarters of 2008 compared to $3.0 million for the same period in 2007. Including an adjustment for the elimination of intercompany profits in inventory, our adjusted equity earnings of this joint venture was a loss of $0.1 million in the third quarter of 2008 and income of $1.1 million in the third quarter of 2007. For the first three quarters of 2008, our adjusted equity earnings of this joint venture totaled $2.6 million, the same as for the same period in 2007. The balance of our equity earnings of joint ventures in 2007 was from our Topy-Superior Limited joint venture, which was terminated as of March 31, 2008.

Suoftec Joint Venture
Net sales of our 50 percent owned joint venture, Suoftec, decreased $5.3 million, or 15.0 percent, to $30.4 million in the third quarter of 2008 compared to $35.7 million for the same period last year. The decrease in net sales was due to an 18.1 percent decrease in units shipped, partially offset by a 3.8 percent decrease in the average selling price. Net sales for the first three quarters of 2008 increased by $6.6 million, or 6.2 percent, to $113.5 million compared to $106.9 million for the same period in 2007. The increase in net sales for the year-to-date period was due to a 7.5 percent increase in the average selling price being offset by a 1.2 percent decrease in units shipped.

Gross profit in the third quarter decreased to a loss of $(0.3) million, or
(1.0) percent of net sales, compared to gross profit of $3.7 million, or 10.5 percent of net sales, for the same quarter of last year. The main contributors to the decrease in gross profit this quarter compared to the same quarter last year were the 6.0 percent decrease in average euro selling prices resulting from a shift in mix to lower-priced, lower-margin wheels and continued increases in utility costs and operating supplies, which partially offset the 11.2 percent increase in the average euro to U.S. dollar exchange rate. Gross profit for the first three quarters of 2008 decreased to $6.7 million, or 5.9 percent of net sales, compared to $8.8 million, or 8.2 percent of net sales for the same period in 2007. The main contributors to the decreased gross profit in 2008 were the 1.2 percent decrease in units shipped, and a 5.4 percent decrease in the average euro selling price, related to the shift in mix to lower-priced lower-margin wheels in 2008.

Selling, general and administrative expenses this quarter increased to $0.6 million from $0.5 million in the same quarter last year. The $0.1 million increase in selling, general and administrative expenses was principally due to the increase in the average euro to U.S. dollar exchange rate. Selling, general and administrative expenses for the first three quarters of 2008 increased to $2.1 million from $1.5 million in the same period last year. The $0.6 million increase in selling, general and administrative expenses was principally due to the increase in the average euro to U.S. dollar exchange rate and increased sales commissions.

Due principally to the decrease in gross profit explained above, Suoftec's net income decreased to a loss of $1.0 million in the third quarter of 2008 from $2.7 million in the same quarter last year. Suoftec's net income was $4.4 million for the first three quarters of 2008 compared to $6.0 million in the same period last year. The increase in the average euro to U.S. dollar exchange rate impacted Suoftec's net income for the first three quarters favorably by approximately $0.5 million.

Income Tax (Provision) Benefit

The income tax (provision) benefit on income before income taxes and equity earnings for the third quarter of 2008 was a benefit of $5.7 million compared to a provision of $(0.8) million for the same period in 2007. For the first three quarters of 2008, the income tax benefit was $3.2 million, comprised of a benefit on losses of $1.8 million and reversal of discrete items totaling $1.4 million. These discrete items were principally a $0.7 million reversal of uncertain tax positions and a reduction of $0.8 million in valuation reserves. For the first three quarters of 2007, we recorded an income tax provision of $(0.6) million comprised of provision on earnings of $(2.0) million, offset by a benefit of $1.4 million consisting primarily of tax return and prior year adjustments and changes in valuation reserves and uncertain items.

Within the next twelve month period ending September 27, 2009, we anticipate that unrecognized tax benefits in the amount of $8.5 million will be recognized due to the expiration of statutes of limitations and completion of related tax examinations.

We currently believe that we are likely to have taxable income in the future sufficient to realize the benefit of our deferred tax assets (consisting primarily of foreign tax credits, competent authority adjustments, reserves and accruals that are not currently deductible for tax purposes, as well as net operating loss carryforwards from losses we previously incurred). However, some or all of these deferred tax assets could expire unused if we are unable to generate taxable income in the future sufficient to utilize them or we enter into transactions that limit our right to use them. If it becomes more likely than not that our deferred tax assets will expire unused, we will have to recognize a valuation allowance, which may materially increase our income tax expense, and therefore adversely affect our results of operations and financial condition in the period in which it is recorded.

At December 30, 2007 and September 30, 2008, our net deferred tax asset was $19.2 million and $23.2 million, respectively. Based upon our assessment, it appears more likely than not that the net deferred tax asset will be realized through future taxable earnings. Accordingly, no valuation allowance has been established for our net deferred tax asset. We will continue to assess the need for a valuation allowance in the future.

Financial Condition, Liquidity and Capital Resources

Our sources of liquidity include cash and cash equivalents, net cash provided by operating activities and other external sources of funds. Working capital and the current ratio were $274.0 million and 4.5:1, respectively, at September 28, 2008, versus $260.5 million and 3.7:1 at December 31, 2007. We have no long-term debt. As of September 28, 2008, our cash and cash equivalents totaled $110.4 million compared to $106.8 million at December 31, 2007, and $68.7 million at September 30, 2007. The increase in cash and cash equivalents since September 30, 2007, was due principally to reduced funding requirements of capital expenditures related to our wheel facility in Chihuahua, Mexico. For the foreseeable future, we expect all working capital requirements, funds required for investing activities, cash dividend payments and repurchases of our common stock to be funded from internally generated funds or existing cash and cash equivalents.

Net cash provided by operating activities decreased $7.0 million to $24.4 million for the thirty-nine weeks ended September 28, 2008, compared to $31.4 million provided during the same period a year ago. The change in net income, including the changes in non-cash items, decreased net cash provided by operating activities by $12.6 million. This decrease was partially offset by the net change in working capital requirements and other operating assets and liabilities, totaling $5.6 million. Funding requirements for accounts receivable decreased $41.1 million, due to the significant decrease in sales during the last two months of the current quarter compared to the same period a year ago, and funding for income taxes decreased $11.8 million, due to the decline in net earnings. Offsetting these favorable changes in working capital were increased funding requirements for accounts payable and other assets, totaling $36.3 million and $9.9 million, respectively. These changes were due to the timing of capital expenditures payments for our newest plant in Mexico and to changes in payment terms with our major raw material vendors.

The principal investing activity during the thirty-nine weeks ended September 28, 2008, was funding $8.9 million of capital expenditures. Similar investing activities during the same period a year ago included funding of $33.8 million of capital expenditures, offset by proceeds from held-to-maturity securities of $9.8 million and proceeds from the sale of available-for-sale securities of $5.4 million. Capital expenditures in the current period include approximately $5.6 million for our new wheel manufacturing facility in Chihuahua, Mexico, compared to $20.8 million in the same period a year ago. The remainder of the capital expenditures in both periods was for ongoing improvements to our existing facilities, none of which were individually significant.

Financing activities during the thirty-nine weeks ended September 28, 2008 and September 30, 2007 consisted primarily of the payment of cash dividends on our common stock totaling $12.8 million in both periods. In addition, $0.6 million was received from the exercise of stock options during the thirty-nine weeks ended September 28, 2008 compared to $0.4 million received during the same period in 2007.

Critical Accounting 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 . . .