UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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þ☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20172022
or
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o☐ | 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)
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| Delaware | | 36-3228472 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
2701 Spruce Street, Quincy, IL 62301
(Address of principal executive offices)
(217) 228-6011
| 1525 Kautz Road, Suite 600, West Chicago, IL 60185 | | (630) 377-0486 |
| (Address of principal executive offices) | | (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act: |
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| Title of each class | Trading Symbol | Name of each exchange on which registered |
| Common stock, $0.0001 par value | TWI | New York Stock Exchange (Symbol: TWI) |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes o☐ No þ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o☐ No þ☑
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 þ☑ No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ☑ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act. | | | | | | | | | | | | | | | | | | | | | | | |
| Large accelerated filer | ☑ | | Accelerated filer | ☐ | | Non-accelerated filer | ☐ |
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Large accelerated filer o
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Non-accelerated filer o (Do not check if a smaller reporting company)
| Smaller reporting companyo |
| ☐ | | Emerging growth company | o☐ |
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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. o☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to 240.10D-1(b).☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o☐ No þ☑
The aggregate market value of the shares of common stock of the registrant held by non-affiliates as of June 30, 2022, was approximately $513$948 million based upon the last reported sale price of the common stock on the New York Stock Exchange on June 30, 2017.2022.
Indicate the number of shares of Titan International, Inc. outstanding: 59,810,77062,872,694 shares of common stock, $0.0001 par value, as of February 15, 2018.20, 2023.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for the annual meeting2023 Annual Meeting of stockholders, to be held on June 12, 2018,Stockholders are incorporated by reference into Part III of this Form 10-K.
TITAN INTERNATIONAL, INC.
Index to Annual Report on Form 10-K
NOTE ON FORWARD-LOOKING STATEMENTS
This Form 10-K 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. YouReaders can identify these statements by the fact that they do not relate strictly to historical or current facts. We haveThe Company tried to identify forward-looking statements in this 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, statements relating to the following:
The•the Company's future financial performance;
Anticipated•anticipated trends in the Company’s business;
Expectations•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•future expenditures for capital projects;
The•the Company’s ability to continue to control costs and maintain quality;
The•the Company's ability to meet conditions of loan agreements;agreements, indentures and other financing documents;
The•the Company’s business strategies, including its intention to introduce new products;
Expectations•expectations concerning the performance and success of the Company’s existing and new products; and
The•the Company’s intention to consider and pursue acquisition and divestiture opportunities.
Readers of this Form 10-K 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 1, Item 1A Part I of this report, “Risk Factors,” 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•the effect of the COVID-19 pandemic on our operations and financial performance;
•the effect of the military conflict between Russia and Ukraine on our Russian and global operations;
•the effect of a recession on the Company and its customers and suppliers;
Changes•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•changes in the marketplace, including new products and pricing changes by the Company’s competitors;
Ability•the Company's ability to maintain satisfactory labor relations;
Unfavorable•unfavorable outcomes of legal proceedings;
The•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•availability and price of raw materials;
Levels•availability and price of supply chain logistics and freight;
•levels of operating efficiencies;
The•the effects of the Company's indebtedness and its compliance with the terms thereof;
Changes•changes in the interest rate environment and their effects on the Company's outstanding indebtedness;
Unfavorable•unfavorable product liability and warranty claims;
Actions•actions of domestic and foreign governments;governments, including the imposition of additional tariffs and approval of tax credits or other incentives;
Geopolitical•geopolitical and economic uncertainties relating to the countries in which the Company operates or does business;
Risks•risks associated with acquisitions, including difficulty in integrating operations and personnel, disruption of ongoing business, and increased expenses;
•results of investments;
The•the effects of potential processes to explore various strategic transactions, including potential dispositions;
Fluctuations•fluctuations in currency translations;
Climate•climate change and related laws and regulations;
Risks•risks associated with environmental laws and regulations;
Risks•risks relating to our manufacturing facilities, including that any of our material facilities may become inoperable; and
Risks•risks related to financial reporting, internal controls, tax accounting, and information systems.
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 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 document will in fact transpire. YouThe 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.
PART I
ITEM 1 – BUSINESS
INTRODUCTIONOVERVIEW
Titan International, Inc., together with its subsidiaries (Titan or the Company), is a global wheel, tire, and undercarriage industrial manufacturer and supplier servicingthat services customers across the globe. Titan traces its target markets. roots to the Electric Wheel Company in Quincy, Illinois, which was founded in 1890. Titan was originally incorporated in 1983 and has increased its global footprint and enhanced product offerings through major acquisitions which include the following:
•2005 - The Goodyear Tire & Rubber Company’s North American farm tire assets
•2006 - Off-the-road (OTR) tire assets of Continental Tire North America
•2011 - The Goodyear Tire & Rubber Company's Latin American farm tire business
•2013/2014 - A noncontrolling interest in Voltyre-Prom, a leading producer of agricultural and industrial tires, which owns and operates an over two million square foot manufacturing facility located in Volgograd Russia
•2019 - An additional 21.4% interest in Voltyre-Prom (from 42.9% to 64.3%) resulting in controlling interest
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. As a manufacturerTitan manufactures and sells certain tires under the Goodyear Farm Tire, Titan Tire and Voltyre-Prom Tire brands and has complete research and development facilities to validate tire and wheel designs.
BUSINESS SEGMENTS
Titan designs and manufactures products for OEMs and aftermarket customers in the agricultural, earthmoving/construction, and consumer markets. For additional information concerning the revenues, expenses, income from operations, and assets attributable to each of both wheels and tires,the segments in which the Company is uniquely positionedoperates, see Note 28 of the Notes to offer customers added value through complete wheel and tire assemblies. Titan'sConsolidated Financial Statements.
AGRICULTURAL SEGMENT
Titan’s agricultural products include rims, wheels, tires, and undercarriage systems and components are manufactured for use on various agricultural equipment.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 earthmoving/constructiondistribution 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 include rims,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 in Titan, Goodyear, and Votyre 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 off-the-road (OTR)OTR earthmoving, mining, military, construction, and forestry equipment.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's consumer products include, butCompany 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 not limitedoffered 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
Titan manufactures bias truck tires in Latin America and light truck tires in Russia, as well asRussia. Titan also offers select products for all-terrain vehicles (ATVs),ATVs, side-by-sides, rock climbers, turf, and golf cart applications.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 OEM's in tangential industries.
As one of the few companies dedicated to off-highway wheels, tires, and assemblies, Titan’s engineering and manufacturing resources are focused on designing quality products that address the needs of our customers and end-users across the markets that Titan serves. Titan’s team of experienced engineers continuously work on new and improved engineered solutions that evolve with today’s applications for the off-highway wheel, tire, and assembly markets.
History
The Company traces its roots to the Electric Wheel Company in Quincy, Illinois, which was founded in 1890. Titan was incorporated in 1983. The Company has grown through six major acquisitions. In 2005, Titan Tire Corporation, a subsidiary of the Company, acquired The Goodyear Tire & Rubber Company’s North American farm tire assets. In 2006, Titan Tire Corporation of Bryan, another subsidiary of the Company, acquired the OTR tire assets of Continental Tire North America, Inc. In 2011, the Company acquired The Goodyear Tire & Rubber Company's Latin American farm tire business. In 2012, the Company purchased a 56% controlling interest in Planet Corporation Group, now known as Titan Australia. Also in 2012, the Company completed its acquisition of Titan Europe. Through separate acquisitions in 2013 and 2014, the Company, in partnership with One Equity Partners (OEP) and the Russian Direct Investment Fund (RDIF), acquired all of the equity interests in Voltyre-Prom, a leading producer of agricultural and industrial tires in Volgograd, Russia. These acquisitions have allowed Titan to expand its global footprint and enhance product offerings in the Company’s target markets.
COMPETITIVE STRENGTHS
Titan’s strong market position in the off-highway wheel, tire, and undercarriage market and its long-term core customer relationships contribute to the Company’s competitive strengths. Titan producesTitan's production of both wheels and tires which allowsenables the Company to provide a one-stop solution for its customers' wheel and tire assembly needs. These strengths, along with Titan’s dedication to the off-highway equipment market, continue to drive the Company forward.
•Strong Market Position
As a result of Titan’s offering of a broad range of specialized wheels, tires, assemblies, and undercarriage systems and components, Titan is a leader in the global off-highway market. Through an extensive dealer network and sales force, the Company is able to reach an increasing number of aftermarket and OEM customers and buildwhich builds Titan’s image and brand recognition. The Company’s acquisitionproduction of the Goodyear Farm Tire brand in North America, and Latin America, Europe, the Middle East and Africa contributes to overall visibility and customer confidence. Through the 2012 acquisition of Titan Europe and the expansion of the Goodyear Farm Tire brand into Europe, Middle East and Africa (EMEA) in 2015, Titan has strengthened the Company's presence in Europe. Additionally, the 2013 acquisition of Voltyre-Prom expanded Titan's footprint into the Commonwealth of Independent States (CIS) region. Years of product design and engineering experience have enabled Titan to improve existing products and develop new ones, such as Low Sidewall (LSW®), thatwhich have been well received in the marketplace. Titan believes it has benefited from significant barriers to entry, such as the substantial investment necessary to replicate the Company’s manufacturing equipment and numerous tools, dies and molds, many of which are used in custom processes.
•Wheel and Tire Manufacturing Capabilities
The Company’s position as a manufacturer of both wheels and tires allows Titan to mount and deliver one of the largest selections of off-highway assemblies in North America. Both standard and LSW assemblies are primarily delivered as a single, complete unit based on each customer’s specific requirements. Titan offers this value-added service of one-stop solution for wheel and tire assemblies for the agricultural, earthmoving/construction, and consumer segments. Both standard and LSW assemblies are delivered as a single, complete unit based on each customer’s specific requirements.
•Long-Term Core Customer Relationships
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 AB Volvo have helped sustain Titan’s market leading position in wheel, tire, assembly, and undercarriage products.
BUSINESS STRATEGY
Titan’s business strategy is to increase its presenceWe are the worldwide leader in manufacturing and distribution of wheels, tires, assemblies and undercarriage products and serve our customers' needs through product innovation and quality service in the segments it serves through its one-stop solutions, including LSW technology. The Company continues to seek global expansion of complete wheelCompany's key markets: agriculture, earthmoving/construction, and tire assembly and undercarriage product offerings within the geographies it competes. This may be throughconsumer. Other strategic worldwide acquisitions or through expanded manufacturing capabilities in regions where the Company lacks either wheel, tire, or undercarriage production. In addition, Titan continues to improve operating efficiencies and gain additional synergies.considerations include:
Low Sidewall•Tire Technology
The Company has developed an LSW tire technology, featuring a larger rim diameter and a smaller sidewall than standard tires. With LSW tire technology, which has been widely adopted within the automotive industry, users experience reduced power hop, road lope, soil compaction, and fuel consumption as well as improved safety and performance. Both power hop and road lope can disturb ride quality and impede equipment performance. The benefits correspond to Titan’s markets through superior comfort, ride and fuel economy. Our LSW proprietary larger footprint agricultural products provide a framework for expansion
of carbon sinks, reducing soil compaction and improving soil health. Reduced soil compaction from the larger footprint of the
LSW product requires less tillage thus reducing the release of carbon dioxide, a greenhouse gas. Titan continues to enhance the LSW technology and expand its LSW product offeringand other tire offerings in both the agricultural and construction segments. Titan’s capabilities as both a wheel and tire manufacturer allow the Company to drive further adoption within these markets. Titan seeks to be at the forefront of off-road equipment advancement through the innovation of its LSW solution with the goal that it will become the industry standard.
•Increase Aftermarket Tire Business
The Company has concentrated on increasing Titan's presence in the tire aftermarket, which historically has been somewhat less cyclical than the OEM market. The aftermarket also offers the potential for higher profit margins and is a larger market. Titan’s strategy to enhance the Company's aftermarket platform which began in mid-2016, focuses on improving the customer experience and product positioning in key sales markets. To support this strategy, the Company has maintained and supported Titan'sa dedicated salesforce for the tire aftermarket throughout the recent industry downturn.aftermarket.
•Improve Operating Efficiencies
The Company regularly works to improve the operating efficiency of assets and manufacturing facilities. Titan integrates each facility’s strengths through, among others,other things, transfer of equipment and business to the facilities that are best equipped to handle the work, which enables Titan to increase utilization and spread operating costs over a greater volume of products. Titan continues to implement a comprehensive program to refurbish, modernize, and enhance the technology of its manufacturing equipment. Titan has also made investments to streamline processes, increase productivity, and lower costs in the selling, general and administrative areas.
•Enhance Design Capabilities and New Product Development
Equipment manufacturers constantly face changing industry dynamics. Titan directs its business and marketing strategy to understand and address the needs of customers and demonstrate the advantages of products. In particular, the Company often collaborates with customers in the design of new and enhanced products and recommends modified products to customers based on the Company's own market information. These value-added services enhance Titan’s relationships with customers. The Company tests new designs and technologies and develops manufacturing methods to improve product quality, performance, and cost.
Explore Additional•Reduction of Non-Core Assets and Other Strategic AcquisitionsConsiderations
The Company has reduced non-core assets and continues to explore ways to improve underperforming assets in an effort to
improve cash flow and working capital and reduce debt. In March 2022, the Company sold Australian wheel business to OTR Tyres. The sale included gross proceeds and cash repatriated of approximately $17.5 million, and the assumption by OTR Tyres of all liabilities, including employee and lease obligations.
The Company’s expertise in the manufacture of off-highway wheels, tires, and undercarriage systems and components has
permitted it to take advantage of opportunities to acquire businesses that complement this product line. In the future, Titan may
consider strategic partnerships, joint ventures or make additional strategic acquisitions of businesses that have an off-highway
focus. The Company continually explores worldwide opportunities to expand its manufacturing and distribution capabilities in
order to serve new and existing geographies.
BUSINESS SEGMENTSSUSTAINABILITY
Titan designs and manufactures products for OEMs and aftermarket customersis committed to be a positive force in the agricultural, earthmoving/construction,lives of our employees, customers and consumer markets. For additional information concerningin the revenues, expenses, incomecommunities they work and live. The Company has made significant progress on the environmental, social and governance (ESG) areas by creating and updating various policies, preparing new forms of monitoring, and expanding disclosure of data regarding operations.
The protection of the environment is a core value at Titan. We are dedicated to the continual improvement of environmental performance of our global operations. In 2021, Titan solidified these values becoming a signatory of the United National Global Compact, a set of international principles focusing on universal human rights, labor, the environment, and anti- corruption. From there, we began revisiting our policies and adopted both new policies and updates to existing policies which reflect these core values. With each of these updates, we have taken a stand against child and forced labor, harassment and discrimination at any of our sites or supplier or contractor sites. We intend to adhere to these ethical standards and follow outlined procedures for any infraction.
Titan works toward continuous improvement in considering our impact on the environment. Whether it is creating tires that reduce soil compaction, which also help our customers increase yield, closely tracking our business operations to identify opportunities to reduce the use of certain solvents, finding use for recycled materials or discovering new ways to design our facilities more sustainably, we are committed to making ongoing strides toward lessening our impact on our world.
As part of our commitment to the environment, Titan has Environmental Management Systems in place across many of our global facilities. Our systems monitor and track energy consumption, waste management, pollution prevention, emissions control and overall environmental health throughout our footprint, which enables us to measure and continuously improve
environmental performance. We also conduct routine internal environmental assessment audits at our facilities. Currently 17 of our locations are ISO 14001 certified, making up 46% of our facility footprint. We continue to strive for efficiency and operational improvements to lessen our impact on the environment.
HUMAN CAPITAL
The Company’s key human capital management objectives are to attract, retain and develop talent to deliver on the Company’s strategy. To support these objectives, the Company’s human capital programs are designed to: keep people safe and healthy; develop talent to prepare them for critical roles and leadership positions; and facilitate internal talent mobility.
Titan is committed to maintaining a diverse, equitable, inclusive, and safe workplace, where employees feel comfortable and encouraged to bring their whole selves to work. We value having a diverse range of backgrounds, talents, perspectives, cultures, and experiences and believe it enables us to make connections and understand our customer needs across the globe. We are committed to providing a workplace where all Titan employees work without fear of discrimination or harassment and are confident that all employment decisions are based entirely on individual merit. Titan believes that genuine diversity drives strategic advantage and contributes to the achievement of our corporate objectives. It enables Titan to attract people with the best skills and attributes, and to develop a workforce selected from all available talent, whose diversity reflects that of the customers and communities in which we serve.
The Company focuses on the following in managing its human capital:
Health and safety: We have a safety program that focuses on implementing management systems, policies and training programs and performing assessments to evaluate whether workers are trained properly and help prevent injuries and incidents. Our employees are empowered with stop-work authority which enables them to immediately stop any unsafe or potentially hazardous working condition or behavior they may observe. We utilize a mixture of indicators to assess the safety performance of our operations, including total recordable injury rate, preventable motor vehicle incidents per million miles, corrective actions and assets attributablenear miss frequency. We also recognize outstanding safety behaviors through our annual awards program. Importantly, during the COVID-19 pandemic, our continuing focus on health and safety enabled us to preserve business continuity without sacrificing our commitment to keeping our colleagues safe.
Compensation programs and employee benefits: Our compensation and benefits programs provide a package designed to attract, retain and motivate employees. In addition to competitive base salaries, the Company provides a variety of short-term, long-term and commission-based incentive compensation programs to reward performance relative to key financial, human capital and customer experience metrics. We offer comprehensive benefit options including retirement savings plans, medical insurance, prescription drug benefits, dental insurance, vision insurance, accident and critical illness insurance, life and disability insurance, health savings accounts, flexible spending accounts, legal insurance, auto/home insurance and identity theft insurance. Additionally, we have conducted company-wide stock grant programs for employees with the most recent grant program occurring in March 2022.
Employee experience and retention: To evaluate the success of our employee experience and retention efforts, we monitor a number of employee measures, such as employee retention, internal promotions and referrals. We host town hall meetings that are designed to provide an open and frequent line of communication for all employees and to engage with our full team.
Training and development: The Company is committed to the continued development of its people. We also offer various training and development programs, including an undergraduate tuition assistance program. Our employee evaluation process encourages performance and development check-ins throughout the year to provide for development across the Company.
EMPLOYEES
At December 31, 2022, the Company employed approximately 7,500 people worldwide, including approximately 4,800 located outside the United States.
At December 31, 2022, the employees at each of the segmentsCompany's Bryan, Ohio; Freeport, Illinois; and Des Moines, Iowa facilities, which collectively account for approximately 45% of the Company’s U.S. employees, are covered by collective bargaining agreements, which expire on November 16, 2024.
Outside the United States, the Company enters into employment agreements in those countries in which such relationships are mandatory or customary. The provisions of these agreements generally correspond in each case with the required or customary terms in the subject jurisdiction.
COMPETITION
The Company operates, see Note 29competes with several domestic and international companies, some of which are larger and have greater financial and marketing resources than Titan. The Company believes it is a primary source of steel wheels to the majority of its North American customers. Major competitors in the off-highway wheel market include Accuride, Gianetti, Moveero, Jantsa, Maxin, Pronar, Rimex, Trelleborg Group, Topy Industries, Ltd and Wheels India Limited. Significant competitors in the off-highway tire market include Alliance Tire Company Ltd., Balkrishna Industries Limited (BKT), Bridgestone/Firestone, Michelin, Mitas a.s., and Pirelli. Significant competitors in the undercarriage market include Berco and Caterpillar.
The Company competes on the basis of price, quality, sales support, customer service, design capability, and delivery time. The Company's consolidated financial statements, includedposition of manufacturing both the wheel and the tire allows Titan to provide innovative assembly solutions for our customers, creating a competitive advantage in Item 8 of this annual report.
AGRICULTURAL SEGMENT
Titan’s agricultural rims, wheels, tires,the marketplace. The Company’s ability to compete with international competitors may be adversely affected by various factors, including currency fluctuations and undercarriage systemstariffs imposed by domestic and components are manufactured for use on various agricultural equipment, including tractors, combines, skidders, plows, planters,foreign governments. Titan owns the molds and irrigation equipment, and are sold directlydies used to OEMs and to the aftermarket through independent distributors, equipment dealers, and Titan’s distribution centers. Theproduce its wheels and rims range in diameter from nine inchestires. However, certain of the Company’s OEM customers could elect 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 ofmanufacture their own products to meet customer specifications. Titan’s agricultural tires range from approximately one foottheir requirements or to approximately seven feet in outside diameter and from five inches to 55 inches in width.otherwise compete with the Company. 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 rims, 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 earthmoving/construction market is often referred to as OTR, an acronym for off-the-road. The Company provides OEM and aftermarket customers with a broad range of earthmoving/construction wheels ranging in diameter from 15 inches to 63 inches and in weight from 125 pounds to 7,000 pounds. The 63-inch diameter wheel is the largest manufactured in North America for the earthmoving/construction market. Titan’s earthmoving/construction tires range from approximately three feet to approximately 13 feet in outside diameter and in weight from 50 pounds to 12,500 pounds. The Company offers the added value of wheel and tire assembly for certain applicationsmay be adversely affected by increased competition in the earthmoving/construction segment.
CONSUMER SEGMENT
markets in which it operates, or competitors developing products that are more effective, less expensive, or otherwise rendering certain of Titan’s products less competitive. From time to time, certain of the Company’s competitors have reduced their prices in particular product categories, which has prompted Titan manufactures bias truck tiresto reduce prices as well. There can be no assurance that competitors of the Company will not further reduce prices in Latin America and light truck tires in Russia. Titan also offers select products for ATVs, turf, and golf cart applications. This segment also includes salesthe future or that doany such reductions would not readily fall intohave a material adverse effect on the Company's other segments.
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| | Year ended December 31, |
| (Dollars in thousands) | 2017 | | 2016 | | 2015 |
| | Net Sales | | % of Total Net Sales | | Net Sales | | % of Total Net Sales | | Net Sales | | % of Total Net Sales |
| Agricultural | $ | 690,238 |
| | 47% | | $ | 583,324 |
| | 46% | | $ | 651,804 |
| | 47% |
| Earthmoving/construction | 608,894 |
| | 41% | | 524,289 |
| | 41% | | 566,988 |
| | 41% |
| Consumer | 169,790 |
| | 12% | | 157,884 |
| | 13% | | 175,979 |
| | 12% |
| | $ | 1,468,922 |
| | | | $ | 1,265,497 |
| | | | $ | 1,394,771 |
| | |
OPERATIONS
Titan’s operations include manufacturing wheels, manufacturing tires, combining these wheels and tires into assemblies, and manufacturing undercarriage systems and components for use in the agricultural, earthmoving/construction, and consumer markets. These operations entail many manufacturing processes in order to complete the finished products.
•Wheel Manufacturing Process
Most agricultural wheels are produced using a rim and a center disc. A rim is produced by first cutting large steel sheets to required width and length specifications. These steel sections are rolled and welded to form a circular rim, which is flared and formed in the rollform operation. The majority of discs are manufactured using presses that both blank and form the center to specifications in multiple stage operations. The Company e-coats wheels using a multi-step process prior to the final paint top coating.
Large earthmoving/construction steel wheels are manufactured from hot and cold-rolled steel sections. Hot-rolled sections are generally used to increase cross section thickness in high stress areas of large diameter wheels. A special cold forming process for certain wheels is used to increase cross section thickness while reducing the number of wheel components. Rims are built from a series of hoops that are welded together to form a rim base. The complete rim base is made from either three or five separate parts that lock together after the rubber tire has been fitted to the wheel, the parts have been fully assembled, and the assembly inflated.
For most wheels in our consumer segment, the Company manufactures rims and center discs from rolled and flat steel. Rims are rolled and welded, and discs are stamped and formed from the sheets. The manufacturing process then entails welding the rims to the centers and painting the assembled product.
•Tire Manufacturing Process
The first stage in tire production is the mixing of rubber, carbon black, and chemicals to form various rubber compounds. These rubber compounds are then extruded and processed with textile or steel materials to make specific components. These components – beads (wire bundles that anchor the tire with the wheel), plies (layers of fabric that give the tire strength), belts (fabric or steel fabric wrapped under the tread in some tires), tread, and sidewall – are then assembled into an uncured tire carcass. The uncured carcass is placed into a press that molds and vulcanizes the carcass under set time, temperature, and pressure into a finished tire.
•Wheel and Tire Assemblies
The Company’s position as a manufacturer of both wheels and tires allows Titan to mount and deliver one of the largest selections of off-highway assemblies in North America. Titan offers this value-added service of one-stop solution for wheel and tire assemblies for the agricultural, earthmoving/construction, and consumer segments. Both standard and LSW assemblies are delivered as a single, complete unit based on each customer’s uniquespecific requirements.
•Undercarriage Manufacturing Process
The undercarriage components (track groups, track and carrier rollers, idler assemblies, and sprockets) are all manufactured from steel and produced according to the Company's specifications or if requested alternatively according to customer specifications.specification.
All of thetractor type track groups (up to 250 ton class) produced by the Company are built from fourfive major parts: shoes, right and left hand links, pins, bushings and bushings.bolts and nuts. Shoes are manufactured from steel cast in the Company foundry or obtained from different shapes of hot rolled profiles (depending on application), sheared to length, and then heat treated for high wear bending and breaking resistance. Alternatively tailor made special shaped shoes are obtained from heat treated steel cast in the Company foundry. Right and left hand links are die forged, hot forged, trimmed, mass heat treated, machined, and finally induction hardened on rail surface for optimal wear and fatigue resistance.resistance, and finally machined. Pins are made from round bars that are cut, machined, heat treated, and surface finished. Bushings are generally cold extruded, machined,pre-machined, mass heat treated and finally carburizedby several thermal processes, carburizing or induction hardened or through hardened for wear resistance and optimal toughness.toughness and finish machined. All monobloc type track groups (250 ton class up) are high alloyed heavy castings, heat treated, induction hardened and machined to purpose in the Company foundry.
The lifetime lubricated and maintenance-free track and carrier rollers are assembled with twothree major components: single or double flange roller shells (typically hot forged in halves, deep hardened, friction or arc welded, and finish machined with metallurgical characteristics depending upon size and application) and, shafts (generally cut from bars or forged, mass heat treated, rough machined, induction hardened, and ground). and casted brackets to fit the rollers onto the machine. The sealing of the rollers is generally obtained by Duo Cone Steel seals. Between shell and shaft there are sliding bearings or tapered roller bearing.
The idler assemblies are also lifetime lubricated, for virtually no maintenance. They are offered with cast (single web or hollow design), forged (single web) or fabricated shells, depending on size and application, and feature induction-hardened tread surfaces for optimal wear resistance.
The sprockets, designed to transfer the machine driving loads from the final drive to the track, are produced cast or forged in several geometric options, depending upon size and application. They are also heat treated for wear resistance and cracking resistance.
The undercarriage systems, custom designed and produced by the Company, consist of a structured steel fabricated frame, all the undercarriage components mentioned above (track groups, track and carrier rollers, idler assemblies, and sprockets) and a final drive. They are completely assembled in house, for consistent quality.
•Quality Control
The Company is ISO certified at all four main domestic manufacturing facilities located in Bryan, Ohio; Des Moines, Iowa; Freeport, Illinois; and Quincy, Illinois, as well as the majority of theits foreign manufacturing facilities. The ISO series is a set of related and internationally recognized standards of management and quality assurance. The standards specify guidelines for establishing, documenting, and maintaining a system to ensure quality. The ISO certifications are a testament to Titan’s dedication to providing quality products for its customers.
•International Operations
The Company operates manufacturing facilities in Latin America, Europe and Russia. The Latin American, European and Russian operations accounted for 19%, 21%, and 6% of the Company's net sales, respectively, for the year ended December 31, 2022 and 18%, 22% and 6% of net sales, respectively, for the year ended December 31, 2021. The Latin American, European and Russian operations accounted for 17%, 21% and 6% of net sales, respectively, for the year ended December 31, 2020.
RAW MATERIALS
Steel, natural rubber, synthetic rubber, carbon black, bead wire, and rubberfabric are the primary raw materials used by the Company in all segments.Company. To help ensure a consistent steel supply, Titan purchases raw steel from keyvarious steel mills and maintains relationships with steel processors for steel preparation. The Company is not dependent on any single producer for its steel supply; however, some components do have limited suppliers. Rubber and other raw materials for tire manufacture represent some of the Company’s largest commodity expenses. Titan has developed a procurement strategy and practice designed to mitigate price risk and lower cost. Titan buys rubber in markets where there are usually several sources of supply. In addition to the development of key domestic suppliers, the Company’s strategic procurement plan includes international steel and rubber suppliers to assure competitive price and quality in the global marketplace. As is customary in the industry, the Company does not have long-term contracts for the purchase of steel or rubber and, therefore, purchases are subject to price fluctuations.
Capital expenditures
RESEARCH, DEVELOPMENT, AND ENGINEERING
The Company’s research, development, and engineering staff tests original designs and technologies and develops new manufacturing methods to improve product performance. Titan’s engineering and manufacturing resources are focused on designing quality products that address the needs of our customers and end-users across the markets that Titan serves. Titan’s team of experienced engineers continuously work on new and improved engineered solutions that evolve with today’s applications for 2017, 2016,the off-highway wheel, tire, and 2015assembly markets. As a part of the design process, Titan seeks to be stewards of the environment through the adoption of eco-design principles, life cycle assessments, and evaluation of incorporating the use of recycled material and alternate environmentally friendly and sustainable raw materials where possible. Titan's advantage as both a wheel and tire manufacturer allows the Company to design, test, and bring to market innovative solutions to meet the specific needs of its customers. For example, Titan has developed the LSW technology, featuring a larger rim diameter and a smaller sidewall than standard tires, which helps reduce power hop, road lope, soil compaction, and provides improved safety and performance. Research and development (R&D) expenses are expensed as incurred. R&D costs were $32.6$10.4 million, $41.9$10.1 million, and $48.4$9.0 million respectively. The capital expenditures in each year were used primarily for expanding capabilities, updating manufacturing equipment,the years ended December 31, 2022, 2021, and for further automation at the Company’s facilities. 2020, respectively.
PATENTS, TRADEMARKS, AND ROYALTIES
The Company owns various patents and trademarks and continues to apply for patent protection for new products.patents. Due to the difficult nature of predicting the interpretation of patent laws, the Company cannot anticipate or predict any material adverse effect on its operations, cash flows, or financial condition to the extent the Company is unable to protect its patents or should the Company be found to be infringing others' patents.
The Company owns various trademarks, and 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. Each of these agreements is scheduled to expire in 2025. The North American and Latin American farm tire royalties were prepaid through March 2018 as a part of the 2011 Goodyear Latin American farm tire acquisition. The Company also has a trademark license agreement with Goodyear to manufacture and sell certain non-farm tire products in Latin America under the Goodyear name. The trademark license between the Company and The Goodyear Tire & Rubber Company, relating to the manufacture and sale of bias truck tires in Brazil, Mexico, Paraguay and Uruguay, was extended through December 31, 2022, and the country of Bolivia was deleted from that license. The Company is negotiating an extension of the license with Goodyear and anticipates renewing that license.
CUSTOMERS
Titan’s 10 largest customers accounted for 43% of net sales for the year ended December 31, 2022, and 40% for the year ended December 31, 2021. Net sales to Deere & Company in Titan's agricultural, earthmoving/construction, and consumer segments combined represented 15% and 12% of the Company's consolidated revenues for the years ended December 31, 2022 and 2021, respectively. No other customer accounted for 10% or more of Titan's net sales in 2022 and 2021. Management believes the Company is not dependent on any single customer; however, certain products are dependent on a few customers. While the loss of any substantial customer could impact Titan’s business, the Company believes that its diverse product mix and customer base should minimize a longer-term impact caused by any such loss.
ORDER BACKLOG
The Company's backlog of orders is not considered material to, or a significant factor in, evaluating and understanding any of the Company's business segments or Titan's businesses considered as a whole.
MARKETING AND DISTRIBUTION
The Company employs an internal sales force and utilizes several manufacturing representative firms for sales in North America, Europe, Latin America, the CIS region, and other worldwide locations. Sales representatives are primarily organized within geographic regions.
Titan distributes wheels, tires, assemblies, and undercarriage systems directly to OEMs. The distribution of aftermarket tires occurs primarily through a network of independent and OEM-affiliated dealers.
SEASONALITY
Agricultural equipment sales are seasonal by nature. Farmers generally order equipment to be delivered before the growing season. Shipments to OEMs in the agricultural industry in the U.S. and Europe usually peak during the Company’s first and second quarters for the spring planting period, while shipments in Latin America usually peak during the Company's second and third quarters for the fall planting period. Earthmoving/construction and consumer segments have historically experienced higher demand in the first and second quarters. These segments are affected by mining, building, economic conditions and economic conditions.various global commodity prices.
RESEARCH, DEVELOPMENT,
LAWS AND ENGINEERINGGOVERNMENTAL REGULATIONS
The Company’s research, development,Company's policy is to conduct its global operations in accordance with all applicable laws, regulations and engineering staff tests original designs and technologies and develops new manufacturing methods to improve product performance. These services enhance the Company’s relationships with its customers. Titan's advantage as both a wheel and tire manufacturer allows the Company to design, test, and bring to market innovative solutions to meet the specific needs of its customers. For example, Titan has developed the LSW technology, featuring a larger rim diameter and a smaller sidewall than standard tires, which helps reduce power hop, road lope, soil compaction, and provides improved safety and performance. Research and development (R&D) expenses are expensed as incurred. R&D costs were $10.3 million, $10.0 million, and $11.2 million for the years ending December 31, 2017, 2016, and 2015, respectively.
CUSTOMERS
Titan’s 10 largest customers accounted for 32% of net sales for the year ended December 31, 2017, and 34% for the year ended December 31, 2016. Net sales to Deere & Company in Titan’s agricultural, earthmoving/construction, and consumer segments combined represented 9% of the Company’s consolidated revenues for each of the years ended December 31, 2017 and 2016. No other customer accounted for more than 7% of the Company’s net sales in 2017 or 2016. Management believes the Company is not dependent on any single customer; however, certain products are dependent on a few customers. While the loss of any substantial customer could impact Titan’s business, the Company believes that its diverse product mix and customer base should minimize a longer-term impact caused by any such loss.
ORDER BACKLOG
Titan estimates that, at January 31, 2018, it had $391 million in orders believed to be firm compared to $240 million at January 31, 2017. The January 31, 2018, order amount included $109 million in the agricultural segment, $273 million in the earthmoving/construction segment, and $9 million in the consumer segment. The January 31, 2017, order amount included $81 million in the agricultural segment, $152 million in the earthmoving/construction segment, and $7 million in the consumer segment. The Company believes the above orders at January 31, 2018, will be filled during the current year. The Company does not believe that its backlog is material to, or a significant factor in, evaluating and understanding any of its business segments or its businesses considered as a whole.
INTERNATIONAL OPERATIONS
The Company operates manufacturing facilities in Latin America. The Latin American operations accounted for 19% of the Company's net sales for each of the years ended December 31, 2017 and 2016.
The Company operates facilities throughout Europe, which sell to OEM and aftermarket customers. The European operations accounted for 28% of the Company's net sales for each of the years ended December 31, 2017 and 2016.
The Company operates a manufacturing facility in Volgograd, Russia. The Russian operations accounted for 7% of the Company's net sales for each of the years ended December 31, 2017 and 2016.
EMPLOYEES
At December 31, 2017, the Company employed approximately 6,300 people worldwide, including approximately 4,300 located outside the United States.
At December 31, 2017, the employees at each of the Company's Bryan, Ohio; Freeport, Illinois; and Des Moines, Iowa facilities, which collectively account for approximately 41% of the Company’s U.S. employees, were covered by collective bargaining agreements which expire in November 2021.
Outside the United States, the Company enters into employment agreements in those countries in which such relationships are mandatory or customary. The provisions of these agreements correspond in each case with the required or customary terms in the subject jurisdiction.
The Company believes it has a good relationship with the members of its workforce.
ENVIRONMENTAL LAWS AND REGULATIONS
requirements. In the ordinary course of business, similar to other industrial manufacturing companies, Titan is subject to extensive and evolving federal, state, local, and localinternational environmental laws and regulations,regulations. From time to time, the Company has, and has mademay in the future, incurred costs and additional charges associated with environmental compliance and cleanup projects, including remediation activities. As appropriate, the Company makes provisions for the estimated financial impact of potential environmental cleanup.cleanup activities. The Company’s policy is to accrue environmental cleanup-related costs of a non-capital nature when those costs are believed to be probable and can be reasonably estimated. Expenditures that extend the life of the related property, or mitigate or prevent future environmental contamination, are capitalized. The Company does not currently anticipate any material capital expenditures for environmental control facilities. The quantification of environmental exposures requires an assessment of many factors, including changing laws and regulations, advances in environmental technologies, the quality of information available related to specific sites, the assessment stage of the site investigation, preliminary findings, and the length of time involved in remediation or settlement. Due to the difficult nature of predicting future environmental costs, the Company cannotmay not be able to anticipate or predict with certainty the potential material adverse effect on its operations, cash flows, or financial condition as a result of efforts to comply with, or its liabilitiesany future liability under, environmental laws.laws, regulations or other requirements.
As of December 31, 2017, two of Titan’s subsidiaries were involved in litigation concerning environmental laws and regulations:
In October 2010, the United States of America, on behalf of the Environmental Protection Agency (EPA), filed a complaint against Dico, Inc. (Dico) and Titan Tire Corporation (Titan Tire) in the U.S. District Court for the Southern District of Iowa, wherein the EPA sought civil penalties, punitive damages, and response costs against Dico and Titan Tire pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA).
In June 2015, Titan Tire and Dico appealed the U.S. District Court’s order granting the EPA’s motion for summary judgment that found Dico and Titan Tire liable for civil penalties and response costs for violating CERCLA and Dico liable for civil penalties and punitive damages for violating an EPA Administrative Order.
In December 2015, the United States Court of Appeals reversed the District Court’s summary judgment order with respect to “arranger” liability for Titan Tire and Dico under CERCLA and the imposition of punitive damages against Dico for violating the EPA Administrative Order, but affirmed the summary judgment order imposing civil penalties in the amount of $1.62 million against Dico for violating the EPA Administrative Order violation. The case was remanded to the District Court for a new trial on the remaining issues.
The trial occurred in April 2017. On September 5, 2017, the District Court issued an order: (a) concluding Titan Tire and Dico arranged for the disposal of a hazardous substance in violation of 42 U.S.C. § 9607(a); (b) holding Titan Tire and Dico jointly and severally liable for $5.45 million in response costs previously incurred and reported by the United States relating to the alleged violation, including enforcement costs and attorney’s fees; and (c) awarding a declaratory judgment holding Titan Tire and Dico jointly and severally liable for all additional response costs previously incurred but not yet reported or to be incurred in the future, including enforcement costs and attorney’s fees. The District Court also held Dico liable for $5.45 million in punitive damages under 42 U.S.C. § 9607(c)(3) for violating a unilateral administrative order. The punitive damages award does not apply to Titan Tire. The Company accrued a contingent liability of $6.5 million, representing $5.45 million in costs incurred by the United States and $1.05 million of additional response costs, for this order.
Titan Tire and Dico are appealing the case to the United States Court of Appeals for the Eighth Circuit. The Notice of Appeal was filed on November 2, 2017, and an appeal bond was secured to stay the execution of any collection actions on the underlying judgment pending the outcome of the appeal.
COMPETITION
The Company competes with several domestic and international companies, some of which are larger and have greater financial and marketing resources than Titan. The Company believes it is a primary source of steel wheels and rims to the majority of its North American customers. Major competitors in the off-highway wheel market include GKN Wheels, Ltd., Trelleborg Group, and Topy Industries, Ltd. Significant competitors in the off-highway tire market include Alliance Tire Company Ltd., Balkrishna Industries Limited (BKT), Bridgestone/Firestone, Michelin, Mitas a.s., and Pirelli. Significant competitors in the undercarriage market include Berco and Caterpillar.
The Company competes on the basis of price, quality, sales support, customer service, design capability, and delivery time. The Company's position of manufacturing both the wheel and the tire allows us to provide innovative assembly solutions for our customers, creating a competitive advantage in the marketplace. The Company’s ability to compete with international competitors may be adversely affected by currency fluctuations. Titan owns the molds and dies used to produce its wheels and tires. However, certain of the Company’s OEM customers could elect to manufacture their own products to meet their requirements or to otherwise compete with the Company. There can be no assurance that the Company will not be adversely affected by increased competition in the markets in which it operates, or that competitors will not develop products that are more effective, less expensive, or otherwise render certain of Titan’s products less competitive. From time to time, certain of the Company’s competitors have reduced their prices in particular product categories, which has prompted Titan to reduce prices as well. There can be no assurance that competitors of the Company will not further reduce prices in the future or that any such reductions would not have a material adverse effect on the Company.
NEW YORK STOCK EXCHANGE CERTIFICATION
The Company submitted to the New York Stock Exchange during fiscal 2017 the Annual CEO Certification required by Section 303A.12(a) of the New York Stock Exchange Listed Company Manual.
AVAILABLE INFORMATION
The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports are made available, without charge, through the Company’s website located at www.titan-intl.com under "Investor Relations" as soon as reasonably practicable after they are filed with the Securities and Exchange Commission (SEC). You can also obtain copies of these materials by visiting the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549, by calling the SEC at 800-SEC-0330, or by accessing the SEC’s website at www.SEC.gov. The following documents are also posted on the Company’s website:
•Corporate Governance Policy
•Code of Business Conduct Policy
•Audit Committee Charter
•Compensation Committee Charter
•Nominating Committee Charter
•Corporate Governance Committee Charter
•Environmental and Social Commitment
Printed copies of these documents are available, without charge, by writing to: Titan International, Inc.,
c/o Corporate Secretary, 2701 Spruce Street, Quincy, IL 62301.1525 Kautz Road, Suite 600, West Chicago, Illinois 60185.
The information on, or that may be accessed through, the aforementioned websites is not incorporated into this filing and should not be considered a part of this filing.
ITEM 1A – RISK FACTORS
The Company is subject to various risks and uncertainties including those described below, relatingthat it believes are significant to our business. These risks relate to or arisingarise out of the nature of itsthe Company's business and generaloverall business, economic, financing,financial, legal, and other factors or conditions that may affect the Company. Realization of any ofIn addition to risks discussed elsewhere in this report, the following risksare factors that could, have a material adverse effect on Titan’sindividually or in the aggregate, materially adversely affect the Company’s business, financial condition cash flows, and results of operations and in turn,cause the value of Titan securities.Company's actual results to differ from past results and/or those anticipated, estimated or projected. In addition, other risks not presently known to the Company or that the Company currently believes to be immaterial may also adversely affect Titan'sthe Company’s business, financial condition and results of operations, perhaps materially. TheIt is impossible to predict or identify all such risks discussed below also include forward-looking statements, and actual resultsuncertainties and, events may differ substantially from those discussed or highlighted in these forward-looking statements. Before making an investment decision with respect to any of Titan securities,as a result, you should carefullynot consider the following factors to be a complete discussion of all risks or uncertainties that may impact the Company’s business, financial condition or results of operations.
Supplier and uncertainties described below and elsewhere in this annual report.Raw Material Exposure
•The Company is exposed to price fluctuations of key commodities.
The Company uses various raw materials, most significantly steel, natural rubber, synthetic rubber, carbon black, bead wire, and rubber,fabric in manufacturing its products across all of its market segments. The Company does not generally
enter into long-term commodity contracts and does not use derivative commodity instruments to hedge exposures to commodity market price fluctuations. Therefore, the Company is exposed to price fluctuations of key commodities. In addition, our business is susceptible to increases in other costs such as energy and natural gas prices to run our operating facilities as a result of factors beyond our control, including unfavorable weather conditions. Although the Company attempts to pass on certain material price and other cost increases to its customers, there is no assurance that the Company will be able to do so in the future. Any increase in the price of steel and rubber that is not passed on to customers could result in declining margins and have a material adverse effect on Titan’s financial condition and results of operations. The Company is also exposed to reductions in pricing of key commodities which could result in declining margins due to the cost of inventory being held at higher costs than the expected selling price to the end customer.
•Demand for global logistical services can negatively impact the cost of delivery to the end customer and unexpected delays in meeting delivery requirements to the end customer.
The Company uses various logistical providers and transportation methods including containers to transport its products to the end customers. The overall demand for containers depends largely on the rate of world trade and economic growth. The Company is exposed to significant price fluctuations on global shipping costs as well as uncertainty in terms of shipping delays as a result of the container demand and shortages. While the Company does attempt to pass on certain shipping and delivery related charges to its customer, there is no assurance that the Company will be able to do so into the future which could result in declining margins and have a material adverse effect on Titan's financial condition and results of operations.
•The Company relies on a limited number of suppliers.
The Company currently relies on a limited number of suppliers for certain key commodities, which consist primarily of steel and rubber, in the manufacturing of Titan products. If the Company’s suppliers are unable to provide raw materials to Titan in a timely manner, or are unable to meet our quality, quantity or cost requirements, the Company may not in all cases be able to promptly obtain substitute sources. Any extended delay in receiving critical materials could impair Titan’s ability to deliver products to its customers. The loss of key suppliers, the inability to establish relationships with replacement suppliers, or the inability of Titan's suppliers to meet price, quality, quantity, and delivery requirements could have a significant adverse impact on the Company’s results of operations.
•The Companyhas international operations and purchases raw material from foreign suppliers
The Company���s revolving credit facilityCompany had total aggregate net sales outside the United States of approximately $1.1 billion, $944.2 million, and $675.9 million for the years ended December 31, 2022, 2021, and 2020, respectively. Net sales outside the United States are a significant proportion of total net sales, accounting for 50%, 53% and 54% for the years ended December 31, 2022, 2021, and 2020, respectively. Net sales from these international operations are expected to continue to represent a similar portion of total net sales for the foreseeable future.
International Operations and Sales – International operations and sales are subject to a number of risks and restrictions, that are not generally applicable to Titan’s North American operations including, but not limited to, risks with respect to currency exchange rates, economic and political destabilization, other disruption of foreign markets, restrictive actions by foreign governments (such as restrictions on transfer of funds, export duties, and quotas and foreign customs) and local epidemics or pandemics. Other risks include changes in foreign laws regarding trade and investment; difficulties in establishing and maintaining relationships with respect to product distribution and support; nationalization; reforms of United States laws and policies affecting trade, restrictions on foreign investment, and restrictions on loans to foreign entities; and changes in foreign tax and other debt obligations contain covenantslaws. There may also be restrictions on the Company's ability to repatriate earnings and investments from international operations. There can be no assurance that could limit howone or a combination of these factors will not have a material adverse effect on the Company’s ability to increase or maintain its international sales and results of operations.
Foreign Suppliers – The Company purchases raw materials from foreign suppliers. The production costs, profit margins, and competitive position of the Company conducts its business.
are affected by the strength of the currencies in countries where Titan purchases goods, relative to the strength of the currencies in countries where the products are sold. The Company’s revolving credit facilityresults of operations, cash flows, and other debt obligations contain covenants and restrictions. These covenants and restrictions could limit Titan’s ability to respond to market conditions, to provide for unanticipated capital investments, to raise additional debt or equity capital, to pay dividends, or to take advantage of business opportunities, including future acquisitions. The failure to meet or otherwise comply with these items could result in the Company ultimately being in default. Titan’s ability to comply with the covenantsfinancial position may be affected by events beyond its control, including prevailing economic, financial,fluctuations in foreign currencies.
Industry and industry conditions.Customer Base
•
The Company operates in cyclical industries and is subject to numerous changes in the economy.
The Company's sales are substantially dependent on three major industries: agricultural equipment, earthmoving/construction equipment, and consumer products. The business activity levels in these industries are subject to specific
industry and general economic cycles. Any downturn in these industries or the general economy could drive decreases in demand for Titan’s products and have a material adverse effect on Titan’s business.
The agricultural equipment industry is affected by crop prices, farm income and farmland values, weather, export markets, and government policies. The earthmoving/construction industry is affected by the levels of government and private construction spending and replacement demand. The mining industry, which is within the earthmoving/construction industry, is affected by raw material commodity prices. The consumer products industry is affected by consumer disposable income, weather, competitive pricing, energy prices, and consumer attitudes. In addition, the performance of these industries is sensitive to interest rate and foreign exchange rate changes and varies with the overall level of economic activity. The cyclical and volatile nature of the industries on which our sales are substantially dependent results in significant fluctuations in profits and cash flow from period to period and over the business cycle.
•The Company’s revenues are seasonal in nature due to Titan’s dependence on seasonal industries.
The agricultural, earthmoving/construction, and recreational industriesconsumer markets are seasonal, with typically lower sales during the second half of the year. This seasonality in demand has resulted in fluctuations in the Company’s revenues and operating results.results between the first half and the second half of the year. Because much of Titan’s overhead expenses are fixed, seasonal trends can cause volatility in profit margins and Titan's financial condition, especially during slower periods.
•The Company’s customer base is relatively concentrated.
The Company’s ten largest customers, which are primarily original equipment manufacturers (OEMs), accounted for 32%43%, 40%, and 35% of Titan’s net sales for 2017.2022, 2021, and 2020, respectively. Net sales to Deere & Company represented 9%15%, 12%, and 11% of total 2017Titan’s net sales.sales for 2022, 2021, and 2020 respectively. No other customer accounted for 10% or more than 7% of Titan's net sales in 2017. As a result,2022, 2021, or 2020. Titan’s business could be adversely affected if one of its larger customers reduces, or otherwise eliminates in full, its purchases from Titan due to work stoppages or slow-downs, financial difficulties, as a result of termination provisions, competitive pricing, or other reasons. There is also continuing pressure from OEMs to reduce costs, including the cost of products and services purchased from outside suppliers such as Titan, and in that regard OEMs may develop in-house tire and wheel capabilities. There can be no assurance that Titan will be able to maintain its long-term relationships with its major customers. Any failure to maintain the Company’s relationship with a leading customercustomers which could have an adverse effect on the Company's results of operations.
The Company may be adversely affected by changes in government regulations and policies.
Domestic and foreign political developments and government regulations and policies directly affect the agricultural, earthmoving/construction, and consumer products industries in the United States and abroad. Regulations and policies in the agricultural industry include those encouraging farm acreage reduction in the United States and granting ethanol subsidies. Regulations and policies relating to the earthmoving/construction industry include those relating to the construction of roads, bridges, and other items of infrastructure. The modification of existing laws, regulations, or policies, or the adoption of new laws, regulations, or policies could have an adverse effect on any one or more of these industries and, therefore, on Titan’s business.
The Company is subject to corporate governance requirements, and costs related to compliance with, or failure to comply with, existing and future requirements could adversely affect Titan’s business.
The Company is subject to corporate governance requirements under the Sarbanes-Oxley Act of 2002, as well as rules and regulations of the Securities and Exchange Commission (SEC), the Public Company Accounting Oversight Board (PCAOB), and the New York Stock Exchange (NYSE). These laws, rules, and regulations continue to evolve and may become increasingly restrictive in the future. Failure to comply with these laws, rules, and regulations may have a material adverse effect on Titan’s reputation, financial condition, and the value of the Company’s securities.
The Company is subject to risks associated with maintaining adequate disclosure controls and internal controls over financial reporting.
Failure to maintain adequate financial and management processes and controls could affect the accuracy and timing of the Company's financial reporting. Testing and maintaining internal control over financial reporting involves significant costs and could divert management's attention from other matters that are important to Titan's business. If the Company does not maintain adequate financial and management personnel, processes, and controls, it may not be able to accurately report its financial performance on a timely basis, which could have a material adverse effect on the confidence in its financial reporting, its credibility in the marketplace, and the trading price of Titan's common stock.
•The Company faces substantial competition from domestic and international companies.
The Company competes with several domestic and international competitors, some of which are larger and have greater financial and marketing resources than Titan. Titan competes on the basis of price, quality, sales support, customer service, design capability, and delivery time. The Company’s ability to compete with international competitors may be adversely affected by various factors including, currency fluctuations.fluctuations andtariffs imposed by domestic and foreign governments. In addition, certain OEM customers could elect to manufacture certain products to meet their own requirements or to otherwise compete with Titan. The success of the Company's business depends in large part on its ability to provide comprehensive wheel and tire assemblies to its customers. The development or enhancement by Titan's competitors of similar capabilities could adversely affect its business.
There can be no assurance that Titan’s businesses will not be adversely affected by increased competition in the Company’s markets, or that competitors will not develop products that are more effective or less expensive than Titan products or which could render certain products less competitive. From time to time certain competitors have reduced prices in particular product categories, which has caused Titan to reduce prices. There can be no assurance that in the future Titan’s competitors will not further reduce prices or that any such reductions would not have a material adverse effect on Titan’s business.
•The Company could be negatively impacted if Titan fails to maintain satisfactory labor relations.
•Our success depends on our ability to recruit, retain and motivate talented employees representing diverse backgrounds, experiences and skill sets.
The market for highly skilled workers in our industry is extremely competitive. During 2022, a number of our businesses faced certain labor availability constraints and labor cost inflation. If we are less successful in our recruiting efforts, or if we cannot retain and motivate highly skilled workers and key leaders representing diverse backgrounds, experiences and skill sets, our business and financial statements may be adversely affected.
Liquidity
•The Company’s revolving credit facility and other debt obligations contain covenants that could limit the Company's financial and operational flexibility.
The Company’s revolving credit facility, the indenture relating to the Company’s 7.00% senior secured notes due 2028 and other debt obligations contain covenants and restrictions that may impact the Company’s business. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Debt Restrictions” below for a further discussion of these covenants and restrictions. A breach of one or more of the covenants could result in adverse consequences that could negatively impact the Company's business, results of operations and financial condition. These consequences could limit Titan’s ability to respond to market conditions, to provide for unanticipated capital investments, to raise additional debt or equity capital, to pay dividends, or to take advantage of business opportunities, including future acquisitions. Titan’s ability to comply with the covenants may be affected by events beyond its control, including prevailing economic, financial, and industry conditions.
International
•The Company may be affected by unfair trade.
Titan faces intense competition from producers both in the United States and around the world, some of which may engage in unfair trade practices. For example, in early January 2016, Titan, along with the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Worker International Union, AFL-CIO, CLC of Pittsburgh, Pennsylvania, filed petitions with the U.S. Department of Commerce (DOC) and the U.S. International Trade Commission (ITC) alleging that imported off-the-road tires from India and Sri Lanka and wheel and tire assemblies from China were being dumped and/or subsidized and were a cause of material injury to the domestic industry. Unfair trade may have a material adverse effect on Titan's business.
•The Company may be adversely affected by changes in government regulations and policies.
Domestic and foreign political developments and government regulations and policies directly affect the agricultural, earthmoving/construction, and consumer products industries in the United States and abroad. Regulations and policies in the agricultural industry such as those concerning greenhouse gas emissions in the United States and ongoing U.S. budget issues could negatively impact the Company's business. The earthmoving/construction industry is affected by changes in construction activity, housing starts, and other regulations related to the mining and the construction of roads, bridges, and infrastructure. The modification or adoption of existing laws, regulations, or policies could have an adverse effect on any one or more of these industries and, therefore, on Titan’s business.
The CompanyUnited Kingdom (UK) officially withdrew from the EU (Brexit) on December 31, 2020. There is uncertainty as to the scope, nature and terms of the relationship between the UK and the EU after the Brexit Transition Period. This uncertainty could adversely impact customer or investor confidence, result in additional market volatility, legal uncertainty and divergent national laws and regulations.
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 that includes, among other provisions, changes to the U.S. corporate income tax system, including a fifteen percent minimum tax based on "adjusted financial statement income," which is effective for tax years beginning after December 31, 2022, and a one percent excise tax on net repurchases of stock after December 31, 2022. Titan is continuing to evaluate the Inflation Reduction Act and its requirements, as well as the application to its business, but at this time does not expect the Inflation Reduction Act to have a material impact on its financial results.
•The military conflict between Russia and Ukraine may adversely affect our business and financial statements.
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, have announced targeted economic sanctions on Russia, certain Russian citizens and enterprises. The continuation of the conflict has triggered additional economic and other sanctions enacted by the United States and other countries throughout the world and these economic sanctions may result in an adverse effect on its Russian operations. Furthermore, while we have policies,
procedures and internal controls in place designed to ensure compliance with applicable sanctions and trade restrictions, and though the current effects from the Russia-Ukraine conflict have, thus far, not resulted in a material adverse impact to the Company’s financial condition or results of operations, our employees, contractors, and agents may take actions in violation of such policies and applicable law and we could be negatively impacted if Titan failsheld ultimately responsible. We rely on our employees to adhere to the policies, procedures and internal controls we have established to maintain satisfactory labor relations.
Titan is partycompliance with evolving sanctions and export controls. To that end, we have implemented training programs, both in person and online, to collective bargaining agreements coveringeducate our employees on applicable sanctions and export controls laws. If we are held responsible for a portionviolation of the Company's workforce. If Titan is unable to maintain satisfactory labor relations with its employees covered by collective bargaining agreements, these employees could engage in strikes,U.S. or the Companyother countries’ sanctions laws, we may otherwise experience work slowdowns or be subject to other labor actions. Any such actions, andvarious penalties, any other labor disputes with the Company’s employees domestically or internationally, could materially disrupt its operations. Future collective bargaining agreements may impose significant additional costs on Titan,of which could adversely affect itshave a material adverse effect on our business, financial condition andor results of operations.
The Company currently owns 64.3% of Voltyre-Prom, a leading producer of agricultural and industrial tires in Volgograd, Russia, which represents approximately 7% of consolidated assets of Titan as of both December 31, 2022 and 2021. The Russian operations represent approximately 6% of consolidated global sales for both for the years ended December 31, 2022 and 2021. 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.
Legal and Compliance
•Unfavorable outcomes of legal proceedings could adversely affect Titan's results of operations.
On September 5, 2017, the United States District Court for the Southern District of Iowa issued an order in an action brought by the United States of America on behalf of the EPA: (a) concluding Titan Tire and Dico arranged for the disposal of a hazardous substance; (b) holding Titan Tire and Dico jointly and severally liable for $5.45 million in response costs previously incurred and reported by the United States relating to the alleged violation; and (c) awarding a declaratory judgment holding Titan Tire and Dico jointly and severally liable for all additional response costs previously incurred but not yet reported or to be incurred in the future. The District Court also held Dico liable for $5.45 million in punitive damages for violating a unilateral administrative order. The punitive damages award does not apply to Titan Tire. The Company accrued a contingent liability of $6.5 million for this order in the quarter ended September 30, 2017. Titan Tire and Dico are appealing the case to the United States Court of Appeals for the Eighth Circuit. The Notice of Appeal was filed on November 2, 2017, and an appeal bond was secured to stay the execution of any collections actions on the underlying judgment pending the outcome of the appeal.
In addition, 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 any material adverse effect on its consolidated financial condition, results of operations, or cash flows as a result of efforts to comply with, or its liabilities pertaining to, legal judgments. Any adverse outcome in any litigation involving Titan or any of its subsidiaries could negatively affect the Company's business, reputation, and financial condition.
Acquisitions/divestitures may require significant resources and/or result in significant losses, costs, or liabilities.
Any future acquisitions or divestitures will depend on the Company’s ability•The Company is subject to identify suitable opportunities, to negotiate acceptable terms, and to finance acquisitions. Titan will also face competition for suitable acquisition candidates, which may increase costs. In addition, acquisitions and divestitures require significant managerial attention, which may be diverted from current operations. Furthermore, acquisitions and divestitures of businesses or facilities entail a number of additional risks, including:
- problems with effective integration or separation of operations, including challenges in implementing uniform standards, controls, procedures, and policies throughout an acquired business;
- potential disruption of the Company's ongoing business and the distraction of management from its day-to-day operations;
- the inability to maintain key customer, supplier, and employee relationships;
- the potential that expected benefits or synergies are not realized to the extent anticipated, or at all, and operating costs increase; and
- exposure to unanticipated liabilities.
International acquisitions or divestitures may be more complex and time consuming. Also, international acquisitions and divestitures may include a number of additional risks, including the integration of acquisitions or separation of divestitures in compliance with foreignanti-corruption laws and regulations and business and accounting systems.
Subject to the terms of its existing indebtedness, the Company may finance future acquisitions with cash from operations, additional indebtedness, and/or by issuing additional equity securities. These commitments may impair the operation of Titan’s businesses. In addition, the Company could face financial risks associated with incurring additional indebtedness, such as reducing liquidity and access to financing markets and increasing the amount of cash flow required to service such indebtedness.
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• | The Companyhas international operations and purchases raw material from foreign suppliers.regulations.
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The Company had total aggregate net sales outside the United States of approximately $826.2 million, $707.2 million, and $750.2 million for the years ended December 31, 2017, 2016, and 2015, respectively. Net sales outside the United States have become a significant proportion of total net sales, accounting for 56%, 56%, and 54% for the years ending December 31, 2017, 2016, and 2015, respectively. Net sales from these international operations are expected to continue to represent a similar portion of total net sales for the foreseeable future.
International Operations and Sales – International operations and sales are subject to a number of special risks, including, but not limited to, risks with respect to currency exchange rates, economic and political destabilization, other disruption of markets, and restrictive actions by foreign governments (such as restrictions on transfer of funds, export duties, and quotas and foreign customs). Other risks include changes in foreign laws regarding trade and investment; difficulties in obtaining distribution and support; nationalization; reforms of United States laws and policies affecting trade, foreign investment, and loans; and changes in foreign tax and other laws. There may also be restrictions on the Company's ability to repatriate earnings and investments from international operations. There can be no assurance that one or a combination of these factors will not have a material adverse effect on the Company’s ability to increase or maintain its international sales.
Foreign Suppliers – The Company purchases raw materials from foreign suppliers. The production costs, profit margins, and competitive position of the Company are affected by the strength of the currencies in countries where Titan purchases goods, relative to the strength of the currencies in countries where the products are sold. The Company’s results of operations, cash flows, and financial position may be affected by fluctuations in foreign currencies.
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•
| The Company is subject to anti-corruption laws and regulations. |
The Company has international operations and must comply with anti-corruption laws and regulations including the U.S. Foreign Corrupt Practices Act (FCPA). These anti-bribery laws generally prohibit companies and their intermediaries from making improper payments or providing anything of value for the purpose of obtaining or retaining business. The FCPA prohibits these payments regardless of local customs and practices. Safeguards that Titan may implement to discourage these practices could prove to be ineffective, and violations of these laws may result in criminal or civil sanctions or other liabilities or proceedings against Titan and could adversely affect the Company's business and reputation.
•The Company may be subject to product liability and warranty claims.
The Company warrants its products to be free of certain defects and, accordingly, may be subject, in the ordinary course of business, to product liability or product warranty claims. Losses may result or be alleged to result from defects in Titan products, which could subject the Company to claims for damages, including consequential damages. There can be no assurance that the Company's insurance coverage will be adequate for liabilities actually incurred or that adequate insurance will be available on terms acceptable to the Company. Any claims relating to defective products that result in liability exceeding Titan’s insurance coverage could have a material adverse effect on Titan's financial condition and results of operations. Further, claims of defects could result in negative publicity against Titan, which could adversely affect the Company’s business and reputation.
•The Company is subject to risks associated with climate change regulations.
Governmental regulatory bodies in the United States and other countries have adopted, or are contemplating introducing regulatory changes in response to the potential impacts of climate change. New laws and regulations regarding climate change may be designed to reduce greenhouse gas emissions and/or mitigate the effects of climate change on the environment (such as taxation of, or caps on the use of, carbon-based energy). Any such new or additional legal or regulatory requirements may increase the costs associated with, or disrupt, sourcing, manufacturing and distribution of our products, which may adversely affect our business and financial statements. In addition, any failure to adequately address stakeholder expectations with respect to environmental, social and governance (“ESG”) matters may result in the loss of business, adverse reputational impacts, diluted market valuations and challenges in attracting and retaining customers and talented employees. The Company’s customers may also be affected by climate change regulations that may impact future purchases of the Company's products. The potential impacts of climate change and climate change regulations are highly uncertain at this time, and the Company cannot anticipate or predict
any material adverse effect on its consolidated financial condition, results of operations, or cash flows as a result of climate change and climate change regulations.
•The Company is subject to risks associated with environmental laws and regulations.
The Company’s operations are subject to federal, state, local, and foreign laws and regulations governing, among other things, emissions to air, discharge to waters, and the generation, handling, storage, transportation, treatment, and disposal of waste and other materials. The Company’s operations entail risks in these areas, and there can be no assurance that Titan will not incur material costs or liabilities, including in connection with complying with the laws and regulations and any required remediation. In addition, potentially significant expenditures could be required in order to comply with evolving environmental and health and safety laws, regulations, or requirements that may be adopted or imposed in the future. Titan’s customers may also be affected by environmental laws and regulations that may impact future purchases of the Company's products.
•The Company is subject to corporate governance requirements, and costs related to compliance with, or failure to comply with, existing and future requirements could adversely affect Titan’s business.
The Company has incurred,is subject to corporate governance requirements under the Sarbanes-Oxley Act of 2002, as well as rules and regulations of the Securities and Exchange Commission (SEC), the Public Company Accounting Oversight Board (PCAOB), and the New York Stock Exchange (NYSE). These laws, rules, and regulations continue to evolve and may incur in the future, net losses.
The Company reported a loss before income taxes of $52.9 million, $36.5 million, and $55.1 million for the years ended December 31, 2017, 2016, and 2015, respectively, and may incur lossesbecome increasingly restrictive in the future. ThereFailure to comply with these laws, rules, and regulations may have a material adverse effect on Titan’s reputation, financial condition, and the value of the Company’s securities.
•The Company is no guaranteesubject to risks associated with maintaining adequate disclosure controls and internal controls over financial reporting.
Failure to maintain adequate financial and management processes and controls could affect the accuracy and timing of the Company's financial reporting. Testing and maintaining effective internal control over financial reporting and disclosures involves significant costs and could divert management's attention from other matters that are important to Titan's business. If the Company willdoes not maintain adequate financial and management personnel, processes, and controls, it may not be profitableable to accurately report its financial performance on a timely basis, the Company may be otherwise unable to comply with the periodic reporting requirements of the Securities and Exchange Commission and the listing of the Company’s common stock on the NYSE could be suspended or terminated, each of which could have a material adverse effect on the confidence in the future.Company's financial reporting, its credibility in the marketplace, and the trading price of Titan's common stock.
Information Technology and Data Protection
•The Company may be adversely affected by a disruption in, or failure of, information technology systems.
TheIn the ordinary course of business, the Company relies upon information technology systems, some of which are managed by third parties, to process, transmit, and store electronic information. Technology systems are used in a variety of business processes and activities, including purchasing, manufacturing, distribution, invoicing, and financial reporting. The Company utilizes security measures and business continuity plans to prevent, detect, and remediate damage from computer viruses, natural disasters, unauthorized access (whether through cybersecurity attacks or otherwise), utility failures, and other similar disruptions. Despite Titan's security measures and plans,safeguards, a security breach or information technology system interruption or failure may disrupt and adversely affect the Company's business, resulting in customer dissatisfaction, potential legal claims and adversely affect Titan’s results of operations and therefinancial conditions. There can be no assurance that any such security measures or plans will be sufficient to mitigate all potential risks to Titan's systems, networks, and information. AFurther a significant theft, loss, or fraudulent use of customer or employee information could adversely impact the Company's reputation and could result in unauthorized release of confidential or otherwise protected information, significant costs, fines, and litigation, including with respect to enhanced cybersecurity protection and remediation costs. The Company is currently undergoing upgrades and improvements to its core enterprise resource planning (ERP) systems which are ‘cloud based’. Despite adequate security measures, these systems are vulnerable to disruption of service and security breaches as mentioned above. Further, investment in the ‘cloud based’ systems may have an adverse impact on short-term results of operations and financial condition.
•The Company is subject to risks associated with climate change regulations.governmental laws, regulations and other legal obligations related to privacy and data protection.
GovernmentalThe legislative and regulatory framework for privacy and data protection issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. Titan collects personally identifiable information (PII) and other data as integral parts of its business processes and activities. This data is subject to a variety of U.S. and international laws and regulations, including oversight by various regulatory or other governmental bodies. Many foreign countries
and governmental bodies, including the European Union, Canada, and other relevant jurisdictions where we conduct business, have laws and regulations concerning the collection and use of PII and other data obtained from their residents or by businesses operating within their jurisdiction that are more restrictive than those in the United StatesU.S. Additionally, in 2016, the European Union adopted the General Data Protection Regulation (GDPR) that imposes more stringent data protection requirements and provides for greater penalties for noncompliance. Any inability, or perceived inability, to adequately address privacy and data protection concerns, even if unfounded, or comply with applicable laws, regulations, policies, industry standards, contractual obligations, or other countries have adopted, or are contemplating introducing regulatory changeslegal obligations could result in responseadditional cost and liability to the potential impacts of climate change. LawsCompany or Company officials, damage our reputation, inhibit sales, and regulations regarding climate changeotherwise adversely affect our business.
General
•The COVID-19 pandemic has adversely impacted, and energy usage may impactcontinue to adversely affect, the Company directly through higher costs for energyCompany's business, operating results and raw materials. The Company’s customers may also be affected by climate change regulations that may impact future purchasesfinancial condition.
COVID-19 has spread to all of the Company's products. Physical climate change may potentially have a largecountries in which we operate. The COVID-19 pandemic's impact on the Company’s two largest industry segments, agricultureCompany was less in 2022 than in 2021. While the Company's operations began to return to historical levels during 2021 and earthmoving/construction.continuing into 2022, certain geographies (particularly China) continue to remain impacted resulting in employee absenteeism. Further, global supply chains are experiencing constraints following the COVID-19 pandemic, including availability and pricing of raw materials, transportation and labor. The potential impacts of climate change and climate change regulationscurrent constraints on the global supply chains are highly uncertain at this time, and the Company cannot anticipate or predict any material adverse effect on its consolidated financial condition, results of operations, or cash flows as a result of climate change and climate change regulations.
The Company is subject to risks associated with environmental laws and regulations.
The Company’s operations are subject to federal, state, local, and foreign laws and regulations governing, among other things, emissions to air, discharge to waters, and the generation, handling, storage, transportation, treatment, and disposal of waste and other materials. The Company’s operations entail risks in these areas, and there can be no assurance that Titan will not incur material costs or liabilities. In addition, potentially significant expenditures could be required in order to comply with evolving environmental and health and safety laws, regulations, or requirements that may be adopted or imposedadding further complexity in the future. Titan’s customers may also be affected by environmental laws and regulations that may impact future purchases ofimprovement to growth expectations in the Company's products. near term.
•The Company is subject to foreign currency translation risk.
The Company continues to expand globally and now operates in many worldwide locations and transacts business in many foreign currencies. Titan's financial statements are reported in U.S. dollars with financial statements of international subsidiaries being initially recorded in foreign currencies and translated into U.S. dollars. Large fluctuations in currency exchange rates between the U.S. dollar and other worldglobal currencies may materially adversely affecthave a material adverse impact on the Company's financial condition, results of operations, and liquidity.
•The Company may incur additional tax expense or tax exposure.
The Company is subject to income taxes in the United States and numerous foreign jurisdictions, and has domestic and international tax liabilities which are dependent upon the distribution of income among these different jurisdictions. Titan's income tax provision and cash tax liability in the future could be adversely affected by numerous factors, including income before taxes being lower than anticipated in countries with lower statutory tax rates and higher than anticipated in countries with higher statutory tax rates, changes in the valuation of deferred tax assets and liabilities, and changes in tax laws and regulations.
•The Company is subject to risks associated with uncertainties related to social, political,uncertainties in global and regional economic conditions in Russia and Brazil.conditions.
Geopolitical and economic uncertainties relating to Russia and Brazil have and could continue to have a negative impact on the Company's sales andOur results of operations atare materially affected by economic conditions globally, regionally and in the Company's Russianparticular industries we serve. The demand for our products tends to be cyclical and Brazilian operations.can be significantly reduced in periods of economic weakness characterized by lower levels of government and business investment, lower levels of business confidence, lower corporate earnings, high real interest rates, lower credit activity or tighter credit conditions, high inflation, higher unemployment and lower consumer spending. Certain aspects of our business that are heavily consumer driven and dependent on discretionary spend may be impacted on an even broader scale by some of these economic conditions. Also, our current and future operating costs of labor, raw materials and logistics may be impacted by higher inflation and higher interest rates. Economic conditions vary across regions and countries, and demand for our products generally increases in those regions and countries experiencing economic growth and investment. Slower economic growth or a change in the global mix of regions and countries experiencing economic growth and investment could have an adverse effect on our business, results of operations and financial condition.
•The Company is not insured against all potential losses and could be harmed by natural disasters, catastrophes, or sabotage.
The Company's business activities involve substantial investments in manufacturing facilities and products are produced at a limited number of locations. These facilities could be materially damaged, including as a result of natural disasters, such as fires, floods, tornadoes, hurricanes, and earthquakes, or by sabotage. The Company could incur uninsured losses and liabilities arising from such events, as well as damage to its reputation, and/or suffer material losses in operational capacity and efficiency, which could have a material adverse impact on Titan's business, financial condition, and results of operations.
The Company's redeemable noncontrolling interest includes a settlement put option
•Acquisitions/divestitures may require significant resources and/or result in significant losses, costs, or liabilities.
Any future acquisitions or divestitures will depend on the Company’s ability to identify suitable opportunities, to negotiate acceptable terms, and to finance acquisitions. Titan will also face competition for suitable acquisition candidates, which may increase costs. In addition, acquisitions and divestitures require significant managerial attention, which may be settleddiverted from current operations. Furthermore, acquisitions and divestitures of businesses or facilities entail a number of additional risks and challenges including: integrating acquisitions with existing operations; and separating operations in connection with dispositions; applying internal controls and processes throughout the acquired business; potential disruption of the Company's ongoing business; inability to maintain key customer, supplier, and employee relationships; potential that transactions do not produce satisfactory returns on a timely basis or at all; and exposure to unanticipated liabilities.
International acquisitions or divestitures may be more complex and time consuming. Also, international acquisitions and divestitures may include a number of additional risks, including the integration of acquisitions or separation of divestitures in compliance with foreign laws and regulations and business and accounting systems.
Subject to the terms of its existing indebtedness, the Company may finance future acquisitions with cash from operations, additional indebtedness, and/or Titan common stock.by issuing additional equity securities. These commitments may impair the operation of Titan’s businesses. In addition, the Company could face financial risks associated with incurring additional indebtedness, such as reducing liquidity and access to financing markets and increasing the amount of cash flow required to service such indebtedness.
The Company's redeemable noncontrolling interest in Voltyre-Prom includes a settlement put option which is exercisable during a six-month period beginning July 9, 2018. The redeemable noncontrolling interest may be purchased, with cash or Titan common stock, at an amount set by the Shareholder's Agreement, which is estimated to be approximately $117 million to $122 million, if exercised in full.
ITEM 1B – UNRESOLVED STAFF COMMENTS
Not applicable.None.
ITEM 2 – PROPERTIES
The Company’s properties with total square footage above one million, all of which are owned by the Company, are detailed by the location, size, and focus of each facility as provided in the table below (amounts in thousands):
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| | Approximate square footage | | | | |
| Location | | Owned | | LeasedUse | | Use | | Segment |
Volzhsky, RussiaSao Paulo, Brazil | | 2,1532,917 |
| | | | Manufacturing, distribution | | All segments |
| Union City, Tennessee | | 2,1492,212 |
| | | | Manufacturing, distribution | | All segments |
| Volzhsky, Russia | | 2,153 | | | Manufacturing, distribution | | All segments |
| Des Moines, Iowa | | 1,930 |
| | | | Manufacturing, distribution | | All segments |
Sao Paulo, BrazilQuincy, Illinois | | 1,2821,205 |
| | | | Manufacturing, distribution | | All segments |
Quincy,Freeport, Illinois | | 1,2091,202 |
| | | | Manufacturing, distribution | | All segments |
Freeport, Illinois | | 1,202 |
| | | | Manufacturing, distribution | | All segments |
The Company’s total properties by continent are detailed by the location, size, and focus as provided in the table below (amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Approximate square footage | | | | |
| Location | | Owned | | Leased | | Use | | Segment |
| North America | | 7,450 | | | 664 | | | Manufacturing, distribution | | All segments |
| Europe, the Middle East, Africa | | 3,985 | | | 38 | | | Manufacturing, distribution | | All segments |
| Latin America | | 2,970 | | | 248 | | | Manufacturing, distribution | | All segments |
| Asia | | 315 | | | 298 | | | Manufacturing, distribution | | All segments |
| Others | | — | | | 146 | | | Manufacturing, distribution | | All segments |
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| | | | | | | | | | |
| | | Approximate square footage | | | | |
| Location | | Owned | | Leased | | Use | | Segment |
| North America | | 8,704 |
| | 535 |
| | Manufacturing, distribution | | All segments |
| Europe | | 3,918 |
| | 16 |
| | Manufacturing, distribution | | All segments |
| South America | | 1,434 |
| | 74 |
| | Manufacturing, distribution | | All segments |
| Australia | | | | 1,453 |
| | Manufacturing, distribution | | All segments |
| Asia | | 646 |
| | 269 |
| | Manufacturing, distribution | | All segments |
The Company considers each of its facilities to be in good condition and adequate for present use. Management believes that the Company has sufficient capacity to meet current market demand with the active facilities.
ITEM 3 – LEGAL PROCEEDINGS
The Company is a partysubject, from time to routinetime, to certain legal proceedings and claims arising out of the normal course of business. Although it is not possible to predict with certainty the outcome of these unresolved legal actions or theits business, which cover a wide range of possible loss, the Company believes at this time that none of these actions, individually or in the aggregate, will have a material adverse effect on the consolidated financial condition, results of operations, or cash flowsmatters, including environmental issues, product liability, contracts, and labor and employment matters. See Note 24 of the Company. However, dueNotes 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 its liabilities pertaining to, legal judgments.Consolidated Financial Statements for further discussion.
Presently, Titan is engaged in the following material legal proceeding:
In early January 2016, Titan, along with the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Worker International Union, AFL-CIO, CLC of Pittsburgh, Pennsylvania, filed petitions with the DOC and the ITC alleging that imported off-the-road tires from India and Sri Lanka and wheel and tire assemblies from China were being dumped and/or subsidized and were a cause of material injury to the domestic industry. Both the DOC and the ITC initiated investigations against India and Sri Lanka, but the ITC did not recommend pursuing the investigation into wheel and tire assemblies from China. On January 4, 2017, the DOC made a final affirmative determination in both the Indian and Sri Lankan countervailing duty cases, and subsequently made an amended affirmative final determination of dumping on imports from India for all but one company. Also on January 4, 2017, the ITC conducted the final injury hearing on Titan and the United Steel Workers’ petitions. In February 2017, the ITC determined, by unanimous vote, that the domestic industry producing certain off-the-road tires was materially injured by reason of subsidized imports from India and Sri Lanka and "dumped" imports from India. On March 9, 2017, countervailing duty orders on imports of off-the-road tires from India and Sri Lanka and an anti-dumping duty order on such tires from India (with the exception of imports from one company) were published in the Federal Register by the DOC. Following the ITC's February 28, 2017, determination, importers of products covered by the DOC's countervailing duty orders and antidumping order are required to post cash deposits equal to the countervailing duty amounts identified in the orders.
Two of Titan’s subsidiaries, Dico, Inc. and Titan Tire Corporation, are currently involved in litigation concerning environmental laws and regulations. See "Environmental Laws and Regulations" in Item 1 for additional information.
ITEM 4 – MINE SAFETY DISCLOSURES
Not applicable.
PART II
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ITEM 5 | – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
ITEM 5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s common stock is traded on the New York Stock Exchange (NYSE) under the symbol TWI. As of February 15, 2018,20, 2023, there were approximately 350320 holders of record of Titan common stock. The following table sets forthOn June 11, 2020, the high and low sales pricesBoard of Directors unanimously approved the suspension of the Company’s quarterly common stock dividend until further notice. Titan paid aggregate cash dividends of $.005 per share of common stock as reported on the NYSE, as well as information concerning per share dividends declared for the periods indicated. first quarter of 2020 and then the Company's quarterly stock dividend was suspended for the remainder of 2020, continuing through 2021 and 2022. Dividends declared totaled $0.0 million, $0.0 million and $0.3 million for years ended December 31, 2022, 2021 and 2020, respectively.
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| 2017 | | High | | Low | | Dividends Declared |
| First quarter | | $ | 14.23 |
| | $ | 9.21 |
| | $ | 0.005 |
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| Second quarter | | 12.23 |
| | 8.52 |
| | 0.005 |
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| Third quarter | | 13.00 |
| | 7.97 |
| | 0.005 |
|
| Fourth quarter | | 13.35 |
| | 9.33 |
| | 0.005 |
|
| 2016 | | |
| | |
| | |
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| First quarter | | $ | 6.32 |
| | $ | 2.50 |
| | $ | 0.005 |
|
| Second quarter | | 7.50 |
| | 4.80 |
| | 0.005 |
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| Third quarter | | 10.19 |
| | 5.97 |
| | 0.005 |
|
| Fourth quarter | | 12.14 |
| | 8.82 |
| | 0.005 |
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PERFORMANCE COMPARISON GRAPH
The performance graph below compares cumulative total return on the Company’s common stock over the past five years against the cumulative total return of the Standard & Poor’s 600 Agricultural & Farm Machinery Index, and against the Standard & Poor’s 500 Stock Index. The graph depicts the value on December 31, 2017,2022, of a $100 investment made on December 31, 2012,2017, in Company common stock and each of the other two indices, with all dividends reinvested. The stock price performance reflected below is based on historical results and is not necessarily indicative of future stock price performance.
The performance graph is not deemed to be “soliciting material” or to be “filed” with the SEC for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act) or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Titan under the Securities Act of 1933 or the Exchange Act.
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| | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended December 31, |
| | 2012 | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 |
| Titan International, Inc. | $ | 100.00 |
| | $ | 82.88 |
| | $ | 49.07 |
| | $ | 18.24 |
| | $ | 52.04 |
| | $ | 59.90 |
|
| S&P 500 Index | 100.00 |
| | 132.39 |
| | 150.51 |
| | 152.59 |
| | 170.84 |
| | 208.14 |
|
| S&P 600 Agricultural & Farm Machinery Index (a) | 100.00 |
| | 125.10 |
| | 116.41 |
| | 109.87 |
| | 150.56 |
| | 178.93 |
|
(a) The S&P 600 Agricultural & Farm Machinery index was created March 2014. The index data above reflects the old S&P 600 Construction & Farm Machinery & Heavy Trucks index from 12/31/12 - 2/28/14 and the new S&P 600 Agricultural & Farm Machinery index from 3/31/14 - forward.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year Ended December 31, |
| | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 |
| Titan International, Inc. | $ | 100.00 | | | $ | 36.33 | | | $ | 28.41 | | | $ | 39.37 | | | $ | 86.77 | | | $ | 120.63 | |
| S&P 500 Index | 100.00 | | | 93.76 | | | 120.48 | | | 139.40 | | | 178.74 | | | 143.61 | |
| S&P 600 Agricultural & Farm Machinery Index | 100.00 | | | 79.62 | | | 77.17 | | | 100.91 | | | 136.94 | | | 158.11 | |
ITEM 6 – SELECTED FINANCIAL DATA[RESERVED]
The selected financial data presented below, as of and for the years ended December 31, 2017, 2016, 2015, 2014, and 2013, are derived from the Company’s consolidated financial statements, as audited by Grant Thornton LLP, an independent registered public accounting firm, for the years ended December 31, 2017, 2016, 2015, 2014, and 2013, and should be read in conjunction with the Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations and our audited consolidated financial statements and notes thereto.Not required.
(All amounts in thousands, except per share data)
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| Net sales | $ | 1,468,922 |
| | $ | 1,265,497 |
| | $ | 1,394,771 |
| | $ | 1,895,527 |
| | $ | 2,163,595 |
|
| Asset impairment and inventory write-down | 9,917 |
| | — |
| | — |
| | 39,932 |
| | — |
|
| Gross profit | 158,278 |
| | 138,864 |
| | 134,743 |
| | 141,778 |
| | 292,946 |
|
| Non-cash goodwill impairment charge | — |
| | — |
| | — |
| | 36,571 |
| | — |
|
| Income (loss) from operations | (13,184 | ) | | (24,951 | ) | | (27,345 | ) | | (96,490 | ) | | 100,151 |
|
| Loss on senior note repurchase | (18,646 | ) | | — |
| | — |
| | — |
| | (22,734 | ) |
| Gain on earthquake insurance recovery | — |
| | — |
| | — |
| | — |
| | 22,451 |
|
| Income (loss) before income taxes | (52,876 | ) | | (36,474 | ) | | (55,072 | ) | | (151,109 | ) | | 52,490 |
|
| Net income (loss) | (64,079 | ) | | (39,755 | ) | | (89,828 | ) | | (129,705 | ) | | 28,264 |
|
| Net loss attributable to noncontrolling interests | (4,037 | ) | | (2,150 | ) | | (14,654 | ) | | (49,964 | ) | | (5,518 | ) |
| Net income (loss) attributable to Titan | (60,042 | ) | | (37,605 | ) | | (75,174 | ) | | (79,741 | ) | | 33,782 |
|
| Net income (loss) per share – basic | (1.12 | ) | | (.87 | ) | | (1.73 | ) | | (2.41 | ) | | .64 |
|
| Net income (loss) per share – diluted | (1.12 | ) | | (.87 | ) | | (1.73 | ) | | (2.41 | ) | | .61 |
|
| Dividends declared per common share | 0.02 |
| | 0.02 |
| | 0.02 |
| | 0.02 |
| | 0.02 |
|
|
| | | | | | | | | | | | | | | | | | | |
| (All amounts in thousands) | As of December 31, |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| Working capital | $ | 410,271 |
| | $ | 363,077 |
| | $ | 446,467 |
| | $ | 540,478 |
| | $ | 626,692 |
|
| Current assets | 783,193 |
| | 729,181 |
| | 716,564 |
| | 842,034 |
| | 1,013,263 |
|
| Total assets | 1,290,112 |
| | 1,265,896 |
| | 1,276,793 |
| | 1,501,828 |
| | 1,826,616 |
|
| Long-term debt (a) | 407,171 |
| | 408,760 |
| | 475,443 |
| | 496,503 |
| | 497,694 |
|
| Total equity | 310,084 |
| | 292,879 |
| | 351,246 |
| | 524,970 |
| | 714,266 |
|
| |
(a) | Excludes amounts due within one year and classified as a current liability. |
ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT’S DISCUSSION AND ANALYSIS
Management’s discussion and analysis of financial condition and results of operations (MD&A) is designed to provide a reader of thesethe financial statements included in this annual report with a narrative from the perspective of the management of Titan International, Inc. (together with its subsidiaries, Titan, or the Company) on Titan’s financial condition, results of operations, liquidity, and other factors which may affect the Company’s future results. You should read the following discussion and analysis in conjunction with "Item 6. Selected Financial Data" and our consolidated financial statements and related notes in "Item 8. Financial Statements and Supplementary Data." The following discussion includes forward-looking statements about our business, financial condition, and results of operations, including discussions about management’s expectations for our business. These statements represent projections, beliefs, and expectations based on current circumstances and conditions and in light of recent events and trends, and you should not construe these statements either as assurances of performance or as promises of a given course of action. Instead, various known and unknown factors are likely to cause our actual performance and management’s actions to vary, and the results of these variances may be both material and adverse. See “Forward-Looking Statements” and "Item 1A. Risk Factors."Factors" in Part 1 of this Form 10-K.
OVERVIEWIn December 2019, a novel strain of coronavirus ("COVID-19") was reported in Wuhan, China. During March 2020, the World
Titan International, Inc. and its subsidiaries are leading manufacturersHealth Organization declared the outbreak of wheels, tires, wheel and tire assemblies, and undercarriage systems and components for off-highway vehicles used in the agricultural, earthmoving/construction, and consumer segments. Titan manufactures both wheels and tires for the majority of these market applications, allowingCOVID-19 as a global pandemic. The COVID-19 pandemic's adverse impact on the Company was less during 2022 than in 2021. The Company’s operations continued with additional sanitary and other protective health measures, which have increased operating costs. We expect these additional measures to providecontinue into the value-added serviceforeseeable future as we seek to ensure the safety and welfare of delivering complete wheel and tire assemblies. The Company offers a broad range of products that are manufactured in relatively short production runs to meet the specifications of original equipment manufacturers (OEMs) and/or the requirements of aftermarket customers.
Titan’s employees.
Agricultural Segment:
Titan's agricultural rims, wheels, tires,
While the Company's operations began to return to historical levels during 2021 and undercarriage systemscontinuing into 2022, certain geographies (particularly China) continue to remain impacted resulting in employee absenteeism. Further, global supply chains are experiencing constraints following the COVID-19 pandemic, including availability and components are manufactured for use on various agricultural equipment, including tractors, combines, skidders, plows, planters,pricing of raw materials, transportation and irrigation equipment, and are sold directly to OEMs andlabor.
Due to the aftermarket through independent distributors, equipment dealers,above circumstances and Titan's own distribution centers.
Earthmoving/Construction Segment: The Company manufactures rims, wheels, tires, and undercarriage systems and components for various typesas described generally in this Form 10-K, the Company’s results of off-the-road (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.
Consumer Segment: Titan manufactures bias truck tires in Latin America and light truck tires in Russia. Titan also offers select products for ATVs, turf, and golf cart applications.
The Company’s major OEM customers include large manufacturers of off-highway equipment such as AGCO Corporation, Caterpillar Inc., CNH Global N.V., Deere & Company, Kubota Corporation, and Liebherr, in addition to many other off-highway equipment manufacturers. The Company distributes products to OEMs, independent and OEM-affiliated dealers, and through a network of distribution facilities.
The following table provides highlightsoperations for the year ended December 31, 2017, compared2022 are not necessarily indicative of the results to be expected in the future. Management cannot predict the future impact of the COVID-19 pandemic on the economic conditions generally, on the Company’s customers and, ultimately, on the Company. The nature, extent and duration of the effects of the COVID-19 pandemic on the Company remain uncertain and will depend on future developments, and such effects could exist for an extended period of time even after the pandemic might end.
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 has 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 maintains operations in Russia and any such economic sanctions may result in an adverse effect on its Russian operations. The Company currently owns 64.3% of the Voltyre-Prom, a leading producer of agricultural and industrial tires in Volgograd, Russia, which represents approximately 7% of consolidated assets of Titan as of both December 31, 2022 and 2021. The Russian operations represent approximately 6% of consolidated global sales for both of the years ended December 31, 2022 and 2021. 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.
As the military conflict in Ukraine exacerbates the global food crisis, Titan remains committed to the role it plays in the continuity of food supply and keeping essential goods moving, including its tire operation in Volgograd, Russia. Tires produced in the Voltyre-Prom facility are primarily sold into Commonwealth of Independent States (CIS) countries, located in Europe and Asia. This facility is in full compliance with all international sanctions on Russia. Titan has stopped any additional
investments into this joint project and emphasizes that neither this operation, nor any other Titan operations, sell any products to the Russian military or other government agencies.
The potential impact of bans, sanction programs, and boycotts on our business is uncertain at the current time due to the fluid nature of the military conflict as it is unfolding. The potential impacts include supply chain and logistics disruptions, financial impacts including disruptions to the execution of banking transactions with certain Russian financial institutions, volatility in foreign exchange rates and interest rates, inflationary pressures on raw materials and energy, loss of operational control and/or assets, heightened cybersecurity threats and other restrictions. 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.
Brazilian Tax Credits
In June 2021, the Company’s Brazilian subsidiaries received a notice that they had prevailed on an existing legal claim in regards to certain non-income (indirect) taxes that had been previously charged and paid. The matter specifically relates to companies’ rights to exclude the state tax on goods circulation (a value-added-tax or VAT equivalent, known in Brazil as “ICMS”) from the calculation of certain additional indirect taxes (specifically the program of social integration (“PIS”) and contribution for financing of social security (“COFINS”) levied by the Brazilian States on the sale of goods.
During the second and third quarter of 2022, the Company submitted the related supporting documentation and received the approval from the Brazilian tax authorities for two of its Brazilian subsidiaries. For the year ended December 31, 2016 (amounts2022, the Company recorded $32.0 million within other income in thousands, except per share data):the consolidated statements of operations. The Company also recorded $16.1 million of income tax expense associated with the recognition of these indirect tax credits for the year ended December 31, 2022. Of the $16.1 million income tax expense recorded, $9.4 million was recorded locally in Brazil, while the remaining $6.7 million was recorded to the US in accordance with the global intangible low-taxed income (GILTI) income tax requirements (refer to Note 21).
|
| | | | | | | | | | |
| | 2017 | | 2016 | | % Increase (Decrease) |
| Net sales | $ | 1,468,922 |
| | $ | 1,265,497 |
| | 16 | % |
| Gross profit | 158,278 |
| | 138,864 |
| | 14 | % |
| Loss from operations | (13,184 | ) | | (24,951 | ) | | 47 | % |
| Net loss | (64,079 | ) | | (39,755 | ) | | (61 | )% |
| Basic earnings per share | (1.12 | ) | | (0.87 | ) | | (29 | )% |
The Company recorded net sales of $1,468.9 million for 2017, which were 16% higher than 2016 net sales of $1,265.5 million, primarilyexpects to be able to apply the tax credits received to settle the income tax liability that was incurred as a result of the credit. The Company also expects to utilize the majority of the credit against future PIS/COFINS and income tax obligations over the next twelve months. For the year ended December 31, 2022, the Company has utilized approximately $15.0 million of the tax credits in the settlement of income tax obligations. After the utilization of $15.0 million of tax credits, the Company paid in cash approximately $24.1 million of income taxes for the year ended December 31, 2022 which is on the supplemental information of the consolidated statement of cash flows.
BUSINESS
For a description of the Company’s business and segments see Part 1, Item 1 of this Form 10-K.
MARKET CONDITIONS AND OUTLOOK
AGRICULTURAL MARKET OUTLOOK
Agriculture-related commodity prices continued to remain at historically high levels during 2022, although off from recent peaks in the first half of the year. The market conditions across the globe remain favorable with many of our customers forecasting modest growth during 2023. Strong farmer income, replacement of an increaseaging large equipment fleet and replenishment of lower equipment inventory levels are all factors which are anticipated to support improved demand for our products and provide sustained stability in net sales volumethe market over the next few years. Many more variables, including weather, volatility in all segments. Overall net sales volume was up 12% with higher volume across all segmentsthe price of commodities, grain prices, export markets, foreign currency exchange rates, interest rates, government policies, subsidies, economic cycles, and geographies. Favorable currency translations increased net sales by 3% and favorable changesthe demand for used equipment can greatly affect the Company's performance in price/mix contributed another 1% increase to net sales.the agricultural market in a given period.
The Company's gross profit was $158.3 million, or 10.8% of net sales, for 2017, compared to $138.9 million, or 11.0% of net sales, for 2016. Excluding the asset impairment, gross profit for 2017 would have been $168.2 million, or 11.5% of net sales. After the adjusting for the asset impairment, gross profit as a percent of net sales improved from manufacturing efficienciesearthmoving/construction segment is affected by many variables, including commodity prices, road construction, infrastructure, government appropriations, housing starts, and plant capacity utilization driven by higher net sales volumes.
other macroeconomic drivers. The Company’s loss from operations was $13.2 million for 2017, compared to loss of $25.0 million for 2016. Titan’s net loss was $64.1 million for 2017, compared to loss of $39.8 million for 2016. Basic earnings per share was $(1.12) in 2017, compared to basic earnings per share of $(0.87) in 2016. The decrease in loss from operations is primarily due to improved gross profit slightly offset by non-recurring legal and professional fees and contingent liabilities recorded in 2017. The increase in net lossconstruction market is primarily driven by GDP by country and the need for infrastructure developments. The earthmoving/construction markets experienced strong signs of growth in 2022 as economies emerged from the one-time loss on repurchasing Titan's senior secured notespandemic and modest growth is expected to continue into 2023, curtailed by softer housing starts due 2020to rising interest rates. There are historically low equipment inventory levels throughout the global construction industry and mining capital budgets continued to rise during 2022, and we expect them to remain at healthy levels in 2023. Improvements in mineral commodity prices also currently support growth.
CONSUMER MARKET OUTLOOK
The consumer market consists of $18.6 million, an unfavorable changeseveral distinct product lines within different regions. These products include light truck tires, turf equipment, specialty products, including custom mixing of rubber stock, and train brakes. Overall, the markets remained
stable during 2022. However, the pace of growth can vary period to period. There are strong initiatives underway to bolster opportunities in foreign currencyvarious specialty products including mixing of $10.5 million,rubber stock in the United States. The consumer segment is affected by many variables including inflationary impacts, consumer spending, interest rates, government policies, and higher tax provision of $7.9 million compared to 2016.other macroeconomic drivers.
SUMMARY OF RESULTS OF OPERATIONS
The following table sets forth the Company’s statement of operations expressed as a percentage of net sales for the periods indicated. This table and subsequent discussions should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included elsewhere in this annual report.
| | | | As a Percentage of Net Sales Year ended December 31, | | As a Percentage of Net Sales
Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2022 | | 2021 |
| Net sales | 100.0 | % | | 100.0 | % | | 100.0 | % | Net sales | 100.0 | % | | 100.0 | % |
| Cost of sales | 88.5 |
| | 89.0 |
| | 90.3 |
| Cost of sales | 83.4 | | | 86.7 | |
| Asset impairment | 0.7 |
| | — |
| | — |
| |
| | Gross profit | 10.8 |
| | 11.0 |
| | 9.7 |
| Gross profit | 16.6 | | | 13.3 | |
| Selling, general and administrative expenses | 10.3 |
| | 11.5 |
| | 10.1 |
| Selling, general and administrative expenses | 6.1 | | | 7.4 | |
| Research and development | 0.7 |
| | 0.8 |
| | 0.8 |
| Research and development | 0.5 | | | 0.6 | |
| Royalty expense | 0.7 |
| | 0.7 |
| | 0.8 |
| Royalty expense | 0.5 | | | 0.6 | |
| Loss from operations | (0.9 | ) | | (2.0 | ) | | (2.0 | ) | |
| | Income from operations | | Income from operations | 9.5 | | | 4.7 | |
| Interest expense | (2.1 | ) | | (2.6 | ) | | (2.4 | ) | Interest expense | (1.4) | | | (1.8) | |
| | Loss on senior note repurchase | (1.3 | ) | | — |
| | — |
| Loss on senior note repurchase | — | | | (0.9) | |
| Foreign exchange gain (loss) | (0.1 | ) | | 0.7 |
| | (0.3 | ) | |
| | Foreign exchange gain | | Foreign exchange gain | — | | | 0.7 | |
| Other income | 0.8 |
| | 1.0 |
| | 0.8 |
| Other income | 1.2 | | | 0.1 | |
| Loss before income taxes | (3.6 | ) | | (2.9 | ) | | (3.9 | ) | |
| Income before income taxes | | Income before income taxes | 9.3 | | | 2.8 | |
| Income tax provision | 0.8 |
| | 0.3 |
| | 2.5 |
| Income tax provision | 1.1 | | | 0.1 | |
| Net loss | (4.4 | )% | | (3.2 | )% | | (6.4 | )% | |
| Net loss attributable to noncontrolling interests | (0.3 | ) | | (0.2 | ) | | (1.1 | ) | |
| Net loss attributable to Titan | (4.1 | )% | | (3.0 | )% | | (5.3 | )% | |
| Net income | | Net income | 8.2 | % | | 2.7 | % |
| Net income attributable to noncontrolling interests | | Net income attributable to noncontrolling interests | 0.1 | | | — | |
| Net income attributable to Titan | | Net income attributable to Titan | 8.1 | % | | 2.7 | % |
In addition, the following table sets forth components of the Company’s net sales classified by segmentsegment:
| | | | | | | | | | | | | | | | | |
| (amounts in thousands) | 2022 | | 2021 | | 2020 |
| Agricultural | $ | 1,192,239 | | | $ | 949,400 | | | $ | 634,652 | |
| Earthmoving/construction | 807,356 | | | 693,350 | | | 510,150 | |
| Consumer | 169,785 | | | 137,465 | | | 114,511 | |
| Total | $ | 2,169,380 | | | $ | 1,780,215 | | | $ | 1,259,313 | |
FISCAL YEAR ENDED DECEMBER 31, 2022, COMPARED TO FISCAL YEAR ENDEDDECEMBER 31, 2021
RESULTS OF OPERATIONS
Highlights for the year ended December 31, 2022, compared to 2021 (amounts in thousands):
| | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | % Increase |
| Net sales | $ | 2,169,380 | | | $ | 1,780,215 | | | 22 | % |
| Cost of sales | 1,808,670 | | | 1,542,673 | | | 17 | % |
| | | | | |
| Gross profit | 360,710 | | | 237,542 | | | 52 | % |
| Gross profit % | 17 | % | | 13 | % | | 31 | % |
| Selling, general and administrative expenses | 132,792 | | | 131,772 | | | 1 | % |
| Research and development expenses | 10,404 | | | 10,104 | | | 3 | % |
| Royalty expense | 11,712 | | | 10,491 | | | 12 | % |
| Income from operations | $ | 205,802 | | | $ | 85,175 | | | 142 | % |
Net Sales
Net sales for the year ended December 31, 2022 were $2.17 billion, compared to $1.78 billion for the year ended December 31, 2021, an increase of 22%. The net sales increase was primarily driven by increases in product pricing in response to inflationary impacts on raw material costs and other input costs including freight and energy costs. The net sales increase was also impacted by product mix and volume to a lesser extent across all segments. The overall volume increase was primarily in North America and Europe, and was driven by increased customer demand which is reflective of improved farmer income, and replacement of an aging large equipment fleet in the global agricultural markets. Construction and mining markets were also improved in 2022 as economies emerged from the pandemic and mining commodity prices increased. The increase in net sales was unfavorably impacted by foreign currency translation of 3.6% or $64.1 million, primarily due to the weakening Euro. The Company sold its Australian wheel business in the first quarter of 2022 which decreased the net sales by 1.8% or $32.9 million, compared to the year ended December 31, 2021.
Cost of Sales and Gross Profit
Cost of sales was $1.81 billion for the year ended December 31, 2022, compared to $1.54 billion for 2021. The increase in cost of sales was driven by the impact of increases in sales volume, raw material cost increases, and other inflationary cost impacts. Gross profit for 2022 was $360.7 million, or 17% of net sales, compared to $237.5 million, or 13% of net sales, for 2021. The increase in gross profit and margin was driven by the impact of increases in net sales, as described previously, and improved operating leverage in our production facilities. In addition, cost reduction and productivity initiatives continue to be executed across global production facilities. Global supply chains are experiencing constraints and volatility, including availability and pricing of raw materials, transportation and labor. Titan is also experiencing similar supply chain challenges and has been able to manage the situation effectively through each of the periods.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses for the year ended December 31, 2022, were $132.8 million, or 6.1% of net sales, up only 1%, compared to $131.8 million, or 7% of net sales, for 2021. The slight increase in SG&A was primarily due to an increase in certain variable costs associated with improved operating performance and growth in sales.
Research and Development Expenses
Research and development (R&D) expenses for the year ended December 31, 2022, were $10.4 million, or 1% of net sales, compared to $10.1 million, or 1% of net sales, for 2021. R&D spending reflects continued initiatives to improve product designs and an ongoing focus on 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. Royalty expenses for the year ended December 31, 2022 were $11.7 million compared to $10.5 million for 2021. The increase in royalty expenses was due to the increase in sales, as described previously, resulting in an increase in the amount of royalty expense incurred.
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Agricultural | $ | 690,238 |
| | $ | 583,324 |
| | $ | 651,804 |
|
| Earthmoving/construction | 608,894 |
| | 524,289 |
| | 566,988 |
|
| Consumer | 169,790 |
| | 157,884 |
| | 175,979 |
|
| Total | $ | 1,468,922 |
| | $ | 1,265,497 |
| | $ | 1,394,771 |
|
Income from operations for the year ended December 31, 2022 was $205.8 million, or 10% of net sales, compared to income of $85.2 million, or 5% of net sales, for 2021. The increase in income was primarily due to the higher sales and improvements in gross profit margins.
OTHER PROFIT/LOSS ITEMS
Interest Expense
Interest expense for 2022 and 2021 was $29.8 million and $32.2 million, respectively. Interest expense decreased due to the reduced borrowing under the Company's global credit facilities, and the refinancing of the senior secured notes during the second quarter of 2021 resulting in an additional interest expense in 2021 which did not occur in 2022.
Loss on Senior Note Repurchase
Loss on senior note repurchase was $16.0 million for 2021. The loss was in connection to the Company completing a call and redemption of all of its outstanding $400.0 million principal amount of Titan's 6.50% senior secured notes due 2023 during the second quarter of 2021.
Foreign Exchange Gain
Foreign currency gain was $0.9 million for the year ended December 31, 2022, compared to a gain of $12.0 million for the year ended December 31, 2021. The foreign exchange gain experienced for the year ended December 31, 2022 is primarily the result of a favorable impact of the movement of exchange rates in certain geographies in which we conduct business. The gain was partially offset by the loss from translation of intercompany loans at certain foreign subsidiaries, which are denominated in local currencies rather than the reporting currency, which is the United States dollar. Since such loans are expected to be settled at some point in the future, these loans are adjusted each reporting period to reflect the current exchange rates.
Foreign exchange gain of $12.0 million for the year ended December 31, 2021 was primarily the result of the closeout of certain legal entities as part of the ongoing initiative to rationalize Titan's legal entity structure and ongoing management of the intercompany capital structure as well as a favorable impact of the movement of exchange rates.
Other Income
Other income was $25.4 million for the year ended December 31, 2022, compared to other income of $2.1 million for 2021, an increase of $23.3 million. The increase in other income was primarily attributable to $32.0 million income on indirect tax credits in Brazil, and a gain of $1.3 million from a government grant associated with an earthquake that affected one of our Italian subsidiaries from May 2012. The increase was partially offset by $10.9 million loss on sale of the Australian wheel business which was comprised of the release of the cumulative translation adjustment of approximately $10.0 million and closing costs associated with the completion of the transaction of approximately $0.9 million.
Provision for Income Taxes
The Company recorded tax expense for income taxes of $23.2 million and $1.1 million for the years ended December 31, 2022 and 2021, respectively. The Company's effective tax rate was 11.4% in 2022 and 2.3% in 2021.
The Company’s 2022 and 2021 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 U.S. and certain foreign jurisdictions that have a full valuation allowance on deferred tax assets. For 2022, income tax expense was favorably impacted by benefits from a valuation allowance release, which resulted in a tax benefit of $47.4 million.
In jurisdictions where the Company operates, management continues to monitor the realizability of the deferred tax assets arising from losses in its cyclical business, taking into account multiple factors. In completing this assessment, Titan considered both objective and subjective factors. These factors included, but were not limited to, a history of income or losses in prior years, future projections of income or loss, future reversal of existing temporary differences, and tax planning strategies. After evaluating all available evidence, including the fact that the US is in a three year cumulative income position, the Company decided to release most of its U.S. valuation allowance and only retain the portion related to credits that were not more likely than not to be utilized, some state net operating losses, and interest expense carryforward. The Company continues to record a valuation allowance in several major jurisdictions, including various U.S. states, Italy, and Luxembourg where it remains more likely than not that the deferred tax assets would not be utilized.
Net Income and Income per Share
Net income for the year ended December 31, 2022, was $179.2 million, compared to net income of $49.9 million for 2021. Basic earnings per share was $2.80 for the year ended December 31, 2022, compared to $0.80 for 2021. Diluted earnings per share was $2.77 for the year ended December 31, 2022, compared to $0.79 for 2021. The Company's higher net income and earnings per share were due to the items previously discussed.
SEGMENT INFORMATION
Segment Summary (Amounts in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | Agricultural | | Earthmoving/
Construction | | Consumer | | Corporate/ Unallocated
Expenses | | Consolidated
Totals |
| Net sales | | $ | 1,192,239 | | | $ | 807,356 | | | $ | 169,785 | | | $ | — | | | $ | 2,169,380 | |
| Gross profit | | 193,585 | | | 135,788 | | | 31,337 | | | — | | | 360,710 | |
| Profit margin | | 16 | % | | 17 | % | | 18 | % | | — | | | 17 | % |
| Income (loss) from operations | | 130,474 | | | 79,810 | | | 22,843 | | | (27,325) | | | 205,802 | |
| 2021 | | | | | | | | | | |
| Net sales | | $ | 949,400 | | | $ | 693,350 | | | $ | 137,465 | | | $ | — | | | $ | 1,780,215 | |
| Gross profit | | 135,807 | | | 83,705 | | | 18,030 | | | — | | | 237,542 | |
| Profit margin | | 14 | % | | 12 | % | | 13 | % | | — | | | 13 | % |
| Income (loss) from operations | | 77,666 | | | 27,809 | | | 9,553 | | | (29,853) | | | 85,175 | |
Agricultural Segment Results
Agricultural segment results were as follows:
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | 2022 | | 2021 | | % Increase |
| Net sales | $ | 1,192,239 | | | $ | 949,400 | | | 26 | % |
| Gross profit | 193,585 | | | 135,807 | | | 43 | % |
| Profit margin | 16 | % | | 14 | % | | 14 | % |
| Income from operations | 130,474 | | | 77,666 | | | 68 | % |
Net sales in the agricultural market were $1,192.2 million for the year ended December 31, 2022, compared to $949.4 million for 2021, an increase of 26%. Net sales increase was driven by price/product mix and volume. Price had a greater impact, primarily reflective of increases in product pricing in response to inflationary impacts on raw materials and other inflationary cost increases in the markets, including freight and energy costs. The volume increase was due to increased demand in the global agricultural market, reflective of high farm commodity prices and increased farmer income, the need for replacement of an aging large equipment fleet and the need to replenish equipment inventory levels within the equipment dealer channels. The overall increase in net sales was partially offset by unfavorable currency translation of 2.8%, primarily due to the weakening Euro, and the effects of the disposed Australian business of 1.5%.
Gross profit in the agricultural market was $193.6 million, or 16% of net sales, for 2022, compared to $135.8 million, or 14% of net sales, for 2021. The increase in gross profit and margin was primarily attributable to the impact of increases in net sales as described previously and cost reduction and productivity initiatives executed across global production facilities. The Company balanced the increases of related raw materials and other inflationary cost impacts with corresponding price increases to protect profitability.
Income from operations in the agricultural market was $130.5 million for the year ended December 31, 2022, compared to $77.7 million for 2021. The overall increase in income from operations is attributable to higher gross profit, described previously.
Earthmoving/Construction Segment Results
Earthmoving/construction segment results were as follows:
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | 2022 | | 2021 | | % Increase |
| Net sales | $ | 807,356 | | | $ | 693,350 | | | 16 | % |
| Gross profit | 135,788 | | | 83,705 | | | 62 | % |
| Profit margin | 17 | % | | 12 | % | | 42 | % |
| Income from operations | 79,810 | | | 27,809 | | | 187 | % |
The Company's earthmoving/construction market net sales were $807.4 million for the year ended December 31, 2022, compared to $693.4 million for the year ended December 31, 2021, an increase of 16%. The increase in earthmoving/construction net sales was primarily driven by increases in product pricing in response to inflationary impacts on energy and freight costs, along with fluctuations in the price of steel. The net sales increase was also impacted by volume across all regions, particularly Europe with the undercarriage business. The volume increase was primarily due to improvements in global economic conditions, recovery in construction markets, and stronger mining commodity prices. Net sales were unfavorably impacted by foreign currency translation of 5.4%, primarily due to the weakening Euro, and the effects of the disposed Australia business of 2.5%.
Gross profit in the earthmoving/construction market was $135.8 million, or 17% of net sales, for the year ended December 31, 2022, compared to $83.7 million, or 12% of net sales, for the year ended December 31, 2021. The increase in gross profit and margin was primarily driven by the impact of net sales as described previously and the continued improved production efficiencies stemming from the strong management actions taken to improve profitability for the long-term. The Company balanced the increases related to raw materials and other inflationary cost impacts with corresponding price increases to protect profitability.
The Company's earthmoving/construction segment income from operations was $79.8 million for the year ended December 31, 2022, as compared to income of $27.8 million for 2021. This improvement was due to increases in sales price, volume, and continued execution of cost containment measures taken to manage profitability.
Consumer Segment Results
Consumer segment results were as follows: | | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | 2022 | | 2021 | | % Increase |
| Net sales | $ | 169,785 | | | $ | 137,465 | | | 24 | % |
| Gross profit | 31,337 | | | 18,030 | | | 74 | % |
| Profit margin | 18 | % | | 13 | % | | 38 | % |
| Income from operations | 22,843 | | | 9,553 | | | 139 | % |
| | | | | |
Consumer market net sales were $169.8 million for the year ended December 31, 2022, compared to $137.5 million for 2021, an increase of 24%. The increase was driven by increased price/product mix and volume, with price having a greater impact. Pricing increases were implemented because of inflationary input costs, such as fluctuations in the price of steel and rubber, and increased energy and freight costs. The increase in demand is primarily related to specialty products in the United States, primarily custom mixing of rubber stock to third parties. Net sales were favorably impacted by foreign currency translation, primarily in Latin America and Russia, which increased net sales by 0.2%, although the disposal of the Australian business had a negative effect on sales of 0.8%.
Gross profit from the consumer market was $31.3 million for 2022, or 18% of net sales, compared to $18.0 million, or 13% of net sales, for 2021. The increase was primarily caused by increased price/product mix and the positive impact of sales volume increase on operating leverage.
Consumer segment income from operations was $22.8 million for the year ended December 31, 2022, compared to $9.6 million for 2021. The increase was due to increase in gross profit as mentioned previously.
Corporate & Unallocated Expenses
Income from operations on a segment basis does not include corporate expenses of approximately $27.3 million and $29.9 million for the year ended December 31, 2022 and 2021, respectively. Unallocated expenses are primarily comprised of corporate selling, general and administrative expenses. The year-over-year change was due to reductions in certain SG&A expenses primarily associated with investments to improve our supply chain and logistics processes in 2021 which did not occur in 2022.
FISCAL YEAR ENDED DECEMBER 31, 2021, COMPARED TO FISCAL YEAR ENDEDDECEMBER 31, 2020
The comparison of the 2021 results to 2020 has been omitted from this Form 10-K and can be found in the Company's Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on March 3, 2022.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
As of December 31, 2022, the Company had $159.6 million of cash, an increase of $61.5 million from December 31, 2021, due to the following items:
Operating Cash Flows
Summary of cash flows from operating activities:
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | Year ended December 31, | | |
| | 2022 | | 2021 | | Change |
| Net income | $ | 179,186 | | | $ | 49,891 | | | $ | 129,295 | |
| Depreciation and amortization | 42,747 | | | 47,991 | | | (5,244) | |
| Loss on sale of the Australian wheel business | 10,890 | | | — | | | 10,890 | |
| Deferred income tax benefit | (23,385) | | | (14,180) | | | (9,205) | |
| Income on indirect taxes | (32,043) | | | — | | | (32,043) | |
| Loss on senior note repurchase | — | | | 16,020 | | | (16,020) | |
| Accounts receivable | (27,201) | | | (74,736) | | | 47,535 | |
| Inventories | (19,598) | | | (112,850) | | | 93,252 | |
| Prepaid and other current assets | 11,366 | | | (15,671) | | | 27,037 | |
| Accounts payable | (7,754) | | | 121,189 | | | (128,943) | |
| Other current liabilities | 18,888 | | | 14,781 | | | 4,107 | |
| Other liabilities | 516 | | | (11,588) | | | 12,104 | |
| Other operating activities | 7,066 | | | (10,121) | | | 17,187 | |
| Net cash provided by operating activities | $ | 160,678 | | | $ | 10,726 | | | $ | 149,952 | |
For the year ended December 31, 2022, operating activities provided cash of $160.7 million, driven by the net income of $179.2 million, increases in other current liabilities of $18.9 million, and deceases in prepaid and other current assets of $11.4 million, which was partially offset by increases in accounts receivable of $27.2 million generated by the increased sales activity during the year, increases in inventories of $19.6 million, and decreases in accounts payable of $7.8 million. Included in net income of $179.2 million were non-cash items for depreciation and amortization of $42.7 million, the income on indirect taxes of $32.0 million, deferred income tax benefit of $23.4 million, and loss on sale of the Australian wheel business of $10.9 million.
Cash provided by operating activities increased by $150.0 million when comparing 2022 to 2021. This increase was primarily due to an increase of $129.3 million in net income year over year.
Summary of the components of cash conversion cycle:
| | | | | | | | | | | |
| December 31, | | December 31, |
| | 2022 | | 2021 |
| Days sales outstanding | 48 | | | 48 | |
| Days inventory outstanding | 86 | | | 86 | |
| Days payable outstanding | (57) | | | (61) | |
| Cash conversion cycle | 77 | | | 73 | |
Cash conversion cycle increased by 4 days during 2022 from 2021 due to decreases in accounts payable of $7.8 million at year ended December 31, 2022, as compared to 2021.
Investing Cash Flows
Summary of cash flows from investing activities:
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | Year ended December 31, | | |
| | 2022 | | 2021 | | Change |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Capital expenditures | $ | (46,974) | | | $ | (38,802) | | | $ | (8,172) | |
| Proceeds from the sale of the Australian wheel business | 9,293 | | | — | | | 9,293 | |
| | | | | |
| Other investing activities | 930 | | | 1,203 | | | (273) | |
| Cash used for investing activities | $ | (36,751) | | | $ | (37,599) | | | $ | 848 | |
Net cash used for investing activities was $36.8 million in 2022, compared to cash used for investing activities of $37.6 million in 2021. The Company invested a total of $47.0 million in capital expenditures in 2022, compared to $38.8 million in 2021. 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 2022 increased as the Company seeks to enhance the Company's existing facilities and manufacturing capabilities and drive plant efficiency and labor productivity gains. Cash provided by investing activities in 2022 includes $9.3 million from proceeds for the sale of the Australian wheel business.
Cash used for investing activities for 2021 included $38.8 million capital expenditures used to enhance the Company's existing facilities and manufacturing capabilities and drive productivity gains.
Financing Cash Flows
Summary of cash flows from financing activities:
| | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | Year ended December 31, | | |
| | 2022 | | 2021 | | Change |
| Proceeds from borrowings | $ | 88,940 | | | $ | 497,149 | | | $ | (408,209) | |
| Repurchase of senior secured notes | — | | | (413,000) | | | 413,000 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Payment on debt | (124,739) | | | (69,182) | | | (55,557) | |
| | | | | |
| Repurchase of common stock | (25,000) | | | — | | | (25,000) | |
| Other financing activities | (511) | | | (1,021) | | | 510 | |
| Cash (used for) provided by financing activities | $ | (61,310) | | | $ | 13,946 | | | $ | (75,256) | |
Net cash used for financing activities was $61.3 million in 2022. Payment on debt of $124.7 million and repurchase of common stock of $25.0 million were offset partially by proceeds from borrowings of $88.9 million. The Company borrowed on the domestic revolving credit facility during the first quarter of 2022 to facilitate the repurchasing of the Company's common stock from RDIF, and subsequently repaid the borrowing during the second quarter of 2022 as cash flow improved. The Company reduced its domestic credit facility outstanding balance to zero during 2022 with cash provided from operations as compared to domestic credit facility outstanding balance of $30.0 million at December 31, 2021.
Debt Restrictions
The Company’s revolving credit facility (credit facility) and indenture relating to the 7.00% senior secured notes due 2028 contain various restrictions which include:
•When remaining availability under the credit facility is less than 10% of the total commitment under the credit facility ($12.5 million as of December 31, 2022), the Company is 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 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.
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. 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 Guarantor Subsidiaries ("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) | |
| December 31, 2022 |
| Assets | |
| Current assets | $ | 101,805 | |
| Property, plant, and equipment, net | 80,374 | |
| Intercompany accounts, non-guarantor subsidiaries | 457,964 | |
| Other long-term assets | 63,344 | |
| Liabilities | |
| Current liabilities | 104,174 | |
| Long-term debt | 395,401 | |
| Other long-term liabilities | 2,997 | |
Summarized Statement of Operations:
| | | | | |
| (Amounts in thousands) | Year ended |
| December 31, 2022 |
| Net sales | $ | 962,650 | |
| Gross profit | 147,304 | |
| Income from operations | 80,826 | |
| Net income | 82,106 | |
LIQUIDITY OUTLOOK
The Company does not anticipate significant liquidity constraints during the foreseeable future. At December 31, 2022, the Company had $159.6 million of cash and cash equivalents. At December 31, 2022, under the Company's $125 million credit facility, there were no outstanding borrowings, $7.2 million in outstanding letters of credit, and the amount available to borrow totaled $117.8 million. Titan’s availability under this domestic facility may be less than $125 million, from time to time, as a result of any outstanding letters of credit and eligible accounts receivable and inventory balances at certain of its domestic subsidiaries. The cash and cash equivalents balance of $159.6 million includes $132.8 million held in foreign countries.
Capital expenditures for 2023 are forecasted to be approximately $55 million to $60 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 be approximately $30 million in 2023, based on the Company's year-end 2022 debt balances and debt maturities. The forecasted interest payments are comprised primarily of the semi-annual interest payments totaling approximately $28 million (paid in April and October) for the 7.00% senior secured notes.
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.
In June 2022, Moody’s Investors Service upgraded its credit rating for the Company, including its senior secured notes. The rating upgrade reflected Moody's expectation that favorable demand growth in Titan's end markets, primarily agricultural equipment, will support continued strength in the Company's credit metrics into 2023.
In December 2022, S&P Global Ratings upgraded its credit rating for the Company due to its belief that the Company will continue to benefit from solid demand in its agricultural and mining end markets in 2023.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our significant accounting policies are described in Note 1. Description of Business and Significant Accounting Policies to the consolidated financial statements. Preparation of financial statements and related disclosures in compliance with accounting principles generally accepted in the United States of America requires the application of technical accounting rules and guidance, as well as the use of estimates. The Company’s application of such rules and guidance involves assumptions that require difficult subjective judgments regarding many factors, which, in and of themselves, could materially impact the financial statements and disclosures. A future change in the estimates, assumptions, or judgments applied in determining the following matters, among others, could have a material impact on future financial statements and disclosures. Asset and Business Acquisitions
The allocation of purchase price for asset and business acquisitions requires management estimates and judgment as to expectations for future cash flows of the acquired assets and business and the allocation of those cash flows to identifiable intangible assets in determining the estimated fair value for purchase price allocations. If the actual results differ from the estimates and judgments used in determining the purchase price allocations, impairment losses could occur. To aid in establishing the value of any intangible assets at the time of acquisition, the Company typically engages a professional appraisal firm.
Inventories
Inventories are valued at the lower of cost or net realizable value. Net realizable value is estimated based on current selling prices. Inventory costs are calculated using the first in, first out (FIFO) method or average cost method. Estimated provisions are established for slow-moving and obsolete inventory.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts and the respective tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to apply in the years the temporary differences are expected to be settled or realized. A valuation allowance is recorded for the portion of the deferred tax assets for which it is more likely than not that a tax benefit will not be realized. Management’s judgment is required to determine the provision for income taxes, deferred tax assets and liabilities, and valuation allowances against deferred tax assets.
Management records a reduction to the carrying amounts of deferred tax assets by recording a valuation allowance if, based on the available evidence, it is more likely than not such assets will not be realized. The valuation of deferred tax assets requires judgment in assessing future profitability by year, including the impact of tax planning strategies, relative to the expiration dates, if any, of the assets.
Management considers both positive and negative evidence when measuring the need for a valuation allowance. The weight given to the evidence is commensurate with the extent to which it may be objectively verified. Current and cumulative financial reporting results are a source of objectively verifiable evidence. Management gives operating results during the most recent three-year period a significant weight in our analysis. Management considers positive cumulative operating results exist in the most recent three-year period. Management performs scheduling exercises as needed to determine if sufficient taxable income of the appropriate character exists in the periods required in order to realize our deferred tax assets with limited lives (such as tax loss carryforwards and tax credits) prior to their expiration. Management also considers prudent tax planning strategies (including an assessment of their feasibility) to accelerate taxable income if required to utilize expiring deferred tax assets. A valuation allowance is not required to the extent that, in our judgment, positive evidence exists with a magnitude and duration sufficient to result in a conclusion that it is more likely than not that our deferred tax assets will be realized. See Note 21 to the consolidated financial statements for additional information on the composition of valuation allowances.
Retirement Benefit Obligations
Pension benefit obligations are based on various assumptions used by third-party actuaries in calculating these amounts. These assumptions include discount rates, expected return on plan assets, mortality rates, and other factors. Revisions in assumptions and actual results that differ from the assumptions affect future expenses, cash funding requirements, and obligations. The Company has three frozen defined benefit pension plans in the United States and pension plans in several foreign countries. For more information concerning these obligations, see “Pensions” below and Note 22 of the Notes to the Company’s financial statements.Consolidated Financial Statements for additional information.
The effect of hypothetical changes to selected assumptions on the Company’s frozen pension benefit obligations would be as follows (amounts in thousands): |
| | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 20172022 | | 20182023 |
| Assumptions | Percentage
Change
| | Increase
(Decrease)
PBO (a)
| | Increase
(Decrease)
Equity
| | Increase
(Decrease)
Expense
|
| Pension | | | | | | | |
| Discount rate | +/-5 | | $(5,684)(2,938)/$6,1833,105 | | $5,684/2,869/$(6,183)(3,032) | | $(219)(5)/$1234 |
| Expected return on assets | +/-5 | | | | | | $(396)(352)/$396352 |
| |
(a) | Projected benefit obligation (PBO) for pension plans. |
Product Warranties
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. Actual warranty experience may differ from historical experience. The Company calculates an estimated warranty liability based on past warranty experience and the sales of products subject to that experience. The Company records warranty expense based on warranty payments made and changes to the estimated warranty liability. The Company's warranty liability was $18.6 million at December 31, 2017, and $17.9 million at December 31, 2016. The Company recorded warranty expense of $9.0 million for the year ended December 31, 2017, and $7.5 million for the year ended December 31, 2016. The Company's estimated warranty liability and expense increased primarily as the result of higher net sales of product with historical warranty experience.
Impairment of Long-Lived Assets
The Company reviews fixed assets to assess recoverability from future operations whenever events and circumstances indicate that the carrying values may not be recoverable. Factors that could result in an impairment review include, but are not limited to, a current period cash flow loss combined with a history of cash flow losses, current cash flows that may be insufficient to recover the investment in the property over the remaining useful life, or a projection that demonstrates continuing losses associated with the use of a long-lived asset, significant changes in the manner of use of the assets, or significant changes in business strategies. Impairment losses are recognized in operating results when expected undiscounted cash flows are less than the carrying value of the asset. Impairment losses are measured as the excess of the carrying value of the asset over the discounted expected future cash flows or the estimated fair value of the asset.
FISCAL YEAR ENDED DECEMBER 31, 2017, COMPARED TO FISCAL YEAR ENDED(a)DECEMBER 31, 2016Projected benefit obligation (PBO) for pension plans.
RESULTS OF OPERATIONS
MARKET RISK
Highlights for the year ended December 31, 2017, compared to 2016 (amounts in thousands):
|
| | | | | | | | | | |
| | 2017 | | 2016 | | % Increase |
| Net sales | $ | 1,468,922 |
| | $ | 1,265,497 |
| | 16 | % |
| Cost of sales | 1,300,727 |
| | 1,126,633 |
| | 15 | % |
| Asset impairment | 9,917 |
| | — |
| | n/a |
|
| Gross profit | 158,278 |
| | 138,864 |
| | 14 | % |
| Gross profit percentage | 10.8 | % | | 11.0 | % | | |
|
Net Sales
Net sales for the year ended December 31, 2017, were $1,468.9 million, compared to $1,265.5 million for the year ended December 31, 2016, an increase of 16%, primarily resulting from an increase in net sales volume in all segments. Overall net sales volume was up 12% with higher volume across all segments and geographies. Favorable currency translations increased net sales by 3% and favorable changes in price/mix contributed another 1% increase to net sales.
Cost of Sales, Asset Impairment, and Gross Profit
Cost of sales was $1,300.7 million for the year ended December 31, 2017, compared to $1,126.6 million for 2016. Gross profit for 2017 was $158.3 million, or 10.8% of net sales, compared to $138.9 million, or 11.0% of net sales, for 2016. In the fourth quarter of 2017, the Company recorded an asset impairment of $9.9 million related to a fire at one of its subsidiaries (see Note 18 to the Company's consolidated financial statements). Excluding the asset impairment, gross profit for 2017 would have been $168.2 million, or 11.5% of net sales.
After the adjusting for the asset impairment, gross profit as a percent of net sales improved from manufacturing efficiencies and plant capacity utilization driven by higher net sales volumes. These efficiencies were partially offset by timing of passing higher raw material costs to customers in the first half of 2017.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses for the year ended December 31, 2017, were $150.7 million, or 10.3% of net sales, up 4% compared to $145.0 million, or 11.5% of net sales, for 2016. The increase in SG&A expenses was driven by non-recurring legal fees and an accrued contingent liability of $6.5 million for a legal judgment in 2017. After adjusting for the accrued liability (see Note 24 to the Company's condensed consolidated financial statements), SG&A expenses for 2017 would have been 9.8% of net sales.
Research and Development Expenses
Research and development (R&D) expenses for the year ended December 31, 2017, were $10.3 million, or 0.7% of net sales, compared to $10.0 million, or 0.8% of net sales, for 2016.
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. Each of these agreements expire in 2025. Royalties attributable to sales of farm tires in North America and Latin America were prepaid through March 2018 as a part of the 2011 Goodyear Latin American farm tire acquisition. The Company also has a trademark license agreement with Goodyear to manufacture and sell certain non-farm tire products in Latin America which expires in June 2019. Royalty expenses for the year ended December 31, 2017, were $10.5 million, compared to $8.9 million for 2016.
Loss from Operations
Loss from operations for the year ended December 31, 2017, was $13.2 million, or 0.9% of net sales, compared to loss of $25.0 million, or 2.0% of net sales, for 2016. This improvement was the net result of the items previously discussed.
Interest Expense
Interest expense for 2017 was $30.2 million, compared to $32.5 million for 2016. The 7% decrease in interest expense was primarily due to the January 2017 conversion of the Company's 5.625% convertible senior subordinated notes.
Loss on Senior Note Repurchase
Loss on senior note repurchase was $18.6 million for 2017. The loss was in connection to the Company completing a tender offer settlement and redemption of all of its outstanding $400.0 million principal amount of Titan's 6.875% senior secured notes due 2020.
Foreign Exchange Gain (Loss)
Foreign currency loss was $2.0 million for the year ended December 31, 2017, compared to a gain of $8.6 million for the year ended December 31, 2016. Foreign currency loss in 2017 and gain in 2016 primarily reflects the translation of intercompany loans at certain foreign subsidiaries denominated in currencies other than their functional currencies. Since such loans are expected to be settled in cash at some point in the future, these loans are adjusted each reporting period to reflect the current exchange rates. The U.S. dollar weakened through most of 2017 while remaining mixed in 2016 across currencies in which Titan operates. The Company uses derivative financial instruments on such intercompany loans as well as other actions taken to reduce foreign exchange exposures.
Other Income
Other income was $11.1 million for the year ended December 31, 2017, as compared to other income of $12.5 million for 2016. The major items included in 2017 were: Wheels India Limited equity income of $3.6 million; interest income of $3.4 million; building rental income of $2.4 million; discount amortization on prepaid royalty of $0.9 million; all of which were partially offset by a loss on sale of assets of $0.7 million.
The major items included in 2016 were: interest income of $3.2 million; Wheels India Limited equity income of $3.0 million; gain on sale of assets of $2.3 million; building rental income of $2.1 million; and discount amortization on prepaid royalty of $1.5 million.
Provision for Income Taxes
The Company recorded tax expense for income taxes of $11.2 million in 2017, compared to income tax expense of $3.3 million in 2016. The Company's effective tax rate was (21.2)% in 2017 and (9.0)% in 2016. The Company’s 2017 income tax expense and rate differ 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 an increase in the valuation allowance against deferred tax assets partially offset by tax rate change due to the Tax Cuts and Jobs Act. The Company's 2016 income tax expense and rate differ 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 an increase in the valuation allowance against deferred tax assets partially offset by tax rates in foreign jurisdictions where the statutory rate is less than 35%.
Net Loss
Net loss for the year ended December 31, 2017, was $64.1 million, compared to net loss of $39.8 million for 2016. Basic earnings per share was $(1.12) for the year ended December 31, 2017, as compared to $(0.87) for 2016. Diluted earnings per share was $(1.12) for the year ended December 31, 2017, as compared to $(0.87) for 2016. The Company's higher net loss and lower earnings per share were due to the items previously discussed.
SEGMENT INFORMATION
Agricultural Segment Results
Agricultural segment results were as follows (amounts in thousands):
|
| | | | | | | | | | |
| | 2017 | | 2016 | | % Increase |
| Net sales | $ | 690,238 |
| | $ | 583,324 |
| | 18 | % |
| Gross profit | 84,907 |
| | 75,485 |
| | 12 | % |
| Income from operations | 49,612 |
| | 41,153 |
| | 21 | % |
Net sales in the agricultural market were $690.2 million for the year ended December 31, 2017, as compared to $583.3 million for 2016, an increase of 18%. Higher agricultural net sales volume increased net sales by 13% with favorable currency translation contributing 3% and favorable price/mix contributing an additional 2%.
Gross profit in the agricultural market was $84.9 million, or 12.3% of net sales, for 2017, as compared to $75.5 million, or 12.9% of net sales, for 2016. Income from operations in the agricultural market was $49.6 million for the year 2017, as compared to $41.2 million for 2016. Increased net sales volume drove the overall increase in gross profit. However, the inability to immediately pass on the sharp increase of raw material costs negatively impacted gross profit in the first half of 2017.
Earthmoving/Construction Segment Results
Earthmoving/construction segment results were as follows (amounts in thousands):
|
| | | | | | | | | | |
| | 2017 | | 2016 | | % Increase |
| Net sales | $ | 608,894 |
| | $ | 524,289 |
| | 16 | % |
| Gross profit | 48,331 |
| | 45,885 |
| | 5 | % |
| Income from operations | 803 |
| | 3,232 |
| | (75 | )% |
The Company's earthmoving/construction market net sales were $608.9 million for the year ended December 31, 2017, compared to $524.3 million for 2016, an increase of 16%. The increase in earthmoving/construction net sales was driven by increased volume which increased net sales by 13% and favorable price/mix which increased net sales an additional 2%. Favorable currency translation contributed an additional 1% of net sales.
Gross profit in the earthmoving/construction market was $48.3 million, or 7.9% of net sales, for the year 2017, as compared to $45.9 million, or 8.8% of net sales, for 2016. The Company's earthmoving/construction market income from operations was $0.8 million for the year 2017, as compared to $3.2 million for 2016. In the fourth quarter of 2017, the Company recorded an asset impairment of $9.9 million related to a fire at one of its subsidiaries. Excluding the asset impairment, gross profit or 2017 would have been $58.2 million, or 9.6% of net sales, and income from operations would have been $10.7 million. After adjusting for the asset impairment, the increase in gross profit and income from operations is primarily driven by our strategy to increase aftermarket sales.
Consumer Segment Results
Consumer segment results were as follows (amounts in thousands):
|
| | | | | | | | | | |
| | 2017 | | 2016 | | % Increase |
| Net sales | $ | 169,790 |
| | $ | 157,884 |
| | 8 | % |
| Gross profit | 25,040 |
| | 17,494 |
| | 43 | % |
| Income from operations | 11,231 |
| | 2,762 |
| | 307 | % |
Consumer market net sales were $169.8 million for the year ended December 31, 2017, compared to $157.9 million for 2016, an increase of 8%. The increase in consumer net sales was primarily from favorable currency translation contributing 6% of net sales. Increased volume and favorable price/mix each contributed an additional 1% of net sales.
Gross profit from the consumer market was $25.0 million for 2017, or 14.7% of net sales, compared to $17.5 million, or 11.1% of net sales, for 2016. Consumer market income from operations was $11.2 million for 2017, as compared to $2.8 million for 2016. Margins improved overall due to both geographic and product mix.
Segment Summary (Amounts in thousands)
|
| | | | | | | | | | | | | | | | | | | | |
| 2017 | | Agricultural | | Earthmoving/ Construction | | Consumer | | Corporate/ Unallocated Expenses | | Consolidated Totals |
| Net sales | | $ | 690,238 |
| | $ | 608,894 |
| | $ | 169,790 |
| | $ | — |
| | $ | 1,468,922 |
|
| Gross profit | | 84,907 |
| | 48,331 |
| | 25,040 |
| | — |
| | 158,278 |
|
| Income (loss) from operations | | 49,612 |
| | 803 |
| | 11,231 |
| | (74,830 | ) | | (13,184 | ) |
| 2016 | | |
| | |
| | |
| | |
| | |
|
| Net sales | | $ | 583,324 |
| | $ | 524,289 |
| | $ | 157,884 |
| | $ | — |
| | $ | 1,265,497 |
|
| Gross profit | | 75,485 |
| | 45,885 |
| | 17,494 |
| | — |
| | 138,864 |
|
| Income (loss) from operations | | 41,153 |
| | 3,232 |
| | 2,762 |
| | (72,098 | ) | | (24,951 | ) |
Corporate & Unallocated Expenses
Income from operations on a segment basis does not include corporate expenses totaling $74.8 million for the year ended December 31, 2017, up 4% compared to $72.1 million for 2016. Corporate expenses were composed of selling and marketing expenses of approximately $27 million and $28 million for the years ended December 31, 2017 and 2016, respectively, and administrative expenses of approximately $48 million and $44 million for the years ended December 31, 2017 and 2016, respectively. The increase is due to non-recurring legal and professional fees and a contingent liability of $6.5 million.
FISCAL YEAR ENDED DECEMBER 31, 2016, COMPARED TO FISCAL YEAR ENDEDDECEMBER 31, 2015
RESULTS OF OPERATIONS
Highlights for the year ended December 31, 2016, compared to 2015 (amounts in thousands):
|
| | | | | | | | | | |
| | 2016 | | 2015 | | % Increase / Decrease |
| Net sales | $ | 1,265,497 |
| | $ | 1,394,771 |
| | (9 | )% |
| Cost of sales | 1,126,633 |
| | 1,260,028 |
| | (11 | )% |
| Gross profit | 138,864 |
| | 134,743 |
| | 3 | % |
| Gross profit percentage | 11.0 | % | | 9.7 | % | | |
|
Net Sales
Net sales for the year ended December 31, 2016, were $1,265.5 million, compared to $1,394.8 million for the year ended December 31, 2015, a decrease of 9%. Net sales declined across all reported segments. Net sales volume was down 5% as both the agricultural and earthmoving/construction segments remained in cyclical downturns. The consumer segment was affected by the Company's exit from various low-margin supply agreements and declines in high-speed brake sales to China. Unfavorable currency translation negatively affected net sales by 2% and net sales decreased an additional 2% due to a reduction in price/mix.
Cost of Sales and Gross Profit
Cost of sales was $1,126.6 million for the year ended December 31, 2016, compared to $1,260.0 million for 2015. Gross profit for 2016 was $138.9 million, or 11.0% of net sales, compared to $134.7 million, or 9.7% of net sales, for 2015.
Even as net sales continued to decline in 2016, gross margin improved as a result of the Company's continued implementation of the Business Improvement Framework which began in 2014. Gross margin in 2016 was 11.0% compared to 9.7% in 2015 as initiatives established under the Business Improvement Framework helped to drive increased productivity, reduce expenditures, lower material costs, improve quality, lower warranty costs, and optimize pricing.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses for the year ended December 31, 2016, were $145.0 million, or 11.5% of net sales, up 3% compared to $140.4 million, or 10.1% of net sales, for 2015. The increase in SG&A expenses was driven by continued investment in legal fees in support of anti-dumping and circumvention of duties litigation, focused marketing expenditures to support LSW development, and higher incentive compensation as a result of improving profitability.
Research and Development Expenses
Research and development (R&D) expenses for the year ended December 31, 2016, were $10.0 million, or 0.8% of net sales, down 10% compared to $11.2 million, or 0.8% of net sales, for 2015.
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. Royalties attributable to sales of farm tires in North America and Latin America were prepaid through March 2018 as a part of the 2011 Goodyear Latin American farm tire acquisition. The Company also has a trademark license agreement with Goodyear to manufacture and sell certain non-farm tire products in Latin America. Royalty expenses for the year ended December 31, 2016, were $8.9 million, compared to $10.5 million for 2015.
Loss from Operations
Loss from operations for the year ended December 31, 2016, was $25.0 million, or 2.0% of net sales, compared to loss of $27.3 million, or 2.0% of net sales, for 2015. This improvement was the net result of the items previously discussed.
Interest Expense
Interest expense for 2016 was $32.5 million, compared to $34.0 million for 2015.
Foreign Exchange Gain (Loss)
Foreign currency gain was $8.6 million for the year ended December 31, 2016, compared to a loss of $4.8 million for the year ended December 31, 2015. Foreign currency gain in 2016 and loss in 2015 primarily reflects the translation of intercompany loans at certain foreign subsidiaries denominated in currencies other than their functional currencies. Since such loans are expected to be settled in cash at some point in the future, these loans are adjusted each reporting period to reflect the current exchange rates. The strength of the U.S. dollar was mixed in 2016 across currencies in which Titan operates while it was predominately strong in 2015. The Company uses derivative financial instruments on such intercompany loans as well as other actions taken to reduce foreign exchange exposures.
Other Income
Other income was $12.5 million for the year ended December 31, 2016, as compared to other income of $11.1 million for 2015. The major items included in 2016 were: (i) interest income of $3.2 million; (ii) Wheels India Limited equity income of $3.0 million; (iii) gain on sale of assets of $2.3 million; (iv) building rental income of $2.1 million; and (v) discount amortization on prepaid royalty of $1.5 million.
The major items included in 2015 were: (i) interest income of $2.7 million; (ii) gain on sale of assets of $2.4 million; (iii) discount amortization on prepaid royalty of $2.0 million; and (iv) Wheels India Limited equity income of $1.8 million.
Provision for Income Taxes
The Company recorded tax expense for income taxes of $3.3 million in 2016, compared to income tax expense of $34.8 million in 2015. The Company's effective tax rate was (9)% in 2016 and (63)% in 2015. The Company’s 2016 income tax expense and rate differ 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 an increase in the valuation allowance against deferred tax assets partially offset by tax rates in foreign jurisdictions where the statutory rate is less than 35%. The Company's 2015 income tax expense and rate differ 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 a foreign exchange loss upon the outbound transfer of Brazil assets for U.S. tax purposes (check the box election) offset by an increase in the valuation allowance against deferred tax assets.
Net Loss
Net loss for the year ended December 31, 2016, was $39.8 million, compared to net loss of $89.8 million for 2015. Basic earnings per share was $(0.87) for the year ended December 31, 2016, as compared to $(1.73) for 2015. Diluted earnings per share was $(0.87) for the year ended December 31, 2016, as compared to $(1.73) for 2015. The Company's net loss and earnings per share were improved due to the items previously discussed.
SEGMENT INFORMATION
Agricultural Segment Results
Agricultural segment results were as follows (amounts in thousands):
|
| | | | | | | | | | |
| | 2016 | | 2015 | | % Increase /Decrease |
| Net sales | $ | 583,324 |
| | $ | 651,804 |
| | (11 | )% |
| Gross profit | 75,485 |
| | 73,198 |
| | 3 | % |
| Income from operations | 41,153 |
| | 37,643 |
| | 9 | % |
Net sales in the agricultural market were $583.3 million for the year ended December 31, 2016, as compared to $651.8 million for 2015, a decrease of 11%. Agriculture net sales decreased 6% due to reduced volume and by an additional 2% due to changes in price/mix, as a consequence of decreased demand for new agricultural equipment. Unfavorable currency translation decreased net sales by 3%.
Gross profit in the agricultural market was $75.5 million for 2016, as compared to $73.2 million for 2015. Income from operations in the agricultural market was $41.1 million for the year 2016, as compared to $37.6 million for 2015. Despite the continued sales erosion resulting from the agricultural cyclical downturn, the Company maintained its focus on business improvement initiatives within our Business Improvement Framework to minimize the margin impact. Initiatives born from the framework helped to drive headcount and expense reductions, increase productivity, lower raw material costs, lower warranty costs, and optimize pricing.
Earthmoving/Construction Segment Results
Earthmoving/construction segment results were as follows (amounts in thousands):
|
| | | | | | | | | | |
| | 2016 | | 2015 | | % Increase /Decrease |
| Net sales | $ | 524,289 |
| | $ | 566,988 |
| | (8 | )% |
| Gross profit | 45,885 |
| | 42,300 |
| | 8 | % |
| Income (loss) from operations | 3,232 |
| | (2,572 | ) | | N/A |
|
The Company's earthmoving/construction market net sales were $524.3 million for the year ended December 31, 2016, compared to $567.0 million for 2015, a decrease of 8%. Segment price/mix reductions decreased net sales by 8% which was offset by changes in volume that increased net sales by 2% and unfavorable currency translation that increased net sales by an additional 2%.
Gross profit in the earthmoving/construction market was $45.9 million for the year 2016, as compared to $42.3 million for 2015. The Company's earthmoving/construction market income from operations was $3.2 million for the year 2016, as compared to loss from operations of $2.6 million for 2015.
Consumer Segment Results
Consumer segment results were as follows (amounts in thousands):
|
| | | | | | | | | | |
| | 2016 | | 2015 | | % Decrease |
| Net sales | $ | 157,884 |
| | $ | 175,979 |
| | (10 | )% |
| Gross profit | 17,494 |
| | 19,245 |
| | (9 | )% |
| Income from operations | 2,762 |
| | 4,639 |
| | (40 | )% |
Consumer market net sales were $157.9 million for the year ended December 31, 2016, compared to $176.0 million for 2015, a decrease of 10%. The decrease in consumer segment net sales was primarily driven by declines in high-speed brake sales to China and lower net sales related to supplier agreements in Brazil.
Gross profit from the consumer market was $17.5 million for the year 2016, or 11.1% of net sales, compared to $19.2 million, or 10.9% of net sales for 2015. Consumer market income from operations was $2.8 million for the year 2016, as compared to $4.6 million for 2015. Although net sales were lower in 2016 versus 2015, the Company was successful in reducing costs related to the production of consumer segment products.
Segment Summary (Amounts in thousands)
|
| | | | | | | | | | | | | | | | | | | | |
| 2016 | | Agricultural | | Earthmoving/ Construction | | Consumer | | Corporate/ Unallocated Expenses | | Consolidated Totals |
| Net sales | | $ | 583,324 |
| | $ | 524,289 |
| | $ | 157,884 |
| | $ | — |
| | $ | 1,265,497 |
|
| Gross profit | | 75,485 |
| | 45,885 |
| | 17,494 |
| | — |
| | 138,864 |
|
| Income (loss) from operations | | 41,153 |
| | 3,232 |
| | 2,762 |
| | (72,098 | ) | | (24,951 | ) |
| 2015 | | |
| | |
| | |
| | |
| | |
|
| Net sales | | $ | 651,804 |
| | $ | 566,988 |
| | $ | 175,979 |
| | $ | — |
| | $ | 1,394,771 |
|
| Gross profit | | 73,198 |
| | 42,300 |
| | 19,245 |
| | — |
| | 134,743 |
|
| Income (loss) from operations | | 37,643 |
| | (2,572 | ) | | 4,639 |
| | (67,055 | ) | | (27,345 | ) |
Corporate & Unallocated Expenses
Income from operations on a segment basis does not include corporate expenses totaling $72.1 million for the year ended December 31, 2016, up 7% compared to $67.1 million for 2015. Corporate expenses were composed of selling and marketing expenses of approximately $28 million for each of the years ended December 31, 2016 and 2015; and administrative expenses of approximately $44 million and $36 million for the years ended December 31, 2016 and 2015, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
As of December 31, 2017, the Company had $143.6 million of cash.
|
| | | | | | | | | | | |
| (Amounts in thousands) | Year ended December 31, | | |
| | 2017 | | 2016 | | Change |
| Cash | $ | 143,570 |
| | $ | 147,827 |
| | $ | (4,257 | ) |
The cash balance decreased by $4.3 million from December 31, 2016, due to the following items:
Operating Cash Flows
Summary of cash flows from operating activities:
|
| | | | | | | | | | | |
| (Amounts in thousands) | Year ended December 31, | | |
| | 2017 | | 2016 | | Change |
| Net loss | $ | (64,079 | ) | | $ | (39,755 | ) | | $ | (24,324 | ) |
| Depreciation and amortization | 58,444 |
| | 59,768 |
| | (1,324 | ) |
| Asset impairment | 9,917 |
| | — |
| | 9,917 |
|
| Deferred income tax provision | 785 |
| | (680 | ) | | 1,465 |
|
| Loss on note repurchase | 18,646 |
| | — |
| | 18,646 |
|
| Accounts receivable | (38,478 | ) | | 4,007 |
| | (42,485 | ) |
| Inventories | (55,562 | ) | | 7,992 |
| | (63,554 | ) |
| Prepaid and other current assets | 9,277 |
| | (16,718 | ) | | 25,995 |
|
| Accounts payable | 37,584 |
| | 20,953 |
| | 16,631 |
|
| Other current liabilities | 9,522 |
| | 3,635 |
| | 5,887 |
|
| Other liabilities | (9,816 | ) | | (7,838 | ) | | (1,978 | ) |
| Other operating activities | 22,471 |
| | 12,136 |
| | 10,335 |
|
| Net cash provided by (used for) operating activities | $ | (1,289 | ) | | $ | 43,500 |
| | $ | (44,789 | ) |
For the year ended December 31, 2017, operating activities used cash of $1.3 million, compared to cash provided by operating activities of $43.5 million in 2016, a difference of $44.8 million. Included in net loss of $64.1 million were depreciation and amortization of $58.4 million and a loss on note repurchase of $18.6 million. The changes in operational working capital decreased cash flows by $37.7 million in 2017 compared to an increase of $19.9 million in 2016. The 2017 working capital decrease was primarily due to an increase in inventory and accounts receivable of $55.6 million and $38.5 million, respectively, offset by an increase in accounts payable of $37.6 million. For additional details, see the Consolidated Statements of Cash Flows on page F-8.
For the year ended December 31, 2016, operating activities provided cash of $43.5 million, which was $20.4 million less than the prior year. Included in net loss of $39.8 million were non-cash charges for depreciation and amortization of $59.8 million.
The changes in operational working capital increased cash flows by $19.9 million in 2016 compared to an increase of $43.0 million in 2015. The 2016 working capital increase was primarily due to a decrease in accounts payable of $21.0 million.
Summary of the components of cash conversion cycle:
|
| | | | | |
| | December 31, |
| | December 31, |
|
| | 2017 | | 2016 |
| Days sales outstanding | 55 |
| | 54 |
|
| Days payable in inventory | 98 |
| | 95 |
|
| Days payable outstanding | (56 | ) | | (52 | ) |
| Cash conversion cycle | 97 |
| | 97 |
|
Investing Cash Flows
Summary of cash flows from investing activities:
|
| | | | | | | | | | | |
| (Amounts in thousands) | Year ended December 31, | | |
| | 2017 | | 2016 | | Change |
| Capital expenditures | $ | (32,626 | ) | | $ | (41,948 | ) | | $ | 9,322 |
|
| Certificates of deposit | 50,000 |
| | (50,000 | ) | | 100,000 |
|
| Other investing activities | 993 |
| | 2,222 |
| | (1,229 | ) |
| Cash provided by (used for) investing activities | $ | 18,367 |
| | $ | (89,726 | ) | | $ | 108,093 |
|
Net cash provided by investing activities was $18.4 million in 2017, compared to cash used of $89.7 million in 2016. In 2016, the Company invested in certificates of deposit using cash. At December 31, 2016, the Company had $50.0 million in certificates of deposit with a greater than three month original term compared to none at December 31, 2017. The Company invested a total of $32.6 million in capital expenditures in 2017, compared to $41.9 million in 2016. Capital expenditures represent various equipment purchases and improvements to enhance production capabilities of Titan’s existing business and maintain existing equipment.
Financing Cash Flows
Summary of cash flows from financing activities:
|
| | | | | | | | | | | |
| (Amounts in thousands) | Year ended December 31, | | |
| | 2017 | | 2016 | | Change |
| Proceeds from borrowings | $ | 447,639 |
| | $ | 17,285 |
| | $ | 430,354 |
|
| Repurchase of senior secured notes | (415,395 | ) | | — |
| | (415,395 | ) |
| Payment on debt | (55,160 | ) | | (22,634 | ) | | (32,526 | ) |
| Dividends paid | (1,167 | ) | | (1,081 | ) | | (86 | ) |
| Cash used for financing activities | $ | (24,083 | ) | | $ | (6,430 | ) | | $ | (17,653 | ) |
Net cash used for financing activities was $24.1 million in 2017. This cash was primarily used for the purchase and redemption of 6.875% senior secured notes due 2020 of $415.4 million and payments on working capital debt of $55.2 million. These uses were partially offset by borrowings of $447.6 million, which included proceeds from the issuance of $400.0 million of 6.50% senior secured notes due 2023 and working capital debt of $47.6 million.
Net cash used for financing activities was $6.4 million in 2016. This cash was primarily used for payment of debt offset by borrowings.
Debt Restrictions
The Company’s revolving credit facility (credit facility) and indenture relating to the 6.50% senior secured notes due 2023 contain various restrictions, including:
When remaining availability under the credit facility is less than 10% of the total commitment under the credit facility ($7.5 million as of December 31, 2017), the Company is 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 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.
LIQUIDITY OUTLOOK
At December 31, 2017, the Company had $143.6 million of cash and cash equivalents. At December 31, 2017, there were no outstanding borrowings on the Company's $75 million revolving credit facility. Titan’s availability under this domestic facility may be less than $75 million as a result of outstanding letters of credit and eligible accounts receivable and inventory balances at certain of its domestic subsidiaries. At December 31, 2017, an outstanding letter of credit totaled $12.5 million and the remaining amount available under the revolving credit facility was $62.5 million. The cash and cash equivalents balance of $143.6 million includes $80.2 million held in foreign countries. The Company's current plans do not demonstrate a need to repatriate the foreign amounts to fund U.S. operations. As a result of the Tax Cuts and Jobs Act, the Company can repatriate the cumulative undistributed foreign earnings back to the U.S. when needed with minimal additional taxes other than state income and foreign withholding tax. Titan expects to contribute approximately $5 million to its defined benefit pension plans during 2018.
The Company's 5.625% convertible senior subordinated notes, of which $60.2 million in aggregate principal amount was outstanding at December 31, 2016, matured on January 15, 2017. In January 2017, the Company converted 97.1% of the principal balance of these convertible notes into shares of Titan common stock. Prior to maturity, $60.2 million in aggregate principal amount of the convertible notes was outstanding, of which holders of $58.5 million in aggregate principal amount of such notes, or 97.1%, converted their notes into shares of Titan common stock pursuant to the terms of the indenture governing the notes. The $58.5 million in principal amount of converted Notes were converted into 5,462,264 shares of Titan common stock, representing approximately 10% of Titan’s outstanding common stock prior to conversion. Each $1,000 principal amount of the convertible notes was convertible into 93.436 shares of Titan common stock. The remaining $1.7 million principal amount of the convertible notes not converted was paid in cash.
The Company's redeemable noncontrolling interest in Voltyre-Prom includes a settlement put option which is exercisable during a six-month period beginning July 9, 2018. The redeemable noncontrolling interest may be purchased, with cash or Titan common stock, at an amount set by the Shareholder's Agreement, which is estimated to be approximately $117 million to $122 million, if exercised in full. See Note 13 to the Company's condensed consolidated financial statements regarding the Company's redeemable noncontrolling interest and the settlement put option.
Capital expenditures for 2018 are forecasted to be $35 million to $45 million. These capital expenditures are anticipated to be used primarily to enhance the Company’s existing facilities and manufacturing capabilities and drive productivity gains.
Cash payments for interest are currently forecasted to be approximately $30 million in 2018 based on the Company's year-end 2017 debt balances and debt maturities.
In the future, Titan may seek to grow by making acquisitions which will depend on its ability to identify suitable acquisition candidates, to negotiate acceptable terms for their acquisition, and to finance those acquisitions.
Subject to the terms of the agreements governing Titan's outstanding indebtedness, the Company may finance future acquisitions with cash on hand, cash from operations, additional indebtedness, issuing additional equity securities, and divestitures.
Cash on hand, anticipated internal cash flows from operations, and utilization of remaining available borrowings are expected to provide sufficient liquidity for working capital needs, debt maturities, capital expenditures, and potential acquisitions. Potential divestitures are also a means to provide for future liquidity needs.
INFLATIONCurrency Risk
The Company is subjectexposed to the effectimpact of price fluctuations. Whileforeign currency fluctuations in certain countries in which it operates. The exposure to foreign currency movements is limited in many countries because the cost outlook for commodities usedoperating revenues and expenses of the Company's various subsidiaries and business units are substantially in the Company’s production islocal currency of the country in which they operate. To the extent that borrowings, sales, purchases, revenues, expenses or other transactions are not certain, management believes it can manage inflationary pressures reflected in the priceslocal currency of the raw materials thatsubsidiary, the Company uses in its products by introducing appropriate sales price adjustmentsis exposed to currency risk and through contract provisions with OEMs. However, these price adjustments may lagenter into foreign exchange derivative contracts to mitigate the inflationary pressures.
CONTRACTUAL OBLIGATIONS
The Company’s contractual obligations at December 31, 2017, consisted of the following (amounts in thousands):
|
| | | | | | | | | | | | | | | | | | | | |
| | | Payments due by period |
| Contractual Obligations | | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
| 6.50% senior secured notes due 2023 | | $ | 400,000 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 400,000 |
|
| Other debt | | 55,718 |
| | 43,061 |
| | 11,887 |
| | 770 |
| | — |
|
| Interest expense (a) | | 160,925 |
| | 29,845 |
| | 54,350 |
| | 52,897 |
| | 23,833 |
|
| Operating leases | | 18,957 |
| | 6,860 |
| | 8,306 |
| | 3,500 |
| | 291 |
|
| Capital leases | | 820 |
| | 590 |
| | 228 |
| | 2 |
| | — |
|
| Purchase obligations | | 33,755 |
| | 22,719 |
| | 10,857 |
| | 179 |
| | — |
|
| Other long-term liabilities (b) | | 36,700 |
| | 5,300 |
| | 17,100 |
| | 14,300 |
| | — |
|
| Total | | $ | 706,875 |
| | $ | 108,375 |
| | $ | 102,728 |
| | $ | 71,648 |
| | $ | 424,124 |
|
| |
(a) | Interest expense is estimated based on the Company’s year-end 2017 debt balances, maturities, and interest rates. The estimates assume no credit facility borrowings. The Company’s actual debt balances and interest rates may fluctuate in the future; therefore, actual interest payments may vary from those payments detailed in the above table. |
| |
(b) | Other long-term liabilities represent the Company’s estimated funding requirements for defined benefit pension plans. The Company’s liability for pensions is based on a number of assumptions, including discount rates, rates of return on investments, mortality rates, and other factors. Certain of these assumptions are determined with the assistance of outside actuaries. Assumptions are based on past experience and anticipated future trends and are subject to a number of risks and uncertainties and may lead to significantly different pension liability funding requirements. |
OFF-BALANCE SHEET ARRANGEMENTS
As of December 31, 2017, the Company did not have any off-balance sheet arrangements (as defined in Item 303(a)(4) of Regulation S-K).
MARKET RISK SENSITIVE INSTRUMENTS
Exchange Rate Sensitivity
currency risk. The Company is exposed to fluctuations in the Australian dollar, Brazilian real, British pound, euro,Euro, Russian ruble and other worldglobal currencies. The Company uses financial derivatives to mitigate its exposure to volatility in foreign currency exchange rates. The Company’s net investment in foreign entities translated into U.S. dollars was $387.6$249.0 million at December 31, 2017,2022, and $344.6$255.6 million at December 31, 2016.2021. The hypothetical potential loss in value of the Company’s net investment in foreign entities resulting from a 10% adverse change in foreign currency exchange rates at December 31, 2017,2022, would have been approximately $38.8$25.0 million.
Commodity Price SensitivityRisk
The Company does not generally enter into long-term commodity pricing contracts and does not use derivative commodity instruments to hedge its exposures to commodity market price fluctuations. Therefore, the Company is exposed to price fluctuations of its key commodities, which consist primarily of steel, natural rubber, synthetic rubber, and carbon black. The Company attempts to pass on certain material price increases and decreases to its customers, depending on market conditions.
Interest Rate SensitivityRisk
The Company is exposed to interest rate risk on its variable debt. The Company has a $75$125 million credit facility that has a variable interest rate. As of December 31, 2017,2022, the amount available under the credit facility was $62.5$117.8 million. If the credit facility were fully drawn to available funds, a change in the interest rate of 100 basis points, or 1%, would have changed the Company’s interest expense by approximately $0.6$1.2 million. At December 31, 2017,2022, there were no borrowings under the credit facility.
MARKET CONDITIONS
In 2017, Titan experienced higher net sales when compared to 2016. The higher net sales levels were the result of increased demand across all segments and geographies in which Titan competes. Net sales levels improved in both OEM and aftermarket channels. Commodity prices remained below long term averages, but were mostly stable. Favorable currency translation also contributed to the increase in net sales.
Energy, raw material, and petroleum-based product costs could be volatile and may negatively impact the Company’s margins. Many of Titan’s overhead expenses are fixed; therefore, lower seasonal trends may cause negative fluctuations in quarterly profit margins and affect the financial condition of the Company.
AGRICULTURAL MARKET OUTLOOK
Agricultural market net sales were higher in 2017 when compared to 2016 due to increased demand for lower horsepower equipment. While demand for high horsepower equipment (>100 HP) declined on a year-over-year basis, the trend reversed and sales of high horsepower tractors increased in the fourth quarter. Farm net income increased in 2017 after three straight years of decline caused by lower grain prices. This increase was largely due to sale of commodity inventories carried over from 2016. Farm net income is generally expected to be flat in 2018. Declining/stagnant income levels have reduced demand for large farm equipment. However, overall economic conditions and the need to replace equipment as part of a typical replacement cycle is expected to drive additional volume in both OEM and aftermarket sales. Most major OEMs are forecasting 2018 agricultural equipment sales to be up over 2017 within most regions. North American used equipment levels have decreased from peak levels. Excess used equipment inventory and values can negatively impact the new equipment market. Many variables, including weather, grain prices, export markets, currency, and government policies and subsidies can greatly influence the overall health of the agricultural economy.
EARTHMOVING/CONSTRUCTION MARKET OUTLOOK
Earthmoving/construction market net sales were higher in 2017 when compared to 2016 mainly due to higher net sales volumes. Demand for larger products used in the mining industry improved in 2017, with growth in international markets out-pacing growth in the U.S. Demand for our products in this market is anticipated to continue to improve in 2018. Demand for small and medium-sized earthmoving/construction equipment used in the housing and commercial construction sectors is also anticipated to be up. The earthmoving/construction segment is affected by many variables, including commodity prices, road construction, infrastructure, government appropriations, housing starts, and other macroeconomic drivers.
CONSUMER MARKET OUTLOOK
Consumer market net sales were higher in 2017 when compared to 2016. Net sales in the consumer market increased primarily as the result of favorable currency translation, but net sales volumes and prices also improved in most regions. The consumer market is expected to remain highly competitive in 2018. The consumer segment is affected by many variables including consumer spending, interest rates, government policies, and other macroeconomic drivers.
PENSIONS
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. These plans are described in Note 22 of the Company’s Notes to Consolidated Financial Statements.
The Company’s recorded liability for pensions is based on a number of assumptions, including discount rates, rates of return on investments, mortality rates, and other factors. Certain of these assumptions are determined by the Company with the assistance of outside actuaries. Assumptions are based on past experience and anticipated future trends. These assumptions are reviewed on a regular basis and revised when appropriate. Revisions in assumptions and actual results that differ from the assumptions affect future expenses, cash funding requirements, and the carrying value of the related obligations. During the year ended December 31, 2017, the Company contributed cash funds of $0.9 million to the pension plans. Titan expects to contribute approximately $5 million to these pension plans during 2018.
Titan’s projected benefit obligation at December 31, 2017, was $119.7 million, as compared to $113.1 million at December 31, 2016. The Company’s defined benefit pension plans were underfunded by $36.7 million at December 31, 2017. During 2017, the Company recorded net periodic pension expense of $2.6 million. Accumulated other comprehensive loss recorded for defined benefit pension plans, net of tax, was $24.1 million and $25.7 million at December 31, 2017 and 2016, respectively. Other comprehensive income (loss) is recorded as a direct charge to stockholders’ equity and does not affect net income. Titan will be required to record net periodic pension cost in the future; these costs may fluctuate based upon revised assumptions and could negatively affect the Company’s financial position, cash flows, and results of operations.
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." This update supersedes the revenue recognition requirements in Topic 605, Revenue Recognition. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance also requires disclosure about the nature, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amendments in this update were deferred by ASU No. 2015-14, "Revenue from Contracts with Customers (Topic 606) Deferral of Effective Date," and are now effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company has compared its current revenue recognition policies to the requirements of ASU No. 2014-09. For the majority of Titan’s revenue arrangements, no significant impacts were identified as these transactions are not accounted for under industry-specific guidance that will be superseded by ASU No. 2014-09 and generally consist of a single performance obligation to transfer promised goods or services. The Company did not identify any material differences in the amount and timing of revenue recognition related to ASU No. 2014-09. The Company identified some immaterial differences in the timing of revenue recognition related to a small subsidiary of Titan. The Company will adopt the new revenue guidance effective January 1, 2018, on a modified retrospective basis by recognizing the cumulative effect of initially applying the new standard as an adjustment to the opening balance of retained earnings. This adjustment is expected to be less than $1 million, with an immaterial impact to the Company's net income (loss) on an ongoing basis. In accordance with the guidance, the Company will include any additional required disclosure beginning with the Form 10-Q for the first quarter of 2018.
In April 2016, the FASB issued ASU No. 2016-10, "Identifying Performance Obligations and Licensing." This ASU clarifies the following aspects of Topic 606: identifying performance obligations and the licensing implementation guidance. In May 2016, the FASB issued ASU No. 2016-12, "Narrow-Scope Improvements and Practical Expedients." This ASU affects only narrow aspects of Topic 606 related to assessing the collectability criterion; presentation of sales tax; noncash consideration; and contract modifications and completed contracts at transition. The amendments in these updates affect the guidance in ASU No. 2014-09, as previously discussed above, and the effective dates are the same as those for ASU No. 2014-09.
In December 2016, the FASB issued ASU No. 2016-20, "Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers." The amendments in this update affect narrow aspects of the guidance issued in ASU No. 2014-09, as discussed above, and the effective dates are the same as those for ASU No. 2014-09.
In January 2016, the FASB issued ASU No. 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities." This update addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)." This update was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently assessing the impact that adopting this new accounting guidance will have on the Company's consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, "Classification of Certain Cash Receipts and Cash Payments." This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted in any interim or annual reporting period. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, "Intra-Entity Transfers of Assets other than Inventory." This update requires the recognition of income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. The Company adopted this guidance early, effective January 1, 2017. The adoption of this guidance did not have a material effect on the Company's consolidated financial statements.
In March 2017, the FASB issued ASU No. 2017-07, "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." This update requires an employer to report the service cost component of defined benefit pension cost and postretirement benefit cost in the same line item of the income statement as other compensation costs arising from services rendered by the pertinent employees during the period. The amendments in this update are effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, "Scope of Modification Accounting." This update provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in accordance with Topic 718, Compensation-Stock Compensation. The amendments in this update are effective for annual reporting periods, and interim periods within those annual reporting periods, beginning after December 15, 2017. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.
In February 2018, the FASB issued ASU No. 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." The amendments in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. The amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently assessing the impact that adopting this new accounting guidance will have on the Company's consolidated financial statements.
ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to Part II, Item 7 Part II of this report.
ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to Part IV, Item 15 Part IV of this report, “Exhibits and Financial Statement Schedules.”
32
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ITEM 9 | – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not applicable.
ITEM 9A – 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 underin Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of December 31, 2017.2022. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2017,2022, 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 isare 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.
Changes in Internal Control over Financial Reporting
There were no changes in Titan's internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) under the Exchange Act) that occurred during the fourth quarter of fiscal 20172022 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Management's Report on Internal Control over Financial Reporting
Titan management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company's internal control over financial reporting is designed 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 in the United States. Internal control over financial reporting includes those policies, procedures, and activities that:
•pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the Company;
•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements.
Titan management, including the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2017.2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the "Internal Control-Integrated Framework (2013)." Based on this assessment, management concluded that the Company maintained effective internal control over financial reporting as of December 31, 2017.2022.
The effectiveness of Titan's internal control over financial reporting as of December 31, 2017, has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in their report within this Form 10-K.
Inherent Limitations on the Effectiveness of Controls
Because of its inherent limitations, the Company's disclosure controls and procedures or internal control over financial reporting may not prevent or detect all misstatements or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in a cost-effective control system, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur due to simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.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.
ITEM 9B – OTHER INFORMATION
None.
ITEM 9C – DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Directors
The informationInformation required by this item regarding the Company’s directors is incorporated herein by reference to the Company’s 20182023 Proxy Statement under the captions “Election“Proposal #1 - Election of Directors,” “Committees and Meetings of the Board of Directors”Directors; Meetings” and “Corporate Governance.”
Executive Officers
The names, ages, and positions of all executive officers of the Company are listed below, followed by a brief account of their business experience during the past five years. Officers are normally appointed annually by the Board of Directors at a meeting immediately following the Annual Meeting of Stockholders. There is no arrangement or understanding between any officer and any other person pursuant to which an officer was selected.
Paul G. Reitz, 45,50, joined the Company in July 2010 as Chief Financial Officer. Mr. Reitz was appointed President in February 2014. In December 2016, Mr. Reitz was appointed President and Chief Executive Officer.
James M. Froisland, 67,David A. Martin, 55, joined the Company in December 2016June 2018 as Chief Financial Officer and was also appointed Chief Information Officer in July 2017. Mr. Froisland previously served as the Company's Interim Chief Financial Officer from May 2016 until December 2016.Officer. Prior to joining Titan, Mr. FroislandMartin served from 1993 to 2018 in various roles at Aegion Corporation, a global technology/service provider maintaining, protecting and strengthening infrastructure, primarily pipelines, that was an independent consultant, providing consulting and advisory services concerning strategy, capital structure, valuations, information technology, and served in Interimlisted on the NASDAQ Global Select Market. Mr. Martin’s roles included Chief Financial Officer roles from 20122007 to 2016. Mr. Froisland served as a director of Westell Technologies, Inc. from 2009 to 2014.November 2017.
Michael G. Troyanovich, 60,65, joined the Company in August 2011 as Assistant General Counsel. Mr. Troyanovich was appointed Secretary in December 2012, and General Counsel in June 2013.
Section 16(a) Beneficial Ownership Reporting ComplianceTony C. Eheli, 45, joined the Company in March 2021 as Vice President and Chief Accounting Officer. Prior to joining Titan, Mr. Eheli served from 2011 to 2021 in various roles at Danaher Corporation, including as a Global Director of Financial Planning and Analysis and as a Global Corporate Controller of two separate divisions of Danaher.
The information required by this item regarding beneficial ownership reporting compliance is incorporated by reference to the Company’s 2018 Proxy Statement under the caption “Section 16(a) Beneficial Ownership Reporting Compliance.”
Business Conduct Policy
The Company adopted a business conduct policy, which is applicable to directors, officers and employees. The Company has also adopted corporate governance guidelines. The business conduct policy and corporate governance guidelines are available under the investor information categoryInvestor Relations section of the Company’s website, www.titan-intl.com. The Company intends to satisfy disclosure requirements regarding amendments to or waivers from its business conduct policy by posting such information on its website. Printed copies of the business conduct policy and corporate governance guidelines are available, without charge, by writing to: Titan International, Inc., c/o Corporate Secretary, 2701 Spruce Street, Quincy,1525 Kautz Road, Suite 600, West Chicago, IL 62301.60185.
ITEM 11 – EXECUTIVE COMPENSATION
The informationInformation required by this item regarding executive compensation is incorporated herein by reference to the Company’s 20182023 Proxy Statement under the caption “Compensation of Executive Officers.”
ITEM 12– SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The informationInformation required by this item regarding security ownership is incorporated herein by reference to the Company’s 20182023 Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management.”
ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The informationInformation required by this item regarding relationships and related party transactions is incorporated herein by reference to the Company’s 20182023 Proxy Statement under the captions “Certain Relationships and Related Party Transactions” and “Corporate Governance” and also appears in Note 2827 of the Company’s Notes to Consolidated Financial Statements.
ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES
The informationInformation required by this item regarding audit fees and services is incorporated by reference herein to the Company’s 20182023 Proxy Statement under the caption “Audit and Other Fees.”
PART IV
ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The accompanying Exhibit Index is incorporated herein by reference.
TITAN INTERNATIONAL, INC.
Exhibit Index
Annual Report on Form 10-K |
| | | | |
| Exhibit No. | DESCRIPTION |
| 3.1 (a) | |
| 3.2 (a) | |
4.1 (b)4.1* | |
| 4.2 (b) | |
| 4.3 (b) | |
| 10.1 (c) | |
| 10.2 (d) | |
10.3 (e) | |
10.4 (f)10.3 (e) | |
10.5 (g)10.4 (f) | |
10.6 (e) | |
10.7 (d)10.5 (g) | |
| 10.6 (h) | |
10.8 (h)10.7 (i) | Agreement, dated as of February 26, 2016, by and among the Company and MHR Institutional Partners III LP, MHR Capital Partners Master Account LP, MHR Capital Partners (100) LP, MHR Institutional Advisors III LLC, MHR Advisors LLC, MHRC LLC, MHR Fund Management LLC, MHR Holdings LLC and Mark H. Rachesky |
10.9 (i)10.8 (j) | |
10.10 (j)10.9 (k) | |
21*10.10 (l) | |
| 10.11 (m) | Amendment, dated as of February 25, 2019, to the February 26, 2016, Agreement by and among the Company and MHR Institutional Partners III LP, MHR Capital Partners Master Account LP, MHR Capital Partners (100) LP, MHR Institutional Advisors III LLC, MHR Advisors LLC, MHRC LLC, MHR Fund Management LLC, MHR Holdings LLC and Mark H. Rachesky |
| 10.12 (n) | |
| 10.13 (o) | |
| 10.14 (p) | |
| 10.15 (q) | |
| 10.16 (r)*** | |
| 21* | |
31.1*22* | |
| 23* | |
| 31.1* | |
| 31.2* | |
| 32* | |
101.INS101.SCH | XBRL Instance Document - the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Filed herewith
** Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.
| |
(a) | Incorporated by reference to the same numbered exhibit contained in the Company’s Current Report on Form 8-K filed on June 29, 2015 (No. 1-12936). |
| |
(b) | Incorporated by reference to the same numbered exhibit contained in the Company’s Current Report on Form 8-K filed on November 20, 2017 (No. 1-12936). |
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(c) | Incorporated by reference to Appendix A of the Company’s Definitive Proxy Statement filed on March 28, 2011. |
| |
(d) | Incorporated by reference to the same numbered exhibit contained in the Company's Form 10-Q for the quarterly period ended March 31, 2016 (No. 1-12936). |
| |
(e) | Incorporated by reference to the same numbered exhibit contained in the Company's Current Report on Form 8-K filed on December 23, 2015 (No. 1-12936). |
| |
(f) | Incorporated by reference to the same numbered exhibit contained in the Company's Current Report on Form 8-K filed on December 9, 2016 (No. 1-12936). |
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(g) | Incorporated by reference to the same numbered exhibit contained in the Company's Current Report on Form 8-K filed on December 7, 2016 (No. 1-12936). |
| |
(h) | Incorporated by reference to the same numbered exhibit contained in the Company's Current Report on Form 8-K filed on February 29, 2016 (No. 1-12936). |
| |
(i) | Incorporated by reference to the same numbered exhibit contained in the Company's Current Report on Form 8-K filed on October 3, 2016 (No. 1-12936). |
| |
(j) | Incorporated by reference to the same numbered exhibit contained in the Company's Current Report on Form 8-K filed on February 23, 2017 (No. 1-12936). |
***Certain portions of this document that contain confidential information have been redacted in accordance with Regulation S-K Item 601(b)(10)(iv).
(a)Incorporated by reference to the same numbered exhibit contained in the Company’s Current Report on Form 8-K filed on June 29, 2015 (No. 1-12936).
(b)Incorporated by reference to the same numbered exhibit contained in the Company’s Current Report on Form 8-K filed on November 20, 2017 (No. 1-12936).
(c)Incorporated by reference to Appendix A of the Company’s Definitive Proxy Statement filed on April 30, 2021.
(d)Incorporated by reference to exhibit 10.1 contained in the Company's Current Report on Form 8-K filed on December 23, 2015 (No. 1-12936).
(e)Incorporated by reference to exhibit 10.3 contained in the Company's Current Report on Form 8-K filed on December 9, 2016 (No. 1-12936).
(f)Incorporated by reference to exhibit 10.3 contained in the Company's Current Report on Form 8-K filed on December 23, 2015 (No. 1-12936).
(g)Incorporated by reference to exhibit 10 contained in the Company's Current Report on Form 8-K filed on June 15, 2018 (No. 1-12936).
(h)Incorporated by reference to exhibit 10.1 contained in the Company's Form 10-Q for the quarterly period ended March 31, 2016 (No. 1-12936).
(i)Incorporated by reference to exhibit 10 contained in the Company's Current Report on Form 8-K filed on February 29, 2016 (No. 1-12936).
(j)Incorporated by reference to exhibit 10 contained in the Company's Current Report on Form 8-K filed on October 3, 2016 (No. 1-12936).
(k)Incorporated by reference to exhibit 10 contained in the Company's Current Report on Form 8-K filed on February 23, 2017 (No. 1-12936).
(l)Incorporated by reference to exhibit 10 contained in the Company's Form 10-Q for the quarterly period ended September 30, 2018 (No. 1-12936).
(m)Incorporated by reference to exhibit 10 contained in the Company's Current Report on Form 8-K filed on February 25, 2019 (No 1-12936).
(n)Incorporated by reference to exhibit 10 contained in the Company's Current Report on Form 8-K filed on May 21, 2019 (No 1-12936).
(o)Incorporated by reference to exhibit 10 contained in the Company's Current Report on Form 8-K filed on February 26, 2021 (No 1-12936).
(p)Incorporated by reference to exhibit 10 contained in the Company's Current Report on Form 8-K filed on October 28, 2021 (No 1-12936).
(q)Incorporated by reference to exhibit 10 contained in the Company’s Current Report on Form 8-K filed on February 4, 2022 (No. 1-12936).
(r)Incorporated by reference to exhibit 10 contained in the Company’s Current Report on Form 8-K filed on June 17, 2022 (No. 1-12936).
ITEM 16 – FORM 10-K SUMMARY
None.
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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.
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| TITAN INTERNATIONAL, INC. |
| (Registrant) |
|
| | | |
| TITAN INTERNATIONAL, INC. |
| (Registrant) |
| | | | | | | | | | | |
| Date: | February 22, 201827, 2023 | By: | /s/ PAUL G. REITZ |
| | | Paul G. Reitz |
| | | President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 22, 2018.27, 2023.
|
| | | | |
| Signatures | Capacity | |
| | |
| /s/ PAUL G. REITZ | President, Chief Executive Officer and Director | |
| Paul G. Reitz | (Principal Executive Officer) | |
| | |
/s/ JAMES M. FROISLANDDAVID A. MARTIN | SVP and Chief Financial Officer and Chief Information Officer | |
James M FroislandDavid A. Martin | (Principal Financial and Accounting Officer) | |
| /s/ TONY C. EHELI | | VP, Chief Accounting Officer |
| Tony C. Eheli | (Principal Accounting Officer) |
| /s/ MAURICE M. TAYLOR JR. | Chairman | |
| Maurice M. Taylor Jr. | | |
| | |
| /s/ RICHARD M. CASHIN JR. | Director | |
| Richard M. Cashin Jr. | |
| /s/ MAX A. GUINN | Director |
| Max A. Guinn | | |
/s/ GARY L. COWGER | Director | |
Gary L. Cowger | | |
| | |
/s/ ALBERT J. FEBBO | Director | |
Albert J. Febbo | | |
| | |
/s/ PETER MCNITT | Director | |
Peter McNitt | | |
| | |
| /s/ DR. MARK RACHESKY | Director | |
| Dr. Mark Rachesky | | |
| | |
| /s/ ANTHONY L. SOAVE | Director | |
| Anthony L. Soave | |
| /s/ LAURA K. THOMPSON | Director |
| Laura K. Thompson | |
Management’s Responsibility for Financial Statements
Management is responsible for the preparation of the Company’s consolidated financial statements included in this annual report on Form 10-K. Management believes that the consolidated financial statements fairly reflect the Company’s financial transactions and the financial statements reasonably present the Company’s financial position and results of operations in conformity with accounting principles generally accepted in the United States of America.
The Board of Directors of the Company has an Audit Committee comprised entirely of outside directors who are independent of management. The Committee meets periodically with management, the internal auditors, and the independent registered public accounting firm to review accounting control, auditing, and financial reporting matters. The Audit Committee is responsible for the appointment of the independent registered public accounting firm and approval of their fees.
The independent registered public accounting firm audits the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). The consolidated financial statements as of December 31, 2017,2022 have been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in their report, which is included herein.
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Titan International, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Titan International, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 20172022 and 2016,2021, the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows for each of the three years in the period ended December 31, 2017,2022, and the related notes and schedulesfinancial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172022 and 2016,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2022, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017,2022, based on criteria established in the 2013 Internal Control-IntegratedControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 22, 2018,27, 2023 expressed an unqualified opinion.
Change in accounting principle
As discussed in Note 1 to the consolidated financial statements, the Company elected to change its method of inventory accounting at its subsidiary Titan Wheel Corporation of Illinois from the last in, first out (LIFO) cost method to the first in, first out (FIFO) cost method in 2017.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.opinion.
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Realizability of Deferred Tax Assets
As described in Note 21 to the consolidated financial statements, deferred tax assets are reduced by a valuation allowance if in management’s judgement it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. Once established, the valuation allowance is released when, based on the evaluation of positive and negative evidence, management concludes that related deferred tax assets are more likely than not to be realized. During the year ended December 31, 2022, management concluded that sufficient positive evidence existed to release a portion of its valuation allowance related to U.S. deferred tax assets, resulting in an income tax benefit of $53.3 million for the year ended December 31, 2022. We identified the realizability of U.S. deferred tax assets as a critical audit matter.
The principal considerations for our determination that the realizability of deferred tax assets is a critical audit matter are (1) the significant judgment by management when determining the realizability of a deferred tax asset (ii) the high degree of auditor judgment and subjectivity in performing procedures and evaluating audit evidence relating to management’s assessment of the realization of deferred tax assets.
Our audit procedures related to the realizability of U.S. deferred tax assets included the following, among others:
•We tested forecasted revenues and profitability used to determine the realizability of deferred tax assets by assessing the reasonableness of management’s forecast compared to historical results and forecasted industry trends
•We reviewed and independently evaluated the historical three-year cumulative income analysis and scheduled reversal of deferred tax liabilities used to determine the realizability of deferred tax assets
•We utilized individuals with specialized skill and knowledge in income taxes to assist in the evaluation of the positive and negative evidence, the analysis of the realizability of the deferred tax assets and the conclusions reached.
/s/ Grant Thornton LLP
We have served as the Company’s auditor since 2012.
Chicago, Illinois
February 22, 2018
Southfield, Michigan
February 27, 2023
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Titan International, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Titan International, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2017,2022, based on criteria established in the 2013 Internal Control-IntegratedControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2022, based on criteria established in the 2013 Internal Control-IntegratedControl—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2017,2022, and our report dated February 22, 2018,27, 2023 expressed an unqualified opinion on those financial statements.statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control overOver Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
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.
/s/ Grant Thornton LLP
Chicago, Illinois
February 22, 2018
February 27, 2023
TITAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except per share data)
| | | | Year ended December 31, | | Year ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2022 | | 2021 | | 2020 |
| Net sales | $ | 1,468,922 |
| | $ | 1,265,497 |
| | $ | 1,394,771 |
| Net sales | $ | 2,169,380 | | | $ | 1,780,215 | | | $ | 1,259,313 | |
| Cost of sales | 1,300,727 |
| | 1,126,633 |
| | 1,260,028 |
| Cost of sales | 1,808,670 | | | 1,542,673 | | | 1,130,194 | |
| Asset impairment | 9,917 |
| | — |
| | — |
| Asset impairment | — | | | — | | | 14,800 | |
| Gross profit | 158,278 |
| | 138,864 |
| | 134,743 |
| Gross profit | 360,710 | | | 237,542 | | | 114,319 | |
| Selling, general and administrative expenses | 150,676 |
| | 144,988 |
| | 140,393 |
| Selling, general and administrative expenses | 132,792 | | | 131,772 | | | 130,942 | |
| Research and development expenses | 10,302 |
| | 9,971 |
| | 11,162 |
| Research and development expenses | 10,404 | | | 10,104 | | | 9,013 | |
| Royalty expense | 10,484 |
| | 8,856 |
| | 10,533 |
| Royalty expense | 11,712 | | | 10,491 | | | 9,715 | |
| Loss from operations | (13,184 | ) | | (24,951 | ) | | (27,345 | ) | |
| | Income (loss) from operations | | Income (loss) from operations | 205,802 | | | 85,175 | | | (35,351) | |
| Interest expense | (30,229 | ) | | (32,539 | ) | | (34,032 | ) | Interest expense | (29,796) | | | (32,221) | | | (30,554) | |
| Loss on senior note repurchase | (18,646 | ) | | — |
| | — |
| Loss on senior note repurchase | — | | | (16,020) | | | — | |
| Foreign exchange gain (loss) | (1,958 | ) | | 8,550 |
| | (4,758 | ) | Foreign exchange gain (loss) | 927 | | | 12,020 | | | (11,025) | |
| Other income | 11,141 |
| | 12,466 |
| | 11,063 |
| Other income | 25,420 | | | 2,086 | | | 18,799 | |
| Loss before income taxes | (52,876 | ) | | (36,474 | ) | | (55,072 | ) | |
| Income (loss) before income taxes | | Income (loss) before income taxes | 202,353 | | | 51,040 | | | (58,131) | |
| Provision for income taxes | 11,203 |
| | 3,281 |
| | 34,756 |
| Provision for income taxes | 23,167 | | | 1,149 | | | 6,946 | |
| Net loss | (64,079 | ) | | (39,755 | ) | | (89,828 | ) | |
| Net loss attributable to noncontrolling interests | (4,037 | ) | | (2,150 | ) | | (14,654 | ) | |
| Net loss attributable to Titan | (60,042 | ) | | (37,605 | ) | | (75,174 | ) | |
| Redemption value adjustment | (6,393 | ) | | (9,556 | ) | | (17,668 | ) | |
| Net loss applicable to common shareholders | $ | (66,435 | ) | | $ | (47,161 | ) | | $ | (92,842 | ) | |
| Net income (loss) | | Net income (loss) | 179,186 | | | 49,891 | | | (65,077) | |
| Net income (loss) attributable to noncontrolling interests | | Net income (loss) attributable to noncontrolling interests | 2,884 | | | 305 | | | (4,689) | |
| Net income (loss) attributable to Titan and applicable to common shareholders | | Net income (loss) attributable to Titan and applicable to common shareholders | $ | 176,302 | | | $ | 49,586 | | | $ | (60,388) | |
| | | | | | | |
| Earnings per common share: | |
| | |
| | |
| |
| | | Earnings (loss) per common share: | | Earnings (loss) per common share: | | | | | |
| Basic | $ | (1.12 | ) | | $ | (.87 | ) | | $ | (1.73 | ) | Basic | $ | 2.80 | | | $ | .80 | | | $ | (.99) | |
| Diluted | $ | (1.12 | ) | | $ | (.87 | ) | | $ | (1.73 | ) | Diluted | $ | 2.77 | | | $ | .79 | | | $ | (.99) | |
| Average common shares and equivalents outstanding: | | | |
| | |
| Average common shares and equivalents outstanding: | | | | |
| Basic | 59,340 |
| | 53,916 |
| | 53,696 |
| Basic | 63,040 | | | 62,100 | | | 60,818 | |
| Diluted | 59,340 |
| | 53,916 |
| | 53,696 |
| Diluted | 63,691 | | | 62,685 | | | 60,818 | |
| | | | | | | |
| Dividends declared per common share: | $ | .02 |
| | $ | .02 |
| | $ | .02 |
| Dividends declared per common share: | $ | — | | | $ | — | | | $ | .01 | |
See accompanying Notes to Consolidated Financial Statements.
TITAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(All amounts in thousands)
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Net income (loss) | $ | 179,186 | | | $ | 49,891 | | | $ | (65,077) | |
| Derivative gain (loss) | 1,263 | | | 374 | | | (413) | |
| Currency translation adjustment, net | (6,507) | | | (42,338) | | | (4,140) | |
| Pension liability adjustments, net of tax of $(383), $39, and $43, respectively | 1,115 | | | 12,308 | | | 3,454 | |
| Comprehensive income (loss) | 175,057 | | | 20,235 | | | (66,176) | |
| Net comprehensive income (loss) attributable to noncontrolling interests | 4,030 | | | (125) | | | (7,185) | |
| Comprehensive income (loss) attributable to Titan | $ | 171,027 | | | $ | 20,360 | | | $ | (58,991) | |
|
| | | | | | | | | | | |
| | Year ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Net loss | $ | (64,079 | ) | | (39,755 | ) | | $ | (89,828 | ) |
| Currency translation adjustment | 30,818 |
| | 5,857 |
| | (79,196 | ) |
| Pension liability adjustments, net of tax of $151, $215, and $(439), respectively | 1,523 |
| | 1,071 |
| | (662 | ) |
| Comprehensive loss | (31,738 | ) | | (32,827 | ) | | (169,686 | ) |
| Net comprehensive income (loss) attributable to redeemable and noncontrolling interests | (2,898 | ) | | 5,305 |
| | (19,391 | ) |
| Comprehensive loss attributable to Titan | $ | (28,840 | ) | | $ | (38,132 | ) | | $ | (150,295 | ) |
See accompanying Notes to Consolidated Financial Statements.
TITAN INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share data)
| | | | December 31, | | December 31, |
| | 2017 | | 2016 | | 2022 | | 2021 |
| Assets | | | | Assets | | | |
| Current assets | | | | Current assets | | | |
| Cash and cash equivalents | $ | 143,570 |
| | $ | 147,827 |
| Cash and cash equivalents | $ | 159,577 | | | $ | 98,108 | |
| Certificates of deposit | — |
| | 50,000 |
| |
| Accounts receivable (net of allowance of $2,974 and $3,344, respectively) | 226,703 |
| | 179,384 |
| |
| | Accounts receivable | | Accounts receivable | 266,758 | | | 255,180 | |
| Inventories | 339,836 |
| | 272,236 |
| Inventories | 397,223 | | | 392,615 | |
| | Prepaid and other current assets | 73,084 |
| | 79,734 |
| Prepaid and other current assets | 86,070 | | | 67,401 | |
| Total current assets | 783,193 |
| | 729,181 |
| Total current assets | 909,628 | | | 813,304 | |
| Property, plant and equipment, net | 421,248 |
| | 437,201 |
| Property, plant and equipment, net | 296,605 | | | 301,109 | |
| Operating lease assets | | Operating lease assets | 8,932 | | | 20,945 | |
| Deferred income taxes | 3,779 |
| | 4,663 |
| Deferred income taxes | 38,736 | | | 16,831 | |
| Other long-term assets | 81,892 |
| | 94,851 |
| Other long-term assets | 30,729 | | | 30,496 | |
| Total assets | $ | 1,290,112 |
| | $ | 1,265,896 |
| Total assets | $ | 1,284,630 | | | $ | 1,182,685 | |
| | | | | | | | |
| Liabilities | |
| | |
| Liabilities | | | |
| Current liabilities | |
| | |
| Current liabilities | | | |
| Short-term debt | $ | 43,651 |
| | $ | 97,412 |
| Short-term debt | $ | 30,857 | | | $ | 32,500 | |
| Accounts payable | 195,497 |
| | 148,255 |
| Accounts payable | 263,376 | | | 278,099 | |
| Other current liabilities | 133,774 |
| | 120,437 |
| Other current liabilities | 151,928 | | | 140,214 | |
| Total current liabilities | 372,922 |
| | 366,104 |
| Total current liabilities | 446,161 | | | 450,813 | |
| Long-term debt | 407,171 |
|
| 408,760 |
| Long-term debt | 414,761 | | | 452,451 | |
| Deferred income taxes | 13,545 |
| | 13,183 |
| Deferred income taxes | 3,425 | | | 3,978 | |
| Other long-term liabilities | 73,197 |
| | 80,161 |
| Other long-term liabilities | 37,145 | | | 48,271 | |
| Total liabilities | 866,835 |
| | 868,208 |
| Total liabilities | 901,492 | | | 955,513 | |
| | Commitments and contingencies: Notes 10, 24, 25 and 26 | |
| | |
| Commitments and contingencies: Notes 10, 24, 25 and 26 | | | |
| | | �� | | |
| Redeemable noncontrolling interest | 113,193 |
| | 104,809 |
| |
| | | | | | |
| Equity | |
| | |
| Equity | | | |
| Titan stockholders' equity | | | | Titan stockholders' equity | |
| Common stock ($0.0001 par, 120,000,000 shares authorized, 60,715,356 issued at December 2017 and 55,253,092 shares issued at December 2016) | — |
| | — |
| |
| Common stock ($0.0001 par, 120,000,000 shares authorized, 66,525,269 issued at December 2022 and 66,492,660 at December 2021) | | Common stock ($0.0001 par, 120,000,000 shares authorized, 66,525,269 issued at December 2022 and 66,492,660 at December 2021) | — | | | — | |
| Additional paid-in capital | 531,708 |
| | 479,075 |
| Additional paid-in capital | 565,546 | | | 562,340 | |
| Retained earnings (deficit) | (44,022 | ) | | 17,214 |
| Retained earnings (deficit) | 90,863 | | | (85,439) | |
| Treasury stock (at cost, 914,797 shares at December 2017 and 1,083,212 shares at December 2016) | (8,606 | ) | | (10,119 | ) | |
| Stock reserved for deferred compensation | (1,075 | ) | | (1,075 | ) | |
| Treasury stock (at cost, 3,681,308 shares at December 2022 and 80,876 shares at December 2021) | | Treasury stock (at cost, 3,681,308 shares at December 2022 and 80,876 shares at December 2021) | (23,418) | | | (1,121) | |
| | Accumulated other comprehensive loss | (157,076 | ) | | (188,278 | ) | Accumulated other comprehensive loss | (251,755) | | | (246,480) | |
| Total Titan stockholders’ equity | 320,929 |
| | 296,817 |
| Total Titan stockholders’ equity | 381,236 | | | 229,300 | |
| Noncontrolling interests | (10,845 | ) | | (3,938 | ) | Noncontrolling interests | 1,902 | | | (2,128) | |
| Total equity | 310,084 |
| | 292,879 |
| Total equity | 383,138 | | | 227,172 | |
| Total liabilities and equity | $ | 1,290,112 |
| | $ | 1,265,896 |
| Total liabilities and equity | $ | 1,284,630 | | | $ | 1,182,685 | |
See accompanying Notes to Consolidated Financial Statements.
TITAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(All amounts in thousands, except share data) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of common shares | | Common stock | | Additional
paid-in
capital | | Retained earnings (deficit) | | Treasury stock | | Stock reserved for deferred compensation | | Accumulated other comprehensive income (loss) | | Total Titan Equity | | Non-controlling interest | | Total
Equity |
| Balance January 1, 2020 | 60,283,212 | | | $ | — | | | $ | 532,070 | | | $ | (74,334) | | | $ | (4,234) | | | $ | — | | | $ | (218,651) | | | $ | 234,851 | | | $ | 4,137 | | | $ | 238,988 | |
| Net loss | | | | | | | (60,388) | | | | | | | | | (60,388) | | | (4,689) | | | (65,077) | |
| Currency translation adjustment, net of tax | | | | | | | | | | | | | (1,644) | | | (1,644) | | | (2496) | | | (4,140) | |
| Pension liability adjustments, net of tax | | | | | | | | | | | | | 3,454 | | | 3,454 | | | | | 3,454 | |
| Derivative loss | | | | | | | | | | | | | (413) | | | (413) | | | | | (413) | |
| Dividends declared | | | | | | | (303) | | | | | | | | | (303) | | | | | (303) | |
| Stock-based compensation | 440,558 | | | | | 1,562 | | | | | 900 | | | | | | | 2,462 | | | | | 2,462 | |
| VIE deconsolidation and distributions | | | | | | | | | | | | | | | — | | | (559) | | | (559) | |
| Noncontrolling interest contributions | | | | | | | | | | | | | | | — | | | 608 | | 608 | |
| Issuance of treasury stock under 401(k) plan | 653,211 | | | | | (890) | | | | | 2,135 | | | | | | | 1,245 | | | | | 1,245 | |
| Balance December 31, 2020 | 61,376,981 | | | $ | — | | | $ | 532,742 | | | $ | (135,025) | | | $ | (1,199) | | | $ | — | | | $ | (217,254) | | | $ | 179,264 | | | $ | (2,999) | | | $ | 176,265 | |
| Net income | | | | | | | 49,586 | | | | | | | | | 49,586 | | | 305 | | | 49,891 | |
| Currency translation adjustment, net of tax | | | | | | | | | | | | | (41,908) | | | (41,908) | | | (430) | | | (42,338) | |
| Pension liability adjustments, net of tax | | | | | | | | | | | | | 12,308 | | | 12,308 | | | | | 12,308 | |
| Derivative gain | | | | | | | | | | | | | 374 | | | 374 | | | | | 374 | |
| | | | | | | | | | | | | | | | | | | |
| Stock-based compensation | 827,277 | | | | | 3,363 | | | | | 78 | | | | | | | 3,441 | | | | | 3,441 | |
| VIE deconsolidation and distributions | | | | | | | | | | | | | | | — | | | 996 | | | 996 | |
| | | | | | | | | | | | | | | | | | | |
| Issuance of common stock under 401(k) plan | 175,267 | | | | | 1,235 | | | | | | | | | | | 1,235 | | | | | 1,235 | |
| RDIF settlement | 4,032,259 | | | | | 25,000 | | | | | | | | | | | 25,000 | | | | | 25,000 | |
| Balance December 31, 2021 | 66,411,784 | | | $ | — | | | $ | 562,340 | | | $ | (85,439) | | | $ | (1,121) | | | $ | — | | | $ | (246,480) | | | $ | 229,300 | | | $ | (2,128) | | | $ | 227,172 | |
| Net income | | | | | | | 176,302 | | | | | | | | | 176,302 | | | 2,884 | | | 179,186 | |
| Currency translation adjustment, net of tax | | | | | | | | | | | | | (7,653) | | | (7,653) | | | 1,146 | | | (6,507) | |
| Pension liability adjustments, net of tax | | | | | | | | | | | | | 1,115 | | | 1,115 | | | | | 1,115 | |
| Derivative gain | | | | | | | | | | | | | 1,263 | | | 1,263 | | | | | 1,263 | |
| Stock-based compensation | 339,791 | | | | | 2,151 | | | | | 2,131 | | | | | | | 4,282 | | | | | 4,282 | |
| Issuance of common stock and treasury stock under 401(k) plan | 124,645 | | | | | 1,055 | | | | | 572 | | | | | | | 1,627 | | | | | 1,627 | |
| Common stock repurchase | (4,032,259) | | | | | | | | | (25,000) | | | | | | | (25,000) | | | | | (25,000) | |
| Balance December 31, 2022 | 62,843,961 | | | $ | — | | | $ | 565,546 | | | $ | 90,863 | | | $ | (23,418) | | | $ | — | | | $ | (251,755) | | | $ | 381,236 | | | $ | 1,902 | | | $ | 383,138 | |
| | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of common shares | | Common stock | | Additional paid-in capital | | Retained earnings (deficit) | | Treasury stock | | Stock reserved for deferred compensation | | Accumulated other comprehensive income (loss) | | Total Titan Equity | | Non-controlling interest | | Total Equity |
| Balance January 1, 2015 | 53,749,028 |
| | $ | — |
| | $ | 513,090 |
| | $ | 132,111 |
| | $ | (13,897 | ) | | $ | (1,075 | ) | | $ | (112,630 | ) | | $ | 517,599 |
| | $ | 7,371 |
| | $ | 524,970 |
|
| Net loss * | |
| | |
| | |
| | (75,174 | ) | | |
| | |
| | |
| | (75,174 | ) | | (7,640 | ) | | (82,814 | ) |
| CTA, net of tax * | | | | | | | | | | | | | (74,459 | ) | | (74,459 | ) | | (65 | ) | | (74,524 | ) |
| Pension liability adjustments, net of tax | |
| | |
| | |
| | |
| | |
| | |
| | (662 | ) | | (662 | ) | | | | (662 | ) |
| Dividends declared | |
| | |
| | |
| | (1,077 | ) | | |
| | |
| | |
| | (1,077 | ) | | | | (1,077 | ) |
| Restricted stock awards vesting | 86,500 |
| | | | (777 | ) | | | | 777 |
| | | | | | — |
| | | | — |
|
| Exercise of stock options | 12,500 |
| | | | 33 |
| | |
| | 112 |
| | |
| | |
| | 145 |
| | | | 145 |
|
| Dissolution of subsidiary |
|
| | | |
|
| | | | | | | |
|
| | — |
| | (42 | ) | | (42 | ) |
| Redemption value adjustment | | | | | (17,668 | ) | | | | | | | | | | (17,668 | ) | |
|
| | (17,668 | ) |
| Stock-based compensation | |
| | |
| | 2,335 |
| | |
| | |
| | |
| | |
| | 2,335 |
| | | | 2,335 |
|
| Issuance of treasury stock under 401(k) plan | 65,481 |
| | |
| | (5 | ) | | |
| | 588 |
| | |
| | |
| | 583 |
| | | | 583 |
|
| Balance December 31, 2015 | 53,913,509 |
| | — |
| | 497,008 |
| | 55,860 |
| | (12,420 | ) | | (1,075 | ) | | (187,751 | ) | | 351,622 |
| | (376 | ) | | 351,246 |
|
| Net loss * |
|
| |
|
| |
|
| | (37,605 | ) | |
|
| |
|
| |
|
| | (37,605 | ) | | (4,346 | ) | | (41,951 | ) |
| CTA, net of tax * | | | | | | | | | | | | | 1,893 |
| | 1,893 |
| | 119 |
| | 2,012 |
|
| Pension liability adjustments, net of tax |
|
| |
| |
|
| |
|
| |
|
| |
|
| | 1,071 |
| | 1,071 |
| | | | 1,071 |
|
| Dividends declared |
|
| |
|
| |
|
| | (1,081 | ) | |
|
| |
|
| |
|
| | (1,081 | ) | | | | (1,081 | ) |
| Restricted stock awards vesting | 162,880 |
| | | | (1,463 | ) | | | | 1,463 |
| | | | | | — |
| | | | — |
|
| Acquisition of additional interest | | | | | (8,548 | ) | | 40 |
| | | | | | (3,491 | ) | | (11,999 | ) | | (40 | ) | | (12,039 | ) |
| Redemption value adjustment | | | | | (9,556 | ) | | | | | | | | | | (9,556 | ) | | | | (9,556 | ) |
| Stock-based compensation |
|
| |
| | 1,954 |
| |
|
| |
|
| |
|
| |
|
| | 1,954 |
| | | | 1,954 |
|
| VIE consolidation and distributions |
|
| |
| |
|
| |
|
| |
|
| |
|
| |
|
| | — |
| | 705 |
| | 705 |
|
| Issuance of treasury stock under 401(k) plan | 93,491 |
| |
| | (320 | ) | |
|
| | 838 |
| |
|
| |
|
| | 518 |
| | | | 518 |
|
| Balance December 31, 2016 | 54,169,880 |
| | — |
| | 479,075 |
| | 17,214 |
| | (10,119 | ) | | (1,075 | ) | | (188,278 | ) | | 296,817 |
| | (3,938 | ) | | 292,879 |
|
| Net loss * |
|
| |
|
| |
|
| | (60,042 | ) | |
|
| |
|
| |
|
| | (60,042 | ) | | (4,121 | ) | | (64,163 | ) |
| CTA, net of tax * |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | 29,679 |
| | 29,679 |
| | (768 | ) | | 28,911 |
|
| Pension liability adjustments, net of tax |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | 1,523 |
| | 1,523 |
| |
|
| | 1,523 |
|
| Dividends declared |
|
| |
|
| |
|
| | (1,194 | ) | |
|
| |
|
| |
|
| | (1,194 | ) | |
| | (1,194 | ) |
| Note conversion | 5,462,264 |
| |
|
| | 58,460 |
| |
|
| |
|
| |
|
| |
|
| | 58,460 |
| |
|
| | 58,460 |
|
| Restricted stock awards | 119,173 |
| | | | (1,071 | ) | |
|
| | 1,071 |
| |
|
| |
|
| | — |
| |
|
| | — |
|
| Redemption value adjustment |
|
| |
|
| | (6,393 | ) | |
|
| |
|
| |
|
| |
|
| | (6,393 | ) | |
|
| | (6,393 | ) |
| Stock-based compensation |
|
| |
|
| | 1,539 |
| |
|
| |
|
| |
|
| |
|
| | 1,539 |
| |
|
| | 1,539 |
|
| VIE distributions |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | — |
| | (2,018 | ) | | (2,018 | ) |
| Issuance of treasury stock under 401(k) plan | 49,242 |
| |
|
| | 98 |
| |
|
| | 442 |
| |
|
| |
|
| | 540 |
| |
|
| | 540 |
|
| Balance December 31, 2017 | 59,800,559 |
| | $ | — |
|
| $ | 531,708 |
|
| $ | (44,022 | ) |
| $ | (8,606 | ) |
| $ | (1,075 | ) |
| $ | (157,076 | ) | | $ | 320,929 |
| | $ | (10,845 | ) | | $ | 310,084 |
|
* Net income (loss) excludes income (loss) attributable to redeemable noncontrolling interest of $(7,014), $2,196, and $84 for 2015, 2016, and 2017, respectively. CTA excludes $(4,672), $3,844, and $1,907 for 2015, 2016, and 2017, respectively.
See accompanying Notes to Consolidated Financial Statements.
TITAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands) | | | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| Cash flows from operating activities: | 2022 | | 2021 | | 2020 |
| Net income (loss) | $ | 179,186 | | | $ | 49,891 | | | $ | (65,077) | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 42,747 | | | 47,991 | | | 54,655 | |
| Asset impairment | — | | | — | | | 20,823 | |
| Loss on sale of the Australian wheel business | 10,890 | | | — | | | — | |
| Loss on senior note repurchase | — | | | 16,020 | | | — | |
| Deferred income tax benefit | (23,385) | | | (14,180) | | | (3,007) | |
| Income on indirect taxes | (32,043) | | | — | | | — | |
| Gain on fixed asset and investment sale | (216) | | | (569) | | | (4,152) | |
| Gain on property insurance settlement | — | | | — | | | (8,657) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Stock-based compensation | 4,282 | | | 3,441 | | | 2,462 | |
| | | | | |
| | | | | |
| Issuance of common stock under 401(k) plan | 1,627 | | | 1,235 | | | 1,245 | |
| Foreign currency translation loss (gain) | 2,661 | | | (8,930) | | | 12,444 | |
| (Increase) decrease in assets: | | | | | |
| Accounts receivable | (27,201) | | | (74,736) | | | (15,236) | |
| Inventories | (19,598) | | | (112,850) | | | 37,747 | |
| Prepaid and other current assets | 11,366 | | | (15,671) | | | 2,312 | |
| Other long-term assets | (1,288) | | | (5,298) | | | (1,071) | |
| Increase (decrease) in liabilities: | | | | | |
| Accounts payable | (7,754) | | | 121,189 | | | 11,942 | |
| Other current liabilities | 18,888 | | | 14,781 | | | 24,025 | |
| Other liabilities | 516 | | | (11,588) | | | (13,226) | |
| Net cash provided by operating activities | 160,678 | | | 10,726 | | | 57,229 | |
| Cash flows from investing activities: | | | | | |
| Capital expenditures | (46,974) | | | (38,802) | | | (21,680) | |
| | | | | |
| Proceeds from the sale of the Australian wheel business | 9,293 | | | — | | | — | |
| Sale of Wheels India Limited shares | — | | | — | | | 32,852 | |
| | | | | |
| Proceeds from property insurance settlement | — | | | — | | | 8,657 | |
| | | | | |
| Other investing activities | 930 | | | 1,203 | | | 13,392 | |
| Net cash (used for) provided by investing activities | (36,751) | | | (37,599) | | | 33,221 | |
| Cash flows from financing activities: | | | | | |
| Proceeds from borrowings | 88,940 | | | 497,149 | | | 91,639 | |
| Repurchase of senior secured notes | — | | | (413,000) | | | — | |
| Payment on debt | (124,739) | | | (69,182) | | | (126,393) | |
| Repurchase of common stock | (25,000) | | | — | | | — | |
| Dividends paid | — | | | — | | | (603) | |
| Other financing activities | (511) | | | (1,021) | | | (3,208) | |
| Net cash (used for) provided by financing activities | (61,310) | | | 13,946 | | | (38,565) | |
| Effect of exchange rate changes on cash | (1,148) | | | (6,396) | | | (1,253) | |
| Net increase (decrease) in cash and cash equivalents | 61,469 | | | (19,323) | | | 50,632 | |
| Cash and cash equivalents, beginning of year | 98,108 | | | 117,431 | | | 66,799 | |
| Cash and cash equivalents, end of year | $ | 159,577 | | | $ | 98,108 | | | $ | 117,431 | |
| | | | | |
| Supplemental information: | | | | | |
| Interest paid | $ | 31,604 | | | $ | 34,578 | | | $ | 29,233 | |
| Income taxes paid, net of refunds received | $ | 24,105 | | | $ | 16,263 | | | $ | 12,355 | |
|
| | | | | | | | | | | |
| | Year ended December 31, |
| Cash flows from operating activities: | 2017 | | 2016 | | 2015 |
| Net loss | $ | (64,079 | ) | | $ | (39,755 | ) | | $ | (89,828 | ) |
| Adjustments to reconcile net loss to net cash provided by (used for) operating activities: | |
| | |
| | |
|
| Depreciation and amortization | 58,444 |
| | 59,768 |
| | 69,618 |
|
| Asset impairment | 9,917 |
| | — |
| | — |
|
| Deferred income tax provision | 785 |
| | (680 | ) | | 24,444 |
|
| Loss on note repurchase | 18,646 |
| | — |
| | — |
|
| Stock-based compensation | 1,539 |
| | 1,993 |
| | 2,335 |
|
| Issuance of treasury stock under 401(k) plan | 540 |
| | 518 |
| | 583 |
|
| Foreign currency translation loss | 5,258 |
| | 9,734 |
| | 12,058 |
|
| (Increase) decrease in assets: | |
| | |
| | |
|
| Accounts receivable | (38,478 | ) | | 4,007 |
| | 497 |
|
| Inventories | (55,562 | ) | | 7,992 |
| | 34,399 |
|
| Prepaid and other current assets | 9,277 |
| | (16,718 | ) | | 9,946 |
|
| Other long-term assets | 15,134 |
| | (109 | ) | | (4,780 | ) |
| Increase (decrease) in liabilities: | |
| | |
| | |
|
| Accounts payable | 37,584 |
| | 20,953 |
| | 1,402 |
|
| Other current liabilities | 9,522 |
| | 3,635 |
| | (172 | ) |
| Other liabilities | (9,816 | ) | | (7,838 | ) | | 3,428 |
|
| Net cash provided by (used for) operating activities | (1,289 | ) | | 43,500 |
| | 63,930 |
|
| Cash flows from investing activities: | |
| | |
| | |
|
| Capital expenditures | (32,626 | ) | | (41,948 | ) | | (48,429 | ) |
| Certificates of deposit | 50,000 |
| | (50,000 | ) | | — |
|
| Other | 993 |
| | 2,222 |
| | (1,508 | ) |
| Net cash provided by (used for) investing activities | 18,367 |
| | (89,726 | ) | | (49,937 | ) |
| Cash flows from financing activities: | |
| | |
| | |
|
| Proceeds from borrowings | 447,639 |
| | 17,285 |
| | 5,727 |
|
| Repurchase of senior secured notes | (415,395 | ) | | — |
| | — |
|
| Payment on debt | (55,160 | ) | | (22,634 | ) | | (5,521 | ) |
| Proceeds from exercise of stock options | — |
| | — |
| | 145 |
|
| Dividends paid | (1,167 | ) | | (1,081 | ) | | (1,077 | ) |
| Net cash used for financing activities | (24,083 | ) | | (6,430 | ) | | (726 | ) |
| Effect of exchange rate changes on cash | 2,748 |
| | 295 |
| | (14,530 | ) |
| Net decrease in cash and cash equivalents | (4,257 | ) | | (52,361 | ) | | (1,263 | ) |
| Cash and cash equivalents, beginning of year | 147,827 |
| | 200,188 |
| | 201,451 |
|
| Cash and cash equivalents, end of year | $ | 143,570 |
| | $ | 147,827 |
| | $ | 200,188 |
|
| | | | | | |
| Supplemental information: | | | | | |
| Interest paid | $ | 38,164 |
| | $ | 34,380 |
| | $ | 34,072 |
|
| Income taxes paid, net of refunds received | $ | 4,594 |
| | $ | 5,463 |
| | $ | (195 | ) |
| Non-cash investing and financing information: | | | | | |
| Issuance of common stock for convertible debt payment | $ | 58,460 |
| | $ | — |
| | $ | — |
|
See accompanying Notes to Consolidated Financial Statements.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES | |
1. | DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES |
Business
Titan International, Inc. and its subsidiaries (Titan or the Company) are leading manufacturers of wheels, tires, and undercarriage systems and components for off-highway vehicles used in the agricultural, earthmoving/construction, and consumer segments. Titan manufactures both wheels and tires for the majority of these market applications, allowing the Company to provide the value-added service of delivering complete wheel and tire assemblies. The Company offers a broad range of products that are manufactured to meet the specifications of original equipment manufacturers (OEMs) and/or the requirements of aftermarket customers.
Principles of consolidation
The consolidated financial statements include the accounts of all majority-owned subsidiaries and variable interest entities in which Titan is the primary beneficiary. Investments in companies in which Titan does not own a majority interest, andbut which Titan has the ability to exercise significant influence over operating and financial policies are accounted for using the equity method. Investments in other companies are carried at cost. All significant intercompany accounts and transactions have been eliminated.
COVID-19 pandemic
The COVID-19 pandemic impact on the Company was less for the year ended December 31, 2022 than in the comparable period in 2021. The Company’s operations resumed with additional sanitary and other protective health measures, which have increased operating costs. While the Company's operations began to return to historical levels during 2021 and continuing into 2022, certain geographies (particularly China) continue to remain impacted resulting in employee absenteeism. Further, global supply chains are experiencing constraints following the COVID-19 pandemic, including availability and pricing of raw materials, transportation and labor.
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 has triggered additional economic and other sanctions enacted by the United States and other countries throughout the world.
The Company consolidatescurrently owns 64.3% of the Voltyre-Prom, subsidiarya leading producer of agricultural and industrial tires in Volgograd, Russia, which represents approximately 7% of consolidated assets of Titan as of both December 31, 2022 and 2021. The Russian operations represent approximately 6% of consolidated global sales for which it acts as operating partner. See Note 13 for additional information.both of the years ended December 31, 2022 and 2021. 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.
Cash and cash equivalents
The Company considers short-term debt securities with an original maturity of three months or less to be cash equivalents. The cash in the Company's U.S. banks is not fully insured by the Federal Deposit Insurance Corporation. The Company had $80.2$132.8 million and $61.1$86.4 million of cash in foreign bank accounts at December 31, 20172022 and 2016,2021, respectively. The Company's cash in its foreign bank accounts is not fully insured.
Certificates of deposit
The certificates of deposit financial line item includes certificates of deposit with an original maturity of more than three months but less than one year.
Accounts receivable and allowance for doubtful accountscredit loss
The Company carries its accounts receivable at their face amounts less an allowance for doubtful accounts.credit loss. An allowance for uncollectible receivablescredit loss is recorded based upon the best estimate of credit losses in accounts receivable. In order to monitor credit risks associated with our customer base, credit worthiness of our existing customer base is reviewed on a periodic basis. At the end of each reporting period, the allowance for credit loss is reviewed relative to management's collectibility assessment and adjusted if deemed necessary. The factors considered in this review include known bad debt risks and past loss history. Actual collection experience may differ from the current estimate of net receivables.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Inventories
Inventories are valued at the lower of cost or net realizable value. The Company’s inventories are valued under the first in, first out (FIFO) method or average cost method. Net realizable value is estimated based on current selling prices. Estimated provisions are established for slow-moving and obsolete inventory.
Prior to 2017, the Company used the last in, first out (LIFO) inventory cost method at its Titan Wheel Corporation of Illinois subsidiary. Effective January 1, 2017, the Company elected to change its method of inventory accounting at this subsidiary to the FIFO method. The Company believes that the FIFO method is preferable as it results in increased uniformity across the Company’s global operations with respect to the method of inventory accounting, as none of Titan's other subsidiaries use the LIFO method. The Company also believes that the switch to FIFO at Titan Wheel Corporation of Illinois will improve financial reporting by better reflecting the current value of inventory, more closely aligning the flow of physical inventory with the accounting for the inventory, and providing better matching of revenues and expenses. The Company applied this change in method of inventory accounting by retrospectively adjusting the prior period financial statements. The cumulative effect of this accounting change resulted in a $6.6 million increase in retained earnings as of January 1, 2016.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As a result of the retrospective adjustment of the change in accounting principle, certain amounts in the Company's Condensed Consolidated Statements of Operations for the years ended December 31, 2016 and 2015, were adjusted as follows:
|
| | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | As originally reported | | Effect of change | | As adjusted |
| Cost of sales | $ | 1,123,015 |
| | $ | 3,618 |
| | $ | 1,126,633 |
|
| Loss from operations | (21,333 | ) | | (3,618 | ) | | (24,951 | ) |
| Net loss | (36,137 | ) | | (3,618 | ) | | (39,755 | ) |
| | | | | | |
| Basic and diluted earnings per share | $ | (0.81 | ) | | $ | (0.06 | ) | | $ | (0.87 | ) |
|
| | | | | | | | | | | |
| | Year Ended December 31, 2015 |
| | As originally reported | | Effect of change | | As adjusted |
| Cost of sales | $ | 1,256,962 |
| | $ | 3,066 |
| | $ | 1,260,028 |
|
| Loss from operations | (24,279 | ) | | (3,066 | ) | | (27,345 | ) |
| Provision (benefit) for income tax | 38,281 |
| | (3,525 | ) | | 34,756 |
|
| Net income (loss) | (90,287 | ) | | 459 |
| | (89,828 | ) |
| | | | | | |
| Basic and diluted earnings per share | $ | (1.74 | ) | | $ | 0.01 |
| | $ | (1.73 | ) |
The Consolidated Balance Sheet at December 31, 2016, was adjusted as follows:
|
| | | | | | | | | | | |
| | December 31, 2016 |
| | As originally reported | | Effect of change | | As adjusted |
| Inventories | $ | 269,291 |
| | $ | 2,945 |
| | $ | 272,236 |
|
| Retained earnings | 14,269 |
| | 2,945 |
| | 17,214 |
|
Fixed assets
Property, plant, and equipment have been recorded at cost. Depreciation is provided using the straight-line method over the following estimated useful lives of the related assets:
|
| | | | |
| Years |
| Building and improvements | 25 - 40 |
| Machinery and equipment | 7 - 20 |
| Tools, dies, and molds | 2 - 9 |
Maintenance and repairs are expensed as incurred. When property, plant, and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are eliminated, and any gain or loss on disposition is included in the accompanying Consolidated Statements of Operations.
Interest is capitalized onImpairment of Long-Lived Assets
The Company reviews fixed assets to assess recoverability from future operations whenever events and circumstances indicate that the carrying values may not be recoverable. Factors that could result in an impairment review include, but are not limited to, a current period cash flow loss combined with a history of cash flow losses, current cash flows that may be insufficient to recover the investment in the property over the remaining useful life, or a projection that demonstrates continuing losses associated with the use of a long-lived asset, projects whichsignificant changes in the manner of use of the assets, or significant changes in business strategies. Impairment losses are constructed over a periodrecognized in operating results when expected undiscounted cash flows are less than the carrying value of time. The amountthe asset. Impairment losses are measured as the excess of interest capitalized is determined by applying a weighted average interest rate to the average amountcarrying value of accumulated expenditures for the asset duringover the period. The interest rate used is based ondiscounted expected future cash flows or the rates applicable to borrowings outstanding duringestimated fair value of the period. Interest capitalized was $0.3 million, $1.2 million, and $0.8 million for the years ended December 31, 2017, 2016, and 2015, respectively.asset.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair value of financial instruments
The Company records all financial instruments, including cash and cash equivalents, certificates of deposit, accounts receivable, notes receivable, accounts payable, other accruals, 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. The 6.50%Our 7.0% senior secured notes due 2023, issued on November 20, 2017 (senior2028 (the senior secured notes)notes due 2028) were carried at cost of $394.3$395.4 million at December 31, 2017.2022. The fair value of the senior secured notes due 20232028 at December 31, 2017,2022, as obtained through an independent pricing source, was approximately $406.5$379.5 million.
Investments
The Company had an equity method investment of $47.3 million in Wheels India Limited as of December 31, 2017, representing a 34.2% ownership. This equity method investment is included in other long-term assets in the Consolidated Balance Sheets. The value of this investment based on the December 31, 2017, market price was $141.4 million. The Company assesses the carrying value of its equity method investments whenever events and circumstances indicate that the carrying values may not be recoverable. Investment write-downs, if necessary, are recognized in operating results when expected undiscounted future cash flows are less than the carrying value of the asset. These write-downs, if any, are measured as the excess of the carrying value of the asset over the discounted expected future cash flows or the estimated fair value of the asset.
The Company uses the cost method to account for investments in entities that are not consolidated or accounted for under the equity method. Under the cost method, investments are reported at cost in other long-term assets on the Consolidated Balance Sheets. The fair values of cost method investments are not estimated if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair values of the investments.
Sale of Australian wheel business
On March 29, 2022, the Company entered into a definitive agreement (the Agreement) for the sale of its Australian wheel business, to OTR Tyres, a leading Australian tire, wheel and service provider. The closing date of the transaction was March 31, 2022. The Agreement contains customary representations, warranties and covenants for transactions of this type. The sale included gross proceeds and cash repatriated of approximately $17.5 million, and the assumption by OTR Tyres of all liabilities, including employee and lease obligations. Refer to footnote 20 for additional information on the loss on sale of the Australian wheel business.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Foreign currency translation
The financial statements of the Company’s foreign subsidiaries are translated to United States currency.dollars. Assets and liabilities are translated to United States dollars at period-end exchange rates. Income and expense items are translated at average rates of exchange prevailing during the period. Translation adjustments are included in “Accumulated other comprehensive loss” in stockholders’ equity. Gains and losses that result from foreign currency transactions are included in the accompanying Consolidated Statements of Operations.
Revenue recognition
The Company records sales revenue when products are shipped to customers and both title andwhen our performance obligations with our customer are satisfied. Our obligations under the risks and rewardscontracts are satisfied when we transfer control of ownership are transferred.our products to our customer which is generally upon shipment. Provisions are established for sales returns and uncollectible accounts based on historical experience. Should trends change, adjustments would be necessary to the estimated provisions.
Cost of sales
Cost of sales is comprised primarily of direct materials and supplies consumed in the manufacturing of the Company’s products, as well as manufacturing labor, depreciation expense, and overhead expense necessary to acquire and convert the purchased materials and supplies into a finished product. Cost of sales also includes all purchasing, receiving, inspection, internal transfers, and related distribution costs.
Selling, general, and administrative expense
Selling, general, and administrative (SG&A) expense is comprised primarily of sales commissions, marketing expense, selling, and administrative wages, information system costs, legal fees, bank charges, professional fees, depreciation and amortization expense on non-manufacturing assets, and other administrative items.
Research and development expense
Research and development (R&D) expenses are expensed as incurred. R&D costs were $10.3$10.4 million, $10.0$10.1 million, and $11.2$9.0 million for the years ended December 31, 2017, 2016,2022, 2021, and 2015,2020, respectively.
Advertising
Advertising expenses are included in SG&A expense and are expensed as incurred. Advertising costs were approximately $3.9$3.0 million, for the year ended December 31, 2017, and approximately $4.8$2.7 million and $3.8$2.3 million for the years ended December 31, 20162022, 2021, and 2015,2020, respectively.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Warranty costs
The Company provides limited warranties on workmanship on its products in all market segments. The provision for estimated warranty costs is made in the period when such costs become probable and is based on past warranty experience. See Note 9 for additional information.
Income taxes
Deferred income tax provisions are determined using the liability method to recognize deferred tax assets and liabilities. This method is based upon differences between the financial statement carrying amounts and the respective tax basis of assets and liabilities using enacted tax rates that are expected to apply in the years the temporary differences are expected to be settled or realized. Valuation allowances are recorded where it is considered more likely than not that some portion or all of the deferred tax assets will not be realized. Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities.
Earnings per share
Basic earnings per share (EPS) is computed by dividing consolidated net earnings applicable to common shareholders by the weighted average number of common shares outstanding. Diluted EPS is computed by dividing adjusted consolidated net earnings applicable to common shareholders by the sum of the weighted average number of common shares outstanding and the weighted average number of potential common shares outstanding. Potential common shares consist of outstanding options under the Company’s stock compensation plans and shares issuable upon conversion of the Company’s convertible notes.plans.
Environmental liabilities
Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations and that do not contribute to current or future revenue are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable and can be reasonably estimated.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-based compensation
The Company has one stock-based compensation plan, which is described in Note 23. Compensation expense for stock-based compensation is recognized over the requisite service period at the estimated fair value of the award at the grant date. The Company granted 89,200; 60,000;552,992, 438,195 and 60,000 stock options in 2017, 2016, and 2015, respectively. The Company did not grant any1,026,946 restricted stock awardsshares in 2017 or 2016. The Company granted 123,500 restricted stock awards in 2015.2022, 2021 and 2020, respectively. See Note 23 for additional information.
Use of estimates
The policies utilized by the Company in the preparation of the financial statements conform to United States generally accepted accounting principles generally accepted in the United States of America(US GAAP or GAAP) and require 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from these estimates and assumptions.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recently Issued Accounting StandardsAdoption of new accounting standards
In May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." This update supersedes the revenue recognition requirements in Topic 605, Revenue Recognition. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance also requires disclosure about the nature, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amendments in this update were deferred by ASU No. 2015-14, "Revenue form Contracts with Customers (Topic 606) Deferral of Effective Date," and are now effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company has compared its current revenue recognition policies to the requirements of ASU No. 2014-09. For the majority of Titan’s revenue arrangements, no significant impacts were identified as these transactions are not accounted for under industry-specific guidance that will be superseded by ASU No. 2014-09 and generally consist of a single performance obligation to transfer promised goods or services. The Company did not identify any material differences in the amount and timing of revenue recognition related to ASU No. 2014-09. The Company identified some immaterial differences in the timing of revenue recognition related to a small subsidiary of Titan. The Company will adopt the new revenue guidance effective January 1, 2018, on a modified retrospective basis by recognizing the cumulative effect of initially applying the new standard as an adjustment to the opening balance of retained earnings. This adjustment is expected to be less than $1 million, with an immaterial impact to the Company's net income (loss) on an ongoing basis. In accordance with the guidance, the Company will include any additional required disclosure beginning with the Form 10-Q for the first quarter of 2018.
In April 2016,November 2021, the FASB issued ASU No. 2016-10, "Identifying Performance Obligations2021-10 Government Assistance (Topic 832), which requires annual disclosures
of transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy.
These required disclosures include information on the nature of transactions and Licensing." This ASU clarifiesrelated accounting policies used to account for
transactions, detail on the following aspects of Topic 606: identifying performance obligationsline items on the balance sheet and the licensing implementation guidance. In May 2016, the FASB issued ASU No. 2016-12, "Narrow-Scope Improvementsincome statement affected by these transactions including
amounts applicable to each line, and Practical Expedients." This ASU affects only narrow aspects of Topic 606 related to assessing the collectability criterion; presentation of sales tax; noncash consideration;significant terms and contract modifications and completed contracts at transition. The amendments in these updates affect the guidance in ASU No. 2014-09, as previously discussed above, and the effective dates are the same as those for ASU No. 2014-09.
In December 2016, the FASB issued ASU No. 2016-20, "Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers." The amendments in this update affect narrow aspectsconditions of the guidance issued intransactions including commitments and
contingencies. The ASU No. 2014-09, as discussed above, and the effective dates are the same as those for ASU No. 2014-09.
In January 2016, the FASB issued ASU No. 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities." This update addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)." This update was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.2021. The Company is currently assessing the impact that adopting this new accounting guidance will have on the Company's consolidated financial statements.receives various forms
In August 2016, the FASB issued ASU No. 2016-15, "Classification of Certain Cash Receipts and Cash Payments." This update addresses eight specific cash flow issuesgovernment assistance, primarily through grants associated with the objective of reducing the existing diversitycontinued infrastructure development in practice. The amendments in this update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted in any interim or annual reporting period. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, "Intra-Entity Transfers of Assets other than Inventory." This update requires the recognition of income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim reporting periods within those annual reporting periods.certain foreign locations. The Company adopted the impact of this guidance early,ASU effective January 1, 2017.2022 and incorporated the required disclosures within the notes to condensed consolidated financial statements. The adoption of this guidance did not have a material effectimpact on the Company'sour condensed consolidated financial statements.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In March 2017, the FASB issued ASU No. 2017-07, "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." This update requires an employer to report the service cost component of defined benefit pension cost and postretirement benefit cost in the same line item of the income statement as other compensation costs arising from services rendered by the pertinent employees during the period. The amendments in this update are effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, "Scope of Modification Accounting." This update provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in accordance with Topic 718, Compensation-Stock Compensation. The amendments in this update are effective for annual reporting periods, and interim periods within those annual reporting periods, beginning after December 15, 2017. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.
In February 2018, the FASB issued ASU No. 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." The amendments in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. The amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently assessing the impact that adopting this new accounting guidance will have on the Company's consolidated financial statements.
2. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 20172022 and 2016,2021, consisted of the following (amounts in thousands):
| | | | | | | | | | | |
| | 2022 | | 2021 |
| Accounts receivable | $ | 272,928 | | | $ | 259,730 | |
| Allowance for credit loss | (6,170) | | | (4,550) | |
| Accounts receivable, net | $ | 266,758 | | | $ | 255,180 | |
|
| | | | | | | |
| | 2017 | | 2016 |
| Accounts receivable | $ | 229,677 |
| | $ | 182,728 |
|
| Allowance for doubtful accounts | (2,974 | ) | | (3,344 | ) |
| Accounts receivable, net | $ | 226,703 |
| | $ | 179,384 |
|
Accounts receivable are reduced by an estimated allowance for doubtful accounts which is based on known risks and historical losses.
3. INVENTORIES
Inventories at December 31, 20172022 and 2016,2021, consisted of the following (amounts in thousands):
| | | | | | | | | | | |
| | 2022 | | 2021 |
| Raw material | $ | 128,170 | | | $ | 135,241 | |
| Work-in-process | 42,468 | | | 44,694 | |
| Finished goods | 226,585 | | | 212,680 | |
| | $ | 397,223 | | | $ | 392,615 | |
|
| | | | | | | |
| | 2017 | | 2016 |
| Raw material | $ | 83,541 |
| | $ | 75,806 |
|
| Work-in-process | 40,525 |
| | 32,394 |
|
| Finished goods | 215,770 |
| | 164,036 |
|
| | 339,836 |
| | 272,236 |
|
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PREPAID AND OTHER CURRENT ASSETS
Prepaid and other current assets at December 31, 20172022 and 2016,2021, consisted of the following (amounts in thousands):
| | | | | | | | | | | |
| | 2022 | | 2021 |
| Value added tax and duty receivable, including tax credits | $ | 38,604 | | | $ | 23,245 | |
| Factory supplies | 22,553 | | | 22,240 | |
| Prepaid expense | 19,062 | | | 13,188 | |
| Prepaid taxes | 2,596 | | | 2,856 | |
| Deposits | 1,388 | | | 1,296 | |
| Contract receivable | 578 | | | 1,227 | |
| Other | 1,289 | | | 3,349 | |
| | $ | 86,070 | | | $ | 67,401 | |
|
| | | | | | | |
| | 2017 | | 2016 |
| Factory supplies | $ | 26,346 |
| | $ | 25,177 |
|
| Investments for deferred compensation | 12,393 |
| | — |
|
| Value added tax | 8,528 |
| | 6,258 |
|
| Prepaid expense | 5,290 |
| | 8,320 |
|
| Deposits | 3,785 |
| | 2,640 |
|
| Prepaid taxes | 3,726 |
| | 7,360 |
|
| Prepaid insurance | 2,384 |
| | 3,124 |
|
| Volume rebate | 2,072 |
| | 1,430 |
|
| Prepaid royalty | 1,953 |
| | 6,973 |
|
| Duty receivable | 672 |
| | 899 |
|
| Derivative financial instruments | 458 |
| | 988 |
|
| Assets held for sale | — |
| | 8,843 |
|
| Other | 5,477 |
| | 7,722 |
|
| | $ | 73,084 |
| | $ | 79,734 |
|
5. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at December 31, 20172022 and 2016,2021, consisted of the following (amounts in thousands):
|
| | | | | | | |
| | 2017 | | 2016 |
| Land and improvements | $ | 46,998 |
| | $ | 43,871 |
|
| Buildings and improvements | 264,078 |
| | 239,036 |
|
| Machinery and equipment | 598,411 |
| | 573,717 |
|
| Tools, dies, and molds | 108,649 |
| | 106,695 |
|
| Construction-in-process | 15,349 |
| | 43,080 |
|
| | 1,033,485 |
| | 1,006,399 |
|
| Less accumulated depreciation | (612,237 | ) | | (569,198 | ) |
| | $ | 421,248 |
| | $ | 437,201 |
|
| | | | | | | | | | | |
| | 2022 | | 2021 |
| Land and improvements | $ | 40,330 | | | $ | 41,010 | |
| Buildings and improvements | 237,507 | | | 236,367 | |
| Machinery and equipment | 588,857 | | | 578,816 | |
| Tools, dies, and molds | 112,990 | | | 111,169 | |
| Construction-in-process | 29,291 | | | 20,288 | |
| | 1,008,975 | | | 987,650 | |
| Less accumulated depreciation | (712,370) | | | (686,541) | |
| | $ | 296,605 | | | $ | 301,109 | |
Depreciation, including depreciation on capital leases, related to property, plant, and equipment for the years 2017, 2016,2022, 2021 and 20152020 totaled $54.3$41.5 million, $55.8$46.4 million, and $64.5$51.3 million, respectively.
Capital leases included in property, plant, and equipment
6. OTHER LONG-TERM ASSETS
Other long-term assets at December 31, 20172022 and 2016,2021, consisted of the following (amounts in thousands):
| | | | | | | | | | | |
| | 2022 | | 2021 |
| Net pension asset | $ | 11,241 | | | $ | 11,095 | |
| Prepaid software | 5,468 | | | 6,704 | |
| Investments in nonconsolidated affiliates | 6,948 | | | 6,522 | |
| Manufacturing spares | 1,683 | | | 1,637 | |
| Amortizable intangibles | 1,610 | | | 1,498 | |
| Deferred financing costs | 264 | | | 333 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Other | 3,515 | | | 2,707 | |
| | $ | 30,729 | | | $ | 30,496 | |
|
| | | | | | | |
| | 2017 | | 2016 |
| Buildings and improvements | $ | 4,056 |
| | $ | 3,565 |
|
| Less accumulated amortization | (2,294 | ) | | (1,923 | ) |
| | $ | 1,762 |
| | $ | 1,642 |
|
| | | | |
| Machinery and equipment | $ | 32,379 |
| | $ | 31,331 |
|
| Less accumulated amortization | (27,260 | ) | | (26,502 | ) |
| | $ | 5,119 |
| | $ | 4,829 |
|
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. OTHER LONG-TERM ASSETS
Other long-term assets at December 31, 2017 and 2016, consisted of the following (amounts in thousands):
|
| | | | | | | |
| | 2017 | | 2016 |
| Investment in Wheels India Limited | $ | 47,267 |
| | $ | 40,766 |
|
| Amortizable intangibles | 15,275 |
| | 16,401 |
|
| Notes receivable | 6,000 |
| | 6,000 |
|
| Other equity investments | 4,637 |
| | 3,149 |
|
| Manufacturing spares | 3,448 |
| | 2,386 |
|
| Prepaid software | 691 |
| | 3,807 |
|
| Deferred financing costs | 352 |
| | 273 |
|
| Investments for deferred compensation | — |
| | 9,668 |
|
| Income tax receivable | — |
| | 5,668 |
|
| Prepaid royalty | — |
| | 1,702 |
|
| Other | 4,222 |
| | 5,031 |
|
| | $ | 81,892 |
| | $ | 94,851 |
|
7. INTANGIBLE ASSETS
The components of intangible assets for each of the years ended December 31, 20172022 and 2016,2021, were as follows (amounts in thousands):
| | | | | | | | | | | | | | | | | |
| Weighted- Average Useful Lives (in Years) | | 2022 | | 2021 |
| Amortizable intangible assets: | | | | | |
| | | | | |
| Patents, trademarks, and other | 10.59 | | $ | 10,693 | | | $ | 10,084 | |
| Total at cost | | | 10,693 | | | 10,084 | |
| Less accumulated amortization | | | (9,083) | | | (8,586) | |
| | | $ | 1,610 | | | $ | 1,498 | |
|
| | | | | | | | | |
| | Weighted- Average Useful Lives (in Years) | | 2017 | | 2016 |
| Amortizable intangible assets: | | | | | |
| Customer relationships | 9.7 | | $ | 13,922 |
| | $ | 13,171 |
|
| Patents, trademarks, and other | 7.4 | | 15,208 |
| | 14,629 |
|
| Total at cost | | | 29,130 |
| | 27,800 |
|
| Less accumulated amortization | | | (13,855 | ) | | (11,399 | ) |
| | | | $ | 15,275 |
| | $ | 16,401 |
|
Amortization related to intangible assets for the years 2017, 2016,2022, 2021, and 20152020 totaled $3.0$0.4 million, $2.2$0.6 million, and $3.0$2.3 million, respectively.
The estimated aggregate amortization expense at December 31, 2017,2022, for each of the years (or other periods) set forth below was as follows (amounts in thousands):
| | | | | |
| 2023 | $ | 175 | |
| 2024 | 157 | |
| 2025 | 153 | |
| 2026 | 153 | |
| 2027 | 153 | |
| Thereafter | 819 | |
| | $ | 1,610 | |
|
| | | |
| 2018 | $ | 2,397 |
|
| 2019 | 2,237 |
|
| 2020 | 2,237 |
|
| 2021 | 1,543 |
|
| 2022 | 1,053 |
|
| Thereafter | 5,808 |
|
| | $ | 15,275 |
|
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. OTHER CURRENT LIABILITIES
Other current liabilities at December 31, 20172022 and 2016,2021, consisted of the following (amounts in thousands):
| | | | | | | | | | | |
| | 2022 | | 2021 |
| Compensation and benefits | $ | 45,389 | | | $ | 46,583 | |
| Warranty | 19,914 | | | 16,628 | |
| Accrued insurance benefits | 21,154 | | | 14,269 | |
| Customer rebates and deposits | 16,279 | | | 9,311 | |
| Accrued other taxes | 18,549 | | | 9,274 | |
| Operating lease liability | 3,850 | | | 6,180 | |
| Accrued interest | 5,040 | | | 4,958 | |
| Foreign government grant (a) | 1,888 | | | 4,383 | |
| Settlement of legal matter (b) | 1,260 | | | 1,620 | |
| | | |
| | | |
| Other | 18,605 | | | 27,008 | |
| | $ | 151,928 | | | $ | 140,214 | |
|
| | | | | | | |
| | 2017 | | 2016 |
| Wages and benefits | $ | 27,532 |
| | $ | 23,989 |
|
| Warranty | 18,612 |
| | 17,926 |
|
| Accrued employment liabilities | 16,892 |
| | 6,388 |
|
| Insurance | 15,068 |
| | 15,504 |
|
| Accrued other taxes | 8,370 |
| | 5,831 |
|
| Incentive compensation | 7,863 |
| | 8,278 |
|
| Customer rebates | 6,534 |
| | 4,641 |
|
| Customer deposits | 4,960 |
| | 1,996 |
|
| Italian government grant | 4,689 |
| | 5,791 |
|
| Accrued interest | 3,049 |
| | 8,680 |
|
| Accounts receivable credits | 1,455 |
| | 7,618 |
|
| Other | 18,750 |
| | 13,795 |
|
| | $ | 133,774 |
|
| $ | 120,437 |
|
(b) The amount relates to a legal settlement between Tire Tire Corporation and Dico, Inc. executed on February 1, 2021 in the amount of $11.5 million, of which the final remaining amount of $1.26 million was paid on January 31, 2023. The Company paid $9.2 million and $1.6 million, including accrued interest, to the federal government on February 25, 2021 and February 1, 2022, respectively.
9. WARRANTY
Changes in the warranty liability for the periods set forth below consisted of the following (amounts in thousands):
| | | | | | | | | | | |
| | 2022 | | 2021 |
| Warranty liability, January 1 | $ | 16,628 | | | $ | 15,040 | |
| | | |
| Provision for warranty liabilities | 14,656 | | | 9,848 | |
| Warranty payments made | (11,370) | | | (8,260) | |
| Warranty liability, December 31 | $ | 19,914 | | | $ | 16,628 | |
|
| | | | | | | |
| | 2017 | | 2016 |
| Warranty liability, January 1 | $ | 17,926 |
| | $ | 23,121 |
|
| Provision for warranty liabilities | 9,012 |
| | 7,459 |
|
| Warranty payments made | (8,326 | ) | | (12,654 | ) |
| Warranty liability, December 31 | $ | 18,612 |
| | $ | 17,926 |
|
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 Consolidated Balance Sheets.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. REVOLVING CREDIT FACILITY AND LONG-TERM DEBT
Long-term debt consisted of the following as of the dates set forth below (amounts in thousands):
|
| | | | | | | | | | | |
| | December 31, 2017 |
| | Principal Balance | | Unamortized Debt Issuance | | Net Carrying Amount |
| 6.50% senior secured notes due 2023 | $ | 400,000 |
| | $ | (5,716 | ) | | $ | 394,284 |
|
| Titan Europe credit facilities | 33,485 |
| | — |
| | 33,485 |
|
| Other debt | 22,564 |
| | — |
| | 22,564 |
|
| Capital leases | 489 |
| | — |
| | 489 |
|
| Total debt | 456,538 |
| | (5,716 | ) | | 450,822 |
|
| Less amounts due within one year | 43,651 |
| | — |
| | 43,651 |
|
| Total long-term debt | $ | 412,887 |
|
| $ | (5,716 | ) | | $ | 407,171 |
|
| | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Principal Balance | | Unamortized Debt Issuance | | Net Carrying Amount |
| 7.00% senior secured notes due 2028 | $ | 400,000 | | | $ | (4,599) | | | $ | 395,401 | |
| Titan Europe credit facilities | 37,362 | | | — | | | 37,362 | |
| Revolving credit facility | — | | | — | | | — | |
| Other debt | 12,855 | | | — | | | 12,855 | |
| Total debt | 450,217 | | | (4,599) | | | 445,618 | |
| Less amounts due within one year | 30,857 | | | — | | | 30,857 | |
| Total long-term debt | $ | 419,360 | | | $ | (4,599) | | | $ | 414,761 | |
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | December 31, 2021 |
| | December 31, 2016 | | Principal Balance | | Unamortized Debt Issuance | | Net Carrying Amount |
| | Principal Balance | | Unamortized Debt Issuance | | Net Carrying Amount | |
| 6.875% senior secured notes due 2020 | $ | 400,000 |
| | $ | (4,148 | ) | | $ | 395,852 |
| |
| 5.625% convertible senior subordinated notes due 2017 | 60,161 |
| | (13 | ) | | 60,148 |
| |
| 7.00% senior secured notes due 2028 | | 7.00% senior secured notes due 2028 | $ | 400,000 | | | $ | (5,476) | | | $ | 394,524 | |
| Titan Europe credit facilities | 33,710 |
| | — |
| | 33,710 |
| Titan Europe credit facilities | 44,993 | | | — | | | 44,993 | |
| Revolving credit facility | | Revolving credit facility | 30,000 | | | — | | | 30,000 | |
| Other debt | 15,560 |
| | — |
| | $ | 15,560 |
| Other debt | 15,434 | | | — | | | 15,434 | |
| Capital leases | 902 |
| | — |
| | $ | 902 |
| |
| Total debt | 510,333 |
| | (4,161 | ) | | 506,172 |
| Total debt | 490,427 | | | (5,476) | | | 484,951 | |
| Less amounts due within one year | 97,425 |
| | (13 | ) | | 97,412 |
| Less amounts due within one year | 32,500 | | | — | | | 32,500 | |
| Total long-term debt | $ | 412,908 |
| | $ | (4,148 | ) | | $ | 408,760 |
| Total long-term debt | $ | 457,927 | | | $ | (5,476) | | | $ | 452,451 | |
The weighted-average interest rates on total short-term borrowings, excluding currentat December 31, 2022 and December 31, 2021, were approximately 6.8% and 6.7%, respectively.
Aggregate maturities of long-termtotal debt at December 31, 2017 and December 31, 2016, were 5.0% and 5.3%, respectively.
Aggregate maturities of long-term debt at December 31, 2017,2022, for each of the years (or other periods) set forth below were as follows (amounts in thousands):
| | | | | |
| 2023 | $ | 30,857 | |
| 2024 | 7,979 | |
| 2025 | 4,245 | |
| 2026 | 1,997 | |
| 2027 | 1,452 | |
| Thereafter | 403,687 | |
| | $ | 450,217 | |
|
| | | |
| 2018 | $ | 43,651 |
|
| 2019 | 7,768 |
|
| 2020 | 4,347 |
|
| 2021 | 772 |
|
| Thereafter | 400,000 |
|
| | $ | 456,538 |
|
6.50%7.00% senior secured notes due 20232028
The Company’s 6.50%On April 22, 2021, the Company issued $400.0 million aggregate principal amount of 7.00% senior secured notes (seniordue April 2028 (the senior secured notes due 2023) were issued on November 20, 2017, and are due November 2023.2028), guaranteed by certain of the Company's subsidiaries. Including the impact of debt issuance costs, these notes had an effective yield of 6.79%7.27% at issuance. These notes will beare secured by the land and buildings of the following subsidiaries of the Company: Titan TireWheel Corporation of Illinois, Titan Tire Corporation, of Bryan, Titan Tire Corporation of Freeport, and Titan WheelTire Corporation of Illinois. The outstanding balance forBryan.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the Company'sissuance of the senior secured notes due 2028, the Company satisfied and discharged the indenture related to the 6.50% senior secured notes due 2023 was $400.0 million at December 31, 2017.
6.875% senior secured notes due 2020
In the fourth quarter of 2017, Titan satisfied and discharged the indenture relating to the 6.875% senior secured notes due 2020 (senior secured notes due 2020)2023) by completing a tender offer settlementcall and redemption of all of its outstanding $400.0 million principal amount of the senior secured notes due 2020.2023. In connection with this tender offercall and redemption, the Company recorded $16.0 million of expenses included within the loss on senior note repurchase line item within the Consolidated Statements of $18.6 million. Including the impact of debt issuance costs, these notes had an effective yield of 7.20% at issuance.Operations.
5.625% convertible senior subordinated notes due 2017
In January 2017, the Company converted 97.1% of the principal balance of its 5.625% convertible senior subordinated notes (2017 Notes), which matured on January 15, 2017, into shares of Titan common stock. Immediately prior to maturity, $60.2 million in aggregate principal amount of the 2017 Notes was outstanding, of which holders of $58.5 million in aggregate principal amount of the 2017 Notes, or 97.1%, converted their 2017 Notes into shares of Titan common stock pursuant to the terms of the indenture governing the 2017 Notes. The $58.5 million in principal amount of converted 2017 Notes was converted into 5,462,264 shares of Titan common stock, representing approximately 10% of Titan’s common stock outstanding prior to conversion. Each $1,000 principal amount of the 2017 Notes was convertible into 93.436 shares of Titan common stock. The remaining $1.7 million principal amount of the 2017 Notes that was not converted was paid in cash at maturity.
Titan Europe credit facilities
The Titan Europe credit facilities included borrowings from various institutions totaling $33.5$37.4 million in aggregate principal amount at December 31, 2017.2022. Maturity dates on this primarily unsecured debt range from less than one year to threefive years. The Titan Europe facilities are primarily secured by the assets of Titan's subsidiaries in Italy, Spain, Germany, and Brazil.interest rates range from 0.5% to 6.5%.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revolving credit facility
In February 2017, theThe Company entered intohas a credit and security agreement with respect to a new $75$125 million revolving credit facility (credit facility) with agent BMO Harris Bank N.A. and other financial institutions party thereto. The credit facility is collateralized by accounts receivable and inventory of certain of the Company’s domestic subsidiaries and is scheduled to mature in February 2022.on October 28, 2026. The credit facility can be expanded by up to $50 million through an accordion provision within the agreement. From time to time Titan's availability under this credit facility may be less than $75$125 million as a result of outstanding letters of credit and eligible accounts receivable and inventory balances at certain of its domestic subsidiaries. At December 31, 2017, an outstanding letter of credit under the credit facility totaled $12.5 million and the amount available under the facility totaled $62.5 million. During 2017 and at December 31, 2017,2022, there were no borrowings under the credit facility.facility, $7.2 million in outstanding letters of credit and the amount available to borrow under the facility totaled $117.8 million based on eligible accounts receivable and inventory balances.
Other Debt
At December 31, 2017, Titan hadThe Company has working capital loans for the Sao Paulo, Brazilat Titan Pneus do Brasil Ltda and Voltyre-Prom manufacturing facilities. Atat various interest rates, which totaled $10.1 million and $2.7 million, respectively at December 31, 2017, Titan Brazil had outstanding debt totaling $5.8 million with2022. The maturity dates fromon this debt are less than one year upyear. The Company expects to two years. Voltyre-Prom had outstanding debt totaling $16.4 million at December 31, 2017, withnegotiate an extension of the maturity dates from less than one year up to two years.on these loans with the respective financial institutions or repay, if deemed prudent.
11. OTHER LONG-TERM LIABILITIES
Other long-term liabilities at December 31, 20172022 and 2016,2021, consisted of the following (amounts in thousands):
| | | | | | | | | | | |
| | 2022 | | 2021 |
| Accrued pension liabilities | $ | 13,877 | | | $ | 19,124 | |
| Operating lease liability | 2,409 | | | 11,352 | |
| Foreign government grant (a) | 11,797 | | | 9,015 | |
| Settlement of legal matter (see footnote 8) | — | | | 1,199 | |
| Income tax liabilities | 43 | | | 111 | |
| | | |
| | | |
| | | |
| | | |
| Other | 9,019 | | | 7,470 | |
| | $ | 37,145 | | | $ | 48,271 | |
|
| | | | | | | |
| | 2017 | | 2016 |
| Accrued pension liabilities | $ | 35,597 |
| | $ | 34,919 |
|
| Income tax liabilities | 11,399 |
| | 16,073 |
|
| Italian government grant | 10,272 |
| | 9,423 |
|
| Contingencies | 6,500 |
| | — |
|
| Accrued employment liabilities | 4,178 |
| | 15,689 |
|
| Other | 5,251 |
| | 4,057 |
|
| | $ | 73,197 |
| | $ | 80,161 |
|
(a) The amount relates to foreign government grant programs related to certain capital development projects in Italy and Spain. The grants were recorded as deferred income which will be amortized over the life of the capital development projects.
12. DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses financial derivatives to mitigate its exposure to volatility in foreign currency exchange rates. These derivative financial instruments are recognized at fair value.
For the year ended December 31, 2022 and 2021, the Company recorded a derivative gain of $1.3 million and $0.4 million, respectively, related to certain derivative contracts entered into during the year. For the year ended December 31, 2020, the Company recorded a derivative loss of $0.4 million. The Company has not designated these financial instruments as hedging instruments. Any gain or loss on the re-measurement of the fair value is recorded as an offset to currency exchange gain/loss. Forincluded within the year ended December 31, 2017, the Company recorded currency exchange lossConsolidated Statements of $0.6 million related to these derivatives.Comprehensive Income.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. REDEEMABLE NONCONTROLLING INTEREST
The Company in partnership with One Equity Partners (OEP) and the Russian Direct Investment Fund (RDIF), owns own all of the equity interests in Voltyre-Prom, a leading producer of agricultural and industrial tires in Volgograd, Russia. TheOn February 11, 2019, the Company is party to a shareholders' agreement with OEP and RDIF which was entered into in connectiona definitive agreement (the Agreement) with acquisitionan affiliate of Voltyre-Prom. The agreement contains a settlementthe RDIF relating to the put option which is exercisable during a six month period beginning July 9, 2018, and may require Titan to purchaseincluded in the indirect equity interests from OEP and RDIF in Voltyre-Prom with cash or Titan common stock, at a value setShareholders' Agreement that was exercised by RDIF. Under the agreement. The value set by the agreement is the greater of: the aggregateterms of the investment of the selling party and an amount representing an internal rate of return of 8%; or the last twelve months of EBITDA times 5.5 less net debt times the ownership percentage. The value of the redeemable noncontrolling interest held by OEP and RDIF has been recorded at the aggregate of the investment of the selling party and an amount representing an internal rate of return of 8%, which was greater at December 31, 2017.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The redemption featuresAgreement, in full satisfaction of the settlement put option are not solely within the Company’s control and the noncontrolling interest is presented as redeemable noncontrolling interest separately from total equitythat was exercised by RDIF, Titan paid $25 million in the Consolidated Balance Sheetcash to RDIF at the redemption valueclosing of the settlement put option. If the redemption value is greater than the carrying value of the noncontrolling interest, the increase in the redemption value is adjusted directly to retained earnings of the affected entity, or additional paid-in capital if there are no available retained earnings applicabletransaction, and agreed, subject to the redeemable noncontrolling interest.completion of regulatory approval, to issue 4,032,259 shares of restricted Titan common stock to RDIF in a private placement.
In the first quarter of 2016, the Company acquired $25 million of additional shares in the consortium owning Voltyre-Prom, increasing Titan's ownership to 43% from 30%. The acquisition of shares was transacted through the conversion of an intercompany note previously held by Titan. As a result of the ownership change, the balance of the redeemable noncontrolling interest increased by $12 million, which is comprised of a $3.5 million reclassification of currency translation and an $8.5 million reclassification of other equity.
The following is a reconciliation of redeemable noncontrolling interest as of December 31, 2017 and 2016 (amounts in thousands):
|
| | | |
| Balance at January 1, 2016 | $ | 77,174 |
|
| Reclassification as a result of ownership change | 12,039 |
|
| Income attributable to redeemable noncontrolling interest | 2,196 |
|
| Currency translation | 3,844 |
|
| Redemption value adjustment | 9,556 |
|
| Balance at December 31, 2016 | $ | 104,809 |
|
| Income attributable to redeemable noncontrolling interest | 84 |
|
| Currency translation | 1,907 |
|
| Redemption value adjustment | 6,393 |
|
| Balance at December 31, 2017 | $ | 113,193 |
|
This obligation approximatesIn November 2021, Titan received regulatory approval for the cost if all remaining equity interests in the consortium were purchased byissuance of restricted Titan common stock to RDIF. On December 17, 2021, the Company issued 4,032,259 shares of restricted Titan common stock to the RDIF equity holders subject to the Company's right to repurchase the shares for $25 million until February 12, 2022.
On February 1, 2022, the Company entered into a Stock Purchase Agreement with the RDIF equity holders to buy back the restricted Titan common stock for the previously agreed amount of $25 million. The transaction was completed on December 31, 2017,February 1, 2022. Following the transaction, the Company and is presented in the Consolidated Balance Sheet in redeemable noncontrolling interest, which is treated as mezzanine equity.RDIF's ownership remained at 64.3% and 35.7%, respectively, of Voltyre-Prom.
14. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)LOSS
Accumulated other comprehensive income (loss)loss consisted of the following at the dates set forth below (amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Currency
Translation
Adjustments | | | | Gain (Loss) on Derivatives | | Unrecognized
Losses and
Prior Service
Cost | | Total |
| Balance at January 1, 2021 | $ | (194,151) | | | | | $ | (413) | | | $ | (22,690) | | | $ | (217,254) | |
| Currency translation adjustments | (41,908) | | | | | — | | | — | | | (41,908) | |
| Reclassification adjustments: | | | | | | | | | |
| Defined benefit pension plan adjustments, net of tax of $39 | — | | | | | — | | | 12,308 | | | 12,308 | |
| Derivative gain | — | | | | | 374 | | | — | | | 374 | |
| Balance at December 31, 2021 | (236,059) | | | | | (39) | | | (10,382) | | | (246,480) | |
| Currency translation adjustments | (7,653) | | | | | — | | | — | | | (7,653) | |
| Reclassification adjustments: | | | | | | | | | |
| Defined benefit pension plan adjustments, net of tax of $(383) | — | | | | | — | | | 1,115 | | | 1,115 | |
| Derivative gain | — | | | | | 1,263 | | | — | | | 1,263 | |
| Balance at December 31, 2022 | $ | (243,712) | | | | | $ | 1,224 | | | $ | (9,267) | | | $ | (251,755) | |
|
| | | | | | | | | | | |
| | Currency Translation Adjustments | | Unrecognized Losses and Prior Service Cost | | Total |
| Balance at January 1, 2016 | $ | (161,030 | ) | | $ | (26,721 | ) | | $ | (187,751 | ) |
| Currency translation adjustments | (1,598 | ) | | — |
| | (1,598 | ) |
| Defined benefit pension plan entries: | |
| | |
| | |
|
| Unrecognized prior service cost, net of tax of $0 | — |
| | 137 |
| | 137 |
|
| Unrecognized net loss, net of tax of $(439) | — |
| | 934 |
| | 934 |
|
| Balance at December 31, 2016 | (162,628 | ) | | (25,650 | ) | | (188,278 | ) |
| Currency translation adjustments | 29,679 |
| | — |
| | 29,679 |
|
| Defined benefit pension plan entries: | |
| | |
| | |
|
| Unrecognized prior service cost, net of tax of $0 | — |
| | 136 |
| | 136 |
|
| Unrecognized net gain, net of tax of $215 | — |
| | 1,387 |
| | 1,387 |
|
| Balance at December 31, 2017 | $ | (132,949 | ) | | $ | (24,127 | ) | | $ | (157,076 | ) |
15. STOCKHOLDERS’ EQUITY
On February 1, 2022, the Company entered into a Stock Purchase Agreement with the RDIF equity holders to buy back 4,032,259 shares of restricted Titan common stock for the previously agreed amount of $25 million; refer to Footnote 13 for further information. The Company did not repurchase any shares of Titan common stock in 2021 or 2020. The Company records treasury stock using the cost method.
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 will take effect immediately and will remain in place for up to three years. During 2022, Titan did not repurchase any shares of our common stock under the Share Repurchase Program. As of December 31, 2022, $50.0 million remains available for future share repurchases under this program.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. STOCKHOLDERS’ EQUITY
The Company did not repurchase any TitanOn June 11, 2020, the Board of Directors unanimously approved the suspension of the Company’s quarterly common shares in 2017, 2016, or 2015. The Company records treasury stock using the cost method.dividend until further notice. Titan paid aggregate cash dividends of $.02$.005 per share of common stock in eachfor the first quarter of 2017, 2016,2020 and 2015.then the Company's quarterly stock dividend was suspended for the remainder of 2020, continuing through 2021 and 2022. Dividends declared totaled $1.2$0.0 million, $0.0 million and $0.3 million for 2017years ended December 31, 2022, 2021 and $1.1 million for each of 2016, and 2015.2020, respectively.
16. FAIR VALUE MEASUREMENTS
Accounting standards for fair value measurements establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined as follows:
Level 1 – Quoted prices in active markets for identical instruments.
Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable.
Level 3 – Unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.
Assets and liabilities measured at fair value on a recurring basis consisted of the following at the dates set forth below (amounts in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2016 |
| | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
| Investments for deferred compensation | $ | 12,393 |
| | $ | 12,393 |
| | $ | — |
| | $ | — |
| | $ | 9,668 |
| | $ | 9,668 |
| | $ | — |
| | $ | — |
|
| Derivative financial instruments asset | 458 |
| | — |
| | 458 |
| | — |
| | 988 |
| | — |
| | 988 |
| | — |
|
| Preferred stock | 154 |
| | — |
| | — |
| | 154 |
| | 181 |
| | — |
| | — |
| | 181 |
|
| Total | $ | 13,005 |
| | $ | 12,393 |
| | $ | 458 |
| | $ | 154 |
| | $ | 10,837 |
| | $ | 9,668 |
| | $ | 988 |
| | $ | 181 |
|
The following table presents the changes during the periods presented in Titan's Level 3 investments that are measured at fair value on a recurring basis (amounts in thousands):
|
| | | |
| | Preferred stock |
| Balance at December 31, 2015 | $ | 250 |
|
| Total unrealized losses | (69 | ) |
| Balance at December 31, 2016 | 181 |
|
| Total unrealized losses | (27 | ) |
| Balance as of December 31, 2017 | $ | 154 |
|
The preferred stock was valued based on the book value of the common stock into which it can be converted.
17.16. VARIABLE INTEREST ENTITIES
The Company holds a variable interest in threetwo joint ventures for which the CompanyTitan is the primary beneficiary. TwoOne of thethese joint ventures operateoperates distribution facilities whichthat primarily distribute mining products. Titan is the 50% owner of one of thesethe distribution facilities, which isfacility located in Canada, and the 40%Canada. Titan is also a 50% owner of the other such facility, which is locateda manufacturer of undercarriage components and complete track systems for earthmoving machines in Australia.India. The Company’s variable interestinterests in these joint ventures relatesrelate to sales of Titan productproducts to these entities, consigned inventory, and working capital loans. Titan has intercompany notes and receivables used for operations of $1.6 million with the Canadian entity and $0.8 million with the Australian entity. The third joint venture is the consortium which owns Voltyre-Prom. Titan owns 43% of the consortium owning Voltyre-Prom, which is subject to a shareholder agreement containing a settlement put option which may require Titan to purchase the remaining equity interests in the consortium. See Note 13 for additional information.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company also holds a variable interest in five other entities for which Titan is the primary beneficiary. Each of these entities provides specific manufacturing related services at the Company's Tennessee facility. Titan's variable interest in these entities relates to financial support to the entities through providing many of the assets used by these entities in their business. The Company owns no equity in these entities.
As the primary beneficiary of these variable interest entities (VIEs), the VIEs’ assets, liabilities, and results of operations are included in the Company’s consolidated financial statements as of, and for the year ended, December 31, 2017.statements. The other equity holders’ interests are reflected in “Net lossincome (loss) attributable to noncontrolling interests” in the Consolidated Condensed Statements of Operations and “Noncontrolling interests” in the Consolidated Condensed Balance Sheets.
The following table summarizes the carrying amount of the VIEs’ assets and liabilities included in the Company’s Consolidated Condensed Balance Sheets at December 31, 20172022 and 20162021 (amounts in thousands):
| | | | | | | | | | | |
| | 2022 | | 2021 |
| Cash and cash equivalents | $ | 1,729 | | | $ | 714 | |
| Inventory | 2,581 | | | 2,459 | |
| Other current assets | 4,179 | | | 5,135 | |
| Property, plant, and equipment, net | 4,657 | | | 3,414 | |
| Other non-current assets | 465 | | | 626 | |
| Total assets | $ | 13,611 | | | $ | 12,348 | |
| | | |
| Current liabilities | 2,077 | | | 1,687 | |
| Other long-term liabilities | 1,062 | | | 669 | |
| Total liabilities | $ | 3,139 | | | $ | 2,356 | |
|
| | | | | | | |
| | 2017 | | 2016 |
| Cash and cash equivalents | $ | 10,621 |
| | $ | 9,396 |
|
| Inventory | 13,494 |
| | 11,445 |
|
| Other current assets | 36,334 |
| | 23,301 |
|
| Property, plant, and equipment, net | 33,717 |
| | 30,448 |
|
| Other noncurrent assets | 4,250 |
| | 4,955 |
|
| Total assets | $ | 98,416 |
| | $ | 79,545 |
|
| | | | |
| Current liabilities | 32,172 |
| | 22,068 |
|
| Noncurrent liabilities | 8,291 |
| | 5,350 |
|
| Total liabilities | $ | 40,463 |
| | $ | 27,418 |
|
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 nonrecoursenon-recourse obligations. Amounts presented in the table above are adjusted for intercompany eliminations.
The Company holds a variable interestinterests in certain VIEs whichthat 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 andrelated to purchases of 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 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 were as follows at December 31, 20172022 and 20162021 (amounts in thousands):
| | | | | | | | | | | |
| | 2022 | | 2021 |
| Investments | $ | 6,827 | | | $ | 6,402 | |
| Total VIE assets | 6,827 | | | 6,402 | |
| | | |
| Accounts payable to the non-consolidated VIEs | 3,936 | | | 4,296 | |
| Maximum exposure to loss | $ | 10,763 | | | $ | 10,698 | |
|
| | | | | | | |
| | 2017 | | 2016 |
| Investments | $ | 3,823 |
| | $ | 4,738 |
|
| Other current assets | 1,261 |
| | 1,039 |
|
| Total VIE assets | 5,084 |
| | 5,777 |
|
| Accounts payable | 1,413 |
| | 932 |
|
| Maximum exposure to loss | $ | 6,497 |
| | $ | 6,709 |
|
18. ASSET IMPAIRMENT
On September 21, 2017, a fire occurred at a facility of Titan Tire Reclamation Corporation (TTRC), a subsidiary of the Company, located in Fort McMurray, AB. The TTRC facility contains six thermal vacuum recovery (TVR) units, which are large, contained capsules used to recycle large mining tires. The fire started within one of the TVR units and was contained to a building housing three of the TVR units. As a result of the damage caused by the fire, Titan recorded an asset impairment of $9.9 million. Titan carries both casualty and property insurance for its facilities and equipment, as well as business interruption insurance. The asset impairment amount was partially offset by an initial insurance advance received in the amount of $1.6 million. The Company expects to receive additional insurance proceeds. The amount of additional proceeds and the timing of these receipts is not known. Therefore, no additional insurance proceeds were accrued as of December 31, 2017.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. ASSET IMPAIRMENT
The Company recorded no asset impairment charges during the year ended December 31, 2022 and 2021.
The Company recorded a $13.8 million asset impairment charge during the year ended December 31, 2020 related to certain machinery and equipment located at TTRC as a result of market declines, which indicated the remaining book value of the equipment is more than the fair market value. The TTRC asset impairment charge is recorded in cost of sales line item in the Consolidated Statement of Operations.
During the fourth quarter of 2020, the Company recorded an impairment charge of $6.0 million related to the customer relationships intangible asset in Australia as a result of attrition of several customers since the business was initially acquired in 2012. This impairment charge is recorded in the selling, general and administrative expenses line item in the Consolidated Statement of Operations.
18. RESTRUCTURING ACTIVITIES
The Company recorded no restructuring charge during the year ended December 31, 2022 and 2021.
As part of the North American and Corporate Restructuring plan, which was approved in the second quarter of 2020, certain positions have been eliminated to continue ongoing operational improvement initiatives designed to prioritize resource allocation, reduce costs and drive profitability for the Company on a global basis.
The Company incurred $1.7 million during the year ended December 31, 2020 for severance costs related to the rationalization of certain Corporate and European positions. The Company paid the severance amounts during the third and fourth quarters of 2020. The severance costs are primarily recorded in cost of sales line item in the Consolidated Statement of Operations.
As part of the closure of the Saltville, Virginia wheel operations, the Company recorded an inventory impairment charge of $1.0 million for the year ended December 31, 2020. The Company expects the closure of Saltville, Virginia wheel operations to be completed during 2023. The inventory impairment charge was included in cost of sales in the Consolidated Statement of Operations.
19. 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. Each of these agreements is scheduled to expire in 2025. The North American and Latin American farm tire royalties were prepaid through March 2018 as a part of the 2011 Goodyear Latin American farm tire acquisition. The Company also has a trademark license agreement with Goodyear to manufacture and sell certain non-farm tire products in Latin America which expires June 2019. Royalty expenses recorded for the years ended December 31, 2017, 2016,2022, 2021, and 2015,2020, were $11.7 million, $10.5 million, $8.9 million, and $10.5$9.7 million, respectively.
20. OTHER INCOME (EXPENSE)
Other income (expense) consisted of the following for the years set forth below (amounts in thousands):
| | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Income on indirect taxes (a) | $ | 32,043 | | | $ | — | | | $ | — | |
| Loss on sale of Australia wheel business (b) | (10,890) | | | — | | | — | |
| Proceeds from government grant (c) | 1,324 | | | — | | | — | |
| Gain on legal settlement (d) | — | | | 1,750 | | | — | |
| Equity investment income | 859 | | | 806 | | | 720 | |
| Gain on sale of assets | 216 | | | 257 | | | 440 | |
| Gain on property insurance settlement (e) | — | | | — | | | 8,600 | |
| Gain on sale of Brownsville, Texas facility | — | | | — | | | 4,855 | |
| Loss on sale of Wheels India Limited shares (f) | — | | | — | | | (703) | |
| Other income (expense) | 1,868 | | | (727) | | | 4,887 | |
| | $ | 25,420 | | | $ | 2,086 | | | $ | 18,799 | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Equity investment income | $ | 3,615 |
| | $ | 2,977 |
| | $ | 1,790 |
|
| Interest income | 3,363 |
| | 3,206 |
| | 2,667 |
|
| Investment gain (loss) related to investments for deferred compensation | 2,725 |
| | 190 |
| | (361 | ) |
| Building rental income | 2,372 |
| | 2,109 |
| | 936 |
|
| Discount amortization on prepaid royalty | 866 |
| | 1,491 |
| | 1,956 |
|
| Gain (loss) on sale of assets | (701 | ) | | 2,229 |
| | 2,418 |
|
| Other income (expense) | (1,099 | ) | | 264 |
| | 1,657 |
|
| | $ | 11,141 |
| | $ | 12,466 |
| | $ | 11,063 |
|
TITAN INTERNATIONAL, INC.
(a) In May 2022 and September 2022, the Brazilian tax authorities approved indirect tax credits to be applied against future tax obligations. Refer to Footnote 21 for additional information.
(b) The loss on sale of the Australian wheel business is comprised primarily of the release of the cumulative translation adjustment of approximately $10.0 million and closing costs associated with the completion of the transaction of approximately $0.9 million. Refer to Footnote 1 for additional information.
(c) The amount relates to foreign government grant programs for certain capital development projects in Italy and Spain. The grants were recorded as deferred income which will be amortized over the life of the capital development projects. The Company received proceeds of an additional $1.9 million from the grant for the year ended December 31, 2022, of which $1.3 million was recorded as other income to match to the historical depreciation recorded on the underlying assets. Refer to Footnote 8 for additional information.
(d) The gain on legal settlement relates to proceeds received from a steel supplier for the year ended December 31, 2021.
(e) The gain on property insurance settlement relates to the receipt of insurance proceeds for the year ended December 31, 2020 for a 2017 fire that occurred at a facility of TTRC, a subsidiary of the Company, located in Fort McMurray in Alberta, Canada.
(f) The Company sold its remaining equity method investment in Wheels India Limited (Wheels India) during 2020 resulting in net proceeds of $32.9 million and net loss of $0.7 million for the year ended December 31, 2020.
21. INCOME TAXES
Income (loss) before income taxes, consisted of the following for the years set forth below (amounts in thousands):
| | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Domestic | $ | 73,361 | | | $ | (5,862) | | | $ | (36,761) | |
| Foreign | 128,992 | | | 56,902 | | | (21,370) | |
| | $ | 202,353 | | | $ | 51,040 | | | $ | (58,131) | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Domestic | $ | (65,422 | ) | | $ | (56,334 | ) | | $ | (34,876 | ) |
| Foreign | 12,546 |
| | 19,860 |
| | (20,196 | ) |
| | $ | (52,876 | ) | | $ | (36,474 | ) | | $ | (55,072 | ) |
The income tax provision (benefit) was as follows for the years set forth below (amounts in thousands):
| | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Current | | | | | |
| Federal | $ | (55) | | | $ | (933) | | | $ | (4,050) | |
| State | 1,897 | | | (160) | | | 326 | |
| Foreign | 44,710 | | | 16,422 | | | 13,677 | |
| | 46,552 | | | 15,329 | | | 9,953 | |
| Deferred | | | | | |
| Federal | (14,953) | | | — | | | — | |
| State | (10,959) | | | — | | | — | |
| Foreign | 2,527 | | | (14,180) | | | (3,007) | |
| | (23,385) | | | (14,180) | | | (3,007) | |
| Income tax provision | $ | 23,167 | | | $ | 1,149 | | | $ | 6,946 | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Current | | | | | |
| Federal | $ | 458 |
| | $ | (2,040 | ) | | $ | 3,143 |
|
| State | (614 | ) | | (62 | ) | | 55 |
|
| Foreign | 10,574 |
| | 6,063 |
| | 7,114 |
|
| | 10,418 |
| | 3,961 |
| | 10,312 |
|
| Deferred | |
| | |
| | |
|
| Federal | — |
| | — |
| | 24,924 |
|
| State | — |
| | — |
| | 3,433 |
|
| Foreign | 785 |
| | (680 | ) | | (3,913 | ) |
| | 785 |
| | (680 | ) | | 24,444 |
|
| Income tax provision (benefit) | $ | 11,203 |
| | $ | 3,281 |
| | $ | 34,756 |
|
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The income tax provision differs from the amount of income tax determined by applying the statutory U.S. federal income tax rate to pre-tax income (loss) as a result of the following:
| | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Statutory U.S. federal tax rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| Unrecognized tax positions | (0.3) | | | (1.1) | | | 5.9 | |
| Foreign tax rate differential | 11.7 | | | 13.0 | | | (7.2) | |
| Valuation allowance | (23.4) | | | (33.9) | | | (47.9) | |
| State taxes, net | 2.0 | | | 3.7 | | | 9.0 | |
| Nondeductible royalty | 0.5 | | | 1.9 | | | (1.2) | |
| | | | | |
| Sale of investment | — | | | — | | | 8.7 | |
| Equity based compensation | (0.3) | | | (1.0) | | | (0.2) | |
| Nondeductible interest | — | | | 1.5 | | | (1.0) | |
| Other, net | 0.2 | | | (2.8) | | | 1.0 | |
| Effective tax rate | 11.4 | % | | 2.3 | % | | (11.9) | % |
|
| | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Statutory U.S. federal tax rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
| Unrecognized tax positions | (2.3 | ) | | 6.5 |
| | — |
|
| Impact of foreign income | (8.0 | ) | | 26.9 |
| | 12.8 |
|
| Valuation allowance | 16.5 |
| | (73.6 | ) | | (131.5 | ) |
| State taxes, net | 0.8 |
| | 0.1 |
| | (6.6 | ) |
| Benefit from a U.S. check-the-box election | — |
| | — |
| | 33.5 |
|
| Debt forgiveness | 0.2 |
| | — |
| | (2.1 | ) |
| Nondeductible royalty | (1.4 | ) | | (1.9 | ) | | (1.5 | ) |
| Tax Cuts and Jobs Act | (62.7 | ) | | — |
| | — |
|
| Other, net | 0.7 |
| | (2.0 | ) | | (2.7 | ) |
| Effective tax rate | (21.2 | )% | | (9.0 | )% | | (63.1 | )% |
The effective tax rate for the year ended December 31, 2017,2022, was a negative 21.2% as11.4% compared to a negative 9.0%2.3% for the year ended December 31, 2016.2021. The Company recordedeffective rate for 2022 was negatively affected by the impacts of foreign income and state income taxes, which resulted in a pre-tax lossnet $23.7 million and $4.0 million tax expense, respectively. For 2022, the rate was positively impacted by benefits from the federal and state valuation allowance release, which resulted in eachtax benefits of 2017 and 2016 and had a negative$53.3 million offset by $5.9 million foreign valuation allowance established. After giving consideration to these items, the effective tax rate for 2022 of 11.4% was lower than the 21% U.S. federal statutory rate.
In December 2021, the U.S. Treasury Department released final regulations concerning the U.S foreign tax credit. In November 2022, the U.S. Treasury Department and IRS released proposed regulations which representsprovided additional guidance relating to the credits for foreign taxes. As a result, the Company does not expect to receive a credit for Brazilian income taxes paid for U.S. tax purposes. This change is included in the $45.3 million global intangible low-taxed income (GILTI) inclusion amount for 2022, of which the $9.5 million tax expense is included within the foreign tax rate differential line item on the rate reconciliation. This income inclusion resulted in the consolidated financial statements.utilization of interest expense carryforward, which had a full valuation allowance, and resulted in a benefit of approximately $2.9 million.
In jurisdictions where the Company operates, its businesses, management analyzescontinues to monitor the ability to utilize itsrealizability of the deferred tax assets arising from losses in its cyclical business.business, taking into account multiple factors. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. After evaluating all available evidence, including the fact that the U.S. achieved a three year cumulative income position in the fourth quarter of 2022, the Company released most of its U.S. valuation allowance and only retained a portion related to credits, some state net operating losses and interest expense carryforward that were not more likely than not to be utilized. The Company continues to record a valuation allowance in several major jurisdictions, including the U.S., various U.S. states, Italy, Australia, and Luxembourg as these amounts remainwhere it remains more likely than not that the deferred tax assets would not be utilized. The Company recordedreleased a valuation allowance of $8.7$53.3 million and $26.8$16.1 million on the net deferred tax asset in 20172022 and 2016,2021, respectively. This amount isThese amounts are primarily related to net operating losses generated from operations in these certain countries.
The Company is involved in various tax matters, for some of which the outcome is uncertain. The IRS issued a final audit report during 2017 for the tax years 2010 through 2014. The Company recorded a net expense of $0.5 million to reflect the final audit results. The Company believes that it has adequate tax reserves to address these open tax matters acknowledging that the outcome and timing of these events are uncertain.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31, 20172022 and 2016,2021, were as follows (amounts in thousands):
|
| | | | | | | |
| | 2017 | | 2016 |
| Deferred tax assets: | | | |
| Net operating loss carryforwards | $ | 118,303 |
| | $ | 119,748 |
|
| Pension | 5,462 |
| | 8,236 |
|
| Inventory | 4,957 |
| | 4,329 |
|
| Warranty | 4,847 |
| | 6,237 |
|
| Employee benefits and related costs | 14,061 |
| | 18,882 |
|
| Prepaid royalties | 4,383 |
| | 5,173 |
|
| Other | 20,930 |
| | 22,160 |
|
| Deferred tax assets | 172,943 |
| | 184,765 |
|
| Deferred tax liabilities: | |
| | |
|
| Fixed assets | (28,769 | ) | | (41,757 | ) |
| Intangible assets | (4,301 | ) | | (4,214 | ) |
| Other | (1,396 | ) | | (4,543 | ) |
| Deferred tax liabilities | (34,466 | ) | | (50,514 | ) |
| Subtotal | 138,477 |
| | 134,251 |
|
| Valuation allowance | (148,243 | ) | | (142,771 | ) |
| Net deferred tax liability | $ | (9,766 | ) | | $ | (8,520 | ) |
| | | | | | | | | | | |
| | 2022 | | 2021 |
| Deferred tax assets: | | | |
| Net operating loss carryforwards | $ | 117,646 | | | $ | 138,472 | |
| Pension | — | | | 447 | |
| | | |
| Inventory | 7,001 | | | 7,602 | |
| Warranty | 5,587 | | | 4,391 | |
| Employee benefits and related costs | 8,394 | | | 8,585 | |
| | | |
| | | |
| Prepaid royalties | 2,145 | | | 2,922 | |
| | | |
| Interest limitation | 16,361 | | | 21,868 | |
| Lease liability | 3,951 | | | 6,482 | |
| Intangible assets | 1,105 | | | — | |
| Other | 14,045 | | | 17,672 | |
| Deferred tax assets | 176,235 | | | 208,441 | |
| Deferred tax liabilities: | | | |
| Fixed assets | (11,978) | | | (11,455) | |
| Intangible assets | — | | | (710) | |
| Lease assets | (3,869) | | | (6,441) | |
| Pension | (1,169) | | | — | |
| Other | (2,851) | | | (3,810) | |
| Deferred tax liabilities | (19,867) | | | (22,416) | |
| Subtotal | 156,368 | | | 186,025 | |
| Valuation allowance | (121,057) | | | (173,172) | |
| Net deferred tax asset (liability) | $ | 35,311 | | | $ | 12,853 | |
As of December 31, 20172022 and 2016,2021, certain net tax loss carryforwards of $118.3$117.6 million and $119.7$138.5 million were available with $1.8$2.5 million expiring between 2017 and 2022 and $116.52027 and $115.1 million expiring after 2022.2027. At December 31, 2017,2022, a valuation allowance of $148.2$121.1 million has been established. The net change in the valuation allowance was $5.5$(52.1) million and $25.0$(26.0) million for 20172022 and 2016,2021, respectively. The Company has $168.8 million of Federal net operating loss carryforward, a portion of which expires starting in 2034. Additionally, the Company has $205.3 million of state net operating losses and $273.8 million of foreign loss carryforwards. The majority of the valuation allowance is related to deferred tax assets in the U.S., Italy, Australia, and Luxembourg.
The Tax Cuts and Jobs Act was enacted onAs of December 22, 2017. The Tax Cuts and Jobs Act includes31, 2022, the Company has $75.2 million of gross Federal net operating loss carryforward, a numberportion of changeswhich expires starting in existing tax law impacting businesses, including a one-time deemed repatriation of cumulative undistributed foreign earnings2035 and a permanent reduction in the U.S. federal statutory rate from 35% to 21%, effective on January 1, 2018. Under U.S. GAAP, changes in tax rates and tax law are accounted for in the periodportion of enactment and deferred tax assets and liabilities are remeasured at the enacted tax rate. Consistent with guidance issued by the Securities Exchange Commission (“SEC”), which provides for a measurement period of one year from the enactment date to finalize the accounting for effects of the Tax Cuts and Jobs Act,does not expire. Additionally, the Company provisionally recorded no additional income tax expense related to the Tax Cutshas $303 million of state net operating losses and Jobs Act. The remeasured U.S. net deferred asset was fully offset by a change in the valuation allowance. Based on information available, the Company estimates the net cumulative undistributed$351.4 million of foreign earnings to be a cumulative loss and therefore recorded no additional income tax expense related to the one-time deemed repatriation toll charge. carryforwards.
As a result of the Tax Cuts and Jobs Act, the Company can repatriate the cumulative undistributedfuture foreign earnings back to the U.S. when needed with minimal additional taxes other than state income and foreign withholding tax. The Company is still evaluating whether to changehas not changed its indefinite reinvestment assertion in light of the Tax Cuts and Jobs Act and considers that conclusion tohas not accrued any potential incremental taxes which could be incomplete under guidance issued byincurred if any foreign earnings are repatriated. The Company has not calculated the SEC. Ifpotential foreign withholding taxes as the Company subsequentlydoes not expect to repatriate those earnings.
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 that includes, among other provisions, changes to the U.S. corporate income tax system, including a fifteen percent minimum tax based on "adjusted financial statement income", which is effective for tax years beginning after December 31, 2022 for applicable corporations with financial statement income greater than $1 billion, and a one percent excise tax on net repurchases of stock after December 31, 2022. Titan is continuing to evaluate the Inflation Reduction Act and its assertion duringrequirements, as well as the measurement period,application to its business, but at this time does not expect the Company will account for the change in assertion as part of the Tax Cuts and JobsInflation Reduction Act enactment.to have a material impact on its financial results.
The Company or one of its subsidiaries files income tax returns in the U.S., Federal and State, and various foreign jurisdictions. The Company’s major locations are in the U.S., Italy Australia, Russia, and Brazil. The IRS issued a final audit report in 2017Open tax years for the 2010-2014 U.S. Federal tax returns and the Company adjusted its uncertain tax reserves. The Company also has ongoing tax audits with non-U.S. jurisdictions.are from 2019-2022, for Italy has open tax years are from 2012-2017. Russia has open tax years from 2016-2017. Australia has open tax years from 2013-20172016-2022, and Brazil has open tax years from 2011-2017.2016-2022.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has applied the provisions of ASC 740, “Income Taxes” related to unrecognized tax benefits. At December 31, 2017, 2016,2022, 2021, and 2015,2020, the unrecognized tax benefits were $11.4$0.0 million, $16.1$0.1 million, and $18.0$0.8 million, respectively. As of December 31, 2017, $11.42022, $0.0 million of unrecognized tax benefits would have affected income tax expense if the tax benefits were recognized. The majority of these recognized tax benefits would result in a net operating loss carryforward which would require a valuation allowance. The majority of the accrual in unrecognized tax benefits relates to potential state tax exposures. Although management cannot predict with any degree of certainty the timing of ultimate resolution of matters under review by various taxing jurisdictions, it is unlikelypossible that the Company’s gross unrecognized tax benefits balance will change significantlydecrease by approximately $0.0 million within the next twelve months.
A reconciliation of the total amounts of unrecognized tax benefits at December 31 were as follows (amounts in thousands):
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| Balance at January 1 | $ | 540 | | | $ | 1,012 | | | $ | 4,097 | |
| Increases to tax positions taken during the current year | — | | | — | | | — | |
| Increases to tax positions taken during the prior years | — | | | — | | | 13 | |
| Decreases to tax positions taken during prior years | — | | | — | | | — | |
| Decreases due to lapse of statutes of limitations | (506) | | | (473) | | | (3,099) | |
| Settlements | — | | | — | | | — | |
| Foreign exchange | (4) | | | 1 | | | 1 | |
| Balance at December 31 | $ | 30 | | | $ | 540 | | | $ | 1,012 | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Balance at January 1 | $ | 12,468 |
| | $ | 14,698 |
| | $ | 15,320 |
|
| Increases to tax positions taken during the current year | 127 |
| | 288 |
| | 7 |
|
| Increases to tax positions taken during the prior years | 6,045 |
| | 3,201 |
| | 591 |
|
| Decreases to tax positions taken during prior years | (858 | ) | | (5,257 | ) | | (534 | ) |
| Decreases due to lapse of statutes of limitations | (297 | ) | | (4 | ) | | (492 | ) |
| Settlements | (8,095 | ) | | (476 | ) | | (175 | ) |
| Foreign exchange | (25 | ) | | 18 |
| | (19 | ) |
| Balance at December 31 | $ | 9,365 |
| | $ | 12,468 |
| | $ | 14,698 |
|
The Company accrues interest and penalties related to unrecognized tax benefits in income tax expense. The amount of interest and penalties related to unrecognized tax benefits recorded in income tax expense was $0.5$0.0 million, $0.4$(0.2) million, and $0.5$(1.1) million at December 31, 2017, 20162022, 2021 and 2015.2020, respectively. The reconciliation of unrecognized tax benefits above does not include accrued interest and penalties of $2.9 million, $3.6 million, and $3.3$0.3 million at December 31, 2017, 2016,2020. There were no accrued interest and 2015, respectively.penalties excluded at December 31, 2022 and 2021.
In June 2021, the Company’s Brazilian subsidiaries received a notice that they had prevailed on an existing legal claim in regards to certain non-income (indirect) taxes that had been previously charged and paid. The matter specifically relates to companies’ rights to exclude the state tax on goods circulation (a value-added-tax or VAT equivalent, known in Brazil as “ICMS”) from the calculation of certain additional indirect taxes (specifically the program of social integration (“PIS”) and contribution for financing of social security (“COFINS”) levied by the Brazilian States on the sale of goods.
During the second and third quarter of 2022, the Company submitted the related supporting documentation and received the approval from the Brazilian tax authorities for two of its Brazilian subsidiaries. For the year ended December 31, 2022, the Company recorded $32.0 million within other income in the consolidated statements of operations. The Company also recorded $16.1 million of income tax expense associated with the recognition of these indirect tax credits for the year end December 31, 2022. Of the $16.1 million income tax expense recorded, $9.4 million was recorded locally in Brazil, while the
remaining $6.7 million was recorded to the US in accordance with the GILTI income tax requirements.
The Company expects to be able to apply the tax credits received to settle the income tax liability that was incurred as a result of the credit. The Company also expects to utilize the majority of the credit against future PIS/COFINS and income tax obligations over the next twelve months. For the year ended December 31, 2022, the Company has utilized approximately $15.0 million of the tax credits in the settlement of income tax obligations. After the utilization of $15.0 million of tax credits, the Company paid in cash approximately $24.1 million of income taxes for the year ended December 31, 2022 which is on the supplemental information of the consolidated statement of cash flows.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. EMPLOYEE BENEFIT PLANS
Pension 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’s policy is to fund pension costs as required by law, which is consistent with the funding requirements of federal laws and regulations. Certain foreign subsidiaries maintain unfunded pension plans consistent with local practices and requirements.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides the change in benefit obligation, change in plan assets, funded status, and amounts recognized in the Consolidated Balance Sheet of the defined benefit pension plans as of December 31, 20172022 and 20162021 (amounts in thousands):
| | | | | | | | | | | |
| Change in benefit obligation: | 2022 | | 2021 |
| Benefit obligation at beginning of year | $ | 106,587 | | | $ | 114,940 | |
| | | |
| Service cost | 590 | | | 655 | |
| Interest cost | 2,872 | | | 2,880 | |
| Disposition of Australia benefit obligation | (853) | | | — | |
| Actuarial gain | (19,991) | | | (1,985) | |
| Benefits paid | (8,866) | | | (8,381) | |
| Foreign currency translation | (960) | | | (1,522) | |
| Benefit obligation at end of year | $ | 79,379 | | | $ | 106,587 | |
| Change in plan assets: | | | |
| Fair value of plan assets at beginning of year | $ | 97,007 | | | $ | 89,744 | |
| | | |
| Actual return on plan assets | (14,179) | | | 13,259 | |
| Employer contributions | 436 | | | 1,397 | |
| Benefits paid | (8,228) | | | (7,355) | |
| Foreign currency translation | (11) | | | (38) | |
| Fair value of plan assets at end of year | $ | 75,025 | | | $ | 97,007 | |
| Unfunded status at end of year | $ | (4,354) | | | $ | (9,580) | |
| Amounts recognized in Consolidated Balance Sheet: | | | |
| Noncurrent assets | $ | 11,241 | | | $ | 11,095 | |
| Current liabilities | (1,718) | | | (1,551) | |
| Noncurrent liabilities | (13,877) | | | (19,124) | |
| Net amount recognized in the Consolidated Balance Sheet | $ | (4,354) | | | $ | (9,580) | |
|
| | | | | | | |
| Change in benefit obligation: | 2017 | | 2016 |
| Benefit obligation at beginning of year | $ | 113,119 |
| | $ | 115,598 |
|
| Service cost | 598 |
| | 341 |
|
| Interest cost | 4,672 |
| | 4,896 |
|
| Actuarial (gain) loss | 8,383 |
| | 1,073 |
|
| Benefits paid | (8,866 | ) | | (8,572 | ) |
| Foreign currency translation | 1,830 |
| | (217 | ) |
| Benefit obligation at end of year | $ | 119,736 |
| | $ | 113,119 |
|
| Change in plan assets: | |
| | |
|
| Fair value of plan assets at beginning of year | $ | 77,314 |
| | $ | 78,392 |
|
| Actual return on plan assets | 12,436 |
| | 4,419 |
|
| Employer contributions | 914 |
| | 2,399 |
|
| Benefits paid | (7,809 | ) | | (7,919 | ) |
| Foreign currency translation | 181 |
| | 23 |
|
| Fair value of plan assets at end of year | $ | 83,036 |
| | $ | 77,314 |
|
| Unfunded status at end of year | $ | (36,700 | ) | | $ | (35,805 | ) |
| Amounts recognized in Consolidated Balance Sheet: | |
| | |
|
| Noncurrent assets | $ | 948 |
| | $ | 901 |
|
| Current liabilities | (2,040 | ) | | (1,787 | ) |
| Noncurrent liabilities | (35,608 | ) | | (34,919 | ) |
| Net amount recognized in the Consolidated Balance Sheet | $ | (36,700 | ) | | $ | (35,805 | ) |
The pension benefit obligation included $98.7$66.1 million of pension benefit obligation for the three frozen plans in the U.S. and $21.1$13.3 million of pension benefit obligation for plans at foreign subsidiaries. The fair value of plan assets included $81.3$74.1 million of plan assets for the three frozen plans in the U.S. and $1.7$0.9 million of plan assets for foreign plans.
|
| | | | | | | |
| Amounts recognized in accumulated other comprehensive loss: | | | |
| | 2017 | | 2016 |
| Unrecognized prior service cost | $ | (208 | ) | | $ | (344 | ) |
| Unrecognized net loss | (39,775 | ) | | (41,011 | ) |
| Deferred tax effect of unrecognized items | 15,856 |
| | 15,705 |
|
| Net amount recognized in accumulated other comprehensive loss | $ | (24,127 | ) | | $ | (25,650 | ) |
Information for pension plans with projected benefit obligations and accumulated benefit obligations in excess of plan assets were (amounts in thousands):
| | | | | | | | | | | |
| | 2022 | | 2021 |
| Projected and accumulated benefit obligations (a) | $ | 79,379 | | | $ | 59,895 | |
| Fair value of plan assets | 75,025 | | | 39,561 | |
|
| | | | | |
| The weighted-average assumptions used in the actuarial computation that derived the benefit obligations at December 31 were as follows: | 2017 | | 2016 |
| Discount rate | 3.8 | % | | 4.4 | % |
| Expected long-term return on plan assets | 7.4 | % | | 7.4 | % |
(a) The majority of the Company's pension plans are frozen plans and therefore there is no difference between the projected and accumulated benefit obligations.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | |
| Amounts recognized in accumulated other comprehensive loss: | | | |
| | 2022 | | 2021 |
| Unrecognized prior service cost | $ | 643 | | | $ | 668 | |
| Unrecognized net loss | (21,091) | | | (22,231) | |
| Deferred tax effect of unrecognized items | 11,181 | | | 11,181 | |
| Net amount recognized in accumulated other comprehensive loss | $ | (9,267) | | | $ | (10,382) | |
| | | | | | | | | | | |
| The weighted-average assumptions used in the actuarial computation that derived the benefit obligations at December 31 were as follows: | 2022 | | 2021 |
| Discount rate | 5.5 | % | | 2.7 | % |
| Expected long-term return on plan assets | 6.5 | % | | 6.5 | % |
The following table provides the components of net periodic pension cost for the plans, settlement cost, and the assumptions used in the measurement of the Company’s benefit obligation for the years ended December 31, 2017, 2016,2022, 2021, and 20152020 (amounts in thousands):
| | | | | | | | | | | | | | | | | |
Components of net periodic benefit cost and other
amounts recognized in other comprehensive income (loss) | | | | | |
| Net periodic benefit cost: | 2022 | | 2021 | | 2020 |
| Service cost | $ | 590 | | | $ | 655 | | | $ | 801 | |
| Interest cost | 2,872 | | | 2,880 | | | 3,496 | |
| Assumed return on assets | (6,071) | | | (6,024) | | | (5,463) | |
| Amortization of unrecognized prior service cost | (85) | | | (95) | | | (69) | |
| | | | | |
| Amortization of net unrecognized loss | 1,426 | | | 2,805 | | | 2,840 | |
| Net periodic pension cost | $ | (1,268) | | | $ | 221 | | | $ | 1,605 | |
|
| | | | | | | | | | | |
Components of net periodic benefit cost and other amounts recognized in other comprehensive income (loss) | | | | | |
| Net periodic benefit cost: | 2017 | | 2016 | | 2015 |
| Service cost | $ | 598 |
| | $ | 341 |
| | $ | 404 |
|
| Interest cost | 4,672 |
| | 4,896 |
| | 4,837 |
|
| Assumed return on assets | (5,472 | ) | | (5,600 | ) | | (6,051 | ) |
| Amortization of unrecognized prior service cost | 137 |
| | 137 |
| | 137 |
|
| Amortization of net unrecognized loss | 2,696 |
| | 3,118 |
| | 2,917 |
|
| Net periodic pension cost | $ | 2,631 |
| | $ | 2,892 |
| | $ | 2,244 |
|
The estimated net loss and prior service cost that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year are $2.7 million and $0.1 million, respectively.
The weighted-average assumptions used in the actuarial computation that derived net periodic pension cost for the years ended December 31, 2017, 2016,2022, 2021, and 20152020 were as follows:
| | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Discount rate | 2.7 | % | | 1.4 | % | | 3.6 | % |
| Expected long-term return on plan assets | 6.5 | % | | 6.5 | % | | 6.9 | % |
|
| | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Discount rate | 5.8 | % | | 5.8 | % | | 5.8 | % |
| Expected long-term return on plan assets | 7.4 | % | | 7.4 | % | | 7.4 | % |
The allocation of the fair value of plan assets was as follows:
| | | | | | | | | | | | | | | | | |
| | Percentage of Plan Assets
at December 31, | | Target
Allocation |
| Asset Category | 2022 | | 2021 | | 2022 |
| U.S. equities (a) | 62 | % | | 64 | % | | 40% - 80% |
| Fixed income | 23 | % | | 23 | % | | 20% - 50% |
| Cash and cash equivalents | 8 | % | | 6 | % | | 0% - 20% |
| International equities (a) | 7 | % | | 7 | % | | 0% - 16% |
| | 100 | % | | 100 | % | | |
(a) Total equities may not exceed 80% of total plan assets.
|
| | | | | | | |
| | Percentage of Plan Assets at December 31, | | Target Allocation |
| Asset Category | 2017 | | 2016 | | 2017 |
| U.S. equities (a) | 61 | % | | 56 | % | | 40% - 80% |
| Fixed income | 25 | % | | 30 | % | | 20% - 50% |
| Cash and cash equivalents | 6 | % | | 7 | % | | 0% - 20% |
| International equities (a) | 8 | % | | 7 | % | | 0% - 16% |
| | 100 | % | | 100 | % | | |
| |
(a) | Total equities may not exceed 80% of total plan assets. |
The majority of the Company's foreign plans do not have plan assets. The foreign plans which have plan assets holds these plan assets in an insurance or money market fund.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of the plan assets by asset categories consisted of the following as of the dates set forth below (amounts in thousands):
|
| | | | | | | | | | | | | | | |
| | Fair Value Measurements as of December 31, 2017 |
| | Total | | Level 1 | | Level 2 | | Level 3 |
| Money market funds | $ | 5,101 |
| | $ | 5,101 |
| | $ | — |
| | $ | — |
|
| Common stock | 35,300 |
| | 35,300 |
| | — |
| | — |
|
| Bonds and securities | 5,370 |
| | 5,370 |
| | — |
| | — |
|
| Mutual and insurance funds | 2,074 |
| | 868 |
| | 1,206 |
| | — |
|
| Totals | $ | 47,845 |
| | $ | 46,639 |
| | $ | 1,206 |
| | $ | — |
|
| Assets measured at net asset value (a) | 35,191 |
| | | | | | |
| | $ | 83,036 |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements as of December 31, 2022 |
| | Total | | Level 1 | | Level 2 | | Level 3 |
| Money market funds | $ | 5,377 | | | $ | 5,377 | | | $ | — | | | $ | — | |
| Common stock | 29,759 | | | 29,759 | | | — | | | — | |
| Bonds and securities | 4,891 | | | 4,891 | | | — | | | — | |
| Mutual and insurance funds | 34,998 | | | 34,084 | | | 914 | | | — | |
| Totals | $ | 75,025 | | | $ | 74,111 | | | $ | 914 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements as of December 31, 2021 |
| | Total | | Level 1 | | Level 2 | | Level 3 |
| Money market funds | $ | 5,830 | | | $ | 5,830 | | | $ | — | | | $ | — | |
| Common stock | 38,231 | | | 38,231 | | | — | | | — | |
| Bonds and securities | 8,240 | | | 8,240 | | | — | | | — | |
| Mutual and insurance funds | 44,706 | | | 44,194 | | | 512 | | | — | |
| Totals | $ | 97,007 | | | $ | 96,495 | | | $ | 512 | | | $ | — | |
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | | | | |
| | Fair Value Measurements as of December 31, 2016 |
| | Total | | Level 1 | | Level 2 | | Level 3 |
| Money market funds | $ | 5,114 |
| | $ | 5,114 |
| | $ | — |
| | $ | — |
|
| Common stock | 31,869 |
| | 31,869 |
| | — |
| | — |
|
| Bonds and securities | 6,258 |
| | 4,942 |
| | 1,316 |
| | — |
|
| Mutual and insurance funds | 2,485 |
| | 829 |
| | 1,656 |
| | — |
|
| Totals | $ | 45,726 |
| | $ | 42,754 |
| | $ | 2,972 |
| | $ | — |
|
| Assets measured at net asset value (a) | 31,588 |
| | | | | | |
| | $ | 77,314 |
| | | | | | |
| |
(a) | Assets measured at net asset value consist of common / collective trusts. |
The Company invests in a diversified portfolio consisting of an array of asset classes in an attempt to maximize returns while minimizing risk. These asset classes include U.S. equities, fixed income, cash and cash equivalents, international equities and international equities.REITs. The investment objectives are to provide for the growth and preservation of plan assets on a long-term basis through investments in: investment grade securities that provide investment returns that meet or exceed the Standard & Poor’s 500 Index and investment grade fixed income securities that provide investment returns that meet or exceed the Barclays Capital Aggregate Bond Index. The U.S. equities asset category included the Company’s common stock in the amount of $2.2$2.6 million (approximately three percent of total plan assets) at December 31, 2017,2022, and $1.9 million (approximately twoone percent of total plan assets) at December 31, 2016.2021.
The fair value of money market funds, stock, bonds, U.S. government securities and mutual funds is determined based on valuation for identical instruments in active markets.
The long-term rate of return for plan assets is determined using a weighted-average of long-term historical approximate returns on cash and cash equivalents, fixed income securities, and equity securities considering the anticipated investment allocation within the plans. The expected return on plan assets is anticipated to be 7.4%6.5% over the long-term. This rate assumes long-term historical returns of approximately 9%8.5% for equities and approximately 4.5%4.0% for fixed income securities using the plans’ target allocation percentages. Professional investment firms, none of which are Titan employees, manage the plan assets.
Although the 20182023 minimum pension funding calculations are not finalized, the Company estimates thosedoes not anticipate any minimum funding requirements will be approximately $5 million.requirements.
Projected benefit payments from the plans as of December 31, 2017,2022, are estimated as follows (amounts in thousands):
| | | | | |
| 2023 | $ | 8,197 | |
| 2024 | 7,665 | |
| 2025 | 7,487 | |
| 2026 | 7,294 | |
| 2027 | 6,819 | |
| 2028-2032 | 30,037 | |
|
| | | |
| 2018 | $ | 9,398 |
|
| 2019 | 8,499 |
|
| 2020 | 8,607 |
|
| 2021 | 8,509 |
|
| 2022 | 8,522 |
|
| 2023-2027 | 39,645 |
|
401(k)/Defined contribution plans
The Company sponsors two 401(k) retirement savings plans in the U.S. and a number of defined contribution plans at foreign subsidiaries. One U.S. plan is for the benefit of substantially all employees who are not covered by a collective bargaining arrangement. Titan provides a 25%50% matching contribution in the form of the Company’s common stock on the first 6% of the employee’s contribution in this plan. The Company issued 49,242124,645 shares, 93,491175,267 shares and 65,481653,211 shares of treasury common
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
stock in connection with this 401(k) plan during 2017, 2016,2022, 2021, and 2015,2020, respectively. Expenses to the Company related to this common stock matching contribution were $0.5$1.7 million, $0.5$1.4 million, and $0.6$1.2 million for 2017, 2016,2022, 2021, and 2015,2020, respectively. The other U.S. 401(k) plan is for employees covered by collective bargaining agreements and does not include a Company matching contribution. Expenses related to foreign defined contribution plans were $3.8$4.1 million, $3.6$3.8 million, and $3.7 million for 2017, 2016,2022, 2021, and 2015,2020, respectively.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23. STOCK COMPENSATION
The Company recorded stock compensation of $1.5$4.3 million, $2.0$4.3 million, and $2.3$2.5 million in 2017, 2016,2022, 2021, and 2015,2020, respectively. Options to the Board of Directors vest immediately. All options expire 10 years from the grant date. The restricted stock awards vest over a period of three to four years.
2005Titan International, Inc. Equity and Incentive Compensation Plan
The Company adopted a new Titan International, Inc. Equity and Incentive Compensation Plan at the 2005 Equity Incentive Plan2021 Annual Meeting of Stockholders to provide stock compensation as a means of attracting and retaining qualified independent directors and employees for the Company. A total of 2.03.5 million shares are available for future issuance under the equity incentive plan at December 31, 2017.2022.
Stock Options
Under the Company's Equity Incentive plan (or its predecessor plan), the Company granted no stock options in 2022, 2021, and 2020. The exercise price of stock options may not be less than the fair market value of the common stock on the date of the grant. The vesting and term of each option is set by the Board of Directors. The Company granted 89,200 stockAll options under this plan in 2017, 60,000 stock options under this plan in 2016,outstanding at December 31, 2022 are fully vested and 60,000 stock options under this plan in 2015. The Company did notexpire 10 years from the grant any restricted stock awards under this plan in 2017 and 2016. The Company granted 123,500 restricted stock awards under this plan in 2015.date.
Stock Options
The following is a summary of activity in stock options during the year ended December 31, 2017:2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Shares Subject
to Option | | Weighted-Average | | Aggregate Intrinsic Value (in thousands) |
| Exercise Price | | Remaining Contractual Life (in Years) | |
| Outstanding, December 31, 2021 | 453,200 | | | $ | 14.44 | | | 3.79 | | |
| Granted | — | | | — | | | | | |
| Exercised | — | | | — | | | | | |
| Forfeited/Expired | (45,000) | | | 23.39 | | | | | |
| Outstanding, December 31, 2022 | 408,200 | | | $ | 13.45 | | | 3.16 | | $ | 1,350 | |
| Exercisable, December 31, 2022 | 408,200 | | | $ | 13.45 | | | 3.16 | | $ | 1,350 | |
|
| | | | | | | | | | | | |
| | Shares Subject to Option | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Life (in Years) | | Aggregate Intrinsic Value (in thousands) |
| Outstanding, December 31, 2016 | 807,520 |
| | $ | 18.13 |
| | | | |
| Granted | 89,200 |
| | 11.79 |
| | | | |
| Exercised | — |
| | — |
| | | | |
| Forfeited/Expired | (48,950 | ) | | 19.51 |
| | | | |
| Outstanding, December 31, 2017 | 847,770 |
| | 17.39 |
| | 5.05 | | $ | 561 |
|
| Exercisable, December 31, 2017 | 847,770 |
| | 17.39 |
| | 5.05 | | $ | 561 |
|
Additional Stock Option Information (all amounts in thousands, except for per share data):
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Weighted-average fair value per share of stock options granted | $ | 6.10 |
| | $ | 3.62 |
| | $ | 5.27 |
|
| Intrinsic value of stock options exercised | — |
| | — |
| | (3 | ) |
| Tax expense (benefit) realized for tax deductions from stock options exercised | — |
| |
|
| | (1 | ) |
| Grant date fair value of stock options vested | 544 |
| | 217 |
| | 316 |
|
| Cash received from stock options exercised | — |
| | — |
| | 145 |
|
No options were exercised in 2017 and 2016. The Company currently uses treasury shares to satisfy any stock option exercises. At December 31, 2017 and 2016, the Company had 0.9 million and 1.1 million shares of treasury stock, respectively.
Valuation Assumptions
The Company uses the Black-Scholes option pricing model to determine the fair value of its stock options. The determination of the fair value of stock option awards on the date of grant using option pricing models is affected by the Company’s stock price, as well as assumptions regarding a number of complex and subjective variables. These variables include the Company’s expected stock price volatility over the expected term of the awards, actual and projected stock option exercise behaviors, risk-free interest rates, and expected dividends. The expected term of options represents the period of time over which options are expected to be outstanding and is estimated based on historical experience. Expected volatility is based on the historical volatility of the Company’s common stock calculated over the expected term of the option. The risk-free interest rate is based on U.S. Treasury yields in effect at the date of grant.
Restricted Stock and Performance Stock Units
Under the Company's Equity Incentive plan (or its predecessor plan), the Company granted restricted stock units (RSU) to eligible employee and the members of the Company's Board of Directors. The restricted stock units to employees vest over a period of three years. The restricted stock units to the members of the Company's Board of Directors vest over a period of one year. During 2022, 2021 and 2020, 552,992, 438,195, and 1,026,946 RSU shares were granted, respectively. The Company recorded $3.4 million, $3.4 million and $2.5 million stock compensation expense associated with RSUs for the year ended December 31, 2022, 2021, and 2020, respectively.
On December 28, 2021, the Company awarded certain named executive officers grants of long-term performance stock units (PSU) based on the achievement of certain adjusted-EBITDA targets for the fiscal years commencing January 1, 2021 and ending December 31, 2024. The number of shares earned could range between 0% and 125% of the target amount depending
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Weighted average assumptions used for stock options issued in 2017, 2016, and 2015: |
| | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Expected life (in years) | 6.0 |
| | 6.0 |
| | 6.0 |
|
| Expected volatility | 53.8 | % | | 53.3 | % | | 49.4 | % |
| Expected dividends | 0.1 | % | | 0.1 | % | | 0.1 | % |
| Risk-free interest rate | 1.82 | % | | 1.33 | % | | 1.78 | % |
Restricted Stock | | | | | | | | | | | | | | | | | | | | | | | |
| RSU | | PSU | | Total Shares | | Weighted-Average Grant Date Fair Value |
| Unvested at December 31, 2021 (a) | 722,869 | | | 328,948 | | | 1,051,817 | | | $ | 7.68 | |
| Granted | 552,992 | | | — | | | 552,992 | | | 12.72 | |
| Vested | (371,960) | | | — | | | (371,960) | | | 6.32 | |
| Forfeited/Expired | (27,013) | | | — | | | (27,013) | | | 9.56 | |
| Unvested at December 31, 2022 | 876,888 | | | 328,948 | | | 1,205,836 | | | $ | 10.37 | |
|
| | | | |
| | Shares | Weighted Average Grant Date Fair Value |
| Unvested at December 31, 2016 | 153,570 |
| 14.92 |
|
| Granted | — |
| — |
|
| Vested | (119,173 | ) | 16.02 |
|
| Forfeited/Expired | (2,500 | ) | 18.02 |
|
| Unvested at December 31, 2017 | 31,897 |
| 10.56 |
|
(a) PSU awards are presented at maximum payout of 125% of the target amount at grant date.
Pre-tax unrecognized compensation expense for unvested restricted stockRSUs and PSUs was $0.2$8.0 million at December 31, 2017,2022, and will be recognized as an expense over a weighted-average period of 0.51.5 years.
The fair value of restricted stockshares vested, based on the stock's fair value on the vesting date, was $1.5$6.0 million, $1.6$7.5 million, and $0.4$1.3 million for the years ended December 31, 2017, 2016,2022, 2021, and 2015,2020, respectively.
24. LITIGATION
The Company is a party to routine legal proceedings arising out of the normal course of business. Although it is not possible to predict with certainty the outcome of these unresolved legal actions or the range of possible loss, the Company believes at this time that none of these actions, individually or in the aggregate, will have a material adverse effect on the consolidated financial condition, results of operations or cash flows of the Company. However, dueDue 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 its liabilities pertaining to, legal judgments.
Presently, Titan In the opinion of management, the Company is engagednot currently involved in any legal proceedings which, individually or in the followingaggregate, could have a material legal proceeding:effect on its financial position, results of operations, or cash flows.
In early January 2016, Titan, along with the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Worker International Union, AFL-CIO, CLC of Pittsburgh, Pennsylvania, filed petitions with the DOC and the ITC alleging that imported off-the-road tires from India and Sri Lanka and wheel and tire assemblies from China were being dumped and/or subsidized and were a cause of material injury to the domestic industry. Both the DOC and the ITC initiated investigations against India and Sri Lanka, but the ITC did not recommend pursuing the investigation into wheel and tire assemblies from China. On January 4, 2017, the DOC made a final affirmative determination in both the Indian and Sri Lankan countervailing duty cases, and subsequently made an amended affirmative final determination of dumping on imports from India for all but one company. Also on January 4, 2017, the ITC conducted the final injury hearing on Titan and the United Steel Workers’ petitions. In February 2017, the ITC determined, by unanimous vote, that the domestic industry producing certain off-the-road tires was materially injured by reason of subsidized imports from India and Sri Lanka and "dumped" imports from India. On March 9, 2017, countervailing duty orders on imports of off-the-road tires from India and Sri Lanka and an anti-dumping duty order on such tires from India (with the exception of imports from one company) were published in the Federal Register by DOC. Following the ITC's February 28, 2017, determination, importers of products covered by the DOC's countervailing duty orders and antidumping order are required to post cash deposits equal to the countervailing duty amounts identified in the orders.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Two of Titan’s subsidiaries are currently involved in litigation concerning environmental laws and regulations.
In October 2010, the United States of America, on behalf of the Environmental Protection Agency (EPA), filed a complaint against Dico, Inc. (Dico) and Titan Tire Corporation (Titan Tire) in the U.S. District Court for the Southern District of Iowa, wherein the EPA sought civil penalties, punitive damages, and response costs against Dico and Titan Tire pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA).
In June 2015, Titan Tire and Dico, Inc. appealed the U.S. District Court’s order granting the EPA’s motion for summary judgment that found Dico and Titan Tire liable for civil penalties and response costs for violating CERCLA and Dico liable for civil penalties and punitive damages for violating an EPA Administrative Order.
In December 2015, the United States Court of Appeals reversed the District Court’s summary judgment order with respect to “arranger” liability for Titan Tire and Dico under CERCLA and the imposition of punitive damages against Dico for violating the EPA Administrative Order, but affirmed the summary judgment order imposing civil penalties in the amount of $1.62 million against Dico for violating the EPA Administrative Order violation. The case was remanded to the District Court for a new trial on the remaining issues.
The trial occurred in April 2017. On September 5, 2017, the District Court issued an order: (a) concluding Titan Tire and Dico arranged for the disposal of a hazardous substance in violation of 42 U.S.C. § 9607(a); (b) holding Titan Tire and Dico jointly and severally liable for $5.45 million in response costs previously incurred and reported by the United States relating to the alleged violation, including enforcement costs and attorney’s fees; and (c) awarding a declaratory judgment holding Titan Tire and Dico jointly and severally liable for all additional response costs previously incurred but not yet reported or to be incurred in the future, including enforcement costs and attorney’s fees. The District Court also held Dico liable for $5.45 million in punitive damages under 42 U.S.C. § 9607(c)(3) for violating a unilateral administrative order. The punitive damages award does not apply to Titan Tire. The Company accrued a contingent liability of $6.5 million, representing $5.45 million in costs incurred by the United States and $1.05 million of additional response costs, for this order.
Titan Tire and Dico are appealing the case to the United States Court of Appeals for the Eighth Circuit. The Notice of Appeal was filed on November 2, 2017 and an appeal bond was secured to stay the execution of any collection actions on the underlying judgment pending the outcome of the appeal.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
25. LEASE COMMITMENTS
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. Total rentalUnder ASC 842, 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 was $7.6 million, $6.0 million,is recognized on a straight-line basis over the lease term and $7.3 million foris included in cost of sales and selling, general and administrative expenses on the Consolidated Statement 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 Consolidated Statement of Operations. For the years ended December 31, 2017, 2016,2022, 2021, and 2015,2020, operating lease expense was $5.1 million, $6.1 million, and $5.9 million, respectively, and finance lease amortization expense was $2.6 million, $3.8 million, and $3.1 million, respectively.
Supplemental balance sheet information related to leases was as follows (amounts in thousands):
| | | | | | | | | | | |
| Balance Sheet Classification | | 2022 |
| Operating lease ROU assets | Operating lease assets | | $ | 8,932 | |
| | | |
| Operating lease current liabilities | Other current liabilities | | $ | 3,850 | |
| Operating lease long-term liabilities | Other long-term liabilities | | 2,409 | |
| Total operating lease liabilities | | | $ | 6,259 | |
| | | |
| Finance lease, gross | Property, plant & equipment, net | | $ | 6,994 | |
| Finance lease accumulated depreciation | Property, plant & equipment, net | | (3,820) | |
| Finance lease, net | | | $ | 3,174 | |
| | | |
| Finance lease current liabilities | Other current liabilities | | $ | 2,562 | |
| Finance lease long-term liabilities | Other long-term liabilities | | 3,444 | |
| Total finance lease liabilities | | | $ | 6,006 | |
At December 31, 2017, future minimum rental commitments under noncancellable operating leases with initial terms in excess2022, maturity of one yearlease liabilities were as follows for the years (or other periods) presented below (amounts in thousands):
| | | | | | | | | | | |
| Operating Leases | | Finance Leases |
| 2023 | $ | 4,013 | | | $ | 2,873 | |
| 2024 | 1,846 | | | 1,708 | |
| 2025 | 577 | | | 1,061 | |
| 2026 | 237 | | | 663 | |
| 2027 | 187 | | | 44 | |
| Thereafter | 233 | | | — | |
| Total future minimum lease payments | $ | 7,093 | | | $ | 6,349 | |
| Less imputed interest | 834 | | | 343 | |
| $ | 6,259 | | | $ | 6,006 | |
| | | |
| Weighted average remaining lease term (in years) | 2.39 | | 2.64 |
|
| | | |
| 2018 | $ | 6,860 |
|
| 2019 | 4,780 |
|
| 2020 | 3,526 |
|
| 2021 | 1,900 |
|
| 2022 | 1,600 |
|
| Thereafter | 291 |
|
| Total future minimum lease payments | $ | 18,957 |
|
AtSupplemental cash flow information related to leases for the year ended December 31, 2017, the Company had assets held2022 were as capital leases with a net book value of $6.9 million included in property, plant, and equipment. Total future capital lease obligations relating to thesefollows: operating cash flows from operating leases were as follows at December 31, 2017 for the years (or other periods) presented below (amounts in thousands):$9.2 million and operating cash flows from finance leases were $0.2 million.
|
| | | |
| 2018 | $ | 590 |
|
| 2019 | 197 |
|
| 2020 | 31 |
|
| 2021 | 2 |
|
| Total future capital lease obligation payments | 820 |
|
| Less amount representing interest | (7 | ) |
| Present value of future capital lease obligation payments | $ | 813 |
|
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
26. PURCHASE OBLIGATIONS
The purchase obligations mainly consist of commitments for raw material purchases and equipment associated with our global manufacturing operations. At December 31, 2017,2022, the Company's expected cash outflow resulting from non-cancellable purchase obligations are summarized by year in the table below (amounts in thousands):
| | | | | |
| 2023 | $ | 33,674 | |
| 2024 | 2,032 | |
| |
| |
| Total non-cancellable purchase obligations | $ | 35,706 | |
|
| | | |
| 2018 | $ | 22,719 |
|
| 2019 | 7,219 |
|
| 2020 | 3,638 |
|
| 2021 | 179 |
|
| Thereafter | — |
|
| Total non-cancellable purchase obligations | $ | 33,755 |
|
27. CONCENTRATION OF CREDIT RISK
Net sales to Deere & Company in Titan’s agricultural, earthmoving/construction, and consumer markets represented 9% of the Company’s consolidated revenues for the year ended December 31, 2017, 9% of the Company’s consolidated revenues for the year ended December 31, 2016, and 10% of the Company’s consolidated revenues for the year ended December 31, 2015.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
28. RELATED PARTY TRANSACTIONS
The Company sells products and pays commissions to companies controlled by persons related to the Chairman of the Company, Mr. Maurice Taylor. The related party is Mr. Fred Taylor, who iswas Mr. Maurice Taylor’s brother. Mr. Fred Taylor passed away on December 13, 2021. The companies which Mr. Fred Taylor is associated with that do business with Titan include the following: BlackstoneBlacksmith OTR, LLC; FBTF.B.T. Enterprises; Green Carbon, Inc; Silverstone, Inc.; and OTR Wheel Engineering, Inc. During 2017, 2016,2022, 2021, and 2015,2020, sales of Titan product to these companies were approximately $1.5$4.4 million, $0.9$2.7 million, and $1.7$0.7 million, respectively. Titan had trade receivables due from these companies of approximately $0.0$0.2 million and $0.2 million at December 31, 2017,2022, and approximately $0.1 million at December 31, 2016.2021. On other sales referred to Titan from these manufacturing representative companies, commissions were approximately $1.9 million, $1.8 million, and $2.0 million, and $1.3 million during 2017, 2016,2022, 2021, and 2015,2020, respectively. Titan had purchases from these companies of approximately $0.6$1.1 million, $0.7$1.3 million, and $4.7$0.0 million, during 2017, 2016,2022, 2021, and 2015,2020, respectively.
The Company sells products to Valuepart and Track Solutions Pty Ltd., which is controlled by relatives of a member of management of a Titan subsidiary. Sales of Titan products to this company were approximately $0.3 million during 2017.
In 2013, the Company entered into a Shareholders’ Agreement between OEP and RDIF to acquire Voltyre-Prom, a leading producer of agricultural and industrial tires located in Volgograd, Russia. Mr. Richard M. Cashin Jr., a director of the Company, is the President of OEP, which owns 21.4% of the joint venture. The Shareholder’s agreement contains a settlement put option which may require the Company to purchase equity interests in the joint venture from OEP and RDIF at a value set by the agreement. See Note 13 for additional information.
The Company has a 34.2% equity stake in Wheels India Limited, a company incorporated in India and listed on the National Stock Exchange in India. The Company had trade payables due to Wheels India Limited of approximately $0.0 million at December 31, 2017, and approximately $0.1 million at December 31, 2016.
The Company has a 19.5% equity stake in Titan-Yuxiang Wheel (Liuzhou) Co., Ltd, a company incorporated in China. The Company had trade payables due to Titan-Yuxiang Wheel (Liuzhou) Co., Ltd of approximately $1.4 million at December 31, 2017.
The Company has a 49.0% equity stake in Central Iowa Training and Enrichment Center, LLC, a commercial building located in Boone, IA.
29.28. SEGMENT AND GEOGRAPHICAL 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 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’ goodwill and 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.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below presents information about certain operating results of segments as reviewed by the chief operating decision maker of the Company as of and for the years ended December 31, 2017, 2016,2022, 2021, and 20152020 (amounts in thousands): | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Revenues from external customers | | | | | |
| Agricultural | $ | 1,192,239 | | | $ | 949,400 | | | $ | 634,652 | |
| Earthmoving/construction | 807,356 | | | 693,350 | | | 510,150 | |
| Consumer | 169,785 | | | 137,465 | | | 114,511 | |
| | $ | 2,169,380 | | | $ | 1,780,215 | | | $ | 1,259,313 | |
| Gross profit | | | | | |
| Agricultural | $ | 193,585 | | | $ | 135,807 | | | $ | 65,408 | |
| Earthmoving/construction | 135,788 | | | 83,705 | | | 37,885 | |
| Consumer | 31,337 | | | 18,030 | | | 11,026 | |
| | $ | 360,710 | | | $ | 237,542 | | | $ | 114,319 | |
| Income (loss) from operations | | | | | |
| Agricultural | $ | 130,474 | | | $ | 77,666 | | | $ | 9,838 | |
| Earthmoving/construction | 79,810 | | | 27,809 | | | (21,620) | |
| Consumer | 22,843 | | | 9,553 | | | 1,085 | |
| Corporate & Unallocated | (27,325) | | | (29,853) | | | (24,654) | |
| Income (loss) from operations | 205,802 | | | 85,175 | | | (35,351) | |
| | | | | |
| Interest expense | (29,796) | | | (32,221) | | | (30,554) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Loss on senior note repurchase | — | | | (16,020) | | | — | |
| Foreign exchange gain (loss) | 927 | | | 12,020 | | | (11,025) | |
| Other income, net | 25,420 | | | 2,086 | | | 18,799 | |
| Income (loss) before income taxes | $ | 202,353 | | | $ | 51,040 | | | $ | (58,131) | |
| | | | | |
| Capital expenditures | | | | | |
| Agricultural | $ | 25,738 | | | $ | 20,749 | | | $ | 10,869 | |
| Earthmoving/construction | 17,576 | | | 15,014 | | | 8,859 | |
| Consumer | 3,660 | | | 3,039 | | | 1,952 | |
| | | | | |
| | $ | 46,974 | | | $ | 38,802 | | | $ | 21,680 | |
| | | | | |
| Depreciation & amortization | | | | | |
| Agricultural | $ | 22,645 | | | $ | 25,082 | | | $ | 26,534 | |
| Earthmoving/construction | 15,337 | | | 18,428 | | | 21,328 | |
| Consumer | 3,226 | | | 3,621 | | | 4,785 | |
| Corporate & Unallocated | 1,539 | | | 860 | | | 2,008 | |
| | $ | 42,747 | | | $ | 47,991 | | | $ | 54,655 | |
| | | | | |
| Total assets | | | | | |
| Agricultural | $ | 548,523 | | | $ | 517,528 | | | $ | 444,843 | |
| Earthmoving/construction | 538,064 | | | 502,373 | | | 478,264 | |
| Consumer | 133,213 | | | 133,906 | | | 86,752 | |
| Corporate & Unallocated (a) | 64,830 | | | 28,878 | | | 22,025 | |
| | $ | 1,284,630 | | | $ | 1,182,685 | | | $ | 1,031,884 | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Revenues from external customers | | | | | |
| Agricultural | $ | 690,238 |
| | $ | 583,324 |
| | $ | 651,804 |
|
| Earthmoving/construction | 608,894 |
| | 524,289 |
| | 566,988 |
|
| Consumer | 169,790 |
| | 157,884 |
| | 175,979 |
|
| | $ | 1,468,922 |
| | $ | 1,265,497 |
| | $ | 1,394,771 |
|
| Gross profit | |
| | |
| | |
|
| Agricultural | $ | 84,907 |
| | $ | 75,485 |
| | $ | 73,198 |
|
| Earthmoving/construction | 48,331 |
| | 45,885 |
| | 42,300 |
|
| Consumer | 25,040 |
| | 17,494 |
| | 19,245 |
|
| | $ | 158,278 |
| | $ | 138,864 |
| | $ | 134,743 |
|
| Income (loss) from operations | |
| | |
| | |
|
| Agricultural | $ | 49,612 |
| | $ | 41,153 |
| | $ | 37,643 |
|
| Earthmoving/construction | 803 |
| | 3,232 |
| | (2,572 | ) |
| Consumer | 11,231 |
| | 2,762 |
| | 4,639 |
|
| Corporate & Unallocated | (74,830 | ) | | (72,098 | ) | | (67,055 | ) |
| Loss from operations | (13,184 | ) | | (24,951 | ) | | (27,345 | ) |
| | | | | | |
| Interest expense | (30,229 | ) | | (32,539 | ) | | (34,032 | ) |
| Loss on senior note repurchase | (18,646 | ) | | — |
| | — |
|
| Foreign exchange gain (loss) | (1,958 | ) | | 8,550 |
| | (4,758 | ) |
| Other income, net | 11,141 |
| | 12,466 |
| | 11,063 |
|
| Loss before income taxes | $ | (52,876 | ) | | $ | (36,474 | ) | | $ | (55,072 | ) |
| | | | | | |
| Capital expenditures | |
| | |
| | |
|
| Agricultural | $ | 15,392 |
| | $ | 16,260 |
| | $ | 14,819 |
|
| Earthmoving/construction | 15,282 |
| | 22,028 |
| | 18,116 |
|
| Consumer | 2,453 |
| | 2,483 |
| | 3,061 |
|
| Corporate & Unallocated | (501 | ) | | 1,177 |
| | 12,433 |
|
| | $ | 32,626 |
| | $ | 41,948 |
| | $ | 48,429 |
|
| | | | | | |
| Depreciation & amortization | |
| | |
| | |
|
| Agricultural | $ | 27,623 |
| | $ | 27,888 |
| | $ | 32,274 |
|
| Earthmoving/construction | 20,307 |
| | 20,566 |
| | 24,124 |
|
| Consumer | 5,559 |
| | 6,145 |
| | 7,469 |
|
| Corporate & Unallocated | 4,955 |
| | 5,169 |
| | 5,751 |
|
| | $ | 58,444 |
| | $ | 59,768 |
| | $ | 69,618 |
|
| | | | | | |
| Total assets | |
| | |
| | |
|
| Agricultural | $ | 444,783 |
| | $ | 439,371 |
| | $ | 432,150 |
|
| Earthmoving/construction | 537,855 |
| | 443,879 |
| | 433,394 |
|
| Consumer | 157,133 |
| | 140,293 |
| | 137,359 |
|
| Corporate & Unallocated (a) | 150,341 |
| | 242,353 |
| | 278,851 |
|
| | $ | 1,290,112 |
| | $ | 1,265,896 |
| | $ | 1,281,754 |
|
(a) Unallocated assets included cash of approximately $72$20 million, $96$7 million, and $143$13 million at year-end 2017, 2016,years ended December 31, 2022, 2021, and 2015,2020, respectively. Unallocated assets included certificates of deposit of $50 million in 2016.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below presents information by geographic area. Revenues from external customers were determined based on the location of the selling subsidiary. Geographic information as of and for the years ended December 31, 2017, 2016,2022, 2021, and 20152020 was as follows (amounts in thousands):
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Net Sales | | | | | |
| United States | $ | 642,743 |
| | $ | 558,278 |
| | $ | 702,855 |
|
| Europe | 411,570 |
| | 354,117 |
| | 369,280 |
|
| Latin America | 282,692 |
| | 248,019 |
| | 236,281 |
|
| Other international | 131,917 |
| | 105,083 |
| | 86,355 |
|
| | $ | 1,468,922 |
| | $ | 1,265,497 |
| | $ | 1,394,771 |
|
| Long-Lived Assets | |
| | | | |
|
| United States | $ | 151,841 |
| | $ | 171,587 |
| | $ | 189,993 |
|
| Europe | 176,923 |
| | 156,505 |
| | 167,829 |
|
| Latin America | 62,543 |
| | 68,187 |
| | 59,671 |
|
| Other international | 29,941 |
| | 40,922 |
| | 32,527 |
|
| | $ | 421,248 |
| | $ | 437,201 |
| | $ | 450,020 |
|
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| Net Sales | | | | | |
| United States | $ | 1,074,715 | | | $ | 835,985 | | | $ | 583,400 | |
| Europe / CIS | 577,877 | | | 479,724 | | | 343,452 | |
| Latin America | 422,439 | | | 318,879 | | | 218,258 | |
| Other international | 94,349 | | | 145,627 | | | 114,203 | |
| $ | 2,169,380 | | | $ | 1,780,215 | | | $ | 1,259,313 | |
| Long-Lived Assets | | | | | |
| United States | $ | 97,112 | | | $ | 98,307 | | | $ | 103,748 | |
| Europe / CIS | 138,617 | | | 146,547 | | | 163,265 | |
| Latin America | 49,714 | | | 42,599 | | | 38,531 | |
| Other international | 11,162 | | | 13,656 | | | 14,310 | |
| $ | 296,605 | | | $ | 301,109 | | | $ | 319,854 | |
30.29. EARNINGS PER SHARE
Earnings per share for 2017, 2016,2022, 2021, and 20152020 were as follows (amounts in thousands, except per share data):
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| Net income (loss) applicable to common shareholders | $ | 176,302 | | | $ | 49,586 | | | $ | (60,388) | |
| Determination of shares: | | | | | |
| Weighted average shares outstanding (basic) | 63,040 | | | 62,100 | | | 60,818 | |
| Effect of restricted stock and stock options | 651 | | | 585 | | | — | |
| Weighted average shares outstanding (diluted) | 63,691 | | | 62,685 | | | 60,818 | |
| Earnings per share: | | | | | |
| Basic | $ | 2.80 | | | $ | 0.80 | | | $ | (0.99) | |
| Diluted | $ | 2.77 | | | $ | 0.79 | | | $ | (0.99) | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Net loss attributable to Titan | $ | (60,042 | ) | | $ | (37,605 | ) | | $ | (75,174 | ) |
| Redemption value adjustment | (6,393 | ) | | (9,556 | ) | | (17,668 | ) |
| Net loss applicable to common shareholders | $ | (66,435 | ) | | $ | (47,161 | ) |
| $ | (92,842 | ) |
| Determination of Shares: | | |
| | |
| Weighted average shares outstanding (basic) | 59,340 |
| | 53,916 |
| | 53,696 |
|
| Earnings per share: | | |
| |
|
| Basic and Diluted | $ | (1.12 | ) | | $ | (0.87 | ) | | $ | (1.73 | ) |
The effect of restricted stock options/trusts and convertible notesstock options has been excluded for 2017, 2016, and 2015,2020 as the effect would have been antidilutive. The weighted average share amount excluded for restricted stock options/trustsand stock options was 0.20.4 million 0.3 million, and 0.2 millionshares for 2017, 2016, and 2015, respectively. The effect of convertible notes has been excluded for 2017, 2016, and 2015, as the effect would have been antidilutive. The weighted average share amount excluded for convertible notes was 0.2 million for 2017 and 5.6 million for each of 2016 and 2015.2020.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
31. SUPPLEMENTARY DATA – QUARTERLY FINANCIAL INFORMATION (UNAUDITED)The Company has evaluated subsequent events through the filing of this Form 10-K and determined that there have been no subsequent events that have occurred that would require adjustments to our disclosures in the consolidated financial statements.
(All amounts in thousands, except per share data)
|
| | | | | | | | | | | | | | | | | | | | |
Quarter ended | | March 31 | | June 30 | | September 30 | | December 31 | | Year ended December 31 |
| 2017 | | | | | | | | | | |
| Net sales | | $ | 357,501 |
| | $ | 364,399 |
| | $ | 370,988 |
| | $ | 376,034 |
| | $ | 1,468,922 |
|
| Gross profit | | 39,729 |
| | 43,562 |
| | 39,665 |
| | 35,322 |
| | 158,278 |
|
| Net loss | | (10,585 | ) | | (6,537 | ) | | (11,218 | ) | | (35,739 | ) | | (64,079 | ) |
| Net loss attributable to Titan | | (11,453 | ) | | (6,293 | ) |
| (12,018 | ) | | (30,278 | ) | | (60,042 | ) |
| Per share amounts: | | |
| | |
| | |
| | |
| | |
|
| Basic | | (.18 | ) | | (.17 | ) | | (.22 | ) | | (.55 | ) | | (1.12 | ) |
| Diluted | | (.18 | ) | | (.17 | ) | | (.22 | ) | | (.55 | ) | | (1.12 | ) |
| 2016 | | |
| | |
| | |
| | |
| | |
|
| Net sales | | $ | 321,794 |
| | $ | 330,214 |
| | $ | 306,195 |
| | $ | 307,294 |
| | $ | 1,265,497 |
|
| Gross profit | | 28,297 |
| | 43,718 |
| | 34,920 |
| | 31,929 |
| | 138,864 |
|
| Net loss | | (12,326 | ) | | (3,806 | ) | | (8,974 | ) | | (14,649 | ) | | (39,755 | ) |
| Net loss attributable to Titan | | (12,743 | ) | | (3,256 | ) | | (8,008 | ) | | (13,598 | ) | | (37,605 | ) |
| Per share amounts: | | |
| | |
| | |
| | |
| | |
|
| Basic | | (.33 | ) | | (.10 | ) | | (.17 | ) | | (.27 | ) | | (.87 | ) |
| Diluted | | (.33 | ) | | (.10 | ) | | (.17 | ) | | (.27 | ) | | (.87 | ) |
32. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION
The Company's 6.50% senior secured notes due 2023 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. 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 condensed consolidating financial statements are presented using the equity method of accounting. Certain sales & marketing expenses recorded by non-guarantor subsidiaries have not been allocated to the guarantor subsidiaries.
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | Consolidating Condensed Statements of Operations Year Ended December 31, 2017 |
| | Titan Intl., Inc. (Parent) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| Net sales | $ | — |
| | $ | 567,830 |
| | $ | 901,092 |
| | $ | — |
| | $ | 1,468,922 |
|
| Cost of sales | 362 |
| | 495,939 |
| | 804,426 |
| | — |
| | 1,300,727 |
|
| Asset impairment | — |
| | — |
| | 9,917 |
| | — |
| | 9,917 |
|
| Gross profit (loss) | (362 | ) | | 71,891 |
| | 86,749 |
| | — |
| | 158,278 |
|
| Selling, general, and administrative expenses | 14,218 |
| | 59,769 |
| | 76,689 |
| | — |
| | 150,676 |
|
| Research and development expenses | — |
| | 3,685 |
| | 6,617 |
| | — |
| | 10,302 |
|
| Royalty expense | 1,178 |
| | 5,703 |
| | 3,603 |
| | — |
| | 10,484 |
|
| Income (loss) from operations | (15,758 | ) | | 2,734 |
| | (160 | ) | | — |
| | (13,184 | ) |
| Interest expense | (29,182 | ) | | — |
| | (1,047 | ) | | — |
| | (30,229 | ) |
| Loss on note repurchase | (18,646 | ) | | — |
| | — |
| | — |
| | (18,646 | ) |
| Intercompany interest income (expense) | 2,412 |
| | 3,937 |
| | (6,349 | ) | | — |
| | — |
|
| Foreign exchange loss | (2 | ) | | (100 | ) | | (1,856 | ) | | — |
| | (1,958 | ) |
| Other income (expense) | 4,623 |
| | (178 | ) | | 6,696 |
| | — |
| | 11,141 |
|
| Income (loss) before income taxes | (56,553 | ) | | 6,393 |
| | (2,716 | ) | | — |
| | (52,876 | ) |
| Provision (benefit) for income taxes | (1,446 | ) | | 4,173 |
| | 8,476 |
| | — |
| | 11,203 |
|
| Equity in earnings of subsidiaries | (8,972 | ) | | — |
| | (8,400 | ) | | 17,372 |
| | — |
|
| Net income (loss) | (64,079 | ) | | 2,220 |
| | (19,592 | ) | | 17,372 |
| | (64,079 | ) |
| Net loss noncontrolling interests | — |
| | — |
| | (4,037 | ) | | — |
| | (4,037 | ) |
| Net income (loss) attributable to Titan | $ | (64,079 | ) | | $ | 2,220 |
| | $ | (15,555 | ) | | $ | 17,372 |
| | $ | (60,042 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | Consolidating Condensed Statements of Operations Year Ended December 31, 2016 |
| | Titan Intl., Inc. (Parent) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| Net sales | $ | — |
| | $ | 498,390 |
| | $ | 767,107 |
| | $ | — |
| | $ | 1,265,497 |
|
| Cost of sales | 759 |
| | 432,705 |
| | 693,169 |
| | — |
| | 1,126,633 |
|
| Gross profit (loss) | (759 | ) | | 65,685 |
| | 73,938 |
| | — |
| | 138,864 |
|
| Selling, general, and administrative expenses | 11,394 |
| | 66,815 |
| | 66,779 |
| | — |
| | 144,988 |
|
| Research and development expenses | — |
| | 2,876 |
| | 7,095 |
| | — |
| | 9,971 |
|
| Royalty expense | 667 |
| | 4,866 |
| | 3,323 |
| | — |
| | 8,856 |
|
| Loss from operations | (12,820 | ) | | (8,872 | ) | | (3,259 | ) | | — |
| | (24,951 | ) |
| Interest expense | (32,208 | ) | | — |
| | (331 | ) | | — |
| | (32,539 | ) |
| Intercompany interest income (expense) | 1,781 |
| | 3,525 |
| | (5,306 | ) | | — |
| | — |
|
| Foreign exchange gain | — |
| | 298 |
| | 8,252 |
| | — |
| | 8,550 |
|
| Other income | 2,503 |
| | 180 |
| | 9,783 |
| | — |
| | 12,466 |
|
| Income (loss) before income taxes | (40,744 | ) | | (4,869 | ) | | 9,139 |
| | — |
| | (36,474 | ) |
| Provision (benefit) for income taxes | (64 | ) | | 30 |
| | 3,315 |
| | — |
| | 3,281 |
|
| Equity in earnings of subsidiaries | 924 |
| | — |
| | (6,689 | ) | | 5,765 |
| | — |
|
| Net income (loss) | (39,756 | ) | | (4,899 | ) | | (865 | ) | | 5,765 |
| | (39,755 | ) |
| Net loss noncontrolling interests | — |
| | — |
| | (2,150 | ) | | — |
| | (2,150 | ) |
| Net income (loss) attributable to Titan | $ | (39,756 | ) | | $ | (4,899 | ) | | $ | 1,285 |
| | $ | 5,765 |
| | $ | (37,605 | ) |
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | Consolidating Condensed Statements of Operations Year Ended December 31, 2015 |
| | Titan Intl., Inc. (Parent) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| Net sales | $ | — |
| | $ | 640,785 |
| | $ | 753,986 |
| | $ | — |
| | $ | 1,394,771 |
|
| Cost of sales | 2,826 |
| | 561,429 |
| | 695,773 |
| | — |
| | 1,260,028 |
|
| Gross profit (loss) | (2,826 | ) | | 79,356 |
| | 58,213 |
| | — |
| | 134,743 |
|
| Selling, general, and administrative expenses | 7,513 |
| | 69,686 |
| | 63,194 |
| | — |
| | 140,393 |
|
| Research and development expenses | — |
| | 3,505 |
| | 7,657 |
| | — |
| | 11,162 |
|
| Royalty expense | — |
| | 6,711 |
| | 3,822 |
| | — |
| | 10,533 |
|
| Loss from operations | (10,339 | ) | | (546 | ) | | (16,460 | ) | | — |
| | (27,345 | ) |
| Interest expense | (32,291 | ) | | — |
| | (1,741 | ) | | — |
| | (34,032 | ) |
| Intercompany interest income (expense) | 825 |
| | 2,361 |
| | (3,186 | ) | | — |
| | — |
|
| Foreign exchange gain (loss) | 4,296 |
| | (462 | ) | | (8,592 | ) | | — |
| | (4,758 | ) |
| Other income | 2,327 |
| | 2,572 |
| | 6,164 |
| | — |
| | 11,063 |
|
| Income (loss) before income taxes | (35,182 | ) | | 3,925 |
| | (23,815 | ) | | — |
| | (55,072 | ) |
| Provision (benefit) for income taxes | 34,341 |
| | (1,518 | ) | | 1,933 |
| | — |
| | 34,756 |
|
| Equity in earnings of subsidiaries | (23,830 | ) | | — |
| | (2,689 | ) | | 26,519 |
| | — |
|
| Net income (loss) | (93,353 | ) | | 5,443 |
| | (28,437 | ) | | 26,519 |
| | (89,828 | ) |
| Net loss noncontrolling interests | — |
| | — |
| | (14,654 | ) | | — |
| | (14,654 | ) |
| Net income (loss) attributable to Titan | $ | (93,353 | ) | | $ | 5,443 |
| | $ | (13,783 | ) | | $ | 26,519 |
| | $ | (75,174 | ) |
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | Consolidating Condensed Statements of Comprehensive Income (Loss) For the Year Ended December 31, 2017 |
| | Titan Intl., Inc. (Parent) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| Net income (loss) | $ | (64,079 | ) | | $ | 2,220 |
| | $ | (19,592 | ) | | $ | 17,372 |
| | $ | (64,079 | ) |
| Currency translation adjustment, net | 30,818 |
| | — |
| | 30,818 |
| | (30,818 | ) | | 30,818 |
|
| Pension liability adjustments, net of tax | 1,523 |
| | 1,807 |
| | (284 | ) | | (1,523 | ) | | 1,523 |
|
| Comprehensive income (loss) | (31,738 | ) | | 4,027 |
| | 10,942 |
| | (14,969 | ) | | (31,738 | ) |
| Net comprehensive income attributable to noncontrolling interests | — |
| | — |
| | (2,898 | ) | | — |
| | (2,898 | ) |
| Comprehensive income (loss) attributable to Titan | $ | (31,738 | ) | | $ | 4,027 |
| | $ | 13,840 |
| | $ | (14,969 | ) | | $ | (28,840 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | Consolidating Condensed Statements of Comprehensive Income (Loss) For the Year Ended December 31, 2016 |
| | Titan Intl., Inc. (Parent) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| Net income (loss) | $ | (39,756 | ) | | $ | (4,899 | ) | | $ | (865 | ) | | $ | 5,765 |
| | $ | (39,755 | ) |
| Currency translation adjustment, net | 5,857 |
| | — |
| | 5,857 |
| | (5,857 | ) | | 5,857 |
|
| Pension liability adjustments, net of tax | 1,071 |
| | 1,680 |
| | (609 | ) | | (1,071 | ) | | 1,071 |
|
| Comprehensive income (loss) | (32,828 | ) | | (3,219 | ) | | 4,383 |
| | (1,163 | ) | | (32,827 | ) |
| Net comprehensive income attributable to noncontrolling interests | — |
| | — |
| | 5,305 |
| | — |
| | 5,305 |
|
| Comprehensive loss attributable to Titan | $ | (32,828 | ) | | $ | (3,219 | ) | | $ | (922 | ) | | $ | (1,163 | ) | | $ | (38,132 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | Consolidating Condensed Statements of Comprehensive Income (Loss) For the Year Ended December 31, 2015 |
| | Titan Intl., Inc. (Parent) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| Net income (loss) | $ | (93,353 | ) | | $ | 5,443 |
| | $ | (28,437 | ) | | $ | 26,519 |
| | $ | (89,828 | ) |
| Currency translation adjustment, net | (79,196 | ) | | — |
| | (79,196 | ) | | 79,196 |
| | (79,196 | ) |
| Pension liability adjustments, net of tax | (662 | ) | | (1,557 | ) | | 895 |
| | 662 |
| | (662 | ) |
| Comprehensive income (loss) | (173,211 | ) | | 3,886 |
| | (106,738 | ) | | 106,377 |
| | (169,686 | ) |
| Net comprehensive loss attributable to noncontrolling interests | — |
| | — |
| | (19,391 | ) | | — |
| | (19,391 | ) |
| Comprehensive income (loss) attributable to Titan | $ | (173,211 | ) | | $ | 3,886 |
| | $ | (87,347 | ) | | $ | 106,377 |
| | $ | (150,295 | ) |
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | Consolidating Condensed Balance Sheets December 31, 2017 |
| | Titan Intl., Inc. (Parent) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| Assets | | | | | | | | | |
| Cash and cash equivalents | $ | 59,740 |
| | $ | 13 |
| | $ | 83,817 |
| | $ | — |
| | $ | 143,570 |
|
| Accounts receivable | — |
| | 54,009 |
| | 172,694 |
| | — |
| | 226,703 |
|
| Inventories | — |
| | 96,036 |
| | 243,800 |
| | — |
| | 339,836 |
|
| Prepaid and other current assets | 17,789 |
| | 20,917 |
| | 34,378 |
| | — |
| | 73,084 |
|
| Total current assets | 77,529 |
| | 170,975 |
| | 534,689 |
| | — |
| | 783,193 |
|
| Property, plant, and equipment, net | 2,466 |
| | 110,470 |
| | 308,312 |
| | — |
| | 421,248 |
|
| Investment in subsidiaries | 766,777 |
| | — |
| | 74,003 |
| | (840,780 | ) | | — |
|
| Other long-term assets | 6,389 |
| | 967 |
| | 78,315 |
| | — |
| | 85,671 |
|
| Total assets | $ | 853,161 |
| | $ | 282,412 |
| | $ | 995,319 |
| | $ | (840,780 | ) | | $ | 1,290,112 |
|
| Liabilities and Stockholders’ Equity | |
| | |
| | |
| | |
| | |
|
| Short-term debt | $ | — |
| | $ | — |
| | $ | 43,651 |
| | $ | — |
| | $ | 43,651 |
|
| Accounts payable | 4,258 |
| | 20,787 |
| | 170,452 |
| | — |
| | 195,497 |
|
| Other current liabilities | 38,495 |
| | 30,170 |
| | 65,109 |
| | — |
| | 133,774 |
|
| Total current liabilities | 42,753 |
| | 50,957 |
| | 279,212 |
| | — |
| | 372,922 |
|
| Long-term debt | 394,284 |
| | — |
| | 12,887 |
| | — |
| | 407,171 |
|
| Other long-term liabilities | 11,544 |
| | 16,458 |
| | 58,740 |
| | — |
| | 86,742 |
|
| Intercompany accounts | 75,103 |
| | (286,525 | ) | | 211,422 |
| | — |
| | — |
|
| Redeemable noncontrolling interest | — |
| | — |
| | 113,193 |
| | — |
| | 113,193 |
|
| Titan stockholders' equity | 329,477 |
| | 501,522 |
| | 330,710 |
| | (840,780 | ) | | 320,929 |
|
| Noncontrolling interests | — |
| | — |
| | (10,845 | ) | | — |
| | (10,845 | ) |
| Total liabilities and stockholders’ equity | $ | 853,161 |
| | $ | 282,412 |
| | $ | 995,319 |
| | $ | (840,780 | ) | | $ | 1,290,112 |
|
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | | | | | | | | |
| (Amounts in thousands) | Consolidating Condensed Balance Sheets December 31, 2016 |
| | Titan Intl., Inc. (Parent) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
| Assets | | | | | | | | | |
| Cash and cash equivalents | $ | 86,190 |
| | $ | 9 |
| | $ | 61,628 |
| | $ | — |
| | $ | 147,827 |
|
| Certificates of deposit | 50,000 |
| | — |
| | — |
| | — |
| | 50,000 |
|
| Accounts receivable | — |
| | 43,485 |
| | 135,899 |
| | — |
| | 179,384 |
|
| Inventories | — |
| | 76,823 |
| | 195,413 |
| | — |
| | 272,236 |
|
| Prepaid and other current assets | 11,965 |
| | 21,901 |
| | 45,868 |
| | — |
| | 79,734 |
|
| Total current assets | 148,155 |
| | 142,218 |
| | 438,808 |
| | — |
| | 729,181 |
|
| Property, plant, and equipment, net | 4,898 |
| | 124,049 |
| | 308,254 |
| | — |
| | 437,201 |
|
| Investment in subsidiaries | 742,679 |
| | — |
| | 87,385 |
| | (830,064 | ) | | — |
|
| Other long-term assets | 23,627 |
| | 1,118 |
| | 74,769 |
| | — |
| | 99,514 |
|
| Total assets | $ | 919,359 |
| | $ | 267,385 |
| | $ | 909,216 |
| | $ | (830,064 | ) | | $ | 1,265,896 |
|
| Liabilities and Stockholders’ Equity | |
| | |
| | |
| | |
| | |
|
| Short-term debt | $ | 60,148 |
| | $ | — |
| | $ | 37,264 |
| | $ | — |
| | $ | 97,412 |
|
| Accounts payable | 4,187 |
| | 14,398 |
| | 129,670 |
| | — |
| | 148,255 |
|
| Other current liabilities | 34,140 |
| | 34,475 |
| | 51,822 |
| | — |
| | 120,437 |
|
| Total current liabilities | 98,475 |
| | 48,873 |
| | 218,756 |
| | — |
| | 366,104 |
|
| Long-term debt | 395,852 |
| | — |
| | 12,908 |
| | — |
| | 408,760 |
|
| Other long-term liabilities | 27,636 |
| | 18,473 |
| | 47,235 |
| | — |
| | 93,344 |
|
| Intercompany accounts | 94,977 |
| | (300,823 | ) | | 205,846 |
| | — |
| | — |
|
| Redeemable noncontrolling interest | — |
| | — |
| | 104,809 |
| | — |
| | 104,809 |
|
| Titan stockholders’ equity | 302,419 |
| | 500,862 |
| | 323,600 |
| | (830,064 | ) | | 296,817 |
|
| Noncontrolling interests | — |
| | — |
| | (3,938 | ) | | — |
| | (3,938 | ) |
| Total liabilities and stockholders’ equity | $ | 919,359 |
| | $ | 267,385 |
| | $ | 909,216 |
| | $ | (830,064 | ) | | $ | 1,265,896 |
|
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | | | | |
| (Amounts in thousands) | Consolidating Condensed Statements of Cash Flows Year Ended December 31, 2017 |
| | Titan Intl., Inc. (Parent) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidated |
| Net cash provided by (used for) operating activities | $ | (49,856 | ) | | $ | 7,235 |
| | $ | 41,332 |
| | $ | (1,289 | ) |
| Cash flows from investing activities: | |
| | |
| | |
| | |
|
| Capital expenditures | (830 | ) | | (7,620 | ) | | (24,176 | ) | | (32,626 | ) |
| Certificates of deposit | 50,000 |
| | — |
| | — |
| | 50,000 |
|
| Other, net | — |
| | 389 |
| | 604 |
| | 993 |
|
| Net cash provided by (used for) investing activities | 49,170 |
| | (7,231 | ) | | (23,572 | ) | | 18,367 |
|
| Cash flows from financing activities: | |
| | |
| | |
| | |
|
| Proceeds from borrowings | 394,191 |
| | — |
| | 53,448 |
| | 447,639 |
|
| Repurchase of senior secured notes | (415,395 | ) | | — |
| | — |
| | (415,395 | ) |
| Payment on debt | (3,393 | ) | | — |
| | (51,767 | ) | | (55,160 | ) |
| Dividends paid | (1,167 | ) | | — |
| | — |
| | (1,167 | ) |
| Net cash provided by (used for) financing activities | (25,764 | ) | | — |
| | 1,681 |
| | (24,083 | ) |
| Effect of exchange rate change on cash | — |
| | — |
| | 2,748 |
| | 2,748 |
|
| Net increase (decrease) in cash and cash equivalents | (26,450 | ) | | 4 |
| | 22,189 |
| | (4,257 | ) |
| Cash and cash equivalents, beginning of period | 86,190 |
| | 9 |
| | 61,628 |
| | 147,827 |
|
| Cash and cash equivalents, end of period | $ | 59,740 |
| | $ | 13 |
| | $ | 83,817 |
| | $ | 143,570 |
|
|
| | | | | | | | | | | | | | | |
| (Amounts in thousands) | Consolidating Condensed Statements of Cash Flows Year Ended December 31, 2016 |
| | Titan Intl., Inc. (Parent) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidated |
| Net cash provided by (used for) operating activities | $ | (3,193 | ) | | $ | 8,035 |
| | $ | 38,658 |
| | $ | 43,500 |
|
| Cash flows from investing activities: | |
| | |
| | |
| | |
|
| Capital expenditures | (1,937 | ) | | (8,444 | ) | | (31,567 | ) | | (41,948 | ) |
| Certificates of deposit | (50,000 | ) | | — |
| | — |
| | (50,000 | ) |
| Other, net | — |
| | 414 |
| | 1,808 |
| | 2,222 |
|
| Net cash used for investing activities | (51,937 | ) | | (8,030 | ) | | (29,759 | ) | | (89,726 | ) |
| Cash flows from financing activities: | |
| | |
| | |
| | |
|
| Proceeds from borrowings | — |
| | — |
| | 17,285 |
| | 17,285 |
|
| Payment on debt | — |
| | — |
| | (22,634 | ) | | (22,634 | ) |
| Proceeds from exercise of stock options | — |
| | — |
| | — |
| | — |
|
| Dividends paid | (1,081 | ) | | — |
| | — |
| | (1,081 | ) |
| Net cash used for financing activities | (1,081 | ) | | — |
| | (5,349 | ) | | (6,430 | ) |
| Effect of exchange rate change on cash | — |
| | — |
| | 295 |
| | 295 |
|
| Net increase (decrease) in cash and cash equivalents | (56,211 | ) | | 5 |
| | 3,845 |
| | (52,361 | ) |
| Cash and cash equivalents, beginning of period | 142,401 |
| | 4 |
| | 57,783 |
| | 200,188 |
|
| Cash and cash equivalents, end of period | $ | 86,190 |
| | $ | 9 |
| | $ | 61,628 |
| | $ | 147,827 |
|
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | | | | |
| (Amounts in thousands) | Consolidating Condensed Statements of Cash Flows Year Ended December 31, 2015 |
| | Titan Intl., Inc. (Parent) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidated |
| Net cash provided by operating activities | $ | 15,933 |
| | $ | 6,441 |
| | $ | 41,556 |
| | $ | 63,930 |
|
| Cash flows from investing activities: | |
| | |
| | |
| | |
|
| Capital expenditures | (2,585 | ) | | (6,254 | ) | | (39,590 | ) | | (48,429 | ) |
| Other, net | — |
| | (187 | ) | | (1,321 | ) | | (1,508 | ) |
| Net cash used for investing activities | (2,585 | ) | | (6,441 | ) | | (40,911 | ) | | (49,937 | ) |
| Cash flows from financing activities: | |
| | |
| | |
| | |
|
| Proceeds from borrowings | — |
| | — |
| | 5,727 |
| | 5,727 |
|
| Payment on debt | — |
| | — |
| | (5,521 | ) | | (5,521 | ) |
| Proceeds from exercise of stock options | 145 |
| | — |
| | — |
| | 145 |
|
| Dividends paid | (1,077 | ) | | — |
| | — |
| | (1,077 | ) |
| Net cash provided by (used for) financing activities | (932 | ) | | — |
| | 206 |
| | (726 | ) |
| Effect of exchange rate change on cash | — |
| | — |
| | (14,530 | ) | | (14,530 | ) |
| Net increase (decrease) in cash and cash equivalents | 12,416 |
| | — |
| | (13,679 | ) | | (1,263 | ) |
| Cash and cash equivalents, beginning of period | 129,985 |
| | 4 |
| | 71,462 |
| | 201,451 |
|
| Cash and cash equivalents, end of period | $ | 142,401 |
| | $ | 4 |
| | $ | 57,783 |
| | $ | 200,188 |
|
TITAN INTERNATIONAL, INC.
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
(Amounts in thousands)
|
| | | | | | | | | | | | | | | |
Description | Balance at beginning of year | | Additions to costs and expenses | | Deductions | | Balance at end of year |
| Year ended December 31, 2017 | | | | | | | |
| Reserve deducted in the balance sheet from the assets to which it applies | | | | | | | |
| Allowance for doubtful accounts | $ | 3,344 |
| | $ | (362 | ) | | $ | (8 | ) | | $ | 2,974 |
|
| | | | | | | | |
| Year ended December 31, 2016 | |
| | |
| | |
| | |
|
| Reserve deducted in the balance sheet from the assets to which it applies | |
| | |
| | |
| | |
|
| Allowance for doubtful accounts | $ | 4,527 |
| | $ | 224 |
| | $ | (1,407 | ) | | $ | 3,344 |
|
| | | | | | | | |
| Year ended December 31, 2015 | |
| | |
| | |
| | |
|
| Reserve deducted in the balance sheet from the assets to which it applies | |
| | |
| | |
| | |
|
| Allowance for doubtful accounts | $ | 5,706 |
| | $ | 1,414 |
| | $ | (2,593 | ) | | $ | 4,527 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Additions | | Deductions | | |
Description | | Balance at Beginning
of Period | | Charged to Costs and Expenses | | Charged to Other Accounts | | Charged to Costs and Expenses | | Charged to Other Accounts | | Balance
at End
of Period |
| Year ended December 31, 2022 | | | | | | | | | | | | |
| Allowance for credit loss | | $ | 4,550 | | | $ | 1,646 | | | $ | — | | | $ | (26) | | | $ | — | | | $ | 6,170 | |
| Deferred income tax valuation allowance: | | | | | | | | | | | | |
| Domestic | | 94,747 | | | — | | | — | | | (53,076) | | | — | | | 41,671 | |
| Foreign | | 78,425 | | | 19,503 | | | — | | | (13,833) | | | (4,709) | | | 79,386 | |
| | | | | | | | | | | | |
| Year ended December 31, 2021 | | | | | | | | | | | | |
| Allowance for credit loss | | $ | 3,782 | | | $ | 826 | | | $ | — | | | $ | (58) | | | $ | — | | | $ | 4,550 | |
| Deferred income tax valuation allowance: | | | | | | | | | | | | |
| Domestic | | 98,051 | | | — | | | — | | | (1,034) | | | (2,270) | | | 94,747 | |
| Foreign | | 101,125 | | | 3,712 | | | — | | | (20,108) | | | (6,304) | | | 78,425 | |
| | | | | | | | | | | | |
| Year ended December 31, 2020 | | | | | | | | | | | | |
| Allowance for credit loss | | $ | 3,714 | | | $ | 815 | | | $ | — | | | $ | (747) | | | $ | — | | | $ | 3,782 | |
| Deferred income tax valuation allowance: | | | | | | | | | | | | |
| Domestic | | 84,910 | | | 13,824 | | | — | | | — | | | (683) | | | 98,051 | |
| Foreign | | 79,770 | | | 14,065 | | | 7,290 | | | — | | | — | | | 101,125 | |
