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: June 30, 2024
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: 72,159,028 shares of common stock, $0.0001 par value, as of July 24, 2024.
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 | Six months ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Acquisition related expenses | |||||||||||||||||||||||
| Research and development expenses | |||||||||||||||||||||||
| Royalty expense | |||||||||||||||||||||||
| Income from operations | |||||||||||||||||||||||
| Interest expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Foreign exchange gain (loss) | ( | ||||||||||||||||||||||
| Other income | |||||||||||||||||||||||
| 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 | |||||||||||
| June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Net income | $ | $ | |||||||||
| Derivative loss | ( | ( | |||||||||
| Currency translation adjustment, net | ( | ( | |||||||||
Pension liability adjustments, net of tax of $ | ( | ||||||||||
| Comprehensive (loss) income | ( | ||||||||||
| Net comprehensive income (loss) attributable to noncontrolling interests | ( | ||||||||||
| Comprehensive (loss) income attributable to Titan | $ | ( | $ | ||||||||
| Six months ended | |||||||||||
| June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Net income | $ | $ | |||||||||
| Derivative loss | ( | ( | |||||||||
| Currency translation adjustment, net | ( | ||||||||||
Pension liability adjustments, net of tax of $ | ( | ||||||||||
| Comprehensive (loss) income | ( | ||||||||||
| Net comprehensive income (loss) attributable to noncontrolling interests | ( | ||||||||||
| Comprehensive (loss) 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)
| June 30, 2024 | December 31, 2023 | ||||||||||
| Assets | (unaudited) | ||||||||||
| 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 | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Deferred income taxes | |||||||||||
| Other long-term assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities | |||||||||||
| Current liabilities | |||||||||||
| Short-term debt | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Operating leases | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Deferred income taxes | |||||||||||
| Operating leases | |||||||||||
| 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, 2024 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustment, net | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Pension liability adjustments, net of tax | |||||||||||||||||||||||||||||||||||||||||||||||
| Derivative gain | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of treasury stock under 401(k) plan | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock repurchase | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Common stock issuance | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance March 31, 2024 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| 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 June 30, 2024 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
4
| 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 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| 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 | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Acquisition of additional non-controlling interest | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Balance June 30, 2023 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
5
TITAN INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(All amounts in thousands)
| Six months ended June 30, | |||||||||||
| Cash flows from operating activities: | 2024 | 2023 | |||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Deferred income tax provision | |||||||||||
| Income on indirect taxes | ( | ||||||||||
| Gain on fixed asset and investment sale | ( | ( | |||||||||
| Stock-based compensation | |||||||||||
| Issuance of stock under 401(k) plan | |||||||||||
| Proceeds from property insurance settlement | ( | ||||||||||
| Foreign currency gain | ( | ( | |||||||||
| (Increase) decrease in assets, net of acquisitions: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Inventories | |||||||||||
| Prepaid and other current assets | ( | ||||||||||
| Other assets | ( | ||||||||||
| Increase (decrease) in liabilities, net of acquisitions: | |||||||||||
| Accounts payable | ( | ( | |||||||||
| Other current liabilities | |||||||||||
| Other liabilities | |||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Business acquisition, net of cash acquired | ( | ||||||||||
| Proceeds from property insurance settlement | |||||||||||
| Proceeds from sale of fixed assets | |||||||||||
| Net cash used for investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from borrowings | |||||||||||
| Repayments of debt | ( | ( | |||||||||
| Payment of debt issuance costs | ( | ||||||||||
| Repurchase of common stock | ( | ( | |||||||||
| Other financing activities | ( | ( | |||||||||
| Net cash provided by (used for) 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 | |||||||||||
| Non cash financing activity: | |||||||||||
| Issuance of common stock in connection with business acquisition | $ | $ | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
6
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated interim financial statements include the accounts of Titan International, Inc. and its subsidiaries (Titan or the Company) and have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) for interim financial information and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the SEC). Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. The accompanying unaudited condensed consolidated interim financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the Company's financial position and the results of operations and cash flows for the periods presented, and should be read in conjunction with the consolidated financial statements and the related notes thereto included in the Company’s latest Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 29, 2024 (the 2023 Form 10-K). All intercompany transactions have been eliminated in consolidation. These unaudited condensed consolidated interim financial statements include estimates and assumptions of management that affect the amounts reported in the condensed consolidated financial statements. Actual results could differ from these estimates.
Reclassifications
The Company has reclassified certain prior period amounts in the consolidated balance sheet, primarily lease liabilities, to conform with the current period presentation.
Business Combinations
We account for business combinations under the acquisition method of accounting in accordance with Accounting Standards Codification Topic 805, Business Combinations, which requires an allocation of the consideration we paid to the identifiable assets, intangible assets and liabilities based on the estimated fair values as of the closing date of the acquisition. The excess of the fair value of the purchase price over the fair values of these identifiable assets, intangible assets and liabilities is recorded as goodwill.
Purchased intangibles other than goodwill are initially recognized at fair value and amortized over their useful lives unless those lives are determined to be indefinite. The valuation of acquired assets will impact future operating results. The fair value of identifiable intangible assets is determined using an income approach on an individual asset basis. Specifically, we use the multi-period excess earnings method to determine the fair value of customer relationships and the relief-from-royalty approach to determine the fair value of the tradename and proprietary technology. Determining the fair value of acquired intangibles involves significant estimates and assumptions, including forecasted revenue growth rates, EBIT margins, percentage of revenue attributable to the tradename, contributory asset charges, customer attrition rate, market-participant discount rates, the assumed royalty rates and income tax rates.
The determination of the useful life of an intangible asset other than goodwill is based on factors including historical tradename performance with respect to consumer name recognition, geographic market presence, market share, plans for ongoing tradename support and promotion, customer attrition rate, and other relevant factors.
Fair Value of Financial Instruments
Hyperinflation in Argentina and Turkey
In July 2018 and March 2022, the three-year 100
7
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
For the three and six months ended June 30, 2024, the Company recognized a net monetary loss of $0.4 million and $1.6 million recorded in foreign exchange loss in the consolidated statements of operations associated with the application of ASC 830.
Russia-Ukraine Military Conflict
In February 2022, in response to the military conflict between Russia and Ukraine, the United States, other North Atlantic Treaty Organization member states, as well as non-member states, announced targeted economic sanctions on Russia, certain Russian citizens and enterprises. The continuation of the conflict triggered additional economic and other sanctions enacted by the United States and other countries throughout the world. The scope of potential additional sanctions is unknown.
The Company currently owns 64.3 % of the Voltyre-Prom, a leading producer of agricultural and industrial tires in Volgograd, Russia, which represents approximately 6 % and 7 % of consolidated assets of Titan as of June 30, 2024 and December 31, 2023, respectively. The Russian operations represent 4 % and 7 % of consolidated global sales for the three months ended June 30, 2024 and 2023, respectively, while representing 5 % and 6 % of consolidated global sales for the six months ended June 30, 2024 and 2023, 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.
Share Repurchase Program
On December 16, 2022, the Board of Directors authorized a share repurchase program allowing for the expenditure of up to $50.0 million (the Share Repurchase Program) for the repurchase of the Company's common stock. This authorization took effect immediately and will remain in place for up to three years . Under the Share Repurchase Program Titan repurchased 775,000 shares of its common stock totaling $6.4 million during the three months ended June 30, 2024, and 875,000 shares of its common stock totaling $7.8 million during the six months ended June 30, 2024 and 2,653,786 shares of its common stock totaling $32.6 million during 2023. As of June 30, 2024, $9.6 million remains available for future share repurchases under this program. The Company records treasury stock using the cost method.
Supplier Financing Program
New Accounting Pronouncements to be Adopted in Future Periods
In November 2023, the Financial Accounting Standards Board issued Accounting Standards Update 2023-07, Improvements to Reportable Segment Disclosures, which expands reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in the ASU require, among other things, disclosure of significant segment expenses that are regularly provided to an entity's chief operating decision maker (CODM) and a description of other segment items (the difference between segment revenue less the segment expenses disclosed under the significant expense principle and each reported measure of segment profit or loss) by reportable segment, as well as disclosure of the title and position of the CODM, and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. Annual disclosures are required for fiscal years beginning after December 15, 2023 and interim disclosures are required for periods within fiscal years beginning after December 15, 2024. Retrospective application is required, and early adoption is permitted. These requirements are not expected to have an impact on our financial statements, but will result in significantly expanded reportable segment disclosures.
8
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, may be applied prospectively or retrospectively, and allows for early adoption. These requirements will impact our income tax disclosures.
2. BUSINESS COMBINATION
Acquisition of The Carlstar Group
On February 29, 2024, the Company acquired 100 % of the equity interests of The Carlstar Group, LLC ("Carlstar") for the following purchase consideration and subject to a working capital adjustment based on an agreed upon working capital target (amounts in thousands):
| Purchase Consideration | |||||
| Titan International, Inc. common stock | $ | ||||
Base cash consideration, net of cash acquired of $ | |||||
| Additional cash consideration for excess net working capital acquired | |||||
| Other debt-like items | ( | ||||
| Total purchase consideration, net of cash acquired | $ | ||||
Carlstar is a global manufacturer and distributor of wheels and tires for a variety of end-market verticals including outdoor power equipment, power sports, trailers, and small to midsize agricultural and construction equipment. Carlstar has 17 manufacturing and distribution facilities located in four countries and provides solutions to customers in North America, Europe and China.
The following table summarizes the major classes of assets and liabilities to which we have preliminarily allocated the purchase price consideration (amounts in thousands). The final allocation is subject to review and agreement with the prior equity holders of Carlstar.
| Fair Values as of February 29, 2024 | |||||
| Accounts receivable | $ | ||||
| Inventories | |||||
| Prepaid and other current assets | |||||
| Property, plant, and equipment | |||||
| Other long-term assets | |||||
| Goodwill | |||||
| Intangible assets | |||||
| Fair value of assets acquired | $ | ||||
| Accounts payable | |||||
| Other current liabilities | |||||
| Operating leases | |||||
| Deferred tax liabilities | |||||
| Other long-term liabilities | |||||
| Fair value of liabilities assumed | |||||
| Purchase Price | $ | ||||
9
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Goodwill represents value the Company expects to be created by combining the operations of the acquired business with the Company's operations, including the expansion of customer relationships, access to new customers, and potential cost savings and synergies. Goodwill related to the acquisition is expected to be deductible for tax purposes. The assignment of the acquired goodwill to the Company's reporting units has not been completed.
The purchase consideration was allocated on a provisional basis to the estimated fair value of assets acquired and liabilities assumed for Carlstar as of February 29, 2024. These fair value estimates are preliminary and subject to change as management completes further analyses and studies.
The following table summarizes the carrying amounts and weighted average lives of the acquired intangible assets as of February 29, 2024 (amounts in thousands):
| Carrying Value | Weighted Average Amortization (in Years) | ||||||||||
| Customer lists/relationships | $ | ||||||||||
| Trade names | |||||||||||
| Other intangibles | |||||||||||
| Total | $ | ||||||||||
Through June 30, 2024, the actual revenue and income before taxes of Carlstar since the acquisition date of February 29, 2024 included in the Consolidated Statement of Operations is as shown below (amounts in thousands). The net income includes the effect of fair value adjustments for the amortization of inventory, intangible assets, and depreciation of property, plant and equipment.
| From Acquisition Date to June 30, 2024 | |||||
| Carlstar revenue | $ | ||||
| Carlstar income before taxes | |||||
The following is the unaudited pro forma financial information for the three and six months ended June 30, 2024 and 2023 that reflects our results of our operations as if the acquisition of Carlstar had been completed on January 1, 2023. This unaudited pro forma financial information is provided for informational purposes only and is not necessarily indicative of what the actual results of operations would have been had the transactions taken place on January 1, 2023, nor is it indicative of the future consolidated results of operations or financial position of the combined companies (amounts in thousands, except per share data).
| Three months ended | Six months ended | ||||||||||||||||||||||
| June 30, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | ||||||||||||||||||||
| Pro forma revenues | $ | $ | $ | $ | |||||||||||||||||||
| Pro forma net income | |||||||||||||||||||||||
| Net income per common share, basic | $ | $ | $ | $ | |||||||||||||||||||
| Net income per common share, diluted | |||||||||||||||||||||||
These pro forma amounts have been calculated after applying Titan's accounting policies and making certain adjustments, which primarily relate to: (i) severance-related costs, (ii) adjustments relating to the fair value step-ups to inventory, and (iii) transaction-related costs of both Titan and Carlstar. These pro forma amounts were adjusted to be excluded from the unaudited pro forma information for the three and six months ended June 30, 2024 and were adjusted to include these amounts for the three and six months ended June 30, 2023.
10
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Total acquisition-related costs for the three and six months ended June 30, 2024 were $0.0 million and $6.2 million, respectively.
3. ACCOUNTS RECEIVABLE, NET
Accounts receivable consisted of the following (amounts in thousands):
| June 30, 2024 | December 31, 2023 | ||||||||||
| Accounts receivable | $ | $ | |||||||||
| Allowance for credit losses | ( | ( | |||||||||
| Accounts receivable, net | $ | $ | |||||||||
4. INVENTORIES
Inventories consisted of the following (amounts in thousands):
| June 30, 2024 | December 31, 2023 | ||||||||||
| Raw material | $ | $ | |||||||||
| Work-in-process | |||||||||||
| Finished goods | |||||||||||
| $ | $ | ||||||||||
Inventories are reduced by estimated provisions for slow-moving and obsolete inventory.
5. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following (amounts in thousands):
| June 30, 2024 | December 31, 2023 | ||||||||||
| 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 were $14.3 million and $10.4 million for the three months ended June 30, 2024 and 2023, respectively, and $25.9 million and $20.8 million for the six months ended June 30, 2024 and 2023, respectively.
11
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
6. INTANGIBLE ASSETS, NET
The components of intangible assets, net consisted of the following (amounts in thousands):
| Weighted- Average Useful Lives (in Years) | June 30, 2024 | December 31, 2023 | |||||||||||||||
| Amortizable intangible assets: | |||||||||||||||||
| Customer lists/relationships | $ | $ | |||||||||||||||
| Trade names | |||||||||||||||||
| Other intangibles | |||||||||||||||||
| Total at cost | |||||||||||||||||
| Less accumulated amortization | ( | ( | |||||||||||||||
| $ | $ | ||||||||||||||||
Amortization related to intangible assets were $0.9 million and $0.1 million for the three months ended June 30, 2024 and 2023, respectively, and $1.1 million and $0.3 million for the six months ended June 30, 2024 and 2023, respectively.
The estimated aggregate amortization expense at June 30, 2024, for each of the years (or other periods) set forth below was as follows (amounts in thousands):
| July 1 - December 31, 2024 | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Thereafter | |||||
| $ | |||||
12
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
7. OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following (amounts in thousands):
| June 30, 2024 | December 31, 2023 | ||||||||||
| Compensation and benefits | $ | $ | |||||||||
| Warranty | |||||||||||
| Accrued insurance benefits | |||||||||||
| Customer rebates and deposits | |||||||||||
| Accrued other taxes | |||||||||||
| Accrued interest | |||||||||||
Foreign government grant (1) | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
(1) The Company received government subsidies in 2023 associated with capital expenditure investments in technological and digital innovation in Europe. The amount of the government subsidy is used to offset existing payables to government in the future. In addition, during August 2014, the Company received an approximately $17.0 million capital grant from the Italian government for asset damages related to the earthquake that occurred in May 2012 at one of our Italian subsidiaries. The grant was recorded as deferred income in non-current liabilities which is being amortized over the life of the reconstructed building. There are no specific stipulations associated with the government grant.
8. WARRANTY
Changes in the warranty liability during the six months ended June 30, 2024 and 2023, respectively, consisted of the following (amounts in thousands):
| 2024 | 2023 | ||||||||||
| Warranty liability at beginning of the period | $ | $ | |||||||||
| Provision for warranty liabilities | |||||||||||
| Warranty payments made | ( | ( | |||||||||
| Other adjustments, including acquisition of Carlstar | |||||||||||
| 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.
13
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
9. DEBT
Long-term debt consisted of the following (amounts in thousands):
| June 30, 2024 | |||||||||||||||||
| Principal Balance | Unamortized Debt Issuance | Net Carrying Amount | |||||||||||||||
| $ | $ | ( | $ | ||||||||||||||
| Revolving credit facility | |||||||||||||||||
| Titan Europe credit facilities | |||||||||||||||||
| Other debt | |||||||||||||||||
| Total debt | ( | ||||||||||||||||
| Less amounts due within one year | |||||||||||||||||
| Total long-term debt | $ | $ | ( | $ | |||||||||||||
| December 31, 2023 | |||||||||||||||||
| Principal Balance | Unamortized Debt Issuance | Net Carrying Amount | |||||||||||||||
| $ | $ | ( | $ | ||||||||||||||
| Titan Europe credit facilities | |||||||||||||||||
| Other debt | |||||||||||||||||
| Total debt | ( | ||||||||||||||||
| Less amounts due within one year | |||||||||||||||||
| Total long-term debt | $ | $ | ( | $ | |||||||||||||
The weighted-average interest rates on short-term borrowings within one year at June 30, 2024 and December 31, 2023, were approximately 2.8 % and 3.1 %, respectively.
Aggregate principal maturities of long-term debt at June 30, 2024 for each of the years (or other periods) set forth below were as follows (amounts in thousands):
| July 1 - December 31, 2024 | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Thereafter | |||||
| $ | |||||
7.00% senior secured notes due 2028
On April 22, 2021, the Company issued $400 million aggregate principal amount of 7.00 % senior secured notes due April 2028 (the senior secured notes due 2028), guaranteed by certain of the Company's subsidiaries. Including the impact of debt issuance costs, these notes had an effective yield of 7.27 % at issuance. These notes are secured by the land and buildings of the following subsidiaries of the Company: Titan Wheel Corporation of Illinois, Titan Tire Corporation, Titan Tire Corporation of Freeport, and Titan Tire Corporation of Bryan. The Company is subject to certain covenants associated with the senior secured notes due 2028 and remained in compliance with these debt covenants at June 30, 2024.
14
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Titan Europe Credit Facilities
The Titan Europe credit facilities include borrowings from various institutions totaling $19.9 million in aggregate principal amount at June 30, 2024. Maturity dates on this debt range from less than one year to five years . The interest rates range from 0.5 % to 6.5 %.
Revolving Credit Facility
In connection with the acquisition of Carlstar, Titan entered into a new domestic credit facility which was effective on February 29, 2024. The new credit facility, with Bank of America as agent, consists of a $225.0 million revolving line of credit (the previous credit facility was $125.0 million) and is collateralized by accounts receivable and inventory of certain of the Company's domestic and Canadian subsidiaries. In addition, swingline loans and letters of credit are available under the facility up to an aggregate outstanding amount of $20.0 million for swingline loans and $50.0 million for letters of credit. The credit facility has a five-year term and can be expanded by up to $50.0 million through an uncommitted accordion provision within the agreement. It is scheduled to mature on February 28, 2029 or 91 days prior to the maturity of the Company's 7.00 % secured notes due in 2028. The new facility has terms similar to those contained in the previous credit facility as well as other enhancements to further improve the availability within the borrowing base. The interest rate of the credit facility is based on the prevailing SOFR rate subject to certain debt levels within each month. As of June 30, 2024, the interest rate was 7.05 %.
The Company's amount available for borrowing under the new credit facility at June 30, 2024 totaled $204.2 million, based on eligible accounts receivable and inventory balances. With outstanding letters of credit totaling $9.9 million and $127.0 million in borrowings under the revolving credit facility, the net amount available for borrowing under the new credit facility totaled $67.3 million at June 30, 2024. The Company is subject to certain affirmative and negative covenants under the credit facility, including limits on dividends and repurchases of the Company’s stock, that are described in the credit and security agreement. The Company is in compliance with the debt covenants at June 30, 2024.
Prior to February 29, 2024, the Company had a $125.0 million revolving credit facility with BMO Harris Bank N.A., as agent, and other financial institutions party thereto, until the completion of the new credit facility noted above. The $125.0 million credit facility was collateralized by accounts receivable and inventory of certain of the Company’s domestic subsidiaries and was scheduled to mature in October 2026. The credit facility could have been expanded by up to $50.0 million through an accordion provision within the agreement. From time to time Titan's availability under this credit facility could have been less than $125.0 million as a result of outstanding letters of credit and eligible accounts receivable and inventory balances at certain of its domestic subsidiaries.
Other Debt
The Company has a working capital loan at Titan Pneus do Brasil Ltda at varying interest rates from approximately 7 % to 7.6 %, which totaled $6.9 million at June 30, 2024. The maturity dates on this loan range from one year to two years . The Company expects to negotiate an extension of the maturity date on this loan with the respective financial institution or repay, as needed.
10. LEASES
The Company leases certain buildings and equipment under both operating and finance leases. Certain lease agreements provide for renewal options, fair value purchase options, and payment of property taxes, maintenance, and insurance by the Company. Under ASC 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.
15
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Supplemental balance sheet information related to leases was as follows (amounts in thousands):
| Balance Sheet Classification | June 30, 2024 | December 31, 2023 | |||||||||||||||
| Operating lease ROU assets | Operating lease assets | $ | $ | ||||||||||||||
| Operating lease current liabilities | Operating leases current liabilities | $ | $ | ||||||||||||||
| Operating lease long-term liabilities | Operating leases 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 June 30, 2024, maturities of lease liabilities were as follows (amounts in thousands):
| Operating Leases | Finance Leases | ||||||||||
| July 1 - December 31, 2024 | $ | $ | |||||||||
| 2025 | |||||||||||
| 2026 | |||||||||||
| 2027 | |||||||||||
| 2028 | |||||||||||
| Thereafter | |||||||||||
| Total lease payments | $ | $ | |||||||||
| Less imputed interest | |||||||||||
| $ | $ | ||||||||||
| Weighted average remaining lease term (in years) | |||||||||||
Supplemental cash flow information related to leases for the six months ended June 30, 2024 were as follows: operating cash flows from operating leases were $4.5 million.
16
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
11. EMPLOYEE BENEFIT PLANS
The Company has three frozen defined benefit pension plans covering certain employees or former employees of three U.S. subsidiaries. The Company also has pension plans covering certain employees of several foreign subsidiaries. The Company also sponsors a number of defined contribution plans in the U.S. and at foreign subsidiaries. The Company contributed approximately $0.3 million to the pension plans during the six months ended June 30, 2024 and $0.7 million are expected to be contributed to the pension plans during the remainder of 2024.
The components of net periodic pension cost consisted of the following for the periods set forth below (amounts in thousands):
| Three months ended | Six months ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Service cost | $ | $ | $ | $ | |||||||||||||||||||
| Interest cost | |||||||||||||||||||||||
| Expected return on assets | ( | ( | ( | ( | |||||||||||||||||||
| Amortization of unrecognized prior service cost | ( | ( | ( | ( | |||||||||||||||||||
| Amortization of net unrecognized loss | |||||||||||||||||||||||
| Net periodic pension (benefit) cost | $ | ( | $ | $ | ( | $ | |||||||||||||||||
12. VARIABLE INTEREST ENTITIES
The Company holds a variable interest in one joint venture for which Titan is the primary beneficiary. Titan is a 50 % owner of a manufacturer of undercarriage components and complete track systems for earthmoving machines in India. As the primary beneficiary of this variable interest entity (VIE), the VIE's assets, liabilities, and results of operations are included in the Company’s condensed consolidated financial statements. The other equity holder's interests are reflected in “Net income attributable to noncontrolling interests” in the Condensed Consolidated Statements of Operations and “Noncontrolling interests” in the Condensed Consolidated Balance Sheets.
The following table summarizes the carrying amount of the VIE's assets and liabilities included in the Company’s Condensed Consolidated Balance Sheets (amounts in thousands):
| June 30, 2024 | December 31, 2023 | ||||||||||
| 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 non-recourse obligations. Amounts presented in the table above are adjusted for intercompany eliminations.
The Company holds variable interests in certain VIEs that are not consolidated because Titan is not the primary beneficiary. The Company's involvement with these entities is in the form of direct equity interests and prepayments related to purchases of
17
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
materials. The maximum exposure to loss represents the loss of assets recognized by Titan relating to non-consolidated entities and amounts due to the non-consolidated assets. The assets and liabilities recognized in Titan's Condensed Consolidated Balance Sheets related to Titan's interest in these non-consolidated VIEs and the Company's maximum exposure to loss relating to non-consolidated VIEs as of the dates set forth below were as follows (amounts in thousands):
| June 30, 2024 | December 31, 2023 | ||||||||||
| Investments | $ | $ | |||||||||
| Total VIE assets | |||||||||||
| Accounts payable to the non-consolidated VIEs | |||||||||||
| Maximum exposure to loss | $ | $ | |||||||||
13. ROYALTY EXPENSE
14. OTHER INCOME
Other income consisted of the following (amounts in thousands):
| Three months ended | Six months ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
Income on indirect taxes (1) | $ | $ | $ | $ | |||||||||||||||||||
Gain on property insurance settlement (2) | |||||||||||||||||||||||
| Equity investment income | |||||||||||||||||||||||
| Gain on sale of assets | |||||||||||||||||||||||
| Other income | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
(1) In May 2022, the Brazilian tax authorities approved indirect tax credits to be applied against future tax obligations. For the three and six months ended June 30, 2023, the Company recorded indirect tax credits of $0.5
18
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
15. INCOME TAXES
The Company recorded income tax expense of $15.5 million and $9.4 million for the three months ended June 30, 2024 and 2023, respectively. For the six months ended June 30, 2024 and 2023, the Company recorded income tax expense of $25.2 million and $23.6 million, respectively. The Company's effective income tax rate was 81.9 % and 22.8 % for the three months ended June 30, 2024 and 2023, respectively, and 65.3 % and 26.6 % for the six months ended June 30, 2024 and 2023, respectively.
For the six months ended June 30, 2024, the rate was negatively impacted by non-deductible interest expense in the United States, foreign branch income related to the Carlstar acquisition,and one-time impacts associated with transaction costs, which were also not fully deductible for income tax purposes. Additionally the rate was impacted by the results of foreign income tax rate differential on the mix of earnings, non-deductible royalty expenses in certain jurisdictions, and certain foreign inclusion items on the domestic provision.
The Company’s 2023 income tax expense and rate differed from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income primarily as a result of foreign income tax rate differential on the mix of earnings, non-deductible royalty expenses in certain jurisdictions, the valuation allowance on the interest expense carryforward, and certain foreign inclusion items on the domestic provision.
The 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.
16. EARNINGS PER SHARE
Earnings per share (EPS) were as follows (amounts in thousands, except per share data):
| Three months ended | Six months ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| 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 | $ | $ | $ | $ | |||||||||||||||||||
17. LITIGATION
The Company is a party to routine legal proceedings arising out of the normal course of business. Due to the difficult nature of predicting unresolved and future legal claims, the Company cannot anticipate or predict the material adverse effect on its
19
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
consolidated financial condition, results of operations, or cash flows as a result of efforts to comply with, or liabilities pertaining to, legal judgments. In the opinion of management, the Company is not currently involved in any legal proceedings which, individually or in the aggregate, could have a material effect on its financial position, results of operations, or cash flows.
18. SEGMENT INFORMATION
The Company has aggregated its operating units into reportable segments based on its three customer markets: agricultural, earthmoving/construction, and consumer. These segments are based on the information used by the chief executive officer to make certain operating decisions, allocate portions of capital expenditures and assess segment performance. The accounting policies of the segments are the same as those described in Note 1, “Description of Business and Significant Accounting Policies.” Segment external revenues, expenses, and income from operations are determined on the basis of the results of operations of operating units of manufacturing facilities. Segment assets are generally determined on the basis of an allocation of the tangible assets located at such operating units’ manufacturing facilities and the intangible assets associated with the acquisitions of such operating units. However, certain operating units’ property, plant, and equipment balances are carried at the corporate level.
Titan is organized primarily on the basis of products being included in three marketing segments, with each reportable segment including wheels, tires, wheel/tire assemblies, and undercarriage systems and components. Given the integrated manufacturing operations and common administrative and marketing support, a substantial number of allocations primarily based on segment sales data must be made to determine operating segment data.
The table below presents information about certain operating results, separated by market segments, for the three and six months ended June 30, 2024 and 2023 (amounts in thousands):
| Three months ended | Six months ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| 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, net | ( | ( | ( | ( | |||||||||||||||||||
| Foreign exchange gain (loss) | ( | ||||||||||||||||||||||
| Other income, net | |||||||||||||||||||||||
| Income before income taxes | $ | $ | $ | $ | |||||||||||||||||||
20
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Assets by segment were as follows as of the dates set forth below (amounts in thousands):
| June 30, 2024 | December 31, 2023 | ||||||||||
| Total assets | |||||||||||
| Agricultural | $ | $ | |||||||||
| Earthmoving/construction | |||||||||||
| Consumer | |||||||||||
| Corporate & Unallocated | |||||||||||
| $ | $ | ||||||||||
The table below presents net sales by products and reportable segments for the three and six months ended June 30, 2024 and 2023 (amounts in thousands):
| Agricultural Segment | Earthmoving/Construction Segment | Consumer Segment | Total | ||||||||||||||||||||
| Three months ended June 30, 2024 | |||||||||||||||||||||||
| Wheels and Tires [including assemblies] | $ | $ | $ | $ | |||||||||||||||||||
| Undercarriage systems and components | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Six months ended June 30, 2024 | |||||||||||||||||||||||
| Wheels and Tires [including assemblies] | $ | $ | $ | $ | |||||||||||||||||||
| Undercarriage systems and components | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Agricultural Segment | Earthmoving/Construction Segment | Consumer Segment | Total | ||||||||||||||||||||
| Three months ended June 30, 2023 | |||||||||||||||||||||||
| Wheels and Tires [including assemblies] | $ | $ | $ | $ | |||||||||||||||||||
| Undercarriage systems and components | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Six months ended June 30, 2023 | |||||||||||||||||||||||
| Wheels and Tires [including assemblies] | $ | $ | $ | $ | |||||||||||||||||||
| Undercarriage systems and components | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
21
TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
19. 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 April 1, 2024 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| Currency translation adjustments, net | ( | — | — | ( | |||||||||||||||||||
| Defined benefit pension plans: | |||||||||||||||||||||||
Amortization of unrecognized losses and prior service cost, net of tax of $ | — | — | ( | ( | |||||||||||||||||||
| Derivative loss | — | ( | — | ( | |||||||||||||||||||
| Balance at June 30, 2024 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| Currency Translation Adjustments | Gain (Loss) on Derivatives | Unrecognized Losses and Prior Service Cost | Total | ||||||||||||||||||||
| Balance at January 1, 2024 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| Currency translation adjustments, net | ( | — | — | ( | |||||||||||||||||||
| Defined benefit pension plans: | |||||||||||||||||||||||
Amortization of unrecognized losses and prior service cost, net of tax of $ | — | — | ( | ( | |||||||||||||||||||
| Derivative loss | — | ( | — | ( | |||||||||||||||||||
| Balance at June 30, 2024 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| Currency Translation Adjustments | Gain (Loss) on Derivatives | Unrecognized Losses and Prior Service Cost | Total | ||||||||||||||||||||
| Balance at April 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 June 30, 2023 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| 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 June 30, 2023 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
22
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's discussion and analysis of financial condition and results of operations (MD&A) is designed to provide a reader of the financial statements included in this quarterly report with a narrative from the perspective of the management of Titan International, Inc. (Titan or the Company) on Titan's financial condition, results of operations, liquidity, and other factors that may affect the Company's future results. The MD&A in this quarterly report should be read in conjunction with the condensed consolidated financial statements and other financial information included elsewhere in this quarterly report and the MD&A and audited consolidated financial statements and related notes in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 29, 2024 (the 2023 Form 10-K).
Acquisition of Carlstar
On February 29, 2024, the Company acquired 100% of the equity interests of Carlstar. The agreements associated with the purchase of the equity interests of Carlstar are included in the Exhibits to our Form 10-Q for the quarter ended March 31, 2024 and the Current Report on Form 8-K filed on February 29, 2024. The results of Carlstar's operations are included in our consolidated financial statements since February 29, 2024. Total acquisition-related costs for the six months ended June 30, 2024 were $6.2 million.
The purchase consideration was allocated on a provisional basis to the estimated fair value of assets acquired and liabilities assumed for Carlstar as of February 29, 2024. These fair value estimates are preliminary and subject to change as management completes further analyses and studies. For further information, refer to Note 2 to the consolidated financial statements.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements, which are covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. Readers can identify these statements by the fact that they do not relate strictly to historical or current facts. The Company tried to identify forward-looking statements in this quarterly report by using words such as “anticipates,” “estimates,” “expects,” “intends,” “plans,” and “believes,” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may,” and “could.” These forward-looking statements include, among other items, information concerning:
•the Company's financial performance;
•anticipated trends in the Company’s business;
•expectations with respect to the end-user markets into which the Company sells its products (including agricultural equipment, earthmoving/construction equipment, and consumer products);
•future expenditures for capital projects and future stock repurchases
•the Company’s ability to continue to control costs and maintain quality;
•the Company's ability to meet conditions of loan agreements, indentures and other financing documents;
•the Company’s business strategies, including its intention to introduce new products;
•expectations concerning the performance and success of the Company’s existing and new products; and
•the Company’s intention to consider and pursue acquisition and divestiture opportunities. The results could differ materially if the acquisition of Carlstar does not deliver on the expected results.
Readers of this Form 10-Q should understand that these forward-looking statements are based on the Company’s current expectations and assumptions about future events and are subject to a number of risks, uncertainties, and changes in circumstances that are difficult to predict, including those in Part I, Item 1A, Risk Factors, of the 2023 Form 10-K and Part II, Item 1A, Risk Factors, of this quarterly report on Form 10-Q, certain of which are beyond the Company’s control.
Actual results could differ materially from those expressed in, or implied by, these forward-looking statements as a result of various factors, including:
•the effect of the geopolitical instability resulting from the military conflicts between Russia and Ukraine on our Russian and global operations, and between Israel and Hamas on our global operations;
•Uncertainties from political or electoral changes in the United States, Europe and elsewhere;
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TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
•the effect of a recession or depression 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;
•the Company's ability to operate in accordance with its business plan and strategies;
•unfavorable outcomes of legal proceedings;
•the Company's ability to comply with current or future regulations applicable to the Company's business and the industry in which it competes or any actions taken or orders issued by regulatory authorities;
•availability and price of raw materials;
•availability and price of supply chain logistics and freight;
•levels of operating efficiencies;
•the effects of the Company's indebtedness and its compliance with the terms thereof;
•changes in the interest rate environment and their effects on the Company's outstanding indebtedness;
•unfavorable product liability and warranty claims;
•actions of domestic and foreign governments, including the imposition of additional tariffs and approval of tax credits or other incentives;
•geopolitical and economic uncertainties relating to the countries in which the Company operates or does business;
•risks associated with acquisitions, including difficulty in integrating operations and personnel, disruption of ongoing business, and increased expenses;
•results of investments, and the realization of projected synergies;
•the effects of potential processes to explore various strategic transactions, including potential dispositions;
•fluctuations in currency translations;
•climate change and related laws and regulations;
•risks associated with environmental laws and regulations and increased attention to ESG matters;
•risks related to the Company's previously announced intention to negotiate a possible increase in the amount of the Company's common stock that American Industrial Partners and its affiliates may acquire under the Stockholders Agreement dated February 29, 2024 among the Company, Carlstar Intermediate Holdings I LLC, AIPCF V Feeder CTP Tire, LLC and AIPCF V Feeder C (Cayman), LP;
•risks relating to our manufacturing facilities, including that any of our material facilities may become inoperable; and
•risks related to financial reporting, internal controls, tax accounting, and information systems, including cybersecurity threats.
Any changes in such factors could lead to significantly different results. Any assumptions that are inaccurate or do not prove to be correct could have a material adverse effect on the Company’s ability to achieve the results as indicated in the forward-looking statements. Forward-looking statements speak only as of the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. In light of these risks and uncertainties, there can be no assurance that the forward-looking information and assumptions contained in this report will in fact transpire. The reader should not place undue reliance on the forward-looking statements included in this report or that may be made elsewhere from time to time by the Company, or on its behalf. All forward-looking statements attributable to Titan are expressly qualified by these cautionary statements.
24
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
OVERVIEW
Titan International, Inc., together with its subsidiaries, is a global wheel, tire, and undercarriage industrial manufacturer and supplier that services customers across the globe. As a leading manufacturer in the off-highway industry, Titan produces a broad range of products to meet the specifications of original equipment manufacturers (OEMs) and aftermarket customers in the agricultural, earthmoving/construction, and consumer markets. Titan manufactures and sells certain tires under the Goodyear Farm Tire, Titan Tire, Carlstar and Voltyre-Prom Tire brands and has complete research and development facilities to validate tire and wheel designs. Carlstar sells tire products under the Carlisle® brand under a long-term license agreement and also sells tires under other recognized brand names, including ITP®, Trail Wolf®, Links®, USA Trail® and Carlisle Radial Trail HD™ highway trailer tires.
Agricultural Segment: Titan’s agricultural wheels, tires, and components are manufactured for use on various agricultural equipment, including tractors, combines, skidders, plows, planters, and irrigation equipment, and are sold directly to OEMs and to the aftermarket through independent distributors, equipment dealers, and Titan’s distribution centers. The wheels range in diameter from nine inches to 54 inches, with the 54-inch diameter being the largest agricultural wheel manufactured in North America. Basic configurations are combined with distinct variations (such as different centers and a wide range of material thickness) allowing the Company to offer a broad line of products to meet customer specifications. Titan’s agricultural tires range from approximately one foot to approximately seven feet in outside diameter and from five inches to 55 inches in width. Agricultural tires are offered under the Goodyear Farm Tire, Titan Tire, Carlstar and Voltyre-Prom brands with a full portfolio of sizes, load carrying capabilities, and tread patterns necessary for the markets served. The Company offers the added value of delivering a complete wheel and tire assembly to OEM and aftermarket customers.
Earthmoving/Construction Segment: The Company manufactures wheels, tires, and undercarriage systems and components for various types of OTR earthmoving, mining, military, construction, and forestry equipment, including skid steers, aerial lifts, cranes, graders and levelers, scrapers, self-propelled shovel loaders, articulated dump trucks, load transporters, haul trucks, backhoe loaders, crawler tractors, lattice cranes, shovels, and hydraulic excavators. The Company provides OEM and aftermarket customers with a broad range of earthmoving/construction wheels ranging in diameter from 15 to 63 inches and in weight from 125 pounds to 7,000 pounds. The 63-inch diameter wheel is the largest manufactured for the global earthmoving/construction market. Titan’s earthmoving/construction tires are offered in the Titan brand and range from approximately three feet to approximately 13 feet in outside diameter and in weight from 50 pounds to 12,500 pounds. Earthmoving/construction tires offered by Titan serve virtually every off-road application in the industry with some of the highest load requirements in the most severe applications. The Company also offers the added value of wheel and tire assembly for certain applications in the earthmoving/construction segment.
Consumer Segment: In February 2024, Titan acquired Carlstar, which is a global manufacturer and distributor of wheels and tires for a variety of end-market verticals including outdoor power equipment, power sports, and high speed trailers. Carlstar is primarily concentrated in the consumer segment, but also manufactures and sells small to midsize agricultural tires.
Titan manufactures bias truck tires in Latin America and light truck tires in Russia. Titan also offers select products for ATVs, side-by-sides, rock climbers, turf, and have recently expanded our offering into the lawn and garden segment with a major OE customer. This segment also includes sales that do not readily fall into the Company's other segments, such as custom rubber stock mixing sales to a variety of OEMs in tangential industries.
The Company’s top customers, including global leaders in agricultural and construction equipment manufacturing, have been purchasing products from Titan or its predecessors for numerous years. Customers including AGCO Corporation, Caterpillar Inc., CNH Global N.V., Deere & Company, Hitachi, Ltd., Kubota Corporation, Liebherr, and Volvo have helped sustain Titan’s market leading position in wheel, tire, assembly, and undercarriage products.
MARKET CONDITIONS AND OUTLOOK
AGRICULTURAL MARKET OUTLOOK
Agriculture-related commodity prices have come off the recent highs reached over the last couple years, however, population growth, a shift in consumer preference towards higher protein diets, and the replacement of an aging large equipment fleet in favor of newer and higher productivity technology, are market conditions which are anticipated to support continued demand for our products in the mid- to long-term time horizon. The agricultural market is currently experiencing a significant slowdown in customer demand, however, the underlying market conditions mentioned previously provide support for the mid- to long-term demand for our products. Many more variables, including weather, volatility in the price of commodities, grain prices,
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TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
export markets, foreign currency exchange rates, interest 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 country-specific GDP and the need for infrastructure developments. The earthmoving/construction markets are currently experiencing a slowdown in OEM demand, however, we expect the market to stabilize over the mid to long term given the level of mining capital budgets and forecasted GDP growth. Mineral commodity prices are at relatively high levels, which also supports the forecasted mid- to long-term growth.
CONSUMER MARKET OUTLOOK
The consumer market consists of several distinct product lines within different regions. These products include specialty tires and products under the Carlstar brands within powersports, outdoor power equipment and high-speed trailers. The consumer market also includes light truck tires and other specialty products, including custom mixing of rubber stock, and train brakes. Some aspects of the markets are experiencing slowdown, particularly in the Americas. The consumer segment pace of growth can vary from period to period and is affected by many variables including inflationary impacts, consumer spending, interest rates, government policies, and other macroeconomic drivers.
RESULTS OF OPERATIONS
| Three months ended | Six months ended | ||||||||||||||||||||||||||||||||||
| (Amounts in thousands, except percentages) | June 30, | June 30, | |||||||||||||||||||||||||||||||||
| 2024 | 2023 | % Increase/(Decrease) | 2024 | 2023 | % Increase/(Decrease) | ||||||||||||||||||||||||||||||
| Net sales | $ | 532,170 | $ | 481,176 | 10.6 | % | $ | 1,014,379 | $ | 1,029,820 | (1.5) | % | |||||||||||||||||||||||
| Cost of sales | 451,728 | 395,281 | 14.3 | % | 856,567 | 848,368 | 1.0 | % | |||||||||||||||||||||||||||
| Gross profit | 80,442 | 85,895 | (6.3) | % | 157,812 | 181,452 | (13.0) | % | |||||||||||||||||||||||||||
| Gross profit % | 15.1 | % | 17.9 | % | (15.6) | % | 15.6 | % | 17.6 | % | (11.4) | % | |||||||||||||||||||||||
| Selling, general and administrative expenses | 51,583 | 34,858 | 48.0 | % | 91,003 | 69,330 | 31.3 | % | |||||||||||||||||||||||||||
| Acquisition related expenses | — | — | 0.0 | % | 6,196 | — | 100.0 | % | |||||||||||||||||||||||||||
| Research and development expenses | 4,218 | 3,218 | 31.1 | % | 7,872 | 6,232 | 26.3 | % | |||||||||||||||||||||||||||
| Royalty expense | 2,319 | 1,921 | 20.7 | % | 5,347 | 4,856 | 10.1 | % | |||||||||||||||||||||||||||
| Income from operations | $ | 22,322 | $ | 45,898 | (51.4) | % | $ | 47,394 | $ | 101,034 | (53.1) | % | |||||||||||||||||||||||
Net Sales
Net sales for the three months ended June 30, 2024 were $532.2 million, compared to $481.2 million in the comparable period of 2023. This growth was primarily driven by higher volumes in the consumer segment, bolstered by the net sales contribution from the Carlstar acquisition completed on February 29, 2024. The sales increase was partially offset by reduced sales in the agricultural and earthmoving/construction segments, stemming from weakened global agriculture end customer demand and lower steel prices in Europe. Furthermore, the net sales increase was impacted by negative price effects and an unfavorable currency translation impact of 3.7%.
Net sales for the six months ended June 30, 2024 were $1,014.4 million, compared to $1,029.8 million in the comparable period of 2023. Net sales change was primarily attributable to lower demand for agriculture and construction equipment, the adverse impact of price, particularly lower steel prices in Europe, as well as a 3.0% unfavorable foreign currency translation effect. The decrease was partially offset by increased sales volumes, resulting from the positive contribution from the Carlstar acquisition.
Gross Profit
Gross profit for the three months ended June 30, 2024 was $80.4 million, or 15.1% of net sales, compared to $85.9 million, or 17.9% of net sales, for the three months ended June 30, 2023. The changes in gross profit and margin were attributed to
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TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
negative price/mix, reduced fixed cost leverage, higher material costs and inventory revaluation step-up of $7.3 million associated with the Carlstar purchase price allocation. Excluding the inventory revaluation step-up, adjusted gross margin for the three months ended June 30, 2024 would have been 16.5% of net sales.
Gross profit for the six months ended June 30, 2024 was $157.8 million, or 15.6% of net sales, compared to $181.5 million, or 17.6% of net sales, for the six months ended June 30, 2023. The changes in gross profit and gross margin for six months ended June 30, 2024 as compared to the prior year period were primarily due to lower sales volume, negative price/mix resulting in reduced fixed cost leverage and inventory revaluation step-up of $10.7 million associated with the Carlstar purchase price allocation. Excluding the inventory revaluation step-up, adjusted gross margin for the six months ended June 30, 2024 would have been 16.6% of net sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (SG&A) for the three months ended June 30, 2024 were $51.6 million, or 9.7% of net sales, compared to $34.9 million, or 7.2% of net sales, three months ended June 30, 2023. The change in SG&A for the three months ended June 30, 2024 as compared to the prior year period was attributable to the ongoing SG&A associated with the Carlstar operations, specifically related to the management of distribution centers.
Selling, general and administrative expenses for the six months ended June 30, 2024 were $91.0 million, or 9.0% of net sales, compared to $69.3 million, or 6.7% of net sales, for the six months ended June 30, 2023. The change in SG&A for the six months ended June 30, 2024 as compared to the prior year period was primarily driven by the continuing SG&A incurred on the Carlstar operations, which includes the management of distribution centers. Additionally, general inflationary cost impacts, such as rising personnel-related expenses, also contributed to the overall increase in SG&A during this period.
Acquisition Related Expenses
Acquisition related expenses for the six months ended June 30, 2024 were $6.2 million, associated with the one-time transaction costs for Carlstar.
Research and Development Expenses
Research and development (R&D) expenses for the three months ended June 30, 2024 were $4.2 million, or 0.8% of net sales, compared to $3.2 million, or 0.7% of net sales, for the comparable period in 2023. R&D expenses for the six months ended June 30, 2024 were $7.9 million, or 0.8% of net sales, compared to $6.2 million, or 0.6% of net sales, for the comparable period in 2023. R&D spending reflects initiatives to improve product designs and an ongoing focus on innovation and quality.
Royalty Expense
The Company has trademark license agreements with The Goodyear Tire & Rubber Company to manufacture and sell certain farm tires under the Goodyear name. These agreements cover sales in North America, Latin America, Europe, the Middle East, Africa, Russia, and other Commonwealth of Independent States countries. The Company also has a trademark license agreement with Carlisle Companies, Inc. to manufacture and sell certain tires under the Carlisle brand. Royalty expenses for the three months ended June 30, 2024 were $2.3 million, or 0.4% of net sales, compared to $1.9 million, or 0.4% of net sales, for the three months ended June 30, 2023. Royalty expenses for the six months ended June 30, 2024 were $5.3 million, or 0.5% of net sales, compared to $4.9 million, or 0.5% of net sales, for the six months ended June 30, 2023.
Income from Operations
Income from operations for the three months ended June 30, 2024 was $22.3 million, compared to income from operations of $45.9 million for the three months ended June 30, 2023. Income from operations for the six months ended June 30, 2024 was $47.4 million, compared to income from operations of $101.0 million for the six months ended June 30, 2023. The change in income from operations for the three and six months ended June 30, 2024 as compared to the prior year periods were primarily due to lower gross profit and the net result of the items previously discussed.
OTHER PROFIT/LOSS ITEMS
Interest Expense, net
Interest expense was $7.2 million and $5.8 million for the three months ended June 30, 2024 and 2023, respectively, and $12.7 million and $12.3 million for the six months ended June 30, 2024 and 2023.
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TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The increase in interest expense for the three months ended June 30, 2024 was attributable to a new domestic credit facility, which became effective on February 29, 2024, in connection with the acquisition of Carlstar. This resulted in additional interest expenses being recorded during this period. The higher interest expense for the six months ended June 30, 2024 was also primarily driven by the new domestic credit facility. However, this increase was partially offset by a rise in interest income generated from financial investments in Latin America. These changes in interest expenses reflected the Company's strategic financial decisions and its ongoing efforts to optimize its capital structure and financing activities.
Foreign Exchange Gain (Loss)
Foreign exchange gain was $0.5 million for the three months ended June 30, 2024, compared to a nominal gain for the three months ended June 30, 2023. Foreign exchange gain was $0.2 million for the six months ended June 30, 2024, compared to a loss of $1.8 million for the six months ended June 30, 2023. The increases in foreign exchange gains during the three and six months ended on June 30, 2024, as compared to the prior year periods, were attributable to the favorable impact of the 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.
Other Income
Other income was $3.3 million for the three months ended June 30, 2024, as compared to other income of $1.2 million in the comparable period of 2023. This change was primarily driven by a gain of $1.9 million from a property insurance settlement, which consisted of insurance proceeds received net of costs incurred to repair one of our operating facilities in Italy.
Other income was $3.7 million for the six months ended June 30, 2024, as compared to other income of $1.9 million in the comparable period of 2023. The increase was primarily due to a gain of $1.9 million from a property insurance settlement as discussed above.
Provision for Income Taxes
The Company recorded income tax expense of $15.5 million and $9.4 million for the three months ended June 30, 2024 and 2023, respectively. For the six months ended June 30, 2024 and 2023, the Company recorded income tax expense of $25.2 million and $23.6 million, respectively. The Company's effective income tax rate was 81.9% and 22.8% for the three months ended June 30, 2024 and 2023, respectively, and 65.3% and 26.6% for the six months ended June 30, 2024 and 2023, respectively. For the six months ended June 30, 2024 and 2023, the income tax expense differed in each period due to an overall decrease in pre-tax income. For the six months ended June 30, 2024, the rate was negatively impacted by non-deductible interest expense in the United States, foreign branch income related to the Carlstar acquisition,and one-time impacts associated with transaction costs, which were also not fully deductible for income tax purposes. Additionally the rate was impacted by the results of foreign income tax rate differential on the mix of earnings, non-deductible royalty expenses in certain jurisdictions, and certain foreign inclusion items on the domestic provision. Without these impacts, the income tax rate would have been about 36% of pre-tax income, a slightly elevated rate due to the majority of pre-tax income being derived from foreign jurisdictions.
The Company’s 2023 income tax expense and rate differed from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income primarily as a result of foreign income tax rate differential on the mix of earnings, non-deductible royalty expenses in certain jurisdictions, the valuation allowance on the interest expense carryforward, and certain foreign inclusion items on the domestic provision.
Net Income and Earnings per Share
Net income for the three months ended June 30, 2024 was $3.4 million, compared to net income of $31.9 million in the comparable period of 2023. For the three months ended June 30, 2024 and 2023, basic earnings per share were $0.03 and $0.48, respectively, and diluted earnings per share were $0.03 and $0.48, respectively. The Company's net income and earnings per share changes were due to the items previously discussed.
Net income for the six months ended June 30, 2024 was $13.4 million, compared to net income of $65.3 million in the comparable period of 2023. For the six months ended June 30, 2024 and 2023, basic earnings per share were $0.16 and $0.99, respectively, and diluted earnings per share were $0.16 and $0.98, respectively. The Company's net income and earnings per share changes were due to the items previously discussed.
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TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
SEGMENT INFORMATION
Segment Summary (amounts in thousands, except percentages):
| Three months ended June 30, 2024 | Agricultural | Earthmoving/ Construction | Consumer | Corporate/ Unallocated Expenses | Consolidated Totals | |||||||||||||||||||||||||||
| Net sales | $ | 216,330 | $ | 165,564 | $ | 150,276 | $ | — | $ | 532,170 | ||||||||||||||||||||||
| Gross profit | 32,303 | 21,299 | 26,840 | — | 80,442 | |||||||||||||||||||||||||||
| Profit margin | 14.9 | % | 12.9 | % | 17.9 | % | — | 15.1 | % | |||||||||||||||||||||||
| Income (loss) from operations | 15,772 | 7,047 | 6,449 | (6,946) | 22,322 | |||||||||||||||||||||||||||
| Three months ended June 30, 2023 | ||||||||||||||||||||||||||||||||
| Net sales | $ | 269,148 | $ | 174,683 | $ | 37,345 | $ | — | $ | 481,176 | ||||||||||||||||||||||
| Gross profit | 48,736 | 29,102 | 8,057 | — | 85,895 | |||||||||||||||||||||||||||
| Profit margin | 18.1 | % | 16.7 | % | 21.6 | % | — | 17.9 | % | |||||||||||||||||||||||
| Income (loss) from operations | 32,119 | 14,522 | 5,865 | (6,608) | 45,898 | |||||||||||||||||||||||||||
| Six months ended June 30, 2024 | Agricultural | Earthmoving/ Construction | Consumer | Corporate/ Unallocated Expenses | Consolidated Totals | |||||||||||||||||||||||||||
| Net sales | $ | 456,003 | $ | 330,772 | $ | 227,604 | $ | — | $ | 1,014,379 | ||||||||||||||||||||||
| Gross profit | 72,922 | 44,276 | 40,614 | — | 157,812 | |||||||||||||||||||||||||||
| Profit margin | 16.0 | % | 13.4 | % | 17.8 | % | — | 15.6 | % | |||||||||||||||||||||||
| Income (loss) from operations | 39,782 | 15,881 | 11,562 | (19,831) | 47,394 | |||||||||||||||||||||||||||
| Six months ended June 30, 2023 | ||||||||||||||||||||||||||||||||
| Net sales | $ | 575,006 | $ | 373,607 | $ | 81,207 | $ | — | $ | 1,029,820 | ||||||||||||||||||||||
| Gross profit | 97,986 | 66,326 | 17,140 | — | 181,452 | |||||||||||||||||||||||||||
| Profit margin | 17.0 | % | 17.8 | % | 21.1 | % | — | 17.6 | % | |||||||||||||||||||||||
| Income (loss) from operations | 64,688 | 38,060 | 12,657 | (14,371) | 101,034 | |||||||||||||||||||||||||||
Agricultural Segment Results
Agricultural segment results for the periods presented below were as follows (amounts in thousands, except percentages):
| Three months ended | Six months ended | ||||||||||||||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||||||||||||||
| 2024 | 2023 | % Decrease | 2024 | 2023 | % Decrease | ||||||||||||||||||||||||||||||
| Net sales | $ | 216,330 | $ | 269,148 | (19.6) | % | $ | 456,003 | $ | 575,006 | (20.7) | % | |||||||||||||||||||||||
| Gross profit | 32,303 | 48,736 | (33.7) | % | 72,922 | 97,986 | (25.6) | % | |||||||||||||||||||||||||||
| Profit margin | 14.9 | % | 18.1 | % | (17.7) | % | 16.0 | % | 17.0 | % | (5.9) | % | |||||||||||||||||||||||
| Income from operations | 15,772 | 32,119 | (50.9) | % | 39,782 | 64,688 | (38.5) | % | |||||||||||||||||||||||||||
Net sales in the agricultural segment were $216.3 million for the three months ended June 30, 2024, as compared to $269.1 million for the comparable period in 2023. The net sales change was primarily attributed to significantly reduced global demand for agricultural equipment, most notably in North America and Brazil. Additionally, an unfavorable impact of foreign currency translation by 5.3% contributed to the change in net sales.
Gross profit in the agricultural segment was $32.3 million for the three months ended June 30, 2024, as compared to $48.7 million in the comparable period in 2023. The change in gross profit was attributed to the lower sales volume, reduced fixed
29
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
cost leverage, negative price/mix and higher material costs and inventory revaluation step-up associated with the Carlstar purchase price allocation.
Income from operations in the Company's agricultural segment was $15.8 million for the three months ended June 30, 2024, as compared to income of $32.1 million for the three months ended June 30, 2023. The change in income from operations was mainly due to the lower gross profit resulting from the decline in net sales.
Net sales in the agricultural segment were $456.0 million for the six months ended June 30, 2024, as compared to $575.0 million for the comparable period in 2023. The net sales change was primarily attributed to lower sales volume in North and South America, reflecting the soft demand for agricultural equipment and a decline in Brazilian economic activity. The unfavorable effect of foreign currency translation by 4.8% also contributed to the change in net sales.
Gross profit in the agricultural segment was $72.9 million for the six months ended June 30, 2024, as compared to $98.0 million in the comparable period in 2023. The change in gross profit was attributed to the lower sales volume, reduced fixed cost leverage and higher material costs.
Income from operations in the Company's agricultural segment was $39.8 million for the six months ended June 30, 2024, as compared to income of $64.7 million for the six months ended June 30, 2023. The overall change in income from operations was primarily due to the lower gross profit resulting from the decrease in net sales.
Earthmoving/Construction Segment Results
Earthmoving/construction segment results for the periods presented below were as follows (amounts in thousands, except percentages):
| Three months ended | Six months ended | ||||||||||||||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||||||||||||||
| 2024 | 2023 | % Decrease | 2024 | 2023 | % Decrease | ||||||||||||||||||||||||||||||
| Net sales | $ | 165,564 | $ | 174,683 | (5.2) | % | $ | 330,772 | $ | 373,607 | (11.5) | % | |||||||||||||||||||||||
| Gross profit | 21,299 | 29,102 | (26.8) | % | 44,276 | 66,326 | (33.2) | % | |||||||||||||||||||||||||||
| Profit margin | 12.9 | % | 16.7 | % | (22.8) | % | 13.4 | % | 17.8 | % | (24.7) | % | |||||||||||||||||||||||
| Income from operations | 7,047 | 14,522 | (51.5) | % | 15,881 | 38,060 | (58.3) | % | |||||||||||||||||||||||||||
The Company's earthmoving/construction segment net sales were $165.6 million for the three months ended June 30, 2024, as compared to $174.7 million in the comparable period in 2023. Sales volume was higher during the period driven by increased sales in the undercarriage business and the positive contribution from the Carlstar acquisition. However, this increase was more than offset by the impact of contractual price givebacks resulting from lower raw material costs, particularly lower steel prices in Europe, as well as an unfavorable impact of foreign currency translation by 1.5%.
Gross profit in the earthmoving/construction segment was $21.3 million for the three months ended June 30, 2024, as compared to $29.1 million for the three months ended June 30, 2023. The change in gross profit was primarily attributed to lower sales volume in North America, and reduced fixed cost leverage.
The Company's earthmoving/construction segment income from operations was $7.0 million for the three months ended June 30, 2024 , as compared to $14.5 million for the three months ended June 30, 2023. The change was primarily due to lower sales volume, resulting in lower fixed cost leverage, and its impact on gross margins.
The Company's earthmoving/construction segment net sales were $330.8 million for the six months ended June 30, 2024, as compared to $373.6 million in the comparable period in 2023. The change in earthmoving/construction sales was mainly due to the impact of contractual price givebacks resulting from lower raw material costs, lower sales volume in the Americas and the European business due to a slowdown in construction OEM customers, and a 0.5% negative impact from foreign currency translation.
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TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Gross profit in the earthmoving/construction segment was $44.3 million for the six months ended June 30, 2024, as compared to $66.3 million for the six months ended June 30, 2023. Similar to the three-month period, the change in gross profit was attributed to lower sales volume, negative/price mix, and reduced fixed cost leverage.
The Company's earthmoving/construction segment income from operations was $15.9 million for the six months ended June 30, 2024, as compared to $38.1 million for the six months ended June 30, 2023. The change was attributed to lower sales volume and its impact on gross margins.
Consumer Segment Results
Consumer segment results for the periods presented below were as follows (amounts in thousands, except percentages):
| Three months ended | Six months ended | ||||||||||||||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||||||||||||||
| 2024 | 2023 | % Increase (Decrease) | 2024 | 2023 | % Increase (Decrease) | ||||||||||||||||||||||||||||||
| Net sales | $ | 150,276 | $ | 37,345 | 302.4 | % | $ | 227,604 | $ | 81,207 | 180.3 | % | |||||||||||||||||||||||
| Gross profit | 26,840 | 8,057 | 233.1 | % | 40,614 | 17,140 | 137.0 | % | |||||||||||||||||||||||||||
| Profit margin | 17.9 | % | 21.6 | % | (17.1) | % | 17.8 | % | 21.1 | % | (15.6) | % | |||||||||||||||||||||||
| Income from operations | 6,449 | 5,865 | 10.0 | % | 11,562 | 12,657 | (8.7) | % | |||||||||||||||||||||||||||
Consumer segment net sales were $150.3 million for the three months ended June 30, 2024, as compared to $37.3 million for the three months ended June 30, 2023. This growth was primarily driven by increased sales volumes resulting from the positive impact of the Carlstar acquisition. The increase was partially offset by negative price/product mix and reduced sales volumes in the Americas region due to weaker market conditions.
Gross profit from the consumer segment was $26.8 million for the three months ended June 30, 2024, as compared to $8.1 million for the three months ended June 30, 2023. The increase in gross profit was primarily driven by the benefits of the Carlstar acquisition. The shift in profit margin was influenced by the inventory revaluation step-up of $6.0 million associated with the Carlstar purchase price allocation and reduced fixed cost leverage resulting from lower sales volumes in the Americas.
Consumer segment income from operations was $6.4 million for the three months ended June 30, 2024, as compared to income of $5.9 million for the three months ended June 30, 2023. The increase was primarily due to increased sales volumes as mentioned above.
Consumer segment net sales were $227.6 million for the six months ended June 30, 2024, as compared to $81.2 million for the six months ended June 30, 2023. The increase in sales was driven by the positive effects of the Carlstar acquisition. However, lower sales volumes in the Americas stemming from challenging market conditions, and unfavorable foreign currency impact of 1.6% offsetting some of this increase.
Gross profit from the consumer segment was $40.6 million for the six months ended June 30, 2024, as compared to $17.1 million for the six months ended June 30, 2023. The increase in gross profit was influenced by the Carlstar acquisition. The change in profit margin from 21.1% for the six months ended June 30, 2023 to 17.8% for the six months ended June 30, 2024, was primarily due to the effect of the inventory revaluation step-up of $8.6 million associated with the Carlstar acquisition. The impact of lower sales volume in the Americas on fixed cost leverage was also a driver in the change in profit margin.
Consumer segment income from operations was $11.6 million for the six months ended June 30, 2024, as compared to income of $12.7 million for the six months ended June 30, 2023. The change was due to lower profitability stemming from the aforementioned factors.
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TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Corporate & Unallocated Expenses
Income from operations on a segment basis did not include unallocated costs of $6.9 million for the three months ended June 30, 2024, and $19.8 million for the six months ended June 30, 2024, as compared to $6.6 million for the three months ended June 30, 2023, and $14.4 million for the six months ended June 30, 2023.
Unallocated expenses are primarily comprised of corporate selling, general and administrative expenses. The increase in corporate and unallocated expenses for the three months ended June 30, 2024 as compared to the prior year period was related to the increase in certain SG&A expenses primarily associated with legal costs. The increase in corporate and unallocated expenses for the six months ended June 30, 2024 as compared to the prior year period was attributed to the transaction costs associated with the Carlstar acquisition in the first quarter of 2024 of $6.2 million.
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TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
As of June 30, 2024, the Company had $224.1 million of cash, which increased as compared to the December 31, 2023 ending balance of $220.3 million, due to the following items:
Operating Cash Flows
Summary of cash flows from operating activities:
| (Amounts in thousands) | Six months ended June 30, | ||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Net income | $ | 13,396 | $ | 65,325 | $ | (51,929) | |||||||||||
| Depreciation and amortization | 27,423 | 21,565 | 5,858 | ||||||||||||||
| Deferred income tax provision | 12,978 | 12,349 | 629 | ||||||||||||||
| Income on indirect taxes | — | (3,096) | 3,096 | ||||||||||||||
| Proceeds from property insurance settlement | (3,537) | — | (3,537) | ||||||||||||||
| Foreign currency gain | (1,063) | (2,130) | 1,067 | ||||||||||||||
| Accounts receivable | (8,437) | (16,322) | 7,885 | ||||||||||||||
| Inventories | 34,764 | 24,096 | 10,668 | ||||||||||||||
| Prepaid and other current assets | (3,789) | 12,512 | (16,301) | ||||||||||||||
| Accounts payable | (2,930) | (32,005) | 29,075 | ||||||||||||||
| Other current liabilities | 1,773 | 781 | 992 | ||||||||||||||
| Other liabilities | 1,431 | 1,508 | (77) | ||||||||||||||
| Other operating activities | 837 | 4,307 | (3,470) | ||||||||||||||
| Cash provided by operating activities | $ | 72,846 | $ | 88,890 | $ | (16,044) | |||||||||||
During the first half of 2024, cash flows provided by operating activities was $72.8 million. This was mainly driven by working capital reduction and reduction in net income to $13.4 million. The net income of $13.4 million included a non-cash charge for depreciation and amortization expense of $27.4 million. Additionally, the Company incurred $6.2 million in transaction costs associated with the Carlstar acquisition in the first quarter of 2024.
Operating cash flows decreased by $16.0 million when comparing the first half of 2024 to the comparable period in 2023. This decline was primarily attributed to lower net income, partially offset by the positive impact of focused working capital management. Key factors contributing to this management included a $29.1 million increase in accounts payable, a $7.9 million improvement due to collections efforts on accounts receivable, and a $10.7 million improvement in inventory management.
Summary of the components of cash conversion cycle:
| June 30, | December 31, | June 30, | |||||||||||||||
| 2024 | 2023 | 2023 | |||||||||||||||
| Days sales outstanding | 54 | 51 | 53 | ||||||||||||||
| Days inventory outstanding | 97 | 104 | 90 | ||||||||||||||
| Days payable outstanding | (53) | (57) | (55) | ||||||||||||||
| Cash conversion cycle | 98 | 98 | 88 | ||||||||||||||
Cash conversion cycle increased by 10 days when comparing June 30, 2024 to June 30, 2023. This increase was primarily due to the Carlstar acquisition, which led to additional accounts receivable and inventory at the end of the second quarter of 2024, as a result of its customer mix and use of distribution centers to have product on demand for customers. Inventory management is critical for the business in preparation for the future periods to supply customers efficiently, which was the driver of increased days in inventory at the end of June 30, 2024.
33
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) | Six months ended June 30, | ||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Capital expenditures | $ | (34,199) | $ | (27,567) | $ | (6,632) | |||||||||||
| Business acquisition, net of cash acquired | (142,207) | — | (142,207) | ||||||||||||||
| Proceeds from property insurance settlement | 3,537 | — | 3,537 | ||||||||||||||
| Proceeds from sale of fixed assets | 1,597 | 289 | 1,308 | ||||||||||||||
| Cash used for investing activities | $ | (171,272) | $ | (27,278) | $ | (143,994) | |||||||||||
During the first half of 2024, Titan reported a net cash outflow of $171.3 million from investing activities, as compared to the $27.3 million outflow recorded in the same period of 2023. This rise was primarily attributed to the acquisition of Carlstar for a cash consideration of $142.2 million, which included an additional payment of $18.4 million for excess working capital to the sellers, which has now been recovered through active working capital management during the quarter. The Company also invested a total of $34.2 million in capital expenditures in the first half of 2024, compared to $27.6 million in the corresponding period of 2023. These capital expenditures were directed toward the replacement and enhancement of plant equipment, as well as the procurement of new tools, dies, and molds to support new product development initiatives. The increased capital outlay in 2024 reflects Titan's strategic efforts to improve its existing facilities, enhance manufacturing capabilities, and drive operational efficiency and labor productivity gains. The proceeds from property insurance settlement of $3.5 million in the first half of 2024 was relate to the repair of one of our operating facilities in Italy associated with a 2023 hail storm weather event.
Financing Cash Flows
Summary of cash flows from financing activities:
| (Amounts in thousands) | Six months ended June 30, | ||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Proceeds from borrowings | $ | 159,539 | $ | 4,373 | $ | 155,166 | |||||||||||
| Payment on debt | (34,095) | (21,030) | (13,065) | ||||||||||||||
| Payment of debt issuance costs | (3,115) | — | (3,115) | ||||||||||||||
| Repurchase of common stock | (7,762) | (6,390) | (1,372) | ||||||||||||||
| Other financing activities | (692) | (2,748) | 2,056 | ||||||||||||||
| Cash provided by (used for) financing activities | $ | 113,875 | $ | (25,795) | $ | 139,670 | |||||||||||
During the first half of 2024, $113.9 million cash was provided by financing activities. This was primarily driven by the acquisition of Carlstar on February 29, 2024, for which Titan borrowed $147.0 million under a new domestic credit facility.
During the first half of 2023, the Company made debt payments of $21.0 million and repurchased common stock of $6.4 million, partially offset by proceeds from borrowings of $4.4 million.
Additionally, Titan issued common stock worth $168.7 million in connection with the business acquisition of Carlstar. This was reflected in “Non cash financing activity” in the Condensed Consolidated Statements of Cash Flows.
34
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Debt Restrictions
The Company’s $225 million revolving credit facility (credit facility) and indenture relating to the 7.00% senior secured notes due 2028 contain various restrictions, including:
•When remaining availability under the credit facility is less than the greater of (i) $17 million and (ii) 10% of the credit facility’s line cap (the line cap being the lesser of our borrowing base or the lenders’ commitments under the credit facility), the Company will be required to maintain a minimum fixed charge coverage ratio of not less than 1.0 to 1.0 (calculated quarterly on a trailing four quarter basis);
•Limits on dividends and repurchases of the Company’s stock;
•Restrictions on the ability of the Company to make additional borrowings, or to consolidate, merge, or otherwise fundamentally change the ownership of the Company;
•Limits on investments, dispositions of assets, and guarantees of indebtedness; and
•Other customary affirmative and negative covenants.
These covenants are subject to a number of exceptions and qualifications that are described in the credit and security agreement. These restrictions could limit the Company’s ability to respond to market conditions, provide for unanticipated capital investments, raise additional debt or equity capital, pay dividends, repurchase stock or take advantage of business opportunities, including future acquisitions. The Company is in compliance with these debt covenants at June 30, 2024.
Guarantor Financial Information
The Company's 7.00% senior secured notes due 2028 are guaranteed by the following 100% owned subsidiaries of the Company: Titan Tire Corporation, Titan Tire Corporation of Bryan, Titan Tire Corporation of Freeport, and Titan Wheel Corporation of Illinois (together, the "Guarantors"). The note guarantees are full and unconditional, joint and several obligations of the guarantors. The guarantees of the guarantor subsidiaries are subject to release in limited circumstances only upon the satisfaction 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) | June 30, 2024 | December 31, 2023 | |||||||||
| Assets | |||||||||||
| Current assets | $ | 86,547 | $ | 93,339 | |||||||
| Property, plant, and equipment, net | 90,740 | 88,739 | |||||||||
| Intercompany accounts, non-guarantor subsidiaries | 447,096 | 486,860 | |||||||||
| Other long-term assets | 62,947 | 72,678 | |||||||||
| Liabilities | |||||||||||
| Current liabilities | 86,163 | 83,198 | |||||||||
| Long-term debt | 523,706 | 396,277 | |||||||||
| Other long-term liabilities | 4,198 | 4,626 | |||||||||
35
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Summarized Statement of Operations:
| (Amounts in thousands) | Six months ended | ||||
| June 30, 2024 | |||||
| Net sales | $ | 312,604 | |||
| Gross profit | 43,959 | ||||
| Income from operations | 2,968 | ||||
| Net loss | (25,030) | ||||
Liquidity Outlook
At June 30, 2024, the Company had $224.1 million of cash and cash equivalents. At June 30, 2024, there were $127.0 million of borrowings under the Company's $225 million credit facility. Titan's availability under this credit facility may be less than $225 million as a result of outstanding letters of credit and eligible accounts receivable and inventory balances at certain domestic and Canadian subsidiaries. Based on eligible accounts receivable and inventory balances, the Company's amount available for borrowing totaled $204.2 million at June 30, 2024. With outstanding letters of credit totaling $9.9 million, the net amount available for borrowing under the credit facility totaled $67.3 million at June 30, 2024. The cash and cash equivalents balance of $224.1 million included $188.0 million held in foreign countries.
The Company is expecting full year capital expenditures to be approximately $55 million to $65 million. These capital expenditures are anticipated to be used primarily to continue to enhance the Company’s existing facilities and manufacturing capabilities and drive productivity gains, along with the purchase of new tools, dies and molds related to new product development.
Cash payments for interest are currently forecasted to between $22 million and $24 million for the remainder of 2024 based on June 30, 2024 debt balances. The forecasted interest payment is comprised primarily of the semi-annual payment of $14 million to be paid in October 2024 for the 7.00% senior secured notes, and between $6 million and $8 million of payments on the credit facility, which will be variable dependent upon on the prevailing SOFR rate and debt levels within each month.
Cash and cash equivalents along with anticipated internal cash flows from operations and utilization of availability on global credit facilities, are expected to provide sufficient liquidity for working capital needs, debt maturities, and capital expenditures. Potential divestitures and unencumbered assets may also be a means to provide for future liquidity needs.
CRITICAL ACCOUNTING ESTIMATES
There were no material changes in the Company’s Critical Accounting Estimates since the filing of the 2023 Form 10-K. As discussed in the 2023 Form 10-K, the preparation of the condensed consolidated financial statements in conformity with US GAAP requires management to make estimates, assumptions, and judgments that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from those estimates and assumptions. Refer to Note 1. Basis of Presentation and Significant Accounting Policies in Part I, Item 1, Notes to Condensed Consolidated Financial Statements of this Form 10-Q for a discussion of the Company’s updated accounting policies.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Titan is exposed to market risks, including changes in foreign currency exchange rates and interest rates, and commodity price fluctuations. Our exposure to market risk has not changed materially since December 31, 2023. For quantitative and qualitative disclosures about market risk, see Item 7A - Quantitative and Qualitative Disclosures About Market Risk included in the 2023 Form 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Titan management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the Exchange Act)) as of June 30, 2024. Based on that evaluation, the
36
Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2024, Titan's disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by Titan in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported accurately and within the time frames specified in the SEC's rules and forms and accumulated and communicated to Titan management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
As disclosed in Note 2. Business Combination in Part I, Item 1, Notes to Condensed Consolidated Financial Statements of this Form 10-Q, Titan acquired Carlstar on February 29, 2024. The total revenues of Carlstar represented approximately 25.3% and 18.5% of the total net sales as shown on our Consolidated Financial Statements for the three months and six months ended June 30, 2024, respectively, and Carlstar’s total assets constituted approximately 11.2% of total assets as shown on our Consolidated Balance Sheet as of June 30, 2024. Titan is currently integrating Carlstar into our overall internal control over financial reporting process and, consistent with interpretive guidance issued by the Staff of the Securities and Exchange Commission, is excluding the business from our assessment of internal control over financial reporting as of June 30, 2024. In accordance with such guidance, an assessment of recent business combinations may be omitted from management’s assessment of internal control over financial reporting for up to one year following the acquisition.
Changes in Internal Controls
As noted above, we acquired Carlstar on February 29, 2024. We are integrating Carlstar into our overall internal control over
financial reporting process. At this time, we anticipate that the scope of our assessment of our internal control over financial
reporting for our fiscal year ending December 31, 2024 will exclude Carlstar’s internal control over financial reporting.
Other than as set forth above, there were no changes in internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the second quarter of fiscal year 2024 and 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.
37
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject, from time to time, to certain legal proceedings and claims arising out of the normal course of its business, which cover a wide range of matters, including environmental issues, product liability, contracts, and labor and employment matters. See Note 17 Litigation in Part I, Item 1, Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further discussion, which is incorporated herein by reference.
Item 1A. Risk Factors
There have been no material changes from the risk factors disclosed in Item 1A. Risk Factors to the 2023 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table is a summary of stock repurchases for the three months ended June 30, 2024:
| 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) | ||||||||||||||||||||||
| April 1, 2024 to April 30, 2024 | — | $ | — | — | $ | 16,019 | ||||||||||||||||||||
| May 1, 2024 to May 31, 2024 | 475,000 | $ | 8.87 | 475,000 | $ | 11,791 | ||||||||||||||||||||
| June 1, 2024 to June 30, 2024 | 300,000 | $ | 7.08 | 300,000 | $ | 9,659 | ||||||||||||||||||||
| Total | 775,000 | 775,000 | ||||||||||||||||||||||||
(1) On December 16, 2022, the Board of Directors authorized a share repurchase program allowing for the expenditure of up to $50.0 million for the repurchase of the Company’s Common Stock. As of June 30, 2024, $9.6 million remains available for future share repurchases under the program. All shares in the table were purchased in the open market 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 Directors' discretion.
Refer to the Item 2, Liquidity and Capital Resources section for further discussion on debt restrictions associated with payment of dividends.
Item 5. Other Information
Rule 10b5-1 Trading Plans Adopted by Officers and Directors in the Second Quarter
During the fiscal quarter ended June 30, 2024, none of our directors or officers as defined in Rule 16a-1 under the Exchange Act adopted terminated
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Item 6. Exhibits
| 4.4* | |||||
| 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 | ||||
| * | Incorporated by reference to Exhibit 10.2 contained in the Company's Report on Form 10-Q for the quarter ended March 31, 2024. | ||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| TITAN INTERNATIONAL, INC. | |||||
| (Registrant) | |||||
| Date: | July 31, 2024 | By: | /s/ PAUL G. REITZ | ||||||||
| Paul G. Reitz | |||||||||||
| President and Chief Executive Officer | |||||||||||
| (Principal Executive Officer) | |||||||||||
By: | /s/ DAVID A. MARTIN | |||||||
| David A. Martin | ||||||||
| SVP and Chief Financial Officer | ||||||||
| (Principal Financial Officer) | ||||||||
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