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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:
March 31, 2024
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number
1-12936
TITAN INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
1525 Kautz Road, Suite 600
,
West Chicago
,
IL
(Address of principal executive offices)
36-3228472
(I.R.S. Employer Identification No.)
60185
(Zip Code)
(
630
)
377-0486
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Name of each exchange on which registered
Symbol
Common stock, $0.0001 par value TWI 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 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 ((s) 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 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
Indicate the number of shares of Titan International, Inc. outstanding:
72,870,714
shares of common stock, $0.0001 par value, as of April 24, 2024.
-------------------------------------------------------------------------------
TITAN INTERNATIONAL, INC.
TABLE OF CONTENTS
Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations for 1
the Three Months Ended March 31, 2024 and 2023
Condensed Consolidated Statements of 2
Comprehensive Income for the Three
Months Ended
March
3
1
, 202
4
and 20
23
Condensed Consolidated Balance Sheets as of 3
March 31, 2024
and December 31, 20
23
Condensed Consolidated Statements 4
of Changes in Equity for the Three
Months Ended
March
3
1
, 202
4
and 20
23
Condensed Consolidated Statements of Cash Flows for 5
the Three Months Ended March 31, 2024 and 2023
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of 21
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative 32
Disclosures About Market Risk
Item 4. Controls and Procedures 32
Part II. Other Information
Item 1. Legal Proceedings 34
Item 1A. Risk Factors 34
Item 2 Unregistered Sales of Equity 34
. Securities and Use of Proceeds
Item 5 Other Information 34
.
Item 6. Exhibits 35
Signatures 36
-------------------------------------------------------------------------------
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TITAN INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(All amounts in thousands, except per share data)
Three months ended
March 31,
2024 2023
Net sales $ 482,209 $ 548,644
Cost of sales 404,839 453,087
Gross profit 77,370 95,557
Selling, general and administrative expenses 39,420 34,472
Acquisition related expenses 6,196 -
Research and development expenses 3,654 3,014
Royalty expense 3,028 2,935
Income from operations 25,072 55,136
Interest expense, net ( (
5,492 6,492
) )
Foreign exchange loss ( (
275 1,760
) )
Other income 405 762
Income before income taxes 19,710 47,646
Provision for income taxes 9,736 14,216
Net income 9,974 33,430
Net income attributable to noncontrolling interests 773 1,592
Net income attributable to Titan and applicable to common shareholders $ 9,201 $ 31,838
Earnings per common share:
Basic $ 0.14 $ 0.51
Diluted $ 0.14 $ 0.50
Average common shares and equivalents outstanding:
Basic 64,928 62,905
Diluted 65,704 63,621
See accompanying Notes to Condensed Consolidated Financial Statements.
1
-------------------------------------------------------------------------------
Table of Contents
TITAN INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(All amounts in thousands)
Three months ended
March 31,
2024 2023
Net income $ 9,974 $ 33,430
Derivative gain (loss) 2 (
111
)
Currency translation adjustment, net ( 6,944
14,368
)
Pension liability adjustments, net of tax of $( 148 (
12 30
) and $ )
11
, respectively
Comprehensive (loss) income ( 40,233
4,244
)
Net comprehensive income attributable to noncontrolling interests 437 497
Comprehensive (loss) income attributable to Titan $ ( $ 39,736
4,681
)
See accompanying Notes to Condensed Consolidated Financial Statements.
2
-------------------------------------------------------------------------------
Table of Contents
TITAN INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share data)
March 31, 2024 December 31, 2023
Assets (unaudited)
Current assets
Cash and cash equivalents $ 203,628 $ 220,251
Accounts receivable, net 355,559 219,145
Inventories 504,945 365,156
Prepaid and other current assets 91,004 72,229
Total current assets 1,155,136 876,781
Property, plant and equipment, net 450,446 321,694
Operating lease assets 108,777 11,955
Goodwill 12,867 -
Intangible assets, net 17,046 1,431
Deferred income taxes 26,283 38,033
Other long-term assets 43,040 39,351
Total assets $ 1,813,595 $ 1,289,245
Liabilities
Current liabilities
Short-term debt $ 18,693 $ 16,913
Accounts payable 287,933 201,201
Operating leases 12,289 5,021
Other current liabilities 176,148 149,240
Total current liabilities 495,063 372,375
Long-term debt 554,440 409,178
Deferred income taxes 4,708 2,234
Operating leases 95,467 6,153
Other long-term liabilities 32,982 31,890
Total liabilities 1,182,660 821,830
Equity
Titan shareholders' equity
Common stock ($ - -
0.0001
par value,
120,000,000
shares authorized,
78,447,035
issued at March 31, 2024 and
66,525,269
at December 31, 2023)
Additional paid-in capital 735,544 569,065
Retained earnings 178,824 169,623
Treasury stock (at cost, ( (
5,613,074 51,300 52,585
shares at March 31, 2024 and ) )
5,809,414
shares at December 31, 2023)
Accumulated other comprehensive loss ( (
232,925 219,043
) )
Total Titan shareholders' equity 630,143 467,060
Noncontrolling interests 792 355
Total equity 630,935 467,415
Total liabilities and equity $ 1,813,595 $ 1,289,245
See accompanying Notes to Condensed Consolidated Financial Statements.
3
-------------------------------------------------------------------------------
Table of Contents
TITAN INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
(All amounts in thousands, except share data)
Number of Additional Retained Treasury stock Accumulated Total Titan Non-controll
common shares paid-in earnings other Equity interest
capital comprehensive
(loss) income
Balance 60,715,855 $ 569,065 $ 169,623 $ ( $ ( $ 467,060 $ 355 $ 467,415
January 52,585 219,043
1, 2024 ) )
Net income 9,201 9,201 773 9,974
Currency translation ( ( ( (
adjustment, net 14,032 14,032 336 14,368
) ) ) )
Pension liability 148 148 148
adjustments, net of tax
Derivative gain 2 2 2
Stock-based 266,817 ( 2,420 32 32
compensation 2,388
)
Issuance of treasury 29,523 174 267 441 441
stock under
401(k) plan
Common stock repurchase ( ( ( (
100,000 1,402 1,402 1,402
) ) ) )
Common stock issuance 11,921,766 168,693 168,693 168,693
Balance 72,833,961 $ 735,544 $ 178,824 $ ( $ ( $ 630,143 $ 792 $ 630,935
March 51,300 232,925
31, 2024 ) )
ing Total Equity
Number of Additional Retained Treasury stock Accumulated Total Titan Non-controll
common shares paid-in earnings other Equity interest
capital comprehensive
(loss) income
Balance 62,843,961 $ 565,546 $ 90,863 $ ( $ ( $ 381,236 $ 1,902 $ 383,138
January 23,418 251,755
1, 2023 ) )
Net income 31,838 31,838 1,592 33,430
Currency translation 8,039 8,039 ( 6,944
adjustment, net 1,095
)
Pension liability ( ( (
adjustments, net of tax 30 30 30
) ) )
Derivative loss ( ( (
111 111 111
) ) )
Stock-based 322,157 ( 2,003 700 700
compensation 1,303
)
Issuance of treasury 28,733 250 179 429 429
stock under
401(k) plan
Common stock repurchase ( ( ( (
109,789 1,293 1,293 1,293
) ) ) )
Balance 63,085,062 $ 564,493 $ 122,701 $ ( $ ( $ 420,808 $ 2,399 $ 423,207
March 22,529 243,857
31, 2023 ) )
ing Total Equity
See accompanying Notes to Condensed Consolidated Financial Statements.
4
-------------------------------------------------------------------------------
Table of Contents
TITAN INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(All amounts in thousands)
Three months ended March 31,
Cash flows from operating activities: 2024 2023
Net income $ 9,974 $ 33,430
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 12,001 10,830
Deferred income tax provision 3,491 4,089
Loss (gain) on fixed asset and investment sale 25 (
10
)
Stock-based compensation 32 700
Issuance of stock under 401(k) plan 441 429
Foreign currency gain ( (
390 230
) )
(Increase) decrease in assets, net of acquisitions:
Accounts receivable ( (
43,140 58,541
) )
Inventories ( 11,486
136
)
Prepaid and other current assets ( (
6,548 3,932
) )
Other assets ( (
4,037 459
) )
Increase in liabilities, net of acquisitions:
Accounts payable 25,196 10,237
Other current liabilities 3,695 15,947
Other liabilities 1,401 110
Net cash provided by operating activities 2,005 24,086
Cash flows from investing activities:
Capital expenditures ( (
16,607 11,698
) )
Business acquisition, net of cash acquired ( -
142,207
)
Proceeds from sale of fixed assets 52 258
Net cash used for investing activities ( (
158,762 11,440
) )
Cash flows from financing activities:
Proceeds from borrowings 154,771 2,360
Repayments of debt ( (
7,021 11,382
) )
Repurchase of common stock ( (
1,402 1,293
) )
Other financing activities ( (
642 130
) )
Net cash provided by (used for) financing activities 145,706 (
10,445
)
Effect of exchange rate changes on cash ( 2,338
5,572
)
Net (decrease) increase in cash and cash equivalents ( 4,539
16,623
)
Cash and cash equivalents, beginning of period 220,251 159,577
Cash and cash equivalents, end of period $ 203,628 $ 164,116
Supplemental information:
Interest paid $ 843 $ 863
Income taxes paid, net of refunds received $ 5,549 $ 3,767
Non cash financing activity:
Issuance of common stock in connection with business acquisition $ 168,693 $ -
See accompanying Notes to Condensed Consolidated Financial Statements.
5
-------------------------------------------------------------------------------
Table of Contents
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying unaudited condensed consolidated interim financial statements
include the accounts of Titan International, Inc. and its subsidiaries (Titan
or the Company) and have been prepared in accordance with accounting
principles generally accepted in the United States of America (US GAAP) for
interim financial information and in accordance with the rules and regulations
of the United States Securities and Exchange Commission (the SEC).
Accordingly, they do not include all of the information and footnotes required
by US GAAP for complete financial statements. The accompanying unaudited
condensed consolidated interim financial statements reflect all normal and
recurring adjustments that are, in the opinion of management, necessary for a
fair presentation of the Company's financial position and the results of
operations and cash flows for the periods presented, and should be read in
conjunction with the consolidated financial statements and the related notes
thereto included in the Company's latest Annual Report on Form 10-K for the
year ended December 31, 2023, filed with the SEC on February 29, 2024 (the
2023 Form 10-K). All intercompany transactions have been eliminated in
consolidation. These unaudited condensed consolidated interim financial
statements include estimates and assumptions of management that affect the
amounts reported in the condensed consolidated financial statements. Actual
results could differ from these estimates.
Reclassifications
The Company has reclassified certain prior period amounts in the consolidated
balance sheet, primarily lease liabilities, to confirm with the current period
presentation.
Business Combinations
We account for business combinations under the acquisition method of
accounting in accordance with ASC Topic 805,
Business Combinations
, which requires an allocation of the consideration we paid to the
identifiable assets, intangible assets and liabilities based on the estimated
fair values as of the closing date of the acquisition. The excess of the fair
value of the purchase price over the fair values of these identifiable assets,
intangible assets and liabilities is recorded as goodwill.
Purchased intangibles other than goodwill are initially recognized at fair
value and amortized over their useful lives unless those lives are determined
to be indefinite. The valuation of acquired assets will impact future
operating results. The fair value of identifiable intangible assets is
determined using an income approach on an individual asset basis.
Specifically, we use the multi-period excess earnings method to determine the
fair value of customer relationships and the relief-from-royalty approach to
determine the fair value of the tradename and proprietary technology.
Determining the fair value of acquired intangibles involves significant
estimates and assumptions, including forecasted revenue growth rates, EBIT
margins, percentage of revenue attributable to the tradename, contributory
asset charges, customer attrition rate, market-participant discount rates, the
assumed royalty rates and income tax rates.
The determination of the useful life of an intangible asset other than
goodwill is based on factors including historical tradename performance with
respect to consumer name recognition, geographic market presence, market
share, plans for ongoing tradename support and promotion, customer attrition
rate, and other relevant factors.
Fair value of financial instruments
The Company records all financial instruments, including cash and cash
equivalents, accounts receivable, notes receivable, accounts payable, other
accruals, revolving credit facility, and notes payable at cost, which
approximates fair value due to their short term or stated rates. Investments
in marketable equity securities are recorded at fair value. Our
7.00
% senior secured notes due 2028 were carried at a cost of $
396.5
million at March 31, 2024. The fair value of the senior secured notes due 2028
at March 31, 2024, as determined with the assistance of an independent pricing
source, was approximately $
392.0
million, which was determined to be a level 2 fair value measurement.
Hyperinflation in Argentina and Turkey
In July 2018 and March 2022, the three-year cumulative rate of inflation for
consumer prices and wholesale prices reached a level in excess of 100% for
Argentina and Turkey, respectively. As a result, in accordance with ASC 830
Foreign Currency Matters, Argentina and Turkey were considered hyperinflationary
economies and the Company applied the standard for the year ended December
31, 2023.
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TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
For the three months ended March 31, 2024, the Company recognized a net
monetary loss of $
1.2
million recorded in foreign exchange loss in the consolidated statements of
operations associated with the application of ASC 830.
Russia-Ukraine military conflict
In February 2022, in response to the military conflict between Russia and
Ukraine, the United States, other North Atlantic Treaty Organization member
states, as well as non-member states, announced targeted economic sanctions on
Russia, certain Russian citizens and enterprises. The continuation of the
conflict triggered additional economic and other sanctions enacted by the
United States and other countries throughout the world. The scope of potential
additional sanctions is unknown.
The Company currently owns
64.3
% of the Voltyre-Prom, a leading producer of agricultural and industrial tires
in Volgograd, Russia, which represents approximately
5
% and
7
% of consolidated assets of Titan as of March 31, 2024 and December 31, 2023,
respectively. The Russian operations represent
5
% and
6
% of consolidated global sales for the three months ended March 31, 2024 and
2023. The impact of the military conflict between Russia and Ukraine has not
had a significant impact on global operations. The Company continues to
monitor the potential impacts on the business including the increased cost of
energy in Europe and the ancillary impacts that the military conflict could
have on other global operations.
Share Repurchase Program
On December 16, 2022, the Board of Directors authorized a share repurchase
program allowing for the expenditure of up to $
50.0
million (the "Share Repurchase Program") for the repurchase of the Company's
common stock. This authorization took effect immediately and will remain in
place for up to three years. Under the Share Repurchase Program Titan
repurchased
100,000
shares of its common stock totaling $
1.4
million during the three months ended March 31, 2024 and
2,653,786
shares of its common stock totaling $
32.6
million during 2023. As of March 31, 2024, $
16.0
million remains available for future share repurchases under this program. The
Company records treasury stock using the cost method.
Supplier financing program
A subsidiary of Titan participates in supplier financing programs pursuant to
credit agreements between certain suppliers and financial institutions. The
program enables those suppliers to receive payment from participating
financial institutions prior to the payment date specified in the terms
between Titan and the supplier. Titan does not incur annual service fees
associated with its enrollment in the supplier financing program. The
transactions are at the sole discretion of both the suppliers and the
financial institution, and Titan is not a party to the agreement and has no
economic interest in the supplier's decision to receive payment prior to the
payment date. The terms between Titan and a supplier, including the amount due
and scheduled payment dates, are not impacted by a supplier's participation in
the program. Amounts due to suppliers who participate in the program are
included in the accounts payable line item in Titan's Consolidated Balance
Sheets and Titan's payments made under the program are reflected in cash flows
from operating activities in Titan's Consolidated Statements of Cash Flows.
For suppliers who participate in a supplier financing program, Titan will pay
the financial institution directly rather than the supplier. The confirmed
obligations under the supplier financing programs included in the accounts
payable line item in Titan's Consolidated Balance Sheet were $
6.7
million at March 31, 2024, and $
7.4
million at December 31, 2023.
New accounting pronouncements to be adopted in future periods
In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable
Segment Disclosures, which expands reportable segment disclosure requirements,
primarily through enhanced disclosures about significant segment expenses. The
amendments in the ASU require, among other things, disclosure of significant
segment expenses that are regularly provided to an entity's chief operating
decision maker ("CODM") and a description of other segment items (the
difference between segment revenue less the segment expenses disclosed under
the significant expense principle and each reported measure of segment profit
or loss) by reportable segment, as well as disclosure of the title and
position of the CODM, and an explanation of how the CODM uses the reported
measure(s) of segment profit or loss in assessing segment performance and
deciding how to allocate resources. Annual disclosures are required for fiscal
years beginning after December 15, 2023 and interim disclosures are required
for periods within fiscal years beginning after December 15, 2024.
Retrospective application is required, and early adoption is permitted. These
requirements are not expected to have an impact on our financial statements,
but will result in significantly expanded reportable segment disclosures.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax
Disclosures, which requires disclosure of disaggregated income taxes paid,
prescribes standard categories for the components of the effective tax rate
reconciliation, and modifies other income tax-related disclosures. ASU 2023-09
is effective for fiscal years beginning after December 15, 2024,
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TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
may be applied prospectively or retrospectively, and allows for early
adoption. These requirements will impact our income tax disclosures.
2. BUSINESS COMBINATION
Acquisition of The Carlstar Group
On February 29, 2024, the Company acquired 100% of the equity interests of The
Carlstar Group, LLC ("Carlstar") for the following purchase consideration and
subject to a working capital adjustment based on an agreed upon working
capital target (amounts in thousands):
Purchase Consideration
Titan International, Inc. common stock $ 168,693
Base cash consideration, net of cash acquired of $10,288 127,500
296,193
Additional cash consideration for excess net working capital acquired 18,372
Other debt-like items (
3,665
)
Total purchase consideration, net of cash acquired $ 310,900
Carlstar is a global manufacturer and distributor of wheels and tires for a
variety of end-market verticals including outdoor power equipment, power
sports, trailers, and small to midsize agricultural and construction
equipment. Carlstar has 17 manufacturing and distribution facilities located
in four countries and provides solutions to customers in North America, Europe
and China.
The following table summarizes the major classes of assets and liabilities to
which we have preliminarily allocated the purchase price consideration
(amounts in thousands). The final allocation is subject to review and
agreement with the prior equityholders of Carlstar.
Fair Values as of
February 29, 2024
Accounts receivable $ 98,439
Inventories 145,988
Prepaid and other current assets 13,339
Property, plant, and equipment 128,162
Other long-term assets 96,203
Goodwill 12,867
Intangible assets 15,770
Fair value of assets acquired $ 510,768
Accounts payable 66,055
Other current liabilities 26,377
Operating leases 95,476
Deferred tax liabilities 10,451
Other long-term liabilities 1,509
Fair value of liabilities assumed 199,868
Purchase Price $ 310,900
Goodwill represents value the Company expects to be created by combining the
operations of the acquired business with the Company's operations, including
the expansion of customer relationships, access to new customers, and
potential cost savings and synergies. Goodwill related to the acquisition is
expected to be deductible for tax purposes. The assignment of the acquired
goodwill to the Company's reporting units has not been completed.
8
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TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The purchase consideration was allocated on a provisional basis to the
estimated fair value of assets acquired and liabilities assumed for Carlstar
as of February 29, 2024. These fair value estimates are preliminary and
subject to change as management completes further analyses and studies.
The following table summarizes the carrying amounts and weighted average lives
of the acquired intangible assets (amounts in thousands):
Carrying Value Weighted Average Amortization (in Years)
Customer lists/relationships $ 10,347 10.00
Trade names 3,508 15.00
Other intangibles 1,915 6.25
Total $ 15,770 10.66
Through March 31, 2024, the actual revenue and net income of Carlstar since
the acquisition date of February 29, 2024 included in the consolidated
statement of operations is as shown below (amounts in thousands). The net
income includes the effect of fair value adjustments for the amortization of
inventory, intangible assets, and depreciation of property, plant and
equipment.
From Acquisition Date to
March 31, 2024
Carlstar revenue $ 51,788
Carlstar net income 1,254
The following is the unaudited pro forma financial information for the three
months ended March 31, 2024 and 2023 that reflects our results of our
operations as if the acquisition of Carlstar had been completed on January 1,
2023. This unaudited pro forma financial information is provided for
informational purposes only and is not necessarily indicative of what the
actual results of operations would have been had the transactions taken place
on January 1, 2023, nor is it indicative of the future consolidated results of
operations or financial position of the combined companies (amounts in
thousands).
March 31, March 31,
2024 2023
Proforma revenues $ 584,027 $ 725,775
Proforma net income 25,445 23,056
Net income per common share, basic $ 0.35 $ 0.31
Net income per common share, diluted $ 0.35 $ 0.31
These pro forma amounts have been calculated after applying Titan's accounting
policies and making certain adjustments, which primarily relate to: (i)
severance-related costs, (ii) adjustments relating to the fair value step-ups
to inventory, and (iii) transaction-related costs of both Titan and Carlstar.
These pro forma amounts were adjusted to be excluded from the unaudited pro
forma information for the three months ended March 31, 2024 and were adjusted
to include these amounts for the three months ended March 31, 2023.
Total acquisition-related costs for the three months ended March 31, 2024 were
approximately $
6.2
million.
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TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
3.
ACCOUNTS RECEIVABLE, NET
Accounts receivable consisted of the following (amounts in thousands):
March 31, December 31,
2024 2023
Accounts receivable $ 363,801 $ 225,727
Allowance for credit losses ( (
8,242 6,582
) )
Accounts receivable, net $ 355,559 $ 219,145
Accounts receivable are reduced by an estimated allowance for credit losses
which is based on known risks and historical losses.
4.
INVENTORIES
Inventories consisted of the following (amounts in thousands):
March 31, December 31,
2024 2023
Raw material $ 126,534 $ 108,504
Work-in-process 49,632 39,921
Finished goods 328,779 216,731
$ 504,945 $ 365,156
Inventories are reduced by estimated provisions for slow-moving and obsolete
inventory.
5.
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following (amounts in
thousands):
March 31, December 31,
2024 2023
Land and improvements $ 48,448 $ 42,140
Buildings and improvements 272,401 243,241
Machinery and equipment 840,332 628,975
Tools, dies and molds 127,023 116,328
Construction-in-process 49,736 29,744
1,337,940 1,060,428
Less accumulated depreciation ( (
887,494 738,734
) )
$ 450,446 $ 321,694
Depreciation on property, plant and equipment for the three months ended March
31, 2024 and 2023 totaled $
11.5
million and $
10.4
million, respectively.
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TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
6. INTANGIBLE ASSETS, NET
The components of intangible assets, net consisted of the following (amounts
in thousands):
Weighted- Average Useful Lives (in Years) March 31, 2024 December 31, 2023
Amortizable intangible assets:
Customer lists/relationships 10.00 $ 10,347 $ -
Trade names 15.00 3,508 -
Other intangibles 14.02 5,299 3,384
Total at cost 19,154 3,384
Less accumulated amortization ( (
2,108 1,953
) )
$ 17,046 $ 1,431
Amortization related to intangible assets for the three months ended March 31,
2024 and 2023 totaled $
0.2
million and $
0.2
million, respectively.
The estimated aggregate amortization expense at March 31, 2024, for each of
the years (or other periods) set forth below was as follows (amounts in
thousands):
April 1 - December 31, 2024 $ 1,383
2025 1,844
2026 1,705
2027 1,669
2028 1,669
Thereafter 8,776
$ 17,046
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TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
7.
OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following (amounts in thousands):
March 31, December 31,
2024 2023
Compensation and benefits $ 54,802 $ 47,543
Warranty 23,500 21,710
Accrued insurance benefits 20,398 19,162
Customer rebates and deposits 13,954 15,490
Accrued other taxes 15,411 13,762
Accrued interest 12,816 4,955
Foreign government grant 3,882 4,509
(1)
Other 31,385 22,109
$ 176,148 $ 149,240
(1)
The Company received government subsidies in 2023 associated with capital
expenditure investments in technological and digital innovation in Europe. The
amount of the government subsidy is used to offset existing payables to
government in the future. In addition, during August 2014, the Company
received an approximately $
17.0
million capital grant from the Italian government for asset damages related to
the earthquake that occurred in May 2012 at one of our Italian subsidiaries.
The grant was recorded as deferred income in non-current liabilities which is
being amortized over the life of the reconstructed building. There are no
specific stipulations associated with the government grant.
8.
WARRANTY
Changes in the warranty liability during the three months ended March 31, 2024
and 2023, respectively, consisted of the following (amounts in thousands):
2024 2023
Warranty liability at beginning of the period $ 21,710 $ 19,914
Provision for warranty liabilities 4,043 4,439
Warranty payments made ( (
4,037 2,727
) )
Other adjustments, including acquisition of Carlstar 1,784 -
Warranty liability at end of the period $ 23,500 $ 21,626
The Company provides limited warranties on workmanship on its products in all
market segments. The majority of the Company's products are subject to a
limited warranty that ranges between less than one year and ten years, with
certain product warranties being prorated after the first year. The Company
calculates a provision for warranty expense based on past warranty experience.
Warranty accruals are included as a component of other current liabilities on
the Condensed Consolidated Balance Sheets.
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TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
9.
DEBT
Long-term debt consisted of the following (amounts in thousands):
March 31, 2024
Principal Balance Unamortized Debt Issuance Net Carrying Amount
7.00% senior secured notes due 2028 $ 400,000 $ ( $ 396,496
3,504
)
Revolving credit facility 147,000 - 147,000
Titan Europe credit facilities 22,590 - 22,590
Other debt 7,047 - 7,047
Total debt 576,637 ( 573,133
3,504
)
Less amounts due within one year 18,693 - 18,693
Total long-term debt $ 557,944 $ ( $ 554,440
3,504
)
December 31, 2023
Principal Balance Unamortized Debt Issuance Net Carrying Amount
7.00% senior secured notes due 2028 $ 400,000 $ ( $ 396,277
3,723
)
Titan Europe credit facilities 22,568 - 22,568
Other debt 7,246 - 7,246
Total debt 429,814 ( 426,091
3,723
)
Less amounts due within one year 16,913 - 16,913
Total long-term debt $ 412,901 $ ( $ 409,178
3,723
)
The weighted-average interest rates on short-term borrowings within one year
at March 31, 2024 and December 31, 2023, were approximately
3.2
% and
3.1
%, respectively.
Aggregate principal maturities of long-term debt at March 31, 2024 for each of
the years (or other periods) set forth below were as follows (amounts in
thousands):
April 1 - December 31, 2024 $ 13,968
2025 4,013
2026 6,680
2027 1,021
2028 400,466
Thereafter 150,489
$ 576,637
7.00% senior secured notes due 2028
On April 22, 2021, the Company issued $
400
million aggregate principal amount of
7.00
% senior secured notes due April 2028 (the senior secured notes due 2028),
guaranteed by certain of the Company's subsidiaries. Including the impact of
debt issuance costs, these notes had an effective yield of
7.27
% at issuance. These notes are secured by the land and buildings of the
following subsidiaries of the Company: Titan Wheel Corporation of Illinois,
Titan Tire Corporation, Titan Tire Corporation of Freeport, and Titan Tire
Corporation of Bryan. The Company is subject to certain covenants associated
with the senior secured notes due 2028 and remained in compliance with these
debt covenants at March 31, 2024.
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TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Titan Europe credit facilities
The Titan Europe credit facilities include borrowings from various
institutions totaling $
22.6
million in aggregate principal amount at March 31, 2024. Maturity dates on
this debt range from less than one year to five years. The interest rates
range from
0.5
% to
6.5
%.
Revolving credit facility
In connection with the acquisition of Carlstar, Titan entered into a new
domestic credit facility which was effective on February 29, 2024. The new
credit facility, with Bank of America as agent, consists of a $
225.0
million revolving line of credit (the previous credit facility was $
125.0
million) and is collateralized by accounts receivable and inventory of certain
of the Company's domestic and Canadian subsidiaries. In addition, swingline
loans and letters of credit are available under the facility up to an
aggregate outstanding amount of $
20.0
million for swingline loans and $
50.0
million for letters of credit. The credit facility has a five-year term and
can be expanded by up to $
50.0
million through an uncommitted accordion provision within the agreement. It is
scheduled to mature on February 28, 2029 or 91 days prior to the maturity of
the Company's
7.00
% secured notes due in 2028. The new facility has terms similar to those
contained in the previous credit facility as well as other enhancements to
further improve the availability within the borrowing base. The interest rate
of the credit facility is based on the prevailing SOFR rate subject to certain
debt levels within each month. As of March 31, 2024, the interest rate was
7.05
%.
Prior to February 29, 2024, the Company had a $
125.0
million revolving credit facility with BMO Harris Bank N.A., as agent, and
other financial institutions party thereto, until the completion of the new
credit facility noted above. The $
125.0
million credit facility was collateralized by accounts receivable and
inventory of certain of the Company's domestic subsidiaries and was scheduled
to mature in October 2026. The credit facility could have been expanded by up
to $
50.0
million through an accordion provision within the agreement. From time to time
Titan's availability under this credit facility could have been less than $
125.0
million as a result of outstanding letters of credit and eligible accounts
receivable and inventory balances at certain of its domestic subsidiaries.
The Company's amount available for borrowing under the new credit facility at
March 31, 2024 totaled $
225.0
million, based on eligible accounts receivable and inventory balances. With
outstanding letters of credit totaling $
10.6
million and $
147.0
million in borrowings under the revolving credit facility, the net amount
available for borrowing under the new credit facility totaled $
67.4
million at March 31, 2024. The Company is subject to certain affirmative and
negative covenants under the credit facility, including limits on dividends
and repurchases of the Company's stock, that are described in the credit and
security agreement. The Company is in compliance with the debt covenants at
March 31, 2024.
Other debt
The Company has a working capital loan at Titan Pneus do Brasil Ltda at
varying interest rates from approximately
7
% to
7.6
%, which totaled $
7.0
million at March 31, 2024. The maturity dates on this loan range from one year
to two years. The Company expects to negotiate an extension of the maturity
date on this loan with the respective financial institution or repay, as
needed.
10.
LEASES
The Company leases certain buildings and equipment under both operating and
finance leases. Certain lease agreements provide for renewal options, fair
value purchase options, and payment of property taxes, maintenance, and
insurance by the Company. Under FASB Accounting Standards Codification Topic
842 "Leases," the Company made an accounting policy election, by class of
underlying asset, not to separate non-lease components such as those
previously stated from lease components and instead will treat the lease
agreement as a single lease component for all asset classes. Operating
right-of-use (ROU) assets represent the Company's right to use an underlying
asset for the lease term and lease liabilities represent Titan's obligations
to make lease payments arising from the lease. The majority of Titan's leases
are operating leases. Operating lease ROU assets and liabilities are
recognized at the lease commencement date based on the present value of lease
payments over the lease term. As most of Titan's leases do not provide an
implicit interest rate, the Company used its incremental borrowing rate (
7.27
%), based on the information available at the lease commencement date, in
determining the present value of lease payments. Operating lease expense is
recognized on a straight-line basis over the lease term and is included in
cost of sales and selling, general and administrative expenses on the
Condensed Consolidated Statements of Operations. Amortization expense
associated with finance leases is included in cost of sales and selling,
general and administrative expenses, and interest expense associated with
finance leases is included in interest expense in the Condensed Consolidated
Statements of Operations.
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TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Supplemental balance sheet information related to leases was as follows
(amounts in thousands):
Balance Sheet Classification March 31, 2024 December 31, 2023
Operating lease ROU assets Operating lease assets $ 108,777 $ 11,955
Operating lease current liabilities Operating leases current liabilities $ 12,289 $ 5,021
Operating lease long-term liabilities Operating leases long-term liabilities 95,467 6,153
Total operating lease liabilities $ 107,756 $ 11,174
Finance lease, gross Property, plant & equipment, net $ 4,914 $ 5,175
Finance lease accumulated depreciation Property, plant & equipment, net ( (
2,986 3,489
) )
Finance lease, net $ 1,928 $ 1,686
Finance lease current liabilities Other current liabilities $ 1,334 $ 1,093
Finance lease long-term liabilities Other long-term liabilities 1,276 1,321
Total finance lease liabilities $ 2,610 $ 2,414
At March 31, 2024, maturities of lease liabilities were as follows (amounts in
thousands):
Operating Leases Finance Leases
April 1 - December 31, 2024 $ 21,508 $ 1,537
2025 17,060 873
2026 15,841 562
2027 13,323 133
2028 12,116 66
Thereafter 126,754 17
Total lease payments $ 206,602 $ 3,188
Less imputed interest 98,846 578
$ 107,756 $ 2,610
Weighted average remaining lease term (in years) 12.99 2.36
Supplemental cash flow information related to leases for the three months
ended March 31, 2024 were as follows: operating cash flows from operating
leases were $
3.9
million.
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TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
11.
EMPLOYEE BENEFIT PLANS
The Company has three frozen defined benefit pension plans covering certain
employees or former employees of three U.S. subsidiaries. The Company also has
pension plans covering certain employees of several foreign subsidiaries. The
Company also sponsors a number of defined contribution plans in the U.S. and
at foreign subsidiaries. The Company contributed approximately $
0.1
million to the pension plans during the three months ended March 31, 2024 and $
0.8
million are expected to be contributed to the pension plans during the
remainder of 2024.
The components of net periodic pension cost consisted of the following for the
periods set forth below (amounts in thousands):
Three months ended
March 31,
2024 2023
Service cost $ 162 $ 106
Interest cost 952 1,027
Expected return on assets ( (
1,301 1,167
) )
Amortization of unrecognized prior service cost ( (
16 15
) )
Amortization of net unrecognized loss 68 240
Net periodic pension (benefit) cost $ ( $ 191
135
)
Service cost is recorded as cost of sales in the Condensed Consolidated
Statements of Operations while all other components are recorded in other
income.
12.
VARIABLE INTEREST ENTITIES
The Company holds a variable interest in one joint venture for which Titan is
the primary beneficiary. Titan is a
50
% owner of a manufacturer of undercarriage components and complete track
systems for earthmoving machines in India. As the primary beneficiary of this
variable interest entity (VIE), the VIE's assets, liabilities, and results of
operations are included in the Company's condensed consolidated financial
statements. The other equity holder's interests are reflected in "Net income
attributable to noncontrolling interests" in the Condensed Consolidated
Statements of Operations and "Noncontrolling interests" in the Condensed
Consolidated Balance Sheets.
The following table summarizes the carrying amount of the VIE's assets and
liabilities included in the Company's Condensed Consolidated Balance Sheets
(amounts in thousands):
March 31, December 31, 2023
2024
Cash and cash equivalents $ 718 $ 355
Inventory 1,552 1,431
Other current assets 2,125 2,364
Property, plant and equipment, net 2,351 2,477
Other non-current assets 154 222
Total assets $ 6,900 $ 6,849
Current liabilities $ 1,147 $ 1,117
Other long-term liabilities 868 869
Total liabilities $ 2,015 $ 1,986
All assets in the above table can only be used to settle obligations of the
consolidated VIE to which the respective assets relate. Liabilities are
non-recourse obligations. Amounts presented in the table above are adjusted
for intercompany eliminations.
The Company holds variable interests in certain VIEs that are not consolidated
because Titan is not the primary beneficiary. The Company's involvement with
these entities is in the form of direct equity interests and prepayments
related to purchases of
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TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
materials. The maximum exposure to loss represents the loss of assets
recognized by Titan relating to non-consolidated entities and amounts due to
the non-consolidated assets.
The assets and liabilities recognized in Titan's Condensed Consolidated
Balance Sheets related to Titan's interest in these non-consolidated VIEs and
the Company's maximum exposure to loss relating to non-consolidated VIEs as of
the dates set forth below were as follows (amounts in thousands):
March 31, 2024 December 31, 2023
Investments $ 7,290 $ 7,127
Total VIE assets 7,290 7,127
Accounts payable to the non-consolidated VIEs 5,711 3,578
Maximum exposure to loss $ 13,001 $ 10,705
13.
ROYALTY EXPENSE
The Company has trademark license agreements with The Goodyear Tire & Rubber
Company to manufacture and sell certain farm tires under the Goodyear brand.
These agreements cover sales in North America, Latin America, Europe, the
Middle East, Africa, Russia, and other Commonwealth of Independent States
countries. Each of these agreements is scheduled to expire in 2025. The
Company also has a trademark license agreement with Carlisle Companies, Inc.
to manufacture and sell certain tires under the Carlisle brand. Royalty
expenses were $
3.0
million and $
2.9
million for the three months ended March 31, 2024 and 2023, respectively.
14.
OTHER INCOME
Other income consisted of the following (amounts in thousands):
Three months ended
March 31,
2024 2023
Equity investment income $ 327 $ 455
(Loss) gain on sale of assets ( 10
25
)
Other income 103 297
$ 405 $ 762
15.
INCOME TAXES
The Company recorded income tax expense of $
9.7
million and $
14.2
million for the three months ended March 31, 2024 and 2023, respectively. The
Company's effective income tax rate was
49.4
% and
29.8
% for the three months ended March 31, 2024 and 2023, respectively. For the
three months ended March 31, 2024 and 2023, the income tax expense differed in
each period due to an overall decrease in pre-tax income. For the three months
ended March 31, 2024, the rate was negatively impacted by non-deductible
interest expense and one-time impacts associated with transaction costs, which
were also not fully deductible for income tax purposes.
The Company's 2024 and 2023 income tax expense and rates differed from the
amount of income tax determined by applying the U.S. Federal income tax rate
to pre-tax income primarily as a result of foreign income tax rate
differential on the mix of earnings, non-deductible royalty expenses in
certain foreign jurisdictions, the valuation allowance on the interest expense
carryforward, and certain foreign inclusion items on the domestic provision.
The 2024 rate further differed from the statutory rate due to non-deductible
transaction costs.
The Company continues to monitor the realization of its deferred tax assets
and assesses the need for a valuation allowance. The Company analyzes
available positive and negative evidence to determine if a valuation allowance
is needed based on the weight of the evidence. This objectively verifiable
evidence primarily includes the past three years' profit and loss positions.
This process requires management to make estimates, assumptions, and judgments
that are uncertain in nature. The Company has established valuation allowances
with respect to certain deferred tax assets in the U.S. and certain foreign
jurisdictions and continues to monitor and assess the need for valuation
allowances in all its jurisdictions.
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TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Organization Economic Co-operation and Development ("OECD") introduced
Base Erosion and Profit Shifting ("BEPS") Pillar 2 rules that impose a global
minimum tax rate of 15%. Numerous countries, including European Union member
states, have enacted or are expected to enact legislation to be effective as
early as January 1, 2024, with general implementation of a global minimum tax
by January 1, 2025. Titan will continue to evaluate the potential impact on
the consolidated financial statements and related disclosures but does not
anticipate a material impact. Titan did not record any tax associated with
Pillar 2 in the March 31, 2024 financial statements.
16.
EARNINGS PER SHARE
Earnings per share (EPS) were as follows (amounts in thousands, except per
share data):
Three months ended
March 31,
2024 2023
Net income attributable to Titan and applicable to common shareholders $ 9,201 $ 31,838
Determination of shares:
Weighted average shares outstanding (basic) 64,928 62,905
Effect of restricted stock and stock options 776 716
Weighted average shares outstanding (diluted) $ 65,704 $ 63,621
Earnings per common share:
Basic $ 0.14 $ 0.51
Diluted $ 0.14 $ 0.50
17.
LITIGATION
The Company is a party to routine legal proceedings arising out of the normal
course of business. Due to the difficult nature of predicting unresolved and
future legal claims, the Company cannot anticipate or predict the material
adverse effect on its consolidated financial condition, results of operations,
or cash flows as a result of efforts to comply with, or liabilities pertaining
to, legal judgments. In the opinion of management, the Company is not
currently involved in any legal proceedings which, individually or in the
aggregate, could have a material effect on its financial position, results of
operations, or cash flows.
18.
SEGMENT INFORMATION
The Company has aggregated its operating units into reportable segments based
on its three customer markets: agricultural, earthmoving/construction, and
consumer. These segments are based on the information used by the chief
executive officer to make certain operating decisions, allocate portions of
capital expenditures and assess segment performance. The accounting policies
of the segments are the same as those described in Note 1, "Description of
Business and Significant Accounting Policies." Segment external revenues,
expenses, and income from operations are determined on the basis of the
results of operations of operating units of manufacturing facilities. Segment
assets are generally determined on the basis of an allocation of the tangible
assets located at such operating units' manufacturing facilities and the
intangible assets associated with the acquisitions of such operating units.
However, certain operating units' property, plant, and equipment balances are
carried at the corporate level.
Titan is organized primarily on the basis of products being included in three
marketing segments, with each reportable segment including wheels, tires,
wheel/tire assemblies, and undercarriage systems and components. Given the
integrated manufacturing operations and common administrative and marketing
support, a substantial number of allocations primarily based on segment sales
data must be made to determine operating segment data.
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TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The table below presents information about certain operating results,
separated by market segments, for the three months ended March 31, 2024 and
2023 (amounts in thousands):
Three months ended
March 31,
2024 2023
Net sales
Agricultural $ 239,673 $ 305,858
Earthmoving/construction 165,208 198,924
Consumer 77,328 43,862
$ 482,209 $ 548,644
Gross profit
Agricultural $ 40,619 $ 49,250
Earthmoving/construction 22,977 37,224
Consumer 13,774 9,083
$ 77,370 $ 95,557
Income from operations
Agricultural $ 24,010 $ 32,569
Earthmoving/construction 8,834 23,538
Consumer 5,113 6,792
Corporate & Unallocated ( (
12,885 7,763
) )
Income from operations $ 25,072 $ 55,136
Interest expense, net ( (
5,492 6,492
) )
Foreign exchange loss ( (
275 1,760
) )
Other income, net 405 762
Income before income taxes $ 19,710 $ 47,646
Assets by segment were as follows as of the dates set forth below (amounts in
thousands):
March 31, December 31,
2024 2023
Total assets
Agricultural $ 665,237 $ 559,607
Earthmoving/construction 515,017 497,508
Consumer 555,340 155,602
Corporate & Unallocated 78,001 76,528
$ 1,813,595 $ 1,289,245
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TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The table below presents net sales by products and reportable segments for the
three months ended March 31, 2024 and 2023 (amounts in thousands):
Agricultural Segment Earthmoving/Construction Segment Consumer Segment Total
Three months ended March 31, 2024
Wheels and Tires [including assemblies] $ 229,034 $ 66,245 $ 71,354 $ 366,633
Undercarriage systems and components 10,639 98,963 5,974 115,576
Total $ 239,673 $ 165,208 $ 77,328 $ 482,209
Agricultural Segment Earthmoving/Construction Segment Consumer Segment Total
Three months ended March 31, 2023
Wheels and Tires [including assemblies] $ 293,704 $ 81,379 $ 37,230 $ 412,313
Undercarriage systems and components 12,154 117,545 6,632 136,331
Total $ 305,858 $ 198,924 $ 43,862 $ 548,644
19.
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Accumulated other comprehensive loss consisted of the following (amounts in
thousands):
Currency Gain (Loss) on Unrecognized
Translation Derivatives Losses and
Adjustments Prior Service Total
Cost
Balance at $ ( $ 740 $ ( $ (
January 1, 2024 217,455 2,328 219,043
) ) )
Currency translation ( - - (
adjustments, net 14,032 14,032
) )
Defined benefit pension plans:
Amortization of unrecognized losses and - - 148 148
prior service cost, net of tax of $(
12
)
Derivative gain - 2 - 2
Balance at $ ( $ 742 $ ( $ (
March 31, 2024 231,487 2,180 232,925
) ) )
Currency Gain (Loss) on Unrecognized
Translation Derivatives Losses and
Adjustments Prior Service Total
Cost
Balance at January 1, 2023 $ ( $ 1,224 $ ( $ (
243,712 9,267 251,755
) ) )
Currency translation adjustments, net 8,039 - - 8,039
Defined benefit pension plans:
Amortization of unrecognized losses and prior service cost, net of tax of $ - - ( (
11 30 30
) )
Derivative loss - ( - (
111 111
) )
Balance at March 31, 2023 $ ( $ 1,113 $ ( $ (
235,673 9,297 243,857
) ) )
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TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's discussion and analysis of financial condition and results of
operations (MD&A) is designed to provide a reader of the financial statements
included in this quarterly report with a narrative from the perspective of the
management of Titan International, Inc. (Titan or the Company) on Titan's
financial condition, results of operations, liquidity, and other factors that
may affect the Company's future results. The MD&A in this quarterly report
should be read in conjunction with the condensed consolidated financial
statements and other financial information included elsewhere in this
quarterly report and the MD&A and audited consolidated financial statements
and related notes in the Company's Annual Report on Form 10-K for the year
ended December 31, 2023, filed with the SEC o
n February 29, 2024
(the 2023 Form 10-K).
Acquisition of Carlstar
On February 29, 2024, the Company acquired 100% of the equity interests of
Carlstar. The agreements associated with the purchase of the equity interests
of Carlstar are included in the Exhibits within this Form 10-Q and the Current
Report on Form 8-K filed on February 29, 2024. The results of Carlstar's
operations are included in our consolidated financial statements since
February 29, 2024. Total acquisition-related costs for the three months ended
March 31, 2024 were approximately $6.2 million.
The purchase consideration was allocated on a provisional basis to the
estimated fair value of assets acquired and liabilities assumed for Carlstar
as of February 29, 2024. These fair value estimates are preliminary and
subject to change as management completes further analyses and studies. For
further information, refer to Note 2 to the consolidated financial statements.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements, which are covered by the
safe harbor for "forward-looking statements" provided by the Private
Securities Litigation Reform Act of 1995. Readers can identify these
statements by the fact that they do not relate strictly to historical or
current facts. The Company tried to identify forward-looking statements in
this quarterly report by using words such as "anticipates," "estimates,"
"expects," "intends," "plans," and "believes," and similar expressions or
future or conditional verbs such as "will," "should," "would," "may," and
"could." These forward-looking statements include, among other items,
information concerning:
.
the Company's financial performance;
.
anticipated trends in the Company's business;
.
expectations with respect to the end-user markets into which the Company sells
its products (including agricultural equipment, earthmoving/construction
equipment, and consumer products);
.
future expenditures for capital projects and future stock repurchases
.
the Company's ability to continue to control costs and maintain quality;
.
the Company's ability to meet conditions of loan agreements, indentures and
other financing documents;
.
the Company's business strategies, including its intention to introduce new
products;
.
expectations concerning the performance and success of the Company's existing
and new products; and
.
the Company's intention to consider and pursue acquisition and divestiture
opportunities. The results could differ materially if the acquisition of
Carlstar does not deliver on the expected results.
Readers of this Form 10-Q should understand that these forward-looking
statements are based on the Company's current expectations and assumptions
about future events and are subject to a number of risks, uncertainties, and
changes in circumstances that are difficult to predict, including those in
Part I, Item 1A, Risk Factors, of the 2023 Form 10-K and Part II, Item 1A,
Risk Factors, of this quarterly report on Form 10-Q, certain of which are
beyond the Company's control.
Actual results could differ materially from those expressed in, or implied by,
these forward-looking statements as a result of various factors, including:
.
the effect of the geopolitical instability resulting from the military
conflicts between Russia and Ukraine on our Russian and global operations, and
between
Israel and Hamas
on our global operations;
.
the effect of a recession on the Company and its customers and suppliers;
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TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
.
the effect of the market demand cycles on the company's sales, which may have
significant fluctuations;
.
changes in the Company's end-user markets into which the Company sells its
products as a result of domestic and world economic or regulatory influences
or otherwise;
.
changes in the marketplace, including new products and pricing changes by the
Company's competitors;
.
the Company's ability to maintain satisfactory labor relations;
.
the Company's ability to operate in accordance with its business plan and
strategies
.
unfavorable outcomes of legal proceedings;
.
the Company's ability to comply with current or future regulations applicable
to the Company's business and the industry in which it competes or any actions
taken or orders issued by regulatory authorities;
.
availability and price of raw materials;
.
availability and price of supply chain logistics and freight;
.
levels of operating efficiencies;
.
the effects of the Company's indebtedness and its compliance with the terms
thereof;
.
changes in the interest rate environment and their effects on the Company's
outstanding indebtedness;
.
unfavorable product liability and warranty claims;
.
actions of domestic and foreign governments, including the imposition of
additional tariffs and approval of tax credits or other incentives;
.
geopolitical and economic uncertainties relating to the countries in which the
Company operates or does business;
.
risks associated with acquisitions, including difficulty in integrating
operations and personnel, disruption of ongoing business, and increased
expenses;
.
results of investments, and the realization of projected synergies;
.
the effects of potential processes to explore various strategic transactions,
including potential dispositions;
.
fluctuations in currency translations;
.
climate change and related laws and regulations;
.
risks associated with environmental laws and regulations and increased
attention to ESG matters;
.
risks relating to our manufacturing facilities, including that any of our
material facilities may become inoperable; and
.
risks related to financial reporting, internal controls, tax accounting, and
information systems, including cybersecurity threats.
Any changes in such factors could lead to significantly different results.
Any assumptions that are inaccurate or do not prove to be correct could have a
material adverse effect on the Company's ability to achieve the results as
indicated in the forward-looking statements. Forward-looking statements speak
only as of the date of this report. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result
of new information, future events, or otherwise. In light of these risks and
uncertainties, there can be no assurance that the forward-looking information
and assumptions contained in this report will in fact transpire. The reader
should not place undue reliance on the forward-looking statements included in
this report or that may be made elsewhere from time to time by the Company, or
on its behalf. All forward-looking statements attributable to Titan are
expressly qualified by these cautionary statements.
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TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
OVERVIEW
Titan International, Inc., together with its subsidiaries, is a global wheel,
tire, and undercarriage industrial manufacturer and supplier that services
customers across the globe. As a leading manufacturer in the off-highway
industry, Titan produces a broad range of products to meet the specifications
of original equipment manufacturers (OEMs) and aftermarket customers in the
agricultural, earthmoving/construction, and consumer markets. Titan
manufactures and sells certain tires under the Goodyear Farm Tire, Titan Tire,
Carlstar and Voltyre-Prom Tire brands and has complete research and
development facilities to validate tire and wheel designs. Carlstar sells tire
products under the Carlisle(R) brand under a long-term license agreement and
also sells tires under other recognized brand names, including ITP(R), Trail
Wolf(R), Links(R), USA Trail(R) and Carlisle Radial Trail HD" highway trailer
tires.
Agricultural Segment:
Titan's agricultural wheels, tires, and components are manufactured for use on
various agricultural equipment, including tractors, combines, skidders, plows,
planters, and irrigation equipment, and are sold directly to OEMs and to the
aftermarket through independent distributors, equipment dealers, and Titan's
distribution centers. The wheels range in diameter from nine inches to 54
inches, with the 54-inch diameter being the largest agricultural wheel
manufactured in North America. Basic configurations are combined with distinct
variations (such as different centers and a wide range of material thickness)
allowing the Company to offer a broad line of products to meet customer
specifications. Titan's agricultural tires range from approximately one foot
to approximately seven feet in outside diameter and from five inches to 55
inches in width. Agricultural tires are offered under the Goodyear Farm Tire,
Titan Tire, Carlstar and Voltyre-Prom brands with a full portfolio of sizes,
load carrying capabilities, and tread patterns necessary for the markets
served. The Company offers the added value of delivering a complete wheel and
tire assembly to OEM and aftermarket customers.
Earthmoving/Construction Segment:
The Company manufactures wheels, tires, and undercarriage systems and
components for various types of OTR earthmoving, mining, military,
construction, and forestry equipment, including skid steers, aerial lifts,
cranes, graders and levelers, scrapers, self-propelled shovel loaders,
articulated dump trucks, load transporters, haul trucks, backhoe loaders,
crawler tractors, lattice cranes, shovels, and hydraulic excavators. The
Company provides OEM and aftermarket customers with a broad range of
earthmoving/construction wheels ranging in diameter from 15 to 63 inches and
in weight from 125 pounds to 7,000 pounds. The 63-inch diameter wheel is the
largest manufactured for the global earthmoving/construction market. Titan's
earthmoving/construction tires are offered in the Titan brand and range from
approximately three feet to approximately 13 feet in outside diameter and in
weight from 50 pounds to 12,500 pounds. Earthmoving/construction tires offered
by Titan serve virtually every off-road application in the industry with some
of the highest load requirements in the most severe applications. The Company
also offers the added value of wheel and tire assembly for certain
applications in the earthmoving/construction segment.
Consumer Segment:
In February 2024, Titan acquired Carlstar, which is a global manufacturer and
distributor of wheels and tires for a variety of end-market verticals
including outdoor power equipment, power sports, and high speed trailers.
Carlstar is primarily concentrated in the consumer segment, but also
manufactures and sells small to midsize agricultural tires.
Titan manufactures bias truck tires in Latin America and light truck tires in
Russia. Titan also offers select products for ATVs, side-by-sides, rock
climbers, turf, and have recently expanded our offering into the lawn and
garden segment with a major OE customer. This segment also includes sales that
do not readily fall into the Company's other segments, such as custom rubber
stock mixing sales to a variety of OEMs in tangential industries.
The Company's top customers, including global leaders in agricultural and
construction equipment manufacturing, have been purchasing products from Titan
or its predecessors for numerous years. Customers including AGCO Corporation,
Caterpillar Inc., CNH Global N.V., Deere & Company, Hitachi, Ltd., Kubota
Corporation, Liebherr, and Volvo have helped sustain Titan's market leading
position in wheel, tire, assembly, and undercarriage products.
MARKET CONDITIONS AND OUTLOOK
AGRICULTURAL MARKET OUTLOOK
Agriculture-related commodity prices have come off the recent highs reached
over the last couple years, however, population growth, farmer income levels
and the replacement of an aging large equipment fleet are market conditions
which are anticipated to support continued demand for our products in the mid
to long term time horizon. The agricultural market is currently experiencing a
slowdown in customer demand in the near term, however, the underlying market
conditions mentioned previously provide support for the mid to long term
demand for our products. Many more variables, including weather, volatility in
the price of commodities, grain prices, export markets, foreign currency
exchange rates, interest rates, government
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TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
policies, subsidies, and the demand for used equipment can greatly affect the
Company's performance in the agricultural market in a given period.
EARTHMOVING/CONSTRUCTION MARKET OUTLOOK
The earthmoving/construction segment is affected by many variables, including
commodity prices, road construction, infrastructure, government appropriations,
housing starts, and other macroeconomic drivers. The construction market is
primarily driven by country specific GDP and the need for infrastructure
developments. The earthmoving/construction markets are currently experiencing
a slowdown in OEM demand however, we expect the market to stabilize over the
mid to long term given the level of mining capital budgets and forecasted GDP
growth. Mineral commodity prices are at relatively high levels, which also
supports the forecasted mid to long term growth.
CONSUMER MARKET OUTLOOK
The consumer market consists of several distinct product lines within
different regions. These products include specialty tires and products under
the Carlstar brands within powersports, outdoor power equipment and high speed
trailers. The consumer market also includes light truck tires and other
specialty products, including custom mixing of rubber stock, and train brakes.
Some aspects of the markets are experiencing slowdown, particularly in the
Americas. There are strong initiatives underway to bolster opportunities in
various specialty products including mixing of rubber stock in the United
States. The consumer segment pace of growth can vary from period to period and
is affected by many variables including inflationary impacts, consumer
spending, interest rates, government policies, and other macroeconomic drivers.
RESULTS OF OPERATIONS
Three months ended
(Amounts in thousands, except percentages) March 31,
2024 2023 % Increase/(Decrease)
Net sales $ 482,209 $ 548,644 (12.1) %
Cost of sales 404,839 453,087 (10.6) %
Gross profit 77,370 95,557 (19.0) %
Gross profit % 16.0 % 17.4 % (8.0) %
Selling, general and administrative expenses 39,420 34,472 14.4 %
Acquisition related expenses 6,196 - 100.0 %
Research and development expenses 3,654 3,014 21.2 %
Royalty expense 3,028 2,935 3.2 %
Income from operations $ 25,072 $ 55,136 (54.5) %
Net Sales
Net sales for the three months ended March 31, 2024 were $482.2 million,
compared to $548.6 million in the comparable period of 2023. Net sales changes
were primarily attributed to the agricultural and earthmoving/construction
segments. This was due to a decrease in sales volume caused by lower levels of
end customer demand in agricultural and construction equipment globally, with
particular economic softness in Brazil. The volume change was positively
impacted by the net sales from the Carlstar acquisition in March 2024,
subsequent to the acquisition which was consummated on February 29, 2024. It
was also negatively impacted by price due to lower raw material and other
input costs, most notably steel in Europe, and unfavorable foreign currency
translation of 2.3%.
Gross Profit
Gross profit for the three months ended March 31, 2024 was $77.4 million, or
16.0% of net sales, compared to $95.6 million, or 17.4% of net sales, for the
three months ended March 31, 2023. The changes in gross profit and gross
margin for three months ended March 31, 2024 as compared to the prior year
period were due to the lower sales and lower fixed cost leverage.
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TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended March
31, 2024 were $39.4 million, or 8.2% of net sales, compared to $34.5 million,
or 6.3% of net sales, for the three months ended March 31, 2023. The change in
SG&A for the three months ended March 31, 2024 as compared to the prior year
period was due to recurring SG&A incurred on the Carlstar operations that
includes management of distribution centers, and general inflationary cost
impacts, including personnel related costs.
Acquisition related Expenses
Acquisition related expenses for the three months ended March 31, 2024 were
$6.2 million, associated with the one-time transaction costs for Carlstar.
Research and Development Expenses
Research and development (R&D) expenses for the three months ended March 31,
2024 were $3.7 million, or 0.8% of net sales, compared to $3.0 million, or
0.5% of net sales, for the comparable period in 2023. R&D spending reflects
initiatives to improve product designs and an ongoing focus on innovation and
quality.
Royalty Expense
The Company has trademark license agreements with The Goodyear Tire & Rubber
Company to manufacture and sell certain farm tires under the Goodyear name.
These agreements cover sales in North America, Latin America, Europe, the
Middle East, Africa, Russia, and other Commonwealth of Independent States
countries. The Company also has a trademark license agreement with Carlisle
Companies, Inc. to manufacture and sell certain tires under the Carlisle
brand. Royalty expenses for the three months ended March 31, 2024 were $3.0
million, or 0.6% of net sales, compared to $2.9 million, or 0.5% of net sales,
for the three months ended March 31, 2023.
Income from Operations
Income from operations for the three months ended March 31, 2024 was $25.1
million, compared to income from operations of $55.1 million for the three
months ended March 31, 2023. The change in income from operations for the
three months ended March 31, 2024 as compared to the prior year periods was
primarily due to lower net sales and the net result of the items previously
discussed.
OTHER PROFIT/LOSS ITEMS
Interest Expense, net
Interest expense was $5.5 million and $6.5 million for the three months ended
March 31, 2024 and 2023. The change in interest expense for the three months
ended March 31, 2024 was attributed to the increase in interest income from
financial investments in Latin America and the United States.
Foreign Exchange Loss
Foreign exchange loss was $0.3 million for the three months ended March 31,
2024, compared to a loss of $1.8 million for the three months ended March 31,
2023.
The foreign exchange loss experienced during the three months ended March 31,
2024 was primarily the result of an unfavorable impact of the movement of
exchange rates in certain geographies in which we conduct business,
particularly in Argentina and Turkey (refer to Note 1 to the consolidated
financial statements). Foreign exchange loss experienced during the three
months ended March 31, 2023 was primarily the result of an unfavorable impact
of the movement of exchange rates in certain geographies in which we conduct
business, primarily due to fluctuations in the Euro.
Other Income
Other income was $0.4 million for the three months ended March 31, 2024, as
compared to other income of $0.8 million in the comparable period of 2023.
The change was primarily attributable to the decrease in equity income and
other miscellaneous income.
Provision for Income Taxes
The Company recorded income tax expense of $9.7 million and $14.2 million for
the three months ended March 31, 2024 and 2023, respectively. The Company's
effective income tax rate was 49.4% and 29.8% for the three months ended March
31, 2024
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TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
and 2023, respectively. For the three months ended March 31, 2024 and 2023,
the income tax expense differed in each period due to an overall decrease in
pre-tax income. For the three months ended March 31, 2024, the rate was
negatively impacted by non-deductible interest expense and one-time impacts
associated with transaction costs, which were also not fully deductible for
income tax purposes.
The Company's 2024 and 2023 income tax expense and rates differed from the
amount of income tax determined by applying the U.S. Federal income tax rate
to pre-tax income primarily as a result of foreign income tax rate
differential on the mix of earnings, non-deductible royalty expenses in
certain jurisdictions, the valuation allowance on the interest expense
carryforward, and certain foreign inclusion items on the domestic provision.
The 2024 rate further differed from the statutory rate due to non-deductible
transaction costs.
Net Income and Income per Share
Net income for the three months ended March 31, 2024 was $10.0 million,
compared to net income of $33.4 million in the comparable period of 2023. For
the three months ended March 31, 2024 and 2023, basic income per share were
$0.14 and $0.51, respectively, and diluted income per share were $0.14 and
$0.50, respectively. The Company's net income and income per share changes
were due to the items previously discussed.
SEGMENT INFORMATION
Segment Summary
(amounts in thousands, except percentages)
Three months ended March 31, 2024 Agricultural Earthmoving/ Consumer Corporate/ Unallocated Consolidated
Construction Expenses Totals
Net sales $ 239,673 $ 165,208 $ 77,328 $ - $ 482,209
Gross profit 40,619 22,977 13,774 - 77,370
Profit margin 16.9 % 13.9 % 17.8 % - 16.0 %
Income (loss) from operations 24,010 8,834 5,113 (12,885) 25,072
Three months ended March 31, 2023
Net sales $ 305,858 $ 198,924 $ 43,862 $ - $ 548,644
Gross profit 49,250 37,224 9,083 - 95,557
Profit margin 16.1 % 18.7 % 20.7 % - 17.4 %
Income (loss) from operations 32,569 23,538 6,792 (7,763) 55,136
Agricultural Segment Results
Agricultural segment results for the periods presented below were as follows
(amounts in thousands, except percentages):
Three months ended
March 31,
2024 2023 % Increase (Decrease)
Net sales $ 239,673 $ 305,858 (21.6) %
Gross profit 40,619 49,250 (17.5) %
Profit margin 16.9 % 16.1 % 5.0 %
Income from operations 24,010 32,569 (26.3) %
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TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Net sales in the agricultural segment were $239.7 million for the three months
ended March 31, 2024, as compared to $305.9 million for the comparable period
in 2023. The net sales change was primarily attributed to lower sales volume
in North and South America, resulting from overall softness in demand for
agricultural equipment, and a decline in Brazilian economic activity. The
change in net sales was also influenced by the unfavorable impact of foreign
currency translation of 4.3%.
Gross profit in the agricultural segment was $40.6 million for the three
months ended March 31, 2024, as compared to $49.3 million in the comparable
period in 2023. The change in gross profit was attributed to lower sales
volume. The increase in profit margin was due to the measures taken to improve
financial performance, along with lower raw material and other input costs,
which have helped offset the impact of lower fixed cost leverage.
Income from operations in the company's agricultural segment was $24.0 million
for the three months ended March 31, 2024, as compared to income of $32.6
million for the three months ended March 31, 2023. The overall change in
income from operations was attributable to lower gross profit from a decrease
in net sales.
Earthmoving/Construction Segment Results
Earthmoving/construction segment results for the periods presented below were
as follows (amounts in thousands, except percentages):
Three months ended
March 31,
2024 2023 % Decrease
Net sales $ 165,208 $ 198,924 (16.9) %
Gross profit 22,977 37,224 (38.3) %
Profit margin 13.9 % 18.7 % (25.7) %
Income from operations 8,834 23,538 (62.5) %
The Company's earthmoving/construction segment net sales were $165.2 million
for the three months ended March 31, 2024, as compared to $198.9 million in
the comparable period in 2023. The change in earthmoving/construction sales
was primarily due to lower sales volume in the Americas and the undercarriage
business which was caused by a slowdown at construction OEM customers. In
addition, the net sales change was impacted by negative price due to lower raw
material and other input costs.
Gross profit in the earthmoving/construction segment was $23.0 million for the
three months ended March 31, 2024, as compared to $37.2 million for the three
months ended March 31, 2023. The changes in gross profit and margin were
primarily attributed to the lower sales volume, which also resulted in lower
fixed cost leverage and contractual price givebacks due to lower steel prices
particularly in Europe.
The Company's earthmoving/construction segment income from operations was $8.8
million for the three months ended March 31, 2024 , as compared to $23.5
million for the three months ended March 31, 2023. The change was due to the
decrease in sales volume and the impact on gross margins.
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TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Consumer Segment Results
Consumer segment results for the periods presented below were as follows
(amounts in thousands, except percentages):
Three months ended
March 31,
2024 2023 % Increase (Decrease)
Net sales $ 77,328 $ 43,862 76.3 %
Gross profit 13,774 9,083 51.6 %
Profit margin 17.8 % 20.7 % (14.0) %
Income from operations 5,113 6,792 (24.7) %
Consumer segment net sales were $77.3 million for the three months ended March
31, 2024, as compared to $43.9 million for the three months ended March 31,
2023. The increase in sales was driven by the positive effects of Carlstar
acquisition in March 2024, subsequent to consummation of the acquisition on
February 29, 2024. The increase was partially offset by lower sales volumes,
primarily in Americas, where demand was lower from the softer market
conditions.
Gross profit from the consumer segment was $13.8 million for the three months
ended March 31, 2024, as compared to $9.1 million for the three months ended
March 31, 2023. The increase in gross profit was driven by the positive
effects of Carlstar acquisition. The change in profit margin was primarily due
to the effect of the inventory revaluation step-up associated with the
Carlstar purchase price allocation.
Consumer segment income from operations was $5.1 million for the three months
ended March 31, 2024, as compared to income of $6.8 million for the three
months ended March 31, 2023. The change was due to lower profitability as
mentioned previously.
Corporate & Unallocated Expenses
Income from operations on a segment basis did not include unallocated costs of
$12.9 million for the three months ended March 31, 2024, as compared to $7.8
million for the three months ended March 31, 2023. Unallocated expenses are
primarily comprised of corporate selling, general and administrative expenses.
The increase in corporate and unallocated expenses for the three months ended
March 31, 2024 as compared to the prior year period was attributed to the
transaction costs associated with the Carlstar acquisition in the first
quarter of 2024, of $6.2 million.
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TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
As of March 31, 2024, the Company had $203.6 million of cash, which decreased
as compared to the December 31, 2023 ending balance of $220.3 million, due to
the following items:
Operating Cash Flows
Summary of cash flows from operating activities:
(Amounts in thousands) Three months ended March 31,
2024 2023 Change
Net income $ 9,974 $ 33,430 $ (23,456)
Depreciation and amortization 12,001 10,830 1,171
Deferred income tax provision 3,491 4,089 (598)
Foreign currency gain (390) (230) (160)
Accounts receivable (43,140) (58,541) 15,401
Inventories (136) 11,486 (11,622)
Prepaid and other current assets (6,548) (3,932) (2,616)
Accounts payable 25,196 10,237 14,959
Other current liabilities 3,695 15,947 (12,252)
Other liabilities 1,401 110 1,291
Other operating activities (3,539) 660 (4,199)
Cash provided by operating activities $ 2,005 $ 24,086 $ (22,081)
During the first three months of 2024, cash flows provided by operating
activities was $2.0 million. This was primarily driven by net income of $10.0
million, offset by increases in working capital components. The net income of
$10.0 million included a non-cash charge for depreciation and amortization
expense of $12.0 million. The Company also incurred $6.2 million in
transaction costs related to the Carlstar in the first quarter of 2024.
Operating cash flows decreased by $22.1 million when comparing the first three
months of 2024 to the comparable period in 2023. This decrease was primarily
due to lower net income, partially offset by the positive effect of focused
working capital management, especially the change in accounts payable of $15.0
million and solid collections efforts on accounts receivable by $15.4 million,
which helped offset the inventory effect of $11.6 million.
Summary of the components of cash conversion cycle:
March 31, December 31, March 31,
2024 2023 2023
Days sales outstanding 56 51 54
Days inventory outstanding 98 104 81
Days payable outstanding (57) (57) (57)
Cash conversion cycle 97 98 78
Cash conversion cycle increased by 19 days when comparing March 31, 2024 to
March 31, 2023. This increase was primarily due to the effect of the Carlstar
acquisition, which carried additional accounts receivable at the end of the
first quarter of 2024, resulting from deferred payment schedules related to
sales promotion campaigns.
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TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Investing Cash Flows
Summary of cash flows from investing activities:
(Amounts in thousands) Three months ended March 31,
2024 2023 Change
Capital expenditures $ (16,607) $ (11,698) $ (4,909)
Business acquisition, net of cash acquired (142,207) - (142,207)
Proceeds from sale of fixed assets 52 258 (206)
Cash used for investing activities $ (158,762) $ (11,440) $ (147,322)
Net cash used for investing activities was $158.8 million in the first three
months of 2024, as compared to net cash used for investing activities of $11.4
million in the first three months of 2023. The increase was primarily due to
the acquisition of Carlstar for a cash consideration of $142.2 million, which
included a $18.4 million excess working capital payment to the sellers. The
Company also invested a total of $16.6 million in capital expenditures in the
first three months of 2024, compared to $11.7 million in the first three
months of 2023. Capital expenditures represent plant equipment replacement and
improvements, along with new tools, dies and molds related to new product
development. The overall capital outlay for 2024 increased as the Company
seeks to enhance the Company's existing facilities and manufacturing
capabilities and drive plant efficiency and labor productivity gains.
Financing Cash Flows
Summary of cash flows from financing activities:
(Amounts in thousands) Three months ended March 31,
2024 2023 Change
Proceeds from borrowings $ 154,771 $ 2,360 $ 152,411
Payment on debt (7,021) (11,382) 4,361
Repurchase of common stock (1,402) (1,293) (109)
Other financing activities (642) (130) (512)
Cash provided by (used for) financing activities $ 145,706 $ (10,445) $ 156,151
During the first three months of 2024, $145.7 million cash was provided by
financing activities. On February 29, 2024, the Company acquired Carlstar. To
facilitate the purchase, Titan borrowed $147.0 million from the new domestic
credit facility.
During the first three months of 2023, the company made debt payments of $11.4
million and repurchase common stock of $1.3 million, partially offset by
proceeds from borrowings of $2.4 million.
Additionally, Titan issued common stock worth $168.7 million in connection
with the business acquisition of Carlstar. This was reflected in "Non cash
financing activity" of the Condensed Consolidated Statements of Cash Flow.
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TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Debt Restrictions
The Company's $225 million revolving credit facility (credit facility) and
indenture relating to the 7.00% senior secured notes due 2028 contain various
restrictions, including:
.
When remaining availability under the credit facility is less than the greater
of (i) $17 million and (ii) 10% of the credit facility's line cap (the line
cap being the lesser of our borrowing base or the lenders' commitments under
the credit facility), the Company will be required to maintain a minimum fixed
charge coverage ratio of not less than 1.0 to 1.0 (calculated quarterly on a
trailing four quarter basis).
.
Limits on dividends and repurchases of the Company's stock;
.
Restrictions on the ability of the Company to make additional borrowings, or
to consolidate, merge, or otherwise fundamentally change the ownership of the
Company;
.
Limitations on investments, dispositions of assets, and guarantees of
indebtedness; and
.
Other customary affirmative and negative covenants.
These covenants are subject to a number of exceptions and qualifications that
are described in the credit and security agreement. These restrictions could
limit the Company's ability to respond to market conditions, provide for
unanticipated capital investments, raise additional debt or equity capital,
pay dividends, or take advantage of business opportunities, including future
acquisitions. The Company is in compliance with these debt covenants at March
31, 2024.
Guarantor Financial Information
The Company's 7.00% senior secured notes due 2028 are guaranteed by the
following 100% owned subsidiaries of the Company: Titan Tire Corporation,
Titan Tire Corporation of Bryan, Titan Tire Corporation of Freeport, and Titan
Wheel Corporation of Illinois (together, the "Guarantors"). The note
guarantees are full and unconditional, joint and several obligations of the
guarantors. The guarantees of the guarantor subsidiaries are subject to
release in limited circumstances only upon the occurrence of certain customary
conditions.
The following summarized financial information of both the Company and the
Guarantors is presented on a combined basis. Intercompany balances and
transactions between the Company and the Guarantors have been eliminated and
the summarized financial information does not reflect investments of the
Company or the Guarantors in the Non-Guarantor Subsidiaries. The information
is presented in accordance with the requirements of Rule 13-01 under the SEC's
Regulation S-X. The financial information may not necessarily be indicative of
results of operations or financial position had the guarantor subsidiary
operated as an independent entity.
Summarized Balance Sheets:
(Amounts in thousands) March 31, 2024 December 31, 2023
Assets
Current assets $ 100,247 $ 93,339
Property, plant, and equipment, net 89,090 88,739
Intercompany accounts, non-guarantor subsidiaries 486,095 486,860
Other long-term assets 72,934 72,678
Liabilities
Current liabilities 104,208 83,198
Long-term debt 543,496 396,277
Other long-term liabilities 4,771 4,626
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TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Summarized Statement of Operations:
(Amounts in thousands) Three months ended
March 31, 2024
Net sales $ 169,079
Gross profit 26,691
Income from operations 3,106
Net loss (6,541)
Liquidity Outlook
At March 31, 2024, the Company had $203.6 million of cash and cash
equivalents. At March 31, 2024, there were $147.0 million of borrowings under
the Company's $225 million credit facility. Titan's availability under this
credit facility may be less than $225 million as a result of outstanding
letters of credit and eligible accounts receivable and inventory balances at
certain domestic and Canadian subsidiaries. Based on eligible accounts
receivable and inventory balances, the Company's amount available for
borrowing totaled $225.0 million at March 31, 2024. With outstanding letters
of credit totaling $10.6 million, the net amount available for borrowing under
the credit facility totaled $67.4 million at March 31, 2024. The cash and cash
equivalents balance of $203.6 million included $169.2 million held in foreign
countries.
The Company is expecting full year capital expenditures to be approximately
$70 million to $75 million. These capital expenditures are anticipated to be
used primarily to continue to enhance the Company's existing facilities and
manufacturing capabilities and drive productivity gains, along with the
purchase of new tools, dies and molds related to new product development.
Cash payments for interest are currently forecasted to between $36 million and
$38 million for the remainder of 2024 based on March 31, 2024 debt balances.
The forecasted interest payment is comprised primarily of the semi-annual
payment of $14 million to be paid in April and October for the 7.00% senior
secured notes, and between $6 million and $8 million of payments on the credit
facility, which will be variable dependent upon on the prevailing SOFR rate
and debt levels within each month.
Cash and cash equivalents along with anticipated internal cash flows from
operations and utilization of availability on global credit facilities, are
expected to provide sufficient liquidity for working capital needs, debt
maturities, and capital expenditures. Potential divestitures and unencumbered
assets are also a means to provide for future liquidity needs.
CRITICAL ACCOUNTING ESTIMATES
There were no material changes in the Company's Critical Accounting Estimates
since the filing of the 2023 Form 10-K. As discussed in the 2023 Form 10-K,
the preparation of the condensed consolidated financial statements in
conformity with US GAAP requires management to make estimates, assumptions,
and judgments that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the condensed
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results may differ from those
estimates and assumptions. Refer to Note 1. Basis of Presentation and
Significant Accounting Policies in Part I, Item 1, Notes to Condensed
Consolidated Financial Statements of this Form 10-Q for a discussion of the
Company's updated accounting policies.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Titan is exposed to market risks, including changes in foreign currency
exchange rates and interest rates, and commodity price fluctuations. Our
exposure to market risk has not changed materially since December 31, 2023.
For quantitative and qualitative disclosures about market risk, see Item 7A -
Quantitative and Qualitative Disclosures About Market Risk included in the
2023 Form 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Titan management, including the Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of the design and operation of the
Company's disclosure controls and procedures (as defined under Rules 13a-15(e)
and 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the
Exchange Act)) as of March 31, 2024. Based on that evaluation,
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the Chief Executive Officer and Chief Financial Officer concluded that, as of
March 31, 2024, Titan's disclosure controls and procedures were effective to
provide reasonable assurance that information required to be disclosed by
Titan in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized, and reported accurately and within the time
frames specified in the SEC's rules and forms and accumulated and communicated
to Titan management, including the Chief Executive Officer and the Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
As disclosed in Note 2. Business Combination in Part I, Item 1, Notes to
Condensed Consolidated Financial Statements of this Form 10-Q, Titan acquired
Carlstar on February 29, 2024. The total revenues of Carlstar represented
approximately 10.7% of the total net sales as shown on our consolidated
financial statements for the three months ended March 31, 2024 and Carlstar's
total assets constituted approximately 10.9% of total assets as shown on our
consolidated financial statements for the same period. Titan is currently
integrating Carlstar into our overall internal control over financial
reporting process and, consistent with interpretive guidance issued by the
Staff of the Securities and Exchange Commission, is excluding the business
from our assessment of internal control over financial reporting as of March
31, 2024. In accordance with such guidance, an assessment of recent business
combinations may be omitted from management's assessment of internal control
over financial reporting for one year following the acquisition.
Changes in Internal Controls
As noted above, we acquired Carlstar on February 29, 2024. We are integrating
Carlstar into our overall internal control over
financial reporting process. At this time, we anticipate that the scope of our
assessment of our internal control over financial
reporting for our fiscal year ending December 31, 2024 will exclude Carlstar's
internal control over financial reporting.
Other than as set forth above, there were no changes in internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) that occurred during the first quarter of fiscal year 2024 that
have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
Inherent Limitations on the Effectiveness of Controls
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject, from time to time, to certain legal proceedings and
claims arising out of the normal course of its business, which cover a wide
range of matters, including environmental issues, product liability,
contracts, and labor and employment matters. See Note 17 Litigation in Part I,
Item 1, Notes to Condensed Consolidated Financial Statements of this Form 10-Q
for further discussion, which is incorporated herein by reference.
Item 1A. Risk Factors
There have been no material changes from the risk factors disclosed in Item
1A. Risk Factors to the 2023 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table is a summary of stock repurchases for the three months
ended March 31, 2024:
Period Total Number of Average Price Total number of shares Approximate dollar value
Shares Purchased Paid Per Share purchased as part of shares that may
of publicly announced yet be purchased under
plan or program the plan or program
(1)(2)
(in thousands)
January 1, 2024 to 100,000 $ 13.99 100,000 $ 16,019
January 31, 2024
February - $ - - $ 16,019
1, 2024 to
February 29, 2024
March 1, 2024 to - $ - - $ 16,019
March 31, 2024
Total 100,000 100,000
(1)
On December 16, 2022, the Board of Directors authorized a share repurchase
program allowing for the expenditure of up to $50.0 million for the repurchase
of the Company's Common Stock. As of March 31, 2024, $16.0 million remains
available for future share repurchases under the program. All shares in the
table were purchased under the publicly announced repurchase program.
(2)
The stock repurchase program is authorized through December 16, 2025, but the
program may be suspended or terminated at any time at the Board of Director's
discretion.
Item 5. Other Information
Rule 10b5-1 Trading Plans Adopted by Officers and Directors in the First Quarter
During the fiscal quarter ending March 31, 2024, none of our directors or
officers as defined in Rule 16a-1 under the Exchange Act
adopted
or
terminated
a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement,"
as those terms are defined in Item 408 of Regulation S-K.
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Item 6. Exhibits
10.1 Membership Interest Purchase Agreement dated February 29, 2024 by
and among Titan International, Inc., Titan Tire Holdings, Inc.,
Carlstar Intermediate Holdings I, LLC, The Carlstar Group, LLC,
AIPCF V Feeder C (Cayman), LP and AIPCF V Feeder CTP Tire, LLC.
10.2 Stockholders Agreement dated February 29, 2024
by and among Titan International, Inc., Carlstar
Intermediate Holdings I, LLC, AIPCF V Feeder CTP
Tire, LLC and AIPCF V Feeder C (Cayman), LP.
10.3 Director Indemnification Agreement dated February 29, 2024
by and between Titan International, Inc. and Kim Marvin.
10.4 Credit and Security Agreement dated February 29,
2024 by and among Titan International, Inc.,
the other borrowers and guarantors party
thereto, and Bank of America, N.A., as Agent.
31.1 Certification of the Principal Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of the Principal Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 The cover page from this Current Report
on Form 10-Q formatted as inline XBRL
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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.
TITAN INTERNATIONAL, INC.
(Registrant)
Date: May 1, 2024 By /s/ PAUL G. REITZ
:
Paul G. Reitz
President and Chief Executive Officer
(Principal Executive Officer)
By /s/ DAVID A. MARTIN
:
David A. Martin
SVP and Chief Financial Officer
(Principal Financial Officer)
36
Exhibit 31.1
CERTIFICATION
I, Paul G. Reitz, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Titan International, Inc.;
2.
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;
3.
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;
4.
The registrant's other certifying officer and I are 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:
a.
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;
b.
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;
c.
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 this report based on such evaluation; and
d.
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
5.
The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a.
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
b.
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: May 1, 2024 By: /s/ PAUL G. REITZ
Paul G. Reitz
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION
I, David A. Martin, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Titan International, Inc.;
2.
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;
3.
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;
4.
The registrant's other certifying officer and I are 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:
a.
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;
b.
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;
c.
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 this report based on such evaluation; and
d.
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
5.
The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a.
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
b.
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: May 1, 2024 By: /s/ DAVID A. MARTIN
David A. Martin
SVP and Chief Financial Officer
(Principal Financial Officer)
Exhibit 32
CERTIFICATION
In connection with the Quarterly Report of Titan International, Inc. on Form
10-Q for the period ended March 31, 2024, as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), each of the undersigned
hereby certifies that, to the best of their knowledge, this Report fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and that information contained in this report fairly
presents, in all material respects, the financial condition and results of
operations of the Registrant.
TITAN INTERNATIONAL, INC.
(Registrant)
Date: May 1, 2024 By: /s/ PAUL G. REITZ
Paul G. Reitz
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 1, 2024 By: /s/ DAVID A. MARTIN
David A. Martin
SVP and Chief Financial Officer
(Principal Financial Officer)
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