UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

titancolora27.jpg

FORM 10-Q
☑
☑
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended: September 30, 2019March 31, 2020
or
☐
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-12936

TITAN INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
36-3228472
(State of Incorporation)
 
(I.R.S. Employer Identification No.)
2701 Spruce Street, Quincy, IL 62301
(Address of principal executive offices, including Zip Code)

(217) 228-6011
(Registrant’sRegistrant’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
Common stock, $0.0001 par value
TWI
New York Stock Exchange


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☑☑ No ☐☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☑☑  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“large accelerated filer,” “accelerated” “accelerated filer,” “smaller” “smaller reporting company”company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
☐
 
Accelerated filer
☑
☑
Non-accelerated filer
☐
☐
 
Smaller reporting company
☐
☐
Emerging growth company
☐
☐
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐☐ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐☐  No ☑☑

Indicate the number of shares of Titan International, Inc. outstanding: 60,287,58560,602,294 shares of common stock, $0.0001 par value, as of October 31, 2019.April 30, 2020.



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
Nine months ended
Three months ended
September 30,
September 30,
March 31,
2019
2018
2019
2018
2020

2019
       
 
 
 
Net sales$345,905
 $384,719
 $1,146,876
 $1,239,005
$
341,500

 
$
410,374

Cost of sales318,805
 341,015
 1,036,204
 1,077,428
311,677

 
365,110

Asset impairment
2,579

 
—

Gross profit27,100
 43,704
 110,672
 161,577
27,244

 
45,264

Selling, general and administrative expenses34,954
 33,709
 106,605
 102,308
31,957

 
35,905

Research and development expenses2,309
 2,591
 7,470
 8,222
2,410

 
2,617

Royalty expense2,453
 2,581
 7,507
 7,878
2,480

 
2,606

(Loss) income from operations(12,616) 4,823
 (10,910) 43,169
(9,603
)
 
4,136

Interest expense(8,357) (7,596) (24,585) (22,786)
(8,035
)
 
(7,933
)
Foreign exchange (loss) gain(2,266) 855
 2,218
 (7,187)
(17,242
)
 
5,723

Other income5,259
 7,437
 8,324
 17,664
7,436

 
996

(Loss) income before income taxes(17,980) 5,519
 (24,953) 30,860
(27,444
)
 
2,922

Provision for income taxes2,064
 2,841
 761
 3,738
55

 
1,915

Net (loss) income(20,044) 2,678
 (25,714) 27,122
(27,499
)
 
1,007

Net (loss) income attributable to noncontrolling interests(900) 383
 (2,124) (1,256)
Net loss attributable to noncontrolling interests
(2,013
)
 
(970
)
Net (loss) income attributable to Titan(19,144) 2,295
 (23,590) 28,378
(25,486
)
 
1,977

Redemption value adjustment(491) (4,045) (1,928) (11,066)
—

 
(776
)
Net (loss) income applicable to common shareholders$(19,635) $(1,750) $(25,518) $17,312
$
(25,486
)
 
$
1,201

       
 
 
 
Earnings per common share: 
  
  
  
 

 
 

Basic$(0.33) $(0.03) $(0.43) $0.29
$
(0.42
)
 
$
0.02

Diluted$(0.33) $(0.03) $(0.43) $0.29
$
(0.42
)
 
$
0.02

Average common shares and equivalents outstanding:   
    
 
 
 

Basic60,161
 59,897
 60,037
 59,787
60,360

 
59,946

Diluted60,161
 59,897
 60,037
 59,893
60,360

 
59,946

       
 
 
 
Dividends declared per common share:$0.005
 $0.005
 $0.015
 $0.015
$
0.005

 
$
0.005

 
 








See accompanying Notes to Condensed Consolidated Financial Statements.

1


TITAN INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(All amounts in thousands)

Three months ended
Three months ended
September 30,
March 31,
2019 2018
2020
 
2019
Net (loss) income$(20,044) $2,678
$
(27,499
)
 
$
1,007

Currency translation adjustment(20,324) (13,577)
(33,786
)
 
(4,379
)
Pension liability adjustments, net of tax of $79 and $4, respectively590
 733
Pension liability adjustments, net of tax of $(210) and $122, respectively
1,308

 
466

Comprehensive loss(39,778) (10,166)
(59,977
)
 
(2,906
)
Net comprehensive loss attributable to redeemable and noncontrolling interests(1,213) (811)
(3,796
)
 
(68
)
Comprehensive loss attributable to Titan$(38,565) $(9,355)
$
(56,181
)
 
$
(2,838
)



 Nine months ended
 September 30,
 2019 2018
Net (loss) income$(25,714) $27,122
Currency translation adjustment(19,280) (43,853)
Pension liability adjustments, net of tax of $311 and $(40), respectively1,594
 2,306
Comprehensive loss(43,400) (14,425)
Net comprehensive loss attributable to redeemable and noncontrolling interests(897) (4,036)
Comprehensive loss attributable to Titan$(42,503) $(10,389)





































See accompanying Notes to Condensed Consolidated Financial Statements.

2


TITAN INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share data)
September 30, 2019 December 31, 2018
March 31, 2020
 
December 31, 2019
 
 
(unaudited)  
(unaudited)
 
 
Assets   
 
 
 
Current assets   
 
 
 
Cash and cash equivalents$78,603
 $81,685
$
60,378

 
$
66,799

Accounts receivable, net221,228
 241,832
211,982

 
185,238

Inventories351,871
 395,735
306,071

 
333,356

Prepaid and other current assets80,692
 60,229
60,461

 
58,869

Total current assets732,394
 779,481
638,892

 
644,262

Property, plant and equipment, net366,121
 384,872
344,078

 
374,798

Operating lease assets23,497
 —
20,117

 
23,914

Deferred income taxes1,657
 2,874
—

 
2,331

Other assets65,933
 84,029
57,167

 
69,002

Total assets$1,189,602
 $1,251,256
$
1,060,254

 
$
1,114,307

   
 
 
 
Liabilities 
  
 

 
 

Current liabilities 
  
 

 
 

Short-term debt$64,228
 $51,885
$
46,275

 
$
61,253

Accounts payable182,337
 212,129
179,933

 
158,647

Other current liabilities119,383
 111,054
115,744

 
107,253

Total current liabilities365,948
 375,068
341,952

 
327,153

Long-term debt464,827
 409,572
444,550

 
443,349

Deferred income taxes7,435
 9,416
2,644

 
6,672

Other long-term liabilities78,216
 67,290
67,186

 
73,145

Total liabilities916,426
 861,346
856,332

 
850,319

   
 
 
 
Redeemable noncontrolling interest25,000
 119,813
25,000

 
25,000

   
 
 
 
Equity 
  
 

 
 

Titan shareholders' equity

 



 


Common stock ($0.0001 par value, 120,000,000 shares authorized, 60,715,356 issued at September 30, 2019, and December 31, 2018)—
 —
Common stock ($0.0001 par value, 120,000,000 shares authorized, 60,787,263 issued at March 31, 2020 and 60,710,983 at December 31, 2019)
—

 
—

Additional paid-in capital533,538
 519,498
532,820

 
532,070

Retained deficit(49,197) (29,048)
(100,122
)
 
(74,334
)
Treasury stock (at cost, 548,881 and 798,383 shares, respectively)(6,490) (7,831)
Treasury stock (at cost, 425,271 and 427,771 shares, respectively)
(4,212
)
 
(4,234
)
Accumulated other comprehensive loss(233,620) (203,571)
(249,347
)
 
(218,651
)
Total Titan shareholders’ equity244,231
 279,048
Total Titan shareholders’ equity
179,139

 
234,851

Noncontrolling interests3,945
 (8,951)
(217
)
 
4,137

Total equity248,176
 270,097
178,922

 
238,988

Total liabilities and equity$1,189,602
 $1,251,256
$
1,060,254

 
$
1,114,307


 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 (deficit) earnings Treasury stock 
Stock
 reserved for
deferred compensation
 Accumulated other comprehensive (loss) income Total Titan Equity  Noncontrolling interest Total Equity
 Number of
common shares
 
Additional
paid-in
capital
 
Retained (deficit) earnings
 
Treasury stock
 
Accumulated other comprehensive (loss) income
 
Total Titan Equity
 
 Noncontrolling interest
 
Total Equity
Balance January 1, 201859,800,559
 $531,708
 $(44,022) $(8,606) $(1,075) $(157,076) $320,929
 $(10,845) $310,084
Balance January 1, 2019
59,916,973

 
$
519,498

 
$
(29,048
)
 
$
(7,831
)
 
$
(203,571
)
 
$
279,048

 
$
(8,951
)
 
$
270,097

Net income (loss) *    17,647
       17,647
 (1,164) 16,483
 
 
 
 
1,977

 
 
 
 
 
1,977

 
(636
)
 
1,341

Currency translation adjustment, net *          7,423
 7,423
 291
 7,714
 
 
 
 
 
 
 
 
(5,281
)
 
(5,281
)
 
474

 
(4,807
)
Pension liability adjustments, net of tax          883
 883
   883
 
 
 
 
 
 
 
 
466

 
466

 
 
 
466

Dividends declared    (299)       (299)   (299)
 
 
 
 
(301
)
 
 
 
 
 
(301
)
 
 
 
(301
)
Accounting standards adoption    88
       88
 35
 123
 
 
 
 
4,346

 
 
 
(4,933
)
 
(587
)
 
 
 
(587
)
Redemption value adjustment  (2,343)         (2,343)   (2,343)
Stock-based compensation  73
         73
   73
VIE contributions            —
 476
 476
Issuance of treasury stock under 401(k) plan10,211
 42
   91
     133
   133
Balance March 31, 201859,810,770
 $529,480
 $(26,586) $(8,515) $(1,075) $(148,770) $344,534
 $(11,207) $333,327
Net income (loss) *    8,436
       8,436
 (14) 8,422
Currency translation adjustment, net *          (36,113) (36,113) 330
 (35,783)
Pension liability adjustments, net of tax          690
 690
   690
Dividends declared    (300)       (300)   (300)
Restricted stock awards30,000
           —
   —
Acquisition of additional interest  (1,032)       (4,325) (5,357) 5,208
 (149)
Redemption value adjustment  (4,678)         (4,678)   (4,678)
Stock-based compensation  545
         545
   545
VIE distributions            —
 (1,429) (1,429)
Deferred compensation transactions  113
     1,075
   1,188
   1,188
Issuance of treasury stock under 401(k) plan12,011
 38
   108
     146
   146
Balance June 30, 201859,852,781
 $524,466
 $(18,450) $(8,407) $—
 $(188,518) $309,091
 $(7,112) $301,979
Net income *    2,295
       2,295
 1,028
 3,323
Currency translation adjustment, net *          (12,383) (12,383) (145) (12,528)
Pension liability adjustments, net of tax          733
 733
   733
Dividends declared    (301)       (301)   (301)
Restricted stock awards31,897
           —
   —
Redeemable noncontrolling interest activity
 
 
9,437

 
 
 
 
 
 
 
9,437

 
15,445

 
24,882

Redemption value adjustment  (4,045)         (4,045)   (4,045)
 
 
(776
)
 
 
 
 
 
 
 
(776
)
 
 
 
(776
)
Stock-based compensation  (57)   286
     229
   229
 
 
269

 
 
 
 
 
 
 
269

 
 
 
269

VIE distributions            —
 (889) (889)
 
 
 
 
 
 
 
 
 
 
—

 
(1,054
)
 
(1,054
)
Issuance of treasury stock under 401(k) plan12,941
 25
   117
     142
   142
29,414

 
(123
)
 
 
 
264

 
 
 
141

 
 
 
141

Balance September 30, 201859,897,619
 $520,389
 $(16,456) $(8,004) $—
 $(200,168) $295,761
 $(7,118) $288,643
Balance March 31, 2019
59,946,387

 
$
528,305

 
$
(23,026
)
 
$
(7,567
)
 
$
(213,319
)
 
$
284,393

 
$
5,278

 
$
289,671


* Net income (loss) excludes $(334) of net income (loss)loss attributable to redeemable noncontrolling interest of $(515), $54, and $(645) for the three months ended March 31, 2018; June 30, 2018, and September 30, 2018, respectively.interest. Currency translation adjustment excludes $348, $(2,555), and $(1,049)$428 of currency translation related to redeemable noncontrolling interest for the three months ended March 31, 2018; June 30, 2018; and September 30, 2018, respectively.interest.



 
 Number of
common shares
 
Additional
paid-in
capital
 Retained (deficit) earnings Treasury stock Accumulated other comprehensive (loss) income Total Titan Equity  Noncontrolling interest Total Equity
Balance January 1, 201959,916,973
 $519,498
 $(29,048) $(7,831) $(203,571) $279,048
 $(8,951) $270,097
Net income (loss) *

 

 1,977
 

 

 1,977
 (636) 1,341
Currency translation adjustment, net *        (5,281) (5,281) 474
 (4,807)
Pension liability adjustments, net of tax

 

 

 

 466
 466
   466
Dividends declared

 

 (301) 

 

 (301)   (301)
Accounting standards adoption

 

 4,346
   (4,933) (587) 


 (587)
Redeemable noncontrolling interest activity

 9,437
 


 

 


 9,437
 15,445
 24,882
Redemption value adjustment

 (776)   

   (776)   (776)
Stock-based compensation

 269
 

 


 

 269
   269
VIE distributions

 

 

 

 

 —
 (1,054) (1,054)
Issuance of treasury stock under 401(k) plan29,414
 (123) 

 264
 

 141
   141
Balance March 31, 201959,946,387
 $528,305
 $(23,026) $(7,567) $(213,319) $284,393
 $5,278
 $289,671
Net (loss) income *    (6,424)     (6,424) 12
 (6,412)
Currency translation adjustment, net *        4,785
 4,785
 317
 5,102
Pension liability adjustments, net of tax        538
 538
   538
Dividends declared    (301)     (301)   (301)
Redemption value adjustment  (661)       (661)   (661)
Stock-based compensation  286
       286
   286
VIE distributions          —
 (450) (450)
Issuance of treasury stock under 401(k) plan53,983
 (167)   485
   318
   318
Balance June 30, 201960,000,370
 $527,763
 $(29,751) $(7,082) $(207,996) $282,934
 $5,157
 $288,091
Net loss *    (19,144)     (19,144) (680) (19,824)
Currency translation adjustment, net *        (20,011) (20,011) (247) (20,258)
Pension liability adjustments, net of tax        590
 590
   590
Dividends declared    (302)     (302)   (302)
Acquisition of additional interest  6,203
     (6,203) —
 —
 —
Redemption value adjustment  (491)       (491)   (491)
Stock-based compensation100,118
 347
       347
   347
VIE distributions          —
 (285) (285)
Issuance of treasury stock under 401(k) plan65,987
 (284)   592
   308
   308
Balance September 30, 201960,166,475
 $533,538
 $(49,197) $(6,490) $(233,620) $244,231
 $3,945
 $248,176
 
 Number of
common shares
 
Additional
paid-in
capital
 
Retained (deficit) earnings
 
Treasury stock
 
Accumulated other comprehensive (loss) income
 
Total Titan Equity
 
 Noncontrolling interest
 
Total Equity
Balance January 1, 2020
60,283,212

 
$
532,070

 
$
(74,334
)
 
$
(4,234
)
 
$
(218,651
)
 
$
234,851

 
$
4,137

 
$
238,988

Net income (loss)


 


 
(25,486
)
 


 


 
(25,486
)
 
(2,013
)
 
(27,499
)
Currency translation adjustment, net
 
 
 
 
 
 
 
 
(32,004
)
 
(32,004
)
 
(1,782
)
 
(33,786
)
Pension liability adjustments, net of tax


 


 


 


 
1,308

 
1,308

 
 
 
1,308

Dividends declared


 


 
(302
)
 


 


 
(302
)
 
 
 
(302
)
Stock-based compensation
2,500

 
468

 


 
22

 


 
490

 
 
 
490

VIE deconsolidation


 
 
 


 


 


 
—

 
(559
)
 
(559
)
Issuance of stock under 401(k) plan
76,280

 
282

 


 
 
 


 
282

 
 
 
282

Balance March 31, 2020
60,361,992

 
$
532,820

 
$
(100,122
)
 
$
(4,212
)
 
$
(249,347
)
 
$
179,139

 
$
(217
)
 
$
178,922

 
* Net income (loss) excludes $(334), $(265), and $(220) of net loss attributable to redeemable noncontrolling interest for the three months ended March 31, 2019; June 30, 2019; and September 30, 2019, respectively. Currency translation adjustment excludes $428, $321, and $(66) of currency translation related to redeemable noncontrolling interest for the three months ended March 31, 2019; June 30, 2019; and September 30, 2019, respectively.

See accompanying Notes to Condensed Consolidated Financial Statements.

4


TITAN INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(All amounts in thousands)
Nine months ended September 30,
Three months ended March 31,
Cash flows from operating activities:2019 2018
2020
 
2019
Net (loss) income$(25,714) $27,122
$
(27,499
)
 
$
1,007

Adjustments to reconcile net income to net cash
used for operating activities:
 
  
Adjustments to reconcile net (loss) income to net cash provided by (used for) operating activities:
 

 
 

Depreciation and amortization41,347
 43,395
13,785

 
14,673

Asset impairment
2,579

 
—

Deferred income tax provision(738) (863)
(1,426
)
 
(1,366
)
Gain on investment sale(4,695) —
(1,302
)
 
—

Gain on property insurance settlement
(4,936
)
 
—

Stock-based compensation959
 847
490

 
269

Issuance of treasury stock under 401(k) plan767
 421
Issuance of stock under 401(k) plan
282

 
141

Foreign currency translation (gain) loss(2,327) 3,667
17,291

 
(6,695
)
(Increase) decrease in assets: 
  
 

 
 

Accounts receivable16,124
 (52,818)
(45,330
)
 
(53,083
)
Inventories36,920
 (62,560)
6,611

 
(17,557
)
Prepaid and other current assets(3,073) 2,299
(6,404
)
 
(1,611
)
Other assets(1,110) (6,021)
1,155

 
3,152

Increase (decrease) in liabilities: 
  
 

 
 

Accounts payable(24,998) 25,213
34,006

 
39,370

Other current liabilities3,634
 (5,072)
15,012

 
4,538

Other liabilities(5,884) (8,336)
(342
)
 
1,543

Net cash provided by (used for) operating activities31,212
 (32,706)
3,972

 
(15,619
)
Cash flows from investing activities: 
  
 

 
 

Capital expenditures(26,254) (26,498)
(6,420
)
 
(9,453
)
Payments related to redeemable noncontrolling interest(71,722) —
—

 
(25,000
)
Sale of Wheels India Limited shares
6,917

 
—

Proceeds from property insurance settlement
4,936

 
—

Other1,354
 1,484
(366
)
 
194

Net cash used for investing activities(96,622) (25,014)
Net cash provided by (used for) investing activities
5,067

 
(34,259
)
Cash flows from financing activities: 
  
 

 
 

Proceeds from borrowings124,153
 48,108
23,949

 
52,398

Payment on debt(59,296) (30,139)
(31,940
)
 
(15,357
)
Dividends paid(901) (900)
(302
)
 
(301
)
Net cash provided by financing activities63,956
 17,069
Net cash (used for) provided by financing activities
(8,293
)
 
36,740

Effect of exchange rate changes on cash(1,628) (6,120)
(7,167
)
 
(232
)
Net decrease in cash and cash equivalents(3,082) (46,771)
(6,421
)
 
(13,370
)
Cash and cash equivalents, beginning of period81,685
 143,570
66,799

 
81,685

Cash and cash equivalents, end of period$78,603
 $96,799
$
60,378

 
$
68,315

   
 
 
 
Supplemental information:   
 
 
 
Interest paid$18,060
 $16,814
$
785

 
$
1,199

Income taxes paid, net of refunds received$6,120
 $7,379
$
1,513

 
$
1,314











See accompanying Notes to Condensed Consolidated Financial Statements.

5


TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)


1.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
The accompanying unaudited condensed consolidated interim financial statements include the accounts of Titan International, Inc. and its subsidiaries (Titan or the Company) and have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) for interim financial information and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the SEC). Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. These 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 as of September 30, 2019,March 31, 2020, and the results of operations and cash flows for the three and nine months ended September 30, 2019March 31, 2020 and 2018,2019, and should be read in conjunction with the consolidated financial statements and the related notes thereto included in the Company’sCompany’s latest Annual Report on Form 10-K for the year ended December 31, 2018,2019, filed with the SEC on March 7, 20194, 2020 (the 20182019 Form 10-K). All significant intercompany transactions have been eliminated in consolidation. These unaudited condensed consolidated interim financial statements include estimates and assumptions of management that affect the amounts reported in the condensed consolidated financial statements. Actual results could differ from these estimates.

Fair value of financial instruments
The Company records all financial instruments, including cash and cash equivalents, accounts receivable, notes receivable, accounts payable, other accruals, and notes payable at cost, which approximates fair value due to their short term or stated rates.  Investments in marketable equity securities are recorded at fair value.  The 6.50% senior secured notes due 2023 (senior secured notes) were carried at a cost of $395.7$396.2 million at September 30, 2019.March 31, 2020. The fair value of the senior secured notes at September 30, 2019,March 31, 2020, as obtained through an independent pricing source, was approximately $319.4 million.$174.0 million.

Cash dividends
The Company declared cash dividends of $0.005$0.005 per share of common stock for each of the quartersquarters ended September 30, 2019March 31, 2020 and 2018,2019, respectively. The thirdfirst quarter 20192020 cash dividend of $0.005$0.005 per share of common stock was paid on OctoberApril 15, 2019,2020, to shareholders of record on September 30, 2019.March 31, 2020.

New accounting standards:standards

Adoption of new accounting standards
On January 1, 2019, the Company adoptedRecently Adopted Accounting Standards Update (ASU) No. 2016-02, "Leases (Topic 842)" (the New Lease Standard) to increase transparency and comparability among entities by recognizing lease assets and liabilities on the balance sheet and disclosing key information about lease arrangements. Titan elected the modified retrospective with cumulative effect transition approach to adopt the New Lease Standard and thus will not restate its comparative periods in the year of transition. The Company adopted the practical expedients of the New Lease Standard which include (i) not reassessing whether expired or existing contracts contain leases, (ii) not reassessing the lease classification for any expired or existing leases, and (iii) not revaluing initial direct costs for existing leases. The Company did not elect the hindsight practical expedient. The adoption of this standard resulted in the recognition of operating lease right-of-use assets and corresponding lease liabilities on the Condensed Consolidated Balance Sheet, which resulted in a net credit adjustment to retained earnings as of January 1, 2019, of $0.6 million. The New Lease Standard did not materially impact operating results or liquidity. Further disclosures related to the New Lease Standard are included in Note 10, Leases.

The Company adopted ASU No. 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" effective January 1, 2019. The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act (the 2017 TCJA). Consequently, the amendments eliminate the stranded tax effects resulting from the 2017 TCJA and improve the usefulness of information reported to financial statement users. As a result of adopting this standard, the Company recorded a $4.9 million reclassification to decrease accumulated other comprehensive income and increase retained earnings as of January 1, 2019.


TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)


The Company adopted the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606, "Revenue from Contracts with Customers" (the New Revenue Standard), effective January 1, 2018, using the modified retrospective approach which requires the recognition of the cumulative effect of initially applying the standard as an adjustment to opening retained earnings for the fiscal year beginning January 1, 2018. The adoption of the New Revenue Standard resulted in the recognition of an immaterial cumulative adjustment to opening retained earnings as of January 1, 2018, and had an immaterial effect on the Company’s financial position and results of operations. Results for reporting periods beginning after January 1, 2018, are presented under the New Revenue Standard, which prescribes that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Titan recognizes revenue when the performance obligations specified in the Company's contracts have been satisfied. Titan's contracts typically contain a single performance obligation that is fulfilled on the date of delivery based on shipping terms stipulated in the contract. The impact of the Company's adoption of the New Revenue Standard on net sales was immaterial and the disaggregation of revenues, which is based on the major markets the Company serves, has not changed from how it is presented in Note 18, Segment Information in Item 1 of this Form 10-Q.

The Company adopted ASU No. 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost" on January 1, 2018, using the retrospective transition method. This standard changed the presentation of net periodic pension and postretirement benefit cost (net benefit cost) within the Condensed Consolidated Statement of Operations. Under the previous guidance, net benefit cost was reported as an employee cost within operating income. The amendment requires the bifurcation of net benefit cost, with the service cost component to be presented with other employee compensation costs in operating income, while the other components will be reported separately outside of income from operations.

The Company early-adopted ASU No. 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," effective September 30, 2018, using the retrospective approach. ASU 2018-15 requires a customer in a hosting arrangement that is a service contract to apply the guidance on internal-use software to determine which implementation costs to recognize as an asset and which costs to expense. Costs to develop or obtain internal-use software that cannot be capitalized under Subtopic 350-40, such as training costs and certain data conversion costs, also cannot be capitalized for a hosting arrangement that is a service contract. The amendments in this update require a customer in a hosting arrangement that is a service contract to determine whether an implementation activity relates to the preliminary project stage, the application development stage, or the post-implementation stage. Costs for implementation activities in the application development stage will be capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post-implementation stages will be expensed. As a result of the adoption of this accounting standard, the Company capitalized an aggregate of $7.4 million of implementation costs for the year ended December 31, 2018, from selling, general and administration in the Condensed Consolidated Statement of Operations to other assets in the Condensed Consolidated Balance Sheets.

In March 2018,June 2016, the FASB issued ASU No. 2018-05, "Income Taxes2016-13, Financial Instruments - Credit Losses (Topic 740)326): AmendmentsMeasurement of Credit Losses on Financial Instruments, which amends the current accounting guidance and requires the measurement of all expected losses based on historical experience, current conditions and reasonable and supportable forecasts. For trade receivables, loans, and other financial instruments, we are required to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118." This ASU updatesuse a forward-looking expected loss model that reflects losses that are probable rather than the income tax accounting in US GAAP to reflect the SEC's interpretive guidance released onincurred loss model for recognizing credit losses. The standard became effective for interim and annual periods beginning after December 22, 2017, when the 2017 TCJA was enacted.

15, 2019. In May 2017,addition, the FASB issued ASU No. 2017-09, "Stock Compensation (Topic 718): Scope2019-04, Codification Improvements to Topic 326 which provides clarity on certain aspects of Modification Accounting." This update provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. Disclosure requirements under Topic 718 remain unchanged.amendments in ASU 2016-13. The Company adopted ASU 2017-09 effectivethis guidance prospectively on January 1, 2018. The adoption of this guidance2020 and it did not have a material effect on the Company's condensed consolidated financial statements; no changes were made to the terms or conditions of share-based payments.statements.

In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments." This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The Company adopted this guidance effective January 1, 2018, with no resulting changes to the Company's condensed consolidated financial statements.





TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Accounting standards issued but not yet adopted
In August 2018, the FASB issued ASU No. 2018-13, "Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The amendments in this update are effective for fiscal years beginning after December 15, 2019. The adoption ofWe adopted this guidance isASU on January 1, 2020 and it did not expected to have a material effect on the Company's condensed consolidated financial statements.

Accounting standards issued but not yet adopted

In August 2018, the FASB issued ASU No. 2018-14, "Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." The amendments in this update modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments in this update are effective for fiscal years ending after

6


TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

December 15, 2020. The adoption of this guidance is not expected to have a material effect on the Company's condensed consolidated financial statements.


2. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following as of the dates set forth below (amounts in thousands):
September 30,
2019		 December 31,
2018
March 31,
2020
 
December 31,
2019
Accounts receivable$224,451
 $245,236
$
215,633

 
$
188,952

Allowance for doubtful accounts(3,223) (3,404)
(3,651
)
 
(3,714
)
Accounts receivable, net$221,228
 $241,832
$
211,982

 
$
185,238


Accounts receivable are reduced by an estimated allowance for doubtful accounts for estimated uncollectible accounts receivable, which is based on known risksupon historical experience and historical losses.specific customer collection issues. Accounts are written off against the allowance account when they are determined to no longer be collectible.


3. INVENTORIES
 
Inventories consisted of the following as of the dates set forth below (amounts in thousands):
September 30,
2019		 December 31,
2018
March 31,
2020
 
December 31,
2019
Raw material$92,468
 $110,806
$
72,597

 
$
83,569

Work-in-process53,218
 55,543
49,414

 
48,369

Finished goods206,185
 229,386
184,060

 
201,418

$351,871
 $395,735
$
306,071

 
$
333,356


 
Inventories are valued at the lower of cost or net realizable value. Net realizable value is estimated based on current selling prices. Inventory costs are calculated using the first-in, first-out (FIFO) method or average cost method. Estimated provisions are established for slow-moving and obsolete inventory.




TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

4. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consisted of the following as of the dates set forth below (amounts in thousands):
September 30,
2019		 December 31,
2018
March 31,
2020
 
December 31,
2019
Land and improvements$44,658
 $43,562
$
41,266

 
$
44,386

Buildings and improvements256,251
 255,451
253,949

 
265,281

Machinery and equipment592,450
 592,932
585,230

 
605,743

Tools, dies and molds110,302
 109,537
110,692

 
113,603

Construction-in-process19,839
 18,867
14,725

 
16,237

1,023,500
 1,020,349
1,005,862

 
1,045,250

Less accumulated depreciation(657,379) (635,477)
(661,784
)
 
(670,452
)
$366,121
 $384,872
$
344,078

 
$
374,798


 
Depreciation on property, plant and equipment for the ninethree months ended September 30, 2019March 31, 2020 and 2018,2019, totaled $38.9$12.9 million and $40.7$13.8 million, respectively.


7


TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

The Company recorded a $2.6 million asset impairment charge during the three months endedMarch 31, 2020 related to certain machinery and equipment located at Titan Tire Reclamation Corporation (TTRC) in Canada as a result of market declines which indicated the remaining book value of the equipment is more than the fair market value.

5. INTANGIBLE ASSETS, NET

The components of intangible assets consisted of the following as of the dates set forth below (amounts in thousands):
Weighted Average Useful Lives (in years) September 30, 2019 September 30,
2019		 December 31,
2018
Weighted Average Useful Lives (in years) March 31, 2020
 
March 31,
2020
 
December 31,
2019
Amortizable intangible assets:    
 
 
 
 
Customer relationships7.9 $12,151
 $12,967
7.4
 
$
11,047

 
$
12,629

Patents, trademarks and other7.8 11,224
 11,356
8.5
 
9,897

 
11,598

Total at cost 23,375
 24,323
 
20,944

 
24,227

Less accumulated amortization (13,407) (12,676)
 
(12,662
)
 
(14,461
)
 $9,968
 $11,647
 
$
8,282

 
$
9,766


   
Amortization related to intangible assets for the ninethree months ended September 30, 2019March 31, 2020 and 2018,2019, totaled $1.5$0.6 million and $1.8$0.5 million, respectively. Intangible assets are included as a component of other assets in the Condensed Consolidated Balance Sheet.

The estimated aggregate amortization expense at September 30, 2019,March 31, 2020, for each of the years (or other periods) set forth below was as follows (amounts in thousands):
October 1 - December 31, 2019$573
20202,029
April 1 - December 31, 2020
$
1,455

20211,331
1,207

2022955
881

2023955
881

2024
880

Thereafter4,125
2,978

$9,968
$
8,282






TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

6. WARRANTY

Changes in the warranty liability during the ninethree months ended September 30, 2019March 31, 2020 and 2018,2019, respectively, consisted of the following (amounts in thousands):
2019 2018
2020
 
2019
Warranty liability, January 1$16,327
 $18,612
$
14,334

 
$
16,327

Provision for warranty liabilities3,599
 5,522
1,962

 
1,714

Warranty payments made(4,969) (5,407)
(2,028
)
 
(1,795
)
Warranty liability, September 30$14,957
 $18,727
Warranty liability, March 31
$
14,268

 
$
16,246



The Company provides limited warranties on workmanship on its products in all market segments. The majority of the Company’sCompany’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 Sheet.

8


TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)



7. REVOLVING CREDIT FACILITY AND LONG-TERM DEBT
 
Long-term debt consisted of the following as of the dates set forth below (amounts in thousands):
September 30, 2019
March 31, 2020
Principal Balance Unamortized Debt Issuance Net Carrying Amount
Principal Balance
 
Unamortized Debt Issuance
 
Net Carrying Amount
6.50% senior secured notes due 2023$400,000
 $(4,259) $395,741
$
400,000

 
$
(3,816
)
 
$
396,184

Titan Europe credit facilities41,236
 —
 41,236
40,009

 
—

 
40,009

Revolving credit facility59,000
 —
 59,000
30,000

 
—

 
30,000

Other debt28,202
 —
 28,202
19,830

 
—

 
19,830

Capital leases4,876
 —
 4,876
4,802

 
—

 
4,802

Total debt533,314
 (4,259) 529,055
494,641

 
(3,816
)
 
490,825

Less amounts due within one year64,228
 —
 64,228
46,275

 
—

 
46,275

Total long-term debt$469,086
 $(4,259) $464,827
$
448,366

 
$
(3,816
)
 
$
444,550


 
December 31, 2018
December 31, 2019
Principal Balance Unamortized Debt Issuance Net Carrying Amount
Principal Balance
 
Unamortized Debt Issuance
 
Net Carrying Amount
6.50% senior secured notes due 2023$400,000
 $(4,897) $395,103
$
400,000

 
$
(4,040
)
 
$
395,960

Titan Europe credit facilities35,115
 —
 35,115
43,591

 
—

 
43,591

Revolving credit facility
36,000

 
—

 
36,000

Other debt28,429
 —
 28,429
24,171

 
—

 
24,171

Capital leases2,810
 —
 2,810
4,880

 
—

 
4,880

Total debt466,354
 (4,897) 461,457
508,642

 
(4,040
)
 
504,602

Less amounts due within one year51,885
 —
 51,885
61,253

 
—

 
61,253

Total long-term debt$414,469
 $(4,897) $409,572
$
447,389

 
$
(4,040
)
 
$
443,349





TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Aggregate principal maturities of long-term debt at September 30, 2019,March 31, 2020, for each of the years (or other periods) set forth below were as follows (amounts in thousands):
October 1 - December 31, 2019$43,914
202022,159
April 1 - December 31, 2020
$
40,591

20212,810
16,127

202261,891
31,848

2023401,593
401,470

2024
583

Thereafter947
4,022

$533,314
$
494,641


 
6.50% senior secured notes due 2023
The senior secured notes are due November 2023. Including the impact of debt issuance costs, these notes had an effective yield of 6.79% at issuance. These notes are secured by the land and buildings of the following subsidiaries of the Company:  Titan Tire Corporation, Titan Tire Corporation of Bryan, Titan Tire Corporation of Freeport, and Titan Wheel Corporation of Illinois.


9


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 $41.2$40.0 million in aggregate principal amount at September 30, 2019.March 31, 2020. Maturity dates on this debt range from less than one year to nine years. The Titan Europe facilities are secured by the assets of Titan's subsidiaries in Italy, Spain, Germany, and Brazil.

Revolving credit facility
The Company has a $125$125 million revolving credit facility (credit facility) with agent BMO Harris Bank N.A. and other financial institutions party thereto. The credit facility is collateralized by accounts receivable and inventory of certain of the Company’sCompany’s domestic subsidiaries and is scheduled to mature in February 2022. From time to time Titan's availability under this credit facility may be less than $125$125 million as a result of outstanding letters of credit and eligible accounts receivable and inventory balances at certain of its domestic subsidiaries. At September 30, 2019,March 31, 2020, under the credit facility there were $59.0$30.0 million in borrowings, a $10.3an $11.5 million letter of credit, and the amount available totaled $37.3 million.$62.3 million.

Other debt
The Company has working capital loans at Titan Pneus do Brasil Ltda and Voltyre-Prom at various interest rates, which totaled $8.2$10.0 million and $19.6$9.8 million at September 30, 2019,March 31, 2020, respectively. Maturity dates on this debt range from less than one year to three years.


8. DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses financial derivatives to mitigate its exposure to volatility in foreign currency exchange rates. These derivative financial instruments are recognized at fair value. The Company has not designated these financial instruments as hedging instruments. Any gain or loss on the re-measurement of the fair value is recorded as an offset to currency exchange gain/loss. For the three and nine months ended September 30, 2019, the Company recorded currency exchange losses related to these derivatives of $0.0 million and $0.9 million, respectively; and for the three and nine months ended September 30, 2018, the Company recorded currency exchange gains related to these derivatives of $0.1 million and $0.2 million, respectively.




TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

9. REDEEMABLE NONCONTROLLING INTEREST

The Company, in partnership with One Equity Partners (OEP) and the Russian Direct Investment Fund (RDIF), owned all of the equity interests in Voltyre-Prom, a leading producer of agricultural and industrial tires in Volgograd, Russia. The Company is party to a shareholders' agreement with OEP and RDIF (Shareholders' Agreement) which was entered into in connection with the acquisition of Voltyre-Prom. The agreement contains a settlement put option which was exercisable during a six-month period beginning July 9, 2018. The settlement put option required Titan to purchase the equity interests from OEP and RDIF in Voltyre-Prom with cash or Titan common stock, at a value set by the agreement. The value set by the agreement was the greater of: the aggregate of the investment of the selling party and an amount representing an internal rate of return of 8%, or the last twelve months of EBITDA multiplied by 5.5 less net debt times the selling party's ownership percentage.

On November 14, 2018, the Company received notification of exercise of the put option from RDIF. On February 11, 2019, the Company entered into a definitive agreement (the "Agreement") with an affiliate of RDIF relating to the put option that was exercised by RDIF. The transactions contemplated by the Agreement closed on February 22, 2019. Under the terms of the Agreement, in full satisfaction of the settlement put option that was exercised by RDIF, Titan paid to RDIF $25 million in cash at the closing of the transaction, and agreed, subject to the completion of regulatory approval, to issue to RDIF in a private placement 4,032,259 shares of restricted Titan common stock. Due to pending regulatory approval, the issuance of the shares of restricted Titan common stock pursuant to the Agreement was not completed as of September 30, 2019.March 31, 2020. Immediately following the closing, RDIF continued to own the same interest in Voltyre-Prom, subject to the terms of the Agreement and the Shareholders’Shareholders’ Agreement. Titan has retained the right to buy back the Titan shares from RDIF for $25 million until February 12, 2022, the three-year anniversary of the signing of the Agreement, and, if the stock buyback is consummated within the first year, at the time of such buyback, RDIF would be required to convey to Titan, based on current ownership, a 10.71% interest in Voltyre-Prom, resulting in RDIF reducing its interest in Voltyre-Prom from 35.7% to 25%.

On January 8, 2019, the Company received notification of exercise of the put option from OEP. During the second quarter of 2019, the Company made a payment to OEP in the amount of $16.0$16.0 million representing the majority of the interest on the amount due to OEP with respect to the put option. On July 30, 2019, Titan Luxembourg S.àà r.l. (the “Titan Purchaser”“Titan Purchaser”), a subsidiary of the Company, entered into a sale purchase agreement (the “OEP Agreement”“OEP Agreement”) with subsidiaries of OEP, relating to the settlement put option under the Shareholders’Shareholders’ Agreement that was exercised by OEP. Pursuant to the terms of the OEP Agreement, on July 31, 2019, the Titan Purchaser paid to OEP $30.7$30.7 million in cash, which, together with the Titan Purchaser’sPurchaser’s prior payment to OEP of $16.0$16.0 million during the second quarter of 2019, were made in full satisfaction of the settlement put option exercised by OEP under the Shareholders’Shareholders’ Agreement. Immediately following the closing, OEP ceased to have any ownership interests in, and the Titan Purchaser and RDIF owned 64.3% and 35.7%, respectively, of, Voltyre-Prom.

As of September 30, 2019,March 31, 2020, the value of the redeemable noncontrolling interest held by RDIF was recorded at $25$25 million, the value of the shares of restricted stock to be issued pursuant to the terms of the agreement.

10


TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)


The following is a reconciliation of redeemable noncontrolling interest as of September 30, 2019March 31, 2020 and 20182019 (amounts in thousands):
2019 2018
2020
 
2019
Balance at January 1$119,813
 $113,193
$
25,000

 
$
119,813

Reclassification as a result of Agreement regarding put option(49,883) —
—

 
(49,883
)
Payment of redeemable noncontrolling interest(46,722) —
Loss attributable to redeemable noncontrolling interest(819) (1,106)
—

 
(334
)
Currency translation683
 (3,256)
—

 
428

Redemption value adjustment1,928
 11,066
—

 
776

Balance at September 30$25,000
 $119,897
Balance at March 31,
$
25,000

 
$
70,800



This obligation represents the value of the restricted common stock due to RDIF on September 30, 2019,March 31, 2020, and is presented in the Condensed Consolidated Balance Sheet in redeemable noncontrolling interest, which is treated as mezzanine equity.


9. LEASES

TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

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 842, the Company made an accounting policy election, by class of underlying asset, not to separate non-lease components such as those previously stated from lease components and instead will treat the lease agreement as a single lease component for all asset classes. Operating right-of-use (ROU) assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent Titan's obligations to make lease payments arising from the lease. The majority of Titan's leases are operating leases. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of Titan's leases do not provide an implicit interest rate, the Company used its incremental borrowing rate (6.79%), 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 Statement of Operations. Amortization expense associated with finance leases is included in cost of sales and selling, general and administrative expenses, and interest expense associated with finance leases is included in interest expense in the Condensed Consolidated Statement of Operations. Short-term operating leases, which have an initial term of twelve months or less, are not recorded on the balance sheet.

11


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  September 30, 2019
Balance Sheet Classification
 
March 31, 2020
December 31, 2019
Operating lease ROU assetsOperating lease assets $23,497
Operating lease assets
 
$
20,117

$
23,914

  
 
 
Operating lease current liabilitiesOther current liabilities $6,871
Other current liabilities
 
$
5,767

$
6,729

Operating lease long-term liabilitiesOther long-term liabilities 17,051
Other long-term liabilities
 
14,828

17,360

Total operating lease liabilities $23,922
 
$
20,595

$
24,089

  
 
 
Finance lease, grossProperty, plant & equipment, net $6,897
Property, plant & equipment, net
 
$
6,226

$
6,684

Finance lease accumulated depreciationProperty, plant & equipment, net (1,979)
Property, plant & equipment, net
 
(2,122
)
(2,194
)
Finance lease, net $4,918
 
$
4,104

$
4,490

  
 
 
Finance lease current liabilitiesOther current liabilities $1,145
Other current liabilities
 
$
1,121

$
1,110

Finance lease long-term liabilitiesLong-term debt 3,731
Long-term debt
 
3,681

3,770

Total finance lease liabilities $4,876
 
$
4,802

$
4,880


 
At September 30, 2019,March 31, 2020, maturity of lease liabilities were as follows (amounts in thousands):
Operating Leases Finance Leases
Operating Leases
 
Finance Leases
October 1 - December 31, 2019$3,255
 $597
20207,669
 1,318
April 1 - December 31, 2020
$
5,405

 
$
1,127

20215,922
 1,259
5,730

 
1,476

20224,297
 1,171
4,453

 
1,392

20232,899
 911
3,138

 
978

2024
1,850

 
346

Thereafter4,894
 530
3,498

 
175

Total lease payments$28,936
 $5,786
$
24,074

 
$
5,494

Less imputed interest5,014
 910
3,479

 
692

$23,922
 $4,876
$
20,595

 
$
4,802

   
 
 
 
Weighted average remaining lease term (in years)4.8
 4.4
4.6

 
3.9


Supplemental cash flow information related to leases for the ninethree months ended September 30, 2019March 31, 2020 were as follows: operating cash flows from operating leases were $7.3$2.1 million and operating cash flows from finance leases were $0.2 million.$0.1 million.

12


TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

11.10. 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 $1.8$0.4 million to the pension plans during the ninethree months ended September 30, 2019,March 31, 2020, and expects to contribute approximately $1.0$1.4 million to the pension plans during the remainder of 2019.2020.
 
The components of net periodic pension cost consisted of the following for the periods set forth below (amounts in thousands):
Three months ended Nine months ended
Three months ended
September 30, September 30,
March 31,
2019 2018 2019 2018
2020
 
2019
Service cost$228
 $169
 $658
 $447
$
286

 
$
225

Interest cost1,075
 1,056
 3,304
 3,237
862

 
1,123

Expected return on assets(1,186) (1,487) (3,563) (4,470)
(1,360
)
 
(1,189
)
Amortization of unrecognized prior service cost56
 50
 169
 150
—

 
56

Amortization of net unrecognized loss766
 682
 2,296
 2,048
696

 
765

Net periodic pension cost$939
 $470
 $2,864
 $1,412
$
484

 
$
980


Service cost is recorded as cost of sales in the Condensed Consolidated Statement of Operations while all other components are recorded in other income.


12.11. VARIABLE INTEREST ENTITIES
 
The Company holds a variable interest in two joint ventures for which the Company is the primary beneficiary. These joint ventures operate distribution facilities that primarily distribute mining products. Titan is the 50% owner of one of these distribution facilities, which is located in Canada, and the 40% owner of the other such facility, which is located in Australia. The Company’sCompany’s variable interests in these two joint ventures relate to sales of Titan product to these entities, consigned inventory, and working capital loans. Titan also is party to a joint venture that is the consortium that owns Voltyre-Prom, of which Titan originally was a 43% owner. On July 31, 2019, however, Titan purchased additional shares resulting in a 64.3% ownership in the consortium and the joint venture became a majority owned entity and is no longer a variable interest entity (a VIE). See Note 98 for additional information.
 
The Company also holdsheld a variable interest in fivetwo other entities for which Titan iswas the primary beneficiary. Each of these entities providesprovided specific manufacturing related services at the Company's Tennessee facility. Titan's variable interest in these entities relates to financial support as Titan providesto the entities through providing many of the assets used by these entities in their business. The Company owns no equity in these entities. In March 2020, the Company delivered a notice of termination of the supply agreement with these entities and the Company no longer holds a variable interest in them.
 
As the primary beneficiary of these VIEs', the VIEs’VIEs’ assets, liabilities, and results of operations are included in the Company’sCompany’s condensed consolidated financial statements. The other equity holders’holders’ interests are reflected in “Net“Net (loss) income attributable to noncontrolling interests”interests” in the Condensed Consolidated Statements of Operations and “Noncontrolling interests”“Noncontrolling interests” in the Condensed Consolidated Balance Sheets.

 

13


TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

The following table summarizes the carrying amount of the VIEs’VIEs’ assets and liabilities included in the Company’sCompany’s Condensed Consolidated Balance Sheets at September 30, 2019, and December 31, 2018 (amounts in thousands):Sheets:
September 30,
2019		 December 31, 2018
March 31,
2020
 
December 31, 2019
Cash and cash equivalents$2,878
 $9,064
$
1,300

 
$
2,190

Inventory620
 12,987
871

 
1,070

Other current assets2,778
 38,533
1,650

 
1,027

Property, plant and equipment, net1,363
 28,057
1,214

 
1,327

Other long-term assets—
 2,971
Total assets$7,639
 $91,612
$
5,035

 
$
5,614

   
 
 
 
Current liabilities$1,190
 $36,246
$
886

 
$
1,110

Other long-term liabilities553
 6,353
523

 
579

Total liabilities$1,743
 $42,599
$
1,409

 
$
1,689


 
All assets in the above table can only be used to settle obligations of the consolidated VIE to which the respective assets relate. Liabilities are nonrecourse obligations. Amounts presented in the table above are adjusted for intercompany eliminations.
The Company holds variable interests in certain VIEs that are not consolidated because Titan is not the primary beneficiary. The Company's involvement with these entities is in the form of direct equity interests and prepayments related to purchases of materials. The maximum exposure to loss as reflected in the table below 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 related to non-consolidated VIEs as of the dates set forth below were as follows (amounts in thousands):
September 30,
2019		 December 31, 2018
March 31,
2020
 
December 31, 2019
Investments$5,044
 $3,985
$
4,694

 
$
4,973

Other current assets—
 1,200
—

 
—

Total VIE assets5,044
 5,185
4,694

 
4,973

Accounts payable2,353
 2,350
1,548

 
2,006

Maximum exposure to loss$7,397
 $7,535
$
6,242

 
$
6,979




13.12. ROYALTY EXPENSE

The Company has trademark license agreements with The Goodyear Tire && Rubber Company to manufacture and sell certain farm tires under the Goodyear name. These agreements cover sales in North America, Latin America, Europe, the Middle East, Africa, Russia, and other Commonwealth of Independent States countries. Each of these agreements is scheduled to expire in 2025. Royalty expenses were $2.5$2.5 million and $2.6$2.6 million for the quarters ended September 30, 2019 and 2018, respectively, and $7.5 million and $7.9 million for the ninethree months ended September 30, 2019March 31, 2020 and 2018,2019, respectively.
 


14


TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

14.13. OTHER INCOME

Other income consisted of the following for the periods set forth below (amounts in thousands):
Three months ended Nine months ended
Three months ended
September 30, September 30,
March 31,
2019 2018 2019 2018
2020
 
2019
Gain on property insurance settlement (1)
$
4,936

 
$
—

Gain on Wheels India Limited share sale$4,695
 $—
 $4,695
 $—
1,302

 
—

Equity investment income445
 1,016
 2,294
 3,199
605

 
875

Gain on sale of assets
348

 
370

Building rental income362
 381
 1,096
 1,369
316

 
255

Interest income193
 456
 834
 1,605
115

 
340

(Loss) gain on sale of assets(59) 246
 708
 423
Other (expense) income(377) 5,338
 (1,303) 11,068
Other (expense)
(186
)
 
(844
)
$5,259
 $7,437
 $8,324
 $17,664
$
7,436

 
$
996



(1) The gain on property insurance settlement relates to the receipt of insurance proceeds during the three months ended March 31, 2020 for a 2017 fire that occurred at a facility of Titan Tire Reclamation Corporation (TTRC), a subsidiary of the Company, located in Fort McMurray in Alberta, Canada.



15.14. INCOME TAXES

The Company recorded income tax expense of $2.1$0.1 million and $2.8$1.9 million for the quarters ended September 30, 2019 and 2018, respectively. For the ninethree months ended September 30, 2019March 31, 2020 and 2018, the Company recorded income tax expense of $0.8 million and $3.7 million,2019, respectively. The Company's effective income tax rate was (11)(0.2)% and 51%66% for the quarters ended September 30, 2019 and 2018, and (3)% and 12% for the ninethree months ended September 30, 2019March 31, 2020 and 2018,2019, respectively.

The Company’s 2019Company’s first quarter 2020 and 20182019 income tax expense and rates differed from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income primarily as a result of U.S. and certain foreign jurisdictions that incurred a full valuation allowance on deferred tax assets created by current year projected losses and partially offset by a reduction of the liability for unrecognized tax positions. In addition, there were non-deductible royalty expenses and statutorily required income adjustments made in certain foreign jurisdictions that negatively impacted the tax rate for the ninethree months endedMarch 31, 2020 and 2019.
September 30, 2019 and 2018.

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 deferred tax assets in the U.S. and certain foreign jurisdictions and continues to monitor and assess potential valuation allowances in all its jurisdictions.

The 2017 TCJATax Cuts and Jobs Act was enacted on December 22, 2017 and included a number of changes in existing tax law impacting businesses, including a one-time deemed repatriation of cumulative undistributed foreign earnings and a permanent reduction in the U.S. federal statutory income tax rate from 35% to 21% effective January 1, 2018.  Under US GAAP, changes in tax rates and tax law are accounted for in the period of enactment and deferred tax assets and liabilities are re-measured at the enacted tax rate. The re-measured U.S. net deferred asset was fully offset by a change in the valuation allowance in 2017. The Company’s net cumulative undistributed foreign earnings were a cumulative loss and therefore no additional income tax expense related to the one-time deemed repatriation toll charge was recorded in 2017.

The 2017 TCJA also created a new requirement that certain income (i.e., global intangible low taxed income, hereinafter referred to as GILTI) earned by foreign subsidiaries must be included currently in the gross income of the U.S. shareholder. For 20182020 and 2019, the Company has estimated an amount of GILTI income that is to be included in the calculation of 20182020 and 2019 income tax expense. This GILTI income inclusion,inclusion; however, is fully offset by a change in the valuation allowance.

On March 27, 2020, the U.S. government passed the CARES Act, which provides tax relief to assist companies dealing with the effects of the novel strain of the coronavirus ("COVID-19"). The Company does not expect the impact of the CARES ACT to be material to the Company’s financial position or results of operations, except for the deferral of Social Security payroll taxes, which will benefit the Company's operating cash flows through the end of calendar year 2020.


15




TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)


16.
 
15. EARNINGS PER SHARE
 
Earnings per share (EPS) were as follows for the periods presented below (amounts in thousands, except per share data):
Three months ended Nine months ended
Three months ended
September 30, September 30,
March 31,
2019 2018 2019 2018
2020
 
2019
       
 
 
 
Net (loss) income attributable to Titan$(19,144) $2,295
 $(23,590) $28,378
$
(25,486
)
 
$
1,977

Redemption value adjustment(491) (4,045) (1,928) (11,066)
—

 
(776
)
Net (loss) income applicable to common shareholders$(19,635) $(1,750) $(25,518) $17,312
$
(25,486
)
 
$
1,201

Determination of shares:       
 
 
 
Weighted average shares outstanding (basic)60,161
 59,897
 60,037
 59,787
60,360

 
59,946

Effect of equity awards/trusts—
 —
 —
 106
Effect of equity awards
—

 
—

Weighted average shares outstanding (diluted)60,161
 59,897
 60,037
 59,893
60,360

 
59,946

Earnings per share:       
 
 
 
Basic and diluted(0.33) (0.03) (0.43) 0.29
(0.42
)
 
0.02


The effect of equity awards has been excluded for the three and nine months ended September 30, 2019, and for the three months ended September 30, 2018,March 31, 2020, as the effect would have been antidilutive. The weighted average share amount excluded for equity awards was 9 thousand shares for each the three and nine months ended September 30, 2019, and 18 thousand shares for the three months ended September 30, 2018.March 31, 2020, was 0.1 million.


16


TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

17.16. LITIGATION
 
The Company is a party to routine legal proceedings arising out of the normal course of business. Due to the difficult nature of predicting unresolved and future legal claims, the Company cannot anticipate or predict the material adverse effect on its consolidated financial condition, results of operations, or cash flows as a result of efforts to comply with, or liabilities pertaining to, legal judgments.

At September 30, 2019,March 31, 2020, two of Titan’sTitan’s subsidiaries were involved in litigation concerning environmental laws and regulations.

In June 2015, Titan Tire Corporation (Titan Tire) and Dico, Inc. (Dico) appealed a U.S. District Court order granting the U.S. motion for summary judgment that found Dico liable for violating the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) and an Environmental Protection Agency (EPA) Administrative Order and awarded response costs, civil penalties, and punitive damages.

In December 2015, the United States Court of Appeals for the Eighth Circuit reversed the District Court’sCourt’s summary judgment order with respect to “arranger”“arranger” liability for Titan Tire and Dico under CERCLA and the imposition of punitive damages against Dico for violating the EPA Administrative Order, but affirmed the summary judgment order imposing civil penalties in the amount of $1.62$1.62 million against Dico for violating the EPA Administrative Order. The case was remanded to the District Court for a new trial on the remaining issues.

The trial occurred in April 2017. On September 5, 2017, the District Court issued an order: (a) concluding Titan Tire and Dico arranged for the disposal of a hazardous substance in violation of 42 U.S.C. §§ 9607(a); (b) holding Titan Tire and Dico jointly and severally liable for $5.45$5.45 million in response costs previously incurred and reported by the United States relating to the alleged violation, including enforcement costs and attorney’sattorney’s fees; and (c) awarding a declaratory judgment holding Titan Tire and Dico jointly and severally liable for all additional response costs previously incurred but not yet reported or to be incurred in the future, including enforcement costs and attorney’sattorney’s fees. The District Court also held Dico liable for $5.45$5.45 million in punitive damages under 42 U.S.C. §§ 9607(c)(3) for violating a unilateral administrative order. The punitive damages award does not apply to Titan Tire. The Company accrued a contingent liability of $6.5$6.5 million, representing $5.45$5.45 million in costs incurred by the United States and $1.05$1.05 million of additional response costs, for this order in the quarter ended September 30, 2017. As of September 30, 2019,March 31, 2020, the $6.5$6.5 million contingent liability remains outstanding.

Titan Tire and Dico appealed the case to the United States Court of Appeals for the Eighth Circuit. On April 11, 2019, the U.S. Court of Appeals for the Eighth Circuit affirmed the District Court’sCourt’s September 5, 2017, order. Thereafter, Dico and Titan Tire filed a petition for rehearing with the U.S. Court of Appeals for the Eighth Circuit, which was denied in August 2019. As a result of the current judgment in favor of the United States, and pursuant to Iowa Code §§ 624.23, a judgment lien exists over Titan Tire’sTire’s real property in the State of Iowa. Titan Tire maintains a supersedeas bond in the amount of $6.0$6.0 million relating to the judgment. The United States has indicated that it does not currently intend to take steps to execute on this judgment lien in light of ongoing settlement discussions between the parties. However, there can be no assurance that the parties will settle this matter on terms acceptable to the parties.







17





TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

18.17. 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. Segment external sales, expenses, and income from operations are determined based on the results of operations for the operating units of the Company's manufacturing facilities. Segment assets are generally determined on the basis of the tangible assets located at such operating units’units’ manufacturing facilities and the intangible assets associated with the acquisitions of such operating units. However, certain operating units’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 market segments, with each reportable segment including wheels, tires, wheel/tire assemblies, and undercarriage systems and components.
The table below presents information about certain operating results, separated by market segments, for each of the three and nine months ended September 30, 2019March 31, 2020 and 20182019 (amounts in thousands):

Three months ended Nine months ended
Three months ended

September 30, September 30,
March 31,
2019 2018 2019 2018
2020
 
2019
Net sales    
 
 
 
 
Agricultural$156,625
 $163,367
 $512,639
 $544,404
$
172,938

 
$
191,730

Earthmoving/construction155,659
 180,362
 517,186
 568,057
136,922

 
176,745

Consumer33,621
 40,990
 117,051
 126,544
31,640

 
41,899

$345,905
 $384,719
 $1,146,876
 $1,239,005
$
341,500

 
$
410,374

Gross profit 
  
    
 

 
 

Agricultural$10,426
 $19,921
 $46,798
 $77,153
$
14,027

 
$
22,125

Earthmoving/construction12,935
 17,819
 50,806
 64,541
10,754

 
18,170

Consumer3,739
 5,964
 13,068
 19,883
2,463

 
4,969

$27,100
 $43,704
 $110,672
 $161,577
$
27,244

 
$
45,264

(Loss) income from operations 
  
    
 

 
 

Agricultural$(1,230) $11,539
 $17,062
 $51,862
$
(4,694
)
 
$
13,928

Earthmoving/construction(2,938) 6,056
 8,293
 27,584
(6,994
)
 
5,528

Consumer(229) 3,225
 3,120
 10,822
(295
)
 
2,121

Corporate & Unallocated(8,219) (15,997) (39,385) (47,099)
Corporate & Unallocated
2,380

 
(17,441
)
(Loss) income from operations(12,616) 4,823
 (10,910) 43,169
(9,603
)
 
4,136

       
 
 
 
Interest expense(8,357) (7,596) (24,585) (22,786)
(8,035
)
 
(7,933
)
Foreign exchange (loss) gain(2,266) 855
 2,218
 (7,187)
(17,242
)
 
5,723

Other income, net5,259
 7,437
 8,324
 17,664
7,436

 
996

(Loss) income before income taxes$(17,980) $5,519
 $(24,953) $30,860
$
(27,444
)
 
$
2,922


Assets by segment were as follows as of the dates set forth below (amounts in thousands):
September 30,
2019		 December 31,
2018
March 31,
2020
 
December 31,
2019
Total assets 
  
 

 
 

Agricultural$471,906
 $464,828
$
435,679

 
$
423,955

Earthmoving/construction502,030
 543,927
455,371

 
496,988

Consumer116,246
 129,994
108,864

 
123,320

Corporate & Unallocated99,420
 112,507
Corporate & Unallocated
60,340

 
70,044

$1,189,602
 $1,251,256
$
1,060,254

 
$
1,114,307

 

18


TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

19. FAIR VALUE MEASUREMENTS
Accounting standards for fair value measurements establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.  These tiers are defined as:
Level 1 – Quoted prices in active markets for identical instruments.
Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable.
Level 3 – Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
Assets and liabilities measured at fair value on a recurring basis consisted of the following as of the dates set forth below (amounts in thousands):
 September 30, 2019 December 31, 2018
 Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
Derivative financial instruments asset$—
 $—
 $—
 $—
 $902
 $—
 $902
 $—


20.18. RELATED PARTY TRANSACTIONS
 
The Company sells products and pays commissions to companies controlled by persons related to the Chairman of the Board of Directors of the Company, Mr. Maurice Taylor. The related party is Mr. Fred Taylor, who is Mr. Maurice Taylor’sTaylor’s brother. The companies with which Mr. Fred Taylor is associated that do business with Titan include the following: Blacksmith OTR, LLC; F.B.T. Enterprises, Inc.; Green Carbon, Inc.; Silverstone, Inc.; and OTR Wheel Engineering, Inc.  Sales of Titan products to these companies were approximately $0.3$0.1 million and $0.9$0.3 million for the three and nine months ended September 30, 2019, respectively,March 31, 2020 and approximately $0.3 million and $1.0 million for the three and nine months ended September 30, 2018,2019, respectively. Titan had trade receivables due from these companies of approximately $0.2$0.1 million at September 30, 2019,March 31, 2020, and approximately $0.2$0.1 million at December 31, 2018.2019.  Sales commissions paid to the above companies were approximately $0.4$0.2 million and $1.1 for the three months endedMarch 31, 2020 as compared to $0.4 million for the three and nine months ended September 30,March 31, 2019 respectively, as compared to $0.4 million and $1.4 million.
 


19. ACCUMULATED OTHER COMPREHENSIVE LOSS
 
Currency
Translation
Adjustments
 
Unrecognized
Losses and
Prior Service
Cost
 
 
 
Total
Balance at January 1, 2020
$
(192,507
)
 
$
(26,144
)
 
$
(218,651
)
Currency translation adjustments (1)
(32,004
)
 
—

 
(32,004
)
Defined benefit pension plan entries:
 

 
 

 
 

  Amortization of unrecognized losses and prior service cost,
  net of tax of $(210)
—

 
1,308

 
1,308

Balance at March 31, 2020
$
(224,511
)
 
$
(24,836
)
 
$
(249,347
)

(1) The increase in currency translation adjustments for the three and nine months ended September 30, 2018, respectively.
In July 2013, the Company entered into a Shareholders’ Agreement with OEP and RDIF to acquire Voltyre-Prom. Mr. Richard M. Cashin Jr., a director of the Company,March 31, 2020 is the President of OEP, which owned 21.4% of the joint venture at June 30, 2019.  The Shareholders’ Agreement contained a settlement put option which potentially required the Company to purchase equity interests in the joint venture from OEP and RDIF at a value set by the agreement. On January 8, 2019, the Company received notification of exercise of the put option from OEP. During the second quarter of 2019, the Company made a payment to OEP in the amount of $16 million representing the majority of the interest on the amount due to OEP. On July 30, 2019, the Titan Purchaser entered into the OEP Agreement with subsidiaries of OEP, relatingforeign currency rate fluctuations and also due to the settlement put option under the Shareholders’ Agreement that was exercised by OEP. Pursuant to the terms of the OEP Agreement, on July 31, 2019, the Titan Purchaser paid to OEP $30.7 million in cash, which, together with the Titan Purchaser’s prior payment to OEP of $16 millioncertain intercompany loans during the second quarter of 2019, were made in full satisfaction of the settlement put option exercised by OEP under the Shareholders’ Agreement. Immediately following the closing, OEP ceased to have any ownership interests in, and the Titan Purchaser and RDIF owned 64.3% and 35.7%, respectively, of, Voltyre-Prom. See Note 9 for additional information.quarter.



TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

21. ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss consisted of the following for the periods presented below (amounts in thousands):
 
Currency
Translation
Adjustments
 
Unrecognized
Losses and
Prior Service
Cost
 
 
 
Total
Balance at July 1, 2019$(176,290) $(31,706) $(207,996)
Currency translation adjustments(20,011) —
 (20,011)
Defined benefit pension plan entries: 
  
  
  Amortization of unrecognized losses and prior service cost,
  net of tax of $79
—
 590
 590
Reclassification as a result of ownership change(6,203) —
 (6,203)
Balance at September 30, 2019$(202,504) $(31,116) $(233,620)

 
Currency
Translation
Adjustments
 
Unrecognized
Losses and
Prior Service
Cost
 
 
 
Total
Balance at January 1, 2019$(175,794) $(27,777) $(203,571)
Currency translation adjustments(20,507) —
 (20,507)
Defined benefit pension plan entries: 
  
  
  Amortization of unrecognized losses and prior service cost,
  net of tax of $311
—
 1,594
 1,594
Reclassification as a result of ownership change(6,203) —
 (6,203)
Reclassification from AOCI to retained earnings - adoption of ASU 2018-02—
 (4,933) (4,933)
Balance at September 30, 2019$(202,504) $(31,116) $(233,620)




22.20. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION

The senior secured notes are guaranteed by the following wholly-owned subsidiaries of the Company: Titan Tire Corporation, Titan Tire Corporation of Bryan, Titan Tire Corporation of Freeport, and Titan Wheel Corporation of Illinois. The note guarantees are full and unconditional, joint and several obligations of the guarantors. The guarantees of the guarantor subsidiaries are subject to release in limited circumstances only upon the occurrence of certain customary conditions. See the indenture governing the senior secured notes incorporated by reference to the 20182019 Form 10-K for additional information. The following condensed consolidating financial statements are presented using the equity method of accounting. Certain sales and marketing expenses recorded by non-guarantor subsidiaries have not been allocated to the guarantor subsidiaries.


19


TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

(Amounts in thousands)
Condensed Consolidating Statements of Operations
For the Three Months Ended September 30, 2019
Condensed Consolidating Statements of Operations
For the Three Months Ended March 31, 2020
Titan
 Intl., Inc. (Parent)
 Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Titan
 Intl., Inc. (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales$—
 $141,133
 $345,992
 $(141,220) $345,905
$
—

 
$
159,969

 
$
341,685

 
$
(160,154
)
 
$
341,500

Cost of sales107
 134,169
 325,749
 (141,220) 318,805
166

 
145,550

 
326,115

 
(160,154
)
 
311,677

Asset impairment
—

 
—

 
2,579

 
—

 
2,579

Gross (loss) profit(107) 6,964
 20,243
 —
 27,100
(166
)
 
14,419

 
12,991

 
—

 
27,244

Selling, general and administrative expenses1,513
 12,094
 21,347
 —
 34,954
5,641

 
1,966

 
24,350

 
—

 
31,957

Research and development expenses276
 678
 1,355
 —
 2,309
241

 
709

 
1,460

 
—

 
2,410

Royalty expense679
 860
 914
 —
 2,453
566

 
1,065

 
849

 
—

 
2,480

Loss from operations(2,575) (6,668) (3,373) —
 (12,616)
(Loss) income from operations
(6,614
)
 
10,679

 
(13,668
)
 
—

 
(9,603
)
Interest expense(7,350) (5) (1,002) —
 (8,357)
(7,161
)
 
(6
)
 
(868
)
 
—

 
(8,035
)
Intercompany interest income (expense)884
 841
 (1,725) —
 —
530

 
651

 
(1,181
)
 
—

 
—

Foreign exchange loss(47) (152) (2,067) —
 (2,266)
—

 
(746
)
 
(16,496
)
 
—

 
(17,242
)
Other income (expense)427
 (518) 5,350
 —
 5,259
623

 
(150
)
 
6,963

 
—

 
7,436

Loss before income taxes(8,661) (6,502) (2,817) —
 (17,980)
(Loss) income before income taxes
(12,622
)
 
10,428

 
(25,250
)
 
—

 
(27,444
)
Provision for income taxes635
 126
 1,303
 —
 2,064
(467
)
 
98

 
424

 
—

 
55

Equity in earnings of subsidiaries(10,748) —
 (1,851) 12,599
 —
(15,344
)
 
—

 
7,513

 
7,831

 
—

Net (loss) income(20,044) (6,628) (5,971) 12,599
 (20,044)
(27,499
)
 
10,330

 
(18,161
)
 
7,831

 
(27,499
)
Net loss attributable to noncontrolling interests—
 —
 (900) —
 (900)
—

 
—

 
(2,013
)
 
—

 
(2,013
)
Net (loss) income attributable to Titan$(20,044) $(6,628) $(5,071) $12,599
 $(19,144)
$
(27,499
)
 
$
10,330

 
$
(16,148
)
 
$
7,831

 
$
(25,486
)



20
(Amounts in thousands)
Condensed Consolidating Statements of Operations
For the Three Months Ended September 30, 2018
 
Titan
 Intl., Inc. (Parent)
 Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Net sales$—
 $142,040
 $384,510
 $(141,831) $384,719
Cost of sales150
 128,270
 354,426
 (141,831) 341,015
Gross (loss) profit(150) 13,770
 30,084
 —
 43,704
Selling, general and administrative expenses317
 14,017
 19,375
 —
 33,709
Research and development expenses332
 936
 1,323
 —
 2,591
Royalty expense594
 943
 1,044
 —
 2,581
(Loss) income from operations(1,393) (2,126) 8,342
 —
 4,823
Interest expense(6,817) —
 (779) —
 (7,596)
Intercompany interest income (expense)634
 839
 (1,473) —
 —
Foreign exchange (loss) gain—
 (57) 912
 —
 855
Other income (loss)5,421
 (116) 2,132
 —
 7,437
(Loss) income before income taxes(2,155) (1,460) 9,134
 —
 5,519
Provision for income taxes423
 614
 1,804
 —
 2,841
Equity in earnings of subsidiaries5,256
 —
 (1,984) (3,272) —
Net income (loss)2,678
 (2,074) 5,346
 (3,272) 2,678
Net income attributable to noncontrolling interests—
 —
 383
 —
 383
Net income (loss) attributable to Titan$2,678
 $(2,074) $4,963
 $(3,272) $2,295



TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

(Amounts in thousands)
Condensed Consolidating Statements of Operations
For the Nine Months Ended September 30, 2019
 
Titan
 Intl., Inc. (Parent)
 Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Net sales$—
 $475,652
 $1,147,568
 $(476,344) $1,146,876
Cost of sales248
 438,535
 1,073,765
 (476,344) 1,036,204
Gross (loss) profit(248) 37,117
 73,803
 —
 110,672
Selling, general and administrative expenses4,694
 35,299
 66,612
 —
 106,605
Research and development expenses768
 2,263
 4,439
 —
 7,470
Royalty expense1,743
 3,005
 2,759
 —
 7,507
Loss from operations(7,453) (3,450) (7) —
 (10,910)
Interest expense(21,520) (5) (3,060) —
 (24,585)
Intercompany interest income (expense)2,158
 2,731
 (4,889) —
 —
Foreign exchange (loss) gain(69) (156) 2,443
 —
 2,218
Other income (expense)1,371
 (1,596) 8,549
 —
 8,324
(Loss) income before income taxes(25,513) (2,476) 3,036
 —
 (24,953)
(Benefit) provision for income taxes(6,390) 410
 6,741
 —
 761
Equity in earnings of subsidiaries(6,591) —
 (1,320) 7,911
 —
Net (loss) income(25,714) (2,886) (5,025) 7,911
 (25,714)
Net loss attributable to noncontrolling interests—
 —
 (2,124) —
 (2,124)
Net (loss) income attributable to Titan$(25,714) $(2,886) $(2,901) $7,911
 $(23,590)
(Amounts in thousands)
Condensed Consolidating Statements of Operations
For the Three Months Ended March 31, 2019
 
Titan
 Intl., Inc. (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$
—

 
$
124,781

 
$
410,275

 
$
(124,682
)
 
$
410,374

Cost of sales
152

 
106,516

 
383,124

 
(124,682
)
 
365,110

Gross (loss) profit
(152
)
 
18,265

 
27,151

 
—

 
45,264

Selling, general and administrative expenses
1,151

 
11,608

 
23,146

 
—

 
35,905

Research and development expenses
265

 
829

 
1,523

 
—

 
2,617

Royalty expense
663

 
1,072

 
871

 
—

 
2,606

(Loss) income from operations
(2,231
)
 
4,756

 
1,611

 
—

 
4,136

Interest expense
(6,927
)
 
—

 
(1,006
)
 
—

 
(7,933
)
Intercompany interest income (expense)
630

 
1,009

 
(1,639
)
 
—

 
—

Foreign exchange (loss) gain
(38
)
 
(60
)
 
5,821

 
—

 
5,723

Other income (expense)
330

 
(279
)
 
945

 
—

 
996

(Loss) income before income taxes
(8,236
)
 
5,426

 
5,732

 
—

 
2,922

Provision for income taxes
649

 
151

 
1,115

 
—

 
1,915

Equity in earnings of subsidiaries
9,891

 
—

 
736

 
(10,627
)
 
—

Net income (loss)
1,006

 
5,275

 
5,353

 
(10,627
)
 
1,007

Net loss attributable to noncontrolling interests
—

 
—

 
(970
)
 
—

 
(970
)
Net income (loss) attributable to Titan
$
1,006

 
$
5,275

 
$
6,323

 
$
(10,627
)
 
$
1,977


(Amounts in thousands)
Condensed Consolidating Statements of Comprehensive Income (Loss)
For the Three Months Ended March 31, 2020
 
Titan
 Intl., Inc. (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net (loss) income
$
(27,499
)
 
$
10,330

 
$
(18,161
)
 
$
7,831

 
$
(27,499
)
Currency translation adjustment
(33,786
)
 
—

 
(33,786
)
 
33,786

 
(33,786
)
Pension liability adjustments, net of tax
1,308

 
667

 
641

 
(1,308
)
 
1,308

Comprehensive (loss) income
(59,977
)
 
10,997

 
(51,306
)
 
40,309

 
(59,977
)
Net comprehensive loss attributable to redeemable and noncontrolling interests
—

 
—

 
(3,796
)
 
—

 
(3,796
)
Comprehensive (loss) income attributable to Titan
$
(59,977
)
 
$
10,997

 
$
(47,510
)
 
$
40,309

 
$
(56,181
)




(Amounts in thousands)
Condensed Consolidating Statements of Operations
For the Nine Months Ended September 30, 2018
 
Titan
 Intl., Inc. (Parent)
 Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Net sales$—
 $479,557
 $901,279
 $(141,831) $1,239,005
Cost of sales396
 410,008
 808,855
 (141,831) 1,077,428
Gross (loss) profit(396) 69,549
 92,424
 —
 161,577
Selling, general and administrative expenses3,191
 46,276
 52,841
 —
 102,308
Research and development expenses825
 2,905
 4,492
 —
 8,222
Royalty expense1,475
 3,396
 3,007
 —
 7,878
(Loss) income from operations(5,887) 16,972
 32,084
 —
 43,169
Interest expense(20,456) —
 (2,330) —
 (22,786)
Intercompany interest income (expense)1,886
 2,761
 (4,647) —
 —
Foreign exchange loss—
 (727) (6,460) —
 (7,187)
Other income (expense)12,051
 (428) 6,041
 —
 17,664
(Loss) income before income taxes(12,406) 18,578
 24,688
 —
 30,860
(Benefit) provision for income taxes(12,033) 7,918
 7,853
 —
 3,738
Equity in earnings of subsidiaries27,495
 —
 (1,459) (26,036) —
Net income (loss)27,122
 10,660
 15,376
 (26,036) 27,122
Net loss attributable to noncontrolling interests—
 —
 (1,256) —
 (1,256)
Net income (loss) attributable to Titan$27,122
 $10,660
 $16,632
 $(26,036) $28,378
21



TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

(Amounts in thousands)
Condensed Consolidating Statements of Comprehensive Income (Loss)
For the Three Months Ended March 31, 2019
 
Titan
 Intl., Inc. (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net income (loss)
$
1,006

 
$
5,275

 
$
5,353

 
$
(10,627
)
 
$
1,007

Currency translation adjustment
(4,379
)
 
—

 
(4,379
)
 
4,379

 
(4,379
)
Pension liability adjustments, net of tax
466

 
753

 
(287
)
 
(466
)
 
466

Comprehensive (loss) income
(2,907
)
 
6,028

 
687

 
(6,714
)
 
(2,906
)
Net comprehensive loss attributable to redeemable and noncontrolling interests
—

 
—

 
(68
)
 
—

 
(68
)
Comprehensive (loss) income attributable to Titan
$
(2,907
)
 
$
6,028

 
$
755

 
$
(6,714
)
 
$
(2,838
)

(Amounts in thousands)
Condensed Consolidating Statements of Comprehensive Income (Loss)
For the Three Months Ended September 30, 2019
 
Titan
 Intl., Inc. (Parent)
 Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Net (loss) income$(20,044) $(6,628) $(5,971) $12,599
 $(20,044)
Currency translation adjustment(20,324) —
 (20,324) 20,324
 (20,324)
Pension liability adjustments, net of tax590
 753
 (163) (590) 590
Comprehensive (loss) income(39,778) (5,875) (26,458) 32,333
 (39,778)
Net comprehensive loss attributable to redeemable and noncontrolling interests—
 —
 (1,213) —
 (1,213)
Comprehensive (loss) income attributable to Titan$(39,778) $(5,875) $(25,245) $32,333
 $(38,565)




(Amounts in thousands)
Condensed Consolidating Balance Sheets
March 31, 2020
 
Titan
 Intl., Inc. (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
4,408

 
$
3

 
$
55,967

 
$
—

 
$
60,378

Accounts receivable, net
—

 
4

 
211,978

 
—

 
211,982

Inventories
—

 
38,260

 
267,811

 
—

 
306,071

Prepaid and other current assets
3,653

 
17,078

 
39,730

 
—

 
60,461

Total current assets
8,061

 
55,345

 
575,486

 
—

 
638,892

Property, plant and equipment, net
10,071

 
90,329

 
243,678

 
—

 
344,078

Investment in subsidiaries
719,502

 
—

 
68,965

 
(788,467
)
 
—

Other assets
1,779

 
3,816

 
71,689

 
—

 
77,284

Total assets
$
739,413

 
$
149,490

 
$
959,818

 
$
(788,467
)
 
$
1,060,254

Liabilities and Equity
 

 
 

 
 

 
 

 
 

Short-term debt
$
620

 
$
163

 
$
45,492

 
$
—

 
$
46,275

Accounts payable
3,124

 
28,647

 
148,162

 
—

 
179,933

Other current liabilities
29,173

 
21,237

 
65,334

 
—

 
115,744

Total current liabilities
32,917

 
50,047

 
258,988

 
—

 
341,952

Long-term debt
427,499

 
389

 
16,662

 
—

 
444,550

Other long-term liabilities
4,605

 
14,321

 
50,904

 
—

 
69,830

Intercompany accounts
54,286

 
(425,827
)
 
371,541

 
—

 
—

Redeemable noncontrolling interest
—

 
—

 
25,000

 
—

 
25,000

Titan shareholders' equity
220,106

 
510,560

 
236,940

 
(788,467
)
 
179,139

Noncontrolling interests
—

 
—

 
(217
)
 
—

 
(217
)
Total liabilities and equity
$
739,413

 
$
149,490

 
$
959,818

 
$
(788,467
)
 
$
1,060,254


(Amounts in thousands)
Condensed Consolidating Statements of Comprehensive Income (Loss)
For the Three Months Ended September 30, 2018
 
Titan
 Intl., Inc. (Parent)
 Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Net income (loss)$2,678
 $(2,074) $5,346
 $(3,272) $2,678
Currency translation adjustment(13,577) —
 (13,577) 13,577
 (13,577)
Pension liability adjustments, net of tax733
 646
 87
 (733) 733
Comprehensive (loss) income(10,166) (1,428) (8,144) 9,572
 (10,166)
Net comprehensive loss attributable to redeemable and noncontrolling interests—
 —
 (811) —
 (811)
Comprehensive (loss) income attributable to Titan$(10,166) $(1,428) $(7,333) $9,572
 $(9,355)
22



(Amounts in thousands)
Condensed Consolidating Statements of Comprehensive Income (Loss)
For the Nine Months Ended September 30, 2019
 
Titan
 Intl., Inc. (Parent)
 Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Net (loss) income$(25,714) $(2,886) $(5,025) $7,911
 $(25,714)
Currency translation adjustment(19,280) —
 (19,280) 19,280
 (19,280)
Pension liability adjustments, net of tax1,594
 2,256
 (662) (1,594) 1,594
Comprehensive (loss) income(43,400) (630) (24,967) 25,597
 (43,400)
Net comprehensive loss attributable to redeemable and noncontrolling interests—
 —
 (897) —
 (897)
Comprehensive (loss) income attributable to Titan$(43,400) $(630) $(24,070) $25,597
 $(42,503)



TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

(Amounts in thousands)
Condensed Consolidating Statements of Comprehensive Income (Loss)
For the Nine Months Ended September 30, 2018
 
Titan
 Intl., Inc. (Parent)
 Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Net income (loss)$27,122
 $10,660
 $15,376
 $(26,036) $27,122
Currency translation adjustment(43,853) —
 (43,853) 43,853
 (43,853)
Pension liability adjustments, net of tax2,306
 1,938
 368
 (2,306) 2,306
Comprehensive (loss) income(14,425) 12,598
 (28,109) 15,511
 (14,425)
Net comprehensive loss attributable to redeemable and noncontrolling interests—
 —
 (4,036) —
 (4,036)
Comprehensive (loss) income attributable to Titan$(14,425) $12,598
 $(24,073) $15,511
 $(10,389)
          
(Amounts in thousands)
Condensed Consolidating Balance Sheets
December 31, 2019
 
Titan
 Intl., Inc. (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
2,843

 
$
4

 
$
63,952

 
$
—

 
$
66,799

Accounts receivable, net
—

 
2

 
185,236

 
—

 
185,238

Inventories
—

 
41,088

 
292,268

 
—

 
333,356

Prepaid and other current assets
3,217

 
17,352

 
38,300

 
—

 
58,869

Total current assets
6,060

 
58,446

 
579,756

 
—

 
644,262

Property, plant and equipment, net
10,646

 
91,734

 
272,418

 
—

 
374,798

Investment in subsidiaries
763,336

 
—

 
61,019

 
(824,355
)
 
—

Other assets
3,405

 
4,211

 
87,631

 
—

 
95,247

Total assets
$
783,447

 
$
154,391

 
$
1,000,824

 
$
(824,355
)
 
$
1,114,307

Liabilities and Equity
 

 
 

 
 

 
 

 
 

Short-term debt
$
514

 
$
69

 
$
60,670

 
$
—

 
$
61,253

Accounts payable
4,951

 
18,455

 
135,241

 
—

 
158,647

Other current liabilities
20,912

 
17,941

 
68,400

 
—

 
107,253

Total current liabilities
26,377

 
36,465

 
264,311

 
—

 
327,153

Long-term debt
433,242

 
201

 
9,906

 
—

 
443,349

Other long-term liabilities
5,211

 
15,242

 
59,364

 
—

 
79,817

Intercompany accounts
42,798

 
(397,847
)
 
355,049

 
—

 
—

Redeemable noncontrolling interest
—

 
—

 
25,000

 
—

 
25,000

Titan shareholders' equity
275,819

 
500,330

 
283,057

 
(824,355
)
 
234,851

Noncontrolling interests
—

 
—

 
4,137

 
—

 
4,137

Total liabilities and equity
$
783,447

 
$
154,391

 
$
1,000,824

 
$
(824,355
)
 
$
1,114,307







23
(Amounts in thousands)
Condensed Consolidating Balance Sheets
September 30, 2019
 
Titan
 Intl., Inc. (Parent)
 Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Assets         
Cash and cash equivalents$12,669
 $7
 $65,927
 $—
 $78,603
Accounts receivable, net(596) 71
 221,753
 —
 221,228
Inventories—
 49,910
 301,961
 —
 351,871
Prepaid and other current assets3,117
 17,441
 60,134
 —
 80,692
Total current assets15,190
 67,429
 649,775
 —
 732,394
Property, plant and equipment, net11,086
 93,010
 262,025
 —
 366,121
Investment in subsidiaries760,072
 —
 64,300
 (824,372) —
Other assets2,722
 4,677
 83,688
 —
 91,087
Total assets$789,070
 $165,116
 $1,059,788
 $(824,372) $1,189,602
Liabilities and Equity 
  
  
  
  
Short-term debt$505
 $68
 $63,655
 $—
 $64,228
Accounts payable4,783
 29,429
 148,125
 —
 182,337
Other current liabilities23,467
 21,269
 74,647
 —
 119,383
Total current liabilities28,755
 50,766
 286,427
 —
 365,948
Long-term debt456,156
 219
 8,452
 —
 464,827
Other long-term liabilities5,204
 19,082
 61,365
 —
 85,651
Intercompany accounts13,756
 (411,185) 397,429
 —
 —
Redeemable noncontrolling interest—
 —
 25,000
 —
 25,000
Titan shareholders' equity285,199
 506,234
 277,170
 (824,372) 244,231
Noncontrolling interests—
 —
 3,945
 —
 3,945
Total liabilities and equity$789,070
 $165,116
 $1,059,788
 $(824,372) $1,189,602



TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

(Amounts in thousands)
Condensed Consolidating Balance Sheets
December 31, 2018
 
Titan
 Intl., Inc. (Parent)
 Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Assets         
Cash and cash equivalents$23,630
 $4
 $58,051
 $—
 $81,685
Accounts receivable, net—
 —
 241,832
 —
 241,832
Inventories—
 68,858
 326,877
 —
 395,735
Prepaid and other current assets3,853
 18,845
 37,531
 —
 60,229
Total current assets27,483
 87,707
 664,291
 —
 779,481
Property, plant and equipment, net12,493
 98,856
 273,523
 —
 384,872
Investment in subsidiaries749,645
 —
 66,308
 (815,953) —
Other assets6,268
 944
 79,691
 —
 86,903
Total assets$795,889
 $187,507
 $1,083,813
 $(815,953) $1,251,256
Liabilities and Equity 
  
  
  
  
Short-term debt$419
 $—
 $51,466
 $—
 $51,885
Accounts payable1,447
 29,922
 180,760
 —
 212,129
Other current liabilities22,065
 20,051
 68,938
 —
 111,054
Total current liabilities23,931
 49,973
 301,164
 —
 375,068
Long-term debt396,700
 —
 12,872
 —
 409,572
Other long-term liabilities9,268
 17,521
 49,917
 —
 76,706
Intercompany accounts77,363
 (390,382) 313,019
 —
 —
Redeemable noncontrolling interest—
 —
 119,813
 —
 119,813
Titan shareholders' equity288,627
 510,395
 295,979
 (815,953) 279,048
Noncontrolling interests—
 —
 (8,951) —
 (8,951)
Total liabilities and equity$795,889
 $187,507
 $1,083,813
 $(815,953) $1,251,256
(Amounts in thousands)
Condensed Consolidating Statements of Cash Flows
For the Three Months Ended March 31, 2020
 
Titan
 Intl., Inc. (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidated
Net cash provided by (used for) operating activities
$
7,552

 
$
1,901

 
$
(5,481
)
 
$
3,972

Cash flows from investing activities:
 

 
 

 
 

 
 

Capital expenditures
—

 
(2,149
)
 
(4,271
)
 
(6,420
)
Sale of Wheels India Limited shares
—

 
—

 
6,917

 
6,917

Insurance proceeds
—

 
—

 
4,936

 
4,936

Other, net
191

 
—

 
(557
)
 
(366
)
Net cash (used for) provided by investing activities
191

 
(2,149
)
 
7,025

 
5,067

Cash flows from financing activities:
 

 
 

 
 

 
 

Proceeds from borrowings
7,264

 
258

 
16,427

 
23,949

Payment on debt
(13,140
)
 
(11
)
 
(18,789
)
 
(31,940
)
Dividends paid
(302
)
 
—

 
—

 
(302
)
Net cash (used for) provided by financing activities
(6,178
)
 
247

 
(2,362
)
 
(8,293
)
Effect of exchange rate change on cash
—

 
—

 
(7,167
)
 
(7,167
)
Net increase (decrease) in cash and cash equivalents
1,565

 
(1
)
 
(7,985
)
 
(6,421
)
Cash and cash equivalents, beginning of period
2,843

 
4

 
63,952

 
66,799

Cash and cash equivalents, end of period
$
4,408

 
$
3

 
$
55,967

 
$
60,378

 

(Amounts in thousands)
Condensed Consolidating Statements of Cash Flows
For the Three Months Ended March 31, 2019
 
Titan
 Intl., Inc. (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Consolidated
Net cash (used for) provided by operating activities
$
(11,022
)
 
$
1,545

 
$
(6,142
)
 
$
(15,619
)
Cash flows from investing activities:
 

 
 

 
 

 
 

Capital expenditures
—

 
(1,700
)
 
(7,753
)
 
(9,453
)
Payment related to redeemable noncontrolling interest agreement
(25,000
)
 
—

 
—

 
(25,000
)
Other, net
—

 
154

 
40

 
194

Net cash used for investing activities
(25,000
)
 
(1,546
)
 
(7,713
)
 
(34,259
)
Cash flows from financing activities:
 

 
 

 
 

 
 

Proceeds from borrowings
25,000

 
—

 
27,398

 
52,398

Payment on debt
—

 
—

 
(15,357
)
 
(15,357
)
Dividends paid
(301
)
 
—

 
—

 
(301
)
Net cash provided by financing activities
24,699


—


12,041


36,740

Effect of exchange rate change on cash
—

 
—

 
(232
)
 
(232
)
Net increase (decrease) in cash and cash equivalents
(11,323
)
 
(1
)
 
(2,046
)
 
(13,370
)
Cash and cash equivalents, beginning of period
23,630

 
4

 
58,051

 
81,685

Cash and cash equivalents, end of period
$
12,307

 
$
3

 
$
56,005

 
$
68,315




24



TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

21. SUBSEQUENT EVENTS
(Amounts in thousands)
Condensed Consolidating Statements of Cash Flows
For the Nine Months Ended September 30, 2019
 
Titan
 Intl., Inc. (Parent)
 Guarantor Subsidiaries Non-Guarantor Subsidiaries Consolidated
Net cash provided by operating activities$2,683
 $5,742
 $22,787
 $31,212
Cash flows from investing activities: 
  
  
  
Capital expenditures(21) (6,207) (20,026) (26,254)
Payments related to redeemable noncontrolling interest(71,722) —
 —
 (71,722)
Other, net—
 181
 1,173
 1,354
Net cash used for investing activities(71,743) (6,026) (18,853) (96,622)
Cash flows from financing activities: 
  
  
  
Proceeds from borrowings73,000
 287
 50,866
 124,153
Payment on debt(14,000) —
 (45,296) (59,296)
Dividends paid(901) —
 —
 (901)
Net cash provided by financing activities58,099
 287
 5,570
 63,956
Effect of exchange rate change on cash—
 —
 (1,628) (1,628)
Net (decrease) increase in cash and cash equivalents(10,961) 3
 7,876
 (3,082)
Cash and cash equivalents, beginning of period23,630
 4
 58,051
 81,685
Cash and cash equivalents, end of period$12,669
 $7
 $65,927
 $78,603

Subsequent to March 31, 2020, COVID-19 continued to have an impact on the Company. Titan's workforce and operations have been significantly impacted as a result of government mandates in certain countries to work from home to minimize the spread of the virus. In some of the countries where the Company has operations and where COVID-19 has been widespread (such as the Company’s European and Latin America locations), the Company’s operations were significantly curtailed during March 2020 and may continue to be curtailed until the widespread outbreak is contained. The Company’s operations may not return to historical levels in the near term, depending on the duration and severity of the COVID-19 pandemic, the length of time it takes for normal economic and operating conditions to resume, additional governmental actions that may be taken and/or extensions of time for restrictions that have been imposed to date and numerous other uncertainties. COVID-19 has had a significant impact on the Company’s ability to conduct business in those geographies and has affected the Company's operational and financial performance. COVID-19 has had a significant impact on the economy, which is impacting the Company's customers and the demand for Titan's products, and the extent of that impact and its duration is uncertain at this time. The duration of the business disruption and related financial impact cannot be reasonably estimated at this time, but may materially affect the results of our operations.

In the second quarter of 2020, the Company is taking steps towards the finalization of the closure of its wheel operations in Saltville, Virginia, with plans for completion by July 2020. As a part of this process, the Company expects to incur disposal costs related to the closure but an estimated amount or range of amounts has not yet been determined.  The total assets at this location are approximately $5 million.
(Amounts in thousands)
Condensed Consolidating Statements of Cash Flows
For the Nine Months Ended September 30, 2018
 
Titan
 Intl., Inc. (Parent)
 Guarantor Subsidiaries Non-Guarantor Subsidiaries Consolidated
Net cash (used for) provided by operating activities$(22,905) $3,827
 $(13,628) $(32,706)
Cash flows from investing activities: 
  
  
  
Capital expenditures(259) (3,836) (22,403) (26,498)
Other, net740
 1
 743
 1,484
Net cash provided by (used for) investing activities481
 (3,835) (21,660) (25,014)
Cash flows from financing activities: 
  
  
  
Proceeds from borrowings—
 —
 48,108
 48,108
Payment on debt—
 —
 (30,139) (30,139)
Dividends paid(900) —
 —
 (900)
Net cash (used for) provided by financing activities(900)
—

17,969

17,069
Effect of exchange rate change on cash—
 —
 (6,120) (6,120)
Net decrease in cash and cash equivalents(23,324) (8) (23,439) (46,771)
Cash and cash equivalents, beginning of period59,740
 13
 83,817
 143,570
Cash and cash equivalents, end of period$36,416
 $5
 $60,378
 $96,799




TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

23. SUBSEQUENT EVENTS

On October 3, 2019, through one of its wholly-owned subsidiaries, the Company completed the sale of shares of Wheels India Limited (“Wheels India”) in on-market trades on the National Stock Exchange of India Ltd. The sale reduced the Company’s indirect ownership interest in Wheels India from approximately 34.2% of the outstanding shares of Wheels India to approximately 23.8%.  On October 3, 2019, the Company received net proceeds from the on-market trades of approximately $19 million, net of charges, discounts and commissions, which Titan used to pay down outstanding indebtedness. A gain of $4.7 million was recorded on the transaction in the quarter ended September 30, 2019, based on the date of the trade.




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)&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&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&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, 2018,2019, filed with the SEC on March 7, 20194, 2020 (the 20182019 Form 10-K).

COVID-19 Pandemic
 
In December 2019, a novel strain of coronavirus ("COVID-19") was reported in Wuhan, China. During March 2020, the World Health Organization declared that COVID-19 is a pandemic. The emergence of COVID-19 and its global spread presents significant risks to the Company, some of which the Company is unable to fully evaluate or even foresee. The COVID-19 pandemic adversely affected the Company’s financial results and business operations in the Company’s quarter ended March 31, 2020, and economic and health conditions in the United States and across most of the globe have continued to change since the end of the quarter. In some of the countries where the Company has operations and where COVID-19 has been widespread (such as the Company’s European and Latin America locations), the Company’s operations were significantly curtailed during March 2020 and are expected to continue to be curtailed until the widespread outbreak is contained. The Company’s operations may not return to historical levels in the near term, depending on the duration and severity of the COVID-19 pandemic, the length of time it takes for normal economic and operating conditions to resume, additional governmental actions that may be taken and/or extensions of time for restrictions that have been imposed to date and numerous other uncertainties.

The COVID-19 pandemic is affecting the Company’s operations in the second quarter, and may continue to do so indefinitely thereafter. All of these factors may have far reaching impacts on the Company’s business, operations, and financial results and conditions, directly and indirectly, including without limitation impacts on the health of the Company’s management and employees, customer behaviors, and on the overall economy. The scope and nature of these impacts, most of which are beyond the Company’s control, continue to evolve and the outcomes are uncertain.
 
Due to the above circumstances and as described generally in this Form 10-Q, the Company’s results of operations for the three-month period ended March 31, 2020 are not necessarily indicative of the results to be expected for the full fiscal year.  Management cannot predict the full impact of the COVID-19 pandemic on the economic conditions generally, on the

25


TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations

Company’s customers and, ultimately, on the Company. The nature, extent and duration of the effects of the COVID-19 pandemic on the Company are highly uncertain and will depend on future developments, and such effects could exist for an extended period of time even after the pandemic might end.

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,”“anticipates,” “estimates,” “expects,” “intends,” “plans,” and “believes,”“believes,” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may,”“will,” “should,” “would,” “may,” and “could.”“could.” These forward-looking statements include, among other items:
•
The Company's financial performance;
•
Anticipated trends in the Company’s business;
•
Expectations with respect to the end-user markets into which the Company sells its products (including agricultural equipment, earthmoving/construction equipment, and consumer products);
•
Future expenditures for capital projects;
•
The Company’s ability to continue to control costs and maintain quality;
•
The Company's ability to meet conditions of loan agreements;
•
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 Company's financial performance;
Anticipated trends in the Company’s business;
Expectations with respect to the end-user markets into which the Company sells its products (including agricultural equipment, earthmoving/construction equipment, and consumer products);
Future expenditures for capital projects;
The Company’s ability to continue to control costs and maintain quality;
The Company's ability to meet conditions of loan agreements;
The Company’s business strategies, including its intention to introduce new products;
Expectations concerning the performance and success of the Company’s existing and new products; and
The Company’s intention to consider and pursue acquisition and divestiture opportunities.
Readers of this Form 10-Q should understand that these forward-looking statements are based on the Company’sCompany’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, but not limited to, the factors discussed in Part 1, Item 1A, Risk Factors, of the 20182019 Form 10-K, certain of which are beyond the Company’sCompany’s control.

Actual results could differ materially from these forward-looking statements as a result of certain factors, including:
The effect of a recession on the Company and its customers and suppliers;
Changes in the Company’s end-user markets into which the Company sells its products as a result of world economic or regulatory influences or otherwise;
Changes in the marketplace, including new products and pricing changes by the Company’s competitors;
Ability to maintain satisfactory labor relations;
Unfavorable outcomes of legal proceedings;
The Company's ability to comply with current or future regulations applicable to the Company's business and the industry in which it competes or any actions taken or orders issued by regulatory authorities;
Availability and price of raw materials;
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;
•
The effect of the COVID-19 pandemic on our operations and financial performance;
•
The effect of a recession on the Company and its customers and suppliers;
•
Changes in the Company’s end-user markets into which the Company sells its products as a result of world economic or regulatory influences or otherwise;
•
Changes in the marketplace, including new products and pricing changes by the Company’s competitors;
•
Ability to maintain satisfactory labor relations;
•
Unfavorable outcomes of legal proceedings;
•
The Company's ability to comply with current or future regulations applicable to the Company's business and the industry in which it competes or any actions taken or orders issued by regulatory authorities;
•
Availability and price of raw materials;
•
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;
•
Geopolitical and economic uncertainties relating to the countries in which the Company operates or does business;

26


TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations

•
Risks associated with acquisitions, including difficulty in integrating operations and personnel, disruption of ongoing business, and increased expenses;
•
Results of investments;
•
The effects of potential processes to explore various strategic transactions, including potential dispositions;
•
Fluctuations in currency translations;
•
Climate change and related laws and regulations;
•
Risks associated with environmental laws and regulations;
•
Risks relating to our manufacturing facilities, including that any of our material facilities may become inoperable; and
•
Risks related to financial reporting, internal controls, tax accounting, and information systems.

Unfavorable product liability and warranty claims;
Actions of domestic and foreign governments, including the imposition of additional tariffs;
Geopolitical and economic uncertainties relating to the countries in which the Company operates or does business;
Risks associated with acquisitions, including difficulty in integrating operations and personnel, disruption of ongoing business, and increased expenses;
Results of investments;
The effects of potential processes to explore various strategic transactions, including potential dispositions;
Fluctuations in currency translations;
Climate change and related laws and regulations;
Risks associated with environmental laws and regulations;
Risks relating to our manufacturing facilities, including that any of our material facilities may become inoperable; and
Risks related to financial reporting, internal controls, tax accounting, and information systems.
Any changes in such factors could lead to significantly different results.  Any assumptions that are inaccurate or do not prove to be correct could have a material adverse effect on the Company’sCompany’s ability to achieve the results as indicated in the forward-looking statements.  Forward-looking statements included in this report speak only as of the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.  In light of these risks and uncertainties, there can be no assurance that the forward-looking information and assumptions contained in this report will in fact transpire. The reader should not place undue reliance on the forward-looking statements included in this report or that may be made elsewhere from time to time by the Company, or on its behalf. All forward-looking statements attributable to Titan are expressly qualified by these cautionary statements.

OVERVIEW
Titan International, Inc., together with its subsidiaries, is a global manufacturer of off-highway wheels, tires, assemblies and undercarriage products. 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 and Titan Tire brands and has complete research and development test facilities to validate wheel and rim designs.
 
Agricultural Segment: Titan's agricultural rims, wheels, tires, and undercarriage systems 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 and rims range in diameter from nine inches to 54 inches, with the 54 inch diameter being the largest agricultural wheel manufactured in North America. Titan’sTitan’s agricultural tires range from approximately one foot to approximately seven feet in outside diameter and from five inches to 55 inches in width.  The Company offers the added value of delivering a complete wheel and tire assembly to OEM and aftermarket customers.
 
Earthmoving/Construction Segment: The Company manufactures rims, wheels, tires, and undercarriage systems and components for various types of off-the-road (OTR) earthmoving, mining, military, construction, and forestry equipment, including skid steers, aerial lifts, cranes, graders and levelers, scrapers, self-propelled shovel loaders, articulated dump trucks, load transporters, haul trucks, backhoe loaders, crawler tractors, lattice cranes, shovels, and hydraulic excavators. The Company provides a broad range of earthmoving/construction wheels and tires with the wheels ranging in diameter from 15 to 63 inches and in weight from 125 to 7,000 pounds, while the tires range from approximately three to 13 feet in outside diameter and weigh between 50 to 12,500 pounds. The Company offers the added value of wheel and tire assembly for certain applications in the earthmoving/construction segment.
 
Consumer Segment: Titan manufactures bias truck tires in Latin America and light truck tires in Russia. Titan also offers select products for ATVs, turf, and golf cart applications. This segment also includes sales that do not readily fall into the Company's other segments.
 


TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations

The Company’sCompany’s top customers include global leaders in agricultural and construction equipment manufacturing and include AGCO Corporation, Caterpillar Inc., CNH Global N.V., Deere && Company, Hitachi, Ltd., Kubota Corporation, Liebherr, and Volvo, in addition to many other off-highway equipment manufacturers.  The Company distributes products to OEMs, independent and OEM-affiliated dealers, and through a network of distribution facilities.

MARKET CONDITIONS AND OUTLOOK

27


TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations


COVID-19 IMPACT ON OUTLOOK
As a result of the global COVID-19 pandemic, the Company curtailed and suspended operations in certain geographies in which we conduct business. As COVID-19 progressed globally, the impact was felt initially in China with the government mandated lock-down and curtailment of operations from late January through February 2020. The impact continued in Europe through travel restrictions, social distancing, mandatory stay-at-home orders and sanitization of our facilities. Due to these restrictions, we had loss of production in the last week of the first quarter which continued through the second quarter of 2020. The impact in South America occurred during the latter part of March, continuing through the early part of April due to similar stay-at-home restrictions in place as Europe.  Within North America, our facilities have remained open throughout this time with social distancing and sanitization protocols followed as recommended by the Centers for Disease Control and Prevention, World Health Organization and the government. Our Australian and Russian operations have experienced a lessor impact than the other geographies other than enhanced sanitization of our facilities. The future outlook for the remainder of 2020 will be predicated upon the ability to contain COVID-19 in the geographies in which we operate and relaxation of the government mandated restrictions including travel, stay-at-home orders and social distancing.

AGRICULTURAL MARKET OUTLOOK
Agriculture-related commodity prices remain low as a result of ongoing tariffs and trade concerns. Within North America, concerns about current economicFor the balance of 2020, market conditions coupled with extraordinarily bad weather this spring have led farmersacross the globe are volatile and uncertain, due to be less inclined to make large investments in their farming equipment. Most majorthe effects of the COVID-19 pandemic. Major OEMs are pulling back production in the second quarter, affecting demand for our products in the near-term. In addition, many of our customers are not forecasting agricultural equipment salessignificantly into the future, awaiting more certainty as to be flat duringstability in the market. Demand in the aftermarket has remained relatively stable through the first quarter of 2020, while the remainder of 2019 within most regions, while after-market spending has been reduced in recent months due to the uncertainty in theyear will depend on how quickly market caused by weather and trade.conditions stabilize. Many more variables, including weather, volatility in the price of commodities, grain prices, export markets, foreign currency exchange rates, government policies, subsidies, and the demand for used equipment can greatly impact the Company's performance in the agricultural market in a given period.

EARTHMOVING/CONSTRUCTION MARKET OUTLOOK
The earthmoving/construction market had a strong startis continuing to experience declines in the beginning of 2019, while the second and third quarters experienced declines2020 due in large part to global economic uncertainty.uncertainty and has been hampered further by the impact of COVID-19. Demand for larger construction equipment used for highways and infrastructure has been steady after several years of strong growth but is startingbegan to show signs of weakening.tighten in 2019. Mining industry equipment demand is also beginningbegan to soften within certain regions in the backsecond half of 2019. Construction is mainly driven by GDP by country and the need for infrastructure developments. The Company expects that the largest impact of COVID-19 on its consolidated financial condition, results of operations, or cash flows will occur in the second quarter of 2020, reflecting the curtailment of our operations, as well as our customers’ operations, in response to government mandates and disruptions in supply. The market outlook for the second half of the year remains relatively uncertain and will depend on how quickly conditions can stabilize. Mining is primarily driven by both the demand for and pricing of commodities. Demand for Titan's products in this marketthe mining industry for 2020 is anticipated to be generally flat throughoutas compared to 2019 and is currently less affected by the remainder of 2019. Demand for small and medium-sized earthmoving/construction equipment used indisruption caused by the housing and commercial construction sectors is anticipated to remain flat or decrease slightly.COVID-19 pandemic. The earthmoving/construction segment is affected by many variables, including commodity prices, road construction, infrastructure, government appropriations, housing starts, and other macroeconomic drivers.drivers, in addition to the impact of COVID-19.

CONSUMER MARKET OUTLOOK
The consumer market consists of several different distinct product lines within different regions. These products include light truck tires, turf equipment, specialty products, and train brakes. Overall, the Company expects flat to modest growth within this market during the remainder of 2019.to be flat in 2020. The consumer segment is affected by many variables including consumer spending, interest rates, government policies, and other macroeconomic drivers.


RESULTS OF OPERATIONS

28
Titan International, Inc.Three months ended Nine months ended
(amounts in thousands)September 30, September 30,
 2019 2018 % Increase/(Decrease) 2019 2018 % Increase/(Decrease)
Net sales$345,905
 $384,719
 (10.1)% $1,146,876
 $1,239,005
 (7.4)%
Gross profit27,100
 43,704
 (38.0)% 110,672
 161,577
 (31.5)%
  Gross profit %7.8% 11.4%   9.6% 13.0%  
Selling, general and administrative expenses34,954
 33,709
 3.7 % 106,605
 102,308
 4.2 %
Research and development expenses2,309
 2,591
 (10.9)% 7,470
 8,222
 (9.1)%
Royalty expense2,453
 2,581
 (5.0)% 7,507
 7,878
 (4.7)%
(Loss) income from operations(12,616) 4,823
 (361.6)% (10,910) 43,169
 (125.3)%



TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations

RESULTS OF OPERATIONS

Titan International, Inc.
Three months ended
(amounts in thousands)
March 31,
 
2020
 
2019
 
% Increase/(Decrease)
Net sales
$
341,500

 
$
410,374

 
(16.8
)%
Gross profit
27,244

 
45,264

 
(39.8
)%
  Gross profit %
8.0
%
 
11.0
%
 
 
Selling, general and administrative expenses
31,957

 
35,905

 
(11.0
)%
Research and development expenses
2,410

 
2,617

 
(7.9
)%
Royalty expense
2,480

 
2,606

 
(4.8
)%
(Loss) income from operations
(9,603
)
 
4,136

 
(332.2
)%


Net Sales
Net sales for the third quarter of 2019three months endedMarch 31, 2020 were $345.9$341.5 million, compared to $384.7$410.4 million in the comparable quarterperiod of 2018,2019, a decrease of 10.1%16.8% driven by sales decreases in all segments. Overall net sales volume was down 6.9%12.6% from the comparable prior year quarter, due primarily to ongoing challenges in North America's agriculture economy, andthe earthmoving/construction market as a slowingresult of a slow down of the global construction market, conditions, particularly in AsiaEurope. Additionally, in Europe, we experienced over $14 million in reduced sales versus the comparable period last year directly as a result of plant closures in Italy and Australia.China due to the COVID-19 pandemic. Global trade issues, areas well as the primary factor forimpact of COVID-19, were contributing factors in the sales decrease in the Agriculture market challenges that are currently being encountered.which resulted in lower volume from OEM customers, however was partially offset by increased volume in the aftermarket business. Unfavorable changes in price/mix, primarily reflecting pricing adjustments for lower raw material costs, and currency translation negatively impacted net sales by 1.6%1.1% and 3.1%, respectively, primarily reflecting pricing adjustments for lower raw material costs.

Net sales for the nine months ended September 30, 2019, were $1,146.9 million, compared to $1,239.0 million in the comparable period of 2018, a decrease of 7.4% driven by sales decreases in all segments. Overall net sales volume was down 4.8% from the comparable prior year period, due primarily to the aforementioned macroeconomic factors. The Company has faced specific market challenges in Russia, along with economic softness in agriculture in North America and Europe as well as a tightening of the construction market in our undercarriage business. Unfavorable currency translation further decreased net sales by 3.8%, which was partially offset with a favorable price/mix of 1.2% on net sales.

Gross Profit
Gross profit for the third quarter of 2019three months endedMarch 31, 2020 was $27.1$27.2 million, or 7.8%8.0% of net sales, down $16.6$18.1 million compared to $43.7$45.3 million, or 11.4%11.0% of net sales, for the third quarter of 2018.three months endedMarch 31, 2019. The decrease in gross profit was driven by the impact of lower sales volume across most geographic regions and thewhich had a significant impact on production efficiencies, along with unfavorable currency impact especially in Europe and Latin America. In addition, the Company continued to experience underperformance in its North American Wheel operations from reductions of steel inventory at higher than current prices, which had a negative impact on gross profit by approximately $7 million during the quarter.

Gross profit for the nine months ended September 30, 2019, was $110.7 million, or 9.6% of net sales, compared to $161.6 million, or 13.0% of net sales, for the nine months ended September 30, 2018.efficiencies. The decrease in gross profit was primarily due to a decrease of sales in all segments which resulted from lower volume andalso impacted by unfavorable foreign currency, impact particularlyespecially in Europe and Latin America, caused byand a $2.6 million asset impairment at our Titan Tire Reclamation Corporation (TTRC) in Canada. The unfavorable gross margin impact as a result of the same factors described for the third quarter results. In addition, the Company experienced underperformance in its North American Wheel operations from reductions of steel inventory at higher than current prices, which had a negative impact on gross profit byCOVID-19 pandemic mentioned above was approximately $15 million during the period.$3.8 million.

Selling, General and Administrative Expenses
Selling, general and administrative (SG&A)&A) expenses for the third quarter of 2019three months endedMarch 31, 2020 were $35.0$32.0 million, or 10.1%9.4% of net sales, compared to $33.7$35.9 million, or 8.8%8.7% of net sales, for the third quarter of 2018.three months endedMarch 31, 2019.  The increasedecrease in SG&A&A was driven primarily by lower sales commissions and marketing costs as well as lower professional fees related to preparation forinvestments in technology as we were in the Company's proposed ITM undercarriage business public listingmidst of $2.3 million, which has been postponed. SG&Astabilization efforts during the first quarter of 2019 after the first phases of an enterprise resource planning (ERP) software implementation within North America.
 
Research and Development Expenses
Research and development (R&D) expenses for the ninethree months ended September 30, 2019,March 31, 2020 were $106.6$2.4 million, or 9.3%0.7% of net sales, compared to $102.3$2.6 million, or 8.3% of net sales, for the nine months ended September 30, 2018.  The $4.3 million increase was due to costs related to the postponed ITM public listing process and certain investments in information technology in North America.
Research and Development Expenses
Research and development (R&D) expenses for the third quarter of 2019 were $2.3 million, or 0.7% of net sales, compared to $2.6 million, or 0.7% of net sales, for the third quarter of 2018. R&D expenses for the nine months ended September 30, 2019, were $7.5 million, or 0.7% of net sales, were slightly favorable compared to $8.2 million, or 0.7%0.6% of net sales, for the comparable period in 2018.2019. R&D&D spending reflects initiatives to improve product designs and an ongoing focus on quality. The slight decline is related to cost reduction initiatives enacted late in the fourth quarter of 2019.
 
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,

29


TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations

Africa, Russia, and other Commonwealth of Independent States countries. Each of these agreements is scheduled to expire in 2025.

Royalty expenses for the third quarter of 2019three months endedMarch 31, 2020 were $2.5$2.5 million, or 0.7% of net sales, compared to $2.6$2.6 million, or 0.7%0.6% of net sales, for the third quarter of 2018. Royalty expenses for the ninethree months ended September 30,March 31, 2019 were $7.5 million, or 0.7% of net sales, compared to $7.9 million, or 0.6% of net sales, for the nine months ended September 30, 2018..



TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations


(Loss) Income (Loss) from Operations
Loss from operations for the thirdfirst quarter of 20192020 was $12.6$9.6 million, compared to income of $4.8$4.1 million for the thirdfirst quarter of 2018. Loss from operations for the nine months ended September 30, 2019 was $10.9 million, compared to income of $43.2 million for the nine months ended September 30, 2018..  The decrease in income from operations for each of these periods was primarily driven by lower net sales and the net result of the items previously discussed in this quarterly report. 

OTHER PROFIT/LOSS ITEMS

Interest Expense
Interest expense was $8.4$8.0 million and $7.6$7.9 million for the quarters ended September 30, 2019 and 2018, respectively, and $24.6 million and $22.8 million for the ninethree months ended September 30, 2019March 31, 2020 and 2018,2019, respectively. The increase in interest expense was primarily due to increased borrowings under Titan's revolving credit facility and increases in borrowing rates.
  
Foreign Exchange Gain (Loss)
Foreign exchange loss was $2.3$17.2 million for the third quarter of 2019,three months endedMarch 31, 2020, compared to a gain of $0.9$5.7 million for the third quarter of 2018. Foreign exchange gain was $2.2 million for the ninethree months ended September 30,March 31, 2019 compared to loss of $7.2 million for the nine months ended September 30, 2018.. Foreign currency gain orexchange loss is the result of the significant negative movements in foreign currency exchange rates in many of the geographies in which we conduct business experienced during the three months endedMarch 31, 2020 and 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 in cash at some point in the future, these loans are adjusted each reporting period to reflect the current exchange rates. During the first quarter of 2020, we have settled a number of intercompany loans as part of a loan restructuring initiative with a resulting foreign exchange loss which is reflected in the total foreign exchange loss recognized for the first quarter of 2020.

Other Income
Other income was $5.3$7.4 million for the quarterthree months ended September 30, 2019,March 31, 2020, as compared to $7.4$1.0 million in the comparable quarter of 2018.2019.  The decreaseincrease in other income for the quarterthree months ended September 30, 2019,March 31, 2020, as compared to the same period in 20182019 was primarily attributable to proceeds of $4.9 million related to a non-recurring legalproperty insurance settlement in 2018 partially offset byat TTRC and a $4.7$1.3 million gain on the sale of shares of our investment in Wheels India Limited in September 2019.Limited.

Other income was $8.3 million for the nine months ended September 30, 2019, as compared to $17.7 million in the comparable period of 2018.  The decrease in other income for the nine months ended September 30, 2019, as compared to the comparable period in 2018 was primarily attributable to a non-recurring legal settlement in 2018, partially offset by a gain on the sale of shares of our investment in Wheels India Limited in September 2019.

Provision (Benefit) for Income Taxes
The Company recorded income tax expense of $2.1$0.1 million and $2.8$1.9 million for the quarters ended September 30, 2019 and 2018, respectively. For the ninethree months ended September 30, 2019March 31, 2020 and 2018, the Company recorded income tax expense of $0.8 million and $3.7 million,2019, respectively. The Company's effective income tax rate was (11)(0.2)% and 51%66% for the quarters ended September 30, 2019 and 2018, and (3)% and 12% for the ninethree months ended September 30, 2019March 31, 2020 and 2018, respectively.2019.

The Company’s 2019Company’s 2020 and 20182019 income tax expense and rates differed from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income primarily as a result of U.S. and certain foreign jurisdictions that incurred a full valuation allowance on deferred tax assets created by current year projected losses and partially offset by a reduction of the liability for unrecognized tax positions. In addition, there were non-deductible royalty expenses and statutorily required income adjustments made in certain foreign jurisdictions that negatively impacted the tax rate for the ninethree months ended September 30, 2019March 31, 2020 and 2018.2019.

Net (Loss) Income (Loss) and Earnings (Loss) per Share
Net loss for the thirdfirst quarter of 20192020 was $20.0$27.5 million, compared to net income of $2.7$1.0 million in the comparable quarter of 2018.2019. For the quarters ended September 30, 2019March 31, 2020 and 2018,2019, basic and diluted earnings (loss) per share were $(0.33)$(0.42) and $(0.03)$0.02, respectively. The Company's net loss and earnings per share were due to the items previously discussed.

Net loss for the nine months ended September 30, 2019 was $25.7 million, compared to net income of $27.1 million in the comparable period of 2018. For the nine months ended September 30, 2019 and 2018, basic and diluted earnings (loss) per share were $(0.43) and $0.29, respectively. The Company's net loss and earnings per share were due to the items previously discussed.


TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations


SEGMENT INFORMATION

Segment Summary (amounts in thousands):

30
Three months ended
September 30, 2019
 Agricultural 
Earthmoving/
Construction
 Consumer 
Corporate/ Unallocated
 Expenses
 
Consolidated
 Totals
Net sales $156,625
 $155,659
 $33,621
 $—
 $345,905
Gross profit 10,426
 12,935
 3,739
 —
 27,100
Loss from operations (1,230) (2,938) (229) (8,219) (12,616)
Three months ended September 30, 2018  
  
  
  
  
Net sales $163,367
 $180,362
 $40,990
 $—
 $384,719
Gross profit 19,921
 17,819
 5,964
 —
 43,704
Income (loss) from operations 11,539
 6,056
 3,225
 (15,997) 4,823


TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations

Nine months ended
September 30, 2019
 Agricultural 
Earthmoving/
Construction
 Consumer 
Corporate/ Unallocated
 Expenses
 
Consolidated
 Totals
Three months ended
March 31, 2020
 
Agricultural
 
Earthmoving/
Construction
 
Consumer
 
Corporate/ Unallocated
 Expenses
 
Consolidated
 Totals
Net sales
 
$
172,938

 
$
136,922

 
$
31,640

 
$
—

 
$
341,500

Gross profit
 
14,027

 
10,754

 
2,463

 
—

 
27,244

Loss from operations
 
(4,694
)
 
(6,994
)
 
(295
)
 
2,380

 
(9,603
)
Three months ended March 31, 2019
 
 

 
 

 
 

 
 

 
 

Net sales $512,639
 $517,186
 $117,051
 $—
 $1,146,876
 
$
191,730

 
$
176,745

 
$
41,899

 
$
—

 
$
410,374

Gross profit 46,798
 50,806
 13,068
 —
 110,672
 
22,125

 
18,170

 
4,969

 
—

 
45,264

Income (loss) from operations 17,062
 8,293
 3,120
 (39,385) (10,910)
 
13,928

 
5,528

 
2,121

 
(17,441
)
 
4,136

Nine months ended
September 30, 2018
  
  
  
  
  
Net sales $544,404
 $568,057
 $126,544
 $—
 $1,239,005
Gross profit 77,153
 64,541
 19,883
 —
 161,577
Income (loss) from operations 51,862
 27,584
 10,822
 (47,099) 43,169

Agricultural Segment Results
Agricultural segment results for the periods presented below were as follows:
(Amounts in thousands)Three months ended Nine months ended
 September 30, September 30,
 2019 2018 % Increase/(Decrease) 2019 2018 % Increase/(Decrease)
Net sales$156,625
 $163,367
 (4.1)% $512,639
 $544,404
 (5.8)%
Gross profit10,426
 19,921
 (47.7)% 46,798
 77,153
 (39.3)%
(Loss) income from operations(1,230) 11,539
 (110.7)% 17,062
 51,862
 (67.1)%



TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations

(Amounts in thousands)
Three months ended
 
March 31,
 
2020
 
2019
 
% Increase/(Decrease)
Net sales
$
172,938

 
$
191,730

 
(9.8
)%
Gross profit
14,027

 
22,125

 
(36.6
)%
(Loss) income from operations
(4,694
)
 
13,928

 
(133.7
)%
    
Net sales in the agricultural segment were $156.6$172.9 million for the quarterthree months ended September 30, 2019,March 31, 2020, as compared to $163.4$191.7 million for the comparable period in 2018,2019, a decrease of 4.1%9.8%. Lower sales volume in North America, Europe and Australia contributed 0.6%1.8% of this decrease while unfavorable currency translation, primarily in Latin America and Europe, decreased net sales by 1.1%3.4%. Unfavorable price/mix further decreased net sales by 2.4%, primarily reflecting price adjustments related to lower raw material costs.4.7%. Lower sales volumes were primarily caused by challenging market conditionscontinued weakness in the commodity markets and economic softness in most geographies as well as ongoing global trade issues,the effect of the COVID-19 pandemic which continuecontinues to cause significant uncertainty for customers in most geographies, most notably OEM customers.

Gross profit in the agricultural segment was $10.4$14.0 million for the quarterthree months ended September 30, 2019,March 31, 2020, as compared to $19.9$22.1 million in the comparable quarter of 2018.2019.  The Company continued to experience underperformancedecrease in its North American Wheel operations from reductions of steel inventory at higher than current prices, which compressed gross profit by approximately $6 million during the quarter. In addition, unfavorable foreign currency translation andis primarily attributable to the impact of lower sales volume especiallyand unfavorable foreign currency translation. Unfavorable North American gross profit was driven by lower OEM volume and mix, within our North American Wheel operations. Loss from operations in Russia and Europe, contributed to the decrease in gross profit.

Net sales in theTitan's agricultural segment were $512.6was $4.7 million for the nine monthsquarter ended September 30, 2019,March 31, 2020, as compared to $544.4income of $13.9 million for the comparable period in 2018, a decrease of 5.8%. Lower sales volumes contributed 3.3% of this decrease while unfavorable currency translation in all international locations further decreased net sales by 3.6%. Favorable price/mix partially offset these decreases with a 1.1% positive impact on net sales. Lower sales volumes were primarily a result of the difficult market conditions due to global trade issues, a volatile agriculture economy and adverse weather conditions in North America during the majority of the first nine months ofquarter ended March 31, 2019.

Gross profit in the agricultural segment was $46.8 million for the nine months ended September 30, 2019, as compared to $77.2 million in the comparable period of 2018. Lower sales volume, unfavorable foreign currency translation and production inefficiencies drove the overall decrease in gross profit. In addition, the Company experienced underperformance in its North American Wheel operations from reductions of steel inventory at higher than current prices, which compressed gross profit by approximately $12 million during the period. Income from operations in the agricultural segment was $17.1 million for the nine months ended September 30, 2019, as compared to $51.9 million for the comparable period in 2018.


Earthmoving/Construction Segment Results
Earthmoving/construction segment results for the periods presented below were as follows:
(Amounts in thousands)Three months ended Nine months ended
Three months ended
September 30, September 30,
March 31,
2019 2018 % Increase/(Decrease) 2019 2018 % Increase/(Decrease)
2020
 
2019
 
% Increase/(Decrease)
Net sales$155,659
 $180,362
 (13.7)% $517,186
 $568,057
 (9.0)%
$
136,922

 
$
176,745

 
(22.5
)%
Gross profit12,935
 17,819
 (27.4)%
50,806
 64,541
 (21.3)%
10,754

 
18,170

 
(40.8
)%
(Loss) income from operations(2,938) 6,056
 (148.5)%
8,293
 27,584
 (69.9)%
(6,994
)
 
5,528

 
(226.5
)%

31


TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations


The Company's earthmoving/construction segment net sales were $155.7$136.9 million for the quarterthree months ended September 30, 2019,March 31, 2020, as compared to $180.4$176.7 million in the comparable quarter of 2018,2019, a decrease of 13.7%22.5%. The decrease in earthmoving/construction sales was driven by decreased volume, which negatively impacted net sales by 9.3%22.9%. This decrease was primarily due to a tightening within the construction market in our undercarriage business in all geographies, withgeographies. The direct impact of COVID-19 accounted for $11.9 million of the exceptionsales decrease due to shutdowns of Latin America.our plants in China and Italy. Unfavorable currency translation across most non-US geographies and an unfavorable price mix decreased net sales by 2.1% and 2.3%, respectively. but was partially offset by favorable price mix, which increased net sales by 2.7%.
 
Gross profit in the earthmoving/construction segment was $12.9$10.8 million for the quarterthree months ended September 30, 2019,March 31, 2020, as compared to $17.8$18.2 million in the comparable quarter of 2018.2019. The decrease in gross profit was primarily driven by the lower sales volume, which created certain production inefficiencies, and from unfavorable foreign currency translation. In addition, the Company has shifted its focus in the market, and as a result, has been liquidating certain tire inventories, which have been sold at lower than traditional margins. The Company's earthmoving/construction segment loss from operations was $2.9 million for the quarter ended September 30, 2019, as compared to incomeimpact of $6.1 million for the comparable quarter of 2018.



TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations

The Company's earthmoving/construction segment net sales were $517.2 million for the nine months ended September 30, 2019, as compared to $568.1 million in the comparable period of 2018, a decrease of 9.0%. The decrease in earthmoving/construction sales was driven by decreased volume, which negatively impacted net sales by 5.4%. This decrease was primarily caused by a tightening within the construction market in our undercarriage business and the Company's shift in market focus in Australia, described earlier. Unfavorable currency translation across all non-US geographies decreased net sales by 3.9%, which was partially offset by a favorable price/mix of 0.3%.
Gross profit in the earthmoving/construction segment was $50.8 million for the nine months ended September 30, 2019, as compared to $64.5 million in the comparable period of 2018. The decrease in gross profit was primarily due to lower sales volumeCOVID-19 and unfavorable foreign currency translation. The Company's earthmoving/construction segment incomeloss from operations was $8.3$7.0 million for the nine monthsquarter ended September 30, 2019,March 31, 2020, as compared to $27.6income of $5.5 million for the comparable periodquarter of 2018.2019.


Consumer Segment Results
Consumer segment results for the periods presented below were as follows:
(Amounts in thousands)Three months ended Nine months ended
Three months ended
September 30, September 30,
March 31,
2019 2018 % Increase/(Decrease) 2019 2018 % Increase/(Decrease)
2020
 
2019
 
% Increase/(Decrease)
Net sales$33,621
 $40,990
 (18.0)% $117,051
 $126,544
 (7.5)%
$
31,640

 
$
41,899

 
(24.5
)%
Gross profit3,739
 5,964
 (37.3)%
13,068
 19,883
 (34.3)%
2,463

 
4,969

 
(50.4
)%
(Loss) income from operations(229) 3,225
 (107.1)%
3,120
 10,822
 (71.2)%
(295
)
 
2,121

 
(113.9
)%

Consumer segment net sales were $33.6$31.6 million for the quarterthree months ended September 30, 2019,March 31, 2020, as compared to $41.0$41.9 million in the comparable quarter of 2018,2019, a decrease of approximately 18.0%24.5%. This decrease was driven by lower sales volume, especially in North America, Latin America and Australia, which negatively impacted net sales by 21.3%18.2% and unfavorable currency translation, primarily in Latin America and unfavorable price mix, which decreased net sales by 5.3% and 1.0%. Favorable price/mix positively contributed 4.3%, respectively. The decline in Latin America continued to net sales, partially offsetting the aforementioned variables.be driven by lower demand for light utility truck tires, while declines in other geographies related to a shift in focus to agriculture and earthmoving/construction products.

Gross profit from the consumer segment was $3.7$2.5 million for the quarterthree months ended September 30, 2019,March 31, 2020, as compared to $6.0$5.0 million for the comparable quarter of 20182019 due primarily to lower sales volume, especially in Latin America and Russia, in the light and utility truck markets. Consumer segment loss from operations was $0.2$0.3 million for the quarterthree months ended September 30, 2019,March 31, 2020, as compared to income of $3.2$2.1 million for the comparable quarter of 2018.2019.

Consumer segment net sales were $117.1 million for the nine months ended September 30, 2019, as compared to $126.5 million in the comparable period of 2018, a decrease of approximately 7.5%. This decrease was primarily due to lower sales volume in Latin America and Russia and unfavorable currency translation in Latin America, Russia and Europe, which negatively impacted net sales by 8.9% and 4.5%, respectively. Favorable price/mix partially offset the aforementioned variables and contributed 5.9% to net sales.

Gross profit from the consumer segment was $13.1 million for the nine months ended September 30, 2019, as compared to $19.9 million for the comparable period of 2018. Consumer segment income from operations was $3.1 million for the quarter ended September 30, 2019, as compared to $10.8 million for the comparable period of 2018.

Corporate && Unallocated Expenses
Income from operations on a segment basis did not include corporate expenses totaling $8.2unallocated income of $2.4 million for the quarter ended September 30, 2019,March 31, 2020, and $39.4unallocated expenses of $17.4 million for the ninethree months ended September 30,March 31, 2019 as compared. The year over year difference is related to $16.0 million fora refinement of the comparable quarter of 2018 and $47.1 million forallocation process which enabled the nine months ended September 30, 2018, respectively.Company to identify previously unallocated expenses that belonged in the other segments.




32


TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows
As of September 30, 2019,March 31, 2020, the Company had $78.6$60.4 million of cash, a decrease of $3.1$6.4 million from December 31, 2018,2019, due to the following items:

Operating Cash Flows
Summary of cash flows from operating activities:
(Amounts in thousands)Nine months ended September 30,  
Three months ended March 31,
 
 
2019 2018 Change
2020
 
2019
 
Change
Net (loss) income$(25,714) $27,122
 $(52,836)
$
(27,499
)
 
$
1,007

 
$
(28,506
)
Depreciation and amortization41,347
 43,395
 (2,048)
13,785

 
14,673

 
(888
)
Deferred income tax provision(738) (863) 125
(1,426
)
 
(1,366
)
 
(60
)
Foreign currency translation (gain) loss(2,327) 3,667
 (5,994)
17,291

 
(6,695
)
 
23,986

Accounts receivable16,124
 (52,818) 68,942
(45,330
)
 
(53,083
)
 
7,753

Inventories36,920
 (62,560) 99,480
6,611

 
(17,557
)
 
24,168

Prepaid and other current assets(3,073) 2,299
 (5,372)
(6,404
)
 
(1,611
)
 
(4,793
)
Accounts payable(24,998) 25,213
 (50,211)
34,006

 
39,370

 
(5,364
)
Other current liabilities3,634
 (5,072) 8,706
15,012

 
4,538

 
10,474

Other liabilities(5,884) (8,336) 2,452
(342
)
 
1,543

 
(1,885
)
Other operating activities(4,079) (4,753) 674
(1,732
)
 
3,562

 
(5,294
)
Cash provided by (used for) operating activities$31,212
 $(32,706) $63,918
$
3,972

 
$
(15,619
)
 
$
19,591


In the first ninethree months of 2019,2020, operating activities provided $31.2$4.0 million of cash, including a positivenotwithstanding the negative impact from decreasesincreases in accounts receivable of $16.1$45.3 million and inventoryother current assets of $36.9$6.4 million, partially offset by a $25.0$34.0 million decreaseincrease in accounts payable. Inventories declined by $6.6 million during the first quarter of 2020, contributing to cash flow. Included in the net loss of $25.7$27.5 million were non-cash charges for depreciation and amortization of $41.3$13.8 million a, foreign currency translation gainloss of $2.3$17.3 million, $4.9 million property insurance settlement, $2.6 million asset impairment, and a $4.7$1.3 million gain on the sale of shares of Wheels India Limited.

Operating cash flows increased $63.9$19.6 million when comparing the first ninethree months of 20192020 to the comparable period in 2018.2019. Net income in the first ninethree months of 20192020 decreased $52.8$28.5 million from income in the first ninethree months of 2018.2019. When comparing the first ninethree months of 20192020 to the comparable period in 2018,2019, cash flows from operating activities increased indue to favorable comparability of inventories and accounts receivable by $99.5$24.2 million and $68.9$7.8 million, respectively.

Summary of the components of cash conversion cycle:
 September 30, December 31, September 30,
 2019 2018 2018
Days sales outstanding58
 61
 62
Days inventory outstanding108
 115
 106
Days payable outstanding(56) (62) (58)
Cash conversion cycle110
 114
 110

 
March 31,
 
December 31,
 
March 31,
 
2020
 
2019
 
2019
Days sales outstanding
57

 
56

 
66

Days inventory outstanding
93

 
111

 
107

Days payable outstanding
(55
)
 
(53
)
 
(65
)
Cash conversion cycle
95

 
114

 
108


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)Nine months ended September 30,  
Three months ended March 31,
 
 
2019 2018 Change
2020
 
2019
 
Change
Capital expenditures$(26,254) $(26,498) $244
$
(6,420
)
 
$
(9,453
)
 
$
3,033

Payments related to redeemable noncontrolling interest

(71,722) —
 (71,722)
—

 
(25,000
)
 
25,000

Sale of Wheels India Limited shares
6,917

 
—

 
6,917

Other investing activities1,354
 1,484
 (130)
4,570

 
194

 
4,376

Cash used for investing activities$(96,622) $(25,014) $(71,608)
Cash provided by (used for) investing activities
$
5,067

 
$
(34,259
)
 
$
39,326

 
Net cash used forprovided by investing activities was $96.6$5.1 million in the first ninethree months of 2019,2020, as compared to $25.0net cash used of$34.3 million in the first ninethree months of 2018.2019. Other investing activities for the quarter ended March 31, 2020 includes $4.9 million from the proceeds of a property insurance settlement. The Company made payments of $72$25 million related to satisfaction of obligations relating to the settlement put option under the Shareholders’Shareholders’ Agreement in the first ninethree months of 2019. The Company invested a total of $26.3$6.4 million in capital expenditures in the first ninethree months of 2019,2020, compared to $26.5$9.5 million in the comparable period of 2018.2019. The expenditures during the first ninethree months of 20192020 and 20182019 represent various critical equipment purchases and improvements to enhancemaintain production capabilities of Titan's existing business and to maintain existing equipment.equipment, while the amounts are lower in 2020, in direct response to cash preservation activities as a result of COVID-19 impacts on the business.
 
Financing Cash Flows
Summary of cash flows from financing activities:
(Amounts in thousands)Nine months ended September 30,  
Three months ended March 31,
 
 
2019 2018 Change
2020
 
2019
 
Change
Proceeds from borrowings$124,153
 $48,108
 $76,045
$
23,949

 
$
52,398

 
$
(28,449
)
Payment on debt(59,296) (30,139) (29,157)
(31,940
)
 
(15,357
)
 
(16,583
)
Dividends paid(901) (900) (1)
(302
)
 
(301
)
 
(1
)
Cash provided by financing activities$63,956
 $17,069
 $46,887
Cash (used for) provided by financing activities
$
(8,293
)
 
$
36,740

 
$
(45,033
)
 
In the first ninethree months of 2020, $8.3 million of cash was used for financing activities. Proceeds from borrowings provided $23.9 million, which was offset by payments on debt of $31.9 million. Repayments occurred in certain foreign markets during the early part of the first quarter of 2020 relating to opportunities to lower debt balances with cash flow. In the first quarter of 2019, $64.0$36.7 million of cash was provided by financing activities. This cash was primarily provided through debt financing, with proceeds from borrowingsborrowing providing $124.2$52.4 million, offset by payments on debt of $59.3$15.4 million.

Debt Restrictions
The Company’sCompany’s revolving credit facility (credit facility) and indenture relating to the 6.50% senior secured notes due 2023 contain various restrictions, including:
•
When remaining availability under the credit facility is less than 10% of the total commitment under the credit facility ($12.5 million as of March 31, 2020), the Company is required to maintain a minimum fixed charge coverage ratio of not less than 1.0 to 1.0 (calculated quarterly on a trailing four quarter basis);
•
Limits on dividends and repurchases of the Company’s stock;
•
Restrictions on the ability of the Company to make additional borrowings, or to consolidate, merge, or otherwise fundamentally change the ownership of the Company;
•
Limitations on investments, dispositions of assets, and guarantees of indebtedness; and
•
Other customary affirmative and negative covenants.
  
When remaining availability under the credit facility is less than 10% of the total commitment under the credit facility ($12.5 million as of September 30, 2019), the Company is required to maintain a minimum fixed charge coverage ratio of not less than 1.0 to 1.0 (calculated quarterly on a trailing four quarter basis);
Limits on dividends and repurchases of the Company’s stock;
Restrictions on the ability of the Company to make additional borrowings, or to consolidate, merge, or otherwise fundamentally change the ownership of the Company;
Limitations on investments, dispositions of assets, and guarantees of indebtedness; and
Other customary affirmative and negative covenants.
These restrictions could limit the Company’sCompany’s ability to respond to market conditions, provide for unanticipated capital investments, raise additional debt or equity capital, pay dividends, or take advantage of business opportunities, including future acquisitions.


34


TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations


Liquidity Outlook
At September 30, 2019,March 31, 2020, the Company had $78.6$60.4 million of cash and cash equivalents. At September 30, 2019,March 31, 2020, under the Company's $125$125 million credit facility, there were $59$30 million in borrowings, a $10.3an $11.5 million letter of credit, and the amount available totaled $37.3 million.$62.3 million. Titan's availability under this credit facility may be less than $125$125 million as a result of outstanding letters of credit and eligible accounts receivable and inventory balances at certain domestic subsidiaries. The cash and cash equivalents balance of $78.6$60.4 million included $61.3$55.4 million held in foreign countries. The Company's current plans do not demonstrate a need to repatriate the foreign amounts to fund U.S. operations. As a result of the 2017 Tax Cuts and Jobs Act, the Company can repatriate the cumulative undistributed foreign earnings back to the U.S. when needed with minimal additional taxes other than state income and foreign withholding tax. Titan expects to contribute approximately $1.0 million to its defined benefit pension plans during the remainder of 2019.

On October 3, 2019, through one of its wholly-owned subsidiaries, the Company completed the sale of shares of Wheels India
Limited (“Wheels India”) in on-market trades on the National Stock Exchange of India Ltd. On October 3, 2019, the Company received net proceeds from the on-market trades of approximately $19 million, net of charges, discounts and commissions, which Titan used to pay down outstanding indebtedness. The Company plans to make additional payments on its U.S. credit facility with reductions in working capital and additional non-core asset sales.

Total capital expenditures for 20192020 are not forecasted at this point as we have taken measures to limit our capital spending for the remainder of this year, while they are expected to be approximately $40significantly lower than originally forecasted at $35 million. Cash payments for interest are currently forecasted to be approximately $15 million for the last three monthssecond quarter of 20192020 based on September 30, 2019,March 31, 2020, debt balances. The forecasted interest payments are comprised primarily of the semi-annual payment of approximately $13 million (paid in May and November) for the 6.50% senior secured notes.

In the future, Titan may seek to grow by making acquisitions, which will depend in large part on its ability to identify suitable acquisition candidates, negotiate acceptable terms for their acquisition, finance those acquisitions, and successfully integrate the acquired assets or business.

Subject to the terms of the agreements governing Titan's outstanding indebtedness, the Company may finance future acquisitions with cash on hand, cash from operations, additional indebtedness, issuing additional equity securities, divestitures, and alternative financing options.

Cash and cash equivalents, totaling $78.6$60.4 million at September 30, 2019,March 31, 2020, along with anticipated internal cash flows from operations and utilization of remaining available borrowings, are expected to provide sufficient liquidity for working capital needs, debt maturities, and capital expenditures. Potential divestitures and unencumbered assets are also a means to provide for future liquidity needs.

Titan is currently taking actions to obtain additional financial flexibility and credit capabilities from our banking partners and other sources throughout our global operations. Additionally, we are focused on reducing discretionary spending and improving profitability through various measures, which include working capital improvements and monetization of non-core assets. During the quarter ended March 31, 2020 and continuing into the second quarter of 2020, we are experiencing business disruption due to the impact of COVID-19; however, we do not anticipate that this impact will cause the Company to violate any financial covenants with respect to its debt agreements. In addition, as a result of the measures that are currently being undertaken by management, the Company does not expect liquidity constraints during the foreseeable future.

CRITICAL ACCOUNTING ESTIMATES
There were no material changes in the Company’sCompany’s Critical Accounting Estimates since the filing of the 20182019 Form 10-K. As discussed in the 20182019 Form 10-K, the preparation of the 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. Also see 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’sCompany’s updated accounting policies, including with respect to revenue recognition and leases.policies.




35


TITAN INTERNATIONAL, INC.



Item 3. Quantitative and Qualitative Disclosures About Market Risk

See Item 7A - Quantitative and Qualitative Disclosures About Market Risk included in the 20182019 Form 10-K. There have been no material changes in this information.

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 Exchange Act) as of September 30, 2019.March 31, 2020. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2019,March 31, 2020, Titan's disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by Titan in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported accurately and within the time frames specified in the SEC's rules and forms and accumulated and communicated to Titan management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls
There were no changes in internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the thirdfirst quarter of fiscal 20192020 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, the Company's disclosure controls and procedures or internal control over financial reporting may not prevent or detect all misstatements or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in a cost-effective control system, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur due to simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. 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.


36


TITAN INTERNATIONAL, INC.



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 17.16. Litigation in Part I, Item 1, Notes to Condensed Consolidated Financial Statements of this Form 10-Q for further discussion.


Item 1A. Risk Factors

ThereExcept for the additional risk factor set forth below, there have been no material changes from the risk factors disclosed in Item 1A. Risk Factors to the 20182019 Form 10-K.

The COVID-19 pandemic has adversely impacted, and will likely continue to adversely affect, the Company's business, operating results and financial condition.

COVID-19 has spread to the majority of the countries in which we operate. This has significantly impacted our workforce and our operations, including as a result of government mandates in certain countries to work from home to minimize the spread of the virus. In some of the countries where we have operations and where COVID-19 has been widespread (such as our European and Latin America locations), our operations were significantly curtailed during March 2020 and may continue to be curtailed until the widespread outbreak is contained. COVID-19 has had a significant impact on our ability to conduct business in those geographies and has affected the Company's operational and financial performance. We have experienced and expect to continue to experience unpredictable disruption in the demand for our products in our end-markets.

If the pandemic continues and conditions worsen, we may experience additional adverse impacts on our operational and commercial activities, costs, customer orders, and collections of accounts receivable, which may be material, and the extent and nature of these adverse impacts on our future operational and commercial activities, costs, customer orders and our collections remains uncertain even if conditions begin to improve. Furthermore, the pandemic has impacted and may further impact the broader economies of affected countries, including negatively impacting economic growth, foreign currency exchange rates and interest rates. Due to the speed with which the situation is developing, the global breadth of its spread and the range of governmental and community reactions thereto, there is uncertainty around its duration, ultimate impact and the timing of recovery. Therefore, the pandemic could lead to an extended disruption of economic activity and could materially impact our business, our consolidated results of operations, financial position, cash flows and/or market capitalization, and result in asset impairment charges, including long-lived assets.

To the extent COVID-19 or any worsening of the global business and economic environment as a result thereof adversely affects our business, operating results and financial condition, it may also have the effect of heightening many of the other risks described in Item 1A. Risk Factors in the 2019 Form 10-K.

Item 6. Exhibits


37


TITAN INTERNATIONAL, INC.



10
31.1
 
 
31.2
 
 
32
 
 
101.SCH
Inline XBRL Taxonomy Extension Schema Document
 
 
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
 
 
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
 
 
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
 
 
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
 
 
104
The cover page from this Current Report on Form 10-Q formatted as inline XBRL





38


TITAN INTERNATIONAL, INC.



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:
November
May 6, 20192020
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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