UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the Quarterly Period Ended: March 31, 2023
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
Commission file number 1-12936
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(Address of principal executive offices)
(I.R.S. Employer Identification No.)
(Zip Code)
(630 ) 377-0486
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☑ | Accelerated filer | ☐ | ||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
Indicate the number of shares of Titan International, Inc. outstanding: 63,127,418 shares of common stock, $0.0001 par value, as of April 24, 2023.
TITAN INTERNATIONAL, INC.
TABLE OF CONTENTS
| Page | ||||||||
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TITAN INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(All amounts in thousands, except per share data)
| Three months ended | |||||||||||
| March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net sales | $ | $ | |||||||||
| Cost of sales | |||||||||||
| Gross profit | |||||||||||
| Selling, general and administrative expenses | |||||||||||
| Research and development expenses | |||||||||||
| Royalty expense | |||||||||||
| Income from operations | |||||||||||
| Interest expense, net | ( | ( | |||||||||
| Foreign exchange (loss) gain | ( | ||||||||||
| Other income (expense) | ( | ||||||||||
| Income before income taxes | |||||||||||
| Provision for income taxes | |||||||||||
| Net income | |||||||||||
| Net income attributable to noncontrolling interests | |||||||||||
| Net income attributable to Titan and applicable to common shareholders | $ | $ | |||||||||
| Earnings per common share: | |||||||||||
| Basic | $ | $ | |||||||||
| Diluted | $ | $ | |||||||||
| Average common shares and equivalents outstanding: | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
1
TITAN INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(All amounts in thousands)
| Three months ended | |||||||||||
| March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net income | $ | $ | |||||||||
| Derivative (loss) gain | ( | ||||||||||
| Currency translation adjustment, net | |||||||||||
Pension liability adjustments, net of tax of $ | ( | ||||||||||
| Comprehensive income | |||||||||||
| Net comprehensive income (loss) attributable to redeemable and noncontrolling interests | ( | ||||||||||
| Comprehensive income attributable to Titan | $ | $ | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
2
TITAN INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share data)
| March 31, 2023 | December 31, 2022 | ||||||||||
| (unaudited) | |||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable, net | |||||||||||
| Inventories | |||||||||||
| Prepaid and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Operating lease assets | |||||||||||
| Deferred income taxes | |||||||||||
| Other long-term assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities | |||||||||||
| Current liabilities | |||||||||||
| Short-term debt | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Deferred income taxes | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Equity | |||||||||||
| Titan shareholders' equity | |||||||||||
Common stock ($ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
Treasury stock (at cost, | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total Titan shareholders’ equity | |||||||||||
| Noncontrolling interests | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
3
TITAN INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
(All amounts in thousands, except share data)
| Number of common shares | Additional paid-in capital | Retained earnings | Treasury stock | Accumulated other comprehensive (loss) income | Total Titan Equity | Non-controlling interest | Total Equity | ||||||||||||||||||||||||||||||||||||||||
| Balance January 1, 2023 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustment, net | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Pension liability adjustments, net of tax | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Derivative loss | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of treasury stock under 401(k) plan | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock repurchase | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Balance March 31, 2023 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Number of common shares | Additional paid-in capital | Retained (deficit) earnings | Treasury stock | Accumulated other comprehensive (loss) income | Total Titan Equity | Non-controlling interest | Total Equity | ||||||||||||||||||||||||||||||||||||||||
| Balance January 1, 2022 | $ | $ | ( | $ | ( | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustment, net | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Pension liability adjustments, net of tax | |||||||||||||||||||||||||||||||||||||||||||||||
| Derivative gain | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under 401(k) plan | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock repurchase | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Balance March 31, 2022 | $ | $ | ( | $ | ( | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
4
TITAN INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(All amounts in thousands)
| Three months ended March 31, | |||||||||||
| Cash flows from operating activities: | 2023 | 2022 | |||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by (used for) operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Loss on sale of the Australian wheel business | |||||||||||
| Deferred income tax provision | |||||||||||
| Gain on fixed asset and investment sale | ( | ( | |||||||||
| Stock-based compensation | |||||||||||
| Issuance of stock under 401(k) plan | |||||||||||
| Foreign currency gain | ( | ( | |||||||||
| (Increase) decrease in assets: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Inventories | ( | ||||||||||
| Prepaid and other current assets | ( | ( | |||||||||
| Other assets | ( | ( | |||||||||
| Increase in liabilities: | |||||||||||
| Accounts payable | |||||||||||
| Other current liabilities | |||||||||||
| Other liabilities | |||||||||||
| Net cash provided by (used for) operating activities | ( | ||||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Proceeds from the sale of the Australian wheel business | |||||||||||
| Proceeds from sale of fixed assets | |||||||||||
| Net cash (used for) provided by investing activities | ( | ||||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from borrowings | |||||||||||
| Payment on debt | ( | ( | |||||||||
| Repurchase of common stock | ( | ( | |||||||||
| Other financing activities | ( | ( | |||||||||
| Net cash (used for) provided by financing activities | ( | ||||||||||
| Effect of exchange rate changes on cash | |||||||||||
| Net increase in cash and cash equivalents | |||||||||||
| Cash and cash equivalents, beginning of period | |||||||||||
| Cash and cash equivalents, end of period | $ | $ | |||||||||
| Supplemental information: | |||||||||||
| Interest paid | $ | $ | |||||||||
| Income taxes paid, net of refunds received | $ | $ | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
5
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying unaudited condensed consolidated interim financial statements include the accounts of Titan International, Inc. and its subsidiaries (Titan or the Company) and have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) for interim financial information and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the SEC). Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. The accompanying unaudited condensed consolidated interim financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the Company's financial position and the results of operations and cash flows for the periods presented, and should be read in conjunction with the consolidated financial statements and the related notes thereto included in the Company’s latest Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 27, 2023 (the 2022 Form 10-K). All significant intercompany transactions have been eliminated in consolidation. These unaudited condensed consolidated interim financial statements include estimates and assumptions of management that affect the amounts reported in the condensed consolidated financial statements. Actual results could differ from these estimates.
COVID-19 pandemic
The COVID-19 pandemic impact on the Company was less during the first quarter of 2023 than in the comparable period in 2022. The Company’s operations continued with additional sanitary and other protective health measures which have increased operating costs. While the Company's operations returned to historical levels during 2022 and continuing into the first quarter of 2023, global supply chains are still 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 triggered additional economic and other sanctions enacted by the United States and other countries throughout the world. The scope of potential additional sanctions is unknown.
The Company currently owns 64.3 % of the Voltyre-Prom, a leading producer of agricultural and industrial tires in Volgograd, Russia, which represents approximately 7% of consolidated assets of Titan both as of March 31, 2023 and December 31, 2022. The Russian operations represent approximately 6% and 5% of consolidated global sales for the three months ended March 31, 2023 and 2022, respectively. 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.
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 Note 12 for additional information on the loss on sale of the Australian wheel business.
Share Repurchase Program
On December 16, 2022, the Board of Directors authorized a share repurchase program allowing for the expenditure of up to $50.0 million (the “Share Repurchase Program”) for the repurchase of the Company's common stock. This authorization took effect immediately and will remain in place for up to three years. For the three months ended March 31, 2023, Titan
6
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
repurchased 109,789 shares of our common stock totaling $1.3 million under the Share Repurchase Program. As of March 31, 2023, $48.7 million remains available for future share repurchases under this program.
Supplier financing program
A subsidiary of Titan participates in supplier financing programs pursuant to credit agreements between certain suppliers and financial institution. The program enables those suppliers to receive payment from participating financial institutions prior to the payment date specified in the terms between Titan and the supplier. Titan does not incur annual service fees associated with its enrollment in the supplier financing program. The transactions are at the sole discretion of both the suppliers and the financial institution, and Titan is not a party to the agreement and has no economic interest in the supplier's decision to receive payment prior to the payment date. The terms between Titan and the supplier, including the amount due and scheduled payment dates, are not impacted by a supplier's participation in the program. Amounts due to suppliers who participate in the program are included in the accounts payable line item in Titan's Consolidated Balance Sheets and Titan’s payments made under the program are reflected in cash flows from operating activities in Titan's Consolidated Statements of Cash Flows. For suppliers who participate in a supplier financing program, Titan will pay the financial institution directly rather than the supplier. The confirmed obligations under the supplier financing programs included in the accounts payable line item in Titan's Consolidated Balance Sheet were $12.2 million at March 31, 2023, and $11.8 million at December 31, 2022.
Adoption of new accounting standards
In September 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50) Disclosure of Supplier Finance Program Obligations ("ASU No. 2022-04"). The ASU requires that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, and potential magnitude. The amendments in this ASU will be applied retrospectively to each period in which a balance sheet is presented, with the exception of a new requirement to disclose a rollforward of program activity, which will be applied prospectively. The amendments in the ASU are effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company adopted the impact of this ASU effective March 31, 2023 and incorporated the required disclosures within Note 1 to condensed consolidated financial statements.
2. ACCOUNTS RECEIVABLE, NET
Accounts receivable consisted of the following (amounts in thousands):
| March 31, 2023 | December 31, 2022 | ||||||||||
| Accounts receivable | $ | $ | |||||||||
| Allowance for credit losses | ( | ( | |||||||||
| Accounts receivable, net | $ | $ | |||||||||
3. INVENTORIES
Inventories consisted of the following (amounts in thousands):
| March 31, 2023 | December 31, 2022 | ||||||||||
| Raw material | $ | $ | |||||||||
| Work-in-process | |||||||||||
| Finished goods | |||||||||||
| $ | $ | ||||||||||
Inventories are reduced by estimated provisions for slow-moving and obsolete inventory.
7
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
4. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following (amounts in thousands):
| March 31, 2023 | December 31, 2022 | ||||||||||
| Land and improvements | $ | $ | |||||||||
| Buildings and improvements | |||||||||||
| Machinery and equipment | |||||||||||
| Tools, dies and molds | |||||||||||
| Construction-in-process | |||||||||||
| Less accumulated depreciation | ( | ( | |||||||||
| $ | $ | ||||||||||
Depreciation on property, plant and equipment for the three months ended March 31, 2023 and 2022 totaled $10.4 million and $11.1 million, respectively.
5. OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following (amounts in thousands):
| March 31, 2023 | December 31, 2022 | ||||||||||
| Compensation and benefits | $ | $ | |||||||||
| Warranty | |||||||||||
| Accrued insurance benefits | |||||||||||
| Customer rebates and deposits | |||||||||||
| Accrued other taxes | |||||||||||
| Operating lease liability | |||||||||||
| Accrued interest | |||||||||||
Foreign government grant (1) | |||||||||||
Settlement of legal matter (2) | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
(1) In August 2014, the Company received an approximately $17.0 million capital grant from the Italian government for asset damages related to the earthquake that occurred in May 2012 at one of our Italian subsidiaries. The grant was recorded as deferred income in non-current liabilities which is being amortized over the life of the reconstructed building. There are no specific stipulations associated with the government grant.
8
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
6. WARRANTY
Changes in the warranty liability during the three months ended March 31, 2023 and 2022, respectively, consisted of the following (amounts in thousands):
| 2023 | 2022 | ||||||||||
| Warranty liability at beginning of the period | $ | $ | |||||||||
| Provision for warranty liabilities | |||||||||||
| Warranty payments made | ( | ( | |||||||||
| Warranty liability at end of the period | $ | $ | |||||||||
The Company provides limited warranties on workmanship on its products in all market segments. The majority of the Company’s products are subject to a limited warranty that ranges between less than one year and ten years, with certain product warranties being prorated after the first year. The Company calculates a provision for warranty expense based on past warranty experience. Warranty accruals are included as a component of other current liabilities on the Condensed Consolidated Balance Sheets.
7. DEBT
Long-term debt consisted of the following (amounts in thousands):
| March 31, 2023 | |||||||||||||||||
| Principal Balance | Unamortized Debt Issuance | Net Carrying Amount | |||||||||||||||
| 7.00% senior secured notes due 2028 | $ | $ | ( | $ | |||||||||||||
| Titan Europe credit facilities | |||||||||||||||||
| Other debt | |||||||||||||||||
| Total debt | ( | ||||||||||||||||
| Less amounts due within one year | |||||||||||||||||
| Total long-term debt | $ | $ | ( | $ | |||||||||||||
| December 31, 2022 | |||||||||||||||||
| Principal Balance | Unamortized Debt Issuance | Net Carrying Amount | |||||||||||||||
| 7.00% senior secured notes due 2028 | $ | $ | ( | $ | |||||||||||||
| Titan Europe credit facilities | |||||||||||||||||
| Other debt | |||||||||||||||||
| Total debt | ( | ||||||||||||||||
| Less amounts due within one year | |||||||||||||||||
| Total long-term debt | $ | $ | ( | $ | |||||||||||||
9
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Aggregate principal maturities of long-term debt at March 31, 2023 for each of the years (or other periods) set forth below were as follows (amounts in thousands):
| April 1 - December 31, 2023 | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| Thereafter | |||||
| $ | |||||
7.00% senior secured notes due 2028
On April 22, 2021, the Company issued $400.0 million aggregate principal amount of 7.00 % senior secured notes due April 2028 (the senior secured notes due 2028), guaranteed by certain of the Company's subsidiaries. Including the impact of debt issuance costs, these notes had an effective yield of 7.27 % at issuance. These notes are secured by the land and buildings of the following subsidiaries of the Company: Titan Wheel Corporation of Illinois, Titan Tire Corporation, Titan Tire Corporation of Freeport, and Titan Tire Corporation of Bryan. The Company is subject to certain covenants associated with the senior secured notes due 2028 and remained in compliance with these debt covenants at March 31, 2023.
Titan Europe credit facilities
The Titan Europe credit facilities include borrowings from various institutions totaling $33.9 million in aggregate principal amount at March 31, 2023. Maturity dates on this debt range from less than one year to five years. The interest rates range from 0.5 % to 6.5 %.
Revolving credit facility
The Company has a $125 million revolving credit facility with BMO Harris Bank N.A., as agent, 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 October 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 $125 million as a result of outstanding letters of credit and eligible accounts receivable and inventory balances at certain of its domestic subsidiaries. At March 31, 2023, under the Company's $125 million credit facility there were no borrowings and $6.7 million in outstanding letters of credit, and the amount available for borrowing totaled $118.3 million based on eligible accounts receivable and inventory balances.
Other debt
The Company has working capital loans at Titan Pneus do Brasil Ltda and Voltyre-Prom at various interest rates, which totaled $4.9 million and $2.6 million at March 31, 2023, respectively. The maturity dates on these loans are one year or less. The Company expects to negotiate an extension of the maturity dates on these loans with the respective financial institutions or repay, as needed.
10
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
8. LEASES
The Company leases certain buildings and equipment under both operating and finance leases. Certain lease agreements provide for renewal options, fair value purchase options, and payment of property taxes, maintenance, and insurance by the Company. Under FASB Accounting Standards Codification Topic 842 "Leases," the Company made an accounting policy election, by class of underlying asset, not to separate non-lease components such as those previously stated from lease components and instead will treat the lease agreement as a single lease component for all asset classes. Operating right-of-use (ROU) assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent Titan's obligations to make lease payments arising from the lease. The majority of Titan's leases are operating leases. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of Titan's leases do not provide an implicit interest rate, the Company used its incremental borrowing rate (7.27 %), based on the information available at the lease commencement date, in determining the present value of lease payments. Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of sales and selling, general and administrative expenses on the Condensed Consolidated Statements of Operations. Amortization expense associated with finance leases is included in cost of sales and selling, general and administrative expenses, and interest expense associated with finance leases is included in interest expense in the Condensed Consolidated Statements of Operations.
Supplemental balance sheet information related to leases was as follows (amounts in thousands):
| Balance Sheet Classification | March 31, 2023 | December 31, 2022 | |||||||||||||||
| Operating lease ROU assets | Operating lease assets | $ | $ | ||||||||||||||
| Operating lease current liabilities | Other current liabilities | $ | $ | ||||||||||||||
| Operating lease long-term liabilities | Other long-term liabilities | ||||||||||||||||
| Total operating lease liabilities | $ | $ | |||||||||||||||
| Finance lease, gross | Property, plant & equipment, net | $ | $ | ||||||||||||||
| Finance lease accumulated depreciation | Property, plant & equipment, net | ( | ( | ||||||||||||||
| Finance lease, net | $ | $ | |||||||||||||||
| Finance lease current liabilities | Other current liabilities | $ | $ | ||||||||||||||
| Finance lease long-term liabilities | Other long-term liabilities | ||||||||||||||||
| Total finance lease liabilities | $ | $ | |||||||||||||||
At March 31, 2023, maturities of lease liabilities were as follows (amounts in thousands):
| Operating Leases | Finance Leases | ||||||||||
| April 1 - December 31, 2023 | $ | $ | |||||||||
| 2024 | |||||||||||
| 2025 | |||||||||||
| 2026 | |||||||||||
| 2027 | |||||||||||
| Thereafter | |||||||||||
| Total lease payments | $ | $ | |||||||||
| Less imputed interest | |||||||||||
| $ | $ | ||||||||||
| Weighted average remaining lease term (in years) | |||||||||||
11
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
9. EMPLOYEE BENEFIT PLANS
The Company has three frozen defined benefit pension plans covering certain employees or former employees of three U.S. subsidiaries. The Company also has pension plans covering certain employees of several foreign subsidiaries. The Company also sponsors a number of defined contribution plans in the U.S. and at foreign subsidiaries. The Company contributed approximately $0.1 million to the pension plans during the three months ended March 31, 2023 and no amounts are expected to be contributed to the pension plans during the remainder of 2023.
The components of net periodic pension cost consisted of the following for the periods set forth below (amounts in thousands):
| Three months ended | |||||||||||
| March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Service cost | $ | $ | |||||||||
| Interest cost | |||||||||||
| Expected return on assets | ( | ( | |||||||||
| Amortization of unrecognized prior service cost | ( | ( | |||||||||
| Amortization of net loss during the period, net | ( | ||||||||||
| Net periodic pension cost | $ | $ | |||||||||
10. VARIABLE INTEREST ENTITIES
12
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table summarizes the carrying amount of the VIEs’ assets and liabilities included in the Company’s Condensed Consolidated Balance Sheets (amounts in thousands):
| March 31, 2023 | December 31, 2022 | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Inventory | |||||||||||
| Other current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Other non-current assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Current liabilities | $ | $ | |||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | $ | $ | |||||||||
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 nonrecourse obligations. Amounts presented in the table above are adjusted for intercompany eliminations.
The Company holds variable interests in certain VIEs that are not consolidated because Titan is not the primary beneficiary. The Company's involvement with these entities is in the form of direct equity interests and prepayments related to purchases of materials. The maximum exposure to loss represents the loss of assets recognized by Titan relating to non-consolidated entities and amounts due to the non-consolidated assets. The assets and liabilities recognized in Titan's Condensed Consolidated Balance Sheets related to Titan's interest in these non-consolidated VIEs and the Company's maximum exposure to loss relating to non-consolidated VIEs as of the dates set forth below were as follows (amounts in thousands):
| March 31, 2023 | December 31, 2022 | ||||||||||
| Investments | $ | $ | |||||||||
| Total VIE assets | |||||||||||
| Accounts payable to the non-consolidated VIEs | |||||||||||
| Maximum exposure to loss | $ | $ | |||||||||
11. ROYALTY EXPENSE
13
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
12. OTHER INCOME (EXPENSE)
Other income (expense) consisted of the following (amounts in thousands):
| Three months ended | |||||||||||
| March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
Loss on sale of Australian wheel business (1) | $ | $ | ( | ||||||||
Proceeds from government grant (2) | |||||||||||
| Equity investment income | |||||||||||
| Gain on sale of assets | |||||||||||
| Other income | |||||||||||
| $ | $ | ( | |||||||||
(1) 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 Note 1 for additional information.
(2) In August 2014, the Company received approximately $17.0 million capital grant from the Italian government for asset damages related to the earthquake that occurred in May 2012 at one of our Italian subsidiaries. The grant was recorded as deferred income in non-current liabilities which is being amortized over the life of the reconstructed building. There are no specific stipulations associated with the government grant. The Company received proceeds of an additional $1.9 million from the grant during the three months ended March 31, 2022, of which $1.3 million was recorded as other income to match to the historical depreciation recorded on the underlying assets.
13. INCOME TAXES
The Company recorded income tax expense of $14.2 million and $8.7 million for the three months ended March 31, 2023 and 2022, respectively. The Company's effective income tax rate was 29.8 % and 26.1 % for the three months ended March 31, 2023 and 2022, respectively. For the three months ended March 31, 2023 and 2022, the income tax expense each period differed due to an overall pre-tax income increase which resulted in the significant fluctuation in the effective tax rate.
The Company’s 2023 and 2022 tax expense and rates differed from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income primarily as a result of foreign income tax rate differential on the mix of earnings, non-deductible royalty expenses in certain foreign jurisdictions, and certain permanent foreign inclusion items on the domestic provision.
The Company continues to monitor the realization of its deferred tax assets and assesses the need for a valuation allowance. The Company analyzes available positive and negative evidence to determine if a valuation allowance is needed based on the weight of the evidence. This objectively verifiable evidence primarily includes the past three years' profit and loss positions. This process requires management to make estimates, assumptions, and judgments that are uncertain in nature. The Company has established valuation allowances with respect to certain deferred tax assets in the U.S. and certain foreign jurisdictions and continues to monitor and assess the need for valuation allowances in all its jurisdictions.
14
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
14. EARNINGS PER SHARE
Earnings per share (EPS) were as follows (amounts in thousands, except per share data):
| Three months ended | |||||||||||
| March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net income attributable to Titan and applicable to common shareholders | $ | $ | |||||||||
| Determination of shares: | |||||||||||
| Weighted average shares outstanding (basic) | |||||||||||
| Effect of restricted stock and stock options | |||||||||||
| Weighted average shares outstanding (diluted) | $ | $ | |||||||||
| Earnings per common share: | |||||||||||
| Basic | $ | $ | |||||||||
| Diluted | $ | $ | |||||||||
15. LITIGATION
16. SEGMENT INFORMATION
The Company has aggregated its operating units into reportable segments based on its three customer markets: agricultural, earthmoving/construction, and consumer. Each reportable segment includes wheels, tires, wheel/tire assemblies, and undercarriage systems and components. 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. Segment external sales, expenses, and income from operations are determined based on the results of operations for the operating units of the Company's 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’ property, plant and equipment balances are carried at the corporate level.
15
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| Three months ended | |||||||||||
| March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net sales | |||||||||||
| Agricultural | $ | $ | |||||||||
| Earthmoving/construction | |||||||||||
| Consumer | |||||||||||
| $ | $ | ||||||||||
| Gross profit | |||||||||||
| Agricultural | $ | $ | |||||||||
| Earthmoving/construction | |||||||||||
| Consumer | |||||||||||
| $ | $ | ||||||||||
| Income from operations | |||||||||||
| Agricultural | $ | $ | |||||||||
| Earthmoving/construction | |||||||||||
| Consumer | |||||||||||
| Corporate & Unallocated | ( | ( | |||||||||
| Income from operations | $ | $ | |||||||||
| Interest expense | $ | ( | $ | ( | |||||||
| Foreign exchange (loss) gain | ( | ||||||||||
| Other income | ( | ||||||||||
| Income before income taxes | $ | $ | |||||||||
Assets by segment were as follows as of the dates set forth below (amounts in thousands):
| March 31, 2023 | December 31, 2022 | ||||||||||
| Total assets | |||||||||||
| Agricultural | $ | $ | |||||||||
| Earthmoving/construction | |||||||||||
| Consumer | |||||||||||
| Corporate & Unallocated | |||||||||||
| $ | $ | ||||||||||
17. RELATED PARTY TRANSACTIONS
16
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
18. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Accumulated other comprehensive loss consisted of the following (amounts in thousands):
| Currency Translation Adjustments | Gain (Loss) on Derivatives | Unrecognized Losses and Prior Service Cost | Total | ||||||||||||||||||||
| Balance at January 1, 2023 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| Currency translation adjustments, net | — | — | |||||||||||||||||||||
| Defined benefit pension plans: | |||||||||||||||||||||||
Amortization of unrecognized losses and prior service cost, net of tax of $ | — | — | ( | ( | |||||||||||||||||||
| Derivative loss | — | ( | — | ( | |||||||||||||||||||
| Balance at March 31, 2023 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| Currency Translation Adjustments | Gain (Loss) on Derivatives | Unrecognized Losses and Prior Service Cost | Total | ||||||||||||||||||||
| Balance at January 1, 2022 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Currency translation adjustments, net (1) | — | — | |||||||||||||||||||||
| Defined benefit pension plans: | |||||||||||||||||||||||
Amortization of unrecognized losses and prior service cost, net of tax of $( | — | — | |||||||||||||||||||||
| Derivative gain | — | — | |||||||||||||||||||||
| Balance at March 31, 2022 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
(1) The currency translation adjustments, net includes currency translation on amounts reclassified into other expense within the Condensed Consolidated Statements of Operations of approximately $10.0 million for the three months ended March 31, 2022 related to the sale of the Australian wheel business. Refer to Note 1 and 12 for additional information.
19. SUBSEQUENT EVENTS
17
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's discussion and analysis of financial condition and results of operations (MD&A) is designed to provide a reader of the financial statements included in this quarterly report with a narrative from the perspective of the management of Titan International, Inc. (Titan or the Company) on Titan's financial condition, results of operations, liquidity, and other factors that may affect the Company's future results. The MD&A in this quarterly report should be read in conjunction with the condensed consolidated financial statements and other financial information included elsewhere in this quarterly report and the MD&A and audited consolidated financial statements and related notes in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 27, 2023 (the 2022 Form 10-K).
COVID-19 Pandemic
The COVID-19 pandemic's adverse impact on the Company was less during the first quarter of 2023 than in the comparable period in 2022. The Company’s operations continued with additional sanitary and other protective health measures, which have increased operating costs. We expect these additional measures to continue into the foreseeable future as we seek to ensure the safety and welfare of Titan’s employees. While the Company's operations returned to historical levels during 2022 and continuing into the first quarter of 2023, global supply chains are still experiencing constraints following the COVID-19 pandemic, including availability and pricing of raw materials, transportation and labor.
Due to the above circumstances as described generally in this Form 10-Q, the Company’s results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected in the future. Management cannot predict the full 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 triggered additional economic and other sanctions enacted by the United States and other countries throughout the world. The scope of potential additional sanctions is unknown.
The Company currently owns 64.3% of the Voltyre-Prom, a leading producer of agricultural and industrial tires in Volgograd, Russia, which represents approximately 7% of consolidated assets of Titan both as of March 31, 2023 and December 31, 2022. The Russian operations represent approximately 6% and 5% of consolidated global sales for the three months ended March 31, 2023 and 2022, respectively. 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.
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. 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.
18
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements, which are covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. Readers can identify these statements by the fact that they do not relate strictly to historical or current facts. The Company tried to identify forward-looking statements in this quarterly report by using words such as “anticipates,” “estimates,” “expects,” “intends,” “plans,” and “believes,” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may,” and “could.” These forward-looking statements include, among other items, information concerning:
•the Company's financial performance;
•anticipated trends in the Company’s business;
•expectations with respect to the end-user markets into which the Company sells its products (including agricultural equipment, earthmoving/construction equipment, and consumer products);
•future expenditures for capital projects;
•the Company’s ability to continue to control costs and maintain quality;
•the Company's ability to meet conditions of loan agreements, indentures and other financing documents;
•the Company’s business strategies, including its intention to introduce new products;
•expectations concerning the performance and success of the Company’s existing and new products; and
•the Company’s intention to consider and pursue acquisition and divestiture opportunities.
Readers of this Form 10-Q should understand that these forward-looking statements are based on the Company’s current expectations and assumptions about future events and are subject to a number of risks, uncertainties, and changes in circumstances that are difficult to predict, including those in Part I, Item 1A, Risk Factors, of the 2022 Form 10-K and Part II, Item 1A, Risk Factors, of this quarterly report on Form 10-Q, certain of which are beyond the Company’s control.
Actual results could differ materially from those expressed in, or implied by, these forward-looking statements as a result of various factors, including:
•the effect of the 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;
•the effect of the market demand cycles on the company's sales, which may have significant fluctuations;
•changes in the Company’s end-user markets into which the Company sells its products as a result of domestic and world economic or regulatory influences or otherwise;
•changes in the marketplace, including new products and pricing changes by the Company’s competitors;
•the Company's ability to maintain satisfactory labor relations;
•unfavorable outcomes of legal proceedings;
•the Company's ability to comply with current or future regulations applicable to the Company's business and the industry in which it competes or any actions taken or orders issued by regulatory authorities;
•availability and price of raw materials;
•availability and price of supply chain logistics and freight;
•levels of operating efficiencies;
•the effects of the Company's indebtedness and its compliance with the terms thereof;
•changes in the interest rate environment and their effects on the Company's outstanding indebtedness;
•unfavorable product liability and warranty claims;
19
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
•actions of domestic and foreign governments, including the imposition of additional tariffs and approval of tax credits or other incentives;
•geopolitical and economic uncertainties relating to the countries in which the Company operates or does business;
•risks associated with acquisitions, including difficulty in integrating operations and personnel, disruption of ongoing business, and increased expenses;
•results of investments;
•the effects of potential processes to explore various strategic transactions, including potential dispositions;
•fluctuations in currency translations;
•climate change and related laws and regulations;
•risks associated with environmental laws and regulations;
•risks relating to our manufacturing facilities, including that any of our material facilities may become inoperable; and
•risks related to financial reporting, internal controls, tax accounting, and information systems.
Any changes in such factors could lead to significantly different results. Any assumptions that are inaccurate or do not prove to be correct could have a material adverse effect on the Company’s ability to achieve the results as indicated in the forward-looking statements. Forward-looking statements speak only as of the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. In light of these risks and uncertainties, there can be no assurance that the forward-looking information and assumptions contained in this report will in fact transpire. The reader should not place undue reliance on the forward-looking statements included in this report or that may be made elsewhere from time to time by the Company, or on its behalf. All forward-looking statements attributable to Titan are expressly qualified by these cautionary statements.
OVERVIEW
Titan International, Inc., together with its subsidiaries, is a global wheel, tire, and undercarriage industrial manufacturer and supplier that services customers across the globe. As a leading manufacturer in the off-highway industry, Titan produces a broad range of products to meet the specifications of original equipment manufacturers (OEMs) and aftermarket customers in the agricultural, earthmoving/construction, and consumer markets. Titan manufactures and sells certain tires under the Goodyear Farm Tire, Titan Tire and Voltyre-Prom Tire brands and has complete research and development facilities to validate tire and wheel designs.
Agricultural Segment: Titan’s agricultural wheels, tires, and components are manufactured for use on various agricultural equipment, including tractors, combines, skidders, plows, planters, and irrigation equipment, and are sold directly to OEMs and to the aftermarket through independent distributors, equipment dealers, and Titan’s distribution centers. The wheels range in diameter from nine inches to 54 inches, with the 54-inch diameter being the largest agricultural wheel manufactured in North America. Basic configurations are combined with distinct variations (such as different centers and a wide range of material thickness) allowing the Company to offer a broad line of products to meet customer specifications. Titan’s agricultural tires range from approximately one foot to approximately seven feet in outside diameter and from five inches to 55 inches in width. Agricultural tires are offered 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 OTR earthmoving, mining, military, construction, and forestry equipment, including skid steers, aerial lifts, cranes, graders and levelers, scrapers, self-propelled shovel loaders, articulated dump trucks, load transporters, haul trucks, backhoe loaders, crawler tractors, lattice cranes, shovels, and hydraulic excavators. The Company provides OEM and aftermarket customers with a broad range of earthmoving/construction wheels ranging in diameter from 15 to 63 inches and in weight from 125 pounds to 7,000 pounds. The 63-inch diameter wheel is the largest manufactured for the global earthmoving/construction market. Titan’s earthmoving/construction tires are offered in the Titan brand and range from approximately three feet to approximately 13 feet in outside diameter and in weight from 50 pounds to 12,500 pounds. Earthmoving/construction tires offered by Titan serve virtually every off-road application in the industry with some of the highest load requirements in the
20
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
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. Titan also offers select products for ATVs, side-by-sides, rock climbers, turf, and have recently expanded our offering into the lawn and garden segment with a major OE customer. This segment also includes sales that do not readily fall into the Company's other segments, such as custom rubber stock mixing sales to a variety of OEM's in tangential industries.
The Company’s top customers, including global leaders in agricultural and construction equipment manufacturing, have been purchasing products from Titan or its predecessors for numerous years. Customers including AGCO Corporation, Caterpillar Inc., CNH Global N.V., Deere & Company, Hitachi, Ltd., Kubota Corporation, Liebherr, and Volvo have helped sustain Titan’s market leading position in wheel, tire, assembly, and undercarriage products.
MARKET CONDITIONS AND OUTLOOK
AGRICULTURAL MARKET OUTLOOK
Agriculture-related commodity prices continued to remain at historically high levels during the first quarter of 2023. High farmer income and replacement of an aging large equipment fleet are both market conditions which are anticipated to support continued healthy demand for our products in the mid to long term time horizon. Despite recent concerns over elevated inventory levels at our end customers in the Americas resulting in uncertain demand in the near term, the underlying market conditions mentioned previously provide support for the healthy demand for our products. Many more variables, including weather, volatility in the price of commodities, grain prices, export markets, foreign currency exchange rates, government policies, subsidies, and the demand for used equipment can greatly affect the Company's performance in the agricultural market in a given period.
EARTHMOVING/CONSTRUCTION MARKET OUTLOOK
The earthmoving/construction segment is affected by many variables, including commodity prices, road construction, infrastructure, government appropriations, housing starts, and other macroeconomic drivers. The construction market is primarily driven by GDP by country and the need for infrastructure developments. The earthmoving/construction markets experienced continued stability during the first quarter of 2023 and is expected to continue for the remainder of the year given the low equipment inventory levels throughout the global construction industry and increased mining capital budgets. Mineral commodity prices are at relatively high levels that also currently support growth, while global recession concerns could impact demand in various parts of the world.
CONSUMER MARKET OUTLOOK
The consumer market consists of several 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 stabilized during 2022 and remained stable through the first quarter of 2023. However, the pace of growth can vary period to period. There are strong initiatives underway to bolster opportunities in various specialty products including mixing of rubber stock in the United States. The consumer segment is affected by many variables including inflationary impacts, consumer spending, interest rates, government policies, and other macroeconomic drivers.
21
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
| Three months ended | |||||||||||||||||
| (Amounts in thousands, except percentages) | March 31, | ||||||||||||||||
| 2023 | 2022 | % Increase/(Decrease) | |||||||||||||||
| Net sales | $ | 548,644 | $ | 555,997 | (1.3) | % | |||||||||||
| Cost of sales | 453,087 | 469,268 | (3.4) | % | |||||||||||||
| Gross profit | 95,557 | 86,729 | 10.2 | % | |||||||||||||
| Gross profit % | 17.4 | % | 15.6 | % | 11.5 | % | |||||||||||
| Selling, general and administrative expenses | 34,472 | 36,227 | (4.8) | % | |||||||||||||
| Research and development expenses | 3,014 | 2,920 | 3.2 | % | |||||||||||||
| Royalty expense | 2,935 | 2,874 | 2.1 | % | |||||||||||||
| Income from operations | $ | 55,136 | $ | 44,708 | 23.3 | % | |||||||||||
Net Sales
Net sales for the three months ended March 31, 2023 were $548.6 million, compared to $556.0 million in the comparable period of 2022, a decrease of 1.3%, driven by sales decreases in all segments. The net sales decrease was driven by an unfavorable impact of foreign currency translation of 1.5% or $8.1 million, primarily due to the weakening Euro. Additionally, the Company sold its Australian wheel business in the first quarter of 2022 which resulted in a reduction of net sales of 1.8%, or $10.0 million for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The net sales decrease outlined above was partially offset by increased sales volume and favorable price/product mix. The volume increase was primarily in Europe and North America, 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 2023 as economies emerged from the pandemic with GDP growth and mining commodity prices increased. The overall price/product mix increase was driven by inflationary impacts on input production costs offset by lower steel costs. Excluding the impact of the foreign currency translation and the disposition of the Australian wheel business, net sales for the three months ended March 31, 2023 increased by 2.0%.
Gross Profit
Gross profit for the three months ended March 31, 2023 was $95.6 million, or 17.4% of net sales, an increase of $8.8 million compared to $86.7 million, or 15.6% of net sales, for the three months ended March 31, 2022.
The solid growth in gross profit for the three months ended March 31, 2023 as compared to the prior year period was driven by productivity initiatives that continue to be executed across global production facilities, cost reduction, and lower production input costs including freight.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended March 31, 2023 were $34.5 million, or 6.3% of net sales, compared to $36.2 million, or 6.5% of net sales, for the three months ended March 31, 2022.
The decrease in SG&A for the three months ended March 31, 2023 as compared to the prior year period was driven primarily by the disposition of the Australian wheel business during the first quarter of 2022.
Research and Development Expenses
Research and development (R&D) expenses for the three months ended March 31, 2023 were $3.0 million, or 0.5% of net sales, compared to $2.9 million, or 0.5% of net sales, for the comparable period in 2022. R&D spending reflects initiatives to improve product designs and an ongoing focus on quality and innovation.
22
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Royalty Expense
The Company has trademark license agreements with The Goodyear Tire & Rubber Company to manufacture and sell certain farm tires under the Goodyear brand. These agreements cover sales in North America, Latin America, Europe, the Middle East, Africa, Russia, and other Commonwealth of Independent States countries.
Royalty expenses for the three months ended March 31, 2023 were $2.9 million, or 0.5% of net sales, compared to $2.9 million, or 0.5% of net sales, for the three months ended March 31, 2022.
Income from Operations
Income from operations for the three months ended March 31, 2023 was $55.1 million, compared to income from operations of $44.7 million for the three months ended March 31, 2022. The increase in income from operations for the three months ended March 31, 2023 as compared to the prior year period was primarily driven by improvements in gross profit.
OTHER PROFIT/LOSS ITEMS
Interest Expense, net
Interest expense was $6.5 million and $7.9 million for the three months ended March 31, 2023 and 2022. The decrease in interest expense for the three months ended March 31, 2023 was due to the reduced borrowing under the Company's global credit facilities, as compared to the prior year period, and increased interest income of $0.8 million associated with financial investments in Latin America.
Foreign Exchange (Loss) Gain
Foreign exchange loss was $1.8 million for the three months ended March 31, 2023, compared to a gain of $5.3 million for the three months ended March 31, 2022.
Foreign currency exchange loss was the result of the significant negative movements in foreign currency exchange rates in many of the geographies in which we conduct business during the three months ended March 31, 2023, primarily due to fluctuations in the Euro. The foreign exchange gain experienced during the three months ended March 31, 2022 was the result of a favorable impact of the movement of exchange rates in the many geographies in which we conduct business, primarily due to in fluctuations in the Brazilian real, Euro, and Australian dollar.
Other Income
Other income was $0.8 million for the three months ended March 31, 2023, as compared to other expense of $8.9 million in the comparable period of 2022. The increase in other income for the three months ended March 31, 2023, as compared to the same period in 2022, was primarily attributable to a loss of $10.9 million on sale of the Australian wheel business in the first quarter of 2022 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 income tax expense of $14.2 million and $8.7 million for the three months ended March 31, 2023 and 2022, respectively. The Company's effective income tax rate was 29.8% and 26.1% for the three months ended March 31, 2023 and 2022, respectively. For the three months ended March 31, 2023 and 2022, the income tax expense each period differed due to an overall pre-tax income increase which resulted in the significant fluctuation in the effective tax rate.
The Company’s 2023 and 2022 tax expense and rates differed from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income primarily as a result of foreign income tax rate differential on the mix of earnings, non-deductible royalty expenses in certain foreign jurisdictions, and certain permanent foreign inclusion items on the domestic provision.
On August 16, 2022, the “Inflation Reduction Act” (H.R. 5376) was signed into law in the United States. As part of the Inflation Reduction Act, the U.S. Congress enacted the corporate alternative minimum tax (CAMT). Titan does not currently expect the Inflation Reduction Act or CAMT to have a material impact on our financial results, including on our annual estimated effective tax rate.
23
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Net Income and Income per Share
Net income for the three months ended March 31, 2023 was $33.4 million, compared to net income of $24.6 million in the comparable period of 2022, an improvement of $8.9 million. For the three months ended March 31, 2023 and 2022, basic income per share were $0.51 and $0.37, respectively, and diluted income per share were $0.50 and $0.37, respectively. The Company's net income and income per share increases were due to the items previously discussed.
SEGMENT INFORMATION
Segment Summary (amounts in thousands, except percentages):
| Three months ended March 31, 2023 | Agricultural | Earthmoving/ Construction | Consumer | Corporate/ Unallocated Expenses | Consolidated Totals | |||||||||||||||||||||||||||
| Net sales | $ | 305,858 | $ | 198,924 | $ | 43,862 | $ | — | $ | 548,644 | ||||||||||||||||||||||
| Gross profit | 49,250 | 37,224 | 9,083 | — | 95,557 | |||||||||||||||||||||||||||
| Profit margin | 16.1 | % | 18.7 | % | 20.7 | % | — | 17.4 | % | |||||||||||||||||||||||
| Income (loss) from operations | 32,569 | 23,538 | 6,792 | (7,763) | 55,136 | |||||||||||||||||||||||||||
| Three months ended March 31, 2022 | ||||||||||||||||||||||||||||||||
| Net sales | $ | 309,600 | $ | 201,259 | $ | 45,138 | $ | — | $ | 555,997 | ||||||||||||||||||||||
| Gross profit | 47,924 | 31,375 | 7,430 | — | 86,729 | |||||||||||||||||||||||||||
| Profit margin | 15.5 | % | 15.6 | % | 16.5 | % | — | 15.6 | % | |||||||||||||||||||||||
| Income (loss) from operations | 30,117 | 15,840 | 4,882 | (6,131) | 44,708 | |||||||||||||||||||||||||||
Agricultural Segment Results
Agricultural segment results for the periods presented below were as follows:
| (Amounts in thousands, except percentages) | Three months ended | ||||||||||||||||
| March 31, | |||||||||||||||||
| 2023 | 2022 | % Increase/(Decrease) | |||||||||||||||
| Net sales | $ | 305,858 | $ | 309,600 | (1.2) | % | |||||||||||
| Gross profit | 49,250 | 47,924 | 2.8 | % | |||||||||||||
| Profit margin | 16.1 | % | 15.5 | % | 3.9 | % | |||||||||||
| Income from operations | 32,569 | 30,117 | 8.1 | % | |||||||||||||
Net sales in the agricultural segment were $305.9 million for the three months ended March 31, 2023, as compared to $309.6 million for the comparable period in 2022, a decrease of 1.2%. The net sales decrease was due to an unfavorable impact of foreign currency translation of 0.7%, primarily due to the weakening Euro, and the effects of the disposed Australian business of 1.1%. In addition, the decrease in net sales was also due to negative price/product mix, which was primarily reflective of decreases in steel price and freight costs. The net sales decrease outlined above was partially offset by sales volume increases primarily in Europe, which were 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. Excluding the impact of the foreign currency translation and the disposition of the Australian wheel business, net sales for the three months ended March 31, 2023 increased by 0.6%.
Gross profit in the agricultural segment was $49.3 million for the three months ended March 31, 2023, as compared to $47.9 million in the comparable period in 2022. The increase in gross profit and profit margin is due to cost reduction and productivity initiatives executed across global production facilities in addition to lower production input costs.
Income from operations in the company's agricultural segment was $32.6 million for the three months ended March 31, 2023, as compared to income of $30.1 million for the three months ended March 31, 2022. The overall increase in income from operations is attributable to higher gross profit.
24
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Earthmoving/Construction Segment Results
Earthmoving/construction segment results for the periods presented below were as follows:
| (Amounts in thousands, except percentages) | Three months ended | ||||||||||||||||
| March 31, | |||||||||||||||||
| 2023 | 2022 | % Increase/(Decrease) | |||||||||||||||
| Net sales | $ | 198,924 | $ | 201,259 | (1.2) | % | |||||||||||
| Gross profit | 37,224 | 31,375 | 18.6 | % | |||||||||||||
| Profit margin | 18.7 | % | 15.6 | % | 19.9 | % | |||||||||||
| Income from operations | 23,538 | 15,840 | 48.6 | % | |||||||||||||
The Company's earthmoving/construction segment net sales were $198.9 million for the three months ended March 31, 2023, as compared to $201.3 million in the comparable period in 2022, a decrease of 1.2%. The earthmoving/construction net sales was unfavorably impacted by foreign currency translation of 3.0%, primarily due to the weakening Euro and the effects of the disposed Australia business of 3.1%. The net sales decrease outlined above was partially offset by sales volume increases and price/product mix increase. Sales volume increases were primarily in Europe, North America, and Latin America and mainly due to favorable economic conditions, recovery in construction markets, and stronger mining commodity prices. The overall price/product mix increase was driven by inflationary impacts on input production costs partially offset by lower steel price. Excluding the impact of the foreign currency translation and the disposition of the Australian wheel business, net sales for the three months ended March 31, 2023 was an increase of 4.9%.
Gross profit in the earthmoving/construction segment was $37.2 million for the three months ended March 31, 2023, as compared to $31.4 million for the three months ended March 31, 2022. The increase in gross profit and margin was primarily driven by the continued improvement of production efficiencies stemming from the strong management actions taken to improve profitability for the long-term. Lower production input costs including freight costs also increased profitability.
The Company's earthmoving/construction segment income from operations was $23.5 million for the three months ended March 31, 2023, as compared to income of $15.8 million for the three months ended March 31, 2022. This improvement was due to increases in sales volume, price, and continued execution of cost containment measures taken to manage profitability.
Consumer Segment Results
Consumer segment results for the periods presented below were as follows:
| (Amounts in thousands, except percentages) | Three months ended | ||||||||||||||||
| March 31, | |||||||||||||||||
| 2023 | 2022 | % Increase/(Decrease) | |||||||||||||||
| Net sales | $ | 43,862 | $ | 45,138 | (2.8) | % | |||||||||||
| Gross profit | 9,083 | 7,430 | 22.2 | % | |||||||||||||
| Profit margin | 20.7 | % | 16.5 | % | 25.5 | % | |||||||||||
| Income from operations | 6,792 | 4,882 | 39.1 | % | |||||||||||||
Consumer segment net sales were $43.9 million for the three months ended March 31, 2023, as compared to $45.1 million for the three months ended March 31, 2022, a decrease of approximately 2.8%. The decrease was driven by lower sales volumes, mainly in Latin America and Russia. The decline in Latin America was driven by lower demand for light utility truck tires, while declines in other geographies related to a shift in focus to agriculture and earthmoving/construction products. Net sales were favorably impacted by price/product mix and foreign currency translation, primarily in Latin America and Russia, which increased net sales by 0.8%, although the disposal of the Australian business had a negative effect on sales of 0.5%.
25
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Gross profit from the consumer segment was $9.1 million for the three months ended March 31, 2023, as compared to $7.4 million for the three months ended March 31, 2022. The increase in gross profit and margin was primarily driven by increased price/product mix and growth initiatives in specialty products in the United States which had stronger margins than other products in the segment.
Consumer segment income from operations was $6.8 million for the three months ended March 31, 2023, as compared to income of $4.9 million for the three months ended March 31, 2022 due to increase in gross profit as mentioned previously.
Corporate & Unallocated Expenses
Income from operations on a segment basis did not include unallocated costs of $7.8 million for the three months ended March 31, 2023, as compared to $6.1 million for the three months ended March 31, 2022. Unallocated expenses are primarily comprised of corporate selling, general and administrative expenses. The year over year change is related to increases in certain SG&A expenses primarily associated with an increase in corporate legal fees.
26
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
As of March 31, 2023, the Company had $164.1 million of cash, which increased as compared to the December 31, 2022 ending balance of $159.6 million, due to the following items:
Operating Cash Flows
Summary of cash flows from operating activities:
| (Amounts in thousands) | Three months ended March 31, | ||||||||||||||||
| 2023 | 2022 | Change | |||||||||||||||
| Net income | $ | 33,430 | $ | 24,578 | $ | 8,852 | |||||||||||
| Depreciation and amortization | 10,830 | 11,348 | (518) | ||||||||||||||
| Loss on sale of the Australian wheel business | — | 10,890 | (10,890) | ||||||||||||||
| Deferred income tax provision | 4,089 | 995 | 3,094 | ||||||||||||||
| Foreign currency gain | (230) | (5,448) | 5,218 | ||||||||||||||
| Accounts receivable | (58,541) | (57,332) | (1,209) | ||||||||||||||
| Inventories | 11,486 | (34,240) | 45,726 | ||||||||||||||
| Prepaid and other current assets | (3,932) | (9,606) | 5,674 | ||||||||||||||
| Accounts payable | 10,237 | 23,918 | (13,681) | ||||||||||||||
| Other current liabilities | 15,947 | 13,728 | 2,219 | ||||||||||||||
| Other liabilities | 110 | 2,244 | (2,134) | ||||||||||||||
| Other operating activities | 660 | 408 | 252 | ||||||||||||||
| Cash provided by (used for) operating activities | $ | 24,086 | $ | (18,517) | $ | 42,603 | |||||||||||
For the first three months of 2023, cash flows provided by operating activities was $24.1 million, driven primarily by net income of $33.4 million, increases in other current liabilities of $15.9 million, decreases in inventories of $11.5 million and increases in accounts payable of $10.2 million, which was partially offset by increases in accounts receivable of $58.5 million generated by the sales activities during the first three months of 2023. Included in net income of $33.4 million was a non-cash charge for depreciation and amortization expense of $10.8 million.
Operating cash flows increased by $42.6 million when comparing the first three months of 2023 to the comparable period in 2022, which is due to the impact of higher profitability in 2023 and the managed investments in working capital to support the business growth.
Summary of the components of cash conversion cycle:
| March 31, | December 31, | March 31, | |||||||||||||||
| 2023 | 2022 | 2022 | |||||||||||||||
| Days sales outstanding | 54 | 48 | 51 | ||||||||||||||
| Days inventory outstanding | 81 | 86 | 84 | ||||||||||||||
| Days payable outstanding | (57) | (57) | (60) | ||||||||||||||
| Cash conversion cycle | 78 | 77 | 75 | ||||||||||||||
Cash conversion cycle remained fairly consistent when comparing the quarter ended March 31, 2023 to March 31, 2022. The Company continues to focus on strategic improvement in working capital management, specifically focused on inventory management.
27
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Investing Cash Flows
Summary of cash flows from investing activities:
| (Amounts in thousands) | Three months ended March 31, | ||||||||||||||||
| 2023 | 2022 | Change | |||||||||||||||
| Capital expenditures | $ | (11,698) | $ | (7,637) | $ | (4,061) | |||||||||||
| Proceeds from the sale of the Australian wheel business | — | 9,293 | (9,293) | ||||||||||||||
| Proceeds from sale of fixed assets | 258 | 756 | (498) | ||||||||||||||
| Cash (used for) provided by investing activities | $ | (11,440) | $ | 2,412 | $ | (13,852) | |||||||||||
Net cash used for investing activities was $11.4 million in the first three months of 2023, as compared to net cash provided by investing activities of $2.4 million in the first three months of 2022. The Company invested a total of $11.7 million in capital expenditures in the first three months of 2023, compared to $7.6 million in the comparable period of 2022. 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 2023 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 for the first three months of 2022 includes $9.3 million from proceeds for the sale of the Australian wheel business.
Financing Cash Flows
Summary of cash flows from financing activities:
| (Amounts in thousands) | Three months ended March 31, | ||||||||||||||||
| 2023 | 2022 | Change | |||||||||||||||
| Proceeds from borrowings | $ | 2,360 | $ | 76,782 | $ | (74,422) | |||||||||||
| Payment on debt | (11,382) | (39,483) | 28,101 | ||||||||||||||
| Repurchase of common stock | (1,293) | (25,000) | 23,707 | ||||||||||||||
| Other financing activities | (130) | (586) | 456 | ||||||||||||||
| Cash (used for) provided by financing activities | $ | (10,445) | $ | 11,713 | $ | (22,158) | |||||||||||
During the first three months of 2023, $10.4 million of cash was used for financing activities. Payment on debt of $11.4 million and repurchase of common stock of $1.3 million was offset partially by proceeds from borrowings of $2.4 million. The Company reduced its domestic credit facility outstanding balance to zero at March 31, 2023 with cash provided from operations as compared to domestic credit facility outstanding balance of $63.0 million at March 31, 2022. The Company borrowed on the domestic revolving credit facility during the first three months of 2022 primarily to facilitate the repurchasing of the Company's common stock from RDIF, and to fund working capital investments.
Debt Restrictions
The Company’s $125 million revolving credit facility (credit facility) and indenture relating to the 7.00% senior secured notes due 2028 contain various restrictions, including:
•When remaining availability under the credit facility is less than 10% of the total commitment under the credit facility ($12.5 million as of March 31, 2023), 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. The Company is in compliance with these debt covenants at March 31, 2023.
28
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Guarantor Financial Information
The Company's 7.00% senior secured notes due 2028 are guaranteed by the following 100% owned subsidiaries of the Company: Titan Tire Corporation, Titan Tire Corporation of Bryan, Titan Tire Corporation of Freeport, and Titan Wheel Corporation of Illinois (together, the "Guarantors"). The note guarantees are full and unconditional, joint and several obligations of the guarantors. The guarantees of the guarantor subsidiaries are subject to release in limited circumstances only upon the occurrence of certain customary conditions.
The following summarized financial information of both the Company and the Guarantors is presented on a combined basis. Intercompany balances and transactions between the Company and the Guarantors have been eliminated and the summarized financial information does not reflect investments of the Company or the Guarantors in the Non-Guarantor Subsidiaries. The information is presented in accordance with the requirements of Rule 13-01 under the SEC’s Regulation S-X. The financial information may not necessarily be indicative of results of operations or financial position had the guarantor subsidiary operated as an independent entity.
Summarized Balance Sheets:
| (Amounts in thousands) | |||||
| March 31, 2023 | |||||
| Assets | |||||
| Current assets | $ | 110,986 | |||
| Property, plant, and equipment, net | 81,571 | ||||
| Intercompany accounts, non-guarantor subsidiaries | 465,623 | ||||
| Other long-term assets | 58,490 | ||||
| Liabilities | |||||
| Current liabilities | 116,289 | ||||
| Long-term debt | 395,620 | ||||
| Other long-term liabilities | 2,896 | ||||
Summarized Statement of Operations:
| (Amounts in thousands) | Three months ended | ||||
| March 31, 2023 | |||||
| Net sales | $ | 237,625 | |||
| Gross profit | 29,358 | ||||
| Income from operations | 11,403 | ||||
| Net income | 1,114 | ||||
Liquidity Outlook
At March 31, 2023, the Company had $164.1 million of cash and cash equivalents. At March 31, 2023, under the Company's $125 million credit facility, there were no borrowings, $6.7 million in outstanding letters of credit, and the amount available totaled $118.3 million. Titan's availability under this credit facility may be less than $125 million as a result of outstanding letters of credit and eligible accounts receivable and inventory balances at certain domestic subsidiaries. The cash and cash equivalents balance of $164.1 million included $125.0 million held in foreign countries.
The Company is expecting full year capital expenditures 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 $29 million for the remainder of 2023 based on March 31, 2023 debt balances. The forecasted interest payments are comprised primarily of the semi-annual payments totaling $28 million (paid in April and October) for the 7.00% senior secured notes.
29
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Cash and cash equivalents along with anticipated internal cash flows from operations and utilization of availability on global credit facilities, are expected to provide sufficient liquidity for working capital needs, debt maturities, and capital expenditures. Potential divestitures and unencumbered assets are also a means to provide for future liquidity needs.
CRITICAL ACCOUNTING ESTIMATES
There were no material changes in the Company’s Critical Accounting Estimates since the filing of the 2022 Form 10-K. As discussed in the 2022 Form 10-K, the preparation of the condensed consolidated financial statements in conformity with US GAAP requires management to make estimates, assumptions, and judgments that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from those estimates and assumptions. Refer to Note 1. Basis of Presentation and Significant Accounting Policies in Part I, Item 1, Notes to Condensed Consolidated Financial Statements of this Form 10-Q for a discussion of the Company’s updated accounting policies.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Titan is exposed to market risks, including changes in foreign currency exchange rates and interest rates, and commodity price fluctuations. Our exposure to market risk has not changed materially since December 31, 2022. For quantitative and qualitative disclosures about market risk, see Item 7A - Quantitative and Qualitative Disclosures About Market Risk included in the 2022 Form 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Titan management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the Exchange Act)) as of March 31, 2023. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2023, Titan's disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by Titan in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported accurately and within the time frames specified in the SEC's rules and forms and accumulated and communicated to Titan management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls
There were no changes in internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the first quarter of fiscal year 2023 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Inherent Limitations on the Effectiveness of Controls
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject, from time to time, to certain legal proceedings and claims arising out of the normal course of its business, which cover a wide range of matters, including environmental issues, product liability, contracts, and labor and employment matters. See Note 15 Litigation in Part I, Item 1, Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further discussion, which is incorporated herein by reference.
Item 1A. Risk Factors
There have been no material changes from the risk factors disclosed in Item 1A. Risk Factors to the 2022 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table is a summary of stock repurchases for the three months ended March 31, 2023:
| Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total number of shares purchased as part of publicly announced plan or program | Approximate dollar value of shares that may yet be purchased under the plan or program(1)(2) (in thousands) | ||||||||||||||||||||||
| January 1, 2023 to January 31, 2023 | — | $ | — | — | $ | 50,000 | ||||||||||||||||||||
| February 1, 2023 to February 28, 2023 | — | $ | — | — | $ | 50,000 | ||||||||||||||||||||
| March 1, 2023 to March 31, 2023 | 109,789 | $ | 11.75 | 109,789 | $ | 48,710 | ||||||||||||||||||||
| Total | 109,789 | 109,789 | ||||||||||||||||||||||||
(1) On December 16, 2022, the Board of Directors authorized a share repurchase program allowing for the expenditure of up to $50.0 million for the repurchase of the Company’s Common Stock. As of March 31, 2023, $48.7 million remains available for future share repurchases under the program. All shares in the table were purchased under the publicly announced repurchase program.
(2) The stock repurchase program is authorized through December 16, 2025, but the program may be suspended or terminated at any time at the Board of Director’s discretion.
31
Item 6. Exhibits
| 10 | |||||
| 31.1 | |||||
| 31.2 | |||||
| 32 | |||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | ||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | ||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||||
| 104 | The cover page from this Current Report on Form 10-Q formatted as inline XBRL | ||||
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| TITAN INTERNATIONAL, INC. | |||||
| (Registrant) | |||||
| Date: | May 3, 2023 | By: | /s/ PAUL G. REITZ | ||||||||
| Paul G. Reitz | |||||||||||
| President and Chief Executive Officer | |||||||||||
| (Principal Executive Officer) | |||||||||||
By: | /s/ DAVID A. MARTIN | |||||||
| David A. Martin | ||||||||
| SVP and Chief Financial Officer | ||||||||
| (Principal Financial Officer) | ||||||||
33